Crackdown on Chinese casinos part of quest to transform Macau
For many investors, pressure from Macau to expand oversight of the world’s largest gambling hub has come as a shock, sparking a record sell-off in casino shares. For long-term observers, however, this was just the latest step in China’s grand plan to transform the $ 24 billion economy.
For years, Beijing has focused on trying to control an industry that has enriched the only Chinese territory where casinos are legal, but also provided a route for capital outflows for the country’s rising elite. Authorities have gradually tightened their grip, with facial recognition software installed in Macau ATMs, limited cash withdrawals and a digital currency under review to better track transactions.
At the same time, the government has paved the way for the dilution of Macau’s gambling addiction. Unveiled in 2019, China’s plan for the Greater Bay Area – an area that includes Hong Kong and parts of southern China – has seen the former Portuguese colony drift away from its identity as a casino mecca since decades to become a global center of leisure and tourism. Think of sports stadiums, convention centers and traditional Chinese medicine parks instead of more baccarat tables.
“What the government wants, and what Beijing wants, is to have a lot more non-gaming facilities,” said Allan Zeman, chairman and independent director of Wynn Macau Ltd., one of the six. casino operators with licenses to operate in the enclave. “The border will sort of disappear. Macau will become a much bigger place, so the game is just one part of a city that will have a lot more. “
The announcement last week of revisions to the law governing casinos was one of the most definitive signs yet that there is no turning back for Beijing.
The proposed changes, which are now subject to public and industry consultation, came just a week after the Chinese government released a plan to further integrate Macau into the Chinese mainland. The city is encouraged to develop non-gaming industries in a special area on neighboring Hengqin Island, currently divided between Guangdong Province and Macao, with an emphasis on high-tech manufacturing, cultural tourism, Chinese medicine, congresses and sports, according to a master plan released by Beijing earlier this month. The game will not be allowed.
The Bloomberg Intelligence Index of Macau’s six casino operators has fallen 23% since last Tuesday’s proposal. The market rallied slightly this week, with the index gaining around 6%.
Gambling in Macau dates back over three centuries, with the practice legalized there in 1847 as a way to fill the coffers of colonial rule. By the end of the 19th century, gambling taxes had become the main revenue of the government. For decades, the industry was monopolized by a company co-founded by the late billionaire Stanley Ho before opening up in 2002 to current players. Macau has finally overtaken Las Vegas, and today punters can pose in front of a fake Eiffel Tower or stroll along replica Venetian canals on its main street.
But a change is firmly underway. While still employing a fifth of the city’s workforce, the gaming industry’s contribution to Macau’s gross domestic product had fallen to 51% before the pandemic, from 63% in 2013, according to the latest data. of the government.
The license renewal process for the city’s six casino operators is shaping up to be a key test of the Beijing hub. With licenses set to expire in less than 10 months, the government is expected to put pressure on companies, which have seen gaming revenues contribute an average of 85% of overall revenues over the past three years, according to Bloomberg calculations from the reports. companies, to stimulate investment. in sectors other than games.
The Macau government will likely push casino operators to invest in projects in Hengqin, even if their earnings outlook is questionable given the limits of their expansion in Macau, said Ben Lee, managing partner of the gaming consultancy. IGamiX.
While casinos have recently doubled down on their efforts to attract more so-called mass market gamblers, who may spend more time dining and shopping than at the tables, whole plans separate from casino activity could be more difficult. Convention activities, ferry service and retail revenue accounted for less than 3% of net revenue in 2019 for Sands China Ltd., Macau’s largest operator in terms of gaming revenue.
And they face stiff competition for non-gaming companies from elsewhere in the region. Hong Kong, just a short ferry ride away, has an established convention and exhibition industry and hosts major international events, from art festivals to rugby tournaments. The island province of Hainan has also experienced a boom in domestic tourism due to its tax-exempt status and is keen to develop similar industries.
The revisions to the casino law follow a decade-long crackdown on VIP gamblers, said Jennifer Song, analyst at Morningstar Inc. The players have drawn Beijing’s ire because they are facilitated by junkets who sometimes violate Chinese law by promoting gambling on the mainland, arranging gambling trips overseas, and providing parallel banking services to big players.
These measures have significantly slowed down what was once Macau’s lifeblood, Song said. Now, Beijing’s larger plan could have a similar effect on the entire casino industry. Bloomberg News