Special Report: “Big Macau, Hold the Cheese” – Crackdown in China’s Gambling Entrepôt
In recent days—amid already rocky US-China relations—casino stocks have fallen by some US$20 billion (CNY129.3bn/£14.63bn/€17.07bn) in Macau, the world’s largest gambling hub.
US casino operators have lost as much as US$4 billion (CNY25.86bn/£2.93bn/€3.41bn), it has been reported. The value of Wynn Macau stock, for example, has dropped by one-third; while Sands China has skidded 28 per cent.
Lei Wai Nong, Secretary for the Economy and Finance in Macau, a Portuguese colony until 1999 and now a Special Administrative Region (SAR) of China, gave notice of the 45-day “consultation” period last week.
Authorities have signalled upcoming major changes in rules, regulations and licences governing the 41 casinos in the entrepôt’s gambling sector, which is five times as big as Las Vegas and features three of the world’s five largest casinos.
Crushed Margins
China watchers concur that the “consultation” undoubtedly heralds changes to Law No.16/2001, “The Legal System for Casino Gaming Operations”, which liberalised Macau’s casino market and opened it up to foreign-based operators two decades ago.
“Margins will be crushed at the gambling capital of the world and that will drag down all the big casinos,” predicted Edward Moya, a top market analyst in New York.
And George Choi, an analyst with Citigroup in Hong Kong, added: “Given the weak investor sentiment, we will not be surprised if the market focuses only on the potentially negative implications [of the consultation].”
With all licences set to expire in June next year, current operators–among them SJM Holdings, Galaxy Entertainment and Las Vegas Sands, in their joint-venture iterations—must now rebid for their operating permits.
The “consultation” will cover nine principal topics:
- The number of casino-operating concessions.
- Possible prohibition of sub-concessions.
- Tighter government oversight of licensees.
- Possible shortening of licence period.
- Increasing the minimum direct foreign investment requirement.
- Increasing the share capital that must be held by a mandatory Macau co-investor from the current 10 per cent.
- Greater “guarantees”, as yet unspecified, for local workers.
- Tougher controls on gambling junket operators and their VIP schemes.
- Promotion of non-gaming projects to diversify local economy.
Cutting Down the Tall Poppies
The looming squeeze on Macau could be likened to the “cutting down the tall poppy” syndrome that has become increasingly common in China, as President Xi Jinping has tightened his grip on power.
In recent months, for instance, we’ve seen an across-the-board crackdown against fame and fan culture, the entertainment sector, hitherto independent businessmen and online video gaming.
Chinese superstar actress Zheng Shuang has been fined CNY300 million (£33.9m/US$46.4m/€39.6m) for alleged tax evasion, another actress Zhao Wei has been de-platformed, draconian controls have been placed on online video gaming for under 18-year-olds and Jack Ma, the billionaire founder of the Alibaba Group has been effectively erased from public view.
It would seem that technological disruption, once perceived as a brilliant catch-up by China’s rulers, is now viewed as a threat to communist PRC omnipotence.
“The game concessionaires’ main objective is the maximisation of their own profits,” Macau’s SAR said in a statement.
“[But] as a representative of the public interest of society, the government has a responsibility to protect the interests and well-being of the entire local population.”
Bet Long or Sell Short
The original 2001 Macau casino law was drafted at a time of “great economic uncertainty”, argued the SAR, when a long concession was needed to ensure strong investment.
But today, the government said: “An excessively long, or inflexible, concession period may cause a certain level of obstacle. It is necessary to tighten regulation of activities carried out by game promoters, such as increasing the criteria for access to this profession.”
However, two factors under “consultation” should meet with little objection from the international gambling industry — even greater oversight and control of junkets, which, notoriously, have become near synonymous with elaborate money-laundering schemes and ramped-up safer gaming controls and protocols.
The Macau government wants to strengthen the law regarding the criminal liability of operators for money-laundering failings.
China says its proposed gambling reforms are part of its levelling-up “Common Prosperity Plan” to reduce wealth inequality in the nation of 1.4 billion people.
Macau is gambling’s biggest bricks-and-mortar marketplace.
But with the “consultation” period, featuring five public sessions, set to last until 29 October, the only certainty in the legendary gaming entrepôt is stricter control and supervision.
And a clear reminder that in China only one man, maximum leader Xi Jinping, deals the cards and rolls the dice.
