In that vein, do you think it’s useful for China to maintain Macau as an enclave where gambling is legal and the issues surrounding gaming can be externally managed?
Rui Pinto Proença: In regards the extent of the role Macau plays, the enclave is defined by both its physical borders and Chinese currency controls, which create robust barriers to entry. I think without these barriers Macau would enjoy even higher revenues. However, I believe the measures Chinese authorities have imposed restrict the growth of gambling to promote policy decisions that would diversify the economy away from gaming. Te problem is that in reality, this is simply not possible.
Do you believe a deep, successful diversification is possible in Macau?
Rui Pinto Proença: I think to expect industries outside of gaming to match tax revenues generated by today’s casino operators would be extremely difficult in the foreseeable future. I wouldn't say it's impossible, because China has disproved things that were considered impossible many times over. However, I think what’s more feasible is a diversification model that would work with the existing gaming industry. Tis type of diversification has been government policy in Macau for some time, as the government seeks to reposition gaming as an entertainment focused business, a component of the tourism industry, rather than for its own sake.
What changes are coming for the concessionaires and foreign operators?
Ben Lee: Tat's the billion-dollar question. Nobody knows, we're all hearing the same narrative. As aforementioned, we also haven't seen any positive approaches to stabilise and help in the diversification of Macau’s economy. One significant boost to Macau would be the introduction of the digital Renminbi.
Essentially, our default casino currency and the default major currency in Macau is not the MoP, it’s the Hong Kong dollar. Cars, real estate, casinos - these three major activities are all conducted in Hong Kong dollars.
When the Chinese visit Macau they convert Renminbi into Hong Kong dollars, but they face all sorts of restrictions, capital control, currency control caps and so forth. However, if China were to introduce digital Renminbi in Macau, which has already been trialed in five cities in China, it could replace the Hong Kong dollar as the default currency in Macau.
Such a change would then help the new-found narrative of becoming an international clearing centre for Chinese Yuan. Tis makes a lot of sense, as the casino industry is by far and large the single biggest potential contributor to an international clearing platform. Such a system would remove the controls and constraints on mainland Chinese citizens gaming in Macau, because China wouldn't have any problem with mainland Chinese visitors coming to Macau, because China could keep track and control all digital money transfers across the border.
Andrew Klebanow: I believe the retender process centres around a single question: what
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are you going to do for us? What are you going to build that will further the goal of diversification, and how much money are you willing to invest into properties to further diversify them? What I'm sure about is that there will be phenomenal commitments to non-gaming components.
Rui Pinto Proença: It’s clear now that the junket system is an undesirable hangover from Macau’s past and that moving forward means the acceleration of the mass market. I think the challenge is, can the enclave capture a different type of mass, the so-called premium mass? A mass market willing to spend more money in non-gaming segments, restaurants, entertainment and hospitality. I think this is the next stage in development of the gaming industry in Macau – and it’s a positive step.
Perhaps we won’t see the crazy numbers we've seen in the past, but it will be more sustainable. To achieve this, Macau needs to answer one big question - how do we keep visitors here for more of the time? Te current average stay is very low, around 1.2 days, which means that the allocated time for people to spend their money in non-gaming segments is very low. But it's a cycle we need to break, because if you don't have a sufficient entertainment offer, if you don't deliver sufficient quality, then it’s hard to attract those kinds of people.
Regulators need to move past the point of distrust and suspicion of technology and embrace it because it brings benefits to all parties. So, I think we're in that intersection where it’s possible for technology to be adopted and to benefit both the business and public policy. We just need to move forward with it.
Would a development like the digital Renminbi alter the rhetoric of diversification if they're less worried about currency leakage?
Ben Lee: Yes, it would. It would help diversification, but I believe that diversification is the old narrative. Te new narrative right now is for Macau to become an international Renminbi clearing centre. We've seen a slew of small banks setting up in Macau, so conceivably what would happen is that the Hong Kong dollar is replaced by Renminbi and China relaxes control on the transfer of digital Renminbi from the mainland. It’s a better system because at present, the operator generates revenue in Hong Kong dollars and pays out to their players in Hong Kong dollars, which is freely tradable and means that players and the casinos can repatriate this money oversea.
If gaming in Macau is conducted in digital Renminbi, this huge capital outflow from the Chinese economy is no longer an issue because; firstly, China can track every single Renminbi
“It’s clear now that the junket system is an undesirable hangover from Macau’s past and that moving forward means the
acceleration of the mass market. I think the challenge is, can the enclave capture a different type of mass, the so-called premium mass? A mass market willing to spend more money in non- gaming segments, restaurants, entertainment and hospitality. I think this is the next stage in development of the gaming industry in Macau – and it’s a positive step.” Rui Pinto Proenca
And finally, one of the changes that I think needs to happen, is the digital transformation of an entrenched analogue industry.
Te sector is still catering to a clientele that enjoys the environment of a crowded baccarat table. However, this holds little appeal to a young, affluent more travelled Chinese consumer. And I think the digital transformation of the industry is overdue. Some of the operators are more advanced than others, and I think the ones that grasp this concept, will take the lead.
Is first mover advantage significant?
Rui Pinto Proença: Yes, definitely - that goes for everything. From cashless to different types of games and different ways of playing those game. Te new consumer doesn't necessarily want to be sitting at the table next to a lot of people. If they want to take their game via an iPad to their room, they should be enabled to do that. Obviously, these changes require regulatory approval, but I think we're at a very interesting intersection where technology will benefit not only the gaming business, but will also benefit the regulator.
that crosses the border and, secondly, the casinos will be generating their revenue and profit in Renminbi. So in order to repatriate their profit, they would have to seek central government approval to convert Renminbi into a foreign currency. Capital controls would, therefore, devolve from having to monitor these millions of smaller transactions to simply monitoring the big players, i.e. the casinos.
So hypothetically, if this leakage is plugged via the adoption of digital Renminbi, would local governance be incentivised to ‘open the taps’ as it were?
Ben Lee: Yes. Right now, mainland Chinese coming to Macau face constraints upon the amount of money they can withdraw, since this is subject to central government approval. Each time they hit the ATM, it’s a 3,000 Hong Kong dollar per day limit, while there’s also a limit on the amount of money they can bring across the border, which is why a lot of the current outflow is through underground channels.
If players are instead permitted to withdraw Renminbi in Macau, without limits, then we
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