Opinion
MACAU Licences
will look like, but neither me nor, as far as I am aware, any of the other concession holders, are in a position to answer you, because we don’t know.”
When the licences begin to expire it is possible that the Chinese government will no longer allow these companies to operate in the region. China could gain complete control of casino gaming in Macau, having already acquired all the necessary skills and infrastructure to operate a successful gaming hub. Not only would China have obtained the vast infrastructure without cost, but it could unlock untold riches by removing its restrictions on table numbers and allow tourists to travel freely to the destination, massively boosting the potential of the industry. Macau has a policy of limiting expansion of new table numbers to three per cent annual compound growth for a period of 10 years ending in 2022.
Such a doomsday scenario would inevitably lead to legal uproar, though just the threat might be all the Chinese government needs to further tighten its grip on the industry, potentially by introducing even more restrictions on the firms operating in Macau.
WHAT ARE CHINA’S INTENTIONS? Te Chinese government has taken a long-term
of its casinos, not only lighting the touch paper on an explosion of Macau’s gaming revenues in the years to come, it also allowed China to obtain the skills, investment and vast infrastructure required to create an internationally recognised gaming hub - crucially without any permanent long-term investment/losses - a point worth considering as regards the licences owned by those foreign investors.
China couldn’t have a tighter, more vice-like grip on the gaming industry, despite the fact that the majority of the operators in Macau are foreign businesses. When the licences in Macau begin to expire between 2020-2022, there’s the potential that they’ll be unable to continue to operate in Macau despite the vast investments made by the companies. Teir licences stipulate that they don’t own a square inch of the land the casinos are located upon, nor the materials held within, therefore the likes of the America’s Las Vegas Sands Group, who own the largest casino in Macau, the Venetian, are facing a period of great uncertainty. It was telling that ahead of the opening of Wynn Macau’s Cotai Strip location, Wynn Palace, a luxury US$4.2bn hotel and casino resort, Steve Wynn stated: “You can ask me what the process of concession renewal
view of the market, one could argue that this frame of mind is so long-term that it is in fact comparable to decision-making over decades. Has the birth of the gaming industry in Macau been a part of a long term plan ending with China in complete control of a fully fledged industry, enjoying all the profits with minimal input? It’s a theory that certainly has weight depending on how harshly the government treats its foreign operators when their concessions come to an end in the next couple of years.
But why would China wish to be free from foreign operators in its market? An obvious answer would to be to plug the tremendous leakage of currency that Macau has become, despite the huge revenues the government earns through taxation.
Leak plugging in China is not only present in the gaming sector of Macau. Tere is new legislation and rules preventing Chinese citizens from transferring money abroad, in fact limiting the amount of money that can be spent on foreign assets to US$50,000 a year. Tere are, of course, ways around this as Chinese investors are propping up housing markets all around the world in major cities such as London, Auckland and Vancouver, but it shows the level of control the state wants to exert over its citizens.
Interestingly, as well as real estate, foreign stocks are also subject to this limit, another example of how China wishes to internalise growth, so foreign states can’t benefit from Chinese investment as the state furthers its progress towards hegemony.
While the industry in Macau saw
gaming revenues fall by 3.3 per cent from 2015-16, there is a massive gulf between the figures generated today (US$28bn) and those
generated back in 2013, when the market in Macau peaked at $45bn (Macau’s 34.3 per cent decline in
2015 was just the beginning). Even though the revenues remain high, the fall is significant at over 30 per cent, so what is the cause of this
uncertainty and how big a role has the government played in controlling the expansion of Macau?
Over the past few decades, China has depended on its rampant export led growth, which has been driven by its depth of natural resources and its enormous, industrious and perpetuous cheap labour force supplying the world’s manufacturing needs and in turn having vast sums of foreign currency flooding into China. It is not a surprise that when this flow is reversed, as is now the case in Macau, wherein China is keen to stench the flow of revenue overseas.
NOT JUST A WAR OF WORDS Macau casinos are highly exposed to any
possible fallout from the spiralling US-China trade war, with any significant slowdown or fall in the yuan’s value potentially leading to Beijing further curbing capital outflows and dampening casino revenues.
Assessments are being made as to the potential threat facing Sands China, Wynn Macau and MGM China Holdings if they were to be held hostage to geopolitics when the current six Macau concessions expire. Te companies sit on a geopolitical fault line with investors worried that these Macau concessions could be held to ransom - especially Sands China as Sheldon Adelson, CEO of Las Vegas Sands, is seen as a close ally of US President Donald Trump.
Te most brutal outcome would be to refuse outright to renew existing US controlled concessions or to force shareholding changes. Tough such a scenario is thought unlikely, some investors are advising that businesses should assess the political risks posed by nationalist measures, such as boycotts. Companies are also being advised to consider restructuring joint ventures, so as to invest alongside partners deemed ‘neutral.’
Tere’s also been speculation that the acquisition in March of a five per cent stake in Wynn Resorts, the parent of Wynn Macau, by Chinese-owned Macau operator Galaxy Entertainment Group, might have been the first phase of a more general realignment of the
NEWSWIRE / INTERACTIVE / MARKET DATA P87
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