Beijing growing impatient with Macau economic diversification efforts?

TAGs: China, Hainan, Macau

beijing-macau-diversificationLast week, as Galaxy Entertainment Group (GEG) reported the doubling of its annual profit in 2012, GEG vice chairman Francis Lui remarked on the increasing importance of the rapidly expanding Chinese middle class to Macau casinos’ bottom line. “In 2010, there were 50m in the middle class. In 10 years there will be 400m.” Small wonder than, that GEG feels confident about spending $6.5b to construct Phase 3 of its casino on Macau’s Cotai Strip.

But in 10 years time, Macau’s casinos will face increased regional competition from jurisdictions like Taiwan, which is within spitting distance of the Chinese mainland and is currently putting the final legislative pieces in place to permit resort casino construction in its outlying Matsu Islands. Now the mayor of the coastal city of Keelung (20km east of Taipei), Chang Tong Rong, says he’d like to turn a decommissioned 100k-ton ship into a floating casino cruise liner. Casino boats operated by Genting Hong Kong subsidiary Star Cruises already make Keelung a port of call, but Chang wants a cruise Keelung can call its own. Chang’s seafaring desires notwithstanding, Union Gaming Research Macau analyst Grant Govertsen notes that the country’s already overdue casino legislation would probably need to be rewritten to permit floating casinos.

But the most significant threat to Macau may come from Beijing. IGamiX Management & Consulting Ltd. managing partner Ben Lee told Macau Business Daily that Chinese authorities are becoming frustrated with Macau’s foot-dragging on diversifying its economy beyond gaming. Lee emphasizes that Beijing isn’t likely to withdraw its support for Macau, but it could reduce its support by allowing casinos to open in other provinces.

Lee suggested that the island province of Hainan, which already contains a number of non-gaming resorts and briefly hosted a ‘cashless casino’ until the media glare became too bright, might be more in tune with Beijing’s idea of an economy that offers, but doesn’t rely on, casino gambling. Lee suggested a locale like Hainan has all the amenities a mass market gambler might seek, but unlike Macau, has no established junket connections or procedural methods in place to move VIP-sized betting rolls off the mainland. So Hainan could serve as a safety valve to accommodate China’s burgeoning middle class, leaving Macau to the junket-dependent VIPs.

Ironically, Lee believes the above scenario could actually hinder Macau’s attempts at diversifying its economy. Unless, of course, Beijing’s new plan is to forcibly diversify the casino business by dividing the spoils between provinces, leaving Macau a VIP playground while restricting Hainan to domestic operators whose business dealings will be off-limits to the prying eyes of the US State Department.


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