06 March 2006

China + Macau - the end of gambling?

Most companies in the internet gambling industry, at least those who don't have a business monopoly and/or aren’t willing to operate highly illegally, hope for liberalization of government policies. In some ways, China and the Asia Pacific gambling market is similar to what was happening in the USA and offshore Caribbean operators, with China where the USA was at in the mid-late 90s. By highlighting some of the similarities between markets, bringing in market trends and by quoting an interesting recent comment by a PRC official, I'm going to hypothesize that there might be a PRC strategy to phase out gambling in Macau.
In both China and the USA, the frequent arguments for government acceptance of gambling are "gambling over the internet can't be stopped" and "people should have the right to spend their money as they choose". The touted benefits are often "more tax revenue for the government" and "government regulation pushes organized crime out of the industry". These are all reasonable statements.
The arguments against gambling vary a little on the surface between these two countries. The US tends to take the moralistic argument, and various conservative religious and so-called "family values" political groups get behind anti-gambling regulation. In China, a centralized control and seemingly practical (although certainly no more or less contrived) approach is taken with the state dictating what is and isn't good for its people.
Excluding lotteries, both China and the USA have their contained land-based gambling "zones" (Macau in China; Nevada, New Jersey, and Indian reservations in the USA). Note the contrast of this approach versus proliferate "gambling on every high street" approach taken in the UK with its neighborhood bookies (almost like mini-casinos if you consider FOBTs like slot machines).
As land-based gambling waned in the late 70s in the USA, Las Vegas (and Reno and Atlantic City to a lesser extent) moved into hosting conferences and conventions. Throughout the 80s and 90s, Vegas continued to rebrand itself as "family friendly" and an "entertainment destination" and decreased its association with gambling. The new approach was innovative, enabled the influx of new capital and propped up dropping gambling revenues for the region. Keep in mind that Adelson of the Venetian/Sands was a key player in the rebranding and conventions.
Macau is now positioned as Las Vegas was, early in Las Vegas' lifecycle. Casino construction is booming. There is certainly a lot of talk about how Macau, with the build-out of the Cotai strip, will be the "Las Vegas of the East", and MICE revenue will be a growing part of every casino's balance sheet. Like the USA, China has been consistent in keeping gambling corralled to Macau, at least on the surface (yes, there is lots of underground physical presence and igaming activity in China, but set that aside for now).
On the internet gambling side, both China and the USA have attempted to suppress online gambling. China has used the Great Firewall to block access by its citizen to some gambling sites. The US government has coerced payment processors to decline gambling transactions, cleverly disabling online gambling while allowing its citizens to maintain "personal freedom" (you can surf to whatever gambling site you want, but you can't send/receive funds with them). Both countries prosecute online gambling related crime (although if you believe Xinhua News, China pursues gambling related criminal cases at about a bazillion time more than the USA).
The parallels between the USA and China break down somewhat with respect to the USA's Indian gambling trend. The only similarity is the proliferate underground gambling activities in China. Clearly a sharp difference between the markets is that Indian gaming is legal and the underground activities are not. Both allow for cheaper, quicker, and closer access to gambling for the average citizen. One might argue that both are periodically suppressed, and both are grudgingly (of course not officially) accepted.
Enough background, now to the interesting part!
"Bai Zhijian, Director of the Central Government Liaison Office in Macau, who is also a member of the National People's Congress (NPC)", when discussing Macau and PRC financial planning, "hinted that Macau should 'think more about' deeper problems concerning the development of the economy, saying that one 'should not put all eggs in the same basket'" (quoted from blogmacau.info).
Now add to this Adelson's convention experience in Las Vegas, and add to it the Zhu Hai development of Hengqin Island by the Sands. Connected any dots?
Let’s say the PRC wanted to abolish gambling, but they are also sensitive to important party/family relationships, fortunes, and businesses. The PRC is like that, and they can take a long view of things. Could they take a long view that says "Let gambling be the lifeblood of Macau for now, but in the future it will need to be something else because we're going to abolish gambling someday. It may be when Macau fully becomes part of the PRC, or it may be sooner, we've not decided yet".
What does all this mean? For one, any major changes are a long way off, so you don't want to go selling your Venetian stock just yet. In fact, you may want to buy it, because they seem to be collaboratively leading this strategy with some PRC government affiliates, perhaps doing an end-run on SJM and its government supporters. Also, Macau and casinos are one and the same for at least the next 10 years, and they'll make plenty of money during this time as the PRC relaxes travel restrictions and its economy booms. Clearly Adelson is moving Macau to be something more than just a gambling destination, and if the PRC really doesn't like gambling, that would be a good message to sell to them.

1 comment:

  1. Since I first posted this, I've seen a number of comments through from PRC officials about the importance of diversification of Macau's economy. Most recently, blogmacau.info had a posting on 24 Mar 2006 that states:
    - "The Chief Executive Ho Hau Wah (何厚鏵) has disclosed that the Government had initiated studies on the future diversification of Macau's overall economic structure."
    - "The move came after repeated reminders of Chinese state leaders and officials of the Central Government's Liaison Office in Macau to diversify Macau's economy, which is currently relying too much on gambling and tourism."
    - "In contrast to his intention to establish the gaming and tourism sector as Macau's leading sector in his first term in office, Ho now said that diversification is "a long-term goal and the necessary route for Macau's sustainable development"".
    These comments are further indication that the PRC wants to pull back some of the liberal policies it put in place during the Asian economic crisis to prop up the sagging (at the time) economies of Hong Kong and Macau. Specific to Macau, these include relaxation of travel restrictions from the PRC and support of Macau casinos.


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