Dicey times ahead?

Macau’s casinos face new competitive threats

Dicey times ahead?

Should it worry about Matsu?

The islands of Quemoy and Matsu first garnered international attention in the 1950s. Only a few miles away from the coast of mainland China, these small outposts of Taiwan were at the centre of two diplomatic crises which saw the People’s Republic heavily shell them in an attempt to reclaim the islands from Chiang Kai-shek.

The attempt failed, and the two islands remain part of Taiwan. But half a century later, the islanders on Matsu are ready to accept a different kind of bombardment from the mainland in the form of cash rich tourists looking for somewhere to get their latest gambling fix.

US gaming company Weidner Resorts offers a blueprint for Matsu’s future as a cross-strait gaming haven. Hotel rooms will be built in Fuzhou, a nearby city in mainland China, while the casino will only be a short boat ride away on the island, reports Taiwan Apple Daily.

Furthermore, the plan to profit from gambling has already met with local approval, as a majority of the islanders last summer voted in favour of bringing casinos to the island, reported Voice of America.

Though still at the earliest of stages, developments in Matsu are just the kind of thing that will raise hackles in Macau, China’s established gambling den.

In recent years, the former Portuguese colony has faced growing pressure from a number of Asian countries – such as Singapore, which now has its Marina Bay Sands.

Every new gaming venue in Asia is a place that could syphon away some of the money that goes into Macau’s lucrative gaming business, which in 2012 amounted to $38 billion in revenues.

Despite the foreign pressure, Macau always reckoned on being the only part of China (though, like Hong Kong, it is a special administrative region) where gambling was legal. But that too looks as though it could be under threat.

The first signs of change look to be occurring in a casino bar known as Jesters. Part of the Mangrove Tree Resort World in Hainan island, the bar currently has 50 gaming tables positioned underneath what Reuters describes as “garish chandeliers and a ceiling made to look like a giant roulette wheel”.

Although punters are not allowed to gamble for money, they are allowed to buy tickets for Rmb500 ($80), which they are then able to gamble in games and redeem prizes – such as iPads and suitcases.

The resort belongs to Zhang Baoquan, president of Beijing conglomerate Antaeus, who when asked by Reuters about the legalisation of gambling in mainland China seemed optimistic.

“Right now we are not at this stage,” he said. “But my personal opinion is, in future, there is a big possibility.”

And in a sign that the government is aware of developments in the Mangrove resort, 70% of the project’s financing comes from policy lender China Development Bank, reports Reuters.

But not all of the threats to Macau come from outside, as reports suggest that the city could become wrapped up in Xi Jinping’s anti-corruption campaign too. The targets are the junket operators – businesses that extend credit to mainland tourists in Macau so that they can bypass China’s strict controls on how much cash an individual can take out of China.

The long-held suspicion is that junkets facilitate money laundering through Macau by allowing funds to leave mainland China in a way that avoids the official capital controls (something WiC discussed in issue 133).

“One of the most well-trodden paths for these unofficial outflows is Macau,” Miranda Carr, economist at North Oak Blue Square, told British newspaper The Times. “It is an obvious place to tackle during the current anti-corruption drive.”

There are already signs that a campaign against the junkets could be underway. Late last year, more than a dozen people in the business supplying credit to the high-rollers were detained in a Macau casino, reports Reuters. The newswire adds that there was speculation that there could be links to disgraced politician Bo Xilai.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.