IAG March 2016 - page 4

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China: FriendorFoe?
elcome signs thatMacau’s gaming slump is at last bottoming out after 20months of
declining revenues last month prompted a rally in the shares of its gaming operators.
Although it is far from a safe bet, if the operators assume the worst is now over, they
might be taking stock of thedownturn anddecidingonhowbest to approach the future.
Unfortunately,awrong-headedwayof thinkingseems tohaveemerged in the industry.Namely:one that
sees the fall stemming inpart frommeddlingbyChina.Someexecutiveshaveevengoneso faras tocriticize
Beijing for renegingon the“Onecountry, twosystems”promise itmade forMacau’s transferof sovereignty.
Under theprinciple, thePortuguese colonywas guaranteed ahighdegreeof autonomy. Chinahas violated
that autonomy, the critics say, through high-handed interventions in the Special Administrative Region’s
main industry. InsteadBeijingshould letMacauchoose itsownpath.Of course thispathwouldbedecided
through agreement reached between the government on one side and the gambling concessionaires and
local power eliteson theother.Butuncorruptedby thebillionsofdollarsat issue,Macau’s leaderswouldbe
impartial and freeof Beijing’s interference todecideonwhat isbest forMacauand itspeople.
Among theconcessionaires, SteveWynnhasbeen themost vocal ofChina’scritics. LastOctober the
tycoon described the government’s policy of caps on table numbers at new casinos as “preposterous”,
“bewildering” and “irrational.” Beijing’s caprice, he implied, was causingWynn to “refocus our energies
here inAmerica.”
The troublewithsaying thatmismanagement byChinawill prompt operators to reconsider investing
inMacau is, of course, that nobody believes it. Profits fromMacau have already propelledWynn’s rival
Sheldon Adelson into the ranks of the world’s very richest men. Most analysts sayWynn’s next Macau
mega-resort,WynnPalace, will behismost profitable venture yet.
As for “one country, two systems”, the principle’s main point was surely to preserve Macau’s
capitalist way of life. Compared to before the transfer of sovereignty, the pillar industry underlying that
way of life seems to be doing quite okay thank you. In any case, industry professionals’ judgments on
“one country, two systems”won’tmake a jot of difference. Chinawill dictate gaming policy inMacau as
it sees fit, heedless of outbursts by foreign critics.
Amore constructive attitude towardsMacau’s future suggests itself in light of these considerations.
Instead of blaming China, operators might see the downturn as a correction necessary for long-term
growth. They might admit that a large part of VIP play, the collapse of which accounts for almost the
entire downturn, was mainland corruption money and therefore neither desirable nor sustainable.
“Slowdown” when applied toChina’s economy still means robust growth by western standards. Macau
has 16,000hotel roomsunder constructionandbetter infrastructureon theway, so the futureof itsmass
market seemswell planned for.
And instead of seeing China’s Communist Party as irrationally opposed to gambling in Macau,
operators would better acknowledge Beijing has both talented policymakers and a long-term interest
in ensuring the city’s prosperity. As David Green of Newpage Consulting puts it, “If you look back on
commentsmadebyXi Jinping as far back aswhenhewasVicePresident you canhear him clearly urging
Macau to diversify. The writing has been on the wall, but until now no one has applied themselves to
understandingwhat itmeans.Macau’s challenge is to look beyondChina for its future and expand into
an international destination.”
Beijing’sconsistent demand, inotherwords, hasbeen thatMacau’sgamingoperatorsmust develop
non-gaming attractions, following the example of Las Vegas which today makes most of its money
throughnon-gambling revenues. It’s amessage that will surely be repeatedover the comingweekswith
the releaseof two important documents.
Thefirstwill be theMid-termReview thegovernment hascommissioned from theUniversityofMacau’s
Institute for the Study of Commercial Gaming. The report will look at what has been achieved by the six
concessionairessince the liberalizationofgaming in thecity in2002.Specifically, itwillexaminewhetherornot
theyhave reallydelivered theirpromised integrated resorts, or just casinoswitha fewnon-gaming tack-ons.
For the long-term, theMacauSARGovernment’sCommittee for theDevelopment of aWorldCentre
for Tourism and Leisure recently closed public consultation for its first Five Year Plan covering 2016 to
2020. Thedocument isdue for release in thesecondquarter andwill outlinesevenaspirations, including
maintaining economic vitality, developing the structureof local industry andoptimizing infrastructure in
pursuit of creating an international tourism city.
Untilnowoperatorshavebeen listeningmainly to industryanalysts. (StevenWynnmaywellhavebeen
speaking for consumptionby his shareholders.)MorganStanley summedup the approach lastOctober
when it noted that “Non-gaming is a crowd puller, but a margin drag.” For the sake of a harmonious
relationshipwithChina, aswell asMacauand its future, however, theymight start payingmoreattention
todocuments like thoseoutlined above.
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