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By Magda Lipan, Boston*

Beijing has begun a review of the casino industry in Macau, one of China’s special administrative regions. It is the only place in the entire region where gambling is legal. It wants to tighten oversight in licensing, employee welfare and daily monitoring. It has announced an array of proposals, prime among them being increasing the number of casino inspectors from 192 to 459. Others relate to regulating illegal lending and cash transfers linked to gambling.

Macau’s secretary for economy and finance, Lei Wai Nong, gave notice of a 45-day consultation period on the gambling industry, pointing to “deficiencies in industry supervision”. He did not elaborate on how the new gambling bids will be managed after the existing ones expire next June.

President Xi government has opened up the proposals for public consultation from September 15. The most important proposal are about “how many licences — known locally as ‘concessions’ - will be allowed, how long their terms will be, and the level of supervision by the government”. The bidding for the new licences is in June next. Another proposal is for “increasing local shareholdings of casino companies, without elaboration on how these moves will be enacted”.

Media reports said the government also plans to “increase voting shares in gaming concessionaires for permanent residents of Macau, as well as more rules on transfer and distribution of profits to shareholders”.

Those who support the crack down on the casinos say Beijing has correctly targeted “cross-border flows of funds for gambling, hitting the funding of Macau’s junket operators and their VIP customers”.

At the end of the consultation period, a Bill will be tabled in the local legislature to turn the proposals into law.

The tightening controls will be implemented in time for a rebid next year for the casino licences necessary for operating in Macau. Those companies caught in the government crosshairs may lose the right to gambling permissions and with them, their investments that run into billions of dollars.

Macau is the ultimate destination for gamblers from Las Vegas. A short flight or a special cruise ride away from Hong Kong, Macau’s 141 casinos generated earnings of $360 billion in 2019. That is six times the Las Vegas revenue. The industry provides employment to close to 20 per cent of Macau’s six lakh population and generates 80 per cent of the local government’s tax revenue. 

After the news about tighter controls came out, the market literally teetered as investors “dumped shares of casino companies with Macau properties like MGM China and Wynn Macau in record volumes, costing the industry $18 billion of market value”.

The attack on the casinos is part of the Chinese Communist Party’s attempt to purify the country of vices. President Xi has so far targeted private tutoring and the super-rich and other bad influences like video gaming that the state media calls “spiritual opium”.

Casino shares in Hong Kong and the US plummeted after information rolled out that the government would directly supervise gambling companies and strictly monitor their daily operations.

The Bloomberg Intelligence index of the “six big casino operators fell a record 23 per cent” in mid-September.

“American operators saw the worst sell-offs, with Sands China sinking as much as 33 per cent, while Wynn Macau plunged 34 per cent, both the steepest declines ever. Galaxy Entertainment Group slumped 20 per cent, its sharpest drop in a decade,” Bloomberg reported.

The “shares in Macau’s six biggest casino operators plummeted by a combined 23 per cent, with American operators reporting the worst selloffs”, according to Bloomberg Intelligence.  Shares in Sands China closed 32 per cent down, Wynn Macau dropped by nearly 29 per cent, while Galaxy Entertainment Group, SJM, Peers MGM China, and Melco Entertainment all ended up more than 20 per cent down.

The clamp down comes at a time when Macau is “still struggling to recover from the Covid-19 pandemic”. With travel restrictions in force, the casinos did no business for months, impacting on the earnings of the gambling operators.

Politically, as a section of the media reports, “the moves also come at a time when tensions between the U.S. and China remain high, raising concerns that the new regulations may favor domestic casino operators over US-based companies”.

Reuters said that “anticipating this, American gambling giants have moved to hire more local executives and position themselves more as Macau-based operators instead of foreign-owned ones”.

Apart from casinos, Macau is also a well-known tax haven. Millionaires and billionaires establish residence there and enjoy low tax rates. Citizens and foreigners who work in the city also enjoy beneficial tax rates.

That is why Macau’s “nominal per capita GDP of $81,151 was among the highest in the world, as of 2019, trailing only Luxembourg, and Switzerland”. Corporations too benefit from doing business in Macau. Corporate income and capital gains are taxed at much lower rates than in the United States and Europe. This preferential tax treatment attracts rich businesses to Macau. They are yet to react on whether the tighter controls on the casinos would in the future also mean an upward revision of tax rates.

—*About the author: A management consultant and regular contributor to 0p-edNews.com, Magda Lipan lives in Boston and frequents Asia and Far East on business trips. Like most of her ilk, she is also a blogger and hits the blogspace at irregular intervals though. Her subjects of interest are wide ranging from China’s debt to Philippines’s maverick rulers and from Pakistan’s missed GDP goals to Sri Lanka’s wounds of civil war.
Like most Americans with expatriate roots, Lipan also take keen interest in what is happening in her erstwhile native lands, and also in India, which has given her numerous friends from Silicon Valley, and Babas and Yogis from Haridwar, the Hindu Holy city on the banks of river Ganga.