China First for Gambling?

China First for Gambling?

How much longer can foreign dominance of the Chinese gambling sector last?

The world is currently worrying about a trade war. America has slapped tariffs on a raft of Chinese goods, and China has retaliated with swift and decisive action, putting tariffs on a range of goods aimed specifically at hurting President Trump’s supporters. The Chinese government may also be prepared to take equally swift and decisive action against foreign casino operators and gambling companies as well.

The current situation

If we start off in Macau, there are currently six casino concessions – three of which are to American companies. These are due to renew in 2020 and 2022, with the previous assumption that the concessions would be renewed giving way to the reality of a tender process, beginning next year.

Meanwhile, on the neighboring island of Hainan, at least four Chinese resorts are already assembling gaming facilities, which will include “entertainment bars”. With local companies involved in this, we may be seeing the start of a rival to Macau, very probably backed by the central government.

Should current operators worry?

According to Michael Zhu of the Innovation Group, there is no question that if China decided to block all foreign operators it would just happen overnight.

Zhu makes the point that political relationships between China and countries like the Philippines were very different five years ago when the current concessions were awarded. We now have Xi Jinping effectively confirmed as Chinese ruler for life, and in control of a world superpower that is increasingly tightening control over its own domestic internet.

“Today, if I had to bet,” says Zhu, “I’d say China-first is a 60% chance. I hate to say it, but it does remain a huge potential risk [for the existing operators].”

Ten years from now

Previously, China’s involvement in Macau has been cited as a shining example of the “one country, two systems” model, but Ben Lee, MD of Macau-based consultancy IGamiX backs Zhu’s view that the situation could soon change. “I don’t know how far along the curve they are,” he says. “It may be later or it may be earlier than ten years from now, but it is all obviously leading in the same direction: China-first.”

Macau’s decision-making is increasingly being guided by the China Liaison Office, which could well make its weight felt when it comes to awarding the new concessions, with Ben Lee believing that at least one of the current concessionaires could be forced to sell up to a new, Chinese license holder. He points out that at the moment 50% of the profits from gambling are repatriated to countries other than China. “I think there could be some surprises,” he says.

Same fate for online gambling?

You have to think so. There is absolutely no reason why Chinese companies cannot successfully operate online gambling for Chinese residents. There is no logical reason why the Chinese government would want anything else.

All these changes may not happen overnight – or even in the first round of concession renewals. But as with President Trump, so with control of the gambling industry. Xi Jinping survived Chairman Mao’s Cultural Revolution by living in a cave. He is a man who has learned the value of patience and the long game. Both Donald Trump and the foreign gambling operators would be right to worry.

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