China’s Zero COVID Policy Hampering Macau Revival
One of the last countries in the world to still be taking such a strong stand against COVID is China – adopting the so-called zero COVID policy at the detriment of the gambling industry. The tight restrictions being forced by Beijing spell bad news for the country’s casino sector based in Macau. With a massive reliance on the wealth and cash brought to its shores by overseas travelers, there is very little room for these casinos to maneuver around the tight restrictions.
China’s position towards gambling is precariously balanced – on the one hand the city of Macau continues to dominate the Asian gaming industry, with unhindered annualized revenue potential in the tens of billions of dollars. Yet, there is a direct contradiction in terms of party doctrine, and the continuity with Xi Jinping’s ideals of modern socialist China. ©jeremy888/Pixabay
In the coming months – there will likely be an unwinding of the rules restricting travel between mainland China and Macau. The local government in Macau has begun accepting travel visa applications from mainland residence, a pre-requisite that is required up until now in order to travel between the two territories. But the scope of this travel has been narrowed given the uncertainty around the advancement of tourism opening. Given the vast sums of revenue that Chinese citizens bring into Macau, simply opening up this single route will have a big benefit.
International tourism into China, and Macau, has not yet seen the same level of increase that has been witnessed in the other states around the world. There still remains a tight control over the granting of international travel visas into China, and tourists coming from zones outside the same heavy-handed approach to the containment of COVID do not feel the same level of affinity or patience with the laborious level of preparation tasks that must be undertaken.
The state of Macau’s casinos has been on the brink for several years – following decades of growth and record-breaking profits, the pandemic brought fortunes crashing back down. However, there are signs that long-term revival is the most-likely outcome. The biggest structural risk so far to Macau has been a sweeping range of government regulatory interventions, with this possibility now all but off the table, the Macau business elite can begin to refocus of solidifying their revenue streams for the next 5, 10 and 20 years.
Future of Macau will be Chinese Owned
Macau’s casino strip is stacked full of foreign-owned enterprises, most of them with large shareholdings from the USA, Europe and other parts of the world. The push now originating from Beijing is to bring back ownership of these highly cash-rich enterprises back into the control of Chinese business. It’s a major play that will have a cascading effect on the ownership rights of foreign investors in Macau.
The likes of Wynn Macau and Las Vegas Sands will be in for a difficult couple of years is the view of several independent analysts investigating the growth of the region. Not only do these operators have a massive surplus of debt build-up over the previous 18 months but given the political maneuvering happening in the casino industry of Macau in the past year, they’re likely to be forced to redistribute shares more evenly with domestic members of their cap-table.
Foreign investors are nervous since the unpredictable nature of the Chinese markets means that they can no longer be sure that their capital will be tied up safely. One analyst based in North America said that Macau is basically a no-go zone for deploying capital in its current climate since nobody can be sure which way the government will go on policy making. It’s a major blocker for raising foreign investment that has not truly manifested itself yet – but for the long-term stability of Macau, this is potentially the biggest systemic risk currently facing casinos.
Macau holds a unique position within the grand vision of Xi Jinping’s one China. Announcing his third term in office in a historic extension of his leadership, the General Secretary of the Chinese Communist Party has stated that China needs the world, and the world needs China. This sentiment is positive in many respects since it could have gone drastically in the opposite direction. Many feared China would in fact take a path towards isolation, but it seems that the country recognizes the inter-connectedness of the world, and that prosperity is tied to close collaboration with partners across the planet.
