It’s Official: The Chinese Gaming License Review is Underway By Ken Adams May 19, 2015 at 5:02 pm Very few people in this country pay any attention to Macau. It is too far away and too alien to us to be very interesting. However, for me, watching Macau with its Chinese overlords is much like watching the old Soviet Union. Things are never quite what they seem and words don’t quite mean what they normally mean. I find it compelling. It is compelling because Macau is within spitting distance of a mainland China and its billion and one half people. The Chinese economy is changing drastically from an agrarian into a consumer economy. Those newly-minted Chinese consumers are eager to get out and see the world and spend money. Fifty years ago, the Chinese people were government officials, soldiers or farmers. After Chairman Mao died, China began a long slow process of changing from a socialistic agrarian society to a socialistic industrial society with some capitalism sprinkled around in the mix. Macau and Hong Kong when they were integrated into China were allowed to continue in a mostly capitalistic way, with oversight and guidance by the Chinese Communist Party and the Chinese government. Termed “one country, two systems” it seemed to be working just the way the American and Australian casino operators in Macau thought it should. The operators were full of high praise for the Chinese government and very pleased with their bulging pockets. As everyone knows by now, that changed when the president of China and the communist party announced a crackdown on graft, corruption and criminal activities. It had nothing to do with gambling or Macau, except some of the crooks were spending part of their ill-begotten gains in the city’s casinos. However, that crackdown cracked down hard on the core of the casinos’ business – the Chinese VIPs. Chinese authorities have accessed the gaming records of the second most wanted corrupt Chinese official. Li Huabo, brought HK$3 billion to Macau in order to gamble and lost HK$34 million…gambled with almost HK$3 billion in Macau between April 2008 and January 2011. Mr. Li was a section director of Poyang County’s finance bureau in Jiangxi Province. After being accused of fraud for allegedly having stolen 98 million yuan (HK$124 million) of public funds he fled with his family to Singapore. João Santos Filipe, Macau Business Daily, 5-14-15 It has been a year in June since the government started its efforts. Casino revenues are off about 40 percent this year; there is no recovery or return to the old ways in sight. In fact, I think there are more central government changes on the way that will complicate things even more. This is where it gets tricky, one has to read between the lines to find the government’s intent; made doubly hard because I have to read translations. First off, the government is officially beginning its review of existing licenses. It’s official. The much-anticipated mid-term gaming review is underway. The government has already appointed local academic institutions to conduct a study on the subject as part of the review process. He reiterated that the review is to examine how Macau’s casino operators have exercised their obligations required by the gaming concession contracts, and their performance in developing non-gaming elements as well as the promotion and training policies of employees here. Stephanie Lai, Macau Business Daily, 5-7-15 It is unclear what the review means or what criteria will be used. The government has said there is no direct connection between the review and a reissuance of licenses; so why, one might ask is the review taking place? We are told that the licensees will be reviewed to see how casino operators have exercised their obligations required by the gaming concession contracts, and their performance in developing non-gaming elements as well as the promotion and training policies of employees there. There are no specific regulations covering those areas and that means those doing the review are free to make up their own measurements. A big issue will probably be employee relations. The government requires the majority of employees to be local; foreign workers are strictly limited. It wants those local workers protected and rewarded. It has demanded full time employment – no seasonal layoffs or reduction in hours, full vacations and hefty annual bonuses equal to a month or two of pay and preference in promotions. Rather scary, considering the billions of dollars each of the operators has invested. Lionel Leong said in previous occasions that the government would consider the findings in modifying its policy on the gaming industry, including the number of licenses granted and the rate of tax levied. Stephanie Lai, Macau Business Daily, 5-7-15 The licenses are not guaranteed, the tax rate may change and for the new casino set to open, the number of tables is unknown. There are additional casinos scheduled to open, but with only a couple of weeks left before the opening, the operators do not know how many gaming tables they will be permitted to operate. Galaxy Macau Phase II opens May 27. Macau’s Secretary for Economy and Finance, Lionel Leong Vai Tac, told media that the government has not yet decided on the gaming table allocation for Galaxy Macau Phase II in Cotai, despite the new $2.5 billion casino-resort project and adjacent Broadway Macau slated to open later this month. “We’re still studying their [gaming table] application and we’ve not come to a decision yet,” Mr. Leong said. Stephanie Lai, Macau Business Daily, 5-6-15 Macau is indeed a mystery. Something besides the crackdown on graft and corruption is underway. I think I have found a clue or two about what things the government might be advocating. It has started counting some different things and as the 1980s cliché says, what you measure is what you get. These simple reports are focused on things other than gaming. The numbers are tiny compared to gaming revenues, but if the government switches its focus it may be free to make whatever changes it wants to the casino industry without it being noticed in the mainstream Chinese media. The Statistics and Census Service intends to begin publishing this year or next new sets of data…one set would cover investment by Macau enterprises in the mainland…others would cover emerging industries, including cultural and creative industries and the meetings, incentives, conventions and exhibitions industry. Macau Business, 5-6-15 The number of companies newly incorporated in the first quarter of this year was 1,455, or 329 more than a year earlier…combined registered capital is $19.7 million, 17 per cent less than the registered capital of those incorporated a year earlier…563 are in wholesaling or retailing, 324 in business services and 191 in construction. The number of companies dissolved in the first quarter was 158. Macau Business, 5-6-15 Other observers are wondering if the real purpose behind some of the recent policy changes is the amount of western capital invested in Macau casinos. Researchers for the Hong Kong Institute of Education think China is concerned about the investment and is intent on limiting if not reversing foreign investment in Macau. The geopolitical concerns of the central government regarding the deep penetration of Western capital into Macau’s casino industry is the main reason behind the economic diversification of the territory. This is one of the conclusions of the article titled ‘Casino Governance in Macau’ penned by Hong Kong Institute of Education researchers Sonny Lo and Dennis Hui who say that such concerns are “understandable”. “This [request for economic diversification] is out of geopolitical concern because the central government in Beijing does not want to witness any proliferation, much less monopolization, of foreign investment in Macao’s casino industry, especially when capital from Hong Kong, Australia and America has already grown prominently in the gaming sector since 2002”, the authors posit. João Santos Filipe, Macau Business Daily, 5-13-15 And that brings me back to the license reviews. What better way to crackdown on corruption and limit foreign capital invested in China than revoking some of existing licenses and then granting new licenses to companies funded by Chinese investors? Years ago, Hilton Corporation decided to back out of an announced investment in a casino in Turkey. The corporation said there were too many uncertainties – Turkey had just changed tax rates unilaterally and as history has shown, could easily have decided casinos were in violation of the laws of Islam. In China, it is not necessary to worry about religious law, but party law can be just as arbitrary and subject to the same sudden changes in direction. Nothing is certain in China, except the Communist Party is firmly in control and the party makes the rules.