The Las Vegas Sands Corporation of Sheldon Adelson was the first non-Chinese company to open a casino in the city. The Sands Macau casino opened in 2004 and others followed suit as quickly as they could get a property financed and built. Within three years the combined gaming revenue from casinos in Macau exceeded the Las Vegas Strip. By 2007, it was clear that Macau was a major force in the gaming industry. And now MGM, Las Vegas Sands and Wynn Resorts have very profitable operations there.Year over year, the revenues grew by double digits until June 2014 when Chinese President Xi Jinping instituted a new policy that kept the Chinese high-rollers from Macau's gambling tables. China had always represented an implied threat to Macau, but with that policy the threat became explicit.
President Xi was in the process of consolidating his power over the Communist Party and therefore his control of China. Xi declared war on corruption at all levels of Chinese government and in business. He was out to catch and prosecute all manner of "tigers and flees." In the process he captured many of the VIP gamblers that made Macau's casinos so successful. Immediately after Xi's declaration, gaming revenues started to fall as quickly as they had risen; gaming revenue in Macau fell 38 percent between its peak in 2013 and 2016. However, the trend has reversed again and revenues are on an upswing, but still well short of 2013. The latest change has also been driven the policies of President Xi and the Chinese Communist Party. Most of the criminals who had been taking bribes and stealing public funds have apparently been caught. Xi did not stop pursuing corrupt officials, but he has put more emphasis on other issues.
However, no one should expect a return to the days before the crackdown on corruption. They are not coming back. The VIP gamblers of those days are either broke, in jail or simply afraid to go back to their free-spending ways. But, that is only part of the reason for the permanent change in gambling culture in Macau. The bigger reason is the grand dream of Xi. President Xi has just consolidated his power within the party at its latest party conference in September. Now he is firmly in control and moving on to his "make China great again" long-term scheme to bring China world leadership. Xi is set on recreating the Silk Road - the modern version is being called "The Belt and Road" intended to put China in the driver's seat in the world economy. The "belt and road" is more than a plan for the future. It is a reality that already has billions of dollars worth of infrastructure and attending industries built and operating.
To complete two of the pieces of his plan, Xi needs little Macau. He needs Macau to be an international tourist destination and to be part of asuper-region he is creating. The casinos in Macau have a small, but important role to play in that plan.Xi and the gaming regulators have made it quite clear that casinos must be more than gambling halls, they must attract international tourism. To that end the casinos have spent billions to please the authorities. And that is the challenge casinos will face when the licenses come up for renewal. Casinos must conform to the "international tourism destination" plan. What will happen if the casinos fail to meet the government's expectations? There are several possibilities.
The regulators could fine the negligent casino operators, they could suspend the licenses temporarily or they could revoke the license permanently and issue permission to operate the casino to another licensee. Wait, you mean after Wynn Resorts, Las Vegas and MGM International have spent billions building new resorts casinos, they could lose their licenses? Yes, I think that is possible. The properties could be seized and the licenses given to another company - presumably a Chinese company. The losing company might get some compensation or it might not, the new operator might be obligated to pay the former operator or it might pay the Chinese government for the property and privilege. That might be a dangerous strategy for a country trying to entice Tesla, Google, Microsoft, Amazon and dozens of other international business giants to invest in China. The effective nationalization of one or more casinos could be construed as posing too much risk to other potential investors.
It might be construed that way, but I can make an argument that Xi and his surrogates in Macau are setting the stage to justify seizing control in a way that will not be seen as a threat to other businesses. If the casinos are violating the law, clearly the loss of a license would not have any implications for law-abiding corporations like those mentioned above. The laws in question have been selectively enforced by China and officials in Macau. For example, a recent article published by Calvin Ayre, described two banks which until November were moving large amounts of money between China and Chinese clients in Macau. In the eyes of the writer, Rafi Farber, it proved China was aware of the activity and chose to ignore it. In fact an international group announced a list of the most lax countries for money laundering and Macau was high up on the list. Macau promptly denied the facts in the report and accused the committee of bias.
There are other crimes that China also appears to be tolerating. Several times a year, stories appear in the local Macau media about loan sharking. The perpetrators are always mainlanders who come to Macau to loan money to vulnerable gamblers. When the gambler loses the money, the loan sharks hold them hostage until the gambler's family makes good on the "loan." I find it impossible to believe that a country that can eliminate all of the "tigers and flees" cannot stop the vestiges of the old triads operating with impunity between Macau and China. The money laundering and loan sharking begs the question, why would China permit such activities?
It is possible that those activities are allowed to provide a cause, should it be needed, for license denial. Allowing money laundering and loan sharking within their casinos is clearly a reason to reject a license application. There is one more of those potential violations of law still lurking in the wings. When Xi cracked down on corruption it stopped a flow of billions of dollars to the gambling tables in Macau. In retrospect, the casinos should have known those VIP gamblers were spending money they stole from the Chinese people. Certainly, any operator who knew could be held to be culpable. That gives the authorities three valid reasons for revoking a license; money-laundering, permitting criminal activity and knowingly accepting stolen money as wagers. There is one last test the casinos might fail; the regulators and their Chinese overlords are going to be asking if the casino has met the tourism goals. Those goals have not been stated explicitly, but Wynn, Sands and MGM have collectively spent over $10 billion in attempts to satisfy the regulators. It is an almost impossible task when the criteria for judging the tourism goals are unknown to anyone except the regulators.
The review-renewal process begins in two years. But the government still has not released any standards by which the casino operators will be judged. In fact, recently the chief regulator said the agency would have to think carefully about the time to make an announcement of rules "to guarantee the sustainable development of the gaming sector." In the meantime, the government of Macau has commissioned a study to "better understand the scale of Macau's gaming industry in the 2020-2030 period." The study will also look into how many gaming licenses should be issued once the concessions of the six current Macau operators expire.
While, Macau is seemingly independent in its management of the economy and regulating casinos, China regularly reminds it leaders of Macau's place in overall Chinese long-term plans. Macau's leaders are frequently called to Beijing to talk and return with a nuanced interpretation of the relationship between the two places; very subtle changes are then made public. There are also times when the message is not so subtly changed. In early December, China clarified the two legal systems; it said very plainly that Macau's "Basic Law" was subservient to the "Mother Law." And tellingly, the "one country, two systems" is rarely mentioned in official statements.
It seems to me that the stage is being set to make major changes in the ownership and operation of the casinos in Macau. It sounds like a conspiracy theory, doesn't it? I am not a conspiracy theorist, but the lack of transparency, the obtuse language, the unenforced laws, and Chinese President Xi's Silk Road plan could certainly be used to replace casino ownership in Macau.
But that is just my opinion, isn't it?