Hunting Tigers and Flies in a Happy Macau

China and Macau can be a mystery to outsiders. The rules are sometimes vague and subject to change without much notice. The reasoning behind the rules themselves and the changes are often hidden in Chinese language and in metaphor. To an outside observer Macau appears to be a very challenging and unstable environment and one where long-term plans are difficult to predict.

For the first ten years of the new administration of casinos, the Macau casino environment seemed to be just the opposite of what it is now; it was stable and predictable. Beginning with the opening of the Sands in 2004, gaming revenue grew dramatically year after year until Macau produced over six times the revenue of the Las Vegas Strip. However, things have changed. For the last nine months the major storyline has been the dramatic decline in gaming revenues. The change originated in the policies of the Chinese central government. The president of China and the Chinese Communist Party would like to clean up the image of Chinese politics and have initiated a crackdown on corruption and illegal economic activity.

The Secretary for Economy and Finance, Lionel Leong, has confirmed that the gaming industry needs a “check-up” in order to allow for the assessment of casino operators’ performance over the past ten years…For now, the government will be studying: the extent to which operators have influenced Macau’s society; whether or not operators have introduced non-gaming elements and these services’ respective development; the percentage of non-gaming and gaming components; job creation and career progress opportunities afforded to locals; and the company’s social responsibility programs, among others. Catarina Pinto, Macau Daily Times, 3-31-15

Foreign labor policies have been once again debated at the Legislative Assembly (AL) plenary meeting. This is following requests from some lawmakers to implement a temporary ban on imported labor if needed…Lei suggested that the government implement a temporary ban on the import of foreign labor…“The government needs to put a stop to the import of foreign workers. It should implement a measure preventing the import of foreign workers for a [certain] period of time following the first [wave] of authorizations given to foreign workers. We have over 170,000 non-resident workers… could you tell us the number of foreign workers we still need?” she stated. Catarina Pinto, Macau Daily Times, 3-31-15

The Macau government is “tilting” toward better management of tourist arrivals from the mainland during peak holiday periods rather than an absolute cap on numbers, suggests a note from UBS Securities Asia Ltd. “We believe the tone from the government tilts towards better management of peak holiday periods, rather than a hard cap on total visitations,” stated UBS analysts Anthony Wong and Angus Chan in a note on Monday. Gross Gaming Revenue Asia, 3-31-15

China has a managed economy, the “one country, two systems” notwithstanding. Until June of 2014, China appeared to have adopted a “hands off” policy in Macau and to be honoring the two system ideal. The gaming operators were not exactly free as they might be in Nevada, but no more restricted than in New Jersey, for example. The biggest issues up to the crackdown in June were the limitations on the number of table games and the restriction on hiring foreign workers. Up to that point, those issues had not been cause for immediate concern. It was business as usual and full speed ahead. And then, as everyone following the gaming industry in Macau knows, China changed its policies and cracked down on the stream of high-rollers that had fueled the fantastic growth of Macau’s casinos. Gaming revenues immediately started to plunge – a trend that is ongoing.

In the ensuing months, another change in policy became evident. The Chinese government is tightening its controls on the gaming industry itself. The most recent restriction is a limit on the number of Chinese visitors to be allowed in Macau. After studying the problem of too many visitors during the Chinese New Year, the government decided on 21 million visitors as the maximum to be allowed in each year.

…said that the region has the capacity to receive 21 million tourists from mainland China per year. Paulo Barbosa, Macau Daily Times,4-14-15

The government also reiterated its limitations on the number of table games to be allowed and a continuation of the strict limits on foreign workers. In a declining economy those might not be significant issues, except there are several more casinos under construction. The new casinos will be opening over the next two years. In a free-market economy those casinos would add another two or three thousand table games – however the government has clearly stated it will not allow that many new games. How many table games and how many new foreign workers will be allowed in each of the new casinos is glaringly uncertain.

Macau’s Secretary for Economy and Finance Lionel Leong Vai Tac said the government will stick to its decision to not allow the average annual growth rate of the city’s gaming tables to exceed three percent. “The government sticks to its position that the average annual growth rate in the number of gaming tables will not be higher than three percent…it will be in place for 10 years from 2013,” Leong was quoted as saying by Macau News at the annual spring reception hosted by the Macau Monetary Authority. Asia Gaming Brief, 4-16-15

Those factors alone create an extremely challenging environment. There is one much larger issue on the horizon; the existing licenses come up for review in 2020. In any other jurisdiction, it would be almost certain that each of the licenses would be granted. But Macau is not any other jurisdiction. In Macau the licenses could be revoked, given to other operators or simply eliminated. The process might be totally arbitrary and framed in language that is obscure and confusing. No one knows what to expect and the government is not providing much guidance.

The only guidance we have on any of the major issues facing the casinos in Macau is couched in a vague language of metaphors. For example, the administration in Macau has started to use the term “happy city” as the goal of its policy of limited visitations. And the Chinese government is using tigers and flies to describe its anti-corruption policy.

“To build a happier house for the local residents is a big challenge for me and my team. (…) We will transform Macau into a happy city,” he said…debate at the Legislative Assembly was centered on the issues of tourism capacity and education…The secretary detailed the problems created by the large influx of tourists during the recent CNY season…“If this situation continues, I’m sure that the locals will experience a decrease in their quality of life” Paulo Barbosa, Macau Daily Times,4-14-15

“We must uphold the fighting of tigers and flies at the same time, resolutely investigating law-breaking cases of leading officials and also earnestly resolving the unhealthy tendencies and corruption problems which happen all around people,” Xi said in a speech carried by the state news agency Xinhua. December, 2014

In most of the world, the economy and society in general is governed by written laws. The exact wording of the laws is intended to give specific definition to the allowable and the forbidden acts of individuals or corporations. When there is disagreement between law enforcement agencies and individuals on interpretation, the issue is litigated. It is argued before an impartial adjudicator. China too has a legal system of formal written laws. But behind the written laws, China has a quasi-legal system based on government edicts. The edicts are expressed in a form that is obtuse; it makes the conditions in Macau very confusing for an outsider.

What is going on in Macau? I have no idea and I have no mechanism for interpreting the meaning of government pronouncements. What is a happy city? Does a happy city have 21 million Chinese tourists, but not more each year? How many casinos does a happy city have, how many foreign casino owners and how many foreign workers? The definition of the phrase might include other benefits for the citizens of Macau who work in the casinos, such as guaranteed annual bonuses for all employees equivalent to the year’s salary, better transportation and housing for casino workers or anything the government wishes to include in the definition. It is the kind of policy statement that is impossible to define or fight against.

The policy statement from Xi Jinping, the president of China, that started the current downturn concerned a crackdown on tigers and flies. I am certain that somewhere, someone knows exactly what that means and which people are going to fall under the ax because they are either flies or tigers. But I doubt that any of the casino operators are in that category. They are busy trying to diversify their business and attract a wider variety of visitors. But they can’t attract more people from China, they don’t know how many tables they will be allowed and they don’t know if their licenses will be renewed. Are the non-Chinese casino people some of the flies and tigers in the president of China’s mind? Steven Wynn has said, “We have learned in the last 12 years the way to behave, and that is to listen very carefully to what the leadership says.” I wonder if Steve is hearing something that I am not hearing.  For the last twelve years Macau has certainly been a happy place for casino operators like Steve Wynn. However, I doubt it will be quite so happy in the next ten years, especially for the non-Chinese casino owners, managers and employees.


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