The Macau SAR government announced a consultation document on the revision of gambling industry regulations, which triggered a plummet of gambling stocks across Asia and the United States. The injury to securities investors seemed to indirectly prove that its status as the “world’s largest gambling market” was not a mere stigma.

According to data from the Macau Gaming Inspection and Coordination Bureau, the local annual gross gaming revenue in 2019 was 292.455 billion patacas (36.472 billion U.S. dollars; 235.331 billion yuan), which will be interrupted by the 2019 novel coronavirus disease (COVID-19; new crown virus) epidemic in 2020 Dragged down by international tourism, there are still 60.441 billion patacas.

The consultation document pointed out that in recent years, gaming revenue has accounted for 55.5% of Macau’s GDP. The gaming industry continues to be the leading industry, but this singularity has been questioned and criticized by Beijing for more than a decade. Of the six existing gaming licenses in Macau, US capital accounts for “two and a half” of them. This is particularly sensitive in the context of tensions in Sino-US relations in recent years.

This revision of the law is regarded by many media as “casino reorganization” and as part of a series of industry reorganizations in China. The Macau SAR government did not admit or deny whether the content of the proposed amendments came from Beijing, but analysts commented to the BBC Chinese that this is a process in which Beijing is trying to reshuffle and bargain.

Hong Kong and U.S. stocks turned upside down

At present, Macau’s lucky gaming industry is divided into “three main and three deputy” licenses. The “main cards” include the Macao Entertainment Integrated Resort held by the late “gambling king” Stanley Ho’s Macau Gaming Holdings, and Hong Kong businessman Lu Zhihe’s Galaxy Casinos, and Wynn Resorts.

The operators of the three “secondary cards” are MGM Grand Paradise (MGM Grand Paradise), a joint venture between the United States and Stanley Ho’s second room eldest daughter, He Chaoqiong, and the Venetian (Las Vegas Sands) under the US-owned Las Vegas Sands. The Venetian Macao), and Melco Resorts (Melco Resorts) of He Hongshen’s second-bedroom son He Youlong. Among them, Melco Crown once had Australian funds to participate.

Some of the licenses originally expired in 2020, but before the resignation of the former Macau Chief Executive Cui Sai On, he voluntarily announced the renewal of two of the licenses in March 2019. As a result, all six gambling cards will arrive at the same time on June 26, 2022. Expect. All existing casino operators will have to bid again.

On the evening of September 14th, the Secretary for Economy and Finance of Macau Li Weinong announced the “Consultation Text on the Amendment of Law No. 16/2001 “The Legal System of Casino Lucky Gaming Operation””, which will be publicly consulted for 45 days starting from the 15th. That night, the price of US-owned gaming shares in New York, the United States, had begun to fall.

By the 15th Asian session, the gambling industry shares traded in Hong Kong reacted violently. Wynn Macau fell by as much as 34%, Sands China fell by 28%, SJM Holdings and Melco Entertainment suffered the same losses, and the total market value of gaming companies lost HK$143 billion (US$18 billion). Macau gaming stocks have become China’s Evergrande’s thunderous suspicion, another major reason for the decline of the Hong Kong stock market this week.

After the US stock market opened on the 15th, the stock prices of Las Vegas Sands, MGM, Wynn Resorts, etc. still fell, and nearly 4 billion US dollars of capital further evaporated.

Investment bank JP Morgan immediately downgraded Macau gaming stocks. Analyst DS Kim pointed out, “We admit that this is only a’directional’ signal, and the actual supervision and enforcement are still controversial.” However, investors may already have doubts about the tightening of supervision. “Fortune” magazine quoted Jason Ader, a former board member of the Las Vegas Sands Group, as saying: “There have been discussions about whether China is still suitable for investment. You will never like to see increased regulations and taxation. Increase, restricted movement. It seems that these are all realities.”

The English-language “Macau Daily Times” reported that Jorge Menezes, a well-known Portuguese lawyer in Macau, criticized this as “a rare display of government incompetence.”

He Ruizhi said: “In this first step, the government has achieved an incredible achievement: in a single day the market value of six Macau gaming companies of US$18 billion was written off.”

Yu Yongyi, an associate professor of the Department of Government and Administration at the University of Macau, commented to the BBC Chinese that he believes that the SAR government “didn’t think about it” and that the sharp drop in gaming stock prices is not a matter of concern to the Macau authorities.

Gaming companies listed in Hong Kong and New York are not the only victims. Singapore media reported that Malaysia-based casino operator Genting Singapore’s shares in Singapore traded also fell for two consecutive days. On the 16th, it fell by 7.19% at most, and then narrowed to 3.27%.

What are the key points of law revision consultation?

The consultation document first listed the data to point out the importance of the gaming industry to Macau’s economy. Among them, since Macau opened up gambling rights in 2002 and introduced foreign investment, GDP has increased from 58.8 billion patacas in that year to 434.7 billion in 2019, which is equivalent to the pre-opening period. The total revenue of the SAR government in 2019 was 133.5 billion yuan, which was 12 times that of 2002, of which gambling tax accounted for 70% to 80%.

At the same time, as of the end of 2020, there are more than 82,000 employed people in Macau’s gaming industry, which is about 17% of the overall employed population.

The document proposes nine key points of consultation:

– Number of grants for operating casino lucky betting——The document proposes to study and review the number of lucky betting grants for operating casinos, and expressly stipulate in the law that it is forbidden to transfer the operating rights of lucky betting, that is, “secondary cards” are prohibited.

– Grant period (validity period of license)——Currently it can last up to 25 years, but the document says that this flexibility “may also be detrimental to opening up the investment environment, attracting other new investors to bid for business, or failing to introduce a better environment for benign competition.”

– Increase the statutory requirements for the supervision of approved companies——It is recommended to increase the statutory minimum capital of gaming companies, increase the proportion of shareholders of permanent residents in Macau, and must meet specific conditions and obtain prior permission from the SAR government when distributing profits to shareholders

– Employee protection——Ensure the employment of Macao residents, provide training, and promote the career development of local employees

– Strengthen the review mechanism for approved companies, gambling intermediaries and partners——It is recommended to empower the SAR government to conduct qualification review of employees or affiliates of gaming companies and entities (institutions)

– Introduce government representatives——It is recommended to refer to Macau’s “Statutory System of Official Directors and Government Representatives” and appoint government representatives, namely official directors, to gaming companies

– Projects that promote non-gaming elements——The consultation document admits that “non-gaming elements” are not clearly defined, but pointed out that the “Guangdong-Hong Kong-Macao Greater Bay Area Development Plan Outline” of the Central Committee of the Communist Party of China and the State Council of China mentioned that Macau should build a world tourism and leisure center, and it also has the social responsibility of promoting a moderately diversified economy. “Therefore, helping the rise of sports tourism and cultural tourism, supporting the introduction of gambling-related manufacturing industries in Macao, exploring emerging industries, and organizing various types of international or well-known events and competitions will be the future of non-gaming elements. Focus on the direction of exploration”

– Social responsibility——It is recommended that “consider setting” licensed gaming companies should support the development of SMEs; support local industries in Macau; ensure labor rights, especially the on-the-job training and upward mobility of local employees, and maintain the long-term effectiveness and protection of the employee provident fund system Sex, etc.; employing disabled or rehabilitated persons; supporting public welfare activities; supporting various education, scientific research, and cultural exchange activities

– Clarify criminal responsibility and administrative punishment system—— It is recommended to establish the “crime of illegally accepting the deposit of cash or other funds”, which will “have an obligation but refuse to let the Gaming Supervision and Coordination Bureau performing its duties or the relevant personnel assisting the bureau’s law enforcement to enter the monitored location and stay in the location “Person” was added as an act of “ordinary violation of order”; an administrative penalty system for gambling enterprises was established

Ben Lee, the managing partner of IGamiX, a gaming consultancy in Macau, pointed out to the BBC Chinese that increasing the proportion of shareholders of Macau residents may result in dilution of equity, and the control of shareholder dividends and the supervision of the daily operation of government representatives are the three factors that caused the industry to worry about this consultation. The big element.

Li Zhongliang said: “This symbolizes that Beijing has reset the table for the first time in this (Macao) leading industry.”

Yu Yongyi also believes that the content of this consultation is basically a “national policy”, but in addition to appointing official directors, many of them are continuation of existing policies.

He said: “Government representatives join the gaming companies, which means that the government has a greater say in the operation of gaming companies, and it is also directly. This will directly affect the operations of gaming companies.”

Macau media pointed out that the content of the gaming industry regulatory consultation seems to be too vague. For example, whether gambling cards will be issued more or less, Macau Secretary of Economy and Finance Li Weinong did not respond positively. Li Weinong said: “It is necessary to maintain a certain scale, because the development of scale also brings benefits of scale, but it is impossible for this scale to expand indefinitely.”

He also said, “Many consultation reports do not contain (draft legislation) provisions, but only one direction, purpose, and overall situation.” “The government has a (established) position, so why do you need to consult?”

Lawyer He Ruizhi also agrees that the consultation document “is not farsighted.” He told the “Macau Daily Times”: “This so-called consultation text is full of nuances and ambiguities. For example, it says that’limiting the number of grants does not mean reducing market competitiveness,’ but is’improving’ competitiveness. Does that mean that one or more of the six bloggers will be abandoned?”

“The government seems to have forgotten that they have the ability to exclude certain election candidates and deprive them of their basic rights, but they cannot rule out the mode of operation of the international market.”

Li Zhongliang told BBC Chinese: “The market always makes speculations, but I noticed that the market did not take into account the possible merger of licenses.”

Li Zhongliang pointed out that Beijing originally only allowed Macau to issue up to three additional gambling cards. As a result, the SAR government used the “Chief Executive’s instructions” to derive three “secondary cards”. This has not only been questioned by Macau’s legality, but Beijing is also dissatisfied. .

“Many analysts say that Macau may maintain the current six gambling cards, but I don’t believe that the decision is still in Macau’s hands. The dominant one is north of the border.”

Targeting American companies?

According to a report in Macau’s “Discussion on Media”, a reporter asked whether US-funded enterprises would be restricted due to the relatively unstable relationship between China and the United States. Li Weinong only stated that the question involves geopolitics and does not answer hypothetical questions.

However, Li Zhongliang told BBC Chinese that he speculated that Beijing had previously asked Macau not to process gambling re-bids, in order to wait and see how the tension with the Donald Trump administration in the United States would develop. Nothing has changed since the government came to power, so it was decided that it is time to “look forward”.

Li Zhongliang believes that in the new round of gambling bidding, the risk of foreign gambling companies is significantly higher than that of local gambling companies. However, American gambling companies are probably already very dependent on Macau and it is difficult to get out and start over.

The Wall Street Journal pointed out that before the outbreak of the new crown epidemic, about 70% of the revenue of Las Vegas Sands and Wynn Resorts in 2019 came from Macau.

Li Zhongliang said: “The question is what they should do (to win the bid for the new license). It may be too late now. For example, investing in a significant share of non-gaming projects, this is what they should do before.”

In August, the Standing Committee of the National People’s Congress of China suddenly adjourned a vote on whether to list the Anti-Foreign Sanctions Law as a national law in Hong Kong and Macau. Prior to this, public opinion had advocated “weaponizing” Macau’s gambling rights bidding against the United States. The pro-Beijing “Xinhua Australia” questioned that some recent shareholder appointments by US-funded gambling companies were “in order to safeguard their own huge economic interests” and “to gain a favorable position and grasp the initiative in re-investing in gambling. “, but at the same time believes that this move will allow “US-funded gambling companies to be firmly controlled in the hands of’patriots and Australians'”.

Hong Kong’s pro-Beijing newspaper “Sing Tao Daily” columnist Lu Yongxiong also commented this week: “The current Sino-US relations are bad. The Macau government has to strengthen control of local gaming companies, and it has to attack US capital. This is an opportunity cost. It has become very low. Another effect is to force U.S. gambling companies to return to China and vigorously lobby the U.S. government to improve relations with China to protect their interests in Macau.”

Yu Yongyi said to the BBC in Chinese: “I think this is for both sides:’I will give you a price now, that’s it. Do you accept it? If you accept it, we will consider it again.’ He didn’t say that he would definitely approve it. “

“It proposes to increase the shareholding of Macau people. Does that not welcome foreign investment to a certain extent? This is a point of view.”

What do commentators think?

The consultation on the revision of the law once again mentioned Macau’s moderately diversified development. But Yu Yongyi questioned that what is meant by “moderate diversity” is also difficult to define.

“I have a question: Macau has changed from a city of more than 400,000 people to a society of more than 600,000 people. If a major industry can support the economy to a certain extent, it can actually accomplish its tasks. Everyone keeps talking about diversification. , So how much can this diversification contribute to the economy?”

Yu Yongyi’s questions also include whether Macau cannot find a new industry that can replace the gaming industry and feed more than 600,000 people. In the recently announced Hengqin Guangdong-Macao Cooperation Zone plan, among the industries proposed for development, in addition to the convention and exhibition industry, which is related to gambling, other industries such as finance, high-tech and traditional Chinese medicine “seem to be a fresh start”. Will the cost be high? Yu Yongyi believes that these are all. Things to consider when reviewing gambling policies.

George Choi, an analyst at Citigroup in Hong Kong, put forward a more positive view of the consultation text. Reuters quoted him as saying that the legal amendments proposed in the text will contribute to the long-term sustainable growth of the six gaming companies. However, “under the premise of weak investor confidence, if the market only focuses on potential negative connotations, we don’t feel that Accident”.

After the consultation, the next question is when to complete the legislation. Official Macau Radio and Television (TDM) reported that Director Li Weinong was asked whether the amendment could be completed in time for the re-bid for gambling next year. Li Weinong said that since this amendment does not involve re-bid for gambling, he did not respond.

Yu Yongyi believes that the amendment has been proposed five years ago, but some ideas will not be announced until today, and the legislative work may be delayed until after the reinvestment of gambling next year.

“I was also thinking before, if I will renew my license for another two years, delay it for a while, then look at the international situation, and then everyone is discussing how the law will change.”

Li Zhongliang believes that “as long as there is a will, there will be a way.” The consultation work will be completed on October 28. The newly elected Legislative Council should have taken office by then, and the amendment will be passed by then, and then an open bid will be announced around the end of the year. , Referring to the 2002 bidding process, the results of the new license bidding are expected to be announced well before the deadline in June 2022.

It is worth noting that a place not too far from Macau may benefit from the reorganization of the Macau gambling industry.

Yang Huishi, a stock analyst with the Research Department of Singapore’s Equity and Listed Funds, told Lianhe Zaobao: “Macao is the only place in China where gambling is legal. We believe that China’s stricter controls on Macau casinos may prompt Chinese nationals to gamble abroad. , And enter Singapore and other countries. This is potentially good news for casino operators like Genting Singapore.”