Xi Gets Tough in Macau as $75 Billion Casino Value Wiped

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China's President Xi Jinping
While anti-corruption campaigns have been short-lived in the past, China's President Xi Jinping is stepping up the effort in a bid to bolster the legitimacy of the ruling Communist Party. Photographer: Andrew Harrer/Bloomberg

As Xi Jinping makes his first visit to Macau as China’s president this week, the city’s casinos would like to hear a reassuring word that might revive their tumbling stock prices. They’re not likely to get it.

Xi, who arrived today to mark the 15th anniversary of the former Portuguese enclave’s return to Chinese rule, is the man responsible for the two-year campaign against corruption in China, scaring away high rollers who have helped make Macau the world’s largest casino gambling hub and wiping out $75 billion of casino operators’ market value -- bigger than the entire economy of Luxembourg.

Macau, half of the size of Manhattan and the only place in China where casinos are legal, is viewed as a conduit for officials and businessmen to bypass currency controls and send money out of the mainland to safer havens. While anti-graft campaigns have been short-lived in the past, Xi is stepping up the effort in a bid to bolster the legitimacy of the ruling Communist Party.

“It’s more important for China’s government to see Macau in a healthy economic development, and the reliance on corrupted official gamblers is not healthy,” said Chen Guanghan, deputy director of the Chinese Association of Hong Kong and Macau Studies, a policy research institute backed by China’s government.

Unswerving Determination

It’s important for Macau to maintain long-term prosperity and stability even it faces difficulties and challenges which should be handled appropriately, Xi said in a speech at a welcoming dinner, without elaborating.

An editorial posted on the official Xinhua News Agency website late on Thursday said the central government’s strategy is for the diversified development of Macau’s economy, to overcome the city’s constraints and challenges to its growth.

A separate editorial published in China’s military newspaper this week said Xi’s determination to rid corruption is “unswerving” and that it’s a “mistake” to believe the campaign is coming to an end. In Macau, the authorities will start cracking down on illicit funds funneled through the territory, which sent casino shares plunging on Dec. 17.

Macau’s six major casino operators have lost about $75 billion in market value so far this year, based on the Bloomberg Intelligence Macau Gaming Market Index.

Macau Contraction

Among the companies, gambling mogul Stanley Ho’s SJM Holdings Ltd. is the biggest casualty with shares dropping 52 percent. The companies of billionaires Sheldon Adelson and Steve Wynn recorded an almost 40 percent decline.

High-rollers, or VIP gamblers, make up about two-thirds of Macau’s billion-dollar gaming market that contributed more than 80 percent of the city’s total revenue last year. Xi’s clampdown caused Macau’s first year-on-year economic contraction since 2009. Now, the city is bracing for its first ever annual decline in casino revenue after posting losses for six straight months.

Xi is scheduled to attend ceremonies to mark the handover and inauguration of the city’s newly re-elected Chief Executive Fernando Chui tomorrow. Beijing-backed Chui won a second five-year term as the only candidate in an election in August.

The Chinese president arrives at a politically sensitive period, days after neighboring Hong Kong declared the end of 11 weeks of the pro-democracy protests.

No Goodies

“I expect Xi Jinping to talk in fairly stern terms that he wants this economy to diversify and to move away from a casino-driven and, in particular, a high-roller economy,” said Philip Tulk, a Hong Kong-based analyst at Standard Chartered Plc. “I’m not expecting anything to be distributed from his ’goodies bag’ which we heard some in the industry talk about.”

There had been industry expectations that the government would make it easier for mainland Chinese to cross the border and visit casinos after extending opening hours at borders linking Macau with the neighboring Chinese Zhuhai city.

China instead came up with more restrictions in recent weeks. Starting this month, it tightened rules for the transit visas issued for Chinese visitors entering from Zhuhai, closing a prior loophole used by many high-end players to go to the city more often and stay longer than normally allowed.

The stricter rules could add pressure on Macau’s mass-market gaming revenue, Barclays analysts led by Phoebe Tse has said. In response to the VIP decline, companies including Sands China Ltd. and Galaxy Entertainment Group Ltd. have been building new resorts and shifting resources to target vacationing, mass-market gamblers.

The dominance of the casino gambling industry doesn’t meet Macau’s overall interest, and the city can’t only focus on its own economic growth and tax revenue, state-controlled Teledifusão de Macau reported this month, citing Li Fei, deputy secretary general of the National People’s Congress, China’s top law-making body.

Social Stability

“The booming casino industry is definitely a money machine, but at the same time it’s enlarging the social income gap that could damage social stability,” said Chen from the China-backed policy research institute.

Macau has seen at least eight labor protests this year with workers demanding better pay and welfare amid rising inflation and house prices.

Still, Macau is seen less of a trouble maker than Hong Kong.

Amid heightened security in Macau ahead of Xi’s visit, the outspoken Apple Daily newspaper reported on Dec. 13 that one of its reporters as well as a pro-democracy protester attempting to enter Macau were sent back to Hong Kong as they posed “a threat to internal security.”

Xi’s visit sends a strong political signal that Hong Kong “has to learn from Macau,” said Zou Pingxue, a member of the government-backed Chinese Association of Hong Kong and Macau Studies.

Hong Kong “has been politicized and highly divided,” said the law professor with Shenzhen University. “Macau is a good example for Hong Kong in this case.”

— With assistance by Keith Zhai, and Liza Lin

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