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Pivot point for Macau as concessions/changes loom

Macau has just wrapped up its public consultation on proposed amendments to gaming legislation. This was a key step ahead of the retendering process for the casino concessions that expire in June next year.

The proposals put forward by the government were short on detail and some of the broad outlines have alarmed both the industry and investors alike. So much so that shares in the six concessionaires had their biggest one-day fall on record after the document was published, wiping more than $18 billion off their market value.

The consultation process has also failed to shed much light on what the government intends when it says that there may be restrictions on the ability of companies to distribute capital to shareholders, or that there may be a government-appointee on the board of directors.

In the focus section of the November edition of the magazine, we take the opportunity to gather some views and opinions on the potential changes in Macau and the future evolution of the world’s largest gambling hub.

We start by bringing you the results of an anonymous survey of industry participants in Macau. The questionnaire was sent to operators, suppliers, consultants and academics among others, and asked for views on some of these key issues.

For October, Macau’s gross gambling revenue (GGR) was down more than 80 percent from its pre-pandemic levels and the recovery will not be anywhere near as strong as originally forecast at the beginning of 2021. However, one surprising element in our survey was that many in Macau don’t expect GGR levels to ever return to where they were before as China keeps up the pressure on Macau to diversify and on its people not to gamble.

Also in this section we ask a series of experts for their views on the evolution of Macau. Matt Ossolinski, CEO of GW Investment Consulting, delves into the recent proposals for the development of an economic and tourism hub on Hengqin. The plan pushes the level of cooperation between Macau and Mainland China to new levels and is designed to create new industries focused on sectors such as Chinese medicine and finance.

We also asked Wang Changbin, director of the Centre for Gaming and Tourism Studies at the Macau Polytechnic Institute, how he views the proposed amendments to the gaming law and what the likely impact will be on the industry.

Antonio Vilela Lobo, a lawyer who has written a four-volume treatise on Macau gaming law and who is a former senior legal adviser to the Macau Casino Commission, writes on how he sees the concession retendering process playing out. The operators have publicly said they want the government to extend the deadline given the short timeframe remaining before the June deadline.

Covid recovery - is pre-pandemic GGR a pipedream?

More than a third of respondents to a recent survey by Asia Gaming Brief said they don’t expect Macau to ever return to its 2019 pre-pandemic GGR.

In 2019, Macau casino gross gaming revenue reached US$36 billion, falling 3.4 percent year-on-year due mainly to a VIP decline in December as a result of a three-day visit by Chinese president Xi Jinping to Macau.

In 2020, the full-year GGR number fell to $7.6 billion, due mainly to pandemic-related border closures and travel restrictions.

Analysts have tipped Macau GGR to reach around $12 billion this year, as more quarantine restrictions have eased over the course of the year. When respondents were asked where they thought 2022 full-year GGR will land - these answers ranged from between $8 to $24 billion, with most respondents marking $20 billion as their tip, indicating a healthy, but not rapid rebound towards 2019 revenue.

However, when respondents were asked what year they expect Macau to return to its pre-pandemic GGR, at least 36 percent of respondents answered with “Never”.

Though not included within the scope of the survey, the negative sentiment is likely a result of the increased pressure from the Chinese government to reign in VIP and junket play over the past few years.

In August, Macau lawmakers appeared to have recognized that China’s new policies penalizing gambling and attempting to stop its citizens from gambling abroad will have a direct impact on how much revenue the government receives from its largest tax-contributing industry.

Back then, the committee of the Special Administrative Region’s (SAR) lawmaking body admitted that recent changes to the Mainland Chinese penal code could make it “difficult for VIP rooms to continue their operations“.

It begs the question of how Macau will be able to fill its coffers with such a sudden loss of VIP revenue.

Last month, Alidad Tash and fellow panelists speaking at the “MBtv/FRC Debates” online conference said that it was likely that the gaming tax would increase, given that the Macau authorities have been hemorrhaging money over the past two years.

However, only 29 percent of respondents in AGB’s survey said they expected Macau GGR tax to increase following publishing of Macau’s draft gaming law amendments, with those respondents expecting somewhere between a 1-5 percent increase if so.

That would mean only mass gaming and non-gaming revenue could be used to make up for the GGR shortfall.

That being said, there was also a sizable group of respondents who pegged 2024 as the year of GGR recovery, showing that sentiments about the future of the industry are still quite polarising.

This expectation is more closely in-line with analysts’ estimates. In September, Fitch Ratings forecasted gaming revenues to be nearly 65 percent below 2019 levels in 2021, recovering to 35 percent below 2019 by 2022, and then fully recovering in 2024.

Many observers in the industry, including one survey respondent, noted that Macau’s return to pre-pandemic GGR will be reliant on Macau reaching herd-immunity through vaccinations and eventually shedding its zero-covid policy.

Las Vegas Sands chairman and CEO Robert Goldstein in an earnings call in October said that the combination of easing restrictions and pent-up gaming demand will see Macau witness the same-style recovery that Las Vegas has over the past year.

“Las Vegas will be the blueprint for Asia in terms of recovery,” said Goldstein. “It’s the path. It’s the vaccination rate that is soaring, its open travel lanes, it’s opening the doors up and watching what happens in Vegas happen in Singapore… I think you’ll see a nice turn in 2022 and the same will happen in Macau when the government decides to open its borders up.

Last month, Macau health authorities confirmed they will maintain a “zero-covid” policy until vaccination rates in the city reach 80 to 90 percent. As at October 25, 2021, ony 52.1 percent of Macau’s population has been fully vaccinated against Covid-19.

Thumbs down given to supervision/ capital distribution changes

Proposals to increase operational supervision over the six operators, as well as suggestions for restrictions on capital distribution were two of the proposals that sent investors running for the exits once the gaming law amendments were published.

The proposals triggered a record sell off in the stocks, wiping about $18 billion in value in a single day.

However, just how negative were the amendments seen by people on the ground in Macau? Part of the issue was the lack of clarity offered up by the government as to what they actually intend and this left a lot of scope for the assumption of worst-case scenarios.

Responses to our poll reflected this uncertainty, with about a third saying they had a neutral view, although the majority of respondents did not like what they had heard so far.

About 32.1 percent said they were negative, with 8.9 percent seeing the amendments as very negative. Only 19.6 percent saw them as positive and 5.3 percent as highly positive.

Commentators have said the government is seeking to ensure that profits made in Macau go back to the local community and that adequate investments are made into diversification efforts, rather than seeing funds go into the pockets of investors overseas.

While the devil will be in the actual details, the initial reaction has made it extremely difficult for investors to take a view of the Macau market and of the valuation of the stocks. Following the announcement J.P. Morgan analysts called the market “uninvestable” for the time being.

The firm has since struck a more upbeat note following the public consultation process.

“While there was no clear evidence, we do think the government’s ‘tone’ was somewhat reasonable, in turn alleviating concerns on the worst-case scenarios to some extent,” the analysts wrote.

“The very fact that officials are trying to reassure the public on these key concerns could indicate the government is approaching this process in a fair and reasonable way, we think (or hope), although the visibility on the final outcome still remains low.”

Following the announcement J.P. Morgan analysts called the market “uninvestable” for the time being.

On the issue of operational supervision, some observers note that too much may have been read into this amendment. Changbin Wang, Director of the Centre for Tourism and Gaming at the Macau Polytechnic Institute writes in these pages that some of the operators already have such government representation. He also points out that these representatives have a supervisory and not a decision-making capacity.

Others are more concerned, seeing the potential for more direct supervision as being an attempt to control marketing activities in China.

Should Beijing be successful in stopping all forms of active promotion into China, Ben Lee, managing partner of IGamiX Management & Consulting, says he expects as much as 80 percent of premium mass to disappear.

“Basically they’ll have to rely on them coming into Macau under their own steam, no encouragement, no solicitation, they come when they want to. You can probably rule out 80 percent of their business.”

License status quo most likely, but doubts linger

Amendments to Macau’s draft gaming law suggest that the government is planning to do away with the current sub-concession system, but doesn’t clarify just how many licenses will be up for tender.

When the gaming concession system was first introduced to open up Macau’s gaming industry, only three licenses were on offer. That morphed into six, allowing for the entrance of Melco Resorts & Entertainment, Sands China and MGM China.

With the government now putting emphasis on a suitable and sustainable size for the industry, there has been considerable discussion over how the retendering process may shake out.

In our survey, we asked respondents how many concessionaires they expect to see in Macau and how likely it is that a new entrant will come into the market, or that one of the existing six will lose their license to operate.

All but 15 of the 56 respondents said they don’t believe there will be any change in the number of licenses. A few outliers said they only see scope for three, mirroring the original intentions for the market.

“I think six will be the upper limit,” Ben Lee, managing partner of IGamiX Management & Consulting said in a recent interview on the topic. “There may actually be fewer than this as far as Beijing is concerned, as they still don’t understand how three became six.”

A handful of respondents to the survey said they expect another license to be added. There has been pressure in the past to open the market further to local operators, who were not able to compete with the financial muscle and expertise of the U.S. bidders in the first round of tendering.

While six appears to be the magic number, the picture became blurred when we asked whether a current operator will lose a license, or whether there will be a new entrant. The answers suggest that there is more divergence of opinion.

In the survey choices, respondents were given the choice of very likely, very unlikely, neutral, likely and very likely.

Very likely meant there was a 90 percent chance or higher, with likely being between 70 percent and 89 percent. Very unlikely was 10 percent or lower, unlikely was between 11 percent and 30 percent.

The majority skewed towards there being little change in the status quo.

When asked how likely it is that one operator loses a license, 46.5 percent of respondents said it was highly unlikely, while a further 24.1 percent feel that it’s unlikely.

On the negative side, 10.3 percent of respondents said it was highly likely that one of the current six would be out, while 10.3 percent also said it was likely. On this question 8.6 percent were neutral.

Among respondents, 8.6 percent thought it very likely that a new entrant will come in with 17.2 percent seeing it as a likely scenario. Again, the majority of respondents skewed towards the likelihood that the status quo will be maintained, with 34.4 percent seeing a new entrant as highly unlikely and 18.9 percent saying it is unlikely.

Lee suggests that if one or more of the current licensees lose out in this round, we could see a wave of mergers and acquisitions in the industry in Macau.

In terms of a likely new entrant, the most often cited names were Suncity Holdings and the Genting Group. Suncity is linked to Macau’s largest junket operator, although in recent years the group has pushed to diversify and is now developing and operating its own integrated resorts.

Genting is one of the world’s largest operators, but failed to gain a license when the market was originally opened up and has since said it would still be interested in entering the market should a possibility open up.

Its Genting Hong Kong unit has been quietly building a new hotel in Macau, although it was forced to sell off a 50 percent stake in the project in November last year to keep its cash-strapped cruise business afloat.

Shining light on Macau’s proposed gaming law changes

By Wang Changbin*

Macau began its public consultation on amendments to the Legal Framework for the Operations of Casino Games of Fortune (Law No. 16/2001) in September, with proposals that could have a far-reaching impact on the industry.

The amendment of the law is for the purpose of rebidding for the casino gaming concessions after June 26, 2022, the expiry date of the current license. The consultation document, issued by the government, puts forward nine key points, which shed light on how the law might be revised.

Number of licenses?

The document does not indicate a specific number of new concessions that the government intends to grant. However, several principles are outlined.

First, it emphasizes that, despite plenty of desirable results from the booming of gaming, the rapid expansion has squeezed the developmental space for other industries in Macau and more efforts should be made for economic diversification in the future.

Therefore it’s unlikely there will be a significant increase in the number of concessions.

Second, the document states that the stability of the market size should be considered when granting the concessions. At the news conference launching the public consultation, the Secretary for Economics and Finance, Lei Wai Nong, also said a certain level of market size needed to be maintained to meet the international competition.

Based on the document and speech, there’s also unlikely to be a significant decrease in the number of operators.

Third, sub-concessions will not be allowed in the new law. However, to maintain the stability of the economy, it is unlikely the sub-concessionaires will be driven out of Macau’s market.

Considering all the factors above and three concessions and three sub-concessions extant in the market, the target number of concessions would most likely be six.

Concession period

Law No. 16/2001 sets the concession period as 20 years, which can be extended up to 25 years. The document suggests reducing the concession period because the gaming operators may lose momentum to make progress if they are given an excessively long monopoly or oligopoly. In addition, the operators will be unable to build large integrated resorts any more due to the limited land resources.

Therefore, I believe that 10 years with 2-3 years of possible extension would most likely happen. If the period is reduced to less than 10 years, the gaming market may suffer too frequent disruption which will hinder the concessionaires from investing in long-term projects.

Enhancing regulation

The document recommends increasing the minimum capital of the gaming companies. It suggests the MOP200 million ($25 million) required by the current law no longer seems to be sufficient due to the large amount of capital involved in the gaming operation, coupled with factors such as inflation.

I believe that increasing the minimum capital is not as useful as the government expects. The capital requirement may be useful to prevent small companies from participating in the re-tendering process, but will not result in the sound operation of a company as more capital does not mean better financial capacity.

Another proposal to introduce government representatives and to increase the shareholding ratio of the managing director are believed to be the two critical factors that caused the stock prices in Macau’s gaming companies to plunge in September, after the document was published. Many considered that the government would interfere heavily with the gaming companies with the two proposals.

However, the measures might be misread or over evaluated. According to Macau law, government representatives are supposed to play a supervisory, rather than decision-making, role. A government representative has long been present in many of Macau’s concessionaires.

Law No. 16/2001 requires that a managing director be a permanent resident of Macau and hold no less than 10 percent of the corporate capital. The document recommends increasing the shareholding ratio to facilitate the enhanced control by the government. The relevancy of this measure is questionable since the concessionaires can easily find an individual with such qualifications solely to meet the requirement.

The document also suggests imposing more control over dividend payments. Measures such as setting up a maximum debt-asset ratio may likely be integrated into the new law to ensure the financial stability of the concessionaires.

According to the document, suitability checks should be strengthened by applying the mechanism to lower-rank employees. Although the proposal is desirable, the government should undertake effective investigations rather than merely checking submitted dossiers by applicants.

A new crime of illegal deposits has been introduced to deter the gaming promoters from absorbing money from the public. The government should have approaches to prevent the gaming promoters from circumnavigating the law by means such as borrowing for consumption.

Social responsibilities

Certain interest groups have been urging the government to write social responsibilities into the gaming law. The document responds to the advocacy positively but rather in a general way. Since most of the social responsibilities are difficult to be made mandatory, they might appear in the new law as non-compulsory content with details being described in the concession contract.

* Changbin Wang is Director of the Centre for Tourism and Gaming Studies at the Macau Polytechnic Institute. He has published more than 50 papers, including 20 in key academic journals.

Direct award a better option

By António Lobo Vilela*

As announced several times, at least since 2017, 1 the Macau government will open a public (international) tender for the award of the casino gaming concessions expiring in June 2022.

As we advocated in the past[2], several factors seem to discourage opening a public tender at present. It is also the understanding of the Monitoring Committee for Land Affairs and Public Concessions of Macau’s Legislative Assembly[3].

The short time [4] (until the expiry of the current concessions and subconcessions) to deal with the formalities necessary to carry out a public tender, together with the effects of the COVID-19 pandemic, aggravated by the persistence of the COVID-zero policy, are clear examples of this.

One of the main points of the Public Consultation [5] Paper on the revision of the Macau Gaming Law [6] refers to the number of concessions[7]. Although it is unclear its practical meaning [8] and the Macau government’s intention, which proposes to “study and review the number of concessions,” [9] three hypotheses are possible: decreasing, increasing, or maintaining the current number of casino gaming operators.

The option for a decrease has the immediate and inevitable consequence of a significant surge in the unemployment rate[10]. Many people, the vast majority of which are Macau residents, 1[1] would be unemployed, affecting directly or indirectly a universe of people and small and medium-sized enterprises. Furthermore, it is a working force that, at present, will hardly be absorbed by the remaining casino gaming operators, a fact that can become an (undesirable) focus of social instability. [12] In turn, the option for the increase would lead to the entry of new players into the market at an economically challenging time. The current levels of gross gaming revenue generated in the casinos are not (or may not be in the short run) sufficient [13] to keep six operators operating indefinitely. Furthermore, geopolitical and other reasons [14] may restrict the entry into the scene of (new) foreign players, the only ones endowed with experience in the operation of casino games of chance and with technical and financial capacity.

Hence, and by exclusion, the maintenance of the number of casino gaming operators proves to be the only viable option given the current reality. And it is the logical consequence in line with the conclusions reached by the mid-term review report [15] of the gaming industry commissioned by the Macau government half a dozen years ago that all casino gaming operators had (more than) fulfilled their duties.

If maintenance is the way forward, what public interest is there in opening a public tender to award the casino gaming concessions?

In our view, none when compared to the public interest in granting the concessions by a direct award. [16]

Unlike all other types of permitted gambling in Macau, granting casino gaming concessions by a direct award is not allowed under the current legal and regulatory framework on casino gaming. Under the Gaming Law, [17] such granting is (always) preceded by a public tender open for this purpose (principle of a public tender,) [18] and the concessions awarded to the bidders “who present the most advantageous conditions for the Region in the proper operation of casino games of chance.” [19]

The difference between a public tender and a direct award is significant. While in a public tender, the Macau government plays a passive role, depending on the awarding proposals presented by the bidders, it plays an active role in the direct award, dictating the conditions under which it intends to contract. For illustrative purposes only, in the event of a public tender, nothing prevents, under the terms of the law currently drafted, bidders from offering a percentage as low as 0.1 percent for the contribution of up to 2 percent of gross gaming revenues to a public foundation, [20] whereas, in a scenario of a direct award, the government can impose the quantitative to be that 2 percent.

In conclusion, the Macau government should consider an amendment to the Gaming Law to provide for the possibility to directly award the casino gaming concessions to the current casino operators. At present, the conditions for them to offer “the most advantageous conditions for the Region” are not met, particularly in a scenario where the estimated gaming gross revenue for 2021 is half of what was estimated by the Macau government in the 2020 budget.

Whatever legislative policy choice, we can only hope that the unfolding of this entire process relating to the new casino gaming concessions, which began troubled, [21] proceeds smoothly. It needs to be in the public interest and must safeguard the economy and image of Macau, to make sure it does not turn into a “Mak Mak” [22] in the gaming industry. Faites vos jeux!

* Lawyer in Macau. Author of the Macau Gaming Law Book (www.macaugaminglaw.com).

[1] See, inter alia, the response of the Macau government (signed by the DICJ acting-Director and dated 11-08-2017) to the written interpellation by the member of the Macau Legislative Assembly, Ng Kuok Cheong, dated 10-07-2017 (Order no. 859/VI/2017).

[2] See our article Gaming in Macau after 2022: New Beginning or Mere Continuity?, IMGL Magazine, Summer 2021, p. 15-19, https://online.flippingbook.com/view/391103448/.

[3] See Report No. 1/VI/2021, of 02-08-2021, where the Monitoring Committee states “that the public tender does not necessarily have to take place before the end of the contracts [July 2022], that a relatively better date for its realization should be chosen, since, under the impact of factors such as economic uncertainties, it is possible that the Government is forced, with no other alternative, to admit some competitors with unsatisfactory conditions” (p. 9).

[4] Not considering the time necessary to pass the amendments to the Gaming Law.

[5] The public consultation began on 15 September 2021 and ended on 29 October 2021.

[6] Law No. 16/2001. of 1 September.

[7] There are currently three concessions granted and three sub-concessions authorized, one for each of the concessions.

[8] A possible practical meaning would be the elimination of the legal restriction on the maximum number of concessions, which, according to the law, is three (see Gaming Law, Article 7(2)), or the alteration of this maximum number given the Macau government declared that the prohibition of subconcessions will be expressly stipulated in the law (see the Public Consultation Paper, p. 35, last paragraph).

[9] See the Public Consultation Paper, p. 35, last paragraph.

[10] According to the DSEC (Statistics and Census Service), the unemployment rate in the 2nd quarter of 2021 was 2.9%, the active population 387.000 people, and the employed population 375.900 people. In the 1st quarter of 2019, the unemployment rate was 1.7%, the active population 393.600 people, and the employed population 387.100 people.

[11] In addition to dealers, a profession that only Macau residents can perform, a significant number of “not less than 85%” of holders of “high and medium level management and leadership positions” held by Macau residents would also be affected - see the 2021 Public Policy Address Report, p. 192, https://images.io.gov.mo/pt/lag/lag2021_pt.pdf.

[12] One of the main and most important mandates of Macau’s chief executive is to ensure social stability. Promoting social stability in Macau was one of the purposes of creating the Macau Special Administrative Region – see Preamble of the Macau Basic Law, second paragraph. Social stability is also one of the specific objectives of the Gaming Law (see Article 1(2), subpar. 5).

[13] The revenues from special gaming tax foreseen in the 2021 Macau SAR Budget is MOP 45.5 billion (equivalent to USD 5.69 billion). Considering that the special gaming tax is levied on gross gaming revenue and its rate is 35%, the Macau government predicts that gross gaming revenue for the year 2021 will be MOP 130 billion (equivalent to USD 16.25 billion). However, in the first ten months of this year only MOP 25.2 billion (equivalent to USD 3,15 billion) entered the public coffers, i.e., 55.45% of the budgeted amount, which turns impossible to reach the goal of USD 130 billion set by the Macau government (source: DICJ (Gaming Inspection and Coordination Bureau)).

[14] The “development of Macau’s gaming sector has implications for national security, namely in the economic, financial and public security areas” (see Report No. 1/VI/2021, above cited, p. 5). Furthermore, the need to achieve the desired (and always distant) “economic diversification” can also be indicated as a reason. Restrictions on the growth of gaming tables imposed since 2013 by the Macau government were reinforced by the Central government with the Master Plan of the Development of the Guangdong-Macao Intensive Cooperation Zone in Hengqin.

[15] “Mid-term review of MSAR’s games of chance sector after its liberalization, and its impact on the economy, society, citizen’s quality of life and operation of concessionaires/subconcessionaires – Study Report,” dated May 2016, commissioned by the Macau government to the University of Macau.

[16] A direct award is a form of public contracting in which the granting authority directly invites the entity with which it int ends to contract.

[17] Article 8(1).

[18] See, on the matter, António Lobo Vilela, MACAU GAMING LAW, ANNOTATED WITH COMMENTS, Volume I – Articles 1 to 10, PC Consulting, 2002, p. 415 and ff. (www. macaugaminglaw.com).

[19] See Article 78 of Administrative Regulation No. 26/2001, of 29 October (Regulation of the public tender for granting casino gaming concessions).

[20] See Gaming Law, Article 22, subpar. 7.

[21] The “[s]hares of Macau casino operators on Wednesday [15-09-2021] shed as much as a third of their value, losing about $18 billion” – see, inter alia, the news item entitled Billions blown as Macau casino investors fold amid gambling review, by Farah Master and Donny Kwok, Reuters, 16-09-2021, https://www.reuters.com/business/ macau-kicks-off-public-gaming-consultationahead-casino-rebidding-2021-09-15/.

[22] “Mak Mak” is the name of the official tourism mascot of Macau, a “fresh and positive tourism image of the city” which combines a “blackfaced spoonbill and Guia Lighthouse” – see https://mtt.macaotourism.gov.mo/201805/en/ contents/1/871.html.

Hengqin buzzing with tourists and building out attractions

It feels like Macau’s Wild West. A stone’s throw away and yet a world apart, Hengqin Island has been buzzing with tourists since May 2020.

If China’s government has its way, the island and the world’s largest gambling hub, will become an integrated tourism zone that will drive diversification of Macau’s economy. The operators are likely to play a key role.

At present most tourists come for Chimelong’s theme park. Meanwhile second-tier tourism venues have sprouted around the island, albeit grindingly. Among them are a Lionsgate movie theme park, a family campground, Olympic-class stadiums, a vast manicured eco-park, and a museum modeled after Beijing’s Forbidden City. All are hoping to lure a little piece of Chimelong’s sweet pie. So far, they have only managed a few crumbs. ‘The future is bright,’ their operators insist, ‘and we’re in it for the long haul.’

They might just be right. Hengqin’s proximity to China’s casino gambling monopoly makes the region an enduring and unshakeable draw for the nation’s consumer class. Meanwhile, existing and future transportation links have capacity to deliver tens of millions more visitors to the island annually.

Transportation

Amid the pandemic and restricted borders, the new Hengqin Port’s opening in August 2020 was temporarily irrelevant and largely overlooked. The cavernous facility, still mostly empty, can handle 80 million border crossings per year. It sits atop China’s second largest underground train station, with a similar capacity to deliver 80 million passengers each year.

Despite the pandemic, construction of an expanded transportation network barrels ahead, with the next milestone to be the completion of a road and rail bridge connecting Hengqin to Zhuhai’s airport. It will extend the high-speed rail line from Chimelong and Hengqin Port, effectively delivering another airport to Cotai’s doorstep.

Construction commenced on the extension of Macau’s LRT to Hengqin Station this year. Unofficially construction of this line was already underway on the China side of the border. Looking further ahead, there are plans for a new tunnel between Hengqin and Macau’s Taipa district. Another link may be constructed connecting Chimelong to Macau’s Coloane district.

Chimelong

In contrast to the cloistered mega-resorts across the river in Macau, Chimelong Ocean Kingdom’s visitation is back to pre-pandemic levels. With the first half of 2020 wiped out, it managed to eke out nearly 5 million visitors for the year—almost half its total 2019 visitation.

This made it Asia’s second (behind Shanghai Disneyland) most-visited theme park outside of Japan in 2020.

Chimelong’s total resort area on Hengqin is around one-third built out. The company is aiming for a total annual visitation of 50 million after completing all phases.

In the coming months we can expect to hear more about Chimelong’s US$540 million Marine Science Park, set to open before the Lunar New Year as the world’s largest facility of its kind. A cable-car attraction on Big Hengqin Mountain is also in Chimelong’s near-term pipeline.

Tourism integration

There are whispers of Hengqin’s incremental but imminent duty-free shopping status, to be based on the Hainan model. Such a move would be game-changing.

Furthermore, large-scale medical tourism, sports tourism, and yachting tourism projects are being developed on Hengqin to add to Macau’s tourism mix.

There is however a fundamental obstacle: Macau and Hengqin are not yet integrated into a single tourism market. Tourism integration can only be achieved when policies change to allow millions of Chinese domestic tourists the ability to cross back and forth between Hengqin and Cotai.

Over time, authorities are expected to incrementally loosen visa restrictions to make it easier for a Chinese tourist to experience an integrated Macau-Hengqin holiday with freedom of movement. For example, one iteration could be the introduction of a Macau- Hengqin entry permit for mainland tourists who are confirmed guests of a Hengqin hotel, whereby they could have unlimited entries to Macau for a one-week period.

Such moves could result in a meaningful increase in average length of stay—long the elusive white whale of Macau and its gaming companies.

And Macau’s gaming companies might be moving into Hengqin themselves. A political push is underway to diversify Macau’s tourism mix with non-gaming projects, just as gaming concession renewals are around the corner. Following a September announcement of a restructured Hengqin government, it is now politically correct to say: Investing in Hengqin is the biggest action a concessionaire can take to diversify Macau’s economy.

September’s Hengqin announcement

September’s long-anticipated announcement of a restructured Hengqin government had been planned for August but was pushed back. The announcement served as an accelerator for the master plan that was already in place. It also served as a reaffirmation of support from the top. It cemented Hengqin’s place, arguably, as the central government’s highest-priority special zone in China.

The announcement’s most significant component may be the crystallization of Macau’s authority over Hengqin’s commercial build-out. This comes during a period when the casino concessionaires are pursuing deals for non-gaming development projects on Hengqin. As a result Macau’s Chief Executive has been anointed to a position of power unseen since a previous chief executive divided up the land on Cotai.

Similar to when two corporations merge under a power-sharing arrangement, organizational culture clashes, behind-the-scenes power struggles, and bureaucratic bungling in Hengqin’s new joint governing committee seem inevitable.

While Beijing’s goals for Hengqin will probably be eventually achieved, the execution might be messy: Aside from obvious legal and structural differences between Macau and mainland governments, there is a vast cultural difference between the two styles of governance, communication, and execution. Like so much with Hengqin, it will be an experiment.

* Matthew Ossolinski is CEO of GW Investment Consulting. The firm provides advisory and business brokering services to integrated resort operators and institutional investors on Hengqin Island. He also manages Macau Gaming Fund III.