The writing has been on the wall for some time, but now it’s official: Hainan will become a sanctioned place for sports lotteries in China. The move is widely believed to be a first step toward legalizing gambling on Hainan island. Moreover, China is prepping for a future of Hainan as a Chinese tourism powerhouse, both as a destination for domestic and international visitors with various reforms and directed investments.

More than anything, perhaps, the new blueprint for Hainan’s development could mean a sucker punch against the tourism industries of Chinese Special Administrative Regions (SARs) Hong Kong and Macau, both of which have immensely profited from the Chinese outbound tourism boom and their respective competitive advantages in terms of laws.

In essence, China’s so-called blueprint for Hainan is to transform the province into a  “free-trade port with Chinese characteristics.” However, unlike other free-trade zones (FTZs) in Shanghai and Guangdong province, the Hainan “experiment” is explicitly focused on tourism.

Hainan province: China’s first “tourism FTZ”

“Hainan should study international experience but not engage in re-exports or processing manufacturing,” according to guidelines quoted by the South China Morning Post. “Instead, it should develop tourism, modern services, and hi-tech industries, including aerospace.”

While moves to strengthen Hainan as a tourism powerhouse have been underway for some time, the CCP-sanctioned and Xi-endorsed blueprint to turn Hainan into a proper FTZ is a major go-ahead that will get the ball rolling at a wholly different pace.

Expect more of everything Chinese tourists like: tax-free shopping and gambling

What exactly will come of all this remains up for debate and interpretation, but it’s likely that Hainan’s opening up in the tourism sense will mean reduced visa requirements for foreign visitors compared to other Chinese provinces, and most certainly even more capital directed at developing resorts and entertainment options on the island. The directives also explicitly open for horse racing and sports betting on the island. It is also likely that tax-free shopping options in Hainan province will expand further.

If the Chinese government is serious about attracting foreign visitors to the island, some easing of internet censorship—at least for international guests at resorts on the island—may also be a possibility.

The Communist Party’s hopes for a tourism powerhouse inside mainland China’s borders can also be viewed as a direct threat to the tourism industries of SARs Hong Kong and Macau. The main draw of Hong Kong, Chinese outbound tourists’ number-one destination, is its tax-free shopping. For Macau, it’s gambling. Somewhat more niche types of tourism include Hong Kong’s pristine beaches on surrounding islands, horse racing, and family-friendly entertainment at Macau’s many resorts. With tax-free shopping and horse racing already on the table, and gambling a possibility down the line (state media even suggests so), there’s certainly a case for framing it all as an attempt to bring the SARs’ respective competitive advantages to a destination inside mainland China’s borders.

Are Hong Kong and Macau at risk? Depends on who you ask.

However, others are less convinced about the threat Hainan’s future may pose to Hong Kong and Macau.

“Even if they open up to gambling, it would not have a big impact on Macau. The city is on its way to becoming a diversified convention center, with entertainment shows, exhibitions and expos. It aims to become the next Las Vegas.” Clement Chan Kam-wing, managing director of accounting firm BDO, told Alibaba-owned South China Morning Post.

“Hainan is more like a resort destination and Hong Kong is an international city where tourists can have a very different experience,” Yiu Si-wing, a Hong Kong legislator representing the tourism sector told the paper.

“This is bound to hurt Hong Kong retail sales”

In non-Chinese media, the tone is notably different. “It is inevitable that Chinese shoppers will divert purchases of pricier items from Hong Kong to Hainan,” said Bloomberg Intelligence analyst Catherine Lim. “This is bound to hurt Hong Kong retail sales going forward.”

In China, meanwhile, stocks associated with lotteries, property, and travel soared after the announcement.  Ostensibly, the “opening up” and “globalization” that Hainan is supposed to now represent looks more profitable for Chinese companies than it does for anyone else.

In other words, “a free-trade port with Chinese characteristics” most certainly is the accurate description of Hainan’s newfound status.

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