For Chinese consumers looking for the thrill of gambling and sports betting, there are two options: go to an overseas destination where gambling is legal or rely on underground gaming parlors—whether physical or online. The legal status of gambling in mainland China is the main reason behind Macau’s rise to become the world’s gambling powerhouse, with gross gaming revenue more than five times that of Las Vegas. However, recent reports indicate that the Chinese government is considering a substantial shift in gambling legislation in a move that could effectively allow Hainan Province to become mainland China’s Macau—a gambling and tourism giant fully ruled by the CCP.

To say that the implications of such a move would be enormous would be an understatement. Not least for Macau, but also for other destinations vying to increase Chinese tourist revenue with the help of casinos.

Hainan as a gambling destination would spell bad news for Macau and Singapore among others

According to a Bloomberg report, China is drafting a proposal that could lead to the legalization of online gaming on Hainan, a move that could open the door to physical casinos “over the long-term,” according to anonymous sources quoted by Bloomberg.

The potential move toward legalization of gambling on Hainan Island comes as the southern Chinese island is struggling with a fiscal deficit, and one of its largest conglomerates, HNA Group, is looking increasingly likely to crumble under its spiraling debt.

The Chinese government is intent on reorienting Hainan’s economy toward tourism, with the potential legalization of gambling falling into the greater strategy of making Hainan an attractive destination for Chinese and international travelers alike. Other plans to bolster Hainan as a tourist destination includes potential visa liberalization for foreign visitors, as well as a brand new airport set to open in 2020.

China wants to make Hainan into a world-class tourist destination

Back in 2014, the world’s largest duty-free mall, China Duty Free, opened for business on the island in a move that sought to keep more Chinese luxury consumption within China’s borders. While it’s difficult to assess just how successful the mall has been in reining in Chinese consumers’ overseas luxury consumption, the mall was clearly designed as a response to booming Chinese luxury consumption in Chinese travelers’ favorite destination, Hong Kong.

Much like China Duty Free, the prospect of legal gambling on Hainan Island very much falls in line with Xi Jinping’s anti-corruption policies and ambitions to limit capital outflows. Putting a dent in Macau’s $28 billion gaming revenue, a substantial part of which was sourced from the 22.2 million Chinese visitors it received last year, would undoubtedly make a difference in reigning in capital outflows.

First “Hong Kong’s Duty-free,” and now “Macau’s gambling”

While it’s easy to dismiss these recent reports as mere rumors, investors seem to be taking them seriously. Macau casino stocks took a beating on Friday afternoon after the report was published—this despite news that Macau gaming revenues soared the most since 2014 in January this year.

And just like Hainan’s China Duty Free can be viewed as a threat to Hong Kong’s economy, legal gambling in Hainan Province is a direct threat to the Macanese economy. Why bother with travel permits for Hong Kong and Macau when similar duty-free shopping and gaming experiences can be found within mainland China’s borders?

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