Could Hainan Island Become China’s Next Gambling Hub?

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Monday, February 5th, 2018 | Written by Lucy Brown

Macau is currently the world biggest gambling hub, with the island positioned off the south coast of China having usurped Las Vegas from its pole position more than a decade ago. The obvious success of the resort, whose revenues rose by 19% to $33.13 billion in 2017, has obviously emboldened China to consider expanding gambling beyond just Macau, and this week it was announced that the strategic southern province of Hainan Island could be chosen as a second center of gambling within the vast country of $1.4 billion people.

China’s Hawaii

The island of Hainan, which is roughly about the same size as Switzerland, is known as “China’s Hawaii” on account of its beautiful sunny weather, sandy beaches, and budding surf scene. In addition to being a popular tourist destination, it also acts as a stop off point for the Chinese navy and air force which regularly patrol the South China Sea.

Needless to say the island already has a well developed infrastructure in place, and currently boasts three international airports, all of which are situated on the eastern coast, with another one planned for Dongfang city area on the island’s western coast. Further promoting the island as a tourist center would also fit in well with China’s strategy of trying to attract more holiday makers each year, who totaled 31 million in 2016 compared to more than double that number for the US.

Gambling Expansion

Currently all gambling activities are banned throughout China, except those offered at Macau’s numerous high-end casinos. Hainan located just 474 km away, on the other hand, is increasingly being seen as a prime location to extend the country’s gambling industry, especially as the island is currently seeking ways in which to give its decreasing revenues a significant boost.

According to reports, Chinese President Xi Jinping has expressed his approval of a gambling expansion being extended to the island, with a draft proposal already being drawn up which could eventually lead to a range of gambling products being legalized in Hainan. At this early stage, the products currently being considered include introducing online gaming, a lottery, sports betting, and even land-based casinos, although these are not likely to follow until many years in the future.

Competition to Macau

While the news has created a sense of excitement on the island, the same cannot be said of Macau, which following the news saw its main index of casino stocks tumble, including Wynn Macau down 0.2 percent, MGM China Holdings Ltd down 1.5 percent, and Sands China Ltd. down by 1.4 percent. Commenting on the adverse effect the news had on Macau’s casino stocks, Sam Chi Yung from South China Financial Holdings Ltd, explained:

“I think investors were shocked — I’m a bit surprised. It’s difficult to say what the impact will be on their profits as it all depends on China’s policy and how they arrange the license. But what’s sure is that people going to Macau to gamble will drop.”

One of the biggest concerns for Macau is that the mass tourist visitors that the island has recently been focusing upon are the same type of audience that will subsequently be targeted by Hainan.

Risky Business

Analyst at both Morgan Stanley and Sanford C. Bernstein & Co. have played down the possibility of any major risks affecting Macau’s gambling market, with the former forecasting Macau’s growth continuing unabated, and the latter pointing out that the talks are currently preliminary, and so do not pose an immediate threat to Macau.

Nevertheless, the major casino companies who have continued to up their investments in Macau will be warily eyeing any potential developments which could potentially hit their bottom lines. Las Vegas Sands, for instance, has already invested more than $13 billion in Macau since opening its first casino in 2002, and plans to shell out a further $1.1 billion remodeling the Sands Cotai Central into a London-themed casino resort. Likewise, MGM Resorts International is scheduled to open its new $3.1 billion Cotai resort within the next few weeks.

More Choice for Gamblers

On the positive side, Hainan embracing a gambling industry would provide global gamblers with more choice when visiting the various destinations offered in the East, including China, Vietnam, the Philippines, and Australia. It may also place China in a better position compete with Japan when it opens its casino resorts in advance of the 2020 Tokyo Olympics.