China Trade War Casualties Could Include US Casinos in Macau
US casino companies operating in Macau could become targets in the burgeoning trade war between China and the United States, according to Forbes. Muhammed Cohen of Forbes Online write an op-ed this week which suggested that Las Vegas Sands, MGM Resorts, and Wynn Resorts might be targeted for consequences, if the tariff war between the US and Chinese governments continues.
Cohen’s premise is the Chinese government gives favors to foreign companies it likes, but takes it out on foreign businesses when it suits its needs.
In supporting his theses, the Muhammed Cohen noted the surge in tourist visits to the Philippines and Cambodia in the past year, along with the sharp decline in visits to South Korea over the same period.
In the case of the Philippines, President Rodrigo Duterte’s criticism of the United States and his break with policies from the Aquino administration led to a 43% surge in Chinese visits to the Philippines. China has supplanted America as number two among Philippine tourism, while its casino revenues have risen 14%.
Signs of Chinese Favor or Ill-Favor
Cambodia, long friendly to the Chinese government, has been the most vocal supporter of China’s policies in the South China Seas. Consequently, Chinese visits to Cambodia have increased nearly 50% and swelled NagaWorld’s revenues by 85%. Malaysian billionaire Chen Lip Keong, owner of NagaCorp, has used the windfall to build Naga2, a vast expansion to his gaming palace in Phnom Penh.
Meanwhile, South Korea felt China’s wrath when it installed the THAAD anti-missile defense system. China restricted access to South Korea for its citizens, meaning that 4 million fewer Chinese visited South Korea last year. The Jeju Island casinos designed to cater to visitors from northeastern China suffered major revenue losses.
How US Business Interests Would Be Targeted
Shaun Rein, an analyst who works as Managing Director for China Market Research, said that China would not approach the dispute with the United States in the same fashion. Chinese tourists are only the 5th-biggest demographic visiting the United States and the US tourism industry is going to remain strong no matter what.
Instead of targeting American tourism, an anti-US policy would target American companies operating in China or doing business with China. That could mean trouble for the many US companies which moved manufacturing to China. It also could mean trouble for the three US casino companies operating currently in Macau.
US Casino Companies Possible Targets?
Shaun Rein said Las Vegas Sands Corp. in particularly could be a target, if the US-China trade war becomes something serious. Rein said, “The risks for Sheldon Anderson’s Sands casinos are quite high. It is quite possible that China will target his casinos specifically because he is a [Donald] Trump crony.”
When asked how such policies might manifest, the international market analyst said, “It is possible they will ratchet up police surveillance of his Macau properties in order to spread fear among high rollers and even middle class gamblers that they are being checked in on by the authorities. Or they will launch an audit of their books. Either way, a move could be viewed as having plausible deniability that the government cloaks as a crackdown on corruption or tax evasion, as they did against Lotte in China’s battle with South Korea.”
26-Month Macau Slowdown
US casino companies already know how arbitary decisions made in Beijing can harm their business. When President Xi Jinping’s 2013 anti-corruption crackdown finally reached Macau in the summer of 2014, it led to 26 straight months of decline in the Macau casino industry.
Las Vegas Sands, MGM Resorts, and Wynn Resorts lost a combined US$17 billion from their value, which translated to 38% of their value. Even nearly two years after the Macau casino recovery began, the companies have only recovered 50% of what they lost.
US Gaming Executives in Macua
That is one reason why Macau gaming moguls tend to be so complementary to the Chinese officials. Former Wynn Resorts CEO Steve Wynn, who later lost his cool and criticized Macau officials over the baccarat table allotments for his $4 billion Wynn Palace, once favorably compared China’s one-party system to the United States’ two-party system.
Sheldon Adelson has been muted in his criticisms of the Chinese government. When Steve Wynn criticized the table game allotments, Adelson praised the Chinese officials for their good judgment.
It was a wise move. Eventually, Parisian Sands received a much bigger table game allotment than Wynn Palace. As Dallas Cowboys owner Jerry Jones once said, “Never let your money get mad.”
2020 Licensing Decisions
The American casino companies have billions of dollars of investments on the line. Theoretically, Chinese officials could shut their businesses down completely. In two years, all the Macau casino companies have their casino licenses up for review. An arbitrary decision could force those multi-billion dollar casinos to close altogether.
While that could happen in any gaming jurisdiction, it is the arbitrary nature of such decisions which makes a license review such a potential danger in Macau. Either way, the casino losses would not be total, since they would sell their properties to a non-American casino company. But it would be a fire sale, meaning the operators would not get full value, while still losing access to the most lucrative gaming destination in the world.
Will There Be a US-China Trade War?
Of course, the long-dreaded trade war might never materialize. Forbes’ concerns are noted, but hardly are inevitable. Both sides have so much to lose from such a showdown, that sensible experts on both sides of the divide never imagined such a confrontation would happen. In the long history of the world, one can list any number of confrontations that happened when both sides had more to gain from avoiding confrontation.
National leaders make decisions for a variety of reasons: economic, political, geopolitical, psychological, or ego-driven reasons. National leaders also miscalculate at times, even when they believe they are absolutely in the right. The law of unintended consequences is a powerful thing. Conflict is easy to get started, but sometimes difficult to end.
Muhammed Cohen is right to warn Forbes readers of what might happen. The smart money is still on an eventual resolution of the expanding tariff battle between China and the USA, though it might not end completely until after the US midterm elections in November. The current US administration promised to do something about the trade imbalance during the 2016, so it might keep a simmering trade war going until November to show supporters it meant business.