Gloom has eased in Macau with the end of China’s “zero-Covid” policy, but there’s still a long road to recovery as mainland authorities oppose gambling and attempt to stem outward capital flow.
One simple change could ease Beijing’s concerns about funds illicitly exiting via Macau while making it simpler and cheaper for mainland Chinese tourists to enjoy visiting the city.
Macau gaming needs to change. Third quarter losses exceeded US$1bn for the six casino concession holders. That red ink flowed amid zero-Covid, the collapse of junket promoters with two leading executives jailed and increased overseas gaming restrictions on mainland citizens, and before operators committed nearly US$15 billion to non-gaming development over the next decade by latest reports.
Fourth quarter gaming revenue recovered from the depths of Q3, though still barely reached 15% of 2019 levels. Corporate losses will likely contract and the end of zero-Covid has prompted optimism for 2023. However, even bullish JP Morgan head of Asia gaming research DS Kim believes it could take two years for gaming operators to get their balance sheets back in order after borrowing to stay afloat during the pandemic.
With the return of mainland and Hong Kong visitors, the latter shut out since early 2020, Kim also expects “revenge gambling” as seen in other market reopenings. But China’s tougher approach to Macau gaming may well weigh on visitor sentiment.
To swing the door open wide to mainland Chinese visitors with the blessing of president Xi Jinping’s government – or at least experiencing less static from it – Macau can adopt mainland China’s currency, the renminbi, for gaming transactions by mainland players.
China’s renminbi (“people’s currency” in Mandarin) or yuan, floats under state scrutiny. One RMB is currently worth HKD1.15 and MOP1.18 (and 6.77 RMB per US dollar). Renminbi is not freely convertible internationally although it is generally, but not freely, accepted in Macau. Gaming experts believe Beijing would welcome renminbi play in Macau, although that’s never been stated publicly.
Mandatory use of RMB on gaming floors could require legislation, but Macau lawmakers rarely reject government initiatives. Introduction of digital renminbi, now in trials around China, would facilitate renminbi play in casinos.
“Macau junkets and their symbiotic relationship with the casinos have long facilitated capital outflows from China, but such outflows are now, in the context of [China’s] current financial weakness, a virtual national security issue,” political and corporate risk consultant Steve Vickers says.
“The digital yuan will provide Beijing with a means to limit and control significant outflows into the Hong Kong dollar and US dollar.
“If the mainland authorities are really set on control, an obvious next step could be a ban on use of HKD in Macau’s casinos – in time. None of these developments will be good for the American investors in Macau’s casinos.”
That said, issues surrounding digital RMB could be simpler for casino stakeholders and customers to navigate than political measures aimed at limiting gambling.
“The ability to track fund movements will probably reduce opportunities of moving funds out through Macau’s casinos, but it would probably not eliminate opportunities altogether,” Vickers, CEO of Steve Vickers & Associates in Hong Kong, adds. “People are canny and will adapt. However, that will take time.”
IGamiX Management & Consulting managing partner Ben Lee has been talking about digital renminbi in Macau since 2020 and sees a switch bringing major benefits.
Mainland authorities “can track who uses the E-CNY and can control the usage,” Lee says. “E-CNY will make it easier for mainlanders to use RMB [in Macau] without being ripped off.”
“It is a peculiar cultural artifact that Macau operates in a different currency to the vast majority of its patrons,” longtime Macau casino executive Andy Choy says. “Digital RMB has the potential to help alleviate this nearly universal pain point.”
University of Macau gaming expert Ricardo Siu thinks a digital renminbi policy can be implemented relatively smoothly, even with other currencies on the gaming floor.
“Technology can help,” Siu says. “Under the current technology, it is not difficult for casinos to record the amount of chips purchased by a player through digital RMB. “If a player wins, they may get back the digital RMB and, for the winning amount, they should have the right to choose to take the cash or other forms of deposit money.”
However, mainland authorities don’t want their citizens using “other forms” of money in Macau that can more easily migrate to offshore accounts.
Lee expects RMB use will lead Macau into China’s monetary ecosystem. The jackpot for Macau could be elimination of mainland restrictions on cross-border currency transfers as, from a monetary standpoint, there would no longer be a border.
In theory, with the digital RMB, high rollers could play without restrictions since their bankrolls would originate in China and, when they cash out, their funds would remain in China, with Beijing able to track the entire process. Whether Beijing will accept this logic remains unclear.
“Not all illegal money transfers and/or capital flight via Macau gaming is created equal,” Macomber says.
Umansky points out that authorities continue to tolerate the longstanding practice of using mainland credit or
