LAST WORD

Should Beijing’s economic rampage concern Macau?

By Sharon Singleton | Managing Editor, AGB

Melco Resorts & Entertainment Chairman and CEO Lawrence Ho says he’s not expecting any nasty surprises from the upcoming concession renewals in Macau, although stock market investors are not so sure.

Beijing’s latest regulatory crackdowns have spooked the markets and raised questions as to whether anything is sacred. The mantra of “too big to fail” is certainly not one chanted by the Chinese government.

After going after the country’s tech giants and crushing the $35 billion initial public offering of Jack Ma-backed Ant Group in November, the government has now focused its attention on sectors such as private education and food delivery. Ma himself has been barely seen in public since.

According to Bloomberg data, these government actions have wiped more than $1 trillion off the value of China’s tech and education stocks since February this year and that’s despite the fact that developing a self-sufficient, world-leading technology industry has been one of the central planks of the economy for many years.

Since former leader Deng Xiaoping travelled to southern China in 1992 and proclaimed to get rich is glorious, “Capitalism with Chinese characteristics” has powered the Mainland to become the world’s second-largest economy.

The country has 626 billionaires as of this year, second only to the U.S., according to Forbes. More than 800 million have been lifted out of poverty and about 1.2 billion of its population are likely to be considered middle class by 2027, or a quarter of the world’s total, U.S. think-tank the Brookings Institution forecasts.

Despite all this the wealth gap is still rising and the average disposable per capita income in 2020 was just $4,961.

Beijing says its actions are designed to help decrease the inequalities in society. Although it appears to be doing so with all the economic subtlety of a sledgehammer. Next year, current President Xi Jinping will face a twice-a-decade leadership reshuffle heightening the pressure to tackle the issue.

Outside observers see the actions more as a government attempt to ensure nothing falls outside of its control.

Beijing says its actions are designed to help decrease the inequalities in society.

Either way, the point here is that at present the Mainland government doesn’t seem to be concerned about the impact of its actions on foreign investment, or indeed its own economy. While for decades capitalism has appeared to have taken the upperhand, the Communist characteristics seem to be reasserting themselves with a vengeance.

You might also argue that Hong Kong, Asia’s premier financial centre, has been sacrificed to satisfy Chinese politics. The one-country-two-systems model under which the U.K. handed the territory back to China has effectively been jettisoned with the introduction of a new national security law last year.

Smart money has been moving capital out of Hong Kong for years to alternatives such as Singapore, where private banking for the wealthy is booming. Thereis no doubt that the government’s actions have inflicted a severe wound to the special administrative region’s international reputation as a place to do business and it remains to be seen whether it can recover.

This should be a concern for Macau. Although its residents have not taken to the streets demanding democracy as its neighbours did in Hong Kong, its economy is built on gambling, which is another sector firmly in Beijing’s crosshairs.

So far, most observers have opined that Macau will be exempt from the cross border gambling crackdown that the government has been relentlessly pursuing and with some success.

Lawrence Ho says that with 80 percent of Macau’s government revenue coming from the gaming industry, which is also the largest employer, the casinos are too important to the economy to be thrown under a bus.

In fact, analysts still believe the long-term future in Macau is rosy, with Bernstein predicting that gross gambling revenue will be a whopping 25 percent above pre-pandemic levels by 2025.

However, it will be a nail biting few years for international stock investors until the overhang from the concession process is cleared.