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That announcement was made on Tuesday, when the Chinese government released its plan to develop the province into a free trade zone (FTZ).
Casinos Not Part of Hainan Development Plan
Some rules will be relaxed in the FTZ, allowing foreign firms more access to Chinese markets in a variety of sectors. But when it comes to gambling, officials made it clear that there will be no special exemptions made on the island.
“There are some discussions on the Internet about opening casinos, engaging in lotteries, allowing horse racing, or going the route of capitalism and allowing full-scale private ownership,” said Liu Cigui, the Communist Party secretary of Hainan, according to the Hainan Daily. “These are all divorced from the national condition and reality, and they will never be allowed.”
That stance was reiterated by Kang Baiying, the deputy director-general of Hainan’s Foreign and Overseas Chinese Affairs Office.
“No, there is no plan for a casino,” Kang told The Straits Times.
The news follows reports which began surfacing in February that Beijing might be considering turning Hainan Island into a second legal gambling hub to join Macau. In April, the Communist Party Central Committee suggested that the province would be encouraged to at least explore allowing such activities.
The hope was likely that some form of gambling would help attract foreign visitors to the island. China has tried to market it as a tourism destination, but it has not proven wildly popular, with fewer than a million foreign visitors coming to Hainan in 2016. Now, with a national campaign against corruption underway, the winds appear to have shifted against even considering gaming expansion.
Industry Was Skeptical of Hainan Casino All Along
That decision doesn’t come as a shock, however. In May, most industry insiders at the Global Gaming Expo Asia 2018 felt that the chances were slim that Beijing would ultimately approve any major gambling expansion in Hainan.
“I don’t think there will be a land-based casino industry set up in Hainan, at least not in the foreseeable future,” Melco Resorts CEO and chairman Lawrence Ho told the South China Morning Post during the trade show. “President Xi Jinping talked more about developing lotteries. There was nothing mentioned about betting.”
Instead of gambling, the Chinese government is planning opening up access to foreign capital in other areas in an attempt to boost the province’s economy. That might include areas like tourism, medical care, seed production, aviation, and new energy vehicle manufacturing.
The Hainan FTZ is expected to be far larger than the others found throughout China. While other FTZs are 120 square kilometers (46 square miles), the Hainan FTZ will span 35,400 square km (13,700 square miles).
China has torpedoed rumors that the island province of Hainan would be allowed the freedom to offer gambling or other betting activities.
On Tuesday, the state-owned Hainan Daily newspaper quoted Liu Cigui, Secretary of the Hainan Provincial Committee of the Communist Party of China, emphatically pouring cold water on “online comments about opening casinos, allowing gambling and horseracing” that were widely reported earlier this year.
Hainan was officially given free trade zone status on Tuesday but the relaxation of restrictions on foreign investment won’t extend to casinos, gambling or betting. Liu Cigui (pictured) said reports to the contrary were “divorced from China’s reality,” as such activities “will never be allowed.”
In February, Bloomberg reported that the central government in Beijing would allow Hainan to develop a horseracing industry, although the possibility of actually wagering on the outcome of these races went unconfirmed. Similarly, Hainan was said to be allowed certain types of lottery operations – including online sports lotteries – beyond those currently available on the Chinese mainland.
Five years ago, some Hainan resorts began offering so-called ‘cashless casinos,’ which resembled standard casino table games but winnings were paid out in credits that could only be redeemed for non-gaming amenities at the resorts. International media reports spotlighting these cashless casinos quickly led to their closure by local authorities.
In February, a Hainan court overturned a lower court ruling in which four staff members at the Mangrove Tree Resort went to prison for their role in organizing its cashless casino. This prompted speculation that Beijing was serious about relaxing its longstanding prohibition on casino gambling outside Macau, and several Hainan resorts reportedly began ordering baccarat tables for the new ‘entertainment bars’ they planned to install.
Sadly, these plans appear to have been for naught, and the only people really celebrating this week’s news are local prudes and Macau’s casino licensees, who can go back to counting their money, at least until Donald Trump retweets an unflattering meme of Xi Jinping as Winnie the Pooh and Xi declines to renew the Macau casino concessions of Las Vegas Sands, MGM Resorts and Wynn Resorts.
In China’s southernmost province of Hainan, inside a glittering skyscraper shaped like a sail, Zeng Xianyun has been waiting for Xi Jinping, in more ways than one.
This week, the Chinese president will visit the island and hotel magnates like Zeng hope the leader will come bearing gifts: new tax concessions to attract more tourists to this tropical destination nestled along the South China Sea near the Vietnam border. Local entrepreneurs and global firms like MGM Resorts International have spent big on sea-side developments here.
Tourists swim in front of Phoenix Island.
Photographer: Qilai Shen/Bloomberg
Many of these investors are making a wager of their own: Someday in the future, Hainan could be teeming with Chinese gamblers, who will give an adrenaline shot to a tourism-dependent economy that hasn’t fully lived up to expectations. Right now, gaming remains banned across mainland China and the island only attracts a fraction of the country’s tourism outlay.
Xi will speak at the island’s Boao Forum and mark the 40th anniversary of China’s economic opening. While Hainan’s elite aren’t expecting him to immediately announce any wholesale legalization of gambling, they are hopeful the policies he unveils will help draw more tourists. And in doing so set off a policy roadmap that eventually ends with regulated casinos.
The Haitang Bay Mangrove Tree Resort Hotel.
Photographer: Qilai Shen/Bloomberg
Any move to ramp up tourism in Hainan or open it up to gambling would reverberate within the global travel industry. Chinese jetsetters take about 130 million trips overseas each year, the government estimates, spending lavishly from Las Vegas to Bali and Paris.
Outside the mainland, in Macau, where casinos are permitted, the bulk of revenue still goes to foreign operators like Las Vegas Sands Corp. and MGM. A more nationalist angle on the question of gambling and tourism is now finding its moment, dovetailing with Xi’s emphasis on a resurgent China taking its place on the world stage.
Zeng Xianyun
Photographer: Qilai Shen/Bloomberg
The question, according to Zeng, is not why the house always wins, but why that house should be foreign. He hopes China can legalize the gaming industry and make Hainan the first mainland province with casinos to reduce the capital outflows.
“We need to take the issue seriously instead of avoiding it,” said Zeng, who is chairman of Phoenix Island, an artificial archipelago off Hainan’s southeastern shore that has a cruise ship terminal, luxury hotels and apartments. "We can’t let this big cake be eaten all by foreign capital."
Balcony Bathtubs
Zeng’s development was built with a total investment of 20 billion yuan ($3.2 billion), of which he put up 45 percent and another 45 percent came from the state-owned infrastructure firm China Communications Construction Co.The property’s skyline is dominated by glinting hotels with steel facades, some of which house luxury condominiums with bathtubs on the balconies. Zeng said he could open a casino in under 30 days if given the permission.
A residential building on Phoenix Island.
Photographer: Qilai Shen/Bloomberg
The Boao Forum comes at a time when Washington and Beijing are engaged in trade war brinkmanship over tariffs. China has said the Hainan conference will demonstrate the country’s future prospects for economic growth.
Meanwhile, the drumbeat for casino development in Hainan has grown in recent months. Earlier this year, Bloomberg citing people familiar with the matter reported that government agencies under a party reform group headed by Xi are considering allowing online gaming and sports betting in Hainan, a policy shift that could open the door to physical casinos in the long run.
Phoenix Island
Photographer: Qilai Shen/Bloomberg
A balmy climate and sandy beaches are why Hainan, roughly the size of Switzerland, is often dubbed China’s Hawaii. Yet, it has been grappling with its dashed economic potential for almost a decade. It was eight years ago that Beijing designated the island China’s “test case” in developing an “internationally competitive tourist destination.”
At the time, the government said Hainan could explore lotteries related to international sporting events. The news drove speculation that the island could eventually open up to the gambling industry. Then came an investment flurry that pushed up property prices.
Residential buildings in Sanya.
Photographer: Qilai Shen/Bloomberg
The bubble burst by 2012, when it became clear that specific policy concessions for Hainan weren’t imminent, whether legalized gaming or exemption from China’s heavy import duties. Property prices have tumbled from their peak.
Eight years on, new highways, high-speed railways and hotel chains are everywhere in Hainan, but its success as an international hotspot is muddled at best. The island drew about 55 million tourists last year, only about 1 percent of the 5 billion trips made domestically in China. Its visitor numbers are much lower than Asian destinations like Bali or Phuket.
"Hainan has extremely high hopes for President Xi’s visit and hope to receive some supportive policies," said Liu Feng, a researcher of Hainan Normal University Maritime Silk Road Research Institute. "Designating the island as a tax-free zone, or even just increasing the number of duty-free shopping locations, will inject vitality into Hainan’s tourism development."
The CDF Mall, a duty-free shopping complex, in Sanya.
Photographer: Qilai Shen/Bloomberg
Xi’s visit is timed for the province’s 30th anniversary. Building it up would allow China to keep more of its tourists at home. This would hurt not just Macau but other countries like Vietnam and Australia that have sunk billions into attracting Chinese gamblers.
Zhang Baoquan
Photographer: Qilai Shen/Bloomberg
Yet, for now, some worry that Chinese regulations make it hard for tourism to flourish in Hainan.
Higher-end cultural offerings are stymied by a censorship regime suspicious of foreign film and art, as well as onerous duties on imports. Property developer Zhang Baoquan, who’s spent more than 10 billion yuan building a complex combining hotels, convention space and a shopping mall in Hainan, dreams of hosting art fairs and film festivals if the province had some kind of a free-trade zone.
The Yalong Bay Mangrove Resort Hotel
Photographer: Qilai Shen/Bloomberg
Zhang believes policy concessions such as those on a free-trade zone may be on the horizon with Xi’s visit. “The tax support will be the most helpful policies for Hainan,” he said. “This year will be a turning point for this place.”
Meanwhile, MGM through a joint venture with China’s Diaoyutai State Guesthouse has made investments in Hainan and hopes to open two more hotels there.
The MGM Grand Sanya in Hainan has about 675 rooms, and is one of the best performing hotels in the southern Sanya area, said William Scott, general manager of MGM’s joint venture with Diaoyutai.
The business has a letter of intent for a Bellagio hotel and is pursuing another hotel in Sanya. The hope is for more government support in areas like air traffic infrastructure to boost tourism, Scott said.
Sanya
Photographer: Qilai Shen/Bloomberg
Hainan’s government has commissioned a group of eight scholars to study how to develop gambling tourism there --and how to legalize gambling in China. One member of the group, Pei Guangyi, associate professor at the School of Economics and Management at Hainan Normal University, published a paper in March arguing China should legalize gaming to reduce capital outflows through foreign casinos and introduce a body of regulations.
"Since you can’t stop Chinese people from gambling it is a better solution to make sure that foreign or private capital do not overly profit from it,” he said.
They're not quite casinos, but they're pretty close - and they could be coming to China sooner than some expected.
On the tropical island of Hainan, at least five Chinese-owned resorts are laying the groundwork for so-called entertainment bars, where players put down real money on games but receive their winnings in the form of points that can be redeemed in local shops, restaurants and hotels, according to people with direct knowledge of the plans. The resorts' owners have contacted suppliers of baccarat tables, drawn up blueprints to convert ballrooms into gaming floors and held informal discussions with Hainan officials in recent months, the people said, asking not to be identified discussing private information.
While China outlaws casinos outside Macau, the resorts are betting that Hainan will win an exemption for entertainment bars as part of a government push to turn the island known as "China's Hawaii" about 2,700 kilometres south of Beijing into a major tourist destination. If they're right, it would mark another big shift in the country's approach to gaming after officials unveiled landmark measures to promote horse racing and sports lotteries in Hainan two months ago.
It's unclear whether provincial and national authorities would sign off on such projects - also known as "cashless casinos" - and they've given no public indication that a policy change is imminent. But the recent flurry of activity follows a favorable court ruling on entertainment bars in December, which was interpreted by some observers as an official stamp of approval.
"From our conversations with people on the ground, they are positively excited about the changes that appear to be coming through soon," said Ben Lee, a Macau-based managing partner at consultancy IGamiX, which has been working with developers in Hainan for a decade. Entertainment bars "would undoubtedly draw mainlanders who have never been overseas to try gaming," he said.
The games could provide a boost to Hainan's tourism-related businesses, while at the same time allowing regulators to avoid many of the money-laundering and capital-outflow risks associated with traditional gambling operations. Entertainment bars are unlikely to appeal to China's high rollers, but they could lure casual punters who dislike the hassle of obtaining visas and foreign currencies for overseas trips.
A green light from authorities would probably unnerve investors in casino enclaves like Macau, the Philippines and Cambodia that rely heavily on Chinese customers. While the short-term competitive threat from Hainan would be manageable, that could change if entertainment bars pave the way for an eventual approval of full-blown casinos on the island.
"We may see more interesting developments in the next five to ten years," Lee said.
Government representatives in Hainan and Beijing didn't respond to faxed requests for comment.
An index of Macau casino operators fell as much as 2.1 per cent on Tuesday to a seven-week low, led by SJM Holdings Ltd, Wynn Macau Ltd and Galaxy Entertainment Group Ltd.
Entertainment Bars
Entertainment bars have a checkered history in Hainan. They debuted on the island about five years ago, at the Sanya Bay Mangrove Resort Hotel, where guests could play games including baccarat and swap their winnings for things like hotel rooms, iPads and jewelry.
But that operation was shut down in 2014 as local prosecutors accused the resort of breaking the law. Several other Hainan resorts were also forced to put their plans for entertainment bars on hold.
It took several years for the Mangrove case to work its way through China's legal system, but in December, a Hainan court ruled that the resort's gaming operation didn't break the law after all, according to a court filing posted on a government website.
In another sign of China's evolving stance, an online version of the points-based gaming model is now being tested by a sports-betting platform in Hainan that's backed by organizations affiliated with the provincial and central governments. Called the Hainan International Tourism Island Sports and Gaming Entertainment Project, it will allow players to deposit funds from their AliPay or WePay accounts into a smartphone app and use the money to wager on soccer and basketball games. Winnings can only be spent at select locations, mainly in Hainan, according to Yan Zhi, the project's founder.
Still, it's unclear whether China's leaders will ultimately sign off on entertainment bars, according to Margaret Huang, an analyst at Bloomberg Intelligence in Hong Kong.
"The government will face challenges to decide their attitude toward a gambling-themed model," she said. "The balance between regulation and economic development is hard."
Some observers say the time is ripe for a change. Entertainment bars would not only dovetail with Chinese President Xi Jinping's efforts to boost Hainan's economy, they would also help the country develop more homegrown champions in the consumer services sector -- another government priority. While the bulk of gambling revenue in Macau still goes to foreign casino owners like Las Vegas Sands Corp. and MGM Resorts International, Chinese resorts have a dominant presence in Hainan.
To get a feel for the resorts' optimism that entertainment bars will make a comeback, one only has to walk by the ballroom that housed the Mangrove's gaming operations back in 2013. Instead of converting the giant space into something new, the resort simply covered it with a black curtain, which could presumably be quickly removed if policy makers give the go ahead. Representatives at the resort declined to comment.
"It's now a consensus among companies and businessmen in Hainan," said Liu Feng, director of the Hainan Normal University Free Trade Port Research Center. "The expectation is for looser policies and a more open business environment, to build Hainan into an international tourism and consumption destination."
