Hainan waits for 2049

Hainan – dubbed ‘the Hawaii of China’ – is not an immediate threat to Macau’s gaming dominance but what happens in this Special Economic Zone is too important to ignore. In the present – and especially in the future.

By João Paulo Meneses jpmeneses@macaubusiness.com

Authorities in Hainan Province have already clarified that gaming will not be part of plans to develop a ‘free trade port’ on this Chinese holiday island, but a specialist consulted by Macau Business believes that there is fervent interest in the subject although these interested parties may have to wait until a very specific date to achieve their goal: 2049.

Jitendra Tulcidas, former Economic Affairs Advisor to the Haikou (the capital city of the Province) Municipal People’s Government, knows this reality well. “For a long time Hainan authorities have been working to boost international tourism and transform [Hainan] into one of the main tourist destinations in Asia, rivalling with the likes of Bali and Thailand.”

And despite “clear indications about the Chinese Government’s intentions of legalising gambling in Hainan nowhere are there to be found”, Mr. Tulcidas emphasises “the high expectations of local players who have invested heavily in the island, like Mr. Zeng Xianyun, in the hope that the government will eventually allow gaming there. And although no official indication or announcement on legalising casinos is expected anytime soon, several players have been actively mounting a case around [the idea] with the drumbeat calling for legal gaming on the island growing louder.”

Mr. Tulcidas, the former Director of Investment Promotion in the Macau Trade and Investment Promotion Institute (IPIM) during the Portuguese Administration shares with the readers of Macau Business a different perspective from the one that has been made public, namely through the reports of the research agencies: while Sanford C. Bernstein Ltd., for instance, states that the plans to develop the island of Hainan as an international tourism destination would affect the non-gaming tourism plans of Hengqin Island, although not of Macau.

Tulcidas reminds us that “one must bear in mind the fact that by 2049 the Macau SAR will be no more, becoming then an integral part of China. Therefore, what the recent moves from the Central Chinese authorities may indicate is a strategy to start to plan ahead to set up the required legal framework for China to have legal gaming when that happens. By then, Macau will continue to have legal gaming, but it may also be extended to other places in China, including Hainan.”

While the plan might be long term that does not mean that the moves do not start right away – and Bloomberg’s February news dispatch, reporting that the Chinese authorities were considering turning Hainan into a gaming hub to rival Macau will have been just one more step.

It is now public knowledge that the Hainan Government had commissioned a group of scholars to study how gaming tourism could be developed on the island, as well as how to legalise gambling in China.

And when, in March of this year, one of the elements of this group (Professor Pei Guangyi of the School of Economics and Management at Hainan Normal University), published a paper arguing that China should legalise gaming to reduce capital outflows through foreign casinos Macau actually perceived the signs.

According to Professor Pei: “Since one cannot stop Chinese people from gambling, it is a better solution to make sure that foreign or private capital does not overly profit from it”.

Jitendra Tulcidas understands that “this statement may signal what may be at the core of the frenzy that overtook the issue of gambling in Hainan as opposed to the current gambling environment in Macau, where the bulk of casino earnings go to international operators of local units, like Las Vegas Sands, MGM, Wynn Resorts, etc.”

While knowing that the Macau Government will reveal the strategy for the new gaming concessions in the coming months, “statements like Professor Pei’s in this context are a clear sign of what may be at stake.”

Four international airports

Regardless, efforts continue, publicly and privately, to make Hainan a tourism capital of the world.

In the front line stands the already mentioned hotel magnate Zeng Xianyun, the Chairman of Phoenix Island, an artificial archipelago off Hainan’s southeastern shore that has a cruise ship terminal, luxury hotels, apartments, shopping malls, a theme park and entertainment areas.

“Mr.  Zeng hopes that the Chinese Government may one day legalise gaming in Hainan to help reduce capital outflows from the country,” states Tulcidas, who was involved in the renegotiation of the gaming concession in Macau during the Portuguese Administration. “All the revenue should go into Chinese companies and the country of China instead of being all eaten up by foreign capital [according to Zeng]”.

Last April, during the annual Boao Forum for Asia in Hainan Province, President Xi Jinping announced a grand plan that will see China further open its economy, including the latest measures to build Hainan Island into an international Free Trade Zone by 2020. According to official guidelines, the Central Government has decided to set up an investment fund to support the building of a free trade port in Hainan by 2025, with the aim that the system will ‘mature’ by 2035.

China also plans to build Hainan into a global and consumption hub and will support the development of horseracing and other projects, including beach and water sports. The island will also explore the development of sports betting and instant lotteries for large scale international competitions.

Right after the announcement in April of these measures to transform Hainan Island into a Free Trade Zone, construction on three mega industrial projects began in May, emphasises Mr. Jitendra: “Central Government officials have shown particular interest in Hainan in recent months, which suggests a co-ordinated effort to promote the island. In order to attract more foreign tourists, China’s leaders have agreed to build a new airport on Hainan’s western coast (despite the island having already three international airports, all located on the eastern coast) as well as relaxing visa rules.”

Only one million international visitors

China decided to turn Hainan Island into Mainland China’s biggest Special Economic Zone in 1988.

Today, Hainan has been dubbed ‘the Hawaii of China’ for its beach resorts, forested and mountainous interior and tropical climate.

Jitendra Tulcidas highlights the “massive tourist infrastructure projects that have been developed in the province during the last decade or so, with the government pouring billions of dollars into new highways, high speed railways, airports, cruise terminals and other projects, attracting prominent players in the luxury market like Mandarin Oriental, Ritz-Carlton, Hilton, Westin, Four Seasons, St. Regis, etc. World class integrated resorts (like the above-mentioned Phoenix Island or the more recent Atlantis Sanya) have been built and are in full operation.”

But not everything is well.

“Despite the huge investments made, the number of visitors from abroad is still disappointing. In 2017, of a total of 67 million people who visited Hainan only one million were international visitors. Bali, which is a fifth of the size of Hainan with less developed infrastructure, received over five million international visitors in 2016,” states Jitendra Tulcidas, who is currently an international consultant on energy and mining mergers and acquisitions, but remains focused on what is happening in Hainan.