If you want an answer to a difficult question, ask an accountant, or at least a chief financial officer
While we’ve all been scratching our heads looking for the precise reasons behind China’s decision to restrict its citizens’ access to Macau, it seems Simon Dewhurst, CFO of Melco Crown Entertainment, has heard the answer straight from the Beijing horse’s mouth.
Here’s what Mr Dewhurst said at the recent Global Gaming Expo (G2E) in Las Vegas, and it’s worth quoting at some length.
“As an operator on the ground in Macau, we spend a huge amount of time conversing with the government in Beijing. We spend a lot of time advising the government in Beijing. They are very open to listening to what their partners think about market conditions. And so the perspective that we have of what it is like and whether there is a risk premium associated with working with Beijing is very, very different from what I hear when I spend time with equity investors in the US and elsewhere around the world.
“I actually think we have an incredibly stable regulatory environment, and a regulatory environment that has a view that goes out across the next five development plans that exist in China and reach out for 25 years from where we are today. And so that’s the mentality that exists in Beijing.
“What they are trying to do in Macau… to put it in simple terms… they are trying to allow for the broader economy to catch up with the extraordinary growth that has occurred in an industry which happens to generate 70% of the tax revenue in Macau, but it only actually employs about 23% of the local workforce. And so 77% of the workforce hasn’t been benefiting from this extraordinary growth in the gaming industry, and it’s creating some social instability in the market place. And there’s nothing that gets our friends in Beijing hopping up and down more quickly than if they sense that there is an area of social instability in any of the provinces within China.
“So it’s a short term issue. The broader economy needs to catch up. It will do so over the course of the next one to two years, at which point the authorities in Beijing will readjust the lever into Macau. Fundamentally, nothing has changed. Nothing will change, in my view, in terms of the role that Macau plays as the pressure release valve for the gambling instincts of the Chinese populace.”
