A new administration in Macau is expected to accelerate the city’s diversification away from its gaming-centric economy, aligning with Beijing’s directives. However, security analyst Steve Vickers has indicated that this shift may come at the cost of foreign-owned casinos and their investors.

Vickers, CEO of Steve Vickers and Associates Limited, recently issued a dispatch warning of the growing risks associated with state intervention and market skepticism.

“Boards and executives with investments in Macau need to be vigilant”, he said. “The landscape is changing rapidly, and they must anticipate threats to effectively mitigate potential losses.”

The former head of the Royal Hong Kong Police Force Force’s Criminal Intelligence Bureau added that Sino-American tensions and escalating political risks in the People’s Republic of China (PRC) are increasingly impacting regions like Hong Kong and Macau, which were previously seen as insulated from such concerns.

Macau’s shifting political framework

Macau is about to undergo a potential political shift in regards to gaming, as the SAR’s new Chief Executive, Sam Hou Fai – the former President of the Court of Final Appeal, won an uncontested election in October. The judge-turned-politician is set to take office in December.

During his campaign, Sam commented that the development of the gaming sector in Macau has made the city’s economy “unbalanced”, with diversification away from the industry being an imperative from Chinese central authorities and a directive “backed by most of the population”.

For the security analyst, the new CE marks a significant shift, as he is the first leader from mainland China to govern the territory, which Vickers believes could lead to “much tighter oversight by Beijing,” heightening political risks for businesses operating in the region.

Sam is part of a group of mainland Chinese politicians and professionals trained and prepared before the 1999 handover by the central government to take over important judicial and executive positions in the city under Chinese administration.

Economic diversification

The necessity for economic diversification is now a priority for the new administration, reflecting the central government’s goals of “common prosperity” and “dual circulation.”

These initiatives aim to promote income equality and reduce dependency on foreign investment, with Vickers cautioning that the risks for investors in Macau’s casino sector are likely to increase in the coming months, as many casino businesses had heavily invested with the expectation of continued growth.

Past political headwinds have had a direct impact on Macau’s gross gaming revenue, with mainland Chinese authorities often being described as turning the tap on or off.

But the current environment in Macau is a far-cry from the previous crackdowns which severely reigned the industry in.

The outgoing administration of incumbent Chief Executive Ho Iat Seng introduced new obligations for casino operators during the license re-tendering process of the SAR’s casino licenses, resulting in a pledged $14.8 billion investment in non-gaming activities from the six operators.

However, Vickers points out that progress towards diversification has been minimal. “The new Chief Executive will likely expedite measures forcing casino concessionaires to diversify and contribute more to social causes”, he added.

The security consultant added that Macau’s gaming sector has traditionally been a conduit for capital flowing out of mainland China. However, as Beijing intensifies its crackdown on capital outflows, the implications for foreign casinos become more severe.

“The environment is shifting”, Vickers explained. “With the crackdown on junkets and illegal foreign exchange activities, foreign casinos are facing increased scrutiny and limits on their operations.”