China Economy

American casinos in Macau are safe from Chinese trade war wrath, analyst says

Key Points
  • U.S. corporations operating casinos in Macau aren't likely targets for Chinese offensives if the trade war between Washington and Beijing worsens, according to Jonathan Galligan, a CLSA analyst.
  • China's goal is to make Macau into an increasingly attractive and diverse tourist destination.
  • U.S. operators Sands, Wynn and MGM have contributed to that, Galligan says.
People pose for photographs in front of the Wynn Macau casino resort in Macau, China, on Tuesday, July 24, 2018.
Paul Yeung | Bloomberg | Getty Images

If the U.S.-China trade war takes a particularly nasty turn, a possible target for Beijing could be the multiple American-operated casinos in the tiny gambling enclave of Macau.

Such a move, however, is highly unlikely, according to one analyst who follows the Asian gaming sector. The reason, according to Jonathan Galligan, head of Asia Gaming and Conglomerates at CLSA: the U.S. casinos have played an important role in helping China achieve its economic development goals for the former Portuguese colony.

Macau was ruled by Portugal for more than four centuries before being returned to China in 1999. Like nearby Hong Kong, which was a British colony for a century and a half but returned in 1997, Macau is now a special administrative region of China.

U.S. President Donald Trump is threatening Beijing with tariffs potentially covering the entire amount of Chinese exports to the U.S. as he seeks to reduce his country's deficit in goods and extract concessions on other bilateral flash points such as technology and intellectual property. China, for its part, has responded with its own tariff threats, but its large trade surplus means it can't match the U.S. tit for tat.

That has led to speculation it might seek to apply pressure on the U.S. in other ways, such as making it more difficult for American companies doing business in the country.

'Rational view'

Galligan said that such a scenario is seen as a risk by some investors in the gaming sector.

"But you would need to see the trade war deteriorate significantly before that would be brought on to the table because I don't think it's in the interest of China to do that," Galligan told reporters on Wednesday at the annual CLSA Investors' Forum in Hong Kong.

Macau's gaming environment has changed dramatically since the end of a government monopoly and foreign operators began to be given casino concessions from 2002. Big American names Sands, Wynn and MGM now operate there.

Galligan thinks that they are safe, not least for having made strong efforts toward an important policy goal for China: diversifying to offer visitors more entertainment options beyond gambling at their resorts.

"I think, ultimately, the Chinese will take a very rational view on Macau," Galligan said, citing the authorities' desire for it to be successful as a tourist destination.

"Negatively putting pressure on certain operators is not how you're going to achieve that ultimate goal," he said. "And I think the Chinese will probably rise above the rhetoric of the trade spat to recognize that the current competitive environment in Macau doesn't need political headwinds that would stifle investment."