Gaming | Chinese resorts quietly setting up baccarat tables in Hainan

View of Sanya, Hainan

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 currently 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 kilometers 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 3.4 percent yesterday, the steepest decline in four months. SJM Holdings Ltd. decreased 5.6 percent, Wynn Macau Ltd. lost 4 percent and Galaxy Entertainment Group Ltd. fell 3.5 percent in Hong Kong trading.

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.” Daniela Wei, Bloomberg