October 31, 2019 / 5:05 AM / 12 days ago

Breakingviews - China sends two messages with one Macau invitation

The Venetian is seen during the opening ceremony in Macau August 28, 2007. The world's biggest casino opens in Macau on Tuesday, the most ambitious throw of the dice yet in a $24 billion effort to build a Las Vegas-style "neon alley" in this once-sleazy Chinese gambling enclave. REUTERS/Paul Yeung (CHINA)

HONG KONG (Reuters Breakingviews) - Macau is being pulled into dangerous crossfire. China has suggested the world’s largest gambling centre as a venue for U.S. President Donald Trump and his Chinese counterpart Xi Jinping to sign an interim trade deal, Reuters reports. It’s an invitation that sends two messages at once.

Sprawling resorts mean the tiny territory has the capacity to host this kind of circus. That makes it a credible substitute for Chile’s capital, after Santiago cancelled a planned November summit amid mass demonstrations. But the proposal, unofficial as it is, does more than offer a quick diplomatic fix.

Picking Macau would be a useful way for Beijing to shower favour on a pliant territory, while snubbing its restive neighbour, Hong Kong. The former British colony has seen four months of often-violent anti-government protests.

As importantly, it would be an unsubtle reminder to casino owners of what is at risk if a larger deal is not reached. Three of Macau’s six licenced casino operators are owned by U.S. parents, Las Vegas Sands, Wynn Resorts and MGM Resorts. With negotiations for new licences scheduled for 2022, there are billions of dollars at stake. The Beijing-backed local government might offer less favourable terms. Worse, there is an outside chance they could bring in homegrown players to replace the incumbents.

Sands, controlled by Sheldon Adelson, would make a tempting target: Adelson and his wife were generous donors to Trump’s presidential bid and other campaigns. Wynn Resorts’ own Republican links, through now-ousted boss Steve Wynn, might also attract attention. Both groups earned more than 60% of their revenue from Macau last year.

The trouble is the gambling giants cannot simply up stakes. They have invested heavily in the Cotai Strip, because no other destination can match the territory’s $38 billion market. Strict local standards are vital too for companies with flagship properties back home in Nevada: Las Vegas’ wary watchdogs take a dim view of operators dabbling in more lax jurisdictions.

The pressure is starting to show. Shares in both the parent companies and Hong Kong-listed subsidiaries of the casino giants have flatlined or dropped since China-U.S. relations began to fray last year. A cooling Chinese economy has hardly helped. Casinos are already collateral damage in trade war: direct fire would hurt far more.

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