A stronger Hainan economy is good news for Hong Kong and Macau

The Chinese government’s grand plan to open up Hainan is not only politically and economically significant for the province itself, but it will also to some extent affect Macau’s position as a casino and tourism hub in southern China in the coming decades.

The plan is ambitious. In a “guiding opinion” to “comprehensively deepen” Hainan’s reform and opening up, jointly released by the State Council and Communist Party’s Central Committee this month, the government recognises the island’s achievements as a special economic zone. It also sets a goal of turning Hainan into a free-trade port, with major elements of the system in place by 2020.

The plan calls on Hainan to position itself strategically as a transit point for the central government in Beijing to implement the “Belt and Road Initiative”, and to remake itself into not just an international tourist draw, but also a centre for sustainable ecological development.

In addition, the directive encourages Hainan to develop its free-trade zone by liberalising some rules, such as by allowing hotels access to foreign TV channels, and improving its infrastructure. 

Most importantly, the government proposes the development of beach and water sports, as well as horse racing, and to “explore the development of sports lottery and instant lottery on major international events”.

Hold your horses: Racing in Hainan faces many challenges

Finally, the directive urges Hainan to develop local talent and cooperate with Hong Kong and Macau in maritime affairs, while also forging closer cooperation with other economies in the Greater Bay Area and Taiwan.

The message from Beijing is very clear: Hainan is going to learn to combine the Hong Kong and Macau models in developing the island’s tourism, horse racing and lottery industries, and position itself as a prosperous transit point for China to reach out to economies in the Indian Ocean and other parts of Asia, under the nation’s belt and road plan. 

The implications for Hong Kong and Macau are equally obvious. 

While Hong Kong’s horse racing industry is likely to face some competition from a new horse racing lottery in Hainan, if and when it materialises, Macau’s casino industry may lose some mainland tourists to Hainan, where its hotels are likely to experiment with gaming on a smaller scale.

Though the government directive did not mention the word “casino”, it made a point of noting the need for Hainan to tighten its measures to deter money laundering, implying that casinos would perhaps be allowed in the province sooner or later.

In 2013, Hainan authorities shut down a casino bar that had been operating illegally after a report drew attention to it. A year later, the local government firmly stated that no casino operations would be tolerated. But that was then. 

Now, with Beijing’s pledge at the Boao Forum for Asia that it would continue to open up its economy, the time is politically ripe for the designation of Hainan as a tourism hub in the vein of the Hong Kong and Macau models. The establishment of casinos in Hainan would be a matter of time, given the logical implications of setting up a sports lottery in the province in 2020.

Macau’s casino industry cannot escape being affected somewhat. The development of gaming in Hainan will mean that Macau is no longer be the only gambling hub in China. Mainland Chinese tourists who used to go to Macau may opt to go to Hainan instead. 

As well, mainland Chinese entrepreneurs may also decide to invest in Hainan rather than in Macau’s casino industry. In 2002, mainland businesspeople were discouraged from investing in Macau’s casino sector to give Macanese businesspeople more opportunities to win a stake in the casino concessions that the government was granting. 

Shares of Hainan-linked firms gallop on horse racing, lottery plans

In other words, giving Hainan the chance to develop its tourism hub will provide a window of opportunity for mainland Chinese capital to expand to the province. This will lead to a balanced model of economic and tourism development in the southern border regions of China, stretching from west to east, and from Hainan to Fujian.

The ultimate geopolitical target is perhaps Taiwan, which would be under tremendous pressure to join the economic union in the Greater Bay Area in southern China.

As for Hong Kong, its horse racing industry, which attracts tremendous interest from mainlanders, will surely serve as a model for the Hainan horse racing lottery.

Over the past decade, mainland academics studying the sports lottery industry and casino development have been paying close attention to the models of Hong Kong and Macau. The establishment of the lottery hub in Hainan is a testimony to the late Deng Xiaoping’s remark that China would create many Hong Kong-style cities in its drive for economic modernisation.

Macau and Hong Kong need to embrace the development of more mainland cities and regions, in parallel to their own more liberal economies, as it would benefit the region as a whole. Hainan’s development from 2020 onwards may give Hong Kong and Macau some competition, but it will not constitute a threat to the two economies. 

What next for Hong Kong as its ‘dragon head’ status becomes history?

Knowledge transfer from Hong Kong and Macau to Hainan should also be encouraged, as it will do a lot to help the special economic zone modernise in this next phase of its development. 

Both Hong Kong and Macau will have to integrate more closely with other economies in the Greater Bay Area, to fully use the space, talent and technological advancement of the mainland, and to cooperate with Hainan in developing cruise and tourism industries.

Meanwhile, amid the new challenges that will come from the repositioning of Hainan, Macau and Hong Kong must continue to strengthen themselves economically, and position themselves as the unique casino hub and financial and monetary centre, respectively, in southern China.

Sonny Lo is a professor of politics at HKU SPACE