Wednesday, 9 May 2018

CHINA: Hainan To Become Asia’s Hawaii,US Granted Visa-free Access

China’s government has opened up to visitors from 59 countries, giving them visa-free entry to Hainan island, in an unprecedented move to spur economic growth and boost tourism in the backwater province.

Starting May 1, passport holders from the UK, the US, Canada and scores of other European and Asian countries were allowed to enter Hainan for stays of up to 30 days, according to an announcement Wednesday by the State Immigration Authority.

Absent from the list are African countries, countries on the Indian subcontinent, as well as three members of the Association of Southeast Asian Nations (Asean): Vietnam, Laos and Cambodia.

The latest move is an expansion from a 2000 policy that permitted tour groups from 21 countries to enter Hainan visa-free for up to two weeks.

The new move lets individual travelers enter Hainan and extends the period of stay.

The move is likely to benefit Chinese airlines, including the island’s flagship carrier, Hainan Airlines, a unit of the troubled Chinese conglomerate, HNA Group.

The policy was expected to sharply increase the number of international tourists traveling to Hainan, and to help the island province eventually become Asia’s Hawaii.

Meanwhile, the new policy would benefit companies who have operations there, including airlines and developers, he said.

Long promoted as China’s Hawaii, the 35,000-square-kilometre tropical island in the northwest of the South China Sea with Vietnam to the west and the Philippines to the east, has historically been regarded as a backwater and afterthought.

It has a long way to go to become an international destination.

The number of international tourist arrivals only crossed the one million mark last year. That was a mere 1.6 per cent of the 60 million domestic visitors that arrived in 2017.

Bali, which is one-sixth the size of Hainan, greeted more than 5 million foreign visitors last year.

Hainan’s tourism revenue totalled 81.2 billion yuan in 2017.

But it is now at the centre of one of Chinese President Xi Jinping’s initiatives to further open up the country’s tourism and financial sectors to attract more foreign investors, part of which is to transform Hainan into an international tourism destination and a free trade port.

Hainan’s service industry accounts for more than half of its 446.3 billion yuan (US$70.9 billion) gross domestic product (GDP) in 2017, according to mainland state media reports.

Revenue for the tourism sector, foreign and domestic arrivals totaled 81.2 billion yuan.

Although it has been China’s biggest special economic zone since 1988, the island has trailed rival zones such as Shenzhen in development and status.

In the five years through 2017, it attracted less than US$10 billion in foreign investment, only 1.5 per cent of China’s total and has struggled to find its place in the nation’s economic landscape.

Resorts such as Fosun-owned Club Med has built the 10 billion yuan (US$1.6 billion) luxury Atlantis Sanya resort in Sanya, which is expected to attract international family tourists.

Department store operators and Retail businesses including Wangfujing Group and Dalian Wanda could benefit from more tourists visiting.

Property developers such as China Evergrande, China’s third-largest developer by sales, is building Ocean Flower Island, a cluster of hotels, theme parks, malls and conference centres on an artificial archipelago off Hainan’s northwest coast.

Airlines like Hainan Airlines Holding and rival domestic carriers could benefit from more domestic and foreign tourists.

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.

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.

As well as 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.

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 business people were discouraged from investing in Macau’s casino sector to give Macanese business people more opportunities to win a stake in the casino concessions that the government was granting.

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.

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.

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.

China is drafting a proposal to allow gambling on Hainan Island, in what would be an unprecedented move that could reshape gaming in China's territories and transform the economy of a strategic southern province.

Government agencies under a party reform group headed by President Xi Jinping are considering allowing online gaming, a lottery or sports betting in Hainan, said the people, who asked not to be identified because the discussions aren't public.

The proposal, which is still in an early stage, could open the door to physical casinos over the long term, two of the people said. China currently bans gambling and casinos on the mainland.

The proposal is part of a wider plan that includes relaxing visa rules and building a new airport to draw more foreign tourists to Hainan.

That comes as the province faces a fiscal deficit and contends with the debt woes of HNA Group Co., its biggest conglomerate, which is facing pressure from creditors after a global acquisition spree.

An index of Macau casino stocks tumbled on the news. Sands China Ltd. and MGM China Holdings Ltd. dropped as much as 6 per cent, and Wynn Macau Ltd. fell as much as 6.7 per cent.

I think investors were shocked, I'm a bit surprised, said Sam Chi Yung, a Hong Kong based strategist with South China Financial Holdings Ltd.

It's difficult to say what the impact will be on their profits as it all depends on China's policy and how they arrange the license. But what's sure is that people going to Macau to gamble will drop.

Hainan, roughly the size of Switzerland, is often referred to as China's Hawaii for its beautiful beaches. It also serves as a jumping off point for Chinese naval and air force patrols in the South China Sea.

The people didn't comment on what laws would need to change or the timeframe for implementation. Provincial officials were preparing for a possible visit by President Xi in the coming months to promote development on the island, two people said.

That trip would kick start events marking the 40th anniversary of China's embrace of foreign investment under Deng Xiaoping, they said.

The Hainan plan would mark a dramatic shift in China's approach towards gambling and could directly threaten the $33 billion casino industry in Macau, the world's largest gaming hub with revenues five times larger than Las Vegas.

Macau has been shifting to attract Chinese tourists and families to the territory, which is the same market that Hainan currently draws.

China's leaders have agreed to build a new international airport in the area of Dongfang city on Hainan's western coast, according to the people familiar with the situation, who didn't share more specifics on plans to ease visa requirements.

The island now has three international airports, all located on the eastern coast.

China bans gambling everywhere except Macau, a former Portuguese colony, and Hong Kong, which was once ruled by Britain.

Currently, it's against the law to open casinos, organize gambling, profit from gambling, set up online betting websites and market overseas casinos to Chinese citizens.

It's also illegal to sell lottery tickets without approval from the Chinese government.

Allowing gaming on the mainland would be one way for Chinese authorities to limit capital outflows and ensure gaming revenue benefits the provincial economy.

Mr Xi's corruption crackdown in 2014 sent Macau gaming revenue into a slump for more than two years, prompting it to become a more family-friendly destination to target leisure gamblers and tourists.

About 70 per cent of Macau visitors are from mainland China.

Chinese authorities have also cracked down on gambling related activities. More than 10 employees of Australia-based Crown Resorts Ltd., controlled by billionaire James Packer, were arrested in 2016 and sentenced to months in jail for illegally promoting gaming.

Although gambling is illegal throughout China, the concept isn't new to Hainan. The State Council encouraged Hainan to explore a betting-type sports lottery in 2009 guidelines to turn it into an international tourism island.

A casino bar with baccarat tables opened in the resort town of Sanya in 2012 where players earned points they could trade for accommodation and shopping.

It was shut down shortly after the report. The owner, Zhang Baoquan said the government monitored the casino to test the market.

While China is the world's biggest tourism spender, it has had a tougher time attracting travelers from abroad.

In 2016, it drew 31 million visitors, less than half of the number welcomed by the US.

China has already poured billions of dollars into new highways, high-speed railways and other projects in Hainan, attracting prominent chains such as Hilton, Westin and St. Regis.

Still, Hainan took in far fewer overseas visitors than other premier Asian tourist destinations such as Bali, Phuket or Jeju in South Korea.

Chinese officials have shown a particular interest in Hainan in recent months, suggesting a coordinated effort to promote the island.

Vice Premier Liu Yandong urged local leaders to work to attract international tourists during a Jan 13 visit.

Foreign Minster Wang Yi is scheduled to address an event Friday in Beijing on presenting Hainan province.

One hurdle is the state of conglomerate HNA, which owns the province's airline and two of its airports.

HNA told major creditors and provincial government officials last week that it expects a potential shortfall of at least 15 billion yuan (S$3.14 billion) in the first quarter.

Companies linked to HNA secured 7.8 billion yuan in long-term loans from Chinese banks to finance an expansion project in Meilan Airport in Hainan, according to a filing with the Hong Kong stock exchange.

Half of the loan will be allocated to HNA Infrastructure Co. and the other half to Haikou Meilan International Airport Co., with the loan being guaranteed by HNA Holding Group.

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