In the world’s economy, China is becoming more than a minor piece of the puzzle. China is becoming a controlling factor. In a recent discussion on NPR, the host questioned an expert on the price of oil. The host said, “Before the war with Iran, experts said if there is a war, the price of oil will go to $150 a barrel within a week or two and probably hit $200 a barrel. The price of oil will create a worldwide economic crisis. That did not happen. Why?” The guest said, “Well, the demand did not remain constant. We don’t know how, but China reduced its oil imports by 42 percent.”
The discussion continued. The host and the guest speculated that possibly China had huge reserves buried somewhere. Its domestic consumption of oil did not decrease by 42 percent. China has made great strides converting to renewable fuels, but still requires oil; it has 280 million cars requiring regular doses of fossil fuel. Apparently, China had a backup plan and had saved oil for a rainy day. China has been preparing for wars and oil shortages for years. By not importing oil, China has controlled the price of oil during the latest crisis. The NPR host and his guest agreed that China was prepared for this war and the rest of the world was not.
The economy in China is not growing as fast as it was. There are issues in some segments, but the government is investing to boost production and consumption. In particular, the government has a very strong interest in technology and artificial intelligence. The Chinese military is a major consumer of both. Recently, President Xi Jinping told the military that it needed to consult with politicians as it seeks to modernize. In the Chinese newspeak, that probably means more high-tech, small, remotely controlled weapons and sophisticated artificial intelligence tactics and fewer big weapons with mass troop-movement tactics. Even if it does not want to control the world, it does not want to be caught off guard. Like a good Boy Scout, China is prepared.
While the economy has slowed down, it has not bogged down. Chinese consumers are consuming and traveling. In the five-day holiday in May, there were 325 million domestic trips and the travelers spent $28 billion. Those Chinese travelers are shaping the tourism economies in many countries in Asia and beyond. Chinese tourists are coveted. Brazil eliminated visas for Chinese tourists and has seen a 42 percent increase in Chinese tourism as a result. Other countries are experimenting with the same policy. For casinos in Asia-Pacific region, Chinese can make or break an enterprise.
South Korea is one of the countries with casinos designed to attract Chinese gamblers. South Korea has 17 casinos, but only one permits Koreans. The others are designated “foreigners-only casinos” and China is a major source of foreigners. Like Brazil, South Korea initiated a visa-free program for Chinese. However, there is a slight conflict. China has a law against gambling; Chinese citizens can only legally gamble in Macau. Although the policy is a little disingenuous; in June the Chinese national lottery booked $11 billion in sales, $8 billion in the Sports Lottery. To an innocent outsider, that sounds like gambling.
For casinos in Korea, the Chinese rule is do as I say, not as I do. Last week, the Chinese embassy in Seoul issued a statement urging South Korea to stop its casinos from marketing to Chinese gamblers. The embassy said, “Chinese law maintains a zero-tolerance policy toward gambling, and it is also illegal for Chinese citizens to gamble overseas. Under such circumstances, it is highly inappropriate for Republic of Korea casinos to conduct targeted marketing and recruitment specifically toward foreigners, especially Chinese people.”
Korea is in a hard spot, but it should understand. South Korean law forbids gambling also, and it too applies wherever a Korean may be, not just in Korea. Cambodia, Malaysia, and the Philippines are potentially in the same boat as Korea. Chinese gamblers are VIPs and the casinos want and need them.
However, a word of caution. China can tighten the noose whenever it chooses with the social credit system. The technology used in the social credit system allows the government to know where its citizens are, what they are doing, and how they spend their money. It has the capability of changing or stopping any behavior when it chooses, much like it did with importing oil.
Today is not the issue with China. The important issues are in a long-term plan. What is China planning for its population and gambling in the next decade, for example? That question looms over the $10 billion resort being built in Japan by MGM. It is scheduled to open in 2030. The Japanese government expects MGM to concentrate its marketing efforts outside of Japan, which includes Chinese gamblers. Beyond MGM and Japan, the question of Chinese policy on gambling should loom over any casino investment in the Asian-Pacific Rim.
That was my takeaway from the discussion of the Chinese oil strategy during the donnybrook in the Persian Gulf. China has long-term plans, while the rest of us are just reacting to today.
