Taiwan experts optimistic for casino bill this year, despite political stagnation

Taiwan’s long-awaited bill to legalize casinos remains mired in political limbo, though experts are optimistic it may still pass by the end of this year.

The Tourist Casino Management Act, though considered a priority bill, has been stalled by a political stalemate on the island, including a series of student protests that effectively shut down parliament for a month earlier this year, putting most legislative decisions on hold.

“There’s no real controversy over the bill,” said William Bryson, a partner at law firm Jones Day in Taiwan. “Neither of the two major parties are against it. It’s just because of a higher level of disagreements.”

The bill was supposed to have been considered in a special summer session of parliament after having failed to get to the top of the stump in the regular session, but it has not been put on the agenda. However, there is hope that the summer debates will help clear the backlog, including issues relating to China/Taiwan relations and free economic pilot zones, paving the way for passage in the next regular session that starts in September.

“I am hoping that once the above-mentioned higher priority bills have been addressed in the special summer session, the legislature will focus its energy on other bills having important economic implications, such as the gaming bill,” said Anita Chen, managing director at Park Strategies (Taiwan). “If the gaming bill is passed by the end of 2014, it is expected that Taiwan will see its first IR open by late in 2017 or 2018.”

The bill is designed to provide a framework for legalizing casinos. It doesn’t currently set out the number of licenses, which will ultimately be determined by the regulator and the Executive Yuan. Neither does it spell out details, such as minimum investments, which will be contained in a separate integrated resorts bill, which has already been drafted by the Tourism Bureau.

“My understanding is that it is in relatively good shape and the Bureau is waiting for the gaming bill to be approved so the IR regulation can be promulgated at the same time,” Chen said.

The bill foresees casinos being opened on Taiwan’s outlying islands and will not permit IRs on the main island, which may reduce the allure of Taiwan for potential casino investors and is likely to mean much smaller amounts than those being touted for casino investments in neighbouring Japan.

“Everyone interested in casinos would prefer to have them on Taiwan proper and not on an island,” said Marcus Clinch of law firm Eiger Law. “They would want a type of free trade zone that would include casinos,” he said, adding that it’s unlikely that main island casinos would garner the support of local residents.

However, the Legislative Yuan’s passage of the casino bill is not an automatic guarantee that casinos will go ahead. Residents of the three islands -- Kinmen, Matsu and Penghu -- need to approve the proposal through a referendum.

Matsu held a referendum in 2012, which was passed making it the only place currently eligible for an IR in the country. Penghu residents however rejected a proposal about five years ago. Some supporters are now preparing a second application though it’s unlikely to be submitted before local elections at the end of November. Kinmen has still to test the waters.

“They are three very different islands, so it’s not a case of one size fits all,” Bryson said, referring to the level of investment that may be possible. “A $2 billion resort might be possible in Kinmen but not in Matsu.”

Matsu and Kinmen are pure China plays, with Kinmen so close to the mainland province of Xiamen that it’s possible to see with the naked eye, meaning the majority of the clientele would be from China.

There is an existing ferry service linking Kinmen to the mainland and that would likely be how most clients arrive.

“Penghu is in the Taiwan strait and a different play. It would be a combination of Japan, China and Taiwan. It already has the infrastructure, the government built a desalination plant and upgraded the airport,” Bryson said.

The most interest is likely to be in Kinmen, famous for the production of Chinese Kaoliang liquor. The island has a local population of about 100,000 and has relatively good infrastructure.

“Kinmen would be everyone’s favourite,” Clinch says. “But they don’t really need the revenue as they make the Chinese white spirit,” he said, adding there may also be some local opposition stemming from prior property speculation.

Matsu on the other hand would need a lot of infrastructure investment to support an IR. Bill Weidner of Global Gaming Asset Management did have plans for the island, though those appear to have stalled. About 95 percent of the visitors would be likely to come from mainland China, meaning the island’s port infrastructure would probably also need an upgrade.

Taiwan’s proposed gambling bill doesn’t prohibit the country’s 23.3 million population from entering casinos, as is the case in South Korea and Vietnam and neither will it charge a fee to locals as in Singapore. However, the relative distance of the islands from main population centres and poor infrastructure mean the draw of having locals won’t necessarily be the main driver.

That again is likely to be the rising visitation from China. In April this year Taiwan’s tourist arrivals hit 890,000, a record for the month and up 28.98 percent year on year, the Tourism Bureau said. While growth of 26.55 percent to about 370,000 visitors were from mainland China.

However, the heavy reliance on Chinese visitors brings its own risks. Unlike Macau, relations with its giant neighbour have not always been smooth. While Beijing maintains that Taiwan is part of China, Taipei insists on an independent state. Relations have improved in recent years, however there is always the potential for Taipei to decrease the number of visas issued to Mainlanders and for China to turn off the tourism tap.

Local Taiwan residents may also be sceptical about an inflow of mainland gamblers. Although the tourism demographic is changing, the tour groups that originally brought large numbers of Chinese into Taiwan could often trace their ownership back to mainland companies through Hong Kong interests, with local Taiwanese not seeing the benefits of the tourism dollar.