Views Hainan promotion to impact Hengqin “ill-informed”

    In my view as a Hengqin-centric investor and investment consultant, April’s announcement of tourism development plans for Hainan Island will have zero meaningful impact on Hengqin Island.

    Some analysts and commentators have speculated that the opening of Hainan will shift the focus away from developing Hengqin to the same level as had been originally planned.

    Such speculation is often uninformed.

    We encourage analysts and others to invest some time in understanding Hengqin: its relationship to Macau, the transportation infrastructure, its economic and political underpinnings, and the supply-demand equation that exists in mainland China for the future Hengqin product.

    After all, Hengqin will be the biggest game-changer for Macau since the 2002 liberalization of the gaming industry.

    Hengqin Island in 2018 reminds me of the Cotai Strip in 2005: large-scale construction projects, big plans that seem outsized for their day, a general lack of awareness among international investors, and scarce mechanism for communicating those plans to the outside world.

    Supply-constrained Macau now has around 38,000 hotel rooms—compared with Las Vegas’s 167,000 and Orlando’s 122,000. Hengqin will deliver tens of thousands more hotel rooms to the Macau mix, with the added contribution of family-themed, non-gaming attractions of Orlando proportions.

    In the next few years, we will see Hengqin grow into one of its planned roles: a transportation hub for the western half of the Greater Bay Area:

    – The mainland landing point of the Hong Kong-Zhuhai-Macao Bridge highway will be at Hengqin, giving it a turnkey world-class airport.

    – China’s high-speed rail will run to Hengqin. An underground train station and new Hengqin-Macau border facility are expected to begin opening incrementally next year. This new rail and immigration facility will have capacity for 80 million passengers and crossings per year—the biggest in the world. (In comparison, the current Gongbei border handles around 15 million crossings per year.)

    – Macau’s LRT will eventually run to the same Hengqin-Macau high-speed rail station and immigration facility on Hengqin.

    – A rail and highway bridge will extend from Hengqin to the expanding Zhuhai airport. Hengqin will effectively be served by three international airports, whereas now it has none.

    Despite these major infrastructure projects still being “in the works” and not yet operational, Phase 1 of Hengqin’s Chimelong Ocean Kingdom theme park took in 8.5 million visitors in 2016—the most in Asia, outside of Japan. Phase 2 of Chimelong is set to open this year. Phases 3 and 4 will follow it, each with more hotels and theme parks.

    Being on the ground in Hengqin, I am increasingly asked by Macau companies about the new buildings that can be seen sprouting up on Hengqin when viewed from Macau’s Taipa district. What is less tangible but more significant is the underground city that already exists in those parts of Hengqin: completed train tunnels, moving walkways, parking lots, utilities infrastructure, retail space—all interconnected.

    At last count, there were 89 active construction projects on Hengqin. Several of these are large-scale tourism projects being developed by private mainland Chinese companies that are still relatively unknown by Macau-based companies. There are some developments, however, that are better known by people in Macau. For example, these are some of the projects I am increasingly being asked about by Macau’s hospitality players and casino operators:

    – Phase 1 of the Novotown tourism resort is expected to open within the next few quarters. This first phase (comprising only 13 percent of the total project’s land) will include a Hyatt Regency hotel, Lionsgate and National Geographic experience centers, performance venues, and cross-border bus terminal.

    – Galaxy Entertainment Group’s Hengqin hospitality/resort project has not yet broken ground on its 2.7 square kilometers of land.

    – A 1,600-room, internationally-branded hot spring resort is planning to open its first phase this year.

    – The Zhuhai International Convention & Exhibition Center is visible from Macau and contains a 548-room Sheraton, 454-room Huafa Place hotel, and a soon-to-open 250-room St. Regis.

    – Macau businessman David Chow has built the Portuguese-themed Legend Ponto Square shopping mall, structurally completed with a stated opening date of this year.

    – Shun Tak Holdings is constructing a mixed-use project, adjacent to the future immigration facility and comprised of hotel rooms, office, and retail space.

    Like any master-planned new city, Hengqin is not without its risks, which are detailed in our research reports. Overall, however, I do not see the economic and political driving forces shifting any time soon:

    From the moment in 2009 when then-Vice President Xi Jinping launched Hengqin’s “special” status, the Chinese central government’s support and vision of the island have not wavered. With Hengqin playing a linchpin role in Macau’s economic diversification, combined with its status as the only special zone in China connected to both the Macau and Hong Kong SARs, some have said that politically Hengqin is “too big to fail”. Concurrent plans for Hainan, or even a dozen Hainans, will not change that.

    Matthew Ossolinski is CEO of GW Investment Consulting, the first and only international business consultancy based on Hengqin Island. A division of investment company Ossolinski Holdings, GW advises international corporate and institutional investors, providing Hengqin-focused research, advisory and business brokering services.