Why Macau's choices come down to one precious asset

July 10, 2015 08:39
Casino Lisboa is reflected on the window of a Macau taxi. The Stanley Ho flagship lost its gaming monopoly 2002. Not since then has Macau's gambling industry has suffered a steep slowdown until now. Photo: Reuters

On July 2, Secretary for Economic and Finance Lionel Leong announced that Macau would initiate austerity measures if gaming revenue in the month did not reach 18.35 billion patacas (US$2.3 billion).

He was speaking after the worst month for such revenue in four years -- 17.4 billion patacas in June, the lowest since November 2010.

It was the 13th consecutive monthly fall. A plan for a total ban on smoking in the casinos, even in VIP rooms, would make things worse.

Macau has not faced such a downturn since 2002 when it ended the monopoly on gambling held by the company of Stanley Ho.

Since then, it has posted average gross domestic product growth of more than 10 per cent a year, one of the highest in the world, and become the gambling center of the world, with annual revenue more than six times that of Las Vegas.

Betting that this growth would continue, major casinos are investing hundreds of millions of dollars in new facilities to feed what they saw as insatiable demand from gamblers in mainland China.

Gambling accounts for 50 per cent of Macau’s GDP, 84 per cent of fiscal revenue and about 21 per cent of the workforce.

No one anticipated the dramatic impact on Macau of President Xi Jinping’s crackdown on corruption; it is the main reason for the fall in revenue.

While ordinary gamblers continue to arrive in great numbers, it is the big spenders -- the VIPs -- who either do not dare or wish to come.

One factor dissuading them is the excellent access of mainland security and anti-corruption agencies to Macau, so they take their business to South Korea, Singapore, Malaysia and other countries out of Beijing’s reach.

The government is being forced to review its future and consider options outside gambling.

That was the message by President Xi in a speech there on Dec. 20 last year.

“It is necessary to promote appropriately diversified and sustainable economic development on Macau, based on its positioning as a global tourism and leisure hub and a service platform for economic and trade co-operation between China and the Portuguese-speaking countries,” he said.

But this is easier said than done.

Macau has severe limitations. Its land area is only 30.3 square kilometres; it is already one of the most densely populated areas on earth. The prosperity of the past 13 years and the inflow of outside capital, mainly from the mainland, have pushed property prices out of the reach of the average family.

Initially, it hoped that the neighboring island of Hengqin, sparsely populated and with a land area of 106.5 sq. km., would become kind of suburb.

But this has not happened. The Zhuhai government, which controls Hengqin, considers the land too valuable; it has allocated only a fraction of it to the exclusive use of Macau.

What is more, since it is also designated a tourism and leisure center, Hengqin is building facilities that compete with those in Macau – the world’s largest water theme park, a Maldives-style holiday resort and other tourist facilities, an international convention centre and a banking centre.

Concerning the Portuguese-speaking countries, China is the most important trade and investment partner of most of them.

The largest companies in Brazil and the African PSC have their own relations with their business partners in China; they do not need to conduct them through Macau.

Hong Kong is a powerful competitor. It is one of the world’s most sophisticated centers of business services including finance, law, shipping, insurance and consulting, with a range of facilities, expertise and talent that Macau cannot match.

A company from Russia or Central Asia, for example, looking for a place to develop trade and investment links with China will choose Hong Kong over Macau.

Where Macau has an edge is upmarket niche tourism such as cuisine, health and spa that do not require a large amount of space and cater to wealthy tourists who may be going there anyway.

Education is another sector with potential; the city already has eight colleges and universities.

They can offer courses, content and teachers not available to students from the mainland whose parents are willing to invest substantially in education.

The University of Macau has just opened a spacious and modern campus on a greenfield site in Hengqin.

But its most precious asset remains the same as it has been for over a century. It is the only place in China where gambling is legal.

Beijing has refused the applications of many cities to open casinos and is determined to keep this restricted to one city.

A senior official recently warned the Taiwan offshore island of Matsu not to open casino or risk a ban on mainland tourists.

So Macau’s best hope is that Beijing believes it has achieved the objectives of its anti-corruption campaign -- and the VIP gamblers feel safe to go back to the tables.

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A Hong Kong-based writer, teacher and speaker.