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The only game in town

The only game in town

Maybe Macau’s luck is turning. How else to explain the relief at news that its casino industry shrank less than expected in February, amid hopes of an end to a slump that has lasted for almost two years? The former Portuguese colony said gambling revenue dropped 0.1% (year-on-year) in the month. Although it was the 21st consecutive fall, it was the smallest decline in 20 months.

Macau’s garment manufacturers were some of the earliest investors in businesses in China in the late 1970s, but the city’s contribution to the PRD was subdued, serving primarily as a destination for fun seekers from Hong Kong.

The mood changed on Macau’s return to Chinese sovereignty in December 1999. As the only place in China where casinos are legal, the enclave was catapulted into the big league. Gross gaming income surged, topping $46 billion in 2013. At the peak, punters were betting seven times as much as their counterparts in Las Vegas. As such, Macau’s casino culture could be seen as a primary beneficiary of a wealthier PRD and as a leading indicator for the growth in services and consumer spending in the region. (Around a third of visitors are from Guangdong.)

$46 billion

Gaming revenue’s in 2013, Macau’s best year on record. Betting in the former Portuguese colony was seven times greater than Las Vegas

But the city’s success story was showing signs of sagging by the end of 2014, when full-year revenues at the casinos fell for the first time since liberalisation. Last year was much worse, with revenues dropping by more than a third to $29 billion. One of the messages from the meltdown is the risk of relying on a single-track economy. Another is that what Beijing allows, it can also take away. Much of the current crunch stems from Xi Jinping’s anti-corruption campaign, which has ravaged the VIP gambling underpinning the territory’s gaming model. Many of the wealthiest gamblers have been scared off, and a more concerted effort to target money laundering and improper capital flows is making it harder for junket operators to finance those that do come to town.

Revenues have collapsed at a time when the casino operators have been launching a series of new projects. In fact, the new investment is an effort to reduce Macau’s reliance on gaming, which makes up about 80% of its revenue. The new attractions are designed to lure visitors who want to shop, eat and go to a show, with a plan to steer the revenue mix closer towards that of Las Vegas, which only derives a third of its income from gambling.

Before that can happen Macau’s transport infrastructure needs more of an upgrade, including the border crossings with China, which regularly clog up with people. With 640,000 residents, the city is already one of the most densely populated places on earth. Add to that the 31 million visitors who arrived last year (slightly down on the year before), and Macau is bursting at the seams.

The city’s authorities are pushing for a revamp of their economy and they say they will look at how the casinos have diversified their attractions when gaming licences come up for renewal. That hasn’t prevented plain speaking about the commercial realities, including comments from Lawrence Ho, chairman of Melco Crown, at the opening of his new resort last year. “As bad as it sounds, I don’t think there’s a future for a pure non-gaming resort in Macau,” he warned. “The truth is: gaming is really the financial engine. Yes, you can have these great integrated resorts, but without the gaming component the maths doesn’t work.”

Yet Macau’s headiest days of relying on a relatively small group of fantastically wealthy players are surely behind it, especially with the Chinese government’s more determined focus on preventing the misuse of public funds and reducing illicit capital flows. In the meantime the casino bosses are squinting at the slumping monthly take through their fingers, hoping for signs that the declines have bottomed out. But the real wager is a longer-sighted one: not just that more of the high rollers will return but that China’s consumer revolution will bring millions more tourists to Macau, strengthening the foundations of its entertainment economy.

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