With Macau’s gambling industry on tilt, is social unrest inevitable?

27th February 2015 by RightCasino facebook 4 mins read Category: Features

Mainland China breathed an audible sigh of relief on 15 December as the last of Hong Kong’s pro-democracy protesters were cleared out of Causeway Bay. While the crisis had ignited over Hong Kong’s right to political self-determination, it was clear that years of lean living by the majority of the region’s citizens provided the kindling.

Among the rhetorical coshes used to batter the pro-democracy demonstrators last year was the success of the “one country, two systems” model for Macau, whose GDP per capita stood at fourth in the world in 2013. However, with the special administrative region’s (SAR) oft-touted fiscal dominance beginning to slip, the economic disaffection that fuelled civil unrest in Hong Kong could soon threaten the choicest jewel in China’s crown.

Some observers have argued compellingly against the possibility of an ‘occupy’ movement taking hold in Macau, citing the region’s consistent fiscal track record (buoyed by support from the mainland), the relative stability of her political relationship with China and effective policy-making by Macau’s government. Furthermore, both the Macau and central government have made specific commitments to pursue popular infrastructural goals such as improved public housing and educational institutions.

The boons listed above were all facilitated – not through China’s patronage – but on the strength of Macau’s lucrative gambling market. At present, more than 80% of the Macanese government’s revenue comes straight from the wallets of (mostly Chinese) gamblers and the majority of locals are employed by the gambling industry, in various capacities. Consequently, they reap the spoils of booms and revenue jumps in the form of pay-outs, but must also suffer the consequences of dips in a very direct fashion.

Bar a minor hiccup in 2002, we have not really seen the effects of such a downturn. Asia’s gambling Mecca has gone from strength to strength, overtaking Las Vegas in 2006 to become the world’s hottest destination for gambling tourism and posting staggering financial progress quarter after quarter. However, there are worrying signs that Macau’s gambling gold rush might be winding down.

In June 2014, Macau’s casino revenue slipped into the red for the first time in over a decade. This has been partly attributed to efforts by President Xi Jinping to clamp down on corruption in the SAR (at present, Macau is known as a hotbed for money laundering). Other factors, including a shortage of visas and a newly-implemented smoking ban on casino floors, have also played a part in digging this financial trough.

What we have witnessed is no slight decline. Earlier this month, it was reported that profits at Sands’ Macau branches had fallen 15% from the last financial year. In the fourth quarter, the industry as a whole posted a 25% fall in revenue, versus a 13% climb in the first half. While Macau’s numbers have been bad, some of the headlines have been worse. For instance, on 12 January 2015 Alan Ho (nephew to gaming magnate, Stanley Ho) was dragged before a court for allegedly heading a prostitution ring.

A recent CNN report stressed the desperate need of Macau to diversify, a sentiment shared by Xi, who in a visit to the SAR in December encouraged Macanese leaders to expand beyond gambling and promote “appropriate diversification.” This is a scenario that has already been faced by Las Vegas, for example, which responded by boosting the city’s ancillary entertainment and leisure industries. At present, Macau lags seriously behind on this point: it really is all about the gambling.

A few companies are beginning to take note of the changing tides. For instance, Wynn Macau is constructing a 15,000 seat arena for sporting and musical events. Meanwhile, the neighbouring island of Hengqin, has already been identified by Beijing attention as a promising site for development and diversification. However, there is a definite sense of “too little, too late” in these projects and there has certainly been no assertive push towards the multifaceted leisure and tourism sector currently offered by other gambling hotspots.

The danger posed by Macau’s souring fortunes is not only economic. If Hong Kong has demonstrated anything, it is that the “one country, two systems” model is compelling only insofar as citizens in Chinas SARs feel they are benefiting from the paternalism of the mainland. That an Occupy movement on the scale of Hong Kong’s seems inconceivable in Macau is only evidence of her economy’s momentum. However, as I have intimated, the extent to which Macau’s populace is invested in its gambling sector is almost unprecedented. With nearly every soul depending on the same industry for their daily bread, discontent would surely flare exceptionally quickly should the casinos fail to deliver.

There is some evidence that Macau beginning to right itself after its financial wobble. CLSA’s analysts expect Macau’s casino revenue to stabilize in the first half of 2015 and rebound in the second half, summarising: “Headwinds will persist … but longer term investors should not abandon ship.” Should this be the case, then the Macanese government would be wise to earnestly invest in the region’s future as a holistic travel destination. At present, Macau is evincing a dangerous dependency on a sector known for its capriciousness.

In a piece for The Diplomat, Shannon Tiezzi described a statement by Xi to Macau’s chief executive – that “the central government pins high hope on the new SAR government” – as both a compliment and a veiled warning. With the tremors of the Hong Kong crisis still ringing in China’s ears, the sanctity of this lucrative but vulnerable SAR is clearly on Xi’s mind. Economic reform in Macau must be immediate and extensive: the stakes cannot be understated. Without a dramatic course correction, it will not be long before China will be unable to hold up Macau as the poster child of amicable benefaction from the mainland.

By Joe Attard

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