Listen Up, Hong Kong, Here Comes Macau
Here is a tale of two cities that will gladden the hearts of
believers in free markets. In one city the
government has poured billions of
dollars into building tourist attractions and been rewarded with a modest
increase in visitor arrivals, in the other the government has hardly dipped
into its budget but allowed the private sector to do all the heavy lifting and
has seen tourism expand by a breathtaking degree.
The two cities are China’s
special administrative regions of Hong Kong and Macau.
Last year Macau received 21.99 million
visitors, setting a new record and registering a 14.6 per cent increase over
the previous year. Hong Kong, meanwhile, saw
visitor arrivals rise to 25.2 million, an increase of 7.5 per cent over 2005.
Meanwhile in the first month of this year visitor arrivals in Hong Kong
contracted by 1 per cent while Macau’s
arrivals soared by 22.7 per cent.
It is dangerous to read too much into a single month’s
record but the trend is clear ‑ Macau is outpacing Hong
Kong’s visitor business by a healthy margin.
There is no mystery why this is happening; Macau’s
visitors are lured by the growing number of casinos and little else. Hong Kong,
on the other hand, has decided to stay out of the casino business and invested
heavily in theme park attractions such as Disneyland, a refurbished Ocean Park,
and a wetlands park, which is taps into growing interest in eco-tourism.
The golden thread linking all of Hong
Kong’s attractions is that they are the products of public
investment. As a result, allegedly free market Hong Kong is the proud owner of
the world’s only nationalized Disneyland.
Total government investment in this project amounted to just under $3 billion.
Over in Macau there is no
need for the government to spend a cent on developing casinos. On the contrary,
international companies are lining up to pour cash into new gaming houses and
big American investors like the Sands and Wynn corporations are already seeing
good returns on their money. And the taxes they pay are swelling government
coffers to a level where the Macau treasury is
awash with funds.
Of course, Macau has long
been engaged in the gambling industry but its development was severely
constrained by two factors. The first was a 40-year monopoly arrangement that
confined all casino development to companies run by the Hong Kong-based mogul
Stanley Ho. This ended in 2002 and by the simple expedient of not renewing Ho’s
exclusive franchise, the floodgates of competition were opened and new
investors poured in, led by the Las Vegas casino
operators, later joined by Australia’s
Packer companies. Now Richard Branson’s Virgin group is trying to find a seat
at the table.
The second constraint on the development of Macau’s visitor
business came from China,
which had previously exercised heavy controls on permits for its citizens to
travel to both Macau and Hong Kong. These
controls have been steadily eased and mainland China
now provides more than half of the visitors to Macau,
a percentage which is rapidly growing.
Hong Kong has taken a
principled decision not to enter the casino business, despite some political
pressure for it to look at the idea. It is not entirely clear why the Hong Kong
government is so keen to keep out casinos, when even strait-laced Singapore
is forging ahead with plans for what might be described as a casino-lite
operation and other governments in the region are seriously thinking of joining
the gaming bandwagon.
One reason why Hong Kong may resist rolling the dice is that
it is constrained by the government in Beijing
which is said to have decreed that casinos are the preserve of Macau and that Hong Kong should not compete. This assertion, like many
of those concerning edicts from the Chinese government, is hard to prove
because relations between the central government and its SARs are not conducted
in a transparent manner.
However it is hard to understand why Hong
Kong has been so adamant in its refusal to join the casino
bandwagon. Around a third of the visitors to Macau come from Hong
Kong and practically all of them head straight for the gambling
tables. In Hong Kong itself gambling is far from being banned; on the contrary
the government has given the Jockey Club what amounts to an official monopoly
on gambling that extends not just to horse racing but also to betting on
overseas football matches. It would therefore be hard to claim that Hong Kong has a moral objection to gambling.
It may be argued that Hong Kong wishes to escape the
attendant dangers of criminal activity and gang warfare which were particularly
evident ahead of Macau’s formal reversion to
Chinese sovereignty in 1999. In Macau, no one
seriously believes the gangs have gone away but at least they have stopped
fighting it out in the streets. Hong Kong has reason to suspect that the close
relationship between casinos and organized crime could be a problem but it can
also look to places like the United
States where decisive action has done much
to diminish this relationship.
Meanwhile there is still plenty of space for casino growth
in Macau. Last year gaming revenues in Macau
exceeded those of Las Vegas
for the first time ever. It hosts 24 casinos and more are being built by the
day. With casinos not permitted on the mainland and gambling, at least in
theory, outlawed altogether, the market is seemingly endless. .
Hong Kong residents have long seen Macau
as a junior and slightly inferior relative; it was assumed that it would remain
in the shadows while the former British colony roared ahead. It remains the
case that Hong Kong’s economy is far more developed and infinitely more diverse
than that of Macau but in the tourism sector the former Portuguese enclave
looks set to finally pass Hong Kong this year.
Hong Kong’s answer is to
invest more of the public’s money in projects it thinks will attract tourists.
While it does so the territory is getting a bad press in the mainland not just
for high prices but for the way that Chinese tourists are treated when they
come, as most of them still do, on group tours and are led to special shops
charging inflated prices, supplied with inferior buffet meals and generally
herded around the place in a manner that belies Hong Kong’s claims to be an
open and free city.