Macau’s Downturn Deepens, Continues
|Our Correspondent||Jul 5, 2016|
A Chinese crackdown on corruption and a faltering mainland economy have had a devastating effect on the economy of Macau, with gross gaming revenue falling for the 25th straight month, an 8.5 percent decline in June to 15.9 billion Macanese patakas (US$2 billion) according to the Gaming Inspection and Coordinating Bureau.
The once-sleepy former Portuguese enclave, which was handed back to China in 1999, lives and dies on gambling, with 94 percent of GDP derived from the services sector, which almost entirely services the gaming industry. Together, gambling and restaurants and hotels make up 26 percent of the economy. A full quarter of its population is engaged in the gambling trade, with another 15 percent employed by hotels and restaurants, which to a large extent service gaming. Gambling taxes provide 70 percent of government revenue.
After the handover, Macau underwent a tremendous boom, with the monopoly on gambling enjoyed by tycoon Stanley Ho ending in 2002 and with international casino companies storming into the enclave. Operating concessions were granted to Wynn Resorts, Galaxy Entertainment Group, Las Vegas Sands and a partnership between MGM Mirage and Pansy Ho Chiu-king, Stanley Ho’s daughter. Eventually, the number of international casinos grew to six , with another 16 operated by Stanley Ho’s Sociedade de Turismo e Diversões de Macau, SA; abbreviated as STDM.
In 2015, in a city with only 592,700 residents, tourism arrivals were 30.71 million, down by 811,000 according to the enclave’s Statistics and Census Service, a 2.6 percent annual drop. The immigration centers to the city are a tremendous scrum, with thousands of people arriving by the hour. The release noted that Macau casino GGR generated by mass-market gaming during the first six months of 2016 accounted for 53.1 percent of the total; i.e. a 10-percentage point increase in year-on-year terms in the contribution of mass-market play to total casino GGR.
VIP total gaming revenue – the high-rollers who represent the cream of gaming revenues – was off by 17.3 percent in the first half of 2016, while the so-called grind market – the millions of people who swam in daily – declined by 3.6 percent year on year, a result of the Macau government’s attempts to diversify its gaming sector, according to a Macau government release.
Undaunted, two new casinos are expected to open in the next few months. Wynn Palace, the new Cotai casino resort developed by Wynn Macau Ltd, is scheduled to open on Aug. 22, according to a statement issued in June. Sands China Ltd., another Las Vegas-based casino operator, said it would open its new Parisian Macao in mid-September. The government, in its announcement of gaming revenue totals, said it anticipated that the opening of the two resorts would fuel additional tourist arrivals.
The casinos themselves famously attracted thousands, perhaps tens of thousands, of corrupt Chinese officials gambling away state-generated funds. The Chinese government began to crack down a few years later. But in 2012, after the conclusion of the 18th National Congress of the Communist Party of China brought Xi Jinping to power as the head of the communist party and the country’s paramount leader, Xi kicked off what has been called the largest anti-corruption movement in Chinese history, going after both “tigers and flies” – corrupt high-level officials and local civil servants alike.
As has widely been reported, at least 120 high-ranking officials have been nailed including four national leaders, the senior executives of many state-owned enterprises and others. More than 100,000 people so far have been indicted for corruption. Macau, the only place in China where gambling was legal, entered the ice age.
There seems to be little hope on the horizon. June, the last month for which there are figures, average daily revenue was 529 million patakas, down 11 percent from May and falling faster than for the yearly average. The rating firm Moody’s forecast a 6 percent annual contraction for 2016 and said a 2017 recovery is “increasingly unlikely. We expect that growth will continue to contract over our rating horizon of the next two to three years, although the pace of decline should slow,” Moody’s reported.
The other problem for Macau is the Chinese economy, which is said to be growing at a 6.7 percent annual clip. But it appears that state-owned enterprises provided the bulk of investment as the government used policy stimulus to drive growth. Momentum now appears to have moderated again. Private sector investment hit an all—time low in May. Real estate investment, one of the drivers of growth, has stalled again, all of which have generated concerns about the real quality of expansion. Macau, given the millions of mainland punters who swarm the casinos, is extraordinarily sensitive to China’s economy.