Try your luck in Macao

By Florian Spinell

Data released by the Public Security Police (PCP) of Macao showed that on the first four days of the eight-day Golden Week holiday, there were over 404,000 inbound border crossings from Hong Kong, Taiwan and mainland China. On the fourth day 117,042 visitors have arrived, 101,350 of them arrived from the mainland. This year’s Golden Week holiday is for mainlanders to celebrate the National Day and includes an extra day because of the Mid-Autumn Festival on September 30, the day before National Day. On average 70,000 travelled to Macao in 2011 every day. Therefore, Macao and its 560,000 inhabitants are facing an increased inflow of gamblers.

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Macao is one of the two special administrative regions of the People’s Republic of China (PRC) and it is located West of Hong Kong. According to estimates, more than 1 billion people live within a three-hour flight from Macao, and more than 3 billion people live within a five-hour flight. Macao is known for its Portuguese heritage in terms of architecture and food, and primarily for its image as the “Las Vegas of Asia”.

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After 400 years under Portuguese administration, Macao was handed over to the PRC in 1999. It preserved its right to provide gambling services, which was granted by Portugal in the 19th century.  After the handover in 1999, there has been a rapid rise in the number of mainland visitors due to China’s easing of travel restrictions. Together with the liberalization of the gambling market in 2001 induced increased investment inflows; the average growth rate of the economy between 2001 and 2006 was approximately 13.1% annually. Only in 2011 the border control counted 28 Mio arrivals, 16 million of them from Mainland China.

Macao has 33 casinos and has already surpassed Las Vegas in revenues. To satisfy the increasing demand, the Macao government is planning to further increase the number of casinos. Due to lack of space, land reclamation is taking place along the coastline.

 The competitive advantage of Macao is the prohibition of gambling within Mainland China and the enthusiasm for gambling of the Chinese. The most popular games are Baccarat and Mahjong. The following link includes Chinese gambling superstitions and taboos.

Gambling Do’s & Dont’s

Once one arrives in Macao, they can imagine how important the gambling industry is for its economy just by looking at the scenery. Huge, gray casinos were constructed within the historical old town. The gaming industry plays a major role in the lives and  well being of the local population with almost 60% of the population working in the industry. Many young people are lured into working in the industry for salaries that sometimes exceed that of peer graduates in the government and private sectors.

At the first glance Macao’s success seems to be unstoppable, but upon further examination it has several weaknesses. The gaming, tourism and hospitality industry is estimated to contribute more than 50% of Macau’s GDP, and 70% of Macau government revenue. As more than 50% of the yearly visitors are mainland Chinese, Macao’s revenues depend on visa restrictions imposed by the Chinese government on their citizens and on the amount of money which can be spent overseas on credit cards. China Union Pay limited this amount in 2009 and this decreased per client revenue of Mainland China.

 Additionally, many gamblers borrow money for gambling purposes. As long as the Mainland banks keep on lending money, Macao’s prosperity will grow, but if the liquidity of those bank decreases, the number of Mainland visitors will decrease. Over the past decade China accumulated vast amounts of foreign exchange reserves. The counter value of these foreign reserves flows into the Chinese system and it is one of the main reasons for the widely known housing bubble. Chinese banks have been willing to lend money because of the large amount of cash within the Chinese system.

Due to recessions in Europe and America exports will collapse and the trade surplus will decrease, stopping the inflow of additional money into the system. The Chinese government’s fear of inflation, sparking social unrest, limits the Central Banks range of actions to lower interest rates. Finally, this will reduce the liquidity of Chinese banks and their willingness to lend to Chinese citizens.

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Sources:

http://seekingalpha.com/article/684531-gambling-in-macau-to-suffer-in-future

http://blogs.wsj.com/corruption-currents/2012/09/20/u-s-regulators-concerned-about-vegas-bets-on-chinese-vips/

http://article.wn.com/view/2012/07/09/Macaus_Gambling_Junkets_Risk_Losing_Their_Game/

http://www.macaunews.com.mo/content/view/1916/5/lang,english/

http://chinaperspectives.revues.org/603

 

 

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2 Responses to Try your luck in Macao

  1. brandeisaer says:

    I feel the last paragraph is a little bit disconnected and potentially opening a lot of questions. I am also curious what you think will happen in this scenario. Suppose both US and Europe went into another deep recession, investors realized China would be the best place to open factories, start business etc. How would that play out for places like Macao?
    – Vina –

  2. Anonymous says:

    Until the great recession everyone thought that gambling towns were recession-proof. I think a global slowdown is probably the only thing that could really hurt Macao. It’s in the perfect location to attract both tourists and hardcore gamblers from all around the world. If you have any data on the gambling industry’s revenues from 2008 onward that would be really interesting. Places like Vegas and Atlantic city were hit pretty hard, primarily because the casual gamblers / tourists that now account for much of the casino revenues couldn’t afford to come.

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