MACAU - As Beijing goes through its
leadership transition, even bigger changes are
underway in Macau's gaming and hospitality sector
that powers the city's economy. Anti-corruption
steps promised at last month's Communist Party
Congress will further drive Macau's shift that, if
successful, will help align the world's leading
casino destination more closely with the vision of
local government and Beijing leaders' for its
"So long as society is stable then
should China worry?" HSBC regional analyst Sean
Monaghan asked. "Macau should be allowed to grow
so long as there is substantial industry
diversification and particularly in the non-gaming
area," sources tell him. "Macau must drive family
tourism and not just be a
bunch of casinos. This
transition takes time but it is happening."
Wells Fargo Securities director of equity
research Cameron McKnight said: "Generally
speaking, the evolution of Chinese government
policy has tended to gradual and somewhat glacial
from one administration to the next. We expect the
new administration is likely to continue pushing
Macau to diversify its economy away from purely
gaming and more towards leisure oriented tourism.
"It is possible that the new
administration is slightly more forthright in
encouraging Macau to reduce its dependence on
gamblers from Guangdong province and other parts
of the mainland, and develop more diverse and
independent revenue sources."
of Macau gaming industry expert Ricardo Siu
observed: "While development of the mass market
can be viewed as a consensus of the Macau and
Central governments for Macau's future,it remains
difficult and still unclear at this stage about
what steps would be undertaken to encourage it."
Low ebb The transition period to
Xi Jinping's leadership team is coinciding with
the slowest growth in Macau's casino revenue since
Beijing restricted access to Macau from mid-2008
to mid-2009. From the middle of this year, Macau's
gross gaming revenue (GGR) numbers indicate the
mass market revenue is expanding at better than
20%, while revenue from high rollers known as VIPs
that accounts for 70% of Macau's total GGR is
The problem, in part, is slower
economic growth in China. But there's also the
matter of rich Chinese trying to lower their
profiles during the leadership change amid growing
concern over income inequality and corruption.
"Recent political incidents in China and
some press coverage are arguably causing wealthy
Chinese to avoid conspicuous consumption,"
McKnight said. "For this reason, the luxury goods
companies have [also] seen sales growth slow as
some wealthy Chinese are more reluctant to buy
expensive gifts in the current environment."
Like many other observers, McKnight
complained there's "very little granularity or
clarity on the impact of the leadership transition
on Macau" in the short and long term. Panelists at
the Asian Gaming and Hospitality Congress in Macau
late last month shed some light on what's been
happening and what's ahead.
switched to premium mass market from VIP,"
according to Success Universe Group deputy
chairman and executive director Hoffman Ma. These
players bring from US$12,900 to $516,000 per trip
from the mainland, he said. Playing directly with
the casino rather than through a VIP junket
promoter means they forego credit - gambling debts
are not enforceable in Chinese courts, so a casino
won't lend to mainland players - and rebates,
known locally as commission, of up to 1.5% on
their chip purchases.
"A lot of rich
people in China care less about commission than
staying under the radar, as long as they get the
same or better service from the casino," said Ma,
also the deputy CEO of Ponte 16 resort, where
Success Universe consolidated its VIP business.
"It's good to keep a low profile with an
anti-corruption drive underway."
apparent sign of the times, police detained three
employees of junket promoters recently, the Wall
Street Journal reported last week. The government
has further tightened the screws via the banking
system, according to another VIP gaming insider at
the Macau conference.
poor "Chinese VIPs are asset rich but if
banks don't allow them to monetize it, then
they're facing difficulties," said Tony Tong,
director of investment for Tak Chun Finance, part
of the Tak Chun Group, which operates VIP rooms in
Macau with betting chip sales of $5 billion
monthly. Tight bank lending is a two-edged sword
for the VIP business, making it harder for players
to procure funds for play and lengthening the time
it takes for junket lenders to collect their loans
There's hope that the end of
the transition period will lead to banks loosening
credit, Tong told the conference. However, the
golden days of the VIP business as the leading
engine of growth in Macau may be over for good,
again due to the influence of Beijing.
"The Chinese government has asked Macau to
tighten restrictions on money transfer [from the
mainland]," Ma says. "If they cut off transfers,
the VIP market would die."
provides a mechanism to move money out of the
mainland, according to experts. Junket promoters
provide credit to VIPs in Macau, and allow them to
repay the loans in the mainland. Win or lose, the
money players bet to Macau rarely goes back to
China. Among mainland VIPs, that amounts to
hundreds of billions of dollars a year evading
China's currency controls.
widespread suspicion, and some specific cases, of
funds obtained through corruption being bet at
Macau's VIP tables. Beijing's anti-corruption
drive could hit VIP revenue marginally, but it can
also chill legitimate VIP activity and provide an
excuse to crack down on travel to Macau.
Even split "I don't think the
Chinese government wants to stop the VIP market,
but wants to control it," Ma said. "The Chinese
government will protect Macau by allowing more
visitors" to expand the mass market. "Beijing
wants to the growth of Macau's gaming revenue to
follow the growth of Chinese GDP." Eventually, he
forecast, Macau's gaming revenue will be split
50-50 between VIP and mass market play.
effect, Ma believes mainland authorities want to
continue and broaden what's been happening from
the middle of this year, with more mass market
play, and more tables moved to the mass market
main gaming from the VIP rooms, since Macau's
table cap bars casinos from adding new tables
until next year and limits table count growth to
The move to the mass market
carries the added benefit of supporting the
non-gaming attractions that operators have tacked
on to casinos. Mass market players generally pay
for their own rooms, meals and entertainment.
Shopping is also moving to accommodate the shift,
with more mid-level and entry-level luxury brands
at casino resort malls. Even with flat revenue,
casinos can grow profits with more mass market
plays, since they don't split the gaming table
profits with junket promoters.
another side to the rosy scenario. China's economy
as well as its leadership is in the midst of a
major transition, and Western economies are still
stuck in their low-growth rut. Meanwhile, all six
of Macau's gaming operators are committed to spend
upwards of US$15 billion collectively to build new
resorts to broaden Macau's appeal as the leisure
and travel destination Beijing wants, rather than
a gambling center.
With that in mind, the
central government will likely limit any moves
that hit Macau casinos, which still rely on VIPs
for more than two-thirds of revenue. "Owing to the
economic uncertainties in the global and mainland
markets, ensuring the revenue of Macau's casinos
seems important in the coming few years,"
University of Macau's Ricardo Siu said.
other words, Beijing's steps to limit Macau casino
play may be more for show and not for dough.
Macau Business special correspondent
and former broadcast news producer Muhammad
Cohen told America's story to the world as a
US diplomat and is author of Hong
Kong On Air, a novel set during the 1997
handover about television news, love, betrayal,
high finance, and cheap lingerie. Find his blog,
online archive and more at www.MuhammadCohen.com,
and follow him on Facebook
and Twitter @MuhammadCohen.
(Copyright 2012 Asia Times Online
(Holdings) Ltd. All rights reserved. Please contact
us about sales, syndication and republishing.)