Macau’s new Chief Executive Ho Iat Seng will have his work cut out for him when he takes office in December. The territory is officially in recession. The city’s infrastructure is groaning under the weight of a booming tourist economy. The population is aging and fearful for its quality of life.
As Ho addresses these pressing problems, he’ll use his honeymoon period to score points early. And he’ll emphasize administrative stability and that most prized of Chinese political values, “social harmony.”
So what does this imply for the gaming industry and its investors?
Observers say the single largest driver of the economy—Macau’s casinos—can feel a certain level of comfort, even as the six operators hurtle toward the statutory expiration of their concessions in 2022.
“I think any time the renewal issue comes up it’s always with a tremendous amount of speculation,” Brendan Bussmann of Global Market Advisors told GGB News. “Yes, there’s uncertainty, but people still have to figure a way to navigate around the various obstacles facing them on a daily basis. The same goes for the shareholders. What’s important is they want to see things moving ahead, slow and steady.”
Speaking last week from Tokyo, Bussmann, GMA’s director of government affairs, said Ho’s impact as 2022 approaches will be a positive one.
“The chief executive has a strong relationship with Beijing, and from that I think the operators can expect a good process during the license renewals and know that it’s blessed by the central government.”
Beijing’s tacit endorsement was Ho’s strongest asset as a candidate and the reason he ultimately ran unopposed last month, receiving 392 of 400 votes from an electoral committee of business and community elites that chooses the city’s leader every five years. (Seven of the remaining eight ballots were blank, according to a report in the Macau Daily Times, and one was described as “ambiguous” and tossed out.)
Ho’s tenure is expected to bring Macau tighter into the mainland’s political orbit, while making sure the city distances itself from the unrest in Hong Kong.
Not a terribly tall order for the 62-year-old, who was educated in mainland China and for nearly two decades was a member of the Standing Committee of the National People’s Congress (giving up his seat only this April to run for chief executive).
Ho is a Macau native—another plus—and brings to the job real-world experience, having served as managing director of the family business, Ho Tin Industries, a lighting and electronics manufacturer.
Most importantly, he knows the local political ropes. From 2004 to 2009, he served on the city’s executive council, an advisory body to the chief executive, and when he announced his candidacy this spring it was from his lofty position as president of the legislative assembly, a post he held for nearly six years before stepping down this summer to campaign.
As for that short campaigning season—it lasted all of two weeks or so—news reports indicate Ho acquitted himself well. He visited residents. He opened his headquarters to community associations that function as a sort of vox populi. Now expectations are high among influential groups like the General Union of Neighbourhood Associations, or Kai Fong, that he’ll tackle core problems𑁋among them, soaring housing prices, a flagging standard of living, decaying infrastructure and an overburdened public transportation system.
If he does, it’ll be in the midst of an economy that’s grown decidedly soft. Official figures show negative growth in both the first and second quarters compared to last year, which technically qualifies as a recession. Gaming revenue was down 0.5 percent over this same period, mainly due to declines in wagering by high rollers from China.
A lot of things are playing into the recession, none of it in Ho’s control: concerns over the Chinese economy, stemming in part from the trade tensions with the U.S.; the turmoil in Hong Kong; and a junket scare as mainland authorities appear to be ratcheting up their scrutiny on the VIP investors. Analysts expect VIP to continue to trend downward for the foreseeable future.
In all, it’s not the most desirable state of affairs for a government facing mounting social costs and dependent on gaming taxes for the bulk of its income.
Most of the current contraction, the government says, stems from declines in what is known as gross fixed capital formation. This was down 38 percent in the first quarter and 25 percent in the second, and mostly it’s because nearly all the integrated resorts comprising Cotai’s so-called second wave of expansion have been completed.
The gaming industry play a critical role in the run-up to the concession renewals and in the process must solidify their various relations with Ho.
Bussmann said it’s just a matter of the industry doing what it does best, taking care of business.
“Everybody is looking at Macau and saying, ‘Yes, you’re the king from a revenue perspective and, yes, you have a challenging process ahead. But how do you work with that day to day in a positive way?’ It’s about making sure you stay in your boundaries, same as in any other jurisdiction. It’s a question of ‘How do we keep plugging away and moving the needle, making sure we serve our customers and gain more?’”
The other part is where it gets tricky.
“I think the operators will be evaluated not only on what they’ve done,” said Bussmann, “but what they’re going to do.”
It appears Ho is thinking along the same lines. He has acknowledged meeting with several of the operators during the campaign. He said it wasn’t to discuss license renewals, but to urge them to take on more responsibility for the well-being of the city around them, and specifically to do more to support small and medium-sized businesses, SMEs, an important constituency in the politics of Macau.
Or, as Bussmann put it, “I think the concessionaires ought to be looking at: ‘What do we need to do to up our game?’”
