A top Chinese government official has issued Macau its sternest reminder yet from Beijing of the need, “in the interests of the whole nation,” to diversify its economy away from an over-reliance on casino gambling.
The warning from Li Fei, chairman of the Macau Basic Law Committee and deputy secretary general of the National People’s Congress Standing Committee, was issued as Macau Chief Executive Chui Sai On unveiled a new cabinet for his final five years in office, headed by Secretary of Economy and Finance Lionel Leong, who takes office amid signs that the current gaming revenue slump, now headed into its seven straight month, could tip the territory into recession.
“The overwhelming dominance of gambling in Macau is not in line with the overall interest of Macau,” he said, “and the fact that Macau’s economy, especially gaming, is closely connected with the mainland determines that when one judges the overall interest of Macau, one cannot focus only on Macau’s economic growth and tax revenue. One must take into account the socioeconomic safety, stability and developmental interest of the mainland and the whole nation.”
Li spoke ahead of an expected visit to Macau later this month by President Xi Jinping to celebrate the 15th anniversary of the former Portuguese colony’s return to China.
His remarks dealt another blow to the market’s already battered gaming stocks, which fell sharply following his comments as concerns mount that the gaming slump, the worst since the 2009 global financial crisis, the result of a perfect storm of factors—Beijing’s widespread campaign against corruption and illicit capital flight, slowing economic growth within China, tighter credit conditions and a crackdown on abuses in the third-country visa system for travel from the mainland—will not be reversed any time soon.
Plummeting VIP play is the main culprit. It accounts for two-thirds of the city’s world-leading gaming revenue. But wealthy Chinese are anxious to stay out of the anti-corruption spotlight. At the same time, high and lower rollers alike are finding it harder to maneuver around the central government’s strict currency export limits.
Junket operators are having to wait up to one year to recover on markers extended to VIPs, according to a recent Reuters report. The news agency quotes a consultant to the industry as saying junkets usually collect on credit within 30 days but now are holding an increasing amount of bad debt.
“The business model looks near broken,” said Hong Kong-based Standard Chartered analyst Philip Tulk.
The casinos took in MOP24.3 billion (US$3.04 billion) in gaming revenue in November, a year-on-year drop of 19.6% against a tough November 2013 comp of +21.3% and the lowest monthly total since September 2012.
It was the sixth straight month that revenue has underperformed 2013, according to data released by the government’s Gaming Inspection and Coordination Bureau, and has brought year-to-date growth to a level nearly flat with last year at +0.3%. Analysts expect more of the same in December, which implies that 2014 will end with the market’s first year-on-year revenue decline in the post-monopoly era.
This is especially bad news for the government, which relies on direct taxes from gaming for 80 percent or more of total public revenue, and signs are that the slump has begun to take its toll on the larger economy, which shrank 2.1 percent in the third quarter, the first quarterly contraction in five years.
Leong, addressing this in his first press conference, admitted that the decline in gaming revenue is worrisome and said his office will concentrate on ensuring economic stability, developing small and medium-sized enterprises and maintaining employment for local residents.
“We need to be cautious and optimistic,” he said. “We need to pay attention to the gaming revenue drop, and consider whether it will impact Macau’s economic structure, or if it affects SME development or the employment situation of Macau residents.”
He said he intends also to look closely at the pending renewal of the six casino concessions. “We will have to reflect upon what has been done so far, and also review other matters such as the non-gaming component,” he said. “We need to study policies, such as ensuring that Macau is seen as an exhibition and convention center. Such assessment is a very important element and crucial groundwork to renew gaming concession contracts.”
Li’s comments, meanwhile, are seen as a direct challenge to Chui and Leong to foster better strategies on housing, social policy and the development of a special zone on neighboring Hengqin Island in Zhuhai, which enjoys special economic status accorded by Beijing to assist Macau in diversifying its development.
“The nation and the mainland provide Macau with many opportunities,” Li said. “If the SAR can grab and fully utilize these conditions, with good planning, scientific policymaking and effective implementation, it is possible to explore a fresh development path of cooperation with the mainland in the nation’s overall development framework.”
