Macau’s Macro Management Lever Is Taking Shape

Posted: August 26, 2009 in Uncategorized

Contributed by Felix LING (Senior Partner, Platform Asia)            26th August 2009    Macau

SINCE the liberalization of casino gaming industry in Macau in 2002, the Chinese central government has been taking cautious steps in monitoring the territory’s economic development.

In 2005 the Central government in Beijing finally lost its patience and started a series of restrictive measures on Macau’s travel and control of the flow of RMB (Chinese Yuan) into the territory. It was estimated by the Chinese official that in the year 2004 a total of RMB600b was illegally ‘pumped’ into Macau’s casinos via the infamous ‘Underground banking Channels’.

The first alarming incident happened in January 2005. All the junket operators and promoters in China region would forever remember this period of great panic and chaos.

In January 2005, off the sudden the security police in mainland China had started to track and round up junket promoters operating in China, from the southern province of Guangdong right up to Beijing, Shanghai and other northern cities. The panic caused all junket promoters to flee to Hong Kong and Macau to take refuge. That remains the most ‘nasty’ warning imposed by the Chinese government in anti-junket gambling measure.

Ultimate Science of Macro Management

Over the last few years, the Chinese master has softened somewhat in its tactics applied to the territory – Macau. The adoption of the China to Macau traveling visa policy proved to be effective enough as a control lever. It has become the norm whenever gaming revenues get overrun in Macau, the ‘water tap’ would be turned down. And hence, the ultimate science of gambling macro management (in relation to what the Chinese has been doing to the overheated property market by limiting the bank loans) has been established. In conjunction with this, tracking of flow of funds has also been tightened up especially on State-owned enterprises, travel channels, etc.

With this macro-management lever (Restrictive visa) in place, the Chinese government has also started to introduce fine guidelines for steering the economy of Macau. One of the examples is that Guangdong province would be given the flexibility of managing its ‘gaming water-tap’ up to a certain extent. The initial outcome of this new measure has led to greater tighten up of travels to Macau.

Reasons?

The first and foremost reason is that Guangdong is going through a tough period of restructuring of its current economy state which has become out-molded as the manufacturing base for Hong Kong. Raising costs and inflation have destroyed much of the values in a manufacturing-based economy.

Going forward, Guangdong provincial commissar has already declared a total revamp of Guangdong’s economic structure and a bold development plan in the direction of multi-platform economy; including financial services, port operations, high-tech industrial parks, eco-friendly industries and high-end hospitality etc.

What it will mean to casino operators is, Guangdong could not allow further (illegal) outflow of RMB in an unlimited manner just to feed the bank accounts of Sands Venetian, Lisboa, Wynn, MGM, City of Dreams and whoever. Social stability and productive use of capital are crucial to Guangdong’s future success. The recent announcement of Mr. Francis Lui, vice chairman of Galaxy Entertainment Group might be a well thought of answer: “We will wait it out till 2011 for the restart of Cotai project.” Apparently Mr. Lui is smart enough to read the minds of people in the Forbidden City.

Will The Pie Grow?

With the mentioned social-economic backdrop, Macau’s gaming industry needs to re-orientate its marketing strategies. Guangdong will only give them so much and not more. Any further increase in the gaming revenue will be from the unrealistic churning of credit-led junket players betting and in that, continue to erode casino operators EBITDA margins. The drastic drop of the industry’s averaged EBITDA margins to 12 – 15% is the sign on the wall.  Under such environment, even the junket groups have to further consolidate to survive credit risk and to maintain viable turnover in their non-neg chips business.

In essence, Macau casino industry inevitably will have to re-look at East Asian and Southeast Asian markets to supplement its gaming revenue as well as profitability. Developing a full-fledged service standard throughout its hospitality sector remains a challenging task that must be accomplished in order to win over premium tourism.

The Dawn Is Breaking…

Singapore’s integrated resorts and casino resorts in Penghu Island (Taiwan) will definitely pose a significant challenge to Macau’s confused yet low service standard casino industry. Vietnam’s tourism and casino resorts will divert away China’s family visitors who in the past, only Macau and Hong Kong to chose from. Another significant trend is the spread of key public holidays in china (e.g. the golden weeks) from mandatory length of holidays when everyone has to move out together to more flexible blocks of vacations. This trend will gradually alter the choices of holiday travel because of greater flexibility in planning a family trip out of China.

According to insiders, Macau authority is already planning for the inevitable fight for Chinese tourist markets (from China, Hong Kong & Taiwan) with Singapore’s integrated resorts that will commence in 2010.

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Comments
  1. Hello there,
    Nice post, I just came across it and I am already a fan.

  2. […] Comment on Macau’s Macro Management ….  Submitted on 2009/09/21 at 6:27pm […]

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