Macau faces a 'new normal' amid gaming revenue slide

With its gaming revenue declining for 14 months in a row, Macau is learning to tighten its belt and adjust to a "new normal".

On Wednesday last week, SJM Holdings, the Stanley Ho-founded company that held a gambling monopoly before 2002, announced that its first-half profit fell 54 percent to HK$1.79 billion from a year earlier, as revenue slid 40.3 percent to HK$26.32 billion. VIP gambling revenue fell 48.7 percent.

SJM and other casino operators are victims of President Xi Jinping’s sweeping anti-corruption campaign which has dissuaded thousands of wealthy mainland people, officials and business persons from gambling in Macau.

In a question-and-answer session on Wednesday in the legislature, Macau's Chief Executive Fernando Chui Sai-on aimed to reassure the public.

After rising for ten years, gambling revenue had fallen, averaging 20 billion patacas a month in the first half of this year, he said.

"It has returned to a comparatively stable level … we will make adjustments according to the reality we face," Chui said.

He said that Macau remains the biggest gambling center in the world, with a large pool of talent trained by years of growth which made it very competitive. The city is launching comprehensive projects to make it a global tourist destination.

"Twenty billion a month makes us 240 billion a year, giving us a stable financial situation, compared to our spending," Chui said.

He said that at the end of June, Macau’s financial reserves had reached 349.6 billion patacas, and that the city had over the previous years of rapid growth built enough reserves to deal with economic instability and the needs of diversifying the economy.

The slowdown is affecting not only the VIP sector. Official figures show the number of tourists in the first half of 2015 was 14.76 million, down by 3.5 percent, with those from the mainland 9.78 million, falling 4.2 percent.

Xi’s anti-corruption campaign shows no sign of abating. Hence, most people in Macau believe that the city should get used to this year’s levels of gaming revenue as the norm and regard the levels between 2010 and 2013 as exceptional.

"The drop in visitors has been very noticeable this year," said Leung Man-sing, a taxi driver.

"Mainlanders are an important part of my customers and I have seen a fall this year. We think that the government there is limiting the number of visits its people can make. The retailers here are feeling the impact. Employment-wise, local people are not so affected. It is mainly the migrant workers, from the mainland or abroad, who have been laid off.”

Despite the slowdown and the weakening of the mainland economy, the operators have not closed any of the city’s 35 casinos or cancelled expansion plans.

SJM on Wednesday said that it remains optimistic on the future of the Macau market and that the company is continuing with construction of the Lisboa Palace integrated resort on Cotai, due for completion in 2017. It involves investment of HK$30 billion.

In total, there are a total of eight more mega-casinos due to open in Cotai by 2017. The operators were budgeting for a doubling of gambling revenues by 2017 from the 2013 level -- which seems improbable now.

What Beijing wants and Macau legislators asked Chui about on Wednesday was plans to diversify the economy away from gambling.

In response, Chui said that, in 2014, the city earned 350 billion patacas from gambling and 190 billion from non-gambling sectors, including wholesale, retail, hotels, food and beverages, construction and finance. The number of meetings and conventions will increase to 1,055 this year from 266 in 2002, he said.

He added that the World Health Organisation had just approved the establishment of a Traditional Chinese Medicine Centre in Macau. The center will train specialized people and help commercialize Chinese medicines. The SAR is also building a Chinese Medicine Industrial Park in the neighboring island of Hengqin; it aims to develop products for the international market.

Chui was criticized by two legislators for lack of progress in redeveloping the old and dilapidated districts of the city. The chief executive admitted that what the government had done had failed to meet public expectations.

The years of bumper harvests are over. Now Macau must learn to tighten its belt and live with a more modest income. It must also meet the demands of its population who want a bigger share of the bounty of the last 10 years.

Affordable housing, better social welfare and improved quality of life are some of the things that people want.

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RC