x Abu Dhabi, UAETuesday 23 January 2018

Macau takes on a new shine

The glitzy gaming houses are outperforming those of their high-profile cousins in Las Vegas, but, 10 years after returning to Chinese rule, the territory is looking to diversify.

Michael Jackson's rhinestone-encrusted white gloves are among the late singer's possessions that went on display this month at Macau's Ponte 16, a resort half-owned by the tycoon Stanley Ho's Sociedade de Jogos de Macau (SJM).

With gaming revenues outstripping those in Las Vegas, and such ritzy entertainment helping to keep economic growth on track this year despite the global slowdown, the King of Pop's artefacts are not out of place. But 10 years after its return to Chinese rule - on December 20, 1999 - the island is looking at other options as it seeks to reduce its reliance on the green baize tables of the casinos and diversify into other areas.

The former Portuguese colony's economic performance has been remarkable in the past decade. The economy grew 14 per cent each year between 2000 and 2008, and its 500,000 residents are, on average, Asia's richest. The enclave, which covers only 30 square km, received 22 million visitors in 2008, most of them from China, Hong Kong and Taiwan. The gaming industry in Macau ended last year with a total gross revenue of more than 120 billion patacas (Dh55.06bn), official figures show.

There is clear evidence of the political desire to make diversification happen, and it was the central message of a speech delivered by Hu Jintao, the Chinese president, in December to mark the 10th anniversary of Macau's return to the mainland, and to swear in Fernando Chui Sai-on, the new chief executive of the so-called special administrative region. Because gambling is seen as a major social ill in mainland China, Macau sits uneasily with the Communist Party's political philosophy, which is still nominally socialist despite its capitalist characteristics.

The territory has lured plenty of corrupt local government officials keen to launder ill-gotten public money, prompting a tightening of visa requirements for those wishing to visit from the mainland. Rather than focus on the negatives, however, Mr Hu preferred to focus on the positive aspects of Macau's future. He wanted a more creative approach in its economic future. "Macau overcame a series of difficulties, such as the Asian financial crisis, SARS outbreak and the international financial crisis, while maintaining its prosperity and stability," Mr Hu said.

Now, Macau should be looking at "strengthening and improving the management of the gambling industry, diversifying the economy and lifting living standards", he said. Mr Hu also urged the enclave to become more integrated with the Pearl River Delta region, the economic powerhouse responsible for 40 per cent of Chinese GDP growth. The incoming chief executive, who is appointed by Beijing, was very much on message.

"Over the next five years, we shall actively diversify the economy," said Mr Chui, promising to enhance regulation of the gaming industry and develop new focus on areas such as the MICE business - meetings, incentives, conventions and exhibitions - as well as logistics and cultural industries. In other words, more shopping malls and convention centres and fewer gaming halls. As Macau looks for a role in a post-gaming world, education would be a big factor. Mr Hu described developing talent as "the key to continuously enhance Macau's competitiveness".

"A fast-developing Macau, banking on a casino boom, has seen problems pop up anew," says Lou Shenghua, an associate professor of Macao Polytechnic Institute. "This is why both the president and the chief executive are keen to cut its reliance on the gambling industry." The Macau Monetary Authority warns that this year's economic growth could face uncertainty in the shape of external threats and the possibility of a second flu pandemic.

It will be a crucial period for public investment in Macau, with the start of construction last December of the world's longest bridge, the 50km Hong Kong-Zhuhai-Macau Bridge, linking Macau to Hong Kong and China's southern economic centre of Guangdong province. The first phase of a light rail project is scheduled for the second quarter of this year, and the government also aims to complete 19,000 public housing units by 2012.

These projects will see the unemployment rate fall to 3 per cent, or even lower. But despite this focus on non-gaming revenues, it is clear that the industry remains central to Macau's future. Macau has 33 casinos, with 14,363 slot machines and 4,770 gaming tables, and its gambling revenues overtook Las Vegas in late 2006. In 2008, the average visitor spent US$594 (Dh2,180) in Macau, nearly treble the amount spent by a visitor to Las Vegas, according to CLSA Asia-Pacific Markets.

The gaming business in Macau goes back to the mid-19th century, but it was not until the territory reverted to Chinese rule in 1999 that the business was liberalised. The Sociedade de Turismo Diversoes de Macau (STDM) had been a government monopoly since 1937, and was still effectively run by Stanley Ho by the time the government decided to open it up in 2002. STDM became SJM, and Hong Kong's Galaxy Entertainment and Sheldon Adelson's Sands group from Las Vegas entered the market. Later, Steve Wynn joined the fray.

Sands China has about 23 per cent of the market share in Macau, and Wynn Resorts has 15 per cent. Wynn and Sands have launched initial public offerings (IPOs) in the past year on the Hong Kong Stock Exchange. Sands China raised $2.5bn in its IPO in November, while Wynn Macau raised $1.87bn in October. The offerings were among two of the top 10 IPOs in Asia last year. SJM has maintained control of most of the gaming business in Macau, with about 30 per cent of the market, and various family members are involved in running the gaming complexes.

MGM Grand is a partnership between Mr Ho's daughter, Pansy Ho, and MGM, the largest shareholder of which is the billionaire Kirk Kerkorian. Melco-Crown Entertainment is owned by Mr Ho's son, Lawrence Ho, and the Australian businessman James Packer's Publishing and Broadcasting. Within the industry there has been a major effort to diversify into more leisure activities, adding shopping and entertainment to the list on offer. Las Vegas Sands opened the Venetian, a themed resort complete with gondolas, in 2007.

The Cotai Strip, named for the finger of reclaimed land between the islands of Coloane and Taipa, was intended to be an emporium to rival Las Vegas. Instead it fell foul of the global downturn and the area is littered with unfinished hotels, waiting for the upturn. There are tentative signs of this deeper recovery. Wynn is scheduled to open the extension of its Macau resort, Encore Macau, in April.

Sands remains committed to the area, and plans to build five properties on the Cotai strip, using some of the cash from its Hong Kong IPO. The question now remains as to whether gaming, rather than being the be-all and end-all of activities in Macau, becomes just part of a more wholesome package of family activities in luxury resorts. That is probably the biggest gamble of all. @Email:business@thenational.ae