Malaise in Macau

Gambling is everything in Macau, the former Portuguese colony, now a Chinese Special Administrative Region. Its 500,000 citizens welcome 30 million visitors every year, most of them from mainland China and Hong Kong. The peninsula in the southeast of China is a huge attraction for one reason: Macau is the only place in China, where casinos are legal.

And while Macau has been a gambling hotspot for a long time, business really took off after a 40-year old monopoly on casino gambling in the former Portuguese colony was lifted seven years ago. The liberalisation triggered a massive boom that has catapulted the city to the top of the world's gambling resorts.

It is now the biggest international gambling market by revenue, having edged past Las Vegas since 2006. In fact, Macau now rakes in more money than two of the major US gaming destinations, Las Vegas and Atlantic City, combined. Most of the revenue stems from gaming-related taxes, the main source of income for Macau's government.

But with the global economic crisis continuing, for the first time, casinos in China's Special Administrative Region are hurting. Macau's gambling revenue slipped by more than 12 percent in the first six months of this year to 6.4 billion dollars compared to the first half of 2008.

Gabriel Chan, a gaming analyst with Credit Suisse in nearby Hong Kong, admits that like many other experts he may have underestimated the impact of the economic crisis on the gaming industry. "I guess people were too confident before," he says. "In the case of Macau, people, including myself, didn't realize that recession could affect liquidity in the economy that much."

Analysts like Chan weren't the only ones who were taken by suprise by the severe downturn. The gaming industry itself apparently wasn't preprared for tough times either. In the midst of one of the worst economic slumps in decades, Macau's table game capacity is expected to increase this year by 24 percent compared to last year.

All about gambling

What's more, unlike other gambling destinations like Las Vegas or Atlantic City which have tried to diversify over the years and feature many other entertainment options, Macau still has one main attraction: "The Macau market is totally different from other markets," explains Chan. "In Las Vegas you spend your time on shows and other things. But in Macau it's all about gaming."

While its unique focus on gambling may have helped in the past, it may now hurt Macau. Tourists coming to Las Vegas stay for approxamately four days. The majority of Macau visitors are day-trippers, who don't care about luxury hotel rooms, shows or concerts. They want to maximize their time on the game table. More than in Las Vegas high-rollers try their luck in Macau. Bets of one million or more euros at the black-jack table are all but unusual.

But the number of visitors hoping to hit the jack pot on the tiny peninsula is dropping. "Since the beginning of this year there has been a decrease of arrivals in Macau", says Sandra Carvao, deputy chief of the World Tourism Organization's (UNWTO) Market Department in Madrid: "They have seen up to date a reduction of nine percent in their arrivals of tourists, which is pretty much in line with what happened in Asia overall."

New travel restrictions

In addition, Beijing also spoiled some of the casino fun last year, when it tightened its travel restrictions for citizens wanting to visit Macau. The move was seen as an attempt to make it more difficult for Chinese people to gamble there. Earlier, visitors needed only a single travel permit for both Hong Kong and Macau. Now tourists need two separate visas for both destinations, which are only one hour by ferry apart.

"If there is a reduction of movement," says Carvao, "there will also be a reduction in the income that the casinos have."

Consequently many experts blame China's stricter visa rules for a substantial part of the revenue losses. "In the past a lot of the VIP's said they went to Hong Kong for shopping and went to Macau instead,” says Credit Suisse analyst Chan. "That is why I think that visa restrictions had no impact on the mass market, but had some on the VIP market indeed."

While Chan believes that China's new travel rules contributed to the downturn on Macau, he doesn't think they are its main cause: "Although people are restricted to go individually to Macau, they still can go there when they join a package tour."

With the crisis continuing, some new projects have now been put on hold. Still, if the economic malaise persists, all bets on whether Macau will continue its stunning growth as the world's gambling mecca are off for now.

But at least on one front there is light at the end of the tunnel, predicts tourism expert Carvao. She believes that Beijing will soon loosen its travel policy again: "I think this will be a temporary situation,” she says. "It's also in the interest of China to stimulate outbound travel, because that will be beneficial for their transport companies and tour operating companies."

Given the fact that for millions of Chinese Macau is the only casino destination to go to, that could provide a desperately needed boost for the city.

Author: Patrick Vanhulle

Editor: Michael Knigge