Macau Sets Out To Decrease Dependence On Gaming Revenue

New Rules Designed To Encourage Transformation Of Macau From Gambling Mecca To Entertainment And Vacation Hub

If Macau can successfully diversify its economy, cultural and historical sites may see a windfall in profits from incoming tourists

If Macau can successfully diversify its economy, cultural and historical sites may see a windfall in profits from incoming tourists

As celebrations are held in Macau to mark the ten-year anniversary of its handover, Beijing is looking to play an instrumental role in diversifying the former Portuguese colony’s economy, transitioning Macau from a gambling enclave to a cultural and entertainment destination. Over the past several months, Macau has emerged from the economic shock that froze construction in new developments like the Cotai Strip — which an article today projects should be finished within five years, after a key injection of funds from Sands’ recent Hong Kong IPO — and more hotels and resorts have increased outreach to entice mostly mainland Chinese daytrippers to stay longer. From Beijing’s point of view, imposing new restrictions on Macau to decrease the city’s dependence on gambling revenue is designed to increase mainland tourism and help Macau’s economy mature and attract more tourists from foreign countries as well, while — perhaps more importantly — cutting down on embarrassing press that often comes out of Macau’s murky gaming industry.

As an Indian Times article notes, in a message to local leaders to mark the anniversary of the handover, Chinese president Hu Jintao told the leaders to “utilize fully the series of measures that the central government has already adopted to support Macau,” while asking them to diversify the economy, lift living standards and improve the educational system. The diversification of Macau’s economy, however, is likely the most important part of Hu’s message:

The casinos driven economy of Macau has caused some amount of embarrassment to Chinese authorities since the US Treasury accused a local bank of laundering money on behalf of North Korean leaders engaged in nuclear proliferation three years back.

In Macau, Hu presided over a change of guard in the local leadership and hinted at plans to tighten controls over the gambling industry. Macau’s casinos have been accused of providing shelter to black money generated by corrupt officials besides indulging in money laundering.

The city should be “strengthening and improving the management of the gambling sector,” the Chinese president said.

As a recent Asia Times article suggested, the tighter controls and lessening of dependency of gaming revenues in Macau would ensure more of the money flowing into the city comes back to the Chinese Treasury:

Macau’s corruption pales in comparison with the mainland but Macau’s gambling helps fuel and enable China’s problem. Casinos provide a convenient channel for money laundering and evading currency restrictions for mainlanders. Also troubling for Beijing is that about half of Macau’s revenues winnings go into American corporate pockets.

As the Asia Times article concedes, even if China is successful in making Macau more of a resort town that attracts mainland tourists to stay for several days at a time, there will still be a significant foreign presence there that will actually be critical in developing a more diverse economy. Without the know-how of American casinos and developers — who have been instrumental in transforming Las Vegas in the same way — Macau has little chance of becoming the entertainment and resort hub that Beijing and Macau’s hotel and casino operators hope for.

As we wrote last month, effectively transforming the city won’t be easy, but taking a two-sided approach (long-distance marketing and outreach, and localized entertainment offerings) to attracting tourists to stay longer could be a good first step.

It will undoubtedly take some time for Macau to fully mature as a tourist destination. Although all of the elements are there, they have yet to gel into a more “integrated” whole, to borrow the phrase from Singapore. The key will likely be the growth of China’s outbound-traveling middle class. Since most Mainland travelers to Macau currently hail from the country’s southern regions — barely a hop over the border — they have less incentive to stay overnight than their Beijing- or Shanghai-based peers. If Macau can more effectively entice Chinese travelers from faraway provinces, they’ll have a captive audience of urban tourists who are, on the whole, younger,  likely have more sophisticated tastes that make them more likely to seek entertainment venues as much as gambling, urban, and adventurous.

Although many article seem desperate to connect Beijing’s intentions for Macau to a desire to kick foreign businesses out and take all of the city’s revenues, recent moves both by Beijing and the Macau city government don’t seem to bear this out. For one thing, Macau property developers have pushed hard to attract foreign — mainly European — luxury retailers to populate some of the city’s newest, plush luxury malls. This is good for both sides: the luxury brands who see mainland tourists flocking to their stores to purchase thousands of dollars worth of goods they won’t buy at home because of the high luxury tax in the mainland, and the developers who finally get in the black after last year’s economic disaster. Also, as stated, international cooperation will be critical in creating new product offerings in resorts, casinos, museums and galleries, cultural sites, and malls that will ensure mainland visitors don’t just head to Macau for gambling and/or luxury shopping, but actually explore the city and soak up its unique cultural, artistic, and historical heritage.

Whether the efforts of the government and businesses succeed in the “Las Vegafication” of Macau will depend heavily on the behavior of mainland tourists. No matter what restrictions are imposed or loosened, if mainlanders themselves don’t change their perception of Macau, the city will remain what it is now: a place for southern Chinese and Hong Kong residents to pop over for weekend daytrips to gamble and shop. This will require serious outreach efforts throughout the mainland, and a particular emphasis on reaching out to younger travelers who are curious about Macau but don’t have the money to drop on all-day casino campouts.


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