Xi Jinping visits as Macau experiences “new normal”, begins reinvention process

Macau laid out the red carpet on Saturday for a two day visit by China’s president Xi Jinping on the 15th anniversary of the SAR’s transition from Portugal to China. Xi participated in ceremonies marking the handover and was also helping to inaugurate a second five-year term for Macau chief executive Fernando Chui, who was re-elected by a pro-Beijing panel in August.

Xi’s visit comes at an all-time low for the territory’s gaming industry, where casino revenue fell for the sixth straight month in November. Analysts say it could fall an additional 30 percent in December. Macau’s GDP fell 2.1 percent in real terms in the third quarter from a year earlier, shrinking for the first time since the global financial crisis five years ago.

“In fact, the performance of the casinos was not so bad," said Leong Man Ion, deputy director of the Gaming Inspection & Coordination Bureau (DICJ). Official data show that, despite the slump, gambling revenues increased by 0.3 percent year on year to 328.2 billion patacas ($41 billion) in the first 11 months of 2014.

Macau's gaming sector has grown by 25 times in the last decade. “Such a growth rate is possible in the primary stage of development," Leong said. "The slower growth of the gambling industry has offered an opportunity to develop non-gambling elements," he added, predicting that the slump will continue until mid next year.

The University of Macau’s director of the Institute for the Study of Commercial Gaming, Fong Ka Chio, said that he considered the one-year adjustment period for the gaming industry as "a golden year for Macao's sustainable development."

The transition away from reliance on the VIP sector is also seen as a good thing long-term for operators since the mass market is four times more profitable than the VIP market. Despite Beijing’s corruption crackdown, the number of Chinese tourists visiting Macau grew 11 percent year-on-year in the third quarter. Analysis by Goldman Sachs shows that while 56 percent of gross revenues in 2014 are expected to come from the VIP segment, it expects that by 2016 less than 50 percent of revenues, and 16 percent of EBITDA, will come from the VIP market.

Urged by Beijing, the Macau government has vowed to "appropriately diversify" its economy by expanding its portfolio to develop tourism, upscale shopping malls, resorts and convention centers, as well as traditional Chinese medicine.

Recent comments by one of Beijing’s top representatives, Li Gang, suggesting that “another Macau” be built on the Mainland sent panic through the industry, but analysts say that what he meant was for Macau to use its gambling wealth to invest in neighboring Hengqin island. Casino operators Galaxy Entertainment and MGM China have been quick off the mark to say that they are investing in non-gambling ventures there.

The visit by Xi also carried another message: that Macau should remember the “one country two systems” policy and guard against interference by what he called hostile external forces.

Beijing has been troubled by the pro-democracy Occupy Central protests in Hong Kong which ended in mid-December, and there has also been unprecedented unrest in Macau recently with casino workers protesting about pay and working conditions.

Ieong Man Teng, president of the Forefront of Macau Gaming Association and instigator of the local worker protests, said associates of prominent businessmen in Macau and a Macau politician who sits on the Chinese People's Political Consultative Conference (CPPCC) warned him in face-to-face meetings to tone down his activities.

"They said they were passing on a message from people up there (Beijing). I consider these to be threats," Ieong said.

Au Kam San, a pro-democracy Macau lawmaker, said the protests from July to October by Ieong's gambling union troubled Beijing, though it still viewed Macau as more controllable than Hong Kong.

"The gambling union is much more important and it has a higher risk for Beijing because it's mobilizing potential is much stronger," Au said. "It's seen as a threat to Beijing."

Li Fei, deputy secretary general of the National People's Congress Standing Committee, said in a speech in Macau on Dec. 3 that Beijing must consider more than Macau’s economic growth and tax revenue when thinking about its well being. "It must think from the perspective of China's economic and social stability and development." 

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