Macao sees big drop in revenue, hit by anti-extravagance crackdown

In June, Macao, the only place in China where gambling is allowed, saw a monthly gross revenue drop in its gaming industry for the first time since 2009, according to data from Macao Gaming Inspection and Coordination Bureau.

With the central government's severe anti-corruption and anti-extravagant official spending campaign still ongoing, Macao's monthly revenue growth had already started to slow down in March.

Due to the campaign, a series of high-spending businesses nationwide, such as high-end restaurants, have struggled and made plans for change. As such, Macao may also have to prepare for its economic transformation.

High-rollers from the mainland

Mainland residents have been able to travel individually to Macao since 2003 and they soon replaced visitorsfrom Hong Kong to become the majority customers in Macao's casinos.

In the first quarter of this year, mainland visitors made up two-thirds of tourists in Macao, being the driving engine for Macao's tourism revenue.

These rich mainland customers are highly favored by casinos because they are generous and risk-taking.

A croupier at a Macao casino said she does not like foreign customers since "they are kind of stingy."

Foreign customers regard gaming as entertainment but Chinese customers play to win money.

Zeng Zhonglu, president of Asian Pacific Association for Gambling Studies, said the gamblers mainly consist of males between 30 and 49.

A staff member named Fang working in a casino's VIP hall told Caixin magazine that Macao's gaming industry is a barometer of the mainland's economy and politics.

In the past 20 years, customers from Hong Kong were the majority in the first five years, then officials from the mainland in the following 10 years, and finally mainland businessmen from real estate and investment industries became the mainstay in the last five years.

Hua, a local gambling intermediary, said he has witnessed high-rollers bribe mainland officials at casinos.

These wealthy gamblers usually gave gambling chips to officials, say, worth 10 million yuan ($1.6 million), and if the official won, he could take away the money and regard the money as a gift, he said, noting it is much better than giving bribes directly.

The anti-corruption campaign in the mainland has had a massive influence on the VIP business of Macao's casinos and some officials now play bets on phones now, Fang said.

Making bets on the phone is called "under-table-gambling," and its bets are usually several times more than above-the-table gambling.

New rules

In accordance with the central government's campaign against corruption, the Macao government also launched rules to manage the gaming industry.

In 2003, mainland residents were allowed to stay seven days in Macao for transit purposes without a Macao visa before going to foreign countries, but many of them did the transit stay without going abroad.

Around 2.63 million tourists with Chinese passports stayed in Macao for transit in 2013, but 80 percent did not leave for overseas destinations afterward, Macao's official data showed.

The transit stay for tourists with Chinese passports was thus reduced from seven days to five days starting from July 1.

However, it may not be an obstacle for VIP gamblers who usually have multiple passports, an anonymous casino intermediary said.

A high-roller who often commutes between Beijing and Macao also said he can easily buy a passport of a small country to avoid the visa issue.

Moreover, China UnionPay, a State-owned bankcard association, started an investigation in March against illegal money withdrawals using bankcards.

Media reports said in June that all mainland UnionPay bankcards would be banned in Macao's casinos and all point-of-sales (POS) machines would also be prohibited from July 1.

At the end of June, the Macao government clarified that the new policy is only to prevent jewelry stores at casinos from adding new POS machines from July.

China's State Administration of Foreign Exchange and the General Administration of Customs cap the amount of cash that its citizens could take when exiting the mainland without making a declaration at 20,000 yuan, which is too small for most mainland gamblers' gaming appetites.

Therefore, some wealthy mainlanders would buy expensive jewelry or watches with a UnionPay debit card at stores and drop the items at a pawnshop to get cash or even receive cash from a jewelry shop directly.

The method was not only used by gamblers for cash, but also by drug dealers and brothel operators to launder illegal money made in the mainland, Zhang Taowei, a finance professor at Tsinghua University, told the Global Times in June.

Need for diversification

Macao's gaming revenue stood at 27.2 billion patacas ($0.18 billion) in June, a 3.7 percent year-on-year drop and 15.9 percent lower than that in May, official data showed. Two-thirds of the revenue of the gaming industry came from VIP customers, but the VIP business saw a 16 percent year-on-year revenue drop in June.

Macao's gaming industry also faces new competitors such as Singapore and the Philippines which have legalized gambling and built casinos in recent years.

Macao's economic diversification has been discussed for many years without finding effective solutions.

Wang Changbin, associate professor of the Macao Polytechnic Institute's Gaming Teaching and Research Center, said Macao's economy is overly dependent on the gaming industry and the mainland's tourists so any economic or political changes in the mainland or gaming industry development in other Asian places may have an adverse effect on Macao.

"Diversification of economic structure is extremely crucial for Macao," Wang told Caixin magazine.

Pansy Ho, Macao "gambling king" Stanley Ho's daughter and chairman of MGM China Holdings, said in July that Macao should reduce its reliance on gambling and seek development in other fields.

Due to its limited land and resources, Macao's diversification should take the gaming industry as a center and develop sightseeing, dining and shopping to become a complete resort city, Wang said.