VIP revenue drops 16 pct in Q2 Macau Business Daily The proportion of gaming revenue from the VIP sector continued to decrease in the second quarter, while that from the mass market by contrast, has ...

As Casino Revenues Plummet, What’s Next for Tiny Macau?

• Simon Lewis / Macau @simondlewis
 

July 19, 2016

A corruption crackdown in China has seen casino revenues slashed in Macau, but locals say the breakneck growth of the industry since 2003 has changed the semi-autonomous Chinese territory irrevocably

Normally, when an economy shrinks by more than 20% in a year, it means a society is collapsing. Perhaps civil war has broken out, a foreign power has invaded or a natural disaster has crippled the infrastructure.

In Macau — where gross domestic product continues to fall after about $46 billion of market value waswiped out in 2015 — all is calm. The politics in this semiautonomous Chinese territory remain nonconfrontational, impressive new hotels and overhead light rail tracks are still going up. The only visible invaders are the gaggles of selfie-stick-wielding tourists from mainland China, who pose for pictures on the black and white mosaic paving of the old city’s Senado Square, left over from Portuguese rule, which ended in 1999.

And far from fearing for their economic future, some locals are relieved that a decade or so of breakneck economic expansion appears to be over. “I’m happy to see this happen,” says Roberto Souza, a 30-year-old restaurateur. A tattoo on his left shoulder depicts the Virgin Mary; Souza is a member of the Macanese community here, the mostly Roman Catholic, mixed-race descendants of Portuguese settlers. The cosmopolitan free port of his ancestry — Souza also claims a connection to a Japanese seafarer who settled here in the Pearl River Delta way back — is fast becoming a simulacrum of mainland China, he says.

A clue to what he means is found on Souza’s other shoulder, where a banner reading “Macquista” is surrounded by images of playing cards and a roulette wheel. The gambling references are partly a reminder of his personal journey as a risk-taking entrepreneur, he explains: “It means I’m back in the game.” But the ink is also a nod to the reason for his hometown’s slide into recession: Macau’s economy is almost entirely reliant on the casinos where Chinese from the mainland do their gambling. It may bring in money for state coffers, but Souza, whose clientele comprises largely Western expatriates and Macau citizens, feels the gaming industry has corrupted his home. “The money is going into [officials’] pockets through these big projects,” he says, “It’s wasteful.” When the casinos came, “the feeling of Macau, the feeling of the neighborhood, changed very suddenly,” he says. “It’s not a place I feel like I want to stay in.”

Since 2003, when foreign casino operators were first allowed in, Macau’s gaming industry has exploded, dwarfing Las Vegas as the world’s premier gambling destination. Six firms now hold licenses to run gaming operations here, and many of those have built multiple hotels or resorts to cater to mainland China’s huge market for baccarat and other games of chance. On the back of casino revenues, GDP, just $7 billion in 2002, reached $55 billion in 2014, according to the World Bank.

What happened next exposed the foundations of this boom to be shaky, both economically and ethically. Chinese President Xi Jinping has launched a crackdown on graft among officials at all levels of government — both “tigers” at the top and “flies” further down. It turned out, as many already suspected, that corrupt officials looking to launder their ill-gotten cash had made up many of the high rollers visiting the casinos. When China began tightening enforcement of rules on taking money out of the mainland, casino revenues — and with them Macau’s tax base — began to disappear. Moves by regulators, also aimed at preventing the flight of capital from China, continue to squeeze Macau’s gaming sector. In June, revenues fellfor the 25th month in succession.

“It’s what we call the price you pay”
Gambling has been part of Macau since before the 1850s, when Portuguese administrators made it legal and taxable. “There’s always been gambling culture here,” says Hao Zhidong, a sociology professor at the University of Macau. There’s always been a cost, too. Hao points to local Cantonese-language poetry from the early 20th century that depicted the damage done to families by gambling addiction. But it’s only recently that Macau has become so utterly dependent on casinos, raising some tough questions. “What is a Macau identity? You’re dealing with an industry that’s really unethical. Is that how you want people to judge you?” he asks.

The rise of the casinos in the last decade precipitated a spike in problem gambling and gambling addiction. Recent statistics suggest rates have begun to subside, but studies show that casino staff are at heightened risk of gambling addiction themselves, as well as other issues related to the nature of the work. A study published by the Asian Journal of Gambling Issues and Public Health in 2013 cites a case where a female casino worker had her arm broken by a drunken gambler irate about losing. Some casino employees also report trauma from witnessing assaults, self-harm and even suicides by gamblers.

But aside from civil service jobs, there are few employment opportunities outside the casinos, says Bianca Lei, the curator of Ox Warehouse, a gallery that displays work by local artists. “Right now, nobody thinks [a casino] is not a good place to work,” she says. And yet, “Some parents even ask their children to go there and make money.” The availability of work in the gaming sector has meanwhile curbed the ambitions of many young people, she says. Property prices have also jumped beyond the reach of many. Some people born in Macau are now said to commute from cheaper areas on the mainland.

Lei says the “immoral” casinos have had a corrosive effect on society. In her work, she has looked at the spaces ignored by the city’s development, which prioritizes getting visitors to and from the casinos. The new light-rail line, for example, will deliver tourists right to the doors of the big hotels; several locals tell TIME they don’t see themselves using the trains at all. “There’s a lot of side effects,” Lei says. “In business and even [in terms of] how to think about the city, they only think, ‘we need to please the tourists.’ I don’t think that is good for the young generation.”

To the list of the gaming industry’s “side effects,” José Pereira Coutinho, probably the territory’s most outspoken lawmaker, adds “money laundering, prostitution, drugs and corruption.” A kind of Faustian pact with casino operators has led to a growing divide between rich and poor, says Coutinho, an elected leader of the Macanese community. But there’s no real choice for Macau, he says: “It’s what we call the price you pay.” And the upsides are considerable, he insists: the government’s accounts are in surplus and unemployment is negligible. As a result, public protests are rare, although young people angered by alleged corruption among Macau officials are leading a small but growing movement of dissent. A further mollifier for Macau’s populace comes in the form of an annual cash handout of just over $1,100 for every citizen. “We want people to be happy and keep their mouths shut and not demonstrate, because we don’t like that too much,” Coutinho says, with an ironic smile. “That’s the way it’s being done here in Macau, and it seems like it’s working.”

“This is not Macau anymore”
“Have a glamorous night,” says a server as he hands over an egg tart, the Portuguese-inspired sweet of choice in Macau. It’s a rare glimpse of Old Macau inside Studio City, a massive Hollywood-themed casino and hotel that, according to promotional material, “encompasses a labyrinth of pleasures.” On a visit in June, the central gaming floor buzzes with the grim tension of high-stakes card games, regularly interspersed by the electronic chirrup of slot machines dishing out their jackpots.

The development, which opened in October, is emblematic of a plan to make Macau more than just China’s giant betting shop. Macau’s currentfive-year plan targets family-friendly tourism. Lawrence Ho, the CEO of Melco Crown Entertainment, the firm behind Studio City, insists there’s “potential in the mass market, supported by the increasing spending power of the Asian middle-class.” The Art Deco-styled casino features a Batman-branded virtual reality ride, and is punctured above the 23rd floor by a figure-eight aperture housing a Ferris wheel. Players can bet as little as 65 cents on the slots, and the casino currently has no VIP section. “By offering a wide variety of unique and world-class entertainment besides gaming facilities, we believe a new demand to visit Macau from a broader range of demographics, including more family visitors could be created,” Ho, whose father once owned the sole gaming license in Macau, says in a written response to TIME. Even if expectations are met, however, nongaming takings will only make up 9% of the operators’ revenues by 2020. For now, the wide corridors of Studio City, decked with upscale retail, restaurants and nightclubs are almost devoid of foot traffic. The number of Chinese visiting Macau on package tours has fallen by 36% year on year, and hotels have been slashing their room rates to keep occupancy steady.

If the plan to open up Macau’s tourism industry is to succeed, prospective visitors — who would theoretically include many more non-Chinese — need to see that there’s more to do than gamble. The Macau tourist board has begun pushing the city’s cultural heritage, producing a slick video boosting the city’s cultural sights. “[Macau’s] casino culture hides the city’s true charms,” historian Julian Davidson says in the voiceover, as a drone-mounted camera swoops between the monolithic casino buildings and over the old city‘s Ruins of St. Paul, what’s left of a church built by Jesuit missionaries. “It’s what lies beneath that tells the real story of this tiny region,” Davidson adds. At the ruins themselves, selfie-takers are out in force again, spending the very tourist patacas that the territory’s government is after. Here, the heritage remains underplayed — shops give free samples of dried meats or cookies, others sell brand-name running shoes and pharmaceuticals to mainlanders.

But successful preservation of much of the architecture has also kept in tact something of old Europe. At the nearby St. Anthony’s Church, a well-attended Sunday mass, in Portuguese, has just finished. A tour guide recounts the church’s story: the stone structure is steeped in almost half a millennium of history, including the tale that it caught fire during a devastating 1874 typhoon, acting — some say miraculously — as a lighthouse — and savior — for some of the thousands who were washed into the sea by the tempest. But the guide’s audience, visitors from China, sit slumped in the pews. One plays on a smartphone. Chan Kim-ying chides a couple for putting their feet on the kneeling rail. Chan, a church custodian and a Macau-Chinese convert to Catholicism, doubts that there’s much potential for cultural tourists from mainland China, above the current low level. “They treat it like a park because they don’t understand,” she says. Western tourists and Asian Christians from places like South Korea do come, and are more appreciative of Macau’s heritage, says Chan, “but they are only a few.” “Now they [government officials] are pushing the historical heritage,” Chan adds, “but [tourism] is still mostly just gamblers.”

Some hold out hope that Macau could play a larger role in linking China and the Lusophone world, which includes large economies like Brazil and resource-rich states like Angola. “I know that the central government in China wants Macau to be the real platform of the Portuguese-speaking countries,” says Rita Santos, a former civil servant who served as deputy secretary general of Forum Macau, an intergovernmental body that seeks to facilitate such links. “Not so many very rich VIPs are coming to Macau,” she says, “so now is a great time for the government to think: What is our plan for the diversification of the economy in Macau?” In a sign, perhaps, of some movement on this front, a growing contingent of young Portuguese are living in the city, drawn to Macau by its combination of historic ties to Portugal and its position on the doorstep of China (it helps that Portugal is mired in a long-running economic crisis). “China is rising, and you can have economic success more easily,” says João Nonis, a 20-year-old Lisbon native, whose family hails from another former Portuguese colonial outpost, Guinea-Bissau. He came to Macau two years ago so that he can study in English, but says Macau should embrace its unique combination of linguistic and cultural history. “The Portuguese connection is what’s special about Macau,” says Nonis.

For now, it’s the casinos that remain Macau’s economic focus. “We are the closest place to China for Chinese people to come to game, and we don’t need to diversify,” says Coutinho, bluntly. “The structure of our economy is gaming.” Next door to Studio City, The Parisian Macao is almost complete. It’s the latest extension of Republican financier Sheldon Adelson’s Sands empire. He’s already built the Venetian Macao on the same Cotai Strip, which contains a model version of the Piazza San Marco and a canal replete with gondolas under the 24-hour daylight of an artificial cloud-dappled sky. The Parisian goes a step further: a half-scale replica of the Eiffel Tower is already complete. For Lei, the curator, this one-upmanship typifies the counterfeit nature of the new Macau, made in the image of its Nevada counterpart. “Actually, Las Vegas is a copy, so Macau is a copy of a copy,” she laments. “I suddenly realize there are a lot of places where I think, this is not Macau anymore. It feels so strange. The atmosphere is a little bit fake.”

http://time.com/4392858/macau-macanese-casinos-revenue/