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Sea of Troubles

Newsdesk by Newsdesk
Mon 14 Dec 2009 at 16:00
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It’s not just casino stocks that could be under water in the future

Anyone thinking of going long on Macau gaming stocks might like to consider the fact most of the casinos in the world’s highest grossing gaming jurisdiction are only five metres above sea level. And the sea is very close.

This might not be the wisest investment strategy yet devised in a world where the oceans are widely predicted to get higher and rougher due to global warming and in a region frequently hit by typhoons..

Our ancestors generally liked to build their settlements high up in hills, etc., so they could see trouble coming. Modern humans, in their wisdom, decided that with the decline of general lawlessness heralded by the rise of the nation state, they could jolly well build anything, anywhere they fancied and build it high enough to give a sense of space. Thus was born the era of the ‘panoramic sea view’ beloved by property developers and real estate agents everywhere.

Yet all those beautifully-appointed hotel rooms and casino floors lovingly conceived and assembled in Macau by the finest financial and business minds known to the contemporary world are only a stone’s throw from the Pearl River Delta. The latter is a sort of watery, muddy anteroom to the open waves of the South China Sea. Cotai, where most of the overseas investment is located, rose from the waves little more than five years ago as a result of a massive landfill project. Its name comes from a conflation of the names of what were Macau’s two outlying islands, Coloane and Taipa, which ‘Co-Tai’ has now effectively turned into one big island.

Singapore, which will play host to two new casino resorts next year, isn’t much better off than Macau in the sea level department, being surrounded by water and no more than 15 metres above the ocean at any point (excluding office towers).

The vulnerability of Macau and Singapore to possible flooding caused by a rise in sea level and/or violent storms was brought into focus recently when the World Wildlife Fund published a report on 11 Asian cities. It said they were all under varying degrees of threat from rising oceans. The latter is blamed by many scientists on global warming caused by human pollution. Macau wasn’t on the list, probably because it didn’t cross the ‘multi-millionaire’ threshold (in terms of population) used by the WWF. Singapore and Hong Kong were both on the ‘at risk’ list, though the WWF said that these two cities’ “wealth and strong governance” made them better able to face the challenge posed by the elements.

Macau is certainly like Singapore and Hong Kong in being above the regional average in terms of jurisdictional wealth. Macau had a budget surplus of 29 billion patacas (US$3.6 billion) in 2008, though it has embarked on a public spending spree in 2009 as part of an economic stimulus package to see the city through the regional downturn. There are, however, still some question marks about the quality of Macau’s strategic planning, including its ability to think really long term about how to protect its massive infrastructure investments from any environmental changes.

Before any of the Las Vegas operators that held off bidding for Macau licences start chuckling too loudly, it’s worth mentioning that the sea of sand that surrounds the Nevada gambling destination could itself one day be on the rise. That could happen if the aquifer and reservoir system is put under much more strain by suburban sprawl and the accompanying surge in demand for water in pools, Jacuzzis and on grass lawns.

Water palaver

A more immediate threat than rising sea levels facing investors in the Macau casino sector is the millions of dollars operators could end up having to spend to install their own water desalination plants.

That could happen if the government doesn’t get round to devising some strategy allowing the territory to become self sufficient in water. Although Macau does have reservoirs of its own, they cannot supply all of the city’s needs—especially as with every month that passes there are more and more cups of tea and bowls of noodle soup to be made for more and more visitors. As a result, Macau relies for the balance of its water on Mainland China.

But that makes Macau vulnerable to a systemic problem. It’s that China’s water supply network based on its ancient river systems has become increasingly degraded by pollution and spread increasingly thinly thanks to the demands of industry and the need for dam projects to make up China’s energy supply deficit.

The strength of the seaward bound Pearl River and its tributaries is now reportedly so weakened that during the autumn dry season, when there’s a high tide in the South China Sea, salt water washes up the Pearl River and contaminates the fresh (in relative terms) water used for the drinking supply. This has been going on at least since 2006, so the government has had plenty of warning. That particular autumn the water was so salty that it wasn’t even suitable for making tea. For the Macau government to stick its collective fingers in its ears and go ‘La la la’ until the latest salty water episode is over, won’t wash.

Given the amount of money spent by the casino operators on infrastructure, it’s difficult to imagine they are overjoyed by the possibility of one day having to truck in tanker loads of potable water so that the guests in their fivestar hotels can have a morning cuppa without screwing their faces up in disgust.

There are potential political problems with any move to try and make Macau self-sufficient in water. Under the ‘One Country Two Systems’ approach devised for Macau and Hong Kong prior to their return to Chinese sovereignty in the late 1990s, the idea is that over time the two Special Administrative Regions grow closer to the motherland economically and socially, not more distant. Any move, therefore, toward water independence for Macau would potentially be seen as ‘unpatriotic’ in some quarters. But if ‘patriotism’ means threatening a basic utility fundamental to the smooth running of billions of dollars of casino investment, then Inside Asian Gaming thinks there’s case to be made for a bit of Western-style individualism.

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The IAG Newsdesk team comprises some of the most experienced journalists in the Asian gaming industry. Offering a broad range of expertise, their decades of combined know-how spans multiple countries across a variety of topics.

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