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Cultural Revolution

Newsdesk by Newsdesk
Mon 25 Jan 2010 at 16:00
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President Hu’s call for Macau to broaden its economy has some logic, but is easier said than done

When China’s President Hu Jintao visited Macau in December to mark the 10th anniversary of the Macau Special Administrative Region, he had a warning as well as the now familiar praise for the territory. President Hu said Macau needed to diversify its economy, not just provide more of the same.

But with Macau’s casino industry marking yet another record year with gross gaming receipts of MOP119 billion (US$14.9 billion) in 2009, according to preliminary reports, does economic diversification really matter?

No one expects a Ferrari to double as an off-road vehicle, so why would anyone realistically expect the world’s largest grossing gaming jurisdiction to be good at exporting, say, high tech components?

Actually, there may be economic as well as political benefits from diversification. One of the current difficulties is that gaming revenue in Macau keeps roaring ahead of China’s underlying GDP growth. That may be why China’s leaders have been regularly applying the brakes to Macau’s gaming sector by restricting Macau travel permits issued to its citizens under the Individual Visit Scheme. Macau casino revenue in December, for example, grew 48% year on year, and that was a quiet month compared to November’s 59% increase. In the end, because of a combination of the lingering effects of global recession and China’s visa restrictions in the first half of the year, the annual growth for Macau gaming gross in 2009 averaged out at a 9.4% increase year on year. That compares favourably with the 8.4% GDP growth in 2009 for China as a whole, forecast by the World Bank.

But if the world economy continues to recover, further feeding China’s export markets, and the credit lines extended to VIP gamblers from the Mainland stay open, then Beijing will certainly have to once again apply the brakes to Macau’s gaming industry during 2010.

Gross gaming revenue is not, of course, the same as Gross Domestic Product, which is calculated net of imports. Macau consistently runs a big balance of payments deficit on its import/export book.

Consequently, in 2008, the last year for which a breakdown of GDP by industrial activity is available, the gaming sector accounted for only 37% of Macau’s GDP, according to the city’s Statistics and Census Service (DSEC). Most of the city’s other industries, however, rely heavily on gaming, including the banking, insurance and real estate industries (which account for 23% of GDP) and construction (which accounts for 12.6%).

Moving on up

If Macau were able to move into high-tech manufacturing and research, in the manner of Hong Kong, it would certainly lessen the political risk that reining in the casino sector would hit local jobs and incomes.

Assuming officials in Beijing really want economic diversification in Macau, rather than feeling they have to say so in order to pay lip service to social harmony, how can that be achieved? Improving staying on rates at school would be a start. Macau’s new Chief Executive, Fernando Chui Sai On, has indicated in early policy statements a willingness to assist his political bosses in Beijing with their aspirations. Time will tell if that translates into meaningful action once the honeymoon period is over. It will certainly be difficult for Mr Chui to square the circle of pursuing economic protectionism on the one hand (in terms of ensuring locals get well paid jobs) and economic diversity on the other.

Emerging Asian economies such as China and India tend to cherry pick the bits of globalisation they like (such as access to foreign investment) and reject or resist the bits that aren’t to their taste (such as open labour markets). History suggests that over the long term, the most consistently successful economies are those focused on drawing in talent and new ideas (such as Hong Kong), rather than those driven by protectionism.

Mr Chui’s predecessor as chief executive, Edmund Ho, served two five-year terms from 1999, the year Macau returned to Chinese sovereignty after 450 years of Portuguese administration. He started strongly from the central government’s perspective, gaining several ‘herograms’ from head office for his steady handling of the economy and community. Then several political banana skins brought him down to earth, including mild outbreaks of civil disorder at successive May Day rallies in 2006 and 2007, linked to import of workers during the casino construction boom. Mr Chui and his bosses in Beijing will be mindful of Mr Ho’s experience in any move to open up Macau’s economy.

Nonetheless, calls for diversification have become a feature of high level visits by officials from Beijing, including one to Macau by Vice President Xi Jinping last April.

Macau’s leadership “should utilise fully the series of measures that the central government has already adopted to support Macau,” said President Hu in his December speech.

This was taken by observers to mean not simply the support Beijing has given to Macau’s gaming industry and to foreign investment in it, but also to economic initiatives designed to open China’s vast domestic markets to goods and services providers based in Macau and Hong Kong.

CEPA—or the Closer Economic Partnership Arrangement, to give its full title—is a well-intended series of measures introduced incrementally by Beijing since 2003 to give Macau and Hong Kong businesses favourable access (in terms of lower tariffs and fewer barriers than are faced by foreign companies) to China’s markets.

If repetition of an aspiration were enough to effect action, then Macau’s economy would be one of the most diverse in the region. It isn’t, and there are some significant practical and structural reasons for that, as Inside Asian Gaming reported at the time of the election of Mr Chui this summer.

One of the key structural hurdles facing Macau in any effort at economic diversification is its government’s policy of reserving casino dealer jobs for permanent residents. As long as school leavers can walk into a job paying twice or even three times that available in other sectors (say MOP15,000 for casino dealers compared to a Macau average in September 2009 of MOP5,630 for manufacturing), and as long as the authorities maintain a relatively miserly and long-winded approach to the issuing of work permits for non-residents (typically three to four months), then fledgling Macau businesses will struggle to recruit any workers at all, let alone talented ones.

Las Vegas has significantly diversified its economy over the years, including high tech manufacturing, but Las Vegas has a much larger population than Macau—1.8 million in the metropolitan Las Vegas area at the last United States Census Bureau survey in 2008. Las Vegas also has no restrictions on inward migration of talent from across the United States, while the Federal government in Washington D.C. actively encourages overseas talent to relocate to the US. Macau, by contrast, has quite heavy restrictions on inward migration in the name of space saving and protecting the interests of the locals, who as a rule aren’t as well educated or trained as their compatriots in internationally competitive Hong Kong next door.

Raising the entry age to Macau casinos from 18 to 21 (and therefore the age at which staff can be recruited to work in them), as proposed by Mr Chui, may help somewhat. Still, the effects will take time to feed through the system, and even then may not entirely solve the problem.

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While Macau’s gaming industry is growing at its current rate, it may be difficult to generate enough political will at local level to institute structural changes in Macau that will pay economic diversification dividends for the next generation. But if a chief executive free from the tiresome requirement of pleasing a voting public every three to four years can’t do it, when will it be done? That is the multi-billion dollar question.

Tags: Macau
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Newsdesk

Newsdesk

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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