Inside Asian Gaming

INSIDE ASIAN GAMING | October 2008 4 Editorial Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Desmond Lam Steve Karoul, I. Nelson Rose Richard Marcus Andrew MacDonald William R. Eadington Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6646 0795 www.asgam.com Printed by Unique Network Printing Factory Ltd. Tel: (853) 2828 2832 Fax: (853) 2828 2830 E-mail: unique@macau.ctm.net UnitedWe Stand, DividedWe Fall The hope that Asia could somehow dodge the bullet fired from the gun-toting doorstep of sub prime Middle America seems to be fading. Many people in the region are now thinking not about whether the international financial crisis will have an impact on Asia, but when it will strike, and for how long. In Guangdong, China’s richest province in terms of GDP and a major contributor to Macau’s visitor numbers, there is already talk of factories going on to short time working or even halting production. Despite the erosion of regional confidence even compared to one month ago, there are still causes for optimism. Asia’s national economies have moved forward significantly from the time of the 1997 financial crisis. Two of the most outstanding changes are how cash-rich China now is, and how much the spending power of Asian consumers has improved in the last decade. Around 70% of Macau’s gaming revenues come frommainly ethnic Chinese patrons,resident in Greater China or from among the Overseas Chinese community scattered across the globe from Canada and the US to Singapore, Vietnam, Cambodia, Australia and beyond. There are still challenges ahead. A person drawing the legal minimum wage in a European Union country such as the UK has around ten times the spending power of a person earning the unofficial minimum wage in Guangdong. Margins for regional gaming operators, already under pressure in Macau and elsewhere because of wage and commodity inflation, may well face a further squeeze if visitors start to make their travel budget go further. The good news is that in gamblers’ markets such as East and Southeast Asia, customers are more likely to cut back first on their accommodation and meals expenses than on their play at the tables or slots.While this may mean some short-term pain for those operators who have invested heavily in luxury hotels and other real estate, the likelihood is that in a year or so things will calm down. Perhaps the most interesting and exciting question in relation to the global community’s present predicament is what sort of world we will live in once the storm has passed. The death of Pax Americana—the domination by the US since the Second World War of global politics and economics—has been much anticipated since the financial crisis began to gather speed late last year. Some outside the US may even wish it.This is probably a fantasy and almost certainly foolish. A quick walk around a casino floor in Macau, Korea or Cambodia soon reveals what a multicultural activity gambling really is.We are all in this together,in an increasingly interconnected and interdependent world. If the present crisis proves anything, it’s that if one of us suffers, then we all feel some of the pain somewhere along the line. Social Harmony or Currency Export Control? The region’s worst-kept political secret—that China intended to impose further restrictions on the number of repeat visits its citizens could make to Macau in on year—is finally out. Visitors from Guangdong will now be limited to one trip every three months, according to reports in the local media, citing official guidance passed on to travel agents. What no one knows for sure is the motivation of the authorities in pushing this policy. Theories range from a desire to prevent mainland residents from working illegally in Macau, to a wish to prevent business people or state officials from spending their own (or even worse) other people’s money at the gaming tables, to a general feeling that Macau’s economy is overheating and needs to be cooled down. It’s possible that all these factors come in to play, as they all fall under the general heading of promoting social harmony. There may be another factor in official thinking.This is that travel restrictions are a way of limiting the export of China’s hard-earned capital at a time of global economic uncertainty. This may sound too much like a conspiracy theory. After all, Macau makes a lot of money from gaming tax, which ultimately gets recycled for the benefit of the economies on both sides of the border. Macau’s foreign investors are also at pains to point out they’re not taking money out of the local economy, they’re actually ploughing it back in and then some, in the form of infrastructure. This is a perfectly fair point. But it’s also fair to mention that the healthy revenue streams flowing from Macau are also being used to support the balance sheets of foreign gaming investors. Those revenue streams are also being used as a weapon in those operators’ public relations battles with increasingly bearish analysts. Could it be that a supremely pragmatic Chinese leadership has taken the view it would not be wise to throw good Chinese money after systemic foreign debt? That doesn’t mean the Chinese want to see their overseas investment partners suffer. China has heavy exposure to US government debt via, among other things, US Treasury Bonds. But a debt contracted between two sovereign states is one thing. The private wealth of Chinese citizens being used to bail out the interests of private foreign companies is another. In Asia, the good of the group still tends to trump the needs of private interests.This still applies no matter how many skyscrapers are built in Guangzhou, Shanghai or Beijing. Michael Grimes