GBA Brief

The world’s casino capital: a backgrounder on Macau

Joseph Lo is a China-based entrepreneur with extensive experience of working and investing in Macau. In the first of a short series, here’s his introduction to the only part of China where casinos are legal.

A history of hedonism

Macau’s history is of a city where east meets west, and business mixes with leisure. A colony of Portugal’s for centuries before its return to Chinese sovereignty in 1999, the enclave’s tiny size – not much more than 30 square kilometres despite significant sea-into-land reclamations – has belied its much wider influence. 

Until the emergence of Hong Kong after the Opium Wars, Macau was Europe’s prize foothold in East Asia with almost all the trade between Europe and China passing through it. European merchants, barred from settling in the four ports in China opened to foreign trade by the Qing government, wintered there and a flourishing market sprang up to cater to their needs. 

Fast forward a couple of hundred years and gaming now dominates – it accounted for nearly half of Macau’s $50.36 billion economy in 2017 and almost 80% of its government’s revenues.

Casinos first started to feature in a bid to make up business lost to nearby Hong Kong, which had taken over as the trading hub for the region. Initially, Hongkongers were the main visitors to Macau too, although these days the primary clientele is gambling-mad mainlanders, who make up around two-thirds of tourist arrivals, mostly from neighbouring Guangdong province.

Their spending has made the city one of the wealthiest places on earth: per capita GDP in 2017 was nearly $81,000, behind only Luxembourg and Switzerland.

Broader than baccarat: diversifying the economy

Gaming revenues in Macau are gigantic at more than five times those of Las Vegas. But the centrality of the casinos has made for some strange anomalies. Daily spending is mostly conducted in the Macau pataca, but the Hong Kong dollar is the currency of choice in the casinos, reflecting its wider usage in the region.

Another puzzler is that Macau is reticent about the roots of its recent success. Its tourism board doesn’t even mention the territory’s 41 casinos in its promotional efforts. And despite its reliance on gaming, or perhaps because of it, the government has been trying to de-emphasise its contribution. 

In part that’s driven by fears of rampant money laundering through the casinos, as well as a bid to fall into line with Chinese president Xi Jinping’s anti-corruption drive. Xi and his fellow leaders are ambivalent about Macau’s raison d’être: they don’t much like the gambling that goes on there, but prefer that it happens on Chinese soil, rather than further afield.

Instead non-gaming spending is the holy grail as the city tries to promote its luxury hotels, attractive colonial architecture and rich culinary traditions that fuse local Cantonese cuisine with tastes from Portugal’s former outposts in Africa, India and Malaysia.

The idea is to get visitors staying for longer and branching out from baccarat, still the overwhelming favourite for Chinese gamblers. But it has been tough going: nearly 36 million tourists visited Macau last year, a 10% jump over the previous year, but their average length of stay was unchanged at 1.2 days. Average spending (not including gambling) grew, but only by 3.5%, and it was below its peak levels in 2013. 

Next-generation growth

Macau, like many a keen punter, hasn’t been discouraged by the initial setbacks. With Beijing’s help, it is laying wagers on technology, international trade and politicking as its future areas of growth. The city’s only public university, the University of Macau, has been designated a national lab for innovation in the fields of computer chips and traditional Chinese medicine. Nearby Hengqin Island is providing the land and infrastructure for Macau to pursue these ambitions. And although the plan for the Greater Bay Area is still taking shape, the $19 billion Hong Kong-Zhuhai-Macau Bridge is another manifestation of Macau’s ambitions as a pillar city in China’s wealthiest conurbation. 

The city is also counting on its colonial past to help with economic outreach from China to the Lusophone countries (aligning with Xi Jinping’s Belt and Road Initiative), offering trade ties and yuan-denominated financial services to Portuguese-speaking nations in Africa and South America.

I would say that it’s a toss-up whether these investments will redirect some of the city’s future away from tourism. Macau’s only other significant economic success in recent decades has been textiles manufacturing; but that industry has long shifted to lower cost locales. To develop leadership in new industries like technology and trade finance requires a level of expertise that the city doesn’t yet have. But if anyone can play the odds, it’s Macau.