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January 15, 2015 at 08:20 PM
China’s anti-corruption crackdown is taking a toll on Macao casinos. That could mean more tough times are ahead for the gambling haven, despite the fact that new casinos are opening this year.
However, although high rollers could be in for a hard time, that doesn’t mean that gaming investors necessarily will be as well, or that China tourism is set to decline. In fact, Club Med’s new Chinese owners are planning on targeting tourists with new attractions on the mainland.
It’s no secret that VIP gamblers have left the tables in Macao. President Xi Jinping’s crackdown on what he has called “tigers and flies” has included measures against money laundering that has hit junket operators hard. In fact, Hong Kong officials launched the New Year with a freeze in assets of Cheung Chi-tai, a major player among casino junket operators.
In addition, Beijing has repeatedly warned the city—the only place in China where gambling is legal—that it must diversify and seek other sources of revenue that do not rely solely on gambling.
That’s going to be a tough job, since taxes on gaming provide more than 66% of the Macao government’s income. But Macao may have no choice, since the city found gambling proceeds down by 2.6% in 2014 to 351.5 billion patacas ($44 billion). Statistics from Macao’s Gaming Inspection and Coordination Bureau indicated that, in December alone, proceeds fell by a record 30.4%. That follows on the heels of a drop in October proceeds of 23.2%, which is the largest decrease on record since 2005, when statistics were first made public.
The corruption crackdown isn’t the only thing to hit Macao’s economy. Tighter credit in China, a smoking ban that took effect in November and visa restrictions have also taken a toll, and analysts’ outlook for Macao during at least the first half of 2015 is gloomy. In fact, Fitch Ratings has predicted that gaming revenue in Macao will fall by 4%, hit mostly by that tough first half. Singapore is likely to share Macao’s pain as well, it said, as will other VIP-dependent markets in the Asia-Pacific region.
That doesn’t mean that gaming is on its way out, however—far from it. New casinos scheduled to open in Macao later in the year are only one indication that the APAC region isn’t ready to stop chasing the roll of the dice. And while the competition will likely lower profits in Macao, Chinese property developers have turned to Australia, where Fitch says casinos will likely increase gaming revenue by 4%. Investment, it said, is significant in Crown’s new Sydney Precinct and new hotel in Perth.
But the big kahuna for the developers could be in Queen’s Wharf precinct in Brisbane. Fitch analysts said that “all eyes will be on the successful bidder to develop Queen’s Wharf precinct …, which the Queensland government plans to announce in early 2015. Both Crown and Echo have entered into partnerships with Chinese property developers to bid for integrated resorts.”
