Macau is the only region in China allowed to conduct gambling. Gambling in Macau is a leftover from the Portuguese era when it was controlled by Chinese Triads. Portugal, Triads, and unbridled gambling are gone. The casinos in Macau are nothing like those old gambling dens. Today, casinos in Macau are billion-dollar resorts that offer a wide variety of entertainment, shopping, and culinary options.
However, the official Chinese attitude toward gambling has not changed much: Gambling is bad for the Chinese people and it is bad for a socialist society. If it has a place at all, it needs to remain locked up and tightly controlled in Macau. There, gambling can be watched and more important, the behavior of Chinese people who go to Macau can be monitored. Under those circumstances the workers of China are protected from the worst of capitalistic corruption. With Macau secured, Communist China can turn its attention to other cities catering to Chinese gamblers.
China is doing just that — exercising more control over gambling by its citizens and the places to which they traveled to gamble. On July 15th, China announced a third region to be backlisted in terms of its recruiting of Chinese gamblers. In the marvelously vague language of its pronouncements, China did not name the third place targeted by the blacklist; it did not disclose the previous two either. The targets are probably some combination of Australia, Cambodia, Korea, and the Philippines. It is not easy to see the impact of Chinese policy on gaming revenues in the rest of Asia, since it’s mixed with the travel restrictions of the pandemic. The one obscures the other, but both are having an impact.
Gaming revenues in Asia are down. They’re down in Cambodia, Laos, Vietnam, Korea, the Philippines, and Australia. There have been extensive shutdowns and heavy operating restrictions in those jurisdictions. It is also the case that those countries have had no Chinese tourists in more than a year. The Chinese are traveling again, but only within China. The limited travel is due to heath precautions, not political policy. Even Macau has yet to see a serious return of Chinese tourism, although visitor and gaming numbers are creeping up month after month.
While awaiting the return of gamblers from the mainland, Macau has been working industriously to rebrand itself. In July, tourism officials proudly proclaimed new art, cultural, and culinary events. In June, those officials took a Macau roadshow to the mainland; at each stop, officials showed off the attractions of Macau to local officials and citizens. The tourism department takes casino representatives along, but mostly the presentations deal with cultural experiences Macau offers for Chinese tourists. The department is also working on increasing the number of sporting events and a variety of historical and cultural gatherings, all aimed at meeting the Chinese government’s declared objective of creating an international travel destination in Macau.
The government in Macau is also coordinating closely with the mainland province of Guangdong to create the Greater Bay Area. That cooperation includes creating a stock exchange, a Silicon Valley-like technology and industrial center, theme parks, residential areas, and a variety of other commercial projects. None of those things will happen overnight. But in 10 years or so, Macau will have been transformed; it will be a true part of China, not a former Portuguese colony with casinos.
It is already possible to see the impact of China’s long-term strategy on Macau casinos. For the second quarter of 2021, VIP gaming revenues were only 33 percent of total gaming revenues. That’s compared to its peak in 2013, when gaming revenues reached $45 billion and 70 percent of that came from high rollers.
In the middle of 2014, Chinese President Xi Jinping began a crackdown on corruption and crime in politics, government, and business. It led to a precipitous fall in gaming revenues, from $45 billion to $27 billion in three years. That was the low point until 2020, when it fell 80 percent to $7.7 billion. Of course, that was due to COVID, not the crackdown. Recovery is slow.
In the second half of 2020, analysts speculated on the length of the recovery. At first, they predicted the end of 2020. Then they believed the end of 2021. Now the date has moved out as far as 2024, but even three and a half years is unlikely. It is unlikely because the driving force of the casino industry in Macau, at least until 2013, was VIP gambling, the high-rolling Chinese gamblers from the mainland who spent millions of dollars a session. Some of the individual VIPs have come back. However, they have changed; they don’t have as much money to spend and they are very aware that Big Brother Xi is watching.
The long-term impact of Chinese policy is becoming observable in the numbers in Macau. For the first six months of 2021, VIP revenue is only 33 percent of total revenue and that percentage is declining monthly. At the same time, mass-market gaming is increasing. Once considered to be trivial, the mass-market gamblers are now the core source of gaming revenue. Under present policies, the high-roller era is not likely to return. China has stopped the source of much of those early gamblers’ funds: bribes and corruption. Furthermore, the blacklist is just the latest example of China’s intent to control the behavior of all Chinese, but in particular Chinese who gamble. The government has instituted a social-credit system that will slowly reduce all anti-social behavior and in China, gambling is anti-social. China preventing VIP gamblers from going to other jurisdictions and Macau under Chinese influence have limited the amount of gambling available in Macau.
Macau will not dry up and blow away and gambling will not cease in Macau. But the $45 billion a year from a handful of high rollers is gone. That leaves the casinos with a dilemma. The recent new construction and remodeling were done based on VIP cash flows. It will take millions more mass-market gamblers than presently go to Macau to justify those investments. If the licenses were not dangling in thin air, with no certainty of renewal, it would not be surprising to see some of the casinos go on the market.
As that cannot happen, everyone will just have to wait. They will have to wait for the end of the pandemic-related travel restrictions and they will have to wait for international tourists to arrive. They will have to wait for a return to full growth in the Chinese economy. Like waiting for Godot, it may be a long wait.