Las Vegas of the East – Navigating Challenges and Embracing Economic Diversification in Macau

Known as the Las Vegas of the East, Macau holds the unique position as the only place in China where casino gambling is legal.

Macau, a former Portuguese colony, is often compared with its close neighbour Hong Kong, a former British colony. The two are now special administrative regions in China with somewhat different profiles internationally.

Tourists are drawn to Hong Kong's unique cultural fusion of the East and the West, colourful night life, diverse cuisine, iconic tourist spots, unique shopping experience, and its international exhibitions, concerts and sporting events. It's these features that make Hong Kong the top tourist destination in the Pearl River Estuary. On the other hand, Macau is often seen to be less international. According to Macau's tourism authority, in 2019, before the pandemic, 90% of the tourists in Macau were from Greater China, a definition which includes travelers from Hong Kong and Taiwan.

But recent figures show that Macau has narrowed the tourism gap with Hong Kong. During the four-day Lunar New Year holiday this year, around 703,000 people visited Macau while Hong Kong welcomed just 40,000 more visitors (743,000). There are a number of opportunities and challenges for Macau as it strives to diversify its economy and grow its tourism industry beyond gambling.

The World's Top Gambling Hub

As the world's top gambling hub, there are currently 41 casinos in Macau. The casinos are run by six licensed operators, namely Galaxy Entertainment Group ("Galaxy"), Melco Resorts & Entertainment Ltd ("Melco"), MGM China Holdings, Sands China Ltd, SJM Holdings Ltd and Wynn Macau Ltd. They are all listed on the Hong Kong Stock Exchange, except for Melco, which is listed on the NASDAQ.

Importance of the Gaming Industry

The gaming industry has been the backbone of the tiny former Portuguese colony, contributing almost 80% of the government's revenue. In 2019, before the pandemic, its gaming industry generated about US$36 billion in revenue, which was three times that of Nevada. Additionally, the gaming industry is crucial to Macau's employment as it provides approximately 80,000 jobs. With casinos employing 30% of the labour force, the sector offers employment opportunities not only within the casinos but also in related industries such as hotels and restaurants. Notably, approximately 89% of casino workers in middle and senior management positions at the six Macau casino operators are local.

While the gaming industry has been a key economic driver, Macau's reliance on the gambling industry exposes the region to certain economic risks. The coronavirus pandemic brought this vulnerability to the forefront. Macau's economy is closely tied to the prosperity of other Asian economies, particularly mainland China. Its gaming industry was severely hampered by China's zero-Covid policy and its related movement restrictions. These factors deprived Macau of the Mainland visitors on which its industry crucially depends. Travel restrictions and lockdown measures caused the casino operators to bleed cash as there were months of close to zero revenue. Some operators had to reach out to their parent companies for loans.

There are also additional pressures, with other countries in Asia taking inspiration from Macau's gaming successes and angling to create their own casino-based revenue streams. For example, Singapore's famed Marina Bay Sands is currently engaged in a $3.3 billion expansion and Thailand is considering the introduction of Singapore-style integrated resorts.

Economic Diversification

It's not just the pandemic that has highlighted the need for Macau to diversify its economy for long-term resilience. Chinese President Xi's anti-corruption drive includes closer scrutiny of corrupt officials who might place bets and launder money in Macau. This has prompted Macau to explore economic growth beyond the gambling sector.

In 2022, all six casino operators secured the renewal of their licenses to continue running their businesses in Macau for the next ten years with effect from 1 January 2023. To achieve their licenses, the casino operators have pledged to invest US$14.8 billion collectively into non-gambling related activities. This is in response to the government's call to help diversify Macau's economy and encourage international tourism.

Over 90% of the investment will go to the development of non-gaming projects and exploring overseas market. The focus will be on developing areas such as conventions, exhibitions, entertainment, sports events, culture, art, healthcare, themed amusements, and more. For example, one of the casino operators, Galaxy, has invested into world-class, non-gaming facilities such as the Galaxy International Convention Centre and the Galaxy Arena to contribute to the development of the MICE (meetings, incentives, conventions, exhibitions) industry in Macau. To support these facilities, Galaxy has already signed a number of multi-year agreements with well-established companies to help support its events programme. These initiatives will ensure Macau's economic resilience while catering to the diverse interests of visitors from all corners of the globe and attract a broader range of tourists. With strict regulations imposed on the casino operators, they are mandated to uphold their commitments and support Macau's economic diversification.

The Future of Macau

Macau's future lies in diversification. It is set to transform itself into a multifaceted destination beyond the realm of casinos, capturing the hearts of tourists worldwide. As Macau evolves into a well-rounded destination, it is poised to captivate the world with its unique blend of gaming, entertainment, luxury and cultural experiences.