INTRO: With all the high inflation and rate hikes
that we’ve been seeing over past several months, I’m sure you’ve all heard about the threat of a
recession looming around the corner. While the media often makes a big fuss about recessions,
a recession is simply 2 consecutive quarters of GDP decline. In western countries, we usually
see a GDP contraction of 2 to 3% and this turns into international fear. But, one notable region
has not only been seeing a recession but a full on depression and the world has barely noticed.
Macao’s GDP is not down 5, 10, or even 20%. Macao’s GDP is down an eyewatering 56.3%.
If this was the US, we’d probably see negative interest rates and $20,000 stimulus checks,
but China hasn’t really done anything about it. In fact, China has only made things worse
by cracking down on gambling. Hearing this, I don’t think you’d be surprised to heard that
Macau’s casinos were already bleeding hundreds of millions per month throughout the past two years.
Things have only gotten worse with the recent surge in Covid cases
which has resulted in all Macau casinos shutting down completely. And given that 80% of government
revenue comes from casino taxes, there’s no question that the entire region is on edge.
So, how much longer do we have until Macau’s economy becomes unsalvageable.
SURVIVE WITHOUT GAMBLING:
To gauge Macau’s economic health, we first have to look into whether Macau can survive without
gambling. Of course, they’re extremely dependent on gambling right now, but can this be changed
over the next several years? Well, according to many experts and even casino owners, the answer
is a resounding no. Professor Glenn McCartney from the Univeristy of Macau for example suggests the
following. "Given that we didn't diversify for 20 years. It isn't going to happen tomorrow.
There's no quick fix." Similarly, a casino owner named Lawrence Ho says “As bad as it sounds,
I don’t think there’s a future for just a pure non-gaming resort in Macau,” “The truth is:
gaming is really the financial engine,” “Yes, you can have these great integrated resorts,
but without the gaming component the math doesn’t work.” Obviously, these are not he most reassuring
comments, but how did things even get so bad in the first place? Well, to answer this, we have
to look at how Macau become the Asian Las Vegas in the first place. Taking a look back, the history
of Macau’s gambling roots stretch all the way back to 1557 when the Portuguese took over the region.
At the time, the Chinese called the region “A Ma Gao” which means bay of the goddess of sailors.
The Portuguese adapted this name into Macau and with that they opened up the first European colony
in East Asia. For the first 100 years, the region thrived as an international shipping hub. Macau
was the perfect intermediary between Asia and the western super powers, but all of this would
change in the early 1800s. You see, after the British won the 1814 Opuim War against China,
the British and the Dutch would take control of the trading routes between Europe and
China. And this made Macau basically irrelevant overnight. Macau still played a large role when it
came to religion, housing refugees, and culture, but none of these factors helped the economy.
Desperate for new modes of revenue, the Portuguese legalized a slew of activities in 1840s
one of which was gambling. Gambling was socially taboo across much of Asia at the time and it still
very much is. Nonetheless, Macau was able to attract quite a few visitors. By the end of the
century, gambling became one of the top revenue sources for the region, but it still wasn’t the
dominant source. You see, most of the gambling houses that popped up throughout the first 100
years were pretty conservative. In other words, players actually had a decent chance of winning.
Of course, the odds were still stacked in the casino’s favor, but we saw odds of 55-45 or 60-40.
This was good for gambler’s wallets, but it wasn’t the best for Macau’s bottomline. However,
all of this would change in 1962 when Macau granted monopoly rights to all forms of gambling
to a man named Stanley Ho. Stanley was a ruthless businessman who saw insane opportunity in Macau.
He didn’t hesitate to bring in western games that were far more predatory. He also invested
significant amounts of money into developing the maritime routes between mainland Asia and
Macau which made the region more accessible than ever. And before you knew it, Macau would become
the Las Vegas of Asia. While Macau’s economic problems were finally being solved, Portugal soon
had to deal with the Cultural Revolution aka the Communist Revolution of China. Portugal saw loads
of uprisings across Macau and while they tried to control these using soldiers, the distance betwen
Macau and Portugal made this quite difficult. Soon enough, Portugal would find themselves
asking for China’s help in controlling the region. And eventually, this would result in them turning
over the entire region to China in 1999. And that’s how the Macau we know today was created.
CHINA TIGHTENING:
One of the biggest economic threats for Macau is China. While China has yet to outright ban
gambling in Macao, it’s no secret that China is strongly against gambling. Eversince the Communist
Party tookover in 1949, gambling has been illegal in China. This includes overseas gambling
as well, but in practice, China doesn’t generally prosecute gambling. Instead, they prefer to take
another approach. They try to make gambling as inaccessible as possible. For example,
the process of getting a visa to Macau is extremely difficult for everyday citizens. This
is one of the reasons that Macau is so lucrative. Only rich people are actually able to go there.
During regular times, Macau attracts 22 million gamblers per year while Las Vegas attracts 25
million gamblers. Despite having fewer visitors, Macau averages $28 billion in gambling revenue
while Las Vegas averages $11.1 billion. Clearly, China’s visa policies haven’t hurt Macau’s top
line all that much, but this isn’t to say that Macau is free from China’s control. If anything,
China has been more controlling than ever as Beijing has launched a full on gambling crackdown.
For example, they’ve been implementing facial recognition software in Macau’s ATMS and limiting
withdrawal limits. They’ve even been considering a digital currency to better track money trails to
casinos. But why is the CCP doing all this right now? Casinos are already getting crushed by the
pandemic, why make it even harder on them? Well, the answer is that the CCP is worried about losing
control. Eversince the 1970s, China has become more and more captilistic, and one of the best
examples of this is their toleration of Macau. But, they’ve started to feel that they’ve given
companies and businessmen way too much power and influence. And the event that made this abundantly
clear to them was Jack Ma’s infamous speech in late 2020. If you’re not familiar with Jack Ma,
he’s the founder of Alibaba and the Ant Group and he used to be the richest person in China until
he got on their bad side. You see, in late 2020, he gave a speech in which he criticized the CCP.
He even started the speech with a disclaimer that he’s probably wrong, but the CCP didn’t care all
that much about his little disclaimer. Jack Ma would go missing for the next three months and
eversince then, Jack Ma has been in the process of handing over his entire fortune to the CCP.
In fact, as I’m writing this script, it was just announced that Jack Ma will cede control of the
Ant Group to the CCP. Aside from destroying Jack, the CCP has decided to crackdown on capitalism as
a whole which of course includes Macau. The recent casino shutdowns are likely a side effect of this.
The last time China shut down casinos was at the beginning of the pandemic in Febraury of 2020
when fears were at all time highs. But even then, they only shut them down for 15 days.
This time, however, casinos have already been closed for 3 weeks. Is this a mere coincidence
or is the CCP trying to show Macau who’s in control? I’ll let you be the judge of that.
THE COUNTDOWN:
Even if Macau survives all of these crackdowns and shutdowns, they still have a massive timer
looming over their heads. You see, when China took over Macau in 1999, they only agreed to give
Macau autonomy for 50 years. Macau falls under China’s one country two systems policy just like
Hong Kong. The policy states that these regions are politically part of mainland China. However,
they have the freedom to operate under a different economic system for a set period of time.
These regions are supposed to use this time to morph to China’s ideals before they unite
economic systems. But, given the current state of Macau, they haven’t really made any progress
in this realm. Macau is literally almost 3 times as dependent on gambling as Las Vegas and this
is after 23 years of morphing time. Clearly, Macau doesn’t have any intention of changing,
but it looks like China might have different plans. According to the initial agreement,
Macau will become one with China in 2049 which means that gambling will become illegal. However,
the general consensus has been that China wont actually do anything after 2049. The reasoning
is that Macau is simply so popular and profitable that it doesn’t make sense to shut it down and
ruin the region. But, it looks like China is moving to decouple Macau from gambling.
According to Wynn Macau chairman Allan Zeman, “what Beijing wants, is to have a lot more
non-gaming facilities.” And it seems like they’re planning on leveraging the upcoming gambling
license renewal at the end of this year as a negotiating chip. Honestly, there’s no way, these
licenses don’t get renewed, but it looks like the CCP wants certain policies in place first.
First, the CCP wants Macau to create a special non-gaming zone. This zone will
be dedicated to tech manufacturing, tourism, medicine, conventions, and sports. Secondly,
the CCP wants shorter gambling licenses. Right now, licenses last 20 years and renewals have
to be made every 5 years after that. Moving forward, however, the CCP wants 10 year licences
followed by 3 year renewal periods. China also wants reform regarding high risk gambling.
For example, they want to reduce the number of slot machines each casino can own. All these
reforms are designed to move Macau away from gambling, but by the looks of the Macau economy
right now, things aren’t progressing all that well and that brings us to where we are today.
THE FUTURE OF MACAU:
Looking forward, the state of Macau will really be dependent on what casinos decide to do. How long
will they be willing to put up with Chinese politics before they decide to leave Macau?
Under normal circumstances, this would be the last thing they’d want to do given how profitable
Macau is. However, most casinos are already hurting quite a bit. Wynn resorts, for example,
hasn’t had a single profitable quarter since the start of the pandemic. Fortunately, they still
have quite a bit of cash on hand, but if does come to shutting down a casino and scaling back,
Macau may very well be the victim. While Macau is often the most profitable,
they’re also the most risky and uncertain. So, when you’re scaling back,
you probably want to stick to areas that are more stable and reliable like Las Vegas. Fortunately,
we haven’t gotten to this point yet, but if China continues to let Macau’s economy get destroyed,
this may very well become a possibility. And if casinos start leaving Macau,
it won’t be long till Macau goes bankrupt, so it’s in their best interest to keep casinos around.
And honestly, it’s in China’s best interest to keep Macau around. But who knows, their interest
for control may be greater than their interest for preserving Macau. Do you guys think Macau
will survive China? Comment that down below. Also, drop a like if hope that Taiwan survives China.
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