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26 Economy & Finance 26 Fast-track growth ICBC Macau’s chief executive says the bank wants to be the city’s most profitable financial institution
Politics 32 Sleeping watchdog Analysts say the Legislative Assembly is failing to oversee the government, as a new legislative year opens
Greater China 38 Yes, we can Hong Kong’s legislative election shows a thirst for democracy
Special 41 Changing China The People’s Republic of China celebrates its 63rd anniversary amid leadership changes and economic slowdown
OCTOBER 2012
Property 54 Storm over shelter The Hong Kong government announces a mini-housing policy aimed at benefitting long-term residents 58 Motivated buyers Hengqin’s development poised to stir up the island’s property market
Gaming 62 Bet on the future Although gaming revenue is softening, increased mass-market play is good news for casinos 68 The downside More casinos in Cotai has potential advantages but also a darker side for the city 72 Muscling in Sands China bets on UFC to add non-gaming excitement 75 Go forth and multiply LT Game is banking on increasing demand by casinos for multi-terminal live baccarat 78 Damned statistics The government doubts problem gaming is going down, as hinted by a study 80 Hi-tech gamble A new survey draws on the mainland’s lottery industry
Photo: Carmo Correira
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104 Hospitality 84 Comfort zone Starwood opens Sheraton and plans for two more properties in Cotai 88 Healthy living The tobacco ban is good for restaurants and tourism, research concludes 92 Bubbles and froth The beer business is not meeting importers’ expectations
MICE 101 Fair trade The Venetian welcomes the 2012 Macao International Trade and Investment Fair this month
Business 104 Growing concern There is more demand for PR services in Macau, but local players are still in their infancy
Arts & Culture 106 Look forward, look back Korean cinema on display at the Cultural Centre 108 Alluring and haunting Lam Bun-Ching’s talent to be celebrated at the International Music Festival
OCTOBER 2012
Opinion 12 From the publisher’s desk Paulo A. Azevedo 14 Editorial Emanuel Graça 25 Where does it go? Keith Morrison 37 Accounting for public money Bill Kwok-Ping Chou 40 The re-education of Hong Kong Shaw Sin-ming 46 China’s rebalancing act Yu Yongding 52 Reinventing the Sino-American relationship Michael Spence 61 Free to do José I. Duarte 91 Blinded by stars Gustavo Cavaliere 94 The narrative structure of global weakening Robert J. Shiller
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OCTOBER 2012
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Editorial Council Paulo A. Azevedo, Tiago Azevedo, Duncan Davidson, Emanuel Graça Founder and Publisher Paulo A. Azevedo VOL.1 Nº102
pazevedo@macaubusiness.com
Editor-in-Chief Emanuel Graça emanuel.graca@macaubusiness.com
Assistant Editor-in-Chief Alexandra Lages
Contributing Editors Christina Yang Ting Yan, Dennis Ferreira, Derek Proctor (Bangkok), Filipa Queiroz, Helder Beja, Joana Freitas, João Ferreira da Silva, João Francisco Pinto, José Carlos Matias, Kahon Chan, Kim Lyon, Lia Carvalho, Lois Iwase, Luciana Leitão, Michael Grimes,Sara Farr, Sara Silva Moreira, Sofia Jesus, Xi Chen, Yuci Tai
michael.hoare@macaubusiness.com
Regular Contributors Bill Kwok-Ping Chou, Branko Milanovic, David Cheung, David Green, Dominique Moisi, Eswar Prasad, Frank J. Fahrenkopf Jr., Gustavo Cavaliere, Hideaki Kaneda, José António Ocampo, José Sales Marques, Joseph Stiglitz, Leanda Lee, Keith Morrison, Kenneth Rogoff, Kenneth Tsang, Marvin Goodfriend, Pan Yue, Paulo J. Zak, Peter Singer, Richard Whitfield, Rodrigo de Rato, Robert J. Shiller, Sin-ming Shaw, Sudhir Kalé, Sun Shuyun, Vishakha N. Desai, Wenran Jiang
Special Correspondent Muhammad Cohen
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Address: Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, No. 679 Av. do Dr. Francisco Vieira Machado, Macau Tel: (853) 2833 1258 / 2870 5909 Fax: (853) 2833 1487 Email: editor@macaubusiness.com OCTOBER 2012
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SEPTEMBER 2012
pazevedo@macaubusiness.com
PAULO A. AZEVEDO FOUNDER AND PUBLISHER
from the publisher’s
THE NO-RULES THEORY desk
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If the government is allowing new satellite casinos, then let us cut out the hypocrisy and fully liberalise the casino sector
OCTOBER 2012
he observant who pay attention to the strange coincidences that play out in public life get a glance at how some businesses are conducted here. It is only the tip of the iceberg. The biggest part remains hidden and underwater. Similarly, those who gain the most from these businesses remain on the sidelines, watching developments, protected by an intricate web of connections built over time, virtually invisible but exceptionally strong. Even so, outsiders gain an idea of how the system runs by reading the press. Macau Business’ sister publication Business Daily published two ‘Page One’ reports in the middle of last month that show how easy it is to do business that breaks government policies. The English-language newspaper broke the story on a plan to build a US$800-million (MOP6.4 billion) boutique-style hotel casino on land adjacent to the One Oasis residential project, in Coloane. A few days later, the newspaper reported that the HK$5-billion (US$645 million) redevelopment of Macau Fisherman’s Wharf would probably include a second casino, in addition to the Babylon Casino already there. All this while the government maintains it is committed to controlling the growth of gaming. Adding to the mess was the Studio City “no casino, has casino” comedy sketch performed by the Secretary for Transport and Public Works Lau Si Io
and Secretary for Economy and Finance Francis Tam Pak Yuen. Why the fuss regarding Studio City, when everyone already knows, and expects, it will have a casino? And, more importantly, why is no one talking about gaming projects being proposed by non-gaming operators? Is Macau permitting new satellite casinos? It is a scheme seldom supported by anyone in the industry. It gives a third party scope to run a casino under the licence of a gaming concessionaire but with almost all the business escaping the control of the concession holder. Who actually has something to gain from these dubious partnerships, aside from the interests that succeed in getting them? If the government is allowing new satellite casinos, then let us cut out the hypocrisy and fully liberalise the casino sector. For those that argue the area around One Oasis is a frontier between Cotai and Coloane and may therefore host casinos, I say “think twice”. It is already part of Coloane. Coloane should be left a mostly green area, free of casinos and those disgusting human cages, purporting to be public housing, recently built there by the government. What officials ultimately say about the two satellite casino projects reported on by Business Daily will reveal if the government intents to bend the rules. If the developments are approved, it will be the confirmation that the rule in Macau is there are no rules. For some...
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KOREAN LESSONS
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outh Korea is starting to acknowledge the fallout from a bitter lesson: a lack of support given to small and medium businesses is seriously undermining the country’s social and economic fabric. “The abuse of power by big businesses is really serious. They [conglomerates] force their suppliers to cut prices when the business environment deteriorates, and they often steal technology and talent from small businesses,” Kim Se-jong, a researcher at the Korea Small Business Institute told the Financial Times. Seoul understands that the near monopoly the massive, family-controlled conglomerates have over the most talented workers, while restricting the prospects of small businesses, is a loselose situation. The Bank of Korea, the country’s central bank, is stepping in after years of requests for change. It has decided to increase the bank loans available to smaller companies to US$1 billion. Some Macau officials already understand something similar is happening here. However, as with other important topics, the govern-
ment seems divided over what to do, delaying measures that might help change the situation. One of the major problems, that has dragged on for more than five years, is not the availability of talented labour but just the availability of labour. The preliminary results of a study released recently further highlight the need for more non-resident workers and for a review of the quota system that restricts businesses from importing labour. The study, by the Small and Medium Enterprises Association and the University of Macau, found almost all small businesses ranked a shortage of labour as their No.1 problem last year. Manpower shortages were said to affect nine out of 10 small and medium size enterprises last year. The pace of the solution to solve this issue moves at only two speeds: very slow or stagnant. The good news is that Macau has a population of 570,000 people. Imagine the time it would take for a decision to see the light of day if this was a country with tens of millions of people.
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EMANUEL GRAÇA EDITOR-IN-CHIEF
editorial WANTED: REAL POLITICIANS
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An inactive Legislative Assembly is something that the powers that be are obviously comfortable with, but it hurts Macau’s development
OCTOBER 2012
s reported in this edition, the Legislative Assembly returns to work this month after its summer recess. Expectations, as usual, are low. Since the handover, the legislature has done little more than rubber-stamp bills put forward by the government. The performance of most of the members is dull and shows a blatant lack of commitment to the common good. Instead, several businessmen make use of their seats to stymie or tweak legislation that could otherwise harm their private interests. That was obvious during the revision of the labour law and, more recently, during deliberations on bills meant to regulate the property market better. Political maturity is scarce in the legislature. Much of the debate lacks depth and is at times plain gross. Indirectly elected member Vitor Cheung Lup Kwan is the leading exponent of disengagement: in the last legislative session, Mr Cheung – who occupies one of the two seats for the social services, sports, education and cultural sectors – missed close to one-third of the legislature’s plenary meetings, without any explanation. He went to just one of the 28 meetings of the standing committee to which he belongs. Mr Cheung obviously could not care less. He is a champion of absenteeism in the assembly. Unfortunately, there are many more like him. More than one third of the members failed to send a single written inquiry to the government last year. The legislative year beginning this month may be more eventful.
Many directly elected members that have been idle will now be aiming to put on a show to boost their chances of being re-elected next year.
Divided they fail The Legislative Assembly’s insipidness is due mainly to one factor: there is no ideology whatsoever cementing political initiatives in Macau. Even the programme of the New Macau Association, probably the city’s most seasoned political force, could be summed up in a just few lines. The electoral system actively promotes de-politicisation of public affairs, putting the focus on individuals, not on ideas or initiatives. For instance, Macau does not allow political parties. And the way directly elected seats are filled favours atomisation. It is close to impossible for more than two candidates on a ticket to get elected. Next year’s changes in the number of members will not alter things. The way seats are filled remains the same and directly elected members will continue to account for less than half of the legislature. An inactive Legislative Assembly is something that the powers that be are obviously comfortable with, but it hurts Macau’s development. In an executive-led political system such as ours, a strong and independent legislature is crucial for providing active oversight of the government. And God only knows how our officials could do with an overseer to keep them in line.
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Inbox
Putting in for charity The Annual Macau Business Charity Golf Tournament hits the greens this month he countdown is on. There are only a few days left until the Annual Macau Business Charity Golf Tournament 2012 tees off. On October 26, Macau’s business community comes together at the Macau Golf & Country Club to once again combine the lovely game of golf with an enormous charity effort. Two days later, the second and final round of the tournament will be played at Caesars Golf Macau. Teams hailing from every corner of the business community, from banking to professional services to gaming, are ready to tee-off for another memorable event. Over the years, participation has been increasing steadily and this year is expected to be no different. For the 2012 edition, teams and sponsors are eager to perform well on the greens, but first and foremost to do good deeds off the golf courses. “The Macau Business Charity Golf Tournament is a great way to give back to the community while enjoying some exciting competition,” says Edward Tracy, the president and chief executive officer of Sands China Ltd. The tournament has become the most recognizable charitable event of its kind in the Pearl River Delta, and its public profile continues to grow. “We look forward to many more years of serving the Macau community and to working together with Macau
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OCTOBER 2012
Business on its charity initiatives,” says Mr Tracy. Akiko Takahashi, executive vice president and chief human resources/corporate social responsibility officer at Melco Crown Entertainment Ltd, stresses the significance of the tournament for Macau’s community. “We believe that sports can play a vital part in the personal development of individuals as well as a sense of teamwork, and the Macau Business Charity Golf Tournament can advance this development,” she says. In addition, Ms Takahashi expects this year’s tournament “will attract the best and brightest golf talent to town, in a truly marvellous demonstration of sportsmanship and thrilling competition.”
The rules of the game When charity and corporate social responsibility meet golf, every hole counts. That is exactly what will happen this month, when the sixth Annual Macau Business Charity Golf Tournament hits the greens, followed by the customary Gala Dinner. The 36-hole competition is divided into two days, one at Macau Golf & Country Club on Friday, October 26 and the other at the Caesars Golf Macau on Sunday, October 28. The Macau Business Gala Dinner will take place at the Westin Resort on November 2. In its short history, the event has raised and distributed
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THE ART OF GOLF F
ootball is often called the beautiful game but golfers think otherwise. The Macau Business Charity Golf Tournament is adding a new artistic twist to the game, by bringing on board the Art For All Society, or AFA. The non-profit organisation, which gathers Macau’s best artists, has been involved in the tournament for the last two years, with art exhibits during the Charity Gala Dinner and by offering artworks to be auctioned for charity. “AFA and all our local artists believe that art can be everywhere, and it can bring everyone a beautiful life and fun. We all feel that this is a very meaningful project that we should join,” says artist James Chu Cheok Son, who heads AFA. In this year’s tournament, art and golf will come together in two different ways. Mr Chu will design the trophies for the tournament, “so that all the winners can take an artwork home,” he says. Other artists from AFA will be doing traditional pencil sketches of patrons. The proceeds will also go towards charity, to an organisation to be named by AFA and the Macau Business Charity Readers Association. The Portuguese news agency Lusa is also joining the Macau Business Charity Golf Tournament with a team, plus offering a special donation to a charity of its choice. “We have been following the event and reporting it worldwide as an international news agency. And since Macau has been an extraordinary platform between China and the Portuguese-speaking countries, we are glad to have this opportunity to give some support to a local institution that helps the ones in need,” says Lusa Macau Bureau chief José Costa Santos.
*AFP NEWS AGENCY
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OCTOBER 2012
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over HK$2.5 million (US$322,000) for various charities in the region. The tournament format is a Threesome Texas Scramble, while scoring will be calculated according to a double Peoria system, allowing players of different levels to compete on relatively even ground. The tournament prize money total of HK$200,000 is to be split between the two teams that finish the tournament with the best net and gross scores respectively. Each winning team will have the right to choose the charity or social project that they would like to forward their winnings to. There are also special awards and trophies up for grabs. The Macau Business Charity Gala Dinner, intended to accommodate non-golfing patrons as well as the tournament players, has become a highlight of the event. Westin Resort’s Pool Loggia will provide the ambience for the evening’s programme, which includes the prize-presentation ceremony for the golf competition. A charity auction of memorabilia from the fields of sport, music and other kinds of entertainment will run throughout the evening. And so that everyone has a chance to be a winner, a raffle will close the evening’s official programme.
BOSSES OPEN TO SEVERANCE PAY REVISION Employers’ representatives agree to revise ceiling on maximum compensation Employers’ representatives last month agreed at the Standing Committee for the Coordination of Social Affairs to have one of the severance pay limits revised. The committee comprises representatives of the unions, the employers and the government. At present the law entitles an employee whose contract is terminated without cause, to compensation calculated using a formula which takes into account the employee’s years of service and monthly pay. There are two limits. Any monthly pay above MOP14,000
(US$1,750) does not count, and severance pay cannot amount to more than 12 times the employee’s monthly pay. In effect, the maximum amount of severance pay is MOP168,000. That is how much a laid-off employee paid MOP14,000 or more a month would get if they had 18 or more years of service. Employers’ representatives say they are open to revise the monthly pay cap. But trade unions want all limits on severance pay to be abolished. Both sides are set to continue discussing this topic.
ING SELLING MACAU UNIT
ING Groep NV of the Netherlands has put ING Life Insurance Co (Macau) Ltd and its Hong Kong insurance business on sale as a job lot, our sister publication Business Daily reported. This is after being told by European authorities to get rid of its insurance operations in order to receive state aid. ING’s Macau insurance unit made a loss of MOP37.2 million (US$4.7 million) last year.
POLICE BUSTS MILLIONAIRE LAUNDERING SCHEME
The police announced last month the arrest of two Macau businessmen for involvement in a forgery and money laundering case. The scheme, worth at least HK$300 million (US$39 million), allegedly involved several Macau and Hong Kong companies. The men forged and sent invoices to Hong Kong where they were used in bank loan applications. Between seven and 10 Hong Kong banks were cheated out of at least HK$70 million, according to the police.
OCTOBER 2012
GOV’T ANNOUNCES CAP ON DEPOSIT PROTECTION
The government has set the maximum compensation payable if a bank collapses at MOP500,000 (US$62,500) for each account. The limit will mean 95 percent of all deposits in banks will be fully covered. The cap is included in the subsidiary legislation that complements the bank deposit protection law, to be enacted this month. The new law turns a temporary deposit protection scheme set during the global financial crisis into a permanent fixture.
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SEPTEMBER 2012
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FRESH MEAT PRICES CAN GO FURTHER UP
FEWER UNSATISFIED CONSUMERS
The city’s two main suppliers of fresh meat said last month that wholesale prices for beef and poultry are likely to continue to go up. Representatives from Nam Kwong Kok Fong Distribution and Transportation Ltd and Nam Yue Food Stuff and Aquatics Co Ltd made the warning after a meeting with a government task force on food prices. The Economic Services Bureau director Sou Tim Peng said the government is studying this matter, but currently has no plans to tackle rising food prices.
The Consumer Council received 760 complaints in the first half of this year
The Consumer Council handled almost 3,800 cases in the first half of this year, the body said. Of those, 760 cases were complaints and close to 3,000 were inquiries, while the rest were suggestions from consumers. The number of complaints dropped by 10 percent year-on-year. Telecommunication services led among the complaint cases, with 122 reports filed. A total of 97 complaint cases for telecommunications products were received in the first six months of 2012, half of which were related to quality of mobile phones and after-sales services. Tourists amounted to 60 percent of the complaint cases received for telecommunications products.
CTM SUFFERS CYBER-ATTACK
CTM – Companhia de Telecomunicações de Macau SARL was hit by a cyber-attack last month, the company said. The attack slowed down the accessing speed of CTM’s Internet service for several hours. “After inspection, it is believed that the service interruption was caused by a cyberattack, where a great volume of data traffic was accumulating, resulting in the Internet accessing speed being slowed down,” CTM said in a press release. CTM is Macau’s sole Internet provider. OCTOBER 2012
SMARTONE POSTS STRONG RESULTS
SmartTone Mobile Communications (Macau) Ltd reported an operating profit of HK$72 million (US$9.3 million) for the year ended in June 2012, up by 64.7 percent from the previous year, the firm’s parent company announced. Revenues rose to HK$385 million, an increase of 36.2 percent. Growth was driven by higher service revenue and increased handset sales.
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OCTOBER 2012
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NO MORE SERVICE MONOPOLIES AT AIRPORT
The airport’s operating company says all major service concessions will be put up for grabs soon The Macau International Airport Co Ltd – CAM confirmed last month that no more service monopolies would be granted at the airport after the existing sub-concessions expire next year. According to a press release, the sub-concession contracts that CAM signed with Servair Macau (in-flight catering services), Menzies Macau (ground handling, aircraft maintenance, cargo and mail services) and the Macau Business Aviation Centre (general aviation handling services) will all expire next year and will not be renewed.
AIR MACAU PROFIT KEEPS ON RISING
Air Macau Co Ltd’s profit for the first half of this year increased by around 20 percent compared to the same period of 2011. Zheng Yan, the airline’s chairman, said last month business continues to show a positive trend. The flagship carrier has ordered two new Airbus A321 to enter service early next year and wants another two in service soon after to help develop its passenger business.
OCTOBER 2012
“A lot of potential new suppliers for these services and also existing ones have been approaching CAM to declare their interest to bid for the ground handling and business aviation activities,” the airport’s operating company said. The tendering for the airport’s ground handling activities is expected to take place in the fourth quarter of this year, according to CAM. The company said the number of future operators for each service sector at the airport would depend on the overall market conditions.
BEIJING VOWS TO BRING MICE EVENTS TO MACAU
The Macau government and the mainland’s Ministry of Commerce signed last month a cooperation pact aimed at boosting the city’s meetings, incentives, conventions and exhibitions (MICE) industry. Beijing pledged to support Macau in hosting international events in the fields of tourism and food and beverage. Both parties will also set up a working group to help coordinate the participation of mainland enterprises and individuals in exhibitions hosted in Macau.
NO SUBSTITUTE FOR NORTH WEST EXPRESS
The Maritime Administration has not received proposals from ferry operators interested in exploring the route between Macau and Hong Kong’s Tuen Mun, after North West Express Ltd stopped services in July. North West Express officially applied last month to cancel its licence. The company said it could no longer afford the HK$2.32-million (US$234,000) rent for Hong Kong’s Tuen Mun pier, in the New Territories.
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Business class travellers
Macau’s travel agencies posted a strong performance last year, with double-digit growth in revenue, according to data disclosed last month. However, expenses grew at an even faster pace.
NEW RECORD FOR IMPORTED LABOUR
The number of imported workers in Macau reached a new all-time high. According to official data, the city had a total of 107,400 imported workers by August-end, 61 percent of whom came from the mainland. This was the second month in a row in which a new record for imported workers was set. In July, the number of imported workers reached 104,900 people.
GOOD SUMMER FOR AIRPORT
186
The number of travel agencies operating in Macau last year, nine more than in 2010
11.4%
The year-on-year rise in the number of staff engaged in travel agencies. At 2011-end, it stood at 3,379 people
MOP5.5 billion
The total revenue reported by travel agencies last year, up by 16.7 percent compared with one year before
0.5%
The percentage of the total revenue of travel agencies in 2011 that came from on-line business
17.9%
The year-on-year increase in total expenditure of travel agencies in 2011, to MOP5.4 billion
MOP619 million The travel agency sector’s gross value added in 2011, which measures sectorial contribution to the economy
SOURCE: STATISTICS AND CENSUS SERVICE SEPTEMBER AUGUST 20122012
Passenger traffic volume and aircraft movements at the airport increased in July and August, the traditional summer vacation period. The airport handled over 876,000 passengers and recorded more than 7,600 aircraft movements over that period. This represents year-on-year increases of 13 percent and 12 percent respectively, according to the Macau International Airport Company Ltd – CAM.
NEGATIVE OUTLOOK FOR EXPORTS Only 15.7 percent of Macau’s manufacturers in the second quarter of this year were optimistic about the territory’s exports in the coming six months, a survey by the Economic Services Bureau shows. The figure was 12.7 percentage points below the previous quarter. Some 43.9 percent of the manufacturers interviewed deemed that exports would slow down in the ensuing six months, up by 14.2 percentage points quarteron-quarter.
25 KEITH MORRISON AUTHOR AND EDUCATIONIST - kmorrison.iium@gmail.com
Where does it go? THERE IS LITTLE SIGN OF MACAU’S WEALTH TRICKLING DOWN TO REACH THE POOR his year saw the publication of Joseph Stiglitz’s “The Price of Inequality” and of Stewart Lansley’s “The Cost of Inequality”. The timing of the publication of these books is unsurprising. Western economies are struggling with economic meltdown, interest-rate fixing scandals, crises in the Eurozone, austerity measures that do not work, stagnant gross domestic products and double-dip recessions. At the same time, the fat cats get even fatter and bosses, particularly in the financial sector, pay themselves monstrous bonuses and salaries. Mr Lansley says the ratio of the average annual pay of chief executives of some United States companies to the average annual pay to the rest of the workforce rose from 42 to one in 1960, to 344 to one in 2007. A report by Merrill Lynch Global Wealth Management and consultancy firm Capgemini concluded that the collective wealth of millionaires in the Asia-Pacific region was nearly US$10 trillion (MOP80 trillion) last year. Huge salaries for bosses are no rarity in Macau either. For instance, one chief executive at a local company is reported to have had his contract renewed recently to give him a base annual salary of US$1.2 million plus incentives. One other C-level executive received last year emoluments of US$8 million. What about the rest of us? While Macau’s gambling-onsteroids culture and disgusting increases in housing prices make fortunes for a few, legions of people struggle to survive. What kind of society is it that has to advertise that it is building “affordable housing” regardless of the fact that many cannot afford it, and that for others it is like buying a shoebox to live in? As Fintan O’Toole wrote in his withering account of the downfall of Ireland’s economy “Ship of Fools”, to say that a fraction of a nation’s housing, say 4 percent, is “affordable” implies that the other 96 percent is not.
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The argument that there is a trickle-down from the rich to the poor is meretricious and specious. No, the rich hang on to their riches
The argument that there is a trickle-down from the rich to the poor is meretricious and specious. No, the rich hang on to their riches. Forbes magazine reported last year that the mainland had 115 billionaires, second only to the United States. In the United States, the richest 1 percent of households had 34.6 percent of the country’s wealth in 2007. Where are Macau’s rich using their money for the city’s benefit? To say that we must pay bosses huge salaries in order to stimulate creativity, growth, entrepreneurship and new business, and to reward their leadership and finance-expanding powers, is simply hegemonic balderdash. Leonard Mlodinow’s “The Drunkard’s Walk” spells out clearly the role of chance and random fluctuation in a company’s fortunes, and the limited effect of chief executives. Indeed, we should expect a company’s fortunes to mostly vary regardless of what a chief executive does. This is a powerful rejoinder to bosses that demand more on a payment-bycompany-results basis or that think it is okay to receive gross salaries. Nor is it enough to advance the meritocratic argument that we all have equal opportunities to be rich, as financial capital, not just earnings, affects opportunity and outcome. If I earn less than MOP8,000 a month – as do some 30 percent of Macau’s working people – have no other financial capital, and I have a family to feed, clothe and house, I simply cannot afford much more for my child. People begin the meritocratic race from different starting positions and with starting blocks of differing quality from which to push forward.
Economic suicide Why is economic equality so important? Why is it so essential to put the fat cats on a slimming diet and give the rest of the workers a decent wage? It is not only a moral and ethical matter, or the politics of social democracy. It is straight economics. As both Mr Stiglitz and Mr Lansley suggest, if you want an economy to grow, then reduce economic inequality because it is the purchasing power of the consumer in the street that promotes economic growth and sustainability. If you starve the person in the street of purchasing power then you cut your own economic throat. This is not a new argument. Henry Ford advanced it in 1914 and the 19th century economist John Hobson wrote of the need to reduce “under-consumption” by giving everyone the power to “consume”. I would love to hear a real debate taking place here among the rich and powerful about how to promote economic equality, wealth creation and distribution for all, not just profits for fat cats. How about a fixed maximum ratio of the pay of bosses to the pay of those at the bottom? But what do we hear instead? Talk of bus fares, food and firework festivals, and where to build more shops. It speaks volumes. OCTOBER 2012
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ICBC Macau’s long-term goal is to be the city’s most profitable bank, says chief executive Shen Xiaoqi OCTOBER 2012
Economy & Finance
27
Fast-track growth Through organic expansion and acquisitions, ICBC Macau has become the city’s second-largest bank in less than 10 years BY YUCI TAI PHOTOS BY CARMO CORREIA
he mainland’s Industrial and Commercial Bank of China Ltd (ICBC) entered the market here less than a decade ago but is already the second-largest bank in the city. Chief executive Shen Xiaoqi says the long-term goal is for its Macauregistered arm, ICBC (Macau) Ltd, to be the city’s most profitable bank and to be the leading banking brand. ICBC Macau made a net profit of MOP890 million (US$111.3 million) last year, 39 percent more than the year before. Its adjusted average return on equity was 12.85 percent and its average return on assets was 1.09 percent. ICBC Macau is the city’s secondlargest bank, holding 14 percent of system-wide assets at the end of last year, behind only the Macau branch of Bank of China Ltd, according to Fitch Ratings Inc. Fitch expects ICBC Macau to continue to grow rapidly in the near future. ICBC Macau wants to be a leading partner in financing the development of the city’s infrastructure, including transport, energy, environmental protection and telecommunications infrastructure, says Mr Shen. In June, the bank and Air Macau Co Ltd signed an agreement on financial cooperation.
T
Dim sum delights ICBC Macau intends to be involved in more syndicated loans for gaming and entertainment facilities to be built here. Among others, it has backed loans for Galaxy Entertainment Group Ltd’s Galaxy Macau and for Ponte 16 casi-
no-resort, a joint venture between SJM Holdings Ltd and Success Universe Group Ltd. Mr Shen says his bank also wants to use its strengths in retail banking for the benefit of residents and tourists. He says ICBC Macau will expand its bank card clearing and international settlement services, banking on the growing spending power of visitors. Mr Shen notes the city’s economic boom means great potential for the bank’s wealth management business. He considers conventional retail financial products can no longer satisfy the investment needs of the newly rich. The bank has its eye on this market, and has developed new wealth management and other financial service products for it. ICBC Macau was the first institution here to issue “dim sum” bonds – debt denominated in renminbi and issued in the Hong Kong market. Its maiden issue of dim sum bonds, in 2011, drew an eager response from a market that correctly expected the renminbi to appreciate. Mr Shen says there is room for further development of renmnbi-denominated products. This is because they bear higher net interest than products denominated in patacas or Hong Kong dollars, which makes them attractive to Macau investors. ICBC Macau and Allianz Global Investors, the world’s second-largest asset management group, last year signed a deal to distribute Pimco funds in the city. Pimco is the world’s largest bond fund manager and an arm of Allianz Global Investors.
ICBC Macau also introduced last year a precious metals trading service. In just a month and a half the number of users reached 185, and approximately 338 kilograms of gold, silver and platinum had been traded, generating a turnover of more than US$475,000. The bank and the government have set up a partnership to provide mortgages for subsidised housing. Mr Shen says ICBC Macau had 70 percent of the market for mortgages for the 880 homes in a subsidised housing complex that went on sale late last year. However he adds that competition is fierce in Macau. The market is small and crowded, with 29 banks operating here. This, he says, means narrower capital gains and squeezed profits, hindering business development.
No branch the same Nonetheless Mr Shen stresses that competition is positive, pushing banks to come up with more attractive products for their customers. “In the future, we will continue to face competition proactively,” he says. Mr Shen explains that the way ICBC Macau manages its branches is an example of this approach. “Branches in different districts are developed based on customer distribution, each with a different marketing strategy.” This means branches in the heavily populated northern area of the peninsula concentrate on different things from those in the city centre, with all its businesses and tourists, or from those in the casino resorts in Cotai. “We have also OCTOBER 2012
28
ICBC Macau intends to open three more branches early next year, says Mr Shen
created multi-channel services, in order to shorten customers’ waiting time,” Mr Shen says. ICBC set up its first branch here in 2003. In the subsequent five years it achieved double-digit compound annual growth rates in assets, deposits, loans, non-interest income and net profit. It bought 79.9 percent of Seng Heng Bank in August 2007 from casino mogul Stanley Ho Hung Sun’s Sociedade de Turismo e Diversões de Macau SA and a minority shareholder, paying MOP4.68 billion.
Lifelong careers ICBC Macau was established as a Macau-registered bank in July 2009, with ICBC owning 89.33 percent. ICBC put all the assets of its Macau branch and a certain amount of cash into Seng Heng Bank and changed the name. Mr Shen says the merger greatly enhanced ICBC’s competitiveness in Macau. Right after the merger, ICBC Macau had assets of MOP48 billion and 110,000 customers. At the end of last August it had assets of MOP115 billion and 190,000 OCTOBER 2012
customers, according to Mr Shen. ICBC Macau has 16 branches and three subsidiaries. It has more than 170 ATM machines. It intends to open three more branches early next year. The bank’s fast expansion is putting stress on its staff. Mr Shen says the supply of labour cannot meet demand, making it hard to ensure the bank has all the employees it needs. He says its human resources strategy includes attracting recent graduates to its ranks, by offering them the prospect of lifelong careers. The aim is to combine their expectations of individual development with the bank’s growth strategy. Mr Shen says ICBC has either reached or gone beyond its goals in its first decade in Macau. The bank also regards the city as a base for expansion globally. ICBC Macau has already provided financing services to development projects in Africa. The bank and three other big mainland banks joined forces in 2009 to extend a US$1 billion five-year term funding facility to South Africa’s Standard Bank.
Mr Shen says his bank will consider expanding its business in Europe by making its representative office in Lisbon an overseas branch. He says the goal would be to make the Lisbon branch into a place for the financing and settlement in renminbi of trade between the mainland and Portuguese-speaking countries. ICBC Macau aims to become the city’s first bank with an office on Hengqin Island, according to officials of the Administrative Committee of Hengqin New Area. They said in July that the bank had applied to open an office there. In developing a market in the mainland, ICBC Macau is supported by its major shareholder, ICBC, the world’s largest bank by market value. At the end of last year, ICBC Macau’s exposure on the mainland, about 15 percent of its assets, was mainly in the form of corporate loans guaranteed by ICBC and corporate bonds issued by Chinese stated-owned enterprises, according to Fitch. ICBC holds MOP2 billion worth of subordinated notes issued by ICBC Macau and has considerable interbank placements in the bank.
Statistical Digest Year-on-year change (%)
2011 GDP at current prices
MOP 292.1 billion
GDP in chained prices
MOP 273.1 billion
GDP per capita at current prices
MOP 531,723
GDP per capita in chained prices
MOP 497,219
Employment Oct - Dec 2011
29.1 20.7 26.2 18.0
2.1%
Median monthly employment earnings
MOP 10,000
Employed population
339,800 72.9%
11.1 5.5 percentage 1.5 points
Unemployment rate
Labour force participation Non-resident workers (end-balance)
94,028
2011-end Domestic loans to private sector
MOP 161.9 billion
Resident deposits
MOP 291.6 billion
Foreign exchange reserves*
MOP 272.4 billion
Inflation rate (full year)
---
5.8%
External merchandise trade 2011
Apr-Jun 2012
343,600 72.3%
13.4 4.1 percentage -0.7 points
107,401
21.0
Year-on-year change (%)
27.7 22.7 43.2 percentage 2.5 points Year-on-year change (%)
MOP 62.3 billion - MOP 55.3 billion
2011
Year-on-year change (%)
- Direct tax revenue from gaming
MOP 99.7 billion
Total expenditure
MOP 49.0 billion
Balance
MOP 63.7 billion
Utility consumption 2011 Water Electricity Gasoline Liquefied Petroleum Gas Natural Gas
Notes
MOP 11,000
Imports
MOP 112.7 billion
--
Jun-Aug 2012
0.2 41.2 --
Total revenue
--
2.0%
MOP 7.0 billion
Public accounts
Q2 2012
-0.7 percentage points
Exports Trade balance
Q2 2012
Year-on-year change (%)
Latest
24.0
Money and prices
Notes
16.0 7.3 ---
MOP 81.9 billion MOP 72.0 billion
Year-on-year change (%)
-0.6 percentage points
Year-on-year change (%)
Latest
41.5 44.9 29.7 -Year-on-year change (%)
70.5 million m3 5.1 3,857 million kWh 5.5 81.7 million L 9.3 42,908 tons 5.3 73.6 million m3 -52.4
Latest
Jun-Aug 2012 Jun-Aug 2012 Aug 2012
Year-on-year change (%)
Notes
6.3%
16.4 20.7 -percentage 0.2 points
Latest
Year-on-year change (%)
MOP 178.5 billion MOP 323.7 billion MOP 132.9 billion
MOP 5.4 billion MOP 46.5 billion - MOP 41.1 billion
Latest
19.4 19.6 -Year-on-year change (%)
MOP 52.2 billion
16.7 17.7 36.5 --
Latest
Year-on-year change (%)
MOP 81.9 billion MOP 74.6 billion MOP 29.7 billion
48.5 million m3 6.4 2,386 million kWh 11.1 50.1 million L 8.1 25,905 tons -1.1 -- million m3 -100
Jul 2012 Jul 2012 Jul 2012 Aug 2012
Notes Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012
Notes Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012
Notes Jan-Aug 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012
Transport and communications 2011-end Licensed vehicles - Automobiles - Motorcycles Mobile telephone users Internet services subscribers
206,349 95,151 111,198 1,353,194 209,223
Year-on-year change (%)
4.9 5.5 4.5 20.6 22.7
Latest
212,767 99,235 113,532 1,511,969 222,190
Year-on-year change (%)
5.0 6.3 3.9 17.7 9.6
* A new fiscal reserve system was introduced in January 2012, impacting the way foreign exchange reserves are accounted for OCTOBER 2012
Notes Aug 2012 Aug 2012 Aug 2012 Aug 2012 Aug 2012
Source: Statistics and Census Service and Financial Services Bureau
Economic output
29
30
Economic Trends by José I. Duarte Measuring inflation
GRAPH 1 - Consumer price index
Every month, in tandem with the Statistics and Census Service publishing the latest inflation data, there are expressions of concern and demands for the government to do something.
125
GRAPH 1
BASE 100= 4/2008-3/2009
115
105
95
85
75 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012
The consumer price index (CPI) shows a steady upward trend since early 2010. This trend shows prices making up ground lost during the global financial crisis of 2008 and 2009, when prices increased more slowly or even decreased. Since early 2010, prices have regained upward momentum and are now approaching the growth rates seen before the global financial crisis. This is a worry, especially if the trend is sustained. Still, it is not as catastrophic as some argue. Real incomes are still rising and the people for whom inflation is a big problem can easily be helped by appropriate social policies. GRAPH 2
GRAPH 2 - Consumer price index and food and non-alcoholic beverages sub-index, year-on-year variation Consumer price index
Food and non-alcoholic beverages sub-index
25 20 15 %
10 5
GRAPH 3
0 -5 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012
GRAPH 3 - Housing prices, CPI housing and fuels sub-index and average price per square metre of residential space MOP per square metre of residential space
CPI housing and fuels sub-index
225
200 BASE 100 = 2010 Q1
One of the concerns about inflation is that two of its main drivers have been the price of food and housing. The CPI food and non-alcoholic beverages sub-index has shown the fastest increases. For most of the period represented in Graph 2, the sub-index rose faster than the overall inflation rate. Sometimes it rose twice as fast. The upward trend in the food and non-alcoholic beverages sub-index has shown great persistence, even when the economy overall has been cooling. Demand pressure and rigid market structures seem to make it elastic on the upswing but somewhat inelastic on the downswing.
175
150
125
100 2010 Q1
2010 Q2
2010 Q3
OCTOBER 2012
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
The CPI housing sub-index raises other questions. It not only measures housing and fuel costs together – a questionable arrangement – but also fails to show any connection with related indicators. Graph 3 plots the CPI housing sub-index and the average price per square metre of residential space. The graph suggests that the CPI may gravely underestimate housing costs.
31
Educating workers
GRAPH 4 - Growth index for students enrolled Tertiary education
Secondary education
Vocational or technical education
300
BASE 100 = 2000/2001
250
GRAPH 4
200
150
100
50 2000/ 2001
2001/ 2002
2002/ 2003
2003/ 2004
2004/ 2005
2005/ 2006
2006/ 2007
2007/ 2008
2008/ 2009
2009/ 2010
2010/ 2011
GRAPH 5 - Dropout rate Tertiary education
Secondary education
Vocational or technical education
12 10 8 %
The debate about labour needs focuses all too often on the insufficient supply in many trades. The relationship between those needs and the education system are analysed infrequently, although the relationship is important, since the city has strict rules favouring the employment of residents in a wide range of jobs. Enrolment figures show that higher education is in full swing, the number of students enrolled having almost tripled over the past decade. However, the enrolment figures for secondary and vocational education indicate that school rolls are steady or declining. This hints that the growth in higher education is not due to the enrolment of residents. The higher education figures seem to reflect mainly an increasing number of non-resident students at the city’s universities, most from the mainland, who are barred from joining the workforce here directly. Higher education is booming, but it is not in a position to fill the gaps in the labour market in the foreseeable future. GRAPH 5
Dropouts muddy the waters. But the dropout figures do not seem too relevant, as they have been diminishing. Dropout rates from secondary education are relatively small – about 2.5 percent. Dropout rates from tertiary education and, especially, vocational training have also fallen noticeably. GRAPH 6
Another positive development since the handover has been the reduction in the number of students per teacher in secondary and vocational education. Of course, this may be just the result of diminishing student numbers. And a high teacher-student ratio alone does not guarantee improved learning, although it increases the chances of improvement.
6 4 2 0 2000/ 2001
2001/ 2002
2002/ 2003
2003/ 2004
2004/ 2005
2005/ 2006
2006/ 2007
2007/ 2008
2008/ 2009
2009/ 2010
2010/ 2011
GRAPH 6 - Number of students per teacher Tertiary education
Secondary education
Vocational or technical education
NUMBER OF STUDENTS PER TEACHER
25
20
15
10
5
0 2000/ 2001
2001/ 2002
2002/ 2003
2003/ 2004
2004/ 2005
2005/ 2006
2006/ 2007
2007/ 2008
2008/ 2009
2009/ 2010
2010/ 2011
OCTOBER 2012
32
Politics
Sleeping watchdog The new legislative year gets underway, amid growing disappointment with the performance of the Legislative Assembly BY ALEXANDRA LAGES ILLUSTRATION BY RUI RASQUINHO
OCTOBER 2012
embers of the Legislative Assembly return to work this month after the summer recess. For members with their eye on re-election next year, the new legislative year is essential for finding momentum for their campaigns. As the next elections near – the date has yet to be announced – political analysts expect the legislature to become increasingly vocal and critical. But for some members, that may be too little, too late, commentators say. A few directly elected members have already announced they will seek re-election. One is firsttermer Melinda Chan Mei Yi. Another is Angela Leong On Kei, the executive director of SJM Holdings Ltd. Ms Leong was first elected in 2005 and then re-elected in 2009, both times through direct election. Veteran directly elected member Kwan Tsui Hang is playing her cards close to her chest. Ms Kwan, supported by the Federation of Trade Unions, headed the ticket that received the most votes in 2009. She told Macau Business she was considering whether or not to run again in the light of “recent changes in the political environment” and “ill-intended attacks” on her – allegations that she called for the cancellation of the government’s popular cash handout scheme. Businessman Ung Choi Kun is definitely on his way out. Mr Ung, first directly elected in 2005, has announced that he will not run for a third term. The assembly’s president, indirectly elected member Lau Cheok Va, said last month it was too early to talk about next year’s elections. Mr Lau is
M
33
one of the representatives of the labour constituency. He belongs to the Federation of Trade Unions, which has four members in the assembly, two of them indirectly elected.
Court eunuchs Pundits say re-election will be a struggle for some members. Eilo Yu Wing Yat, a political analyst and specialist in public administration at the University of Macau, says some members have tried to put more pressure on the government in the past three years in an attempt to make officials more accountable. Others were “quite protective of the government”, he says. “In terms of a checks-and-balances mechanism, I don’t think the legislature has truly been able to enforce its authority to supervise the government,” Mr Yu says. “Legislators like to question the government but when it comes to using their power and authority, it seems the legislature is reluctant to do so.” He points to a suggestion that the number of members required to endorse a proposal for a public hearing by the assembly be increased. At present two endorsers are required before the assembly will vote on a proposal for a hearing. The suggestion is that this number be increased to five. For a hearing to go ahead, half the assembly must vote in favour. One assembly member, outspoken Au Kam San, called the suggestion “self-castration”. Supporters of the change say it would avert hearings on trivial issues.
OCTOBER 2012
34
Politics
Since the handover, all proposals for hearings have been made by the prodemocracy camp and all have been rejected. The proposals were for hearings on topics such as the light rail transit system, overspending on the 2005 East Asian Games and the land for the troubled La Scala housing project. Mr Yu says that shortly after Labour Day in 2007, assembly members became more vocal. More than 10,000 people attended a rally that day, according to the organisers, to protest against corruption and imported labour, and ended up fighting with the police. Since then, Mr Yu says most legislators seem to have run out of steam, becoming more submissive. Former assembly president Susana Chou recently criticised the legislature’s supervision of government spending in an entry on her blog. But Ms Chou, who stepped down in 2009, concedes that the law does not allow for effective supervision of the use of public money. A survey of public opinion by the Association of Macau New Vision last month found about 15 percent of 837 respondents were satisfied with the performance of the assembly last legislative year. Close to 60 percent believed its performance was mediocre. Another conclusion was that most directly elected members had performed worse last year than the year before, based on respondents’ answers.
Objects of ridicule Survey results suggested that two assembly members, Ng Kuok Cheong and Mr Au from the pro-democracy New Macau Association, were considered the best performers. Respondents gave Mr Ng a score of 68.3 points out of 100 and Mr Au a score of 66.7 points. Ms Leong was ranked as the worst directly elected
BILLS PASSED BY THE LEGISLATIVE ASSEMBLY
“I don’t think the legislature has truly been able to enforce its authority to supervise the government,” says political analyst Eilo Yu Wing Yat Larry So Man Yum, a scholar at the Macau Polytechnic Institute, says last year’s performance by the assembly was “only satisfactory” Political commentator Camões Tam Chi Keung says appointed members are “voting machines for the government”. He is even more critical of the indirectly elected members member, with an average performance rating of 52.09 points. Larry So Man Yum, a political analyst at the Macau Polytechnic Institute, says last year’s performance by the assembly was “only satisfactory”. Mr So is deeply critical of the government-appointed members. “They had a poor performance,” he says. “I don’t see them speaking up in the Legislative Assembly, even though they speak through other channels. Those who do speak only reflect the
government line.” Political commentator Camões Tam Chi Keung does not mince words. Mr Tam, an assistant professor of the humanities and arts at the Macau University of Science and Technology, says appointed members are “voting machines for the government”. He is even more critical of the indirectly elected members. “We cannot say they haven’t done anything but we know they only protect the interests of their functional groups.
30 25 20 15 10 5 0
OCTOBER 2012
1999/ 2000
2000/ 2001
2001/ 2002
2002/ 2003
2003/ 2004
2004/ 2005
2005/ 2006
2006/ 2007
2007/ 2008
2008/ 2009
2009/ 2010
2010/ 2011
2011/ 2012
35 Most Macau people think their performances are ridiculous.” Mr Tam says the indirectly elected seats should be scrapped. Indirectly elected members missed the most plenary meetings in the past legislative year and made the fewest written enquiries to the government. Vitor Cheung Lup Kwan, who has one of the two seats for the social services, sport, education and culture constituency, attended just 32 of the 45 plenary meetings last year. Ho Iat Seng, the vice-president of the assembly and an indirectly elected representative of the business constituency, attended 38.
Empty vessels The assembly passed 16 bills in the 2011-12 legislative year. The session was extended for two weeks to give the assembly time to pass four of these bills. The government withdrew a bill to create a unified tax code before the legislature could debate it. The assembly is due to resume work on eight bills in the new legislative year. These include bills on rejuvenating old districts, estate agents, sales of unfinished homes and protection of cultural heritage. Prepare for more noise to come out of the assembly in the new session. “Those that will run again will try to put in more effort. Especially, they’ll talk more about livelihood issues,” Mr So says. In next year’s elections the number of directly elected seats available will rise from 12 to 14, and the number of indirectly elected seats from 10 to 12. To fill the indirectly elected seats, the business constituency will elect four members, the labour constituency two, the professional constituency three, the new
FAULTY BILLS ‘GOVERNMENT’S FAULT’ T
he president of the Legislative Assembly, Lau Cheok Va, says the government is to blame for several of the legislature’s shortcomings. In a meeting with reporters last month, Mr Lau complained about the “slow response” and “stubborn attitude” of officials in dealing with questions raised in the assembly about the bills up for debate. Bills submitted by the government lacked quality, making the legislature’s work much harder, he said. Another problem Mr Lau highlighted was the rate at which the government introduces new bills. He said there was no coordination between the executive and the legislature and that the government often delayed the submission of the original or amended versions of its bills. Mr Lau urged the government to first prepare the most complex bills it means to introduce in the new legislative year, which begins this month. These are the bills on land grants and urban planning. The new session will be the present assembly’s last, so any bill still not passed by next August will have to be submitted to the new assembly after next year’s elections and begin the whole legislative process from scratch. Mr Lau says a lack of communication between the executive and the legislature is an old problem. According to him, the government should be required to provide members with more background information on each bill, to prevent delays. Mr Lau is mulling changes in the rules of the procedures of the legislature designed to speed things up. He hopes the assembly can approve the changes in the new session. Secretary for Administration and Justice Florinda Chan said last month the government would improve cooperation with the Legislative Assembly to boost the quality of legislation. She said some delays by the government in submitting amended versions of its bills were caused by the need to properly consider the changes suggested by assembly members. Directly elected member Kwan Tsui Hang, a trade unionist, agrees that there is room for improvement in collaboration between the government and the assembly. Government-appointed member Gabriel Tong Io Cheng, a law scholar, says several bills have lacked quality. But Mr Tong says that while there are problems in communication between the executive and the legislature, members of the assembly always have a chance to talk to the government. A.L.
Lau Cheok Va complains about the “slow response” and “stubborn attitude” of officials
OCTOBER 2012
36
Politics
social services and education constituency one and the new sport and culture constituency two. The assembly will still have seven government-appointed members. Despite these changes, analysts expect no big shifts in the legislature. “Most seats will be occupied by pro-government forces. For the New Macau Association, I can say that hopefully they can retain three seats, but I’m not sure if they will get extra seats,” Mr Yu says.
Rising stars In the election in 2009, the New Macau Association ran two tickets to circumvent the difficulty of getting more than two candidates on a ticket elected, due to the way directly elected seats are filled. It eventually had two members elected from one ticket and a third from the other. Directly elected member Lee Chong Cheng, who belongs to the Federation of Trade Unions, may vacate his seat next year. Mr Lee has been involved in a public debate over government grants to his General Volunteers Association and its Macau Civility Development and Research Centre in the Macau Daily News building. Observers say the controversy has tarnished his image. “He has dropped off the scene and kept a low profile. That’s poor public relations. In a crisis situation, you always show up and try to be honest,” Mr So says. Mr Tam says he is sure the Federation of Trade Unions will replace Mr Lee. He says Mr Lee has never been very popular, even among the federation’s rank and file. Mr Yu says that after the 2009 elections the federation began bringing in new faces. Rising stars Lam U Tou and Ella Lei Cheng I have a “quite strong and convincing” talent for public speaking and may run for seats, he says. Mr So says next year’s election is likely to bring newcomers into the political arena. Members of the Macau Youth Federation and the All-China Youth Federation are lobbying young people to join their camps, he says. Mr So says that young white-collar employees, who in 2009 ran a losing ticket headed by academic Agnes Lam Iok Fong, may have another go again. And expect more tickets of candidates backed by gaming interests. OCTOBER 2012
A few directly elected members have already announced they will seek re-election. One is first-termer Melinda Chan Mei Yi
SJM Holdings Ltd executive director Angela Leong On Kei announced last month she would run again in next year’s legislative election Veteran directly elected member Kwan Tsui Hang is considering whether or not to run again in the light of “recent changes in the political environment” Businessman Ung Choi Kun is definitely on his way out. Mr Ung, first directly elected in 2005, has announced that he will not run for a third term
37 BILL KWOK-PING CHOU ASSOCIATE PROFESSOR OF POLITICAL SCIENCE, UNIVERSITY OF MACAU
Accounting for public money MANY QUESTIONS ABOUT LEE CHONG CHENG’S NEW RESEARCH CENTRE REMAIN UNANSWERED couple of weeks ago, the Macau Civility Development and Research Centre invited the news media on a tour of its new offices, the refurbishment of which cost MOP6 million (US$750,000). The centre has impressive amenities: a fitness area, a multimedia room and a teaching kitchen, among other things. To set up these offices, the centre and its parent, the General Volunteers Association of Macau, applied for millions of patacas in grant money from the Macao Foundation, in the name of conducting research. But now it seems the money was lavished on what looks like a deluxe private club, which does not appear to have anything to do with research. This is an extravagant waste of public money. In making the grant, the Macao Foundation does not appear to have considered what the centre was going to spend it on. This goes to show how lax the foundation is when it comes to supervising its grants. The leadership of the Macau Civility Development and Research Centre have tried to justify the spending, but doubts remain. First, the centre spent MOP6 million on refurbishing its offices. The Macao Foundation granted it MOP5 million, but the origin of the other MOP1 million is not publicly known. When questioned by reporters, the General Volunteers Association’s directors would not say where it came from.
A
for the job and then paying them from the public purse? That is not all. The Macau Civility Development and Research Centre’s offices are in the Macau Daily News building. The centre says it pays the newspaper no rent. Subletting the premises would be against the conditions of the Macau Daily News’ lease of the land that its building occupies. So the centre says the newspaper is just “lending” it space and receives only a “service fee” to help pay the bills for utilities and cleaning. Lands, Public Works and Transport Bureau director Jaime Carion says the Macau Daily News can reserve a “small amount of building area” for use by others, provided that it charges no rent. How does Mr Carion define small? Does an area of more than 1,100 square metres, like that reportedly occupied by the centre’s offices, count as small? Where is the clause in the Macau Daily News’ lease of the land that allows use by others of a “small area” free of charge? Who decides who can use this area, and how? The bottom line is that Mr Lee’s centre gets premium office space for less than MOP3 a square foot. Is there collusion between the Macau Civility Development and Research Centre and the Macau Daily News? Can other bodies “borrow” space in the building for the same favourable “service fee”? According to news reports, so far only the private Kiang Wu Nursing College, run by pro-government interest groups, has been granted a similar arrangement.
Upright public figure Did this money also come from the public purse? Since all associations receiving government grants must disclose their sources of finance, why did the Macao Foundation fail to get the centre to disclose publicly all relevant information? Another question is about how the contractor and suppliers for the multi-million-pataca refurbishment were selected. In the field of public administration such a large contract would require a public tender. Those in charge of the Macau Civility Development and Research Centre say they did price checks among contractors and suppliers, but their answer hints that this was done only informally. Associations are not obliged to select contractors or suppliers through public tenders. But Lee Chong Cheng, who heads the General Volunteers Association, is also a member of the Legislative Assembly. This means that one of his duties is to monitor the government and ensure the proper use of public money. In view of his public position, Mr Lee, upon receiving any public funding for bodies he oversees, should adopt the most effective and money-saving method of awarding contracts: public tenders. One news report said a similar refurbishment job should cost less than MOP3 million. Can Mr Lee explain why the refurbishment of the centre cost double that? The issue gets even trickier, as one of the vice-presidents of the General Volunteers Association said the redecoration had been done “by themselves”. Does this mean there was a conflict of interest, with the association getting its own people
Paid to talk Meanwhile, Mr Lee admitted that one of the centre’s first research projects entailed giving interviewees MOP50 supermarket coupons. He did not say which supermarket chain benefited. Why not? Was any tendering procedure followed? Is there any vested interest involved? Was the Macao Foundation aware of this? If so, why did it allow the centre to give interviewees money the government had given it? The centre began operating in August last year, but managed to spend MOP1.5 million during the remainder of that year. Why was its spending so high? Did the centre conduct any research? If so, where are its research reports? And what was the contribution of its research to civic development? How could the Macao Foundation grant the centre and the General Volunteers Association more than MOP5 million for this year, without having first seen their annual reports for last year? Finally, it is unclear how the centre’s proposed areas of research relate to civic development. Previous academic research shows that a big part of civic development is building up the ability of people to consider and debate matters of public concern and then act on their conclusions, with a view to increasing public participation in policymaking. Instead, the centre aims to cover matters such as the health and physical condition of young people, the effect of the Light Rail Transit elevated railway on commuting, and addiction to gambling. What do these matters have to do with civic development? OCTOBER 2012
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Politics Analysts say the system prevents the democratic bloc from translating strong public backing for full democracy into legislative power, even at a time of growing anti-Beijing sentiment. The lead-up to the election was marked by mass protests against a government plan to introduce mandatory national patriotism classes into schools, which forced Chief Executive Leung Chun-ying to abandon the policy hours before the city went to the polls. AntiBeijing resentment is also festering over widening inequality, sky-high property prices fuelled by wealthy mainlanders, corruption and the strains on public services from millions of mainland tourists.
A bitter victory The 2012 Legislative Council election recorded a high turnout rate of 53 percent
Yes, we can Hong Kong vote signals thirst for democracy, analysts say BY STEPHEN COATES*
ong Kong’s legislative election, which took place last month, sent a clear message to Beijing that the former British colony’s thirst for genuine democracy has not diminished after 15 years of mainland rule, analysts say. Poorly funded and riddled with divisions, the democratic camp still managed to win almost 60 percent of the popular vote and hold on to their “critical minority” of a third of the seats in the 70-seat Legislative Council. The pro-Beijing parties secured a huge majority of 43 seats with only 40 percent of the popular vote, thanks to a complicated electoral system that is heavily weighted in favour of reactionary business groups and vested interests. “Beijing must be alarmed,” Hong Kong Institute of Education Professor Sonny Lo says. “If Hong Kong were to democratise into one big constituency in which citizens were able to cast their votes, democrats would gain the majority.” That is a dream that few in Hong Kong believe is going to happen any
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time soon, even though Beijing has promised “universal suffrage” for the next leadership election in 2017 and the legislative vote in 2020. Under the current system installed following the 1997 handover from Britain, just over half the seats in the neighbouring region’s legislature are elected by popular vote. The remainder are reserved for relatively small constituencies grouped along economic lines and packed with conservative business leaders and Beijing loyalists.
Poorly funded and riddled with divisions, the democratic camp managed to hold on to their “critical minority” of a third of the seats in the 70-seat Legislative Council
Democratic party leaders admit they could have done better at last month’s polls if they had overcome two-year-old differences over how to push for a fairer system. Instead, the democratic bloc is deeply divided between the mainstream parties who strive for democracy within the slow, consensus-driven approach promoted by Beijing, and radicals who want full democracy now without conditions. The leader of the Democratic Party, Albert Ho, resigned and apologised after the party lost two seats in the assembly. He said Hong Kong people had become “increasingly impatient” with the proBeijing government. “I think a lot of voters have decided to choose some people who... play a much more aggressive role in the Legislative Council,” he said. Radical lawmaker Leung Kwokhung, known as “Long Hair” for his flowing black ponytail, said the Democratic Party was punished because “they don’t dare to stand up and fight for the people”. Chinese University Associate Professor Ma Ngok said that given such internal turmoil, the democratic camp was “lucky” to win as many seats as it did. “I don’t think they can celebrate.” Even so, the one-third minority is “critical” because it gives the democrats veto power over constitutional amendments required for the introduction of universal suffrage. Pro-democracy activists believe Beijing is not sincere about giving Hong Kong a genuine system of one-man-one-vote, and will seek to screen the candidates to fix the rules in some way to ensure its interests are protected. * AFP NEWS AGENCY
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40 SHAW SIN-MING FORMER VISITING FELLOW AT OXFORD UNIVERSITY
The re-education of Hong Kong HONG KONG’S YOUNGER GENERATION IS LOSING CONFIDENCE IN DEMOCRACY fter less than 100 days in office, Leung Chun-ying, Hong Kong’s new chief executive, is already in political intensive care. In record time, he has managed to lose his veneer of competence, credibility and steely leadership. One of his cabinet appointees was arrested for corruption within two weeks of Mr Leung’s assumption of his official duties. Another was found to have been a slumlord who owned illegal cage-like flats that he blamed entirely on his wife, denying any involvement whatsoever. Mr Leung himself was caught with several illegal structures in his house, a violation that he exploited successfully against his rival, Henry Tang, in the election campaign. Mr Leung has also distinguished himself by inciting a large swathe of school teachers and students to stage massive street protests against his hasty effort to insert a “national education” programme into the school curriculum in order to “reconnect” Hong Kong’s young people with the motherland. For tens of thousands of student protesters, many with their parents in tow, the potential death of an honest education was too much to bear. The goal of the programme, inherited from the previous administration, is a good one: expand knowledge among the young about modern China. But, as Mr Tang correctly pointed out in response to a question about the protests, the “devil is in the details.” What triggered the uproar was the appearance of a “model” textbook, financed by the government and published by a proBeijing think tank. The textbook contains mostly propaganda, including assertions that the mainland’s one-party system is wonderful, whereas multiparty democracy as practiced in the United States has created harmful social turbulence. It offers no discussion of the lethal policies since 1949 that led to the persecution and starvation of tens of millions of Chinese. Nor does it mention the fratricidal political movements from the Great Leap Forward to the Cultural Revolution. The programme was clearly meant to indoctrinate, not educate.
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Fear of dissent Massive protests forced Mr Leung to withdraw a deadline to implement the new curriculum. He has also given the schools flexibility concerning when and perhaps how to introduce it. Since nearly all schools are dependent on government subsidies, the grant of flexibility is widely perceived to be a tactical delay. With the job security of schoolmasters at risk, most are sure to implement the programme. The protesters, led by a 15-year-old student, now a folk hero, have retreated, but that, too, is a tactical decision. The students have promised to continue to fight the programme until it is scrapped. But why does the central government seek to impose the curriculum in the first place? After all, Hong Kong has one of the world’s most educated populations: the city has, in per capita terms, perhaps more graduates of the world’s top 20 universities than anywhere outside of Manhattan. Nevertheless, after more than 60 years in power, the OCTOBER 2012
Chinese Communist Party continues to retain a deep sense of insecurity. The Internet may be ubiquitous in modern China, but YouTube and Facebook, so accepted as a part of normal life around the world, are still banned in the mainland, and the Ministry of Public Security has built a vast Internet monitoring system to filter and censor whatever China’s leaders believe they must fear. While dissent is the lifeblood of any open society, for Beijing it is a dangerous poison. Moreover, Beijing fears that Hong Kong, with a population of less than eight million, might present a systemic problem as an alternative form of government, even though many Communist Party members and their allies hold key positions in Hong Kong’s private and public sectors.
National interest Instead of accepting that “love” cannot be enforced and must be won, Hong Kong’s over-zealous “patriots” cannot wait to show their loyalty by trying to mandate primitive propaganda. Few in Hong Kong are buying the political elite’s mantra that the national education programme is the “right” thing to do. They know that practically all of the ruling elite’s children attend expensive schools in the United States and the United Kingdom, where they would be shielded from the mindless drivel at home. Mr Leung’s son, for example, is reportedly a student at Winchester College, one of the U.K.’s most exclusive boarding schools. And most, if not all, of the children of the ruling elite in Beijing are in a similar position. The daughter of Xi Jinping, the presumptive future leader, is attending Harvard under an assumed name. Disgraced ex-Politburo member Bo Xilai’s hard-partying son, Bo Quaqua, attended Harrow, Winston Churchill’s alma mater, then Oxford and Harvard. Their parents clearly know that “national education” is not needed for a good education. Unfortunately, Hong Kong’s younger generation is losing confidence in democracy. Popular elections do not translate into representation in a system designed by Beijing to ensure that its allies win a majority every time. As a result, more and more young people are turning to street demonstrations to make their voices heard. And, while no one in Hong Kong wants independence from China, continued strong-arm tactics to force Hong Kong to “love” China could begin to inspire such sentiments. Mr Leung’s tone-deafness to popular feeling revives one of the main issues that he managed to dodge during the election campaign. At the time, he denied vehemently that he was a member of the Chinese Communist Party. He claimed that he had only Hong Kong’s interest in mind within the limits of China’s “one country, two systems” formula. So far, however, he seems inclined to make one of those systems resemble the other. But China’s national interest is to ensure that Hong Kong remains a first-rate city, modern and open. Pulling Hong Kong down, in the name of patriotism, can only impede the advance to modernity that all of China needs to become truly great.
SPECIAL
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ANNIVERSARY OF THE ESTABLISHMENT OF THE PEOPLE’S REPUBLIC OF CHINA
CHANGING CHINA
COUNTRY GEARS UP FOR LEADERSHIP TRANSITION TRYING TO BOLSTER THE CHINESE ECONOMY MACAU DRAWS CLOSER TO THE MAINLAND OCTOBER 2012
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LEADING THE FUTURE CHINA STARTS ITS ONCE-IN-A-DECADE POWER TRANSITION he People’s Republic of China celebrates its 63rd anniversary this month, while at the same time ushering in a new leadership. This month’s highly-anticipated Chinese Communist Party Congress will confirm a new generation of leaders. The party congress – which is held every five years – will see the unveiling of the country’s top leadership line-up for the next decade.
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President Hu Jintao is expected to step down as head of the ruling party at the congress, amid an infusion of new blood in the party’s top decision-making body, the politburo standing committee. It is believed he will make way for his expected successor, Vice President Xi Jinping, who is likely to serve two fiveyear terms. Mr Hu will remain the country’s president until next March, when Mr Xi
will eventually take the helm during the annual session of the National People’s Congress. The congress is the country’s top legislature. Concurrently, Wen Jiabao’s job as prime minister is likely to go to Li Keqiang, his senior deputy. Last month, an unexplained disappearance for almost two weeks by Mr Xi led to swirling speculation about the whereabouts of Beijing’s leader-in-waiting. His public absence and cancellation of meetings with four foreign dignitaries including U.S. Secretary of State Hillary Clinton, gave rise to intense speculation about his health. His reported ailments ranged from a heart attack to a back ache. Mr Xi eventually reappeared publicly, dismissing concerns about the man groomed as the country’s next President. Analysts say the new Chinese leaders will likely take modest steps in boosting China’s economic growth as the country has been moving toward rebalancing its economy. “In short, we think the leadership transition will turn out to be modestly positive for growth,” Huang Yiping, an analyst at Barclays, said in a report.
Japan tensions
Wen Jiabao, Xi Jinping and Hu Jintao
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In a speech last month, Mr Wen highlighted the achievements of his cabinet in expanding economic growth but said more needed to be done. “We have followed the overall guideline of making progress while ensuring stability, strengthened and improved macro regulations and given greater priority to stabilising growth,” he said. But, he added: “While recognising achievements, we must always keep a cool head. Our country is still at the primary stage of socialism and the productivity is not high.” More than China’s leadership change, what has been making the headlines in the region is the on-going territorial dispute between Beijing and Tokyo over a group of remote islands in the East China Sea. Tensions have risen dramatically in recent months over the archipelago, referred to as the Diaoyus by China and as the Senkakus by Japan. China is locked in a similar row with Vietnam and the Philippines in the South China Sea. The recent debut of China’s first aircraft carrier has just added to the tension. The aircraft carrier marks a
43 symbolic milestone for the growing military power, but analysts say the secondhand vessel remains far from a strategic game-changer. China’s military and political leadership have portrayed the 300-metre “Liaoning” as a quantum leap forward in naval capability at a time when the United States says it is making a strategic “pivot” toward Asia. Yang Yi, a rear admiral in China’s navy, said in a commentary in state-run media that the hulking vessel moves the country closer to fulfilling a national destiny to “not only be a land power but also a sea power”. Meanwhile, the country is trying to emphasise domestic consumption and allow for a broader distribution of wealth, thereby lessening China’s dependence on exports, battered by difficulties in its major markets. Beijing also wants to rearrange investment, consumption and exports to extend development to the mainland’s rural areas, where increasing purchasing power would help to build the country’s domestic market.
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he fallout of former top official Bo Xilai is still leaving its mark on China’s political scene. Once a rising political star famous for busting gangs and reviving Maoist ideals, Mr Bo suffered a dramatic fall from grace that last month saw authorities announcing he would “face justice” on a range of charges including abuse of power and corruption. The charismatic 63-year-old had been tipped for promotion to China’s top decision-making body before a key aide fled to a U.S. consulate in February with the explosive claim that Mr Bo’s wife had murdered a British businessman. That set off a cascade of events that led to a murder conviction for his wife Gu Kailai and the jailing of his aide Wang Lijun for attempting to cover up the crime. Bo, a former commerce minister, was known for his suave and open demeanour. His revival of “red” culture in the south-western municipality of
Bo Xilai
Chongqing – including sending officials to work in the countryside and pushing workers to sing revolutionary songs – drew both accolades and concern. He also set about fighting graft when he came to power in Chongqing, in a crackdown that saw scores of officials detained and executed, their lurid secret lives exposed.
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WORRYING FIGURES
THE CHINESE ECONOMY HAS BEEN HIT HARD BY PROBLEMS IN ITS MAJOR EXPORT MARKETS his has been a challenging year so far for China’s economy. While the country is still growing above 7 percent, the speed of expansion is slowing down. Officials are struggling to find ways to put growth back on the forecast track. China, which long enjoyed annual growth rates of more than 10 percent, has been hit hard by problems in major export markets, as Europe grapples with its prolonged debt crisis and the United States with stubbornly high unemployment. China’s economic growth slowed to 7.6 percent in the three months through to June, the poorest result in three years since the height of the global financial crisis. Various statistics for the third quarter have been broadly disappointing, fostering expectations that economic growth may have slowed further during the period. Gross domestic product figures for
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the three months through to September are scheduled to be released this month. Chinese authorities have expressed confidence they will achieve their 2012 growth target of 7.5 percent, though that would mark a sharp slowdown from the 9.3 percent reached last year and 2010’s 10.4 percent. Officials have taken steps this year to bolster the economy with two interest rate cuts in quick succession, and by easing restrictions on how much money banks must keep on hand in an effort to boost lending and growth. So far the measures have had little impact. Analysts have been divided
China’s economic growth slowed to 7.6 percent in the second quarter of 2012
over prospects for more stimuli given fears that too much could prove harmful in the long term. Political uncertainty ahead of a once-in-a-decade leadership change set to start at this month’s Communist Party congress has also been blamed for distracting officials from economic matters.
Production down China’s manufacturing sector, one of its major growth engines, is struggling. In September, the mainland’s manufacturing activity contracted for a second straight month, falling short of expectations for expansion. “The manufacturing side is still very weak,” independent economist Andy Xie says, pointing to sluggish exports as one reason. An even more important factor, he notes, was a major slump in China’s property market that has hurt demand for building materials such as steel and cement. “Most projects have been put on hold,” he says. “You go around the country and you can see all the cranes standing there, not working.” Chinese officials have already admitted the country faces “enormous difficulties” in meeting its trade targets for this year. “We still have to try hard to achieve the work targets set at the beginning of the year, although we face enormous difficulties,” Commerce Ministry spokesman Shen Danyang told reporters last month at a monthly briefing. China’s total trade – exports and imports combined – rose by an annual 6.2 percent in the first eight months of 2012. That is below the target set earlier this year that aimed to maintain 10 percent annual growth in foreign trade in 2012. The government said last month it had approved a package of measures aimed at boosting exports to “stabilise” foreign trade. The State Council said measures would include speeding up payment of tax rebates to exporters, encouraging commercial banks to increase lending to qualified exporters and simplifying customs procedures, among other policies. With this year likely to be disappointing for the Chinese economy, the challenge lying ahead for the country’s new leadership is not an easy one: how to revive growth in 2013, while also rebalancing the world’s second largest economy.
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46 YU YONGDING FORMER MEMBER OF THE MONETARY POLICY COMMITTEE OF THE PEOPLE’S BANK OF CHINA
China’s rebalancing act IMF’S PREDICTION OF AN EVENTUAL REBOUND IN CHINA’S EXTERNAL SURPLUS/GDP RATIO WILL MOST LIKELY TURN OUT TO BE WRONG hina’s 12th Five-Year Plan calls for a shift in the country’s economic model from export-led growth toward greater reliance on domestic demand, particularly household consumption. Since the plan’s introduction, China’s currentaccount surplus as a share of gross domestic product has indeed fallen. But does that mean that China’s adjustment is on track? According to the International Monetary Fund (IMF), the fall in China’s current-account surplus/GDP ratio has largely been the result of very high levels of investment, a weak global environment and an increase in prices for commodity imports that has outpaced the rise in prices for Chinese manufactured goods. So the fall in China’s external surplus/GDP ratio does not represent economic “rebalancing”; on the contrary, the Fund predicts that the ratio will rebound in 2013 and approach its pre-crisis level thereafter. The IMF’s explanation of the recent fall in China’s currentaccount surplus/GDP ratio is broadly correct. Experience suggests that China’s external position is highly sensitive to global conditions, with the surplus/GDP ratio rising during boom times for the world economy and falling during slumps. Europe’s malaise has hit China’s exports badly and undoubtedly is the most important factor underlying the current decline in the ratio.
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Genuine progress By definition, without a change in the saving gap, there will be no change in the trade surplus, and vice versa. Furthermore, the saving gap and the trade balance interact with each other constantly, making them always equal. In response to the global financial crisis in 2008, China introduced a RMB4 trillion (MOP5.1 trillion) stimulus package. While the increase in investment reduced the saving/GDP ratio, the resulting increase in imports lowered the trade surplus/GDP ratio. As a result, China’s external surplus/GDP ratio fell significantly in 2009. In 2010, China’s government adjusted its economic policy. In order to control inflation and real estate bubbles, the central bank tightened monetary policy and the government refrained from another round of fiscal stimulus. China’s real estate investment accounted for 10 percent of GDP, and slower investment growth in the sector necessarily reduces import demand, directly and indirectly. But, because the fall in import growth had yet to turn into a rout, while China’s exports to Europe plummeted, China’s current-account surplus fell further in GDP terms in 2011. This situation is likely to change in 2012. The negative impact of the fall in real estate investment since 2010 has been deeper and longer than expected; indeed, almost all categories of imports that fell by 10 percent or more in August were related to real estate investment. As a result, it is possible that the fall in investment growth will reverse the declining external surplus/GDP ratio in 2012, unless the global economy deteriorates further and/or the Chinese government launches a new stimulus package. Perhaps most important, China must now export more manufactured goods to finance imports of energy and mineral OCTOBER 2012
products. The worsening terms of trade have been a major factor contributing to the decline in the current-account surplus in recent years. Nevertheless, despite the merits of its analysis, the IMF underestimates China’s progress in rebalancing. In my view, China’s rebalancing is more genuine – and more fundamental – than the Fund recognises, and the prediction of an eventual rebound in China’s external surplus/GDP ratio will most likely turn out to be wrong.
No going back First, the roughly 30 percent real exchange rate appreciation since 2005 must have had a serious impact on exporters, reflected in the bankruptcy – as well as the upgrading – of many enterprises in coastal areas. Though the market shares of Chinese exports seem to have held up quite well, this is attributable to price-cutting in foreign markets, which is not sustainable. Over time, real exchange rate appreciation will cause a shift in expenditure, making China’s rebalancing more apparent. Second, China’s wage levels are rising rapidly. According to the 12th Five-Year Plan, the minimum wage should grow by 13 percent per year. Together with real appreciation, the increase in labour costs is bound to weaken the competitiveness of China’s labour-intensive export sector, which will be reflected in the trade balance more clearly in the coming years. Third, China has made significant progress in building its social security system. The number of people covered by basic old-age insurance, unemployment insurance, workers’ compensation and maternity insurance has risen substantially. Moreover, universal medical insurance is emerging and a comprehensive system for providing aid to students from poor families has been established. As a result, the motivation for precautionary saving has been weakened somewhat, while some researchers have found statistical evidence that the consumption rate is rising, which is supported by China’s emergence as the world’s fourth-largest importer of luxury goods. Finally, the worsening of China’s terms of trade will play an even more fundamental role in reducing its trade surplus in the future. Given weak demand, which may be prolonged, Chinese exporters must accept increasingly thin profit margins to maintain market share. However, China’s large size and low per capita income and capital stock imply continued rapid growth in its demand for commodities. Thanks to supply constraints, China’s import bill for commodities and metals is likely to offset its processing trade surplus in the near future. In short, as long as China’s government is not so unnerved by the slowdown in output growth that it changes its current policy stance, the current-account surplus is more likely to continue to fall relative to GDP than it is to rebound in 2013 and thereafter. In fact, such an outcome is not only likely, but also desirable. After all, faced with “infinite quantitative easing,” being a large net creditor means being in the worst position in today’s global economy.
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CHANGE AGENT
GROWING INTEGRATION BETWEEN MACAU AND THE MAINLAND COMES WITH STRINGS ATTACHED BY ALEXANDRA LAGES
ithout the mainland’s support, Macau’s prosperity would be on the line, threatening the survival of the economy’s cornerstone, the gaming industry. However, there are a growing number of voices that argue the city’s integration with the mainland needs to be carefully planned. Like it or not, regional integration will accelerate as the completion of the Hong Kong-Zhuhai-Macau Bridge draws closer and the joint development of Hengqin Island leads to more cooperation between authorities here and in Guangdong. Border checkpoints are poised to start operating around the clock and Beijing has been gradually loosening travel restrictions that have limited mainland Chinese from travelling to Macau. Last year, Macau authorities signed a historic agreement with Guangdong that is designed to improve ties between both jurisdictions. The framework agreement is the basis upon
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which the parties hope to build cooperation in the economic, social, welfare and cultural fields until 2020. “Mainland-Macau relations are progressing quite well,” says Liu Bolong, director of the Social Science Research Centre on Contemporary China at the University of Macau. “Macau has received a lot of help from the mainland for its economic development, especially for diversifying its economic structure and exploiting Hengqin Island.” Mr Liu says Beijing’s support is important to ensure inflation does not spiral out of control. He said that most of the city’s food imports come from the mainland. The small size of the economy means Macau has little leeway to control price hikes. “The mainland has an essential and very important role for Macau. Therefore, to maintain good relations and achieve government support is
very important for Macau’s development,” Mr Liu says. Ngo Tak-Wing, professor of political science at the University of Macau, says the relationship is good but not without its potential sticking points. “After the handover, relations got closer. In a nutshell, it’s not bad. But there are problems,” he says. Mr Ngo says Macau lacks the longterm planning to respond properly to the challenges posed by tighter integration. Hong Kong already faces some of the problems that arise from it. Macau is in the fortunate position where it could avoid making the same mistakes, says the scholar. “Public services will start to crumble. Hong Kong is already experiencing that problem, especially in health and education systems,” he says. As regional integration intensifies, Mr Ngo forecasts Macau will struggle to cope with waves of tourists that will strain infrastructure. Contingency planning is also lacking and that poses a risk in a more tightly integrated economy, he notes. The solution is to have the government act fast and start preparing for eventualities instead of just “reacting to particular situations”. Émilie Tran, the dean of the School of Management, Leadership and Government at the University of Saint Joseph says regional integration is at an early stage. “It remains to be seen how the big link between Hong Kong, Zhuhai, Shenzhen and Macau is going to transform the region,” she says.
Lessons learnt Some academics warn that increasing regional integration will also mean Beijing plays a bigger role in Macau’s affairs. “Macau is already willing to give up more of its decision-making power to the central government than its Hong Kong counterpart,” says Mr Ngo. He says many of the government’s major initiatives are already offered up for Beijing’s scrutiny ahead of the public announcement, even though that is not required by law. It is a trend the scholar expects to intensify as regional integration deepens. Ms Tran says the city’s political profile will continue to be raised, as the mainland’s role both regionally and internationally becomes more significant.
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Macau is already an important player in cross-Strait policies and acts as a broker between mainland authorities and the Roman Catholic Church. Mr Ngo says the city is displayed to Hong Kong as a role model for the “one country, two systems” policy. The policy gives wide-ranging autonomy to Macau and Hong Kong for 50 years, starting from their handovers – 1997 in Hong Kong and 1999 for Macau. Mr Ngo says some decades ahead of this period expiring, there needs to be a settlement by Beijing of what will happen next to both cities. And Macau’s regional integration may hint at the direction to go. “Macau is now being a showcase. Actually, Macau and southern China are becoming increasingly integrated, not politically yet, but economically and socially,” he says. Mr Liu takes an opposing view. “The Chinese leadership is very clever. They understand that Macau’s case is just one case. You cannot use Macau to influence Hong Kong and Taiwan, because Macau is too small. Beijing understands this,” he says. Ms Tran also says it is useless to compare Macau to Hong Kong. “The historical background of Macau is different, as well as the territory and population size. We cannot expect half a million of people to put on big demonstrations, when in Hong Kong there’s seven million people and they are better organised,” she says. OCTOBER 2012
PLAYING A SUPPORTING ROLE significant part of Macau’s regional integration has to do with Hengqin Island’s development. The public is told that the goal is to provide room for the city’s expansion and improve diversification of the economy. The 106-square kilometre island is strolling distance from Taipa, and is being developed jointly by the Macau and Guangdong authorities. Macau-based analysts doubt that Hengqin’s development can help the city. Zhuhai is in the driver’s seat and has the best odds of extracting the most from the project, they say. Liu Bolong, who heads the University of Macau’s Social Science Research Centre on Contemporary China, notes Hengqin’s development is Zhuhai-based and oriented. That, according to him, is a problem. “Macau should take the initiative instead of just following Beijing in whatever project they have,” he says. “We have to use Hengqin to help Macau’s economy and Macau people to get more income and employment opportunities,” says Mr Liu, adding
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Liu Bolong
Ngo Tak-Wing
Emilie Tran
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the city is over-reliant on gaming. Ngo Tak-Wing, a professor of political science at the University of Macau, has a similar opinion. “If Hengqin is meant to be a hinterland for Macau’s development, then Macau should have a strong say in its development,” Mr Ngo says. “At the moment there is no institutionalised mechanism to accommodate Macau’s input.”
Detail disoriented Mr Ngo wants to see the creation of a planning body with representatives from Macau, Zhuhai and Guangdong, to formulate and implement Hengqin’s
development priorities. Small and medium-sized enterprises have been insistent in asking for details about investment and the operating environment in Hengqin. So far, there has been only scattered information, mostly coming from mainland authorities and related to tax exemptions. Last March, businessman and member of the Legislative Assembly José Chui Sai Peng said it was important to establish clearer rules for investment in Hengqin. He called on special financial support policies for Macau SMEs that wanted to be involved. Hengqin has set a string of pillar
industries for its development. Those include business services, the financial industry, cultural innovation, tourism, scientific research, hightech industries, traditional Chinese medicine and health care. Gaming facilities are not allowed in Hengqin. Some Macau businessmen have suggested the island could be used for the production of gaming-related machinery and to host supporting facilities. But the city’s business footprint in Hengqin may well be less than high-tech. Last month, Niu Jing, the director general of the Hengqin New Area Administrative Committee, announced that the first phase of the Chimelong International Ocean Resort on Hengqin would have 5,000 square metres of space available for Macau SMEs. He said souvenir shops and restaurants would be among the businesses invited to operate there. Up to now, the only Macau projects on Hengqin are the construction of a MOP9.8-billion (US$1.2 billion) campus for the University of Macau and the government’s 600-million-renminbi (MOP757 million) stake in a Chinese medicine industrial park, in a joint venture with Guangdong. OCTOBER 2012
52 MICHAEL SPENCE NOBEL LAUREATE IN ECONOMICS AND PROFESSOR OF ECONOMICS, NEW YORK UNIVERSITY
Reinventing the Sino-American relationship CHINA NEEDS U.S. INNOVATION TO GROW AND THE U.S. NEEDS CHINESE MARKETS TO GROW hina and the United States are in the grip of major structural changes that both dread will end the Halcyon era when China produced low-cost goods and the U.S. bought them. In particular, many fear that if these changes lead to direct competition between the two countries, only one side can win. That fear is understandable, but the premise is mistaken. Both sides can and should gain from forging a new relationship that reflects evolving structural realities: China’s growth and size relative to the U.S.; rapid technological change, which automates processes and displaces jobs; and the evolution of global supply chains, driven by developing countries’ rising incomes. But first they must acknowledge that the old pattern of mutually beneficial interdependence really has run its course and that a new model is needed. The old model served both sides well for three decades. China’s growth was driven by labour-intensive exports made more competitive by transfers of technology and knowledge from the U.S. and other Western countries. This, coupled with massive Chinese public and private investment (enabled by high – and recently excessive – savings), underpinned rising incomes for millions of Chinese. The U.S. consumer, meanwhile, benefited greatly from declining relative prices of manufactured goods in the tradable side of the economy. Accordingly, U.S. employment shifted to higher-value-added activities, in turn supporting higher incomes in America, too. Multinational companies operated increasingly efficient and complex global supply chains, which could be reconfigured as the shifting pattern of comparative advantage dictated. Global supply chains ran largely from East to West, reflecting the composition and location of demand in the tradable part of the global economy.
C
Embracing change
But all of this is starting to change. The benefits are shifting from cost to growth. Supply chains are now running in both directions, and are being combined in novel ways. Chinese demand is not only growing, but, as incomes rise, its composition is shifting to more sophisticated goods and services. Thus, China’s role is changing: once the West’s low-cost supplier, it is now becoming a major customer for Western products. This represents a major opportunity for advanced economies to rebalance their growth and employment, provided that they are positioned to compete for the appropriate parts of evolving supply chains. Rising Chinese incomes also imply structural change for China, as continued growth presupposes a shift to higherOCTOBER 2012
value activities. Technology and knowledge will still be important, but China must begin generating new technologies, in addition to absorbing Western tools and skills. In order to meet the challenges of structural change, the goal for U.S. policy should be to expand the scope of its tradable sector, with a focus on employment. Reorienting U.S. policy toward external demand across a broader array of sectors, in turn, requires attention to two critical areas: education and investment. High-quality education and more effective skills development are crucial to generating new employment opportunities for the middle class, while investment can rectify America’s disconnection – particularly that of its medium-size businesses – from global supply chains. The trading companies and infrastructure that smaller, more open economies have created in order to connect to global markets are underdeveloped in the United States.
Win-win game
To be sure, success in these areas will not come overnight. But nor is the status quo a permanent condition; it can be improved with investment and supportive policy. Moreover, the U.S. would benefit in the short term from relatively simple measures, such as removing barriers to inward foreign direct investment, particularly from China. On the Chinese side, policy prescriptions are not the issue. The importance of evolving a different growth pattern is already understood, and has been enshrined in China’s 12th Five-Year Plan. Its successful implementation will require strengthening incentives to innovate, deepening the technology base, investing more in human capital, developing the financial sector and applying competition policy equally to domestic, foreign and state-owned enterprises. Given the requirements on both sides, how to ensure a productive and mutually beneficial relationship between the U.S. and China is a relatively straightforward matter. China still needs access to advanced-country markets and technology, but the emphasis is shifting to homegrown knowledge, skills and innovation. The U.S., still an innovation powerhouse, can help, but requires access to the growing Chinese market and a level playing field once there. The same is true of financialsector development. In the U.S., a determined effort to restore fiscal balance and establish a sustainable growth pattern – that is, one not based on excessive domestic consumption – is crucial to long-term economic health. Such rebalancing implies sustained reduction of the current-account deficit by expanding exports, rather than merely curtailing imports. Chinese demand will help, all the more so as its economy grows in size and sophistication. So expanding linkages with China now is an investment in the future with a rising return, rather than a quick fix. A lower U.S. current-account deficit will also benefit China, whose US$3.2 trillion (MOP25.6 trillion) in foreign-exchange reserves – held mostly in dollar-denominated assets – is becoming a large and risky investment. Progress towards external balance in the U.S. would allow a slow reduction in China’s reserves, alleviating its asset-management headache. A deeper understanding of each other’s shifting structural challenges would facilitate both sides’ ability to identify areas of mutually beneficial cooperation. But the core of the relationship is simple: China needs U.S. innovation to grow and the U.S. needs Chinese markets to grow. If both countries are to benefit from such symbiosis, there is no alternative to collaboration, substantial investment and reforms on both sides of the Pacific.
53
OCTOBER 2012
54 54
Property
Storm over shelter Policy initiatives to provide land for cheaper housing for long-term Hong Kong residents threaten to swamp the government BY MARY ANN BENITEZ* IN HONG KONG
ousing and land supply is supposed to be the forte of Hong Kong Chief Executive Leung Chun-ying, a surveyor by profession, as well as the former Asia-Pacific chairman of global property services consultants DTZ. But weeks after he announced a mini-housing policy, there is no bump in Mr Leung’s popularity and so many potholes in the road ahead. Mr Leung announced a 10-point plan late in August that was meant to increase the supply of flats and help reduce home prices that have gained more than 10 percent this year. Last month, the government made another announcement that only per-
H
manent residents would be able to buy apartments built under the “Hong Kong flats for Hong Kong people” policy. Resales are restricted to permanent residents for 30 years and the flats cannot be resold to companies either. If the buyers are a married couple, both must be permanent residents. The fi rst flats to be sold under the policy are 1,100 homes on two plots of land with an area of 1.6 hectares on the site of the old Kai Tak airport in Kowloon. “Hong Kong’s land for property is a rare and precious resource,” Mr Leung said after visiting the Kowloon site. “When using this land, we must make it
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a priority to fulfil the housing needs of Hong Kong permanent residents.” “The policy is a pilot scheme and the administration will gauge the market response to determine when to extend the scheme and what other land parcels should be included in the policy,” he added. “I think the scheme should be successful in satisfying local residents’ demand for affordable housing.”
Ill at ease The Hong Kong Monetary Authority, the city’s de facto central bank, also tightened mortgage lending last month, curbing mortgages for second proper-
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55 Hong Kong people” to be introduced. Flat sales to overseas investors in Macau accounted for about 15 percent of sales by value in the first eight months of the year. The Macau government announced in August it was considering a new round of measures to curb property speculation, after a task force concluded home prices were “overheated”. Macau officials are looking at new policies on mortgages, taxation, regulation and construction approvals. No concrete proposals have been put forward.
Snack-sized living
ties. The decision was borne of fears that the third round of quantitative easing (QE3) by the United States Federal Reserve, a refreshed monetary stimulus programme, would push up home prices. The Monetary Authority also limited the maximum term on all new mortgages to 30 years and mortgage payments for investment properties cannot exceed 40 percent of buyers’ monthly incomes, down from the current 50 percent. “Without policy intervention, QE3 will further heat up the Hong Kong property market,” David Ng, a Hong Kong-based analyst at Macquarie Securities Ltd, wrote in a note to clients. “Excessive price growth not only hurts
affordability but will further weaken the political clout of the government.” Rising Hong Kong home prices have been underpinned by low interest rates and an influx of mainland buyers. Mainland investors made up more than a third of all new sales by value in the first quarter, according to Midland Realty Ltd, one of the city’s biggest realtors. Global property brokerage Savills plc last year said residential real estate in Hong Kong was the world’s most expensive, topping other financial centres such as London and New York. Some of Macau’s grassroots associations have already said they want a policy matching “Hong Kong flats for
Mr Leung’s 10-point plan includes measures that would see up to 75,000 public housing flats built in the next three to five years for the city’s “sandwich class”, the working-class families sandwiched between the rich and the poor. The new policies were announced after a survey found that 90 percent of Hong Kongers think buying a home is beyond their reach. Mr Leung has admitted there is a disconnect between salary increases and property price hikes. “It is clear that, just by looking at statistics comparing, for example, the rate of employment income increase and the rate of property prices increases or, for that matter, rental increase as well, affordability or the lack of it has become more serious,” he said. His 10 short-term and medium-term measures include scrapping the “My Home Purchase Plan”, a rent-to-buy programme established by former chief executive Donald Tsang Yam-kuen. Speeding up pre-sale consent will see as many as 65,000 flats released onto the private market over the next three to four years, Mr Leung says. In the medium-term, 36 vacant government, institutional and community sites are to be converted into about 11,900 flats for public and private buyers.
Planning ahead Overseeing a review and assessment of housing is a steering committee, chaired by Secretary for Transport and Housing Anthony Cheung Bing-leung. His
OCTOBER 2012
56
Property
A recent survey found that 90 percent of Hong Kongers think buying a home is beyond their reach group is due to deliver a report on a longterm housing strategy by the middle of next year. “We hope that in the course of the review, we will map out more long-term measures and at the same time we are also hoping that through various initiatives, including the conversion of industrial buildings, then the overall supply will also be able to be increased to cope with public demand,” Mr Cheung said. But commentator Albert Cheng King-hon says the government’s policy measures are nothing but window dressing. “Some may well have the opposite effect, bringing benefits to property developers, further reinforcing their already powerful market position. In other words, they are simply tricks which Mr Leung hopes will fool the public into believing that the market will actually stabilise as a result,” Mr Cheng wrote in the South China Morning Post last month. He saw the only substantive measure was converting vacant sites into homes. “But it’s important to strike a balance to ensure that a good proportion is for public flats – otherwise, it will be a veiled attempt to transfer benOCTOBER 2012
efits to property developers.” The chairman of the city’s Urban Renewal Authority is Barry Cheung. The authority has a chequered past in meeting its mission to promote regeneration of the city’s older urban spaces. He told the China Daily newspaper the biggest problem in Hong Kong’s property market was supply shortages in public and private housing. “The current supply not only cannot meet the needs of local people but it is also pushing up property prices because of speculation. Although the government has launched various measures, such as the special stamp duty, to tackle speculation and minimise demand, they cannot eliminate the root problem.”
Country living But rolling out new land for development is easier said than done. At the end of last month, the government said it would set aside a staggering HK$40 billion (US$5.2 billion) to resettle and compensate about 10,000 villagers affected by the Northeast New Territories development plan. The plan calls for about 50,000 flats to be built to house about 150,000 people over the next two decades.
Opponents of the project claim the land will integrate Hong Kong more deeply with Shenzhen or create “a back garden” for wealthy mainlanders. Secretary for Development Paul Chan Mopo has been forced to defend the plan. Chief Secretary Carrie Lam Cheng Yuet-ngor insisted that the development would open more land and more housing for Hong Kong. But the anxieties and worries of opponents to development have persisted. An unlikely alliance of green groups, villagers and farmers have united to resist the project. They say it will destroy precious farmland and historic villages. Mr Leung said the plan to develop the northeast New Territories was essential to meet housing demand, mitigate the increase in flat prices and rents, and to help reduce the long queue for public housing. According to the blueprint for the development, about 43 percent of the residential units there are designated for public housing for rent and the remainder for various types of private housing. The project is forecast to create about 52,000 new jobs. * COPY EDITOR OF THE STANDARD (HONG KONG) NEWSPAPER
57
RENTAL SUBSIDY RAISED
JOSEPH LAU’S TRIAL ADJOURNED TO JANUARY The presiding judge’s illness leads to a four-month delay in the corruption trial Chinese Estates Holdings Ltd boss Joseph Lau Luen Hung’s bribery trial in Macau has been adjourned to January 7, after the presiding judge fell ill. Mr Lau and seven other men were scheduled to go on trial starting last month in a lawsuit related to the plot where La Scala’s luxury residential complex is being built by Chinese Estates. BMA Investment chairman Steven Lo Kit Sing is also a defendant in this lawsuit. Mr Lau and Mr Lo are accused of offering a HK$20 million (US$2.6 million) bribe in 2005, to then-Secretary for Transport and Public Works Ao Man Long to ensure they would get the land where La Scala is currently being built, land that was previously owned by several government-controlled private companies. The land was eventually sold in 2006 to Moon Ocean Ltd, a unit of Chinese Estates Holdings.
The government announced last month that the rental subsidy for households on the waiting list for low-rent social housing would be extended until next August. The government also increased the subsidy’s value. Households will get a monthly rental subsidy of between MOP1,350 (US$169) and MOP2,050. The maximum monthly household income to be eligible for the subsidy was also revised upward.
MORE TIGHTENING MAY BE ON THE WAY
The head of the Monetary Authority of Macau, Anselmo Teng Lin Seng, said the government is considering toughening mortgage-lending rules. Mr Teng was quoted by Macau Post Daily as saying that it would depend on the impact on Macau’s real estate market of the U.S. Federal Reserve’s third round of quantitative easing. He said that the monetary authority would keep a close eye on the issue.
GOV’T FACES CLASHES WHILE RECLAIMING LAND
The government last month faced a group of 70 angry Coloane residents while reclaiming a piece of occupied land in Ka Ho. There were scuffles between the protesters and the police and at least two demonstrators were hospitalised. The Lands, Public Works and Transport Bureau said that besides being illegally occupied, a villa had been built on the land roughly two years ago. Ka Ho residents protested against the operation since many fear losing their houses, where they have been living for decades, but which are not officially registered with the government as private property.
OCTOBER 2012
58
Property
Motivated buyers
Real estate developments on Hengqin are stirring up the market, with prices on the up BY ALEXANDRA LAGES
s development swings into top gear on Hengqin Island, the real estate market there is also picking up. There is currently little in the way of supply, but works in the pipeline should lead to heightened activity, industry insiders say. Macau-based realtors currently only have older flats available for sale in Hengqin’s secondary market, costing a fraction of the price of similar properties here. JML Property Ltd last month had on sale a four-bedroom duplex apartment in a complex located near the new University of Macau campus. With a net floor area of 167 square metres, the asking price was HK$3.9 million (US$503,000), less than HK$23,500 a square metre. Sun City Property Co Ltd had two flats for sale in the same complex last month. Both were priced at less than
A
20,000 renminbi (MOP25,415) a square metre. The difference in prices is obvious. In Macau, the average transaction price per square metre for homes in August stood at MOP61,749, according to data from the Financial Services Bureau. Real estate agents say prices in Hengqin should start climbing soon. Sun City deputy managing director Deborah Cheong says there are already a lot of interested buyers, both from Macau and Hong Kong. “Most of them are regular investors in the real estate market,” she says. The majority of Hengqin owners are however not willing to sell their properties until the opening of the Shizimen business district, a central feature in the development of the island. Construction has already started and the first phase is expected to be ready by next year. Prices in Hengqin have already in-
The potential of Hengqin’s property market is “quite big”, says the chief executive of real estate agency Midland Realty (Macau) Ltd, Ronald Cheung Yat Fai OCTOBER 2012
creased substantially since Beijing designated the island as one of the country’s three new special economic zones in 2009.
Big future One big residential project already under construction covers an area of 120,000 square metres. Ms Cheong says the project includes low-rise and highrise apartments, shops, a clubhouse and a school. About 1,685 apartments will be available, with floor areas from 80 to 290 square metres, and from two to seven bedrooms. The chief executive of real estate agency Midland Realty (Macau) Ltd, Ronald Cheung Yat Fai, says Hengqin will become a suburb of Macau, with more people moving there. With more residential houses under construction, Hengqin’s population is expected to climb to 120,000 people by 2015, according to the development plan. “No border checks will be required for Macau people and the popularity of Hengqin property will be very high,” Mr Cheung says. He forecasts most investors will come from the mainland. Hengqin will have two border checkpoints, one “frontier line” between Hengqin and Macau, and a “back line” between the Hengqin economic zone and Zhuhai, or the rest of the mainland. Macau residents will be able to pass readily through the “frontier line”. Hengqin is a bonded area. Mainland residents make their customs declarations going through the “back line”. Vehicles with only Macau licence plates will also be able to come and go freely. The potential of Hengqin’s property market is “quite big”, Mr Cheung says, adding that any new project launched there is likely to draw a lot of attention. It is the reason why Midland is planning to extend its operations to Hengqin. “In one or two years, we will open a branch there, when the [business] district is ready,” Mr Cheung says.
Property Statistics Year-on-year change (%)
2011
1,387 1,099 231 38 19 2,159 2,053 86 3 17
Building units completed - Residential - Commercial and offices - Industrial - Others Building units started - Residential - Commercial and offices - Industrial - Others
-69.4 -73.0 -45.9 --44.1 148.2 162.9 8.9 200 88.9
Transactions (1)
- Residential - New building - Old building Resident buyers (as percentage of total buyers) - New building - Old building Resident buyers (as percentage of total buyers) - New building - Old building Resident buyers (as percentage of total buyers) - Others Total value of total units transacted (2) - Residential
42.9 10,300.0 27.3 -6.7 -17.8
194 7,126
Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012
-31.7 -80.5 -24.2 7.5 percentage points
93.9
-29.7 -71.1 -19.2 1.7 percentage points
87.4 114 2,679
Notes Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012
-23.5 -53.0
Jan-Jul 2012 Jan-Jul 2012
28.1 41.0 5.4 84.0 88.0 83.6 128.8 --115.7 -0.7
MOP39.0 billion
-20.5 -29.1 3.7 22.9 --16.2 -----
Jan-Jul 2012
MOP9.7 billion MOP0.9 billion MOP8.7 billion MOP3.0 billion
--MOP0.9 billion MOP3.8 billion
MOP25.7 billion MOP13.3 billion MOP8.1 billion
--MOP1.4 billion --MOP0.6 billion MOP3.5 billion
Average transaction price of residential units (3) Year-on-year change (%)
2011 Macau
Jan-Jul 2012
MOP58.9 billion
- Old building
- Others
Jan-Jul 2012
Jan-Jul 2012
- New building
- Industrial
Jan-Jul 2012
-12.9
MOP17.5 billion
- Old building
Jan-Jul 2012
MOP52.6 billion
- Old building
- New building
Jan-Jul 2012
34.4
MOP41.4 billion
- Offices
Jan-Jul 2012
MOP76.3 billion
- New building - Commercial
3.8 percentage points
90.7
336 28 308
-11.6 percentage points
80.0
-36.1 -30.0 -40.3 -20.2
1,181 45 1,136
-2.3 percentage points
86.9 932 103 829
- Offices
- Industrial
4.6 144.5 -3.1
2,196 269 1,927
- Commercial
Notes
Year-on-year change (%)
13,887 9,577 3,980 5,597
-1.7 percentage points
87.8
-4.5 26.3 -90.9 --50.0 -3.4 -0.7 -46.2 -83.3
Latest
-6.7 -4.5 26.8 -20.7
27,624 17,176 7,783 9,393
Total units transacted
932 907 19 -6 735 696 28 -11
Year-on-year change (%)
2011
Year-on-year change (%)
Latest
MOP45,027 /m
2
- Macau Peninsula
MOP43,569 /m2
- Taipa
MOP41,501 /m2
- Coloane
MOP68,208 /m2
21.6 32.9 1.4 6.4
Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012
Month-on-month change (%)
Latest MOP61,749 /m
2
MOP59,372 /m2 MOP63,578 /m2 MOP80,004 /m2
-0.6 7.8 -5.5 -3.9
Notes Aug 2012 Aug 2012 Aug 2012 Aug 2012
(1) The data covers transactions with stamp duty paid during the reporting period, including transactions exempted from stamp duty (2) Figures are rounded, therefore they may not add up exactly (3) The data covers transactions with stamp duty bill issued during the reporting period, including transactions exempted from stamp duty OCTOBER 2012
Source: Statistics and Census Service and Financial Services Bureau
Construction - private sector
59
60
Property | Market Watch
Notable residential property transactions - 01/09 to 30/09, 2012
Source: Midland
District
Property
Unit
Taipa
Windsor Arch
Block 5, M/F, unit B
3,843
37,460,000
9,748
Taipa
Windsor Arch
Block 10, H/F, unit D
1,906
19,000,000
9,969
Taipa
One Grantai
Block 6, H/F, unit W
2,158
15,926,040
7,380
Macau
The Paragon
M/F, unit D
1,678
13,612,000
8,112
Macau
The Paragon
L/F, unit C
1,724
13,499,000
7,830
Taipa
Windsor Arch
Block 10, H/F, unit C
1,468
12,670,000
8,631
Taipa
Windsor Arch
Block 10, H/F, unit B
1,468
12,630,000
8,604
Taipa
Windsor Arch
Block 10, M/F, unit C
1,209
11,590,000
9,586
Macau
The Paragon
M/F, unit I
1,154
10,406,000
9,017
Taipa
Nova City
Block 9, M/F, unit C (with car park)
1,975
10,380,000
5,256
Macau
One Central
Block 7, L/F, unit A
1,269
10,342,350
8,150
Macau
Villa De Mer
Block 1, M/F, unit A
1,703
8,850,000
5,197
Macau
Lake View Tower
M/F, unit E
1,543
8,450,000
5,476
Macau
Lake View Tower
M/F, unit A
1,511
8,380,000
5,546
Macau
Edf. Jardim Kong Fok Cheong
L/F, unit AW
784
7,600,000
9,694
Macau
La Baie Du Noble
Block 3, H/F, unit B
1,738
7,050,000
4,056
Coloane
One Oasis
Block 11, L/F, unit E
1,215
6,762,000
5,565
Coloane
One Oasis
Block 11, L/F, unit J
1,206
6,428,000
5,330
Coloane
One Oasis
Block 11, M/F, unit C
835
5,126,000
6,139
Macau
Villa De Mer
Block 2, H/F, unit C
832
4,700,000
5,649
Taipa
Edf. Jardim Wa Bao
Block 2, H/F, unit L
1,152
4,260,000
3,698
Taipa
Jardim Dragao Precioso
M/F, unit AE
1,140
3,970,000
3,483
Macau
Edf. U Wa
Block 13, M/F, unit C
816
3,540,000
4,338
Macau
Edf. U Wa
Block 13, M/F, unit H
809
3,341,800
4,131
Coloane
One Oasis
Block 5, L/F, unit H
653
3,080,000
4,717
Floor area (sq. ft)
Sale price (HK$)
Price per sq.ft. (HK$)
Note: L/F - Low floor; M/F - Middle floor; H/F - High floor
Notable residential property rentals - 01/09 to 30/09, 2012 Type
Source: Midland
Property
Unit
Floor area (sq. ft)
Macau
Lake View Tower
L/F, unit N
1,718
28,000
16.30
Macau
One Central
Block 1, M/F, unit A
1,273
27,000
21.21
Macau
One Central
Block 7, M/F, unit B
1,272
26,000
20.44
Macau
One Central
Block 1, M/F, unit A
1,273
26,000
20.42
Macau
Lake View Tower
L/F, unit C
1,515
25,000
16.50
Taipa
Nova City
Block 5, H/F, unit C (with car park) 1,984
23,000
11.59
Macau
Jardim Hoi Keng
L/F, unit S
579
15,000
25.91
Taipa
Chun U Villa
M/F, unit D
1,586
14,500
9.14
Macau
The Residencia
Block 4, H/F, unit D
1,209
14,000
11.58
Taipa
The Pacifica Garden
Block 1, M/F, unit E
1,196
13,500
11.29
Macau
Ginza Plaza
L/F, unit C
1,757
12,500
7.11
Rent price (HK$)
Price per sq.ft. (HK$)
Taipa
Nova City
Block 13, M/F, unit F
1,331
12,300
9.24
Taipa
Nova City
Block 14, M/F, unit A
1,050
12,000
11.43
Taipa
Edf. Hoi Yee Garden
Block 3, L/F, unit T
1,050
9,000
8.57
Taipa
Edf. Hoi Yee Garden
Block 3, M/F, unit V
800
8,000
10.00
Taipa
Edf. Hoi Yee Garden
Block 2, M/F, unit M
1,050
7,800
7.43
Taipa
Edf. Hong Cheong
Block 2, M/F, unit J
850
7,500
8.82
Taipa
Edf. Hoi Yee Garden
Block 3, M/F, unit R
1,000
6,800
6.80
Note: L/F - Low floor; M/F - Middle floor; H/F - High floor
OCTOBER 2012
61 JOSÉ I. DUARTE ECONOMIST, MACAU BUSINESS SENIOR ANALYST - jid@macaubusiness.com
Free to do
GOVERNMENT OFFICIALS CLAIM THEY LIMIT INTERFERENCE IN THE REAL ESTATE MARKET; EXPERIENCE SHOWS OTHERWISE nyone who has recently gone through the process of renewing a residential lease or making a new one will have noticed that we are going through another exuberant period in the real estate market. Property prices keep going up, no matter what the government says about cooling the market. But nothing compares to rents. They are red hot. Demands for rent increases of 50 percent or more are becoming commonplace. This is a matter of serious social and political concern. Whenever confronted with what the government intends to do about this issue, officials eventually trot out a well-rehearsed line: the government cannot interfere with the functioning of the free market. There is something wrong here. Two things definitely do not fit the facts. First, in no remotely acceptable sense of the expression can we call the real estate market in Macau a free market. Also, the government interferes in the market’s functioning in many decisive ways. A free real estate market would suppose freedom to buy and sell land and freedom to decide what to build on it, subject at most to some zoning restrictions defined by explicit urban planning legislation. But almost all the land in Macau has a sole owner, the government. We live in a land near monopoly. The only entity that can decide freely what to do with a piece of land is the government. Whoever wants to do whatever on a plot will have to negotiate everything with the government, case by case. What you are allowed to build is decided by the government at its own discretion. This means the government’s options, whatever they are, are what determine land supply and building construction.
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Sole discretion All is negotiated bilaterally, with scant use of open bidding or transparent procedures, or reference to clearly defined policy aims. In a place so intensely concerned with appearances after the Ao Man Long corruption scandal, nobody finds this in the least bit disconcerting. That such an arrangement is equated with a free market goes beyond the limits acceptable to common sense, or any kind of sense for that matter. It is probably tolerated only because nobody thinks those using the argument believe in what they are saying. It is just a rhetorical device meant to avert further questioning. It would be more appropriate to talk about a government free to do whatever it fancies than about a free real estate market. At times the government has blatantly intervened in the real estate market. What else can we call the decisions about public housing or the mortgage loan restrictions imposed on banks?
All the land in Macau has a sole owner, the government They were supposed to cool a market that residents were being priced out of. Regardless of the abstract merits of the measures adopted, the results do not seem to be a success. People eligible for public housing are priced out of the regular market anyway. And restrictions on the acquisition of homes in the private market, such as lower loan ceilings, reduce the purchasing ability of those whom the measures purport to protect in the first place. And there is talk of further restrictions. Is it any surprise that suddenly there is excess demand in the market for housing to rent – especially when an unfortunate labour policy has been quietly shelved and increasing numbers of non-resident workers are again swelling the ranks of the workforce and of those looking for a home in Macau? All this makes clear that the main driver of real estate market prices is the lack of a timely and coherent supply policy to deal with foreseeable demand booms. This is as true today as it was eight years ago. As any student of public policy studies will know from year one, the deliberate absence of a policy is itself a policy. The free market is not a part in this equation. OCTOBER 2012
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Bet on the future Bad news about growth in VIP gaming revenue may really be good news for casinos, investors and the government BY MUHAMMAD COHEN
OCTOBER 2012
bservers unnerved by slowing growth in gaming revenue may be missing the point - the biggest shift in the market since the opening of the Venetian Macao, has begun. These changes will almost certainly result in greater profits for casinos and may ease the concerns of the governments here and in Beijing about overdependence on VIP gaming. This year’s gross gaming revenue figures tell a tale of two markets. While year-on-year monthly growth in VIP gaming revenue has fallen to single digits and even into negative territory at times, growth in mass-market gaming revenue is powering ahead at an annu-
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al rate of more than 20 percent. These trends are forecast to continue until the first half of next year. With VIP revenue accounting for more than 70 percent of gross gaming revenue, the slowdown has eroded the confidence of investors. The sluggish ramp-up of Sands China Ltd’s Sands Cotai Central, which opened its second phase last month, has added to the worries. Amid the decelerating growth, all six casino operators are embarking on new multibillion-dollar casino projects or are expecting to do so within the next 12 months, giving investors further reason to be nervous. But instead of being anxious about
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HIDDEN COST OF PAY TO PLAY W
any slowdown or drop in VIP revenue and gross gaming revenue, investors should be cheering the rise of the mass market. “Macau casinos can continue to experience solid profit growth on the strength of the mass-market customer, even if VIP revenue remains soft,” says Grant Govertsen of research firm Union Gaming Group. “The key is that for every dollar of mass-market gaming revenue generated by a casino in Macau, roughly 40 cents drops to the bottom line as profit. This compares to just 10 cents of every dollar for VIP, meaning that mass-market play is four times as profitable as VIP. With this in mind, it can be calculated that
more profits are already generated from the mass-market segment, even though it has typically accounted for just 30 percent or fewer of the gaming revenue dollars.”
Steady expansion Skyrocketing VIP play has masked mass-market growth in recent years. VIP revenue grew by 70 percent in 2010 and by 45 percent last year, pushing mass-market revenue below 30 percent of gross gaming revenue for the first time since 2004. But while VIP revenue exploded before slowing this year, mass-market revenue kept expanding steadily.
hile growth in gaming revenue stagnates, gaming industry profits can still rise, if mass-market play becomes a bigger piece of the pie. The main reason is the commissions casinos need to pay junket operators in VIP gaming, which account for roughly 40 percent of VIP gross gaming revenue. Although other operating costs are estimated to be double for mass-market play, since junket operators cover promotional and other expenses for VIP players, there are no commissions in the mass market. University of Macau associate professor of business economics Ricardo Siu Chi Sen, a gaming specialist, says that, in theory, VIP gaming has a profit margin of 10 percent and mass-market gaming has a profit margin of 40 percent. If casinos increase mass-market play and rely less on VIP play, as appears to be the current trend, gaming revenue may fall but total profits are still likely to rise. In that case casino operators are better off, but the gaming agents get less in commissions and the government gets lower tax revenue. A report by HSBC forecasts that gross gaming revenue will grow by 12 percent this year to US$37.5 billion (MOP300 million), 69 percent of it from VIP gaming and 31 percent from mass-market gaming. This means annual growth of nearly 30 percent in the mass market and of around 5 percent in the VIP market. Using this forecast and Mr Siu’s theoretical profit margins, the combined profits of the gaming industry could grow by 23 percent this year to US$7.23 billion – growing nearly twice as fast as gross gaming revenue.
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“In fact, mass-market revenues have grown 30 percent or better over the last 11 quarters,” Mr Govertsen says. “So the growth rate has been stable, even though the base of revenues has become much larger. The VIP slowdown has certainly made the strength in [the] mass market more noticeable.” As mass-market play comes to form a larger piece of the gaming revenue pie, casino profits can rise, even if gross gaming revenue falls (see box). Moreover, the shift to the mass market will probably boost non-gaming revenue and promote the economic diversification that the governments here and in Beijing say they want. “The key to the mass market’s continued growth is developing differentiated world-class resorts supported by continued improvements to infrastructure, which makes Macau more convenient to visit,” Galaxy Entertainment Group Ltd’s chief financial officer, Robert Drake, tells Macau Business. “This would include us offering a diverse array of non-gaming amenities that attracts new visitation, drives repeat visitation and increases the length of stay.” Galaxy Entertainment announced in April that Galaxy Macau had begun building its second phase. The HK$16 billion (US$2.1 billion) project will add 1,300 hotel rooms to the Cotai resort and double its number of shops.
Tied to GDP
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GROSS GAMING REVENUE EVOLUTION 120 YEAR-ON-YEAR GROWTH RATE (%)
“It’s chicken and egg,” HSBC regional gaming analyst Sean Monaghan says of mass-market growth and non-gaming attractions. “You have to build them to get the people. The more you build, the more diverse the patrons and the more viable the non-gaming amenities.” Mr Monaghan is the principal author of an HSBC report which forecasts that this year mass-market gaming revenue will grow by nearly 30 percent and VIP gaming revenue by 5 percent, and that next year mass-market revenue will grow by 25 percent and VIP revenue by 7 percent. The report says VIP gaming revenue will track growth in mainland gross domestic product in the long run, while mass-market gaming revenue has the potential to grow at twice the rate of mainland GDP. “The resilience of mass gaming is changing the profitability of casinos and buffering the weakness in VIP,” Mr Monaghan says.
90
60
30
0
-30
2009 Q1
2009 Q2
2009 Q3
2009 Q4
2010 Q1
VIP revenue
2010 Q2
2010 Q3
2010 Q4
2011 Q1
Mass-market revenue
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
Overall market
Source: Gaming Inspection and Coordination Bureau
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“Macau casinos can continue to experience solid profit growth on the strength of the massmarket customer,” says analyst Grant Govertsen “On a long-term basis, we forecast mass gaming will grow to 50 percent of Macau gross gaming revenue in 2020 from 27 percent in 2011. This change in market mix is expected to drive margins, earnings and valuations.” “Obviously no casino is going to turn away VIP business. However, we think [the] mass market is a much better customer,” Mr Govertsen of Union Gaming says. “Not only is the mass-market customer more profitable, there is less associated volatility and there is more visibility. They are more predictable in their visitation patterns than a VIP player.”
Percentage game Melco Crown Entertainment Ltd told
Macau Business in a written statement it has been “focusing on its mass-market strategy, which is believed to provide a more stable, loyal and profitable customer base for the foreseeable future.” Melco Crown says growth in massmarket revenue at City of Dreams, its flagship resort in Cotai, is running ahead of market trends despite the opening of neighbouring Sands Cotai Central. Melco Crown has even reallocated tables from the VIP market to the mass market to meet demand. “Two-thirds of EBITDA [earnings before interest, taxes, depreciation and amortisation] at City of Dreams is generated by non-VIP sources, mostly mass-market gaming,” it says. Melco Crown’s Studio City resort,
“The growth of [the] mass market will continue to assist Macau in diversifying its economy,” says Galaxy Entertainment’s Robert Drake
GROSS GAMING REVENUE (MOP MILLION)
GROSS GAMING REVENUE 60,000 50,000 40,000 30,000 20,000 10,000 0
2009 Q1
2009 Q2
2009 Q3
2009 Q4
2010 Q1
2010 Q2 VIP revenue
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
Mass-market revenue Source: Gaming Inspection and Coordination Bureau
“Mass-market growth helps to ensure sustainable growth,” says University of Macau gaming specialist Ricardo Siu Chi Sen OCTOBER 2012
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now under construction in Cotai, is also intended mainly for the mass market. “That means a market-wide shift towards mass-market plays to our core strength as a company,” the gaming operator says. “Mass-market growth helps to ensure sustainable growth through revenue diversification,” says University of Macau gaming specialist Ricardo Siu Chi Sen. He forecasts mass-market growth may be less affected by unexpected policy changes so investors can predict it better. “And, yes, mass-market growth will help high reported hotel room occupancy and high check-in rates,” he says. Gaming Market Advisors principal Andrew Klebanow notes “there is a great deal of competition for VIP play, and that competition will continue to grow.” “Cambodia, Vietnam and the Philippines will all compete with Macau for a portion of the junket market, and they may do so by offering more generous commissions.” Commissions here are capped at 1.25 percent of rolling chip volume.
Over the horizon “There are also a finite amount of Chinese millionaires who have a high propensity to gamble, and we are now starting to see the limits of that market,” the veteran industry executive turned consultant says. “Mass-market growth represents the greatest opportunity for Macau gaming. There are still huge swaths of the Chinese population that have not experienced the gaming and entertainment experience in Macau. As the high-speed rail network becomes operational, the mass market will have greater access to Macau.” HSBC’s Mr Monaghan divides the Chinese market into regions. He estimates that Guangdong, the provinces immediately surrounding it and Hong Kong together account for 74 percent of gross gaming revenue here. The rest of the mainland accounts for only 14 percent of gross gaming revenue and 7 percent of visitors. “While market penetration in mass gaming is high within Macau’s core market, penetration across other China regions remains inherently low,” Mr Monaghan says. “We beOCTOBER 2012
IT’S THE COTAI SHOW A
s mass-market play becomes the driver of growth in casino revenue, gaming industry experts foresee a variety of winners and some losers. “By a wide margin, the portfolio of Sands China Ltd properties are best positioned to take advantage of mass-market players,” Union Gaming Group analyst Grant Govertsen tells Macau Business. “The company has more rooms, more table games, more electronic table games and more slot machines than any of its competitors.” Mr Govertsen says the other two gaming companies that have casinos on Cotai, Galaxy Entertainment Group Ltd and Melco Crown Entertainment Ltd, “are also in a very good position over the next three or more years to capture an outsized share of mass-market customers”. HSBC regional gaming analyst Sean Monaghan forecasts: “Companies such as Wynn Macau Ltd will likely display the lowest EBITDA [earnings before interest, taxes, depreciation and amortisation] growth throughout 2013, as competition from the Cotai-based resorts limits the earnings recovery.” Wynn Macau has permission to build a Cotai resort, expected to open in 2016. SJM Holdings Ltd and MGM China Holdings Ltd are awaiting government approval for their first Cotai projects. In a report released last month, Mr Monaghan forecasts that Cotai will become the dominant driver of the gaming industry’s revenue and EBITDA. He estimates that Cotai’s gross gaming revenue will overtake that of the peninsula by 2015. Gaming Market Advisors principal Andrew Klebanow says mass-market players can also be winners. As the mass market grows and these players learn the benefits of casino reward programmes, casinos will begin to compete by offering more generous benefits, ultimately benefiting the punters.
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A new HSBC report forecasts that this year mass-market gaming revenue will grow by nearly 30 percent and VIP gaming revenue by 5 percent lieve Macau casino resorts are enhancing their marketing programmes, targeting the mass market and making better use of travel groups throughout China.” Mr Klebanow says: “More significant is the potential growth of the premium mass market. These are people who have the wherewithal to gamble at high levels but do not use or need a junket operator.” The shift toward mass-market play neatly fits with the calls by the governments here and in Beijing for diversification of the economy. “Indeed, in the past two years, the government’s position to urge the casino operators to develop more non-gaming facilities is a signal for supporting the mass-market growth,” the University of Macau’s Mr Siu says.
“And, of course, this helps diversification. Mass-market players may not just focus on gambling, but on nongaming activities.”
More pie While Cirque du Soleil’s “Zaia” show and the Playboy Club at the Venetian Macao closed early this year, the number of non-gaming attractions for the mass market has increased in Cotai during the past two years. These attractions include “The House of Dancing Water” show and Club Cubic at City of Dreams, the cineplex and skytop wave pool at Galaxy Macau, and more retail offering, restaurants and bars in the Cotai resorts run by Galaxy Entertainment,
Melco Crown and Sands China. “Without a doubt there is high degree of correlation between the number of mass-market customers and the various non-gaming revenue segments,” Mr Govertsen says. “These customers have to eat, they have to sleep, and they also might want to be entertained. Quite simply, the greater the number of visitors to Macau, the greater the non-gaming revenue pie will grow. That said, it will always represent just a tiny fraction of the total casino resort revenue mix, which is a function of gaming revenues being so large.” “The successful development of a large leisure and tourism market is an essential component to support the shift in the Chinese economy to be more focused on driving domestic consumption,” Galaxy Entertainment’s Mr Drake says. “The growth of [the] mass market in tourism, leisure and travel will continue to assist Macau in diversifying its economy and continue its ascension into a global resort destination. The best is yet to come.”
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The downside More Cotai casinos means more jobs and money but there’s also the darker side of over-dependence on mainland tourists and added inflationary pressures BY LUCIANA LEITĂƒO
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Wynn Macau Ltd has also received government approval for a US$4-billion casino resort in Cotai. Galaxy Entertainment Group Ltd will double the size of Galaxy Macau and Melco Crown Entertainment Ltd is forecast to soon commence work on the Studio City site. SJM Holdings Ltd and MGM China Holdings Ltd both have pending applications for land in Cotai and are waiting for government approval. Our sister publication Business Daily reported last month that a group of investors was proposing to build a US$800-million boutique-style hotel casino next to the One Oasis Cotai South luxury residential project. A new phase of development is
clearly underway in Cotai and it begs the question: is it good for Macau? Some say there are downsides weighing against the positives. There are potential advantages coming from the development of more casino resorts. The government will likely collect more tax revenue from gaming, there will be more well-paid jobs and the city will take another step towards becoming a world-class tourism and leisure centre. Economist Albano Martins says a short-term outcome is an increase in gross fixed capital formation with the huge investment by gaming operators poured into the construction of new projects.
Photo: Manuel Cardoso
otai is becoming increasingly crowded. Sands China Ltd opened the second phase of the Sands Cotai Central casino resort last month, bringing online a new Polynesian-themed casino and more hotel rooms, restaurants, shops, and space for meetings and conventions. Sands has plans to invest US$2.5 billion (MOP20 billion) in another Cotai resort located next to the Four Seasons. Sands chairman Sheldon Adelson says construction could start before the end of next month. “The Parisian� will include 3,300 hotel rooms and have a half-sized replica of the Eiffel Tower. It is expected to take three years to complete.
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That will help drive Macau’s gross domestic product, even if gaming revenue growth continues to slow.
Dependency issues What is unclear in the longer term is if there will be enough demand to ensure that each of the city’s new resorts will be a success. Their establishment will clearly mean the city and its economy is increasingly dependent on gaming. If casino revenue declines dramatically, the negative impact on Macau will be considerably greater, Mr Martins says. As the city’s casinos mostly rely on mainland punters for their success, there is a high level of volatility and risk clouding economic development in Macau. The potential for a downturn here could have several origins in the mainland, such as an economic “hard landing” or social instability. “As soon as there is a health crisis in the mainland, such as what happened with the bird flu, and difficulties are imposed to cross-border movements, GDP OCTOBER 2012
will fall,” says Mr Martins. According to the latest data from the Statistics and Census Service, the gaming sector’s relative importance to GDP stood at 40.9 percent in 2010, up by 8.9 percentage points in year-on-year terms. That does not include the contribution of industries tied closely to the casinos, such as hospitality. The dean of the University of Macau’s Faculty of Business Adminis-
tration, Jacky So Yuk-Chow, says Macau will definitely change as Cotai further develops. “Development in Cotai will ‘steal the thunder’ from the Peninsula downtown, that used to be the focus of tourism and gaming,” he says. Mr So expects competition for tourists between both locations to ramp up but suggests visitor arrivals will be enough to satisfy both destinations.
Croupiers’ payday
The gaming sector’s relative importance to GDP stood at 40.9 percent in 2010, up by 8.9 percentage points in comparison with one year before
Gaming analysts have been talking about the centre of gravity in the casino business shifting towards Cotai for some time. Investment bank Citigroup forecasts casino gross gaming revenue in Cotai will grow by 24 percent year-onyear in the second half of this year. At the same time, gaming revenue from casinos based on the peninsula is expected to decline by 2 percent. Some forecasts point to Cotai overtaking the peninsula in gross gaming revenue volume within three years. One issue central to the develop-
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LAND FREEZE STILL ON, SAYS GOV’T S
Opening of the second phase of Sands Cotai Central
ment of the projects in the pipeline is staffing. Each new property will need thousands of workers, who simply are not available in Macau. Full employment was reached about two years ago. Mr So says the government may have “no choice but to increase the quotas for imported labour” or risk scaring off investors. There are currently more imported workers in Macau than ever before. A shortage of workers in an industry that already pays higher wages than the average across the city is likely to push salaries up further. That may be good news for workers, but it will have an unwanted side-effect on inflation, as the cost of labour increases for businesses. Henry Lei Chun Kwok, assistant professor of business economics at the University of Macau, says stronger demand from tourists will
potentially place more upward pressure on prices. But the city’s unique economic structure, its high dependence on the mainland and the indirect pegging of the pataca to the U.S. dollar means there is actually little the government can do to control the situation. “We suffer from structural inflation,” he says. Mr Lei says Cotai’s further development will aggravate an already inflamed situation, increasing Macau’s reliance on just gaming and tourism. If that is Macau’s future, Mr So says the government should come clean about it and “seriously” promote the integrated resort and leisure centre concept, creating the necessary infrastructure – including a bigger airport capable of attracting more international routes. “To attract tourists from far away is much better than just relying on people from the mainland and Hong Kong,” he says.
ecretary for Economy and Finance Francis Tam Pak Yuen said last month that the freeze on land for casinos remains. In 2008, then Chief Executive Edmund Ho Hau Wah announced a freeze on land for casinos but pledged to honour existing agreements. That included all projects filed before 2008 and still under consideration. Mr Tam also said that the Studio City development backed by Melco Crown Entertainment Ltd would be able to apply for a casino. It was the first time a government official publicly said Studio City could include gaming facilities, after a string of statements to the contrary. Mr Tam said the government agreed that Studio City could apply for a casino in 2006, when the project’s original investors had first made the request. He also said some of the live gaming tables that will become available under the 3-percent average yearly growth cap to be introduced next year, could go to Studio City. Melco Crown bought into Studio City last year and has maintained that the resort would include a casino. Earlier this year, the government revised the land concession contract for the project but did not include the provisions for a casino. Some industry analysts say the Studio City casino is likely to be approved under a service provider agreement. In these arrangements, requests to include a casino are made separately from the land concession request. Meanwhile, a report in Portuguese-language newspaper Jornal Tribuna de Macau last month quoted an unidentified source close to the Cotai land deals saying it was “unlikely” that the government would approve any new grants this year. The source added that MGM China Holdings Ltd’s application was the one closest to final approval. MGM China chairwoman Pansy Ho Chiu King says the company’s land application is proceeding “smoothly”. The chief executive of SJM Holdings Ltd, Ambrose So Shu Fai, told our sister publication Business Daily “it is not a matter of life or death” which Cotai projects are approved first. The ventures are complicated and take about three years each to complete, he said. SJM hopes to have up to 700 live gaming tables for its Cotai project. The gaming operator says it is still interested in lots 7 and 8 in Cotai, which were previously part of Sands China Ltd development plans. OCTOBER 2012
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Muscling in The Venetian hopes UFC will add muscle to its entertainment offering BY ALEXANDRA LAGES
he Ultimate Fighting Championship, or UFC, will debut on Chinese soil on November 10 in a 10bout mixed martial arts event. The fight night will take place at Sands China Ltd’s Venetian Macao. It is part of the casino operator’s endeavour to improve its range of entertainment, after the closure earlier this year of Cirque du Soleil’s “Zaia” show. Sands China and UFC executives say they have agreed to establish a long-term partnership so the casino operator can offer a wider choice of nongaming attractions, while the UFC can
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use Macau as a springboard from which to launch into the mainland and wider Asian markets. The UFC often presents itself as “the fastest-growing sports organisation in the world”. It has taken mixed martial arts, an inter-disciplinary full-contact combat sport, out of back rooms in the United States and put it on show in some of the most important indoor arenas in the country. In only a decade it has created a huge fan base in the United States and further afield through pay-per-view broadcasts of fights. The UFC puts on more than 30 live
fight cards annually. It is owned and operated by Zuffa LLC. Its headquarters are in Las Vegas and it has offices in London, Toronto and Beijing. The Macau fight card features several Asian fighters to broaden its appeal to the city’s core visitors. Among them is the first Chinese fighter to compete in a UFC match, Tiequan Zhang. His debut fight last year had more than 100 million online hits in China. The headline bout is a middleweight fight pitting former UFC champion Rich Franklin against fighter-turned-actor Cung Le. Vietnamese-born American
73 Le is a celebrity in Asia, having acted in the Hong Kong kung fu film “Bodyguards and Assassins” and the yet-tobe-released “Grandmasters”, directed by Wong Kar Wai.
Applause all round The UFC’s executive vice-president and managing director of Asian operations, Mark Fischer, says Macau is the “perfect choice” for the debut in China. This is not only because the Venetian’s CotaiArena meets the UFC’s technical standards but also because the city is a gateway to the mainland. “It has great access to people from all over the region. We feel it will be an ideal place to start,” says Mr Fischer, a former NBA China executive. “This is the start of what we believe will be an incredible journey for the UFC in China.” Sands China president and chief executive Edward Tracy is also optimistic. “It is important for our customers to be exposed to this kind of entertainment,” he says.
The UFC’s managing director of Asian operations, Mark Fischer, says Macau is the “perfect choice” for the debut in China
Gaming industry observers applaud the partnership. Jonathan Galaviz, managing director of Las Vegas gaming and leisure consulting firm Galaviz & Co, says the UFC event will benefit both Sands China and Macau tourism. “It’s important for the Venetian Macao to hold events that bring global media attention to the property and expose the brand to a different type of demographic. As was historically seen with what traditional boxing did for Las Vegas, sporting events can enhance a property’s appeal to a greater audience. So it is important for the Venetian to capitalise upon this,” he says. Ubaldino Couto, a lecturer in event management at the Institute for Tourism Studies, says that the UFC’s prestige will help to build Macau up as a destination for international tourists. “As Macau is being positioned as a world centre of tourism and leisure, it’s imperative for us to be as diverse as possible. To this end, I believe any event is of certain benefit, at the very least to offer diversity, variety and availability,” Mr Couto says.
Mixed results Leonardo Dioko, the director of the Tourism Research Centre at the Institute for Tourism Studies, is more sceptical. He believes the UFC event is an important step toward increasing Macau’s appeal, but forecasts that it will not generate significant new revenue from new markets. “I believe its impact to be less
The Human Bodies Exhibition
WHEN IN THE VENETIAN T
here is more than just fighting on the Venetian Macao’s calendar for the next couple of months. From this month the casino resort will have a string of new temporary attractions, including two exhibitions and one winter festival. Sands China Ltd is investing over US$3 million (MOP24 million) in these events in an effort to offer a wider choice of non-gaming attractions. “Titanic - The Exhibition” will dock in the Venetian from October 25 until February 24. It will be held at the CotaiExpo exhibition area and is organised together with National Geographic. The exhibition commemorates the 100th anniversary of the Titanic’s maiden voyage. It includes replicas of the ship’s interior, relates stories of the passengers and crew, and shows some of the props used in James Cameron’s film “Titanic”. This will be the first time the exhibition has been shown in China. The Venetian will hold concurrently “The Human Bodies Exhibition” – an exhibition of over 200 preserved human bodies or organs dissected to display their workings. It is one of the most successful exhibitions of all time, having been seen by over 30 million people worldwide. The “Winter in Venice” festival will run from November 21 until January 13. It will feature an ice-skating rink, a giant Christmas tree and a light show using the same technology used last year for a show at the Ruins of St Paul’s which displayed video images on the façade.
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Rich Franklin
than what can be achieved if other family-oriented types of events and shows, with a broader base of appeal, were to be featured,” he says. Mr Tracy says he is confident that the tickets will be sold out. “This kind of entertainment is extraordinarily popular in southern China. There are people coming from Shanghai and we are very encouraged by it,” he says. The UFC event in November will not be the first mixed martial arts event to be held in Macau, although it will be the largest. The casinos have been betting for several years on combat sports to give them an edge in non-gaming revenue, but the results have been mixed. One of the first such events after the liberalisation of the gaming market was what Galaxy Entertainment Group Ltd described as the first international muay thai contest in Macau, held at the Macau Dome in 2006. Other combat sport events followed at infrequent intervals. The first big mixed martial arts tournament was in 2009, when the Venetian Macao held an event featuring some notable international fighters. Melco Crown Entertainment Ltd’s City of Dreams held Macau’s first cage fight in May 2010.
The hard part Then it all began to turn sour. Two events were cancelled, one amidst allegations that the promoter had embezzled nearly HK$13 million (US$1.7 million), and the other because of low ticket sales. OCTOBER 2012
Cung Le
“It is important for our customers to be exposed to this kind of entertainment,” says Sands China president and chief executive Edward Tracy The City of Dreams and the Legend Fighting Championship, Hong Kong’s first professional mixed martial arts competition, went into partnership in July last year. The resort subsequently held a series of four events, the last of which was in June.
Tiequan Zhang
Mr Fischer says the UFC is different from all combat sports previously seen here. “We will bring a full-scale production,” he says. “It’s the same experience for the Macau fans as in any other UFC event around the world.” Tickets are on sale for prices ranging from MOP380 (US$47.50) to MOP6,880. Mr Fischer says he is expecting good sales. The fights will be broadcast live worldwide, and in prime time in Asia, with commentary in 20 languages. The potential audience is 1 billion households. The UFC is also studying the options for holding its first event in the mainland. “We are building the awareness in China to create a critical mass, to come in with a very big show when we are ready,” Mr Fischer says. “We are in the middle of promoting the sport on many different channels and Internet networks across China. We are currently on 10 provincial channels.” There are sceptics about the UFC’s impact in China. They doubt that the Asian market will show the same interest in combat sports as the North American market. “The UFC management team in Asia being able to stage an event in Macau is the easy part. The harder part is whether or not the UFC brand will resonate with Asia in the way that it has in the United States,” Mr Galaviz says.
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Go forth and multiply LT Game’s business booms as the casinos increasingly bet on multi-terminal live baccarat BY LUCIANA LEITÃO
imes are good for electronic gaming systems supplier LT Game Ltd. The Macau company’s business is booming as the government’s cap on the number of live gaming tables gets casinos looking for substitutes. LT Game chairman Jay Chun tells Macau Business that his company intends to increase production capacity to cope with demand. LT Game outsources the manufacturing of its products and is looking for more contractors. Mr Chun says business volume has doubled over the past two years. LT Game aims to become the number one supplier of electronic gaming systems in Macau, according to him. Its newest customer here is Sands Cotai Central. The company also has customers in the United States and Australia. It is now waiting for a manufacturing license in Singapore.
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LT Game says it has the only patented multi-terminal system in Macau that combines electronic betting with a live dealer and live baccarat. Baccarat is the city’s most popular game, accounting for more than 90 percent of casino gross gaming revenue, including revenue from VIP play. Baccarat accounts for 70 percent of mass-market revenue. Chinese punters prefer games that are dealt live. This makes LT Game’s system more attractive to them than playing on pure electronic baccarat tables. Casino research firm Union Gaming Group says LT Game is the dominant supplier in Macau of electronic table games. Union Gaming estimates that the company has installed 40 percent of the existing 4,000 seats at electronic table games and practically all multi-game
stadium-style facilities. Union Gaming expects growth in the number of electronic table seats to continue increasing in the next five years. Although LT Game also offers card shoes, jackpot systems and casino management systems, its main strength is its monopoly here of multi-terminal systems for live baccarat. The company has shown a willingness to use litigation to protect its turf.
Territorial defence A dispute between LT Game and U.S. supplier of gaming equipment Shuffle Master Inc manifested itself publicly at this year’s Global Gaming Expo (G2E) Asia. The dispute flared up when Shuffle Master displayed a multi-terminal system for live baccarat at the expo. LT Game had obtained a court injunction blocking rival manufacturers from
Jay Chun OCTOBER 2012
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Gaming displaying at the trade show any product that breached its patents. This was the latest episode in a saga that began at G2E Asia 2009, when customs officials, acting on a complaint by LT Game of patent infringement, seized a Shuffle Master multi-terminal system for live baccarat. The dispute has since dragged on in the courts. “Every company has to protect its technology,” Mr Chun says. He says he will continue to protect LT Game’s turf, but says that next time he will take a different approach to doing so. Mr Chun says LT Game holds seven patents in Macau and nine in the United States. He says it has applied this year for three more patents in the United States and Macau. “It’s to protect our future products, which we are developing now,” Mr Chun says. LT Game was created in 2006 with a view to developing gaming machines that would help to automate play and reduce manpower needs on the casino floor. “There is a shortage of dealers,” says Mr Chun. The game changer for LT Game was the introduction in 2010 of a cap of 5,500 on the number of live gaming tables. From next year the number of tables will be allowed to grow at an average annual rate of 3 percent until 2023.
Just for fun Unable to increase their number of live tables, casino operators began to look for other ways to draw in punters. Slot machines are one option, but they account for less than 5 percent of casino gross gaming revenue. Another option is multi-terminal live table games. These are a mixture
LT Game’s main strength is its monopoly in Macau of multi-terminal systems for live baccarat of table play and electronic terminals, combining real croupiers with electronic betting. They are licensed as live tables. The big difference is that unlike a conventional table, which seats an average of about eight players, they can have more than 100 players betting simultaneously on one game, through electronic terminals. The cards are dealt in real time on a real table by a real dealer. The action is captured by a video camera and displayed on monitors overhead and on the screens of the electronic betting terminals. LT Game systems allow a terminal to be used to bet simultaneously on different live games, including baccarat, blackjack, sic bo and roulette. “More players can be playing at the same table and it’s a more comfortable environment,” says Mr Chun. “Our customers want to play just for fun. They don’t want to face the dealer and the pressure.” Mr Chun says this kind of more anonymous and relaxed play can attract new players that would otherwise avoid table games, like women or novices. He says multi-terminal live tables are more efficient than their live counterparts. The game is quicker because the croupiers do not need to make payouts, and there is less room for human error.
A PIECE OF PARADISE L
T Game Ltd is a subsidiary of Hong Kong-listed Paradise Entertainment Ltd. Paradise Entertainment has run the Kam Pek Paradise Casino on behalf of SJM Holdings Ltd since 2007. Paradise Entertainment’s chairman, Jay Chun, says the Kam Pek Paradise Casino is a small property that aims to give personal service. The casino occupies three floors and uses LT Game’s gaming systems. It has conventional live gaming tables, but also special tables, which come in pairs, used for electronic terminal betting. One croupier handles each set of two tables. The punter sits across the casino floor at one of the 600 electronic betting terminals. Paradise Entertainment’s first-half profit this year was HK$52.8 million (US$6.6 million), more than 100 times what it was last year. The company says profit growth has mainly been driven by the continuing strength of the performance of its gaming business. First-half revenue rose by 54.7 percent to HK$318.1 million. Paradise Entertainment sold subsidiary LifeTec Pharmaceutical Ltd in April and is now focusing entirely on its gaming business.
OCTOBER 2012
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MACAU SLOT PROFIT DROPS
Macau Slot – Sociedade de Lotarias e Apostas Mútuas de Macau Lda reported a MOP55 million (US$6.9 million) profit for last year. That represents a year-on-year drop of 15 percent. Macau Slot holds a de facto monopoly on non-racing sports betting in the city, including football and basketball.
LAS VEGAS SANDS FINED OVER FILE TRANSFER CASE
The company will have to pay a US$25,000 fine U.S. Clark County District Judge Elizabeth Gonzalez last month ordered Las Vegas Sands Corp to pay a US$25,000 (MOP200,000) fine for not disclosing the location of a computer hard drive sought as evidence by former Sands China Ltd chief executive Steven Jacobs. Las Vegas Sands is the parent company of Sands China. The hard drive was plugged into one of Mr Jacobs’ office computers in Macau, and was moved to Las Vegas a few days after he was fired, in July 2010. Mr Jacobs had requested access to the hard drive in connection to the lawsuit in which he is arguing he was wrongfully fired. Las Vegas Sands had said it could not turn over the disk because it was in Macau and it would be against local rules to send it to the U.S. without proper authorisation. Actually, the disk was already in the United States. Only in June this year did Las Vegas Sands acknowledge the situation, saying the hard disk transfer was done “in error”.
NO BIG WAGE RISES EXPECTED FOR GAMING
SJM Holdings Ltd chief executive Ambrose So Shu Fai says he does not foresee a significant increase in salaries for staff in the gaming industry taking place in the coming years. SJM currently has 20,000 employees. Average monthly earnings for employees in the gaming industry increased 22 percent from MOP14,491 (US$1,811) in June 2007 to MOP17,740 in June this year, official data shows.
FISHERMAN’S WHARF PLANS SECOND CASINO
Macau Legend Development Ltd has plans to build a second gaming facility as part of a HK$5-billion (US$645 million) redevelopment plan for its Macau Fisherman’s Wharf theme park. Our sister publication Business Daily quoted last month a person with knowledge of the matter as saying that an agreement for a second casino has already been achieved with the government. The gaming facility would operate under SJM Holdings Ltd’s gaming licence as a third-party promoted casino and it should be ready by 2016 at the latest, the same source added.
SEPTEMBER OCTOBER 2012
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Gaming
Damned statistics
Similar studies focused on different samples drew varying conclusions on the number of the city’s problem gamblers BY LUCIANA LEITÃO
he news broke in July and drew plenty of attention. A study concluded that the percentage of problem or pathological gamblers in Macau had dropped by two-thirds between 2007 and last year, to about 2 percent of the population. The Social Welfare Bureau says that cannot be the case. The bureau says the data used in the research for both 2007 and last year cannot be compared. It gave the job of compiling the most recent study to the Macau Polytechnic Institute. Academic Samuel Huang Guihai conducted last year’s survey. His team interviewed nearly 2,300 residents aged 18 or older. The researchers say 48 people in the survey were considered problem or pathological gamblers. Mr Huang said the results revealed a sharp decrease from the findings of the 2007 study that was carried out by the University of Macau also under the control of the Social Welfare Bureau. That survey concluded that about 6 percent of Macau’s adult population were problem or pathological gamblers. The Social Welfare Bureau however says the two studies cannot be compared. Bonny Wu, who heads the Social Welfare Bureau’s Resilience Counselling Centre for Problem Gaming, says that the scope and samples used for the two surveys were different. Ms Wu says last year’s study focused on gambler behaviour and their family relationships. “The results show 32.8 percent [of the interviewees] participated in gaming activities, 1.02 percent of which could develop into problematic gamblers and 1.12 percent could become pathologic gamblers,” she says. Definitions of what constitutes problem or pathological gambling are blurry. The behaviour of a problem gambler hurts themselves and the people around them. A pathological gambler has a clinical impulse control disorder that creates severe personal trouble. The study also assessed family sup-
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OCTOBER 2012
port, mental wellbeing, smoking habits, alcohol consumption and gamblers’ economic characteristics. Mr Huang said the government would make his study public in due time.
Support and samples Work on the 2007 survey was carried out by the University of Macau’s Institute for the Study of Commercial Gaming. The survey was designed to measure the public’s participation in gambling. The same university did similar research in 2003 and 2010, with about 2,000 residents aged between 15 and 64 years interviewed each time. In 2010, 55.9 percent of the interviewees said they had gambled in the previous 12 months. The figure was down by 3.3 percentage points in comparison with 2007. Overall, 6 percent of the 2007 study sample were said to have some sort of gambling problem. The study said 2.6 percent of those surveyed were pathological gamblers and 3.4 percent were problem gamblers. Last year’s research concluded that 2.8 percent were pathological gamblers and 2.8 percent were problem gamblers. Ms Wu says it is “not adequate” to establish a direct comparison between
the University of Macau studies and the survey from the Polytechnic Institute, since the research methodology and sample were different. Despite the mismatched results, the government is still committed to commissioning regular studies to assess the public’s gambling habits, she adds. There are several organisations in Macau that provide support to problem and pathological gamblers, but there is no aggregate data on the number of people who seek help. Figures at the Social Welfare Bureau’s Resilience Counselling Centre for Problem Gaming are dropping. The centre reported having handled 52 cases last year. The figure is down sharply from the 97 cases handled in 2007 and the 96 cases reported in 2010. The centre received 234 gamblingrelated phone calls last year, about half the number handled in 2007. Apart from gambling issues, people who sought help from the agency also reported a range of problems with their relationships, troubles with their marriage and financial strife. The centre provides face-to-face counselling, including for financial management for gamblers who have raked up significant debts.
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NEPTUNE’S PROFIT SURGES The junket investor has over 50 VIP gaming tables under its belt and expanding
Hong Kong-listed junket investor Neptune Group Ltd announced that its profit attributable to shareholders rose 40.7 percent year-on-year to HK$282.9 million (US$36.5 million) for the year ended June 30. Neptune said that the turnover from continuing operations was HK$433.4 million, an increase of 4.5 percent from a year earlier. Last month, Neptune reached an agreement with junket promoter Hoi Long Sociedade Unipessoal Lda to buy a 20-percent stake in the profits of a junket operation that operates 11 VIP gaming tables at SJM Holdings Ltd’s Grand Lisboa hotel casino. Neptune is set to pay HK$150 million for the deal.
AERL ACQUIRES VIP ROOM AT CITY OF DREAMS
Junket operator Asia Entertainment & Resources Ltd has completed the acquisition of 100 percent of the profit interest in the operations of Bao Li Gaming Promotion Ltd. Bao Li Gaming is a VIP room gaming promoter that operates one room with five tables at City of Dreams. AERL has the right to all of the profit interest of Bao Li Gaming dating back to September 1.
MELCO CROWN’S STAKE IN STUDIO CITY MAY RISE
Melco Crown Entertainment Ltd reached last month an agreement with its partners in the Studio City project to invest an additional US$350 million (MOP2.8 billion) total in equity capital toward the venture. The other shareholder in the project is New Cotai Holdings LLC, which is controlled by two U.S. investment firms. An option in the agreement allows New Cotai six months to deliver its 40 percent share of the US$350 million. If not, Melco Crown will increase its stake in Studio City to 67 percent from 60 percent by investing the full US$350 million amount itself, the gaming operator said.
AMAX WITH SMALLER STAKE IN GREEK MYTHOLOGY
Hong Kong-listed gaming investment company Amax Holding Ltd has halved its holding in the Greek Mythology Casino. Our sister publication Business Daily reported that a company spokesperson confirmed Amax has reduced its stake in the casino from 49.9 percent to just 24.8 percent. The reduction is part of a deal to end a fight over who controls the casino and its hosting venue, the New Century Hotel. One of the two people at the centre of that dispute – junket room operator Ng Man Sun – was appointed last month chief executive of Amax.
OCTOBER 2012
80
Gaming
Hi-tech gamble China lottery players opt for computers over mobile phones BY MARTIN JOHN WILLIAMS*
hina lottery users would be much more likely to play at home via the Internet than with mobile phones, new research indicates. The survey by industry advocacy group China Lottery Industry Salon found that 66 percent of respondents had smartphones with which they could purchase lottery products, but only 43.9 percent would do so. Customers were far more enthusiastic about Internet purchases from home, with 75 percent saying they would purchase lottery tickets if they had a home Internet connection, the “2012 China Lottery Internet Survey Report” said. It added that Apple, Android and other smartphone platforms (including Nokia’s Saiban platform) were used by 10.4 percent, 25.8 percent and 29.8 percent of lottery customers, respectively. The remaining 34 percent of customers retained pre-smartphone models. The findings were part of a wider survey presented in Beijing last month that claims to be the “most comprehensive, impactful and specialised survey of China’s lottery industry and its customers.” China Lottery Industry Salon founder Su Guojing said the gap between mobile phone and home computer use could be explained in part by user habit and familiarity with computers. “Lottery customer surveys were acquired through the Internet, which would explain a certain bias in the results toward the majority of people who access the net at home,” he told GamblingCompliance. “With increasing use of smart phones, that attitude will change but this will take some time.”
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Married to lottery A total of 24,230 valid questionnaires were solicited over two three-month periods in mid-2011 and early 2012 in conjunction with the Capital University of Economics and Business. The survey was released as the central government deliberates on the regulation of online lottery sales and changes in revenue distribution, amid calls for OCTOBER 2012
simplifying the mainland’s overlapping and confusing regulations. Mr Su is also chairman of the Asian Responsible Gaming Alliance, which has argued that a unified lottery bureau, and not separate government ministries, should run the sports and welfare lotteries. In terms of problem gambling, the survey found that households with two members – largely married couples – have the greatest tendency to overspend, with 23.7 percent of such households spending in excess of 60 percent of personal income on lottery products. This figure far outweighed the 6.3 percent of single men or women who spent this proportion of income on lotteries. The survey also found that 64.5 percent of respondents believed they would eventually win a main prize, 34.8 percent “think about the lottery most of their spare time”, and 29.7 percent thought analysing lottery results would increase their chances of winning. “These data indicate that many customers are buying lottery products under a misapprehension. No kind of customer calculation is going to increase
the chances of winning a big prize,” Mr Su said. Other survey data showed over 90 percent of lottery customers were male, while more than 50 percent were between 20 and 29 years of age. University and senior high school graduates together made up 84.5 percent of the market. The survey also showed that lottery customers are predominantly urban dwellers. Mr Su said his group’s survey work would continue and be released to the public on an annual basis. “It’s a very good way to raise public awareness. Lotteries are highly addictive, especially high frequency lotteries and those using video games,” Samuel Huang, an associate professor at the Macau Polytechnic Institute’s Gaming Teaching and Research Centre, says. The survey is not the first of its kind or scope in the mainland. Research institutes including the Lottery Research Centre of China at Beijing Normal University and the Beijing Institute of Psychology have conducted large-scale studies of problem gambling and customer demographics. *GAMBLINGCOMPLIANCE
Gaming Statistics
Casino gaming 2011 MOP 267.9 billion
Gross gaming revenue
5,302 16,056 34 casinos
Gaming tables Slot machines Number of casinos
Market share per casino operator* 2011 SJM Holdings Ltd Galaxy Entertainment Group Ltd Sands China Ltd Wynn Macau Ltd Melco Crown Entertainment Ltd MGM China Holdings Ltd
29% 16% 16% 14% 15% 10%
Year-on-year change (%)
MOP 23.9 billion
42.2 10.7 14.3 1 casino
5,498 17,035 36 casinos
Year-on-year change (%)
-3 7 -2 -1 --1
Year-on-year change (%)
Latest
Latest
percentage points percentage points percentage points percentage point
Month-on-month change (%)
27% 18% 18% 13% 14% 10%
percentage point
12.3 5.0 12.8 2 casino
1 -3 -1 1 1 --
percentage points percentage points percentage points percentage point percentage point
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Notes Sep 2012 Jun 2012 Jun 2012 Sep 2012
Notes Sep 2012 Sep 2012 Sep 2012 Sep 2012 Sep 2012 Sep 2012
Gross revenue from casino games Roulette Blackjack VIP Baccarat Baccarat
MOP783 million MOP2,712 million MOP196,126 million MOP48,669 million
Fantan
MOP211 million
Cussec
MOP4,774 million
Paikao
MOP114 million
Mahjong Slot machines 3-Card Poker Fish-Prawn-Crab
MOP70 million MOP11,425 million MOP190 million MOP51 million
3-Card Baccarat Game
MOP281 million
Craps
MOP151 million
Texas Holdem Poker
MOP277 million
Lucky Wheel Live Multi Game
MOP35 million MOP311 million
Stud Poker
MOP1,309 million
Casino War
MOP225 million
Fortune 3 Card Poker
MOP141 million
Year-on-year change (%)
16.5 18.4 44.6 39.4 15.3 34.3 32.6 105.9 32.6 45.0 -45.2 28.3 -7.4 28.2 9.4 103.3 23.5 43.3 29.4
Latest MOP318 million MOP735 million MOP52,175 million MOP15,553 million MOP56 million MOP1,328 million MOP22 million MOP57 million MOP3,285 billion MOP52 million MOP4 million MOP82 million MOP39 million MOP69 million MOP8 million MOP182 million MOP348 million MOP54 million MOP44 million
Year-on-year change (%)
109.2 14.3 7.5 35.1 5.7 16.8 -24.1 256.3 16.2 8.3 -71.4 9.3 8.3 -2.8 -225.0 16.0 3.8 33.3
Notes Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012
Gross revenue from other gaming activities 2011 Greyhound Racing
MOP297 million
Horse Racing
MOP440 million
Chinese Lottery
MOP6 million
Instant Lottery
MOP0.0036 million
Sports Betting - Football Sports Betting - Basketball
MOP362 million MOP86 million
Year-on-year change (%)
-12.6 0.2 -56.5 -4.7 8.9
Latest MOP46 million MOP82 million MOP1 million MOP0.0005 million MOP102 million MOP24 million
Year-on-year change (%)
-43.2 -23.4 -50.0 -58.3 17.2 33.3
* Figures are rounded to the nearest unit, therefore they may not add exactly to 100 percent
OCTOBER 2012
Notes Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012
Source: Gaming Inspection and Coordination Bureau and industry sources
2011
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MELCO CROWN AND BELLE STILL NEGOTIATING
The deadline initially announced to close the joint venture agreement for a Manila casino has already expired Melco Crown Entertainment Ltd and Philippine partner Belle Corp have yet to formally close the deal on a joint venture to develop a casino in Manila. Melco Crown announced on July 5 that it had entered into a memorandum of agreement with
Philippine leisure firm Belle Corp to develop a casino resort in Manila. At the time, it added that a final agreement between both parties would be finalised within the next two months. Negotiations are still going on. “There are still some more or
less routine things that have to be worked out pertaining to permits and similar things with the Philippine authorities,” Manuel Gana, executive vice president and chief financial officer of Belle Corp, told GamblingCompliance.
STEVE WYNN WINS DEFAMATION SUIT
Wynn Macau Ltd chairman Steve Wynn won US$40 million (MOP320 million) in compensation in a defamation suit, after he was accused of planning to have a businessman killed and buried in the desert over a bad gambling debt. Mr Wynn was awarded the compensation after taking legal action against Joe Francis, founder of the entertainment group “Girls Gone Wild”. Mr Francis first made the comments in court in April 2010 – where they were immune from legal action. That trial was about a US$2 million gambling debt, which Mr Francis allegedly ran up at one of Wynn’s Las Vegas casinos. But he was accused of repeating the comments once outside court.
ADELSON SETS RECORD IN POLITICAL DONATIONS
Sands China Ltd chairman Sheldon Adelson set a new record in political donations in the United States. According to news outlet Politico, Mr Adelson gave US$70 million (MOP560 million) to the Republicans in the 2012 elections. That is almost triple the previous record, set in 2004 by billionaire financier George Soros. Mr Adelson has said he plans to spend up to US$100 million to defeat incumbent President Barack Obama on November 6. OCTOBER 2012
CHINESE BUSINESSMAN WINS POKER CUP CHAMPIONSHIP Rui Chen won the Macau Poker Cup Championship 2012 last month. The Chinese businessman took centre stage as he beat a 270-player field to capture the main event title, taking home HK$1.1 million (US$142,000). Overall, the Macau Poker Cup Championship 2012 hosted 13 cash tournaments. The events totalled 1,476 players who competed for more than HK$10 million in prize money.
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OCTOBER 2012 For more information visit www.macau-event.com or write to golf@macaubusiness.com
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Gaming
Comfort zone
Starwood’s Sheraton Macao Hotel is almost complete and the group is already planning to expand in Cotai BY ALEXANDRA LAGES
rom managing a single hotel in Macau up until last month, Starwood Hotels and Resorts Worldwide Inc has plans to increase its portfolio to four properties in five years. “If we get all these hotels open, including the [St Regis] serviced apartments, we will have close to 6,000 rooms in Macau alone under the Starwood umbrella,” says Hong Kong-based Stephen Ho, Starwood’s Asia Pacific president. The hotel company opened the first tower of the Sheraton Macao Hotel, with 1,829 rooms, last month. The property is part of Sands Cotai Central, the multihotel, casino resort development owned by Sands China Ltd. When the second tower opens in February, it will offer another 2,000plus rooms, and Sheraton Macao will become the biggest hotel in the city. It will also be the world’s biggest Sheraton and Starwood’s biggest property. Starwood currently manages the Westin Resort Macau, in Coloane. The
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208-room property owned by Sociedade de Turismo e Desenvolvimento Insular SARL is part of the business empire built and controlled by Stanley Ho Hung Sun’s family. The new Starwood properties in the pipeline will introduce two more of the group’s brands to Macau. The group will manage a St Regis-branded mixed-use property in a fourth, yet-tobe-built, US$450-million (MOP3.6 billion) tower at Cotai Central. The project was to have 460 rooms and around 400 serviced apartments when it was first announced. It is expected to be ready within 18 months, according to Sands China and Starwood.
Guess Who Starwood also hopes to open a W Hotel in the second phase of Studio City, a project majority-owned by Melco Crown Entertainment Ltd. “We will see the W Hotel coming online in 2016 or 2017. Those are an-
other 560 keys,” says Mr Ho, a pastry chef turned hotel executive. The partnership with Studio City goes back to 2007 and the project’s original investors. Melco Crown bought into Studio City last year, acquiring a 60-percent stake after the original owners were unable to resolve their own internal legal wrangling and develop the site near the Lotus Bridge border crossing. Studio City was due to open in 2009 but the most recent target is now mid-2015. Mr Ho is grateful for the extra time. “Even though W is delayed, that’s actually good, because it gives us a pacing,” he says. Starwood is bullish about the future of the Macau tourism industry, as regional integration in the Pearl Delta River gears up. The group expects the new Hong Kong-Zhuhai-Macau Bridge plus other infrastructure projects under development to boost connectivity and
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funnel more tourists into the city. That will ensure enough arrivals to fill up a hotel the size of the Sheraton and the other Starwood properties to come, the group forecasts. “It would be a mistake not to be in this market,” Mr Ho says. The Singapore native says the Sheraton’s average occupancy will hover at around 80 percent – the hotel actually achieved a 100 percent occupancy rate on its first Saturday night. To meet that target, particularly on weekdays, management will push the idea of making the hotel a meetings and conventions destination. Starwood wants to bring more MICE events or meetings, incentives, conventions and exhibitions, to Cotai and to move away from the reliance on mainland clientele. “Although the mainland is part of it [Sheraton’s strategy], we want to make sure that we can balance that with people from other regions, like South Asia
or long haul [travellers] from the United States and Europe,” Mr Ho says.
MICE and manpower
“It would be a mistake not to be in this market,” says Stephen Ho, Starwood’s Asia Pacific president
Sheraton Macao’s director of sales Corinne Janssen says the hotel has eight big meetings and conventions scheduled this year. It is bidding for 150 MICE events for next year. It helps that the Sheraton chain has a substantial international footprint and the wider Starwood network to help boost the number of business events at the Macau property. “We are not here just to compete with everybody. We are here to try to grow the pie by offering a different product and a different approach,” Ms Janssen says. The hotel has a dedicated team of professionals targeting the association meetings segment. Its trump card is its sheer size, allowing the property to host large-scale meetings with thousands of delegates, without the need to scatter OCTOBER 2012
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Gaming
BY THE NUMBERS: SHERATON MACAO 3,863 Guest rooms 90,796 Light bulbs 35,217 Towels 15,652 Pillows 9,372 Bed sheets 6,256 Beds * When fully opened in February
accommodation around the city. The hotel’s pillar-less Kashgar Grand Ballroom and its six junior ballrooms have 15,000 square metres of meeting space. The Sheraton has access to a further 5,000 square metres of meeting space within the Cotai Central development. Other hotel facilities include a spa with 15 treatment rooms, three outdoor swimming pools and three restaurants. Despite the manpower shortage in Macau, Mr Ho says guests will get the same treatment here as in they would in any other Sheraton property. Once fully up and running, the hotel will have 2,500 staff. Mr Ho says Starwood’s career track system and staff programmes will ensure the hotel will get all the workers it needs and provide high-quality service. The hotel’s first phase opened with 1,500 people of more than 20 nationalities, with about 40 percent of the staff being Macau residents. Starwood says it would like to employ more residents, OCTOBER 2012
especially hotel industry workers currently employed overseas. Ahead of the public opening and to fine-tune the operation, management organised an eight-day simulation in which close to 10,000 people stayed at the property. Starwood does these simulations in all new hotels but this was a longer trial run because of the size of the property, Mr Ho says. “It is a big hotel, so you need a lot of eyes looking at it. And it’s energising to the staff to be able to open doors to people in a safe environment,” Ms Janssen says. “They are more confident because of that period.”
Greater expectations The Greater China region is one of the fastest growing markets for Starwood’s international operations. The group has 110 hotels operating throughout the region and another 100 being built. In the Asia-Pacific region, there were 225 Starwood hotels at the end of
June and another 150 in the pipeline. There are more to come, with Starwood hopeful it can sign a record number of hotel management deals this year. The group is one of the leading hotel and leisure companies in the world with more than 1,110 owned or managed properties, staffed by 154,000 employees in more than 90 countries. “This year, we will see 35 to 40 openings of new hotels,” Mr Ho says. “We have the best track record of converting signings to openings and this is very important. Most of our competitors sign a lot of deals but never open.” A murky economic future is not scaring Starwood either. Mr Ho says the group’s weapon against financial downturns is to make sure it hires staff that “are locally smart”. “There will be ups and downs but if you miss them, it is actually worse,” he says. According to the executive, proper planning can help to better cope with market variations. “Overall we are bullish,” says Mr Ho.
Hospitality
VISITOR ARRIVALS TO GROW IN 2012
The Tourist Office head is optimistic, despite tourism numbers dropping for four months in a row The Macau Government Tourist Office director João Manuel Costa Antunes said last month that the overall number of tourist arrivals would still grow in 2012. Even so, he admitted that the government’s initial forecast of the city hitting 30 million tourists this year would be hard to achieve, due to adverse economic factors abroad. In 2011, tourism arrivals increased by 12.2 percent year-on-year, to a record 28 million visitors. Mr Costa Antunes now forecasts a low, single-digit growth rate for tourist arrivals this year, with the total number reaching between 28 million and 29 million visitors. Tourist arrivals fell for the fourth month in a row in August. In the first eight months of this year, the number of visitors totalled 18.7 million, up by just 1.1 percent year-on-year.
HOTELS ENJOY RECORD NUMBER OF GUESTS
Macau’s hotels and guesthouses welcomed almost 876,000 guests in July, up by 10 percent year-on-year and a new all-time high, according to official data. The previous record was set in December last year, when the number of guests stood at 820,000. However, the average length of stay of guests in July decreased by 0.18 nights year-on-year to 1.2 nights. The occupancy rate of hotels and guest-houses also went down in comparison with one year before, standing at 85.0 percent, down by 3.2 percentage points.
TOURISM OFFICE LAUNCHES IPHONE APP FOUR-CITY COOPERATION AGREEMENT INKED
Tourism authorities from Macau, Hong Kong, Shenzhen and Zhuhai last month signed the first-ever tourism cooperation agreement between the four cities. The signing ceremony took place in Shenzhen. The four parties will each set up a liaison team to regularly exchange information on management practices and tourism policies. The new agreement aims to strengthen cooperation and communication among the four cities to promote multidestination tourism and attract more international visitors.
The Macau Government Tourist Office just launched a new iPhone App to promote the city’s tourism. Named “Experience Macau”, it provides a variety of information about the city’s heritage, museums, entertainment and accommodation options. The app is also equipped with the augmented reality and trip planner functions. Some selected attractions are provided with audio introductions and panoramic photos. The app is available in English, and traditional and simplified Chinese.
OCTOBER 2012
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Hospitality
Healthy living
For restaurants and cafes, giving up smoking has been good for their financial health BY ALEXANDRA LAGES
he signage is conspicuous and widespread throughout the city’s food and beverage outlets. Since the beginning of this year, a ban on smoking has been in place in most public venues, including restaurants and coffee shops. And contrary to the arguments put forward before the ban, a new study has found that the move has not hurt business – but instead has helped eateries make more money. The study, carried out by the Institute for Tourism Studies’ Tourism Research Centre, shows that six months after the ban, one-quarter of Macau residents said they now dined out more often. More than 60 percent of those surveyed said they had tried more new restaurants and bars since the ban was imposed. About 1,000 people were surveyed in the middle of this year. The sample was evenly divided between residents and tourists. Smoking was banned inside most public venues in January. The ban covers workplaces, government buildings, restaurants, commercial areas, banks and hotels, except in rooms and outdoor areas. The only exceptions were made for casinos and nightlife venues. The casinos have until January to prepare their premises and introduce non-smoking areas on their gaming floors. Sau-
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OCTOBER 2012
nas, massage parlours, bars and clubs have until January 2015 before the ban comes in. The Tourism Research Centre survey concludes that the public feels air quality in restaurants has improved since the ban. Six months after the law came in, 85.4 percent of the residents surveyed said the air was better inside food and beverage outlets.
SMOKING BAN’S INFLUENCE ON RESIDENTS’ DINING OUT BEHAVIOUR More often The same
69.8%
24.5%
Less often
5.7%
89
TIME’S UP
PERCENTAGE OF RESIDENTS REPORTING BETTER AIR QUALITY
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90% 80% 70% 60% 50% 40% 30% 20% 10% 0% F&B outlets
Public General indoor services and facilities areas
Parks
Hotels Entertainment Workplace Transportation Casinos (public area) facilities hubs and bus stops
General outdoor areas
PERCENTAGE OF REPEAT VISITORS REPORTING BETTER AIR QUALITY 80% 70% 60% 50% 40% 30% 20% 10% 0%
F&B outlets
General indoor areas
Hotels Entertainment (public area) facilities
Parks
Transportation Public hubs and services and bus stops facilities
General outdoor areas
Casinos
PERCENTAGE OF FIRST-TIME VISITORS REPORTING BETTER AIR QUALITY COMPARED TO THEIR EXPECTATIONS 80% 70% 60% 50% 40% 30% 20% 10% 0%
F&B outlets
General indoor areas
Hotels Public Transportation (public area) services and hubs and facilities bus stops
Parks
General outdoor areas
Entertainment facilities
Casinos
ess than three months out from the ban on smoking being extended to the city’s gaming floors, casino operators are still waiting for the government to release the technicalities that would allow them to establish smoking-only areas. SJM Holdings Ltd chief executive Ambrose So Shu Fai last month warned that time was running short. He blamed the government for not consulting the industry earlier. The casino tobacco ban starts on January 1. They will be able to offer huge indoor smoking areas of up to half of the gaming floor. In comparison, restaurants and cafes are not permitted to have any smoking-only zones. Bars, nightclubs, saunas or massage parlours will also be totally smoke-free when the ban is extended to include them, in 2015. Casinos were offered a partexemption from the ban because there was a fear that full prohibition would have a drastic, negative economic effect. A spokesperson for the Gaming Inspection and Coordination Bureau told Macau Business that the Health Bureau is largely in-charge of preparing the technical standards for the casino smoking-only areas. Our sister publication Business Daily has learned that the Health Bureau is considering demanding walls to be built on casino floors to separate smoking areas from nonsmoking ones. That proposal caused some alarm in the industry, as it would totally alter casino layouts and cause major operational headaches, the English-language newspaper reported. Gaming operators contacted by Macau Business said they were not concerned by the looming deadline. A spokesperson for Galaxy Entertainment Group Ltd said the company was waiting for details from the government but the operator had already taken measures to be ready for January 1. “We are confident that the government remains pragmatic and will put forward a policy that creates a win-win situation for the people and business,” the spokesperson said. MGM China Holdings Ltd is also working with the government and keeping in close contact with the relevant departments in order to be prepared accordingly, a representative said. OCTOBER 2012
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Hospitality
Restaurants top the list of places where the ban’s perceived positive effect on air quality by residents was greatest. In hotels, 61.5 percent of respondents said they felt the air was better.
Cleaning up Regular visitors to Macau also say air quality has improved. About 72 percent of repeat visitors reported better air quality at food and beverage outlets, compared to their visits prior to the smoking ban.
AWARENESS OF BAN ON SMOKING Yes 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Residents
Repeat visitors
OCTOBER 2012
First-time visitors
No
The figure climbs to close to 80 percent for first-time visitors who were asked to compare their actual experience against their expectations. A large percentage of tourists overall additionally said they enjoyed better air quality indoors generally and at hotels. The tobacco ban may have also positively affected the way residents behave. About 43 percent of the residents who were surveyed and were smokers, claimed they were smoking less now, compared to the start of the year. More than half of the overall residents surveyed said they were now more concerned about their health and the health of people around them. The study concludes that the smoking ban is likely to benefit the tourism industry in the long run, with more than onethird of the visitors surveyed saying they would be more likely to visit Macau again, as long as the ban stays in place. Awareness of the smoking ban was remarkably high among residents, with almost 98 percent aware of it. Two out of every three surveyed visitors also knew about the ban. Even so, a second study also conducted by the Tourism Research Centre suggests awareness among tourists needs to be raised. Visitors account for more than one-third of the fines handed out under the ban. That was said to be “quite high� compared to other jurisdictions, which had an average of 11 percent of tourists booked. This second study suggests that the government reinforce the no-smoking message at border checkpoints, and in multiple languages. Tour guides can help by reminding travellers where smoking is allowed and the consequences of breaking the law.
91 GUSTAVO CAVALIERE HOSPITALITY INDUSTRY EXPERT - gustavo.cavaliere@gmail.com
Blinded by stars THE MAIN DISTINGUISHING FEATURE IN A HOSPITALITY BUSINESS IS NOT FLASHY HARDWARE BUT THE ABILITY TO CREATE MEMORABLE EXPERIENCES
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tars are said to make the difference in the hospitality industry: the more an establishment has, the higher a customer’s expectations. A problem arises when the service the establishment offers fails to match the number of stars it has. I recently faced such a problem while staying in a wellknown hotel here. It has five stars, but I got surprised when I found that room service was not around the clock. From 11.30pm, I could not order even a cold snack. Welcome to the strange world of ratings for luxury hotels. This is a world in which stars, or diamonds, do not always tell the true story about the quality of service. The ethos of many five-star resorts is not necessarily a culture of creating unforgettable memories. Well-trained staff whose service is highly polished, complete with insincere smiles just because it is part of the script, are more likely than not to fail to give a guest a memorable stay. Such robotic professionalism ensures efficiency but does not really make customers long for the next visit. The same can be said about the architecture of a hotel, its situation, the prices it charges or the speed of its service. What truly distinguishes a hotel is the ability to deliver exceptional experiences and to touch the hearts of customers through unscripted, genuinely sincere, personal service. This ability enhances its reputation, occupancy rates and profit.
Research has found that more than 70 percent of guests base the decision of whether to return to a hotel or not, on the personal connections they established during previous stays. In other words, guests are more likely to return if the staff leave a lasting, positive impression.
Humble pie, no cream Acquiring the ability to create exceptional memories entails refocusing a hotel’s entire culture. It means changing practices, altering methods and modifying staffing policy. The foundation of this ability is respect for staff and true commitment to treating them fairly and honestly. After that, everything else comes easily. The first step is to establish a team of people who genuinely love their work. Recruiters need to assess each candidate’s core values and determine what motivates them to become a part of the company. This assessment must go beyond ticking off the technical skills candidates put on their resumes. It should cover what they are passionate about. In a winning team, staff must be enthusiastic about serving others. This must be their motivation, not money. Team leaders must also have this passion for serving others, and use it first to serve their subordinates. They should see their role principally as that of team servants, whose goal is to satisfy the needs of the group to ensure it keeps running smoothly and successfully. After such a group is assembled, training programmes must be redeveloped to support the new culture. It should be all about creating an open environment, stimulating warmth and creativity. Working in the hospitality industry is more than just a job. It should be a way of life, in which the customer always comes first.
Passion killer
No matter how many stars it flashes, no hotel in Macau has yet succeeded in delivering anything close to an unforgettable customer experience
Hotel staff should be passionate about ensuring high levels of customer satisfaction in each and every encounter. Everyone in the company, high or low, should share this ethos. Creating lasting memories is more important than just providing efficient service because it is what gives guests a fullflavoured experience. But creating lasting memories is harder, as the work starts from the moment the customer enters the hotel and lasts until the moment they leave. No matter how many stars it flashes, no hotel in Macau has yet succeeded in delivering anything close to an unforgettable customer experience. Many just deliver efficient but unfriendly service. The reason for this is clear, although most managers fail to recognise it. The problem is that they themselves have yet to show passion for serving others – beginning with serving their staff. Training methods in the hospitality industry here are obsolete, in view of the demands and aspirations of today’s customers. Until these methods are updated, we will get only more of the same old thing: nice hardware with robotic staff delivering a product, not a service. OCTOBER 2012
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Hospitality
Bubbles and froth
Oktoberfest events set the cash registers ringing but beer importers say they would like to do more business BY ALEXANDRA LAGES
ctober is synonymous with beer. The traditional Oktoberfest celebrations in Munich, Germany, that began in September and ended at the start of this month, have gone global. Macau has joined the party. MGM Macau holds an Oktoberfest fortnight that is a fixture on the city’s calendar of events. This year, it takes place from October 18 to 27. Two other beery celebrations last month, one at Galaxy Macau and the other across the street at the Grand Waldo, helped get the party started. Life is not all beer and skittles for beer importers and distributors though. Their sales are not growing as fast as the number of beer festivals here might suggest. Several beer distribution companies told Macau Business that sales have been growing on average by 5 percent annually, a figure that does not meet their expectations. Data from the Statistics and Census Service shows almost 10 million litres of beer was imported between January and the end of August, an increase of 4.6 percent over the same period last year. The value of imports reached MOP75.9 million (US$9.5 million), about 13 percent more than in the first eight months of last year.
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OCTOBER 2012
Beer imports are outperforming red wine, whose imported volume dropped by 3 percent in the first eight months of this year. The value of red wine imports was down by almost one-third, to MOP1 billion. Although Macau welcomes millions of tourists each year, their influence on beer consumption is limited, says Dick Chong from the Macau subsidiary of Tsingtao Brewery Co Ltd. “And more and more residents are reducing their spending on beer,” he adds. Even so, Mr Chong says sales of Tsingtao, one of the most popular beers in Macau, have grown at above the market average. The difficulties in running the operation lie in human resource shortages and increasing operating costs, according to him.
Non-preferred tipple Seapower Trading Co Ltd distributes 14 beer brands in Macau. The company’s chief operating officer Patrick Ting says most tourists are not fond of beer and the business relies on drinkers residing in Macau. He says most mainland consumers “prefer drinking cognacs, whisky or wine and occasionally some beer”. That spells bad news, since profits in
the beer trade are reliant on sales volume. Pico Import Co has imported the Portuguese beer Super Bock for more than two decades. Fernando Gomes owns the company and the popular “Fernando” restaurant in Coloane. He says business has been steady for a long time. Currently, he imports about 25,000 bottles of Super Bock a month. With more promotion, he forecasts sales volumes could more than double. What is certainly increasing is the offering. Mr Gomes says competition is becoming fiercer as new brands come into the market. Despite the challenges, events and promotional initiatives are on the rise. The distributors applaud the efforts. Mr Ting says distributors are beginning to capitalise on the promotions for the benefit of their brands. MGM Macau’s Oktoberfest is now into its fourth edition. Mr Chong says the event has been a great success in the past and that has led to other similar festivals emerging. “We hope through these events to let more people know about beer. Furthermore, they can build up the product’s image and give it a better reputation,” he says.
Tourism statistics
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Visitor arrivals Year-on-year change (%)
2011 Total - Same-day visitors - Overnight visitors Average length of stay
28,002,279 15,077,119 12,925,160 0.9 days
Year-on-year change (%)
Latest
18,703,119 9,732,553 8,970,566 1.0 days
12.2 15.6 8.4 --
1.1 -2.0 4.7 -0.1 days
Notes Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Aug 2012
Visitors by place of residence Year-on-year change (%)
2011 Asia - Mainland - Guangdong - Fujian - Zhejiang - Hunan - Beijing - Shanghai - Tianjin - Chongqing Individual visit scheme - Hong Kong - Taiwan - Japan - South Korea - Others America Europe Oceania Others
27,287,076 16,162,747 8,196,139 932,316 575,595 533,495 314,696 471,366 100,585 172,140 6,588,722 7,582,923 1,215,162 396,023 398,807 1,531,414 310,608 251,748 127,983 24,864
12.4 22.2
Year-on-year change (%)
Latest
131.1 164.2 140.1 191.9 185.6 159.0 151.2 166.8
18,236,436 11,202,643 5,421,422 549,648 409,619 392,114 213,955 326,880 84,766 130,534
20.1 1.6 -6.0 -4.2 20.2 -0.6 4.5 3.0 0.3 8.8
4,782,892 4,790,983 719,917 283,771 298,850 940,272 199,319 165,941 83,657 17,766
Notes
1.1 6.6 0.0
Jan-Aug 2012
-5.6 7.5 19.9 5.6 6.0 45.1 27.6 8.0 -7.8 -14.6 14.6 8.3 -3.2 -0.3 3.4 3.4 15.3
Jan-Aug 2012
Jan-Aug 2012 Jan-Aug 2012
Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012 Jan-Aug 2012
Hotels Hotel and guest-house rooms Hotel guests Hotel average occupancy rate Average length of stay
11.3 22,356 11.0 8,612,127 4.3 84.1 1.53 nights -0.01
percentage points nights
Latest
Year-on-year change (%)
24,235 5,351,950 82.1 1.41 nights
11.1 11.8 percentage -0.9 points -0.1 nights
Notes Jul 2012 Jan-Jul 2012 Jan-Jul 2012 Jan-Jul 2012
Visitor expenditure 2011 Total spending (excluding gaming) MOP 45.3 billion - Non-shopping spending - Shopping spending Per-capita spending
MOP 22.9 billion
22.4 billion MOP 1,619 MOP
Year-on-year change (%)
20 23 16 7
Latest MOP 11.4 billion MOP 5.8 billion MOP 5.6 billion MOP 1,713
Year-on-year change (%)
13 9 17 16
OCTOBER 2012
Notes Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012 Apr-Jun 2012
Source: Statistics and Census Service
Year-on-year change (%)
2011
94 ROBERT J. SHILLER PROFESSOR OF ECONOMICS, YALE UNIVERSITY
The narrative structure of global weakening THE ECONOMIC IMPORTANCE OF STORIES BEARS NO CLOSE RELATION TO THEIR MONETARY VALUE ecent indications of a weakening global economy have led many people to wonder how pervasive poor economic performance will be in the coming years. Are we facing a long global slump or possibly even a depression? A fundamental problem in forecasting nowadays is that the ultimate causes of the slowdown are really psychological and sociological, and relate to fluctuating confidence and changing “animal spirits,” about which George Akerlof and I have written. We argue that such shifts reflect changing stories, epidemics of new narratives and associated views of the world, which are difficult to quantify. In fact, most professional economists do not seem overly glum about the global economy’s prospects. For example, last month, the Organisation for Economic Co-operation and Development (OECD) issued an interim assessment on the near-term global outlook, written by Pier Carlo Padoan, that blandly reports “significant risks” on the horizon – the language of uncertainty itself. The problem is that the statistical models that comprise economists’ toolkit are best applied in normal times, so economists naturally like to describe the situation as normal. If the current slowdown is typical of other slowdowns in recent decades, then we can predict the same kind of recovery. For example, in a paper presented last spring at the Brookings Institution in Washington, James Stock of Harvard University and Mark Watson of Princeton University unveiled a new “dynamic factor model,” estimated using data from 1959 to 2011. Having thus excluded the Great Depression, they claimed that the recent slowdown in the United States is basically no different from other recent slowdowns, except larger.
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The importance of stories Their model reduces the sources of all recessions to just six shocks – “oil, monetary policy, productivity, uncertainty, liquidity/financial risk and fiscal policy” – and explains most of the post-2007 downturn in terms of just two of these factors: “uncertainty” and “liquidity/financial risk.” But, even if we accept that conclusion, we are left to wonder what caused large shocks to “uncertainty” and to “liquidity/financial risk” in recent years, and how reliably such shocks can be predicted. When one considers the evidence about external economic shocks over the past year or two, what emerges are stories whose precise significance is unknowable. We only know that most of us have heard them many times. Foremost among those stories is the European financial crisis, which is talked about everywhere around the globe. The OECD’s interim assessment called it “the most important risk for the global economy.” That may seem unlikely: Why should the European crisis be so important elsewhere? Part of the reason, of course, is the rise of global trade and financial markets. But connections between countries do not occur solely through the direct impact of market prices. Interacting public psychology is likely to play a role as well. This brings us to the importance of stories – and very far OCTOBER 2012
from the kind of statistical analysis exemplified by Mr Stock and Mr Watson. Psychologists have stressed that there is a narrative basis to human thinking: people remember – and are motivated by – stories, particularly human-interest stories about real people. Popular stories tend to take on moral dimensions, leading people to imagine that bad outcomes reflect some kind of loss of moral resolve. The European crisis began with a Greek meltdown story, and it appears that the entire global economy is threatened by events in a country of only 11 million people. But the economic importance of stories bears no close relation to their monetary value (which can be measured only after the fact, if at all). It depends, instead, on their story value.
Greek story goes viral The Greek crisis story began in 2008 with reports of widespread protests and strikes when the government proposed raising the retirement age to address a pension funding shortfall. Reports began to appear in global news media portraying an excessive sense of entitlement, with Greeks taking to the streets in protest, even though the increase was modest (for example, women with children or in hazardous jobs would be able to retire with full benefits at just 55, up from 50). That story might have invited some gossip outside of Greece, but it gained little purchase on international attention until the end of 2009, when the market for Greek debt started to become increasingly unsettled, with rising interest rates causing further problems for the government. This augmented news reports about Greek profligacy, and thus closed a negative feedback loop by attracting intensifying public interest, which eventually fuelled crises in other European countries. Like a YouTube video, the Greek story went viral. One might object that most people outside of Europe surely were not following the European crisis closely, and the least informed have not even heard of it. But opinion leaders, and friends and relatives of the least informed in each country, were following it, and their influence can create an atmosphere that makes everyone less willing to spend. The Greek story seems connected in many people’s minds with the stories of the real-estate and stock-market bubbles that preceded the current crisis in 2007. These asset bubbles were inflated by lax lending standards and an excessive willingness to borrow, which seemed similar to the Greek government’s willingness to take on debt to pay lavish pensions. Thus, people saw the Greek crisis not just as a metaphor, but also as a morality tale. The natural consequence was to support government austerity programs, which can only make the situation worse. The European story is with us now, all over the world, so vivid that, even if the euro crisis appears to be resolved satisfactorily, it will not be forgotten until some new story diverts public attention. Then as now, we will not be able to understand the world economic outlook fully without considering the story on people’s minds.
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Food and beverage
GROWING TOGETHER Sands China Ltd. continuously looks to oer the best career opportunities for Macau locals
OCTOBER 2012
Sponsored Feature
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provides support to interested applicants who want to join the company. Edward Tracy, President and Chief Executive Officer of Sands China Ltd., says the company takes the career development and well-being of its team members very seriously. “As a responsible corporate citizen, this is an important step to demonstrate our continuous commitment to nurture the next generation of talent for Macau,” he says.
Jobs for all
Guest services
eing the largest premium employer in Macau, Sands China Ltd. boasts a workforce with thousands of local team members. The company eyes to provide them with more than just an above-average salary and the best comprehensive fringe benefits – it aims to offer each and every local associate a personalised career path where he or she can grow professionally while learning new skills. Sands China Ltd. strives to provide an ample variety of career development opportunities for the local market, preferring to promote from within whenever possible, across the entire spectrum of its many different operations.
Opportunities for career growth have been in abundance at Sands China Ltd., due to the company’s fast development track, with four properties under its belt and more to come. Its management says it will continue to look for local talent, and plans to hold additional recruitment fairs on a regular basis. Over one year ago, the company took another step in its pledge to nurture Macau talent, by opening the Sands China Career and Development Centre. The centre is aimed at providing a convenient, informative platform for existing team members to seek career advice and support. It also
The career opportunities at Sands China Ltd. couldn’t be more diverse. The company’s integrated resorts contain an expansive mix of leisure and business attractions, including large meeting and convention facilities, a wide range of restaurants, shopping malls and world-class entertainment. With so many different facets of businesses under one roof, Sands China Ltd. can provide an attractive career ladder to professionals from a wide scope of trades, helping the local talent pool to realise its potential. Of the 23,000-plus team members the company currently employs, over 80 percent are Macau residents. The promotion of 1,000 local team members last year alone is a testament to the employment practices of Sands China Ltd. and the opportunities for advancement the company offers. In just the first quarter of this year, close to 1,300 local team members were promoted. Sands China Ltd.’s effort in developing local talent extends to providing team members with the best training available. Last year alone, the company delivered more than 75,000 hours of various training and development programmes covering a range of topics including grooming, management development, languages and job skills building. Those are tailor-made OCTOBER 2012
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Gaming
Entertainment
introduce new techniques and keep its engineering associates in touch with the most recent equipment. That, he stresses, brings them up to speed with the newest industry trends. Mr. Lei says he and his colleagues are always happy to give back, by providing training to fresh new local recruits. As those associates get more knowledgeable, they often are offered management positions. May U Fong Mei is another great example of the career opportunities provided by Sands China Ltd. Currently a duty manager of the front office at The Venetian Macao, she began her career with the company as a concierge. Ms. U says one of the benefits of being a team member of Sands China Ltd. is having access to a large scope of career progression opportunities. Shirley Hon Ku San agrees. She is a Paiza food and beverage manager at the Sands® Macao. In six years, she moved up from captain to her current managerial position. She says that was only made possible due to the training and promotion opportunities Sands China Ltd. offers its staff. Ms. Hon adds the impact of the support and orientation provided to her by Sands China Ltd. has gone beyond boosting her work-related skills. She says it improved her critical thinking and gave her a new way to see the world.
Grooming talent
Retail
programmes according to the position and sector of each associate, to better suit their strengths.
Opportunity to learn Chad Lei Su Tak, with Sands China Ltd. since 2007, is assistant chief engineer at The OCTOBER 2012
Venetian Macao-Resort-Hotel and highlights the learning opportunities provided by the company. Mr. Lei explains the company’s on-going expansion provides him access to the latest technologies. He adds Sands China Ltd. regularly hosts training sessions to
Armindo Gonçalves is another of the thousands of local Sands China Ltd. employees whose talent has been recognised and continuously groomed by the company. Mr. Gonçalves began as a driver with the Sands Macao, advancing to an assistant manager position within four years. He now oversees guest services such as the hotel’s concierge, welcome services and valet parking. He says Sands China Ltd. helped him progress in his career
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Senior executives celebrate TheVenetian Macao’s fifth anniversary with team members
A people’s company ands China Ltd. continuously strives to S implement various initiatives to interact with its team members. These range from its employee engagement programmes to other special activities, which are more light-hearted yet heartfelt. These activities are established with the sole purpose of building a stronger connection between team members, while also reminding them that they are Sands China Ltd.’s most important assets. From the perspective of the company’s management, such initiatives demonstrate a commitment to looking for ways to inject fun and by caring for and encouraging his professional growth. He stresses there are few other companies around putting so much effort into team member development. Mr. Gonçalves says the
added enjoyment into the workplace, and confirm Sands China Ltd.’s dedication to becoming the employer of choice in Macau. One such recent event was a special gathering to celebrate Venetian Macao’s fifth anniversary, on August 28. Sands China Ltd. held a celebration at the integrated resort’s team member dining room to honour its employees’ tremendous efforts and continued support of the integrated resort. Company senior executives attended the event, expressing their sincere gratitude to the employees for their hard work and dedication.
decision to join Sands China Ltd. changed his life for the better. Bonnie Chan Fong Sin started working at the Sands Macao in 2004, when it first opened, and was among the many local
Sands China Ltd. recruitment fair
workers with aspirations for a better future, joining its security department as a security officer. Ms. Chan says she expected an international company would treat every team member with equal opportunities and exciting career prospects. She was not wrong: within eight years, she was promoted five times. Her current position is senior operations manager of the security department at the company’s newest integrated resort, Sands® Cotai Central, which opened this past April. This is Sands China Ltd.: a company that believes giving its local staff members the recognition they deserve and an attractive career path as a fundamental part of its mission. Success is a team effort. OCTOBER 2012
If you know of an event that you believe should be listed with Macau Business, please drop us an e-mail: calendar@macaubusiness.com. In the subject bar, type in “List me as an event”.
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October Date: Event: Venue: Organiser: Address: Tel: Fax: Website: E-mail:
10 th – 12th
8th International Hotel Expo
Venetian Macao-Resort-Hotel, Macau Coastal International Exhibition Co Ltd Room 2106, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong (852) 2827 6766 (852) 2827 6870 www.hotel-exhibition.com general@coastal.com.hk
Date: Event:
12th – 14th
Venue: Organiser: Address:
Venetian Macao-Resort-Hotel, Macau China Global Exhibition Co Ltd Avenida Comercial de Macau, FIT Centre, 5/F, unit A, Macau (853) 6358 5891 (853) 8294 6896 www.ieemacau.com helena@edumacau.org
Tel: Fax: Website: E-mail: Date: Event: Venue: Organiser: Address: Tel: Fax: Website: E-mail:
2nd Macau International Education Expo
18th – 21st
17th Macao International Trade & Investment Fair
Venetian Macao-Resort-Hotel, Macau Macao Trade and Investment Promotion Institute 367, Avenida Praia Grande, Edf. Keng Ou, 3/F, Macau (853) 2882 8711 (853) 2882 8722 www.mif.com.mo info@mif.com.mo
Date: Event:
21st – 22nd
Venue: Organiser: Address:
Venetian Macao-Resort-Hotel, Macau Marcus Evans Marcus Evans (Europe) Ltd, 9 Demostheni Severi Avenue, Nicosia 1080, Cyprus (357) 2284 9300 (357) 2284 9307 www.aipdsummit.com webenquiries@marcusevanscy.com
Tel: Fax: Website: E-mail:
Asian Infrastructure & Property Development Summit 2012
Date: Event:
23rd -25th
Venue: Organiser: Address:
Raffles Hotel, Singapore International Association of Gaming Advisers 1930 Village Center Circle #3, Box 501, Las Vegas, Nevada 89134 (202) 973 8606 www.theiaga.org iagasummit@courtesyassoc.com
Tel: Website: E-mail:
2012 IAGA International Gaming Summit
OCTOBER 2012
Date: Event: Venue: Organiser: Address: Website: E-mail: Date: Event:
23rd – 27th
Freight Summit 2012
Venetian Macao-Resort-Hotel, Macau Raueber & Walle Solutions Ltd 25/F, Tower One, Tern Centre, 237-251 Queen’s Road Central, Hong Kong www.thefreightsummit.com info@thefreightsummit.com 26th – 28th
2012 China (Macau) International Automobile Exposition
Venue: Venetian Macao-Resort-Hotel, Macau Organisers: Nam Kwong (Group) Co Ltd, China National Machinery Industry Corp and Macau Convention & Exhibition Association Address: Avenida Dr Rodrigo Rodrigues, Nam Kwong Building, 15/F, Macau Tel: (853) 8391 1542 Fax: (853) 2871 6550 November Date: Event: Venue: Organiser: Address: Tel: Fax: Website: E-mail:
26th – 28th
3rd Annual Integrated Resorts
Renaissance Sanya Resort & Spa, Hainan Island, China Marcus Evans Marcus Evans, Suite A-20-1, Level 20, Hampshire Place Office, 157 Hampshire 1, Jalan Mayang Sari, 50450 Kuala Lumpur, Malaysia (603) 2723 6736 (603) 2723 6699 www.integratedresorts-lse.com estherw@marcusevansskl.com
Date: Event:
27th – 28th
Venue: Organiser: Address:
Galaxy Macau, Macau Beacon Events 20/F, Siu On Centre, 188 Lockhart Road, Wanchai, Hong Kong (852) 2219 0111 (852) 2219 0112 www.asiangamingcongress.com info@beaconevents.com
Tel: Fax: Website: E-mail: Date: Event: Venue: Organiser: Address: Tel: Fax: Website: E-mail:
Asian Gaming & Hospitality Congress
29 th
Social Gaming Asia Summit
Galaxy Macau, Macau Beacon Events 20/F, Siu On Centre, 188 Lockhart Road, Wanchai, Hong Kong (852) 2219 0111 (852) 2219 0112 www.socialgamingcongress.com info@beaconevents.com
2012 partner event :SEPTEMBER A Macau Business
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Fair trade
The 2012 Macao International Trade and Investment Fair takes place this month
BY SARA FARR
he 17th Macao International Trade and Investment Fair (MIF) opens on October 18 and promises to be even more ambitious than the last, bringing in a bevy of first-time exhibitors. The four-day trade fair will take place at the Venetian Macao. The organisers expect it to draw companies big and small from all around the globe. This year’s fair will cover an exhibition area of more than 30,000 square metres and have 1,600 booths. The Macao Trade and Investment Promotion Institute has organised the trade fair for the past 16 years. MIF is the largest international exhibition here and since 2005 has been an approved event of the Global Association of the Exhibition Industry.
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The fair is meant to promote Macau products and introduce investors to opportunities in the city. It is also designed to strengthen the position of Macau as a place for trading services in East Asia.
Here’s hoping “Utilising MIF as an international economic and trade event where local and overseas trade visitors meet, new investment projects will be introduced to promote Macau’s moderate economic diversification,” says Secretary for Economy and Finance Francis Tam Pak Yuen. “MIF also gives full play to Macau’s role as a service platform assisting local and overseas enterprises, especially small and medium enterprises, to explore new markets in Portuguese-speaking countries and other regions, and
assisting other countries and regions to enter the mainland market.” Participants signed 81 deals at last year’s fair, 31 percent more than a year before. Together these deals were worth MOP5 billion (US$625 million), an increase of 25 percent. More than 95,000 people attended the fair last year, 17 percent more than a year before, although the number of trade visitors dropped by 30.5 percent, to around 5,700 people. MIF is not only for big companies. The organisers encourage SMEs here to take part by discounting the rent for booths. This year’s fair will include a Macau SMEs Exhibition Zone, with 120 booths. SME Association director Kenneth Lei does not think MIF is much help OCTOBER 2012
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to local SMEs, saying most regard it simply as an opportunity to sell to the public. The fair is popular with residents seeking retail bargains from SMEs, and SMEs that exhibit expect the organisers to attract more members of the public this year.
Seize the opportunity Small and medium-sized entrepreneurs here do not consider MIF a premium occasion for promoting their brands and developing new businesses, says Mr Lei. It is unlikely that many SMEs will sign deals with their counterparts elsewhere but he hopes those taking part can benefit. Macau-based chambers of commerce have been taking part for years. The chairman of the France Macau
Business Association, Franklin Willemyns, says MIF is important for the members of his association. “Big companies don’t need us. It’s the small businesses that need promotion, and entrepreneurs can take part in MIF via our association,” he says. “Entrepreneurs also have the chance to network and exchange opinions and ideas.” For the second year in a row the British Business Association of Macau will be represented in the European Union area with the support of the British Consulate-General. “MIF has always been a big event for Macau,” says Henry Brockman, the chairman of the association. “MIF highlights industries that have that potential for diversification.”
TAKE A SECOND LOOK T
he world may end in December, but regardless of your faith in the philosophies predicting the end of civilisation, it has provided the inspiration for two Macau fashion designers who will show their collections at this year’s Macao Fashion Festival, part of the 17th Macao International Trade and Investment Fair (MIF). The Macao Fashion Festival is a fourday event co-organised by the Macau Productivity and Technology Transfer Centre and the Macao Trade and Investment Promotion Institute. There will be six fashion shows and some 12 window showcases. The event brings together designers from Macau, Hong Kong, Taiwan and the mainland. Both San Lee and Robert Lai drew inspiration for their collections from the end of the world which, according to some interpretations of the Mayan calendar, will be on December 21. The two designers have worked independently of each other but both hit on the same theme. “I have to prepare 15 outfits for the show. That is quite a big challenge for me,” says San. “Hopefully more people will get to know Macau fashion better,” says Lai. “This is an opportunity for local designers to showcase their products and meet designers from neighbouring regions.” Lai says the event is also important OCTOBER 2012
The organisers expect MIF to draw companies big and small from all around the globe. This year’s fair will cover an exhibition area of more than 30,000 square metres and have 1,600 booths
The 9th World Summit of Chinese Entrepreneurs will be held concurrently with the fair, also at the Venetian. Other forums and seminars to be held at MIF are being arranged by public or private bodies in Macau, the mainland and further afield. The aim, the organisers say, is to highlight cooperation and business opportunities. Business opportunities on neighbouring Hengqin Island, in the Nansha district of Guangzhou and the Qianhai district of Shenzhen will also be promoted. Building on last year’s experience, the organisers will persist with the notion that overseas visitors taking part should take advantage of their visit to Macau to do as much as possible. There
are visits to the Canton Fair, Hengqin, Nansha and Qianhai to inspect the investment environment and opportunities there. The exhibition floor will be divided into several areas, some devoted to certain classes of products or services, like the Digital Imaging and Photography Equipment Pavilion, and others devoted to certain places, like the Taiwan or Latin American pavilions. The fair will for the first time have exhibitors from Nepal, Indonesia and Vietnam. “It will be interesting to see what new ideas companies have,” Mr Brockman says. “I’m looking forward to seeing what non-gaming businesses are offering that is relevant to business here.”
You talking to me?
It’s amazing how you can survive in this region, being understood and understanding just a small part of the communication. San Lee
Robert Lai
“for young local designers to see that there actually is a way out in this industry.” Macau may be a small city, he says, but with hard work it is possible to succeed in the fashion business. Isabella Choi, another Macau designer whose work will be seen at the fashion festival, points out that the clothing industry here has become more challenging. She says it is one of the industries most affected by the changes in the economy in recent years. “I’m virtually the third generation
Rebecca Choi
trying to ease into the fashion design industry,” says Choi, who did most of her studies in Britain before moving back here in 2010. Expanding into other markets, Choi says, is “very difficult” for Macau designers because of tougher and more experienced competition there. She says Macau designers are not respected much by their Asian peers. “The place that you come from does influence the way people look at your work.” Macau designers exhibiting at the fashion festival are hoping it can change that perception.
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Growing concern Despite increased demand, Macau’s public relations industry is still in its infancy and competing against regional players BY LUCIANA LEITĂƒO
s more international companies enter Macau and the city’s businesses mature, enterprises are becoming more aware of the importance of public relations. There is no official data for the combined annual turnover of public relations companies here. The figures are hard to estimate because a big chunk of the contracts awarded go to Hong Kong firms as Macau lacks its own fully fledged agencies. None of the bigger Macau players focuses solely on public relations, instead offering services as part of a package that might include event organisation, marketing or advertising. MM Marketing Communications Consulting Ltd was one of the first Macau companies to offer public relations and communications services. It was founded in 1992 by Patricia Cheong and has clients here and abroad.
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Ms Cheong says the turning point for the industry was the liberalisation of the gaming market and the influx of new casino operators. “At the beginning, we helped them to structure or to organise things on a project basis,” she says. The gaming boom eventually attracted other international companies to Macau. “Now my customers come from Australia, Japan, Hong Kong,” Ms Cheong adds. MM Marketing is in charge of public relations for Macau’s G2E Asia, the biggest annual gaming trade show and conference in Asia. The firm is the only agency in Macau accredited by the Council of Public Relations Firms of Hong Kong. Ms Cheong says public relations makes up about 40 percent of her company’s business. Most of MM Marketing’s revenue is derived from consultancy and marketing services. She says the best way to attract international clients is to serve them first as a consultant while they enter the market.
Growing with clients “These companies can outsource for extremely demanding [PR events] but in Macau no firm has enough experience to be able to provide them with what they want,” Ms Cheong says. International companies often rely on Hong Kong or global PR firms to manage their affairs, even in Macau. Ms Cheong says those Hong Kong or global agencies may look for local partners that have a string of contacts among the media and officials. Its contacts are why MM Marketing has been called in to help manage media crises involving casino operators, says Ms Cheong. One example was handling the uproar caused when job applications were found in rubbish bins at a Galaxy Entertainment Group Ltd recruitment fair in 2010. There was also a case of a dispute led by shopkeepers who were unwilling to leave an area that casino-hotel Ponte 16 wanted to develop. Meridian Concepts Ltd managing director Rosina Tang tells Macau Business that her company has offered marketing services since 1996. Meridian focused first on basic advertising services and eventually expanded into public relations. “We know people, we have the network and we can provide our expert service as a PR agency,” Ms Tang says. She says public relations was, until recently, seldom a priority for most Macau clients. “Even today it is like that. But our clients are now bigger and our services have grown with them,” she says. “Our clients are no longer so concentrated in the banking or government sectors. We have more business associations”. Event management is the core business of Meridian Concepts. But it has provided PR support for events organised by Wynn Macau Ltd, Sands China Ltd and Galaxy Entertainment – always in cooperation with their in-house communications teams or their agencies in Hong Kong.
Needs jigsaw Ms Cheong says Macau’s public relations agencies lack the resources to take on agencies in Hong Kong or further abroad. They lack staff that are experienced enough or that have the right qualifications, according to her. Meridian’s Ms Tang says there is more to the human resources issue than the city-wide manpower shortage. “Clients have been working with these international PR companies for a long time. They trust their system. What we can do is see how we can fit into their needs,” she says.
Macau’s public relations agencies lack the resources to take on agencies in Hong Kong or further abroad A Plus PR & Advertising Co general manager Fanny Ho says “clients choose international PR companies because they have a very good network around the world.” One of the reasons that many Macau companies and events use agencies based in Hong Kong is for their ability to get the attention of Hong Kong, mainland and overseas media. Those companies and events rely on their in-house communications departments, which in several cases have been strengthened in recent years, to engage the interest of media in Macau. The Galaxy Macau casino resort uses the Hong Kong office of Golin/Harris International Ltd. Melco Crown Entertainment Ltd has outsourced some of its work to Fleishman-Hillard Hong Kong Ltd. Last month’s Global Tourism Economy Forum, which brought the World Tourism Organisation secretarygeneral Taleb Rifai to Macau, had Hong Kong’s Trimaran PR Asia managing its media outreach. The Macau Grand Prix has worked with Hong Kong’s PR Plus Ltd for a long time.
Clients for all Ms Ho of A Plus says the market is not big enough for Macaubased agencies to focus solely on public relations. “If a company only provides public relations services, it cannot survive,” she says. A Plus started out in advertising. Since the handover, it has concentrated more on organising exhibitions. Ms Ho says pure public relations makes up just a small percentage of the business. “We still do public relations for special activities and events, such as product launches or opening ceremonies,” she says. Ms Tang says there is healthy competition among Macau’s PR firms. She says there are just a handful in the market and, for the most part, they focus on separate clients and markets. “Luckily in Macau, even though it is a small place, we can still have enough clients,” she says. Ms Cheong disagrees. She views the Macau market as being much smaller, and based mostly on personal relationships. But there is scope for the industry’s development, Ms Tang says. She expects standards to rise, buoyed by international clients demanding better services and younger practitioners with higher qualifications. OCTOBER 2012
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3-iron
LOOK FORWARD TWELVE KOREAN FILMS BRING THE BEST OF THAT COUNTRY’S here is an industrious nation to Macau’s north with a reputation for its people being intensely hardworking, proud and extremely talented. Unlike Macau’s mainland neighbours, they apparently dance awkwardly and tear apart the Internet – if you take YouTube as the ultimate arbiter of things Korean. Before fashioning Psy and his horse dance for a global audience, South Korea’s governmentendorsed cultural conveyor belt produced television starlets for Asian audiences. That celluloid can-do morphed into the big screen film productions and idols that are the feature presentation at the Macau Cultural Centre later this month. “The Viewfinder to Asian Film 2012 – Korea” will run from October 20 to October 28 at the centre’s Small Auditorium. The dozen festival films, with both Chinese and English subtitles, feature top-notch story lines and cinematography techniques. The signature throughout is high quality and diversity. In store for K-Pop culture vultures are a dozen recent titles that stretch back to the last decade, a sequence of masterworks as well as contemporary hits. Included are two OCTOBER 2012
films that have won awards at Asia’s best film festival, South Korea’s very own Busan International Film Festival. ‘Bleak Night’, screening on October 24, took the festival’s New Currents Award for the best feature film from new Asian directors in 2010. The film charts a father’s search for answers after his son’s death. The story develops through a series of flashbacks to the teenage protagonists and their roles in a beating that is linked to the death. The indie film was remarkable in that it was directed, produced and written as a final project for Yoon Sung-Hyun while he was still at the Korean Academy of Film Arts. “I wanted to make a mystery-noire film at first,” he told the Hollywood Reporter last year. “Later, as I brought in the theme of ‘death’, the film’s direction started to change completely. Ultimately, the film is about death, human relationships and loneliness.” Heavy stuff, but Korean cinema has never been for the faint of heart.
“Korean Wave” Screening on October 21 is ‘3-iron’, a film that claimed Busan’s award for the best Korean film on show in 2004. Directed by Kim Ki-duk, this drama follows the relationship between a tramp and a battered housewife. Perhaps less confronting than ‘Bleak Night’, the work is no less outstanding.
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D, LOOK BACK CINEMA TO THE CULTURAL CENTRE THIS MONTH Part love story, part morality tale, the movie is less driven by dialogue than the viewer might think. Kim makes great use of another emerging Korean tradition, the meaningful glance, to convey deep meaning between the characters. This is one small budget flick from the start of the “Korean Wave” that is much loved by critics and audiences alike. That audiences have a chance to see such a high-quality collection of South Korean films so close to the Busan International Film Festival is a fantastic achievement by the Macau Cultural Centre. The first Busan International Film Festival, in September 1996, was also South Korea’s first international film festival. It was a significant event, opening the country’s culture to a broader, global audience. The festival is one of firsts, introducing new films and first-time directors, especially those from Asian countries. It gives the festival a youthful feel and a special appeal for younger audiences.
The 17th annual event underlines the diversity of Asian cinema. The October 4 to 13 festival features 304 movies from 75 countries. More than 90 of the films being screened will be world premieres. Already screening but showing at this year’s Busan festival and at the Cultural Centre on October 22 is ‘Helpless’. The movie debuted at No. 1 in South Korea on its release in March, topping the charts for a two-week period, and making it one of the most watched films of the year in the country. It tells the story of soon-tobe-married couple Mun-ho and Sun-young. Sun-young disappears, leaving nothing but a hairpin. She is a woman with a past that is headed for a future complicated by a paper trail that suggests she is not who she seems. For lovers of Korean film that cannot be in Busan, the Macau Cultural Centre’s “The Viewfinder to Asian Film 2012 – Korea” is definitely the next-best thing. OCTOBER 2012
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ALLURING AND HAUNTING THE INTERNATIONAL MUSIC FESTIVAL PAYS TRIBUTE TO LIVING LEGEND LAM BUN-CHING
he work of Macau-born musical luminary, composer, pianist and conductor Lam Bun-Ching will be celebrated at this year’s Macao International Music Festival in a series of concerts and an exhibition of artist’s books in “Lam BunChing and Friends”. Lam’s career spans more than four decades. She is considered Macau’s most complete living composer. Her music has been praised as “alluring exotic” by the New York Times and “hauntingly attractive” by the San Francisco Chronicle. She is highly regarded for her composing skills, which combine Chinese sensibility with modern Western techniques. Lam has been referred to as one of the very few Chinese composers who do not insist on being Chinese. “My music could be called Portuguese, Chinese, American, I would not care,” she has said. Lam will perform twice at this year’s International Music Festival, in two unique concerts with guest artists. In the first, Lam will perform with baritone Thomas Buckner, a champion of her vocal works, many of which were specially written for and commissioned by him. Soprano Grace Chiang will join them. The programme consists of works by Lam for baritone, soprano and instrumental ensembles, which are settings of poems by Samuel Beckett, Han Shan, Li Qingzhao, Heinrich Heine, Emily Dickinson and Percy Shelley. In the second concert, Lam is joined by fellow-pianist Margaret Lynn, a regular collaborator since their student days at the Chinese University of Hong Kong. The duo will perform works by French composer Claude Debussy, a big influence on Lam’s music, and some of Lam’s own pieces. At both concerts Lam will be accompanied by members of the Hong Kong New Music Ensemble. OCTOBER 2012
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The International Music Festival’s tribute to Lam will also include an exhibition of artist’s books, to be held at the Dom Pedro V Theatre, facilitated by master printer and publisher Gunnar Kaldewey, a German book artist and Lam’s long-time collaborator.
Gradual unfolding The exhibition presents the artistic outcome of their symbiotic relationship, embodied in several books of poetry and philosophy by authors ranging from Samuel Beckett to Confucius, from Heinrich Heine to Han Shan, which have been inspired by or which themselves have inspired Lam’s compositions. For instance, Kaldewey’s “Four Songs” contains etchings from Lam’s score for “Four Beckett Songs”. Lam is the translator and calligrapher in some of these artist’s books, while Kaldewey provides drawings, paintings and photography to go with her calligraphy and translations. “Composers don’t have many chances to get their hands dirty, and I really like the physical aspect of making prints,” Lam has said. “Artist’s books and music have one thing in common – they are both art forms that require time to manifest themselves, to unfold gradually. You need time to listen to music, time to turn the pages of a book”. Lam will lift the veil on some of her secrets in two workshops on October 27 and 28. She is expected to share details about her creative process, and the ideas behind her compositions. The workshops, in Cantonese, will take place at the Dom Pedro V Theatre and will be free of charge.
WORLD ARTIST
orn in Macau in 1954, Lam Bun-Ching began studying piano at the age of seven. She gave her first public solo recital at 15. Lam received a bachelor’s degree in piano performance from the Chinese University of Hong Kong in 1976. She accepted a scholarship from the University of California in San Diego, where she studied composition, earning a doctorate in 1981. She won the coveted Prix de Rome in 1991, first prizes at the Aspen Music Festival and the Northwest Composer’s Symposium, and the highest honour at the Shanghai Music Competition, which was the first international contest for composers to take place in China. She has also received numerous grants and fellowships. Lam’s compositions have been performed by orchestras all over the world and have featured in numerous music festivals. She is now the composer-in-residence of the Macao Orchestra. She was previously composer-inresidence of the America Dance Festival and the New Jersey Symphony Orchestra. As pianist and conductor, Lam has conducted her own works in collaboration with the Cosmopolitan Orchestra of New York, the Shanghai Symphony Orchestra and the Macao Chamber Orchestra. Among her many performances was the piano solo of her commissioned work “Saudades de Macau II” at the Macao International Music Festival in 2005. Her music has been recorded on CRI, Tzadik, Nimbus, Koch International Classics, Sound Aspect and Tellus. She now divides her time between Paris and New York. OCTOBER 2012
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DAZZLING LIGHTS The evening sky over Macau Tower was set ablaze last month by a series of fiery delights, courtesy of the annual Macau International Fireworks Display Contest. The festival was somewhat marred by the organisers’ cancelation of the Japanese team’s performance due to the on-going Diaoyu Islands dispute between China and Japan. Even so, there was no lack of ‘oohs’ and ‘aahs’ as the remaining teams displayed their best fiery displays on Macau’s waterfront. Panda Fireworks – China (Winner)
Thailand Fireworks – Thailand
Lacroix-Ruggieri – France (First runner-up)
Syyuan Fireworks – Taiwan
Woori Fireworks – South Korea
Infinity Pyrotechnic – Australia (Second runner-up) OCTOBER 2012
Pyro Spectaculars by Souza – United States
Pirotecnia Minhota – Portugal
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TELL US THE STORY Casino mogul Stanley Ho Hung Sun appeared in public last month for the first time in over a year, to attend the 70th anniversary of Hong Kong’s Emperor Entertainment Group Ltd. Frozen Spy is happy to see Mr Ho’s health has improved. While he no longer wields the power he once did, the SJM Holdings Ltd chairman rightfully continues to be a revered figure both here and in Hong Kong. Mr Ho, why not write us an autobiography about your exceptional life and how you helped change the face of Macau? That would be seminal literature for any casino executive wannabe or budding government bigwig. Maybe the Macau Foundation could sponsor the book. It would be public money well spent, for a change.
LEAVE IT TO THE BIG BOYS The Commission of Audit and the Commission Against Corruption published reports last month slamming the Transportation Infrastructure Office for its poor management of the light rail transit system project. The most striking finding concerned the budget for the project. The Commission of Audit says the cost of the first phase, now estimated at MOP11 billion (US$1.4 billion), will probably increase again because of the Transportation Infrastructure Office’s poor budgeting skills. The railway was estimated to cost MOP4.2 billion in 2007 and the first phase was expected to be running by now. Instead, construction started only a few months ago. Frozen Spy suggests that the government outsource building the LRT to one of the casino operators. Unlike the Transportation Infrastructure Office, they seem to know the secret to finishing complex, multi-million-pataca projects on time and within budget.
CLAUSTROPHOBIA ATTACK Macau is expected to welcome even more tourists now Beijing has made it easier for mainland internal migrants living in six cities to get permits to visit. Some people, including Macau Government Tourist Office director João Manuel Costa Antunes, argue that the city has room for more visitors. Others, including Institute for Tourism Studies president Fanny Vong Chuk Kwan, are more guarded. The answer is a no-brainer. Macau boasts one of the highest population densities in the world and each week, on average, it ushers in the equivalent of its own population in tourists. Sure, we can always squeeze in some more visitors. The big question is: does this mean squeezing out an increasing number of residents dissatisfied by always coming second in the government’s decision-making?
TITANIC MISTAKES Even without Beijing’s latest policy change, Macau is already one of the world’s busiest tourist destinations. Still, any new air or sea carrier seems doomed to fail. Look at the recent past: budget airline Viva Macau crashed and burned, low-cost ferry operator Macao Dragon sank to the bottom and last month another ferry company, North West Express Ltd, gave up its service to Tuen Mun in northwestern Hong Kong. Even Cotai Jet, which endured a bumpy start, would be struggling for survival if it was not backed by casino operator Sands China Ltd. Why does this keep on happening? With demand for flights and sailings bound to increase, government officials should be worried. After all, it was the government that certified those doomed companies and their business models as fit to operate.
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