MB 106 | February 2013 by Macau Business

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FEBRUARY 2013

24 Economy & Finance 24 Window dressing David Chow wants to use his new development on Hengqin to promote Macau

Politics 34 The kingmaker Li Gang, the new deputy director of Beijing’s liaison office, is expected to soon move up

Greater China 38 Historic U-turn Hong Kong government drops plan to redevelop former Central Government Offices 40 Burning issue Rising emissions from cargo ships are one of Hong Kong’s main sources of pollution 42 Back on the stands End of heavy-handed censorship in the mainland is some way off 43 Growing old The mainland’s working-age population declines for the first time in decades

Special 44 Welcome the Year of the Snake The Lunar New Year holiday is forecast to bring more tourists and business to Macau

Property 66 Money-making factories Special stamp duty exemption makes industrial property attractive to investors

Gaming 72 Payment in kind Government says Sands China and Galaxy Entertainment will be entitled to more tables 74 Hail to the masses Mass market to continue growing faster than VIP play 75 Smoking blowback Trade unions slam restrictions on smoking in casinos

bizintelligenceonline.com FEBRUARY 2013

Photo: Naty Torres

DECEMBER FEBRUARY 2013 2012

Gaming 78 Gambling apartheid Several Asian countries embrace casinos, but only for foreigners 82 Leader to be The Sands Bethlehem is posting handsome results but the property is on sale

Hospitality 86 Tough decisions Exclusive interview with the new director of the tourist office, Maria Helena de Senna Fernandes 92 Worlds apart While Macau’s visitor arrivals are dropping, in Hong Kong they are surging 96 Tasteful tourism Macau is carving itself a niche as a gourmet destination

Lifestyle 101 Let’s get physical Demand for yoga classes is on the rise

Technology 105 Cable TV offline Government says ‘no’ to Cable TV’s plan to offer Internet services

FEBRUARY 2013

Photo: Carmo Correia

86 Arts & Culture 108 Box office clout Foreign films are becoming increasingly popular in the mainland

Opinion 12 From the publisher’s desk Paulo A. Azevedo 15 Editorial Emanuel Graça 23 Storm in a baby bottle José I. Duarte 33 Pockets: silver lined André Ribeiro 36 Don’t bet on payouts Keith Morrison 41 The limits of China’s consumer revolution Zhang Monan 64 Systems at risk Lee Howell 98 Unhappily ever after Gustavo Cavaliere 104 Technology and the employment challenge Michael Spence

FEBRUARY 2013

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KILL FAVOURS FOR FAIRNESS

I Officials should focus their attention on improving public education and healthcare, and not on spoiling private institutions with public money

FEBRUARY 2013

t is not hard to understand what makes a city special: history, cultural diversity, openness to new ideas, rules, transparency and ethics of its sociopolitical and economic machinery. Add freedoms and quality of life to the list. Do not forget about investment in infrastructure, and public spending on education and health. These are fundamental to ensuring social harmony, and fostering creativity and invention. For years, investment in education and health in Macau has made headlines for the wrong reasons. That is mostly because of the difference in spending directed to public education and health, and the piles of money given to private concerns. The difference reflects the free hand of officialdom and other highly ranked people who should not have any say in funding because of conflicts of interest. Many of the city’s leaders are members of the organisations that benefit from official largess. Professionals in the public healthcare system are the first to highlight the inequity of government investment into privately owned healthcare instead of the public hospital and healthcare centres. The private hospitals charge handsomely for their services and they make a profit. There have been several grants that should be probed, no matter how surprising – or not – the outcomes would be. If Macau had a proper graft-buster, that would be the outcome. The city lacks this sort of service too.

Students from the privately owned Macau University of Science and Technology demonstrated against a proposal to increase tuition fees last month. The increases are up to 20 percent, high enough to upset most students. A private university is entitled to raise tuition fees to cope with increasing operational costs. But the University of Science and Technology is no ordinary private university. It receives millions in government grants each year. No one has ever explained why. It was also granted land, among other favours, which can only be understood in the context of the way Macau operates – a peculiar, yet twisted, perverse, often immoral way of working. While not illegal, no one in Macau cares to investigate or explain the grants. Why would they? The city’s leaders within its upper echelons seem to think the public is no more than a uniform mass of dummies, undeserving of accountability or their respect. Until the common practice of favouring the ventures of friends and acquaintances vanishes, the city is doomed to develop at a much slower pace than its potential would imply. We need to let the market work, with the government ensuring that fair competition is the standard. Officials should focus their attention on improving public education and healthcare, and not on spoiling private institutions with public money.

ROT AT THE TOP

he big news last month was the announcement of cost overruns in the construction of the new campus of the University of Macau on Hengqin Island. In April 2010, the government said the project would cost MOP5.8 billion (US$725,000). By last March, the price tag had reached MOP10.2 billion, according to a report from the Commission of Audit. One year later, who might be able to estimate the true cost? Be afraid. The audit commission said the overrun was the result of an initial budget that was “unrealistic” and the product of “inefficient expense control and management”. For years, we have called the government’s attention to this, without anyone in power listening. The biggest insult is not the cost overrun itself but the lame excuses presented by officials. Accountability is not a word familiar to Macau’s officials. The head of the Infrastructure Development Office said the blowout was the product of the bureau deliberately low-balling on the budget to “save public money”. I hope he comes back to explain himself. How can you save money by creating a budget that was unrealistic in the first place?

After the commission’s report was made public, the Secretary for Transport and Public Works reaffirmed that the maximum cost of the campus stood at MOP9.8 billion, as was set in 2011. The government and the Commission of Audit just had “different views” on which works to include in the budget. This is a colourful new variation of the “glass half empty, half full” dichotomy. Arithmetic and budgeting are no longer exact sciences for the government, but more like fortune telling. It is as likely that they will get it wrong as it is that they might get it right. In the end, Macau loses. The city needs a formula to eradicate these miscalculations and cost overruns in public works that have collectively cost us billions. It is unacceptable that the government learned nothing from similar situations in the past. If these cost overruns took place in a private company, which must be accountable to its shareholders, what would happen to those responsible for the mistakes? Governments are no different. Someone must be made accountable because they are responsible for an entire city, a responsibility that is immensely greater than the management of a single company.

Arithmetic and budgeting are no longer exact sciences for the government, but more like fortune telling. It is as likely that they will get it wrong as it is that they might get it right

FEBRUARY 2013

Editorial Council Paulo A. Azevedo, Emanuel Graça, Tiago Azevedo, Duncan Davidson, José I. Duarte Founder and Publisher Paulo A. Azevedo VOL.1 Nº106

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Editor-in-Chief Emanuel Graça emanuel.graca@macaubusiness.com

Assistant Editor-in-Chief Alexandra Lages alexandra@macaubusiness.com

Executive Senior Analyst José I. Duarte jid@macaubusiness.com

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Hong Kong Bureau Michael Hoare (Chief), Anil Stephen michael.hoare@macaubusiness.com

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Special Correspondent Muhammad Cohen

Advertising Bina Gupta José Reis

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Beijing Correspondent Maria João Belchior

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Media Relations

Manila Correspondent Max V. de Leon

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Photography António Mil-Homens, António Leong, Carmo Correia, Greg Mansfield, Gonçalo Lobo Pinheiro,John Si, Manuel Cardoso, MSP Agency, Naty Torres, Agencies Illustration G. Fox, Rui Rasquinho

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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, Lois Iwase, Luciana Leitão, Mandy Kuok, Michael Grimes, Sara Farr, Sara Silva Moreira, Sofia Jesus, Xi Chen, Yuci Tai

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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 FEBRUARY 2013

emanuel.graca@macaubusiness.com EMANUEL GRAÇA EDITOR-IN-CHIEF

BEST INTENTIONS

Poor management by the Health Bureau has meant that one month after the ban on smoking inside casinos, neither workers nor gaming operators are satisfied with the arrangements

he partial ban on smoking inside casinos came into force one month ago, but it is already the source of a great deal of controversy. It is an obvious case of how the road to hell is paved with good intentions. Casino workers are not satisfied, saying that it does not go far enough to protect them. The smoking areas are jammed with smokers. At most properties, the amount of smoke in the air inside smoking areas is definitely more noticeable – and potentially harmful – than it was before the ban. Trade unions say the rules were poorly drafted. The regulations allow gaming operators to set up smoking areas covering up to 50 percent of the gaming floor but do not set any ratio for the number of slot machines and gaming tables in smoking and non-smoking areas. In the most extreme situations, a casino could decide to have a non-smoking gaming area with just one table versus a smoking area with 100 tables. As casinos tiptoe through the ban, they have assumed a conservative position. Operators prefer to allocate more tables to smoking areas. If the clientele so demands, they may make more resources available in non-smoking areas. It is a no-brainer to conclude that this was the government’s intention in the first place. The government deliberately provided gaming operators with leeway because officials were afraid of the ban’s potential impact on gaming revenue and their taxation revenues. Make no mistake – this was no distraction. Note that the government is not restricting the growth of the gaming sector by capping the area of casinos; it is doing so by controlling the number of live gaming tables. It obviously knows that, for the industry, what matters is not how big a casino is but how many tables it has.

Unhealthy management

There is a similar calculus for smoking and non-smoking areas within the casinos. But

officials feared that, if the ratio was based on the number of operating tables, units in non-smoking areas could end up idle, while their counterparts in non-smoking areas would overflow. The authorities gave casinos the power of discretion. Publicly their line was the government acting tough on tobacco. It is a pragmatic strategy. But there was more to it. And that is where it has gone wrong. Casinos were given a one-year grace period ahead of the ban so that they could set up the infrastructure to purify and contain smoking zones. The idea was to give gaming operators time to equip themselves with worldclass ventilation systems and ensure that, even for the heaviest of smoking gamblers, air quality would be pristine. The Health Bureau failed to deliver on time. The bureau ensnared itself in technicalities and was weighed down by indecision. It was only able to lay out the technical specifications for smoking areas in late October. Casino operators had just a handful of weeks to have everything in place. Bear in mind that Christmas is considered a peak season. The bureau continued to drag its feet whenever it was asked to clarify the rules. From an initial period of 12 months, casinos had to push to ensure everything was in place in just one-sixth of that time. It was not enough time to implement or source high-tech ventilation systems, as most of the operators must have wanted. Everything was rushed. Poor management by the Health Bureau has meant that one month after the ban, neither casino workers nor gaming operators are satisfied with the arrangements. Even some gamblers are complaining. Meanwhile, Health Bureau director Lei Chin Ion received a medal of merit in December for his work from Chief Executive Fernando Chui Sai On. One wonders why.

FEBRUARY 2013

LOW-SINGLE DIGIT GDP GROWTH FOR 2013 The monetary authority also says inflation will slow down this year, but not much

EXPORTS OF CEPA GOODS UP BY 20 PERCENT

Macau exports to the mainland under the Closer Economic Partnership Arrangement (CEPA) reached MOP104.1 million (US$13 million) in 2012, up by 20.2 percent over the previous year. Data released by the Economic Services shows that since the agreement was inked in 2004 and until December last year, the total amount of exports of CEPA goods reached MOP360.6 million. Exports of CEPA goods to the mainland enjoy zero tariffs.

MINIMUM WAGE PROPOSAL OUT BEFORE MARCH-END

The Labour Affairs Bureau will deliver a proposal on a statutory minimum wage for cleaning and building security staff to the Standing Committee for the Coordination of Social Affairs before the end of March, the bureau’s head Wong Chi Hong said last month. The committee comprises representatives of unions, employers and the government. Mr Wong reassured that the government is on schedule with the implementation of the first ever minimum wage in Macau, which would only cover these two sectors.

FEBRUARY 2013

The Monetary Authority of Macau forecasts that the city’s real gross domestic product will expand by a “low single digit” rate in 2013. In its latest Monetary and Financial Stability Review, released last month, the monetary authority added that Macau’s GDP is likely to have grown by a highsingle digit rate, at about 9.0 percent, for 2012 as a whole. Inflation is expected to subside “modestly” during 2013, primarily due to a slowing domestic economy and contained world inflation. But significant deviation from the average 6.1 percent level recorded in 2012 is “unlikely in the near future”. Macau’s de facto central bank forecasts that the unemployment rate will continue hovering at around 2.0 percent this year, while the number of non-resident workers “is expected to trend upwards at a gradual pace”.

GOVT AND COMMISSION OF AUDIT CLASH ON HENGQIN CAMPUS

The cost for the construction of the University of Macau’s new campus on Hengqin Island still stands at MOP9.8 billion (US$1.2 billion) as set in 2011, Secretary for Transport and Public Works Lau Si Io said last month. In response to a report from the Commission of Audit, Mr Lau said that the commission and the government had different views on which works to include in the budget. He said the audit report included ground foundation building costs and other minor works in the budget. According to the Commission of Audit’s estimation, the price tag for the new campus had already topped MOP10.2 billion as of March last year.

MAINLAND CRACKS DOWN YELLOW TAXIS GET ON ‘SHUIKE’ SMUGGLERS CONTRACT EXTENSION Customs officers in Guangdong province cracked 9,741 ‘shuike’ smuggling cases last year, involving RMB1.34 billion (MOP1.72 billion), the official government mouthpiece China Daily reported. The term ‘shuike’ refers to people who visit Hong Kong and Macau at least once a day to smuggle electronic products, food, milk powder or other products from the two cities into the mainland. “They can easily earn RMB5,000 to RMB10,000 a month by selling the smuggled goods online to mainland consumers,” China Daily wrote.

The Transport Bureau said last month that it would grant a short-term contract extension to Vang Iek Radio Taxi Co – the operator of Macau’s 100 yellow radio-taxis – when its current contract ends this month. The bureau didn’t say how long the short-term extension would be for. In August 2011, the government already extended Vang Iek’s radio-taxi service contract for 18 months, without a public tender. The bureau added that Vang Iek must introduce a number of improvements in order to have its concession renewed for a longer period.

MACAU TO GET REAL-TIME SETTLEMENT SYSTEM

Macau will soon have a real-time settlement system, our sister publication Business Daily reports. The Monetary Authority of Macau is preparing for the launch of a pataca instant funds transfer system, “which will be in operation in the first quarter of 2013,” a spokesperson told the English-language newspaper. Currently, transfers of money or securities between banks are made in batches and settled manually at the end of the day. The new system will allow those transfers to be settled on a real-time basis.

CAM POSTS FIRST PROFIT EVER The company achieved a net annual profit of MOP14.4 million last year The Macau International Airport Company Ltd – CAM generated a net annual profit of MOP14.4 million (US$1.8 million) last year, chairman Ma Iao Hang announced. This is the first profit in the company’s history, since airport operations started in 1995. CAM’s revenue for 2012 exceeded MOP750 million, according to Mr Ma. Last year, the airport handled 4.49 million passengers, up by FEBRUARY 2013

11 percent year-on-year. CAM was able to achieve a net profit after a capital increase backed by the government and Sociedade de Turismo e Diversões de Macau SA, which took place last year. That allowed the company to fully repay the bank loans deriving from the financing needs for airport infrastructure development back in its early stage of construction.

FEBRUARY 2013

FITCH WARNS OF AGEING COSTS The ratings agency says the elderly will put severe pressure on public spending over the next 40 years

Fitch Ratings warned in a special report issued last month that the rising proportion of elderly in advanced economies over the next 40 years will put severe pressure on public spending for many jurisdictions, including Macau. The ratings agency says the city will appear on the list of the 15 jurisdictions worldwide with the highest elderly dependency ratios by 2050. The ratio measures the number of people over 64 to the number of people of working age. Fitch said the situation was even more serious in debt-ridden countries, with little leeway to build up a fiscal war chest to counter the expected increase in age-related expenditure. Macau is better positioned than many advanced economies to address this issue, since it has huge surpluses and, is the only jurisdiction worldwide that has no debt.

MACAU AND HK INK ARBITRATION AGREEMENT

Hong Kong’s Secretary for Justice, Rimsky Yuen, visited Macau last month to sign an arrangement concerning the reciprocal recognition and enforcement of arbitral awards between the two cities. Under the arrangement, the courts of Macau and Hong Kong will mutually recognise and enforce arbitral awards in both places. Mr Yuen also took the opportunity to visit Macau’s Public Prosecutions Office, Court of Final Appeal and Legal Affairs Bureau.

GRAND PRIX TO COVER TWO WEEKENDS

OVER 5,000 FAMILIES GETTING GOVT SUPPORT

A total of 5,010 families received government financial support from January to November last year, official data shows. Because those families’ incomes were below the official minimum subsistence index, they were entitled to financial help from the government. Meanwhile, the index was raised by around 2.5 percent last month. For a one-member household, the value was increased to MOP3,450 (US$431).

FEBRUARY 2013

To mark the 60th anniversary of the Macau Grand Prix, the organising committee has announced a two-weekend event for this year. The first race weekend is set for November 9 to November 10. The second is to be hosted from November 14 to November 17. The three headline races – the Formula 3 Macau Grand Prix, the Motorcycle Grand Prix and the double-header season finale of the FIA World Touring Car Championship – will be held on November 14 to November 17. The full provisional programme will be announced at a later date.

FEBRUARY 2013

Consumers complain less The number of consumer complaints handled by the Consumer Council dropped for the second consecutive year in 2012. Telecommunications services continue to top the list

FOREX RESERVES HIT MOP132.5 BILLION Macau’s foreign exchange reserves amounted to MOP132.5 billion (US$16.6 billion) at the end of December, the monetary authority announced. The reserves increased by 0.5 percent month-on-month. The foreign exchange reserves were separated from the fiscal reserve in February last year and started to be managed separately. As of February 2012, the city’s foreign exchange reserves stood at MOP126.7 billion.

1,609

The number of consumer complaints handled by the Consumer Council in 2012, down by 4.7 percent year-on-year

MORE INVESTMENT IN THE MAINLAND

22.4%

In the first 11 months of last year, the Ministry of Commerce approved 277 new investment projects in the mainland by Macau companies, up by 5.3 percent year-on-year. The combined value of the projects was US$480 million (MOP3.8 billion), 27.9 percent less than a year before. The ministry approved 47 new Macau investment projects in November last year, up by 38.2 percent year-on-year.

The percentage of consumer complaints in 2012 that were filed by tourists, amounting to a total of 361. The percentage is similar to 2011

231

The number of complaints made against telecommunication services in 2012, mainly 3G mobile phone charges and data fees, down by 11.5 percent year-on-year

27.8%

The yearly increase in complaints about telecommunication equipment, to 202, mainly involving the quality and prices of 3G mobile phones, and business practices

CITY DROPS ON THE LIST OF FREEST ECONOMIES

The number of complaints related to food and beverage in 2012, down by 16.8 percent year-on-year. They mainly targeted pastries, milk powder and frozen food

7,222

The number of cases received by the Consumer Council in 2012, including complaints (1,609), enquiries (5,520) and suggestions (93), up by 5.4 percent year-on-year

FEBRUARY 2013 2013

SOURCE: CONSUMER COUNCIL

124

Macau dropped on the Heritage Foundation’s annual Index of Economic Freedom, released last month. The U.S. think tank gave Macau a score of 71.7 points, down by 0.1 points year-on-year. This means the city is now ranked as the world’s 26th freest economy; last year, it was at position number 19. In Asia-Pacific, the city is ranked seventh out of 41 jurisdictions, one spot down from last year.

23 JOSÉ I. DUARTE ECONOMIST, MACAU BUSINESS SENIOR ANALYST - jid@macaubusiness.com

Storm in a baby bottle WORRIES ABOUT A SHORTAGE OF INFANT FORMULA HIGHLIGHT THE IMPERFECTIONS OF THE MARKET ome issues in Macau just never seem to go away, manifesting themselves in the greatest possible variety of ways. Take market distortions – or as an economist might put it, imperfections – which plague the economy. The latest episode in this saga was last month’s baby milk powder shortage drama. In this regard, the recent interview given by Jessica Ng, the executive director of the Macau Pharmacies Association, to the Portuguese-language daily Ponto Final is remarkable for what was said and left unsaid. Infant formula, particularly several popular brands, was in scarce supply last month. This was obviously a major concern for parents reliant on it for feeding their newborns. The shortage seems to have had two causes. One was an increase in births prompted by the Year of the Dragon, regarded in Chinese tradition as being a good year for giving birth. The other was an increase in demand by mainland tourists, who distrust the infant formula sold in the mainland, particularly since the melamine-tainted milk scandal in 2008. While these causes explain a lot, they also explain very little. In the first place, the increase in the number of births was expected. Newspapers were talking about it a year ago. An increase of one-quarter in the number of births in one year – as hinted by the available data – is certainly significant in relative terms. In absolute terms that is not the case in Macau. The “boom” translates into about 1,400 additional babies, less than 120 babies a month over the average. This increase in births is not something that should cause a major disruption in the market, especially since it was expected and the births were distributed throughout the year. The second cause, the increase in demand by mainland tourists, has been happening for years.

Retailer’s interests The main causes of the infant formula shortage have been known or expected for a long time. They would have been dealt with without too much trouble in a properly functioning market. So we need to find out what is happening on the supply side. That is where Ms Ng’s interview becomes illuminating, in a twisted way. She made a proper diagnosis of the immediate causes of the problem. She correctly defended, reasonably and firmly, the interests of her constituency: the pharmacies. Ms Ng clearly knows her trade and what matters to her associates. She was aware that some analysts had suggested the pharmacies limit sales to mainland tourists. She made it clear during the interview that it is neither in the power of, nor the interest of, pharmacies to discriminate between one kind of customer and another, or to act as customs officers.

Ms Ng also recognised that there is a problem in the supply chain. But pharmacies were reliant on wholesalers. We may infer from the interview that solving the problem of a shortage of formula is beyond the ability of the retailers, even though they would benefit from a solution. In the end, their business is selling, and more supply would mean more sales. But when asked about other market details, Ms Ng could say nothing with any certainty. Many new pharmacies have opened recently. Some apparently sell hardly anything other than infant formula and cosmetics. Ms Ng said she was aware of the growth in the number of outlets and their different target markets, but that she had no data.

Unusually cautious Ms Ng was asked by how much imports of baby formula had increased. Only the Census and Statistics Service would know, she replied. She was asked how many suppliers were active. She said she did not know. In sum, when it came to identifying other possible causes of the shortage, she did not wish to talk about it. It is hard not to see this as a deliberate attempt to avoid ruffling any feathers among those on whom the members of her association depend for their supply. Such reticence is understandable, maybe even commendable, given her position. But it reveals the opacity of the supply chains, which limits the ability of consumers – or even retailers – to defend their interests in the event of market distortions or disruptions. That is the main conclusion drawn from this affair but it is nothing new. Does it mean nothing can be done? On the demand side, there is little action that can be taken. High demand from mainland tourists for infant formula and other specific items will persist until their distrust of the products sold in the mainland dissipates. That is beyond Macau’s ambit. But when the distrust does dissipate, pharmacies here that depend on it for business will regret it. The passage of time will remove the other immediate cause of the shortage, the increase in births. The Year of the Snake is apparently less auspicious for births. In the end, we will see this latest shortage as no more than a storm in a teacup. Still, there is one area where the government could make a difference. It could reassess the organisation of the market, and change or remove any rules and privileges that limit competition or delay market adjustments. That would reduce the likelihood of similar shortages occurring, and contribute towards improving the range of products available to consumers and their access to it. I just do not see anyone betting on that happening.

FEBRUARY 2013

Economy & Finance

WINDOW DRESSING

DAVID CHOW SAYS HIS AS-YET-UNNAMED, PORTUGUESE-THEMED DEVELOPMENT ON HENGQIN WILL LURE MORE TOURISTS TO MACAU

Photos: Naty Torres

BY ALEXANDRA LAGES

usinessman David Chow Kam Fai says he wants to use his newly acquired piece of land on Hengqin Island as a shop window for Macau. He is planning to build a plaza and commercial centre with a Portuguese theme on the land to lure more mainland tourists to the city. Mr Chow told Macau Business in an exclusive interview that the development would not just be a place to shop, eat and drink, but a new vehicle to promote the city to potential visitors. “Hengqin has a lot of land and it is very close by. If we can use it to build resorts, good entertainment areas and shopping centres, it will be supporting Macau,” he says. Mr Chow argues that Hengqin can play an important role in increasing the number of visitors here – not only ordinary tourists but slightly wealthier ones, too. He says the city needs to appeal to what he calls the premium mass market. “The VIP market is not enough to support the continuation of economic development. We need a supporting market,” he says. FEBRUARY 2013

The tourism and gaming industries have long relied on VIPs but there have been signs that this is changing. Casino gross gaming revenue from the mass market increased four times faster than gross gaming revenue from the VIP market last year. Analysts expect the trend to continue this year. Even so, revenue from the VIP market still makes up almost 70 percent of all casino revenue. Mr Chow says more attractions here and on Hengqin mean ordinary visitors will stay longer and shuttle between the city and the island. He says this will benefit the tourism and retailing industries as well as the gaming industry. “It’s not a matter of supporting casinos. It will support other markets in other areas,” he says.

Portuguese flavours Hengqin is an island of 106 square km, just to the west of Macau. It is the mainland’s third special economic area, after the Binhai New Area in Tianjin and the Pudong New Area in Shanghai. It is meant for industrial, office, housing and tourism projects. The governments of

FEBRUARY 2013

Economy & Finance

Guangdong, Zhuhai and Macau are its main supporters. Mr Chow made the only valid bid in an auction in December for land on Hengqin that was reserved for Macau enterprises. He paid RMB250 million for a plot of 30,000 square metres next to the border crossing with access to the Guangzhou-Zhuhai high-speed railway. Mr Chow expects about 80 million people a year to pass by the doorstep of his development. He means to draw a fraction of the passers-by into the commercial centre and, from there, lure them into Macau. The project will cost RMB1.6 billion (MOP2.1 billion), including the cost of the land.

FEBRUARY 2013

“That piece of land, even though it is not too big, is enough to start with,” Mr Chow says. The development will have a floor area of more than 90,000 square metres. The plaza will be able to hold up to 10,000 people. It will have parking for 1,200 cars. The development will be designed by veteran Macau architect Carlos Marreiros. Its design will be based on Portugal’s lavish, gothic-inspired Manueline style of architecture, from the 16th century. Mr Chow says he is attempting to promote Portuguese culture, the influence of which makes Macau unique. “Macau has 450 years of history. Before you cross to Cotai, we will try to remind

tourists that there is not only the Las Vegas-style strip and modern buildings in Macau,” he says.

Nicely priced Most of the manifestations of Macau’s Portuguese heritage are on the peninsula, along with most of the city’s small and medium enterprises. Mr Chow’s strategy is to lure tourists not just to Cotai but also into the city centre, where businesses will benefit from their spending. Mr Chow has an ulterior interest in making this strategy work: he is the chief executive of Macau Legend Development Ltd, which owns the Macau Fisherman’s Wharf theme park and the Landmark Macau hotel on the peninsula.

27 The company runs two casinos on those premises, by arrangement with gaming concessionaire SJM Holdings Ltd. Even so, Mr Chow says he does not intend to bundle his venture on Hengqin with his businesses on the peninsula. He says the company undertaking the Hengqin project, Sino Perfect Investment Ltd, will work to promote Macau generally and not just his own interests. Mr Chow says he is open to negotiation with the Portuguese government about using his Hengqin development for marketing Portugal to mainland tourists. “It’s also a project to promote Portugal. Not too many people go to Portugal when they visit Europe. They’d rather go to France or Spain,” he says.

David Chow made the only valid bid in an auction in December for land on Hengqin that was reserved for Macau enterprises

Mr Chow says this is the right time to invest in Hengqin, as it is “a lot cheaper” than Macau. He says the RMB250 million he paid for his land there was a “very good” price, making it much cheaper than land in Gongbei. And, unlike Macau, Hengqin has no shortage of suitable workers, he says.

Work in progress Mr Chow is not alone in the endeavour. Around 20 Macau SMEs back Sino Perfect. Mr Chow is the head of the Federal General Commercial Association of Macau SMEs, established last year. He says the venture has enough funding. In December, Sino Perfect signed a deal with 15 financial institutions to borrow money for the project. Mr Chow says big retailers in Macau, Hong Kong and Japan have already approached him with a view to forming partnerships. But he says it is too early to choose which companies will have outlets in the commercial centre. And although some gaming companies in Macau, including Galaxy Entertainment Group Ltd, have shown interest in investing in non-gaming projects on Hengqin, Mr Chow says he is not looking for other partners. Work on the foundations of the development is expected to begin by June and construction should take around four years. Mr Chow says he is in no hurry. To be successful, he says the development needs enough people living on Hengqin by the time it opens to constitute a customer base. Hengqin’s population is expected to climb to 120,000 by 2015 and to 280,000 by 2020, according to its development plan. “We need some population there,” says Mr Chow. “What I know about the schedule for Hengqin is that they are going to build a lot of buildings within the next three years. Four years is a good time. By then the Hong Kong-Macau-Zhuhai Bridge will be open and there will be more projects in Cotai.” Some Macau SMEs have been calling for more information about business opportunities on Hengqin and official incentives to invest there. Mr Chow advises them to be patient. “Small enterprises will have to wait until the buildings are completed,” he says. “The whole area and the planning are still works in progress.”

GOLDEN AGE IN THE MAKING I

“ n three years’ time, it will be the golden age of Macau,” businessman David Chow Kam Fai forecasts. It will be fuelled by more visitors than ever. But Mr Chow says that to prevent congestion, the government must invest at least MOP300 billion (US$37.5 billion) in improving the city’s infrastructure and its healthcare, education, transport and cultural offerings. “Macau is small. Now we are talking about a new land reclamation programme but it will take at least five years. In three years, when the Hong Kong-Macau-Zhuhai Bridge is ready, plus the Zhuhai-Guangzhou railway linking Macau with more mainland cities, the visitor flow will increase a lot,” he says. Mr Chow says mainlanders are travelling more and more as their incomes increase, and that this will mean more visitors to Macau. “As people get richer in the mainland, they need facilities for holidays,” he says. “Where can they go?” As a directly elected member of the Legislative Assembly, from 1996 to 2009, Mr Chow was often outspoken, especially about tourism. He was among the first to propose night markets for Macau, a project the government is now considering for the shores of Sai Van Lake. After Mr Chow retired from the Legislative Assembly, his wife, Melinda Chan Mei Yi, ran and won a directly elected seat in 2009. She will run for reelection this year. Mr Chow says Chief Executive Fernando Chui Sai On should have no problem in getting re-elected next year for a second term, in view of Mr Chui’s performance so far. “Macau is still growing. There is no bad news for Macau for the time being,” Mr Chow says. However, he is severely critical of the government secretaries. He says Mr Chui gave the secretaries the power and opportunity they needed to shine, but that their performance has lacked lustre.

FEBRUARY 2013

Economy & Finance

THINKING BIG

DAVID CHOW’S TO-DO LIST IS FULL OF NEW PROJECTS, SOME AS FAR AFIELD AS AFRICA avid Chow Kam Fai is one of Macau’s most flamboyant businessmen and one of its most prolific entrepreneurs. Mr Chow has businesses here and in Beijing, and he wants to expand into Europe and Africa. This is the year for doing it. “I’ll be very busy in 2013,” he says. The South China Morning Post described Mr Chow in 2005 as a “little big man”, who is “small in stature” but “who thinks bigger than most Macau entrepreneurs”. In the conference room of his offices in the Landmark building, the walls are covered with blueprints of his forthcoming projects here, on Hengqin Island and in Benin in West Africa. His Macau Legend Development Ltd announced last year a plan to spend HK$5 billion (US$645 million) on redeveloping the seven-year-old Macau Fisherman’s Wharf theme park. The first phase of the work will refurbish the theme park and add two hotels, a yacht club and a dinosaur museum containing fossils lent by the mainland. Mr Chow declines to give a schedule for the redevelopment or details of it. The theme park, opened on December 31, 2005, failed to attract the number of visitors analysts had expected. Several shops and restaurants there have closed. Mr Chow said last year that Macau Legend could float its stock in Hong Kong or Singapore if it needed more money to redevelop Macau Fisherman’s Wharf. News media reported last month that the company would try to raise US$800 million (MOP6.4 billion) from an initial public offering in Hong Kong in the second quarter of this year. Mr Chow refused to comment on this.

Family affair Macau Legend was created by the merger last year of the Landmark Macau hotel, Pharaoh’s Palace Casino, also known as Club VIP Legend, and Macau Fisherman’s Wharf, all controlled by Mr Chow. He is Macau Legend’s biggest shareholder, owning

David Chow has businesses here and in Beijing, and he wants to expand into Europe and Africa. This is the year for doing it. “I’ll be very busy in 2013,” he says

FEBRUARY 2013

33.6 percent. His mother, Lam Fong Ngo, who according to media reports built an empire of VIP gaming clubs founded in the 1970s, is the next biggest, owning 24.7 percent. SJM Holdings Ltd bought a stake of 4 percent in Macau Legend for HK$480 million last year. Mr Chow also owns the five-star Legendale Hotel in Beijing. The hotel was on the official list of properties for dignitaries to stay in or dine at during the 2008 Olympic Games. Mr Chow was born in Hong Kong, worked in Las Vegas in the 1970s and came to Macau in 1981. He made a name for himself as an operator of gambling junkets before entering the casino business in the late 1990s, when he opened Club VIP Legend in partnership with casino mogul Stanley Ho Hung Sun. He is also no stranger to misfortune. Several years ago a court in Hong Kong issued an arrest warrant after casino tycoon Steve Wynn tried to have him declared bankrupt because of a US$5 million (MOP40 million) gambling debt at the now-demolished Desert Inn casino in Las Vegas. Mr Wynn and Mr Chow settled their dispute out of court in 2004. Mr Chow has been keen on investing in Africa for some time. A casino resort project in Cape Verde is still on hold, he says, while he waits for the necessary legislation. He has been Cape Verde’s honorary consul in Macau since 2001.

Globe trotter Mr Chow has good relationships with governments in Africa, South America and the Asia-Pacific region. Displayed in his office are dozens of photographs of him with foreign dignitaries, and a rock crystal presented to him by Lula da Silva, formerly president of Brazil. Mr Chow is now venturing into urban development in Benin. He is assessing business opportunities in Djibouti, Angola and Tunisia. In Europe, he is considering investing in Ukraine. His areas of interest range from tourism to mining. Mr Chow’s interests extend beyond business. He is an avid collector of items related to the sea, and owns several replicas of sailing ships. One of the latest additions to his collection is an antique diving helmet, acquired in South Africa. Mr Chow is nothing if not resilient. In 2010 he surprised the guests at his 60th birthday party by singing “What a Wonderful World” with world-famous jazz saxophonist Kenny G as accompanist. The place where they performed was the Wynn Macau casino resort, owned by the man who tried to have Mr Chow declared bankrupt 10 years earlier.

Economic Trends by José I. Duarte Gross national income

GRAPH 1 - GNI, GDP and net external factor income at current prices GNI

GDP

Net external factor income

300,000 250,000

MOP million

200,000 150,000 100,000 50,000 0 -50,000

GRAPH 1

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

GRAPH 2 - GNI and GDP at current prices, annual changes GNI change

GDP change

70,000 60,000 50,000 MOP million

In last month’s issue we looked at gross national income (GNI) and its relevance. This month, some detailed analysis. Although gross domestic product is normally used as the main indicator of the wealth generated by an economy, GNI is a better indicator. That is because some of the income generated belongs to people elsewhere, and some residents have income generated abroad. When we add to GDP the net balance of these outflows and inflows of income – called net external factor income – we obtain the gross income made by residents. Unfortunately, GNI figures are made available much later than GDP estimates – in Macau’s case, usually almost a year later. So GDP is usually used as a proxy for GNI.

40,000 30,000 20,000 10,000 0 2003

2004

2005

2006

2007

2008

2009

2010

2011

In most economies, net external factor income counts for relatively little. But in economies that are either the source or destination of large flows of foreign investment, it makes a difference. In Macau, one would expect GNI to be lower than GDP, given the importance to the economy of companies registered elsewhere, in particular the casino operators. So the net external factor income flows are usually outward, meaning that outsiders get more income from their investment here than Macau investors get from their investments elsewhere. These net outflows have become more pronounced since 2007. Before then, there were years of intense foreign direct investment, most due to the development of new casinos. As time passed those investments bore fruit, and outflows increased. Immediately after the liberalisation of the gaming market in 2002, net external factor income flows amounted to low percentages of GDP. But after that the percentages grew steadily, with only a brief major contraction in 2007. Most recently, net outflows have been the equivalent of over 10 percent of GDP. In 2011 the net outflow was the equivalent of 13.7 percent of GDP. GRAPH 2

GRAPH 3 - External factor income at current prices Inflows

Outflows

60,000

GRAPH 3

50,000

The difference between inflows and outflows of external factor income will probably increase in the near future. The current trend is for outflows to grow faster than inflows. In 2010 and 2011, the outflows were about four times the size of the inflows, the biggest difference since the liberalisation of the gaming market.

40,000 MOP million

The increase in the size of net external factor income outflows meant that annual growth in GNI was slower than annual growth in GDP, except in 2007 and 2009. In other words, GDP tends to overestimate the wealth generated by residents.

30,000 20,000 10,000 0 2002

2003

2004

FEBRUARY 2013

2005

2006

2007

2008

2009

2010

2011

External factor income flows

GRAPH 4 - External factor income inflows FDI income

Portfolio investment income

Other investment income

14,000 12,000

GRAPH 4

Inflows of external factor income from foreign direct investment show a rising trend in the period under consideration. But of the inflows of income from the three kinds of investment represented, inflows of income from FDI were the most volatile. Inflows of income from FDI were even negative in three of the 10 years. The biggest inflows of income were from investments other than portfolio investments or FDI. These inflows include income from deposits and loans.

10,000

MOP million

8,000 6,000 4,000 2,000 0 -2,000 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

GRAPH 5 - External factor income outflows FDI income

Portfolio investment income

Other investment income

Compensation of employees

50,000

GRAPH 5

The picture painted by outflows of external factor income is quite different. Outflows of income from FDI rose rapidly from below MOP4 billion (US$500 million) in 2002 and 2003 to almost MOP47 billion in 2011. Outflows of income from other sources all rose, too, but not by as much. GRAPH 6

All things considered, it is flows of income from FDI that set the trend for net external factor income flows. The net flow of income from FDI in 2011 was roughly six times the size of the combined net flows of income from all other kinds of investment.

45,000 40,000 35,000 30,000 MOP million

Below is an analysis of the composition of external factor income flows.

25,000 20,000 15,000 10,000 5,000 0 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

GRAPH 6 - External factor income net flows FDI income

Portfolio investment income

Other investment income

2004

2007

Compensation of employees

10,000 0

MOP million

-10,000 -20,000 -30,000 -40,000 -50,000 2002

2003

2005

2006

2008

2009

2010

2011

FEBRUARY 2013

Statistical Digest

Economic output

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 2012)

6.1%

External merchandise trade 2011 Exports

MOP 7.0 billion

Imports Trade balance

2011 Electricity Gasoline Liquefied Petroleum Gas Natural Gas

110,552

17.6

Year-on-year change (%)

Latest

27.7 22.7 43.2 percentage 0.3 points

Year-on-year change (%)

Latest

Year-on-year change (%)

MOP 131.8 billion

MOP 7.5 billion

MOP 76.0 billion

15.3 14.3 16.7 14.5

Latest

Year-on-year change (%)

MOP 118.5 billion MOP 104.0 billion MOP 42.5 billion

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

Notes

5.8%

MOP 362.7 billion

41.5 44.9 29.7 --

Oct-Dec 2012

17.8 22.6 -percentage -1.0 point

MOP 188.4 billion

Year-on-year change (%)

Oct-Dec 2012

Dec 2012

Year-on-year change (%)

Utility consumption Water

Oct-Dec 2012

350,000 72.4%

16.5 4.0 percentage -0.8 points

Latest

MOP 63.7 billion

Notes

MOP 12,000

Year-on-year change (%)

Balance

Oct-Dec 2012

2011

MOP 49.0 billion

1.9%

MOP 64.5 billion - MOP 57.0 billion

MOP 99.7 billion

Q3 2012

-0.3 percentage points

MOP 62.3 billion - MOP 55.3 billion

Total expenditure

Q3 2012

Year-on-year change (%)

Latest

19.9 15.4 --

MOP 112.7 billion

- Direct tax revenue from gaming

---

0.2 41.2 --

Public accounts Total revenue

MOP 75.0 billion

24.0

Money and prices

Notes

11.8 5.1 ---

MOP 86.1 billion

Year-on-year change (%)

-0.6 percentage points

Year-on-year change (%)

Latest

68.7 million m3 6.5 3,897 million kWh 8.8 79.8 million L 6.7 39,359 tons 1.5 --100

Nov 2012 Nov 2012 Nov 2012 Dec 2012

Notes Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012

Notes Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012

Notes Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 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

216,339 101,006 115,333 1,565,987 229,864

Year-on-year change (%)

5.2 6.7 4.0 18.2 10.7

* A new fiscal reserve system was introduced in January 2012, impacting the way foreign exchange reserves are accounted for FEBRUARY 2013

Notes Nov 2012 Nov 2012 Nov 2012 Nov 2012 Nov 2012

Source: Statistics and Census Service and Financial Services Bureau

33 ANDRÉ RIBEIRO CONSULTANT AND EXECUTIVE COACH - andre@taoinvestor.com

Pockets: silver lined HIGH DEMAND AND LIMITED SUPPLY OF SILVER ARE MAKING THE METAL AN ATTRACTIVE ALTERNATIVE INVESTMENT

Waste of metal Demand for silver is rising, for industrial use and for investment. The imbalance of demand and supply has resulted in a bull market – silver prices rose by over 450 percent between 2000 and 2012. Of all the metals, silver is the best electrical and thermal conductor. Much of the industrial demand is from the electronics industry, which uses silver in devices such as smartphones, tablet and notebook computers, and television sets. Silver is also used to make photovoltaic cells – and production of photovoltaic cells is increasing rapidly. Since many of these products contain only tiny quantities of silver, there is little profit to be made in recovering the metal from them when they are thrown away. So the silver often remains in the rubbish dump. There are now several silver-linked exchange-traded funds, making it easier for retail investors to put their savings into the metal. Together, these funds held a total of around 600 million ounces of silver in the middle of November, according to estimates by ETF Securities. These exchange-traded funds mirror the price of silver, minus a management fee. The mainland has been playing a greater and greater role in the global silver market in the past decade. A few years ago, it was a marginal player, but no longer.

SILVER SPOT PRICE 60 U.S. dollars per ounce

he silver market is relatively obscure and unknown to most mainstream individual investors. So, when considering investing in precious metals, most go for gold, largely because of the recent hype about its prospective returns. Few seem to know that the upswing forecast in silver prices is much higher. Silver has been used for money throughout history by various civilisations. In several languages, the word silver is a synonym for money. For centuries, China’s monetary system was based on a silver standard, abandoned only in 1935. From 1949 to 1982, private individuals in the mainland were forbidden to own gold and silver. The 2000 liberalisation of the silver market was one of a number of reforms. Basic economic theory states that the market price of any good is set by the relationship between supply and demand. For silver, growing demand and only slow growth in supply are the fundamental reasons that much higher prices are in prospect. On the supply side, not many mines that primarily extract silver are in operation today. Most newly mined silver is a byproduct of mining for other metals, including lead, zinc, copper and gold. This means most mining companies that produce silver do not regard it as their core business or main source of revenue. They cannot easily respond to higher prices for silver by increasing their output rapidly or to any great extent. Central banks do not keep huge reserves of silver like the hoards of gold in their vaults. So they have no large stockpiles to release in order to control prices when demand rises.

50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2010

2011

2012

Demand from mainland investors has jumped in recent years. This has made the mainland the world’s leading market for investment in silver, whether in the form of the metal itself or in the form of paper such as silver futures and similar contracts, according to a recent Thomson Reuters GFMS report. The report says the mainland now supplies 14 percent of the world’s newly-mined silver, making it likely to become the second-largest producer in the world.

Cheap at the price Analysts expect demand for silver in the mainland to grow in the coming years, driving up the global price. Silver is now relatively cheap. During the course of history, one ounce of gold has been worth, on average, about 16 ounces of silver. On January 15, one ounce of gold could buy about 54 ounces of silver. If gold were to remain at US$1,680 (MOP13,440) an ounce, its price on January 15, and the ratio of the price of gold to the price of silver were to return to its historical average, silver would fetch about US$105 an ounce, or 230 percent more than it does now. If one ounce of gold was worth 10 ounces of silver, silver would fetch US$168 an ounce. Given the fundamental supply and demand, silver looks set to leap in price. It is likely to outperform gold in the next 10 years, since the market for silver is smaller, making it more volatile. For centuries our ancestors used silver as currency. Today the metal presents a rare opportunity to make a handsome profit on a medium-term investment. The views expressed here are those of the author and are not investment calls by Macau Business FEBRUARY 2013

Politics

The kingmaker Li Gang, the new deputy director of Beijing’s liaison office, may have a dominant role in mapping the future of the gaming industry BY ALEXANDRA LAGES

hy was Li Gang, the former deputy director of the central government liaison office in Hong Kong, shunted across the estuary to fill the equivalent position in Macau? Analysts say it was because Mr Li will soon become head of the liaison office here. His appointment in December as deputy director of the central government liaison office was greeted with surprise in the press, because many pundits had expected Mr Li to move up to become the director. Those expectations were strengthened by the present director, Bai Zhijian. Mr Bai had hinted that he might retire after the new Chinese Communist Party leadership took over in November. It is still on the cards that Mr Li could become director later this year. Analysts say that otherwise his move from Hong Kong could be considered a demotion. As deputy director of the liaison office, Mr Li has the rank of viceminister. Promotion to director would give him the rank of minister. Reports in the Chinese-language press suggest that Mr Li will become the director after the National People’s Congress meets in Beijing next month, or after the Legislative Assembly elections here later this year. “Well, we still have a year to go. Let’s see then,” was his answer to reporters in December when they asked when he might take over. Mr Li was deputy director of the liaison office in Hong Kong and its spokesman for nine years. He won praise for his handling of the media and thorny issues, including tensions generated by the one country, two systems principle. Analysts say he is expected to have an important say in Macau’s internal affairs. “Mr Li is expected to play a crucial role laying the groundwork for the renewal of the casino concessions,” says Sonny Lo Shiu Hing, co-director of the Centre for Greater China Studies at the Hong Kong Institute of Education. Mr Lo says although there are seven

FEBRUARY 2013

Li Gang

years until the first concessions expire, the government will need plenty of time to prepare. Officials of the central government liaison offices in the special administrative regions usually keep their posts for a long time. Mr Bai has been director here for more than a decade. Peng Qinghua was deputy director in Hong Kong from 2003 to 2009, then being promoted to director, a position he kept until last year.

Anti-corruption role? Mr Li is also member of the Communist Party Central Commission for Discipline Inspection. Bill Chou Kwok Ping, an associate professor of political science at the University of Macau, says: “Mr Li may be charged with supporting anti-corruption efforts that involve party members, including officials in the mainland and party members working in various sectors of Macau.” However, Mr Li has said Macau and its gaming industry are not within the primary scope of the commission’s

latest anti-corruption effort in the mainland. “The task of the commission is to get to grips with anti-corruption moves in the mainland,” he told reporters in December. “This task is not related to Macau’s affairs.” He was speaking after reports that mainland authorities would intensify their scrutiny of gambling junket operators in an effort to deter corruption and money laundering. There were also media reports that mainland investigators had visited in November to look into suspected money laundering during now-disgraced Bo Xilai’s time as Communist Party chief of Chongqing.

Reform role Mr Li may have a say in the political evolution of Macau. Mr Chou says Mr Li may have to deal with further political reform here. Mr Chou describes last year’s political reforms as a “half-baked cake”. The reforms added two directly elected seats and two indirectly seats to the Legislative Assembly, and increased

35 tions. This indicated that the electoral blueprint, which Mr Li played an important role in making, was not satisfactory,” he says.

Excessive influence

Li Gang (third from right), at the reception in celebration of the 13th anniversary of the Macau SAR

the number of members of the committee that elects the chief executive from 300 to 400. “The reforms have done little to redistribute political power. The pro-establishment camp is as entrenched as before,” Mr Chou says. He says the reforms hold no promise of further progress toward democracy. Mr Li is familiar with debate about political reform. In Hong Kong, he was involved in the liaison office’s negotiations with the Democratic Party over electoral reforms in 2010, helping ensure that the Legislative Council supported the changes. The reforms increased the number of seats in the Legislative Council to 70, of which 40 are directly elected. This means that the majority of members are now elected by universal suffrage, the rest being elected by functional constituencies, which are under the sway of the establishment and Beijing. The reforms also increased the number of members of the committee that elects the chief executive to 1,200 from 800.

Advocates of democracy had demanded a reform schedule so that elections would be decided entirely by universal suffrage in 2017, as promised by Beijing. Mr Chou doubts that Hong Kong’s reforms achieved much. “The outcome of the negotiations was not welcomed in Hong Kong, as evidenced by the dismal performance of the Democratic Party in the 2012 elec-

Bai Zhijian, the present director of the liaison office, is likely to retire soon

Mr Chou says tension between Beijing and Hong Kong intensified while Mr Li was deputy director of the central government liaison office in Hong Kong. Advocates of democracy accused the liaison office of meddling in Hong Kong’s internal affairs by backing pro-Beijing candidates in the Legislative Council elections and by playing a big part in giving Leung Chun-ying victory over Henry Tang Ying-yen in last year’s election for the post of chief executive. “Had Mr Li’s performance been appreciated by Beijing, he would have been promoted to director of the Hong Kong liaison office,” says Mr Chou. He says the transfer of Mr Li to a “less important” post here indicates that Beijing is not that satisfied with his work. One of Mr Li’s tasks here will be to hold consultations about the election of the next chief executive. That should be easy enough next year, as most analysts think Fernando Chui Sai On will run for a second term. It may not be so easy in 2019, when a new chief executive must be elected because Mr Chui cannot run for a third consecutive term. Mr Chou says Mr Li may have to use a firmer hand in dealing with the establishment camp. The establishment camp has put up some resistance to some of Beijing’s directives to Macau, including directives on countering corruption and money laundering, and on diversifying the economy, he says. At the same time, groups that usually support the government are finding it increasingly difficult to remain politically relevant. Mr Chou says these groups will “become eager to look for the support of Mr Li for a bigger share of power and wealth”. The Hong Kong Institute of Education’s Mr Lo says Mr Li will also have “to reach out to the grassroots level, including young people and pro-democrats”. Mr Lo says Mr Li was one of a new set of officials posted to the liaison office in Hong Kong when Tung Cheehwa was the chief executive. They were told to get a better feel for Hong Kong public opinion, Mr Lo says. Mr Li’s experience from that task may prove useful in a rapidly changing Macau. FEBRUARY 2013

36 KEITH MORRISON AUTHOR AND EDUCATIONIST - kmorrison.iium@gmail.com

Don’t bet on payouts THERE ARE RICH PICKINGS FOR A FEW IN MACAU AND LITTLE ELSE FOR THE REMAINDER ife is not fair. Despite low unemployment and the apparently unstoppable gaming business in Macau, not everyone gets dealt a decent hand of cards. The table shows the median monthly pay of various kinds of workers and the percentage increases in their pay over three periods in the past decade. The data for the third quarter of last year are the latest available. At first glance you might be tempted to think that workers have weathered the storm of the international economic downturn and come up smiling. After all, blue-collar workers, craftsmen, bosses and clerks have had monstrous increases in their median monthly pay in the past decade. The pay of other white-collar workers and unskilled workers has also risen, but to a lesser extent. But simple data like these are deceptive. At the end of September last year the number of people in the group that comprises legislators, government officials, leaders of associations, directors and managers of companies was 19,200, making up only 5.6 percent of the working population. But this group had the third-highest percentage increase in median pay since the third quarter of 2002. Similarly, the group that had the highest percentage increase in median pay, blue-collar workers – comprising plant and machine operators, drivers and assemblers – numbered 16,600, making up just 4.8 percent of the working population. The group that had the second-highest percentage increase in median pay, craftsmen and similar workers, numbered 28,800, about 8.4 percent of the working population. In other words, the biggest pay increases in the past decade went to about 18.8 percent of the working population.

Pyramid’s base

Clerks constitute the largest group of workers, making up 28.4 percent of the working population in September. Their ranks have swelled in the past decade from 33,900 workers to 97,600. But the percentage increase in their median pay between the third quarter of 2002 and the third quarter of last year was the fifth-lowest. Service and sales workers constitute the second-largest group of workers, making up 21.3 percent of the working population. They numbered 73,200 in September, 67.5 percent more than a decade before. But the percentage increase in their median pay in the past decade was the third-lowest. Together, clerks, service and sales workers, and unskilled workers comprised 66.4 percent of the working population

in September, having comprised only 55.5 percent a decade before. This suggests the workforce is becoming less skilled. Percentages alone give an incomplete picture of pay increases. Real people have real pay, and we need to look at actual incomes for the percentages to be meaningful. For example, an increase of 10 percent in monthly pay of MOP30,000 (US$3,750) is greater than an increase of 25 percent in monthly pay of MOP10,000. The increase of 156.1 percent in the median pay of the group comprising legislators, government officials, leaders of associations, directors and managers of companies in the past decade meant their median pay in September was nearly three times that of plant and machine operators, drivers and assemblers, whose increase of 287.5 percent in median pay was the highest. The median monthly pay of clerks was half the median monthly pay of legislators, government officials, leaders of associations, directors and managers of companies in September, and 54 percent of that of professionals.

More for less

The median monthly pay of service or sales workers was 28 percent of the median monthly pay of legislators, government officials, leaders of associations, directors and managers of companies, and 30 percent of that of professionals. Put plainly, half the workforce – white-collar workers – had median pay that was between 28 percent and 54 percent of that of their bosses. Unskilled workers, who make up 16.8 percent of the working population, had the smallest percentage increase in their median pay in the past decade, and in September their median pay of MOP5,000 per month was the lowest. Factor in the effects of inflation, which was about 6.1 percent last year, and it is clear that the earnings of lower-paid workers tarnish the gleaming image conveyed by the figures for percentage increases in median pay. Furthermore, official data show that the median numbers of hours per week worked by the three highest-paid groups of workers in the third quarter of last year ranged between 42.4 and 45.9, but the median numbers of hours per week worked by all the other groups ranged between 46.2 hours and 47.8 hours. The rich receive high pay on the backs of poorly paid, lowergrade workers who put in long hours. The data paint a picture of the bosses doing very nicely, thank you, while the masses have a daily struggle to make ends meet. Not much equality there.

PAY AND PAY INCREASES IN THE PAST DECADE

Legislators, government officials, association leaders, company directors and managers Professionals Technicians, associate professionals Clerks Service, sales Craftsmen Machine operators, drivers, assemblers Unskilled workers SOURCE: STATISTICS AND CENSUS SERVICE

FEBRUARY 2013

Median monthly pay 2002Q3 (MOP)

Median monthly pay 2007Q3 (MOP)

Median monthly pay 2012Q3 (MOP)

Increase in pay 2002Q3 - 2007Q3 (%)

Increase in pay 2007Q3 - 2012Q3 (%)

Increase in pay 2002Q3 - 2012Q3 (%)

11,716

19,310

30,000

64.8

55.4

156.1

15,774 9,224 6,046 4,570 3,934 2,684 3,047

19,531 12,618 11,564 5,921 8,627 6,033 4,279

28,000 18,000 15,000 8,500 11,700 10,400 5,000

23.8 36.8 91.3 29.6 119.3 124.8 40.4

43.4 42.7 29.7 43.6 35.6 72.4 16.8

77.5 95.1 148.1 86.0 197.4 287.5 64.1

JANUARY 2013

Greater China of the former Central Government Offices,” said then Secretary for Development Carrie Lam Cheng Yuet-ngor. “It has seized a unique opportunity to create a public open space in the upper part of Central, enhance the green neighbourhood and provide a new building to meet office and community needs.”

Fight for preservation

The redevelopment plan

Historic U-turn

Public pressure leads the Hong Kong government to drop plans to redevelop former Central Government Offices in Central BY MARY ANN BENITEZ*

ith its ancient trees lining a winding lane, Battery Path, in Central, has been one of the best-loved walkways in Hong Kong. It also leads to the site of the old Central Government Offices. On weekends, hawkers ply cheap clothing and bags as foreign domestic helpers chat, have lunch, buy wares or walk to St John’s Cathedral for church service in this serene green oasis at the heart of Hong Kong’s financial centre. The city’s government wanted however to introduce changes to the area, by redeveloping the West Wing of the old Central Government Offices. The project provoked a heated debate, showing a growing interest in Hong Kong in preserving and maintaining the city’s heritage.

FEBRUARY 2013

Two months ago, the idea was dropped. In June last year, the Hong Kong government had announced the “final plan” for redeveloping the West Wing of the former Central Government Offices after a two-year consultation exercise. By that time, the Central Government Offices had already been moved to a swanky new harbour-front complex in Tamar. Under the redevelopment plan, the West Wing would be redeveloped into a 32-story office tower for financial institutions. “This final plan, which provides for the preservation of the Main and East Wings for use by the Department of Justice and redevelopment of West Wing, has fully taken into account views expressed in the community on the future

Immediately there was a howl of opposition from conservationists to the thinking that Government Hill – which the whole complex is known for – the seat of Hong Kong government for 150 years, would be changed forever. In December, Leung Chun-ying’s government was forced to reverse the decision, made by the government of former Chief Executive Donald Tsang Yam-kuen. The West Wing will now be preserved. The entire office space comprising the Main, East and West wings will house the Secretary for Justice and lawrelated non-government organisations. The department of justice is currently renting offices in Admiralty and moving the department to the old Central Government Offices would save the government some HK$15 million (US$1.9 million) in rent every year. Interestingly also in December, the government did a U-turn on another controversial decision – the private Ho Tung Gardens on the Peak will be redeveloped, per the wishes of its owners. The government had wanted to declare the Ho Tung Gardens a historical monument, but the U-turn meant the way was cleared for its redevelopment by owner Ho Min-kwan. Behind the movement to preserve the West Wing and Government Hill is the Government Hill Concern Group, an umbrella organisation of 21 non-governmental and green groups formed in December 2010. The group on its website said selling half the site to a developer would destroy “all the historical elements of the West Wing and half of Government Hill.”

Conflict of interests With the government U-turn on the West Wing, the Antiquities Advisory Board in December overturned its earlier rating of a grade two and instead put a grade one rating on the West Wing, which means it is a building of outstanding merit and should be preserved if possible.

The old Central Government Offices

The snafu cost Bernard Charnwut Chan his chairmanship at the Antiquities Advisory Board. Amid allegations Mr Chan colluded with officials so that the West Wing could be demolished, he

threatened to resign, then changed his mind, instead opting to leave at the end of his term in December last year. Replacing him was also a veteran Antiquities Advisory Board member,

Andrew Lam Siu-lo, an urban design planner. Mr Lam has told the media he hoped to reform the board’s policies and formulate legislation that would restrict the development of buildings that have been graded. The board is a statutory body set up to advise the Antiquities Authority, which is headed by the Secretary for Development Paul Chan Mo-po. The Government Hill Concern Group criticises this arrangement. “When proposing the West Wing be redeveloped, they [government] somehow overlooked the heritage significance of this site, which should be of special priority in determining how to protect it,” says group convener Katty Law Ngarning. “We do not have a cultural bureau that looks at heritage conservation, particularly in relation to cultural policy.” The Government Hill Concern Group has suggested an independent and separate entity, which will not be affected by development policies. * ASSISTANT NEWS EDITOR OF THE STANDARD NEWSPAPER IN HONG KONG

FEBRUARY 2013

Greater China

Burning issue

Pollution turns Hong Kong harbour from ‘fragrant’ to foul BY BEH LIH YI*

ong Kong’s name may mean “fragrant harbour” in Cantonese, but cargo ships burning dirty fuel in what is one of the world’s busiest ports add to a foul layer of pollution that kills more than 3,000 people a year. Now the government is pledging to introduce legislation next year to require all oceangoing vessels to use fuel with lower sulphur content when berthed in the city, a measure aimed at making the city more environmentally friendly. A total of 410,560 vessels arrived and left the port in 2011, with cargo ships vying for space in the crowded waters alongside public ferries, tourist junks and luxury yachts. This level of activity means shipping is a key polluter in a city where, according to the University of Hong Kong, air pollution kills about 3,200 people every year. Simon Ng of the Civic Exchange think tank blames the pollution, which often shrouds the city’s dramatic skyline in thick smog, for driving away talent. “Just imagine a small power plant right next to your doorstep, producing a lot of pollution every day, almost 24 hours a day, what would you do?” he says. “Ships are now producing a lot more

FEBRUARY 2013

pollutants than we had anticipated, and it is becoming a major problem that we need to address.” Rising emissions from ships, which burn heavily polluting bunker fuel, will have seen shipping overtake the power industry as the city’s biggest source of the colourless toxic gas sulphur dioxide last year, Mr Ng predicts. Nearly 400 Hong Kong people died last year from breathing in pollution from bunker fuel alone, he adds, citing a study on marine pollution by his think tank.

Level playing field Activists say Hong Kong lags behind the rest of the world on environmental issues ranging from recycling to cycle lanes. And when it comes to shipping, while vessels calling in northern Europe and North America are mostly restricted to fuels with 1.0 percent or less sulphur content, Hong Kong allows 3.5 percent. Last year however, it did introduce a voluntary scheme in which ships using 0.5 percent or less are given a 50 percent discount in port dues. Christine Loh, an environmental crusader who has become the government’s environment undersecretary, says the scheme was just a “small start”.

“We want to regulate. We want it to become mandatory and we want to take the scheme across the border to our neighbours in Guangdong,” she told an air quality conference last month. “We would like, within the next few years, to collaborate and work very closely with the Guangdong province so the whole of the water of the [Pearl River Delta] could be turned into a low emission zone.” The Hong Kong Shipowners Association says the industry is operating in a terrible environment amid an unpredictable trade volume due to the global financial crisis. “Asking carriers to spend money that they don’t have on switching fuel is quite a difficult thing,” the association’s managing director Arthur Bowring says. However, he adds liners are prepared to work with the government and notes that about 18 companies have taken part in a two-year unsubsidised, industry-led initiative to use cleaner fuel that expired at the end of last year. Orient Overseas, Hong Kong’s biggest container ship operator, which took part in the initiative, says mandatory regulation would at least create a level playing field. * AFP NEWS AGENCY

41 ZHANG MONAN FELLOW OF THE CHINA INFORMATION CENTRE

The limits of China’s consumer revolution CHINA CANNOT RELY ON CONSUMPTION AS ITS ONLY GROWTH ENGINE. IT MUST CONTINUE TO DEVELOP ITS MANUFACTURING SECTOR

hina’s economy is at a crossroads. As 2013 begins, foreign and domestic observers alike are asking which path the country’s economic development should take in the next decade. How can China ensure stable and sustainable growth in the face of significant internal and external challenges, including slowing medium- and long-term growth, rising labour costs and growing inflationary pressure? After the global economic crisis weakened external demand, which sustained China’s unprecedented economic growth for three decades, the authorities agreed that internal demand, especially domestic consumption, must become the country’s new growth engine. At the Chinese Communist Party’s congress in November, China’s leaders declared their intention to double per capita income by 2020, unleashing RMB64 trillion (MOP82 trillion) of purchasing power. Indeed, with roughly 130 million middle-class consumers, China’s domestic market holds significant potential. The Boston Consulting Group estimates that, with an average annual gross domestic product growth rate of 7 percent in China and 2 percent in the United States, Chinese domestic consumption will rise to half of America’s by 2015, and 80 percent in 2020 (assuming that the renminbi appreciates at an average rate of 3 percent against the U.S. dollar over the next few years). Moreover, the current-account surplus plummeted from more than 10 percent of GDP in 2007 to 2.8 percent in 2011, reflecting China’s decreasing reliance on exports to drive economic growth. In 2010, China’s imports ranked second in the world and are expected to grow at an average annual rate of 27 percent in 2011-2015, outpacing export growth by five percentage points. As a result, the total value of imports is expected to exceed US$10 trillion (MOP80 trillion) in only two years, providing lucrative investment opportunities and broader markets to foreign investors.

Low productivity This potential is not lost on multinational companies. A survey conducted in May 2012 by China’s State Council Development Research Centre asked 394 Chinese and foreign companies about their future strategic orientation in China. The respondents most often viewed China not only as a market opportunity, a research-and-development base and an export base, but also as a high-end manufacturing base, a regional-headquarters site and a service base. The results also reflected China’s declining attractiveness as a base for product assembly, low-cost manufacturing and parts production. In fact, while the U.S. and other developed countries have sought to bring manufacturing home (“reshoring”), they have been establishing innovation facilities in China. Multinational companies have created nearly 1,000 R&D centres in China, including 194 in 2010 alone, enabling them to develop products for the local market. More than 1,400 foreign-funded R&D institutions are currently operating in China and data from China’s Ministry of Commerce indicate that 480 of the world’s top 500 companies have established local subsidiaries. But China cannot rely on consumption as its only growth engine. History has shown that a one-dimensional development model cannot ensure sustainable competitiveness, just as no single market can sustain global demand. Given this, China

must continue to develop its manufacturing sector. China is the world’s top manufacturing country by output. But, while it accounts for 19.8 percent of total global manufacturing, it receives less than 3 percent of the world’s manufacturing R&D investment. As a result, China’s innovative capacity remains relatively low, with its high-tech and knowledge-intensive industries unable to compete globally. On average, China’s industrial enterprises are relatively small, and, although its industrial labour productivity (real manufacturing value added per employee) has improved over the last decade, it remains much lower than that of developed countries – just 4.4 percent of America and Japan’s productivity, and 5.6 percent of Germany’s. And the “pauperisation” phenomenon – in which companies must adjust their commercial strategies to cope with an impoverished consumer base – is increasingly affecting traditional industries, further undermining China’s capacity for sustainable development.

Narrowing gap Moreover, the quality of Chinese-manufactured products continues to lag behind that of developed countries’ manufactured goods. Whereas one unit of intermediate input in developed countries typically generates one unit or more of added value, in China the ratio is only 0.56. As China’s “demographic dividend” disappears, its lowend labour market is shrinking, driving up its once rock-bottom labour costs and diminishing its rate of return on capital. Over the next decade, as Chinese workers demand higher salaries, basic benefits and improved working conditions, the country may well lose the comparative advantage that has driven its manufacturing boom. While manufacturing wages remain significantly lower in China than in the U.S., the rapidly narrowing gap is already fuelling American reshoring. Given that Chinese wages are rising at an annual rate of 15 percent to 20 percent, productivity-adjusted wage rates in low-cost U.S. states are expected to exceed those in some coastal regions of China by only 40 percent in 2015. Add to that reduced energy costs in the U.S., owing to the country’s shale-gas revolution, as well as the global supply chain’s complexity, and China’s cost advantages will soon be negligible. Meanwhile, other emerging economies – including Vietnam, India, Mexico and Eastern European countries – are vying for China’s position as the world’s factory. These lower-cost alternatives are fast becoming developed-country investors’ preferred destinations. Although the enormous potential of China’s consumer market can provide a new impetus for economic growth, the country’s economic transformation cannot succeed unless it upgrades its manufacturing sector. China’s leaders must begin by increasing investment in science and technology, focusing their efforts on parlaying key technological breakthroughs into higher-value-added production. Only by combining growing Chinese consumption with enhanced Chinese manufacturing will the country be able to develop a new comparative advantage, which is the key to sustainable growth over the next decade. FEBRUARY 2013

Greater China

Back on the stands End to mainland media row dims reform hopes BY CAROL HUANG*

he way Beijing contained a rights row that saw rare protests against censorship shows there is no consensus for rapid change, analysts say, despite rising calls for press freedom and other reforms. Since China’s president-in-waiting, Xi Jinping, was installed as the new Communist chief in November, authorities have proclaimed themes of better serving the people, respecting rights and clamping down on corruption. But the government’s handling of the rare public dispute – a tangible early test for Mr Xi – suggested radical change is some way off. The row flared after the liberal Southern Weekly newspaper had an editorial urging greater protection for liberties replaced with one praising the ruling party. Angered by what they saw as heavy-handed censorship, demonstrators took to the streets with others speaking out in the mainland’s increasingly vocal online community. A deal between staff and officials, reportedly on the basis that there would be no direct interference in content before publication, saw the paper come out again as scheduled, as police removed demonstrators from the scene. Reports said Hu Chunhua, a rising star in the Communist Party and its top official in Guangdong province, where the paper is based, had stepped in to mediate.

Show of force David Goodman, a professor of Chinese politics at the University of Sydney, saw the accommodation of protests and the quiet defusing of the situation as signs that leaders themselves were divided over how much leeway to allow. “People don’t normally go around protesting in China like that without some level of high-level support,” he says.

“Both camps will have instructed their people who were at the front line in the situation to back off,” Mr Goodman says. “There are people who don’t want change and people who do want change.” Such challenges to the government were likely to continue, says Willy Lam, a politics expert at Chinese University of Hong Kong. “I think people are not so naive to believe that Mr Xi is really serious about abiding by the constitution and so forth because that would mean freedom of expression,” he says. “But I think they want this to be a challenge to Mr Xi because he has in a high-profile manner committed himself to respecting and abiding by the constitution.” During the row, the mainland’s major web portals reprinted a hard-line official editorial critical of the Southern Weekly but distanced themselves from the content, while the publisher of the Beijing News reportedly resigned. Mr Lam says the display of press solidarity, buttressed by a show of force on the mainland’s Twitter-like weibos, indicated such challenges would arise again. “First of all there is a nationwide community of journalists who are willing and brave enough to offer support to each other. And secondly there is this potent weapon of Weibo which enables public intellectuals [and] legal scholars to beat the censorship,” Mr Lam says. But some prominent Weibo users who supported of the paper were reportedly later “invited to tea”, a euphemism for being cautioned by authorities. Social media are subject to strict controls in the mainland, with critical posts rapidly deleted and controversial search terms often blocked, although recently official media have also praised them for exposing wrongdoing, particularly regarding corruption.

Promising approach Vague promises of reforms have also been repeatedly sounded in the past few months, and a few weeks ago reports said Beijing would stop using its widely criticised “re-education” labour camps. Doug Young, a journalism professor at Fudan University in Shanghai, saw the official response to the Southern Weekly dispute, with its promise of less interference, as promising. The authorities defused the crisis in a savvy manner, avoiding a backlash and signalling a more pragmatic approach, he says. This “goes hand in hand with the fact that Mr Xi and this new generation generally want to see more openness in the media,” Mr Young says. “They want to see the media become more of a social-type watchdog and not just a propaganda tool for the Communist Party.” However, Mr Lam says the way the dispute ended “shows that [Mr Xi] is only interested in economic reform, but regarding political reform including policy towards the media, he is no different from [predecessors] Hu Jintao or Jiang Zemin”. * AFP NEWS AGENCY FEBRUARY 2013

Growing old The mainland’s working-age population falls BY NEIL CONNOR*

he mainland’s working-age population declined for the first time in recent decades in 2012, the government said last month, detailing the extent of a demographic time bomb experts say is one of Beijing’s biggest challenges. China introduced its controversial one-child policy in the late 1970s to control population growth, but its people are now ageing, moving to the cities and increasingly male, government statistics showed. The mainland’s population rose by 6.7 million in 2012 to 1.35 billion people, the National Bureau of Statistics said. Almost 118 boys were born for every 100 girls. The working-age population – defined as those from 15 to 59 – fell by 3.45 million to 937 million, adding to concerns about how the country will provide for the elderly, with 194 million people now 60 or over. It was the first absolute drop in the working-age segment in “a considerable period of time”, said National Bureau of Statistics director Ma Jiantang, adding that he expected it to “fall steadily at least through 2030”. The mainland’s wealth gap and population imbalances are major con-

cerns for the ruling Communist Party, which places huge importance on preserving social stability to avoid any potential challenge to its grip on power. An estimated 180,000 protests break out across the mainland every year, many of them sparked by a wide range of social issues, including wage disputes and rural workers being denied residents’ rights in cities. But the government faces a “major dilemma” over how it confronts the problem of a rapidly ageing population, analysts says.

Population imbalance “For older generations, life is going to be very painful,” Sun Wenguang, a retired academic from Shandong University in Jinan, told AFP. “The cost of 24-hour care in Beijing is probably RMB7,000 (MOP9,000) a month, and how will this be funded? The average manual worker in the mainland earns about RMB2,000 a month, of course they don’t want to share their money out.” Liang Zhongtang, a researcher at the Shanghai Academy of Social Sciences, says the government is reluctant to confront the population imbalance

because of the sensitivity of the family planning policy. “Actually, the structural decline of the country’s labour resources started long ago,” he told AFP. Most of the labour force is now aged between 20 and 45, Mr Liang says, with the proportion of older workers within that range increasing rapidly. “This means it is very hard for them to change their jobs or find a new employer”, decreasing labour flexibility. The problems of ageing and labour shortages are “severe” in the countryside, Mr Liang adds. “Even though rural areas’ social and economic problems are serious, they do not make onto the radar of mainstream [policy makers]. They just ignore the problems plaguing this social stratum.” As late as 1982, the proportion of the population aged 60 or over in the mainland was just 5 percent, but it now stands at 14.3 percent. The mainland’s urban population rose to 712 million in 2012, up 21 million and adding to the strains on public services, while the rural population fell 14 million to 642 million. Average per capita income was RMB26,959 in the cities, compared to RMB7,917 in the country* AFP NEWS AGENCY side, the statistics said. FEBRUARY 2013

WELCOME THE YEAR OF THE

SNAKE

TOURISM’S PEAK SEASON MEANS HIGHER PRICES LAI SEE MARKETING AN ENVIRONMENTAL RED FLAG A STELLAR GUIDE TO THE NEW LUNAR YEAR

Photo: Luís Almoster

BY ALEXANDRA LAGES

LUNAR NEW YEAR 46

By the trainload The Guangzhou-Zhuhai high-speed railway will bring more tourists during the Lunar New Year holidays, in potentially record numbers

he Lunar New Year holidays are peak season for Macau’s tourism and gaming industries, but the beginning of the Year of the Snake may bring more visitors than usual. That will be due to the opening of Gongbei Station, the last stop on the Guangzhou-Zhuhai Intercity Railway. The bottleneck may come at the Gongbei border crossing that may be unable to cope with a surge in visitors from the mainland. Amy So Siu Ian, the programme coordinator for hospitality and gaming management at the University of Macau, says the new railway will lead to an increase in tourist numbers during the Lunar New Year holidays. Mainland tourists “may want to experience the new railway and check out how convenient it is,” Ms So says. Mainlanders have seven consecutive FEBRUARY 2013

days off work during the break. In Macau, only the first three days are statutory holidays. The city welcomed 861,000 tourists during the seven-day holiday last year, an increase of 6.9 percent over 2011, the Macau Government Tourist Office says. Around 546,000 were from the mainland, up by 14.5 percent. Ms So does not have an estimate for mainland tourist arrivals this year. Final numbers will depend on the weather, the availability of train tickets and the availability of hotel rooms, she says. Some mainland visitors may come to Macau only for the day, spending the night in Zhuhai, where accommodation is cheaper. The last stretch of the GuangzhouZhuhai railway, the extension to Gongbei, was completed in December. Gongbei Station is next to the Gongbei

border crossing, making it convenient for mainlanders coming to Macau – or so it seems. The high-speed trains halve the time it takes to cover the 117km between Guangzhou and Gongbei to one hour and 12 minutes. The journey takes at least two hours by coach.

A nice bump

In holiday periods, up to 35 trains a day will arrive in Gongbei from Guangzhou. Each train carries up to 654 passengers in eight carriages. A first-class ticket costs RMB90 (MOP116) and a second-class ticket RMB70. Union Gaming Group analyst Grant Govertsen, like Ms So, is not prepared to offer a forecast for the number of arrivals during this Lunar New Year. Mr Govertsen says the

timing of the opening of Gongbei Station is good for Macau. “It will result in a very nice increase to visitation during the upcoming Lunar New Year holiday,” he says. He forecasts the new railway will prod some mainlanders that would not otherwise visit, to come for a look. It will probably induce regular visitors from the mainland to come more frequently also. Casino operator Sands China Ltd is advertising heavily on GuangzhouZhuhai trains. At Gongbei, there are advertisements for other casino operators in Macau but advertisements for Sands China stand out because of their sheer number. Deutsche Bank forecasts that Gongbei Station will re-accelerate growth in the number of visitors to Macau, after a minor year-on-year

increase of only 0.3 percent last year. The bank says the railway should make mainland Chinese more aware of Macau as a place to visit. It will be good for hotels and casinos here, as visitors from mainland source markets other than Guangdong stay longer on average, and spend twice as much, the investment bank notes.

Overnight increase

“With this new link, a visitor from Wuhan (central China) can travel directly to Macau by high-speed train within about four hours, versus 14 hours previously,” Deutsche Bank says in a research report written by analyst Karen Tang and published last month. The bank has raised its 2013 forecast for growth in gross gaming revenue from the mass market from 22 FEBRUARY 2013

LUNAR NEW YEAR 48 percent to 25 percent, partly because of the positive effect it expects the railway will have. Deutsche Bank forecasts a rise of 10 percent in overnight tourists in view of the increase in hotel rooms after last year’s opening of the Sands Cotai Central casino resort. Connie Loi Kim Ieng, an assistant professor at the Institute for Tourism Studies, is not so sanguine about the effect of the new railway on tourism and gaming. Ms Loi acknowledges high-speed trains will shorten the journey between Guangzhou and Gongbei and that the prices of tickets are “reasonable”, so increasing the inducement to visit. The railway is still a novelty, however, and some mainland Chinese may wait to hear the experiences of others before taking the train themselves, she says. “The station in Guangzhou is some 20km away from the city centre. This may be one disadvantage vis-à-vis the point-to-point service provided by the traditional coach companies.” Therefore, Ms Loi says that the effect of the railway may not be immediately apparent during this year’s Lunar New Year holidays.

Tight squeeze

The impending surge of visitors may prove too much for the facilities at the Gongbei border crossing, which connects southern Zhuhai to northern Macau. About half of all tourists enter Macau here. Mr Govertsen says the Gongbei crossing facilities are already bursting at the seams. He wants the mainland authorities to speed up work on expanding them.

Amy So Siu Ian, from the University of Macau, says the new railway will lead to an increase in tourist numbers during the Lunar New Year holidays Union Gaming Group analyst Grant Govertsen says the timing of the opening of Gongbei Station is good for Macau Connie Loi Kim Ieng, an assistant professor at the Institute for Tourism Studies, says that the effect of the railway may not be immediately apparent “The expansion is quite necessary. As a stop-gap measure, visitors could be shuttled down to the Cotai immigration checkpoint or to the Inner Harbour Ferry Terminal but, in our opinion, it is important to open the expansion soon,” he says. The expansion will almost double the Gongbei checkpoint’s capacity. It currently handles 260,000 to 300,000 travellers a day, but in the future it will be able to accommodate up to 500,000 crossings. The Barrier Gate, its counterpart in Macau, through which travellers must pass before or after Gongbei, can handle up to 500,000 people per day. The Institute for Tourism Studies’ Ms Loi says the Macau government

should deploy more manpower at the crossing to cope with the flow of tourists during the Lunar New Year holidays. She adds that the crossing should be kept open for more hours of the day during the festive season. Ms So says a new border crossing that has been proposed would ease congestion at the Gongbei crossing. The new crossing is planned for the current site of the Nam Yuen wholesale market and would be for pedestrians only. It would be open around the clock and have capacity for 250,000 travellers a day. Beijing has yet to approve the proposal for the new crossing. The Macau government has yet to say how much it thinks the new crossing will cost.

HOLIDAY AVOIDANCE BEHAVIOUR E

ver-greater waves of mainland visitors cascading into Macau across the Lunar New Year holidays may soon be a phenomenon of the past. Connie Loi Kim Ieng, an assistant professor at the Institute for Tourism Studies, says the behaviour of tourists from the mainland is changing and, eventually, their numbers will stop growing. “Lunar New Year will bring in more tourists from the mainland for sure, but only modestly,” Ms Loi says. “Its impact is gradually fading as people now are trying to visit Macau during other periods to avoid congestion as well as high prices.” FEBRUARY 2013

She says the flow of mainland tourists usually follows a weekly pattern, with peaks at weekends. On weekdays, the peaks are outside working hours. Ms Loi explains this is mainly because mainland Chinese regard Macau as a place for quick visits. “They do not really need to wait for big festive seasons, when they have a long break, to visit Macau.” She says tourists from Hong Kong have the same attitude. Together, tourists from Hong Kong and the mainland account for 85 percent of visitors to Macau.

FEBRUARY 2013

On the first morning of Lunar New Year, a 238-meter-long golden dragon will lead a parade across major tourist spots

FEBRUARY 2013

LUNAR NEW YEAR 52

Unwelcome tradition Higher retail prices are the least enjoyable feature of the Spring Festival

he Lunar New Year holiday is full of meaningful rituals. One that all families dislike is the seasonal increase in prices for the most sought-after goods and services. Are these short-term increases unavoidable or a case of businesses taking advantage of the festival to earn an extra buck? Macau-based economists say it all comes down to basic economics: demand outstrips supply and prices are pushed up. “Usually, prices in the Chinese New Year period increase for a short period. But this year prices are already too high, so the percentage of the increase will not be as high as before,” says Macau Association of Economic Sciences chairman Joey Lao Chi Ngai. Mr Lao says it is difficult to estimate this year’s price increases. Food and beverage outlets mark up prices during the Spring Festival to cover additional operating expenses. Their increased costs include paying higher wages. Under Macau law, employees are entitled to seek up to three times their normal salary for the first three days of the festival as these are statutory holidays. The holiday this year starts on February 10. “It’s the usual practice of restaurants to amend their price strategy for Chinese New Year,” Mr Lao says. Several food and beverage outlets do so by adding a surcharge to the bill that can be as high as 20 percent of the cost of the meal during the first three days of the Lunar New Year. Economist Albano Martins agrees that demand during the festive season rises as residents consume more and there is a surge in visitors. “Some retailers take advantage and adjust their prices up,” says Mr Martins. But the increase also often starts with wholesalers. Nam Yue Food Stuff and Aquatics Co Ltd, one of the city’s two main suppliers of fresh meat, has already warned that wholesale prices FEBRUARY 2013

for imported fresh beef and pork will rise this month. The company says this is because mainland producers will be unable to cope with rising demand during the holiday period. Nam Yue says interruptions to supply chains during winter further push up prices.

Costly oranges

Last year, the Spring Festival fell on January 23. Data from the Statistics and Census Service shows prices were 0.93 percent higher in January than the month before. It was the highest monthly jump in inflation last year. In contrast, prices fell in February, which was the only month-on-month drop recorded in 2012. Last year’s January increase in inflation was fuelled by doubledigit increases in the price of fresh seafood, outbound package tours, and hairdressing and grooming services. The price of oranges, traditional gifts displayed as part of the festival’s traditions, rose by 5 percent. The head of the Economic Services

Bureau, Sou Tim Peng, who is also part of a government taskforce to help stabilise food prices, says there is no indication of price manipulation in Macau, despite sharp seasonal increases. As the prices for fresh meat rise, residents are turning to frozen pork and beef, a trend expected to continue during the Spring Festival. Official data shows that imports of frozen meat rose by more than 20 percent last year over 2011’s import volumes. Fresh meat is mostly sourced from the mainland but frozen meat reaches Macau from all around the world, with a broader range of suppliers helping to keep prices steady. The good news is that after the Lunar New Year holiday, price increases are expected to slow. Mr Martins has forecast that fullyear inflation will be between four and five percent. Mr Lao is more bullish and expects a lower inflation rate of between three and four percent. Last year, inflation stood at 6.1 percent.

FEBRUARY 2013

LUNAR NEW YEAR 54

POSTING A PROFIT M acao Post’s special issue last month of 250,000 stamps marking the arrival of the Year of the Snake sold out in three days. Stamp dealers quoted by our sister publication, Business Daily, said special issues of this kind attracted mainland Chinese buyers, who mainly gave them away as gifts or kept them as speculative investments. A sales representative of Piu Kei Stamp Service said a complete set of Year of the Snake stamps, for which Macao Post had charged MOP55 (US$6.88), might now fetch double that sum. Macao Post has been marking the Lunar New Year with special issues of stamps for 31 years. Last year it made MOP6.5 million from its Year of the Dragon special issue.

SECOND COMING A

new edition of special banknotes to celebrate the Spring Festival has been produced by the city’s note-issuing banks, Bank of China and BNU. Last year there was such a rush for the special Year of the Dragon notes that the banks have made people apply online for this year’s limited edition Year of the Snake notes. Many Chinese think the special notes bring good fortune. On the first day of reservations, the sheer volume of applications crashed BNU’s computer system. In the first nine hours, more than 210,000 people reserved Bank of China notes. Each applicant was allowed to reserve a maximum of 60 notes. The deadline for applications was the end of last month. The banks will only begin distributing the notes to successful applicants on March 1, so the notes will come too late to be put in Lunar New Year lai see packets. The government has authorised each of the note-issuing banks to issue a maximum of 20 million special MOP10 (US$1.25) banknotes to mark each new lunar year until 2023. FEBRUARY 2013

Customary costs Offering unused banknotes in lai see packets carries a heavy environmental cost

hinese tradition says a new lunar year requires new money. Mrs Sit, 50, is a traditionalist. She intends to give away MOP4,000 (US$500) in lai see packets to celebrate the arrival of the Year of the Snake. She says only newly printed banknotes, most of them MOP20 notes, will fill the packets. Lai see packets are red envelopes containing cash, which are traditionally given to unmarried people and employees as a gift and token of blessing at the beginning of each Lunar New Year. Another follower of the lai see tradition, Mrs Lau, 40, also intends to put mostly MOP20 notes in the lai see packets she will hand out. “My husband and I expect to give out a total of MOP8,000 this year,” she says. However, she explains she prefers using “almost new” notes because of a shortage of brand new notes “and to go for the concept of recycling and re-use”. She is in the minority. Most people here still want newly printed money for their lai see packets, despite the cost to the environment of printing thousands upon thousands of new notes – on top of the cost to the environment of manufacturing thousands upon thousands of lai see packets. In the weeks before Lunar New Year, bank customers begin queuing

up to exchange old notes for new ones to put in lai see packets. The vicepresident of the Macau Ecological Society, Chan Zeng Meng, urges banks to discourage this. “Our principle is they should not print money just because of Lunar New Year traditions,” Mr Chan says.

Small fortunes

The Monetary Authority of Macau says it has similar concerns. A spokesperson for the authority says it “has always encouraged the two noteissuing banks to offer good-as-new banknotes to meet the massive public demand during the Chinese New Year period”. Neither the note-issuing banks, Bank of China and BNU, nor the monetary authority disclose how many new notes are issued in the runup to Lunar New Year. In Hong Kong, official figures show that on average about 200 million new banknotes are printed each year for the festival. It is estimated that about HK$10 billion (US$1.3 billion) is given away in lai see packets there each year. In Macau, the amount given away may be close to MOP1 billion. Monetary authority statistics show that the amount of pataca notes and coins in circulation during Lunar New Year last year was MOP7.04 billion. A month before, the amount in circulation was MOP6.08 billion, and a month after – when recipients

In the weeks before Lunar New Year, bank customers begin queuing up to exchange old notes for new ones to put in lai see packets had opened their lai see packets and banked the money â&#x20AC;&#x201C; it was MOP6.6 billion. It takes nearly 266 tonnes of cotton to make 200 million banknotes, according to the Hong Kong Monetary Authority. The authority has been promoting the distribution of good-as-new notes for Lunar New Year to protect the environment. It says good-as-new notes make up about 45 percent of banknotes distributed in Hong Kong in the run-up to Lunar New Year, having made up only 20 percent in 2006.

FEBRUARY 2013

LUNAR NEW YEAR 56

Paid messages Done right, lai see packets can become prime promotional weapons

FEBRUARY 2013

ew people remember the days when Macau parents would wrap one pataca in red paper before handing it to their children as a gift during Lunar New Year. Lai see packets have evolved in shapes and colours since then, with branded envelopes increasingly used by businesses as marketing tools. From public utilities to casinos to property developers, several firms are offering lai see packets to clients, printed with their company logo and name. CEM – Macau Electricity Company Ltd is one of the firms that distributes thousands of lai see packets, money not included, to its customers ahead of the Spring Festival. A company spokesperson would not disclose how many envelopes were distributed, but said the budget for the promotional exercise had not increased this year.

From public utilities to casinos to property developers, several firms are offering lai see packets to clients, printed with their company logo and name

University of Macau assistant professor of marketing Candy Fong Pun San says the red-coloured packets can raise brand awareness. Despite the promotional benefits of branded lai see envelopes, only large corporations tend to use them as a marketing tool. “Given that there are not many effective promotional channels in Macau, distributing lai see envelopes is probably a good way to promote a brand,” she says. Newcomers to the market are most likely to reap the greatest benefits from branded envelopes. “The effect is presumably stronger when the brand is relatively unknown,” says Ms Fong. “The receivers, who are mainly kids and young adults, may have never heard of the unknown brands and thus awareness can be increased.” Established businesses tend to find the “increase in awareness may be minimal, since both the givers and receivers of lai see are already familiar” with the companies, Ms Fong says.

Unique appeal

Offering lai see packets to existing customers can meet other marketing functions. Ms Fong says giving away envelopes to current clients can build relationships, as is often the case with the banks. In order to enhance marketing effectiveness, Ms Fong recommends a design that is customised and appealing. “As kids and young adults receive so many lai see envelopes every year, they are unlikely to notice each envelope when they receive or take out the money from it. Special shapes, designs or colours help to attract the receiver’s attention,” she says. For printers, the growing demand for branded envelopes is good news. Business has been increasing by about 15 percent annually, says Jose Ng, manager of Vui Fong Printing. He says the trend is likely to continue this year. For the Year of the Dragon, Vui Fong printed 120,000 envelopes worth about MOP140,000 (US$17,500). Their major clients are casinos but the company also takes orders from associations, universities and government departments, Mr Ng says. Margins are falling, however, hit by shortages of suitable staff, higher production costs and competition from mainland printers.

FEBRUARY 2013

LUNAR NEW YEAR 58

No vacancy Many of the city’s five-star hotels are fully booked, long in advance of the holidays

f you are a looking for a room to stay in during the Lunar New Year holidays, there is a chance you may not find one. By the middle of last month several of the city’s top hotels and resorts were already fully booked. In Cotai, all of the Venetian Macao’s 2,800 rooms are taken for the holidays. There are no vacancies at Conrad Macao and Sheraton Macao, both in the Sands Cotai Central casino resort, according to Sands China Ltd, the owner and operator of all three hotels. At the neighbouring City of Dreams resort run by Melco Crown Entertainment Ltd, rooms are scarce. By the middle of last month Crown Towers was almost fully booked, according Melco Crown. Grand Hyatt Macau, also at City of Dreams but managed by Hyatt Hotels Corp, is preparing for a full house. “Reservations are expected to increase two weeks before the Chinese New Year,” a spokesperson says.

FEBRUARY 2013

Altira, a Melco Crown casino hotel in Taipa, is fully booked. There will be no vacancies at Galaxy Entertainment Group Ltd’s Galaxy Macau in Cotai or StarWorld Hotel on the peninsula. A spokesperson for SJM Holdings Ltd says the company forecasts high occupancy rates at Hotel Lisboa and Grand Lisboa, and expects all the tables at the restaurants there to be reserved. A representative from Wynn Macau says Lunar New Year is a “positive” period for business at the casino hotel, and more visitors than usual are expected. They did not offer further details. The average number of hotel and

guesthouse rooms occupied each day of the Lunar New Year holidays last year was more than 20,000, 19.2 percent above the year before, official data shows. The average room occupancy rate of five-star hotels was 95 percent, 3.7 percentage points more than the year before.

Surging demand The holidays are an important peak season for the tourism industry. Some businesses begin preparing for them almost a year in advance. “Chinese New Year is one of the iconic components of our event cal-

“Chinese New Year is one of the iconic components of our event calendar,” says Brendon Elliott, from Sands China

59 endar,” says Brendon Elliott, the vicepresident of sales and resort marketing of Venetian Macau Ltd, a subsidiary of Sands China. Mr Elliott says it is a “key period” for the company. Sands China begins preparing 11 months beforehand. “As we start packing down all the activities for the previous year, we look to the key earnings, the graphics and the demographics. We take some of the research that we’ve done and we start the planning process,” he says. The mainland and Hong Kong are the main sources of tourists to tap into during the holidays. A spokesperson for Galaxy Entertainment says the festivities in Macau “bring more tourists and families from the nearby regions to enjoy a weekend excursion”. Some businesses say local customers in Macau are also an important market. Many residents dine out and entertain their relatives during the holidays. “We are expecting a large influx of guests to come and enjoy our entertainment offerings. For restaurants, it is indeed a very good time of the year, as families are looking for venues that cater to large groups,” a representative of Melco Crown says. Room rates will surge along with demand. Last year during the holidays, a five-star hotel room cost, on average, MOP2,400 (US$300) per night, 6.3 percent more than the year before. The SJM Holdings spokesperson says that this year, rooms in Hotel Lisboa and Grand Lisboa will cost up to 30 percent more than usual. Galaxy Entertainment says its room rates will be similar to rates during other big holidays. “We do not expect a big increase in room rates as the hotel rooms added to the market last year may help to alleviate the shortage,” the Galaxy Entertainment spokesperson says. Mr Elliott says Sands China has more hotel rooms this year than last year. The first phase of Sands Cotai Central opened last April and it now has 5,700 rooms. Sheraton Macao was the latest hotel to open at Sands Cotai Central, in September. “Customers are always looking for something new. As Sheraton Macao Hotel is the newest and the largest hotel in Macau, with the Sheraton’s signature services, this will attract many guests,” says the managing director of the property, Josef Dolp.

TICKLING YOUR FANCY E

very major hotel and resort in Macau will offer special attractions and put up decorations to usher in the Year of the Snake. The Venetian Macao, run by Sands China Ltd, has adapted the light show played out on its façade at Christmas and given it a Lunar New Year theme. Street performers will entertain guests at the company’s other resorts in Cotai. Galaxy Entertainment Group Ltd will have several promotions to mark Lunar New Year and Valentine’s Day, including raffles, food and drink offers, performances and other entertainment. Grand Hyatt Macau will have special programmes for Lunar New Year and Valentine’s Day. Both Altira and Wynn Macau will also have festive season treats and special menus at their restaurants.

WORKING HOLIDAYS R

etailers are rubbing their hands with glee as they wait for the Lunar New Year holidays to start. The head of the Macau Association of Retailers and Tourism Services, Frederick Yip Wing Fat, expects the sales volume during the holidays to be 10 to 15 percent higher this year than last year. “Traditionally, Lunar New Year is one of the major shopping seasons of the year. During this season, not only are local residents willing to spend more, but also Macau receives visitors from around the world, especially from the mainland,” Mr Yip says. He expects shops to offer special discounts and put up festive decorations to attract customers. He declined to estimate the average investment made by retailers in preparation for the holidays. FEBRUARY 2013

FEBRUARY 2013

LUNAR NEW YEAR 61

Make way for the

snake

Fortune tellers say the forthcoming Year of the Water Snake will bring love and wisdom. This year also calls for calmness, reflection and planning. However, there may be some challenges: quick manoeuvres may be needed to avoid unexpected obstacles

Snake

Horse

Goat

Monkey

1929, 1941, 1953, 1965, 1977, 1989, 2001, 2013

1918, 1930, 1942, 1954, 1966, 1978, 1990, 2002

1919, 1931, 1943, 1955, 1967, 1979, 1991, 2003

1920, 1932, 1944, 1956, 1968, 1980, 1992, 2004

Be very careful this year. It will be a time of ups and downs. You should take immense care in starting a new project or dealing with finance, as problems may arise. If you remain sharp and ignore negative vibes, you can achieve success. There may be good support from friends and family. You should also be hardworking and clever in dealing with difficult situations.

This will be one of the best years for you. Your overall situation will be good and your desires fulfilled. You will see progress in your income, wealth and career. Obstacles are not completely absent, though. Face each one as it comes, in a decisive way, as they can easily be overcome. Take good care of your health, as you have a propensity to overwork.

You should be careful this year, as you may face hardships, misfortune and inauspicious outcomes. But good luck will come if you make the right choices. You just need to be prepared to take things slow, make plans for everything and evaluate the benefits and risks of any action. You may need to work harder than normal to achieve some success in your career.

This will be a great year. You will achieve a lot in all aspects of life. Even though there may be adverse situations, good luck will protect you. However, do not invest in any risky ventures because this may end up creating a dilemma in your life. Your relationships will go smoothly this year. Your whole potential will be shown to the world.

FEBRUARY 2013

LUNAR NEW YEAR 62

Rat

Rooster

Dog

Pig

1921, 1933, 1945, 1957, 1969, 1981, 1993, 2005

1922, 1934, 1946, 1958, 1970, 1982, 1994, 2006

1923, 1935, 1947, 1959, 1971, 1983, 1995, 2007

1924, 1936, 1948, 1960, 1972, 1984, 1996, 2008

This is going to be a successful and rewarding year in your career. There are good opportunities this year but do not push yourself too hard. If you keep your mind sharp and strive a little, you can achieve a lot. You can count on the support of your family and friends. Even though the stars are in your favour, you may face some health problems.

Think of this year as a test of your perseverance. You may face several challenges. However, you should strive to achieve your goals. On the upside, you will get a lot of love from your family. Never have second thoughts about your decision-making and judgment skills, even in the hardest of times. There are good career opportunities, and prospects of romance or even a wedding.

Expect misfortune and losses this year. But do not panic, because your health and finances will be stable. However, you may need to put some extra effort into overcoming these negative happenings. In love, be prepared to face setbacks if you are looking for a long-term relationship. Arguments will take place between spouses, so try to keep the peace at home.

It will be a year of good luck and money for you but expect a few bumps in the road. In your career and business, the year will be interesting and new opportunities can come your way. You should try to stay healthy and fit. In love, you are a bit secluded this year. Get out and love will find you.

Tiger

Rabbit

Dragon

1925, 1937, 1949, 1961, 1973, 1985, 1997, 2009

1926, 1938, 1950, 1962, 1974, 1986, 1998, 2010

1927, 1939, 1951, 1963, 1975, 1987, 1999, 2011

1928, 1940, 1952, 1964, 1976, 1988, 2000, 2012

This will be a period of progress for you in your workplace. Expect fresh starts in relationships and be open to making new friends. The year will also be good for making use of your finances for your hobbies, but avoid impulsive purchases. Only spend what you can afford. Because you will be very busy this year, mind your diet. Eat plenty of fruit and vegetables.

You need to calm down. You should not jump into any large venture or commit yourself to large expenses. But this year can still be very rewarding if you know what to expect and plan ahead. In the workplace, it is a good time to learn new skills and take on new projects, laying the foundations for future progress. Your love life will run smoothly.

This can be a fantastic year for progress in all areas of your life, whether in finance, health or relationships. In the workplace, your employer may put a lot more trust in you. Luck will also be on your side if you decide to change careers. There are new opportunities, but make sure you keep your eyes open to spot them.

This will be a time of mixed fortunes for you. In relationships, you may have several opportunities but also disappointments. Your good will may be tested. You should keep calm while dealing with hardships, instead of complaining. If you do so, it may help bring back peace to your life. There is a fair chance of satisfactory achievements in your career or business.

FEBRUARY 2013

64 LEE HOWELL MEMBER OF THE MANAGEMENT BOARD OF THE WORLD ECONOMIC FORUM

Systems at risk THE WORLD ECONOMIC FORUM’S GLOBAL RISKS REPORT WARNS OF THE DANGERS OF MULTIPLE SYSTEMS FAILING

ailure to adapt to climate change, persistent extreme weather and major systemic financial failure are just three of 50 major risks monitored every year in the World Economic Forum’s Global Risks Report. It seems natural to draw connections among them, especially after a “superstorm” shut down Wall Street this past October. Indeed, the report reminds us of the many ways in which systems inevitably affect one another in our interdependent world. More important, the report warns of the dangers of multiple systems failing. Two of the world’s most fundamental systems, for example, are the economy and the environment; their interplay underpins the first of three case studies of risk in this year’s report. The 1,000 experts who responded to the World Economic Forum’s annual Global Risks Perception Survey, on which the report is based, ranked climate-change adaptation as their top environmental concern in the coming decade. This reflects a wider shift in thinking about the climate, with growing acceptance that we are now locked in to some degree of global temperature change and need to adapt locally – for example, by strengthening our critical infrastructure systems in order to boost their resilience to extreme weather events. But we face these environmental challenges at a time of persistent economic weakness. Global growth remains slow; and, with monetary and fiscal policies having a limited impact on economic recovery, governments have neither the resources nor the courage to push for major projects. Not surprisingly, our survey group ranked chronic fiscal imbalances second among 50 global risks that are most likely to manifest themselves over the next 10 years.

Losing both engines Strong economies provide the leeway to invest in climate adaptation, while environmental stability ensures the breathing space needed to attend to economic problems. Facing stresses on both systems simultaneously is like losing both engines on an airplane in mid-flight. The second case study takes another perspective on systems thinking. What happens if an apparently “minor”

While, ideally, global risks would be met with global responses, the reality is that these risks manifest themselves mainly at the national level FEBRUARY 2013

system – such as social media – sparks a “major” geopolitical crisis? With the growing reach of social networks, information can spread worldwide almost instantaneously. The benefits of this are well documented but the risks of misinformation are not. Consider the real-world case of someone shouting “Fire!” in a crowded theatre. Could something similar happen digitally, with a spark of misinformation igniting a conflagration and wreaking havoc before the truth is revealed? The report’s third case study looks at what happens when we become complacent about a vital system. For example, constant innovation in medical science over the last 100 years has left us with the impression that our healthcare systems can never regress. But experts are increasingly concerned about the potential for pandemics caused by bacteria resistant to all current antibiotics, while our intellectual-property system is failing to create adequate incentives for the development of new varieties. The director-general of the World Health Organisation has warned that if the world falls back into a pre-antibiotic age, a scratch or throat infection could become lethal once again.

Evaluating subsystems Each case highlights the need to consider how to make systems more resilient, which means that systems cannot be considered in isolation. They are both plugged into larger systems and comprised of smaller subsystems. While, ideally, global risks would be met with global responses, the reality is that these risks manifest themselves mainly at the national level and countries must address them largely on their own. So we need to assess national resilience by regularly evaluating critical subsystems within countries. The World Economic Forum currently is developing metrics that could evaluate national subsystems across five factors of resilience – redundancy, robustness, resourcefulness, response and recovery – by combining perception-based data with publicly available statistical data. Initial perception-based data gathered by the Forum is pointing toward the importance of leadership ability, transparency, efficiency and good relationships between public and private-sector stakeholders. While the development of these metrics is in its early stages, the ultimate aim is to develop a practical diagnostic tool that would function as an “MRI” for national decision-makers to assess their countries’ resilience to global risks. By revealing underlying weaknesses that more traditional risk-assessment methods may miss, we could pinpoint the structural reforms, behavioural changes and strategic investments that increased resilience requires. The result would not only directly benefit each country willing to engage in this process. It would also imply accelerated innovation in global governance, which we need more than ever for the sake of preserving the integrity of our most crucial systems.

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FEBRUARY 2013

MONEY-MAKING FACTORIES

INDUSTRIAL BUILDINGS MAY BECOME THE NEXT LUCRATIVE TARGET OF SPECULATIVE REAL ESTATE INVESTORS BY ALEXANDRA LAGES

nly sales of industrial premises are now exempt from the special stamp duty. People in the property business say the exemption may attract investors. Estate agents warn that speculation

FEBRUARY 2013

in industrial property is risky because the market is small and relatively illiquid. Macau only has about 100 industrial buildings. Ricacorp (Macau) Property Agency Ltdâ&#x20AC;&#x2122;s executive director, Jane Liu Zee

Ka, says that although the market is quiet, there is some demand for industrial property. Ms Liu says some investors are trying to buy all the space in some industrial buildings so they can turn them into housing. This is in line with the

Photo: Luís Almoster

government’s drive, begun in 2010, to have run-down industrial buildings converted into blocks of flats. Such conversions can be difficult. Old industrial buildings often have several owners, making it hard to get them all to agree to a conversion proposal, Ms Liu says. Jones Lang LaSalle’s managing director in Macau, Gregory Ku, says conversion of an industrial building requires patience. “If you want to convert it from industrial into residential, it takes a long time. Although the government has said they want to speed up the process, it still takes years to get approval,” Mr Ku says. In the first year of the government’s conversion drive, it received only eight proposals and approved none definitively.

Rose Lai Neng, a real estate specialist at the University of Macau, says that not only is there little industrial property in Macau, but that what there is old. Almost all industrial buildings here were built before 1999.

Zero supply Ms Lai is uncertain whether there is speculation in the market for industrial space. “Any rational investor should not target such property because the value is just not there, unless it is extensively transformed,” she says. But she does not rule out the presence in the market of unseasoned investors, who are willing to buy property at high prices without properly evaluating its potential, and who expect its value to rise just because the rest of the real estate market is booming.

Prices of industrial property are, indeed, rising. Centaline (Macau) Property Agency Ltd’s review of last year says the average price of industrial premises rose by 59 percent last year. Other estate agents think the rise was a lot slower. Mr Ku of Jones Lang LaSalle says the average price rose by 15 percent or more last year because there was “additional speculative money” in the market. He forecasts that it will rise by 10 percent this year “because there is no new supply and quality stock”. Rents are increasing by around 10 percent a year, he adds. Ms Liu of Ricacorp says “everything is increasing” in the real estate market and that prices of industrial property are no exception. “Because there is no supply, prices are increasing by around 20 to 30 percent,” she says. FEBRUARY 2013

Property

Statistics and Census Service data show that the average price per square metre of industrial property was MOP18,844 (US$2,356) in the third quarter of last year, barely 0.5 percent more than in the second quarter, but 28 percent more than a year before. The number of industrial premises sold in the first 11 months of last year was 223 or 19 percent more than a year before.

DREAM HOME? DREAM ON! P

roperty prices will continue to rise this year, estate agency Jones Lang LaSalle forecasts in its review of 2012. Jones Lang LaSalle says it expects prices of mass-market and mid-range housing to increase by 10 percent to 15 percent this year. It predicts that prices of office space will rise by between 15 to 20 percent, and that the increase in office rents will be similar. The estate agency forecasts that demand for commercial property, especially in prime shopping areas, will continue to increase at a “double-digit” rate.

Productive purpose

FEBRUARY 2013

SALES OF INDUSTRIAL PREMISES 45 40

Number of sales

35 30 25 20 15 10

2010

NOV

SEP

OCT

JUL

AUG

JUN

APR

2011

MAY

FEB

MAR

JAN

DEC

NOV

SEP

OCT

JUL

AUG

JUN

APR

MAY

FEB

MAR

JAN

DEC

NOV

SEP

OCT

JUL

AUG

JUN

APR

MAY

FEB

MAR

JAN

2012 SOURCE: STATISTICS AND CENSUS SERVICE

COMBINED VALUE OF SALES OF INDUSTRIAL SPACE 1,400 1,200

MOP million

1,000 800 600 400 200 0 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011 2012 (JAN-NOV)

SOURCE: STATISTICS AND CENSUS SERVICE

AVERAGE PRICE OF INDUSTRIAL SPACE 20,000 18,000 MOP per square metre

“Most of this space is occupied by endusers, either for warehousing or lightindustry purposes,” says Mr Ku of Jones Lang LaSalle. He says that it is why the government has exempted sales of industrial property from the special stamp duty. It hopes industrial property will be used for productive purposes, creating jobs. Sellers of property used for residential, office or commercial purposes, or for parking, must pay a special stamp duty of 20 percent if they have owned the property for less than a year, or 10 percent if they have owned it for a year or more but less than two years. Mr Ku forecasts that the number of industrial premises sold will increase steadily. But he says this is mostly because of speculators taking advantage of the exemption from special stamp duty to make a fast buck. Not only businesses use industrial property. Several cultural groups occupy industrial premises because they are cheaper to rent than other kinds of property and big enough for their purposes. The Live Music Association promotes live performances by bands from Macau and abroad. It established a concert room in an industrial building in 2008, when the rent was MOP13,000 a month. The rent is now MOP20,000. The association invested almost MOP700,000 in its venue but the lease expires in October and the new owner has told the group that he wants the premises back. The head of the Live Music Association, Vincent Cheang, says the group may simply have to do without a concert room. “We cannot afford to rent another place and set everything up again if we have the risk of having to change after one year,” Mr Cheang says. “We spent lots of money on decoration and we don’t want to take the risk again.” The show may be nearly over for the Live Music Association but it seems investors in industrial property may only just be tuning up.

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

2010

2011

2012 SOURCE: STATISTICS AND CENSUS SERVICE

Property Statistics Year-on-year change (%)

2011

1,387 1,099 231 57 2,159 2,053 86 20

Building units completed - Residential - Commercial and offices - Industrial and others Building units started - Residential - Commercial and offices - Industrial and others

-69.4 -73.0 -45.9 67.6 148.2 162.9 8.9 100

Transactions (1)

- Residential - New building - Old building Resident buyers (as percentage of total buyers) - Commercial and offices Resident buyers (as percentage of total buyers)

percentage

-12.6 percentage points

81.5

-17.5

7,320

- Industrial and others Total value of total units transacted (2)

MOP76.3 billion MOP58.9 billion

- Residential - New building

MOP41.4 billion

- Old building

MOP17.5 billion MOP12.7 billion

- Commercial and offices

MOP4.7 billion

- Industrial and others

Under MOP1 million MOP1 million to MOP1.9 million MOP2 million to MOP2.9 million MOP3 million to MOP3.9 million MOP4 million or above

MOP45.9 billion MOP24.0 billion MOP18.5 billion MOP7.1 billion

Year-on-year change (%)

MOP45,027 /m

- Macau Peninsula

MOP43,569 /m

- Taipa

MOP41,501 /m

- Coloane

MOP68,208 /m2

Macau

21.6 32.9 1.4 6.4

Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012

Notes Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012

33.9 24.8 16.4 45.0 68.2 65.3

Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012

Year-on-year change (%)

Latest

1,375 3,230 2,856 2,022 6,469

-46.8 -27.3 -3.6 18.7 40.7

Average transaction price of residential units (3) 2011

Jan-Nov 2012

-24.6

MOP69.9 billion

-46.8 -13.4 4.7 15.6 62.5

2,690 4,628 3,162 1,818 4,878

Jan-Nov 2012

7.3 percentage points

91.5

MOP95.4 billion

Year-on-year change (%)

Jan-Nov 2012

percentage Jan-Nov 2012

Transaction price of residential units (1) 2011

Jan-Nov 2012

3.0 points 0.8

89.8 2,874

5,197

34.4 28.1 41.0 5.4 93.0 10.9

Jan-Nov 2012

-7.7 -2.1 -8.3 3.0

24,023 15,952 6,753 9,199

-1.8 points 13.7

87.1 3,128

Notes

Year-on-year change (%)

Latest

-6.7 -4.5 26.8 -20.7

27,624 17,176 7,783 9,393

Total units transacted

93.8 135.1 -56.6 -73.1 -26.1 -25.5 -42.9 -15.8

2,545 2,433 98 14 1,590 1,526 48 16

Year-on-year change (%)

2011

Year-on-year change (%)

Latest

Notes Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 2012

Month-on-month change (%)

Latest MOP70,407 /m

MOP71,159 /m

MOP64,138 /m

MOP79,008 /m2

6.8 8.4 -0.5 -5.0

Notes Dec 2012 Dec 2012 Dec 2012 Dec 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 FEBRUARY 2013

Source: Statistics and Census Service and Financial Services Bureau

Construction - private sector

Property | Market Watch

Notable residential property transactions - 01/12 to 31/12, 2012 Unit

Source: Midland Realty (Macau) Ltd

District

Property

Macau

One Central

Block 5, M/F, unit E

2,312

20,345,600

8,800

Macau

The Paragon

H/F, unit F

1,838

19,779,000

10,761

Macau

Pearl Horizon

Block 15, L/F, unit D

1,462

10,663,750

7,294

Macau

Pearl Horizon

Block 15, H/F, unit D

1,303

9,387,000

7,204

Macau

Pearl Horizon

Block 15, H/F, unit D

1,303

9,152,000

7,024

Macau

Pearl Horizon

Block 15, M/F, unit D

1,302

8,847,000

6,795

Macau

Pearl Horizon

Block 15, L/F, unit D

1,302

8,447,000

6,488

Macau

Pearl Horizon

Block 15, H/F, unit G

1,183

8,409,000

7,108

Macau

Pearl Horizon

Block 15, H/F, unit G

1,183

8,309,000

7,024

Macau

Pearl Horizon

Block 7, H/F, unit A

1,128

8,162,000

7,236

Macau

Pearl Horizon

Block 15, H/F, unit G

1,185

8,154,000

6,881

Macau

Pearl Horizon

Block 7, H/F, unit B

1,128

7,990,000

7,083

Macau

Pearl Horizon

Block 15, M/F, unit G

1,183

7,954,000

6,724

Macau

Pearl Horizon

Block 15, M/F, unit G

1,183

7,849,000

6,635 6,297

Floor area (sq. ft)

Sale price (HK$)

Price per sq.ft. (HK$)

Macau

Pearl Horizon

Block 15, L/F, unit G

1,183

7,449,000

Macau

Pearl Horizon

Block 15, H/F, unit F

952

7,073,000

7,430

Macau

Pearl Horizon

Block 15, H/F, unit E

938

6,982,000

7,444

Macau

Pearl Horizon

Block 15, H/F, unit F

962

6,973,000

7,248

Macau

Pearl Horizon

Block 15, H/F, unit E

952

6,882,000

7,229

Macau

Pearl Horizon

Block 15, M/F, unit F

962

6,603,000

6,864

Macau

Pearl Horizon

Block 15, M/F, unit E

938

6,512,000

6,942

Macau

Pearl Horizon

Block 15, L/F, unit F

958

6,353,000

6,632

Macau

Pearl Horizon

Block 15, L/F, unit E

938

6,262,000

6,676

Macau

Villa de Mer

Block 3, H/F, unit F

824

5,380,000

6,529

Macau

Pearl Horizon

Block 15, M/F, unit H

767

4,755,000

6,200

Macau

Pearl Horizon

Block 15, L/F, unit H

767

4,605,000

6,004

Coloane

One Oasis Cotai South

Block 5, L/F, unit H

650

3,430,000

5,277

Note: L/F - Low floor; M/F - Middle floor; H/F - High floor

Notable residential property rentals - 01/12 to 31/12, 2012 Unit

Source: Midland Realty (Macau) Ltd

Type

Property

Floor area (sq. ft)

Macau

One Central

Block 3, H/F, unit A

2,636

55,000

Macau

Lake View Tower

M/F, unit E

1,545

27,000

17.48

Taipa

Prince Flower City

Block 2, H/F, unit A

1,645

18,000

10.94

Taipa

The Pacifica Garden

Block 2, L/F, unit G

1,725

18,000

10.43

Taipa

Prince Flower City

Block 1, L/F, unit D

1,665

17,850

10.72

Taipa

One Grantai

Block 3, L/F, unit J

2,019

17,000

8.42

Macau

Villa de Mer

Block 2, M/F, unit A

1,703

16,000

9.40

Macau

The Residencia

Block 5, L/F, unit B

1,696

15,000

8.84

Taipa

Nova City

Block 6, L/F, unit A

1,080

13,000

12.04

Taipa

The Pacifica Garden

Block 1, L/F, unit F

1,188

13,000

10.94

Taipa

Nova City

Block 6, L/F, unit D

1,050

12,500

11.90

Macau

La CitĂŠ

Block 1, H/F, unit C

1,069

10,000

9.35 11.53

Rent price (HK$)

Price per sq.ft. (HK$) 20.86

Macau

Villa de Mer

Block 2, L/F, unit E

824

9,500

Macau

La CitĂŠ

Block 1, H/F, unit C

1,066

9,500

8.91

Macau

Villa de Mer

Block 4, L/F, unit G

829

8,800

10.62

Taipa

Hung Fat Garden

Block 3, L/F, unit D

1,180

8,800

7.46

Macau

Villa de Mer

Block 2, H/F, unit G

826

8,500

10.29

Taipa

Fast Garden

Block 1, M/F, unit E

980

8,500

8.67

Macau

Villa de Mer

Block 3, H/F, unit D

698

7,200

10.32

Note: L/F - Low floor; M/F - Middle floor; H/F - High floor

FEBRUARY 2013

CLOSE TO 100,000 PEOPLE LIVE IN PUBLIC HOUSING

Some 17 percent of the population is living in public housing apartments A total of 98,700 people live in public housing flats, which represents 17 percent of the population. According to data compiled by Lusa news agency, of those, 79,900 are living in economic housing units (81 percent) and 18,800 in social housing. The governmentâ&#x20AC;&#x2122;s public housing policy includes social

FOUNTAINSIDEâ&#x20AC;&#x2122;S NEW PHASE UP FOR SALE IN SECOND QUARTER

A new phase of the residential project Fountainside, on Penha Hill, will be up for sale in the second quarter, developer Macau Property Opportunities Fund Ltd announced. The London-listed fund said in an investor update that the 42-unit property would be substantially completed by March. The fund managed by Sniper Capital Ltd has already sold 20 units and expects to sell the remaining 18 flats and four villas for an average of US$800 (MOP6,400) and US$1,400 per square foot, respectively.

housing for rent, and economic housing for sale at controlled prices. Currently, there are 36,287 economic housing units and 8,138 social housing units. As of 2012-end, there were 3,615 families on the waiting list to get an economic housing unit, while 6,207 were waiting for a social housing apartment.

ON THE WAITING LIST

The average assessment time by the Lands, Public Works and Transport Bureau for private construction projects stood at 96 days in 2011. The bureau released the figure last month in an official statement. In 2010, the department took 99 days on average to handle private construction project assessments. According to Macau law, the bureau has up to 105 days to assess private construction projects before making a decision.

LA SCALA TRIAL POSTPONED AGAIN

The trial of Chinese Estates Holdings Ltd boss Joseph Lau Luen Hun and BMA Investment chairman Steven Lo Kit Sing, regarding the land where the luxury residential project La Scala is being built, has again been postponed. The trial was set to start last month but it was postponed because Mr Lau was absent, as well as five other defendants. No new date was announced. Mr Lau, Mr Lo and six others are accused of being part of the web of corruption woven by Ao Man Long when he was secretary for transport and public works. The trial was initially due to start in September last year. FEBRUARY 2013

Gaming

Payment in kind The government says only Sands China and Galaxy Entertainment will be granted more live tables this year ands China Ltd’s sizeable investment in non-gaming attractions is paying off handsomely in reward in the form of live gaming tables. The operator announced last month it would be granted some 200 new additional tables by the government, some of which will be online in time for the busy Lunar New Year holiday. “We received a letter from the government” confirming the table allocation, Sands China chief executive Edward Tracy told reporters last month. The allocation is the result of a decision by the government to reward casino operators who have stepped up

FEBRUARY 2013

to the plate in terms of non-gaming investment. According to Secretary for Economy and Finance Francis Tam Pak Yuen, only Sands China and Galaxy Entertainment Group Ltd will be entitled to increase their live gaming table allocations this year. Galaxy Entertainment will get 50 new tables. “When the first phase of Galaxy Macau was completed, the government allotted a total of 450 gaming tables to the company; 400 tables were approved when it was opened and 50 more gaming tables are to be approved,” Mr Tam said last month.

He stressed that this year, the government would not be approving any more tables to existing casinos belonging to the other gaming operators. SJM Holdings Ltd executive director Angela Leong On Kei had already confirmed earlier that the gaming operator planned to apply for more tables. Mr Tam says there will not be a significant increase in the number of tables operating in the upcoming two years, until new casino properties start opening in Cotai. As of the end of December, the city had 5,485 live gaming tables, close to the maximum limit of 5,500 tables set

by the government for the 2010-2012 period.

Revenue boost Sands China’s request for 200 new gaming tables is old news. The company was first expecting to be granted the tables last September, when it opened a second casino in Sands Cotai Central. But with the 5,500-live table cap imposed by the government virtually used up, the company’s request was left unattended. Instead, it had to shift tables around its properties. Now Sands China has its tables, analysts expect the operator to reinforce its dominance in Cotai, especially in massmarket gaming. The firm will now hold about 26 percent of the total table count in Macau. However, the company still needs to work with the gaming regulator regarding when and where the tables will be allocated. CLSA analysts Aaron Fischer and Richard Huang have forecast that the additional tables could translate into an extra US$511 million (MOP4.1 billion) in net revenue a year for Sands China if allocated to the mass market. This latest 250-table grant leaves some questions unanswered. There are concerns the remaining supply will not meet the needs of new projects opening in Cotai. In 2011, Mr Tam announced that the

government would restrict gaming table growth to an average rate of 3 percent per year, starting this year. Last month, he reaffirmed the goal, adding that the overall number of live gaming tables should only increase by 2,000 in the next 10 years. The announced 250 new gaming tables already represent an increase of 4.6 percent. With at least six new casinos set to open in Cotai in the upcoming years – one per gaming operator – each property would be allowed about 300 tables on average. It is less than what most operators want. SJM said in a press release it plans to develop a casino in Cotai with the capacity for up to 700 gaming tables, while MGM China Holdings Ltd wants its property there to have about 500 live tables. Mr Tam says that the government has yet to decide on the number of gaming tables to be assigned to each of the new gaming projects already approved for Cotai. Again, investment in non-gaming facilities will be taken into consideration. “The decision to assign gaming tables does not come out that quickly because we have to consider all the new projects in Cotai and give out the approval as a whole,” he said last month. Macau-based economist Albano Martins says it is a mistake for the government to cap the number of live gaming tables. “This policy makes no sense, especially since the government says it wants to promote mass gaming,” Mr Martins told Lusa news agency. “That is also what casinos want because it is more beneficial for them” since, unlike VIP gaming, they do not pay commissions to junket operators. But with table supply restricted, the shift is harder to make.

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SANDS ADDS TO SHARE: BANK C

itigroup forecasts that Sands China Ltd is going to be the only gaming operator in Macau to see a rise in market share this year. The investment bank expects Sands China’s share to increase by three percentage points, to 22 percent, as Cotai Central completes its first full-year of operations. According to Citigroup, Sands China was already one of the two biggest market share gainers last year, alongside Galaxy Entertainment Group Ltd. Both operators had a 19-percent stake last year, both up by three percentage points in comparison to 2011. Citigroup expects Galaxy Entertainment Group to lose one-percentage point of market share this year, most of it likely to come from casino hotel StarWorld and as a result of Cotai Central’s first full-year of operations. Both SJM Holdings Ltd and Wynn Macau Ltd should continue to lose market share this year, the investment bank says, after falls last year.

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Gaming

Hail to the masses VIP play is back in growth mode but behind mass market fter its first year-on-year drop in over three years in the third quarter of 2012, VIP revenue went up by 2.9 percent in the three months ended December. But the shift towards mass play continues, analysts say. “As the combined high-margin business of mass-market tables and slots continues to grow well into the double digits ... the revenue mix shift should continue,” analysts Grant Govertsen and Felicity Chiang, from Union Gaming Research, wrote in a note released last month. “We think the 2013 revenue mix should move towards 65 percent VIP and 35 percent mass market/slots.” For full-2012, VIP baccarat accounted for 69.3 percent of Macau’s casino gross gaming revenue, reaching MOP210.9 billion (US$26.4 billion). Revenue was up by 7.5 percent yearon-year. As for the mass market, revenue hit MOP93.3 billion, up by 30 percent in comparison with the previous year. Figures released last month by the Gaming Inspection and Coordination Bureau show that the city’s casinos reported MOP54.8 billion in VIP gross gaming revenue during the fourth quarter. That marked a rebound in the VIP market, after revenue dropped by 1.1 percent year-on-year in the previous three months. The last time VIP gaming revenue contracted was in the second quarter of 2009. Meanwhile, growth in mass gaming revenue (including slot-machines) further accelerated. It went up to 28.4 percent year-on-year, an increase of 1.6 percentage points over the previous three months.

Mr Govertsen and Ms Chiang say that the mix shift is good news for gaming operators, since the margins are higher in the mass market than in VIP play. Union Gaming forecasts that VIP gross gaming revenue will grow about 10 percent this year, while the mass market (including slots) is set to soar by around 30 percent. Overall, the casino consultancy expects the market to go up by 16 percent in comparison to 2012.

GROSS GAMING REVENUE VIP revenue

60,000

Mass-market revenue

MOP million

50,000

Upward revision

40,000 30,000 20,000 10,000 0

2009

2010

2011

2012

VIP revenue growth Mass market revenue growth Overall market

Year-on-year growth rate (%)

120 90 60 30 0 -30 Q1

2009

2010

FEBRUARY 2013

2011

2012

SOURCE: GAMING INSPECTION AND COORDINATION BUREAU

GROSS GAMING REVENUE EVOLUTION

The consensus among analysts is that the mass market will continue to grow stronger than VIP play. Morgan Stanley forecasts Macau’s gaming market will expand by 13 percent in 2013. Analysts Praveen K. Choudhary and Katherine Sun say they expect VIP gross gaming revenue to go up by 10 percent year-on-year, while the mass market is set to soar by 20 percent. “Though we project a slowdown in mass growth in 2013, it should still grow faster than VIP,” they wrote in an investors note last month. HSBC also revised upward its growth estimate for Macau’s gaming industry for full-2013. Analysts Sean Monaghan and Sachin Varma increased HSBC’s 2013 gross gaming revenue growth estimate to 13.5 percent, up by 0.6 percentage points. They now have a full-year VIP growth estimate of 7.9 percent and a mass growth forecast of 26.1 percent. UBS followed a similar path: the Swiss-based bank lifted its full-year growth forecast from 7 percent to 12 percent, based on expectations of higher VIP growth, revised upward from 2 percent to 8 percent, and steady growth in the mass market, up by 22 percent versus the previous estimate of 18 percent.

Illustrations: Luís Almoster

Smoking blowback Trade unions are already calling for changes to the restrictions on smoking in casinos he restrictions on smoking in casinos, which came into force only last month, have already come in for some harsh criticism. Trade unions say the rules on smoking fail to protect the health of casino staff and that the quality of the air in casinos has declined. They want the rules to change. Early feedback about the smoking restrictions suggests gross gaming revenue has not been affected. “Checks report very little business interruption since the January 1 partial smoking ban implementation,” Sterne Agee says in a note to clients issued last month. The note, written by analyst David Bain, says enforcement has not caused too much disruption. But casino employees are less pleased. The Macau Gaming Enterprises Staff Association, which has about 500 members, says the restrictions fail

to protect the health of casino workers. The group says casino operators have concentrated as many gaming tables as they can in smoking areas. The worse cases are in VIP rooms, it argues. “The smoking and non-smoking areas should be divided according to the number of gaming tables in operation and not the total area. For example, if a casino has 30 gaming tables, not all 30 tables are operating 24 hours,” the head of the association, Howard Chan Siu Meng, told reporters last month. “Sometimes when there is more business, 20 of the gaming tables might be operating. Then 10 of the tables should be in the non-smoking area or it would be unfair to other workers.” The rules on smoking in casinos allow smoking areas to take up 50 percent of gaming floors. Casinos must separate

smoking and non-smoking areas either with 4-metre-wide buffer zones, air curtains or 2-metre high walls, or by using special ventilation systems to achieve the same effect. The rules do not do say what proportion of a casino’s gaming tables or slot machines must be in non-smoking areas. Nor do they make any distinction between the main casino floors and VIP rooms.

Patience, please The Macau Gaming Industry Workers Association is also dissatisfied. It says staff working in smoking areas face grave threats to their health. The union suggests that casino operators offer an extra day off or additional cash, and reduce working hours to make up for their inhalation of second-hand smoke. FEBRUARY 2013

Gaming

The gaming industry employed almost 53,000 people at the end of June last year. More than 23,000 people were croupiers, and many of the rest had other jobs on casino floors, such as cage cashiers, pit bosses or attendants. Chief Executive Fernando Chui Sai On has said enforcement of the restrictions is being fine-tuned in light of

complaints by the trade unions. Mr Chui called for patience. “We hope that the public can give us and the industry more time to work through the smoking ban, so that we can better protect the health of residents and tourists,” he said. The Health Bureau is in charge of enforcing the restrictions. The bureau is

A HABIT WORTH GIVING UP R

esearch in Macau has concluded that the potential benefits of making casinos smoke-free are twofold: to free workers from the threat posed by second-hand smoke, and help workers that smoke to stop or reduce their habit. The results of the study were published last year by Joanne Chan Sow Hup and Penny Wan Yim King, from the University of Macau, and Paul Pilkington from the University of the West of England. Their study in the International Journal of Hospitality Management concluded that most casino workers that smoke believe exposure to second-hand smoke at work makes it harder to stop smoking. About one-quarter say this belief is the reason for them minding other people smoking near them at work. The study was based on a survey of 315 casino workers, onequarter of whom smoked, conducted in 2008. More than 40 percent of the workers surveyed thought they would try to stop smoking if smoking was not allowed in their workplaces. More than 19 percent thought they would smoke less. “The findings demonstrate how smoke-free casinos could lead to a healthier workforce, not just due to reduced exposure to danger-

ous chemicals in second-hand smoke but also from the potential reduction in smoking among workers,” the research says. Some of the data collected in the survey had already been used for a paper by Ms Wan and Mr Pilkington published in 2009. That research concluded that most casino workers did not enjoy being exposed to secondhand smoke at work, saying it was a danger to their health. The workers surveyed said they supported the establishment of non-smoking areas on gaming floors.

in the portfolio of Secretary for Social Affairs and Culture Cheong U. He says it is too soon to consider changes to the restrictions. The government needs time to assess the effect of the restrictions and see if they need to be changed. A review is planned in 2015. The Health Bureau says casinos are obliged to ensure that the quality of the air in smoking areas meets a minimum standard. Casinos must send the government reports on air quality in smoking areas every month.

Grey areas To protect their health, employees must be rotated between smoking and nonsmoking areas. Employees that are pregnant or that have recently given birth, and employees with cardiac or respiratory ailments are not allowed to work in smoking areas. The government can punish casinos that break the rules by reducing the size of their smoking areas or by banning smoking on their premises altogether. Smoking is not permitted in restaurants and cafes. Casinos are allowed smoking areas because the government was persuaded that a complete ban on smoking would be bad for the gaming business in particular and the economy in general. The trade unions have an unlikely ally: directly elected member of the Legislative Assembly Angela Leong On Kei. Ms Leong, who is also an executive director of gaming company SJM Holdings Ltd, has on several occasions urged the government to ban smoking in casinos altogether. “Several casinos have transferred the most popular table games to the smoking areas. Therefore, the majority of staff and gamblers still continue to be subject to second-hand smoke. Owing to this high concentration of smokers, air quality has worsened,” she said last month. Another directly elected member of the assembly, Kwan Tsui Hang, is also unhappy with the restrictions. Ms Kwan, a member of the Federation of Trade Unions, says casinos are taking advantage of grey areas in the law. “Some casinos put less labour-intensive table games or slot machines, which don’t need staff to handle them, in the non-smoking areas,” Ms Kwan says. “This is against the purpose of the ban. The ban aims to protect the rights of casino workers and tackle secondhand smoke.”

SJM ANNOUNCES SALARY HIKE

Hong Kong-listed Paul Y Engineering Group Ltd announced last month it has raised HK$3.2 billion (US$413 million) for its boutique casino hotel project in Cotai. The firm raised the money from the sale of new shares and convertible bonds. Paul Y Engineering Group is teaming up with former investment banker Stephen Hung and his son Sean Hung for the project. The US$800-million casino hotel is planned to be located next door to the residential complex One Oasis. It has yet to obtain approval from the Macau government.

GAMING-RELATED PROBES UP

The number of gaming-related criminal cases handled by the Judiciary Police reached 2,070 in 2012, up by 2.1 percent year-on-year. There was an increase in the number of gaming-related cases of false imprisonment, up to 23 in 2012 from 20 the previous year. The number of cases of loan-sharking dropped from 175 in 2011 to 150 in 2012. Last year, the Judiciary Police probed 16 cases related to criminal syndicates, up by 9 in comparison to 2011. The majority were linked to gaming, the Judiciary Police said in a press release.

Illustrations: Luís Almoster

SJM Holdings Ltd announced last month a salary increase of five to six percent for all its employees, effective from January. The gaming operator said in a statement that it would also offer a bonus payout for the year of 2012. Employees with a monthly salary of MOP11,000 (US$1,375) or below will receive 175 percent of a month’s salary. Other employees will receive a bonus of 125 percent of a month’s salary, which will not be less than MOP19,250, the gaming operator said.

PYE RAISES HK$3.2 BILLION FOR BOUTIQUE CASINO

GOVT MAKES COTAI LAND GRANT TO MGM CHINA OFFICIAL The contract was finally published in the official gazette The government has finally made the Cotai land grant to MGM China Holdings Ltd official. The contract was published last month in the official gazette. The gaming operator had already announced in October last year that it had accepted the government’s terms for the land grant. The plot covers an area of 71,833 square metres.

MGM China first filed its request in 2007. The gaming operator, currently with only one casino in Macau, will develop a HK$20-billion (US$2.5 billion) casino resort in Cotai. The property is expected to open in 2016. But to break ground, MGM China still needs to get the construction approvals from the government.

FEBRUARY 2013

Gaming

Gambling apartheid Asian casinos are thriving, but locals are not welcome BY GILES HEWITT*

he casino industry is booming across Asia, offering anyone looking for high-stakes action a wide choice of venues, from high-tech South Korea to the Himalayan nation of Nepal and communist Vietnam. Anyone, that is, except South Koreans, Nepalese or Vietnamese. For conservative Asian countries, the financial pros and social cons of casino gambling pose something of a dilemma – one that several have chosen to resolve by adopting a foreigner-only

FEBRUARY 2013

access policy. The upsides are obvious in a region where rapid development has nurtured a taste and capacity for highend leisure activities. Casinos provide a consistent source of hard currency revenue, fuel tourism – especially from sought-after high rollers from mainland China – and boost the local economy. But the social impact of gambling is equally well documented, in terms of addiction and broken families, as well as criminal activities like loansharking.

So a number of Asian countries have tried to have their cake and eat it, by building glitzy casinos but barring – or strictly limiting – entry to their own citizens. That is not the case for Macau, where locals are allowed to gamble with no restrictions. Kim Jin-Gon, director of tourism in South Korea’s Culture Ministry, cites a widely-held belief that Koreans are particularly susceptible to gambling addiction. “Our feeling is that Korea does not

79 have a mature culture that could enjoy gambling simply as a leisure activity,” Mr Kim says. “We block Koreans from casinos because the fallout would be too big.”

Remote exception

Resorts World Sentosa

For conservative Asian countries, the financial pros and social cons of casino gambling pose something of a dilemma

South Korea’s ban is not total. Of the country’s 17 licensed casinos, one – Kangwon Land Resort – is open to locals. Its remote location in a mountainous area, several hundred kilometres and a three-hour express bus ride from Seoul, was supposed to deter salarymen from nightly excursions during the working week. But special “bullet taxis” offer a high-speed, white-knuckle service that promises to get punters there in half the time, and attendance and revenue figures seem to support the theories about Koreans’ proclivity for gambling. Kangwon Land pulls in an average 10,000 visitors a day – around five times the actual seating capacity – and boasted revenue of nearly 1.2 trillion won (MOP8.6 billion) in 2011, more than all the 16 foreigner-only casinos combined. This despite rules that restrict any individual from gambling more than 15 days a month – ID cards must be shown – and impose a maximum house wager of 300,000 won (MOP2,160). The overcrowding led to calls for other casinos to be opened to Koreans but the government has resisted, insisting that Kangwon Land was a one-off project with the sole aim of revitalising an economically depressed area. Mr Kim warns that other casinos, especially in major cities, would be swamped if access was extended to all. “If we let Koreans in, there would be no room left for foreigners, which would defy the whole purpose of the casinos in the first place,” he says. Nepal and Vietnam operate 100 percent foreigner-only casino policies, although in the case of Nepal it is a regulation often observed in the breach. Vietnam’s first casino opened in 1992 and there are now seven, with two more in the pipeline. According to the finance ministry, casinos generated around 1.5 trillion dong (MOP580 million) in tax revenues in 2012. For Vietnamese nationals, all gambling apart from a state-run lottery is banned, although illegal betting – on everything from cock-fighting to English Premier League football matches – is widespread.

FITCH BETS ON GAMING IN JAPAN

itch Ratings said last month that it continues to believe that gaming liberalisation in Japan remains a good likelihood within the next several years. The recent emergency stimulus measures approved by the Japanese government do not include specific reference to the legalisation of casino resorts, but there is mention of promoting tourism, encouraging investment and creating employment opportunities, said Fitch. According to the ratings agency, casino legalisation in Japan could result in increased competitive risk to established markets in the region, like Macau. The current ruling Liberal Democratic Party supported the legalisation of casino resorts when it was previously in power. LDP’s coalition partner, New Komeito Party, also appears to be in support of casinos, the rating agency said.

CAESARS JOINS KOREAN CASINO PROJECT

as Vegas-based Caesars Entertainment Corp has joined Hong Konglisted Lippo Ltd in a casino project in South Korea. According to a Lippo statement to the Hong Kong Stock Exchange, the two companies agreed last month to the terms under which they will seek permission from the South Korean government to develop a casino resort in Incheon, a city near the country’s capital of Seoul. Caesars will own 40 percent of the venture, Lippo will own 20 percent, and another partner will hold the remaining 40 percent, but no more details were given.

MACAU RESIDENTS SEEK CASINO BAN

total of 30 Macau gamblers applied for a voluntary ban from casinos in November and December. Of those, 27 gamblers directly presented the request, while relatives submitted the applications for the remaining three cases, Portugueselanguage newspaper Jornal Tribuna de Macau reported. New rules for entering casinos came into effect in November last year and include a provision that allows people to request a voluntary casino entry ban. They also state that only people above 21 years of age are allowed to enter or work in casinos premises.

FEBRUARY 2013

Gaming While Vietnamese gamblers have no access to a place like Kangwon Land, they can simply cross into Cambodia, where huge casinos have been built near the border that cater almost exclusively to Vietnamese tourists. Cambodians, needless to say, are not legally allowed to gamble in their own casinos, though presumably they would be welcomed at those in Vietnam.

An “anxious” compromise

Seven Luck Casino - Seoul

Resorts World Sentosa

Marina Bay Sands FEBRUARY 2013

Perhaps aware of the contradictions thrown up by foreigner-only policies, Singapore has opted for a compromise of open casino access but with special restrictions for the island state’s citizens and long-term residents. A Sg$100 (MOP645) entry fee aimed to filter out low-income gamblers, while any Singaporean who had filed for bankruptcy or received long-term financial state aid was automatically barred. After a 2011 official survey showed an increasing proportion of low-income gamblers playing with large sums, the ban was expanded in June last year to include the unemployed and those on short-term welfare. Casinos that fail to comply face a maximum fine that used to be capped at Sg$1.0 million but can now reach as high as 10 percent of annual gross gaming revenue. Despite these measures, Prime Minister Lee Hsien Loong admitted during a visit to Australia in October that his government was still “watching anxiously” to determine the impact of the casino experiment – Singapore’s first casino opened its doors in February 2010. “From a social point of view, we would like to say that it has been all right, but it is too early to say,” Mr Lee said. Commercially, Singapore’s two casino resorts have been an undeniable success, with a combined gaming revenue of around MOP40 billion in 2011. That level of return has fuelled debate in countries like Japan about lifting its ban on casinos, which forces Japanese gamblers to travel to South Korea, Macau and Singapore to play the gaming tables. Taiwanese, meanwhile, may soon have a domestic option after the people of outlying Matsu island voted in July last year to open Taiwan’s first legal casino. The casino would be open to everyone except, perhaps inevitably, the Matsu islanders themselves. * AFP NEWS AGENCY

NEW SUPPLIERS ASSOCIATION LAUNCHED The Macau Gaming Equipment Manufacturers Association was officially launched last month. It aims to further develop the local manufacturing of casino equipment and to promote the sector via annual exhibitions and training of Macau talent. Jay Chun, chairman of Paradise Entertainment Ltd, the parent company of local casino equipment maker LT Game Ltd, is the chairman of the new body.

NEVADA REGULATOR VISITS MACAU

The three members of the Nevada Gaming Control Board visited Macau last month. The trip included a meeting with the Gaming Inspection and Coordination Bureau. The visit was both “an effort to re-establish the relationship” with the Macau regulator and a ‘fact-finding’ mission, the Las Vegas Review-Journal reported. The body has meanwhile invited the head of the Gaming Inspection and Coordination Bureau, Manuel Joaquim das Neves, to visit the United States, our sister publication Business Daily reported.

JAPANESE SLAYS RED DRAGON

PokerStars Macau held last month its 17th instalment of the Macau Poker Cup. The poker series took place from January 11 to January 20. It attracted a total of 1,700 players and awarded HK$10.1 million (US$1.3 million) in prize money, the organisers said. Japan’s Yoshitaka Okawa won the Red Dragon main event after beating a 532-player field. He took home HK$1.1 million.

GOVT AGREED TO STUDIO CITY CASINO BACK IN 2006

Agreement ‘in principle’ was given several years ago, according to the gaming regulator head The government had already accepted ‘in principle’ the introduction of a casino in the Studio City project after a request filed in 2006 by one of the original developers. The information was made public last month, in a written reply by the Gaming Inspection and Coordination Bureau director, Manuel Joaquim das Neves, to an enquiry from Legislative Assembly member Ho Ion Sang. Mr Neves said the government “granted

an authorisation in principle” to the introduction of gaming facilities in the Cotai project after the 2006 request. The gaming regulator head stated that the initial approval was given considering that Studio City “was a development based on non-gaming activities”, namely movie industry-related facilities, “which matched the government strategy to develop other sectors”. Mr Neves added that after Melco Crown Entertainment Ltd took over

the project in 2011, the company reiterated the intention to include a casino in the project. “The government kept its previous position”, Mr Neves said in the reply. He noted that the revised Studio City project, approved last year, still includes movie industry-related facilities. But the final approval of a casino at Studio City is yet to be issued, Mr Neves said.

FEBRUARY 2013

Gaming

Leader to be

The Sands Bethlehem is beating big-city rivals in Pennsylvania. But Sheldon Adelson wants to sell it

BY SCOTT VAN VOORHIS*

heldon Adelson’s US$743 million (MOP5.9 billion) gamble on what was a hulking and rusty Bethlehem steel mill has paid off handsomely. Las Vegas Sands Corp’s Pennsylvania casino, in the United States, is now top of the state’s table games market and a close second in overall revenue. Still, the company – the parent of Macau-based gaming operator Sands China Ltd – is looking to sell the property, which opened in May 2009. Sands Bethlehem has blown away rivals in Pennsylvania’s two largest cities, generating double the table game revenue of either Philadelphia’s SugarHouse or the Rivers Casino in Pittsburgh, according to numbers reported by the Pennsylvania Gaming Control Board.

FEBRUARY 2013

The success of Mr Adelson’s casino, built in a cavernous old steel plant, has turned conventional logic on its head, with Philadelphia always seen as the inevitable home of Pennsylvania’s flagship casino. That is a distinction Las Vegas Sands is close to grabbing, just a few million off the number one spot in the state, now held by Parx, a racino (a combined race track and casino) in Philadelphia’s suburbs. The only cloud on the horizon is state regulators’ plans to license a second Philadelphia casino, with Mr Adelson’s rival Steve Wynn leading the list of potential competitors. “It is just a brilliant location and, of course, everything Mr Adelson touches turns to gold,” William Thompson, a professor and gaming industry expert

at the University of Las Vegas-Nevada, says of Sands Bethlehem’s success. Despite the strong results of its Bethlehem casino, Las Vegas Sands is looking at a possible sale. “If we get our price, we think it may not fit in the long run for our company,” the president and chief operating officer of Las Vegas Sands, Michael Leven, said last month. “It’s a smaller product. We’ll probably look to sell it. However, somebody’s got to pay the price. We’re just as happy to keep it.”

Bussing punters Although Philadelphia is far larger than the sleepy old steel town of Bethlehem, Mr Adelson picked the location of his Pennsylvania casino with a

83 shrewd eye. The casino is located near a four-lane highway that cuts across densely populated New Jersey through to New York City. Regular buses leave New York’s Port Authority bus terminal daily carrying gamblers to the Sands casino, giving Mr Adelson the ability to siphon off punters who had been making the longer trip from the Big Apple, which has slots but no table games, to Atlantic City, which has both. “Bethlehem is drawing a lot of folks who would otherwise have gone to Atlantic City,” says Linda Shorey, a partner in K&L Gates law firm and a member of the firm’s betting and gaming practice group. Sands Bethlehem in 2011 further boosted its attractiveness to high rollers from New York by opening a US$50 million hotel, an amenity crucial for leveraging its complement of table games, while the casino has added an array of hip restaurants and other attractions as well. The architecture of Sands Bethlehem also stands in stark contrast to SugarHouse, the downtown Philadelphia casino, which has been derided for its boxlike design, says J. Scott Kramer, a Philadelphia attorney who is the cochair of global law firm Duane Morris LLP’s gaming practice. “It is just a tremendous location and [Las Vegas Sands] has done a beautiful job,” Mr Kramer says. “It was a decaying steel factory, it was just a rusted building and now it is a beautiful place to go.” Hard evidence that Mr Adelson’s bet on the Pennsylvania market has paid

Sands Bethlehem has blown away rivals in Pennsylvania’s two largest cities, generating double the table game revenue of either Philadelphia’s SugarHouse or the Rivers Casino in Pittsburgh

THE SECOND LARGEST CASINO STATE P

ennsylvania became America’s second-largest commercial gaming jurisdiction in 2012, reporting total casino revenues up more than 4 percent to almost US$3.2 billion (MOP25.6 billion). The board reported that 2012 gross gaming revenue from slot machines grew 2.7 percent to US$2.47 billion. Gross table games revenue increased 11 percent to US$687.4 million. The figures meant the state last year brought in US$1.44 billion in gaming taxes, which are used mainly for local property tax relief. The numbers also confirmed that Pennsylvania surpassed New Jersey, where Atlantic City is, as the second largest commercial casino state in the United States, behind only Nevada. Atlantic City’s casino market was worth US$5 billion in 2005 and US$5.2 billion a year later, but since then has slid into a precipitous decline. Last month, New Jersey’s Division of Gaming Enforcement said the state’s casino market fell to US$3.05 billion in 2012, down 8 percent from US$3.32 billion the previous year. Nevada’s casino market is expected to have been worth in the region of US$10.5 billion to US$11 billion last year. California’s Indian gaming market of almost 60 Native American casinos is worth just shy of US$7 billion per year. Oklahoma is also estimated to be a US$3 billion-plus tribal gambling market. Pennsylvania first authorised slot machine gambling at racetracks and a limited number of standalone casinos in 2004. Table games were legalised in early 2010 and launched later that year. The state is currently home to 11 casinos and racinos, with three more in the works.

off can be found in the slot and table games numbers compiled by the state gaming board. Sands is now number one in Pennsylvania table game revenue. Its fleet of 152 tables averaged between US$12.4 million and US$12.7 million over the second half of 2012 — double, triple and even quadruple the monthly take of some of its competitors. Sands’ table revenue is a good notch above the US$7 million to US$8 million that Parx in suburban Philadelphia brings in, and with a larger number of tables, 163, to boot. Harrah’s Philadelphia, also in the city’s suburbs, manages US$6 million to US$7 million a month off 121 tables.

Old rival In slot revenue, Sands is a highly competitive number two, averaging between US$22 million and US$24.6 million per month in gross terminal revenue. That puts it ahead of Harrah’s Philadelphia, at US$20 million a month, but behind Parx, which has been bringing in roughly US$31 million a month. Maybe the only immediate threat to Sands Bethlehem’s continued rise comes from Philadelphia. SugarHouse has underperformed, with investors batting internally over whether to expand or stick with the current, more bare-bones formula. But that has left the door open to developers interested in building a second casino in Philadelphia, one that would provide the big-city glamour, appeal and amenities that SugarHouse lacks. With the state gaming board seeking bids, Wynn Resorts Ltd, parent of Macau-based Wynn Macau Ltd, has emerged with a proposal for a 2,500-slot, 100-table game casino on a 240,000-square-metre site in Philadelphia along the Delaware River. Several other developers are also pushing high-end proposals, including a project from Penn National Gaming Inc and a French-themed, US$700 million proposal by local builder Bart Blatstein and Hard Rock International Inc. Mr Wynn, Mr Adelson’s long-time rival, in particular would represent a threat to Sands Bethlehem, says Mr Thompson, the University of Las VegasNevada professor. “He would give him competition, just because he would do it big and do it the right way.” * GAMBLINGCOMPLIANCE FEBRUARY 2013

Gaming

Casino gaming 2011 MOP 304.1 billion

Gross gaming revenue (2012)

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

27% 19% 19% 12% 14% 10%

Year-on-year change (%)

13.5 10.7 14.3 1 casino

MOP 26.9 billion

7.3 3.5 3.3 1 casino

5,485 16,585 35 casinos

Year-on-year change (%)

-2 3 3 -2 -1 --

Year-on-year change (%)

Latest

percentage points percentage points percentage points percentage point percentage point

Month-on-month change (%)

26% 19% 21% 11% 14% 9%

-1 -1 --2

Notes Jan 2013 Dec 2012 Dec 2012 Dec 2012

Notes Jan 2013

percentage point

Jan 2013 Jan 2013

percentage point

Jan 2013 Jan 2013

percentage points

Jan 2013

Gross revenue from casino games MOP892 million

Roulette

MOP2,950 million

Blackjack

MOP210,850 million

VIP Baccarat

MOP66,251 million

Baccarat Fantan

MOP249 million

Cussec

MOP5,546 million

Paikao

MOP87 million MOP203 million

Mahjong

MOP13,244 million

Slot machines

MOP211 million

3-Card Poker

MOP22 million

Fish-Prawn-Crab 3-Card Baccarat Game

MOP347 million

Craps

MOP137 million

Texas Holdem Poker

MOP289 million MOP35 million

Lucky Wheel

MOP895 million

Live Multi Game Stud Poker

MOP1,472 million

Casino War

MOP246 million

Fortune 3 Card Poker

MOP206 million

Year-on-year change (%)

13.9 8.8 7.5 36.1 18.0 16.2 -23.7 190.0 15.9 10.5 -56.9 23.5 -9.3 4.3 0.0 187.8 12.5 8.8 46.1

Latest MOP234 million MOP773 million MOP54,831 million MOP18,763 million MOP72 million MOP1,466 million MOP19 million MOP43 million MOP3,504 billion MOP54 million MOP6 million MOP84 million MOP33 million MOP77 million MOP9 million MOP314 million MOP410 million MOP64 million MOP70 million

Year-on-year change (%)

-8.2 3.1 2.9 34.6 26.3 12.6 -29.6 59.3 15.2 12.5 -25.0 16.7 -38.9 8.5 12.5 175.4 12.9 -9.9 89.2

Notes Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012

Gross revenue from other gaming activities 2012 Greyhound Racing

MOP205 million

Horse Racing

MOP356 million

Chinese Lottery

MOP6 million

Instant Lottery

MOP0.0014 million

Sports Betting - Football

MOP418 million

Sports Betting - Basketball

MOP111 million

Year-on-year change (%)

-31.0 -19.1 --61.1 15.5 29.1

Latest MOP55 million MOP96 million MOP1 million MOP0.0005 million

* Figures are rounded to the nearest unit, therefore they may not add exactly to 100 percent

FEBRUARY 2013

MOP99 million MOP36 million

Year-on-year change (%)

-5.2 -7.7 -50.0 -58.3 -3.9 89.5

Notes Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012 Oct-Dec 2012

Source: Gaming Inspection and Coordination Bureau and industry sources

2012

NON-RACING SPORTS BETTING REVENUE UP

Non-racing sports betting revenue in Macau increased by double digits last year, official data shows. Gross revenue from football betting went up 15.5 percent year-on-year, to hit MOP418 million (US$52.3 million). As for basketball betting, gross revenue reached MOP111 million in 2012, soaring by 29.1 percent. As for horse and greyhound racing, gross revenue dropped last year, to MOP356 million (-19.1 percent) and MOP205 million (-31 percent), respectively.

PAWNSHOPS GAIN IMPORTANCE IN GAMING

The role of pawnshops as informal channels for mainland Chinese to bring funds to Macau is set to increase, as casinos are keen to attract more premium-mass gamblers, says Gabriel Chan, an analyst in Hong Kong for the Credit Suisse Group AG. Mainlanders often use their UnionPay or credit cards to bypass the limitations on the cash they are allowed to take out of the mainland. They use the cards to buy watches and jewellery at Macau’s pawnshops, immediately reselling them to get cash to fund their gaming activities here. Pawnshops usually charge 5 to 10 percent of the cash refund as commission.

OKADA ASKS COURT TO BLOCK WYNN MEETING TO REMOVE HIM

Japanese businessman Kazuo Okada has asked a U.S. federal judge for an injunction to stop a special Wynn Resorts Ltd shareholders’ meeting, at which they will vote on his removal as a company director. The meeting is scheduled for February 22. The gaming operator claims that Mr Okada breached his duty as a corporate director, by knowingly breaking U.S. anti-corruption laws and putting his own interest in developing a casino resort in the Philippines above that of Wynn Resorts. Wynn Resorts has already forcibly redeemed Mr Okada’s 20 percent stake in the company.

TAIWAN PROBES MELCO CROWN UNIT Taiwanese prosecutors are investigating the firm for allegedly carrying out huge illegal money transfers

Taiwanese prosecutors are probing a subsidiary of gaming operator Melco Crown Entertainment Ltd for allegedly carrying out huge illegal money transfers for use in Macau casinos, circumventing strict forex rules.

The company allegedly accepted deposits by Taiwanese gamblers allowing them to withdraw the money once they were in Macau. Prosecutors, who declined to identify the firm, said they suspected it was behind

a total of US$179 million (MOP1.4 billion) in illegal transactions. An investigation by consultancy GamblingCompliance.com revealed the firm was a Taiwan branch of Hong Kong-registered MCE International Ltd.

FEBRUARY 2013

EXCLUSIVE INTERVIEW 87

TOUGH DECISIONS IN HER FIRST IN-DEPTH INTERVIEW SINCE TAKING CHARGE OF THE MACAU GOVERNMENT TOURIST OFFICE, MARIA HELENA DE SENNA FERNANDES OFFERS HER VISION FOR THE FUTURE OF TOURISM BY ALEXANDRA LAGES PHOTOS CARMO CORREIA

The new director of the Macau Government Tourist Office, Maria Helena de Senna Fernandes, knows what needs to be done. Mrs Senna Fernandes acknowledges the city can no longer cope with high rates of growth in tourist arrivals, and that it is time to target more free-spending tourists. “Our focus is really to attract tourists to stay longer, to stay in hotels and spend more money in Macau,” she told Macau Business in an exclusive interview. Mrs Senna Fernandes took over in December, at a difficult time for the tourism industry. Since May the number of visitors each month has been, without exception, lower than a year before. “For 2013, we hope at least the figure does not continue dropping. We

will try to stabilise before we look at further growth,” Mrs Senna Fernandes says. Her bureau sees the baseline for tourists at 28 million arrivals a year. But stagnation of the global economy has curbed tourism worldwide. Macau had 28.1 million visitors last year, more than ever before, but the number was just 0.3 percent higher than in 2011 – the smallest rate of growth since 1999. The tourist bureau is now concentrating on enticing visitors to keep coming back and persuading them to stay longer. More than 13.5 million tourists, 48 percent of the total, stayed overnight last year, 5 percent more than in 2011. But the average length of stay was under two days, less than in 2011. Mrs Senna Fernandes says tourism is hampered by Macau no longer being a novelty in this part of the world. That no new casino resorts are due to open until 2015 exacerbates the feeling among tourists considering coming back that they have done everything

there is do here and seen everything there is to see. “During a certain period of time, Macau enjoyed a lot of new things coming in. Probably we need to continue with that,” she says.

FINDING MACAU New attractions are being planned and the bureau wants to better promote lessvisited parts of the city. “The tourist office will continue to work with the Cultural Affairs Bureau, the Civic and Municipal Affairs Bureau and the neighbourhood associations to promote other cultural elements and areas beyond the historic centre,” Mrs Senna Fernandes says. She says she is considering better promotion of places near the Ruins of St Paul’s, in the north of the peninsula and even on Coloane. The tactic is to promote aspects of those places that are special to each, such as the food, the temples or the churches, and to hold more events in each of them. FEBRUARY 2013

EXCLUSIVE INTERVIEW 88 “There are tourists that want to explore more in Macau. We want to give them more things to do,” Mrs Senna Fernandes says. “In the long run, this can make them stay longer, as they can go to different areas to spend money and understand the culture.” Competition for visitors is also becoming more intense. The tourism authorities here must keep working with their counterparts in the Pearl River Delta to attract more foreign tourists and to promote tours that take in Macau, Hong Kong and Guangdong all in one go, she says. But Macau must also consolidate its status as a tourist destination in its own right, Mrs Senna Fernandes stresses, so it can keep attracting visitors from places near at hand, such as the mainland, the city’s main tourist market. The December opening of the Gongbei Station, the last stop on the Guangzhou-Zhuhai high-speed railway, will mean more visits by mainlanders. But it will take a while for the increase and influence of tourists to become clear, she notes.

SAY ‘YES’ In replacing her predecessor, João Manuel Costa Antunes, Mrs Senna Fernandes has big shoes to fill. Mr Costa Antunes headed the Macau Government Tourist Office from 1988 until last year. He has played a pivotal role in the development of tourism here for two decades. Mrs Senna Fernandes says she will continue the work done by Mr Costa Antunes. She was his deputy director for almost 15 years. On several occasions Mr Costa Antunes ruled out restrictions on the number of visitors allowed in, saying the city could cope with more than 28 million tourists per year. Mrs Senna Fernandes also rejects the idea of a cap. “As a tourism destination, we are not going to say no to visitors coming in. Obviously we want tourists coming to Macau and there is no denying that tourism is a very, very important industry for Macau,” she says. “We don’t want to shrink. We need to find ways to better receive visitors and let residents feel they are not being prejudiced because of so many visitors.” The Hong Kong government has said it will keep an eye on Hong Kong’s ability to absorb more visitors. Here, a FEBRUARY 2013

“Our focus is really to attract tourists to stay longer, to stay in hotels and spend more money in Macau,” says Maria Helena de Senna Fernandes recent study by the Institute for Tourism Studies concluded that Macau could sustain a maximum of 29 million visitors a year. “You can’t just put that in a simple number,” Mrs Senna Fernandes says. The city’s ability to cope with larger numbers of tourists is ever-changing, depending on new developments, such as hotels and infrastructure, and the hours the border crossings are open, she argues.

MANAGEMENT DRIVE Mrs Senna Fernandes says some attractions are swamped by tourists, causing “negative feelings” among residents. But rather than capping the number of visitors, the city should manage its tourists better. The key is to “more effectively space out people” by directing tourists to less–visited parts of the city, she says. The need to prevent overcrowding is another reason for her intention to develop new tourist spots. This month, to relieve the pressure on the crowded Senado Square, the tourist office will for the first time put on two Lunar New Year parades. One will be in the city centre, as usual, and the other in the northern part of town. She is hopeful that the development of Hengqin Island will help Macau better manage the inflow of tourists from the mainland. It may mean more mainland visitors entering Macau through Cotai instead of the Border Gate, she says. Further development of Cotai and the reclamation of 3.5 square km of land from the sea will increase the city’s capacity for tourists, Mrs Senna Fernandes adds.

NAMASTE, SPENDERS Reducing the city’s dependence on tourists from Greater China, who make up almost 90 percent of the

total, is a major priority. In particular, mainlanders make up 60 percent of all arrivals. “We definitely need to look at other markets that will not become big in size, but that over time will be important,” she says. The tourist office is eyeing India and Russia in particular. Neither country was severely hobbled by the global financial crisis. The numbers of Russians and Indians holidaying abroad are rising fast. The tourist office likes the idea of more Russian and Indian visitors because they stay longer, owing to the distance they have to travel, and so spend more. The number of visitors from India dropped by 11.1 percent last year to fewer than 151,000 people, official data shows. Mrs Senna Fernandes is unfazed. Russia and India still have much potential as sources of tourists, particularly holidaymakers that may be tempted by tours that take in Macau, Hong Kong and Guangdong in one trip, she says. Direct flights between India and Macau would help. Although low-cost carrier SpiceJet Ltd, which has onethird of the Indian market, has shown interest in flying to Macau, there is no clarity on when that first flight might be. Even so, Mrs Senna Fernandes says the tourism industry has other ways to tap the Indian market. “If we don’t have a direct link, we can start working with other places nearby. Hong Kong is a very good place to work with. Through Air Asia’s connections, we are also getting a lot of Indian visitors.” The number of visitors from Russia has been rising fast in the past three years. Almost 27,000 visited last year, 62.6 percent more than in 2011. The tourist office is close to completing a study of the Russian market. It expects to appoint a representative there soon. Some analysts say Air Macau’s monopoly of routes originating in Macau is hindering the development of tourism here. They say the airline has no inclination to fly medium-haul or long-haul routes, and is content with flying mostly to the mainland. Mrs Senna Fernandes plays down the issue of whether or not the monopoly is a hindrance. “We cannot say whether a monopoly or an open market would lead to a certain result. It’s not such a simple equation.”

EXCLUSIVE INTERVIEW 90

SENSE OF BALANCE M

aria Helena de Senna Fernandes, the new head of the Macau Government Tourist Office is easygoing, talkative and jolly. She says she is no workaholic. Instead, she likes to enjoy the good things in life. “I like to eat, that’s a very important hobby for me, to go out with friends and have a casual gathering,” says the soft-spoken Macanese, punctuating the list with laughter. Mrs Senna Fernandes has a bachelor’s degree in business administration from the University of Macau. She has been a civil servant since 1988, holding down the position as deputy director of the tourist office from 1998 until December, when she became its director. Mrs Senna Fernandes is married but has no children. “I don’t have time for kids,” she says. She herself is the offspring of one of the most notable Macanese families. The Macanese are Macau’s distinctive Eurasian minority, with a unique culture. “Being Macanese, I definitely want to be able to keep the Macanese culture in tourism. It’s not just about promoting Chinese elements but it’s also about keeping the Portuguese and Macanese elements in Macau, because this is what makes Macau different from all the rest,” she says. “This is a responsibility for me as a Macanese.” Mrs Senna Fernandes is a cousin of Miguel de Senna Fernandes, who heads the Macanese Association. Mr Senna Fernandes has played an important role in keeping alive the Macanese creole, called Patuá, through theatre. Mrs Senna Fernandes says she feels no pressure to make her own contribution to the effort. “Luckily, I have a very prominent cousin. He shoulders that responsibility,” she says. Mrs Senna Fernandes is fluent in Cantonese, Mandarin, Portuguese and English. She likes classical music and pop, and has played the piano. She is an avid snowboarder. Every winter, she takes a break to hit the slopes. “You feel very free and easy on the mountains and the slopes,” she says.

FEBRUARY 2013

BEYOND THE COMFORT ZONE BETTER SERVICE FROM WORKERS IN THE HOSPITALITY INDUSTRY IS HIGH ON SENNA FERNANDES’ WISH-LIST

he pace of growth of Macau’s high-end hotels, restaurants and bars has easily outstripped the pace of improvement in their quality of service. The new director of the Macau Government Tourist Office, Maria Helena de Senna Fernandes, says there is much work ahead to improve. The tourist office is setting up a training and quality management department to do some of the work. Its purpose is to increase the skills of the workforce in the tourism industry, skills being crucial to the success of a tourist destination. “We are looking at continuing or even adding more training opportunities, together with the different local businesses involved in tourism, not only travel agencies and hotels, but also the retail sector, and food and beverage,” Mrs Senna Fernandes says. She aims to involve everybody in Macau in this effort. The tourist office has just revived its drive to inculcate in residents courtesy towards visitors. The office estimates that one-fifth of residents will take part in activities associated with the drive. The tourist office will also continue its campaign against illegal inns. Last year the authorities closed down 116 premises suspected of being used as

Mrs Senna Fernandes intends to review several laws affecting the tourism industry

unlicensed lodgings. The tourist office and its counterparts in Macau’s main sources of visitors are collaborating in efforts to warn tourists against staying in illegal inns. The office has also recruited 40 new inspectors of tourist accommodation. It now has about 370 staff.

LEGAL BACKING Simultaneously, Mrs Senna Fernandes says she will push for more cheap but legal lodgings here. Her office will make it simpler for operators of such accommodation to get licences, she says. The tourist office is supporting a website set up in November by the Hoteliers and Innkeepers Association. The website lists cheap lodgings in the city and allows visitors to book rooms in some of them online. Low-cost accommodation includes two-star hotels and guesthouses. The city has 13 two-star hotels and 33 guesthouses. Together they have nearly 1,500 rooms. In contrast, roughly twothirds of the city’s 28,000 rooms are in five-star hotels. Mrs Senna Fernandes intends to review several laws affecting the tourism industry. She says a bill on the regulation of travel agencies should be ready for submission to the Legislative Assembly this year. Changing the rules for bars, restaurants and hotels will take more time. The tourist office published a draft set of rules for public consultation in 2011. Mrs Senna Fernandes says it is still considering the opinions collected from the industry. The draft set of rules would ban people under 16 years of age from bars, prohibit bars in residential buildings and oblige all establishments to keep complaint books. BY ALEXANDRA LAGES FEBRUARY 2013

Hospitality

FEBRUARY 2013

Worlds apart Macau’s tourism sector struggles to grow but Hong Kong’s is expanding rapidly. Why the difference? BY LUCIANA LEITÃO

as tourist destinations. Official data shows that Macau had 28.1 million visitors last year, 0.3 percent more than in 2011. But since May, without exception, the numbers arriving each month have been lower than a year before. In contrast, Hong Kong had over 48.6 million visitors last year, 16.0 percent more than in 2011. In December, Hong Kong had 15.1 percent more tourists than a year before, while Macau had 2.0 percent fewer.

Amy So Siu Ian, the programme coordinator for hospitality and gaming management at the University of Macau, says Macau needs new sources of tourists if it is to catch up with Hong Kong’s growth rates. Ms So says Macau must consider whether its infrastructure can cope with more tourists. The city already has bottlenecks, allowing it to handle only small increases in numbers of visitors, she notes.

Photo: Luís Almoster

he number of tourists visiting Macau each month has been dropping for eight consecutive months, while the numbers visiting Hong Kong have been growing at rates of well over 10 percent. How is it possible that the fortunes of these neighbours, which both get most of their visitors from the mainland, are so different? One city is only a short boat trip from the other but they are worlds apart

FEBRUARY 2013

Hospitality

GROWTH IN TOURIST NUMBERS Macau

Year-on-year growth rate (%)

Hong Kong

20 15 10 5 0 -5 DEC

NOV

SEP

OCT

JUL

AUG

JUN

APR

MAY

FEB

MAR

JAN

DEC

NOV

SEP

OCT

JUL

2010

AUG

JUN

APR

MAY

FEB

MAR

JAN

-10

2011

Photo: Luís Almoster

SOURCES: STATISTICS AND CENSUS SERVICE, HONG KONG TOURISM BOARD

Ms So argues catching up with Hong Kong is not so important. “Satisfaction of tourists and residents should be the priority.” Overcrowding will dissatisfy them, she says. “Macau still has big room for improvement.” Ms So suggests more border crossings. Two are being planned: one on the peninsula and the other on Hengqin Island. She also suggests better management of tourist flows and more tourist attractions.

Usual suspects Henry Lei Chun Kwok, an assistant professor of business economics at the University of Macau, says comparisons of the rates of growth of visitor numbers in Macau and Hong Kong are hard to interpret, because the two places are quite different. “While the main purpose of going to Hong Kong is for shopping and sightseeing, tourists are attracted by the casinos to come to Macau,” Mr Lei says. He says the weak growth in visitor numbers here last year had a lot to do with what was happening in the mainland. The economic slowdown there and FEBRUARY 2013

global economic uncertainty deterred many mainlanders, especially gamblers, from visiting Macau, and nervousness due to the once-a-decade handover of political power in Beijing had a similar effect, he says. Mr Lei says the mainland customs authorities also reduced visitor numbers by tightening control of informal crossborder trading. Informal traders buy goods here to sell in the mainland and vice-versa. Many cross the border several times a day, and count as visitors each time they enter Macau. The number of mainlanders that visited Macau rose by 4.6 percent last year to 16.9 million. The number of mainlanders that visited Hong Kong was 34.9 million, 24.2 percent more than in 2011. The most disappointing of Macau’s main sources of tourists last year was Hong Kong. About 7.1 million Hong Kong people visited, about 500,000 fewer than in 2011.

Quality people What the visitor numbers obscure is that last year was a good year for casino

custom, according to Union Gaming Research. “The flat headline visitation growth figure notably understates what we believe was a double-digit increase in foot traffic across most casino floors,” Union Gaming Research said last month in a note written by analysts Grant Govertsen and Felicity Chiang. “While total visitation from the mainland was up 4.6 percent during 2012, the key segments of these visitors that contribute to casino foot traffic, namely individual visa scheme visitors and package tours, saw visitation increase 8.2 percent and 21.2 percent, respectively,” the note said. Union Gaming Research estimates that the number of visitors from all sources, excluding transit passengers and informal traders, rose by over 4 percent last year. Hong Kong has several advantages over Macau in attracting ever-greater numbers of tourists. Hong Kong is 37 times the size of Macau, has 12 times the number of people and has one of the world’s busiest airports. Michael Hitchcock, the dean of the faculty of hospitality and tourism man-

TOURIST ARRIVALS TO MACAU AND HONG KONG 6,000,000

Macau

Hong Kong

Number of visitors

5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

JAN

FEB

MAR

APR

2010

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

2011 SOURCES: STATISTICS AND CENSUS SERVICE, HONG KONG TOURISM BOARD

agement at the Macau University of Science and Technology, says Hong Kong has much more variety than Macau. Macau, in view of its size, is probably reaching the peak of its capacity for tourists, according to Mr Hitchcock. He says Macau needs not just large quantities of tourists, but tourists of better quality. By tourists of better quality, he means tourists that stay for longer, among other things. “We have a lot of day-trippers. That is okay, but the real economic benefit comes from people who stay two or three days,” Mr Hitchcock says. He says tourists that stay longer are more likely to spend money on things other than gambling, thus benefiting retailing and entertainment businesses.

Transport links Mr Hitchcock says that although the city would do better with improved infrastructure, the present infrastructure is “not as bad as people think”. However, he admits the airport could perform better. “It is actually a very nice airport but it seems to me it’s working

under capacity,” he says. “Basically, any transport link will help Macau,” Mr Hitchcock says. The Hong Kong- Zhuhai-Macau bridge, now under construction, is an example. “It will be a big boost for Macau in terms of tourism.” Mr Hitchcock says Macau needs to get a better idea of who its visitors are and why they come. “We don’t really have a clear picture of who is a tourist in Macau and who is just crossing the border for all other kinds of reasons,” he says. The common belief that Macau’s only attraction is the casinos may be wrong, Mr Hitchcock notes. Recent research found that shopping is a big attraction, that the city’s heritage is a strong inducement to visit, and that entertainment is beginning to lure tourists. “Macau is diversifying in very interesting ways,” he says. Glenn McCartney, an assistant professor of hospitality and gaming management at the University of Macau, says growth in visitor numbers here is slower than in Hong Kong because Hong Kong

is a tourism hub, with connections to places all over the world. “Hong Kong’s major drivers are business travel and big retail,” Mr McCartney says. Macau needs a greater variety of tourist attractions besides gambling. It could do more to attract business travellers, he argues. Mr McCartney suggests that better use could be made of Macau’s physical heritage. He says a bit of liveliness should be injected into historical areas to attract more tourists. “Singapore has beautiful venues in heritage sites but in Macau we haven’t gotten there yet.” Mr McCartney says better coordination between the government and the private sector is required. A master plan and closer collaboration would make it easier to diversify the tourism market, he says. First and foremost, the city needs to improve its marketing strategy, promoting itself better abroad, Mr McCartney stresses. “In the end, it’s about the perception of a destination,” he says. “When we arrive at the ferry terminal, the first impression is terrible.” FEBRUARY 2013

Hospitality

Tasteful tourism

This is a city increasingly regarded as a gourmet tourism destination, although held back by a lack of talent BY MANDY WONG

roving Macau is a city of more than just casinos, its unique Macanese gastronomy, coupled with several high-end restaurants, is helping carve the city a niche as a gourmet destination. Last month, Macau was named the home of Asia’s best restaurant in the latest edition of the Miele Guide. Grand Lisboa’s Robuchon au Dome, a three-Michelin star outlet, won the distinction. A study released last year by Ruth Yeung Mo Wah from the Institute for Tourism Studies and Wallace Yee from the University of Macau found that 23 percent of tourists travelling here on their own accord were here to eat. The chairman of the United Association of Food and Beverage Merchants of Macau, Chan Chak Mo, says the diversity in the city’s food scene is an advantage. Traditional Portuguese and Macanese delicacies, plus Chinese dishes and high-end

FEBRUARY 2013

Western restaurants, make the city appealing to tourists from a number of markets. A case in point is Lord Stow’s Bakery, home to signature egg tarts, which began selling the delicacies two decades ago and now moves 10,000 of the treats a day, mostly to tourists. Gastronomy tourism however lacks the right promotion, Mr Chan says. The Macau Government Tourist Office and community-based associations should work together to put more information online about the food scene, he says.

Macau was named the home of Asia’s best restaurant in the latest edition of the Miele Guide – Robuchon au Dome

Businesses should also play a part, becoming more proactive, Mr Chan adds. They should renew menus regularly and develop websites. Mr Chan is the managing director of restaurant operator Future Bright Holdings Ltd, a leading Macau-based food and beverage player. It has more than doubled its number of outlets in less than three years, to 37 as of June. It manages everything from Chinese and Portuguese restaurants, to food courts, and had a HK$308.6 million (US$40 million) turnover in the first six months of last year.

Dirty jobs Mr Chan admits the city’s foodie reputation is not all about glitz and glam. Small eateries are struggling, facing increasing overheads, including skyrocketing rent, and competition from international chains. Several family-run businesses around Senado Square have either shut down or relocated. One of the casualties was the popular 66-year-old Long Kei Chinese Restaurant, which closed down in 2011. “The phenomenon of restaurants relocating can be positive,” says Mr Chan. “If a restaurant is truly good, it can keep expanding its customer base, accumulating frequenters and enjoying good business, while probably boosting the commercial environment in its new area.” There were 1,660 restaurants and similar establishments

The head of the United Association of Food and Beverage Merchants, Chan Chak Mo, says the diversity in the city’s food scene is an advantage operating here in 2011, up by almost 5 percent year-on-year, according to the latest available data. The sector generated revenue of MOP6.1 billion (US$762,500), a 10.7-percent increase on 2010. About 23,000 people are employed in the restaurant industry but a manpower shortage is making it difficult to attract new blood. Mr Chan says younger workers are looking for better salaries in other industries. The average monthly wage for a restaurant employee was just MOP7,890 last September, according to official data. He says it is particularly hard to find waiters, dishwashers and cleaners. Trained Chinese chefs are also in high demand. To bridge gaps in supply, The Institute for Tourism Studies has offered a bachelor’s degree in culinary arts management since 2011.

FEBRUARY 2013

98 GUSTAVO CAVALIERE HOSPITALITY INDUSTRY EXPERT - gustavo.cavaliere@gmail.com

Unhappily ever after MACAU’S HOSPITALITY SERVICE STORY IS A TALE OF IRRITABLE STAFF, WIELDING INFLUENCE OVER FELLOW WORKERS, AND POOR GOVERNMENT POLICY

o you remember Grumpy, one of the dwarfs in “Snow White and the Seven Dwarfs”? Despite being arguably the most capable and competent of the group, he was a negative fellow. He was stubborn and made a fuss about everything. He often questioned the capabilities of Doc, the team’s leader. By the end of the fairy tale, Grumpy has changed. Despite his initial negative attitude towards Snow White, he takes the lead in chasing the Evil Queen after she poisons the princess. Unfortunately, there are no happy endings for the hospitality industry in Macau. Managers are obliged to put up with grumpy staff and there is little hope of turning around their attitudes. Difficult employees with a poor attitude are common here. They cost the industry. They tend to be less productive and less valuable to their organisations. They are a drain on the resources of individual hotels, in terms of wasted time and greater inefficiency, and in extreme cases, they can lead to customer losses. Negative feelings directed towards the company clash with organisational goals and harm the workplace environment. Snide remarks that difficult staff may make about their superiors and the company can also have a negative impact on other workers. They can wreck morale, harm perceptions of job satisfaction and lead to greater levels of stress and frustration.

Policy perversion Knowing how to manage difficult employees is a crucial leadership skill. Its importance is highlighted when managers do not share the culture or language of their staff, as is often the case in Macau. Macau’s peculiar labour market and manpower shortages make it harder to deal with difficult workers. With the city’s unemployment rate at an all-time low, difficult staff know that managers have few options but to put up with them. Managers even have to think twice before punishing staff, as that could lead them to quit. Difficult staff know Macau’s lack of manpower also means they can quit at anytime and find a new job. More likely than not, they will find work at another hotel the very next day and – mother of all ironies – earn a higher salary. The situation gives difficult employees the freedom to challenge their managers. For instance, they can refuse to perform tasks just to prove a point. But, most of the time, these workers simply stand idle at their workstations, playing with their smartphones, instead of serving guests. The government has turned a blind eye. Officials have yet to acknowledge that the labour laws do little to improve the quality of the workforce. Despite calls for more flexibility in recruiting workers from outside Macau, the government has not proposed any significant amendments to its policy. For hotel managers, the only thing left to do is weigh up the costs of managing difficult employees. Finding the best way to FEBRUARY 2013

Difficult employees with a poor attitude are common here do so can, for example, save an organisation the expense of hiring new staff. According to some research, the average cost to replace a frontline employee, including lost productivity, can amount to 150 percent of their annual salary.

Collective bargain The solution to managing difficult workers is to find the source of their bad attitudes. Identify them, and managers will have an easier time of coaching staff and dealing with the poor behaviour without it escalating. A long-term approach would be to promote collective action among the hospitality industry players. This is not going to be easy but the potential gains would be sizeable. For instance, the industry players could achieve a consensus with all hotels agreeing not to hire someone who has been fired or who has quit a job in the previous six months. However, competition for human resources and political considerations means it is unlikely to happen any time soon. The hospitality industry is left hoping that the government will act. As all responsible parents know, one of the worst things you can do is give a child everything they want. Making do with what you have is part of the development process and helps children develop into fully independent adults. It is the same with staff. Give them everything at once – a high salary, guaranteed employment and status – and you harm their development. They no longer need to work hard and improve their skills to progress their careers. If a government was to spoil its workers, it would prevent them from fully using their potential and creativity. It would be encouraging workers to stay within their comfort zones, to become sluggish and stagnant. The result is the proliferation of difficult employees. When pushed by their managers to perform on par with international standards, they act as if persecuted. The city’s hospitality industry loses but, in the end, the biggest loser is Macau itself.

Tourism statistics

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

28,082,292 14,504,994 13,577,298 1.0 days

12.2 15.6 8.4 --

0.3 -3.8 5.0 0.1 days

Notes Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Dec 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

Year-on-year change (%)

Latest

12.4 22.2 131.1 164.2 140.1 191.9 185.6 159.0 151.2 166.8

27,356,924 16,902,499 7,929,668 811,288 620,196 587,904 326,469 505,280 127,635 194,420

20.1 1.6 -6.0 -4.2 20.2 -0.6 4.5 3.0 0.3 8.8

7,131,904 7,081,153 1,072,052 395,989 444,773 1,460,458 306,521 262,692 129,165 26,990

Notes

0.3 4.6

Jan-Dec 2012

-3.3 -13.0 7.7 10.2 3.7 7.2 26.9 12.9 8.2 -6.6 -11.8 0.0 11.5 -4.6 -1.3 4.3 0.9 8.6

Jan-Dec 2012

Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 2012 Jan-Dec 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 (%)

26,055 16.7 8,642,379 10.9 percentage 82.8 -0.8 points 1.40 nights -0.13 nights

Notes Nov 2012 Jan-Nov 2012 Jan-Nov 2012 Jan-Nov 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 13.3 billion MOP 6.9 billion MOP 6.3 billion MOP 1,822

Year-on-year change (%)

10 13 5 12

FEBRUARY 2013

Notes Jul-Sep 2012 Jul-Sep 2012 Jul-Sep 2012 Jul-Sep 2012

Source: Statistics and Census Service

Year-on-year change (%)

2011

100

Hospitality

MAINLAND PLANS CARD-FORMAT PERMIT TO VISIT MACAU The new smart card would be used for both Hong Kong and Macau border crossings Mainland customs authorities are considering implementing Hong Kong-Macau visitor permits in a smart card format for mainland residents. The goal is to ease congestion at the borders, as these permits can be read by automatic checkpoints. Zeng Xiang from the Gongbei Customs Checkpoint was

GUIDES NEED GRADING SYSTEM

The Macau Tourist Guide Association has urged the implementation of a grading system to categorise the level of expertise of tourist guides here. The head of the association Angelina Wu Wai Fong said last month that this measure would incentivise further training and improve service quality. Ms Wu was speaking on the sidelines of the 15th World Federation of Tourist Guide Associations International Convention, which took place at Galaxy Macau.

FEBRUARY 2013

quoted by public broadcaster TDM as saying that mainland residents are still using booklets for their Hong Kong-Macau visitor permits, and this reduces the efficiency of customs proceedings. Over 90 million crossings were recorded at the Gongbei border checkpoint last year, according to media estimates.

MORE VISITORS ON NEW YEAR HOLIDAY

A total of 581,000 tourists visited Macau between December 30 and January 3. The figure was up by 4.92 percent compared to the same period last year, data from the police shows. Authorities reported over 1.8 million border crossings during the New Year holiday, including residents. The Border Gate remained the cityâ&#x20AC;&#x2122;s busiest checkpoint with 660,000 movements.

TOURIST PRICE INDEX UP BY 6 PERCENT IN 2012

The average Tourist Price Index for the whole year of 2012 increased by 6.05 percent year-on-year, roughly in pace with the inflation rate for the same period. The Tourist Price Index reflects the price changes of goods and services purchased by visitors. The index for the fourth quarter increased by 4.45 percent year-on-year, official data shows. This was attributable to dearer prices of handbags and rising charges for restaurant services.

Business

101

Let’s get physical Funding for self-education courses has unwittingly helped create a boom in yoga classes BY CHERRY LEE

emand for yoga classes is on the rise as people seek to ease the stress of living in a city that never sleeps. Enthusiasts should beware: the business is unregulated. Business for yoga studios is good because of the economic boom, says Norika Chio, the managing director of Macau Fitness, a health club in AIA Tower which offers classes. Ms Chio says the number of new yogis, or practitioners of yoga, at Macau Fitness has risen by more than 50 percent in the past two years. “Some foreign professionals working in Macau who are under pressure at their workplaces, find in these fitness centres a way to release their stress and, at the same time, gain physical flexibility by practising yoga,” she says. She is optimistic about the future, although high rents and finding staff can be problems. “Macau is a small place and I do not see severe competition in the yoga business. As long as we provide goodquality services, customers will come.”

There is no official data on how many yoga studios and health clubs offer yoga classes here, or on how many yogis there are. The government subsidises some classes and private concerns run others. Yoga instructor Carmon Chan says demand for her services has boomed, especially after the government introduced its training subsidy scheme in 2011. The scheme, which runs until the end of this year, entitles residents aged 15 or older to a three-year subsidy of MOP5,000 (US$625) to improve their skills. Taking a yoga course counts as improving one’s skills and the government pays the cost. “Many local people use the money to learn yoga,” Ms Chan says. “I have seen an obvious boom in student numbers since 2011.”

Certificate shortcut Ms Chan once taught belly dancing professionally but switched to yoga three years ago after she was certified

as an instructor. She now teaches yoga classes funded by the Education and Youth Affairs Bureau and the Sports Development Board, and at classes run by private concerns. “As long as you have a teaching certificate, it is not hard to secure a job as yoga instructor in a five-star hotel,” she says. She says some studios hire uncertified instructors because the business is unregulated. “Sometimes a person attends many yoga classes and they eventually feel confident they can become an instructor. If the owner of the yoga studio believes in that person’s ability, it is not necessary for the instructor to have a teaching certificate.” However, if private yoga studios offer classes for the government’s training programme, they must have properly certified instructors. At least three institutions here train yoga instructors. None is entitled to certify instructors on its own. Instead, they certify instructors on behalf of FEBRUARY 2013

102

Business

yoga governing bodies in India, Hong Kong or the mainland. An intensive 20-hour course leading to certification as a basic yoga instructor can cost up to MOP10,000. Students must already be experienced yogis. Instructor Surya Vedant teaches at Yoga World in Rua do Campo and says it can take up to four years to gain a degree in yoga teaching in India. “Yoga instructors are like doctors, who are

There has also been a boom in individual yoga tutoring. The average cost is about MOP500 an hour

giving a treatment to their students. Whenever a new student comes to my class, I need to check their physical condition and adjust the training accordingly,” he says.

Sweaty work Mr Vedant says the monthly pay offered to a yoga instructor trained in India ranges from MOP10,000 to MOP13,000. Being a foreign instructor does not necessarily mean higher salaries. “It all depends on one’s working experience and popularity,” he says. Many instructors who are Macau residents, do not receive a salary but are paid by the hour instead. Ms Chan says this allows them to earn more. A non-resident instructor must be paid a salary and can only have one employer. Ms Chan says an instructor is paid anything from MOP100 to MOP500 for teaching a class of 12 to 20 students for one hour, depending on the instructor’s experience and whether the classes are funded by the government or run by a private concern. There has also been a boom in individual tutoring. The average cost is about MOP500 an hour. “Practitioners who need private classes are not necessarily from the upper classes. Instead, they are usually people with special needs, from physical to mental, such as autism or back pains,” says Renu Dhawan, a specialist in yoga therapy at Yoga World. “Unlike group lessons, private yoga classes are tailored to meet students’ unique needs and can be very therapeutic.” Mr Vedant says one of the peculiarities of yoga here is that yogis are not so keen on spiritual meditation. “Unlike yoga practitioners in India, who mainly practise yoga for mental peace, the local students prefer sweating and releasing their energy during classes,” he says.

Trivial exercise But Mr Vedant says instructors must also adapt. “Just like McDonald’s offers different types of hamburgers in different countries, we too need to adjust the teaching strategy according to the demand of the local people,” he says. With a wide range of instructors and types of yoga available here, consumers are increasingly able to mix and match to suit their preference. FEBRUARY 2013

103 “I prefer overseas yoga teachers,” says one expat yogi. “Comparatively, I think the Indian yoga instructors are better than local teachers.” She says she attends only those classes taught by her favourite Indian instructor. “They speak good English and I like their design of the yoga practices. It seems like they are more in tune with our body demands,” she says. Another yogi, who is a local, prefers instructors from Macau. “The Indian yoga masters may be excellent in yoga demonstration, but it does not necessary mean that they are good at teaching,” she says. She complains that some Indian instructors never explain the benefit of yoga postures or the precautions that students need to take while exercising. “The local instructors teach us how to breathe, how to sit, how to stand, how to walk, how to eat, how to relax, even how to think. This is very trivial stuff, which might be taken for granted by some Indian yoga instructors. But that is what we come here for,” she says.

FINANCIAL CONTORTIONS D

espite the recent growth in the popularity of yoga, a dark cloud hovers over the business. Its image has been tarnished by a string of closures of yoga studios here and in Hong Kong. The Consumer Council handled 80 cases arising from complaints about yoga studios in Macau in 2010 and 2011. The complainants had a variety of gripes. Most commonly, clients were dissatisfied with the service they got, or were worried that their studios were about to close. At least two yoga studios here have closed suddenly in recent years. More have closed in Hong Kong. In 2010 alone, three yoga studios there shut up shop, leaving more than 14,000 members in the lurch. The most notable closure here was that of the Universal Yoga Asia studio in the Macau Square building. It drew down

the shutters suddenly in 2009, without giving any notice to customers or employees. The business was evicted from the building and a court ordered the seizure of its assets because it was 10 months behind with its rent. Yoga studios commonly demand payment in advance for membership, discounting the price if members sign up for long periods. If the studio goes bust, members are among the last to get any money back. Un Ut Mui of the Consumer Council says those that sign up for long periods take the greatest risk because of the amount of money they put up. When Universal Yoga Asia collapsed, the members lost at least MOP1.75 million (US$219,000) in advance payments, according to newspaper reports. Some had reportedly paid up to MOP20,000 for a five-year membership.

FEBRUARY 2013

104 MICHAEL SPENCE NOBEL LAUREATE IN ECONOMICS AND PROFESSOR OF ECONOMICS, NEW YORK UNIVERSITY

Technology and the employment challenge GROWTH AND EMPLOYMENT ARE DIVERGING IN ADVANCED COUNTRIES. THE KEY FORCE DRIVING THIS TREND IS TECHNOLOGY

ew technologies of various kinds, together with globalisation, are powerfully affecting the range of employment options for individuals in advanced and developing countries alike – and at various levels of education. Technological innovations are not only reducing the number of routine jobs, but also causing changes in global supply chains and networks that result in the relocation of routine jobs – and, increasingly, non-routine jobs at multiple skill levels – in the tradable sector of many economies. How, then, should policymakers confront the new and difficult challenges for employment (and, in turn, for the distribution of income and wealth), especially in developed economies? From recent research, we have learned a number of interesting things about how the evolution of economic structure affects employment. The tradable side of advanced economies has not generated any real net increases in employment for at least two decades, while the jobs that it has created are concentrated in the upper-income and upper-education ranges, with employment declining in the middle and lower range of income and education. Growth in high-end services employment is matched by contraction in high-employment components of manufacturing supply chains. Until the crisis of 2008, middle- and lower-income job growth occurred entirely in the non-tradable sector of the economy, which accounts for roughly two-thirds of advanced countries’ output and employment. Here, incomes and value added per employee remained largely flat. Jobs could be eliminated by technology, but not by global competition; and, unsustainable, debt-fuelled domestic-demand growth helped to delay the current employment deficits.

The hi-tech way As a result, the advanced economies have been shedding routine jobs at a rapid rate, while adding non-routine jobs (for example, those that cannot yet be replaced or reduced by machines and networked computers). This has fuelled a dramatic rise in the return on education and high-level skills, with the share of total income received by owners of capital and high-end employees increasing in advanced countries for more than two decades. Growth and employment are thus diverging in advanced countries. The key force driving this trend – technology – is playing multiple roles. The replacement of routine manual jobs by machines and robots is a powerful, continuing and perhaps accelerating trend in manufacturing and logistics, while networks of computers are replacing routine white-collar jobs in information processing. Part of this is pure automation. Another important part is disintermediation – the elimination of intermediaries in banking, online retail and a host of government services, to name just a few affected areas. But technology’s impact does not stop there. The same class of information technologies that automate, disintermediate and reduce the costs of remoteness are also enabling the construction of increasingly complex and geographically diverse global supply chains and networks. Global supply chains – constantly in flux, owing to rising FEBRUARY 2013

developing-country incomes and shifting comparative advantage – locate productive activities where human and other resources make those activities competitive. Links in these chains include not only intermediate products and assembly, but also a growing range of services – research and development, design, maintenance and support, customer service, business processes and more – as transaction, coordination and communication costs fall. The result is what is sometimes called the “atomisation” of global supply chains: increasingly fine subdivisions are feasible, more efficient and locatable almost anywhere. Proximity still matters in terms of transport and logistics costs. But, with the developing world accounting for the largest new markets and most of the growth in global demand, the logic driving atomisation should become even more compelling.

Adapt and survive The efficient ongoing decomposition of global supply chains, networks and services has two related consequences. First, the tradable part of the global economy – where competition for economic activity and jobs is direct – is becoming a larger share of the whole; the same is true of individual economies. Second, parts of global supply chains that were not competitive are no longer protected by being adjacent to parts that were. Adjacency is no longer a requirement. These dynamics and related challenges are not confined to advanced countries. Over the next decade, for example, China will replace much of its labour-intensive assembly employment with higher-value-added employment in manufacturing and services, not only in the tradable sector, but also – even more noticeably – in the rapidly growing non-tradable part of its economy. The expanding scope and diminishing costs of automation and additive manufacturing may affect labour-intensive functions globally, including in earlier-stage developing countries. A key factor in adapting to these forces is investment. For individuals, businesses, educational institutions and governments in advanced countries, broad-based, elevated and efficient investment in education and skills is critical. Closing wide information gaps in the market for skills would also increase the efficiency of these investments. Across-the-board upgrading of human capital will improve income distribution both directly and indirectly (by reducing the supply of lower-skill workers relative to demand). It will also (partly) mitigate the concentration of wealth that results from a highly skewed income distribution. On the tradable side, competitiveness depends not only on human capital but also on a host of other factors: infrastructure, tax systems, regulatory efficiency, policy-induced uncertainty, and energy and health-care costs. There is no guarantee that taking the right steps in these areas would entirely overcome the employment challenges that individuals and countries face, though doing so would help. In fact, it is possible that we are entering a period in which major adaptations in employment models, work weeks, contract labour, minimum wages and the delivery of essential public services will be needed in order to maintain social cohesion and uphold the core values of equity and intergenerational mobility.

Technology

105

Cable TV offline The government rejects Macau Cable TV’s proposal to offer Internet services BY LUCIANA LEITÃO

reaming of having television and Internet services in a single, bundled package, as happens already in several countries? Dream on. The government has rejected Macau Cable TV Ltd’s proposal to provide Internet services using its installed cable network. The Bureau of Telecommunications Regulation told Macau Business that Macau Cable TV’s request didn’t comply with the rules overseeing the Internet sector. The decision was made last year, but was never made public. Macau Cable TV’s operations director, Ricky Tam Mong Teng, confirms the refusal. “The Bureau of Telecommunications Regulation didn’t accept our pro-

posal on the basis that our company can only provide pay television service and that Internet services are not included in our contract,” he told Macau Business. Mr Tam slams the decision as a waste of resources. With just a few upgrades, Macau Cable TV’s installed wiring system across the city would be able to provide Internet and other telecommunication services, he says. “The Macau Cable TV network is already good enough. Why doesn’t the government make better use of our resources?” Mr Tam says Macau Cable TV is still in contact with the government about this matter. “It is our understanding that, according to the concession contract, Macau Cable TV can operate

telecom services. But, of course, we need to get a licence.” He says the company is now deciding what steps to take. The government has already announced it will not extend Macau Cable TV’s exclusive pay television concession contract after it expires in 2014. The head of the Bureau of Telecommunications Regulation, Lawrence Tou Veng Keong, said in December that the government wants to open up the cable TV market.

Still waiting Macau Cable TV says it planned to provide broadband Internet services for half the price of those of telecommunications operator CTM, the city’s sole Internet FEBRUARY 2013

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Technology

CITIC ACQUIRES CTM Macau Cable TV did not bid for a fixed-line telecommunications licence. The company says the public tender terms were not attractive provider. It first submitted its request to the government in 2011. The company expected to invest MOP500 million (US$62.5 million) into the project. That is half of the amount newlycreated Companhia de Telecomunicações de MTEL Lda intends to invest in Macau if it is granted a licence to operate landline telecommunications services here. MTEL is the only bidder in a public tender to break CTM’s monopoly on landline telecommunications, although the government was expecting to introduce two new players into the market. The public tender closed in March last year, but MTEL’s proposal is still under review. If the locally-incorporated company succeeds in its bid, it will set up a joint-venture with mainland telecommunications equipment and network solutions provider ZTE Corp. MTEL representatives said last year the telecom company would invest as much as MOP1 billion in Macau should

FEBRUARY 2013

it get the approval. In addition, as many as 1,000 jobs would be created. Last month, Bureau of Telecommunications Regulation Mr Tou told Radio Macau that MTEL would get its licence soon. He was quoted as saying that the bureau was only waiting to receive some additional information to licence the company. Contacted by Macau Business, the Bureau of Telecommunications Regulation was laconic, saying a decision would be announced “in due course”. Macau Cable TV did not bid for a fixed-line telecommunications licence. Mr Tam says the public tender terms were not attractive, scaring away potential bidders. One of the tender terms was for new operators to lay their own network lines to cater for a minimum coverage of 30 percent of residential buildings when the operator commenced business – no later than 18 months after winning a licence. That, according to Mr Tam, would mean a very initial high cost for newcomers.

able & Wireless Communications and Portugal Telecom have agreed to sell their shareholdings in CTM, Macau’s largest telecom operator, to Hong Kong-listed CITIC Telecom International Holdings Ltd. The announcement was made last month. Cable & Wireless, CTM’s controlling shareholder, will sell its 51-percent stake to CITIC Telecom for US$749.7 million (MOP6.0 billion). Portugal Telecom will sell its 28 percent stake in the business for US$411.6 million. CITIC Telecom already has a 20-percent stake in CTM. The transactions are expected to be completed within six to nine months. Government-owned Macau Post will continue to hold the remaining 1 percent of the company. Citic Telecom is part of state-owned conglomerate Citic Group Corp, with extensive business interests including finance and mining. Tony Rice, chief executive of Cable & Wireless, said the decision to sell its Macau business was part of the company’s strategy to re-focus on the pan-America region. “The change of ownership will not affect our focus,” CTM’s chief executive, Vandy Poon, said in a statement. “We remain fully committed to the longterm prosperity of Macau by delivering the best services and value to the Macau community.”

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February Date: Event: Venue: Organiser: Tel: Website: E-mail:

5th – 7th

Date: Event: Venue: Organiser: Address:

13th – 14th

Tel: Fax: Website: E-mail:

ICE Totally Gaming 2013 ExCeL Centre, London, United Kingdom Clarion Events (44) 020 7384 8121 www.icetotallygaming.com cassie.jauffret-lenzi@clarionevents.com

Asia Retail Congress 2013

Taj Lands End, Mumbai, India Asia Retail Congress 402, Savoy Chambers, Dattatraya Road, Santacruz Jn., Santacruz (W), Mumbai - 400 054, India (91) 22 2660 3124 (91) 22 2660 3124 www.asiaretailcongress.com tim@asiaretailcongress.com

Date: Event:

27th – 28th

Venue:

Trump Ocean Club International Hotel and Tower, Panama City, Panama Terrapinn 96 Spring Street, 4th floor, New York, NY 10012, United States (+1) 212 379 6322 (+1) 212 379 6319 www.terrapinn.com/2013/gaming-executive-summit-latam enquiry.us@terrapinn.com

Organiser: Address: Tel: Fax: Website: E-mail:

GES – Gaming Executive Summit LatAm 2013

March Date: Event: Venue: Organiser: Address: Tel: Fax: E-mail: Date: Event: Venue: Organiser: Address:

Tel: Fax: Website: E-mail:

Date: Event:

21st – 23rd

Venue: Organiser: Tel: Fax: Website: E-mail:

Venetian Macao-Resort-Hotel, Macau Macau Government (853) 8798 9675 (853) 2872 3322 www.macaomiecf.com miecf@koelnmesse.com.hk

Date: Event:

29 th – 31st

Venue: Organiser: Tel: Fax: Website: E-mail:

Date: Event: Venue: Organiser: Address: Tel: Fax: Website: E-mail: Date: Event:

Venetian Macao-Resort-Hotel, Macau A Plus PR & Advertising Co Room 1408, 14/F Luso International Bank Building, Rua do Dr Pedro José Lobo, Macau (853) 2870 3930 (853) 2871 6297 info@aplus-pr.net

Venue: Organiser: Address:

12th – 14th

iGaming Asia Congress 2013

Grand Hyatt, Macau Beacon Events 20/F, Siu On Centre, 188 Lockhart Road, Wanchai, Hong Kong (852) 2219 0111 (852) 2219 0112 www.igamingasiacongress.com info@beaconevents.com

4th Macau International Real Estate Fair Venetian Macao-Resort-Hotel, Macau Macau Decheng International Media Co Ltd (853) 2892 0009 (86) 2892 0007 www.v-8.cn dechengtv@163.com

April

8th – 10 th

27th Wedding, Banquet, Beauty & Jewelry Expo

2013 Macao International Environmental Co-operation Forum & Exhibition

Tel: Fax: Website: E-mail:

10 th – 12th

APAC Investments Summit 2013 Venetian Macao-Resort-Hotel, Macau Marcus Evans 9 Demostheni Severi Avenue, Nicosia 1080, Cyprus (357) 22 849 300 (357) 22 849 307 www.apacinvestmentssummit.com webenquiries@marcusevanscy.com 18th – 19th

Mobile Payments & NFC World Summit 2013 Eaton Smart Hong Kong, Hong Kong Symphony Global 10 Anson Road, #26-04 International Plaza, Singapore 079903, Singapore (65) 6474 1471 (65) 6725 8438 www.symphonyglobal.com enquiry@symphonyglobal.com

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”.

: A Macau Business partner event

FEBRUARY FEBRUARY2013 2013

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Arts & Culture

Box office clout Mainland moviegoers show Hollywood the money BY SEBASTIEN BLANC*

en new movie screens open each day in the mainland as the popularity of cinema soars in China, but the appeal of Chinese films has failed to maintain the pace. Box office receipts jumped 30 percent last year to RMB17 billion (MOP21.8 billion), lifting the mainland up to become the world’s number two cinema market behind the United States, figures last month showed. Yet foreign titles took the bulk of the money, scooping up just over half the revenue in 2012 despite facing an annual cap of only 34 releases – while Chinese filmmakers produced 893 films last year. “The successful movies are nearly all Hollywood blockbusters,” says Pen Kang, a researcher for the Hong Kong Baptist University Academy of Film. “Chinese domestic films have no

FEBRUARY 2013

advantages compared to these Hollywood films. The production standards and technology are less advanced.” The mainland only increased its foreign movie quota from 20 in 2012 after long pressure from Hollywood and the World Trade Organisation. As a result foreign films edged out domestic ones in ticket sales for the first time in a decade, taking 51.5 percent of the total. Naxin Ping, who manages an antique shop in Beijing, says she went to the cinema several times last year, watching both foreign and domestic titles including “The Amazing SpiderMan”, “Mission Impossible: Ghost Protocol”, martial arts film “The Grandmaster” by Hong Kong director Wong Kar-wai and “Renzaijiongtu”, a Chinese comedy. “That’s my taste,” she says. She is typical of the mainland’s

growing middle-class population willing and able to pay the relatively high price of movie tickets – around MOP100 – that has made theatres such an attractive market. The country’s leading property group Wanda became the world’s biggest cinema owner last year after acquiring U.S. company AMC for US$2.6 billion (US$20.8 billion).

Lagging behind But State Administration of Radio, Film and Television vice minister Tian Jin in November urged domestic filmmakers to “enhance creativity”, saying their movies faced tremendous pressure and needed to be more competitive. In recent years, Hollywood blockbusters such as “Avatar” and “Transformers: Dark of the Moon” have brought in whopping sums, though the

109 low-budget mainland comedy “Lost in Thailand” unexpectedly upended them in December to become the country’s biggest-ever box office hit. But Robert Cain, a producer who has worked in China for 25 years, points out that it was among the successful domestic movies that “drew large audiences in the mainland because they released at times when Hollywood movies were blocked out of Chinese theatres”. Mega blockbusters such as the latest James Bond movie “Skyfall” and the widely anticipated “The Hobbit”, based on the J.R.R. Tolkien novel, hit cinemas around the world last year but have 2013 release dates in the mainland – by which time many potential viewers will already have seen them on pirated DVDs.

Too soft Just as Chinese movies have lagged domestically, they have also struggled to garner significant popularity or renown abroad, despite being the world’s third most prolific film industry, according to the State Administration of Radio, Film and Television. And despite being the world’s most populous country, China has failed to produce anything with the global cultural impact of South Korean singer Psy’s “Gangnam Style” or Indian musician Ravi Shankar.

MADE IN HONG KONG H

ong Kong’s film industry has preferential access to the mainland market, with quota-free access for Hong Kong-produced Chinese language films. The city is among Asia’s largest film exporters. In 2010, 54 locally produced films were released. In recent years, the mainland has become a vital market for Hong Kong movies. An increasing number of movies have been co-produced by Hong Kong and mainland film production compa-

President Hu Jintao acknowledged last year that the mainland’s soft power had not kept pace with its growing political and economic stature, saying: “The international influence of Chinese culture does not correspond with the international status of China.” Rance Pow, an industry analyst who heads the consultancy Artisan Gateway, is optimistic that domestic filmmakers will steadily improve. “Chinese films remain on course to produce commercial hits not only for the China market but for international audiences as well,” Mr Pow says. The difficulty comes in part from

nies. These are treated as mainland productions after receiving approval from mainland authorities. Some foreign production companies interested in tapping into the mainland market have also chosen Hong Kong as their regional base in Asia. For example, U.S.-based Legendary Pictures LLC, which produced “Inception” and “The Hangover”, has set up a subsidiary in Hong Kong to produce movies with Chinese elements.

the censorship that the mainland exercises over film and other cultural productions. The Communist Party imposes strict rules over what films are allowed to be seen by the public, banning what it considers any negative portrayal of contemporary politics or issues it says might lead to social unrest. In an open letter last December, award-winning Chinese director Xie Fei said the censorship system had “become a corrupt black spot for controlling the prosperity of the cultural and entertainment industry, killing artistic exploration and wasting administrative resources”. * AFP NEWS AGENCY

FEBRUARY 2013

110 110

Moments

CHEQUES FOR CHARITY Following the sixth Annual Macau Business Charity Golf Tournament in October, a luncheon to present the cheques to the benefited charities took place last month. Team Wynn I, made up of Dave Williamson, Dennis Hudson and Ryan Beauregard, was the net score tournament winner. As such, its members had the right to nominate a charity to forward their winnings to – HK$100,000 (US$12,900). They chose the Cradle of Hope Association. The gross score tournament winners were Mike Bolsover, Tim Shepherd and Rodney Hall, from Silver Heritage team. They nominated Olga’s Promise, a Nepali-based organisation that works in the field of children’s welfare, to forward their HK$100,000 winnings to. A special HK$48,000 donation was made by BNU bank, telecommunications provider CTM, Portuguese news agency Lusa and Portuguese-language newspaper Jornal Tribuna de Macau to the Association of Rehabilitation of Drug Abusers of Macau. Long-term patron Melco Crown Entertainment Ltd continued its support as an event partner of the Macau Business Charity Golf Tournament, sponsoring the cheque presentation luncheon, which took place at Aurora restaurant, in Altira.

Group photo

Katherine Liu, on behalf of Wynn I team, turns over their HK$100,000 winnings to Ng Pui, from the Cradle of Hope Association

Raymond Lei, from Melco Crown, hands over the HK$100,000 cheque to Jo Lyn, representing the Silver Heritage team – the winnings were forwarded to Nepali-based Olga’s Promise FEBRUARY 2013

José Rocha Dinis, on behalf of Jornal Tribuna de Macau, Lusa, CTM and BNU, presents a special HK$48,000 donation to tournament director Stefan Kuehn, representing the Association of Rehabilitation of Drug Abusers of Macau

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THE MOST HAIR-BRAINED OF HEISTS Judiciary Police head Wong Sio Chak announced last month that the number of casino-related crimes had increased last year. Some involved increasingly sophisticated high-tech scams. The Frozen Spy’s mind was set racing, pondering the intricate swindles that could be taking place. Perhaps something along the lines of those made popular by Hollywood’s Ocean’s Eleven and its sequels? A little digging and it seems the reality of the highstakes world of gambling cons is far less hairy than the police had hinted at. Last month, the police detained a 27-year Hong Konger, parading him and his less-than-elaborate, no-tech scheme to the media. The man had taped a 50-cm-long strand of hair to a HK$1,000 (US$129) gambling chip. At the baccarat tables, he would bet on “bank” to win. If “player” won, he would tug on the strand, dragging the attached chip to “player” on the table. What is surprising about this follicular fiend is he used the hair do-dad five times before getting dragged by the police net.

PONDS ON PLANNING FAST TRACK The Civic and Municipal Affairs Bureau clearly has something against peace and quiet. First, it wants to ruin the calming surroundings of the Sai Van Lake by opening a night market. Now, it has surprised many by starting construction on five “ecological ponds” in the wetlands near the Taipa-Houses Museum. The bureau says the ponds will improve the water quality of the existing marshland and will not disturb the egrets that breed there. Strangely enough, the project seemingly lacked any sort of promotion before it went ahead. Environmental groups say they were unaware of it. The Environmental Protection Bureau says it does not have record of the plan. The wetlands are one of the most valuable natural areas in Macau. The public treasures them. It demonstrated its passion for the tiny green pocket last year when the wetlands were earmarked for a traffic information centre. For a government that has arranged a public ballot to name a pair of pandas, these projects should be brought up for public discussion too. More importantly, any development in this quiet corner of Macau should be backed by a proper environmental impact assessment.

A KINDLY WORD The Macau Government Tourist Office announced last month it would launch a tourism awareness campaign to cultivate courtesy towards visitors. It expects one-fifth of the public will participate. Frozen Spy would support any campaign to improve courtesy and good manners. The public could do with a lesson in sharing a friendly smile with a stranger and, between taxi drivers and shady shopkeepers, tourists are often easy targets for rip-offs. That being said, many tourists to Macau could do with an awareness campaign of their own. Seldom do Macau residents appreciate public urination, queue jumpers or shouting at harried restaurant staff. Thank you for your kind attention, tourists.

LEONG’S BID TO CLEAR THE AIR Many gambling industry analysts have called the bluff of Legislative Assembly member Angela Leong On Kei’s demand to ban tobacco outright from the city’s casinos. Their take is Ms Leong is making a populist play to be re-elected. After all, they note, casino workers are her main constituency. Plus, if she was serious about a ban, she could push to scrap smoking at SJM Holdings Ltd’s casinos, where she is an executive director. But Ms Leong has put her money where her mouth his, at least partially. Le Royal Arc casino, a privately held venture she runs under a service agreement with SJM Holdings, may be Macau’s least smoky casino, with official data showing its designated smoking area occupies the smallest ratio of the city’s gaming floors at 35 percent.

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February 2013

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