MB94 | February 2012 by Macau Business

Macau MOP 35 Hong Kong HK$ 40 Mainland China RMB 35

FEBRUARY 2012

Photo: Carmo Correia

Economy & Finance 24 Growth tapers Monetary authority says economy will grow below 10 percent in the first half of 2012 26 Playing with fire Feng shui experts at CLSA predict a potential upside for investors in the Year of the Dragon 28 Land of the free Macau again among the freest economies in the world but there is room to improve 31 Old upstart Wing Lung Bank wants to boost its market share of cross-border financial services

Politics 36 To a standstill Taking ages to pass bills into law is becoming a habit in the Legislative Assembly

Legal Affairs 42 See you in court Arbitration and mediation are far from being widely considered the alternative to going to court

Property 46 Market watch Positive discrimination for locals not needed in real estate, industry players say

Business 53 Future fund Cord blood bank Cryolife opens its first Macau branch 56 Love of money Valentine’s Day can work as a revenue booster but not for all businesses FEBRUARY 2012

58 From the heart Lord Stow’s Bakery has grown from a small bakery into a company with an international presence 60 Breakfast club Business Network International opens its first local group

Gaming 62 Billions race Gross gaming revenue up by 35 percent in January 64 History in the making Mass market baccarat outperforms VIP segment growth 67 The money spinners Wynn Macau again the casino generating the most money 68 Stock watch Macau gaming stocks start the year on a positive note 72 A partnership crumbles Steve Wynn and once-close business partner Kazuo Okada engage in a legal battle 75 Very important promoters Surge in the number of junkets prompts analysts to call for tighter rules 78 Game on Mocha Clubs opens its 10th club 80 Strong bet Bally celebrates 80th anniversary with an eye on Asia 81 Wishing on a star High-end Portuguese restaurant is SJM’s latest non-gaming offer 82 On the hop Playboy Club has a new house

SEPTEMBER FEBRUARY 2012 2011

Gaming 84 Tax-free gaming Korea’s foreigner-only casinos enjoy two-year tax reprieve 86 One step closer Taiwan President Ma Ying-jeou’s re-election paves the way for casino law 88 Sparkling vintage Pagcor set all-time revenue high last year

Hospitality 90 The more the merrier Despite strong growth, experts rule out the need for restrictions on tourist arrivals 94 Accepting a challenge Four Seasons’ general manager is not afraid of Macau’s tight labour market

Meetings & Conventions 99 Uphill struggle After a bad year, the MICE industry looks for better times ahead

Environment 102 Money isn’t everything Government investment in protecting the environment has increased but the results are slim

Marketing 106 Brand morality tale A look into Dolce & Gabanna’s recent marketing crisis in Hong Kong

FEBRUARY 2012

Human resources 110 Burning the midnight oil Long working hours are nothing new for Macau workers

Arts & Culture 114 Water world Multimedia theatre piece “The Blue Planet” on stage at the Cultural Centre

Opinion 10 From the publisher’s desk Paulo A. Azevedo 13 Editorial Emanuel Graça 27 What can Macau learn from the financial woes of Europe and the U.S.? Ricardo Siu Chi Sen 40 A question of control Bill Kwok-ping Chou 51 Why capital flows uphill Keyu Jin 89 The perils of 2012 Joseph E. Stiglitz 97 Throwing sparks Gustavo Cavaliere 105 Green credibility gap José I. Duarte 109 Global finance’s supply-chain revolution Andrew Sheng 113 For a few dollars more Keith Morrison 118 Islamic finance unbound Mahmoud Mohieldin

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Democracy: no subtitles needed LET ME SEE IF I CAN TRANSLATE THE INTRICATE political rhetoric that some local community leaders like to use. “Macau society is not ready for democracy”. “A democratic system in Macau would serve only to preserve the status quo”. “To this day, we have yet to experience totally clean direct elections”. These three phrases were used by public figures of recognised merit during last month’s public consultation sessions on forming the Legislative Assembly and choosing a chief executive. The trio of comments serve to justify why the pale attempts to democratise the political system have dragged on indefinitely. They are also used as a justification to raise the number of seats in our lacklustre Legislative Assembly to 33, an increase of only four seats, shared equally by directly elected legislators and those chosen by associations. Let me try to grasp the logic. In 1789, the French were ready for democracy, thus shattering the foundations of France and the whole of Europe. The continent slowly followed in its footsteps but, 200 years later, the people of Macau are not ready for it? They argue that changes to the system – that basically guarantees most of the perks from Macau’s development are directed to those who are best positioned and hold the most influence – will only further ensure the current state of affairs. Does that mean not changing the system actually changes the system? In other words, in order to get a reaction, we must make sure there is no action? Fantastic. And what can be said about the cliché “we have yet to experience totally clean direct elections”? Where is the transparency in the absence FEBRUARY 2012

of an election? Are leaders able to make a completely clean decision behind closed doors, without its rationale being explained to the people? I believe we are all watching the same movie. No subtitles are required. The unjustifiable is being justified. People now holding influential positions seem ready to forget what it is they promised to protect years ago. Equality, fraternity and a raft of other principles have seemingly become outdated because it is more beneficial to some to not change the system.

Devil in the detail Even so, it was quite pleasant to open the newspaper and read that the chief executive was prepared to increase the number of public consultation sessions to discuss electoral system reform. That came after critics complained that just one of the eight sessions was actually open to the man in the street. Mr Fernando Chui Sai On’s admission is justifiable, especially in the aftermath of the criticism from the only public consultation open to all. By the way, no more sessions were added. No one expects Macau to stand up and demand what Hong Kong has achieved and Macau has yet to attempt: to follow a path that will one day lead to the direct election of the chief executive. But a single session for all the population and seven sessions reserved for associations... Why bother with words? Macau’s political system is representative at best. The vast majority of opinions, in all sessions, were near unanimous in declaring that it is acceptable to increase the number of seats in the Legislative Assembly from 29

Where is the transparency in the absence of an election? Are leaders able to make a completely clean decision behind closed doors, without its rationale being explained to the people?

to 33, two directly elected and two indirectly elected. Curiously, that was also the preferred arithmetic of the government. The way the views came together, it seemed as if it was decided beforehand. All in the name of stability, harmony and so on. According to legislator José Pereira Coutinho, the change favours the continuation of the “web of interests and traffic of influences that illegitimately benefits some sectors”. This is an outburst from someone who still tries to believe it is possible to change the status quo, the same status quo others say it is only possible to alter if it remains the same. Talk about devilish logic. Among all the debate surrounding the effort to change or to maintain the situation, I prefer to believe there is an important forgotten question: how do we select the legislators delivered from the indirect elections? It is a question scholar Jorge Godinho has also asked. Many of the associations eligible to vote have a dubious existence. Although there are four constituencies in the indirect elections, the results are negotiated on the sidelines only taking into account corporate interests, and ending in the unusual situation where all four constituencies always present a single list of candidates each, that of course, wins election. The process drains the Legislative Assembly of its legitimacy. To say otherwise is morally dishonest.

Business as usual THERE ARE SOME GOVERNMENT bureaus that work and others that simply cruise along. The Transport Bureau is inconsequential. The Labour Affairs Bureau, a joke. The Infrastructure Development Office urgently needs auditing. Following a series of budget revisions in other projects, the latest revision for the cost of the new University of Macau campus on Hengqin Island is the proof – as if we needed it – that something serious is happening within the Infrastructure Development Office. Negligence, incompetence or something worse? Legislator Chan Meng Kam was right to speak out against the budget increase for a project that is half completed and has already seen its costs jump by 50 percent to MOP9.8 billion (US$1.2 billion). According to the Portuguese-language press, while justifying the increase, the Infrastructure Development Office’s head Chan Hon Kit said the construction site includes more than 80 buildings, plus the energy and water supply network, telecommunication lines and police stations. What does that mean? Had no one thought about water and electricity supply, about the police and Internet wiring before the budget was announced?

What kind of a reply is this? Additionally, according to the head of the Infrastructure Development Office, the maximum depth of the tunnel linking Macau to the campus has been doubled. The explanation was bigger boats had to cruise the channel separating Macau from Hengqin Island. Again, why was this overlooked? It shows a lack of preparation to evaluate projects and a willingness to blindly sign on the dotted line of any given contract. The over-budgeting fever that multiplies initial costs is nothing new. During the Portuguese administration, some companies became experts in submitting projects with the lowest price, thus winning the public tenders, only to rapidly increase costs – and profits – once they had won. It all happened with the consent – to say it politely – of many interested parties. After the handover, the examples continue and are not investigated because, apparently, these kinds of debacles involve interests that are disseminated through all society. In the few instances when an inquiry is ordered, as with the 80-percent budget increase of the Macau Dome project, responsibility dies alone. And so life goes on in Macau, where everybody lives happily, while turning a blind eye. Business as usual. FEBRUARY 2012

VOL.1 Nº94

Editorial Council Paulo A. Azevedo, Albano Martins, Duncan Davidson Founder and Publisher Paulo A. Azevedo pazevedo@macaubusiness.com

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

Assistant Editor-in-Chief Sara Farr sarafarr@macaubusiness.com

Executive Director Business Development Luis Pereira pereiraluis@macaubusiness.com

Senior Analyst José I. Duarte jid@macaubusiness.com

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

Special Correspondent Muhammad Cohen info@muhammadcohen.com

Beijing Correspondent Maria João Belchior maria_belchior@yahoo.com.br

Manila Correspondent Max V. de Leon maxdeleon_080975@yahoo.com

Assistant to the Publisher Laurentina da Silva ltinas@macaubusiness.com

Art Directors Connie Chong, Luis Almoster design@macaubusiness.com

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

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Contributing Editors Alexandra Lages, Christina Yang Ting Yan, Derek Proctor (Bangkok), Filipa Queiroz, Helder Beja, Joana Freitas, João Francisco Pinto, José Carlos Matias, Kahon Chan, Kim Lyon, Lia Carvalho, Lois Iwase, Luciana Leitão, Ray Chan, Sara Silva Moreira, Sofia Jesus, Steven Chan, Tiago Azevedo Regular Contributors Bill Kwok-Ping Chou, Branko Milanovic, David Cheung, David Green, Dominique Moisi, Eswar Prasad, Frank J. Fahrenkopf Jr., Gustavo Cavaliere, Hideaki Kaneda, José António Ocampo, José Sales Marques, Joseph Stiglitz, Leanda Lee, Keith Morrison, Kenneth Rogoff, Kenneth Tsang, Marvin Goodfriend, Pan Yue, Paulo J. Zak, Peter Singer, Richard Whitfield, Rodrigo de Rato, Robert J. Shiller, Sin-ming Shaw, Sudhir Kalé, Sun Shuyun, Vishakha N. Desai, Wenran Jiang Advertising Xu Yu, Irene irene@bizintellingenceonline.com

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Media Relations GRIFFIN Consultoria de Media Limitada Translations PROMPT Editorial Services, Poema Language Services Ltd, TLS Translation and Language Services Agencies AFP, Lusa Exclusives Gambling Compliance, Project Syndicate Printed in Macau by Welfare Ltd Published every month in Macau. All Rights Reserved. Macau Business magazine is a media product of De Ficção - Multimedia Projects Disclaimer: In Macau Business magazine, the translation of MOP amounts into US$ amounts (and vice-versa) is made at the rate of MOP 8 to US$1 for the purposes of illustration only.

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 2012

1313 13

Emanuel Graça Editor-in-Chief

emanuel.graca@macaubusiness.com

Phoney reform

Only someone unfamiliar with Macau’s political scene will wonder why reform of the electoral system creates such timid outcomes. The reason is simple. Most of those in power are determined to block any substantial move

THE PAST MONTH WAS MARKED BY THE PUBLIC consultation on Macau’s electoral system reform, the first step in a process that will most likely culminate in the introduction of minor changes to the way Macau’s leader and legislators are selected. This month, the second stage takes place, with chief executive Fernando Chui Sai On submitting a pre-proposal on the matter to the Standing Committee of the National People’s Congress. While there are more steps to be fulfilled, the final outcome of the process is already clear: an increase in the number of directly and indirectly elected legislators by two seats each, and an increase to the number of people in the committee that chooses the chief executive to either 400 or 450, up from the current 300. These changes reflect little real change in the political system. Perhaps, the most interesting thing in all this is to see what modifications will be introduced in the current four functional constituencies that choose the city’s indirectly elected legislators. Will there be the creation of new constituencies? Or will the extra two seats be distributed among the existing ones? Details aside, only someone unfamiliar with Macau’s political scene will wonder why reform of the electoral system creates such timid outcomes. The reason is simple. Most of those in power are determined to block any substantial move. And the best way to do so is to pretend they are open to change, while actually monopolising the debate to control its outcome. That is obvious in the way the current process to reform Macau’s electoral system has been handled so far. Mr Chui’s announcement last November that the government would conduct a public consultation on this matter took the city by surprise. Just a couple of months earlier, the secretary for administration and justice Florinda Chan had discarded such a possibility, saying that there was no consensus on the matter. That handful of months makes a difference.

Crowd control

These reforms are a lengthy process, made of several stages, some directly involving Beijing authorities. Now, we are rushing to get things done in time for next year’s Legislative Assem-

bly elections, which prevents deeper discussion from taking place. There is more. At last month’s political consultation, the government only asked if the methods to form the Legislative Assembly in 2013 and select the chief executive in 2014 should be revised, and if so, how. The questions deliberately didn’t provide room for a longer-term plan to set a step-by-step roadmap towards greater democracy. Additionally, of the eight public consultation sessions held last month, just one was open to the general public. Conveniently, it was the last one. Surprisingly or not, the time allotted to discussion was too brief to allow too many people to voice their opinion. At the consultation, each person was only allowed to talk for three minutes, less than in any other session. Talk about democracy. Lets not be naïve. Macau is not Hong Kong’s equivalent, politically. And unlike in our neighbouring SAR, our Basic Law does not include provisions that make universal suffrage the ultimate aim. Add Beijing’s influence over politics here and it would be disingenuous to expect any sudden, eye-catching move towards full democracy. Even so, under the current state of affairs, there is room to increase democratic freedoms by boosting transparency in the political decisionmaking process. While the latter is no substitute for the former, transparency is a first step to improve the level of political engagement at all levels of society. That will eventually lead to a call for more participation in politics. I can understand that the complexity of forces at play when discussing democracy makes daring changes to the electoral system much harder. It does not mean that changes are not needed. But the same argument is invalid when holding up reforms to make the shady process of granting land for development more transparent. Or to justify why the meetings of the Legislative Assembly’s working committees – the stage at which most of the changes to proposed legislation are negotiated – take place behind closed doors. Most peculiar of all is that most of the people arguing that Macau’s population is not mature enough for universal suffrage are the gatekeepers, controlling public scrutiny of the decisionmaking process. They oppose change. Why? FEBRUARY 2012

Traumatising experience

Careless driving goes unpunished I couldn’t agree more with what Paulo A. Azevedo said about road safety in Macau in the January edition of Macau Business. I’ve had experience living and driving in London, Vancouver, Hong Kong and Macau. The way people behave on the roads here is the worst. One has to be brave to drive in Macau. It is pure luck that we don’t see many more traffic accidents given the way drivers conduct themselves. There are numerous misbehaviours on the road each day. For example, “Stop” signs don’t mean anything to the majority of drivers. There is neither respect for the right of way nor for pedestrians’ rights. Drivers may honk you signalling their impatience that you are blocking their way on zebra crossings. Many drivers change lanes at will, across solid dividing lines, or even double solid dividing lines, with no regard to the danger this may create. Worse still, many do so without signalling. There is insufficient consideration for other road users. Double parking is commonplace creating bottlenecks on busy roads at peak hours. Speeding is another problem. Many people drive as if they were driving a Formula 1. Motor scooter drivers are the worst offenders on many accounts. They park wherever they want, even when it means blocking the way for others. They “squeeze” themselves through traffic ignoring their own safety and that of others. Tiny toddlers are transported on the back of scooters tied to the drivers with nylon belts. Although it is forbidden for children below the age of six to ride as passengers on motorcycles there is no, I repeat no, enforcement of this rule. I can go on and on. I believe insufficient or even lack of, enforcement of the traffic code may be a major contributor to the many problems we see on the road. Officials looking after traffic matters could do well to take the lead to guide the general public on. Stricter enforcement to bring in the necessary respect for rules on the road and more proactive public education campaigns will drive home the message. Chris Ma FEBRUARY 2012

A friend and I were leaving the Venetian Macao a couple of weeks ago at around 4am and we tried to get a taxi back home. As there was a huge line of available taxis at Venetian’s back exit and nobody waiting, we walked up to the first one and tried to open the door. The driver was on the phone and although he could see us, he ignored us. We went to the second taxi in line, who also didn’t let us inside and pointed to the first taxi. We said he had refused to take us, but this made no difference. None of the drivers asked us where we were going, their usual reason to refuse a client. I believe their refusal was because we were foreigners, a case of prejudice. We then saw a group of Chinese walking to the taxi stand. The first driver went to pick them up even though he had blatantly ignored us a minute before. We decided to take a photo of the second taxi’s license plate to report him, although we knew from previous experience that this is harder than you would think and probably makes no difference whatsoever. As I walked to the back of the taxi to take the photo, the driver started revving his engine. He then drove around in a crazy way, fast and out of control, stopping with his taxi facing us and revving the engine angrily, threatening to run us over. Finally he got out and started shouting profanities at us in Chinese and English. We decided to get out of there as soon as possible. Other taxi drivers watching the whole incident also ignored us. As we were about to exit on foot, the last taxi in line offered to take us. Inside and feeling a bit traumatised by the whole event, we noticed the crazy taxi driver driving alongside of us. I’m not sure if he was following us, but this was even more unsettling. Finally he drove away. Relieved, we couldn’t believe what we had just experienced. Taxi drivers in Macau are really taking things to the next level. There is no control by their management or the government as to how they behave. I hope somebody will do something about it. Rachel Jones

Write a letter to the editor To submit a letter to the editor e-mail editor@macaubusiness.com with the subject “Letters to the Editor”. Letters may also be sent by regular mail to this address: Letters to the Editor, Macau Business, Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, No 679 Av Dr Francisco Vieira Machado, Macau. Please include your full name, address and a telephone number for confirmation purposes. Letters should be 200 words or fewer and all are subject to editing.

The De Ficção – Multimedia Projects company, publisher of Macau Business, its Chinese-language sister magazine Business Intelligence, macaubusiness.com and the very soon to be launch Business Daily newspaper, is now part of Project Asia Corporation, which also includes Global Asia Media, the joint-venture that publishes luxury publication Essential Macau; Goldfish creative agency; MBSK Events, which organises the biggest annual local charity golf tournament; and Signature Events, a premium events company.

ENERGY CONSUMPTION TO INCREASE Power demand is expected to continue to increase this year. Electricity utility CEM says it estimates the total consumption will increase by around 8 percent. Last year, power consumption was up by 5 percent over 2010, and has surged by 127 percent over the last 10 years. To meet the increasing demand for power supply, CEM says it has strengthened infrastructure development. Meanwhile, the price of electricity for businesses increased last month by MOP0.01 per kWh. This, however, will only affect those under the tariff groups B, C and D. Customers in tariff group A, which are all households and low voltage business consumers, will see their tariffs unchanged.

BABY STEPS

Government political reform proposal likely to not bring big changes, analysts say The Macau government is expected to submit a pre-proposal this month for the reform of Macau’s electoral system, to the Standing Committee of the National People’s Congress. This follows a string of eight public consultation sessions held last month on the issue, with just one open to all interested parties. Analysts say it is likely that chief executive Fernando Chui Sai On will propose to increase the number of both directly and indirectly elected legislators by two seats each. Indirectly elected members of the Legislative Assembly represent different sectors of society and are elected by that sector’s associations. Currently, the Legislative Assembly consists of 29 members, 12 from direct elections, 10 from indirect elections, and seven members nominated by the chief executive. It is also likely that Mr Chui will propose increasing the number of members of the electoral committee for the chief executive to 400 people from 300. Macau’s political reform is set to be centre-stage in 2012. Beijing has already said it would welcome proposals to see a change in the way the chief executive and members of the Legislative Assembly are selected. Macau’s next election for the Legislative Assembly takes place in 2013 while the selection of a new chief executive is scheduled for 2014.

CONSUMERS MORE CONFIDENT People are more confident in the local economy, the latest Macau Consumer Confidence Index shows. The overall index for the last quarter of 2011 improved 5.2 percent quarter-toquarter to 86.9 points. The sub-index for economic confidence remained the highest among the six sub-sets of indicators, reaching 113.5 points, up by 7.6 percent over the third quarter of 2011. The biggest jump in confidence took place in regards to inflation, with a hike of 12.3 percent. Even so, this sub-index remained at 57.7 points. The Macau Consumer Confidence Index is released quarterly by the University of Science and Technology. Its peak is 200, with 100 being neutral. A total of 1,107 people were surveyed for the latest edition.

NEW HISTORICAL UNEMPLOYMENT LOW

Photo: Luís Almoster

The unemployment rate for the fourth quarter of last year was 2.1 percent, down by 0.2 percentage points over the previous period (September-November 2011). This is the lowest unemployment rate ever registered in Macau, according to the records available from the Statistics and Census Service, which go back until 1996. Of the 7,400 unemployed, around 12.4 percent were fresh entrants to the job market looking for their first job, down by 2.9 percent over the previous period.

FEBRUARY 2012

ALERT ON LABOUR RIGHTS

Pansy Ho Chiu King, managing director of Shun Tak

SHUN TAK TO RAISE UP TO HK$1.95 BILLION

The influential Federation of Trade Unions is worried about labour rights protection in Macau. The federation’s two labour rights centres dealt with over 1,400 cases last year. The majority were about holiday compensation and unfair dismissal. The federation is now petitioning the government to improve the existing procedures for dealing with unpaid salaries, namely by making processes faster and more streamlined. The federation’s representatives say the issue is particularly serious in the construction industry.

MACAU AND INDIA INK TAX DEAL India has become the latest partner to sign an agreement with Macau that will assist both governments in preventing offshore tax avoidance and evasion. A delegation from India last month signed a tax information exchange agreement with Macau secretary for economy and finance, Francis Tam Pak Yuen. This is the 14th such agreement that Macau has inked with other countries or regions. The agreement provides a legal basis for Macau and India to exchange taxpayer information.

Company plans to raise funds through rights offering Shun Tak Holdings Ltd. announced last month it plans to raise up to HK$1.95 billion (US$251 million) in a rights offering. The ferry operator and property developer is offering three new rights shares for every eight ordinary shares currently held. The rights shares will be priced at HK$2.02 apiece. Shun Tak said it will raise a minimum of HK$1.65 billion and a maximum of HK$1.95 billion through the offering. A stock exchange announcement said the proceeds will go towards “general working capital purposes and for financing new investment opportunities.” The shares will begin trading ex-rights from February 6 and the newly issued rights shares start trading on March 7. Underwriters for the rights offering include a company called Megaprosper Investments Ltd., which is fully-owned by three of Stanley Ho Hung Sun’s daughters from his second wife: Pansy Ho Chiu King (Shun Tak’s managing director), Daisy Ho Chiu Fung and Maisy Ho Chiu Ha. As an underwriter for a portion of the deal, Megaprosper will collect a commission of between HK$6.4 million and HK$9.5 million.

FEBRUARY 2012

JETSTAR TO STOP FLYING TO MACAU Low cost airline Jetstar will stop connecting Macau to Singapore starting February 6, after the number of passengers on this route dropped 13.8 percent last year, to less than 80,000. The Civil Aviation Authority confirmed the news to Jornal Tribuna de Macau. Jetstar is a subsidiary of Australian giant Qantas.

FEBRUARY 2012

CAR FAIR GENERATES HK$11 MILLION IN SALES

NAM KWONG BUYS PUBLIC BUS OPERATOR

Thousands of visitors and buyers went to the Venetian Macao for this year’s Auto Fair from January 5 to 8, where over 200 second-hand cars were on display. As many 66 cars were sold, generating HK$11 million (US$1.4 million) in sales. According to organizers, 10 local automobile companies participated in the four-day event and the total number of visitors went up by 5 percent to 5,400.

Nam Kwong (Group) Co., announced last month the acquisition of public bus operator TCM. The value of the deal, closed last year, was not disclosed, Macau Post reported. Local businessman Ng Fok previously headed TCM. The company posted a MOP29 million (US$3.6 million) profit in 2010, similar to the amount reported in the previous year. Nam Kwong (Group) Co., Ltd. is a state-owned company with varied business interests in the city. Its predecessor, founded in 1949, was the first Chinese-funded institution in Macau, according to Nam Kwong’s webpage.

TAXI FARES TO GO UP The government is in talks with taxi drivers to allow for a fare increase. Mid-last year, some local taxi associations requested the government to approve a flag fall increase of up to MOP2 (US$0.25) to MOP15. They also requested several changes in the overall fare system, which would push up the prices for longer journeys. However, the government seems to be only willing to approve a flag fall increase and by less than 10 percent, the head of the Transport Bureau, Wong Wan, told reporters last month. The new taxi fares are expected to be introduced by the middle of the year. The last time taxi fares were increased was in 2008.

DRAGON BILLS RUSH

Government had to double the number of the new MOP10 Year of the Dragon notes due to unexpected high demand The government last month had to double the number of the new MOP10 (US$1.25) Year of the Dragon commemorative notes to 40 million units. The move came after hundreds of people had been gathering outside branches of BNU and Bank of China across the city waiting for the notes. The flood of clients affected the normal services of both banks, the only two note-issuing institutions in Macau, for several days. Meanwhile, there were news reports of a “black market” where the Year of the Dragon bills could be worth several times their face value. The bills are considered auspicious by Chinese people and are the first of a series to be issued yearly until 2023, ahead of the Lunar New Year and dedicated to each animal of the Chinese Zodiac.

FEBRUARY 2012

SOMEBODY CALL THE POLICE The number of crimes reported in Macau went up last year. The head of the Judiciary Police, Wong Sio Chak blames the economic boom and the increase in visitors but says Macau is still a safe place

7.2%

The annual increase in the number of criminal cases handled by the Judiciary Police last year. Overall, the force handled 10,600 cases in 2011

The number of homicide cases that took place in Macau last year. This is double that reported in 2010 but one less than in the 2009

2,064

The number of theft cases reported to the Judiciary Police last year, up by more than one third year-on-year. The force also handled 163 robbery cases, 11 more than in 2010

22.5%

The yearly increase in the number of crime cases that occurred inside casinos. The Judiciary Police handled over 2,000 such cases. There were also increases in criminality related to gambling, like unlawful detention (20 cases, four more than in 2010) and loan sharking (175 cases)

The number of drug mules caught at the airport in 2011, two more than the year before. The number of overall drug-trafficking crimes dropped by 6 percent to 96 cases. There were also 102 cases of drug abuse, 30 fewer than in 2010

124

The number of online and computer fraud cases last year. This marks a sharp increase over 2010, when only 18 cases were reported. The number of phone frauds was also up, to 84 cases from 68 in 2010

FEBRUARY 2012 DECEMBER 2011

FOREX RESERVES SOAR Macau’s foreign exchange reserves amounted to MOP272.4 billion (US$34.1 billion) by the end of December, according to preliminary estimates from the monetary authority. When compared with a year earlier, the reserves increased by MOP82.2 billion or 43.2 percent.

FEWER PASSENGERS AT AIRPORT There were 33,800 less passengers choosing to use the Macau International Airport last year, 0.83 percent less than in 2010. The overall number of passengers handled at the airport was 4.05 million. While the number was only slightly down last year, official figures released last month by the airport show that this number has been dropping significantly since 2007, when around 5.5 million passengers were recorded. However, compared to the same months in 2010, the monthly passenger numbers have been increasing since June.

MANUFACTURERS LESS OPTIMISTIC Only 24 percent of Macau’s manufacturers in the third quarter of last year were optimistic about the territory’s exports in the coming six months, an official survey released by the Economic Services Bureau shows. The figure is 13.1 percentage points below the previous quarter. Less than one percent of the exporters expected exports to post a strong increase in the coming six months. Some 31 percent of the interviewed manufacturers deemed that exports would slow down in the coming six months.

Sponsored Feature 23

Legendary hospitality Mandarin Oriental, Macau strives to delight guests with its own distinct personality and passionate service

he ‘Mandarin Oriental’ brand is a worldwide reference for unparalleled quality in the hospitality industry, yet inherently linked to its exotic oriental roots. In Macau, there is no difference. Surrounded by luxury retail and with spectacular views over the city, Mandarin Oriental, Macau welcomes guests into a world of warmth and charm, says Kurt Wachtveitl, special adviser to Mandarin Oriental Hotel Group. The only high-end hotel on the peninsula without a casino on its premises, Mandarin Oriental, Macau’s success derives from its elegance and comfort. “We have a product that is very modern. We have modern facilities and beautiful rooms,” Mr Wachtveitl says. Suiting the tastes and needs of both business people on work-related visits and discerning tourists, the hotel offers rooms for meetings and conferences coupled with top food and beverage options, plus a luxurious spa. “We are very unique in Macau because everywhere else there are casinos and masses of people. In here, when you enter, you have personalised service,” Mr Wachtveitl highlights. He ensures that once guests stay for the first time at Mandarin Oriental, Macau staff will diligently record all their preferences to better serve them on future visits.

A sense of place

Like the Mandarin Oriental brand, Mr Wachtveitl is himself a legend in the hospitality world. He stayed a staggering 41 years as general manager of Mandarin Oriental, Bangkok, considered one of the best hotels in Asia. Mr Wachtveitl now acts as brand ambassador at Mandarin Oriental events worldwide. He also assists in the recruitment and development of talented employees, as well as offering advice on spa, restaurant and development opportunities for the Group. Mandarin Oriental plans each property based on a different

Mandarin Oriental, Macau | Avenida Dr Sun Yat Sen, NAPE, Macau

Kurt Wachtveitl

concept inspired by the characteristics of the host city, Mr Wachtveitl says. “We always want to instil a sense of place. We really look at the characteristics of each city or culture we’re going into.” The concept ensures Mandarin Oriental hotels their uniqueness. “That’s how we get the famous people, the models, the people from the entertainment world. This is a hotel for a niche market,” he says. The group carefully selects its human resources, providing them with the finest training available. “In the end, it is the front-line staff, the employees, the butler you have in your suite, the man who pushes the button in the elevator, that count,” Mr Wachtveitl says.

Reservations and enquiries: +853 8805 8822 | momac-reservations@mohg.com FEBRUARY 2012

Economy & Finance

Growth tapers The economy is forecast to grow by less than 10 percent in the first half of this year

he Monetary Authority of Macau says real gross domestic product will grow “at a high-single-digit rate” in the first six months of this year, a substantial decline from last year. Macau posted an estimated growth of about 20.0 percent last year, the body says in its latest “Monetary and Financial Stability Review”, released last month. GDP grew by 21.8 percent year-on-year in real terms across the first three quarters of 2011, a decrease from the 27.1-percent growth rate registered in 2010, according to official data. The Statistics and Census Service will only disclose the final numbers for 2011 next month. The forecast from Macau’s de facto central bank is below estimates from Dagong Global Credit Rating Co. Ltd., the mainland’s rating agency. In December, it forecast a growth rate for Macau of 16 percent for the whole of 2012. The Economist Intelligence Unit estimated 12-percent growth for 2012 in its November forecast. The government does not issue a precise forecast for the expansion of the local economy. The monetary authority says casino gross gaming revenue will experience “softer growth” in the first half, a victim of the slowdown in Asian economies. The consensus among gaming analysts is that the gaming sector will grow by be-

Photo: Luís Almoster

tween 15 and 20 percent. Gaming revenue grew 42.2 percent last year.

Homemade demand Domestic demand should provide some impetus for economic growth, the monetary authority’s report says. Investment will keep expanding, fuelled by public-sector projects that include the government’s ambitious public housing construction programme, the light rail transit system, Hengqin Island development and work on the Zhuhai-Hong Kong-Macau Bridge. Private sector investments will flow from ongoing tourismrelated construction in Cotai. Favourable job prospects, higher household income and an influx of workers will spur domestic consumption. The report predicts that the unemployment rate will decrease to about 2.3 percent this year from 2.5 percent last year. “The local employment situation would continue to stay favourable when the demand for labour in the services and construction sectors is likely to remain strong,” the report says. But the monetary authority says the labour market is “tremendously tight”, with the city at full employment since the first quarter of 2010 and the unemployment rate below 3 percent. “In view of the scarce supply of local human resources, the number of non-resident workers is expected to exceed

100,000 in the near future,” the monetary authority says. The unemployment rate was already at 2.1 percent in the fourth quarter of last year.

High inflation The report isolates inflation as the major headache for policymakers and consumers this year, with the consumer price index expected to rise by between 4 and 6 percent in the first half. “While global food and commodity prices, inflation in countries exporting to Macau as well as exchange rates of the domestic currency have exhibited signs of stabilisation, sustained economic growth under tight supply constraints would continue to exert upward pressure on domestic costs,” the report says. The Statistics and Census Service says last year’s inflation rate stood at 5.81 percent, which was a sharp increase over the 2.81-percent rate recorded the previous year. Higher prices for meals, clothing and fuel contributed to the increase. The property market will be heading the other way, with the monetary authority anticipating a “relatively large contraction in both transaction volume and value”. That follows the “slowing signs” already in place since the mid-last year. The slowdown is partially due to the 19,000 public housing units approaching completion. “In addition, the uncertainties

surrounding the global economy and the SAR government’s specific measures including the special stamp duty and lower loan-to-value ratios will continue to restrain speculative activities.” The monetary authority says the “consolidation” in the real estate market “is expected to be beneficial for financial stability in the long run, given that real estate mortgage is a major component in the loan portfolio of the local banking sector.” The monetary authority’s report also highlights Macau’s strong fiscal position. The government is debt free. Based on this year’s budget documents, the monetary authority says the growing pace of public revenue will slowdown as gross gaming revenue falls. Commitments to largescale infrastructure will conversely see public expenditure rise sharply. A surplus of at least MOP38 billion (US$4.75 billion) is expected. The government has recorded surpluses for 12 years and a fiscal reserve fund with initial capital of about MOP100 billion was established at the start of the year. “Such an institutional reform is expected to ensure the adequacy of international reserves on the one hand and further strengthen Macau’s fiscal management and discipline on the other,” the authority says.

Economy & Finance

Playing with fire Investors turning to the Chinese zodiac for investment advice can expect a year of volatility ith the bunny out of the picture, a Water Dragon takes control of the Chinese zodiac this year, splashing about a potential upside for investors but also brining the risk of having their fingers burnt. That is the view of the 18th CLSA Feng Shui Index report, a light-hearted forecast from the Hong Kong-based independent brokerage and investment group. The report assesses the future for equities, commodities, property, celebrities and the signs of the zodiac.

HOPE ON THE HORIZON H

SBC is optimistic that the Year of the Dragon will have a positive tone. In its latest global economic outlook report, the bank says although there is little hope this year for global economies “some asset classes still offer decent investment opportunities”. Countries whose economies are forecast to grow in 2012 are the United States by 2.1 percent; Japan by 2 percent; and India by 7.5 percent. There is no hope of growth for the eurozone, where the forecast is negative. Growth in Asia will also slow but the region will keep on growing and will exceed most other parts of the world. It is not all bad news, Philip Poole, global head of macro and investment strategy at HSBC says, “because these economies have been growing too rapidly, unsustainably rapidly”. The report highlights investment opportunities in Asian equities, as investors have the opportunity to enter the market at affordable levels. And more good news: there will not be another global economic recession, Mr Poole says. FEBRUARY 2012

If the celestial readings are right, the Hang Seng Index will turn in a sluggish performance during the first half of the year, with a tipping point in August. September should be one of the year’s best trading months, creating an upward trend that will be sustained into October and November, without a major correction before the end of the year. The sectors deemed strongest in this Year of the Water Dragon are gaming and transport, with the report predicting a “fab year” ahead. Expect a fairly good year for the financial and retail sector, and for gold. For the rest? The colourful report paints a grim picture and predicts a “fairly foul year” for the utilities sector, technology, telecommunications and Internet, as well as oil and gas. Broken down by signs of the zodiac, there is a great year ahead for most of the 12 signs but particularly so for rats, tigers, rabbits, monkeys and roosters. Pooches and moos are warned to take a little extra care. Auspicious dates are August 13, September 26, October 24 and 30, December 7 and January 16. The least auspicious are June 6 and 21, July 12, September 22, November 14 and 28. The CLSA Feng Shui Index was launched in 1992 but paused for a break during the bull run from 2005 to 2008. It was revived in 2009. Last year’s feng shui forecast scored two “spot-on” calls for the Hang Seng Index versus five “dead wrong” predictions, according to the broker’s own assessment.

27 RICARDO SIU CHI SEN ASSOCIATE PROFESSOR OF BUSINESS ECONOMICS, UNIVERSITY OF MACAU

What can Macau learn from the financial woes of Europe and the U.S.? THE FINANCIAL PROBLEMS OF EUROPE AND THE UNITED STATES PROVIDE LESSONS ON HOW TO SPEND PUBLIC FUNDS IN MACAU overnments in Europe and the United States have increased their expenditure on social welfare programmes and other public services since the end of World War Two. Many governments started paying for the added expense by issuing long-term bonds, falling into the traps of deep budget deficits and national debt. The consequences of such policies are now obvious in the financial difficulties those countries face. But governments cannot shirk responsibility for the social and economic problems that the free market cannot effectively solve. And looking at what has happened in Europe and United States, clearly it is much easier to increase spending on social welfare and other public services than to cut it. What makes matters worse is the snowball effect of the universal practice of pandering to the voters, which increases expenditure year after year, and so aggravates financial difficulties. This further weakens the ability of a government to manage society and the economy, and intensifies the volatility of the economy and financial markets. The fact that Macau is not an independent state makes comparisons of its government’s policies and finances with those of the U.S. and countries in Europe imprecise. But Macau’s government, enterprises and society need to draw lessons from the causes of the financial difficulties of those countries and their consequences.

On the rocks The most important lesson is about the relationship between a government’s social and economic welfare policies and its finances, and how that relationship may affect social and economic development. In Europe and United States, unchecked expansion of social and economic welfare policies created bloated and rigid government expenditure. Once a government’s ability to raise money is impaired, by a decrease in tax revenue or by borrowing more than it can afford, it may have to reduce spending on social and economic welfare, to the detriment of society and the economy. The former Portuguese administration did not invest in social welfare. In contrast, as a result of higher gaming tax revenue since the part-liberalisation of the gaming sector after the handover, the current administration has greatly increased expenditure on welfare. This has undoubtedly helped some disadvantaged people and some old-fashioned companies that were unable to adapt to the rapid changes in the economic environment. Those subsidies now seem to have become a burden, with budgets increasing year after year. The government’s expenditure on subsidies and wealthsharing schemes shot up from less than MOP3 billion (US$375 million) in 2009 to nearly MOP5 billion last year. This year, they will cost a whopping MOP8.5 billion. Meanwhile, the cost of nongaming tax exemptions and reductions is expected to amount to MOP1.5 billion this year, compared with MOP1.1 billion in 2009. Apart from spending on social and economic welfare, the government has also boosted investment in various infrastructure

projects, throwing in annually no less than MOP10 billion. Because of big increases in gaming tax revenue every year (gaming tax revenue exceeded MOP90 billion last year), the government still registers a comfortable budget surplus even with all its additional welfare expenditure. Therefore, there are quite a number of voices outside the government expressing the wish for a wider variety of welfare benefits. Nevertheless, in good times we must prepare for the challenges ahead. This means keeping in mind some facts that Macau must inevitably face, particularly: - The increasing problem of an ageing population; - The danger of more and more people and old-fashioned small or medium enterprises becoming economically obsolete because they are uncompetitive; - The public expenditure required to integrate Macau with the Pearl River Delta region; and - The narrow tax base.

The right path In view of these constraints, the government should look deeply into the long-term feasibility of its current spending, so that it can prevent short-term social and economic welfare expenditure from becoming a fiscal burden in the future. Another lesson Macau can learn from the financial difficulties of Europe and the United States is about the dangers of continuously increasing government expenditure. Many economists agree that the generous and ever more costly social and economic welfare systems seen in Europe and in the United States are one of the main reasons why individual initiative and economic competitiveness have suffered. John Stuart Mill, the 19th century British economist and philosopher, explored this phenomenon in depth, especially the relationship between welfare policies and individual freedom, and the lack of initiative among welfare recipients. Macau’s government should look into how to foster initiative and competitiveness, while helping the disadvantaged, and small and medium enterprises. With its abundance of revenue, the government – apart from offering various subsidies and wealth-sharing schemes – should better plan its investments and be visionary. It should also promote the development of human resources to create a business environment for smalland medium-enterprises to transform themselves, thus actually improving, rather than just embellishing, the performance and competitiveness of the business sector. The government seems to be on the right path by establishing a fiscal reserve system. Yet how to use the system to ensure the stability of social and economic development is a skill the authorities must constantly hone. Otherwise, unnecessary or misdirected expenditure will only exacerbate social and economic instability in the long term. Conversely, excessive accumulation of surpluses is a waste of resources.

THIS IS A TRANSLATION BY BENNY CHAN OF A CHINESE-LANGUAGE ARTICLE ORIGINALLY PUBLISHED IN THE JANUARY ISSUE OF BUSINESS INTELLIGENCE MAGAZINE. FEBRUARY 2012

Economy & Finance

Land of the free

Macau has again been ranked the 19th freest economy in the world but experts say there is still work to be done BY SARA FARR

acau is sitting comfortably among the 20 freest economies in the world. In first place is Hong Kong, followed by Singapore, both of which have topped the Index of Economic Freedom for the past 18 years. A United States think-tank, the Heritage Foundation, released its latest report on economic freedom worldwide last month, ranking Macau 19th with 71.8 points, in the same position as in 2011 but with 1.3 fewer points. Macau’s economy is again classified as “mostly free”. The index ranges from zero to 100 points, with 100 denoting maximum economic freedom. The Heritage Foundation bases the index on 10 aspects of the economy in each of the

FEBRUARY 2012

179 countries it ranks, the main aspects being the degree of supremacy of the rule of law, the amount of government interference, regulatory efficiency and the openness of markets. In the Asia-Pacific region, Macau is ranked 6th among 41 economies, behind Hong Kong, Singapore, Australia, New Zealand and Taiwan. The Heritage Foundation says Macau’s score is well above the world and regional averages. The score is slightly worse than last year’s mainly because of a “decline in labour freedom, freedom from corruption and the control of government spending”, the foundation says. The business environment is “generally efficient and streamlined” and “foreign investors

MEASURING UP RULE OF LAW Property rights: Macau 60.0 points, world average 43.4 Freedom from corruption: Macau 50.0, world average 40.4 Macau performs above average in the protection of property rights, although the enforcement of intellectual property rights here “remains weak and inefficient”, the Heritage Foundation says in the report accompanying its 2012 Index of Economic Freedom. In freedom from corruption Macau sits right in the middle of the scale, with 50.0 points, slightly above the world average. A public outreach campaign has led to a “significant” increase in the number of complaints handled by the Commission Against Corruption, the foundation says. Frederico Rato, a Macau lawyer, says the Civil Code and Commercial Code are examples of “good development and consolidation of economic freedom”. However, Mr Rato says the laws should be more liberal. In particular, he says more skilled workers should be allowed in to meet the needs of the economy.

REGULATORY EFFICIENCY Business freedom: Macau 60.0, world average 64.7 Labour freedom: Macau 55.0, world average 61.4 Monetary freedom: Macau 84.2, world average 74.4

can conduct business on the same terms as nationals”. Some important sectors of the economy are monopolies or oligopolies, such as gaming, aviation, electricity, water and telecommunications (the market for which will be opened up only this year). But Anthony Kim, a policy analyst at the foundation, says that “what is more notable is the direction of the country’s economic policy in recent years.” Mr Kim explains that “although the monopolistic nature still exists in some sectors, various markets of the economy have been opening up to more competition and greater efficiency.” He says this has become more evident as the government tries to make the economy more diverse.

The foundation says Macau “continues to lack a dynamic and broad-based labour market, in part due to the absence of serious reform efforts”. Academics agree and suggest improvements. Jacky So Yuk Chow, dean of the Faculty of Business Administration at the University of Macau and an expert in international finance and business, says some regulations need updating. Mr So says that while the government is under pressure to ensure employment opportunities are given to local residents, the quota system for imported workers may not be as good an idea as originally thought. “In the long term there won’t be enough room for progress,” he says. He suggests that Macau learn from the United States, where there are seasonal work visas for unskilled foreign workers that are in high demand at certain times of the year. Citizens of 58 countries can qualify for this type of visa, and only 66,000 such visas are granted per year. Local lawyer Frederico Rato says Macau’s labour arrangements are not in line with the rules of a free market. “The non-existence of legal and institutional trade unions, the right to strike and the absence of collective negotiation are negative facts that distort the free market and jeopardise the free economy,” he says. Mr So says “this overprotection of locals’ rights will mean no economic growth for Macau in the long run.”

FEBRUARY 2012

Economy & Finance

MEASURING UP

LIMITED GOVERNMENT Fiscal freedom: Macau 75.8, world average 76.9 Government spending: Macau 88.1, world average 59.8 The foundation ranks Macau well above the world average when it comes to government spending, while fiscal freedom in the city is just about average. “Gambling [tax] revenue has outpaced public spending growth, generating considerable surpluses,” the foundation says. Jenny Huang Bihong, a public finance and taxation expert at the University of Macau, says this description is fairly consistent with reality. “The key problem is: how can the Macau government manage such a large amount of surplus so that its value will not depreciate in the future?” Ms Huang says. She says that since Macau’s economy relies heavily on the mainland, “the government is not entirely free to do what it wants.” The most important decisions “usually require the support and approval from Beijing”, she says. Economist Albano Martins, however, says that the foundation’s calculations are wrong. The foundation says the top rate of corporate tax is 39 percent, but Mr Martins says 39 percent is the rate of tax on gross gaming revenue paid by casino operators, and that the top rate of corporate tax for other kinds of corporations is actually 12 percent. He also contests the foundation’s figures for government spending. “Figures from 2010 show that government spending is equivalent to around 10 percent of total domestic product, not 19.9 percent,” Mr Martins says.

OPEN MARKETS Trade freedom: Macau 90.0, world average 74.5 Investment freedom: Macau 85.0, world average 50.7 Financial freedom: Macau 70.0, world average 48.6 This is where Macau outstrips the world averages. In trade freedom, the city scores 90.0 points and is number one in the world. “The trade regime is open, with no tariffs imposed on imports. However, non-tariff barriers continue to raise the cost of trade,” says the foundation. Anthony Kim, a policy analyst at the Heritage Foundation, says “Macau’s relatively high level of economic freedom is supported by its openness to global trade, an efficient investment framework, monetary stability and a fairly simple tax regime.” The foundation says there is no “official” discrimination between foreign and domestic investors, “but there are a few restrictions in services markets”. Economist Albano Martins says there is, in fact, discrimination, especially against foreigners wanting to set up small or medium enterprises, who face limits. But Mr Kim concludes that “all in all, Macau’s dynamic economic development has clearly benefited from a high level of openness and flexibility owing to policies that support economic freedom”.

FEBRUARY 2012

You talking to me?

It’s amazing how you can survive in this region, being understood and understanding just a small part of the communication. That’s ok for you but not for your business. At goldfish we know how to adjust your message for each audience or product and make it effective. Yes. We are talking to you.

+853 2833 1258 info@goldfishmacau.com www.goldfishmacau.com

Photos: Carmo Correia

Guo Zhihang

Old upstart

Wing Lung Bank has celebrated its first year in Macau, and is eyeing bigger slices of the cross-border financial services and individual wealth management markets BY CRIS JIANG

ing Lung Bank Ltd’s Macau branch, open now for one year, is the most recent addition to the city’s already crowded banking sector. The bank’s general manager, Guo Zhihang, welcomes the challenge. With slightly more than half a million people, Macau has 28 banks, giving it one of the highest ratios of banks to population in the world, all for an economy with a gross domestic product of less than MOP230 billion (US$28.75 billion) in 2010, about one-eighth of Hong Kong’s. “Though a micro-economy, Macau attracts new projects and new investors every year,” Mr Guo says. “Therefore, we are not here to undercut our com-

petitors but to cooperate with them to expand the market.” The bank, which opened its doors at the Finance and IT Centre building in December 2010, is part of Hong Kong’s Wing Lung Bank, one of the oldest Chinese banks there, founded in 1933. Wing Lung was acquired in its entirety by the Shenzhen-based China Merchants Bank in 2008. Wing Lung has 50 banking outlets in Hong Kong, the mainland, Macau and abroad, with a staff of more than 1,500. At the end of last June its consolidated assets were worth HK$152.8 billion. The bank is expanding with a view to becoming more competitive in crossborder financial services, especially in

Hong Kong, Macau and Guangdong. Mr Guo says the Macau branch can make full use of the customer network and business advantages the bank has in Hong Kong and the mainland. For instance, these allow it to offer special cross-border services in Macau such as renminbi bank accounts domiciled in the mainland, with customers able to take advantage of higher interest rates for fixed deposits there. The bank pitches itself as catering to Macau and crossborder business, an approach Mr Guo calls “walking on two legs”.

Happy return This is Wing Lung’s second stint in Macau. In 1941, when the Japanese invaded Hong Kong, the bank moved some of its staff to Macau, and the rest to Liuzhou in Guangxi province, and continued to serve its clients. After the Japanese surrendered in 1945, the bank resumed operations in Hong Kong. Wing Lung is building a customer base in Macau. Mr Guo says the bank is keen on increasing its contacts with the city’s chambers of commerce. He says 80 percent of the bank’s customers are corporations, mostly operating in the gaming, real estate and trading sectors. FEBRUARY 2012

Economy & Finance

Wing Lung is lender to the city’s casino operators. It was one of the consortium that got together to lend Sands China Ltd. US$3.7 billion last September. Mr Guo says his bank’s commitment was US$100 million, its largest so far in Macau. Last June, Wing Lung contributed US$45 million to a syndicated loan to Melco Crown Entertainment Ltd. “The gaming sector is Macau’s backbone industry, with robust business potential, high demand in loans and relatively controllable risks,” he says. But he notes that syndicated loans to casino operators, although huge, are rare, so the bank wants to serve a greater variety of industries. Wing Lung also wants to increase the retail banking business it does with the city’s rich. In the mainland, parent China Merchants Bank Co. Ltd. offers its premium wealth management services to customers worth RMB10 million (MOP12.7 million) or more, but in Macau Wing Lung is likely to woo less wealthy customers. “For Macau, we are looking at lowering the threshold, as there’s only a limited number of people who can meet this bottom line here,” Mr Guo says.

Temptation island The bank’s total number of premium customers is still low. “Wing Lung has had very little cooperation with mid- to high-end individuals in Macau. This is mainly because the bank is still very young and our system and human resources are yet to be improved and optimised,” Mr Guo says. “As a new bank in Macau, we need more time and there’s still a long way to go. At present, corporate loans are still the core service we provide, while our

personal services are still at a developing stage, with basic services provided.” Mr Guo admits staffing continues to be one of his main headaches. He says Wing Lung has been focusing on training young staff, offering employees promotion opportunities and internal social activities to enhance their sense of achievement and satisfaction. His branch has around 30 employees. He estimates that it cost Wing Lung less than MOP40 million to set up its branch in Macau. By mid-November the bank had lent MOP1.2 billion to enterprises in the city, the money coming mainly from deposits here or funds from its head office in Hong Kong.

Mr Guo says the bank is likely to expand in Macau in the medium term. “For the convenience of individual customers, more outlets will be added in a year or two, but not many, for sure,” he says. Hengqin Island could well get one of the new outlets, he says. A Hengqin outlet would cooperate with China Merchants Bank’s Zhuhai branch in lending financial support to develop the island. “If there’s demand in the development of Hengqin, given that the risks involved are controllable, the bank may prepare certain credit quota facilities in support of enterprises to develop in Hengqin,” Mr Guo says.

MACAU BANKS MORE PROFITABLE M

acau’s banking sector witnessed an improvement in profitability in 2011. As of the end of November, the operating profits of local banks had already exceeded the profits for the whole year of 2010. For the first 11 months of last year, the total operating profits of the local banking system increased 34.8 percent year-on-year to MOP4.8 billion (US$600 million). This indicates that the local banking sector most likely posted a new 12-month profitability record in 2011. This would only not be the case if banks ended December with sharp losses, an unlikely scenario. The previous record was set in 2006, when operating profits reached MOP4.05 billion. The total number of banks in Macau stands at 28, including 25 commercial banks, one postal savings bank and two offshore banking units. FEBRUARY 2012

Economic Trends by JosĂŠ I. Duarte

Output and expenditure 2010 GDP current (in MOP)

217,324

million

Consumption (in MOP)

17,496 27,727 17,496 - 42,676 164,086 207,194

million

Investment (in MOP)

Economic Activity

Government (in MOP) Trade balance: goods (in MOP) Trade balance: services (in MOP) GDP constant (2009) (in MOP)

million million million million million

% var

31.4 9.8 - 13.6 9.3 21.5 54.2 26.2

Latest

Notes

% var

75,396 15,706 9,715 4,982

million

-16,672 61,664 66,750

million

30.7 15.6 20.7 15.4 46.8 43.1 21.1

million million million

million million

Q3 Q3 Q3 Q3 Q3 Q3 Q3

Money and prices M1 (in MOP) M2 (in MOP) Credit (in MOP) Deposits (in MOP) IPC/Inflation rate (*) AMCM base rate

2010

% var

34,721 million 243,247 million 130,677 million 237,627 million 104.25 base - 2008 0.50 %

13.4 14.6 29.2 14.6 2.81 --

Latest

Notes

% var

37,016 million 292,077 million 165,335 million 286,216 million 112.56 base - 2008 0.50 %

14.9 19.5 35.2 19.7 6.65 --

Latest

% var

October October October October November December

Population/Labour force

Labour force Median wage rate (in MOP) Unemployment

522,300 330,900 9,000

% var

3.0 %

-1.9 0.5 4.7 -0.1

2010

% var

Notes

560,100 344,300 10,000

2.1 4.5 11.1

2.3 %

-0.5

Oct, var

Q3 Q3

Construction

Major sectors

1,835,174 1,271,509 Cement (Apparent consumption) 214,166 Transactions/Commercial (in MOP) 6,580 Transaction/Residential (in MOP) 45,939 Started

Finished

m2 tons million million

- 19.8 - 9.6 - 22.6 117.0 113.0

Latest

24,695 -34,485 668 1,714

Notes

% var

m2 m2 tons million million

1219.5 -88.0 15.1 -773.0

November November October November November

Gaming 2010 Gross revenue (in MOP) Casinos Tables Machines

189,588 33 4,791 14,050

million

% var

Latest

57.0 2 0.4 2.2

23,142 34 5,302 15,098

% var million

32.6 1 10.7 14.3

Notes November Q4, var, ytd

Q4, ytd

Tourism 2010

24,965,000 Average expenditure (in MOP) 1,812 Average stay 0.90 Hotel rooms 20,091 Occupation rate 79.8 % Average hotel stay 1.54 nights Visitors

% var

15.0 0.3 - 0.2 4.3 8.43 0.04

Latest

% var

2,418,000 1,633 1.00 days 22,330 85.55 % 1.55 nights

Important note: The inflation base period has changed ( New base: April 2008 to March 2009 = 100) NOVEMBER2011 OCTOBER SEPTEMBER 2011 2011

Notes

November 20.1 Q3 6.8 Q3, var -- days October 12.5 Oct, var 3.06 Oct, var 0.06

%var - % change on homologous period; var - absolute variation; ytd - % change, year-to-date; x - discontinuous series (*)

Q4, ytd

FEBRUARY JANUARY 2012

Sources: DSEC (Statistics and Census Service), AMCM (Monetary Authority of Macau), DICJ (Gaming Inspection and Coordination Bureau)

2010 Population

Economic Trends by José I. Duarte Measuring wealth

GRAPH 1 - The relationship between GDP and GNI MOP billion (in chained 2009 dollars)

Real GDP

Real GNI

Net flow

250 200 150 100 50 0 -50 2004

2005

2006

2007

2008

2009

2010

Reform to open up the gambling sector has helped spur Macau’s development. Since the liberalisation of the sector in 2002, gross domestic product has almost doubled. In fact, GDP grew relatively consistently at about 11.6 percent each year between 2005 and 2010. Those numbers roughly correspond to a doubling of the size of the economy every 6.5 years. This growth has had an obvious impact on the wealth of residents but GDP is not necessarily the best measure for the job. As might be expected in an open economy – and one where foreign direct investment weighs considerably – income outflows represent a significant share of the overall economy. A better measure is gross national income. The downside is data for GNI is often only available well after data for GDP is released. However the two indicators are also closely correlated, so the latter can be used as a more timely proxy. GRAPH 1

GRAPH 2 - Net outflows of income as a percentage of GDP Yearly net income outflow as a percentage of GDP

2004-2010 average

The first graph illustrates that there is a sizeable net outflow of income every year in Macau. Notice too, that both GDP and GNI have grown in lockstep. GRAPH 2

15%

Net outflows of income are relatively consistent throughout the period of this analysis, averaging about 10.5 percent of GDP annually. The outlier in the seven years of data is 2007. Ignoring this data, the average would increase by just over one percentage point.

10%

GRAPH 3

0% 2004

2005

2006

2007

2008

2009

2010

GRAPH 3 - GDP and GNI, indexed and per capita growth GDP

(Base: 2004)

GNI

GDP per capita

GNI per capita

200

180

160

140

120

100 2004

2005

FEBRUARY 2012

2006

2007

2008

2009

2010

The increase in population from the end of 2004 to 2010 had an impact on the per capita rates of economic growth and GNI. On a per-capita basis, rates of growth for both GDP and GNI average about 8 percent a year between 2005 and 2010. If that trend was sustained, the income of a typical resident would double every nine years. The growth patterns of these indicators are strongly correlated. Together they represent a significant increase, overall and on average, of the region’s economy and the wealth of its residents. Of course, these figures, by themselves, tell us nothing about the distribution of the resident’s rising affluence.

Demographic changes

GRAPH 4 - Population age structure ≤ 14 years

15-64 years

≥ 65 years

100%

The Statistics and Census Service has recently released a set of preliminary results from last year’s census. The data raises some interesting public policy questions. GRAPH 4

There has been a significant change in the population structure between 2001 and last year. The proportion of census takers in the oldest segment, aged 65 years and up, remained almost unchanged. There was an increase in the proportion of residents old enough to work and a decrease in the number of children younger than 14 years. In a sense, Macau is benefiting from what might be called a demographic dividend, which has dramatically brought down the dependency ratios. The caveat is, however, that this dividend comes from imported labour. The decrease in the youngest segment of population by about 10 percentage points indicates the population is ageing. On the strength of the current trend and without a significant jump in population, that trend will accelerate quickly.

80%

60%

40%

20%

0% 2001

2011

GRAPH 5 - Population growth by geographic origin

GRAPH 5

2001 total

2011 total

Net

300,000

20,000 200,000 150,000 100,000 50,000 0 Macau

Mainland

Hong Kong

Rest of the world

GRAPH 6 - A snapshot of the residential sector

Vacant Other tenure types Employer-provided units

Rented units

Owner-occupied units

Macau’s population grew by 117,000 between the end of 2001 and last year. During that period, the number of Macauborn people contributed just 31 percent to the total increase in population, growing at an annual average growth rate of 1.7 percent. The biggest slice of population growth came from immigration, particularly the mainland and Hong Kong, whose numbers rose by 24 percent and 32 percent, respectively. The fastest growing segment was the “Rest of the World”. At an increase of about 8.3 percent a year, their population has more than doubled in 10 years. The results indicate that it is the right time to discuss long-term social security policies and their relationship with imported labour policies. GRAPH 6

The final chart on housing unit occupancy provides a snapshot of the residential sector last year. Although the preliminary data from the census does not include exact data, an estimate can be created using details collected on the number of housing units and tenure. The most interesting issue the graph raises is not how “tight” the real estate market is – since one in 10 homes are vacant – but about the nature of the drive to build more public housing. With just over an estimated 40,000 units taken by tenants and assuming that many of them are unlikely to be eligible for public housing either because they are non-residents or too wealthy and so on, the rationale behind government promises to build thousands of public housing units is questionable. The merits of the building programme are further put in doubt when the city flaunts one of the highest incomes per capita in the world – and rising.

FEBRUARY 2012

Politics

To a standstill Important bills have been languishing in the Legislative Assembly for up to a year; the government is not the only party wearing the blame

Photo: Luﾃｭs Almoster

BY LUCIANA LEITﾃグ

FEBRUARY 2012

embers of the Legislative Assembly created quite a stir when they strongly criticised the government last month after officials inadvertently struck several provisions from the bill to regulate real estate agencies and their brokers that they had been agreed on earlier. This was the latest version of a bill the government first presented to legislators last February. It was part of a package of measures announced in September 2010 to rein in the residential property market. Taking ages to pass bills into law is becoming a habit in the Legislative Assembly. Several important bills are languishing there, raising doubts about their usefulness once they are eventually enacted. Legislators and analysts alike blame the government for the delays but admit there are other reasons. Macau Business approached the Law Reform and International Law Bureau, which helps the government make laws, for comment but the bureau had not replied by the time of going to print. By the end of January, the Legislative Assembly was considering 13 bills. Eight of those bills had been presented by the government at least half a year before. One piece of potential legislation proposes raising the minimum age for entry to the city’s casinos from 18 to 21. It was submitted for review last June. Another bill that has been

pending for almost a year outlines how the city’s older districts should be rejuvenated. The bill that has been longest in the backlog amends the copyright law. The government submitted it in November 2010.

Shifting dynamics Eilo Yu Wing Yat, a professor teaching public administration at the University of Macau, says such delays are a recent phenomenon, having become more pronounced in the past two years. He says that previously most of the government’s output was by-laws, which are enacted by the chief executive alone, without having to pass through the Legislative Assembly. The dynamic has now changed, especially with the need for legislation on critical issues. “The government bureaus face new challenges from the legislators,” says Mr Yu. He says officials have yet to adjust by better managing their relations with the assembly. “Sometimes, government bureaus have to reconsider a bill that has just been proposed. That means the draft presented is not in good shape or its content is not good.” He suggests that officials prepare bills more carefully, to avoid losing so much time revising them after they are submitted. “Now legislators quite seriously scrutinise each proposal and this generates a lot of pressure on the government.” FEBRUARY 2012

Politics

Bills on divisive issues take the longest to be passed because they are usually revised several times. This was the case with the tobacco control law, which bans smoking in public places and took over 15 months to pass. Similarly, the bill dealing with imported labour was first presented in February 2008. It became a law only in October 2009, one and a half years later.

A bill’s progress The legislative procedure in Macau is a three-step process, where the government typically is in the driver’s seat as a bill’s proponent. Although members of the Legislative Assembly may introduce bills and propose their amendments, they rarely do. The last time this happened was in December 2009, when Tsui Wai Kwan and Lam Heong Sang proposed changes in the career structure of the assembly’s staff.

Any bill presented to the assembly receives its first reading in a plenary session. If approved, it is then assigned to one of three working committees for detailed examination. After the committee has issued a report on the bill, it returns to the full assembly for its second and final reading. The committee stage is the lengthiest and may be skipped in exceptional cases. Each committee comprises nine legislators meeting behind closed doors. Usually, representatives of the government are required to attend some meetings to answer questions on the bill. The government is also required to write in amendments put forward by members of the assembly or the government itself. Professor Larry So Man Yum, a political analyst at the Macau Polytechnic Institute, says the government is slow in writing in amendments. Mr So says the government should plan its legislative programme better, to avoid taking so much time revising the bills it submits.

Communication breakdown He also says members of the assembly are partly to blame for delays in passing legislation. “Our legislators are far too busy. We only have two or three that can be called full-time legislators.” Mr So says many fail to scrutinise each bill properly before its first reading, only getting assistants to brief them. As a result, questions that should be raised on the first reading are raised only in the committee stage. The president of the Legislative Assembly, Lau Cheok Va, says the body is not a rubber stamp for the government. He adds that legislators are quite serious when analysing a bill and says the differences between the Legislative Assembly and the government on some bills just add credibility to legislators work. Mr Lau admits some bills are more urgent than others and that delaying their approval can have a negative impact. He FEBRUARY 2012

39 says the workload for legislators is likely to increase this year, as the government has already announced plans to send up to 13 bills for approval. Directly elected legislator Ng Kuok Cheong says “the government does not have sufficient ability to make law proposals. That’s why we discover many problems in the bills sent to the Legislative Assembly.” Mr Ng says only a cabinet reshuffle can change this. He accuses senior officials of having insufficient skills in drafting legislation and of an unwillingness to employ people better qualified than they are. Another directly elected member, José Pereira Coutinho, also blames the government for delays in passing legislation. He says several bills submitted to the assembly last year had to be revised in the committee stage after just one or two meetings because they contained obvious flaws. “This whole process takes half to one year,” he says. In the public’s eyes it looks like the committees are delaying the legislative process, he complains. Asked why the government takes so long to revise bills, Mr Coutinho says there “is a difficulty in finding competent legal advisers”. Even so, he acknowledges an apparent improvement over the past couple of months, after the president and the vice-president of the assembly publicly complained last summer about the delays.

Structural flaws Government-appointed legislator Gabriel Tong Io Cheng, who is a law professor at the University of Macau, says the delays

are sometimes due to bureaucracy and at other times due to disagreement among members of the assembly. Although analysts generally label most legislators as progovernment, the majority is not formally organised as a progovernment group and does not behave as such. On the contrary, the assembly is highly fragmented. Unlike in a political system where there is a formal parliamentary majority that gets government bills passed without undue hindrance, in Macau officials must actively negotiate with members of the Legislative Assembly, many of whom look out for the interests of their individual constituencies. While there has been no recent case of the assembly declining to pass a government bill, on at least one occasion the government has had to withdraw legislation in the committee stage because the committee was unable to reach a consensus. A bill to reduce the age of criminal responsibility to 14 from 16 for extremely serious crimes was withdrawn for this reason six months after it was presented in February 2009. Another government-appointed legislator, Tommy Lau Veng Seng, says the speed at which the assembly deals with a bill depends on what the bill is about and how well government officials respond to the deliberations of members in the committee stage. Mr Lau says the government should decide what should be dealt with first. “We cannot do everything at the same time.” A lack of legal experts in some government bureaus is also a problem, he says. “If the government can hire more people to work in those bureaus, I think they can speed up everything.”

FEBRUARY 2012

40 BILL KWOK-PING CHOU ASSOCIATE PROFESSOR OF POLITICAL SCIENCE, UNIVERSITY OF MACAU

A question of control THE GOVERNMENT’S DRIVE TO FORGE NEW CONTROLS OVER THE MEDIA HAS NOT BEEN PROPERLY EXPLAINED AND IGNORES THE WISHES OF BOTH JOURNALISTS AND THE PUBLIC he government has gone to great pains to try to revise the Press Law and the Broadcasting Law. It has already spent more than MOP3.5 million (US$438,000) in organising a deliberative poll to measure the public’s thinking on the need to establish a press council and a broadcasting council. When defending itself against the media’s rebuke that it is attempting to interfere with the freedom of the press, the government has reiterated that it does not have a predetermined position. I was invited to be one of the poll observers and had the opportunity to hear the official explanation firsthand. Still, I cannot accept the reasons given for the revision of the two laws and establishing the two councils. In the beginning, the government claimed revising the laws would ensure freedom of the press. Yet, from the perspective of the media, press freedom is improved when the power of the government is curbed, preventing interference in interviews and investigations. The debate over revising both laws has focused on creating the two councils to beef up regulation of the media. That can only tighten – rather than ease – restrictions on the media. Heightened regulation and control can only mean press freedoms are degraded.

One-sided debate Faced with strong opposition from the media and eager to measure public opinion, the government made much ado about holding its all-day deliberative poll. It took place in December and more than 300 citizens and 60 observers were invited to participate. In view of the public’s limited knowledge about both the press and broadcasting laws and why they might need revision, the organisers selected a panel of professionals to provide their insights. Among them were supporters of enhanced regulation of the media and those who kept their silence, but nobody stood up against changes to the laws. With this kind of arrangement, it is impossible for the public to gain a complete picture of the issue, let alone understand the negative effects that FEBRUARY 2012

tighter media regulation might have on press freedom. It was under these circumstances that the 300 citizens invited to the poll were asked to fill out a questionnaire. It is probable that the final results will tend to favour stricter regulation. It was claimed prior to the poll that “balanced data” were distributed to participants to keep them informed of each option’s rationale. As reported in the media, the “balanced materials” and the questionnaire completed on the day of the poll were suggestive, with their contents prone to favour establishing the two councils that would lead to tightened media regulations.

Not listening On the day of the poll, Government Information Bureau director Victor Chan Chi Ping repeatedly said the government respected public opinion. As I observed then, the poor quality of television and radio programmes attracted most of the complaints from the poll’s participants. Mr Chan did not respond to those complaints. The professional panel tried repeatedly to draw the participants into a discussion on whether or not to and how to establish the two councils. It was a topic that the participants did not outwardly care about, nor fully understand. Perversely, the topic about which the

public attendees were most concerned was left out and the one point about which people were least interested was highlighted. This is apparently “respecting public opinion”. Some on the panel that argued for a revision of the laws said the government would not play a key role in the two councils but would provide technical support. The form and extent of that support was not made clear. In the most extreme cases, technical support could mean asking a reporter to disclose the identity of a source or issuing the legal authority to search a newspaper’s offices, sending law enforcement officers to investigate journalists and their management. In other words, technical support has the potential to be a weapon used to interfere with reporting the news. As to what problems the government has identified that led it to ponder setting up the two councils, it has paltered since the beginning. And now that it is clear the public is most concerned about the quality of the television and radio they consume, which cannot be improved by legal means, topics such as the revision of the two laws and the establishment of the two councils seem unnecessary. Why then is the government bothered with revising the Press Law and the Broadcasting Law? I am unsure. But it seems it can only be explained with conspiracy theories.

Legal Affairs

See you in court Arbitration is not new, nor is it popular but if Macau is to create a thriving industry out of its unique laws and location, arbitrators say the government must help BY ALEXANDRA LAGES

FEBRUARY 2012

43 n the 13 years it has operated, the World Trade Centre Macau arbitration centre has had only two commercial disputes to settle. The arbitration centre of the Macau Lawyers Association, created in 1998, has just received its first case. In 10 years, the Monetary Authority of Macau’s Centre for Arbitration of Disputes in Insurance and Private Pension Funds has settled two cases, both through mediation. Clearly, arbitration and mediation are far from being widely considered the alternative to going to court. The vice-president of the World Trade Centre Macau arbitration centre, Alberto Marçal, says a case can be settled by arbitration within six months. Lawyer and arbitrator Julia Brockman says it can take up to one and a half years when the dispute is more complicated. However, businesses seem unaware of the advantages of arbitration. “We need to change people’s mind and habits,” Mr Marçal says. “People still think that it is safer going to court.” The secretary-general of the Macau Lawyers Association, Paulino Comandante, agrees. “We need more promotion so the local population can get more confident in this alternative form of solving disputes, in the same way they trust in the courts.” The monetary authority admits it has the same problem. “The very weak demand for the services of the arbitration centre can be attributed mainly to the fact that consumers want the monetary authority, even though it can act only as a mediator, to use its influence as a regulatory authority in resolving the disputes,” says the authority’s executive director, António Félix Pontes. “Many times we have tried to channel the complaint cases to the arbitration centre but this has not been possible because of lack of agreement on the part of both or one of the parties involved in the dispute.”

Cultural obstacle Mediation is a non-binding process in which a neutral third party, the mediator, works with the parties in a dispute to reach a mutually agreed settlement. The mediator has no authority to impose a binding decision. On the other hand, arbitrators hear evidence, much like a judge, and make a decision that is binding on the parties. The parties normally cannot appeal against the arbitrator’s decision.

Arbitration is often used to settle commercial and employment disputes. Arbitration and mediation are usually quicker and cheaper than litigation. Macau’s business culture partly explains the weak demand for arbitration, says the director of the Small and Medium Enterprises Association, Kenneth Lei. “Most of the Chinese businessmen do not believe in arbitration and mediation as a way to solve disputes. They would rather use their own ways to solve problems,” says Mr Lei. “This Chinese business culture happens in Chinese communities everywhere, like in the mainland, Taiwan, Hong Kong and Macau. Usually, Chinese people like to solve commercial disputes by negotiating directly with the other parties. If the case still can’t be solved, they will seek the advice of the family’s lawyers,” he says. Even so, more and more big corporations in Macau include arbitration clauses in contracts. But they set Hong Kong as the arbitration centre. The president of the British Business Association of Macau, Henry Brockman, is himself aware of the advantages of arbitration but says there is a general lack of awareness and understanding of arbitration and its benefits. He is the husband of Ms Brockman.

Quicker, not cheaper “Few people in Macau have had any experience of arbitration,” Mr Brockman says. “So people are wary. I don’t think there is criticism of the legal infrastructures that have been created for holding arbitration. Everything is in place. A number of lawyers in Macau have taken courses supervised by bar associations to become arbitrators. “However, from the business community perspective, it is untested. Somebody has got to go first,” he says. “We can find an arbitration expert in the commercial field. It’s fairer for both sides because it takes less time and effort to explain to the arbitrator than to a judge. And the judgement is final and one cannot appeal.” Mr Brockman says it is not easy to get details of cases handled by arbitrators in Macau because the arbitration process is usually confidential. As a lawyer who specialises in commercial litigation, Ms Brockman is currently involved in two cases up for arbitration offering legal advice to Hong Kong arbitrators. FEBRUARY 2012

Legal Affairs

“There is a certain lack of confidence of people that come from overseas in regards to the local legal system,” she says. That’s why most of the international companies with investment in Macau that include arbitration clauses in their contracts refer to Hong Kong as the place of arbitration, Ms Brockman says. “According to my experience, in most of cases, even if the contract is under the local law, parties prefer to choose an international arbitration, instead of domestic. “That happens very often with gaming operators. They feel more comfortable in opting for this kind of arbitration.”

Trust in Common Law Lawyer Carlos Simões says there are two main reasons for the weak demand for Macau’s arbitration services. He says parties locked in dispute would rather go to Hong Kong to be sure of getting a neutral arbiter “because they perceive that the [Macau] government might interfere in the arbitration”. And he says they go to Hong Kong for its system of Common Law. “The English legal system is perceived by multinationals as a system they can trust. It’s what they know well.” Hong Kong has almost 20 years of experience in arbitration and mediation, says Mr Comandante. “And it is well positioned in the commercial area in Asia, only behind Singapore. Currently, we cannot compete,” he says. Mr Marçal says Hong Kong’s arbitrators have a lot of experience and are among the best in Asia. Of the 26 arbitrators in his centre, 10 are from Hong Kong – an attempt to “solve the handicap of the centre”, Mr Marçal says. But this does not seem to be boosting the number of cases handled. The Hong Kong International Arbitration Centre was established in 1985.

It handled 624 disputes in 2010. These included 291 disputes up for arbitration, 226 disputes up for mediation and 107 domain name disputes. The centre’s secretary-general Chiann Bao says there were two commercial disputes from Macau handled there last year. In 2010, the centre handled

three Macau commercial disputes and one case of litigation in the construction industry. Mr Comandante believes greater use of arbitration here could reduce the number of cases pending that are jamming up the courts. Several government contracts have

UNLOVED AND UNDERWORKED F

or a city of half a million people, the Consumer Council’s Consumer Arbitration Centre appears to have handled a disproportionately low number of cases between shoppers and merchants since it was established in 1998 – just 444 disputes. A spokesperson for the Consumer Council says any dispute put up for arbitration will be transferred to the centre and scheduled for arbitration within two weeks. Most disputes have been about laundry services and telecommunications, with 74 cases of each. There have been 29 disputes about furniture or household products, and 23 cases each about audio-visual products and jewellery or handcrafts. The Consumer Council would not comment on whether the number of cases handled by the centre so far is considered satisfactory. FEBRUARY 2012

The Housing Bureau created its Arbitration Centre for Building Management Affairs last June. So far, it has received 49 enquiries but handled no cases. “Because all requests were unilateral, the arbitration centre has not yet accepted them,” a spokesperson says. “Activation of arbitration to settle disputes in building management depends on the agreement of the parties. If only one party submits the application, the case cannot be activated.” “We will strengthen the information activities in the future, increasing the population’s awareness.” Nine of the 49 enquiries were passed on to the Housing Bureau and five disputes were settled by negotiation, one could not be settled by negotiation and three are still pending.

A SPEAKING ROLE H

arbitration clauses, including its contract with telecommunications company CTM. Legal experts, arbitrators and businesspeople suggest more education for business about arbitration and mediation, and more government support.

Incentive offer Mr Marçal wants officials to look at the example of Hong Kong. In 2010, the city made mediation the primary alternative means of dispute settlement. “If they cannot settle the disputes through mediation, parties have to sign a document including the reasons for going to court,” Mr Marçal says. If the case ends up being decided in court, the winning party may be penalised if it is proven to have failed unreasonably to engage in mediation. The winning party may not be awarded all or any of its costs.

“This is a way to encourage people to use more and more mediation. Macau could follow this example,” Mr Marçal says. He says that apart from promoting itself, his arbitration centre is planning an accreditation system for arbitrators. The Legal and Judicial Training Centre organised three arbitration training programmes – in Portuguese, English and Chinese – between 2006 and last year, each attracting an average of 30 participants. It also held five mediation and negotiation programmes, with an average of 20 to 30 trainees, and one advanced programme. A spokesperson for the government’s Law Reform and International Law Bureau said the bureau would study how to increase the use of methods of settling disputes such as arbitration and mediation, and would review litigation rules. The spokesperson did not say when this would take place however.

ong Kong is consolidating its position as an arbitration centre for international commercial disputes and Macau could adopt a similar role. The city is being considered as an arbitration centre for disputes between parties in the mainland and Portuguese-speaking countries. At the latest ministerial conference of the Forum for Economic and Trade Cooperation between China and Portuguese-Speaking Countries, in 2010, representatives of all governments signed an agreement to consider Macau as an arbitration centre for international commercial disputes. Fernando Simões, an expert on resolution of international commercial disputes at the University of Macau, says the city has all the necessary qualifications. Mr Simões has just finished researching the potential for creating an arbitration centre and the challenges it might face. “It has a future. A lot has been written about Macau as a contact and service platform between China and Portuguese-speaking countries. In the future, Macau will assert itself not only as a platform of contacts but also in a further stage, as an arbitration centre, when disputes arise,” he says. There are some legal hurdles to be overcome. Some Portuguese-speaking countries do not yet fully comply with internationally recognised arbitration standards or don’t have adequate rules on the recognition and enforcement of foreign arbitral decisions. And the mainland and the Portuguesespeaking countries have to narrow the gap between their arbitration systems. Mr Simões says that Macau is the best place to start because it can provide translators and interpreters for an arbitration centre. “Arbitration would never be easy between both sides because there must be translation services. Macau has a competitive advantage in this regard,” he says. But he admits there is a need to train interpreters and translators properly in the use of legal and commercial jargon. “We do not necessarily need legal experts in arbitration because most of the time arbitrations are about very technical issues, such as product labelling.” Mr Simões says arbitration of international disputes has several advantages, one being that it is neutral. “There is always a prejudice against foreign courts. For instance, a company from Mozambique will always regard the Chinese legal system with some mistrust because it doesn’t know it. However, the Macau law can serve as a neutral law and the territory can be a neutral forum.” Arbitration is flexible, Mr Simões says. The parties can choose who will do it, where it will be done, what language it will be done in and what rules will govern it. FEBRUARY 2012

Property | Market Watch

Positive discrimination A Hong Kong non-profit institution that develops affordable housing will discriminate in favour of residents. Why can’t Macau do the same? BY SARA FARR

non-profit developer of affordable housing in Hong Kong last month took the unprecedented step of giving Hong Kongers priority in buying new homes from its developments. The Hong Kong Housing Society also banned corporations from buying into their properties. The move opens another front in the battle against property speculators. In Macau, property industry players and academics say the move smacks of protectionism. Their opinion is the scheme could not work here. The Housing Society is a non-profit institution that builds housing for sale at reasonable prices by cutting out the frills and concentrating on efficiency. It was set up in 1945 after

the Japanese occupation left one in four residents homeless. There was no public housing programme at the time and volunteers raised funds for the cause. It has tried to provide affordable housing for the people of Hong Kong ever since. Apart from selling housing at market value to the general public, the Housing Society also develops subsidised housing, being the biggest provider of subsidised housing after the government. “The Housing Society plays a supplementary role to the Transport and Housing Bureau to fill the niche markets with demand not currently met,” a spokesperson says. Macau has nothing like it and for those in the real estate industry, it is not required.

Residential units sold as per record of stamp duty*

Value of residential units sold as per record of stamp duty*

Year

Month

2010

January February March April May June July August September October November December

2011

January February March April May July

Source: DSEC

Photo: Luís Almoster

June August September October November FEBRUARY 2012

Number of Transactions 1,297 1,084 1,503 2,202 1,627 1,543 1,204 940 1,505 1,312 1,818 1,954 1,541 788 2,225 3,485 2,402 2,368 878 645 671 606 681

Year

Month

2010

January February March April May June July August September October November December

2011

January February March April May June July August September October November

Value (MOP million) 3,140 1,995 2,806 6,180 4,281 3,319 2,642 1,889 3,687 3,421 7,569 5,010 3,790 1,918 7,704 19,244 7,902 6,114 2,359 1,744 1,815 1,661 1,714

* Notes: 1. The data includes transactions of residential units exempted from stamp duty. 2. The data covers residential units with stamp duty paid during the reporting month.

ANNUAL ASSESSMENT FOR PREMIUMS T

he government will change the regime it uses to assess the premium it charges for land concessions. Chief executive Fernando Chui Sai On said the government would start making annual assessments to allow land premiums to move with market prices. Mr Chui acknowledged that there are differences in opinion on the revision of the law on land grants, but said the aim was to present a bill to the Legislative Assembly this year. He also said the government hoped to have the final draft of the urban plan bill ready by the end of this year.

Property | Market Watch

Average transaction value of residential properties as per record of stamp duty Value (MOP thousand)

6,000 5,000

idents buy between 10 and 15 percent of homes sold in Macau. He argues there is no need for a “residents first” policy for the housing market. Instead, the government should put more effort into providing subsidised housing.

4,000

A little more fight 3,000 2,000

Source: DSEC

1,000 0

Jan

Mar

May

Jul 2010

Sep

Nov

Jan

Mar

May

Jul

Sep

Nov

Oct

Dec

2011

* Notes: 1. The data includes transactions of residential units exempted from stamp duty. 2. The data covers residential units with stamp duty paid during the reporting month.

Average transaction price of residential units per square metre (MOP)

60,000 55,000 50,000

Source: Financial Services Bureau

45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000

Feb

Apr

Jun Aug 2010

Oct

Dec

Feb

Apr

Jun Aug 2011

* Notes: 1. The data includes transactions of residential units exempted from stamp duty. 2. The data covers residential units with stamp duty bill issued during the reporting month. 3. Some residential units may not be included in the data made available by the Financial Services Bureau for privacy reasons.

Total number of buyers in residential transactions in the first 11 months of 2011:

21,973 Source: DSEC

Proportion of buyers

12% 88%

Non-Residents

Residents

Tommy Lau Veng Seng, a governmentappointed member of the Legislative Assembly and president of the Association of Building Contractors and Developers, opposes what he regards as protectionist measures but admits there is a need to strike a balance between the interests of foreign investors and residents. In Macau and Hong Kong, housing affordability is a constant concern. As household incomes have increased, many would-be homeowners now earn too much to qualify for public housing, FEBRUARY 2012

Total value of residential transactions in the first 11 months of 2011:

56.0 billion Proportion of buyers

25% 75%

Non-Residents

Residents

but not enough to meet the cost of buying a home in the open market, where profit is maximised by catering to the most affluent. For years the Macau government has promised to deal with the issue. It has said it would provide more public housing, aiming to build 19,000 homes between 2007 and this year, and has relaxed eligibility criteria. It has also taken measures to curb increases in home prices. Jeff Wong, head of residential property at Jones Lang LaSalle, says non-res-

In the first 11 months of last year, 16,290 homes were sold and their value was MOP56 billion (US$7 billion). Nonresidents accounted for 12 percent of buyers, but the units they bought were mostly high-end – their overall value was about one quarter of the total. In the third quarter of last year, more than 400 of the homes – about 23 percent of the total – sold for more than MOP4 million each. The average price per square metre in Macau is skewed by high-end projects. That was the case in December, when the average price per square metre jumped to MOP53,254 – a 39 percent increase over November. The Financial Services Bureau said the spike was caused by sales in three big, high-end developments – on the peninsula, Taipa and Coloane. Macau may be too small for an institution similar to Hong Kong’s Housing Society, property market observers say. But José Pereira Coutinho, a member of the Legislative Assembly, accuses businessmen of resisting change. Mr Coutinho says the government should join forces with private developers. “It’s the only way to fight speculation,” he says. Rose Lai Neng, an associate professor of finance at the University of Macau and a real estate expert, argues that it would be more economical for the government to tender projects to developers. Even then, she has misgivings. “It will be too much of an ideal to think that developers will willingly cooperate to build smaller units that will be more affordable when they can build a little bigger but can sell at a lot higher price,” she said. Property market observers agree that finding enough land for new housing is most important. “With enough land reserve for housing, the prices will also go down,” says Mr Lau. The government has promised that some of Macau’s newly reclaimed land will be reserved for housing, although how much is uncertain. “I am sure there will be enough land for housing,” Mr Lau says, adding that that the authorities “will decide what to do when the time is right”.

49 49 Notable residential property transactions - 01/12 to 31/12, 2011

Source: Centaline & Midland

District

Property

Unit

Macau

One Central

Block 3, M/F, unit B

3,006

27,048,000

Macau

One Central

Block 3, H/F, unit A

2,729

19,376,000

7,100

Macau

One Central

Block 5, M/F, unit B

2,312

15,952,800

6,900

Taipa

Jardins do Oceano

Rose Court, L/F, unit A (with car park)

3,707

15,000,000

4,046

Taipa

Supreme Flower City

Block 1, H/F, unit C (with car park)

2,060

9,380,000

4,553

Taipa

Flower City

Lei Pou Kok, H/F, unit D (with car park)

2,060

9,300,000

4,514

Macau

The Paragon

L/F, unit G

1,241

9,200,000

7,413

Macau

L’Arc Macau

H/F, unit C

1,821

8,850,000

4,859

Taipa

Edf. Panorama

Block 2, L/F, unit B (with car park)

4,512

8,570,000

1,899

Taipa

Nova City

Block 11, H/F, unit C (with car park)

1,975

8,500,000

4,303

Floor area (sq. ft)

Sale price (HK$)

Price per sq.ft. (HK$) 8,000

Taipa

Prince Flower City

Block 2, H/F, unit J (with car park)

1,794

8,080,000

4,503

Taipa

Prince Flower City

Block 1, H/F, unit A (with car park)

1,665

7,800,000

4,684

Macau

Lake View Tower

Block 2, M/F, unit G

1,567

7,500,000

4,786

Taipa

Prince Flower City

Block 1, H/F, unit A

1,665

7,500,000

4,504

Taipa

Nova City

Block 15, M/F, unit E (with car park)

1,630

7,300,000

4,478

Taipa

Nova City

Block 15, M/F, unit E (with car park)

1,630

7,300,000

4,478

Taipa

Nova City

Block 15, M/F, unit E (with car park)

1,634

7,280,000

4,455

Taipa

Nova City

Block 15, H/F, unit B

1,520

6,800,000

4,473

Taipa

Nova City

Block 15, H/F, unit E

1,630

6,800,000

4,171

Taipa

Prince Flower City

Block 1, L/F, unit A (with car park)

1,665

6,660,000

4,000

2,742

6,630,000

2,417

918

6,500,000

7,080

Taipa

Edf. Jardim de Wa Bao

Block 4, M/F, units U+V

Macau

One Central

Block 1, H/F, unit D

Macau

The Bayview

Block 5, H/F, unit F (with car park)

1,582

6,416,000

4,055

Macau

The Bayview

Block 5, H/F, unit F (wth car park)

1,582

6,353,000

4,015

Taipa

Prince Flower City

Block 2, M/F, unit H (with car park)

1,522

6,300,000

4,139

Macau

The Bayview

Block 2, M/F, unit D

1,582

6,236,000

3,941 4,091

Taipa

Jardins do Oceano

Magnolia Court, M/F, unit G (with car park)

1,503

6,150,000

Macau

The Praia

Block 1, M/F, unit C

1,558

6,150,000

3,947

Taipa

Nova City

Block 15, L/F, unit D

1,556

5,980,000

3,843

Macau

The Bayview

Block 2, M/F, unit B

1,603

5,862,000

3,656

Macau

La Cité

Block 3, M/F, unit C

1,522

5,800,000

3,810

Macau

Edf. Hung On Torre

Block 3, M/F, unit Q

1,801

5,500,000

3,053

Macau

One Central

Block 1, H/F, unit D

654

5,380,000

8,226

Taipa

The Buckingham

L/F, unit F (with car park)

1,186

5,200,000

4,384

Macau

The Residencia Macau

Block 4, L/F, unit C

1,209

5,200,000

4,301

Macau

Edf. Zhu Kuan

M/F, unit Z

1,647

5,000,000

3,035

Taipa

Nova City

Block 4, L/F, unit B

1,318

4,800,000

3,641

Taipa

Nova City

Block 4, M/F, unit F

1,339

4,650,000

3,472

Macau

Dynasty Plaza

Block B, L/F, unit Y

1,800

4,575,000

2,542

Taipa

Nova City

Block 4, L/F, unit E

1,318

4,500,000

3,414

Macau

Villa de Mer

Block 1, H/F, unit E

940

4,400,000

4,680 3,693

Taipa

The Buckingham

L/F, unit F

1,186

4,380,000

Macau

The Praia

Block 1, M/F, unit B

1,239

4,300,000

3,470

Macau

La Cité

Block 2, L/F, unit A

1,180

4,280,000

3,627

Taipa

Nova City

Block 6, L/F, unit D

1,045

3,666,000

3,508

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

Notable commercial property transactions - 01/12 to 31/12, 2011 Type

Building/Street

Unit

Shop

Rua dos Mercadores

All whole

Shop

Rua do General Ivens Ferraz

Shop

Rua de Entre-Campos

Shop

Source: Centaline

Floor area (sq. ft)

Sale price (HK$)

Price per sq.ft. (HK$)

2,421

35,000,000

14,426

2,214

9,800,000

4,426

Shop

3,900

8,500,000

2,179

Rua de Sacadura Cabral

Shop

1,652

7,500,000

4,539

Shop

Rua de Aveiro

Shop

327

6,000,000

18,348

Shop

Rua de Marques de Oliveira

Shop

1,820

5,300,000

2,912

Shop

Rua do Volong

Shop

1,926

4,950,000

2,570

Shop

Rua do Gamboa

Shop

904

3,350,000

3,705

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

FEBRUARY 2012

50 50

Property | Market Watch

Notable residential property rentals - 01/12 to 31/12, 2011

Source: Centaline & Midland

District

Property

Unit

Macau

One Central

Block 6, M/F, unit B

2,528

48,000

18.99

Macau

One Central

Block 4, H/F, unit A

2,326

38,000

16.34

Macau

One Central

Block 1, H/F, unit F

1,815

35,000

19.28

Macau

One Central

Block 4, M/F, unit A

2,326

32,000

13.76

Macau

One Central

Block 1, M/F, unit A

1,273

25,000

19.64 13.03

Floor area (sq. ft)

Rent price (HK$)

Price per sq.ft. (HK$)

Macau

L’Arc Macau

M/F, unit C

1,803

23,500

Macau

One Central

Block 1, H/F, unit B

1,272

23,000

18.08

Taipa

Nova Taipa Garden

Block 27, M/F, unit G

2,135

22,000

10.30

Taipa

Pearl On The Lough

Block 1, L/F, unit C (with car park)

2,839

22,000

7.75

Macau

One Central

Block 1, L/F, unit C

895

20,000

22.35

Macau

One Central

Block 7, M/F, unit D

1,176

20,000

17.01

Macau

One Central

Block 1, H/F, unit A

1,273

20,000

15.71

Macau

Lake View Tower

Block 2, M/F, unit E

1,443

20,000

13.86

Macau

Lake View Tower

Block 1, M/F, unit A

1,511

20,000

13.24

Macau

Lake View Tower

Block 1, L/F, unit C

1,515

20,000

13.20

Macau

Nam Van Peninsula

Block 1, L/F, unit I

2,901

20,000

6.89

Macau

Lake View Tower

Block 2, M/F, unit E

1,443

19,000

13.17

Taipa

Chung Villa

L/F, unit A

1,979

16,000

8.08

Macau

Wan Yu Villas

Block 2, M/F, unit H

1,183

15,000

12.68

1,630

15,000

9.20

654

14,000

21.41 11.71

Macau

Bo Fung Court

Block 2, L/F, unit L

Macau

One Central

Block 1, M/F, unit D

Taipa

The Pacifica Garden

Block 1, L/F, unit E

1,196

14,000

Taipa

Chong Fok Garden

Liking, L/F, unit B

1,600

13,800

8.63

Taipa

Prince Flower City

Block 1, M/F, unit D

1,665

13,800

8.29

Taipa

Edf. Mei Keng Garden

Block 1, M/F, unit E

2,008

13,500

6.72

Macau

One Central

Block 1, H/F, unit D

654

13,000

19.88

Taipa

Nova City

Block 12, M/F, unit B

1,314

13,000

9.89

Taipa

Nova City

Block 10, M/F, unit D

1,045

12,500

11.96

Taipa

Nova City

Block 12, L/F, unit B

1,318

12,000

9.10

Macau

Edf. Fung King Garden

L/F, unit J

1,225

12,000

9.08

Taipa

Nova City

Block 12, L/F, unit F

1,340

12,000

8.96

Taipa

Nova City

Block 16, L/F, unit B

1,318

11,800

8.95

Macau

The Residencia Macau

Block 4, L/F, unit C

1,209

11,000

9.10

Macau

The Residencia Macau

Block 4, M/F, unit A

1,222

11,000

9.00

Taipa

Nova City

Block 14, M/F, unit B

1,314

11,000

8.37

Taipa

Nova City

Block 8, L/F, unit C

1,318

11,000

8.35

Taipa

Chong Fok Garden

Nice Court, L/F, unit G

1,470

11,000

7.48

Macau

La Cité

Block 1, H/F, unit C

1,067

10,000

9.37

Taipa

Hillsville

M/F, unit B

1,394

10,000

7.17

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

Notable commercial property rentals - 01/12 to 31/12, 2011

Source: Centaline

Type

Property

Unit

Shop

Rua de Pedro Coutinho

Shop

804

60,000

Shop

Rua de Pedro Coutinho

Shop

974

40,000

41.07

Shop

Flower City - Edf. Peonia

Shop

2,000

40,000

20.00

Floor area (sq. ft)

Rent price (HK$) Price per sq.ft. (HK$) 74.63

Shop

Rua Dr. Pedro José Lobo

Shop

530

30,000

56.60

Office

Edf. Zhu Kuan

L/F, unit G

2,366

23,660

10.00

Office

Edf. Walorly

M/F, unit H

1,619

19,428

12.00

Office

Macau Square

M/F, unit K

1,854

16,000

8.63

Office

Edf. Zhu Kuan

L/F, unit B

1,133

13,596

12.00

Office

Edf. Comercial Si Toi

M/F, unit K

1,178

13,500

11.46

Shop

Rua de S. Domingos

Shop

363

12,500

34.44

Shop

Rua de Coelho do Amaral

Shop

640

8,000

12.50

Office

Edf. Walorly

M/F, unit F

605

7,260

12.00

Office

Edf. Walorly

M/F, unit G

605

7,260

12.00

Shop

Calçada da Barra

Shop

400

5,500

13.75

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

FEBRUARY 2012

51 KEYU JIN LECTURER IN ECONOMICS, LONDON SCHOOL OF ECONOMICS

Why capital flows uphill A COUNTRY’S PRODUCTION STRUCTURE MAY VERY WELL DETERMINE HOW MUCH CAPITAL IT SUPPLIES AND HOW MUCH IT NEEDS t first, it seems difficult to grasp: global capital is flowing from poor to rich countries. Emerging-market countries run current-account surpluses, while advanced economies have deficits. One would expect fast-growing, capital-scarce (and young) developing countries to be importing capital from the rest of world to finance consumption and investment. So, why are they sending capital to richer countries, instead? China is a case in point. With its current-account surplus averaging 5.5 percent of gross domestic product in 2000-2008, China has become one of the world’s largest lenders. Despite its rapid growth and promising investment opportunities, the country has persistently been sending a significant portion of its savings overseas. And China is not alone. Other emerging markets – including Brazil, Russia, India, Mexico, Argentina, Thailand, Indonesia, Malaysia and the Middle Eastern oil exporters – have all increased their current-account surpluses significantly since the early 1990’s. Collectively, capital-scarce developing countries are lending to capital-abundant advanced economies. Many observers believe that these global imbalances reflect developing economies’ financial integration, coupled with underdevelopment of domestic financial markets. According to this view, these countries’ demand for assets cannot be met – in terms of both quantity and quality – at home, so they deploy part of their savings to countries like the U.S., which can offer a more diverse array of quality assets. While plausible, this argument suggests that, as financial markets improve over time in developing countries, the global imbalances are bound to shrink. But such a reversal is nowhere in sight. Why?

Meeting different needs A crucial dimension of globalisation has been trade liberalisation. For China, foreign trade as a percentage of GDP soared from 25 percent in 1989 to 66 percent in 2006, largely owing to its admission to the World Trade Organization in 2001. Most of what China and other developing countries produce and export are labour-intensive goods such as textiles and apparel. This has allowed advanced economies, in turn, to produce and export more capital-intensive, higher-valueadded products. Globalisation of trade enabled countries to tap the efficiency gains that specialisation in their sectors of comparative advantage has brought about. With a slight mental stretch, one can imagine that what a country produces and trades may affect its savings and investment decisions. An economy in which the main productive activity is berry picking, for example, has little need for investment and capital accumulation. Its labourers earn wages, consume and save part of that income. Since the production process requires little capital, there is no demand for domestic investment – and thus no savings vehicles. Instead, the only way to save is by purchasing capital abroad – in economies with capital-intensive production and demand for investment. This economy will always export its savings.

That may be an extreme example, but it illustrates a more general point about how merchandise trade can influence financial flows. Countries that produce and export more labourintensive goods – perhaps owing to increased trade openness, or faster labour-force and productivity growth, all of which are true of China – may experience a rise in saving, but a less-thanequivalent increase in demand for capital. Rich countries, by contrast, are able to export more capitalintensive goods, and thus have a greater need for investment. So they may be importing more capital – resulting in a greater current-account deficit – simply because they are producing more capital-intensive goods.

Not so puzzling With developing countries – in particular, China, India and the ex-Soviet bloc – bringing almost 1.5 billion workers into the world economy since the early 1990’s, it is not difficult to understand the potential impact of this effect. After all, much of this labour force was absorbed by labour-intensive industries that eventually churned out products exported to the rest of the world. Indeed, that massive addition of labour helped to drive down the relative price of labour-intensive goods, which fell by roughly 15 percent between 1989 and 2008. As developing countries increased their labour-intensive production and exports, their current-account surpluses rose – by almost 3.6 percentage points, on average, between 19891993 and 2002-2006. China’s current-account surplus increased by almost 11 percentage points over the same period, India’s by 2.5 percentage points and Russia’s by 7 percentage points. These countries, as well as other large surplus economies, such as Brazil, Saudi Arabia and Iran, all experienced a simultaneous increase in the labour content of exports. This pattern contrasts with that of the United States and many other advanced countries, which have experienced a deterioration of their current-account balances as their production and exports have become more capital-intensive. Many might doubt the view that China is exporting more labour-intensive goods, rather than upgrading its exports on the capital- and skill-intensity ladder. But trade data suggest the opposite, perhaps because China’s accession to the WTO led to tariff reductions that released more labour-intensive production. In fact, trade data may underestimate the true extent of China’s labour intensity and overstate the capital and skill intensity of China’s exports. China has witnessed rapid growth in the processing trade: assembling intermediate inputs – imported from countries like the U.S. and Japan – that have high capital and skill content. So, while the exports of these final goods may count towards China’s own capital and skill content, the country’s real role was only in the labour-intensive process of assembly. A country’s production structure may very well determine how much capital it supplies and how much it needs. So the fact that capital may flow towards rich countries that produce and export more capital-intensive goods should not be so puzzling, after all. FEBRUARY 2012

52 52 52

COMING SOON For more information visit macaubusiness.com or write to awards@macaubusiness.com FEBRUARY 2012

Business

Future fund

Expecting a Dragon Year bump in birth rate, a facility that specialises in the long-term storage of blood from umbilical cords has opened an office in Macau to drive sales BY SARA FARR

ot everyone will need it but stem cell therapy may be the ideal insurance policy for families preparing for the worst. It was with this in mind that Cryolife began harvesting blood from umbilical cords in 1998. Last month, the Hong Kong-based company opened its first Macau branch to handle an expected increase in inquiries and sales in a year that most in Macau consider highly auspicious. Cryolife collects blood from the placenta and umbilical cord, keeping it storage in a Hong Kong laboratory. The company also offers a service to store the umbilical cord itself. The blood from a mothers’ afterbirth is rich in embryonic stem cells, and these can help adult tissues grow or regenerate after serious illness and physical trauma. Cryolife chief executive officer Vadanee Lau says the company pioneered the commercial storage of blood from

umbilical cords for families in Asia. “They can use it when they’re sick. This is to protect your own future,” Ms Lau says. Cryolife is owned by United Easy Investments Ltd. and has its head office, laboratory and storage facility in Hong Kong. Over the past 15 years it has served up to 500 Macau families. “We go to the two hospitals and collect samples, and we take them for processing and storage in Hong Kong,” Ms Lau says.

Storage for 18 years costs HK$37,400 (US$4,820), increasing to HK$45,380 for 28 years’ storage – the maximum available. The cost to store both blood and the umbilical cord can reach HK$90,760 for a 28-year plan. The Cryolife Macau office is in the city centre. Customers have a 24-hour customer service hotline and can access a live webcast from the laboratory. The company has more than 15,000 samples stored from families all around the world. “We’ve had clients from the U.S. living in Hong Kong and when they move back we still keep the samples here for storage. If they need it, we ship it over,” Ms Lau says. That was the case in 2009 when the company sent samples to Duke University in North Carolina.

Dragon baby boom Ms Lau says company revenue reached HK$40 million last year, an increase of about 10 percent year-on-year. The FEBRUARY 2012

Business

Cryolife is predicting a significant increase in clients this year. “And that’s one of our key reasons for wanting to provide better client service and hence the opening of our branch office in Macau,” says chief executive officer Vadanee Lau

FEBRUARY 2012

company saw its client base expand by 15 percent in the same period. Ms Lau says the company’s growth has been “very stable” over the past decade. The company is predicting a significant increase in clients this year as many Chinese families believe the Year of the Dragon is a good time to have children. “And that’s one of our key reasons for wanting to provide better client service and hence the opening of our branch office in Macau.” Superstitious Chinese believe children born during the Year of the Dragon – the symbol of ancient emperors – will be courageous and wise and bring luck to the entire family. Doctors estimate that couples gunning for a lucky baby will have to conceive by May 2 in order to stand a chance of giving birth by the tail end of the dragon year, which ends on February 9, 2013. The number of live births in Macau has risen steadily since 2003, a baby boom related to the city’s economic growth. In the first 11 months of last year there were 5,286 live births, which exceeded all births for 2010. In the previous Year of the Dragon in 2000, a total of 3,849 live births were registered in Macau, down 7.2 percent from a year earlier, official data shows,

which can be partially explained with the uncertain environment surrounding the handover period. In 1988, also a dragon year, live births went up by 4.6 percent year-on-year. Ms Lau says her industry has developed considerably over the past decade. In 1996, Cryolife claimed to be the first private cord blood bank in Asia. In 1998, the service was officially launched with a laboratory in Sha Tin and an office in Kowloon, and offered throughout Asia. While more families are becoming aware of stem cell treatments and are storing their child’s cord blood, she says there is a need to boost medical research into stem cell treatments. Some treatments, such as those proposed for cerebral palsy, require the patient’s own cord blood. “We need to engage doctors,” Ms Lau says, adding that since Cryolife opened its first office, there has been a drastic improvement in the quality of service provided in Macau and the mainland. “There are more hospitals [in China] doing clinical trials. It’s a huge difference. Back in 1996, when we started, many doctors did not know or understand what stem cells were. But that’s different now,” she says.

FEBRUARY 2012

Business

Love of money Valentine’s Day can create a big boost for the retail and hospitality sectors but which businesses make the most of the celebration? BY LUCIANA LEITÃO

usinesses throughout the world love Valentine’s Day. Consumers express their love with gifts, flowers and dinner at a restaurant, creating a spike in revenue for the businesses in the retail and hospitality sectors. Although Macau’s lovebirds celebrate Valentine’s Day twice – the Western celebration in February and the Chinese version that typically falls in August – it is the first that leads to more sales, business owners say. But not all businesses benefit equally, with hotels and high-end restaurants giving the twin celebrations a bigger push in their marketing calendars. Judit Huguet I Sola, chief florist at Tiffany Fleur at Hotel Lan Kwai Fong Macau, says Valentine’s Day is great for business with both the Western and Chinese versions boosting the bottom line. Revenue increases sharply, thanks in part to the fact that most customers look for bouquets of 99

FEBRUARY 2012

red roses, meaning “love forever”. The owner of French restaurant La Bonne Heure, Suzanne Chuek, says the Western Valentine’s Day does make a difference generating extra revenue. “People start to book a table in January and usually the restaurant would be fully booked some days before February 14,” she says. Ms Chuek says there is no comparison between the two celebrations, in terms of turnover. “The Western Valentine’s Day is better for business. The Chinese one is just like a normal day.” Saint Valentine’s Day, commonly shorted to Valentine’s Day and always held on February 14, is a celebration of Christian martyrs. In the Middle Ages, the day became associated with romantic love and more recently meant an exchange of gifts.

Although Macau’s lovebirds celebrate Valentine’s Day twice – the Western celebration in February and the Chinese version that typically falls in August – it is the first that leads to more sales, business owners say. But not all businesses benefit equally Chinese Valentine’s or, more correctly, the Qixi Festival, is celebrated on the lunar calendar’s seventh day of the seventh month – August 23 this year. The festival commemorates the tale of the cowherd and the weaver, a princess who escaped from heaven, and the one day each year they are permitted to meet. Another holiday with romantic associations is the 15th day of the Lunar New Year, on which the Lantern Festival Day is held. Historically, this was one of the few moments during the year when single girls were allowed out unescorted.

Resorts’ special Several hotel and resorts offer special menus and packages for February’s Valentine’s. They appear to be promoting the celebration the hardest. Galaxy Macau has prepared themed menus and special accommodation packages. At MGM Macau’s Aux Beaux Arts French restaurant, there will be a romantic menu, including oysters in citrus dressing and pink champagne foam, and a desert consisting of a smoking strawberry parfait in chocolate heart and spicy hot chocolate sauce. Art director of hairdresser Base Hair Culture, Man Cheong, says there is no significant jump in business during the February celebration. “There’s nothing special, maybe some ladies looking for a [different] hairdo or brushing for dinner, but nothing more,” he says. Even so, Mr Man says it is more popular than the Chinese holiday. “Most people in Macau celebrate Western Valentine’s Day but, still, we don’t see a big increase in business.” Ronaldo Gnanavelu, owner of the Indian Garden Restaurant, says his Chinese customers do not equate his venue with romantic dinners. “For this culture, an Indian restaurant is not very appealing. It’s not very romantic,” he says. Mr Gnanavelu says Indian food is “not exactly pretty”. In his view, the most romantic cuisines are probably French or Japanese. The bottom line is that business is unchanged during Western Valentine’s Day. Perhaps Chinese Valentine’s Day is “maybe a little bit better.” Paolo Cheng is the owner of Mugs Talk bar and restaurant. Neither day is very helpful to his business. He holds back from preparing a special menu, so that singles dropping by on February 14 do not feel left out. “We don’t want to make it uncomfortable for others, so we’re not charging anything special, it’s just a regular day.” The same happens during Chinese Valentine’s Day. “There’s no difference,” he says. “Maybe for some hotels and restaurants it has an impact. For us, it is normal business.”

we live inside ideas.

+853 2833 1258 info@goldfishmacau.com www.goldfishmacau.com FEBRUARY 2012

Business

From the heart Englishman Andrew Stow conquered the hearts of thousands by baking egg tarts that have since taken Asia by storm BY PATRICIA NEVES* PHOTOS CARMO CORREIA*

ord Stow’s Bakery has become one of Macau’s leading tourist attractions. From the small Coloane shop that began selling its signature egg tarts two decades ago, the company has grown to five venues across the city, has an exclusive licensing deal with the Excelsior Hotel Hong Kong, and also has franchises in South Korea, Japan and the Philippines. Mr Stow, an industrial pharmacist, tasted a traditional Portuguese egg tart for the first time while honeymooning in 1988 in Portugal with his then wife Margaret Wong, who now owns and runs Margaret’s Café e Nata, in downtown Macau. Mr Stow moved to Macau in 1979 and ended up working at the former Hyatt hotel in Taipa, now the Regency Hotel. It was there that he had an idea that would change his life. “Andrew realised there was not a single place, apart from hotels, where Westerners could buy bread. So he decided to open a bakery to start distribution to supermarkets,” his sister Eileen recalls.

FEBRUARY 2012

The venture did not turn out the way he expected but it led to the establishment of Lord Stow’s Bakery in Coloane Village in 1989, which Eileen has run since her brother’s death in 2006.

Sweet success Aware that most Portuguese immigrants in Macau longed for their traditional egg tarts – and that no one had come up with the idea before – Mr Stow took to the kitchen to make his own version of the delicacy in early 1990. “But he didn’t have the recipe and being an arrogant Brit, he wasn’t going to ask a Portuguese for it. So, he made his own,” his sister says. His Portuguese friends were less than impressed with his hard work, claiming the product was not a real egg tart. Mr Stow told them it was the best he could do. “If you don’t like it, don’t eat it,” was his reply. What was less than a hit with the city’s Portuguese community proved otherwise for Chinese consumers. His egg tarts

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Eileen Stow

were an overnight success. The same egg tarts ultimately saw Mr Stow win the Medal for Merit for Tourism from the government in 2006. “If Andrew had dreamt of the success it would be, he’d have named them ‘Macau egg tarts’ instead,” his sister said, adding that they initially sold an average of 200 single egg tarts a day but that number has now jumped to about 10,000. Lord Stow’s egg tarts have since taken Asia by storm. By the end of the 1990s, Mr Stow and Eileen, who had already moved to Macau to help him manage the business, launched franchises in Taiwan and Thailand. These eventually folded but the brand is still sold overseas through the franchisees. Mr Stow’s former wife has also achieved considerable success of her own by selling egg tarts. Aside from selling them at Margaret’s Café e Nata, Ms Wong has signed a deal to distribute them in the mainland through fast-food chain Kentucky Fried Chicken. * LUSA NEWS AGENCY

Lord Stow’s Bakery initially sold an average of 200 single egg tarts a day but that number has now jumped to about 10,000

bizintelligenceonline.com FEBRUARY 2012

Business

Breakfast club

Early-morning networking sessions may be the ticket to new business, if managers can deal with the discipline BY SARA FARR

f your idea of a good start to the day is breakfast at 6.30am with another 100 businesspeople, then Business Network International have got it right. BNI, for short, has opened its first local group – the Macau Elite Chapter. At last month’s launch, as many as 120 businesspeople met at the Banyan Tree Macau’s ballroom for two hours of structured networking. A typical BNI meeting begins with members assembling in a circle, with greetings and a welcome to guests. With the introductions made and business cards exchanged, the spotlight falls on a handful of members who introduce their businesses with a 60-second promotional pitch. Some members are entitled to a longer presentation, on a rotating basis. The president of the Macau Elite Chapter is Leo Chan, a business devel-

FEBRUARY 2012

opment officer for Ponte 16 Tak Heng (Macau) Seafood Hot Pot Group Ltd. The company manages several restaurants. Other chapter members represent the banking and finance sector, e-business, recruitment, information technology, health and beauty.

Professional power The driving force behind the organisation is building a business network, with members responsible for expanding the group by introducing new members from different professional fields. The BNI members that Macau Business spoke to said the network was not a system that offered jobs but a generator of referrals, which companies and individuals can turn to in order to expand their business. BNI chairman Ivan Misner started

the organisation more than 25 years ago in the United States. It now bills itself as “the largest business networking organisation in the world” with 134,000 members all around the globe and 6.5 million referrals made in 2010, generating about US$2.8 billion (MOP22.4 billion) in business for members. Membership is by invitation and each chapter has only one member representing each profession to limit competition for referrals. Different chapters usually don’t interact. “If needs be, we will open a new chapter for other members of the same field,” says Robby Kwok, the executive director of BNI Macau. The network creates business by word of mouth and through referrals. At the breakfast meetings, typically held once a week, each member is asked to

61 bring new referrals for fellow members and a guest to fuel the group’s growth. BNI is a for-profit corporation. The membership fee provides access to the network and training. Chapters are managed at a regional level by franchisees.

Bad press The BNI network has also been under fire, especially in the United States, where former members have complained the organisation is a rip-off. There are mixed opinions on how effective the BNI mechanism is in creating business for members and on the quality of the business leads it generates. Some members find the referral system awkward, saying they do not feel comfortable in recommending people or companies they have not used. There is a similar hurdle in using other members’ services when they have their own established relationships. Bloggers have also criticised the way BNI runs its business. A common complaint is that the rules are too strict and the pressure on members to recruit is too strong. The argument runs that the

BNI chairman Ivan Misner started the organisation more than 25 years ago in the United States

chapter structure suits franchise owners’ interests, who boost their profit through increased membership fees. Mr Kwok rebuffs such claims. Candidates must, however, agree to two conditions to join, he says. The first is “givers gain”. “Basically we give out what we have and get a reward,” Mr Kwok says. He says the philosophy allows members to help each other through referrals or even by doing direct business. A member who owns a restaurant could give other members a discount each time they dine at the restaurant. “This is a win-win situation, because every time we want to dine or book a table for a large group, we just pick up the phone and call that member,” Mr Kwok says. The second condition is “farming not hunting,” meaning members should help each other and not look out for themselves. “BNI is like a team. We bond together,” Mr Kwok says. The membership fee is MOP6,000 for one year. The weekly breakfast meetings cost extra.

FEBRUARY 2012

Gaming | Billions Race

Beyond comparison The city’s casinos posted their second-best result last month, influenced by the Chinese New Year holiday

n what was the second-best take ever for Macau’s casinos, gross gaming revenue shot up 34.8 percent yearon-year last month to MOP25.04 billion (US$3.1 billion), the most recent government figures show. The record, set last October, is MOP26.85 billion.

Although towards the high end of some estimates, the sum came in behind some analyst predictions, which suggested a new all-time record. The results were strongly affected by holidaymakers over the Chinese New Year break and analysts say they will

Gaming Results: Gross Revenue

In Million MOP (1HKD:1.03MOP)

28,000 26,000

24,306

24,000 22,000 20,000

18,571

19,863

20,087

20,507

Feb 2011

Mar 2011

Apr 2011

only have a handle on the year ahead after February’s numbers are released. The festival was earlier this year – typically it falls in February – making year-on-year comparisons much harder. In its note to investors, Union Gaming Research Macau said January “was

24,212

26,851

24,769

23,058

23,608

25,040

21,244

20,792

18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

Jan 2011

FEBRUARY 2012

May 2011

Jun 2011

Jul 2011

Aug 2011

Sep 2011

Oct 2011

Nov 2011

Dec 2011

Jan 2012

Gaming Results: Market Share Per Operator 2011

2012 Jan *

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

SJM

31%

34%

30%

32%

29%

28%

27%

29%

26%

27%

26%

27%

Sands China

18%

16%

17%

16%

15%

14%

16%

17%

19%

Galaxy

11%

13%

15%

19%

20%

21%

20%

19%

Wynn

14%

15%

14%

17%

13%

15%

13%

12%

13%

14%

13%

MPEL

15%

14%

17%

14%

16%

15%

16%

15%

13%

14%

13%

MGM

11%

12%

11%

10%

11%

10%

TOTAL

100%

SJM

Sands China

Galaxy

Wynn

MPEL

MGM

Jan 2011

Feb 2011

Mar 2011

Apr 2011

May 2011

Jun 2011

Jul 2011

Aug 2011

Sep 2011

Oct 2011

Nov 2011

Dec 2011

* estimated

(Figures are rounded to the nearest unit, therefore they may not add exactly to the rounded total)

an ‘easy’ calendar comparison” as January 2011 did not include Chinese New Year. “As compared to February 2011, which did have Chinese New Year, January grew 26 percent, although after adjusting for three fewer days in February, we estimate year-on-year growth was closer to 15 percent.” Union Gaming’s analysts say January’s return was not as strong as they had predicted due “to lower VIP volumes” and because “several operators also played a bit unlucky (but not dramatically)”. “Given the shift of Chinese New Year into January, we believe February will pose a difficult comparison for the market, despite the extra day,” Deutsche Bank gaming analyst Carlo Santarelli told investors. “As such, we believe looking at the aggregate of January and February for comparison purposes is more appropriate.” For that two-month period, Union Gaming is expecting a 20 percent yearon-year growth.

Reading tealeaves Until then investors and analysts will stay cautious, pricing in a slowdown in

growth from 42.2 percent for the whole of last year to 15 to 20 percent this year. Union Gaming Research is forecasting 30 percent gross gaming revenue growth for casinos in the first half of the year. “We continue to believe the VIP segment should remain strong through at least the early part of 2012, as our channel checks suggest VIP demand is growing, not shrinking (despite macro-China fears) with junkets asking for additional tables at many/most properties,” it says. Union Gaming expects Sands Cotai

Union Gaming Research is forecasting 30 percent gross gaming revenue growth for casinos in the first half of the year

Jan 2012 *

Central to be a driver of demand, much as other new properties have done previously, the most recent case being Galaxy Macau. The company is still forecasting 20 percent gross gaming revenue growth for Macau this year for a take of MOP321 billion. Morgan Stanley says Macau can expect 15 percent gaming growth this year. The investment bank says that the mass market will grow by 24 percent, double that of the VIP segment. HSBC Global Research’s analyst Sean Monaghan is sticking to his full-year forecast of 16 percent. Meanwhile, last month brought some changes in the market share of the Macau-based casino operators. SJM Holdings Ltd. leads the market with a 27-percent market share but is now followed by Sands China Ltd. with a share close to 19 percent. Galaxy Entertainment Group Ltd. fell to third position by only a fraction of a percentage point. Melco Crown Entertainment Ltd. held onto fourth in the league table with a 13-percent share, closely followed by Wynn Macau Ltd., with a share approaching 13 percent. MGM China Holdings Ltd. has a 10-percent share. FEBRUARY 2012

Gaming

History in the making Macau mass market baccarat outpacing VIP growth BY MARTIN JOHN WILLIAMS*

IP baccarat continued to drive Macau’s gaming revenue growth in 2011, but mass market baccarat easily outperformed it in terms of revenue growth for a second consecutive quarter. Mass market baccarat revenue clocked in at MOP13.94 billion (US$1.74 billion) for the fourth quarter, a 43.8 percent increase over the fourth quarter of 2010 and a 10.2 percent increase over the third quarter of 2011, according to the Gaming Inspection and Coordination Bureau data released last month. While earning a record MOP53.27 billion for the fourth quarter, VIP baccarat revenue was up at a relatively modest 31.6 percent over the fourth quarter of 2010 and only 2.9 percent sequentially. “We have been expecting mass market [baccarat] to outpace VIP for more than five years and it seems to finally be happening,” said Aaron

FEBRUARY 2012

Fischer, the Hong Kong-based head of consumer and gaming research at CLSA Asia Pacific Markets. “We think the mass market will maintain strong momentum this year with the opening of the 6,000-room Sands Cotai Central,” Mr Fischer told GamblingCompliance. “We have long believed that there is a massive shortage of hotel rooms in Macau.” Sands China Ltd., whose latest property in Cotai is scheduled to open by the end of the next month, is one of several operators in Macau attempting to increase mass market custom to balance the volatile, junket-driven VIP segment. In the third quarter, sequential mass market baccarat growth of 9.9 percent topped VIP growth of 6.6 percent over the same period, pushing VIP baccarat’s share from 74.0 percent to 73.7 percent. With the latest results and widening gap in growth rates, VIP baccarat’s share of

the “games of fortune” market — casinos and non-casino slots — fell to 72.5 percent, while mass baccarat’s share rose from 18 percent to 19 percent.

Still king For the full year, however, the VIP segment remained king, with MOP196.13 billion in revenue, up 44.6 percent on 2010’s MOP135.65 billion. Mass baccarat recorded MOP48.67 billion for 2011, up 39.4 percent. Slot machine revenue for 2011, meanwhile, rose by a solid 32.6 percent to MOP11.43 billion, slightly above the 32.5 percent rise from 2009 to 2010. Last month’s figures also arrested a temporary negative trend in slot unit revenue, with MOP189,462 in revenue per unit recorded in the fourth quarter, as the number of licensed machines rose by 156 to 16,056. Unit revenue had decreased in the second quarter of 2011 and again in the third after hitting a record

65 of MOP197,505 in the first quarter. Other casino games generally grew at rates well below the baccarat categories for the year, though live multi game — in its first full year comparison — and mahjong stood out with yearly growth rates of 103.3 percent and 105.9 percent respectively. Other revenuetopping games such as sic bo (listed by the gaming regulator as “cussec”) and blackjack grew 34.3 percent and 18.4 percent, respectively, while roulette revenue advanced 16.5 percent for the year. The Gaming Inspection and Coordination Bureau results also indicated that the number of licensed gaming tables across the market dropped from 5,379 to 5,302 in the fourth quarter, a curious development given strong demand for tables amid dramatic revenue growth and ahead of the opening of Sands Cotai Central this year. “The high number of gaming tables in the third quarter of 2011 is basically due to business operation needs of gaming concessionaires to deal with the influx of tourists during Golden Week in October,” Gaming Inspection

and Coordination Bureau media coordinator Wendy Wong said in an email to GamblingCompliance. “As Golden Week has passed, the need for extra gaming tables is not necessary, thus resulting in a drop in the number in the fourth quarter,” she said.

Room to breathe A 5,500-table cap imposed by the government on the industry until next year, followed by a 3 percent yearly increase for 10 years, had led analysts to wonder how Sands China would supply its new Cotai property with enough tables, while industry sources had suggested the cap would not apply to the property. With the readjustment of the table figure, Sands could now apply for 198 tables without breaching the cap and add these to stored tables from other properties and certain types of electronic tables exempt from the cap. The rest of the Gaming Inspection and Coordination Bureau’s data indicated that gross gaming revenue for 2011 reached MOP269.06 billion, up 41.9 percent year-on-year and only marginally more than the MOP267.87

billion produced by Macau’s casinos and non-casino slots alone. Other gaming revenue sources such as horse racing and sports lotteries showed little movement, though the basketball lottery reached a new high of MOP86 million, up 8.9 percent from 2010. Greyhound racing, meanwhile, completed a second year of decline with a 12.6 percent drop in revenue against 2010 to MOP297 million. The latest negative result coincided with a new overseas offensive against animal cruelty at the Canidrome. Animal rights group Grey2K alleged that four animals per race are injured in Macau dog racing and that 8 percent of injured dogs suffer bone damage, according to a report in the South China Morning Post. Meanwhile, Sociedade de Lotarias Wing Hing, Ltda. will have its monopoly contract on Chinese lottery extended until the year-end, according to the official gazette. The gazette mentioned there will be some modifications to the contract but no details were provided. * EXCLUSIVE GAMBLINGCOMPLIANCE/MACAU BUSINESS

FEBRUARY 2012

Gaming | Billions Race

Gross revenue from different gaming activities 4Q 2011

3Q 2011

2Q 2011

1Q 2011

73,802 73,517 53,267 13,943 3,042 1,302 750 363 255 72 71 57 71 48 8 27 54 8 n/a 27 0.4 114 104 58 103 19 2 0.0012

70,521 70,224 51,750 12,656 2,832 1,268 657 344 189 70 67 55 58 48 11 28 36 10 n/a 17 0.3 89 113 82 84 17 2 0.0007

65,900 65,605 48,539 11,512 2,828 1,137 643 300 152 75 71 53 52 48 14 29 36 8 1.6 16 0.4 56 107 81 87 18 2 0.0012

58,835 58,521 42,570 10,558 2,723 1,067 663 303 188 65 67 46 45 46 18 30 25 8 2 10 0.3 52 116 76 89 33 1 0.0006

4Q 2010

3Q 2010

2Q 2010

1Q 2010

4Q 2009

47,723 47,384 34,047 8,884 2,236 884 528 255 154 52 52 52 38 33 20 23 34 8 1 10 0.4 44 107 85 134 11 1 0.0006

45,219 44,902 32,368 8,310 2,028 856 541 266 161 55 52 43 41 30 24 20 22 9 0.2 8 0.4 41 110 91 102 12 1 0.001

41,248 40,951 28,761 8,024 1,948 869 594 273 135 55 48 45 39 29 28 19 19 8 2 7 0.5 22 124 91 52 27 2 0.0002

36,476 36,161 24,976 7,259 1,820 779 509 262 257 45 42 42 37 27 28 13 26 7 1 6 0.5 n/a 102 110 80 21 1 0.001

5.5% 5.5% 5.2% 6.9% 10.3% 3.3% -2.4% -4.1% -4.3% -5.5% 0.0% 20.9% -7.3% 10.0% -16.7% 15.0% 54.5% -11.1% 400.0% 25.0% 0.0% 7.3% -2.7% -6.6% 31.4% -8.3% 0.0% - 40.0%

9.6% 9.6% 12.5% 3.6% 4.1% -1.5% -8.9% -2.6% 19.3% 0.0% 8.3% -4.4% 5.1% 3.4% -14.3% 5.3% 15.8% 12.5% -90.0% 14.3% -20.0% 86.4% -11.3% 0.0% 96.2% -55.6% -50.0% 400.0%

13.1% 13.2% 15.2% 10.5% 7.0% 11.6% 16.7% 4.2% - 47.5% 22.2% 14.3% 7.1% 5.4% 7.4% 0.0% 46.2% - 26.9% 14.3% 100.0% 16.7% 0.0% n/a 21.6% - 17.3% - 35.0% 28.6% 100.0% - 80.0%

13.9% 13.8% 14.9% 11.1% 12.6% 7.7% 7.6% 3.6% 59.6% -15.1% 7.7% -14.3% -17.8% 22.7% -22.2% 8.3% 13.0% 16.7% -50.0% -14.3% 25.0% n/a 45.7% - 0.9% 33.3% 75.0% 0.0% 150.0%

Macau Patacas (Million)

Total Games of Fortune (total) VIP Baccarat Baccarat Slot Machines Cussec Black Jack Stud Poker Roulette 3-Card Baccarat Texas Holdem Poker Fantan Casino War 3-Card Poker Fish-Prawn-Crab Paikao Craps Lucky Wheel Makccarat Mahjong Tombola Live Multi Game Horse Racing Greyhound Racing Sports Lottery - Football Sports Lottery - Basketball Chinese Lottery Instant Lottery

55,398 55,106 40,472 9,698 2,407 947 627 265 222 57 64 43 38 38 21 24 88 7 1 9 0.4 46 98 72 92 29 2 0.0005 QoQ%

Total Games of Fortune VIP Baccarat Baccarat Slot Machines Cussec Black Jack Stud Poker Roulette 3-Card Baccarat Texas Holdem Poker Fantan Casino War 3-Card Poker Fish-Prawn-Crab Paikao Craps Lucky Wheel Makccarat Mahjong Tombola Live Multi Game Horse Racing Greyhound Racing Sports Lottery - Football Sports Lottery - Basketball Chinese Lottery Instant Lottery

4.7% 4.7% 2.9% 10.2% 7.4% 2.7% 14.2% 5.5% 34.9% 2.9% 6.0% 3.6% 22.4% 0.0% -27.3% -3.6% 50.0% -20.0% n/a 58.8% 33.3% 28.1% -8.0% -29.3% 22.6% 11.8% 0.0% 71.4%

Source: Gaming Inspection and Coordination Bureau FEBRUARY 2012

7.0% 7.0% 6.6% 9.9% 0.1% 11.5% 2.2% 14.7% 24.3% -6.7% -5.6% 3.8% 11.5% 0.0% -21.4% -3.4% 0.0% 25.0% n/a 6.3% -25.0% 58.9% 5.6% 1.2% -3.4% -5.6% 0.0% -41.7%

12.0% 12.1% 14.0% 9.0% 3.9% 6.6% -3.0% -1.0% -19.1% 15.4% 6.0% 15.2% 15.6% 4.3% -22.2% -3.3% 44.0% 0.0% -20.0% 60% 0.3 7.7% -7.8% 6.6% -2.2% -45.5% 100.0% 66.7%

6.2% 6.2% 5.2% 8.9% 13.1% 12.7% 5.7% 14.3% -15.3% 14.0% 4.7% 7.0% 18.4% 21.1% -14.3% 25.0% -71.6% 14.3% 100.0% 11.1% -0.3 13.0% 18.4% 5.6% -3.3% 13.8% -50.0% 20.0%

16.1% 16.3% 18.9% 9.2% 7.6% 7.1% 18.8% 3.9% 44.2% 9.6% 23.1% -17.3% 0.0% 15.2% 5.0% 4.3% 158.8% -12.5% 0.0% -10.0% 0.0 4.5% - 8.4% -15.3% - 31.3% 163.6% 100.0% -16.7%

The money spinners Wynn Macau was the property posting the highest gross gaming revenue for last year

Wynn Macau

MGM Macau

City of Dreams

Grand Lisboa

ynn Macau casino was the biggest single generator of gross gaming revenues in the city in 2011. Wynn Macauâ&#x20AC;&#x2122;s casino take was around MOP35 billion (US$4.4 billion), sources told Macau Business. Local regulators consider Encore an extension of the Wynn Macau casino. MGM Macau came in second place with MOP26 billion in revenue, while City of Dreams ranked third, with MOP24 billion. Galaxy Macau, although only opened on May 15, was still able to grab a spot in the top-10. It comes in seventh place, with gross gaming revenue of about MOP15 billion. Note that the number of gaming tables and slot machines differs from property to property.

No.

Property

Gross Gaming Revenue 2011

Wynn Macau

35 billion

1st

MGM Macau

26 billion

3rd

City of Dreams

24 billion

5th

Grand Lisboa

23 billion

6th

StarWorld

22 billion

4th

Venetian Macao

21 billion

2nd

Galaxy Macau

15 billion

Not open

Altira

13 billion

8th

Sands Macao

11 billion

7th

Lisboa

10 billion

9th

(Estimated)

FEBRUARY 2012

Rank in 2010

Gaming | Stock Watch

Bright prospects Results season has started, with good news coming from Sands China Ltd. BY RAY CHAN

acau gaming stocks have started the year on a positive note, as investors bet on a good performance by the city’s casinos during the Lunar New Year holidays. There was a correction in the last two days of January, as the first estimates of the month’s casino gross gaming revenue fell short of investors’ expectations. Eventually, that was not the case, with January’s revenue number ending towards the higher end of analyst estimates. This month kicks off the results season, which is expected to drive stock performance. Morgan Stanley analyst Praveen Choudhary says in a note to investors he expects Macau’s casino industry to report annual growth of 55 percent in earnings before interest, taxes, depreciation and amortisation (EBITDA) for the fourth quarter of last year, and quarterly

Ticker

Name

growth of 12 percent. Sands China Ltd. (1928.HK) reported its fourth quarter results early this month, through its parent company, Las Vegas Sands Corp. (LVS.US). The Macau casino operator reported adjusted property EBITDA of US$430.1 million (MOP3.4 billion), 29.2 percent more than a year before. Its net profit rose by 43.8 percent to US$306.7 million. Also early this month, Wynn Macau Ltd. announced a profit of US$239.9 million for the last quarter of 2011, up by 15 percent year-on-year. Net revenues reached US$995.5 million, a 9.1 percent year-on-year increase. Adjusted property EBITDA in the fourth quarter of 2011 was US$313.1 million, up 5.5 percent from US$296.8 million in the fourth quarter of 2010. Mr Choudhary expects MGM China Holdings Ltd (2282.HK) and Galaxy

Share price performance (HK$/US$) 52-week high 52-week low

26/01/2012

Change (%) Year-to-date

SJM Holdings Ltd.

21.00

10.22

14.26

12.46

0027.HK

Galaxy Entertainment Group

22.45

8.69

17.94

25.98

1128.HK

Wynn Macau Ltd.

27.48

14.81

21.00

7.69

1928.HK

Sands China Ltd.

27.50

14.90

26.95

22.78

0200.HK

Melco International Develop.

10.76

4.30

6.91

19.76

6883.HK

Melco Crown Entertainment Ltd.

29.35

22.40

29.35

19.80

MPEL.US

Melco Crown Entertainment

16.15

6.46

11.29

17.36

2282.HK

MGM China Holdings Ltd.

18.20

8.05

11.92

17.32

HIS.IND

Hang Seng Index

24,468.64

16,170.35

20,439.14

10.88

50.65

36.05

49.74

16.41 25.70

0880.HK

LVS.US

Las Vegas Sands Corp.

MGM.US

MGM Resorts International

WYNN.US

Wynn Resorts Ltd.

PENN.US

Penn National Gaming Inc.

UNDU.IND Dow Jones Indus. Avg. SPX.IND

S&P 500 Index FEBRUARY 2012

16.05

7.40

13.11

165.49

101.02

120.42

8.99

44.29

31.68

40.56

6.54

12,876.00

10,404.49

12,756.96

4.41

1,370.58

1,074.77

1,326.06

5.44

ON TOP OF THE WORLD M

acau dominates the new list of the biggest gaming companies in the world. The Global Betting and Gaming Consultants index of the 50 biggest casino operators by gambling market capitalisation has five Macau operators in the top 10, with only Melco Crown Entertainment Ltd. absent, albeit in 12th place. The list is compiled using each company’s share of revenue derived from gaming. There are seven Asian firms in the latest edition of the top 10, led by Sands China Ltd. at number two, Wynn Macau Ltd. at number three and Genting Singapore Plc at number four. Top-placed Las Vegas Sands Corp and aWynn Resorts Ltd, in fifth place, also have significant revenue from Asia. SJM Holdings Ltd. is sixth, followed by Galaxy Entertainment Group Ltd., while MGM China Holdings Ltd. rounds out the top 10. The presence of so many Asian firms in the top spots “simply reflects the fact that Asia has become the largest gambling region in the world, overtaking Europe and North America,” says Lorien Pilling, the research director of Global Betting and Gaming Consultants.

FEBRUARY 2012

Gaming | Stock Watch

Entertainment Group Ltd. (0027.HK) to post double-digit quarterly growth in EBITDA for the fourth quarter. MGM China Holdings Ltd. will have the best growth rate, 29 percent, giving it EBITDA of HK$1.42 billion, Morgan Stanley estimates. Its estimate for Galaxy Entertainment Group Ltd. is HK$1.97 billion, an increase of 10 percent. Melco Crown Entertainment Ltd. (6883.HK, MPEL.US) is expected to post EBITDA of US$224 million, 7 percent less than in the third quarter but 68 percent more than a year before, according to Morgan Stanley. SJM Holdings Ltd. (0880.HK) is forecast to post EBITDA of HK$1.77 billion, also 7 percent more than in the third quarter.

New best idea Morgan Stanley says it now prefers companies with exposure to Cotai, namely Sands China, Galaxy Entertainment and Melco Crown. Its analysts expect slower growth for companies with casinos on the peninsula. As a result,

Share price performance of Hong Kong-listed gaming stocks (Rebased as HK$100) 300 250 200 150 100 50 1-Jan 2011

1-Feb 2011

1-Mar 2011

1-Apr 2011

1-May 2011

SJM Holdings Ltd. Melco International Development Melco Crown Entertainment

1-Jun 2011

1-Jul 2011

1-Aug 2011

1-Sep 2011

Wynn Macau Ltd. Galaxy Entertainment Group Ltd. Hang Seng Index

Morgan Stanley has replaced SJM on its “Best Ideas” list with Sands China. Late last month Sands China declared its first dividend. Wynn Macau and SJM are the only other Macau casino operators to have ever paid a dividend. Sands China told the stock exchange it expects the interim

1-Oct 2011

1-Nov 2011

1-Dec 2011

1-Jan 2012

Sands China Ltd. MGM China Holdings Ltd. As of January 26, 2012

dividend of HK$0.58 per share to be paid on February 28 to shareholders on February 20. Sands China says it “has sufficient reserves, after the payment of this interim dividend, to finance its operations and the expansion of its business, including the development of additional

MELCO CROWN LOOKS FOR MONEY M

elco Crown Entertainment Ltd. is looking to borrow up to US$2 billion (MOP16 billion) to pay for its Macau Studio City project in Cotai, unnamed sources have told Reuters. The company will seek a loan of US$1.25 billion and also issue bonds, one of the sources said. The government last month stressed once more that it has yet to approve the inclusion of a casino in the Macao Studio City project. “The approval is not completed,” said the secretary for transport and public works Lau Si Io. Mr Lau denied the existence of any “secret deal” on a casino between the government and Melco Crown, which acquired the majority stake in the project last year. Melco Crown has said several times that it is confident that it will be able to include a casino in the project. Melco Crown is also working on big changes for City of Dreams, starting with a re-branding of the development, a source in the company told Macau Business. “The re-branding is still very secret but will go ahead this year,” the source said. On February 5, the signature restaurant at City of Dreams, Horizons, closed for a twomonth renovation. When it reopens it might offer a menu by French chef Guillaume Galliot that could come into consideration for a Michelin star. The new Horizons will feature a new entrance and private dining rooms, and a bar that will introduce guests to fine dining. City of Dreams is also aiming to open another Chinese restaurant in July.

FEBRUARY 2012

Share price performance of U.S.-listed gaming stocks

(Rebased as US$100) 300 250 200 150 100 50 1-Jan 2011

1-Feb 2011

1-Mar 2011

1-Apr 2011

Las Vegas Sands Corp. Penn National Gaming Inc.

1-May 2011

1-Jun 2011

1-Jul 2011

1-Aug 2011

1-Sep 2011

Wynn Resorts Ltd. Melco Crown Entertainment-ADR

1-Oct 2011

1-Nov 2011

1-Dec 2011

1-Jan 2012

MGM Resorts International S&P 500 Index As of January 26, 2012

integrated resorts in Macau”. The company is expected to inaugurate its Sands Cotai Central project next month. HSBC Global Research analyst Sean Monaghan says the first phase of the development is on schedule to open between March 22 and 27. The first phase will include a 9,850 square-metre

casino with VIP gaming areas. When work is complete, the development will have more than 5,800 hotel rooms. Mr Monaghan estimates that Sands Cotai Central will account for 28 percent of Sands China’s EBITDA in 2013. He also expects Sands China to be the stock that dominates this year.

It’s your It’s your daily daily business business

WHEELS OF JUSTICE A

court has begun hearing the appeal by Sands China Ltd. against the government’s rejection of its application for a land concession for parcels seven and eight in Cotai, a source close to the proceedings told Macau Business. The first hearing was just before the Lunar New Year. The appeal was lodged in January last year. Sands China long ago submitted to the government a detailed application to develop parcels seven and eight. But in December 2010 the Lands, Public Works and Transport Bureau announced that it

would not grant the land to Sands China and instead would keep it in reserve. Sands China asked the chief executive for a review of the decision and later appealed to the Court of Second Instance, which is now hearing the case. Even if Sands China wins its appeal, the chief executive could still deny it a land concession on public policy grounds, the company has said. Sands China has said it invested more than US$100 million (MOP800 million) developing the land before the government’s decision. FEBRUARY 2012

Gaming

A partnership crumbles

Photo: Luís Almoster

Steve Wynn and once-close business partner Kazuo Okada are engaged in a legal struggle over access to the Wynn Resorts books

here are always two sides to every story. To Japanese gaming magnate Kazuo Okada, the chairman of pachinko machine maker Universal Entertainment Corp. and owner of 19.7 percent of Wynn Resorts Ltd., it looks like Wynn Resorts is hiding its financial records. To Wynn Resorts, headed by Steve Wynn, it looks like Mr Okada is miffed by the Las Vegas casino operator’s lack of interest in his big casino project in Manila. Wynn Resorts says it removed Mr Okada as its vice-chairman in October. On January 11, Mr Okada filed a lawsuit in Nevada against Wynn Resorts seeking access to the company’s books and records. A hearing on the lawsuit was scheduled for February 9. Mr Okada alleges that the company is denying him access to its financial records, in particular its records of his investments of up to US$120 million

FEBRUARY 2012

(MOP960 million), dating back to 2002, which, he alleges, he made at Mr Wynn’s request to fund in part the Wynn Macau project. Mr Okada was a partner of Mr Wynn when Mr Wynn decided to establish the predecessor of Wynn Resorts in 2000 after losing control of Mirage Resorts Inc. An outsider took over Mirage Resorts largely because investors were unhappy with Mr Wynn’s high spending on projects and a multi-million-dollar corporate art collection. Mr Okada says recent events, including a Wynn Resorts pledge of MOP1.1 billion to the University of Macau, led him to demand to exercise his right as a director to review the books and records of the company. Wynn Macau Ltd., the local subsidiary of Wynn Resorts, pledged the money to the University of Macau Development Foundation last May. It donated MOP200 million

straight away and promised to donate MOP80 million more each year from 2012 to 2022 inclusive. Wynn Macau’s gaming concession expires in June 2022. Mr Okada says he formally objected to this pledge. He alleges that there was no discussion about whether such a large gift over such a long period is an appropriate use of corporate funds.

Boardroom divorce However, Mr Okada was present at the presentation of the first cheque to the university, along with Mr Wynn and Macau’s former chief executive, Edmund Ho Hau Wah, now vice-chairman of the national committee of the Chinese People’s Political Consultative Conference. Some analysts say the donation was part of Mr Wynn’s effort to ensure political support and goodwill for Wynn Macau’s project in Cotai, which is awaiting government approval.

73 Wynn Resorts issued a written statement saying Mr Okada’s allegations were “preposterous and without merit” and that the company would defend itself vigorously. In a court filing, the company says Mr Okada’s allegation that he was denied access to the company’s financial books is “innuendo, hyperbole, halftruths and sweeping generalizations.” According to Wynn Resorts, Mr Okada “has failed to justify the request.” The company says Mr Okada’s request to access the company’s books are nothing more than stockholder inspection requests. Wynn Resorts adds that, under Nevada law, shareholders have no rights to inspect the books “of publiclyowned companies that are timely with SEC filings (as Wynn is).” Wynn Resorts says that to try to get around this problem, Mr Okada had presented his request as a director rather than a shareholder, a “maneuver” the company expects to be “flatly rejected by the court”. Mr Okada has the largest single shareholding in Wynn Resorts. Mr Wynn and his former wife Elaine had a similar stake, but they divided it equally among themselves in January last year when they divorced, reducing Mr Wynn’s stake to about 9 percent. At the time, Mr Okada and Mr and Mrs Wynn signed an agreement to lock up their shareholdings and vote their shares in unison. Mr Okada now intends to use that agreement to increase his representation on the company’s board. He has nominated four people for seats on the board, including Mrs Wynn’s seat, in case she decides to vacate it. The company’s annual meeting is expected to be held in May. If Mr Okada’s nominees all won seats, five of the 12 directors would be in his camp and two of Mr Wynn’s clos-

Steve Wynn says the action is an attempt by Kazuo Okada to deflect attention away from the dispute between the Japanese businessman and Wynn Resorts related to Mr Okada’s Philippines project

Kazuo Okada (third from the right), Edmund Ho Hau Wah (centre) and Steve Wynn (fourth from the left) at the presentation ceremony of the first tranche of the MOP1.1 billion donation to the University of Macau

est confidants would be off the board: chief operating officer Marc Schorr and Linda Chen, president of international marketing and chief operating officer of Wynn Macau. Mr Okada told the stock exchange that his nominees would “strengthen the board and provide strong, independent directors to enhance the company’s corporate governance.”

Friendship soured The confrontation between Mr Okada and Mr Wynn appears to be connected with the casino resort that Mr Okada’s Universal Entertainment is building in Manila. The US$2-billion development is meant to cater to gamblers from the mainland, Hong Kong, South Korea, Japan and Singapore. Mr Okada broke ground for the project on January 16, only days after he filed his lawsuit. Wynn Resorts has said that the project is the result of Mr Okada’s “decision to directly compete with the company ... despite repeated admonishments from the board.” It issued a written statement saying that Mr Okada misused his position as director of the company “to imply the company’s participation in projects that [Wynn Resorts] had made firm decisions to avoid.” In a conference call early this month, Mr Wynn said the action is an attempt by Mr Okada to deflect attention away from the dispute between the Japanese businessman and Wynn Resorts related to Mr Okada’s Philippines project. “We have a sharp disagreement” with Mr Okada in regards to the Philippines, Mr Wynn said. “We have expressed our convictions that it was not an appropriate business opportunity for us for a couple of years now. For reasons that are best known to Mr. Okada, he has

not enjoyed that disagreement.” “We’ve also taken a very strong opinion about not wanting to give the impression that Wynn Resorts was the developer of the land that he has acquired in the Philippines. And this has created some stress between us unfortunately,” Mr Wynn said. In 2008, when asked if he would participate in Mr Okada’s Manila project, Mr Wynn said: “This is something that Kazuo Okada and his company ... has done on its own initiative. He consults me and has discussed it with me extensively. And I’ve given him my own personal thoughts ... and advice. And to the extent that he comes to me for any more advice or input, all of us here at the company would be glad to give him our opinion. But that is short of saying that this is a Wynn Resorts project.” Analysts think Mr Okada’s lawsuit may be intended to prod Wynn Resorts into buying him out of the company so he can finance Universal Entertainment casino projects in Asia. “We believe Mr Okada’s motivation could relate to Universal’s liquidity needs in order to develop casino resorts in the Philippines (Manila) and South Korea (Incheon), in addition to what he may have in mind for casino development in Japan should legislation eventually pass,” Bill Lerner of Union Gaming Research wrote in a research report. The confrontation with Mr Okada seems to not have pinched Mr Wynn’s philanthropic vein. Shortly after Mr Okada’s lawsuit made the news, it was reported that Mr Wynn had donated MOP2 million to Anima – Society for the Protection of Animals (Macau) and would become the society’s honorary chairman. FEBRUARY 2012

FEBRUARY 2012

Gaming

Very important promoters The number of licensed VIP gambling junket operators continues to rise, provoking calls for greater transparency BY LUCIANA LEITÃO ILLUSTRATIONS RUI RASQUINHO

fficial data shows that the number of VIP gaming promoters operating legally in Macau is the highest ever. There are 219 licensed companies and individuals, 13 percent more than a year ago, annual data released last month by the Gaming Inspection and Coordination Bureau shows. That is an average of six licensed junket operators per casino. The average daily winnings for each VIP gaming table in Macau reached about US$34,000 (MOP272,000) last year, Union Gaming Research Macau estimates. VIP baccarat generated gross revenue of MOP196.1 billion (US$24.5 billion) last year, up by 44.6 percent and accounting for 73 percent of the sector’s revenue, although there are signs that mass market baccarat is starting to grow at a faster rate (see story in this section). The surge in the number of junket operators and in VIP gaming revenue has prompted several analysts to call for more openness in the industry. But Kenny Leong Siak Hung, chief executive of Asia Entertainment and Resources Ltd., one of Macau’s listed VIP junket companies, says gaming promoters are now more transparent than ever. He says most junket operators are ordinary businessmen. Last year, his company had a rolling chip turnover of US$19.9 billion, an average of US$1.66 billion a month, 91 percent more than the year before. The head of the Gaming Inspection and Coordination Bureau, Manuel Joaquim das Neves, believes mandatory annual renewal of licences serves to bring any shady businesses to light. Analysts, however, remain suspicious. VIP gaming revenue depends mainly on junket operators, although some casinos are making limited efforts to promote direct VIP gaming. Put simply,

junket operators are middlemen who bring high rollers to Macau’s casinos and lend them money to play.

Casting a net The VIP gaming industry has three elements: the casinos, junket operators and their representatives. The junket operators strike deals with the casinos to promote VIP rooms, and they typically commit themselves to a minimum amount of rolling chip purchases a month, set by the casino. The junket operators then enter into arrangements with their representatives, who have direct relations with the gamblers and bring the high rollers, especially from the mainland, to the VIP gaming rooms. A casino may strike deals with several junket operators to supply gamblers for different VIP rooms, with all the junket operators being in competition with each other. The junket operator supplies the players. All the gaming is run by the casino, which provides the croupiers and gaming managers. Big junket operators use a multitier system to rustle up business, with a network of representatives and sub-rep-

The head of the Gaming Inspection and Coordination Bureau, Manuel Joaquim das Neves, believes mandatory annual renewal of licences serves to bring any shady businesses to light

resentatives spread over the mainland and familiar with the credit history of players. Some estimates put the number of people in the junket business as high as 10,000, but only a few are officially known to the regulator. The Macau Public Prosecutions Office said last year that the number of money-laundering cases connected with the gaming industry, mainly with illegal gambling in VIP rooms, was increasing. Other sources speak of a considerable amount of gaming revenue going unreported because it is from side-betting agreements between the junket operator and gambler.

Deeply integrated In Singapore, Asia’s second-biggest gaming market, the regulator has yet to issue its first junket licence and there is no clear indication that it will do so before the end of this year. The process of screening prospective junket operators is continuing amid a tightening of money-lending and money-transfer regulations. Meanwhile, “shadow junkets” are reportedly exploiting gaps in enforcement to sneak a steady supply of Malaysian and Chinese high rollers into the city’s two casinos. In Macau, roughly two out of every five gaming tables are VIP tables, a source told Macau Business. That means there are more than 2,000 VIP tables. The source said that at the end of September SJM Holdings Ltd. had 28 percent of the VIP tables, Sands China Ltd. and Melco Crown Entertainment Ltd. about 17 percent each, Galaxy Entertainment Group Ltd. about 16 percent, Wynn Macau Ltd. about 13 percent and MGM China Holdings Ltd. about 9 percent. The gaming regulator determines how many tables each casino operator is allowed to have for the VIP or mass markets. FEBRUARY 2012

Gaming

The Macau junket system was established during the Portuguese Administration, when Sociedade de Turismo e Diversões de Macau SA had a monopoly on gaming. The rules were different then and less stringent. With the liberalisation of the gaming industry, new regulations came into force, covering the vetting and licensing of junket operators, their registration with the gaming operators and the payment of commissions. “They are required to be associated to a casino operator. There are no freelance junkets,” Mr Neves says. “We have refused licences to junkets a couple of times. Things such as the criminal record are to be taken into account.’’

Mystery men A contract between a junket operator and a casino operator must be written, determining the amount and method of payment of commissions, how the junket operator will operate, and where. A copy must be filed with the gaming regulator. There are two ways to pay junket operators. They either take a fixed commission, an agreed percentage of rolling chip turnover, capped at 1.25 percent, or they accept an agreed percentage of the winnings in the VIP gaming room, plus certain incentive allowances that may also mean they bear the same percentage of any losses. The rules should not be more restrictive, says Mr Neves. “Things have been going well and, internationally, through contact with other regulators, I hear compliments,” he says. Jonathan Galaviz, managing director of Las Vegas consulting firm Galaviz & Co, says otherwise. Mr Galaviz says the junket licensing regime is weak and not comprehensive enough. He wants more comprehensive 10-year background checks on junkets instead of relying solely on criminal records. The director of the Institute for the Study of Commercial Gaming at the University of Macau, Davis Fong Ka Chio, says that if there were more regulations for VIP operations, it would increase cash flows for casinos by eliminating side betting and cleaning up the business. “From time to time, a lot of people whose backgrounds we don’t know exactly actually get involved in the junket operations,” he says. Mr Fong suggests thorough background checks, and that all junket operators and their representatives be made to wear identification, as the law requires. FEBRUARY 2012

He says police should be allowed to go undercover to detect crime in the VIP gaming world. David Green, a gaming consultant at Newpage Consulting, says casino operators are also legally responsible for the actions of junket operators, so it is in their interest to investigate thoroughly any junket operator they intend to deal with. The casino operators here that are subsidiaries of Las Vegas casino operators – MGM China Holdings Ltd., Sands China Ltd. and Wynn Macau Ltd. – must ensure that their operations in Macau comply with Nevada regulations, says Mr Green. This includes ensuring the suitability of business partners.

On alert Meanwhile, junket operators are continuing to look for mainstream sources of capital and corporate respectability by listing shares. Apart from Asia Entertainment and Resources, major listed junket operators include Neptune Group Ltd. and Dore Holdings Ltd. Suncity Group has the reputation of being the biggest junket operator in town, with more than 10 VIP rooms. Mr Neves believes it is an exaggeration to say that VIP junkets are inevitably linked with corruption and other illicit practices. “The junket licences have oneyear duration and every year they have to renew the licence. If something is wrong, we simply do not renew,” he says. That has happened previously. “Sometimes, some junkets do not fully comply with the regulations. Fortunately, nowadays, things are much better,” Mr Neves says.

Jonathan Galaviz, from Las Vegas consulting firm Galaviz & Co, says the junket licensing regime is weak and not comprehensive enough. He wants more comprehensive 10-year background checks on junkets instead of relying solely on criminal records

A common accusation is that junket operators have close connections with organised crime. Mr Neves says his bureau and the police are on the alert for such connections. As for debt collecting in places like the mainland, where gambling debts cannot be collected through the courts and junket operators may resort to extrajudicial measures, Mr Neves says there is little the regulator can do. “We could have more restrictive legislation but it would be useless, since debts are never collected in Macau.” Mr Neves says the present system is open enough. “Directly or through the operator, junkets are required to submit reports. And there is joint responsibility, which means that if something is wrong, the operator is also responsible.”

Risk management Mr Fong thinks the VIP gaming system should be transformed gradually, especially debt collection. “We could develop a system where we could transfer the credit function from the junket to the casino operator,” he says. Mr Fong says that even if junkets could no longer funnel high rollers into Macau, casino operators could bear the decline in gaming revenue because the market as a whole is so big. Junket operators, says Mr Galaviz, exist because of restrictions on mainlanders that travel to Macau, principally limits on the amount of money they can bring with them. Should junkets become illegal, casino revenue would be cut by more than half, he estimates. Mr Green says junkets exist because gambling debts cannot be collected through the courts in the mainland and because casino operators cannot make tax deductions for bad gambling debts. “They [junket operators] take on the risk and source the high rollers, who ultimately generate the revenue for the host concessionaire. Risk mitigation is rather like insurance. In order to contain the risk, a price has to be paid to the party who assumes it,” he says. The price paid by casinos is, customarily, 40 percent of VIP room revenue. The government takes another 40 percent in taxes, leaving the casino with just 20 percent. Industry insiders say several junket operators have meanwhile found a way of circumventing the mainland authorities’ refusal to recognise gambling debts while working within the confines of the law – by getting a moneylender’s licence.

FEBRUARY 2012

Gaming

Strong bet U.S. gaming supplier Bally Technologies has its eye on mobile gaming and Asia to drive growth ally Technologies Inc. celebrates its 80th anniversary this year. The company only opened a Macau office in 2006 but the territory has already become very important for the firm, says new Asia-Pacific managing director Kurt Gissane. “The Asia-Pacific region is extremely important to Bally,” Mr Gissane tells Macau Business. “The two largest gaming markets in the world are now officially in the Asia-Pacific rim, Macau and Singapore, and it is highly probable that with all the developments underway in the Philippines, the Asia-Pacific will be the home to the three largest gaming markets in the world in the not too distant future.” Mr Gissane has the difficult job of replacing Cath Burns, who established the company’s Asia-Pacific head office in Macau in 2006 and managed largescale systems installation projects for several of the city’s new casinos. She left the company last November, moving to TCS John Huxley as global chief executive officer. She starts next month.

FEBRUARY 2012

“I don’t look at it as though I have replaced Cath Burns,” Mr Gissane says. He praised her achievements, saying he was very fortunate to be left with a legacy “which is a strong business across both games and systems but, more importantly, a tremendous team”. One of Mr Gissane’s immediate challenges is to grab a share of the slot machine orders Sands China Ltd. will place as the Sands Cotai Central project gears up. Previous reports mentioned Bally was hopeful of taking a 20-percent share of the order. He says both companies have “an extremely strong partnership” globally. While Mr Gissane would not provide any details, he is confident Bally will have an appropriate footprint in the property.

Changing gears After Cotai Sands Central is opened, there will be at least three years until a new mega-casino opens in Macau and the big contracts for slot machines are again up for grabs.

Mr Gissane says he is not concerned. “Macau has been an extremely significant part of Bally Asia-Pacific’s business over the past five years and this will continue. Although there may be a slight slowdown in the number of large-scale integrated resorts due to open in the next couple of years, we are in the technology business and technology does not stand still,” he says. “We have a huge array of exciting product developments across both our games and systems [divisions], and we will continue to work with our partners to implement such products across their operations.” From his Macau office, Mr Gissane oversees Bally’s expansion around AsiaPacific. “There are also a number of great business opportunities elsewhere in the region,” he says, highlighting the large-scale integrated resorts scheduled to open in the Philippines. “We see significant business opportunities there in the next two to five years.” There are business opportunities in Vietnam and the company is talking to operators there, he says. Looking at Bally’s past, Mr Gissane says the company has survived for 80 years in an industry as competitive as gaming by continuously innovating. “Bally has always been at the forefront of innovation. Since the development of the first slot machine in 1936, the Bally Baby, we have not stopped introducing industry’s-first products,” he says.

BALLY BETS ON MOONWALK MONEYMAKER B

“We created the first electro-mechanical slot machine with a bottomless hopper in 1963 and in 1976 we introduced SDS, the first slot management system.” Bally reported revenue of US$210.5 million (MOP1.68 billion) for the three months ended December, a 15.2-percent increase on the same period the year before. Profit was down 10.9 percent to US$24.3 million. This year, the company is launching Bally Interactive, its new business

division focusing on mobile, Internet and social initiatives, complementing its traditional games and systems business lines. At last month’s ICE Totally Gaming in London, Bally displayed a suite of Internet games, interactive versions of existing Bally games. “Bally Interactive solutions will enable casinos to deliver a powerful experience to their patrons whether they are on the casino floor, at home, or on the move,” Mr Gissane says.

“Macau has been an extremely significant part of Bally AsiaPacific’s business over the past five years and this will continue,” says new Asia-Pacific managing director Kurt Gissane

ally Technologies Inc. is preparing the launch of a handful of new games at the upcoming G2E Asia this May. “Bally is proud to have acquired two globally-recognised brands in ‘Michael Jackson King of Pop’ and ‘Grease’. These games are scheduled to be launched this year in the Asia-Pacific region during G2E Asia,” says the company’s managing director for AsiaPacific, Kurt Gissane. “I am particularly, extremely excited about the launch of the Michael Jackson game. He was an incredible performer with tremendous global appeal and I believe this game will resonate with the Asian players.” The Michael Jackson King of Pop video slot is presented on the new Pro Series V22/32 cabinet with Bally’s Pro surroundsound chair. The game features bonus events based on and featuring Michael Jackson hits like “Beat It” and “Billie Jean”. The company is also introducing the award-winning “Fish’n for Loot” game, the first to feature the iDeck virtual button deck as an arcade-like, player-input device. On the systems side, Bally will continue to push its in-game player-user-interface iView Display Manager and data analysis application Bally Business Intelligence. “Lastly, Service Tracking Manager is another product we feel will have a great impact here,” Mr Gissane says. Its automated dispatch and alert system creates and assigns tasks to casino personnel by intercepting messages from Bally’s suite of systems products. The goal, he says, is to increase the efficiency of casino operations by monitoring, managing, executing and providing statistical analysis.

FEBRUARY 2012

Gaming

Game on

The newest Mocha slot parlour at Hotel Golden Dragon pushes the company’s inventory to 2,100 machines ocha Clubs opened its 10th club last month, in one of Macau’s busiest locations. Located at Hotel Golden Dragon, the all-new venue operates around the clock and is spread over three floors. The new club hosts about 300 slot machines and electronic tables over a floor area of about 1,850 square metres, which includes two VIP rooms. The Mocha Golden Dragon is “located in one of the busiest spots in Macau while enjoying proximity to sightseeing spots, hotels, the ferry pier and transportation,” said Constance Hsu, president of Mocha Clubs. The new slots raise Mocha’s total inventory to 2,100, the company said in a statement. At the end of last year, Macau’s gaming industry had around 16,000 slots and electronic gaming machines. Mocha is one of the biggest non-casino gaming operations in the city and is a subsidiary of Melco Crown Entertainment Ltd. But while it has just opened a new venue, Mocha Clubs may have to soon close another. A new set of rules on the location of slot machine parlours is to be enacted soon and it may lead to the closure of Mocha Marina Plaza parlour in Rua de Pequim.

Analysts estimate that the Mocha Marina Plaza contributes about 0.5 percent of Melco Crown’s EBITDA. Mocha Clubs’ adjusted EBITDA for the first nine months of last year stood at US$30.3 million (MOP242 million), while parent Melco Crown’s total EBITDA reached US$557.9 million. Asked in September whether Mocha Clubs was worried by the prospect of having to shut down the Mocha Marina Plaza, Ms Hsu was laconic. “We are always supportive and cooperative to the government’s policy and any plan in the near future shall be in line with the measures by the government,” she said. The government first proposed a ban on slot-machine parlours in residential districts in 2007. Local authorities also plan to issue a set of technical standards for electronic gaming machines this year.

Little impact The head of the Gaming Inspection and Coordination Bureau, Manuel Joaquim das Neves, said a bylaw banning parlours in residential areas would be ready by the end of next month. In a written reply to an enquiry from legislator Au Kam San, Mr Neves said the government would also work with the gaming industry to set a schedule for all parlours operating in residential areas to be removed. Aside from Mocha Marina Plaza, only Yat Yuen Canidrome Slot Lounge in Fai Chi Kei is considered to be in a residential area. The venue is owned by SJM Holdings Ltd. Union Gaming Research Macau said these new rules would have little influence on either Melco Crown or SJM. “We believe the closure of these two slot parlours will have virtually no impact on our forecasted 2012 adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) for both Melco Crown and SJM Holdings,” the company said in a recent report.

The Mocha Golden Dragon hosts about 300 slot machines and electronic tables over a floor area of about 1,850 square metres, which includes two VIP rooms. The new slots raise Mocha’s total inventory to 2,100 Constance Hsu, president of Mocha Clubs FEBRUARY 2012

Wishing on a star SJM Holdings’ new hospitality play is an up-scale Portuguese restaurant with big ambitions he newest addition at the Hotel Lisboa is Guincho a Galera, a Portuguese restaurant led by a talented young chef who promises to “revolutionise” diners’ taste buds. The restaurant opened last month and aims to “bring the best of Portugal to Macau”. Martinho Moniz, 31, was selected by SJM Holdings Ltd. to run the kitchen. He faces a considerable challenge given that the restaurant is paired with the Fortaleza do Guincho, an eatery in Portugal with a single Michelin star that is also part of the Stanley Ho Hung Sun’s family business empire. Hotel Lisboa general manager Samuel Yeung says that the Lisboa hotels complex is “the only hospitality property in Macau with three Michelin-starred restaurants and we hope to increase this number”. Mr Yeung says the hotel felt it was necessary to introduce a restaurant that offered fine Portuguese cuisine “because tourists come here from all over the world and they want to try genuine Portuguese food”. Mr Moniz has twice been awarded Lisbon’s Best Chef of the Year and last year decided he wanted to move to Asia. He started as head chef at Casa Lisboa, a Portuguese restaurant in Hong Kong. Now in Macau, Mr Moniz promises a gourmet menu featuring the best of Portuguese ingredients. “Portuguese cuisine is always associated with being cheap, unclassy food and what we aim to do is show that it’s a lot more than just that,” Mr Moniz says. “[Portuguese cuisine] is not as limited as people try to sell it in Macau.” The Hotel Lisboa and Grand Lisboa have three Michelin-starred restaurants: Robuchon a Galera, Macau’s only three Michelin-starred restaurant; The Eight, with two stars; and Tim’s Kitchen, with one star. Guincho a Galera is located in the space left vacant when Robuchon a Galera was moved to the Grand Lisboa and was renamed Robuchon au Dôme.

Photo: Carmo Correia

“Portuguese cuisine is always associated with being cheap, unclassy food and what we aim to do is show that it’s a lot more than just that,” chef Martinho Moniz says

LUSA NEWS AGENCY FEBRUARY 2012

Gaming

On the hop The Playboy Club’s move to the Venetian raises doubts over plans to open a replica of the Playboy Mansion at Cotai Central BY SARA FARR

year after it opened, the Playboy Club has moved from the top floor of the Sands Macao to another Sands China Ltd. property, the Venetian Macao. Since November last year, the bunny hutch has been at the Bellini Lounge, off the main gaming floor of the casino. The motives behind the move are unclear. No one at Sands China could shed light on why the club switched venues. Likewise, no one was able to confirm if plans to open a Playboy Mansion at Sands Cotai Central were progressing or if they had been changed. The company did confirm that the 1,114-square-metre area where the Playboy Club once was is being transformed into a VIP gaming area. But the company has released no details on it. The club already included gaming rooms when it

FEBRUARY 2012

opened in November 2010. “It’s still under design so we can’t confirm the details,” a spokesperson for the gaming operator told Macau Business, adding that “the design can take quite some time, as the junket operators are involved in it”. When the club opened, Playboy and Sands China had plans to open a much bigger 2,800-square-metre club at Sands Cotai Central. “[The Cotai project] will be bigger and grander in every respect,” Playboy Enterprises’ chief executive, Scott Flanders, told Macau Business in an exclusive interview at the time. “It will be our first [Playboy] mansion replica in the world. It is targeted to open in 2012 but, of course, that depends on the progress they make in finishing off those parcels.”

Last November, The Business Times in Singapore reported that management from Sands China said plans for a Playboy Mansion at Cotai Central had been discarded. Instead, the Playboy Club Macao would move to the Venetian. The newspaper report said moving the club from the gaming-centric Sands Macao to a resort setting would broaden the potential clientele. Playboy planned to open in Cotai before joining forces with Sands China. The company had an agreement with the developers of Macao Studio City to open a club there but backed out in 2009 when the project was at a standstill. “We signed with the Sands in May [2010] and six months later we are open. That speaks to how competent a partner they are,” Mr Flanders said back in November 2010.

MGM AND SANDS INCREASE WAGES MGM Macau last month announced a 5-percent increase of the salaries of all non-management workers plus a Chinese New Year bonus payout. Sands China Ltd. will also increase the salaries of its full-time, nonmanagerial employees by 6 percent. The company issued a bonus payout for 2011 to all employees. In November, chief executive Fernando Chui Sai On urged employers to raise the salaries of locals to allow them to catch up with the economic developments. Two months ago, SJM Holdings Ltd. announced all its workers would receive a pay rise of between five and 10 percent this year.

GALAXY DOUBLES NUMBER OF INTERNS Galaxy Entertainment Group Ltd. trained a total of 73 students from various universities last year, doubling the number of 2010, the company announced. A total of 21 students from the Institute for Tourism Studies, the Swiss Hotel Management School and the University of Nevada, Las Vegas (Singapore campus) successfully completed the internship program offered by the gaming operator in the second half of 2011. The number of departments involved in the internship program last year also increased from 14 to 31.

STANLEY HO OFF FORBES RICH LIST Angela Leong On Kei and Pansy Ho Chiu King make their debut on the ranking for Hong Kong’s top 40 richest For the first time in many years, casino mogul Stanley Ho Hung Sun is off the latest Forbes list of Hong Kong’s richest people, published last month. This comes after Mr Ho restructured his empire last year, passing on a big chunk of his wealth to his four families. Mr Ho ranked 13th last year, with an estimated net worth of US$3.1 billion (MOP24.8 billion). One of the people that benefited the most from the restructuring process was Angela Leong On Kei, who Mr Ho calls his fourth wife. Ms Leong made her debut on the Forbes list this year at number 21, with a net worth of US$1.6 billion. Mr Ho’s daughter from his second wife, Pansy Ho Chiu King, also made her first appearance on the list, having benefited from MGM China Holdings Ltd.’s IPO in Hong Kong in mid-2011. She ranked number 12, with a net worth of US$3.3 billion. Another well-known figure to Macau, the chairman of Galaxy Entertainment Group Ltd., Lui Che Woo, jumped to spot number 8 from 14 last year. Mr Lui’s net worth soared by 53 percent, to US$4.6 billion. Li Ka-shing led the 2012 Hong Kong’s 40 Richest Forbes list, with wealth estimated at US$22 billion, 8.3 percent less than last year.

ADELSON FAMILY PUTS MILLIONS INTO REPUBLICAN CAMPAIGN Las Vegas Sands Corp. boss Sheldon Adelson and his wife are supporting Newt Gingrich in the U.S. Republican presidential primaries to become the party’s presidential candidate. The Adelsons last month donated US$10 million (MOP80 million) to the campaign of Mr Gingrich, the former Republican speaker of the U.S. House of Representatives, several media reported. According to CBS News, this makes them the largest donor to date in the 2012 presidential campaign. Other candidates include former Massachusetts governor Mitt Romney, former Pennsylvania senator Rick Santorum and Texas congressman Ron Paul. The Republican Party primaries run until June 26. The U.S. presidential election will be held on November 6.

FEBRUARY 2012

Gaming

A foreigner-only casino in central Seoul

Tax-free gaming Korea’s foreigner-only casinos enjoy two-year tax reprieve BY MARTIN JOHN WILLIAMS*

outh Korea’s National Assembly has postponed the introduction of a consumption tax for foreigneronly casinos for two years as the government tries to increase the sector’s regional clout. The tax, which was to have been introduced at the beginning of the year, will now come into force on January 1, 2014, after the assembly’s Committee on Fiscal Affairs passed an amendment to the Individual Consumption Tax Act in late December. The revision aims to “help strengthen the competitiveness of casinos and stimulate tourism,” said Hwoo Yang, an analyst with Samsung Securities in Seoul, as sector analysts raised the ca-

FEBRUARY 2012

sinos’ earnings estimates and target prices. “It is positive that legislators perceived the need to strengthen competitiveness of foreigner-only casinos,” he wrote. Shin Young Securities analyst Seung-ho Han said the deferral is “designed to boost the tourism industry by luring more Chinese inbound travellers”, the industry’s fastest growing customer base. But Kangwon Land, the only one of South Korea’s 17 casinos to admit locals and easily the most lucrative in the country, will be required to pay the tax, as well as to pay 25 percent of its pre-tax profit to the Abandoned Mine Development Fund, an increase from 20 percent.

Seung-ho Han told GamblingCompliance last month that by increasing the tax burden on Kangwon Land, the government was in part reacting to “revenue ... that has increased very fast, so it is a little bit necessary to slow down the increase in government revenue”. “Problems about casino addiction of local people” influenced the move, he said, reflecting frequent media attention paid to public and political concerns over problem gambling.

Not all bad news Samsung Securities’ Hwoo Yang said there was an upside for Kangwon Land. “Although it appears that casinos for Koreans are subject to tighter

85 regulations, we expect measures to offset the additional taxation. As a result, Kangwon Land will likely add capacity this year,” he said. In addition, the National Assembly extended Kangwon Land’s licence from the end of 2015, to December 31, 2025, through an amendment to the Special Act on the Assistance to the Development of Abandoned Mine Areas. Woori Investment Securities analyst Joseph Chung stated that the extension would allow Kangwon Land to “maintain its exclusive rights as the only casino open to Korean nationals through 2025”. That wording overlooks concerted efforts by sections of the government, tourism authorities and several prominent casino developers such as Las Vegas Sands Corp. and Wynn Resorts Ltd. to allow local access to casinos ahead of the possible construction of a string of integrated resorts. One industry consultant said the Kangwon Land licence extension would have no impact on the push to liberalise the industry. “When Kangwon Land claims that it has ‘exclusivity’, it really means ... a

monopoly status until another operator/ location is found to qualify for a similar ‘exemption’,” said Steve Park, a former National Assembly policy adviser and a consultant to the Korea Tourism Organisation, a government agency that is pushing for reform. “All laws can be amended, especially a special temporary act that creates loopholes in existing laws like the Korea Tourism Promotion Act,” he told GamblingCompliance by email. “It would be a gross exaggeration to say that no new domestic casinos can open in Korea prior to 2025 because of this latest extension,” he said.

Airport casino In June last year, the Minister of Culture, Sports and Tourism Jung Byunggook said he supported locals having access to new casino resorts rather than the existing 16 foreigner-only establishments. Wynn Resorts chairman Steve Wynn said in May that he was ready to invest in such a facility in Korea as long as Koreans were allowed to gamble, citing the airport district in the

city of Incheon as a prime location for development. Last month, Bloomberg reported that Incheon International Airport Corp. is about four months away from signing a deal with an unnamed U.S. company to develop a US$3 billion (MOP24 billion) casino resort in the area, to woo increasingly wealthy travellers from China and elsewhere in Asia. The new resort, to be built near the airport 50 kilometres west of Seoul, would feature facilities such as a hotel, casinos, convention centres, shopping malls and hospitals, a spokeswoman for the airport told AFP. “We plan to develop the property like the resorts in Las Vegas or Macau,” she said, adding negotiations to select a developer are underway. The airport already earns 65 percent of its revenue from hotels, dutyfree sales and other services not directly linked to flying. Spending by Chinese and Japanese travellers account for more than a quarter of dutyfree sales. * EXCLUSIVE GAMBLINGCOMPLIANCE/MACAU BUSINESS

FEBRUARY 2012

Gaming

One step closer Taiwan casino legislation in sight after Kuomintang victory BY MARTIN JOHN WILLIAMS*

aiwan President Ma Ying-jeou won re-election last month and his Kuomintang (KMT) party retained control of the legislature, paving the way for passage of an offshore casino law this year. But an anti-casino legislator earned a surprise victory in Penghu, one of two favoured locations for gaming development. Mr Ma secured a second and final term with 51.6 percent of the vote, ahead of Tsai Ing-wen of the Democratic Progressive Party (DPP) with 45.6 percent, while the KMT maintained a comfortable majority in the legislature despite the loss of several seats. The KMT leader suffered a 7 percent swing against him, but the comfortable 6 percent margin of victory was larger than many polls had predicted and delivered Mr Ma a mandate to continue with his policy of more intimate commercial and financial ties with China.

FEBRUARY 2012

Ms Tsai, who had expressed strong opposition to casino development prior to a casino referendum in Penghu in September 2009, but who softened her approach at the outset of her campaign, announced her resignation as DPP leader following the electoral defeat. Liu Day-Yang, a government consultant and a professor and gaming specialist at the National Taiwan University of Science and Technology, said the focus of the government will now turn to improving communication with offshore island residents. “The local government and the central government have to work together. They have to build a comprehensive strategy” to convince locals that the “huge difference” to the local community will benefit it, Mr Liu said. “More preparation needs to be done,” he said. “After Chinese New Year, a lot of things could happen. I expect Penghu and

Kinmen islands will both see movement on the casino legislation.”

Surprise, surprise The KMT government has strongly supported the development of a casino industry on Taiwan’s outlying islands, and the Ministry of Transportation and Communications and its sub-agency, the Tourism Bureau, have been developing draft casino and integrated resort legislation, respectively. The two bills, which have been developed by Lin and Partners, a local law firm, and Macau-based Ocean Tech Group, are in the process of being harmonised by the ministry following delays in delivery, a number of inconsistencies between the drafts and an unhappy reception in Kinmen and Penghu, the leading contenders for casino operation locations. When complete, the drafts will be

Taiwan President Ma Ying-jeou

The KMT government has strongly supported the development of a casino industry on Taiwan’s outlying islands

presented to the cabinet before going to the legislature. After passage through the legislature, referendum proposals must be passed by individual island counties before investors can apply for government licences. However, the surprise victory of a DPP candidate in the island county of Penghu may increase the chances of the bill being held up in legislative committees, which approve draft legislation before general debate on the floor of the chamber. What had been dubbed by local media as a “prawn versus whale” battle saw long-shot anti-casino DPP candidate Yang Yao displace a five-term legislator who had supported building a casino resort in the Taiwan Strait island group. Mr Yang’s agenda of change for Penghu is much wider than a hostile stance on gaming development but the failure of Penghu’s casino referendum in 2009, together with Mr Yang’s elec-

tion victory last month, may weigh more heavily on those investing in the island group’s gaming future.

Still confident Ashley Hines, a consultant to CR201 Holdings Ltd., a company that bought the Penghu land assets of the defunct AMZ Holdings, which had anticipated deals with casino investors before the 2009 referendum defeat, said he remained confident that Penghu would pass a second referendum. Mr Hines said the Penghu election might have been influenced by hostility toward Penghu’s county commissioner and the cancellation of more than 40 flights from Taiwan on election day because of poor visibility at Penghu airport. The incumbent, he said, had been expected to dominate the votes of those returning to their registered voting locations. Taiwan has no absentee polling.

“Penghu remains pro-KMT,” Mr Hines said. “Ma Ying-jeou still got the majority in Penghu [in the presidential vote].” He added that in a meeting before the 2009 referendum, Mr Yang spoke of a more pragmatic stance on a casino, similar to Ms Tsai’s softer stance of demanding thorough regulatory preparations before considering a “yes” vote. In any case, Mr Hines said: “For gaming, the big picture of a KMT victory will come to bear more on the result of the referendum rather than Mr Yang.” During the election campaign, Mr Yang signed a pledge linked to the AntiGambling Legislation Alliance, which held a small demonstration last month near the Presidential Office in Taipei. The alliance announced that not only had Ms Tsai informed it she would oppose the development of casinos if elected president, but also that Mr Yang and a legislative candidate from each of Kinmen and Lienchiang counties — neither of whom was elected — had signed a pledge to “not agree to any legislation or amendment intending to open up casino development”.

Out of the campaign Meanwhile, Kinmen, which lies only a few kilometres off the coast of China and is considered by industry sources to be the favoured location for a first casino licence, elected a KMT legislator by a narrow margin after more than a decade of minority party legislators friendly to the KMT. In Lienchiang County, also known as Matsu, there was no evidence that the dumping of a KMT legislator for an independent candidate would affect the local enthusiasm for a casino resort. But the islands, which are also a short distance from the Chinese coast, have been struggling to secure investor interest owing to their small populations, remoteness and lack of infrastructure. Offshore casinos did not rate as a campaign issue, with the media focusing more on allegations of illegal election betting. Last month, police said the chief executive officer of Funtown, a gaming website, was being probed over allegations that the company took bets on election outcomes. The allegations, if proven, would violate gambling laws and restrictions on the use of poll data in a 10-day blackout period before election day. * EXCLUSIVE GAMBLINGCOMPLIANCE/MACAU BUSINESS FEBRUARY 2012

Gaming

Sparkling vintage

Philippines government-controlled gaming company Pagcor has ended a remarkable year after growing 16 percent n all-time revenue record was set by the Philippine Amusement and Gaming Corporation last year. Pagcor, the state-owned gaming company and regulator, reported revenue of 36.65 billion pesos (MOP6.77 billion), a 16.5 percent increase over 2010. Pagcor chairman and chief executive officer Cristino Naguiat says the

company set a monthly income record six times last year to define a “recordsetting year”. “We ended 2011 on a high note when we earned a staggering 3.50 billion pesos gross income last December. This is by far the highest revenue ever earned by Pagcor for a single month in its history,” Mr Naguiat said in a state-

ment released by Pagcor in the middle of last month. Income from Pagcor’s gaming operations reached 25 billion pesos last year, up by 14.3 percent over the previous year. The company’s previous record for annual gaming income was 23.28 billion pesos set in 2008. Mr Naguiat says Pagcor’s impressive performance came from “a more aggressive campaign” to improve gaming operations at its casinos. “We also employed a more practical approach to spending for our marketingrelated expenses. We are more efficient and cost-effective now in terms of doing our marketing programmes, particularly those programmes intended for our foreign players.” Fuelling the annual result was also revenue collected from gambling regulation, 11 billion pesos.

Reversal of fortune “When the new Pagcor management assumed office in July 2010, there were a lot of uncertainties, one of which is whether we could remain competitive or survive considering the presence of bigger casinos run by private licensees,” Mr Naguiat says. “Our 2011 performance proves that indeed we can compete. Pagcor can survive the competition if we work hard enough.” The outlook for this year and into next year is more challenging. Pagcor will brace for increased competition from domestic and international players as the first hotels and casinos at Entertainment City Manila are scheduled to open. “Two proponents, namely Bloomberry’s Solaire and the SM Consortium’s Belle Grande are expected to open by 2013 at the Entertainment City Manila. That means we will be up against two more integrated resorts with a gaming component by next year,” Mr Naguiat says. Erosion of Pagcor earnings is not something he is concerned about. Last year’s performance underlines a “prevailing optimistic outlook for the global gaming industry”. Pagcor is in an enviable position. It will always profit from an improved performance from its competition at Entertainment City Manila. “As a regulator, we expect to get substantial earnings in the form of regulatory fees,” Mr Naguiat says.

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89 JOSEPH E. STIGLITZ NOBEL LAUREATE IN ECONOMICS

The perils of 2012

GLOBAL ECONOMIC REBALANCING IS LIKELY TO ACCELERATE, ALMOST INEVITABLY GIVING RISE TO POLITICAL TENSIONS he year 2011 will be remembered as the time when many ever-optimistic Americans began to give up hope. President John F. Kennedy once said that a rising tide lifts all boats. But now, in the receding tide, Americans are beginning to see not only that those with taller masts had been lifted far higher, but also that many of the smaller boats had been dashed to pieces in their wake. In that brief moment when the rising tide was indeed rising, millions of people believed that they might have a fair chance of realising the “American Dream”. Now those dreams, too, are receding. By 2011, the savings of those who had lost their jobs in 2008 or 2009 had been spent. Unemployment checks had run out. Headlines announcing new hiring – still not enough to keep pace with the number of those who would normally have entered the labour force – meant little to the 50 year olds with little hope of ever holding a job again. Indeed, middle-aged people who thought that they would be unemployed for a few months have now realized that they were, in fact, forcibly retired. Young people who graduated from college with tens of thousands of dollars of education debt cannot find any jobs at all. People who moved in with friends and relatives have become homeless. Houses bought during the property boom are still on the market or have been sold at a loss. More than seven million American families have lost their homes. The dark underbelly of the previous decade’s financial boom has been fully exposed in Europe as well. Dithering over Greece and key national governments’ devotion to austerity began to exact a heavy toll last year. Contagion spread to Italy. Spain’s unemployment, which had been near 20 percent since the beginning of the recession, crept even higher. The unthinkable – the end of the euro – began to seem like a real possibility.

Even worse This year is set to be even worse. It is possible, of course, that the United States will solve its political problems and fi nally adopt the stimulus measures that it needs to bring

The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the West’s misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow

down unemployment to 6 percent or 7 percent (the precrisis level of 4 percent or 5 percent is too much to hope for). But this is as unlikely as it is that Europe will fi gure out that austerity alone will not solve its problems. On the contrary, austerity will only exacerbate the economic slowdown. Without growth, the debt crisis – and the euro crisis – will only worsen. And the long crisis that began with the collapse of the housing bubble in 2007 and the subsequent recession will continue. Moreover, the major emerging-market countries, which steered successfully through the storms of 2008 and 2009, may not cope as well with the problems looming on the horizon. Brazil’s growth has already stalled, fuelling anxiety among its neighbours in Latin America. Meanwhile, long-term problems – including climate change and other environmental threats, and increasing inequality in most countries around the world – have not gone away. Some have grown more severe. For example, high unemployment has depressed wages and increased poverty. The good news is that addressing these long-term problems would actually help to solve the short-term problems. Increased investment to retrofit the economy for global warming would help to stimulate economic activity, growth and job creation. More progressive taxation, in effect redistributing income from the top to the middle and bottom, would simultaneously reduce inequality and increase employment by boosting total demand. Higher taxes at the top could generate revenues to finance needed public investment and to provide some social protection for those at the bottom, including the unemployed.

Rebalancing of power Even without widening the fiscal deficit, such “balanced budget” increases in taxes and spending would lower unemployment and increase output. The worry, however, is that politics and ideology on both sides of the Atlantic, but especially in the U.S., will not allow any of this to occur. Fixation on the deficit will induce cutbacks in social spending, worsening inequality. Likewise, the enduring attraction of supply-side economics, despite all of the evidence against it (especially in a period in which there is high unemployment), will prevent raising taxes at the top. Even before the crisis, there was a rebalancing of economic power – in fact, a correction of a 200-year historical anomaly, in which Asia’s share of global GDP fell from nearly 50 percent to, at one point, below 10 percent. The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the West’s misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow. As a result, global economic rebalancing is likely to accelerate, almost inevitably giving rise to political tensions. With all of the problems confronting the global economy, we will be lucky if these strains do not begin to manifest themselves within the next twelve months. FEBRUARY 2012

Hospitality

FEBRUARY 2012

THE MORE THE MERRIER Macau crams 560,100 people into an area of just 29.7 square kilometres and absorbed 28 million visitors last year. Is it time to cap tourist numbers? BY SARA FARR ILLUSTRATIONS RUI RASQUINHO

oo much of a good thing can be bad. Macau has always wanted to make a name for itself as an international tourist destination, particularly after the gaming industry was liberalised in 2002. Now that Macau is on the map, millions of visitors flock to the city every year. The question is whether it can cope with the annual double-digit increase in tourist arrivals. The number of visitors rose last year to a record 28 million, 12.2 percent more than in 2010. Most came from the Greater China region. More than 16 million visitors were from the mainland, 22.2 percent more than the year before. The number of visitors from outside Greater China rose by just 2.1 percent to about 3 million. Visitors from the United States, Britain and New Zealand stayed the longest. Russia and Dubai will be this yearâ&#x20AC;&#x2122;s main target markets, especially as Russian visitors can enter Macau without a visa. Macau Government Tourist Office director JoĂŁo Manuel Costa Antunes told a

FEBRUARY 2012

Hospitality

press conference last month that breaking records was not everything. He said officials had to ensure visitors left satisfied and wanted to return. A new department under the Tourist Office to be set up this year is expected to lay down plans to meet the needs of tourists. But can Macau handle even more visitors?

Fixed-menu option Mr Costa Antunes says the city will cope with more tourists, ruling out any restrictions. “What needs to be done is to come up with more places of interest and tourist attractions for visitors to stay here longer,” he says. Some nations do limit tourist arrivals. Bhutan is the most well known, although it does not set an annual quota. “The number of tourists visiting Bhutan is managed according to our absorptive capacity to ensure promotion of our natural and cultural heritage through high-value tourism,” says the Tourism Council of Bhutan. Carlos Marreiros, a Macau architect with a background in urban planning, says the city has room for more tourists. “We have the capacity to welcome as many as 30 million visitors [a year],” he says. But Mr Marreiros says more should be done to attract visitors to cultural performances, for example. “We’ve managed to combine the gaming side of the city with the heritage side of things,” he says. “But more needs to be done to promote the cuisine and intangible heritage.” Mr Marreiros suggests tour packages that would let visitors experience a bit of everything, from gaming to the world heritage sites, fine traditional food and cultural performances. “These could be either performances organised by local associations or even the international festivals, such as the arts or music festivals, that people would not get to see in their home countries.” He wants more intensive training for tour guides and travel agents in an effort to create different tours apart from the routine of visiting shops that pay commissions to the travel industry. “The [tourist bus] underground parking lot in Tap Seac was designed to attract visitors to Lou Lim Ieoc

Tourist Office director João Manuel Costa Antunes says the city will cope with more tourists. “What needs to be done is to come up with more places of interest and tourist attractions for visitors to stay here longer,” he says

FEBRUARY 2012

Garden but the reality is that it doesn’t work this way,” Mr Marreiros says. “We hardly see visitors in that garden, which is full of history and has a great architectural combination of neo-classicism.”

Ferry, train, taxi Member of the Legislative Assembly Kwan Tsui Hang also wants a focus on developing heritage and cultural tourism but no restrictions on tourist numbers. She is concerned about the pressure that more visitors will place on infrastructure, although her solution is straightforward. “The government should allocate more resources to further improve the

RECORD CHECK-INS O

nce the final figure is calculated, it will show 2011 was another record year for hotels in Macau. Hotels and guesthouses accommodated 7.79 million guests in the first 11 months of last year, 10.9 percent more guests than in the corresponding period a year before, and more than the record 7.76 million guests welcomed in 2010. The average occupancy rate of hotels and guesthouses in the first 11 months was 83.6 percent, an increase of 4.5-percentage points at the same stage a year before. By the end of November, Macau had an inventory of 22,300 rooms, 63.5 percent were in five-star hotels.

overall infrastructure,” she says, adding that access by air and sea is poor. If the city’s streets are congested, it is not because of an excess of tourists, says Grant Govertsen, the managing partner and lead analyst at Union Gaming Research Macau. “We don’t have a tourist problem,” Mr Govertsen says. The problem, he notes, is the inadequacy of the infrastructure. He says work on the Light Rail Transit network should be accelerated and the taxi fleet expanded. The government has said it will boost the number of taxi licences by 200 this year. Mr Govertsen agrees with the construction of a new ferry terminal in Taipa. The Pac On terminal is expected to be finished by the middle of next year and will have the capacity to handle 15 million passengers a year. There has been some debate over whether the new terminal should be the city’s main maritime gateway, instead of the Outer Harbour terminal, and whether the latter should be relocated or even shut down. Mr Costa Antunes said last month he was in favour of having two ferry terminals to cope with the number of visitors. The head of the Maritime Administration, Susana Wong Soi Man, has already ensured the Outer Harbour terminal will not be relocated before 2017, as the government is getting ready to invest MOP50 million (US$6.25 million) in upgrading its facilities.

Inevitable increase Mr Marreiros blames congestion on the Transport Bureau. “I’d hate to see the transport authorities say the same as the health authorities did, when they said they had not foreseen the population growth,” he says. Macau could easily afford to bring in international experts “who know what they are doing” to assess the road network with a view to improving traffic flow, he suggests. The number of visitors is likely to increase regardless, Mr Govertsen says, because of improved infrastructure in the mainland, in particular the new railway connecting Guangzhou to Zhuhai. The Zhuhai terminus, just on the other side of the Border Gate, is due to be ready by the end of this year. On top of that, there is the Hong Kong-MacauZhuhai Bridge, he says. But Macau remains a “one-trick pony” since most visitors come from the mainland and their main reason for coming is to gamble, Mr Govertsen says. This, he stresses, is not necessarily a bad thing. The number of new resorts expected to open, combined with the rule that only Macau Identity Card holders can be croupiers, will mean higher pay over the years, Mr Govertsen says. “There could be a 10-percent increase in wages with the development in Cotai.” He says Macau will remain mainly a gambling destination since that is what most mainland visitors want and their visits are short. However, if they are presented with other options “then maybe the consumer behaviour would change,” he admits. For that to happen, Mr Govertsen says attractions need to be better promoted. FEBRUARY 2012

Hospitality

Accepting a challenge Few people thrive on handling Macau’s manpower shortages but the general manager at the Four Seasons Hotel has always welcomed a good challenge BY SARA FARR

aving called Asia home since 1992, Royal Rowe was only too ready to accept the opportunity to move to Macau in January two years ago to become the general manager of the Four Seasons Hotel Macao. He has witnessed firsthand the great change in the city but also at the property he now runs in Cotai. Perhaps the

most welcome change has been the increase in occupancy rates. “It has [now] begun to show signs of stabilising,” Mr Rowe says, adding that there were more visitors coming not just from Hong Kong but also from the mainland. The Four Seasons Hotel Macao opened in August 2008, a month ahead

of the Lehman Brothers bankruptcy that sparked the global financial crisis. Mr Rowe says that compared to those days of uncertainty and the stability of the past two years, he is expecting this will be a good year. Mr Rowe would not discuss specifics but says the room occupancy rate will rest above 80 percent this year. Last

LURE OF THE ORIENT R

oyal Rowe joined the Four Seasons Hotels and Resorts group at the age of 27. His first job was as a waiter but within three months he had been promoted to room service manager. Born in Virginia, Mr Rowe held various managerial positions in food and beverage and human resources in Washington D.C., Houston and Austin. His love affair with Asia began in 1992 with a move to Bali to handle the pre-opening phase of the Four Seasons Resort Bali at Jimbaran Bay. Two years later he was promoted to executive assistant manager and was appointed to handle the pre-opening of another property at Sayan in May 1997. He became the hotel’s general manager in 2001. A brief spell in Chiang Mai was followed by another pre-opening management role in Langkawi in March 2003. In 2007, he moved on to the Four Seasons Resort Maldives at Landaa Giraavaru and to Macau in 2010, where he says he feels very much at home.

Royal Rowe FEBRUARY 2012

The average length of stay at the hotel has also increased from about 1.25 nights to two nights – significantly higher than the city-wide average of 1.5 nights, says general manager Royal Rowe year it sat in the high 70s. It is not just occupancy that is on the rise, the average length of stay at the hotel has also increased from about 1.25 nights to two nights – significantly higher than the city-wide average of 1.5 nights. “The other thing I’ve really noticed, and this is from Chinese New Year to Chinese New Year, is the sophistication of our guests,” Mr Rowe says. “The guests that stay at this hotel have markedly improved each year.” While new resorts, such as Galaxy Macau that boasts three hotels, spring up around the neighbourhood, Mr Rowe welcomes the competition. He says he is not too worried about numbers dropping at the hotel. The guest numbers prove otherwise, even after Galaxy opened last year. The 37,000-square-metre, 20-storey high Four Seasons has 360 rooms. It was designed by Steelman Partners and includes a spa, three restaurants and two lounges.

Having opened its first hotel in 1961 in Toronto, Canada, Four Seasons Hotels and Resorts now manages 86 properties in 35 countries.

Being the best For a man who has travelled throughout Asia and likes a bit of adventure, Mr Rowe says his biggest challenge is striving to raise “the quality of our service levels, to be able to service the increased number of people”. Despite that being his biggest challenge, Mr Rowe says Macau provides more opportunities than pitfalls. “That is what I am supposed to be doing, to be able to react to positive situations that develop and get the staff going,” he says. “So those have been good challenges, not adverse things.” While many of the different sectors and industries, from small to big, complain of the lack of manpower, Mr Rowe says it is a question of working according to the regulations in place. “You

have to work within the system. That’s just something we have to deal with.” Mr Rowe says labour is tight here and the only time he ever worked in a similar situation was when he first moved to Texas in the early 1980s in the middle of an economic boom. “The unemployment rate was very low, literally about the way it is in Macau [now]. And it was challenging, you had to hire the best people you could find,” Mr Rowe says, adding that it was not always easy and more had to be spent on training. “It’s very similar to that here. But it’s a positive thing.” Mr Rowe’s bright-side-to-life attitude is reflected in his positive outlook on the hotel and business. “It could be a lot worse. We could be losing business. I’d rather train people than have to lay them off.” Future plans at the hotel will see it transition to a resort that caters more to families. FEBRUARY 2012

ENTER THE DRAGON The Year of the Dragon started on a high note for the tourism industry. During the holiday season, from January 23 to January 29, both the number of visitors and hotel guests went up

861,000

The number of tourists Macau welcomed during the Chinese New Year holiday, an increase of 6.9 percent over the same period last year.

14.5%

The year-on-year increase in the number of mainland tourists visiting Macau during the week-long festival. The total figure stood at 546,000.

750,000

The estimated number of people who visited the Venetian Macao during the Chinese New Year holiday. Sands China Ltd. said its properties in Macau welcomed over one million visitors during the period, up by around 6 percent.

20,200

The daily average number of hotel and guesthouse rooms sold during the holiday season, up 19.2 percent year-on-year.

95%

The average occupancy rate of five-star hotels during the Chinese New Year holiday, up 3.7 percentage points over the previous year.

MOP2,400

The average room rate of five-star hotels during the Chinese New Year festival, an increase of 6.3 percent compared with the same period last year.

28.1%

The year-on-year increase in the room rate of guesthouses during the festive season. The price stood at an average of MOP558.

The number of cases handled by the Macau Government Tourist Office during the Chinese New Year holiday regarding tourists alleging that tour guides didnâ&#x20AC;&#x2122;t comply with the itinerary they were sold. SOURCES: MACAU GOVERNMENT TOURIST OFFICE; BLOOMBERG

FEBRUARY 2012

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

Throwing sparks HOTELS ARE DESPERATELY SEEKING LEADERS THAT CAN FIRE-UP THEIR STAFF BY INSPIRING THEM eadership is a topic frequently discussed in the corporate world but seldom is its importance fully understood. True leaders are scarce and often mistaken for people who hold a managerial position but lack leadership skills, particularly the capacity to inspire those around them. This is a situation within several leading international hospitality companies. In any part of the world, hotel managers need to engage their employees but few can do so effectively. Motivating others is not hard. Most bosses resort to external factors, such as financial incentives or promotions to keep their staff motivated. A true leader goes beyond that. They inspire employees, boosting their commitment through processes that have little to do with pay. True leaders create a following of engaged workers by energising them. An energised employee works for the greater good of the company not because they feel forced into doing so, but because they are stimulated to do so. For inspired workers, the motivation to excel is deeply personal. These employees are less likely to be persuaded into new jobs by higher wages, and in many cases will pay a premium or suffer inconveniences to stay part of the team. Hotels that have great leaders in their ranks usually have the most loyal employees and the most loyal customers. These organisations also tend to be more profitable than the industry average. Hotels such as these tend to be more innovative and, most importantly, are able to sustain these competitive advantages over the long term. Inspired employees make for stronger companies and stronger economies.

We belong Why would a hotel think small and aspire to having only a few good leaders in key managerial positions? What if we could develop hotel employees who could think, act and communicate like those who inspire them? Just imagine the change that this could bring to society, not to mention to the hotels that were able to implement these programmes. If that were to happen, we would live in a place where people loved their jobs. This is no small transformation. Satisfied employees are more productive and more creative. They are happier and treat colleagues and customers better.

Hotels in Macau unfortunately don’t know how to communicate in an inspirational way with their employees. Because of this we experience unmotivated workers with no sense of loyalty

Unfortunately, as mentioned previously, although software is the primary differentiator of hotels, local hoteliers continue to focus on the hardware. The problem is that there is barely one type of hotel room in Macau that is exclusive. For most products, if not all, customers can shop around and reserve the same type of accommodation with the same features and quality for about the same price at more than one hotel. Hardware is easily copied. Properties that enjoy a firstmover advantage by introducing a new product to the market are likely to lose their edge in a matter of months. If a hotel is offering something truly novel and successful, someone will soon come up with a similar product. What is disturbing is that Macau hoteliers are not aware of this. If you ask local hotel managers why customers chose their property, most mention the superior quality of their hotels, the features and competitive prices – all selling points related to hardware. Wrong. In other words, most companies operating in Macau have no clue why their customers stay with them. This is both fascinating and disturbing. If companies do not know why their customers choose them, odds are they do not know why their employees work for them. These hotels will be incapable of boosting loyalty.

Loyalty surge Clients and employees are equally drawn to leaders and organisations that are good at communicating their vision and that do so in an inspirational way. Their ability to make people feel like they belong to something, to make them feel special, is essential. Those who are considered great leaders all have an ability to draw us closer and to boost our loyalty towards them. And we feel a stronger bond with others who are also drawn by the same leaders and organisations. Hotels in Macau unfortunately don’t know how to communicate in an inspirational way with their employees. Because of this we experience unmotivated workers with no sense of loyalty. In hospitality, leadership-driven loyalty means employees will stick with their employer even when the bad times come. Loyalty is not easily won. Managers need to earn it. Hotel companies must realise that in order to obtain their employees’ commitment they first need to develop great leaders; people who can inspire their staff, people who can communicate with them and provide them with a sense of belonging. Regrettably, this is not the case in the local hospitality industry. It hurts the thing hotel bosses say they care about the most: customers. It is time for Macau hoteliers to wake up. Leave your desk. Walk your hotels. Look at your employees and hire leaders who can inspire them. FEBRUARY 2012

Hospitality

MORE PEOPLE TO INSPECT ILLEGAL INNS

TOURISTS PAY MORE The average Tourist Price Index for the whole year of 2011 increased by 15.5 percent from 2010

The Tourist Price Index for the fourth quarter of 2011 increased by 18.9 percent year-on-year. The increment was caused by dearer accommodation prices, the Statistics and Census Service said. The sub-price indexes of accommodation and restaurant services were up 35.0 percent and 19.2 percent, respectively. The Tourist Price Index rose by 9.8 percent quarter-to-quarter, impacted by a substantial increase in hotel room rates during the National Day, the Macau Grand Prix and Christmas holidays. The average Tourist Price Index for the whole year of 2011 increased by 15.5 percent from 2010, well ahead of inflation in Macau, which stood at 5.81 percent for the same period. The Tourist Price Index reflects the price changes of goods and services purchased by visitors.

The Macau Government Tourist Office announced it is recruiting more staff to better enforce the law on the provision of illegal accommodation. The bureau pledged in a press release it would continue to fight against illegal inns. The Tourist Office has sealed more than 180 premises suspected of providing illegal accommodation since the new law on illegal accommodation was enacted, in August 2010. Over 1,100 apartments have been inspected.

ANGER OVER PACKAGE TOUR ACCOMMODATION ARRANGEMENTS

SHERATON MACAU TO OPEN SEPT 15 Sheraton Macau Hotel, at Sands Cotai Central, will open its doors on September 15 according to the propertyâ&#x20AC;&#x2122;s website. The hotelâ&#x20AC;&#x2122;s twin towers will feature 4,000 guestrooms, several restaurants and lounges, around 5,000 square metres of meeting space, as well as health clubs and outdoor swimming pools.

FEBRUARY 2012

A group of mainland tourists got into an argument last month with their Macau tour guide expecting to spend the night in the city. It was another case of package tour gone wrong. The group came to Macau on a tour organised by a Shenzhen travel agency. Expecting to spend a night in the SAR as part of the package tour, the local tour guide had received different instructions: to tour the city with the tourists during the day and send them off to Zhuhai where they would spend the night. The dispute was settled only with the help of the Travel Industry Council of Macau and the Macau Government Tourist Office. According to the Tourist Office, there was nothing illegal about what the tour guide had done.

Meetings & Conventions

Uphill struggle

The number of conventions and exhibitions held in the city has fallen for three straight quarters and it is anyone’s guess what this year has in store BY SARA FARR

he meetings, incentives, conventions and exhibitions industry is struggling. There were 771 MICE events in the first nine months of last year, a 24-percent drop over the same period a year before and it is unclear if the industry can turn its performance around this year. Eva Lou, president of the Macao Convention and Exhibition Association, forecasts a better year. She says the number of events may rise by about 10 percent based on early bookings. “There are medical manufacturers bringing meetings to Macau and there’s an annual car show, yacht show, as well as the Macau International Fair and the Macao International Environmental Cooperation Forum and Exhibition.” Less sanguine about the industry’s future is Charles Greco, the president and chief executive of trade show and event management company Universal Event Management LLC, with offices in the United States, Macau and India. “The reason is tied to many factors,” says Mr Greco, who was formerly the

executive director of Asian trade shows for the Venetian Macao. “Hotels and casinos will not be interested in really developing MICE business when their hotel rooms are filled at 98 percent of their rack rates.” Mr Greco says the situation will not change until hotels begin to “overdevelop”, making it more difficult to fill their rooms. Only then will they resort to MICE events to shift their inventory. Last month, the chairman of the Macao Convention and Exhibition Association Li Zhizhong told a forum on Macau’s MICE industry that business could be boosted by the establishment of an international bidding centre for MICE events. The aim would be to attract big international events, giving the city global exposure.

Visibility is key The idea to create an international bidding centre for MICE events in Macau was first presented to the government by leading industry representatives in December. A spokeswoman for the

Economic Services Bureau said the proposal was aired during a meeting of the Committee for the Development of Conventions and Exhibitions, a body created by the chief executive in 2010 that includes industry and government representatives. The idea would receive further attention from the body in the coming months, she said. Even without a bidding centre, “the government has plans to accelerate growth in the industry on multiple fronts, one of which being the hosting and co-organising of important conferences and exhibitions,” the spokeswoman said. Experts from neighbouring countries, including Malaysia and Singapore, told the industry forum that Macau should set new goals and devise a new strategy for the MICE sector. Glenn McCartney, assistant professor of hospitality and gaming management at the University of Macau, says Singapore has superior coordination, with all parties involved in the industry, FEBRUARY 2012

100

Meetings & Conventions If Macau’s MICE industry as a whole performed poorly last year, the incentives segment had a year really best forgotten. Just 45 incentive events took place in the first nine months of last year, down two-thirds from the same time a year before. In an effort to turn the business around, the Macau Government Tourist Office started last month a year-long programme to stimulate incentive travel and team-building activities. The aim is for each event to have at least 50 overseas participants staying at least two nights in a Macau hotel. Events such as these will be eligible for a maximum subsidy of MOP300 for each participant not holding a Macau identity card. The tourist office will also hand out complimentary tourist information kits, welcome gifts and free admission to the Wine Museum and Grand Prix Museum. Ms Lou says the programme is likely to boost the number of incentive events held here.

Spaced out

“The government has plans to accelerate growth in the industry on multiple fronts, one of which being the hosting and co-organising of important conferences and exhibitions,” a spokeswoman for the Economic Services Bureau says from transport to hospitality businesses, sharing information. “It’s not perfect but it does have a destination image and that’s at the top of everyone’s agenda.” Mr McCartney says Macau should make itself more conspicuous internationally. The points-of-contact for convention organisers “need to say Macau is a good destination, that it is a preferred destination”. He says many MICE events are repeat events, so Macau cannot afford shortcomings in simple things such as urban transport and lighting equipment in venues. Official figures show Macau’s MICE industry is currently far from lucrative. FEBRUARY 2012

In the first nine months of last year the combined revenue of exhibition organisers was MOP32.5 million (US$4.1 million) but their expenditure was MOP44.2 million.

Disincentives segment Gary Grimmer, the head of international consultancy Gaining Edge, argued at last month’s forum that the government alone cannot do everything. Ms Lou says otherwise. “Conventions run by the government would be the right way [to go] because not all exhibitors are big spenders and can afford rents at the Venetian, for example,” she says.

The Tourist Office launched its first strategic MICE subsidy programme in 2009 to help counter the negative effects the global financial crisis was having on corporate travel of all kinds. The latest version of the programme is continuing under the Economic Services Bureau. The government is also considering offering training and sponsorship to present and prospective MICE organisers. Mr Greco’s Universal Event Management last month began studying the feasibility of a multi-purpose convention centre in Macau, primarily for business-to-business conventions. While he acknowledges the city cannot fill all the convention space it already has, Mr Greco says Macau lacks the right kind of space. “What has been built already is a centre for the future [the Venetian Macao], not the present,” he says. “More important than the size and shape of the structure will be its components.” University of Macau academic Mr McCartney is sceptical. “You can judge occupancy and say there aren’t enough hotel rooms etcetera, but what we find is that there’s space you can’t fill,” he says. He says the MICE industry needs to have a vision before it can have a strategy. “Where do you want to be 10 years from now? We need a research or audit team in place to adjust the strategy, should it need to change.”

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

14th-17th

5th Anti-Corruption Asia Congress

Renaissance Harbour View Hotel Beacon Events 20/F Siu On Ctr, 188 Lockhart Rd, Wanchai, Hong Kong (852) 2531 6107 (852) 2586 1999 www.beaconevents.com cs@BeaconEvents.com 21st - 23rd

Gaming Executive Summit LatAm

Panama City, Panama Terrapinn 96 Spring Street, 4th Floor, New York, NY 10012 (1) 212 379 6322 (1) 212 379 6319 www.terrapinn.com enquiry.us@terrapinn.com

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

6th - 8th

iGaming Asia Congress

Grand Hyatt, City of Dreams, Macau Beacon Events 20/F Siu On Ctr, 188 Lockhart Rd, Wanchai, Hong Kong (852) 2531 6107 (852) 2586 1999 www.beaconevents.com cs@BeaconEvents.com 16th - 19 th

ENADA Spring

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

24th - 26th

Global iGaming Summit and Expo

May Date: Event: Venue:

1st - 3rd

UAE Ministry of Foreign Trade Annual Investment Meeting

Dubai International Convention & Exhibition Centre (UAE) Organiser: Annual Investment Meeting Organizing Committee Address: P.O.Box 10161 Dubai, UAE Tel: (971) 4 39 23232 Fax: (971) 4 39 23332 Website: www.aimcongress.com E-mail: info@aimcongress.com Date: Event: Venue: Organiser: Address:

29 th - 31st

Tel: Fax: Website: E-mail:

Venue: The Venetian Macao-Resort-Hotel Organiser: Macao Trade and Investment Promotion Institute (IPIM) Address: World Trade Centre Building, 1st & 4th Floors,918, Avenida da Amizade, Macao Tel: (853) 2871 0300 Fax: (853) 2859 0309 Website: www.ipim.gov.mo E-mail: ipim@ipim.gov.mo

Anti-Corruption China Summit

Andaz Shanghai Beacon Events 20/F Siu On Ctr, 188 Lockhart Rd, Wanchai, Hong Kong (852) 2531 6107 (852) 2586 1999 www.beaconevents.com cs@BeaconEvents.com

Venue: San Francisco, CA (TBA) Organiser: Clarion Gaming Address: Earls Court Exhibition Centre, London SW5 9TA, UK Tel: (44) 0 20 7370 8579 Website: http://www.gigse.com/ E-mail: yeemay.huang@clariongaming.com

Rimini Expo Centre Rimini Fiera Via Emilia, 155, 47921 Rimini - Italy (39) 0541 744 214 (39) 0541 744 454 en.enadaprimavera.it g.zoni@riminifiera.it

2012 Macao International Environmental Co-operation Exhibition and Forum (MIECF)

24th - 26th

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

10 th - 12th

GTI Asia Taipei Expo

Taipei World Trade Center, Taiwan Haw Ji Co., Ltd 2F, No. 17, PaoChing St., SongShan Dist., Taipei City 10585, Taiwan (886) 2 27607407 (886) 2 27 42 0522 www.gtiexpo.com.tw gametime@taiwanslot.com.tw 22nd - 24th

G2E Asia

The Venetian Macao-Resort-Hotel Reed Expo 39/F Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (852) 2824 0330 www.g2easia.com info@g2easia.com

April Date: Event:

19 th - 20 th

Mobile Payments & NFC World Summit 2012

Venue: Eaton Smart Hong Kong Organiser: Symphony Global Pte Ltd Address: 10 Anson Road, #26-04 International Plaza, Singapore 079903 Tel: (65) 6474 1471 Fax: (65) 6725 8438 Website: www.symphonyglobal.com E-mail: 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”. TBA : To be advised |

: A Macau Business partner event

FEBRUARY 2012

102

Environment

Money isn’t everything Government investment in protecting the environment has increased but officials lack a strategy and must be stricter in enforcing the law

Photo: Luís Almoster

BY LUCIANA LEITÃO

ver the past three years the government has put protecting the environment at the top of its agenda, throwing money at the problem. Experts think the results are mixed. There is little indication that Macau’s environment has improved. The number of complaints about air and noise pollution has soared since 2008, people are throwing away more rubbish and the amount of recycling is still negligible. Hojae Shim, an academic teaching environmental engineering at the University of Macau, says authorities have spent more on the environment since the establishment of the Environmental Protection Bureau in 2009. However, he notes there have been no great changes in the quality of the environment, in-

FEBRUARY 2012

cluding the air and water. It may take time for Macau to catch up with more advanced jurisdictions, Mr Shim says. Government spending on the environment looks hefty – on paper. It budgeted MOP1.76 billion (US$220 million) for regional planning and the environment for this year. That was MOP233 million more than in 2011. However the numbers can be misleading. In 2009, the government budgeted MOP1.45 billion for regional planning and the environment but ended up spending less than half that amount. Even so, the government’s real spending in this field in 2009 more than doubled from the previous year. To make things more complicated, the environment is the responsibility of

several bureaus, and no single secretary oversees spending. Apart from the Environmental Protection Bureau, the Civic and Municipal Affairs Bureau, the Maritime Administration, the Office for the Development of the Energy Sector and the Transport Bureau all spend money on the environment.

In the air Mr Shim has a long list of environmental problems that need to be solved, ranging from air and water pollution to soil contamination. “For most local people, their biggest concern still would be about the quality of air and water,” he says. The number of air pollution complaints to the Environmental Protection Bureau rose by 119 percent to 357 in 2010.

103

The government’s environmental protection measures for this year include promoting the use of cleaner vehicles. It will try putting electric buses into service and buy electric cars for its own fleet, among other things. But car dealers complain about the lack of licensing rules for electric vehicles, which scares away buyers. Local authorities announced last month tighter standards on gas emissions for new vehicles.

The government will push ahead with water recycling. The first water recycling system will be in Seac Pai Van’s public housing complex. Recycled water will be used to flush toilets and water gardens. The project entails the construction of a wastewater recycling plant in Coloane. The new campus of the University of Macau, on Hengqin Island, is also set to use recycled water. Mr Shim says protecting the environment requires more than just investment in infrastructure. There is also a need to strictly enforce the law and punish offenders more severely. There are new bills being drafted to protect the environment, including legislation requiring environmental impact assessments for construction projects and legislation regulating noise, but no major change is scheduled to take place this year. A spokesperson for the Environmental Protection Bureau predicted that it would take three to five years to establish an environmental impact assessment regime. The bureau is also working on a blueprint for environment protection planning up to 2020. The blueprint will cover the management of air quality, water quality, waste, noise and energy. Adding to this, the Environmental Protection Bureau is currently studying ways to limit the use of plastic bags and promoting the adoption of environmentfriendly guidelines for construction projects. The government seems less interested in flexing its muscles to protect the environment than in increasing awareness of the environment through education. This has been the Environmental Protection Bureau’s main task so far, which has led to it being criticised for lacking teeth.

Back to school In 2010, the Environmental Protection Bureau and the Civic and Municipal Affairs Bureau organised more than 500 educational activities intended to increase environmental awareness, such as seminars and exhibitions, which attracted about 475,000 people. Those activities cost MOP6.6 million.

Mr Shim agrees that Macau people are in sore need of more education about the environment. “Several times I feel many local people, including some students taking my courses, are just very much indifferent to whatever is going on environmentally, even though they are the ones generating all kinds of environmental problems by driving more cars and motorbikes, by generating more garbage and using more water, while not separating waste,” he says. The government is trying to help businesses to go green. The newly created MOP200 million Environmental Protection and Energy Conservation Fund subsidises the acquisition of green facilities, technology and products by companies and associations. Last December the fund approved its first four grants to companies. Among other things, the first grants will help pay for the installation of LED lighting and kitchen extractor hoods. The value of the grants was not made public. Wang Zhishi, a member of the government’s Environment Consultative Council, says the authorities have been investing heavily in environmental protection – proportionally more than Zhuhai or Hong Kong. He points to investment in infrastructure to improve waste management and treatment.

Goal setting Mr Wang, an environmental engineering expert at the University of Macau, says size matters in environmental protection and this is a problem for Macau. He says noise and air population are aggravated by the high density of the city’s population. “We have a big population and a shortage of land, so this condition determines any government actions,” he says. Even so, Mr Wang says officials could do more. They lack “a clear strategic target”. He wants to see short-term goals. For example, the government should set ceilings for carbon dioxide emissions. “Every year [those ceilings] could improve, based on Macau’s economic development,” he says. Some targets have already been set. The water conservation plan envisages

FEBRUARY 2012

104

Environment

the reduction of Macau’s annual imports of water from the mainland by 22.7 million cubic metres by 2025 –30 percent of the volume imported in 2008. The amount of mainland water Macau used in 2010, 76.2 million cubic metres, was already 1.9 percent less than the year before. The government’s Water Conservation Working Group declined to say how much it has spent so far on saving water but did say it had installed more than 6,000 conservation devices in schools. The taskforce spent MOP400,000 to distribute 40,000 water-saving nozzles to 20,000 small and medium enterprises in 2010. There are also conservation programmes for hotels and water bill rebates for consumers that reduce the amount they use, aside from a progressive water tariff. The Office for the Development of the Energy Sector is in charge of the government’s energy conservation efforts. Its coordinator, Arnaldo Santos, says businesses have so far responded positively. Yet electricity consumption in the first nine months of last year was 4.7 percent higher than in the corresponding period of 2010. The business sector’s consumption increased by 4.1 percent, and the gaming sub-sector’s rose by 8 percent. Casinos use more than one-third of all electricity consumed in Macau.

Progressive thinking Mr Santos sees the glass half full. He says economic growth usually entails higher consumption of energy. But, he says, the amount of energy consumed per unit of gross domestic product has been decreasing, as has the amount of water consumed per unit of GDP. “Casinos are very conscious. They know they spend a lot,” Mr Santos says. “Some of the casinos have reduced energy consumption by around 10 percent.” The Office for the Development of the Energy Sector intends to introduce a progressive electricity tariff, like the progressive water tariff. “This will also help to make people more cautious in the usage of electricity: you use more, you pay more,” Mr Santos says. He stresses his office’s surveys indicate that people are more conscious about the importance of saving energy, but he admits that many are still not acting accordingly. To promote awareness, his office has come up with a technical manual FEBRUARY 2012

for energy conservation in buildings. It has also encouraged several public-sector bodies to make energy conservation plans, to use energy-saving technology in their premises and to follow management schemes to reduce energy consumption. The Office for the Development of the Energy Sector has been especially active in promoting the use of renewable energy, principally by installing solar panels on some public facilities. “At this moment, the only renewable energy that we can make use of is solar. Wind in Macau is not enough and we don’t have land to spare,” Mr Santos says. Mr Santos says the next step is to set standards to allow greater use of renew-

able energy in the private sector. “We are preparing draft legislation to set up and to define the safety and technical standards for [solar panel] installation.” He hopes the process of enacting this legislation can begin this year. “After this, we will have the conditions to promote solar energy on a bigger scale,” says Mr Santos. Macau already has an incentive to adopt more environment-friendly practices. The Environmental Protection Bureau projected in 2010 that if no conservation measures were taken, water consumption would climb by 63 percent between 2008 and 2020, electricity consumption by 29 percent and greenhouse gas emissions by 32 percent.

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

Green credibility gap OFFICIALS OFFER SWEET WORDS, SAYING THEY HAVE A SOFT SPOT FOR THE ENVIRONMENT, BUT ARE YET TO PROPERLY DELIVER ON POLICY OR ITS PROTECTION n a report in this issue of Macau Business, the government reassures us that its concern for the environment remains as strong as ever and it is noticeably increasing the amount of public money spent on it. It is pleasing to note that the environment is a major priority and that something is being done to improve it. The main apprehension however is that it is diffi cult to fi nd any other policy area where the disconnection between the aims, actions and outcomes is wider. We can start by gently reminding readers about the existence of environmental norms that are routinely ignored. Nobody seems to comply with them or feel responsible for punishing non-compliance. A case in point is the environmental policy framework law, which celebrated – if that word can be used here – its 20th anniversary last year. Offi cials rarely, if ever, invoke this law. Occasionally a reference is decoded by those close to the matter and an allusion is made to the lack of specifi c rules or the need to overhaul existing legislation. No one seems to take responsibility for the absence of regulations that the law explicitly requires, or for the obvious disregard of its provisions. Sooner or later, we will likely hear someone saying the framework law is too old, the world and Macau have changed and that it needs to be adapted. And yet, the basis for any environmental policy worth its salt has always been in the framework law’s subsidiary legislation. In Macau’s case, there has been a two-decade delay in drafting those subsidiary regulations. Any specifi c rules produced now will probably have come too late to be truly effective.

Downhill slide

It comes as a surprise to no one to say that the quality of the environment does not seem to have improved lately. To state the most obvious, the days of poor visibility due to air pollution seem to be increasing; the heaviness of the air we breathe is worse in some areas of the city; thick dust clouds associated with construction sites, including public works, are only too visible. That is not all. The number of motor vehicles grows continuously and a lot of them are heavy vehicles on almost continuous duty. Traffi c jams are becoming a permanent feature at some major intersections, increasing the duration time of travel. All this means, simply, more air pollution emissions. On top of that, many vehicles travel with their own cloud of visible black fumes. Among them are a signifi cant number of vehicles in the public service. This is one of the few sectors in the economy which is subject to emission standards but not even the public service seems to be able to comply with them. The government last month announced those standards would be further tightened. To make matters worse, the absence of real urban planning may be leading to the multiplication of buildings

that block air fl ow, trapping in pollution and heat. Even so, no policy address is complete without a renewed commitment to improving the environment. No offi cial fails to declare how much of a priority are both the protection of the environment and the improvement of the quality of life of residents. And, so we are told, a lot of activities are carried out and a lot of money is budgeted for environmental protection, although this isn’t necessarily refl ected in the amounts actually spent or, much less, well spent!

Adding hot air

Besides promises of new regulations and action, much government-funded environmental activity falls into the category of promoting awareness. I have nothing against those types of activities but it seems a limited approach. Taking the offi cial data at face value, an average of 10 awareness actions were carried out for every week of 2010 and involved almost 90 percent of the Macau population. Impressive, but was there any evaluation of their impact? How many hours of work did those actions involve? Did anyone consider an alternative use of those resources that might be less visible but more effective? Did anything change? What is the point of, say, spending money and time in promoting domestic garbage separation and getting households to participate if the resources and facilities for recycling are sub-standard, leading to most of the rubbish being dumped in landfill or burnt in an incinerator? There are other pertinent questions. Can the government’s agencies identify with a reasonable level of confi dence the leading sources of environmental degradation and measure them accurately? Is there an accurate estimate of the social and economic costs of these pollutants? Has a “hit list” been established that includes a hierarchy of important and urgent actions? Is there a calendar, a clear list of priorities, for policy development and implementation? To be straightforward about these matters, will we have a coherent environmental policy any time soon? Promises are occasionally made about this or that issue. This is the case with mandatory environmental impact assessments. But to be told that the legislation being developed may take three to fi ve years until it is ready does seem too timid as a policy aim. They are mandatory in the 20-year-old environmental policy framework law, a legal precondition for the licensing of major works, public or private. This situation suggests a parallel with the idea that an urban planning regime will be developed once a use has been determined for the 361.65 hectares of land the current land reclamation scheme will create. In urban planning, as in environmental protection, it may well happen that we will have sophisticated legislation only after all or most of the decisions for which those regulations mattered have been made. Should that happen, the laws would be ornaments to display, not actual foundations for our wellbeing. In some jurisdictions, that type of outcome might be deemed a dereliction of duty. FEBRUARY 2012

106

Marketing

Brand morality tale Facing a marketing crisis, a brand owner must publicly acknowledge its mistakes, and be open and honest – unlike Dolce & Gabbana BY LUCIANA LEITÃO

talian fashion house Dolce & Gabbana was last month embroiled in a marketing crisis as hundreds of people gathered outside the company’s Tsim Sha Tsui shop in Hong Kong for a string of demonstrations. The protests arose after reports that a security guard at the store had told Hongkongers that only foreigners and mainlanders were

FEBRUARY 2012

allowed to take pictures of the window displays. Did Dolce & Gabbana manage this marketing crisis properly? Experts tell Macau Business it did not. The crisis erupted on January 5, when the Apple Daily newspaper broke the story. A public outcry followed and the shop became the target of a series

of protests organised on Facebook. On January 8, more than 1,000 protesters gathered in front of the store to demonstrate their anger by taking photos of it. The shop had to be closed for some days because of the protests. Dolce & Gabbana issued its first statement on the issue three days after the Apple Daily report. It was evasive.

107 “We understand that the events which unfolded in front of the Dolce & Gabbana Boutique on Canton Road have offended the citizens of Hong Kong, and for this we are truly sorry and we apologise,” the company said. “The Dolce & Gabbana policy is to welcome the Hong Kong people and that of the whole world, respecting the rights of each individual and of the local laws.” Many details of how this controversy arose remain unclear. The photo ban – if there was one – also stirred a debate in Hong Kong over the balance between the right to take pictures in public places and protection of the trademark of goods displayed in shop windows.

No casualties Joseph Sy-Changco, an assistant professor of marketing at the University of Macau, says if it is true that there was policy of not allowing locals to take photos of the window displays, the policy was clearly discriminatory. If it is not true, Dolce & Gabbana should have explained clearly to the public what its policy was, Mr Sy-Changco says. “What is important is that they should be able to clear up things with the public,” he says. Mr Sy-Changco says the mistakes most commonly made by companies in such situations include not responding to the crisis in time or denying outright any wrongdoing. The consequences may be onerous and customers may lose their confidence in the brand, he says. “They will no longer trust the brand. They could easily migrate to other brands.” Looking at the Dolce & Gabbana affair, Mr Sy-Changco believes people will quickly forget about it. “The mainland and foreign tourists will continue to buy and even Hong Kong people will. The negative effect will be minimal and short-term.”

Hard to swallow “We wish to underline that our company has not taken part in any action aiming at offending the Hong Kong public,” it said. As the protests showed no signs of dying down, the fashion house issued another statement 10 days after the first, acknowledging it had offended the Hong Kong people and apologising.

There have been marketing crises that have been much more damaging. Mr Sy-Changco recalls the Chicago Tylenol murders in 1982. Seven people died in the United States after taking Tylenol pain-relief medicine capsules that somebody had laced with poison. No suspects were ever charged and the case remains unsolved. But Mr Sy-Changco says this is a good example of how a

brand owner – in this case, Johnson & Johnson – can manage a crisis well. Johnson & Johnson offered a US$100,000 (MOP800,000) reward for the capture and conviction of the killer. The company sent out warnings to the public not to take Tylenol, to doctors not to prescribe it and to distributors to hold their stocks. It halted Tylenol production and advertising and recalled all Tylenol products in the United States. When it emerged that only capsules had been poisoned, the company offered to replace capsules already sold with tablets. The result of taking these steps was that in a few years Tylenol had more than regained the share of the market it held before the killings. An associate professor of marketing at the University of Macau, Desmond Lam Chee Shiong, agrees that Johnson & Johnson’s handling of the Chicago Tylenol murders is a good example of how a company should act in a crisis. “The brand was maintained and even boosted because of the company’s handling of the crisis,” Mr Lam says. In contrast, a classic example of poor management of a marketing crisis is the Perrier water affair of 1990, says Mr Sy-Changco. Excessive quantities of benzene, a chemical that can cause cancer, were found in Perrier water sold in the United States. Perrier initially said it was an isolated incident and that its underground spring was not contaminated. A few days later it admitted that water contamination had occurred after employees failed to replace charcoal filters that filter out benzene. And, worse, it kept on changing its story after that. The result was that Perrier was forced to halt production and recall all its bottled water worldwide. One year later, its sales were less than half what they had been before. Eventually, the company was taken over by Nestlé SA.

Failure to understand Mr Lam says Dolce & Gabbana used a “weak” strategy in response to the photo ban affair. “Companies which successfully overcome a crisis do so by ‘telling it fast and telling it all’,” he says. This precludes the news media from trying to guess what happened, as they did in the Dolce & Gabbana affair because the company’s response was “not timely and not open,” he says. When a crisis is poorly managed, FEBRUARY 2012

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Marketing

it can harm a brand’s reputation and create a negative impression. “Sales and shares can drop sharply in the short term. Over time, negative word-ofmouth among customers makes it hard for the brand to recover,” says Mr Lam. Although he thinks Dolce & Gabbana reacted poorly, he does not think the affair will badly damage its reputation among most of its customers in the long run. “I think a silent boycott by its Hong Kong buyers is highly possible in the short term, hence leading to reduced sales for the brand within this period. This may be due in part to negative media coverage of its inadequate actions.” Another assistant professor of marketing at the University of Macau, Lancy Mac, agrees that Dolce & Gabbana mishandled the affair. “Dolce & Gabbana definitely was not prepared whatsoever for any crisis like this and reacted very slowly,” says Ms Mac. She says it took the fashion house more than a week to respond properly. Ms Mac believes this reveals a poor public relations strategy and mismanagement in particular of relations with the Hong Kong public. It also shows that the company did not have a sound marketing strategy, in that it failed to understand different kinds of customers and how to best serve them, she adds.

Knowing your beans If there was a photo ban, it may have been due to demands by some VIP customers for privacy while shopping, Ms Mac says. “If the company is able to understand that these customers need special treatment, things should be organised much better, perhaps with a VIP corner, or in terms of design of the shop windows, in order to offer more privacy.” Ms Mac says another problem revealed by the affair is that many brands face internal marketing challenges – that is, failing to get employees to understand and serve customers properly. She says the crisis was probably due to decisions taken by untrained front-line staff. Comparing brand owners, Ms Mac says Starbucks Corp. is one of those successful companies that know what its customers want and generally trains its employees accordingly. “It is quite puzzling to find that even a coffee shop can do this, but luxurious brands selling expensive merchandise can’t.” FEBRUARY 2012

When a marketing crisis occurs, brand owners must act quickly and honestly, she says. “The Dolce & Gabbana case is probably a wake-up call for many of these brands that they have to be more sensitive to different customers’ needs as well as the local publics where they are operating.” Lynn Grebstad, a partner in Hong Kong public relations company Grebstad Hicks Communications, calls Dolce & Gabbana’s behaviour insensitive. “They’ve allowed the whole situation to blow out of control. They didn’t issue a statement at the beginning,” says Ms Grebstad. She says a marketing crisis occurs when “anything damages the public perception of your brand”. That was exactly the case in the Dolce & Gabbana affair. Ms Grebstad says Dolce & Gabbana failed to be open and honest throughout. “They should have come out, they should have said this was a

mistake, this was not really a wellthought policy – if, indeed, it was a policy,” she says. She believes Dolce & Gabbana’s actions were insensitive and arrogant. “There is a sensitivity among Hong Kong people at the moment that the mainlanders are coming here with all their money, buying all the luxury goods. It’s a ‘them-and-us’ scenario,” she says. Dolce & Gabbana should have been aware of this, she says. Even so, Ms Grebstad does not believe the company’s mismanagement of the crisis will do great or enduring harm. “Maybe Hong Kong people might be a bit more sensitive, but I don’t think they are their major market, which is the mainland, which will not be too bothered by this.” Macau Business sought comment from Dolce & Gabbana for this article but the company said it had nothing to add to the two statements it had already issued.

109 ANDREW SHENG FORMER CHAIRMAN OF THE SECURITIES AND FUTURES COMMISSION OF HONG KONG

Global finance’s supply-chain revolution THE WINNING FINANCIAL SUPPLY CHAINS OF THE FUTURE WILL INSTIL CONFIDENCE THAT THEY OFFER SAFE, STABLE AND EFFICIENT SERVICES TO THE MOST CLIENTS n March 2011, the catastrophic earthquake, tsunami and nuclear disaster that hit Japan halted production of key components on which many global supply chains depend. The sudden disruption of these essential materials from the production process forced a reassessment of how these supply chains function. But such vulnerabilities are not confined to the manufacturing sector. The finance industry, too, has suffered its own near “supply chain” meltdown in recent times. The failure of Lehman Brothers in 2008 not only roiled global financial markets, but also brought global trade practically to a standstill as wholesale banks refused to fund each other for fear of counterparty failure. The simple banking system of the past, one based on retail savings being concentrated in order to fund the credit needs of borrowers, had evolved into a highly complex – and global – supply chain with knock-on risks of disruption comparable to those seen in Japan last spring. Financial supply chains and those in the manufacturing sector share three key features – architecture, feedback mechanisms, and processes – and their robustness and efficiency depend upon how these components interact. In today’s financial architecture, as with other supply chains, interdependent networks tend to concentrate in powerful hubs. For example, just two financial centres, London and New York, dominate international finance, and only 22 players conduct 90 percent of all global foreign-exchange trading. Such concentration is very efficient, but it also contributes to greater systemic risks, because, if the leading hubs fail, the whole system can collapse. Open feedback mechanisms ensure a supply chain’s ability to respond to a changing environment, but, in the case of financial supply chains, feedback mechanisms can amplify shocks until the whole system blows up. The Lehman Brothers collapse triggered just such an explosion, with the financial system saved only by government bailouts. Finally, the processes within supply chains, and the feedback interactions between them, can make the system greater or smaller than the sum of its parts. Since a complex network comprises linkages between many sub-networks, individual inefficiencies or weaknesses can have an impact on the viability of the whole.

Pressures to readapt Like manufacturing supply chains in the wake of the Japanese disruption, financial supply chains face formidable pressures to re-engineer and adapt as the global economic balance shifts towards emerging markets. As that happens, billions of consumers will enter these countries’ middle classes, new social networks will evolve and climate change will become a growing factor in global commerce. In addition, major regulatory reforms will impose new and higher costs on the financial sector. Banks and

other institutions are also under pressure to devise new financial products that can help the real sector to manage more complex risks and enable investment in areas such as green technology and infrastructure for developing economies. Moreover, global financial stability now depends upon greater cooperation at the international level, with tighter enforcement of rules at the national level. It is also clear that emerging markets are searching for alternative growth models that are green and sustainable. Their financial sectors will have to operate very differently from the current model, which is driven by consumption. In a world in which both consumption and finance must grow more slowly to cope with global resource and environmental constraints, what role can finance play in reducing addictive consumption, funded by unsustainable leverage? And, given that financial institutions will have to monitor and manage risk in a radically different manner, both for themselves and their customers, what is the role of distribution in a world where consumption, savings and investment will accelerate in volatility?

The “killer app” Financial “production” is currently a top-down process. Instruments are designed in such a way that their sales generate more profits for financial engineers than for end users. But the rise of interactive social networking has made financial innovation more bottom-up. Millions of bank customers using mobile phones can provide immediate feedback on which products and services they like or dislike. In the future, client-service and transaction-management systems will receive more input from customers more frequently, so that product design is shaped interactively. The current strategy in the financial sector drives excessive competition by increasing market share at rivals’ expense, often breaking trust with customers for the sake of short-term gains. Yet the financial sector has, in previous eras, proven that it can operate as a public good by providing trustworthy, efficient services. The winning financial supply chains of the future will instil confidence that they offer safe, stable and efficient services to the most clients. Innovation in the last century focused on processes, products and services. Today, the financial sector needs innovation of a higher order, involving business models, strategy and management approaches that restore trust in finance. Just as Steve Jobs of Apple transformed the computer industry through lifestyle products and highly reliable, userfriendly and “cool” services, financial institutions will have to introduce new value chains that create confidence by adapting to the growing needs of new markets. Given such profound changes, financial leaders should think about how to orchestrate a new financial supply chain – the “killer app” for our still new century. FEBRUARY 2012

110

Human Resources

Burning midnight oil The world is working longer hours; in Macau, the hours are already long enough BY SARA SILVA MOREIRA

FEBRUARY 2012

111 he French ideal of a 35-hour working week has been downgraded from rule to exception in France. It is a trend being echoed around the world, but in Macau the working week is already long. The latest official data available, from the third quarter of last year, shows the median number of hours worked per worker per week in Macau was 46.6. That was 30 minutes less than five years before, despite the economic boom in between. The data show 48 percent of the employed population work between 45 and 49 hours a week, about 11 percent work between 50 and 59 hours and about 11 percent work 60 or more hours. Civil servants work 39.4 hours. The International Labour Organisation recommends a working week of no more than 40 hours, with occasional paid overtime of up to 12 hours a week. In the European Union, the average working week was 39.7 hours in 2010, claims a report by the European Foundation for the Improvement of Living and Working Conditions. In Asia, data from the Organisation for Economic Co-operation and Development shows that the average working week was 45.9 hours in South Korea, more than in Japan, and a survey by non-profit organisation Community Business found that among full-time employees in Hong Kong it was 48.7 hours. Recent research by facilities management and business support services company Regus Plc says 48 percent of white-collar workers worldwide work more than nine hours a day. Over onethird work an average of 50 hours a week and 10 percent work 60 hours a week. Regus also found that 43 percent of white-collar workers take work home more than three times a week. No recent equivalent data are available for Macau. The reasons for long working hours in Macau are numerous. They range from the idea that the more time an employee spends at work, the better an employee he or she is, to the shortage of labour, which means employees must burn the midnight oil to get everything done.

Age no handicap Kim Kuok Oi Mei, a lecturer in management at the University of Macau, says inefficiency may also account for long working hours. The inefficiency may be due to employees doing a poor job, or to insufficient or unsuitable tools or training.

Another phenomenon in Macau is that it is not just young people striving to prove themselves at the start of their careers that work long hours, but also the middle-aged and elderly. Official data shows 71 percent of workers between the ages of 25 and 34 work more than 44 hours a week. So do 71 percent of workers aged between 55 and 64. Three out of four of workers over 65 put in over 44 hours a week. Ms Kuok says this may be related to the economic changes Macau has undergone. “High inflation, soaring real estate prices and the lack of government support makes these senior people feel insecure about their retirement,” she says. Also, the thriving tourism, hospitality and gaming industries tend to hire younger people, says José Pereira Coutinho, a directly elected member of the Legislative Assembly, so senior employees feel they need to work longer to avoid being replaced.

The latest official data available, from the third quarter of last year, shows the median number of hours worked a week per worker in Macau was 46.6. That was 30 minutes less than five years before, despite the economic boom in between Education also plays an important role in how long one works. Although 71 percent of those that completed secondary education work over 44 hours a week, only 48 percent of university graduates do so. People that work longer hours usually get less pay. A total of 15,400 Macau workers working over 44 hours a week earn less than MOP3,500 (US$437.50) per month, while only one-third of the 2,800 people paid MOP80,000 or more work over 44 hours a week.

Domestic drudgery Low-wage employees often refrain from complaining about long hours for fear of losing their jobs. Domestic workers are

in this category. They are the ones working the longest in Macau: 48.6 hours per week is the median. There have been many reports of housemaids meeting with resistance from their employers even when trying to take their weekly day off, and of them not being properly compensated for working on statutory holidays. A survey of domestic workers by the Peduli Indonesian Migrant Workers Concern Group, which is run by and for Indonesian migrant workers, found that up to 75 percent worked excessive hours. Some housemaids reported working close to 12 hours a day. Macau’s labour law sets the usual working limit at eight hours per day. Although it allows employers and employees to agree on a longer day, it mandates a maximum of 48 hours per week in normal circumstances, with at least one day off a week. In other words, Macau has yet to adopt a five-day working week. And the law says employees in certain jobs, including domestic workers, can be exempt from the usual limits. As for leave, the law requires employers to observe the 10 statutory holidays each year and give employees six days of paid leave per year after one year of service. Usually, the manufacturing, construction, security, transport, wholesale, retail, catering, hotel and other customer service industries observe only the statutory holidays. Public bodies, banks and education institutions usually observe the statutory holidays and 10 other customary holidays each year.

The last resort A spokesperson for the Labour Affairs Bureau says employees can complain to the bureau if their employer is overburdening them with long working hours and failing to comply with the law, but the University of Macau’s Ms Kuok says that in many cases, especially those of domestic workers, evidence is hard to produce. Mr Coutinho, the legislator, calls for special rules for domestic workers, including rules to protect them from abuse by their employers. He says the present safeguards are insufficient and the penalties for ignoring them too lenient. Cecilia Ho Wing Yin, a lecturer in social work at the Polytechnic Institute of Macau, accuses the Labour Affairs Bureau of inaction. She says it does not have enough staff to police employment practices. Ms Ho also says the language FEBRUARY 2012

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Human Resources

In Japan, the phenomenon of death by overwork, called ‘karoshi’, became such a problem that in 1987 the Japanese Ministry of Labour began publishing statistics. The main cause of ‘karoshi’ is heart attacks brought on by extreme stress barrier deters foreign domestic workers from complaining. The Labour Affairs Bureau should educate employers and employees about their legal rights and responsibilities, she says. The University of Macau’s Ms Kuok would like to see a hotline for employees to use to voice their complaints. The Peduli group has been lobbying for changes in the law but has met with resistance from the government and employers. A spokesperson for the group says the authorities have been slack in enforcing the law. Cutting working hours should be a joint effort by the government and the private sector, says Jennifer Liao, founder and managing director of recruitment agency EvolutionHR. Ms Liao says more labour should be imported, especially for the hospitality industry, and that the government should give private business more flexibility to import qualified personnel. Business, in return, must be aware of the importance of protecting the wellbeing and work-life balance of employees, she says. Apart from safeguarding the right of workers to rest, companies “must also invest in training and developing their employees, so that they can perform their job effectively and efficiently”. The University of Macau’s Ms Kuok FEBRUARY 2012

says the government could give training and counselling to private businesses, and lower the legal limits on working hours only as the last resort.

Worked to death A 2007 study by the International Labour Organisation concluded that laws and policies on working hours have a limited influence on actual working hours, since many employees have no option but to work long hours just to make ends meet. And employers often demand unpaid overtime so they can hit business targets. Mr Coutinho, the legislator, says the legal limits on working hours are unlikely to be lowered. Long working hours can help a company’s bottom line, but badly impair the health of employees. A recent British study found that 67 percent of people that work 11 hours or more a day are likely to have a heart attack. Long working hours are also linked to alcohol abuse. In Japan, the phenomenon of death by overwork, called ‘karoshi’, became such a problem that in 1987 the Japanese Ministry of Labour began publishing statistics. The main cause of ‘karoshi’ is heart attacks brought on by extreme stress. In the mainland, overwork came under the spotlight last year after the death

of a 25-year old white-collar worker added weight to a report in 2010 by the Chinese Medical Doctor Association and Chinese Hospital Association, indicating that over 60 percent of white-collar workers in large mainland cities risk developing illnesses caused by overwork. Excessive time spent at work also takes its toll on the family life of employees, being one of the causes of the increase in Macau’s divorce rate, says Mr Coutinho. The number of divorces has risen by more than 150 percent over the past 10 years. Several experts say that a way around long hours and shift work is to offer employees flexible working hours. The labour law is silent on this but the Labour Affairs Bureau’s spokesperson says the bureau encourages businesses to draw up work schedules that are more favourable to workers. Although Mr Coutinho says establishing flexible working hours in a city that never sleeps would be difficult, both the University of Macau’s Ms Kuok and EvolutionHR’s Ms Liao say employers are more and more willing to adjust working hours to the needs of their employees, especially when trying to attract and retain qualified personnel. Ms Liao says she has already managed to negotiate such arrangements for highly skilled professionals who specially asked for them.

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

For a few dollars more

IT IS SURVIVAL, NOT WORKERS’ GREED THAT FORCES THE MOST LOW PAID TO CHANGE JOBS

Patacas matter The table on this page provides the latest staff turnover percentages and average monthly earnings for different groups of workers. The relationship is illustrated on the graph. The data do not all refer to the same period in time, since the Statistics and Census Service publishes them at different quarters according to sector. The table and the graph show, unsurprisingly, that low pay and high turnover are strongly associated. The line of best fit on the graph shows that the lower the average monthly income, the higher the turnover rate, and suggests that 40.9 percent of staff turnover in this collection of surveys is explained by income. For statistics purists, there is a strong negative correlation coefficient (-0.670) between pay and turnover (ρ=0.005); regressing income onto turnover rate yields an adjusted R square of 0.409. If you work in a clothing factory or at a restaurant or as a security guard, it is little wonder that you may be considering a change of job, even for a few patacas more. An extra, say, MOP300 (US$37.5) a month for a worker in a clothing factory is on average a 6.5-percent increase. For the average restaurant worker, an extra MOP400 a month is a 5.5-percent increase. Neither increase is enough to match inflation. Last November saw prices rise 6.65 percent year-on-year. Let us put aside accusations of greed or an “easy-come-

easy-go” attitude among the poorly paid job-hoppers. It is survival, not greed. If you are one of the 57,100 unskilled workers whose median monthly income in the third quarter of last year was MOP4,600, or one of the 79,300 employees in the service and sales sector whose median monthly income was MOP8,000 – these two groups constituted 39.7 percent of the workforce and earned less than the city’s median monthly income of MOP10,000 – it is little wonder you want a job where you can earn a few more patacas. You do not need a Nobel Prize to know that paying people more might help to retain them. Why doesn’t it happen in Macau? There are promises of pay rises in the gaming sector but what about the rest of the workforce? A minimum wage is only the first step, and even that is not yet a statutory requirement. No wonder workers jump ship to earn a few dollars more.

Staff turnover rates for selected industries ranked from lowest to highest average monthly earnings Industry, second or third quarter of last year

Staff turnover rate

Average monthly earnings

(%)

(patacas)

10.3 7.9 8.3 11.4 6.4 8.2 3.3 6.7 8.6 6.7 3.9 6.4 9.4 4.7 5.5 1.9

4,650 6,940 7,330 7,640 9,870 9,940 11,130 12,320 12,350 12,990 14,560 15,530 16,790 19,300 19,900 23,430

Apparel (Qtr. 3) Manufacturing (Qtr. 3) Restaurants (Qtr. 3) Security activities (Qtr. 2) Wholesale trades (Qtr. 2) Retail trade (Qtr. 2) Sewage and refuse disposal (Qtr. 2) Hotels (Qtr. 3) Land transport (Qtr. 2) Financial intermediation activities (Qtr. 3) Casino croupiers (Qtr. 2) Transport, storage and communications (Qtr. 2) Postal and telecommunications (Qtr. 2) Insurance (Qtr. 3) Banking (Qtr. 3) Electricity, gas and water supply (Qtr. 3) Source: Statistics and Census Service

The strong correlation between being poorly paid and high turnover 12.0 10.0 Turnover rate (%)

t is old news that job-hopping is a problem in Macau. What is more problematic is why it persists unabated. It is a problem more complex than simply demand for workers outstripping supply. Employees come and go at a week’s notice, a day’s notice or no notice at all – or they demand extra money to stay, holding their employers to ransom. The most recent full survey of the job market, in 2008, indicated that 12.1 percent of the workforce changed jobs that year, of who 57 percent had taken a new job for better pay and 22 percent due to “incompatibility with working hours/ dissatisfaction with the work environment”. The most recent data suggests the rate of job-hopping varies according to occupation and industry, from 1.9 percent to 11.4 percent. Managers are aware that job-hopping may indicate a lack of commitment, a flaky attitude to work, irresponsible behaviour or a greedy outlook. Instead of a flaw in the employees, the problem may also lie with the nature of the work. Work may be boring and unfulfilling, the employer’s behaviour inappropriate or the pay poor and working conditions unsatisfactory. Although Frederick Herzberg’s research on job satisfaction in the 1950s attracted both praise and serious criticism, his thinking about “hygiene factors” such as job security, pay, benefits and working conditions, may still have contemporary potency in explaining some cases of job-hopping in Macau. He suggested that while “hygiene factors” may not improve employee motivation, their absence or poor quality may give rise to dissatisfaction. Pay is an important part of the modern work experience and many employees in Macau are poorly paid.

8.0 6.0 4.0 2.0 0 0

5,000

10,000 15,000 Average monthly income (MOP)

Source: Statistics and Census Service

FEBRUARY 2012

20,000

25,000

114

Arts & Culture

W AT E R WORLD THEATRE AND DANCE, BACKED BY A STUNNING MULTIMEDIA SHOW FROM ONE OF THE WORLD’S GREATEST FILM DIRECTORS TELL AN ALLURING AND ALARMING TALE OF ENVIRONMENTAL DESTRUCTION

hen the final word is published on the most outlandish, sumptuous eye-candy ever created, it would not surprise anyone if filmmaker Peter Greenaway made the list. The British director has a pedigree for meshing his art school background with his take on art-house cinema to create celluloid masterpieces such as “The Cook, The Thief, His Wife and Her Lover”, “Prospero’s Books” and “The Pillow Book”. In his latest project, this time for the stage, Mr Greenaway brings his cinematic vision to “The Blue Planet”. In common with his previous work, which could arguably have been labelled cinema masquerading as theatre, this performance bends the boundaries between the two formats and adds dance, opera and a live accompaniment. The audience at April’s performance of The Blue Planet at the Macau Cultural Centre will be immersed by a familiar tale of a coming flood, the side-effect of mankind destroying the planet. The recurring theme is “God makes, man breaks”. The work is based on the premise of Noah’s Ark. As in the tale relayed in the Christian Bible, the Koran and taught by Jewish Rabbis, Noah is instructed to build an Ark to save the world’s creatures. He himself refuses to board, such is his loathing and disgust for humankind. His wife, a Joan of Arc character, resists too, until she feels compelled by love for her children. Her redemption reminds us that there is always a chance to reform our hurtful ways.

Media message While The Blue Planet has a familiar theme, reminding us of the risks we pose to mother nature, the staging is a novel, technical marvel.

FEBRUARY 2012

115

Co-collaborator, Dutch opera director Saskia Boddeke and Mr Greenaway’s stunning high quality images of Earth’s biodiversity mingle delight the senses. The digital images are splashed on the screen in what is being called an Oratorio of dance, music and imagery. Six enormous screens relay the images to the audience, adopting Mr Greenaway’s signature device of splitting the action across multiple canvases. Beneath them, dancers move around a water pool on the stage. A live musical accompaniment drives the narrative. The work was conceived for Expo 2008 in Zaragoza, Spain. It has since been seen only in rare circumstances, making this performance in Macau a unique experience. This time the work is produced by Change Performing Arts based in Milan. They produce a work of that relies heavily on tales from the Bible’s Old Testament, weaving in man’s desire to break God’s great works. It is a recurring theme, according to the liner notes that accompany The Blue Planet. Adam and Eve caused man’s first punishment, being cast out from earthly paradise in Eden. The lesson went unheeded and the kingdoms of Sodom and Gomorrah paid the price, levelled with fire. And then the Great Flood. Earth, fire and water are required to cleanse the Earth of man’s muddle-headed wrong-doing. The fourth element, air, is the current focus of man’s inhumanity. Greenhouse gases, pollution. Of course, this time it is the water that again is coming to claim us as the seas rise.

Master class With The Blue Planet, Mr Greenaway deviates into modern civilisation and the ecology. It is a rarity for a man who has previously immersed himself in age old tales. Known largely for his work with film, he has steadily moved away from the medium, instead expressing himself in

multimedia. In “The Tulse Luper Suitcases”, Mr Greenaway incorporated cinema and multimedia to tell a personal history of the discovery and eventual misuse of uranium in 2003 and 2004. The project was epic, involving three feature length pieces of “cinema”, online content, books and television shows. Even for Mr Greenaway, it was considered a difficult piece to understand. It is a style that has run in parallel with his deepening forays into new media. He has experimented as a VJ. The Blue Planet continues his dislike of a straight-forward narrative style. He delights in showing the audience an outlandish array of visual possibilities that are pure art, not restrained by boundaries. This is not an easy or happy piece to follow. It is not a work for young children, either. As a review in the Italian newspaper “Il Messaggero” noted in 2009, “what you mostly remember are the images, projected on the screens. The terrible images which tell the ruin of the environment and the poetic images that shoe a pure nature which needs to be protected”.

THE BLUE PLANET VENUE: Grand Auditorium, Macau Cultural Centre TIME: 8PM DATE: APRIL 4 TICKETS: Tickets are available at the Macau Cultural Centre and Kong Seng outlets CREDIT CARD TICKETING HOTLINE: (853) 2840 0555 INTERNET TICKETING: WWW.MACAUTICKET.COM MORE INFORMATION: Call (853) 2870 0699 EMAIL: enquiry@ccm.gov.mo WEBSITE: www.ccm.gov.mo NOTE: Best for aged 13 or above; show contains nudity

FEBRUARY 2012

116 116

Moments

MACAU USHERS IN YEAR OF THE DRAGON A string of festivities welcomed in the Year of the Dragon last month, viewed by many as an auspicious and powerful year. The Lunar New Year, or Spring Festival, began on January 23 and was warmly greeted with roars of firecrackers and a series of celebratory activities. Aside from the government-sponsored celebrations, all gaming operators held special events to herald the Year of the Dragon with wishes of good fortune, health, happiness and prosperity. Those events included performances by dragon and lion dance troupes, as well as other traditional activities and the handing out of thousands of lucky red packets. A fireworks display on the first day of the Year of the Dragon lights up the skies

Worshippers in temple light the first incense of the New Year

The Mandarin Oriental Macau hosted a lion dance to bring good luck to guests, staff and the hotel

A 238-metre long golden dragon parades the city’s major tourist spots

The God of Fortune gives out red packets to the visitors at Galaxy Macau

The chief executive sets off a set of fireworks

Holding to tradition, SJM Holdings Ltd. held its Lunar New Year’s Eve celebration dinner

Chinese New Year performance at MGM Macau FEBRUARY 2012

Sands China Ltd.’s executive team welcomes the Year of the Dragon

117 117

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118 MAHMOUD MOHIELDIN MANAGING DIRECTOR OF THE WORLD BANK

Islamic finance unbound

ITS RESILIENCE, ALONG WITH SEVERAL OTHER KEY FEATURES, UNDERPINS THE HIGH PERFORMANCE AND GROWING POPULARITY OF ISLAMIC FINANCE hile uncertainty continues to roil global markets, driving many investors into full retreat, one part of the financial sector is expanding exponentially: Islamic-law-compliant financial assets have grown from about US$5 billion (MOP40 billion) in the late 1980s to roughly $1.2 trillion in 2011. This asset class, which is characterized by shared risk between institutions and clients, avoided many of the most severe consequences of the global financial crisis that began in 2008. This resilience, along with several other key features, underpins the high performance and growing popularity of Islamic finance. The global financial crisis adversely affected a small number of Islamic financial institutions as the real economy contracted and some issuers of Islamic bonds defaulted. But the risksharing inherent to Islamic finance made such instruments more resistant to the first round of financial contagion that hit in 2008. Leading economists, such as Harvard University’s Kenneth Rogoff, have suggested that Islamic finance demonstrates the advantages of more equity and risk-sharing over the conventional bias in favour of debt instruments.

Clients like business partners Several distinctive features have made Islamic financial institutions relatively stable throughout the crisis. One such feature is that Islamic finance emphasizes asset-backing, thereby ensuring a direct link between financial transactions and real economic activities. Institutions’ savings and investment returns are closely linked, because they are determined by the real sector, not the financial sector. This creates a flexible adjustment mechanism, should unanticipated shocks occur. It also ensures that real asset and liability values are always equal, while prohibiting excessive leverage and several forms of complicated securitisation. Moreover, Islamic finance is more equitable: lenders and borrowers share risks and rewards, which increases the focus on long-term goals and discourages excessive short-term risk-taking. In short, Islamic financial institutions treat their clients like business partners. They therefore have strong incentives to evaluate financing requests carefully and to assist borrowers in bad times, thus reducing the pressure to sell assets at “firesale” prices and minimizing the likelihood of financial contagion. Finally, the Islamic financial framework protects deposit balances, and prevents excessive credit growth. Islamic financial instruments are currently available in at least 70 countries and today represent about 0.5 percent of global financial assets. But the prospects for continued rapid growth are strong. In its November 2011 “Global Islamic Banking Report”, Deutsche Bank projects a 24 percent compounded annual growth rate in Islamic assets over the coming three years. There are five main reasons for this forecast: - Islamic finance offers savers and investors practical alternatives to conventional instruments; - The quality of Islamic financial services is improving and these services are not limited to particular clients; FEBRUARY 2012

- Conventional multinational financial institutions are increasingly offering Islamic assets and there is growing interest in them in London, Luxembourg and other world financial capitals; - The commodity boom in some Muslim countries has generated surpluses that need to be allocated through financial intermediaries and sovereign wealth funds; - Islamic financial instruments can comply with ‘sharia’ – Islam’s moral code and religious law – as well as send signals of change compatible with recent developments in several Muslim-majority countries.

Big potential But realizing the potential of Islamic finance requires strong supervisory oversight. Financial institutions need to enhance pre-lending screening and post-borrowing monitoring. It is also problematic that, in many countries, debt receives advantageous tax treatment, which favours leverage over equity and profit/loss-sharing arrangements. This should change. Moreover, mortgages, mutual insurance, leasing and microfinance are underdeveloped in Islamic finance; insolvency and bankruptcy procedures must be improved; and mechanisms to deal with “Islamic bond” defaults must be established. Finally, Islamic financial institutions must address concerns about liquidity-risk management, compliance with Basel III (the Basel Committee on Banking Supervision’s most recent global regulatory standard), international accounting standards and corporate governance. While recent reports emphasize the size and growth of Islamic financial assets and instruments, it is the quality of services, continued financial innovation and sound riskmanagement practices that will ultimately define their success. By addressing its shortcomings, Islamic finance could encourage inclusive growth in many developing countries. If Islamic finance can resolve key regulatory and corporategovernance issues, it has the potential to meet more people’s banking and investment needs, expand its reach and contribute to greater financial stability and inclusion in the developing world. That is something that everyone should welcome.

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A NEW DEAL FROM THE BOSS-MAN An academic has suggested the government give casinos the option to hire dealers from overseas, ending a policy to hire Macau talent exclusively. Professor Zeng Zhonglu from the Macau Polytechnic Institute said the change would give gaming operators the option to promote domestic dealers to higher positions. He has a point. With Macau’s unemployment rate at a historic low and several casino resorts in the pipeline, a scarcity of dealers is looming. Gambling concessionaires will increasingly face the risk of not being able to find replacement staff if they promote a resident dealer, supervisor or pit manager – all positions for which they cannot currently import workers. As things stand, the only choice is to continue increasing salaries to attract more ID-card holders to the tables. That would further distort the economy, hurting small and medium enterprises already struggling to compete for manpower. Curiously enough, chief executive Fernando Chui Sai On does not seem to see the threat. He made the solemn pledge that he will never authorise imported workers to work as dealers. So, Mr Chui, would you care to explain what your plan is?

TAKEN FOR A RIDE The government is in talks with taxi drivers to increase fares. The authorities have signalled they are prepared to approve an increase in flagfall of less than 10 percent. Frozen Spy thinks this is already too much. Yes, the cost of running a taxi has soared since the last fare increase in 2008. But the service provided has also declined, with more complaints about poor driving, overcharging and the preferential picking of passengers. The negotiation could be an ideal bargaining chip. We would like to see all taxis installed with closed-circuit cameras or webcams, and have them linked to a tracking system operated by the Transport Bureau to better protect both customers and drivers. Or perhaps establish a plan to replace the current fleet with low-emission electric cars. Yes, this is pure daydreaming. Remember that in 2008 the city was promised that taxi services would improve after fares were increased. Almost four years later, look at how much better off we are.

HITTING WHERE IT HURTS Macau is moving towards becoming an environmentally-friendly society. One of the measures proposed is a progressive electricity tariff. Those who use more will pay more. Since the government rebates households MOP180 (US$22.50) a month on their electricity bill, the new tariff will have a limited impact. Truth be told, households represent just one-fifth of all the electricity consumed in Macau but it is the sector where awareness campaigns are the most effective. For low-income households, the subsidy is a muchneeded welfare supplement. For others, it promotes waste. The government clearly prefers to save itself the trouble of screening applicants and offers the rebate to everybody. After all, Macau has money to spare, right? Meanwhile, as usual, the casinos will bear most of the cost when the new system is in place. The tariff makes our officials appear proficient but it underlines that their attitude has not changed.

POLICE NUMBERS ARE CRIMINAL Crime rates inside casinos increased by more than 20 percent last year, data from the Judiciary Police shows. A crime was committed inside a casino every four hours on average last year. More significantly, all four homicides that took place last year are suspected to be linked to gambling. The director of the Judiciary Police, Wong Sio Chak, admits the fast growth of the gaming industry has had a negative impact on public security and that the city’s authorities lack the manpower to tackle the casino crimes. Frozen Spy is no security expert but shouldn’t the city put more effort into protecting its cash cow? More security would surely be a better investment than the money spent on plain-clothes police officers to take snapshots of demonstrators every time there is a pro-democracy rally.

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Zung Fu Motors – Mercedes

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To advertise call 28331258 or email us at pub@macaubusiness.com Go to www.macaubusiness.com/advertising for media kit FEBRUARY2012 JANUARY 2012