MB96 | April 2012 by Macau Business

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Economy & Finance 30 Basic arithmetic Accounting firms struggling to find enough staff to cope with business growth

Greater China 38 Parting shot Wen Jiabao makes appeal for political reform 40 Meet the new boss Profile of Leung Chun-ying, Hong Kong’s next Chief Executive

Property 42 Trendy by design Developer offers rental-free shops to entrepreneurs to rejuvenate the city’s old districts

Special 45 Hitting the jackpot Report on the 10th anniversary of casino liberalisation

CEO Interview 72 Continuous reinvention MGM China chief executive Grant Bowie says the company’s project for Cotai will have only 12 percent of floor space dedicated to gaming

APRIL 2012

Gaming 80 Lucky number three Sands Cotai Central to open this month with the mass market in mind 84 Video nasty Battle between Steve Wynn and Kazuo Okada moves online 86 Not for everyone China Rouge exclusive lounge is the final piece of Galaxy Macau’s phase one 88 Asian flavours Aristocrat is betting on Asian growth in a big way 90 Every drop counts Casino resorts say they are doing their best to save water 94 A touch of the whip Jockey Club tries to keep up with the pack 100 Baby steps Singapore licenses its first two junkets 102 Bring it on GE2 Asia to discuss the latest gaming developments in Asia

SEPTEMBER FEBRUARY MARCH APRIL 2012 2011

Tourism 104 Gathering dust Tourists satisfied with the city’s museums, although not many visit them

Technology 108 Ahead in the clouds CTM is launching its first two public cloud services 110 Smells phishy Cases of phishing are on the rise

Education 116 Reading, writing, revenue More students seeking business-oriented master’s degrees

Human resources 120 Mix and match outfits As more imported workers from different countries arrive, diversity management is becoming increasingly important

Luxury 126 Rolling in style Rolls-Royce opens its first showroom in Macau

APRIL 2012

Arts & Culture 130 New generation Macau Arts Festival packs in over 100 performances by 33 acts

Opinion 16 From the publisher’s desk Paulo A. Azevedo 19 Editorial Emanuel Graça 36 A fair reflection Bill Kwok-ping Chou 41 China’s politics of the economically possible Minxin Pei 44 Big Brother is watching José I. Duarte 60 Lessons from Goldilocks Desmond Lam Chee Shiong 71 Raising the bar David Green 107 All together now Gustavo Cavaliere 119 Bingeing to death Keith Morrison 134 Weigh more, pay more Peter Singer

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Editorial Council Paulo A. Azevedo, Tiago Azevedo, Duncan Davidson, Emanuel Graça, Cris Jiang Founder and Publisher Paulo A. Azevedo VOL.1 Nº96

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

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Letters to the editor

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, Xi Chen

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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

Political evolution “TRADITIONAL” POLITICAL FORCES IN MACAU have changed significantly since the handover. Even so, only now some parts of our community are waking up to the new reality and becoming aware of the strings attached. During the Portuguese administration, the Federation of Trade Unions and the General Union of Neighbourhood Associations of Macau, commonly known by its Cantonese name Kai Fong, were thorns in the side of the government – an institution often regarded as “colonialist”. After December 1999, these previously outspoken interest groups became close partners with the leadership. Those who now consider these “patriotic associations” as mere mediators between the government and the broader society, having changed their strategies and become mainstream are, in my opinion, correct. There are reasons for this odd state of affairs that would be viewed as unnatural elsewhere. The most obvious is that these organisations feel compelled to show their “true love” to the mainland motherland at all times and in any form. They forget they can accomplish their duty to society and question the actions of officialdom without jeopardising their so-called patriotism. The leaders of these organisations walk a tightrope. They need to balance their roles defending the groups’ interests and close ties to the government. They are often seduced by officials offering financial support, sometimes for activities that do not meet their organisation’s charter. During the Portuguese administration, “traditional” political forces were comfort-

APRIL 2012

able seated under the pro-Beijing umbrella. They failed to evolve new roles after the handover and are now trapped by their own contradictions. At a time when Beijing is the centre of power – even if the SAR has a great deal of autonomy – to be blatantly pro-Beijing is to lack critical thinking and not demand enough from the leadership. Naturally, this is fuelling disenchantment among the supporters of those political forces.

Not-so trivial irregularities It is amazing how violations of the most basic public administration rules keep occurring, but go unpunished. A new study in the quarterly magazine published by the Public Administration and Civil Service Bureau concluded that several government tenders breached government rules on tendering. The report cites the example of 13 tenders from the Health Bureau between 2008 and 2010 that did not make public their respective evaluation criteria. It is an “obvious violation of the law”, writes author Tang Tat Wang, who heads the Financial Services Bureau’s library and documentation centre. What was missing from the tender process was not an obscure technical document but the criteria used to evaluate each submitted proposal. That detail is highly sought after by companies wanting to participate in any tender. Instead of engaging in the principles of equity, justice and transparency, the message to investors from Macau’s prevaricating

You talking to me?

At a time when Beijing is the centre of power – even if the SAR has a great deal of autonomy – to be blatantly pro-Beijing is to lack critical thinking and not demand enough from the leadership bureaucrats is: “Apply now, we’ll decide later”. The number of similar cases adds up. As recently recalled by Portuguese-language newspaper Ponto Final and the new Business Daily, the government has yet to announce the final cost of the new ferry terminal in Taipa. More outrageous news last month. The government extended the contract for waste collection and street cleaning with Macau Residue System Company Ltd for another year. The government says the public tender is still being prepared. The Environmental Protection Bureau supports the contract extension. The public tender for waste collection and street cleaning should have happened last year. It was delayed. Now, the tender is, again, postponed. Is everyone asleep or is there something deeply wrong that needs a thorough investigation? The whole story, pardon the pun, reeks. The continual inability by officials to plan effectively brings criticism onto the government. The money is available and Macau can deliver a highquality service – if we are humble enough to hire experienced, foreign technicians to assist. Everything the public administration executes moves ahead slowly, poorly and sometimes irregularly. Obviously not the entirety of the Macau government machinery behaves badly. But I believe that if we had a graft buster as active as Hong Kong’s Independent Commission Against Corruption, there might be some more breaking news.

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MARCH APRIL 2012

1919 19

Emanuel Graça Editor-in-Chief

emanuel.graca@macaubusiness.com

The best gets even better COMMITTED MACAU BUSINESS READERS WILL notice this issue differs slightly from their regular read. We have revamped the lineup, removing some regular features, such as the Billions Race, our monthly wrap of gaming stocks and review of the property market. The changes are part of a broader change for our parent company De Ficção – Multimedia Projects. The group launched Macau’s first English-language business newspaper – Business Daily – this month and that has inspired a rethink of each of our products, including Macau Business, our Chinese-language sister publication Business Intelligence, and the digital products under the Macau Business umbrella, macaubusiness.com and Macau Business Newsletter. By tweaking our content, we aim to improve each service for every reader. We strike to avoid cannibalisation between titles, instead providing a fresh perspective through each of them. Obviously, the content in each product must be able to stand on its own, without assuming every reader follows our work on every channel. Our aim is to inform readers and investors so they can make the best decisions, no matter the format they may choose to consume. The role of Macau Business within the stable of products will be to focus on indepth reports, investigative journalism and feature reports.

Adapt, improve, outwit

When we first published in 2004, we were the only English-language source of news in Macau. Today, Macau Business no longer has an obligation to provide its readers and investors with the “hard news” they couldn’t find elsewhere. That gap has been filled, particularly in the business and financial news market. The Macau Business Newsletter, regular website updates and Business Daily serve that need. The monthly edition of Macau

A strong democracy depends on media that inform and engage. Macau’s peculiar political system stresses the need for media that acts as the Fourth Estate, ensuring the health of the government and the economy Business will continue to provide easilydigestable information, including a new dashboard on the health of the economy. Our editorial team is developing a set of tables that provides a snapshot of the economy, plus a detailed overview of the city’s property, gaming and tourism sectors. These will be available soon. For these changes to work, we need our readers’ feedback. Continue to email us with your likes and dislikes, suggestions and complaints. Macau Business welcomes and encourages dialogue. As for Business Daily, the new newspaper, the names of its senior people should ring a bell for those who have followed Macau Business from the start. They are experienced professionals, who have written in these pages. That alone speaks for the high level of professionalism you can expect from the new publication. We welcome them and applaud their new venture. Not only do we share offices and resources, but we also share the wider view that journalism should be a chief purveyor of independent and accurate information about public affairs. A strong democracy depends on media that inform and engage. Macau’s peculiar political system stresses the need for media that acts as the Fourth Estate, ensuring the health of the government and the economy. Only with strong and free media, can Macau become a more transparent, business-friendly destination.

APRIL 2012

Traffic light mismanagement I don’t understand how traffic lights are managed in Macau. Can anyone explain? When I was learning to drive some 50 years ago I was taught that when the amber light was showing it meant either ‘be prepared to move if safe to do so’ or ‘slow down and stop at the traffic signal ahead’, depending upon whether it appeared in conjunction with the green light or in conjunction with the red light. I remember that when the amber appeared in conjunction with the red light there was always time to slow down and stop without having to go into emergency breaking mode. Is there any international standard for this and, if so, does Macau follow it? It would be logical for the time interval between the appearance of the amber and the change to red to be the sum of the average reaction time and the breaking time to come to rest starting from an approach speed of the maximum speed limit of 60 km per hour. But I have noticed that, driving around Macau, there appears to be a marked inconsistency in this regard. Another facet of traffic signal management is the ‘all red phase’, something that seems to be missing for the most part in Macau. This phase allows time for slow-moving pedestrians to cross and also for the box junctions to clear. Can anyone explain how traffic signals are managed in Macau? I don’t understand. Roy Goss

Corrections In our March issue, one of the authors of the opinion article “Seizing sustainable development” was wrongly identified as Andrew Sheng. As was clear from the photo and job title, the correct author was Jacob Zuma, the President of South Africa. In the same issue, in the report about the female labour situation in Macau, we wrote that “the Statistics and Census Service does not give separate earnings data for men and women,” as that was the reply provided to Macau Business by the body. Although such information is not made public in the regular reports on employment published by the Statistics and Census Service, it is actually included in the rough data files available on the body’s website. For instance, the number of women earning less than MOP3,500 (US$438) per month in the fourth quarter of last year was three times higher than that of men. But the reverse happened for people earning MOP80,000 or above. We offer our sincere apologies to Mr Zuma and to our readers.

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.

APRIL 2012

INBOX

MACAU MEANS BUSINESS Business Daily, the city’s first business newspaper in English, hits the newsstands this month

Macau has just got a new newspaper. Launched on April 2, Business Daily is a 16-page, English-language, colourprinted paper to be published from Monday to Friday. Business Daily is a new product of De Ficção Multimedia Projects, the publisher of Macau Business and its Chinese-language sister publication, Business Intelligence. De Ficção - Multimedia Projects is the media arm of Project Asia Corp. Business Daily will be Macau’s first newspaper in English that concentrates on business, financial, economic and political affairs in the city and further afield. “Business Daily aims to contribute to the development of Macau’s business and political culture by creating, collecting and distributing high-quality news, information and opinion,” says publisher and founder Paulo A. Azevedo. “We aspire to be held by our readers to the highest of standards, and to be regarded by the majority as the newspaper that provides the tools for the best business decisions.” Business Daily will provide a broad range of essential information to Macau’s growing body of internationallyminded investors and entrepreneurs. Its looks and layout are designed to reflect its forward-thinking approach. “The paper aims to be recognised for its authority, integrity and accuracy and that’s backed up by a strict code of editorial standards,” says editor-in-chief Tiago Azevedo. “The aim is always to present the latest thinking on today’s most important business topics and to be essential reading in Macau’s rapidly-changing competitive environment.” You can get your copy of Business Daily at select outlets.

GOLDFISH FLYING HIGH China Southern Airlines Co Ltd has awarded Goldfish Creative Agency exclusive rights in Macau to sell advertising space on the airline. Goldfish is a new creative agency serving Macau. An arm of the Project Asia Corp, which owns the publisher of Macau Business, Goldfish was created to respond to the clear demand for a strategic advertising agency in the city. China Southern Airlines has more

planes and carries more passengers than any other Asian airline. It serves over 120 destinations with its fleet of 422 aircraft. Places to advertise on China Southern

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ECONOMY POSTS STRONG GROWTH GDP was up by 20.7 percent last year in real terms, but the growth rate slowed down

Macau’s gross domestic product for the whole of 2011 increased by 20.7 percent in real terms, reaching a nominal GDP of MOP292.1 billion (US$36.5 billion). While this represents a strong growth rate by any measure, it was slower than in 2010, when Macau’s GDP expanded by 27 percent in real terms. Data from the Statistics and Census Service shows that nominal per-capita GDP amounted to MOP531,723, posting a growth of 18 percent in real terms. This growth rate was also slower than in 2010, when it reached 26.8 percent. Among the favourable factors that contributed to the economic growth of Macau last year was an increase of 42 percent in gross gaming revenue and a 20 percent growth in total spending of visitors excluding gaming expenses. Macau also recorded a substantial surge of 79.4 percent in public investment and an increase of 42 percent in the value of retail sales. From 2001 to 2011, Macau’s GDP rose 256 percent in real terms, according to official figures.

MONETARY AUTHORITY TO ACQUIRE RMB BONDS The Monetary Authority of Macau last month signed an agreement with the People’s Bank of China enabling Macau’s de facto central bank to acquire renminbi-denominated bonds. The monetary authority said the move would help “achieve the long term goal of appropriate diversification” for the territory’s reserves. The monetary authority can purchase renminbi-denominated bonds up to a value of RMB10 billion (MOP12.7 billion) via the bond transaction platforms under the jurisdiction of the People’s Bank of China.

PUBLIC SERVANTS TO GET 6.45 PERCENT SALARY RISE Public servants are to get a 6.45 percent salary increase, the government announced last month. But unlike the previous times public servants received pay rises, this time the move will not be backdated to January. The government said the increase rate was calculated based on salaries in the private sector, government finances and the inflation rate. The move will cost the government around MOP700 million (US$87.5 million), but still needs to be approved by the Legislative Assembly before being enacted. According to Secretary for Administration and Justice Florinda Chan, the salary rise could come into effect as early as next month, depending on the Legislative Assembly approval works. As many as 23,600 people were civil servants at the end of September last year.

SME LOAN PLAN AMENDED The government has increased the interest-free loan limit for small and medium-sized enterprises to MOP600,000 (US$75,000) from MOP500,000. The amendment to the support plan for SMEs takes into consideration the growing challenges, high rents and shortage of human resources, the government explained. From 2003 until November last year, as many as 5,345 loans were granted under the scheme, reaching close to MOP1.2 billion.

APRIL 2012

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MARCH APRIL 2012

THIRD TRIAL FOR AO MAN LONG

Former Secretary for Public Works and Transport Ao Man Long will stand trial this month for the third time since his arrest in December 2006. Radio Macau reported that the trial has been scheduled for April 16. Mr Ao was arrested in December 2006 amid a huge corruption scandal. He has already been sentenced in two difference cases to a total of 28 and a half years in prison. The maximum jail term in Macau is 30 years.

TIGHTER TOBACCO RESTRICTIONS

THE SAME BUT BETTER Macau stays sixth on corruption perception ranking, but territory’s grade improved significantly Macau maintained its sixth position in the annual corruption perception ranking from the Political and Economic Risk Consultancy Ltd, released last month. The ranking covers only the Asia Pacific region and compares the perceptions of corruption of foreign expatriates towards the places where they conduct business. Macau remains sixth with a grade of 2.85, much lower than the 4.68 points it scored last year, according to a press release from Macau’s Commission

Against Corruption. The assessment sees 10 points as the most corrupted and a lower grade reflects a better integrity situation. Among the 16 countries and regions surveyed, the three cleanest countries are Singapore, Australia and Japan. According to the graft buster’s press release, “with regard to the comments saying that some of the overseas casinos (e.g. those in Macau) have been commonly used as a channel of money laundering, a majority of the respondents do not agree with it.”

GOOGLE FINED FOR MACAU STREET VIEW

Google Inc had to pay three fines amounting to a total of MOP30,000 (US$3,750) to the Macau government for the unauthorised collection of city images for its online mapping service Street View, the Office for Personal Data Protection said last month. In December 2008 Google collected street images from Macau without authorisation using a car with a specially fitted-camera. A government investigation also found that Google “mistakenly” gathered personal data that was sent through unsecured WiFi networks. The fines have already been paid and Google agreed to blur faces and number plates from the images and delete personal information collected from the Wifi data, the Office for Personal Data Protection said.

APRIL 2012

The government will restrict the number of cigarettes incoming passengers to Macau can bring with them as personal belongings. Starting this month, people arriving in Macau will only be allowed to bring 100 cigarettes, which is equivalent to five packs, or 50 cigarillos, or 10 cigars per day. Before, inbound passengers could bring 200 cigarettes, or 100 cigarillos, or 50 cigars as personal belongings when they crossed the border and the restrictions were per entry, not daily. For all other manufactured tobacco products, the limit drops to 125 grams from 250 grams. This is the latest government move to curb smoking, after a new law restricting smoking indoors and outdoors was enacted in January.

MARCH APRIL 2012

CAM POSTS MOP15 MILLION LOSS The company reported revenues of MOP659 million for 2011 The Macau International Airport Company Ltd (CAM) posted a loss of MOP15 million (US$1.9 million) for 2011, the company announced last month in a press release. The loss was mainly due to a deduction of bank loan interest payments and over MOP200 million in depreciation costs. CAM is the public concessionaire of the Macau airport. Overall, CAM’s financial condition continued to improve, with an 84 percent decrease in net loss compared to 2010, the press release read. The company reported a total revenue of MOP659 million,

AIR MACAU FLIES HIGH

Air Macau’s profits for 2011 totalled MOP250 million (US$31.3 million), the company said last month after its general assembly meeting. In 2010, the company posted a profit of MOP231.9 million, after several years of losses. The flagship carrier plans to renew its fleet and increase the number of destinations it flies to by “two or three” this year, Zheng Yan, Air Macau’s chairman of the board of directors told Portuguese news agency Lusa. Mr Zheng said he expects this year’s results to be similar to those of 2011.

APRIL 2012

an increase of about 13 percent compared to 2010. Non-aeronautical income represented more than 52 percent of the total revenues. Looking at 2012 CAM says it will proceed with several airport infrastructure projects such as the building of a new business jet hangar, the refurbishment of commercial and dining areas inside the airport and an upgrade of baggage handling and security systems, among others. The company estimates traffic in 2012 will reach 4.3 million passengers, up by 6.2 percent year-on-year.

SHUN TAK’S RESULTS DROP

Shun Tak Holdings Ltd, the conglomerate involved in hotels, ferries, coaches and real estate, reported last month a 10 percent drop in profit for 2011. The company’s net income dropped to HK$780.6 million (US$100.5 million), mainly due to a decrease in revenue from the company’s real estate arm. The company said it continues in discussions with the government for both its proposal to build a hotel in Cotai and for its Harbour Mile project, adjacent to the Macau Tower and comprising mainly residential apartments, complemented by retail facilities, serviced apartments and hotels.

CEM PROFITS DOWN

Companhia de Electricidade de Macau – CEM, SA posted a net profit of MOP479 million (US$60 million) for the whole of 2011, a drop of 7 percent compared to the previous year. The year of 2011 was the first full year of the government-imposed 9.5 percent ceiling in CEM’s permitted return, as opposed to the previous 12 percent maximum. In 2011, gross electricity consumption was up by 5.1 percent to 4,002 GWh compared to the previous year.

SHOPPING FOR SELLERS

Last year, the Commission Against Corruption received over 800 new cases, up from 681 in 2010. The head of the graft buster Vasco Fong Man Chong disclosed the preliminary data in the bodyâ&#x20AC;&#x2122;s newsletter. Mr Fong did not provide a breakdown of how many complaints were qualified for handling by the Commission Against Corruption and how many were related to alleged cases of corruption in the private sector.

TRAFFIC FINES REACH MOP116 MILLION Drivers are paying for traffic infringements in a hefty way, with the total fines in 2011 amounting to MOP116.6 million (US$14.6 million) or a daily average of almost MOP320,000. Last year, there were over 466,000 traffic infringements, an average of more than 1,270 a day. The amount of fines increased by 10.3 percent in comparison with 2010.

RESIDENCY APPLICATIONS FOR SKILLED LABOUR DROP A total of 490 applications for temporary residency for managerial personnel, technical and professional qualification holders were received last year by the Macau government. That is a decrease of 52 applications compared with 2010. Approved cases totalled 412, a decrease of 126 compared with last year.

Macauâ&#x20AC;&#x2122;s retail sales had another record year in 2011, yet retailers are finding it increasingly hard to hire people to service their clients

2,913

The number of vacancies in the retail trade at the end of December, 43 percent more than one year before

14.1%

The job vacancy rate of the retail industry at the end of last year, one of the highest in Macau and up by 2.9 percentage points year-on-year

7.8%

The employee turnover rate in the retail industry in the fourth quarter of last year, an increase of 0.9 percentage points in comparison with one year before

10.3%

The employee recruitment rate in the retail trade in the fourth quarter of last year. It grew by 2.0 percentage points in 12 months

20,339

The number of paid employees in the retail industry at the end of last year. It represents a 7.6 percent expansion over the 2010-end figure

MOP10,400

Average earnings of full-time employees of the retail trade in December. It represents a 5.9 percent jump year-on-year, just slightly above inflation for the same period

5,767

SOURCE: STATISTICS AND CENSUS SERVICE

GRAFT BUSTER HANDLES MORE CASES IN 2011

Number of retail trade establishments operating in 2010, up by 7.7 percent year-on-year. Official data for 2011 is not yet available, but estimates indicate that Macau has already surpassed the 6,000 mark

APRIL 2012

Economy & Finance

Basic arithmetic Accounting and auditing firms are struggling to find enough staff to keep pace with the cash flowing through the city BY ALEXANDRA LAGES

hen Louisa Ho Mei Va opened her accounting firm HMV & Associates in 1978, there was one big casino in Macau, the Lisboa, run by the sole gaming operator. “Before the opening of the gaming industry in 2002, most of the investors were locals,” says Ms Ho, who is also the vice-president of the Union of Associations of Professional Accountants of Macau. “Following the liberalisation of the casino sector, many international companies came in. Today, the accounting market is local no more. It’s globalised.” Accountants and auditors are still adapting to the change. The volume of business they deal with is much higher but industry insiders say there are not enough accountancy professionals to meet demand. The additional workload imposed by the need to meet new international financial reporting standards exacerbates the shortage. At the end of last year, there were 111 auditors, 160 accountants and 12 auditing firms registered by the Committee for the Registry of Auditors and Accountants. The committee has recorded only fractional increases in registrations since 2007, when there were 114 auditors, 140 accountants and 10 auditing firms. “It is not an easy task for companies to hire employees,” a spokesperson for the committee says. Staff need specialised qualifications, a background of diverse experiences and technical know-how. Finding the right people is proving to be difficult. Grace Cheung is a partner in PricewaterhouseCoopers Macau. She says there is a shortage of accountancy professionals, especially in auditing. “Due to the rapid economic growth and the increase of multinational companies, demand for highly qualified accounting professionals has never been stronger.” Demand for auditors is not expected to slow any time soon, Ms Cheung says. There are several new developments emerging, including Cotai’s new mega-resorts and the infrastructure investment in Hengqin Island, which will call for more professionals.

The Big Four Competition among practices within the sector is also mounting. Each of the world’s four main accounting and auditing firms–Deloitte, KPMG, Ernst & Young and PricewaterhouseCoopers–has a branch here. “In Macau, most of the big business is monopolised by the Big Four. How can small companies compete?” Ms Ho asks. She says challenges come in two forms. When new companies expand into the market here, they often use a branch of one of the big accounting firms, with which they are more familiar. The smaller firms face a double whammy when they try to compete for staff. Ms Cheung says would-be employees see the four main firms as APRIL 2012

HIGHER LEARNING T

he Department of Accounting and Information Management at the University of Macau is planning to increase the number of students it enrols to meet demand for accountancy professionals. The department plans to increase the number of places for new students to 120 every year when the university moves to its bigger campus on Hengqin Island. It is due to be completed this year. More qualified accountants will be hired to teach part time. At present the accounting department takes 70 new students every year, about 45 from Macau and about 25 from the mainland. The number of applicants is almost double the number of places. “We have limited resources. A large number of students want to join our programme but we don’t have sufficient human resources to teach them,” says the head of the department, Desmond Yuen Chun Yip. Another challenge lies in keeping pace with the constant evolution of international accounting standards. Mr Yuen stresses that the department is not an “accountant factory” and must focus on providing a quality education. “We will not train accountants as a machine.” The university wants to do more research in the field of accountancy and have more research papers published internationally. Students have been able to take a bachelor’s degree in accountancy since 2009, instead of just doing a major in accounting as part of the business administration degree programme. It has been welcomed by the market. The employment rate among graduates that specialise in accountancy is almost 100 percent. Most are taken on by one of the four main firms.

A.L.

APRIL 2012

Economy & Finance

employers of choice. They invest a lot of resources in training and retaining employees. Most of Macau’s registered accountants do not work for accounting or auditing firms. Doing so is not regarded as an attractive career option. Instead they find work in the finance departments of private concerns, mainly the banks, law firms and casinos. The government also employs its fair share of accountancy professionals. The head of the Department of Accounting and Information Management at the University of Macau, Desmond Yuen Chun Yip, says young accountants can find work in accounting easily. “But they have to do long working hours and the workload is big because there is a shortage of manpower. They know they have to work more than 10 hours a day in the Big Four firms.”

Brain drain The starting pay is also far from attractive. “Graduates get their first job and earn between MOP8,000 [US$1,000] and MOP9,000, but if you finish secondary school and go to the casinos you get MOP18,000,” says Ms Ho. She says accounting is attractive as a career only if you take the long view. The starting pay at a big firm tends to be slightly better. Mr Yuen says the range is from MOP9,000 to MOP12,000. But once they have some experience, accountancy professionals typically change careers as soon as possible, accelerating the brain drain. “They will change jobs to the public administration because they know being a civil servant will give them more benefits. Still, in the long run, opportunities are not as good as if you become a partner in an accounting company.” Carlos Noronha, an associate professor of accounting at the University of Macau, says the smaller firms lack senior auditors. “The turnover rate is quite high. Every year there are many new recruits but not enough senior managers to lead them,” he says. To help small accounting businesses survive, Ms Ho would like the government to set a minimum charge for engaging the services of an accountant – standard practice in other places. Ms Ho says the government should prevent accountancy professionals working in the public sector from moonlighting in the private sector. Smaller firms could also help themselves, she says, by specialising in certain fields, such as corporate governance consulting services, for instance. Ms Ho advises Macau’s accounting firms to make alliances with firms elsewhere. Mary Chai Lai Ping, another associate professor of accounting at the University of Macau, urges the government to reach agreements with other jurisdictions, such as Hong Kong and Singapore, to recognise professional qualifications and permit reciprocal licensing. Ms Cheung says Macau accountancy professionals are too focused on the entertainment and gaming industries. “The accounting and auditing skills of the Macau professionals tend to be much specialised in these industries,” she says. They have limited exposure to other industries and need to gain experience in the application of some accounting and auditing standards, she says.

Talking the talk lthough Macau is part of the global economy, it is not yet fluent in the international language of accounting. Accountancy professionals and academics have differing opinions about whether the present degree of compliance is enough. Hugo Marinho came to Macau four years ago to join the accounting department of a law firm, after working in Portugal. “I have found no big differences in the local reporting standards. Principles here are the same as in any other place in the world,” he says. Had Mr Marinho come to Macau some years before, he would have seen a different picture. Macau only began to adopt parts of the International Financial Reporting Standards (IFRSs) in 2005, three years after the liber-

Congratulations on the launch of Business Daily

APRIL 2012

33 A spokesperson for the Committee for the Registry of Auditors and Accountants admits there was a gap between Macau and elsewhere. “Macau’s accountancy and auditing activities have been heading towards the same direction as the international community and at a much faster pace over the past decade.” The spokesperson says the gap narrowed “dramatically” with the approval in 2004 of the Macau Auditing Standards and of the Code of Ethics for Registered Auditors. That was followed by the adoption of some of the IFRSs a year later. “Macau is pretty much in line with the international standards,” the spokesperson says.

Moving target

alisation of the gaming market, and these standards became mandatory in 2007. Macau has different standards for big companies and for small and medium enterprises, and neither set of standards fully complies with all the IFRSs. Mary Chai Lai Ping, an associate professor of accounting at the University of Macau, says the city’s accounting standards cannot keep up with the pace of growth in the city’s economy. She urges revision. Grace Cheung, partner at PricewaterhouseCoopers Macau says the failure to adopt the IFRSs fully makes life difficult for accountancy professionals. “Based on the potential economic growth of Macau, we do foresee an emerging need for constant revision.”

The vice-president of the Union of Associations of Professional Accountants of Macau, Louisa Ho Mei Va, believes there is no need to adopt all the international standards. “Macau is not fully internationalised,” she says. SMEs cannot afford to comply with tougher rules, Ms Ho says. “If you enforce more international standards, it is too much of a burden. We should adopt more IFRSs, but not all of them.” Carlos Noronha, another associate professor of accounting at the University of Macau, says full adoption soon is unlikely – and may be unnecessary, in view of Macau’s peculiar situation. The head of the Accounting and Information Management Department at the University of Macau, Desmond Yuen Chun Yip, blames the delay in adopting more IFRSs on the need to translate them into Portuguese. “One of the reasons of this slow pace is because the official languages in Macau are Portuguese and Chinese. For Chinese, we have no problems with the translation, but the Portuguese translation takes so long,” he says. “Every three years we have to do some revision, because accounting principles change very fast. But unfortunately the pace of translation is very slow.” Another problem is bureaucracy. Academics advise the government to give more power to the Committee for the Registry of Auditors and Accountants to press for the adoption of new standards. “In Macau, all the auditing standards and IFRSs adopted are in the form of bylaws, which means they have to go through a legislative procedure,” Mr Noronha says. “But IFRSs are a living and evolving thing. They change dynamically in relation to the ever evolving business world.” Mr Noronha says there should be an independent body to set accounting standards and accountancy examinations, and to issue licences. Ms Cheung wants the government to review the Macau accounting and auditing standards to ensure they remain relevant and adequate. Mr Yuen says that in some cases companies are the obstacle to the adoption of more IFRSs. Some businessmen are reluctant to disclose the additional information required when the standards are applied. A.L.

APRIL 2012

Economic Trends by José I. Duarte Inflation

GRAPH 1 - Macau’s annual inflation rate

The rising cost of living is at the forefront of public debate. Civil society groups have been alarmed by price increases and the government has responded with a number of policies to address inflation.

Unit: % 10.00 9.00

GRAPH 1

8.00

High rates of inflation in 2007 and 2008 gave some cause for concern. There was an upward trend in inflation during that period which justified some of the community’s current unease. The global financial crisis and subsequent economic slowdown helped ease the pressure on prices during the middle period of our five-year analysis. The inflation rate dropped by more than 7 percentage points between 2008 and 2009, to less than 1.2 percent. There is again renewed pressure on prices with an annual inflation rate of 5.8 percent last year.

7.00 6..00 5.00 4.00 3.00 2.00 1.00 0 2007

2008

2009 Year

2010

2011

GRAPH 2 - Selected components of the Macau Consumer Price Index Unit: April 2008 to March 2009 = 100

Overall index Housing and fuels

Food and non-alcoholic beverages Clothing and footwear Health Transport Communication Education

125

GRAPH 2

The Macau Consumer Price Index, the city’s gauge for inflation, has 11 categories. All but two, education and communication, have increased over the past five years. Essential components, such as food and non-alcoholic beverages, clothing and footwear have far outpaced the average increase in indexed prices. Although housing costs have increased, this component index is trailing the average increase. GRAPH 3

When the monthly change in the inflation rate is plotted, there is no overall marked acceleration in inflation. Perhaps that contradicts the occasional alarmist complaint about rising prices. Over time, there is an upward trend that should come under scrutiny and that invites timely reflection about additional cooling measures, especially if both mainland prices and the renminbi resume their recent upward trends.

100

75 2007

2008

2009

2010

Year

GRAPH 3 - Monthly changes in the Consumer Price Index Unit: % 3.00 2.50 2.00 1.50 1.00 0.50 0 -0.50 -1.00 -1.50 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11

APRIL 2012

2011

External merchandise trade

GRAPH 4 - Value of Macau-manufactured exports and their destination Unit: MOP million

Hong Kong

Mainland China

Total exports of goods

25,000

The motor for the city’s exports is manufacturing. This sector has been in decline since the handover, at least in relative terms and this has dragged down the city’s exports. GRAPH 4

20,000

Although squeezed by the overall expansion of Macau’s economy, the value of merchandise exports was maintained in absolute terms until about 2007. They then declined rapidly before hitting a plateau in 2009. Additionally, there is a growing concentration of trade with just two markets – Hong Kong and the mainland. They now represent about two thirds of the city’s merchandise exports.

15,000

10,000

5,000

GRAPH 5

0 2000

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Year

GRAPH 5 - Value of goods exported by major categories Footwear

Unit: MOP million

GRAPH 6

Machines, apparatus and parts

Other textile products

Garment

25,000

20,000

15,000

10,000

5,000

0 2000

2001

2002

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It is also increasingly clear that the textile and apparel industry, which was for many years a mainstay of the city’s economic activity, has contracted sharply. Textile-related manufacturing shrank to about one-tenth of what it was worth at its peak in 2004.

2007

2008

2009

2010

The steep decrease in the overall exports from the textile and apparel industry becomes clear if we chart the volume of imports. Macau is importing fewer raw materials for its manufacturing industry. Instead, there is an increase in imports of finished consumer goods, such as garments and footwear. These imports have doubled over the past decade, while imports of raw textiles are less than one-tenth of their value in 2000. The pattern sums up the change in the city’s economy: fewer imports of raw materials consumed in the manufacture of goods for export and an increased dependence on imported consumer goods for domestic consumption. In both cases, trade is highly concentrated with the two neighbouring economies, the mainland and Hong Kong.

2011

Year

GRAPH 6 - Value of imports in selected categories

Unit: MOP million

Textile materials imports from mainland China Garment and footwear imports from mainland China Total garment and footwear imports

Textile materials imports from Hong Kong Garment and footwear imports from Hong Kong Total textile materials imports

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2000

2001

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APRIL 2012

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

A fair reflection THE ELECTORAL PRIVILEGES OF ASSOCIATIONS SHOULD BE REVOKED TO MAKE MACAU’S POLITICAL SYSTEM MORE REPRESENTATIVE fter January’s first stage of public consultation about the reform of Macau’s electoral system, the government announced that opinion was mostly in favour of increasing the number of members of the committee that elects the Chief Executive, to make it more representative of society at large. Most people also thought there should be more directly elected and indirectly elected members of the Legislative Assembly, but no change in the number of members appointed by the Chief Executive. Since officials regard fair representation of society and legitimate popular mandates for the executive and legislative branches of government as important goals, we must consider how the electoral committee and the assembly can better reflect the composition of society. The biggest problem with the present system is that ordinary residents of Macau can vote only for candidates for directly elected seats in the assembly, while leaders of associations can vote for candidates for directly elected and indirectly elected seats, and have a say in choosing the members of the electoral committee for the Chief Executive. This contravenes the “one person, one vote” principle. Furthermore, the International Covenant on Civil and Political Rights which, according to the Basic Law, applies to Macau, says nothing about allowing voters to relinquish their voting rights in favour of associations.

Strangleholds The Legislative Assembly has 10 indirectly elected members, of whom four represent the industrial, commercial and financial sectors. This is far more than the ratio of employers to the general population would indicate is fair. Conversely, only two indirectly elected members represent the labour sector – far fewer than the ratio of employees to the general population would indicate is fair. The distribution of indirectly elected seats is unrepresentative and should be corrected. The number of seats for the industrial, commercial and financial sectors should be reduced to one, allowing the number for the labour sector to be increased by three. The method of filling the indirectly elected seats should also be changed.

The Legislative Assembly has 10 indirectly elected members, of whom four represent the industrial, commercial and financial sectors. This is far more than the ratio of employers to the general population would indicate is fair APRIL 2012

Individual voters should be registered according to their occupations, and each allowed one vote for a candidate for the indirectly elected seat reserved for his or her economic sector. This would make the indirectly elected members more representative. And it would break the stranglehold that the Macau Chamber of Commerce has on the four seats for the industrial, commercial and financial sectors, and the stranglehold that the Macau Federation of Trade Unions has on the two seats for the labour sector. This reform would make the two indirectly elected seats reserved for the “professional” sector unnecessary. These seats, and any new ones, could be allocated to interest groups that lack proper representation, such as students, housewives and the retired. Again, they should be filled by following the “one person, one vote” principle.

Advisory expertise The seven members appointed by the Chief Executive are clearly unrepresentative and undermine any grounds that the assembly might have to claim a popular mandate. Without big changes to the Basic Law, their seats cannot be scrapped. But the ongoing electoral reform process allows enough room to mitigate the inequity. The most radical solution would be to reduce the number of appointed members to one. Or a rule could be made limiting eligibility for appointment to the losing candidates in the direct elections with the highest number of votes. This would allow the appointees to claim a modicum of public support for their political agenda. Or the function of appointed members could be made purely advisory. They would be able to take part in all the business of the assembly, but not vote. This would allow the Chief Executive to inject some much-needed technical expertise into the assembly – given that the lack of technical expertise is sometimes cited as grounds for keeping the appointed members. As for the committee that elects the Chief Executive, all its members should be elected by following the “one person, one vote” principle, to make the committee more representative of society. The present constituencies should be abolished and anyone allowed to stand for membership. Even in the direct elections for the Legislative Assembly there is a need for reform. In 2009, each list of candidates was allowed to spend up to MOP8.9 million (US$1.1 million) on campaigning. It is too much because it favours more affluent candidates who, if elected, tend to look after the interests of big corporations. Macau should learn from Hong Kong, where limits on campaign spending are much lower. The government should also make stricter laws against votebuying and other election bribery, enforce these laws better and promote clean elections. All this would make our political system more representative and allow the Legislative Assembly and the Chief Executive to claim a legitimate popular mandate.

APRIL 2012

Greater China government, but China’s Communist Party holds the real power, he says. Mr Wen enters his final year in office amid slowing economic growth and rising social tensions, and his lasting legacy is likely to rest on his man-of-thepeople image rather than reforms.

‘Grandpa Wen’

Wen Jiabao visited Macau in 2010

Parting shot Premier Wen Jiabao makes a dramatic appeal for political reform as he enters final year in office en Jiabao has been a vocal proponent of political reform during his nine years as premier, but his reputation rests more on his capacity for empathy – a rare quality among China’s leaders. Last month, as he delivered his final press conference as the head of China’s government, Mr Wen made his strongest call yet for change, warning of a repeat of the Cultural Revolution’s deadly chaos if reforms were not implemented. Once close to disgraced former party heads Hu Yaobang and Zhao Ziyang, both reformists, Mr Wen’s nomination in 2002 to the Communist Party standing committee, its highest organ of power, raised hopes of change in the one-party system. But those hopes have not been fulfilled, and critics have accused Mr Wen of paying lip service to the notion of reform and democracy. China expert Willy Lam says the

APRIL 2012 MARCH 2012

premier, who turns 70 in September, displayed an “air of resignation” at the press conference, with little time remaining to implement the reforms he has repeatedly called for. “His statement about political reform is actually an emphasis on his legacy... as the only Politburo Standing Committee member who is still calling for political reform,” says Mr Lam, of the Chinese University of Hong Kong. “As the prime minister, he has limited power as a lot of the major decisions concerning the economy and so forth are made by the party leaders. He wants to reiterate the importance of separation of power and government.” Jean-Pierre Cabestan, a politics professor at the Hong Kong Baptist University, compares the Chinese premier to “a general whom the army does not really obey”. Mr Wen may be the head of the

Few Chinese leaders have ever shown Mr Wen’s almost Clintonesque capacity for empathy, and he appears to have a genuine following not just among lawmakers, but also in the population at large. Since he came to power in 2003, he has visited AIDS patients, commiserated with miners after fatal accidents and held hands with poor farmers whose crops were destroyed by unseasonal weather, earning the nickname ‘Grandpa Wen’. During the Severe Acute Respiratory Syndrome (SARS) epidemic that swept the world in 2003, Mr Wen met medical staff and patients in hospital – a move that shocked many in China, where infectious diseases are greatly feared. He has generally projected an image of a down-to-earth politician deeply in touch with the needs of China’s poorest. It is an image that has been widely welcomed by ordinary Chinese, although some have accused him of putting on an act. In 2010, author Yu Jie questioned Mr Wen’s reformist and humanist qualities in his book “China’s best actor: Wen Jiabao”. Born in Tianjin city, Mr Wen graduated from university as a geologist and spent much of his early career in remote Gansu province. In 1984, under former party boss Hu Yaobang, he was elevated to head the Communist Party’s general office, which looks after day-to-day affairs, and survived the purges of both Mr Hu and his successor Zhao Ziyang. Before becoming prime minister, Mr Wen was perhaps best known for appearing with Mr Zhao as he addressed protesting students in Tiananmen Square in 1989, just before Mr Zhao was sacked for opposing the crackdown on the democracy protests. Mr Wen survived his relationship with the ousted Mr Zhao and was named a vice premier under then prime minister Zhu Rongji in 1993, and placed in charge of agriculture and state-owned enterprises. He advanced to the Politburo Standing Committee in 2002 and the premiership in 2003. AFP NEWS AGENCY

APRIL 2012

Greater China

Meet the new boss Self-made man to rule over Hong Kong’s tycoons

BY STEPHEN COATES*

ong Kong’s incoming leader, Leung Chun-ying, is the son of a policeman who carved out a fortune from real estate before entering politics as a relative outsider. Mr Leung won Hong Kong’s leadership election last month, after the most divisive vote since the city reverted to Chinese rule in 1997. He won 689 of the votes from the 1,200-strong election committee, as thousands of protesters rallied outside the venue where the vote took place, demanding full democracy. Mr Leung’s five-year term starts in July after outgoing Chief Executive Donald Tsang Yam-kuen’s term expires. Born in 1954, Mr Leung is known as a self-made property consultant and, most recently, as the soft-spoken convener of the Executive Council, the city’s top policy-making body. His family hails from China’s eastern Shandong province but he proudly claims to be born and bred in Hong Kong. Better known by the initials CY, the 57-year-old studied surveying in Hong Kong and real estate management in Britain, before returning to his hometown in 1977 and joining the local office of global property firm Jones Lang Wootton. He rose to become one of the most well-known figures in the city’s influential property sector, as Asia-Pacific chairman of real estate advisory firm DTZ Holdings, and today has an array of business directorships. At just 34 years of age, Mr Leung was named secretary general of the high-powered Basic Law Consultative Committee, tasked with drafting the city’s constitution after its return to Chinese rule. That appointment led to persistent allegations that he is a secret member of the Chinese Communist Party, a suggestion he repeatedly denied throughout his election campaign. Two years after the handover he was appointed as convenor of the Executive Council, a role that saw him advise governments on the big decisions of the day. He stepped down in September last year to run for the post of chief executive against a man most observers saw as a shoo-in for the job, business and government insider Henry Tang Ying-yen.

The outsider

Born in 1954, Leung Chun-ying is known as a self-made property consultant

The son of a Shanghai textile baron, Mr Tang was considered to have the backing of Beijing and the city’s powerful business tycoons, who together dominate the election committee that decides the chief executive election. But Mr Leung’s more confident style and populist proposals – including promises to address corruption, the wealth gap and soaring housing prices – put him well ahead of Mr Tang in terms of popular approval ratings. He watched calmly as Mr Tang’s campaign imploded in a series of verbal gaffes and personal scandals, which helped to overshadow questions about his own background and alleged conflict of interest in a property deal. Beijing did not openly switch sides, but when the committee met it was Mr Leung who won the majority of its 1,200 members.

In a victory speech, he promised to reunite Hong Kong after the most divisive election in its history. “From today onwards, there is no Tang camp or Leung camp, there is only one Hong Kong camp, all Hong Kong people are in this camp. I need the support from everyone to work together,” Mr Leung said. He also said he would “pave the way for enhanced democracy with an open and fair election system” in 2017, when Beijing has promised all citizens will be entitled to vote for the chief executive from a vetted group of candidates. Mr Leung, who is married with three teenage children, says he finds gardening “therapeutic”, loves hiking and football, and swims every night in his private pool. *AFP NEWS AGENCY

APRIL 2012

41 MINXIN PEI PROFESSOR OF GOVERNMENT, CLAREMONT MCKENNA COLLEGE

China’s politics of the economically possible THE COUNTRY’S RULING ELITES ARE ALMOST CERTAIN TO DISMISS THE WORLD BANK’S JUST-RELEASED REPORT “CHINA 2030” AS POLITICALLY UNDESIRABLE AND IRRELEVANT hen sound economic advice is divorced from political reality, it probably will not be very useful advice. The history of multilateral financial institutions like the International Monetary Fund and the World Bank is littered with well-intentioned and technically feasible economic policy prescriptions that political leaders ignored. But that has not stopped these institutions from trying. The latest attempt is the World Bank’s just-released and much-applauded report “China 2030: Building a Modern, Harmonious, and Creative High-Income Society”. As far as technical economic advice goes, the report is hard to top. It provides a detailed, thoughtful and honest diagnosis of the Chinese economy’s structural and institutional flaws, and calls for coherent and bold reforms to remove these fundamental obstacles to sustainable growth. Unfortunately, while the World Bank’s report has laid out a clear economic course that Chinese leaders should pursue for the sake of China, the Bank has shied away from the most critical question: will the Chinese government actually heed its advice and swallow the bitter medicine, given the country’s one-party political system? For example, among the most urgent reforms that “China 2030” recommends is reduction of the state’s role in the economy. This can be achieved by eliminating privileges for state-owned enterprises, such as subsidised capital and monopolies, and by allowing the private sector more freedom. But, curiously, the report’s authors seem to forget that this would entail prohibitive, if not disastrous, costs for the ruling Chinese Communist Party.

Ensuring self-preservation China’s giant state-owned enterprises may have some economic usefulness, but their existential value is political. The Chinese Communist Party uses the state-owned enterprises to provide good jobs and perks for its members. Of the Chinese Communist Party’s roughly 80 million members, more than 5 million hold executive positions in state-owned enterprises or affiliated firms. Factoring in the regulators and local administrators whose jobs similarly depend on maintaining the current level of state intervention in the economy, World Bankstyle reforms would jeopardise probably close to 10 million official sinecures. There is little doubt that reducing the state-owned enterprises’ power would make the Chinese economy far more efficient and dynamic. But it is hard to imagine that a one-party regime would be willing to destroy its political base. Fiscal reform is another urgent priority highlighted by “China 2030”. China’s highly regressive fiscal system (the poor are

taxed more than the wealthy) entails excessive revenues for the central government and relatively little expenditure on social services. In nominal terms, aggregate tax and non-tax revenues collected by both the central and local governments exceed 35 percent of gross domestic product. But the bulk of the revenues is spent on administration, fixed-asset investment, domestic security, defence and assorted lavish perks – entertainment, junkets, housing, cars and high-quality healthcare – for government officials. “China 2030” suggests that China should gradually increase its spending on social services by 7 percent to 8 percent of GDP over the next 20 years. But why should the Chinese Communist Party do so? After all, the overall real taxation level in China is already quite high, which means that doubling social spending from the current level without raising taxes further would require severe cuts in expenditures that chiefly benefit the ruling elites. The budgetary transparency that the World Bank has recommended will most likely not be realised for the same reason. Current public spending is so skewed toward the ruling elites that the Chinese Communist Party would risk losing its legitimacy should the budget become subject to public scrutiny.

A tired slogan Making China a “harmonious” society – the aim of the report’s advice on reducing inequality – is clearly a desirable goal. However, it is a tired slogan even by Chinese standards. Trotted out by China’s rulers many years ago, the “harmonious society” campaign has yielded, at best, modest changes in policy. The underlying political drivers of social frustration and conflict – disenfranchisement, repression, pervasive official corruption, unaccountable rulers and predatory state institutions and policies – remain unchanged. Addressing these fundamental causes of social discontent and unsustainable economic performance requires not advice and pleas to the ruling elites but a change in China’s political reality that compels those who benefit from the ‘status quo’ to surrender their privileges for the good of the country. Only two likely developments could lead to this outcome. One is the political empowerment of the Chinese people. But democratisation is currently unlikely, given the Chinese Communist Party’s clear determination to defend one-party rule. That leaves political change at the mercy of a systemthreatening crisis, brought on by China’s failure to tackle the pathologies the World Bank has so ably diagnosed. And, alas, China’s ruling elites are almost certain to dismiss “China 2030” as politically undesirable and irrelevant. APRIL 2012

Property

Trendy by design Telok Real Estate Partners wants to rejuvenate the city’s old districts by building apartments and shops for young professionals BY ALEXANDRA LAGES

he three partners in Erva Collections, one 23 years old and the others aged 26, had been dreaming about opening their own business but rents were too high for their budget. After searching for more than a year, they saw an ad in a newspaper inviting entrepreneurs to join a business plan competition. Today, their shop is open in new premises near the Kiang Wu Hospital, selling fashion products from Japan. The shop was specially chosen to occupy one of the commercial spaces in The Verde, a residential development. The Verde was developed by Telok Real Estate Partners, a small, specialist property firm established in Hong Kong in 1976 with venture capital. Telok’s first investment in Macau was its Loft-iTO project, the renovation of old flats so they could be leased out. Later it began building homes from scratch. It began The Verde, consisting of three buildings in Rua da Erva, in 2009. The firm has four shop spaces in the residential blocks there, and six facing the street. To improve the image of the street and make it easier to let the shops, Telok took a novel approach. It joined forces with the Pan Mac Junior Chamber and sponsored a creative business plan competition. The prize for each of the two finalists was two years rent-free in one or two shop spaces, and MOP100,000 (US$12,500) for start-up capital. There were 65 entries. The Erva Collections partnership was one winner, and the other was Baby Link Education Co. Ltd., which offers photography and playgroups for children. Both businesses opened after Chinese New Year. Telok monitors the progress of both businesses and in a year’s time, it will select a winner which will get another MOP100,000.

Incubation sensation “The company wants to rejuvenate the neighbourhood. We don’t want to be a APRIL 2012

To improve the image of Rua da Erva and make it easier to let the shops, Telok sponsored a creative business plan competition

developer who builds houses and, after selling the units, moves on to the next project,” says Philip Pang, one of the Telok partners. “The neighbourhood has been primarily occupied by elderly people and lower-income families but we saw the potential in it.” Mr Pang says the new shops add value to the area in general and to The Verde in particular. “We used that competition as a kick start for our marketing

campaign. There was no retail value on the street and it takes time to incubate and pick the right tenants and do the right trades mix.” The next step, due to begin soon, is to invite selected businesses to rent the other shops. Telok expects to let them all this year. If a prospective tenant has a good business plan, Telok will help it by not collecting rent for a while, reimbursing its start-up expenses or by giving it a longer-than-usual lease, says Mr Pang. Creative and lifestyle businesses are the most welcome. “Altogether, we have about 10 shops. We’re going to be pretty supportive regarding lease terms. The most important

thing is finding the right concept and the right team.” The whole area will benefit as new ideas and young businesspeople are brought in, says Mr Pang. “If we sold the shops right away, they would be turned into another garage, a warehouse or another place to collect paper boxes or sewage pipes.” The pioneering entrepreneurs could not be happier. Although the partners in Erva Collections cannot keep the shop open all day because they all have other jobs, the results have surprised them. In the first two weeks they made as much money has they had expected to make in the first two months. Sales in the first month amounted to MOP82,000.

It’s your daily business

NICHE IDEA T

he Verde is the second project by Telok Real Estate Partners in Macau. The company arrived in the city in 2006 and found something missing. “You have very high-end residential developments in Macau, but other than that the quality is still a bit behind other areas in the region. To us, Macau was kind of like Hong Kong in the 1960s,” says Philip Pang, one of the Telok partners. The firm expected incomes to continue to grow and thought Macau residents would want to start improving their living conditions accordingly. It decided to focus on certain niches. “We realised there’s a need for small and affordable units in Macau. We determined one- and two-bedroom units could be appealing for young people, first-time buyers or people that just started working,” Mr Pang says. The market response was overwhelming. Telok sold the 90 or more flats it had available in its The Verde development in short order. “Our product is different from most of the so-called M-class low-rise buildings, which usually have no lift and no property management services,” Mr Pang says. Telok’s The Verde development has lifts, a gym and a small library. The Verde I has a sky garden for the use of all residents. The flats are designed to look modern, to appeal to young people and the selling prices were lower than in other new developments. After the success of The Verde, Telok last year partnered with an institutional investor to build two similar developments. They will be in the same district as The Verde and have 30 homes each. Construction could begin as soon as this year. APRIL 2012

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

Big Brother is watching THE NEW LAW ON VIDEO SURVEILLANCE IN PUBLIC PLACES DOES LITTLE TO REASSURE LAW-ABIDING CITIZENS THAT THEIR PRIVACY WILL BE RESPECTED he Legislative Assembly recently approved a new law on video surveillance in public places. It comes into force in the middle of this month. A very idiomatic Portuguese saying often came to mind during the final debate in the assembly. Translated freely, it may be rendered as whatever is born misshapen will hardly ever be set straight. I have several reasons for thinking this unpleasant thought. First, let me set my terms of reference: the right to privacy is fundamental to a free society. I consider the view that if one has nothing to hide then there is nothing to fear to be a deceitful fallacy, and a crude attempt to stand the argument on its head. It is the restriction of privacy that needs to be justified, not its protection. Certainly, there are arguments that can be reasonably invoked to justify the use by the authorities of video surveillance in public places in well-defined circumstances and under wellcontrolled conditions. This is where I find this new law fails miserably. Some reasonable general principles are put forward in the legislation, but they are not applied to the details. Setting aside the technical aspects and minutiae that are better left to the legal professionals, the law raises several uncomfortable questions. And I am not even going to touch the issue of eavesdropping, which would justify a commentary of its own. It is misguided, if not misleading, legislation. It purports to have fighting crime as its purpose. Who could object to that? But then everything becomes woolly. Ask what the rules for applying the law are, and you get a flurry of good intentions. Ask how it will be applied in practice and how its application will be monitored, and you get bold assurances. Ask what the safeguards against abuses are, and you get waffle or no answer at all.

Smile, you’re ticketed

There is one big exception to this pattern. When the law is applied to traffic violations, the details become clear. The police are authorised to use the surveillance equipment to monitor and identify vehicles, and the pictures taken can be used as evidence.

It appears that legislation meant to fight felons will be of most practical use to police sitting comfortably in an air-conditioned room slapping fines on motorists for traffic misdemeanours

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It appears that legislation meant to fight felons – which is how the government described it when presenting it to the Legislative Assembly – will be of most practical use to police sitting comfortably in an air-conditioned room slapping fines on motorists for traffic misdemeanours. This remit falls outside the scope of the law as defined by the law itself. The last time I looked, neither parking offences nor most moving traffic violations had been classified as felonies. Never mind that we do not have a transport policy worth the name. Never mind that we have a singular parking policy, without known parallel in the world. Never mind that vanloads of police officers are kept running around to keep parking meter concessionaires happy, even as traffic chokes the nearest crossroads. Never mind that drivers have to deal with road conditions that get worse every day. The cameras will catch offending motorists and their tickets will be in the post soon after.

Toothless watchdog

The legislation is misleading in another way. It places on the shoulders of the Office for Personal Data Protection the task of shielding people against abuse by the authorities of video surveillance in public places. In doing so, the legislation drifts into the realm of fantasy. The Office for Personal Data Protection is deemed independent. It is anything but. It is a small office, not even a fully fledged government department. It was created as a project team, and that is its legal status. Its members are appointed and work under the direct authority of the chief executive. It has no statutory autonomy. Its members may be the most honourable people on the planet but in no language known to man – bar Newspeak, I venture – does that word apply. That someone felt the need to pretend that the office is independent, and expected us to believe it, is worrying. I do not envy the members of the office for their task. I am looking forward to hearing their legal opinion on the hundreds of cameras that the police have already installed prior to the law enactment. I especially look forward to hearing what they have to say in the light of the law’s stipulation that every single installation must be justified and approved, and in the light of the law’s failure to stipulate the criteria for approval. I expect the office’s opinion to be made public. There is no reason, given the repeated assurances of openness and respect for privacy, why it should be otherwise. Overall, the law gives the impression that it is not properly thought out – not, I am sure, for want of proper legal advice. It seems instead to be meant to give a cloak of legality to decisions and actions already taken. Given that the issues are sensitive, the law comes wrapped in tranquilising generalities. But it causes legitimate worries about its use and abuse. It is difficult not to see it further weakening the legal system and civil liberties in Macau. Of course, we will be told, only those with something to hide will have such worries. Criminals beware: you are being watched. We all are.

Photo: LuĂs Almoster

A DECADE OF CHANGE THIS MONTH MARKS THE 10TH ANNIVERSARY OF THE LIBERALISATION OF THE GAMING INDUSTRY IN MACAU, A MOVE THAT HAS BROUGHT SIGNIFICANT TRANSFORMATIONS TO THE CITY acau’s gaming industry posted a casino gross gaming revenue of MOP24.99 billion (US$3.1 billion) for March this year. That was more than what the sector ranked in for overall 2002, the year the casino liberalisation took place. That statistic gives a clear picture of how much and how fast the city has evolved in 10 years. Prior to the handover, the highest-ever annual casino gaming gross revenue figure was only MOP17.78 billion. The casino monopoly of Sociedade de Turismo e Diversões de Macau SA formally ended on April 1, 2002. That was when its successor Sociedade de Jogos de Macau SA, now a subsidiary of SJM Holdings Ltd, started operations. In 2006, Macau became the world’s biggest gaming market, leaving Las Vegas behind. Now, the local casino industry makes six times more money than its American counterpart.

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Macau’s casino industry is today 11 times bigger than it was in 2002 in terms of gross gaming revenue. The number of casinos has soared from 11 to 31, plus three currently not in operation. Sands Cotai Central, to open this month, will be the latest addition. The impact of the casino liberalisa-

tion goes well beyond the industry. It is reflected in the number of visitors, which has more than doubled, and in the volume of retail sales, which went up by over 700 percent between 2002 and last year. The sector contributed MOP94.1 billion in direct taxes last year, repre-

senting over 80 percent of Macau’s total public finances. The city’s overall gross domestic product has gone up by almost 230 percent since 2002. The liberalisation of the gaming industry has also hugely increased demand for labour. With unemployment at historical lows, local businesses, small shops and restaurants are today left short of workers. The positive side of this is that salaries have soared. While casino liberalisation has brought forth tremendous economic gains, some analysts argue that part of the population has not subjectively felt the benefits. The casino boom has fuelled a property boom, leaving many priced out of the market, and has also pushed up commodities prices.

perous, as good as it is today.” Mr Tracy says that foreign operators are partially to congratulate for the success. “Nobody, except Sheldon Adelson, had the vision of Cotai.” He also applauds the way the regulator has kept pace with change. And while many point the finger at the government for not being able to solve infrastructure bottlenecks, Mr Tracy says that is undue criticism. “They are moving as fast as they can given the changes and the shift of success that has poured money into

their coffers faster than anybody would believe it possible.” MGM China Holdings Ltd chief executive Grant Bowie says all six gaming operators “have absolutely delivered way and above people’s expectations.” Mr Bowie admits there were speed bumps along the way, but says “excellence doesn’t come from being in your comfort zone.” He acknowledges the casino industry’s fast growth has stressed both infrastructure and the economy, both says most of it has been positive change.

At the speed of light

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Photo: Luís Almoster

“What took 40 years to achieve in Las Vegas, has been achieved, in a different manner, in 10 years in Macau,” says Sands China president and chief executive Edward Tracy. “That is a hell of a undertaking for any government, any community, any culture and any business sector to have to deal with. The response has really been incredible.” The vice-chairman of Galaxy Entertainment Group Ltd, Francis Lui Yiu Tung agrees. “You feel history changing every day in this marketplace.” “It was just amazing. When we were starting to engaging in Macau 10 years ago, we never expected the casino industry would be has bright, as pros-

A COMPLICATED PROCESS THE LIBERALISATION OF THE CASINO INDUSTRY ONLY PUT THREE LICENCES UP FOR TENDER BUT MACAU ENDED UP WITH SIX OPERATORS alks on liberalising the Macau casino industry trace back to long before 2002. While still under the Portuguese administration, there were numerous discussions on the topic. Just one day after the handover in December 1999, new Chief Executive Edmund Ho Hau Wah announced a plan to study the topic. The Macau Gaming Committee was formed in July 2000 and one month later it hired Arthur Andersen Worldwide to study the liberalisation of the gaming industry. Upon the expiry of the concession of Sociedade de Turismo e Diversões de Macau SA (STDM) at the end of 2001, the government decided to grant three gaming concessions, in what was announced to be an effort to inject a new dynamic into the sector. In July 2001, the Macau legislature passed a licensing bill that broke up the monopoly franchise. Bidding for the three operating licences was opened in December that year, drawing tenders from 21 companies from the United States, Australia, Macau, Hong Kong, Malaysia, Britain and Taiwan. On December 31, 2001, since the government could not grant the concessions as scheduled, the STDM’s contract was extended for three more months. The results of the bidding were announced on February 8, 2002 and concessions were granted to Sociedade de Jogos de Macau SA (SJM), a subsidiary of STDM; Galaxy Casino, SA; and Wynn Resorts (Macao) SA. The licences were granted for a maximum of up to 25 years, and did not specify how many casinos each concessionaire could run. STDM’s monopoly formally ended on April 1, 2002. That was when its successor SJM started operations, taking over STDM’s gaming assets. Galaxy Casino was initially made up of a joint venture between what is APRIL 2012

Photo: Luís Almoster

Wynn Macau opened in September 2006

today Galaxy Entertainment Group Ltd and Sands China Ltd. However, the partnership quickly fell apart, reportedly over disagreement on the gaming assets management. In December 2002, the government made an alteration to Galaxy’s concession contract, which allowed it to have a sub-concession relationship with Venetian Macao SA, now a subsidiary of Sands China Ltd. Following the issuance of the first sub-concession, SJM and Wynn were also subsequently authorised to have a sub-concession each. SJM granted its to MGM Grand Paradise, SA, a subsidiary of MGM China Holdings Ltd, and Wynn to Melco PBL Jogos (Macau), SA, a subsidiary of Melco Crown Entertainment Ltd. In May 2004, the first casino from Sands China, Sands Macao, opened its doors. It was the first ever gaming investment project developed by an American company in Macau. In the same year, Galaxy’s first project, Casino Waldo, commenced operations. Wynn Macau had its stone-

laying ceremony in June 2004 and celebrated its grand opening in September 2006. Melco Crown took control of the Mocha slot lounges in September 2006. Its first casino, Crown (now Altira), opened in May 2007. In December of the same year, MGM Macau entered into operation. After a few years of rapid growth, the government found it was time to review the development of the gaming sector. On April 2008, it announced that no new gaming licences would be granted in the near future, as a means of regulating the operations of the industry. The following year, a maximum ceiling on casino junket commission rates went into effect, capping it at 1.25 percent of rolling chip turnover. In March 2010, a new cap was introduced, this time on the number of gaming tables, at 5,500 tables until 2013. From then onwards, growth in the number of tables will be limited to an average of 3 percent per year for at least 10 years.

10 Years Later... …Number 1in the World!

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BETTER OFF

SJM, THE SUCCESSOR OF THE HOLDER OF THE FORMER CASINO MONOPOLY, STDM, HAS THRIVED IN A LIBERALISED MARKET en years after Stanley Ho Hung Sun’s Sociedade de Turismo e Diversões de Macau SA (STDM) lost the monopoly on casino gaming in Macau, its successor, Sociedade de Jogos de Macau SA (SJM) is better off than STDM ever was. In 2002 Mr Ho’s casino business, still without any competitor, raked in MOP22.18 billion (US$2.77 billion) in casino gross gaming revenue. Last year, SJM’s gaming revenue reached a record MOP77.8 billion. SJM’s performance in a liberalised market is “based on decades of experience in Macau and intimate knowledge of the regional customer base,” says Ambrose So Shu Fai, the chief executive of SJM Holdings Ltd, the holding company of SJM. “After market liberalisation, it is natural that we would not hold 100 percent of the pie. The fact that SJM maintains leadership, with record revenue and profits, in a six-operator market proves our strong performance, financial strength and resilience in a changing market environment.” The company has increased its number of casinos from 11 in 2002 to 17 today. SJM controls more than half of the city’s 31 functioning casinos. There are three others, also covered by SJM’s gaming license, but they are closed. Mr So, who joined STDM in 1976 and has been part of SJM senior

management since 2002, acknowledges there are other things apart from liberalisation that have helped the casino industry thrive. “The market has grown bigger due to the robust economy of the China region,” he says. Hong Kong gamblers were once in the majority in STDM’s casinos but the tables have been turned, as the number of tourists jumped from 11.5 million in 2002 to 28 million last year. “Over 50 percent of our visitors [now] come from the mainland, and of these, around half are travelling on the individual visitor scheme, which has been instituted progressively since 2003.”

Star and satellites STDM held the casino gaming monopoly in Macau from 1962 to 2002, when newly-created subsidiary SJM won one of the gaming concessions granted by the government in prepara-

In 2002 Stanley Ho’s casino business, still without any competitor, raked in MOP22.18 billion in gross gaming revenue. Last year, SJM’s gaming revenue reached a record MOP77.8 billion

SJM CORPORATE MILESTONES November 28, 2001

Sociedade de Jogos de Macau SA (SJM) is incorporated as a limited liability company in Macau

February 8, 2002

SJM’s bid wins a gaming concession

March 22, 2002

SJM and the government sign a concession contract valid until March 31, 2020

April 1, 2002

SJM begins operating with 11 casinos

February 17, 2006

SJM Holdings Ltd is incorporated in Hong Kong

February 11, 2007

SJM opens the Grand Lisboa casino

February 1, 2008

SJM opens Casino Ponte 16

July 16, 2008

SJM Holdings Ltd is listed at the Hong Kong Stock Exchange

September 21, 2009

SJM opens the Casino L’Arc Macau

December 15, 2009

SJM opens the Casino Oceanus at Jai Alai

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tion for the liberalisation of the market. Once SJM started operations, in April 2002, it took over STDM’s gamingrelated assets. SJM became a subsidiary of SJM Holdings in 2008 and then SJM Holdings was listed at the Hong Kong stock exchange. Mr So says this was a breakthrough. “The fact that SJM is listed on a major stock market has not only put us on the same platform with other gaming companies, which are listed either in Hong Kong or the United States, but also provided a new level of transparency of gaming in Macau.” That has “helped clear up negative misconceptions held by some people about the industry in the past”. A peculiar feature of SJM is that 14 of its casinos are promoted by third parties, making them what are called satellite casinos. SJM and the third parties share the revenue. This is, in part, a legacy of the monopoly but Mr So says there are no plans to end the deals. “We have evolved a workable formula for cooperating with third-party promoters, which accounted last year for around 54 percent of our gaming revenue and about 24 percent of our earnings before interest, taxes, depreciation and amortisation,” he says. “At the present time we have no plans to change these arrangements.” Mr So says SJM will continue to focus on Macau, although the company is keeping an eye on what is happening in other markets. “Excellent growth potential remains in Macau,” he says. That potential is in Cotai and the company is in the “advanced stages” of negotiations with the government about building a casino resort there. SJM’s development will have a casino for the mass market, VIP gaming, hotel rooms, restaurants and entertainment facilities. Looking back to 2002, Mr So says some things remain the same. “One thing that has not changed, from the STDM to the SJM era, is our responsibility to society.” SJM continues to shoulder actively its social responsibilities as a corporation, he says.

CASINOS

SLOT MACHINE LOUNGES

Grand Lisboa Casino Lisboa Casino Oceanus at Jai Alai Casino Ponte 16 Casino Babylon Casino Casa Real Casino Diamond Casino Emperor Palace Casino Fortuna Casino Golden Dragon Casino Greek Mythology Casino Jimei Casino Kam Pek Paradise Casino Lan Kwai Fong Casino L’Arc Macau Casino Macau Jockey Club Casino Club VIP Legend

Macau Jockey Club Slot Lounge Treasure Hunt Slot Lounge Yat Yuen Canidrome Slot Lounge

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Photo: Luís Almoster

SJM GAMING PORTFOLIO

UNDER CONTROL

THE GAMING REGULATOR HEAD SAYS CASINO LIBERALISATION HAS BEEN A SUCCESS AND REBUFFS CRITICISM OVER REGULATORY FRAMEWORK BY EMANUEL GRAÇA

he casino industry boom following the sector’s liberalisation in 2002 has meant new challenges for the Gaming Inspection and Coordination Bureau. Director Manuel Joaquim das Neves says the regulator was able to cope with the change, despite the criticism from overseas. “It was a hard task,” Mr Neves tells Macau Business. “The industry expanded a lot much faster than we expected.” “Fortunately, things went okay,” he says. “Macau is today the gaming capital of the world.” Mr Neves has headed the gaming regulator since 1997. He first started working there in 1985. Like the industry, the gaming regulator has expanded significantly since 2002. Its staff has almost tripled. The Gaming Inspection and Coordination Bureau now boasts a team of almost 400. “We had to invest a lot in the technical side by upgrading our information technology systems. Moreover, we had to make a strong investment in training,” says Mr Neves. Despite Macau’s success story, the regulator is often slammed for allegedly being too lax. The U.S. State Department is among its critics. It wrote in its latest report on international money laundering that Macau’s gaming industry “relies heavily on loosely-regulated” junket operators.

Good enough Mr Neves rebuffs criticism. “The regulator works for the public interest of Macau, not in the interest of third parties or foreign jurisdictions,” he says. “Obviously there is always room for progress. We are constantly working towards that end. But what we and the government at large do is to regulate the industry bearing in mind Macau’s situation.” That is why the Gaming Inspection APRIL 2012

Photos: Carmo Correia

“What we and the government at large do is to regulate the industry bearing in mind Macau’s situation,” says the head of the Gaming Inspection and Coordination Bureau, Manuel Joaquim das Neves and Coordination Bureau has no plans to introduce radical changes to junket regulations. “Our licensing system is according to our situation. Things have overall gone well,” Mr Neves says.

“Often people mention the influence of organised crime. I cannot say there are no problems, but we have faced them. Most junket operators comply with our rules and when they don’t they are stripped of their licence.”

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54 The head of the gaming regulator says every year “some” junkets have their licences cancelled or are refused renewal. Other regulators have come to accept the way junkets are licensed in Macau. “They now are looking at the system through different eyes,” Mr Neves says. The liberalisation of the gaming industry also brought exponential growth for the slot machine sector. While its gross gaming revenue market share is still below 5 percent, the total figure has posted an eightfold increase since 2005. Mr Neves says the regulator has been paying a lot of attention to electronic gaming machines. The Gaming Inspection and Coordination Bureau issued the first technical standards specific to the territory in February. The government will soon enact a bylaw including several technical rules for slot machines. The piece of legislation will ban slot-machine parlours from residential districts.

Positive change Mr Neves says he makes a “positive” assessment of the impact the casino liberalisation has had on Macau. “The entry of new players brought huge amounts of investment, better offering and non-gaming diversification.” The fact that all gaming operators are listed on the Hong Kong stock market has also had a positive effect. “It boosted the industry’s profile and transparency, and provided Macau residents with an avenue to also participate in the gaming sector’s success.” One oddity of the liberalisation process is that only three licences were granted, but eventually six operators were allowed to enter the market. “I am not sure if with only three operators the total level of investment would have been the same,” Mr Neves says. “Any of the six gaming operators has contributed significantly for the industry’s development.” Also because of that, it is expected that all six will have their licences extended when the right time comes, according to Mr Neves. He says the regulator and the government are already looking at the licence renewal process and admits it will be hard for new operators to enter the market any time soon. The Gaming Inspection and Coordination Bureau is also looking at APRIL 2012

the so-called ‘satellite casinos’. They operate on the licence of one of the six gaming operators, but are owned and managed by third parties. Mr Neves says the regulator wants to better supervise these agreements and not allow new ones. ‘Satellite casinos’ are somewhat of a legacy issue. The model was first introduced during Sociedade de Turismo e Diversões de Macau SA’s (STDM) monopoly. After the gaming liberalisation, as well as STDM’s successor Sociedade de Jogos de Macau SA, Galaxy Entertainment Group Ltd and Melco Crown Entertainment Ltd also entered into similar agreements.

Boosting awareness

INDUSTRY TO GROW 20 PERCENT-PLUS

aming Inspection and Coordination Bureau’s head Manuel Joaquim das Neves says he expects the Macau casino industry to post a gross gaming revenue growth of between 20 and 30 percent this year. Local casinos raked in MOP268 billion (US$33.5 billion) in 2011. The regulator head admits he never thought it would be possible for Macau to achieve such figures in just 10 years. But he warns the industry cannot grow much bigger, at least casino-wise. “Space is limited in Macau.” According to Mr Neves, the gaming sector is soon set to enter into a new stage of development: the era of non-gaming. The closure of Cirque du Soleil’s “Zaia” show at the Venetian Macao was a one-off decision, he says, not a sign that the market is not interested in nongaming offerings. Mr Neves points out that the neighbouring “The House of Dancing Water” at City of Dreams has achieved continuously high booking rates. “New shows will come, more tuned with the clientele here,” he says. Another “great sign” is the strong performance of the mass market. It has been growing faster than VIP gaming since mid-last year. “It is bad to be too dependent on high-rollers,” says Mr Neves.

With cash flows in casinos growing bigger and bigger, this has also attracted some fraudsters. Local authorities recently detected some big-time scams, from fake casinos to tampered shuffling machines. Mr Neves says the police have kept pace with criminals but admits scams are becoming more complex. “The last batch of fake chips detected were quite sophisticated.” He says overall Macau continues to be a very safe gaming destination. One of the regulator’s main objectives for the future is to further push ahead with the concept of responsible gaming. The government has already submitted a law proposal to the Legislative Assembly to push up the casino entry age from 18 to 21. “It is a way to delay the first contact with gaming by youngsters,” Mr Neves says. He acknowledges it is not easy to control the age of casino patrons due to the high volume of customers. The regulator head says croupiers can help to spot underage players and report them to pit managers. Responsible gaming is an area where the Chamber of Macau Casino Gaming Concessionaires and Subconcessionaires could play an active role. The association was created in 2009 and is formed by all of the six casino operators. It fell dormant shortly after formation as president Stanley Ho Hung Sun’s health status suddenly deteriorated. “The government sponsored the creation of that association,” Mr Neves says. “Unfortunately, things stopped. It would be good if gaming operators restarted contacts to solve some of the problems they have in common.”

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BIG DEAL

NEARLY 15 PERCENT OF THE WORKFORCE IS EMPLOYED BY THE GAMING INDUSTRY, CONSIDERABLY MORE THAN BEFORE THE LIBERALISATION OF THE SECTOR BY XI CHEN AND EMANUEL GRAÇA

he liberalisation of the gaming sector has mobilised an army of croupiers, their number more than tripling in the past decade, according to some estimates. Salaries have shot up too, but many question whether croupiers are better off. The General Union of Neighbourhood Associations of Macau, commonly known by its Cantonese name Kai Fong, is among the sceptics. Last month it blamed the gaming industry for the city’s high divorce numbers, which rose by nearly 30 percent between 2009 and last year, saying that in many cases both husband and wife worked shifts in casinos.

The number of problem gamblers among croupiers is also reportedly rising. Direct contact with gaming tables entices casino workers to gamble, the results of a study released last month show. Portuguese news agency Lusa says the results indicate that workers are motivated by the possible ease of making a quick buck. Last year alone, there were records of at least four dealers who committed suicide, due to issues ranging from gambling debts to personal relationships. The job is regarded as monotonous, stressful and conducted in a noisy environment, with some punters verbally abusing croupiers.

The reward comes in the salary and benefits. In December, the city’s 22,300 croupiers took home, on average, MOP14,700 (US$1,838), according to the Statistics and Census Service. That was almost 50 percent above the median earnings for all kinds of employment during the month. Salaries in the gaming industry have gone up by 56 percent since 2004. Inflation since then has been less than 40 percent. The industry now employs more than 50,000 people, or nearly 15 percent of the workforce. That is more than twice the number of civil servants in Macau.

Good old days Croupiers working in casinos before the liberalisation of the gaming sector might describe the era as the best of times and the worst of times. A croupier then had prestige and high pay but also had a dangerous job that could easily get him or her into trouble with triads. “A family of two dealers in the 1970s could make almost MOP5,000 a month and you could still buy a one-bedroom apartment at around MOP12,000 at that time,” says João Bosco Cheang Hong Lok, the president of the Macau Gaming Industry Employees Association. Mr Cheang has enjoyed several careers. He was a school teacher and a factory owner in the 1960s before taking a job as a croupier in 1969. He worked in the gaming industry from then until 2003. He subsequently became president of the employees association, a trade union established in 2002 with the government’s assistance. The association’s primary purpose is to train staff for work in the casinos. Between 2001 and 2005 he was a directly elected member of the Legislative Assembly. “Dealers could be badly treated by clients in the old days. Some of APRIL 2012

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58 them could even face life-threatening situations if they dealt a bad hand to a triad member and the guy was in a foul mood,” says Mr Cheang.

Family first He has seen first-hand the damaging effects of gambling. Being a croupier was a lucrative occupation and high incomes fuelled many gambling addictions. “Nearly half of the dealers tried their luck. I saw families broken down and people committing suicide,” he says. The work environment for croupiers has changed considerably. After the handover, the new administration ended the bloody power struggles between rival triad gangs that had spilled out onto the streets during the final years of Portuguese rule. Then came liberalisation. Problem gambling among croupiers is still a problem but it is not at the top of the list of main concerns among

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casino workers. Salaries, working conditions and the rising cost of living are more pressing issues. Vincent Lo is a 28-year-old croupier at the Venetian Macao with six years’ experience. He says it is much easier now to get a good job but that his income is worth less because of inflation and the high cost of housing. Mr Lo is taking English language classes, hoping to climb the corporate ladder. “Being young is an asset. I hope to improve my skill sets for future job promotions,” he says. His pay is MOP16,000 a month. It was MOP13,000 when he started. “The salary is enough to support myself while I am single but I need a higher income to support the family once I get married.” Of Macau’s croupiers, 58 percent are women. Li Li Ming, a 39-yearold woman who has been in the job less than a year, says her pay is about

MOP16,000 a month. She has a 10-year-old child and a husband who is on disability benefits.

Bow ties at the gate She says she is happy that her salary is higher than the MOP6,000 or so she would get in other industries that require fewer skills. But she says it will take her years until she is able to save enough to buy an apartment. “I know there is public housing but I still hope to be self-sufficient and not to ask the government for help,” she says. To ensure that low-skilled workers have the opportunity to enter the booming gaming industry, the government enforces a locals-only policy for croupiers. But the demand for labour has led to calls for a change in policy. At the end of last year there were more than 1,500 vacancies for croupiers, almost double the number six months earlier.

59 Research released last month by the Gaming Teaching and Research Centre of the Macau Polytechnic Institute concludes that the government should allow croupiers to be imported. It says this should be gradual and that priority should be given to Hong Kong residents. In February, the vice-chairman of Galaxy Entertainment Group Ltd, Francis Lui Yiu Tung, also suggested that the government allow casinos to import croupiers. A couple of months earlier, Macao Polytechnic Institute academic Zeng Zhonglu took a similar position, saying the change was essential to create a competitive environment. Allowing imported workers to deal cards would create opportunities for Macau croupiers to make their way up the corporate ladder, he said. The Secretary for Economy and Finance, Francis Tam Pak Yuen, reaffirmed last month the government does

22,300

The number of croupiers in the gaming industry at the end of last year

not intend to permit imported labour to work as croupiers. The general director of the Macau Gaming Enterprises Staff’s Association, Tam Pou Iong, says croupiers are against allowing importing labour to do their job. She says the priority should continue to be given to residents, as there are now more people applying for training as croupiers than there are places in the training courses. Mr Cheang agrees. His association is among the main trainers of croupiers. It has trained more than 15,000 people so far. More than 1,200 people applied for the 300 positions at the association’s first course held this year.

Victims of success

MOP14,700 Average salary of a croupier in December

1,504

The number of vacancies for croupiers at the end of last year

“We particularly want to help the loweducation, old-age and no-job segment of society,” he says. “It takes a lot of effort to train older people with low skills. It was a difficult journey at the beginning.” Mr Cheang says the Macau-only policy for croupiers has helped to stabilise society and solve the difficult problem of keeping older and disadvantaged people in employment. Union Gaming Research expects the government’s adherence to this policy to push up salaries as supply fails to meet demand. “As such, we expect upward pressure on wages to continue, likely in a range of 5 percent to 10 percent annually,” says a report last month written by Union Gaming Research analysts led by Bill Lerner. Casinos have been hiring directly from Mr Cheang’s association for years. The association also wants to offer counselling to casino staff about issues such as conflict management and gambling addiction. However, government funding for the association will stop next year, Mr Cheang says. He is now looking for other sources of money. “We are looking for both casino and government sponsorships, and we will look at membership fees as the last resort,” Mr Cheang says. The government’s decision to end the funding, paradoxically, may be a symptom of the success of the association in training people and of the prosperity of Macau in the last 10 years. “Gambling is not a good thing, but there wouldn’t be today’s Macau without the casino liberalisation,” says Mr Cheang. APRIL 2012

60 DESMOND LAM CHEE SHIONG ASSOCIATE PROFESSOR OF MARKETING, UNIVERSITY OF MACAU

Lessons from Goldilocks THE GAMING CONCESSIONAIRES COULD TAKE A LEAF FROM THE FAIRY TALE ABOUT GOOD GROWTH, BAD GROWTH AND SUSTAINABILITY acau’s six casino concessionaires have become the envy of gaming companies worldwide after announcing another round of spectacular gains last year. The city’s gross casino revenue ballooned to US$33.5 billion (MOP268 billion) last year, from less than US$3 billion in 2002, the year the gaming industry was liberalised. In the same period, visitor numbers rose to more than 28 million from about 11 million. Such impressive growth in a tiny area of less than 30 sq km has led to big changes in the way people live. A growing economy has brought better-paid jobs. Many residents are now visibly wealthier and are enjoying considerable material gains made since the liberalisation of the gaming industry. The median monthly earnings of the employed population increased to MOP10,000 at the end of last year from less than MOP4,700 in 2002, and the unemployment rate fell to 2.1 percent in January, the lowest ever. Many have begun to enjoy the results of a prolonged boom. Porsches, BMWs, Mercedes Benzes and Audis now fill the streets. Modern restaurants and other eateries are sprouting up, replacing older, more traditional food stalls. A retailing industry boom has brought luxuries from Louis Vuitton, Burberry, Chanel and Prada.

Way too hot But the casino industry’s phenomenal growth has also done much harm to the city and its people. The rapid expansion of the gaming market has meant inflation, fierce competition for labour and gambling problems among croupiers and the wider population, and put infrastructure under intense stress. Those problems persist. Ordinary people, particularly those who have chosen to ignore the incoming tide or refused to join the casino industry, are feeling the pinch of rising prices for goods and services. Property prices have swelled, despite attempts to curb speculation. While some have played the market successfully, others gawp in awe, wondering if they will ever be able to afford to own a home. Shortly after the first post-liberalisation casinos opened, workers flocked to the gaming operators and other businesses began to face difficulties recruiting employees. Now casinos, too, are scratching their heads wondering why they cannot retain their best staff. While residents complain about imported workers and inflation, the casino operators are frustrated by job-hopping employees. “It is now harder to find someone who is willing to work hard and who is serious about having a long-term career in this field,” a casino executive told me recently. His gripe about the attitude of many employees is echoed by all senior APRIL 2012

managers in the industry. In the wider world, few believe that all growth is good growth. Experience has shown that growth has negative and positive effects. In Macau’s case, the rapid expansion of the casino industry has produced both good and bad consequences.

Way too cool Casino operators beware: the key word in this market is the same now as it was on day one - sustainability. Some casino executives say their business models are, indeed, sustainable, citing reasons such as “we have the highest market share”, “we made the most profit last year” and “we have the best facilities”. I see it differently. A sustainable business model for a casino must balance optimal operational performance with what is in the best interests of society. The operator of a sustainable casino business should be an innovative company, which carefully balances profit with the demands of stakeholders such as the government, the community and its employees. An operator that follows such a model thinks, feels, eats, sleeps and breathes sustainability. It is most likely to focus on integrating its business with society, not just on profit and market share. This is the basic principle. But there is more. In 2007, Austrian academic Christian Stadler and his team published in the Harvard Business Review the findings of research on the four principles of enduring success for companies, albeit companies operating mainly in Europe. The research indicated that great companies that have had lasting success have four important features: • They try to exploit their existing capabilities and opportunities to the utmost; • They are adaptable and have diverse supply bases, products and customers;

Casino operators need to keep sustainability at the front of their minds, to learn, and to adapt to and exploit changes in the way the tide is flowing

• •

They learn from their mistakes; and They are conservative, and change cautiously and mostly at carefully chosen moments. These are principles of enduring success that should be adopted by companies in Macau’s ever-challenging gaming industry.

Just a minute While the world is busy with the economic woes of Europe and the United States, Macau’s gaming industry is still buzzing and breaking new records. There are good times here despite portents of a slowdown. But casino operators need to look ahead. After the liberalisation of the gaming industry, Macau hoped that innovation and diversification by the casino concessionaires would expand their offerings to attract visitors from beyond Greater China; that new attractions would bring in a greater variety of visitors, lifting the standard of living higher. The gaming boom stalled suddenly in 2008. The lull allowed casino concessionaires to redefine their market positioning and offerings, to reconsider their priorities, to weigh gaming business against non-gaming business, the VIP market against the mass market, imported staff against residents, and so on. As growth resumed, the introspection stopped – or at least paused. Casino operators are finding that it is now more important to have clear priorities and stick to them, rather than to try new offerings. They have also realised the importance of balancing the “triple bottom line” of people, planet and profit. They have gone back to the basics of doing business and are concentrating on what they do best. The world is fair. Companies on a quest for the ideal business model will fail. Those which set clear goals and focus on their own abilities are more likely to soar. A stakeholder approach to business, coupled with proper strategies for adaptation and innovation, are crucial for the

future of the gaming industry. Casino operators need to adapt their businesses to meet the wishes of the government in Macau and in Beijing. Concessionaires that refuse to do so will suffer in the long run. Residents have already started to take sides. They prefer some casino resorts to others. Personal experience and word-of-mouth tales have taught them that some gaming operators listen more closely than others to their employees and customers.

Way to go Just as visitors become more knowledgeable and more demanding – thanks to competition – residents and the government have become more mature and discriminating. As officials and the local population slowly discover their latent needs, their demands on casino operators will increase. Concessionaires that fail to recognise those needs, and cater to them properly, will stumble and fall. The past 10 years have been fruitful for all six casino operators. Certainly, mistakes were made but they were forgiven and forgotten because the wave of growth was fast and furious. Any future hiatus or slowdown in growth, like that of 2008, will be a blessing to all concessionaires. Those that fail to use it to learn from their mistakes and change accordingly will pay for their failure when expansion resumes, by losing market share, revenue or profit. Yet, those that take the opportunity must change cautiously. A balance must be struck between demands from within the business and from outside. The balancing act will take time to learn and master but will eventually pay off. Casino operators need to keep sustainability at the front of their minds, to learn, and to adapt to and exploit changes in the way the tide is flowing. This is the way forward for Macau’s gaming industry. APRIL 2012

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Photo: Luís Almoster

LOST P AND FOUND THE LIBERALISATION OF THE GAMING SECTOR RESHAPED MACAU AND HAS FOREVER CHANGED THE CITY’S LANDSCAPE BY SARA FARR

hysical changes are inevitable in any city pursuing growth and international renown. But the changes that have occurred in Macau and to its skyline since the liberalisation of the gaming sector have been not so much evolutionary as revolutionary. Taking a stroll down memory lane, where once was an unturfed football pitch, now sits the 58-storey Grand Lisboa. Where City of Dreams now stands, there was little more than a swamp. Macau had 11 casinos in 2002. It now has triple that number. There are not just more of them, but they are also bigger and architecturally more sophisticated. The change in the city’s physical appearance brought about by the liberalisation of the gaming sector was not simply the result of more casinos rising from the ground. As the economy has boomed, fuelled by the gaming industry’s performance, high-end residential buildings have mushroomed, intended for foreign investors, resident expatriates

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64 and a wealthier set of locals. In a city that once had no luxurious high-rise apartments, the likes of La Cité in Areia Preta, One Central in the city centre and One Grantai in Cotai have reshaped the market. The government has also played a role in the transformation. With a fat public purse fed by taxes on gaming revenues, it has commissioned big projects such as the Macao Science Centre and the Taipa ferry terminal.

APRIL 2012

Macau now covers an area 15 percent bigger than in it did in 2001. Cotai has almost doubled in size from 3.5 sq km to 6 sq km. The southern part of the peninsula, where the fi rst phase of post-liberalisation casino building took place, has also grown by 0.5 sq km. American casino architect Paul Steelman is one of the influences behind the changes in the city’s skyline. He has worked on a number of projects, including the first casino to break

Stanley Ho Hung Sun’s four-decadelong monopoly, the Sands Macao.

A clear view The architect’s firm, Steelman Partners LLP, has also been involved in StarWorld, City of Dreams, Casino Oceanus, the Plaza Macao and, more recently, Galaxy Macau. “It has been an incredible journey,” Mr Steelman says. “When we started designing the Macau resorts, modern architecture was being planned

65 Fantasy architecture, as Mr Steelman calls it, has contributed to the success of casino resorts in Macau. “The maverick design attitude of all of the casino owners has created diversity and fun.” In one decade, casino design in Macau has clearly evolved. Compare Galaxy Macau, which opened less than a year ago, to some of its more mature partners. It is much brighter inside, thanks partly to research findings that mainland players prefer a clear view of what is happening on the table.

Mr Steelman says that from day one his firm studied the market – staff and customers alike – so it could “design the best gaming solution”. Knowing that a copy of Las Vegas was not going to work in Asia, the company has tried to explore new ideas and come up with new designs.

High rise Panoramic views of the city, whether from the top of Macau Tower or Big Taipa Hill, have changed beyond rec-

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Photo: Luís Almoster

everywhere. Modern, state-of-the-art architectural design was in vogue.” He believes Macau has resurrected the themed resort. “The theme is back,” he says. He considers Galaxy and the Venetian to be the most popular casino resorts here. He emphasises that a “scientific approach” to interior design is needed to keep customers coming back regularly. It takes a while to determine if an ordinary building is successful, he says. “Casino resorts are judged in five minutes.”

66 ognition in the past 10 years. Macau’s skyline is now among the best in the world, according to Emporis, an international property database. Macau is 22nd on a list that ranks cities by the number of high-rise buildings it has and their height. Not all agree that the transforma-

tion has been for the better. “Those gigantic casino buildings disharmonised the environment with Macau’s original buildings,” says Ben Leong Chong In, the president of the Architects Association of Macau. He says foreign architects have shown little consideration for the city’s culture and landscape, and

failed by not creating sufficient buffer zones between the old and the new. Several architects told Macau Business that the government’s urban planning should have struck a better balance between the casino boom and what came before it. “There’s very poor ventilation in the Inner Harbour, for example. Look at the mammoth casino there,” says local architect Francisco Vizeu Pinheiro, pointing at the Ponte 16 casino resort. Mr Vizeu Pinheiro says Macau not only needs an urban plan but also feasible ideas that would really work for the city. “While places such as Singapore have good buildings, expensive designs that work for that city, Macau does it based on what’s cheaper,” he says. Singapore has been praised internationally for successfully combining casino legalisation with urban renewal, with the Marina Bay Sands casino resort as the cornerstone.

Lack of respect In Macau, the most distinctive building to have sprouted since liberalisation is arguably the lotus-shaped Grand Lisboa. Last year CNNGo, a travel and lifestyle website produced by CNN, chose the Grand Lisboa as one of the 20 most iconic skyscrapers in the world. Mr Pinheiro says it is important to take into account what neighbouring cities are doing without imitating them. “Observe, learn from it and not simply copy it,” he says. Mr Leong says it is quite possible to come up with a coherent plan for integrating the casinos and the rest of the city in a sustainable manner. “I believe that the key to this issue is to pay enough respect to the city’s culture and its environment and spatial organisation,” he says. Liberalisation is also gradually moving Macau’s economic heart from the peninsula to Cotai. Researchers at investment bank J.P. Morgan believe the Cotai Strip will be the new centre of Macau’s gaming industry. All new casinos in the pipeline will be there. “There’s been visible changes along the Strip,” says architect Maria José de Freitas. Despite a lot of talk from the government, Ms Freitas says little was done to ensure the sustainability of developments there. “A lot could have been done,” she says. APRIL 2012

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HEALTHY OUTLOOK AFTER A SPECTACULAR FIRST DECADE, MACAU’S LIBERALISED CASINO SECTOR IS SET TO CONTINUE EXPANDING IN THE NEXT 10 YEARS – JUST AT A SLOWER RATE ince the liberalisation of the casino sector in 2002, Macau has undergone more change than Stanley Ho Hung Sun and his partners at Sociedade de Turismo e Diversões de Macau or STDM, would have dreamt possible when the company was granted its monopoly in 1962. Now there are six casino operators, each fighting for a bigger share of the market. Analysts say that while the chances of the government issuing more gaming licenses range from slim to zero, there will definitely be more growth in the years to come. Some experts say Macau could expect to see up to 10 new casinos in the next decade. “There will be more regional

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competition with markets such as Japan, Taiwan and Korea,” says Grant Govertsen, the managing partner in research firm Union Gaming Group Macau. All these places are soon expected to create or expand their gaming industries. But Mr Govertsen says Macau will still be the biggest gaming market in the world. “The market is just getting started. It will grow to be three times the current size.” Casinos here raked in MOP268 billion (US$33.5 billion) in gross gaming revenue last year. The main challenges for casino operators in the next 10 years will be to get the most out of the limited number of gaming tables the industry will be allowed, and to ensure that

their gaming licences are renewed. The licences of SJM Holdings Ltd and MGM China Holdings Ltd will be the first to expire, on March 31, 2020. The other four licences will expire on June 26, 2022. The government has the power to extend gaming concessions until 2027. Doubt about licence renewal may hamper some projects. Bankers say that as the expiration date gets closer, finding long-term financing for projects will become complicated, as loan payback periods can be up to 10 years. So far, there has been no hint about when licence renewals will start or how they will be done. But the industry is optimistic that the status quo

69 will be maintained. In another report in this special, the head of the Gaming Inspection and Coordination Bureau says all six casino operators are likely to have their licenses renewed.

Quality, quantity The present cap on the number of gaming tables is 5,500. After it expires next year, growth in the number of tables will be limited to an average of 3 percent a year for at least 10 years, making it harder for casino operators to borrow money for infrastructure developments. The conditions for loans for gaming projects usually take into account the number of tables and slot machines new developments are expected to have. The government is likely to allow casino operators to add new tables in fits and starts, permitting more in some years than in others, otherwise it could hold back the opening of new casino resorts, analysts say. But it is hard to tell whether the limit on the growth in the number of new tables will hinder the expansion of the market. The current cap, in effect, limited growth to 15 percent between 2010 and 2013. Last year alone gaming revenue grew at nearly three times that rate. One reason is that Macau has a VIP-driven market, where the number of tables is not as important as in places that cater mainly to the mass market. The limit on the growth in the number of new tables may cause casino operators to concentrate even more on VIP gamblers, who now account for almost three-quarters of casino gross gaming revenue in Macau. But the mass market, with its wider profit margins, is growing more swiftly than the VIP market, and analysts expect this to remain the case in the years to come.

New Strip joints Another possibility is more electronic gaming tables and slot machines, which are not covered by the caps and which now account for less than 5 percent of casino gross gaming revenue. Either way, the growth limit is likely to

Gaming and tourism analyst Jonathan Galaviz says “there is no doubt that the next 10 years will bring more casino gaming revenue and tourism growth”

“The speed will slow down but it doesn’t mean that [the market] won’t still grow,” says Davis Fong Ka Chio from the University of Macau

prompt casinos to make better use of the live tables they already have. Whatever the casino operators do to overcome these obstacles, by 2022 Macau can expect to have more casinos than the 34 it has now. “Maybe one a year, including Sands Cotai Central this year, will be built,” Mr Govertsen says. The director of the Institute for the Study of Commercial Gaming at the University of Macau, Davis Fong Ka Chio, is less sanguine. “If anything, one every two years,” he says. There are at least six more casino resorts in the pipeline, all in Cotai. They are Melco Crown Entertainment Ltd’s Macau Studio City, Sands China Ltd’s parcel three project near the Four Seasons, the second phase of Galaxy Macau, and projects by Wynn Macau Ltd, MGM China and SJM. The government has not yet granted land for the latter three projects listed. Mr Fong says the question now is whether the rate of expansion in the past 10 years can be sustained in the next 10. “There is a general consensus that the speed will slow down but it doesn’t mean that [the market] won’t still grow. It will, just it will be a smaller growth.” Jonathan Galaviz, managing director of Las Vegas consulting firm Galaviz & Co. LLC, says “there is no doubt that the next 10 years will bring more casino gaming revenue and tourism growth to Macau, albeit at lower percentage growth rates than the previous 10 years.”

A bridge so near

“The market is just getting started. It will grow to be three times the current size,” says Grant Govertsen from Union Gaming Group

PricewaterhouseCoopers estimates casino gross gaming revenue will grow at a compound annual rate of 21.5 percent between last year and 2015, when annual revenue collected by the casinos could exceed US$62.17 billion. Another question is whether Macau will continue to offer just what it has been offering for the past 10 years, or whether it will offer more non-gaming attractions. “There might be a repositioning

Congratulations on the 10th anniversary of gaming liberalisation in Macau APRIL 2012

Most analysts view the next 10 years with optimism. They stress that big improvements in infrastructure will help bring in millions more visitors of some casinos. Others will want to redecorate,” Mr Fong says. But he says that in some cases licence renewal will have to precede any renovation. “I would rate the diversification of Macau’s economy, or the lack of it, as the most important economic security issue for the SAR moving into the next decade,” Mr Galaviz says. “Beijing must really focus heavily on directing senior public policymakers in Macau to put the diversification of the economy as the number one strategic priority.” Mr Govertsen says Macau will feel a little more like Singapore, with a “little nudge by the government to include more non-gaming venues” in projects undertaken by casino operators. He hopes tourists may then stay longer than the average of 0.9 nights recorded in January and do more than just gamble. Mr Galaviz says Macau should aim to be more than just a destination for mainland tourists. “It is important for Macau to focus on drawing from the rest of Asia in large numbers.” APRIL 2012

Most analysts view the next 10 years with optimism. They stress that big improvements in infrastructure will help bring in millions more visitors. “By then, we will have the Hong Kong-Macau-Zhuhai Bridge, a highspeed rail linking the mainland to Macau, and we will have more regional integration in aviation,” says João Manuel Costa Antunes, the head of the Macau Government Tourist Office. Mr Costa Antunes emphasises the need for reform to improve air services, now under a monopoly run by Air Macau. “That’s fundamental in the next 10 years,” he says.

Open the floodgates Keeping the Border Gate checkpoint open longer – an idea now being discussed – would also help the gaming industry. Union Gaming Research Macau says that this, along with expanded border facilities and greater use of the industrial park border checkpoint, could add as much as US$7 billion to gross gaming revenue from the mass market

and help Macau to handle up to 49 million visitors – many more than the 28 million it welcomed last year. The gaming industry is also closely following developments on Hengqin Island, which is being jointly developed by Macau and the province of Guangdong. While no casinos will be allowed there, some casino operators, such as Galaxy Entertainment, have expressed interest in investing in non-gaming projects there. And even the city’s creative types are hoping that in the next 10 years casinos will do more buying in Macau. Artist James Chu Cheok Son, who heads the art organisation Art For All, says gaming concessionaires could invest more in local talent instead of outsourcing so much to Hong Kong and the United States. “Maybe [now] we’re not good enough, or we don’t have a high enough profile,” Mr Chu says. “But in 10 years there is no excuse. We will have the experience. We already have the heart.”

71 DAVID GREEN GAMING CONSULTANT, NEWPAGE CONSULTING

Raising the bar THIRD-PARTY BARRINGS ARE WORTH CONSIDERING AS A WAY TO PREVENT GAMBLING-RELATED HARM t is now 10 years since the dismantling of the former Sociedade de Turismo e Diversões de Macau casino monopoly and the granting of the first of the new concessions. Those intervening years, particularly since 2004, have propelled Macau to the forefront of the global gaming industry. While a number of Asian jurisdictions are moving forward with casino legalisation, only Singapore went from concept to built form in the decade of the noughties. The so-called “Sands effect”, namely the gaming boom observed here after the opening of Sands Macao in Nape in May 2004, has largely been replicated in Singapore. This hasn’t necessarily been a welcome development. It has apparently accelerated Singapore’s exposure to the collateral damage which easy local access to gambling product can bring. While the potential for such damage was not unanticipated (the second reading speech of the 2006 Casino Control Bill contains numerous references to the need to mitigate the potential harm associated with gaming), there are indications that the extent of it may have been. This is reportedly focusing Singapore policymakers’ attention on how to beef up the safeguards for players, especially locals, while not unduly restricting the freedom to participate of those unaffected by disordered gaming. In the second reading speech, the deputy prime minister said that “to discourage locals from developing into problem gamblers ... the bill shall require the casino operators to collect an entry levy from Singapore citizens and permanent residents for every consecutive 24 hours in the casinos or S$2,000 [MOP12,730] for an annual membership. This levy will also underscore the message that gambling is an expense and not a means to get rich”.

Inelastic demand On the face of it, an entry levy would seem a reasonable means of discouraging persons with susceptibility to gamble irresponsibly from visiting a casino. However, let’s consider analogous situations, where price has not proved a deterrent to risky consumption. The price of cigarettes and liquor, for example, has skyrocketed in many countries, yet there seems to be relatively inelastic demand for those products, especially in the developed world. Studies I have participated in suggest that the demand for gambling products may have a similar degree of insensitivity to price, the “price” under consideration being cost of participation – i.e., the cost of a lottery ticket or the theoretical hold associated with a particular casino game. Quite apart from whether it is a deterrent to entry, there may be an unintended adverse consequence associated with a casino levy, which is that people who have paid to enter will likely want to get their money’s worth and perhaps play longer than they would if they could enter at will. Note that duration of play is a key determinant of the extent of a player’s losses and extending the duration of play is a primary objective of any gaming operation.

I can’t point to any research that would definitively support that a casino levy may lead people to play longer, but again consider an analogy to which we can all relate. An all-you-can-eat buffet is far more likely to result in excessive consumption than an ‘à la carte’ menu, even if the buffet price is comparable. Why? Human nature, I suppose; acceptance of the illusion that once the initial price is paid, what follows comes free. A lot of well-intentioned but ineffective effort has gone into trying to mitigate the harm caused by disordered gaming. But how do you stop an alcoholic’s dependence? Deny them access to liquor. All the warnings and counselling in the world will not necessarily produce behaviour modification while exposure to product continues. Like disordered gaming, alcohol dependence is an illness. Hence the references in research literature to the instances of co-morbidity in problem gamblers, meaning they may also be dependent on alcohol, tobacco or drugs; they have a propensity for disordered behaviour.

Forbidden entry Denial of access has been recognized as a key plank in restricting the harm gaming may cause. In its 2010 report into the gambling industry, the Australian Productivity Commission observed: “The link between accessibility of gambling and its harmful effects is strongly policy relevant because governments have the capacity to define the terms of access”. In Australia, this has played out in a number of policy approaches, such as caps on gaming machine numbers (gaming machines accounting for a larger share of the market than tables), mandatory shutdown periods and, most recently, a move to introduce compulsory pre-commitment limits, so that players determine the amount they are willing to spend before they commence play. The Australian Productivity Commission itself suggested another form of access denial, by limiting bets in electronic gaming machines to a maximum of A$1 (MOP8.5). The issue is that such measures are blunt instruments, affecting the vast majority of players who do not have problems controlling their gambling. In the case of pre-commitment, one unintended consequence of implementation as proposed at the federal level would be the likelihood that people would err on the side of setting high limits, because hitting the specified limit would preclude them from playing machines again for 24 hours. Singapore has taken up a policy initiative similar to that adopted in South Australia in 2004, which is to provide for third party barring in certain situations. The scheme empowers family members of people affected by disordered gaming to apply for the subject gambler to be barred, with the order made by the National Council on Problem Gambling rather than by the regulator as in South Australia. The Singapore legislation is less restrictive as to who may apply for an order or the period within which an apprehension of harm from problem gambling should manifest. There is no right of appeal conferred by the Singapore legislation, whereas in South Australia an appeal is allowed to a court. Such barrings present a difficult balancing act; whose interests should have primacy, those of the family or the player? South Australia does require a dependent relationship between the complainant and the affected gambler; Singapore does not. While it is contentious, third party barrings are an effective way of removing the source of gambling-related harm. The model is worth considering, as an adjunct to the usual raft of symptomatic and behavioural treatments, and interventionist strategies. APRIL 2012

EXCLUSIVE CEO INTERVIEW

CONTINUOUS REINVENTION MGM China Holdings Ltd is one of three Macau casino operators still waiting to get a foothold in Cotai. In an exclusive interview with Macau Business, chief executive Grant Bowie reveals MGM Chinaâ&#x20AC;&#x2122;s project for Cotai, saying only 12 percent of the floor space would be set aside for gaming BY SARA FARR PHOTOS CARMO CORREIA

What stage is your Cotai land application currently at? Grant Bowie â&#x20AC;&#x201C; We are obviously

still waiting and understand that the government is going through the approval process. We have responded to all the requests from the Macau government. We are hopeful and confident that we are pretty well resolved on all the outstanding issues in terms of granting the land concession. So, therefore, it is totally and absolutely in the hands of the Macau government.

EXCLUSIVE CEO INTERVIEW

“From our current drawings, gaming represents less than 12 percent of the floor space of MGM China’s project in Cotai”

EXCLUSIVE CEO INTERVIEW

“The transformation of Macau is not going to be about necessarily bricks and mortar. It is actually going to be about the types of experiences that we have on offer”

APRIL 2012

EXCLUSIVE CEO INTERVIEW

75 How confident are you that one of the two land concessions the government says it will grant this year will go to MGM China Holdings Ltd?

We are working on that assumption. We are working very diligently to make sure not only that we have addressed the issues for the land concession, but that we are diligently working on enhancing, developing and fine-tuning our design for the project as well. Have you handed in all the final floor plans?

The process now is slightly different to how it worked [before]. What is now happening is that there is the land concession process, which is separate from the general buildings approval process. Before, what used to happen is that it was often possible to start certain construction works with a draft land concession but before the general building approval had been resolved. Now our understanding is that the land concession grant is resolved and then you need to subsequently get the building approval. I think that process is quite clear. We believe we have submitted all the requirements for the land concession process. That does include a number of items that are a prerequisite to the general building approval plan. But the general building approval plans are a lot more detailed. We are of the understanding that once the land concession has been issued we can immediately submit our general building plans. So you already have the general building plans but haven’t submitted them?

Correct.

FLOOR GAMES What will MGM China’s project in Cotai include? And how will you divide gaming and non-gaming?

From our current drawings, gaming represents less than 12 percent of the floor space of the property. I think all of us gaming concessionaires are very clear and it has been very clearly spelt out to us all, on the need for us to diversify Macau as a world tourism and leisure destination. It is true that we are all challenged and we are all challenging ourselves.

We are searching globally for what are the world’s best practices and, more importantly, what are the world’s biggest consumer trends in global tourism and leisure destinations. It is fair to acknowledge that Macau is still primarily a gaming centre and that the diversification comes from gaming, as opposed to suggesting that it will mean that people will be coming to Macau without even knowing that [gaming] is there. I don’t think that’s what the diversification strategy is. Having said that, there is quite clearly a focus for us in the notion that we are trying to develop and reinvent the concept of “made for China”. How are you doing that?

The first thing you need to understand better is the Chinese consumers’ change in behaviour. It is a subtle difference but one we think is really important. The transformation of China as we currently see it is a continuation of a very long history. So the focus has to be on creating things that have to be basically made for China but which the rest of the world wants. Rather than taking things the rest of the world wants and suggesting that the Chinese culture and Chinese consumer wants it, we need to create Chinese-centric activities, but intertwined in a way that is globally sought after. That is also consistent with the diversification of Macau, that says that we should not simply see Macau as a China-only destination. With less than 12 percent of the floor plan dedicated to gaming, what can one expect of MGM China for Cotai in terms of diversification?

I think the key with diversification is not what is different. It is more about how you do it. We have the hotel, food and beverage, retail, the meetings and the entertainment venues. The key is going to be not so much what else you do that’s different, but how you present it and how you project it. I think one of the things that is really significant is that we also need to appreciate that the emerging consumers are actually much younger. Another thing that is absolutely true about Macau is that consumers, trends and behaviours are changing so quickly.

So I can tell you that I know basically where everything is going to fit [in the Cotai property]. But we don’t want to make the decision of what it is going to look like yet, and specifically how we interact with the consumer, because in the 18 to 24 months that it takes us to get to that point in the design cycle, in high likelihood trends may have already changed. Even in our existing MGM Macau property we constantly have to reinvent ourselves. As we rebuild [the brand] for Cotai, this [the MGM Macau] property is also going to transform itself. I am not going to say we are going to bring stuff that has never been seen in Macau, even though I know we will. What I will say is that it has more now to do with how sophisticated we can be in terms of responding to the evolving nature of the identity of the consumer.

MEETING NEEDS Are shows a good bet in attracting tourists and visitors?

The notion that people want to simply go and be entertained at shows is less relevant today than it was, for a couple of reasons. If you are coming to Macau for 36 hours or 48 hours, why would you allocate two hours of your stay to watching a show? Our visitors, mainly because they are not as travelled, expect that they should get to see whatever they want, ready to be seen at any time. Instead of getting 1,000 people together to watch a show, you are going to have one or two, or 10 or 20 people who turn up and say, “Okay, show me now.” That is an interesting personality that makes the Chinese consumer different. And that is very different from Las Vegas, where people make a conscious decision to go for a certain period of time knowing that they want to go to those shows. Will MGM China be doing that for Cotai?

Not only are we going to do that for Cotai, we’re going to do that here [at the MGM Macau]. What changes are you implementing at MGM Macau?

It is not a change. It is about actively engaging with consumers. The creation of those entertaining spaces APRIL 2012

EXCLUSIVE CEO INTERVIEW

76 is not about the creation of boxing theatres any more. It is about how you create spaces. And, simplistically, it is the consumers who are telling us what is important. They are letting us know where they want to have their photograph taken, and that is describing what [memory] they want to take with them. That is the challenge, because the transformation of Macau is not going to be about necessarily bricks and mortar. It is actually going to be about the types of experiences that we have on offer. Our reputation will be determined by how well we manage the natural environment, how well we adapt to the emerging technologies and, more importantly, how well we connect to social networks – and I mean social networks from a more humanistic standpoint.

tional, which runs more hotels in Las Vegas than anybody else, only has two [non-MGM managed] hotels there. One is the Mandarin Oriental and the other one is the Four Seasons. Frankly, I think the casino hotel industry and the executives and managements in the casino hotel industry are quite capable of running all of their own hotel operations. If you look at the largest hotel operations in the world, by and large, they are attached to casino hotels. I respect my friends in the hospitality sector. There are wonderful brands around the world and they run wonderful standalone hotels but when you get to scale, the gaming hospitality industry has worked out better than anyone else how to manage high hospitality in a largescale environment.

Given this, is the possibility of a resident show being ruled out of the Cotai project?

How many rooms do you plan on having in the Cotai property?

I could tell you we are looking at show concepts. We are actually researching in China right now about how Chinese people perceive shows and what it is about shows that they find important. And what have you found?

We haven’t gotten the results yet. When do you get the results?

In two or three months. The certainty we know is that we’re going to repeat that research quite frequently because our hypothesis is that [the market] is actually evolving rapidly. What we are trying to do is not find out what happens at one particular point, but to follow the trend. Leaders say they set the trend but they don’t. Leaders are incredibly perceptive at understanding where the early innovators are going and where the market is. A critical point for us is that we don’t want to be fashionable. For us it is a lot more important to be continuously reinventing ourselves.

CASINO OPERATORS DO IT BETTER

We have an initial plan for 1,800 rooms. We are also including in the planning processes the ability to build additional towers. We see that as really important because we need to include in all the things that we do now, the future growth and opportunities. How many gaming tables are you planning to have?

We obviously need to wait for the government to approve what we would get. But what we would like is about 500. There has been a lot of talk in the media as to how many will be available, but those are the issues that we need to work through with the government to resolve. We understand that the Secretary [for Economy and Finance, Francis Tam Pak Yuen] has announced guidelines as to what will happen after the cap [to limit table growth to 3 percent per year is implemented in 2013]. We have discussed with the government, as I am sure other companies have too, and we are hoping to be able to be accommodated within that arrangement.

At MGM Macau, the company manages its own hotel operations. What is it going to be like in Cotai?

If you get the land approval this year, when do you expect to start construction? And when do you expect to have the property up and running?

Will MGM partner with hotel brands? We will do the same. [Our parent company] MGM Resorts Interna-

What we would like to do is, from the date we get the concession, to think that we have in the order of 100 to 150

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days to be able to mobilise onto the site. There is obviously a lot of site work that needs to be completed. We have already estimated that our construction timeline would be 36 months. So we are preparing ourselves as best we can to go whenever we need to go.

SIZE MATTERS MGM China paid a US$400 million (MOP3.2 billion) dividend earlier this year. Is MGM planning to pay more dividends in the future?

We haven’t made a final determination on that. We are obviously a fairly new public company and it was a special dividend, we made it clear. We will continue to monitor. The important thing for us is our ambition to continue to grow in Macau and continue to build our presence in Macau. We are the smallest operator and we obviously want to increase our presence. That is our primary objective. MGM China also announced capital expenditure of US$80 million in 2012, almost double that of the previous year. How will the money be used?

We are currently building out a level-two space [at MGM Macau], and that will include a new Chinese restaurant. The challenge is now, given the diversity of our customers, to choose what type of Chinese food. We are also refurbishing and updating our guestrooms and also some of our gaming spaces. Are you adding more tables?

No. We are configuring and upgrading. We have 427. We actually don’t use most of those tables all the time. For us it is more about increasing the quality of the whole experience, because we are the smallest operator so we have to work a lot harder to attract the customer, particularly customers of high value. The new property in Cotai will be mainly financed by the cash flow from the existing MGM Macau property and credit facilities. How much are you looking to borrow?

Our current facilities are US$900 million and we are basically down to US$450 million to US$500 million now. We still have cash reserves currently of nearly US$300 million.

EXCLUSIVE CEO INTERVIEW

“When you get to scale, the gaming hospitality industry has worked out better than anyone else how to manage high hospitality in a large-scale environment”

APRIL 2012

EXCLUSIVE CEO INTERVIEW

78 We have over half of what we need for Cotai already. So you won’t borrow money?

We will because the market expects us to. If you have a balance sheet that is very lazy, if you build up too much cash reserves then people say, “Give us it back.” So we have to have a balance between our retained earnings, equity and our debt. With MGM China’s IPO on the Hong Kong stock exchange last year, there were a few changes in the company’s shareholder structure. US-based MGM Resorts now has a 51 percent stake and became the company’s parent company, while co-chairperson Pansy Ho Chiu King reduced her participation from 50 percent to 29 percent. Public shareholders represent around 20 percent of the company. What have been the benefits of launching an IPO?

The IPO was part of a strategy we had already pegged out. Realistically, it really hasn’t made a big difference other than, because we are a traded stock, we obviously have a lot more people interested in what we are doing. To me, the IPO is just part of an evolutionary process in the development and growth of the company.

What operational changes have there been since?

Operationally it has meant nothing, because our operation strategies were defined and anchored before the IPO and they will continue the same until we determine that the market requires us to take different actions.

EXPANDING INTERNATIONALLY MGM Resorts is currently expanding into the mainland’s hospitality sector. Does MGM China plan to expand overseas or just leave international expansion to the parent company?

Both. Under the arrangements between the principal shareholders, MGM China covers Macau, Taiwan and the mainland. Clearly gaming in the mainland is currently illegal. MGM Resorts has a hospitality division and they are running [an expansion programme in the mainland] through a joint venture. In terms of expansion in Taiwan, MGM China would drive that. Is MGM China looking to expand to Taiwan if the island legalises casino gambling?

We are monitoring it. And likewise if gaming was made legal in the mainland we would certainly be very inter-

HIGH-FLYING KIWI rant Bowie has been running casinos since the age of 34. Although he never aspired to manage a big company, he is now at the helm of one of Macau’s biggest corporations, MGM China Holdings Ltd. Mr Bowie started his career in an accounting firm in his hometown, Dunedin in New Zealand. He later worked for accounting firm Arthur Andersen. After two years with the firm, Mr Bowie was relocated to Brisbane in Australia. Nine months into his work there, another opportunity arose, this time in the United States, where he worked with gaming giants including the predecessor of Caesars Entertainment Corp. He later moved back to Australia and was involved with the efforts of the federal and Queensland state governments to introduce casinos. He also assisted Hilton Hotels with the opening the first casino resort on the Gold Coast, Conrad Jupiters Casino, in 1986. Eighteen months after the resort opened, Mr Bowie was invited to join the team. He started out in a finance role but within three years changed to hotel operations. Soon after, in 1993, he moved to Brisbane, where Hilton Hotels was opening another casino, the Treasury Casino, to become its general manager. In 2003 Mr Bowie decided it was time to leave the gaming industry, after 16 years. But an unexpected call from Steve Wynn led to a move to this part of the world to open and manage Wynn Macau. He left four years into the job. He had a number of offers but took a long holiday before deciding what to do next. Macau has made an impression on Mr Bowie, and he loves the city, leading him to take the helm at MGM Macau in 2008.

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ested in that. So, yes, we are looking at developments in Taiwan. In terms of movements in some of the other jurisdictions, yes, MGM Resorts is monitoring the activity in those destinations. It doesn’t mean we in MGM China will not have a role to play, but it will be as a participant. And that would be subject to determination by MGM Resorts themselves and by Ms Ho as a principal shareholder [in MGM China]. Is MGM China in any way concerned about the Philippines’ gaming development project being built in Manila?

If gaming is so strong and powerful in Macau, every other jurisdiction is going to look at putting in gaming. The bottom line is [the region] is competitive and it is going to become increasingly more competitive. What we have to do is not be worried about what other people in other countries

EXCLUSIVE CEO INTERVIEW

“Building the brand [in the mainland] is critical. In a market that is so big, you actually have to have brand presence to get anywhere because you can’t advertise [gaming] anywhere to get penetration”

are doing. We just have to focus on what we are doing and make sure we are relevant to our customers. The Philippines have their own model but the Macau environment is big and strong enough. We as an industry are certainly good enough to hold the position in this regional market as long as we keep our eye on the ball. It is entirely up to us. MGM Resorts is also expanding into Vietnam. Will there be any partnership between MGM China and MGM Resorts in the Ho Tram Strip?

Clearly the brand is there and we want to take advantage of where the brand is being presented. However, it is a managed property as opposed to an owned property. We will continue to provide support as it is a sister-operation, but that is a completely different management structure. But we see it as

a positive move that the MGM brand is being presented more widely throughout the region. Your performance for last year was pretty good, with a net profit of HK$3.28 billion (US$422 million), 109 percent more than the year before. What expectations do you have for this year?

Our expectations are that we need to do better. How much better?

I work on the principle that I like to under-promise and over-deliver. How important is the mainland market?

Building the brand is critical. In a market that is so big, you actually have to have brand presence to get anywhere because you can’t advertise [gaming] anywhere to get penetration. So you

have to produce something that allows the name to be carried through social networking. In the next six months we are going to re-energise and remind people and keep enhancing the texture and quality of the brand. Analysts say that the future is Cotai. If MGM doesn’t get land approval, do you see this as a potential problem, only having a presence on the peninsula?

My comment is: the future is Macau as a whole. I think that it is convenient and creates an interesting story to say it is going to be this way or the other. But I am going to support the Macau government on this. The Macau government wants to have a successful Macau. They want a successful peninsula, they want a successful Cotai and a successful Coloane. The point is that this is about destination marketing. APRIL 2012

Gaming

Lucky number three IN A MACAU BUSINESS EXCLUSIVE, SENIOR EXECUTIVES FROM SANDS CHINA LTD TALK ABOUT OPENING COTAI CENTRAL – A CASINO RESORT BUILT FOR THE MASS-MARKET TOURIST TRADE BY EMANUEL GRAÇA AND PAULO A. AZEVEDO

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81 hile half of Macau’s gaming operators are waiting to make their move onto the Cotai Strip, Sands China Ltd is this month opening its third property there. The first phase of Sands Cotai Central, to open on April 11, follows the Venetian Macao and the Plaza Macao, which includes The Four Seasons Hotel and shopping mall. Cotai Central’s first phase features more than 600 five-star rooms and suites under the Conrad hotel brand and another 1,200 four-star rooms from Holiday Inn. Each of these brands has built their biggest hotels in the world here. The opening will add another 28 shops, a 10,000-squaremetre Himalayan-themed casino, VIP gaming areas, meeting space and food and beverage options to Cotai. About 6,200 people were hired to work on the property. Sands China president and chief executive Edward Tracy says the new property underlines the company’s commitment to mass-market hospitality and gaming – a segment in which it is a clear leader. “We will continue to focus on the mass market and our products are built to do that,” Mr Tracy said in an exclusive Macau Business group interview with the top company officials involved in the launch of Cotai Central. “We obviously build for the VIP as well, but those typically are hotels within hotels, operations within operations.”

Photo: Gonçalo Lobo Pinheiro

Complete suite Mr Tracy says the mass market includes a lot of offerings, which patrons in Macau can find at Sands China properties. “It is not just hotel rooms. It is also entertainment offerings. It is retail and it is the MICE business.” When fully operational next year, Cotai Central will be the biggest casino resort in Sands China’s portfolio. By then, the property will boast 5,800 hotel rooms, with the addition of nearly 4,000 rooms and suites under the Sheraton brand, half of which will open in September and the remainder next February. This will be the biggest Sheraton in the world. Cotai Central will also include two casinos, almost 100 shops, more than 20 eateries and 20,000 square metres of meeting and convention space. It will contain a multipurpose theatre, currently under construction and for which the company has yet to unveil details – namely if it is going to host a resident show. Cotai Central may yet include a fourth hotel and mixeduse tower to be managed by Starwood under its St. Regis brand, according to Sands China’s documents. It is expected to cost US$450 million (MOP3.6 billion) to build, but will only be developed “as demand and market conditions warrant it”. Mr Tracy says with Cotai Central the company has “the opportunity to capture people who are currently day-trippers, who cannot find accommodations that are of high quality and affordable prices”. “We are starting to pick up an increased level of business, in particular across that four-star hotel product,” says Kevin Clayton, executive vice-president of marketing operations for Venetian Macau Ltd, a Sands China subsidiary. He says the addition of 5,800 hotel rooms to the company’s portfolio will allow it to solve one major problem – lack of enough accommodation to meet demand. Unlike at Sands Macao and the Venetian, the gaming operator decided not to use familiar “Sands” brands for the APRIL 2012

Gaming

hotels at Cotai Central. It opted instead to partner with hospitality companies with a considerable footprint in the mainland. “It makes sense to have that diversity, with brand names that resonate with a lot of our customers,” says Mr Clayton.

Shuffling tables Once complete, Cotai Central will house two themed casinos called Himalaya and Pacifica. Himalaya opens in phase one and has about 600 slots, 216 gaming tables and four live electronic gaming tables connected to 200 terminals for players. Another 150 VIP tables can be found at the Paiza, Cotai Central’s dedicated area for VIP premium and junket players. The Paiza will host 11 fixed junkets. The gaming operator will get 200 new tables from the government for the first phase. That will use up all the available tables under the cap of 5,500 imposed until next year. The property’s other tables will be sourced from Sands’ established casinos. “Those are tables for which we don’t really have a strong use and that we have been holding in anticipation of opening Cotai Central,” says Sands China executive vice-president and chief operating officer David Sisk. It could be far more difficult finding tables for Pacifica when it opens in the third quarter. “Our understanding is that we have another 200 new tables that we APRIL 2012

were essentially promised [by the government],” Mr Sisk says. Sands China wants to ensure Cotai Central and its sister properties across the street are tightly connected. A pedestrian flyover connecting to the Four Seasons will open in the first quarter of next year. “What we are creating in Cotai is the world’s first integrated resort city,” says Mr Tracy. “Interconnectivity will be a big part of our future.” Connectivity will play a big part in the future of all the gaming concessionaires in Cotai. “The convenience of the customer long term is something we all will have to work together as operators,” Mr Tracy says.

Sands China has also created a master identity for its three shopping malls in Cotai: The Grand Canal Shoppes at the Venetian, The Shoppes at Four Seasons and Shoppes Cotai Central. Together they will boast 600 shops and will be promoted under the umbrella brand Shoppes Cotai. The 28 shops opening this month at Cotai Central include first-to-market brands Michael Kors, Sergio Rossi and Pink Grill. “We are trying to create a critical mass so that we become a whole shopping destination,” says David Sylvester, the senior vice-president of retail Asia for Las Vegas Sands Corp. Las Vegas Sands is the parent company of Sands China.

Sands China CEO Edward Tracy says with Cotai Central the company has “the opportunity to capture people who are currently day-trippers”

Sands China COO David Sisk says the gaming operator will get 200 new tables from the government for the first phase

SANDS CHINA FACES NEW COURT BATTLE S

Shoppes Cotai Central will feature natural light, cascading waterfalls and green vegetation on rocky cliff sides. Mr Sylvester says the complex will include a full floor dedicated to family-oriented retail outlets, opening in the third quarter. “We have got a retail business that generates north of US$1.3 billion a year,” says Mr Tracy. “High-quality, duty-free shopping experiences are in demand and we have expanded that portfolio in an attempt to capitalise on that.” In terms of positioning, the new Shoppes Cotai Central will fit between the high-end Shoppes at The Four Seasons and premium mass-market Grand Canal Shoppes, says Mr Sylvester. Sands China will continue its long play in the meeting, incentives, conventions and exhibitions (MICE) market. Although Macau’s MICE industry has posted mixed results recently, Gunther Hatt, executive vice-president for operations at Venetian Macau Ltd, says the gaming operator’s MICE business is going well and will improve once the new hotel rooms are available. “We have more and more enquiries from very large MICE groups”, some occupying up to 6,000 rooms at a time, he says. The new development means “we are getting to the point were we do have inventory to attract those groups”.

Bumpy road Sands China did not provide performance projections for Cotai Central.

“We are obviously optimistic,” Mr Tracy says. “A lot of our business philosophies have paid dividends in our current portfolio. So we expect to do well.” Sands China’s investment in Cotai Central runs to US$4 billion. The gaming operator has already poured more than US$8 billion overall into Macau. The ride for Cotai Central has been long and it has not been easy. The global financial crisis and recession forced site construction to be halted in November 2008. It was resumed only in May 2010. There were also changes in the hotel brands. One of the hotel towers was to be managed by Shangri-La International Hotel Management Ltd but in March last year, Sands China and ShangriLa agreed to terminate the agreement. Eventually, the gaming operator signed a franchise agreement with Hilton Worldwide and InterContinental Hotels Group to use their Conrad and Holiday Inn brands respectively. After completion of Cotai Central, Sands China’s next project for Cotai is parcel three, adjacent to the Four Seasons. The company plans to build a 4,000-room development there. Sands China has not yet given up on going ahead with parcels seven and eight. The appeal hearing on a government decision not to approve the company’s application for the two plots is underway. Sands China says it had already invested more than US$100 million in the sites before the government’s decision.

ands China Ltd is facing another lawsuit over how it won a gaming licence in Macau. The claim against Sands is for MOP3 billion (US$375 million) as compensation for damages resulting from the alleged breach of agreements entered into with Asian American Entertainment Corporation Ltd. Asian American Entertainment alleges Sands China’s parent company, Las Vegas Sands Corp, signed a letter of intent to team up with the company in the bidding process for a Macau casino license in October 2001. In early 2002, Las Vegas Sands allegedly changed plans and teamed-up with Galaxy Entertainment Group Ltd. Galaxy and Sands split up later which allowed Sands to operate as a sub-concessionaire of Galaxy. “The company will vigorously defend the matter in court,” Sands China said in a stock filing. The claim filed with the Macau Judicial Court names Venetian Macao, SA, a subsidiary of Sands China, and LVS (Nevada) International Holdings Inc., Las Vegas Sands LLC and Venetian Casino Resort Hotel LLC as defendants. Asian American Entertainment, controlled by the Taiwanese businessman Shi Sheng Hao, who often uses the first name Marshall, brought a similar claim to Nevada’s district court but the case was dismissed on procedural grounds.

ZAIA VENUE NOW A THEATRE A

s Sands China Ltd opens Sands Cotai Central, changes are taking place across the avenue at the Venetian Macao. Where once was Cirque du Soleil’s “Zaia” theatre show, now lies a multi-purpose “luxury theatre”. To mark its grand opening on April 8, the Venetian scheduled a performance by violinist Jue Yao and Hong Kong diva Elisa Chan. Already announced is a performance by the China National Symphony Orchestra on April 15. The orchestra will be accompanied by China’s answer to the Three Tenors: Warren Mok, Dai Yuqiang and Wei Song. Joining them is Hong Kong Cantopop star Hacken Lee, soprano Bing Bing Wang and mezzo-soprano Sonia Maria Fortunato from Italy. APRIL 2012

Gaming

Video nasty The personal battle between Steve Wynn and Kazuo Okada lights up in an online video

he increasingly bitter, knock ‘em down, drag ‘em out saga between Wynn Resorts Ltd chairman Steve Wynn and former business partner Kazuo Okada has moved online. Mr Okada, the chairman of Universal Entertainment Corp, lashed out in a 15-minute monologue in which he accused Mr Wynn of manipulating facts to wrest control of Wynn Resorts from its biggest shareholder. The video was posted on his company’s website. Mr Okada also questioned Mr Wynn’s use of tens of millions of dollars in their pursuit of a gaming license in Macau. “Steve Wynn’s ultimate purpose is to retain absolute control over Wynn Resorts and to enrich himself,” Mr Okada said, speaking in Japanese with English subtitles. It was another escalation in the simmering battle between the two tycoons over Wynn Resorts’ control, and Mr Okada’s casino development in Manila. The feud has seen claim and coun-

Kazuo Okada lashed out in a 15-minute video in which he accused Steve Wynn of manipulating facts to wrest control of Wynn Resorts from its biggest shareholder terclaim by the two men. Mr Okada asked the courts for access to Wynn Resorts’ records in January. The former vice-chairman said he was prevented from seeing the company’s financial records after he objected to a MOP1.1-billion (US$135 million) donation to the University of Macau last July. In February, Wynn Resorts accused

Mr Okada of making payments of up to US$110,000 (MOP$880,000) to executives of the Philippine gaming regulator Pagcor – a breach of United States’ anticorruption laws. Mr Okada allegedly gave away accommodation and dinners at Wynn properties in Macau and Las Vegas. Mr Okada was awarded a license to operate a casino at Entertainment City Manila in 2008. Mr Wynn opposed the move, saying the property would be in direct competition with Wynn Resorts’ interests in Macau. Wynn Resorts forcibly bought out Mr Okada’s 19.7-percent stake at a steep discount in February. The casino operator said it took back the shares to protect the company’s gaming licenses in Nevada and Macau amid the bribery allegations involving Mr Okada. The Japanese businessman was removed from Wynn Macau’s board of directors after an emergency board meeting. The Japanese billionaire is now seeking a court order voiding the redemption of his shares, as well as unspecified compensation and punitive damages. Mr Wynn won the fi rst battle in the war. A Nevada judge ruled last month that Wynn Resorts was obliged to give Mr Okada only two pages of the many documents he wanted to see regarding the donation to the University of Macau.

WYNN PAYS UP FOR COTAI W

ynn Macau Ltd made a down payment of MOP500 million (US$62.5 million) to the government in December to secure a foothold in Cotai. The gaming operator made the announcement last month in a filing to the Hong Kong stock exchange. Last year, the company formally announced it had accepted the draft terms and conditions of a 25-year land concession from the government for a piece of land in Cotai near City of Dreams. That included a land premium of MOP1.4 billion, comprising a down payment of MOP500 million, which was made last December. When it officially gets control of the land – which is yet to happen – the company will have to make a one-time US$50 million payment to Macau-incorporated Tien Chiao Entertainment and Investment Company Ltd. The payment will see Tien Chiao relinquish its rights to any development on the Cotai land, under an agreement first disclosed in Wynn Macau’s listing prospectus.

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Gaming

Not for everyone Galaxy Macau opens the final piece of its phase one development, China Rouge exclusive lounge t is luxurious, stylish and membersonly. China Rouge private performance lounge, officially inaugurated last month, is the final touch to the HK$16.5billion (US$2.1 billion) first phase of Galaxy Macau. It adds to entertainment offerings that also include the UA Galaxy Cinemas. “China Rouge is opulent and exclusive,” says Francis Lui Yiu Tung, vice-chairman of Galaxy Entertainment Group Ltd, the casino resort’s owner and manager. “We call China Rouge our forbidden chamber. In part for its exotic ambience and, in part, because only the select few will be able to explore its offerings.”

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Mr Lui says China Rouge adds “another dimension” to Macau’s tourism landscape. “It is one of the finest members-only experiences in the region.” The 1,600-square-metre venue, with a seating capacity of 165, is located near the main entrance of Galaxy Macau. It is divided into two main areas: the bar and a showroom with live entertainment. The gaming operator has not made public its investment in the club. Inspired by the Parisian cabarets of the 1800s and Shanghai of the 1930s, the nightspot was conceptualised and styled by famed Hong Kong designer and brand consultant Alan Chan in collaboration with Ryu Kosaka of A.N.D. Aoyama Nomura Design.

The interior features specially commissioned works from several Chinese artists, including Buhua, Chen Men, Deng Xinli, Li Jian and Zheng Lu. The imagery has one constant throughout: the portrayal of women. Entry is by invitation only, although the top-tier members of the Galaxy Privilege Club loyalty programme and any guests staying in a suite at any of Galaxy Macau’s hotels can access the venue.

Musical star bar Galaxy officials are tight-lipped about the fee to become a member at China Rouge and say the venue has no minimum target membership number. “It is not to make revenue with the

GALAXY TO GET A SECOND PHASE BY 2016

“China Rouge is opulent and exclusive,” says Francis Lui, vice-chairman of Galaxy Entertainment

membership,” says Noel Furrer, executive manager of the venue. The venue targets two main groups: sophisticated second-generation Chinese nouveau riche and international patrons from Hong Kong, Taiwan, Singapore and beyond. “We are targeting a more mature market, 25 to 30 and above,” says Mr Furrer, who oversaw several projects in Hong Kong as marketing director of Lan Kwai Fong Entertainments before joining China Rouge. “We are not a late night club. That is not the idea.” A big question mark over China Rouge is whether there are any takers for such a venue. Galaxy Macau vicepresident of marketing communications

Jane Tsai is sure that there are. “The market is continuously evolving. The demand may not be as high as it will be in the future but we do feel there is already a large enough base now to [introduce] a product like this.” The venue will host private concerts with world-class artists. “We will have Asian stars, we will have international stars,” says Mr Furrer, who brought names such as Craig David and the Black Eyed Peas to Club JJ’s at the Grand Hyatt Hong Kong while he was manager there. Some deals have already been signed but Mr Furrer declined to offer names. China Rouge’s launch party included two shows from Dutch singer Laura Fygi.

resh details continue to emerge about Galaxy Macau’s second phase, with a recent confirmation of the opening date. Yoko Ku, assistant investor relations manager at Galaxy Entertainment Group Ltd, told Bloomberg the company hopes the casino resort’s next phase will be complete by 2016, before the Hong KongMacau-Zhuhai bridge starts operating. Galaxy Entertainment’s vice-chairman Francis Lui Yiu Tung told the South China Morning Post newspaper that the second phase of the development would double the property’s size, adding non-gaming elements to the property, including meeting and convention facilities, and more retail space. The company has a land bank on the Cotai Strip equivalent in size to three Galaxy Macau resorts. Last month, Galaxy Entertainment reported last year’s net profit tripled yearon-year to HK$3 billion (US$386 million). Full year revenue doubled to HK$41 billion. Company executives do not expect the opening of Sands China Ltd’s Sands Cotai Central this month to hurt its earnings. Instead, they see it having a positive, spill-over effect, similar to the upturn after Galaxy Macau opened. “We think the market is grossly underpenetrated,” Galaxy Entertainment’s chief financial officer, Robert Drake, told Bloomberg. “We do six times as much revenue as Las Vegas but they have six times as many hotel rooms.”

HOME FOR HIGH ROLLERS L

ast month, Galaxy Macau opened The Pavilion, a new high-limit, private slot machine venue next to the main gaming floor. Designed by Steelman Partners LLC, the 460-square metre attraction includes a main area and two private rooms. With a capacity for 100 people and an undisclosed number of high-limit slot machines, it sits where there was once a noodle house. Galaxy Macau’s vice-president of marketing communications Jane Tsai says the idea to build the venue came from high-limit slot players, who requested more privacy and greater intimacy. The casino already had high-limit slot areas but on the main gaming floor. The Pavilion is for members only, with its own two tiers within the Galaxy Privilege Club loyalty programme. APRIL 2012

Gaming

Asian flavours Aristocrat has Asian casino customers in its sights with the release of new, themed products

ustralia-based gaming supplier Aristocrat Leisure Ltd is betting on Asian growth in a big way. The company has several new products ready for launch – at least one of which will be unveiled at next month’s G2E Asia. The company has been inspired by the Year of the Dragon and added dragon-themed games to its line-up. They have bolstered Aristocrat’s Asian-flavoured portfolio that includes the blockbuster “Fa Fa Fa”, its first dedicated product for Asia audiences. “This year, we have several dedicated developments for Asia: we’ve got dedicated Hyperlink games, we’ve got dedicated standalone games and we’ve got dedicated Xtreme Mystery links,”

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says Nathan Drane, Aristocrat’s regional marketing manager for the Asia-Pacific region. “That’s to cater for Macau, Singapore, the Philippines and the rest of Asia.” Mr Drane says that what makes the company successful in Asia is a combination of attractive themes and math packages. He highlights the Reel Power and Hyperlink games as big components of that success. “They have huge relevance in this market.” The company’s commitment to Asia is also a bet on the future. The United States remains Aristocrat’s biggest market, followed by Australia. The AsiaPacific region ranks third, but has been growing fast.

“Asia-Pacific is a very exciting region right now,” Mr Drane says. “Aristocrat doesn’t want to walk away from it. We want to commit more resources to this region as it grows.” Some of Aristocrat’s Asian flavours have proven to be successes elsewhere. Take “Five Dragons” as a case in point. Mr Drane says Australia, with its substantial Chinese community, “has a lot of synergy with Asia in those kinds of games”.

Adapt and thrive The company is one of the most successful slot machine suppliers in Macau, claiming a market share in the range of 55 to 65 percent.

89 When Galaxy Macau casino opened in May last year, Aristocrat secured more than 60 percent of the slot installations on its gaming floor. In the case of Sands Cotai Central, due to open this month, Mr Drane says Aristocrat is still in negotiations. The company already has products installed at Sands China Ltd properties. In February, Sands Macao delivered what was dubbed Macau’s biggest jackpot to the player of an Aristocrat slot machine. The HK$21-million (US$2.7 million) “Fa Fa Fa Grand Jackpot” was won by a mainland punter while playing a “Five Dragons” slot machine. Mr Drane feels casinos benefit the most from headline-grabbing jackpots, not the suppliers. “It’s great marketing for the operators,” he says. “They are the ones who have the games on offer and these act as draw cards for them. That has a flow on effect to us, of course.” After Sands Cotai Central opens, there will be a gap of at least three years before another substantial casino is ready for players. That means no huge slot deployments. Aristocrat says it is prepared for the change of pace. “That’s why we are ramping up our dedicated developments for Asia and also our cabinet configuration,” Mr Drane says. “We’re planning on releasing a new cabinet in the next two years.”

Even-handed change Aristocrat plans to continue using Macau as its Asian base. The company sees the city as a gateway to the rest of Asia and a live test lab for its products. “If you get a game to work in Macau, it usually works in the rest of Asia,” Mr Drane says. “We often take games first to market in Macau and then release them to the rest of Asia.”

Aristocrat is one of the most successful slot machine suppliers in Macau, claiming a market share in the range of 55 to 65 percent

Aristocrat is now working to adapt its products to the city’s new technical standards for electronic gaming machines. The rules came into effect in February but there is a grace period for non-compliant applications and machines that lasts until October 1. Aristocrat is also managing a similar change in standards in Singapore, effective from last month. The new standards are a first for Macau. The previous regulations relied on overseas standards and those developed by Gaming Laboratories International LLC, which has an approved testing centre in Macau. “The Gaming Inspection and Coordination Bureau gave us plenty of notice and engaged us,” Mr Drane says. The new rules are reasonable enough, he says, and Aristocrat has already conducted a full assessment of their impact on the company’s portfolio. However, not all legacy games will be available under the new standard in the future. “We’ll do a switchover for the best legacy games over time. We’re trying to bring out two of those legacy games this year, three next year and two the year after. Any games that continue to perform, we would bring them out in a compliant format.” Mr Drane says migrating to the new standards is a technical matter more than a financial issue. “There is an increment of cost in the first year,” he says. “From there it will be business as usual.” The company has also been among several global suppliers investing heavily in online and mobile gaming products. While Macau has yet to regulate these areas, Mr Drane says Aristocrat would be eager to explore them once they become available.

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Gaming

Every drop counts

Casino resorts say they are pulling their weight in the effort to conserve water BY SARA FARR

arch 22 was World Water Day and the city’s casino resorts say they are doing their best to cut consumption. Last August the government began a water conservation campaign among the city’s biggest consumers. Local authorities want all casino resorts and hotels to install low-flow showerheads and tap aerators. Previously, in January last year, the government introduced a new water tariff, which sees the heaviest users now paying more per litre for their water than lighter consumers. Consumption among households has since fallen but not among commercial consumers. “We saw that on the commercial side consumption was increasing,” says Wong Man Tou of the government’s Working Group on the Development of a Water Conservation Society. The new water conservation campaign is zeroing in on the problem. The first phase covered nine of the biggest corporate water consumers including MGM Macau, the Venetian Macao and City of Dreams. The second phase, which started last month, is expected to involve another 20 gaming and hospitality establishments. The government hopes they will take part without being prompted, unlike the establishments in phase one. “Our objective is not to limit development but to make sure it’s sustainable,” says Mr Wong.

Blown away Water consumption in the biggest casino resorts depends partly on the habits of the guests. So some resorts have begun changing showerheads and taps in hotel rooms to prevent wastage. MGM Macau says it is taking steps to conserve water and energy everyAPRIL 2012

where – from the laundry down below to the presidential suites. Simply by changing the taps, it reduced the water flow from 6.7 litres per minute to 1.9 litres. The owner, MGM China Holdings Ltd, estimates that this has helped reduce annual consumption in the rooms by 3.9 percent. Now MGM Macau is changing more than 1,000 showerheads and will study the results around the end of the third quarter of this year. “We are currently trying different shower heads to determine one that is water efficient and suitable for the property,” says Peter Chan, MGM Macau’s facilities management director. He estimates that showerheads that limit the flow to 9 litres a minute will reduce annual consumption by about 6 percent. MGM Macau is also testing wind sensors for its garden sprinklers that reduce or shut off the flow of water, depending on how hard the wind is blowing. This could cut the resort’s con-

MGM Macau says it is taking steps to conserve water and energy everywhere – from the laundry down below to the presidential suites. Simply by changing the taps, it reduced the water flow from 6.7 litres per minute to 1.9 litres

91 sumption by 0.16 percent. Together, the new taps, showerheads and sprinkler regulators are expected to cut annual consumption by about one-tenth. The resort has also made its cooling towers less wasteful of water. Mr Chan estimates that this saves up to 50,000 litres a year. MGM Macau is considering installing meters in its plumbing system to tell it where most water is used and so help it save more. It has hired water and energy consultants to find where consumption can be reduced. It will teach employees how to avoid wasting water. And it will recycle some wastewater, which could cut consumption by 1 percent.

Olympic effort The Venetian Macao, the largest casino resort in the city, says it has saved enough water in a year to fill 120 Olympic swimming pools. Its sister-resort, the Sands Macao, has saved enough to fill another 68 Olympic pools. Luisa Geraldes, the director of sustainability and facilities at the Venetian, says the plumbing is regularly checked and, if need be, repaired to prevent any waste. The plumbing has meters that can be monitored remotely, allowing the resort to keep an eye on consumption and locate any leak. “If there’s a leak, we can fix it straightaway rather than wait until the water bill comes to see that we spent more than normal and try to figure out where the leak is coming from,” Ms Geraldes says. The Venetian has water flow controllers in all its toilets, kitchens, staff locker rooms and guest rooms. It has replaced the showerheads in 98 percent of its rooms, reducing the flow from 12 litres to 8 litres a minute. “We’ve saved as much as 120 million litres of water a year like this,” Ms Geraldes says. The resort estimates that in January alone it saved 27.7 million litres. Its automatic irrigation system accounted for 56 percent of the total, the new showerheads for 34 percent and the water flow controllers for 10 percent.

Good show Across the road, “The House of Dancing Water” at City of Dreams has one of the biggest swimming pools in Macau, with a capacity of 17 million litres. Rather than throwing the water out regularly, the resort uses a sophisticated APRIL 2012

Gaming

filtration system similar to that of a large fish tank, that allows it to recycle most of it. The filters only take five minutes per day backwashing, instead of the usual 10 minutes for similar systems, meaning a saving of 800,000 litres of water per month, says a spokesperson for Melco Crown Entertainment Ltd, the resort’s owner. “Instead of flushing out the pool water during regular maintenance, a holding tank was built below the pool for temporary water storage,” according to the spokesperson. Other measures to prevent waste during maintenance of the pool save about 1.2 million litres a month. City of Dreams is reputedly the first casino resort in Macau to collect rainwater and use it for irrigation after it is filtered. This is a pilot scheme and once the results are in, Melco Crown may consider installing a bigger system. Altira hotel, another Melco Crown establishment, takes wastewater from guest rooms and reuses it to flush the toilets. “We’re the first hotel in Macau to do this,” the spokesperson says. This saves

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City of Dreams is reputedly the first casino resort to collect rainwater and use it for irrigation after it is filtered. This is a pilot scheme and once the results are in, Melco Crown may consider installing a bigger system

Altira more than half of the fresh water it would otherwise use for flushing. It is still too soon to tell if the government campaign to reduce water consumption in large casino resorts is working. For now, authorities have no intention of penalising resorts for failing to follow guidelines. But Mr Wong says that eventually rules will be made that the industry must obey. “We hope to install more meters to check every part of water consumption,” Mr Wong says. Macau consumed 14 percent more water last year than in 2010, data from the Statistics and Census Service show. In January almost 5.8 billion litres were used, 6 percent more than a year before. Recently, Macao Water Supply Ltd announced that it will cooperate with the government in recycling water. The company’s general manager, Oscar Chu, said that the treatment plants would be in Seac Pai Van and Hengqin Island. Although consumption is going up, water rates are not expected to increase until 2014, when the current water supply deal between Macau and Guangdong expires.

MELCO CROWN SUED IN LAW FIRM THEFT CASE

The Hong Kong branch of an international law firm filed a lawsuit in the former British colony against a subsidiary of Melco Crown Entertainment Ltd after a former partner allegedly took clients’ money to gamble in Macau. Media reports say the law firm claims the casino company was aware that the funds had been “misappropriated.” The firm, K&L Gates, was founded by the father of computer billionaire Bill Gates. Initial figures put the money allegedly misappropriated by the firm’s former employee Navin Kumar Aggarwal at HK$16.6 million (US$2.1 million) but prosecutors later revised it to HK$780 million. In a court filing, K&L Gates says that at least HK$34 million was transferred from clients’ accounts to Melco Crown, and Mr Aggarwal made a net loss of at least HK$9.9 million.

U.S. DROPS SIDE-BETTING ALLEGATIONS

MORE FERRY ROUTES GOOD FOR GAMING

The addition of three new ferry routes to the Pac On terminal could boost the number of visitor arrivals to Macau by 1 million per year, says Union Gaming Research Macau. The Maritime Administration is currently assessing three proposals from ferry companies wanting to operate three new routes from the Pac On temporary terminal. A decision is to be announced this month, according to the government. Union Gaming analyst Bill Lerner wrote in a note that the new routes will especially help Cotai casino operators, with Sands China Ltd likely to benefit the most. He added sailing might start by year-end.

The latest annual U.S. State Department report on international money laundering has dropped the claim that the value of side-betting in Macau could exceed the reported gross gaming revenues by ten times. Several industry players had rebuffed the claim, made in last year’s report. Even so, in its latest report, issued last month, the U.S. State Department continues to say “Macau’s gaming industry relies heavily on loosely-regulated gaming promoters”. Macau “should continue to strengthen interagency coordination to prevent money laundering in the gaming industry, especially by introducing robust oversight of junket operators,” the U.S. State Department report suggests.

NEVADA REGULATORS STEPPING UP MACAU JUNKET SCRUTINY Macau gaming promoters are “becoming an area of increased attention,” says Nevada Gaming Control Board Nevada state regulators say they are paying more attention to the relationship between the Macau subsidiaries of Nevadalicensed casino operators and Macau VIP gaming promoters. Mark Lipparelli, chairman of the Nevada Gaming Control Board, told The Wall Street Journal that Macau junkets are “becoming an area of increased attention” for the regulator. A source told the newspaper that the Nevada regulators have stepped up their scrutiny of Macau junket operators over the past six months in order to assess their suitability and to investigate their alleged connections to organised crime. The source declined to say what companies are under scrutiny or to cite any evidence. Nevada law allows state-licensed casino companies to operate overseas without prior vetting from regulators but bars the companies from bringing “disrepute” to the state. The Las Vegas-based International Union of Operating Engineers last month called on the Nevada gaming

regulators to investigate the relationship between Macau VIP gaming promoter Neptune Group Ltd and the Nevadalicensed casino companies operating in Macau. The IUOE alleges that “Neptune and its affiliates are ‘unsuitable’ based on their myriad ties to reputed triad leader Cheung Chi Tai, his family and his small, close-knit network of business associates.” The IUOE also called for a “complete review of MGM operations in Macau” following the union’s findings concerning the relationship an “MGM VIP room operator, SunCity, [through] its founder and co-owner Alvin Chau Cheok Wa, has with two individuals, Charles Heung Wah Keung and Herbert Liu Kee Chan, identified by U.S. government reports as organized crime figures.” The IUOE sponsors www.casinoleaks-macau.com, a website that promises to gradually release information on organised crime in Macau’s gaming industry.

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Gaming

Photo: Luís Almoster

A TOUCH OF THE WHIP

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The Macau Jockey Club tries to get back on course as the city becomes increasingly driven by casinos BY SARA FARR

hile casinos watch their gross gaming revenue and the number of punters they pull in increasing by leaps and bounds, the Macau Jockey Club is struggling to keep up with the pack. The club is part of Stanley Ho Hung Sunâ&#x20AC;&#x2122;s business empire. Its owner, Macau Horse Racing Co Ltd, has a monopoly on the market for betting on horse races until August 2015. But the company has been losing money. The last year that it was in the black was 2004, when its operating profit was MOP52.9 million (US$6.6 million). Since then, the companyâ&#x20AC;&#x2122;s bottom line has been coloured in red ink. Last year, it made a loss of MOP17 million, and even that was a year-on-year improvement of around 50 percent, according to company officials.

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Gaming

The stagnant global economy has not done any favours to most industries. The horse racing business around the world has certainly suffered, but the economy is not solely to blame. “Every country has a different nemesis,” says Michael Beattie, the director of racing and acting chief steward at the Macau Jockey Club. Mr Beattie was chief steward and racing manager of the club from August 2006 until June 2007, when he returned to his native Australia. He came back to Macau a year ago to continue his work with the club. He says horse racing around the world is losing out as betting on other sports grows. In the United States, racing’s nemesis is online gaming. “Obviously, in Macau the major thrust against horses is casino gambling.” The effect of the casinos is also being felt on the other side of the Pearl River, where the Hong Kong Jockey Club has made it a priority to try to repatriate the money Hongkongers bet at Macau’s gaming tables.

MAKING CHAMPIONS O

ne essential element of the Macau Jockey Club is its racehorses. Another is its trainers. The club has 26 licensed trainers from various countries, including New Zealand, Australia, the United States and Malaysia. There are also some very good trainers from Macau, says Michael Beattie, the club’s director of racing and acting chief steward. The club has around 550 horses, excluding those put out to pasture. “It’s a little less than we’d like ... but our most popular trainer has nearly 60 horses,” Mr Beattie says. Some trainers have 15 or 20. The number depends on the owners, who choose the trainers. “It’s purely market driven,” Mr Beattie says. The most popular trainer is Gary Moore, formerly an accomplished international jockey who rode with success in Asia. He has also trained racehorses in Australia. Bringing horses into Macau direct is tricky. “It’s easier to fly them into Hong Kong and then barge them to Macau by boat,” Mr Beattie says.

Horse racing in Macau may be second only to the casinos in terms of gross revenue but its revenue is still only about 0.2 percent of that of the casinos. Revenue from horse racing was MOP440 million last year, MOP1 million more than in 2010. In 2005, revenue was MOP636 million. Since then, only in 2008 was it above MOP500 million, when it reached MOP501 million. Many people come to Macau to gamble but Mr Beattie says “their minds are not set to gamble on racehorses. Their minds are set to gamble in casinos”. To invert that trend, the Jockey Club is putting more effort into promoting racing and increasing public awareness of the sport. “There are visitors from other parts of the world and residents from other parts of the world who are working here that aren’t really aware of the existence of the Jockey Club,” Mr Beattie says. “That’s something that the club needs to continue to address.” For the last four years, the club has been trying to improve awareness. One simple measure was to paint the name of the club on the outside of the green wall around its course in Taipa, so people would know there is a racecourse there. It may be hard to attract new racegoers but the regular punters at the Macau Jockey Club are knowledgeable, APRIL 2012

Photo: Manuel Cardoso

Writing on the wall

It may be hard to attract new racegoers but the regular punters at the Macau Jockey Club are knowledgeable, says Michael Beattie, the director of racing and acting chief steward at the Macau Jockey Club. “The club is very aware that the punters are mature in that they require information before they place a bet”

Mr Beattie says. “The club is very aware that the punters are mature in that they require information before they place a bet. With that in mind, the Macau Jockey Club website, as far as the punter is concerned, would be as good, if not better, than any in the world, with the information that’s provided there.” He says the Internet is the key to attracting and educating racegoers.

Cup runneth out The amount of bets on races taken by the Macau Jockey Club last year was MOP2.27 billion, 0.18 percent less than in 2010. The club also takes bets on racing in Hong Kong, Singapore, Malaysia and South Africa. Races there are simulcast in Macau and the club sets up a pool for them. “It’s very popular,” Mr Beattie says. Betting on horse racing in Singapore and Malaysia has increased, mainly because of the novelty factor. “It’s not to indicate that they’re more popular than in Hong Kong. It’s just an indicator that

Photo: Manuel Cardoso

THE GREEN, GREEN GRASS W

hen horses are retired from racing, the more docile ones are kept by the Macau Jockey Club for its riding school or for members to ride. Some become mounts for the clerks of the course on race day. Others are repatriated, if the owner wishes. “We sell some of the horses to riding schools within the mainland,” says Michael Beattie, the director of racing and acting chief steward of the club. At the moment between 30 and 40 retired horses are waiting to be sold and another 30 to 40 are kept for the apprentices, members and the clerks of the course. In early 2000s, there were several reports about horses at the club being put down because they were either too old to race or no longer profitable. The reports said the horses were shot in the head. Mr Beattie says horses are now given a lethal injection of a substance commonly known as “green dream” because of its colour. A horse is usually put down when it is injured so badly that it will never again walk or gallop. The club puts down about two horses a week. Only rarely is a horse put down because it is temperamental, Mr Beattie says. “The view is that you can’t sell [such a] a horse with safety because a human being is going to get hurt.” Since Mr Beattie came back to Macau 12 months ago, only one horse has been put down because of its temperament.

The Jockey Club has been losing money. The last year that it was in the black was 2004, when its operating profit was MOP52.9 million

the punter is becoming more aware of these horses, too.” Racegoing was popular once, but now it is difficult to attract punters to the course. “And it continues to become more difficult,” Mr Beattie says. This is because punters no longer need to go to the course to place their bets. “Now you can stay at home and, if you’re in Macau, you can choose to watch it on the Internet or television.” Having a cup day along the lines of Australia’s Melbourne Cup day would not be feasible, Mr Beattie says. Macau would not be able to sustain such events, according to him. “What you need to do is ensure your major events are on a day of the week or a timeframe of the week people can attend.” Mr Beattie says the Macau Jockey Club knows this and has its biggest meeting of the year on a Sunday, so the maximum number of people can attend. “The difficulty in the world, and certainly Macau, is that we now live in a seven-day working week.” APRIL 2012

Gaming

MELCO ACHIEVES BUSINESS TURNAROUND

Melco International Development Ltd reported a net profit of HK$280.1 million (US$36.1 million) for last year, compared to a net loss of US$209.5 million for 2010. Most of its income came from its 33.7-percent participation in Melco Crown Entertainment Ltd. The board recommended the payment of a final dividend of HK$1.5 cents per share. Melco’s 38.5-percent-owned associate Entertainment Gaming Asia Inc. achieved record high adjusted earnings before interest, taxes, depreciation and amortisation of US$11.7 million, up 41 percent year-on-year, and turnaround to a positive net income of US$642,000 for the year. Entertainment Gaming Asia Inc. is currently expanding its gaming business in Cambodia.

CHINA STAR’S LOSSES WIDEN

China Star Entertainment Ltd last month announced losses for 2011 amounting to approximately HK$654 million (US$84 million) as compared to a profit of HK$24.8 million for 2010. The substantial loss was mainly attributable to an intangible assets’ impairment loss of HK$700 million with regard to the decrease in sharing of profit streams from Best Mind International Inc. Best Mind is the profit receiving company from Ocho Sociedade Unipessoal Limitada, one of the VIP gaming promoters at the Grand Lisboa. China Star also operates Hotel Lan Kwai Fong Macau and has an income sharing agreement with SJM Holdings Ltd regarding the existing casino in the property, which has 84 tables and 121 slot machines.

AERL PROFIT SOARS

Asia Entertainment & Resources Ltd posted fourth-quarter net income of US$16.4 million (MOP131 million), compared to US$10.6 million in the same quarter a year ago, the company announced last month. NonGAAP net income was US$19.8 million, up 72 percent year-on-year. Revenue from VIP gaming operations for the quarter was US$69.71 million, up from US$43.10 million year-on-year. The company also announced a final 2011 annual dividend of US$0.194 per share. “We are forecasting continued doubledigit growth in rolling chip turnover for 2012,” said AERL chairman Lam Man Pou. The company operates VIP rooms at StarWorld, the Venetian Macao and Galaxy Macau.

STILL ADELSON Sands China Ltd chairman is still the richest casino mogul in the world

Sheldon Adelson is the wealthiest casino mogul in the world, according to this year’s Forbes list of the world’s billionaires, released last month. Sands China Ltd chairman was ranked at position number 14, with a net worth of US$24.9 billion (MOP199 billion). Last year, Mr Adelson was in spot 16, with a net worth of US$23.3 billion. This year’s list again includes several people with connections to Macau. Lui Che Woo, the chairman of Galaxy Entertainment Group Ltd is in spot 178, with a net worth of US$5.7 billion, while MGM China Holdings Ltd’s co-chairwoman Pansy Ho Chiu King is ranked 314, with a net worth of US$3.5 billion. Steve Wynn comes a bit behind, in position 491, with a net worth of US$2.5 billion, while his former business partner Kazuo Okada and family are ranked in 719th position, with a net worth of US$1.8 billion. Angela Leong On Kei comes close, with a net worth of US$1.7 billion, in position 764. Mexico telecom mogul Carlos Slim again topped the Forbes annual world’s richest list, with his US$69 billion fortune, which while down from last year, still outpaced the runner-up, Microsoft founder Bill Gates. In the third spot was U.S. investment guru Warren Buffett, worth US$44 billion. Forbes said 1,226 tycoons made it onto its global list of billionaires this year.

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ISSUE 7 ON SALE

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Baby steps Singapore licenses two junket operators with ties to Macau but no channel to mainland players BY MUHAMMAD COHEN

ingapore’s decision to license its first junket operators, two years after the Lion City’s casino doors opened, won’t be a game changer, according to experts. Opinions on the impact of these approvals depend on what weighs more to analysts: the long-term potential for more high-rollers from overseas or the immediate impact of two small promoters from Malaysia joining Singapore’s US$6 billion (MOP48 billion) gaming market on a tight leash. “To really rival Macau, the [Singapore] government would need to license many Chinese junkets and that’s just not going to happen,” says Grant Govertsen, Union Gaming Research Macau’s lead analyst. Other experts agree. The lack of promoters with a China focus only adds to new rules against sharing junket commissions. Together, they will ensure that Singapore casinos have limited access to mainland VIPs, the main market for Macau, observers say. Singapore’s Casino Regulatory Authority seeks to retain tight control over the process by giving the operators only a 12-month licence. Further, junkets have been prevented from sharing commissions with parties not licensed in Singapore, seen as an attempt to prevent Macau promoters from making a backdoor entry to Singapore. “Singapore, obviously, is taking a stringent approach, consistent with its charter,” Newpage Consulting principal David Green says. The junket approvals may also signal that officials recognize concerns over flattening revenue among operators and increasing play by Singapore residents. “Junkets are clearly a proven means of increasing revenue, through mobilisation of credit, and most of it [is] likely to come from players living outside Singapore,” says Mr Green, who has advised on casino regulation in a number of lo-

APRIL 2012

cations, including Macau, Singapore, Taiwan and New Zealand.

Long wait “When we began this casino licensing process in 2005, the entire emphasis was on bringing in foreign players,” says Mike Gore, a consultant to Resort World Sentosa owner Genting Singapore Plc during its casino license application process. “Here we are in 2012, and they finally license two junket operators.” Singapore’s casino regulator announced on its website on March 22 that it had approved two junkets to operate at Resorts World Sentosa. The Casino Regulatory Authority chose to call them International Marketing Agents (IMAs), emphasizing that they are prohibited from doing business with Singapore residents. “The addition of IMA business for the overseas VIP market will bring a progressive new source of high networth play into our gaming environment,” Resorts World Sentosa said in a written statement. “[We] will work closely with the authorities to comply with Singapore’s junket regulations in its execution.” The commission rates for junkets are yet to be announced. But reports say Resorts World Sentosa offers rebates of 1.25 percent of rolling chip turnover on direct play by VIPs and would doubtlessly pay more to junkets. Singapore casinos can afford to pay more to junkets than their Macau counterparts, where junket commissions are capped at 1.25 percent of rolling chip turnover and taxes on gaming are much higher. The Lion City taxes VIP revenue at 5 percent and mass market play at 15 percent, in addition to a 7-percent goods and services tax levied for both segments. That compares with Macau’s nearly 40 percent tax on all play. The Singapore casino regulator also said that it had rejected 12 applications

for junket licences. It said there were “a few” applications pending but gave no timeline for decisions.

More rules Along with prohibiting commission splitting with non-licensees and banning agents from soliciting Singaporeans, the rules published last month require casinos to “ensure that only suitable persons conduct the IMA business” on their premises, meaning that operators may be held responsible for violations by junkets. One thing that’s the same in Singapore as other jurisdictions is that the agents can extend credit to their customers. “Overall, the casino licensing process has been very professional, but someone fell down on the job on junkets,” Mr Gore says regarding the newly issued rules. “Licensing only two junkets is like sticking your toe in the water.”

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Resorts World Sentosa casino

He says there are “hundreds of junkets that could pass” muster in Singapore. But the length of the application form — reportedly 40 pages — and long wait for a decision discourage many. Promoters also need to apply separately for each casino, a process that requires endorsement from the casino. “I ultimately expect more junket approvals, although I think the junket system in Singapore will be a mere fraction of the size of the Macau junket system,” Union Gaming’s Mr Govertsen says.

Macau links Singapore’s first licensed junket operators, Huang Yu Kiung and Low Chong Aun, are from neighbouring Malaysia, home to the Resorts World Genting casino, earlier called the Genting Highlands. Both are said to operate as sub-promoters in Macau, funnelling customers from

Malaysia to main junkets, in exchange for a share in commissions. Mr Huang owns Huang’s Junket Promoter Ltd, a Macau-licensed junket promoter since at least 2009, but analysts say both he and Mr Low lack connections to bring players from the mainland to Singapore. The Lion City media characterized the new licensees as “relatively small players”, quoting industry sources. They reported that Mr Huang also brought groups to Cambodia, with each player rolling up to US$70,000 per visit. For now, Marina Bay Sands, the other casino in Singapore, will not have access to licensed junkets. The property is owned by Las Vegas Sands Corp., the parent company of Macau gaming operator Sands China Ltd. Las Vegas Sands executives have been ambivalent over using junkets in

Singapore. They have said earlier that Marina Bay Sands is yet to sponsor any junket application. The company has not responded to a Macau Business request for comment on the initial IMA approvals. Marina Bay Sands currently enjoys some of the industry’s highest margins and may prefer not to erode them by using junkets. “Casinos take low hanging fruit first,” Mr Gore says, citing the example of local high-rollers who need little incentive to play. “Margins are higher without junkets, so Marina Bay Sands may prefer to go forward without them, but as revenue growth stalls, they might want to go that route. “Junket operators work their butts off to get people to come to your casino. Marina Bay Sands will find they need junkets,” he adds. APRIL 2012

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Bring it on

The repercussions in Macau of the latest gaming developments in Asia will be the centre of attention at this year’s G2EAsia BY LUCIANA LEITÃO

he ramifications for Macau of several recent developments in the gaming industry elsewhere in Asia will be the hot topic for all the discussion panels at next month’s Global Gaming Expo Asia (G2EAsia). Singapore’s Casino Regulatory Authority handed out its first two licences for junket operators last month (read more in this section). Ben Lee, managing partner at gaming consultancy IGamiX Management & Consulting Ltd, says everyone will be talking about it at G2E Asia. Mr Lee, who will be one of the speakers at the event, says one of the questions on the table is how the two licensed junket operators in Singapore, both Malaysian and with “very little exposure to players outside Malaysia”, will cooperate with their counterparts in Macau. “Although there are some channels already in place to facilitate funds transfer from Malaysia for players coming to Macau, there are not really channels for [Chinese] players going to Singapore,” Mr Lee says. With the advent of licensed junket operators in Singapore, the development of big casino resorts in the Philippines,

Vietnam and South Korea, and the possibility that gambling will be made legal in Taiwan and in Japan, Macau may face real competition in the near future, Mr Lee says. G2E Asia will cover these and other topics during its three-day conference programme. As for the exhibition, already over 100 exhibitors have confirmed that they will be there. This year’s G2E Asia, the sixth, will be held between May 22 and 24, once again at the Venetian Macao. The American Gaming Association and Reed Exhibitions are organising the event.

Women in gaming The vice-president of Reed Exhibitions Hong Kong, Brian Thomas, says the first day of the conference programme, with its global markets forum, will be one of the most important. The full-day forum will include a series of in-depth discussions about the evolution of present and emerging gaming destinations in the Asian region. On the second day, the conference programme will split into two, with senior management following one track and middle management the other. The second day will cover operations, gaming

technology and marketing, with content tailored for each track. General conference sessions will be held on the second and third days, and focus on technical, economic and social trends, the gaming market in China and the effect of social media. Mr Thomas highlights the session entitled “Very Important Business: The Evolution of Junket Operations”. He says “attendees will learn how junket operations have changed during the past five years [and] what the future holds for casinos and junkets.” Also part of the event is the G2E Asia Gaming Management Certificate Programme. This includes a series of educational, industry-focused workshops produced in partnership with gaming professors at the University of Macau and the University of Nevada, Las Vegas campus in Singapore. G2E Asia will also host Asia’s first global gaming women’s networking breakfast. This will include a round-table discussion among top women in the Asian gaming sector. “It’s a new international initiative, nurturing emerging female leaders in the gambling industry,” says Mr Thomas.

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ASSEMBLY SEAT FOR GAMING, DEMANDS AMBROSE SO

SJM Holdings Ltd chief executive officer Ambrose So Shu Fai says the gaming sector should be represented in the Legislative Assembly with an indirectly elected seat. Such a move would allow for the gaming sector to have a formal voice within the legislature, he told reporters last month. According to Mr So, the gaming sector provides a “very important” contributor to Macau’s economy, and as such “should have a voice in the Legislative Assembly.”

SPIELO EXPANDS SALES TEAM IN ASIA

Gaming supplier Spielo International announced two new appointments, effective this month, to increase the company’s presence in the Asian gaming market. Lai Fatt Chiang has been appointed general manager of casino systems for Asia Pacifi c. Based in Malaysia, Mr Lai has 10 years’ experience in all aspects of the gaming industry in Asia. In addition, Maria Garcia has been appointed as director of sales for Asia (casino games). Based in Macau, Ms Garcia has been a distributor for several slot manufacturers in the region since 2006.

NEW CASINO CRUISE

There is a new regional player in the casino cruise market. Hong Kong-based China Cruises Company Ltd. started operations last month, sailing from Hong Kong. The company currently owns only one boat, a one-of-kind, twin-hull cruise ship that previously belonged to Stanley Ho Hung Sun, under the name “Asia Star”. China Cruises Company Ltd. bought it from Mr Ho last year for US$65 million (MOP520 million) and renamed it “China Star”. The casino cruise offers 18 gaming tables and around 100 slot-machines.

HONGKONGERS GAMBLE MORE IN MACAU

A Hong Kong gov’t-funded study shows that residents’ monthly spending in Macau casinos has tripled A study commissioned by the Hong Kong government to the Hong Kong Polytechnic University on the gambling behaviour of Hong Kong people shows that betting in Macau casinos is among the favourite gambling activities by Hongkongers. A total of 11.9 percent of Hong Kong residents took part in gambling activities in Macau casinos last year, with their average monthly spending reaching HK$1,409 (US$182), a sharp increase from the HK$428.2 reported in 2008, when the last similar survey was conducted. The study concluded that nearly two-thirds of Hong Kong residents participated in some form of gambling

last year, down from 71.3 percent in 2008. There was a decrease in participation of all sorts of gambling activities except Macau casinos, where participation went up by 1.1 percentage points. The Mark Six lottery remained the most popular gambling activity in Hong Kong, with 56 percent of respondents having bought at least one ticket last year. It was followed by social gambling, like mahjong and poker (33 percent) and horse racing (12.9 percent). Macau casinos came next, followed by football betting (6.6 percent). A total of 2,024 people aged 15-64 were interviewed by telephone for the survey.

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Tourism

Museum of Vintage Sound Machines

Gathering dust Tourists are satisfied with their visits to the city’s museums – when you can actually get them enthusiastic enough to go ourists who are professionals or managers are the visitors most satisfied with the museums in Macau, a study has found. But visitors to museums complain that the city’s museums have insufficient exhibits and are too small, hard to get to and poorly promoted. Elizabeth Cheng I Man of the Institute for Tourism Studies and Penny Wan Yim King of the University of Macau studied the degree of service quality satisfaction among visitors to the city’s museums. Their findings are published in the Journal of Quality Assurance in Hospitality and Tourism. “Tourists are found to be more satisfied with the service quality than locals, especially in the items of staff service, being made to feel welcome and the variety of food offered by museum restaurants,” the report says. “The satisfac-

APRIL 2012

tion level of local residents is lower than tourists in general.” The researchers studied 20 museums over four categories: history, religion, art and lifestyle. They interviewed 551 people of which 281 people were tourists. Ms Cheng and Ms Wan say that visiting historical places and museums is not as popular as other leisure activities among residents and tourists alike, and that there is room for improvement in the museums. The number of tourists has increased a lot in recent years, their report says, but then adds “not many actually come to visit the city’s famous cultural heritage.” The researchers discovered when they were out collecting data that it was hard to find any tourists in some of the city’s museums. Art museums were the most sat-

isfying for tourists and residents alike. History museums did not rank highly, although Macau is regarded as having a rich historical heritage. “Macau certainly needs to exert greater efforts in promoting and marketing its local museums as a means to conserve the cultural heritage, to convey the cultural message and to develop this valuable tourism product further,” the report says. It adds that although the government is not short of money, officials must “ensure that a certain level of service quality is reached in order to justify its financial support to the museums”. The people that most enjoy museums are between the ages of 18 and 47, the study found. This contradicts the findings of foreign studies, which indicate that those over 60 tend to enjoy going to museums the most.

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HOTEL PRICES UP

MACAU TO ATTRACT 32 MILLION VISITORS

The total number of visitors to Macau for the whole of 2012 is expected to reach up to 32 million, according to Union Gaming Research Macau. Analysts Grant Govertsen and Felicity Chiang wrote in an industry note they expect the total number of tourists to go up 10 percent to 15 percent in 2012. Total visitors to Macau reached 28 million last year, up 12 percent. In the first two months of 2012, Macau welcomed 4.6 million visitors, up 8.3 percent year-on-year.

The average hotel prices in Macau went up by 9 percent last year, according to the Hotel Price Index published by the hotels. com website. Last year, the average hotel room price in Macau stood at HK$1,601 (US$206), up from the HK$1,472 recorded in 2010. That puts Macau’s hotels in the top-10 of the world’s most expensive – the city ranks number eight.

MORE BUDGET ACCOMMODATION

Macau will get two new two-star hotels and one two-star guesthouse by 2013, according to the head of the Tourist Office, João Manuel Costa Antunes. The three units will offer around 230 rooms in total. The number of available guest rooms at Macau’s 95 hotels and guesthouses reached 22,300 at the end of January, with those of five-star hotels accounting for 63.5 percent of the total, according to the Statistics and Census Service.

ALL ABOARD Universal Event Management wants to bring the Queen Elizabeth 2 ship permanently to Macau

Universal Event Management Ltd wants to bring the Queen Elizabeth 2 cruise liner to Macau. The ship has over 900 rooms and convention facilities. The Queen Elizabeth 2 was retired from service in 2008. It was to be converted into a floating hotel to be docked in Dubai, but its future remains uncertain. “We have struggled to build a community that includes a respectable amount of business-to-business meetings and conventions and to attract non-gaming tourism and leisure business,” says Charlie Greco, president and chief executive

officer of the trade show and event management company. The Queen Elizabeth 2 would solve “all the problems” and boost the MICE industry, he says. According to Mr Greco, should Macau be the permanent home of the Queen Elizabeth 2, a museum and aquarium would go next to it in order to attract more visitors and tourists as well as diversify the attractions on offer. Although it is still unclear where the luxury liner could dock, Mr Greco says it could go close to the Macau International Airport. APRIL 2012

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The Venetian Macao-Resort-Hotel

Gaming

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

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

24th - 26th

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 24th - 26th

Global iGaming Summit and Expo The Westin, San Francisco, CA Clarion Gaming Earls Court Exhibition Centre, London SW5 9TA, UK (44) 0 20 7370 8579 http://www.gigse.com/ yeemay.huang@clariongaming.com

May

Date: Event: Venue: Organiser: Address: Tel: Fax: Website: E-mail: Date: Event: Venue: Organiser: Address: Tel: Website: E-mail: Date: Event: Venue: Organiser: Address: Tel: Fax: 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 29 th - 31st

5th Annual Retail Asia Congress

Renaisance Harbour View Hotel, Hong Kong 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

June

Date: Event:

1st - 3rd

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

Dubai International Convention & Exhibition Centre (UAE) Annual Investment Meeting Organizing Committee P.O.Box 10161 Dubai, UAE (971) 4 39 23232 (971) 4 39 23332 www.aimcongress.com info@aimcongress.com

UAE Ministry of Foreign Trade Annual Investment Meeting

APRIL 2012

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

27th – 28th

SAGSE Gaming Panama

ATLAPA Convention Center Monografie S.A. Av. Alvear 1883 Loc. 21, (C1129AAA) Cdad. Aut. de Buenos Aires, Argentina. (54) 11 4805 4623 (54) 11 4805 4791 http://www.sagsepanama.com/ jlgallinger@monografie.com

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

All together now THE HOSPITALITY INDUSTRY IS FULL OF RANDOMLY ASSEMBLED GROUPS OF EMPLOYEES BUT FEW CAN BE DESCRIBED AS TEAMS IN THE TRUE SENSE OF THE WORD rganisational theorists popularised the concept of team building in the second half of the 20th century. They argued that teams are the most appropriate means of carrying out highly complex tasks, so there is a need to develop strategies to create and nurture cohesive, functional teams. The corporate world has embraced the idea. Companies now put a lot of effort and money into forming highperformance teams to reach their business goals. But what is a team? There are two basic conditions that a team must meet. The first is that this group of people must have a common goal. The second is that they need to interact with each other to achieve that common objective. This means a group of people is not necessarily a team. In some cases, people may aim to reach a common goal without interacting with each other, meaning they are not a team. Work teams are not just about labour. They are about unwritten internal rules which determine the quality and effectiveness of the team. There are common patterns in building winning teams, with emphasis increasingly being put on the emotional component. Interaction between members is essential for the success of any team. For lovers of sport, there are plenty of examples. Just think about those football teams filled with stars that should easily win any match if the quality of their individual players was the deciding factor, but which for one reason or another fail to deliver outstanding results. In business as in sport, having the best players does not necessarily mean success. Often, the cohesion of a team and the collective motivation of its members are crucial in achieving the desired objective.

Lessons learned Recent field studies indicate emotional intelligence is an important asset to look for when choosing team members. It often determines outcomes. More than just selecting people that are highly skilled technically, it is necessary to pick those that possess all the emotional tools needed to interact effectively with their peers. Only in this way can the team perform with excellence. Apart from the right people, a high performance team must have a clear vision, and its members should be able to communicate effectively. It should also have established leaders, with the leaders delegating tasks and responsibilities to other team members, thus empowering them. When assembling a new team, several questions usually arise. How can I be sure the people chosen are the best for the task? How can I ensure all team members share and understand the team’s vision? How can I develop leadership skills in people that hide their true potential? How should I assign tasks to team members and delegate responsibilities and devolve power to them?

It is important to understand each member’s emotions, capabilities and needs. From that starting point, an environment that allows individuals to develop to their full potential can be created. When all team members begin to tread their individual growth path, when they recognise and accept their fields of expertise and start making the most of their resources for the group’s benefit, a new stage is reached. Everyone speaks the same language – that of growth – and processes can be improved, with mistakes becoming lessons learned. This is the moment when members stop looking for who to blame for unwanted results and instead start creating innovative ways to reach the goals set.

The common herd When a team reaches this stage, it can start making big strides, with new skills and processes rapidly being added to its portfolio, starting an upward spiral. The members then become aware of the existence of the team as an entity in its own right, one with the ability to grow and bloom like an organism, with each stage of growth requiring new tools to be used and lessons to be learned. The big question for each of Macau’s hospitality managers is whether he or she belongs to a team or just a randomly assembled group. Honest answers will give managers an idea of where they stand. They can serve as starting points for the creation and nurturing of true teams. To get there, managers must first accept the challenge and then tread carefully the path of group and individual learning. Once a manager develops the skills needed to assemble high-performance teams and puts them to work, the teams created will reproduce themselves, creating a better working environment and delivering outstanding results. Unfortunately, Macau’s hospitality industry is far from reaching that stage. What we see in the industry are thousands of individuals just doing their daily jobs, with no common vision or motivation whatsoever – a herd of employees too roughly thrown together to ever be mistaken for a team. APRIL 2012

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Technology

Ahead in the clouds CTM is introducing the first of a batch of new cloud computing services

loud computing is becoming increasingly common and is likely to turn into an important part of a company’s information technology backbone. Telecommunications company CTM says the demand for cloud computing services by the city’s businesses will inevitably grow. Cloud computing allows convenient, on-demand access to servers, storage, applications and other resources through the Internet. Users no longer need their own servers, storage or networks, which are available in the ‘cloud’. This offers businesses cheaper and more flexible storage and processing capacity. CTM will launch two public cloud services, the first phase of a long-term project in collaboration with network equipment vendor Cisco Systems Inc. According to the Cisco Global Cloud Index study, annual global cloud traffic will increase twelvefold from 130 exabytes in 2010 to 1.6 zettabytes in 2015. Explained in more understandable terms, 1.6 zettabytes is the equivalent to 22 trillion hours of streaming music, 5 trillion hours of business

APRIL 2012

web conferencing with webcams or 1.6 trillion hours of online high-definition video streaming. The study also predicts that more than 50 percent of all computing workloads in data centres will be cloud-based by 2014, compared with 21 percent in 2010.

Starter kit The first monthly-subscription cloud service that CTM intends to introduce this month is called the Cloud Infrastructure Service, enabled by the Cisco Unified Communication System and Cisco Nexus switches. As the name suggests, it provides cloud infrastructure as a service, with subscribers getting processing, storage, networks and other fundamental computing resources on which they can run software, including operating systems and applications. CTM will offer subscribers four packages, with storage capacity of 10 gigabytes, 50 gigabytes, 100 gigabytes and 200 gigabytes respectively. The service will come with standard templates such as Apache and MySQL, and a firewall. Data

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UNWELCOME INTERLUDE T

he Bureau of Telecommunications Regulation is due to announce whether telecommunications company CTM must pay a penalty for the breakdown of its service in February. The company could be stripped of its contract but that is highly unlikely. The bureau has two separate reports on the causes of the system crash, neither of which has been made public. One has been authored by CTM and the other, commissioned by the government, is written by experts from the University of Macau. The bureau said it will release its findings about the breakdown and announce any penalty this month. CTM’s system crashed on February 6, leaving thousands of subscribers unable to use their 3G mobile phones, landline telephones and the Internet for at least six hours. The company said at first that the breakdown was probably due to a software malfunction. The head of the Bureau of Telecommunications Regulation, Tou Veng Keong, said last month that it might have been due to a data introduction problem in CTM’s software.

SOLO BIDDER O

nly one company presented a bid for the public tender to break CTM’s monopoly on landline telecommunications. The public tender closed last month. Newly-created Companhia de Telecomunicações de MTEL, Ltda was the only company to have shown an interest in providing landline services in Macau, although the government was expecting to introduce two new players to the market. If the locally-incorporated company succeeds in its bid, it will set up a joint-venture with mainland telecommunications equipment and network solutions provider ZTE Corp. MTEL representative Michael Choi told reporters the telecom company would invest as much as MOP1 billion (US$125 million) in Macau should it get the approval. In addition, as many as 1,000 jobs would be created.

CTM says the demand for cloud computing services by the city’s businesses will inevitably grow back-up and restore options will also be available. Another service CTM is aiming to offer is called the Business Talk Unified Communication Service. The company is waiting on government approval for the service and does not know when it will be introduced, says CTM’s marketing director, Winnie Wong Fung Ting.

Lined with silver The service will employ CTM’s public cloud platform, Cisco Unified Communications Manager and a Cisco IP Phone. It allows the user to make calls with desktop or notebook computers, smartphones and landline business phones. It is designed to have high-quality sound, an online directory, visual voicemail and fax, and to be able to transfer calls seamlessly, among other things – all on one number. All data coming from the clients of these two services will be stored in CTM’s data centres on the peninsula and on Taipa, Ms Wong says. In unveiling CTM’s plans last month, chief executive

Vandy Poon did not disclose the service’s cost. “It’s too soon to talk about it. We’re now in talks with the government and waiting for their approval,” he said. CTM intends to increase its investment in cloud services gradually until it accounts for at least 30 percent of its total annual investment, Mr Poon says. The company invested about MOP300 million (US$37.5 million) into improving infrastructure last year, according to the chief executive. “Cloud computing has already become one of the technological applications in our daily lives. In the past it was just a concept but in the future it will be able to enhance efficiency for business,” Mr Poon says. The technology is new to Macau but he predicts bright prospects for its adaptation. “Even if our services aren’t well received in the market after they are launched, I won’t assert immediately that it’s a failure. We will strive to introduce different services that can support and suit the needs of different customer bases.” Mr Poon says CTM is aiming to sell its services not just APRIL 2012

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Technology

Smells phishy Cases of phishing are on the increase in Macau, and banks are a target BY LUCIANA LEITÃO

Cisco sees “huge potential” for cloud services in Greater China in general and thinks it has a promising future in Macau in particular, says the head of systems engineering of Cisco Hong Kong and Macau, Garrick Ng to casinos and other big concerns, but also to small and medium enterprises, and the education and health care industries. “Traditionally local SMEs tend to be more conservative in the use of technology. The Macau government would like to maintain SMEs’ existence and upgrade their competitiveness, and therefore CTM will put more effort in this matter.”

Public and private Cisco sees “huge potential” for cloud services in Greater China in general and thinks it has a promising future in Macau in particular, says the head of systems engineering of Cisco Hong Kong and Macau, Garrick Ng. Cisco has helped develop public and private cloud computing technology in Australia, Europe, America and Asia. Mr Ng says users can reduce management costs and operate more efficiently. CTM’s services are in a public cloud. Mr Ng says security and legal concerns may make some organisations opt for private cloud services instead. “For example, in the banking and insurance industries, there are very strict internal and government regulations in place regarding the storage location of sensitive data. Also, some companies may wish to maintain their own control but also enjoy flexibility in cloud computing, and therefore will build a private cloud.” In contrast, a public cloud is available equally to the general public or a big industrial group and is owned by an enterprise selling a service. A public cloud is suitable, for example, for a start-up company with a small staff, which can immediately subscribe to services without worrying about the money and expertise needed to create a private cloud, Mr Ng says. He says one aspect of cloud computing is sharing resources, but it is crucial to deny a third party access to data stored in a public cloud. CTM’s Ms Wong says her company’s data security complies with the highest international standards. APRIL 2012

“

NU never asks you to log in to BNU Online through hyperlinks embedded in e-mails or third parties’ websites. In case you receive a message asking you to input your security credentials, please: do not answer the message; do not access any link included in the e-mail.” Since last September this has been the welcome message users of BNU bank see whenever they log in to their online accounts. Sources say this notice was put up after an unusual number of customers went to the bank, each asking for a new password. People complained about receiving an email asking them to change their password. But after doing so, they were unable to get access to their online accounts, which would eventually be blocked after three failed attempts. BNU suspected that it was the target of a phishing scam and issued its alert. BNU declined to answer Macau Business’s questions about the matter. Sources say that BNU customers were never at risk of severe financial losses. Even if the hackers had been able to get access to online accounts, they lacked the security code needed to confi rm money transfers. They would have only been able to check account balances and, at most, pay bills incurred locally. The Monetary Authority of Macau says banks have reported few cases of phishing. Its records indicate that no information about customers or money has been stolen.

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“To deal with such problem, relevant banks immediately reported the incidents to Judiciary Police, publicised the incidents to alert their customers and to encourage safe practices, and enhanced their security measures like password login requirements,” says a spokesperson for the authority. Bank of China refuses to say if its customers have ever been the targets of phishing attempts. Phishing is trying to extract information such as usernames, passwords, credit card details or other personal data electronically by masquerading as a trustworthy entity. A common method of phishing is to send fake emails that appear to come from genuine institutions such as banks. These emails usually say it is necessary to update or confirm personal or account information, and urge the recipients to click on links that direct them to counterfeit websites. The scammers then use the information given to these websites for criminal purposes such as theft.

Guess who won the lottery A classic phishing technique is the ‘lottery winner scam’. Phishers send an email to victims saying they have won the lottery, but that to have the prize money credited to their accounts they must give their personal data, which the scammers use for identity theft. The email may also demand payment first of a handling fee for transferring the winnings

to the victim’s bank account. Figures from the Judiciary Police show the number of phishing cases in Macau is rising. Last year 67 cases were reported, compared with 17 in 2010. “No reports regarding theft of bank account details and passwords were made to the police,” says a spokesperson. Most phishers were based abroad, as were their victims. But because the phishing involved Macau bank accounts, the cases are under the jurisdiction of the authorities here. The Judiciary Police say that in 2010 a new modus operandi emerged. “Fake verification sites were used to con users of email or instant messaging tools such as MSN and QQ out of their passwords,” the spokesperson says. “Fraudsters impersonated those users and swindled their friends out of items such as mobile phones or top-up credits of online games. Phishers also used stolen email accounts of companies to con their business partners into remitting tens of thousands of dollars into new bank accounts as directed in the emails.” Computer company IBM Corp says phishing attacks are on the increase worldwide. In its annual report on internet security, released last month, the company says phishing came back with a vengeance in the second half of last year, reaching a scale not seen since 2008. In particular, there was a surge in phishing using social media. APRIL 2012

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Performers at The Venetian Macao APRIL 2012