Investors
might want to consider a stake in the gaming and tourist industries of Macao. The city known as the Las Vegas of the Far East is becoming a playground in Asia for the wealthy. This special administrative zone of China is projected to see a GDP (Gross Domestic Product) expansion of 13.5% in 2014. This follows a similar rate of growth in 2013. The rate of expansion was 9.9% in 2012 after an astounding rate of growth of 21.8% in 2011.
The average rate of GDP growth for Macao between the years 2002 to 2013 was 13.7%. In the second quarter of 2004 alone, the economy had expanded at a whopping 51.80% rate. More importantly for investors, it looks like the rapid growth will continue for the foreseeable future.
Macao was a former Portuguese colony from 1887 to the end of 1999. However, the area had actually been under Portuguese administration since 1557. It was the last European colony in Asia when control reverted back to China. The treaty signed between Portugal and China known as the Basic Law of Macao, stipulates that the former colony will operate under a great deal of autonomy until at least 2049. This will be 50 years after the transfer.
By 2002 Macao had become one of the richest cities in the world. In 2006 the city became the largest gambling center in the world.
Although China deals with the foreign affairs and defense of the territory, Macao maintains its own police force and legal system. It is allowed to regulate immigration and more importantly for potential investors, its own monetary and customs policy. The city has kept its own currency known as the Macanese pataca (MOP).
The quality of life in Macao has an advanced rating. The city has the second highest life expectancy in the world. Already by 2007 Macao ranked 23rd in the Human Development Index, only Japan had a higher score in Asia.
As expected the economy of Macao is heavily dependent on gambling and tourism, but it does include manufacturing. The influx of newly affluent Chinese visitors has brought dramatic growth in the two main industries of the territory.
Macao Peninsula
The territory is ranked 235th in size in comparison to other countries. The total area is only 29.5 km2 which is 11.39 sq mi. Macao is located on the western side of the Pearl River Delta across from Hong Kong to the east. Macao is about 64 kilometers or 40 miles from Hong Kong. To the east and south is the South China Sea. Guangdong Province can be found to the north.
The population in 2011 was 552,503. The estimate for 2014 is 614,500. It ranks Macao as 167th in world population. It has the highest population density in the world with 18,568 per km2 or 48,092 per square mile.
The nominal GDP was estimated at $44,300 billion USD (United States Dollars) in 2012. This gave it the 98th rank in the world. Per capita that is $77,353 USD, making it the 4th highest in the world. In Purchasing Power Parity (PPP) the 2011 estimate was $47.19 billion USD and per capita equaled $82,400 USD.
In Macao gaming accounts for 50% of GDP, 84 % of fiscal revenues and 21% of the workforce. The large gaming industry and relaxed tax laws has made the city a base for wealthy investors, especially from Mainland China.
Attempts to diversify the economy, while limiting casino growth has not been very successful in the past.
In 2012 the turnover for the casinos of Macao was $38 billion USD. For a comparison that is 600% more than what the casinos take in at Las Vegas. The liberalization of local licensing laws has brought a number of mega casinos to the city. This has led to a major influx of American casino operators. They must answer to regulators back home. This helps to keep things more open and honest in Macao. The arrival of these new gambling venues is leading the economic boom that the city is presently experiencing.
Between 2008 to 2012 gambling revenues in Macao increased an average of 29% each year. There is no other place in the world where the casino market is expanding so rapidly. The industry worldwide is worth $160 billion USD on a yearly basis. The Asia Pacific region will be the largest market in the industry by 2015. That is up from 30% just 5 years earlier. This will replace the United States, that just a few years ago had 50% of the world total in the casino gambling market.
A great deal of Macao’s success is based on Mainland China not permitting casino gambling. This in turn, provides the city a potential market of over 1 billion people. As the Chinese middle class continues to grow and more Chinese businessmen and industrialists become wealthy, the city is guaranteed a steady inflow of visitors. Unlike Las Vegas, Macao is known for attracting what is known in the business as high rollers. Also the casinos in Macao are known for being discreet. In other words, they don’t ask many questions about their patrons.
To attract these wealthy players the casinos hire junketeers who court these patrons. These handlers fly the patrons down to the city, have them play in special gambling rooms and arrange for credit to get around China’s tight currency controls. These players make up 60% to 65% of the total revenue for the casinos.
However, as competition gets tighter in Asia more of the casino industry in Macao will depend on the mass market. The geographic location of the city and its accessibility to the mainland, will guarantee the city a continuous flow of visitors who wish to gamble. As transportation links with the mainland are improved, many more patrons will arrive. Although at present the government of Macao limits the amount of gaming tables, a number of experts expect these controls to be lifted soon.
China has recently completed several high speed rail links in the south of the country. This will allow hundreds of millions of new visitors to come to the city. Also since the airport in Macao is relatively small, more bridges are being built so travelers can fly in to Hong Kong and then come to Macao.
Competition from Singapore which has entered the casino market, as well as Japan, the Philippines, Australia and even Russia will take some customers away from Macao. However, the majority of the Chinese will still find it easier to come to Macao.
The main obstacle to growth for Macao is now land. Property prices are high as are hotel rooms and rentals. This is because of the large population already living in Macao which is a small territory. The answer to the problem is the island of Hengqin. The island is 3 times the size of Macao and is thinly populated. It is connected to Macao by a bridge. Although the island belongs to the Chinese province of Guangdong, it has been designated as a special economic zone. This permits special tax breaks and a number of government subsidies.
It is the island of Hengqin, that is the real opportunity for foreign investors. It is a definite game changer for Macao when it comes to future business and investment. Cheap land and labor are already attracting a number of investors. The construction of cheaper hotel rooms on the island of Hengqin will open up a whole new clientele for Macao.
A number of important companies are looking to invest in the economy of Hengqin because of its close proximity to Macao. Among them is Chimelong Group, this company runs the largest amusement park in all of China. The company invested $2 billion USD on an ocean theme park that recently opened. Nine more amusement parks are being planned. The goal is to turn the island into the Orlando, Florida of China.
Non-gambling activities will become a larger and larger piece of the economic growth of Macao in the years ahead, thanks to the new business activity in Hengqin. More entertainment and business conferences will bring in a whole new group of people. These will include families, who will come to enjoy the new entertainment and amusements that the city of Macao and the surrounding area will provide.
Macao and nearby Hengqin, will be a great place to make an investment in a business or industry that supports the tourist trade. Macao and the area around it has the ability to become the first $100 billion USD market for casino gambling. If you look at the model of Orlando Florida in the United States, one can easily research what investments would be most lucrative for the Chinese market. There are so many different facets to the tourist trade that the opportunities for investing are endless.