Macau, like the rest of the world, has been struggling with COVID. The casinos reopened relatively quickly after the initial shutdown. But the all-important border with mainland China did not. High stakes poker more or less disappeared from the island.
It was only in August that mainland China reactivated the Individual Visit Scheme.
The IVS is more or less the equivalent of a visa. It allows Chinese citizens to move between China’s Guangdong province and the Macanese Special Administrative Area. So restarting the IVS has been a godsend for the struggling Macanese economy.
In August, before the IVS was reactivated, just 13.3% of Macau’s hotel rooms were occupied. Or put another way, the year-on-year drop in hotel occupancy for August was 79.7%. On top of that, about two-thirds of those rooms were occupied by locals, not tourists.
That represents a win for the Macanese push to get locals to take staycations. But it also demonstrated how little movement there is from the twin backbones of Macau’s tourist-driven economy: Hong Kong and China.
Empty hotel rooms mean empty card tables, and the locals don’t gamble anywhere near as much as the tourists.
Golden Week blues
Golden Week starts on October 1st to coincide with Nation Day in China. It is normally a big week for Macau. A lot of celebrating high-rollers use the week off to head over the bridge and hit the poker and baccarat tables.
With the IVS back in place and Golden Week over, the analysts went to their spreadsheets with hope in their hearts to tot up the profits.
Unfortunately, they were disappointed. Hotel rooms and guesthouses had a 43% occupancy. A massive uptick from August’s numbers. But down by 50.4% from last year’s Golden Week numbers.
The number for overall visitors to the island were even more dire. Just 26% of 2019’s Golden Week numbers.
All this is excellent for controlling the spread of COVID. But it is bad news for investors in the six casino operators. Who, on top of everything else, will see their license costs going up next year.
Raising the ante
This news all came down the wire on the same week as the government budget. This includes report includes 2019’s tax figures.
The budget showed that akings from junkets were already in decline last year. The Macanese government took taxes equivalent to US$48.8 million from junket operations. This was just over three-quarters of 2018’s takings.
The Gross Gaming Revenue for September 2020 was roughly 10% of what it was in 2019. Using that data to project to next year’s budget starts to look apocalyptic. Macau will need to tighten the strings of its public purse.
The problem isn’t just the limited movement of people.
Macau is also having to deal with China’s “national security” crackdown on the movement of cash. As with US worries about President Trump’s significant personal debt, China worries that part members with gambling debts might be vulnerable to overseas influence.
China has maintained extraordinary control over its currency in the last three or four decades. By focusing their FX controls on the Macau-Chinese border this year, China has put immense pressure on the junket industry.
Junkets used to easily extend credit to players in Macau, receive payment in mainland China, and close that loop with grey area money laundering techniques. With the grey area in starker contrast, junkets are beginning to roll up on both sides of the Baia de Tai Van. The result is visiting players have smaller bankrolls.
Cause and effect
China’s anti-corruption measures seem to be having an effect with Macao’s Financial Intelligence Office reporting that suspicious transactions are down. They went from 2,089 in the first three quarters of 2019 to just 1,663 in the first three quarters of 2019.
Mostly this comes from a sharp drop-off in the gaming sector.
Though in the context of the other stats we’re looking at, it is hard not to view a drop like that as reflecting a drop in the number of total transactions. Not necessarily a genuine clean up of the finance industry.