Inside Asian Gaming

14 Cover Story been stepping up its marketing effort at operator level and government level among high rollers and mass-market customers in the Middle East, Australia, Europe and Southeast Asia. It’s China though that has the real scale. Only India is in the same league demographically, and the new integrated resorts in Singapore are closer to the Indian market. China’s middling middle class–those with an annual income of between RMB 40,000 and RMB 100,000 (US$5,700 to US$14,300)–is likely to number 290 million by 2011 according to a recent study from the management-consulting firm McKinsey. The spending power of that middle- income group is though modest compared with its demographic equivalents in the US or Europe. For Macau’s gaming industry the realmother lode is among thehighnetworth people.These are the sort of people currently providing between 65% and 70% of Macau’s entire annual gross gaming revenues. Here again, China has scale. A study published by investment bank Merrill Lynch in October last year in association with Capgemini, a business consultancy, estimated there were around 345,000 US dollar millionaires on the Mainland. A million dollars won’t get you very far nowadays either in a Macau VIP gaming room or on the street. It’s reportedly the minimum amount of credit required for entry to The Venetian Macao’s VIP facility, the Paiza Club. The average price of a four- bedroom house in many major international cities is also something close to that figure. The ‘ultras’ Nestled among that group of Chinese millionaires, however, are a group Merrill labelled as ‘Ultra-HNWIs’. These are nearly 5,000 peoplewith net worth of at least US$30 million. Of that cohort, 106 were classed as US dollar billionaires. It’s likely the number of Chinese multi-millionaires and billionaires has fallen since the escalation of the global financial crisis, but that’s still a lot of super rich people. If only 10% of them came to Macau to gamble it would keep Macau’s VIP turnover in a healthy state for months if not years to come. So why would Macau and China consider cutting off or at least rationing such a lucrative source of tax and wealth redistribution? The signals have been there for months, if not years, for those taking the time and trouble to decode them. One country, two mindsets It all goes back to the unique—some might even say bizarre—status of China’s two Special Administrative Regions under the ‘one country, two systems’ principle. Macau and Hong Kong are unmistakably Chinese and yet in some ways profoundly different from the motherland. Imagine California had been politically and socially isolated from Nevada for 450 years and then suddenly bus- and planeloads of Californian tourists started arriving in Las Vegas. They speak the same language, they eat the same food—they even look like the locals—yet they’re also different and a little bit ‘foreign’. That difference has to be factored in to any understanding of Macau’s attitude to China and China’s response to the Macau SAR. China’s Macau Travel Policy IVS. (By May 2007, just over half of Mainland Chinese visitors travelled toMacau under the scheme). These new terms included limiting visits to once every two weeks and only allowing single entry permits (abolishing the previously popular double-entry permits). The mainland authorities did not make any public announcement about their thinking behind the new restrictions,but the move was widely interpreted as a response to several social issues. One was excessive gambling in Macau by some Guangdong residents—particularly managers of public firms who may have been using misappropriated company funds. Another reason touted in the media was that the move was to prevent labourers from Guangdong working illegally in Macau. Fitting the tap China’s curbs on travel to Macau are not though a guillotine-like measure designed to separate Macau’s gaming head from its Chinese customer body. They are more like the fitting of a tap to an open pipe. Until 2002, when Stanley Ho’s 40-year Modern pilgrims—Chinese tourists at the ruins of St. Paul’s O ne of the main drivers of Macau’s spectacular tourism and gaming boom since mid-2003 was the Individual Visit Scheme (IVS), which was introduced by the central government in Beijing in July 2003. The scheme allowed Mainland Chinese wishing to visit Hong Kong and Macau to travel as individuals, rather than as part of heavily restricted tour groups, as previously required. The scheme initially covered residents of Macau’s prosperous neighbour, Guangdong province, and a few other wealthy cities in China.It was gradually extended to cover additional parts of China. When Macau’s first foreign-owned casino, Sands Macao, opened in 2004, China was pretty much operating an ‘all comers’ policy within the admittedly limited terms of the IVS. Most analysts and industry observers believed travel restrictions would be lifted further as time went on. The consensus view proved overly optimisticwhen,inJune2007,theGuangdong provincial government implemented new restrictions on Guangdong residents wishing to apply for travel permits under the