Founded by Portugal and once considered part of the Portuguese kingdom, the city of Macau has acquired a legendary reputation among foreigners for mystery and intrigue. China’s only city to offer legal gambling, Macau sits just across a river delta from Hong Kong through which international travelers poured into the casinos until recently.
Macau was indirectly hit hard by the COVID-19 pandemic because its economy depends so much on tourism and gambling. The city has a population of just over 650,000 people and the world’s densest population. Amazingly, Macau managed to contain the viral infection to under 100 known cases.
While experts around the world are suspicious of any data coming from China and its autonomous territories, even multiplying the city’s published infection rate by 10 means fewer than 500 infections.
Macau dodged a bullet and the city’s residents are surely happy about that.
But the casinos were forced to shut down during China’s massive quarantine and recently re-opened. Their financial struggles haven’t surprised anyone, but industry analysts and investors haven’t given up on China’s gaming industry.
Here’s what you need to know about Macau as China re-opens its economy.
Macau Had Very Few Covid-19 Infections
Although epidemiologists don’t know how many people inside Macau contracted the virus, by all accounts, the city’s infection rate was quite low compared to other parts of China and the rest of the world.
Beijing moved quickly to isolate the city, which is popular among both domestic and foreign travelers. Hotels were converted to quarantine facilities and as many as 1,000 people at a time were placed in the hotels to ensure they didn’t infect anyone else.
Not everyone who was quarantined is thought to have had the virus. But the Chinese government enacted strict measures to prevent travelers and residents alike from spreading the disease once its contagiousness became apparent.
To that end, most of the city was locked down, forcing many local businesses to close. Restaurants were permitted to remain open for take-out or delivery service only. And grocers were allowed to continue operation.
Throughout China, residents were required to monitor their health closely, limit outside activity, wear masks, maintain social distancing, and pass through checkpoints. Macau’s leader Ho Iat Seng acted quickly to prevent spread of the disease in January and his measures are credited with preventing a larger disaster.
Travel Restrictions Remain in Place
When you read about travel restrictions you might think that all flights have been canceled. That’s not true for Macau. Some flights are still arriving in the city, although they are mostly domestic flights.
While China has restricted travel from other countries it’s allowing its citizens to move freely about in most areas again.
Foreign nationals already in China are still not allowed to board domestic flights to Macau. And Chinese nationals who have been out of the country must quarantine for two weeks before they can move freely in Macau.
Gambling Revenue Took a Huge Hit
Although the city was able to function normally for part of early 2020, analysts have found that the city’s VIP baccarat revenue for the first quarter dropped by 60% over 2019’s performance.
The same article shows that mass baccarat revenue dropped by nearly as much. Baccarat is the most popular gambling game in Macau’s casinos. The city has been called the baccarat capital of the world. Second quarter estimates project that gaming revenue may be down by over 90% for both sectors.
The earliest projected start for a recovery is June, according to Nomura Group analysts. They also project it could take up to three years for Macau’s gaming industry to fully recover from the pandemic.
While this might seem like a local economy problem, foreign casino operators have invested heavily in Macau and they look to revenues from the city to help their bottom lines.
Dividend investors were probably not shocked to learn that the Sands China board of directors decided to suspend distributions for the time being.
Other Sectors of the Local Economy Were Hit Hard
To help local businesses, the Government of Macau initiated a program of providing subsidies to city residents via debit cards. Consumers can only use the cards to pay for goods or services but they should keep the economy moving.
And while the city did not see many infections, two major hotels were converted into quarantine facilities for several weeks. They have now been released from that service.
Like so many others around the world, Macau became a city whose residents had nothing to do but stay home. Until the IVS system is started again the city will remain dependent upon government subsidies for basic needs.
Most Casino Workers Will Be Entitled to Minimum Wages
Effective November 1st, Macau employers must pay a minimum wage to most workers, although maids have been excluded. Macau is the last city in China and its autonomous territories to enact widespread minimum wage requirements.
Economic studies show that raising minimum wages don’t have the adverse impacts on business that many people fear. The new law should have a positive effect on the city’s economy going forward.
Residents Have Plenty of Internet Access
Although China’s mainland government limits what residents may see and do on the internet, coverage is very good in Macau. About 86% of households had internet coverage in 2019. Usage rates among the population with Internet access ran well above 9% last year.
Mobile internet access is very popular, and the city is building out a 5G network. But none of that is used for gaming because online casinos are illegal in China.
So far, proposals are only being floated in gaming-friendly media and it’s not likely that Beijing will show much interest.
India May Become Important to Macau Gaming
According to recent news reports, Alibaba and Tencent are investing hundreds of millions of dollars in gaming apps for India.
While online gaming is illegal in China, it’s largely unregulated in other Asian nations. India has gambling laws, but they are old and don’t take the internet into consideration.
While only a small percentage of players may actually win trips to Macau, they could become drawn into Macau’s gaming-friendly culture through advertisements and promotional offers.
Macau’s future is cloudy. No one really knows when the city’s gaming industry will recover or if Beijing will introduce measures to help.
While gambling is illegal in China, the fact the central government has allowed Macau to become a gambling Mecca and set up the IVS program shows that the mainland sees the importance of gaming to the economy.
If nothing else, Macau’s casino industry may be a showpiece for Beijing to prove its tolerance to the rest of the world. While that strategy is being tested in Hong Kong, there has been little unrest in Macau.
As long as the government helps the city prosper residents should be happy. And long-term prosperity is unquestionably tied to the health and success of Macau’s gaming industry for the foreseeable future.