CHAPTER 7 TOURISM AND GAMBLING
THE TREND OF TOURISM
Tourism is the most important economic sector in Macau, in terms of GDP share, export share, and contribution to government revenue and employment. It also creates strong linkage effect on other economic sectors such as hotels and restaurants, transportation, retail commerce etc. As a major performance indicator, the number of visitor arrivals1 had consistently trended up until the middle of the 1990s (Table 7.1). It exceeded one million in 1965,two million in 1973, three million in 1979, four million in 1982, five million in 1987, six million in 1991, seven million in 1992 and eight million in 1996.
Notes: *Arrivals do not refer to actual number of people traveling. One personvisiting Macau several times during the year is counted each time as a newarrival. **the first year to include visitor arrivals by air and by land. The numbershould be 6,219,432 (by sea only) if adjusted to exclude visitor arrivals by air andby land. The adjusted figure is used to calculate the annual growth rate. ***thefirst year included visitor arrivals at Pier No. 14 in the Interior Harbour. The num-ber should be 7,701,007 if adjusted to exclude visitor arrivals at Pier No. 14. Theadjusted figure is used to calculate the annual growth rate.
Sources: Anuario Estatistics, various issues; Boletlim Mensal de Estatistica, Feb-ruary 1999 issue.
The year 1997 marked a noteworthy turning point. The number of visitor arrivals fell by more than one million as the number of visitors from almost all areas significantly dropped. Japan, the fourth largest source of visitors after Hong Kong, China and Taiwan, in particular, saw the largest accumulated loss of 67.6 percent in the two-year period 1997 and 1998. The largest source of visitors from Hong Kong, also saw a notable drop in numbers due to the economic recession in Hong Kong and Macau's deterioration of public security due to the triad gangs and violence. On the other hand, the number of European and Chinese visitors rose slightly in 1998.
Macau's inbound tourism is highly concentrated. Visitors from Hong Kong, Taiwan and China account for about 90 percent of the total number.The growth of visitors from Mainland China and Taiwan has been particularly strong in the 1990s. The establishment of Macau international airport has contributed to the sharp rise of Taiwanese visitors since 1996. About half of the Taiwanese visitors were transients with Mainland China as their ultimate destination. In 1998, Macau-Taiwan traffic accounted for 56.7 percent of all arriving and departing flights of Macau International Airport. Visitors by air who were from Taiwan comprised 84.6 percent.
Notes: *The sharp increase in tourists from Mainland China in 1995 was due to the relaxation of the economic austerity policy in China. **Tourists from Hong Kong
have been classified as Chinese or British nationals since 1998 as the classification is amended to refer to the nationality information reported by the tourists.Chinese visitors, as a result, include tourists from Hong Kong.
Source: Estatisticas do Turismo, various issues.
The stagnation of tourist activities in recent years was also reflected in the poor performance of the hotel sector. Hotel occupancy ratio reached a low of 52.1 percent in 1997, before registering a modest rebound in 1998. It should be noted that the excess supply of hotel rooms has also depressed the ratio.Between 1988 and 1997, the number of hotel rooms increased by more than 130 percent while the number of visitors only increased by about 26 percent!
Note: *(number of occupied rooms ÷ number of available rooms) × 100.
Source: Estatisticas do Turismo, various issues.
Most visitors were excursionists from Hong Kong, who only stay in Macau for one day. Macau, which is only 60 km from Hong Kong, is always a favorite day-trip destination for those visiting Hong Kong. In 1998, only 29 percent of the visitor arrivals stayed overnight in Macau's hotels and guest houses. Most tourists stay in local hotels for less than two nights, while visitors from Europe and America tend to stay longer.
Other than the decline in visitor arrivals, the decreased spending by visitors is another unfavourable sign of tourism. Per capita non-gambling spending of non-Chinese visitors is now less than MOP1,000 (Table 7.4). Visitors from China, Taiwan and South East Asia tend to spend more than visitorsfrom other countries. Excluding gambling expenses, per capita spending of Hong Kong visitors is the lowest compared with other visitors. Visitors mainly spend on food, accommodation and shopping.
Unit: MOP
Note: *the first year to include Chinese visitors in the survey. The figure for 1996 does not include accommodation fee covered by package tour.
Source: Visitor Expenditure Survey of Estatisticas do Turismo, various issues.
Compared with inbound tourism, overseas travel by Macau residents is an insignificant business for the tourism sector. In 1998, local travel agencies arranged tours for 104,548 Macau residents. Over half of them joined the tours to Mainland China. Other favorite destinations included Thailand and Taiwan, while Europe and America were the least popular destinations having less than three percent share of visitors from Macau.
REASONS FOR STRONG GROWTH
Although the tourism sector has suffered a major setback in recent years,it continues to be the most important business sector in Macau. The tiny territory receives a large number of visitors every year, which is more than 16 times its population. Visitors spent MOP21 billion2 in Macau in 1998, which was equivalent to 38 percent of Macau's GDP (Table 7.5). According to the World Tourism Organization, Macau ranked 36th in the world3 in terms of the number of tourist arrivals4 in 1998, and was one of the top-10 tourist destinations in Asia. In terms of international transport-excluded tourism receipts,Macau's global ranking reached a higher place of 32nd.5 It accounted for 3.9percent of tourist arrivals in Asia, and 4.2 percent of tourism receipts in Asia in 1998.
Note: *Defined as "expenditure of non-residents" in national income accounting.
Source: Estimativas do Produto Interno Bruto 1982-1998.
Seven factors can explain the success of Macau's tourism sector. These are:
1. The casino attraction. Casinos have been a hallmark of tourist facilities in Macau since the 1960s. The Territory aptly deserves the moniker, "Oriental Monte Carlo". Forty one percent of visitors interviewed in the 1998 Visitor Expenditure Survey admitted that they had gambled in Macau.
2. Convenient entry policy. Over 90 percent of Macau's visitors are not required to apply for a visa in advance to enter the Territory. In recent years,the number of Taiwanese visitors has experienced a marked increase as Macau has provided a convenient entry procedure and a more economical way for Taiwanese transients to enter Mainland China. Taiwanese visitors are allowed to stay in Macau for 20 days, while Hong Kong's custom controls on them are relatively tight.6
3. Advantageous location. In view of the geographical proximity, many foreign and Chinese tourists come to Macau after visiting Hong Kong. Macau also shares tourist attractions with Hong Kong and Guangdong Province due to its advantageous location.
4. Strong income growth in the Greater China Region. Hong Kong,Taiwan and China, which are the main sources of visitors for Macau, have enjoyed a remarkable gain in incomes in the past two decades. The surge in incomes in the prosperous Region has stimulated the people's spending on tourist services.
5. Cultural and environmental attraction. Macau's unique historical background and Sino-Portuguese cultural features have attracted many west-ern tourists since the 18th century. The Territory has many valuable cultural heritages, which mark its status as China's first gateway to the outside world and one of Portugal's premier posts in its colonial domination in Asia. The completion of many heritage and museum projects in the 1990s has further strengthened Macau's cultural attraction to visitors.
6. Improvement in tourist facilities since the 1980s. All-night jetfoil transportation between Macau and Hong Kong has been available since 1990.The Macau International Airport commenced operations in November 1995.The number of hotels rose from 22 in 1988 to 43 in 1998,7 and the number of available hotel rooms increased from 3,365 in 1988 to 8,324 in 1998.
7. Strengthening in overseas promotion since the 1980s. It includes the establishment of Macau tourist information offices in major cities, participation in international tourism organizations and the promotion of Macau's entertainment and cultural events overseas.
THE DEVELOPMENT OF GAMBLING BUSINESS
The gambling business in Macau should be viewed as a sub-sector of tourism as most gamblers in the casinos are non-residents. In 1998, tourist spending, the dominant component of service exports in Macau's national income accounting, amounted to MOP21 billion, of which MOP14.6 billion or 70 percent was generated from gambling expenditures by non-residents.
The gambling business in Macau can be traced back to the 19th century.After the Opium War, Hong Kong eclipsed Macau and developed into a centre for China trade. To survive, Macau started to develop the gambling business.In the 1860s, there were over 200 fantan gambling houses in Macau. The Government levied gambling taxes, which generated more than ten thousand silver dollars of fiscal transfer to the Government in Lisbon. The gambling business was connected to the unsavoury coolie trade as the coolie brokerprocurers trapped Chinese manual labourers in gambling houses. In 1872,the Hong Kong Government adopted a policy to prohibit gambling, which further stimulated the growth of gambling business in Macau. Visitors started to nickname Macau the "Monte Carlo in the Orient".8
In 1937, the Macau Government, for the first time, granted the exclusive right to the Hai Hing Company of the Fu and Ko families. Hai Hing operated three casinos and initially paid an annual rent of 1.8 million patacas to the Government. In 1962, the S.T.D.M. won the franchise to operate the gambling business in Macau through an open tender. S.T.D.M.'s MOP3.167 million bid was just marginally higher than Tai Hing's MOP3.08 million bid. The founders of S.T.D.M. included the Fok, the Ho and the Yip families.9
The gambling business entered into a new era when the S.T.D.M. was not only required to pay taxes but also to fulfil re-investment and social obligations. Such obligations have directly promoted the modernization of the Macau economy. The gambling monopoly has contributed to all major infrastructural projects in Macau such as the international airport, the Ka Ho deep-water port, the second Macau-Taipa bridge and the Nam Van Lake project.S.T.D.M.'s annual income has increased rapidly from about MOP0.6 billion in the late 1970s to over MOP17 billion in the middle of 1990s. Its consolidated net profit was reported to be MOP1.8 billion in 1998.10 The company is estimated to contribute to over half of government revenue11, and to employ directly over 10,000 people in Macau.12
S.T.D.M. also participates in all non-casino gambling businesses in Macau, including the Macau Jockey Club (horse-racing), the Macau (Yat Yuen)Canidrome Co. Ltd. (greyhound-racing), lottery (pigeon lottery and tombola)and football betting,13 which are relatively less important and estimated to account for less than 20 percent of the total gambling income. Macau Jockey Club has been the most successful non-casino gambling business in recent years. It was established in 1989 and taken over by the S.T.D.M. in 1991. In the 1997-98 racing session, the betting turnover amounted to MOP3.4 billion.The Macau Horse Racing Company was reported to have profited MOP106 million in 1998.
CURRENT CONTRACT FOR CASINO FRANCHISE
Under a contract signed in 1996, S.T.D.M.'s current franchise has been extended to 31 December 2001. The casinos are allowed to provide 25 types of games in nine locations. Other than the regulation of tax payments, the franchise contract contains a list of obligations. The franchise holder has already met some of the obligations in the past few years. Several minor amendments have been made in recent years, and the key elements of the current contract are highlighted as follows:
(a) No more than 25 percent of S.T.D.M. shares are allowed to trade on public stock exchanges such as the Hong Kong Stock Exchange.
(b) The franchise holder is required to pay an annual "premium" payment of MOP150 million to the Government.
(c) It is required to pay the gambling concession tax or "rent of the concession of exclusiveness", which is charged at the rate of 31.8 percent of gross receipts. Another 1.8 percent of gross income is paid as part of the concession tax, which should not be less than HKD400 million. The amount of an-nual gambling concession tax should not be less than MOP1.1 billion. The tax is paid in Hong Kong dollars, though the governor has the right to require the S.T.D.M. to pay 40 percent of the tax in patacas.
(d) It is required to pay an annual compensation tax or "compensation of the concession of exclusiveness". The amount was fixed at MOP5.8 million in 1998. The tax payment is adjusted upwards by 10 percent every year.
(e) The company is exempted from direct taxes. In particular, casino facilities and other capital goods are exempted from import (consumption)taxes.
(f) The S.T.D.M. is obligated to maintain the marine transport between Macau and Hong Kong. Its ferries and jetfoils are required to undergo repairs and maintenance in government shipyards.
(g) The franchise holder is required to share the responsibility of promoting Macau's tourism and business and the expense of Macau's overseas economic and tourist information offices.
(h) It is responsible for 50 percent of Macau's European Union office expenditures in Brussels, with a contributing ceiling of MOP800,000.
(i) It is required to contribute 1.6 percent of its gambling proceeds to a foundation for academic, cultural, scientific, educational, community and charity activities, following an one-off contribution of MOP180 million.
(j) Once the franchise expires, Hotel Lisboa and all casino facilities there should be taken over by the Government without compensation.
(k) The franchise holder is required to cooperate with the AMCM in maintaining the internal exchange balance of Macau.
(1) It is required to maintain a fund of no less than MOP30 million at any time for the purpose of guaranteeing the fulfillment of all its obligations.
(m) It is required to contribute MOP50 million to establish a social security fund for the unemployed.
(n) A fixed percentage of income should be allocated for the improvement of casino facilities and staff training, in order to maintain a world-class service standard.
(o) It is required to participate in constructing a new ferry terminal in the outer harbour area. The maximum contribution is MOP100 million and the company has the prestige to operate the commercial area in the terminal.
(p) It is responsible for clearing and drudging the harbour to guarantee the high degree of transport quality.
(q) It is responsible for the infrastructure and urbanization construction in the outer Harbour reclamation area. The S.T.D.M. has the right to utilise the reclamation area with rent exemption.
(r) It is required to contribute MOP1 million to the purchase of a sightseeing junk.
(s) It is required to participate in an urban development project in Taipa.
(t) It is required to pay 50 percent of the cost of the cultural centre construction project with a maximum contribution of HKD400 million.
In this respect, these conditions could be divided into three aspects:(b)-(e) are related to franchise taxation. (f)-(m) can be classified as other obligations while (n)-(t) could be grouped as re-investment commitments.
POTENTIAL THREATS
Until the first half of the 1990s, Macau's tourism sector basically achieved at a stage of constant advancement. In 1996, Macau received over eight million visitors. After then, growth in the momentum of the sector has obviously eased. Five variables continue to pose uncertainties to the Territory's most important tourist activities:
1. Economic downturn in the aftermath of Asian Financial Crisis. The growth trend of the Greater China Region has showed apparent signs of slowing down after the Asian Financial Crisis of 1997 and 1998. People from the Region, which are a major source of Macau's visitors, would be less enthusiastic about spending until the economic recovery gathers enough momentum to bolster consumption propensity.
2. A direct transport link between Taiwan and Mainland China. It will significantly reduce the number of Taiwanese transients. The implementation,however, is basically determined by political factors or cross-strait relations.
3. Relaxation of entry policy for Taiwanese by the HKSAR Government. In 1998, Hong Kong relaxed the entry regulation for Taiwanese. Transit-to-China visitors from Taiwan are now allowed to stay in Hong Kong for seven days without applying for a visa in advance. Further relaxation is said to be underway. Furthermore, the recent improvement of transport links between Hong Kong and the western part of Pearl River Delta has downgraded Macau's geographical advantage.
4. Poor public security. There is still no obvious sign of reduction in the crime rate. Shootings and bombings, if remained unchecked, will certainly undermine public confidence and dampen the tourist industry. Some doubts still linger over the Macau SAR Government's capacity to tackle the gangster problem.
5. Loss of casino attraction. According to the Visitor Expenditure Survey of Estatisticas do Turismo, 20.2 percent of visitors came to Macau for gambling purpose in 1990. The percentage dropped to 10.8 percent in 1998. Itimplies that Macau has to create some non-gambling facilities to attract visitors in response to the change in visitors' taste. Meanwhile, the decline in the attractiveness of the local casinos is partly attributed to the increased competition from neighbouring countries and the slow improvement in services. As S.T.D.M.'s franchise will expire on 31 December 2001, Macau will shoulder the risk in the process of reforming the core part of the gambling business.
The first three variables are externally determined, and over which Macau has little or no influence or control. Positive developments of the internal environment, however, will cushion any possible downturn stemming from external shocks in the coming years. To conclude, there is room for further growth with regard to Macau's tourism, provided that the public security is significantly improved and a competitive reform in the gambling sector is effectively implemented.14
NOTES
1 Strictly speaking, "visitors" and "tourists" are not interchangeable. The United Nations and World Tourism Organization define tourists as overnight visitors "who stay at least one night in a collective or private accommodation".
2 It is export of tourist services.
3 China ranked 6th and Hong Kong ranked 18th.
4 Excluding same-day visitors, see Note 1 of this chapter.
5 China ranked 7th while Hong Kong ranked 15th.
6 The Hong Kong Government's simplification of custom procedures for permanent residents traveling to Macau in 1987 has also been claimed as a boost to tourist arrivals from Hong Kong. See Wong (1998).
7 The number of 3-star, 4-star and 5-star hotels increased from nine to 26 during the period.
8 Macau's gambling business remained a grey area as Portugal prohibited gambling in 1896. It was finally "legalized" in February 1961 when Lisbon defined gambling as "a special entertainment in the tourist area of Macau".
9 In 1982, Yip Hon sold his shares to Y.T. Cheng of the New World Group in Hong Kong.In the late 1980s, Teddy Yip, another founder of the S.T.D.M., sold his shares to another Hong Kong entrepreneur, Winnie Ho.
10 See Macao Daily News, 23 July 1999.
11 After adjustment to exclude the offsetting autonomous bodies receipts.
12 The S.T.D.M. and its associated companies are reported to "employ directly or indi rectly 30 percent of Macau residents". See Tan (1999).
13 The S.T.D.M. took over Yat Yuen in 1984 and started football betting in 1998.
14 Further discussion about the prospect for Macau's tourism sector is in Chapter 11.
