Macau's economy slumps 17% after anti-corruption drive

Macau's economy slumps after anti-corruption drive
Macau's economy slumps after anti-corruption drive

Talk about a bust. Macau's economy shrank by a whopping 17.2% in the fourth quarter of 2014, according to the Chinese territory's statistical agency.

Gross domestic product for the year was also negative, declining by 0.4% as Beijing's anti-corruption campaign scared visitors away from the gambling mecca.

Macau, like Hong Kong, is a Special Administrative Region of China. It is also the only place in China where gambling is legal. Since 2002, its casino industry has grown into a $45 billion heavyweight, roughly seven times bigger than Las Vegas.

But now gamblers are staying home.

In addition to China's anti-corruption drive, visas are in short supply, and some gamblers are upset by a new ban on smoking in Macau's casinos.

Last June, revenue growth at the casinos turned negative, sparking worries that the territory's gold rush was coming to an end.

Despite continued warnings, the territory has failed to diversify its economy beyond gambling, leaving it heavily exposed to the risk of an industry downturn.

Macau's winning streak comes to an end
Macau's winning streak comes to an end

More than 80% of government revenue comes directly from the casinos. When the industry booms and tax revenue jumps, residents -- most of whom are employed in the business -- receive payouts from the government.

Baccarat is the prime attraction in Macau, where the game accounts for the vast majority of tables. The average minimum bet at non-VIP tables is around $250 -- far beyond the reach of casual gamblers.

In an effort to diversify, Macau is working to boost its entertainment and leisure options, which lag far behind the glitz, glam and family fun offered in Vegas. The idea is to offer guests a more complete resort experience.

Some developers have taken note, and are planning new malls and theaters.

But more could be done, especially as other regional gambling destinations take aim at Macau. Casinos in Cambodia, Vietnam and the Philippines are all working hard to attract Chinese gamblers.

Analysts at Fitch Ratings said they expect revenue growth to resume in the second half of the year -- and insist that Macau is still a good bet.

"While the recent operating declines are concerning we are encouraged by the fact that the long-term fundamentals for the higher-margin, lower-volatility mass business remain intact," the ratings agency said.

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