Identifier
Created
Classification
Origin
09HONGKONG331
2009-02-23 10:50:00
CONFIDENTIAL
Consulate Hong Kong
Cable title:  

MACAU OFFICIALS NOT WORRIED BY SLOWING ECONOMY

Tags:  ECON EFIN PREL MC HK CH EINV 
pdf how-to read a cable
VZCZCXRO9659
RR RUEHCN RUEHGH RUEHVC
DE RUEHHK #0331/01 0541050
ZNY CCCCC ZZH
R 231050Z FEB 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 6944
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 000331 

SIPDIS

STATE FOR EAP/CM AND EEB/IFD, TREASURY FOR OASIA AND OTFI

E.O. 12958: DECL: 02/20/2019
TAGS: ECON EFIN PREL MC HK CH EINV
SUBJECT: MACAU OFFICIALS NOT WORRIED BY SLOWING ECONOMY

REF: A. HONG KONG 92

B. HONG KONG 164

Classified By: Consul General Joe Donovan, Reason 1.4 b/d

C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 000331

SIPDIS

STATE FOR EAP/CM AND EEB/IFD, TREASURY FOR OASIA AND OTFI

E.O. 12958: DECL: 02/20/2019
TAGS: ECON EFIN PREL MC HK CH EINV
SUBJECT: MACAU OFFICIALS NOT WORRIED BY SLOWING ECONOMY

REF: A. HONG KONG 92

B. HONG KONG 164

Classified By: Consul General Joe Donovan, Reason 1.4 b/d


1. (C) Summary: Macau's economy shrank in the last three
months of 2008 as casino receipts fell for the first time
since 2002. Despite poor prospects for early 2009, Macau's
massive official reserves will allow the government to
increase spending and keep Macau's official unemployment rate
around the current three percent. Casino revenues are being
squeezed by the general economic slowdown, not visa
restrictions, said Macau economists and bankers. Most banks
in Macau are in good shape, having avoided most exposure to
complex investment products, and the small size of Macau's
market makes it easy to determine customer credit-worthiness.
With Macau's export industries all but gone, the government
is eager to turn Macau into an entertainment and service hub.
Mainland Chinese investors have focused on speculative
property purchases; job-creating investments in entertainment
and services tend to come from foreign or Hong Kong
investors. End Summary.


2. (C) Comment: Macau's economy is likely to contract in
2009 as high-rollers, who account for 70 percent of Macau's
gaming revenue, are unwilling or unable to risk their cash at
the tables. Our non-gaming interlocutors, both in the public
and private sectors, seemed sanguine, even relieved. Macau's
economy has boomed since the gaming market was liberalized in
2002, with 2007 growth reaching 27 percent and tourist
arrivals increasing from eight million in 2002 to 30 million
in 2008. The increasing numbers of tourists and foreign
workers have strained Macau's infrastructure and government
capacity. The Central Government has been urging Macau to
diversify its economy away from gaming, but PRC Vice
President Xi Jinping's January visit to Macau highlighted the
lack of productive Mainland Chinese investment in Macau. End
Comment.

=============================================

Macau's Economy Slows as Gaming Revenues Fall
=============================================


3. (SBU) Macau's economy shrank in the fourth quarter of 2008
as gaming receipts fell from the previous quarter for the
first time since Macau,s gaming market was opened to foreign
investment in 2002. Although official statistics have not
yet been released, Financial Services Bureau Director Orieta
Lau said negative fourth quarter growth lowered Macau,s 2008
economic growth rate to 12 percent. Gross gaming revenue
fell seven percent in the fourth quarter to 24.38 billion MOP
(US$ 3 billion). January's gross revenues were just 7.2
billion MOP (US$ 900 million) despite the normally busy Lunar
New Year period.


4. (C) Macau Monetary Authority (known by its Portuguese
acronym "AMCM") Chief Economist Benjamin Chan noted that
first quarter economic activity in Macau is expected to fall
further and predicted Macau,s economy would shrink in 2009.
Chief Executive Edmund Ho has chaired several meetings, said
Chan, to discuss the government's response. Additional
government spending is planned to compensate for falling
investment and consumption. Several years of massive revenue
collection as the gaming industry took off in Macau allows
the government to easily boost its role in the economy. 2007
revenues were double Macau,s government expenditures, and
the 2008 surplus is expected to be even bigger. According to
Chan, the government could spend at current levels for three
years, even without any new revenue.


5. (SBU) The Macau Special Administrative Region Government
(MSARG) will increase infrastructure-related spending by 30
percent in 2009, said Lau, in an attempt to ease unemployment
in the construction sector. Both small public improvement
projects and large-scale infrastructure projects will receive
rapid approval in the coming year. The MSARG is also
considering MOP 8,000 (US$ 1,000) tax rebates to Macau
residents and has announced the opening of
government-sponsored food banks for low-income households in
Macau, to subsidize the poorest residents.

=======================================
Macau's "Vanilla" Banking System Stable
=======================================


6. (C) Macau,s small banking sector is still in relatively
good health, despite the global economic slowdown. Most of
the banks in Macau are subsidiaries of large international
banks and are engaged in "vanilla" banking services,

HONG KONG 00000331 002 OF 003


according to Herculano Da Sousa, Chairman of Banco Nacional
Ultramarino (BNU),one of Macau,s most prominent banks.
Macau,s small size means that it is easy to judge borrowers'
repayment capability. With most job losses borne by foreign
workers for now, Macau residents and businesses remain a good
risk. The exception is Banco Delta Asia, which continues to
struggle along with AMCM forbearance, despite having capital
adequacy ratios that would force it to close in other
jurisdictions, said Da Sousa. BNU is the local bank for four
of the six gaming concessionaires in Macau: LVS
(Venetian-Sands),MGM, Wynn, and PBL-Melco (Crown). Casino
cash revenue should be enough to fund the current obligations
of these companies, he said, and there is very little risk of
default. Housing lending is slowing, said Da Sousa, and
certain sectors, including construction sub-contractors, are
no longer borrowing, but credit continues to expand. Chan
agreed, noting that SME credit applications have increased
since the government announced it would guarantee 50 percent
of SME loans. The non-performing loan (NPL) ratio in Macau
is just 0.9 percent.

=========================================
Slow Growth Looks Good to Macau Officials
=========================================


7. (C) Macau officials are happy to see slower growth in the
gaming sector, said Chan. He discounted claims that relaxing
visa restrictions for Chinese tourists would boost Macau,s
economy. As Chinese high rollers are affected by the
economic slowdown, they are less likely to be able to afford
to gamble, he said. The junket operators who provide credit
to these players are reportedly requiring increased
collateral and some are even going out of business. These
players are unlikely to return to Macau until the economy
recovers, regardless of the visa regime in place. As long as
the gaming sector can continue to generate revenues of
roughly seven billion MOP per month (US$ 875 million),the
casinos should be fine, according to Chan. The pace of
gaming growth in Macau has been too rapid, he said, putting
pressure on Macau,s limited infrastructure, the capacity of
government regulators, and the social fabric of Macau. In
addition, the massive investment in the gaming sector has
crowded out investment in other areas. During his recent
visit to Macau (reftel A) Vice President Xi Jinping
reiterated the PRC Central Government's call for Macau to
diversify its economy. As the gaming market slows, other
sectors may begin to attract resources, Chan said.


8. (C) Da Sousa, however, disagreed. A small city like
Macau can afford to base its economy on tourism and
entertainment, as long as it has a large fiscal cushion to
support it when times are tough, he said. Da Sousa agreed
with AMCM's Chan that relaxing Chinese visa restrictions
would have little affect on declining gaming revenues until
the global economy recovers. Macau's export production
capacity is virtually gone and is unlikely to return, said Da
Sousa. Since the end of the Multi-fiber Arrangement in 2005,
Macau's textile and garment industry has been shrinking.
BNU's export-oriented manufacturing customers have almost all
gone out of business. The government will provide additional
support to Small and Medium Enterprises (SMEs) still
producing for export, but it cannot provide enough funding to
turn this sector around. The MSARG has been trying to
develop higher value added services in Macau, but Macau
cannot compete with Hong Kong in these areas, he said.

============================================
Mainland Chinese Investment Lacking in Macau
============================================


9. (SBU) Vice President Xi's January visit highlighted the
relative lack of mainland Chinese investment in Macau.
According to Da Sousa, Chinese investors are coming to Macau,
but only to invest in property. Without a gaming license, it
is difficult to justify investments in entertainment or
tourism-related businesses, he said. Mainland Chinese
companies are conspicuously absent in the list of
job-generating investments in the entertainment or service
industries in Macau. Executive Director of Macau,s Trade
and Investment Promotion Institute (IPIM) Echo Chan confirmed
that despite spending some 70 percent of its time courting
investors and promoting Macau,s SMEs in China, relatively
few Chinese investors have put their money into job-creating
enterprises in Macau. Efforts to establish cross-border
export processing zones have not been very successful.
Foreign or Hong Kong-based investors seeking to open
franchise operations in Macau, produce for Chinese tourists,
or use Macau as a base to get into the Chinese food and
beverage market seem to be having more success.

HONG KONG 00000331 003.2 OF 003


DONOVAN