Hong Kong Missing Out on Macau Boom

Hong Kongers like to feel superior to vice-ridden Macau. It is time to get over that because when it comes to tourism development, Hong Kong has a lot to learn from its neighbor

Here is a tale of two cities that will gladden the hearts of believers in free markets. In one city the government has poured billions of dollars into building tourist attractions and been rewarded with a modest increase in visitor arrivals, in the other the government has hardly dipped into its budget but allowed the private sector to do all the heavy lifting and has seen tourism expand by a breathtaking degree.

The two cities are China’s special administrative regions of Hong Kong and Macau. Last year Macau received 21.99 million visitors, setting a new record and registering a 14.6 per cent increase over the previous year. Hong Kong, meanwhile, saw visitor arrivals rise to 25.2 million, an increase of 7.5 per cent over 2005. Meanwhile in the first month of this year visitor arrivals in Hong Kong contracted by 1 per cent while Macau’s arrivals soared by 22.7 per cent.

It is dangerous to read too much into a single month’s record but the trend is clear – Macau is outpacing Hong Kong’s visitor business by a healthy margin.

There is no mystery why this is happening; Macau’s visitors are lured by the growing number of casinos and little else. Hong Kong, on the other hand, has decided to stay out of the casino business and invested heavily in theme park attractions such as Disneyland, a refurbished Ocean Park, and a wetlands park, which is taps into growing interest in eco-tourism.

The golden thread linking all of Hong Kong’s attractions is that they are the products of public investment. As a result, allegedly free market Hong Kong is the proud owner of the world’s only nationalized Disneyland. Total government investment in this project amounted to just under $3 billion.

Over in Macau there is no need for the government to spend a cent on developing casinos. On the contrary, international companies are lining up to pour cash into new gaming houses and big American investors like the Sands and Wynn corporations are already seeing good returns on their money. And the taxes they pay are swelling government coffers to a level where the Macau treasury is awash with funds.

Of course, Macau has long been engaged in the gambling industry but its development was severely constrained by two factors. The first was a 40-year monopoly arrangement that confined all casino development to companies run by the Hong Kong-based mogul Stanley Ho. This ended in 2002 and by the simple expedient of not renewing Ho’s exclusive franchise, the floodgates of competition were opened and new investors poured in, led by the Las Vegas casino operators, later joined by Australia’s Packer companies. Now Richard Branson’s Virgin group is trying to find a seat at the table.

The second constraint on the development of Macau’s visitor business came from China, which had previously exercised heavy controls on permits for its citizens to travel to both Macau and Hong Kong. These controls have been steadily eased and mainland China now provides more than half of the visitors to Macau, a percentage which is rapidly growing.

Hong Kong has taken a principled decision not to enter the casino business, despite some political pressure for it to look at the idea. It is not entirely clear why the Hong Kong government is so keen to keep out casinos, when even strait-laced Singapore is forging ahead with plans for what might be described as a casino-lite operation and other governments in the region are seriously thinking of joining the gaming bandwagon.

One reason why Hong Kong may resist rolling the dice is that it is constrained by the government in Beijing which is said to have decreed that casinos are the preserve of Macau and that Hong Kong should not compete. This assertion, like many of those concerning edicts from the Chinese government, is hard to prove because relations between the central government and its SARs are not conducted in a transparent manner.

However it is hard to understand why Hong Kong has been so adamant in its refusal to join the casino bandwagon. Around a third of the visitors to Macau come from Hong Kong and practically all of them head straight for the gambling tables. In Hong Kong itself gambling is far from being banned; on the contrary the government has given the Jockey Club what amounts to an official monopoly on gambling that extends not just to horse racing but also to betting on overseas football matches. It would therefore be hard to claim that Hong Kong has a moral objection to gambling.

It may be argued that Hong Kong wishes to escape the attendant dangers of criminal activity and gang warfare which were particularly evident ahead of Macau’s formal reversion to Chinese sovereignty in 1999. In Macau, no one seriously believes the gangs have gone away but at least they have stopped fighting it out in the streets. Hong Kong has reason to suspect that the close relationship between casinos and organized crime could be a problem but it can also look to places like the United States where decisive action has done much to diminish this relationship.

Meanwhile there is still plenty of space for casino growth in Macau. Last year gaming revenues in Macau exceeded those of Las Vegas for the first time ever. It hosts 24 casinos and more are being built by the day. With casinos not permitted on the mainland and gambling, at least in theory, outlawed altogether, the market is seemingly endless. .

Hong Kong residents have long seen Macau as a junior and slightly inferior relative; it was assumed that it would remain in the shadows while the former British colony roared ahead. It remains the case that Hong Kong’s economy is far more developed and infinitely more diverse than that of Macau but in the tourism sector the former Portuguese enclave looks set to finally pass Hong Kong this year.

Hong Kong’s answer is to invest more of the public’s money in projects it thinks will attract tourists. While it does so the territory is getting a bad press in the mainland not just for high prices but for the way that Chinese tourists are treated when they come, as most of them still do, on group tours and are led to special shops charging inflated prices, supplied with inferior buffet meals and generally herded around the place in a manner that belies Hong Kong’s claims to be an open and free city.

Originally posted 2007-03-08 11:52:55. Republished by Blog Post Promoter

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