IAG takes a look at the financial woes negatively impacting Macau’s SMEs and the factors contributing to the issue, including the collapse of the VIP junket industry.
If you wander the streets of Macau’s residential areas, it is not difficult to observe a number of vacant shops. More accurately, some businesses that have been operating for over 20 years in the city have recently announced their closure. The business environment for small- and medium-sized enterprises (SMEs) is vastly different to that of the tourism industry. What has happened to Macau’s SMEs?
Hou, who runs a dried seafood shop in the northern district, admits that he can clearly feel the changes in the local business environment. In his area, there has been a vast closure of shops in recent times.
“I’ve been living here for over 20 years, and it’s the first time I’ve seen this situation,” he remarked.
Hou is not optimistic about the current economy.
“The income of residents has become less, and this has impacted the sales of products like ours (dried seafood) that are not daily necessities,” he added.
Data from the Macau Statistics and Census Service in March shed light on the predicament of the local food and beverage and retail industries. In January this year, revenues in the food and beverage sector decreased by 10.2% compared to the previous year. The revenues of Japanese and Korean restaurants and Chinese restaurants further plunged by 30.6% and 21.7% respectively. The retail industry’s revenues also saw a year-on-year decline of 29.3%.
Some critics suggest that the deteriorating business environment for SMEs is due to a new policy – the Northbound Travel for Macau Vehicles scheme.
The policy of Northbound Travel for Macau Vehicles was launched on 1 January 2023, allowing a daily limit of 2,000 vehicles from Macau to enter Guangdong Province. As of 11 April 2024, the number of applications for entering Guangdong province has reached 55,958. This figure means that for every two vehicles in the city, one has already applied for qualification to travel across the border.
Lok, who had been running a restaurant in the northern district for over seven years, chose to wind down the restaurant’s operation last year. “With the recurring outbreaks of the COVID-19 pandemic, my savings were almost depleted,” he revealed. “The introduction of the policy of Northbound Travel for Macau Vehicles further dampened my business.”
In addition to the Northbound Travel for Macau Vehicles, the Macau government has been streamlining procedures and measures for cross-border travel with mainland China in recent years. Measures such as the joint inspection by authorities from the two jurisdictions and iris recognition have been implemented at border terminals between Macau and mainland China, making it easier for Macau residents to travel across the border.
These were originally a series of measures benefiting the integration of Macau residents into the Guangdong-Hong Kong-Macau Greater Bay Area. However, for Macau SMEs, these policies have become a double-edged sword – they facilitate local residents’ northbound travel but also result in more locals consuming on the mainland.
“This policy is highly unfavorable for running a business in Macau, as it greatly facilitates consumer spending across the border. Moreover, the income of Macau residents has not returned to the past levels,” Lok stated.
Spending in the mainland is undoubtedly cheaper than in Macau, and in this relatively challenging economic environment, Macau residents are opting for more cost-saving consumption options, he added.
Hou also pointed out, “I’ve seen many residents traveling to the mainland for consumption, especially those in the northern district near the Gongbei Port. This change is conspicuous.”
The convenience of traveling to the mainland for consumption and the recent economic changes in Macau have accelerated the trend of Macau residents opting for cheaper consumption choices.
Between 2022 and 2023, the United States underwent the largest interest rate hike cycle in nearly three decades as a result of measures tamping down inflationary pressures. The interest rate hike cycle has lasted for over a year. Macau’s prime rate also underwent seven adjustments, increasing from 5.25% to 6.125%.
In a high-interest rate environment, residents face increased mortgage pressure, while more people make deposits into banks to earn high-interest rates on their cash. This has reduced their inclination for high-consumption lifestyles.
Another major factor is the dramatic transformation the Macau gaming industry has undergone in the past three years, resulting in a domino effect for Macau’s SMEs.
On 11 April, Macau legislator Jose Pereira Coutinho described Macau’s SMEs as experiencing a “slow death”, which he said was linked to the termination of the VIP gaming room model in the local gaming sector. “There are numerous reasons for the rapid closure of many SMEs, including the recent drastic changes in the gaming industry,” he claimed.
“We will see more SMEs, especially in the food and beverage sector, shut down due to the ‘slow death’ of casino junkets and VIP room business. This will further increase unemployment.”
Lok agreed with this viewpoint, stating, “The closure of VIP rooms certainly has an impact. All segments in the economy are interconnected, and when consumers cannot make enough money, why would they consume and spend?”
Hou also stated, “Before the pandemic, there were customers from the gaming segment who would buy expensive goods. But it doesn’t happen anymore.”
Regarding the solution to the problems faced by SMEs, there are numerous opinions within Macau society. Some suggest that the government should distribute “consumption cards” once again, while others propose that the government should increase efforts to ensure support of SMEs by gaming concessionaires.
Nonetheless, with the evolving macro environment and other factors such as northbound consumption by Macau residents, the problems of SMEs cannot be solved with talk alone. Practical solutions and actions are needed, or else the gloom of uncertainty lingering over SMEs will persist.
