Finding Balance

Government lending to Small and Medium Enterprises (SMEs) in 2015 was down by nearly half compared to the previous year, from MOP304 million to MOP177 million. In fact, Macau’s GDP contracted by 20.3 per cent in real terms in 2015. Though gambling revenues are dropping, capital investment, private consumption expenditure, and government final consumption expenditure have all increased year-on-year (2.5 per cent, 7.2 per cent and 12.3 per cent respectively). This means the government is spending more to compensate for slower economic growth.
So why is lending down? It is possible that the government is allocating less capital resources to SMEs – defined as companies with less than 100 employees – but it has, nevertheless, implemented a range of incentives and financial support mechanisms overseen by different agencies – IPIM, the Cultural Affairs Bureau, Cultural Industries Fund – which provide financing schemes of various sizes: direct funding, credit guarantees for bank loans, zero-interest loans, and so on. Though attractive in principle, these schemes have been criticized as ineffective in practice: excessive red tape and lack of timely responses to loan demands have seen many SMEs go out of business or fail to get off the ground at all.
Macau’s economy is service based. Close inspection of official statistics over the last twenty-or-so years reveals that manufacturing activities – textiles and fireworks, mostly – have shrunk as gambling and related sectors have become an ever-larger fraction of the economy. To be sure, China’s economic opening in the 1980s made cheap and abundant labour readily available, and industrial production shifted across the border. Despite declining revenues, gambling remains profitable, but this is mainly due to the lack of competition in the mainland, where it has been banned since 1949.
Yet the corporate versus family-owned, small-scale business models typical of SMEs, are not entirely antagonistic. Indeed, SMEs account for 90 per cent of registered companies in the city. Though I wouldn’t go as far as saying they always coexist harmoniously – clearly the gambling boom and skyrocketing real-estate prices have exerted intense pressure on SMEs – there is room for both to operate, it seems. While catering to their own markets, SMEs have also started engaging with the enormous casino sector. Melco Crown, Galaxy, and Wynn, for instance, have all established partnership schemes with SMEs. Whether or not these will succeed remains to be seen. But if the government is less than fully committed, the corporate sector is filling gaps of opportunity for diversification.