Opinion – Double cushion

The Macau economy has the characteristics of an economic enclave, with several unique features. It has both separate legal and financial regimes that set it apart from the mainland. It benefits from a legal monopoly for gambling in all of China.

It has a comparatively small population and is subject to population controls that set it as a quasi-foreign region. Altogether, those characteristics make it a singular case.

On favourable times, the economy rises naturally with the tide and gets a windfall of income. In bad or not so good times, residents benefit from two significant buffers. First, the protection provided by the financial reserves amassed in the good years. Second, is the precariousness of the non-resident workers’ labour bonds.

The first buffer allows the government to give back part of the taxes collected in previous years, without suffering much financial hardship. Take, for instance, the deficit forecast for the current year. It will require the usage of the financial reserves for the first time since the gambling boom got in motion in 2004. Yet, last year’s surplus alone is enough to cover the expected tax revenue shortcoming. 

Traditionally, the government forecast errs on the side of significant conservatism. We will see if that will also be the case in these very peculiar times. The economy is getting a battering, no doubt. All the businesses that depend substantially on the actual flows of visitants will suffer while waiting for visitors’ flows to resume in significant numbers. Until then, the number of closures will only increase.

Casinos, the mainstay of the fiscal revenue and public finances vigour, may recover more quickly if conditions in China improve significantly. But it all hinges on the recovery of the Chinese economy, and it is too early to gauge what will be its post-Covid recovery path.

The second buffer means that the significant labour casualties will be found among non-residents. They will be in the first line for dismissal and will not even become unemployed – at least not in Macau.

If dismissed, they will, as a rule, leave the territory and the labour force. The locals benefit, thus, from increased protection of their jobs, which are spared for longer and benefit from higher social security protection. 

That does not mean the public reserves can cover for all the impacts and replace a normally functioning economy. That one cannot return too soon.