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Business

Philippine casinos, economy squeezed by China slowdown

Solaire Resort & Casino in the Manila Bay area, like most other casino resorts in the Philippines, is seeing fewer rich Chinese guests these days.

MANILA -- The Philippines' crucial casino industry has hit a losing streak. It relies heavily on high-rollers from China, but their ranks have been thinned recently by China's economic slowdown and a crackdown on corruption by the country's president, Xi Jinping.

     All major casino operators in the Philippines reported losses or profit declines in their latest earnings reports.

     The downturn in the casino industry is a heavy blow to the country's tourism-dependent economy. The Philippine gaming industry will have to reassess its strategy, but it may be able to learn from Macau, Asia's gambling capital, which is working to enhance its value as a tourist destination.

Busted flush

Philippine President Benigno Aquino's administration has worked hard to support the casino industry, which it regards as critical to the economy.

     The centerpiece of the administration's strategy is Manila Bay Entertainment City, a big development designed to turn a huge tract of reclaimed land in the Manila Bay area into a leisure and entertainment center similar to Las Vegas in the U.S. Already two large casinos have opened in the area and two more are under construction.

     But the casinos are struggling. Melco Crown Philippines, a local unit of Melco Crown Entertainment, Hong Kong's casino operator, lost 6.08 billion pesos ($129 million) in the first nine months of 2015, widening its net loss from the same period last year. In February, the company opened City of Dreams Manila, but the mammoth casino and entertainment complex in the Manila Bay area has not done much to boost the company's bottom line so far.

     A complex built by gaming company Bloomberry Resorts in Entertainment City, which opened in 2013, also fell into the red during the January-September period.

     Travellers International Hotel Group, another major casino operator, which is partly owned by Genting Hong Kong, saw its net profit fall 29% to 2.83 billion pesos during the same period. The group operates Resorts World Manila, a gambling and entertainment complex close to Ninoy Aquino International Airport. It plans to open a new Resorts World casino in the Manila Bay area.

Come play, please

The Aquino administration bet heavily on continued growth in the tourism industry, confident that Chinese tourists with plenty of cash to lay down at the casino tables and on other types of fun would keep coming. But a weakening Chinese economy and Xi's relentless anti-corruption drive have scared away many.

    China's own gambling center, Macau, has the same problem. To keep its economy afloat, it has been focusing on creating new, non-gambling tourist attractions such as theme parks.

     The Philippine economy, supported by a population of 100 million and a growing middle class, is much larger than Macau's. Its casinos are drawing more domestic guests. But the gaming halls cannot cover their personnel costs without big spenders.

     In addition to Resorts World, Universal Entertainment, a Japanese manufacturer of gaming and entertainment equipment, is building a large casino in the Manila Bay area. With an upswing in well-heeled Chinese visitors unlikely anytime soon, these and other operators are under growing pressure to come up with new ideas to pull in tourists from other countries.

     The Philippines has the second-largest population in the Association of Southeast Asian Nations, after Indonesia. But the country's economic growth has been hampered by a dearth of internationally competitive industries, such as manufacturing. Developing the labor-intensive tourism industry is therefore crucial to stoking economic growth.

     The Philippine economy is currently in fine shape, growing at an annual rate of around 6%. But the country's expansion is powered by consumer spending, which accounts for 70% of gross domestic product. Consumer spending has been rising, along with incomes among young workers in the service sector, especially call centers and business process outsourcing companies.

     With its population growing by 2% a year, the Philippines needs to create 1 million new jobs annually to keep unemployment in check. But the business process outsourcing industry alone cannot create enough new jobs, forcing many young workers to seek their fortunes abroad.

     Casinos are vital to the country's economic health because they create so many jobs. One large resort employs several thousand people and produces big spillovers for related businesses. If the government fails to help the casinos regain their footing, the country's economy may run out of cards to play.

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