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China’s Exploding Middle Class Set to Shape Asia’s Casino Gaming Landscape (Infographic)

Tourism statistics from the past decade indicate that there has been an exponential growth in the number of outbound trips from China. While a growth of a massive scale is always attributable to a complex set of factors, it should be noted that the country’s exploding middle class and its growing income has certainly been one of these important factors.

China’s middle class is growing bigger at a rapid pace and is spending a larger and larger portion of its disposable income to travel abroad. As a result, developers of integrated resorts with casino floors have spotted the opportunity to capitalize on the improving financial state of that particular demographic group and are gradually focusing their attention on catering to its representatives.

The latest infographic by Casino News Daily contains important figures about China’s outbound tourism and its accompanying report explains how the country’s middle class has turned into a major consumer power in the Asia-Pacific region and why it might be poised to become the main customer group of integrated resorts in that same region.

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China’s middle class is bigger, richer, and more consumption-oriented than ever. And in the context of the gambling industry, that particular demographic could bring a big change in Asia’s casino gaming landscape as more and more major gaming and hospitality companies operating in the region seem to be focusing efforts to accommodate, feed, and entertain properly China’s middle-class consumers.

At the same time, the integrated resort model is gaining more ground beyond Macau and across the Asia-Pacific region. Unlike traditional gambling complexes, integrated resorts offer a wide variety of accommodation, food and beverage, retail, and entertainment options as well as dedicated space for meeting and convention activities.

It can be said that Macau, the tiny enclave located on the southeastern tip of China, was the early adopter of the integrated resort model. The special administrative region apparently found the right formula for success as it replaced Las Vegas and its iconic Strip as the world’s largest casino gambling hub shortly after it allowed international companies to establish casinos there.

Wealthy high rollers from Mainland China and their spending habits drove the dramatic growth of Macau’s casino industry in the years after 2002, when the government of the special administrative region first allowed foreign operators into the local gaming field. However, following President Xi Jinping’s massive crackdown on corruption which struck the city’s gaming industry and whole economy in an unprecedented manner several years ago, the six licensed operators managing casino resorts in Macau took steps to become less dependent on VIP gamblers and capitalize on China’s exploding middle class instead.

As pointed out above, the construction of integrated resorts with dedicated casino space and multiple other non-gaming facilities is not limited to Macau. Singapore hosts two such properties, while the Philippines is currently home to at least five of them and will see more open doors in the years to come. South Korea has also announced plans for several sprawling integrated resorts that would be centered around but not limited to casino gambling, one of which launched last spring. In addition, Japan has recently legalized casino gambling and is working on a piece of legislation that would allow for the construction of two or three integrated resorts with casino facilities.

Integrated resorts across the Asia-Pacific region are all designed to cater to different demographic groups and travelers visiting for different purpose. As for their casino floors, they are generally still heavily dependent on Chinese high rollers, but it seems that dependence is weakening.

How much has the Chinese middle class grown in recent years and what are analysts’ forecasts for that particular group of China’s population? And how could China’s middle class change the Asian-Pacific casino gambling field in the next few years? Here are some possible answers to these questions.

China’s Middle Class: Key Figures

According to different estimates, the number of representatives of China’s middle class varies from 68% of the country’s population in 2012 (based on a 2013 study by research firm McKinsey) to around 200 million people (based on a 2015 study of 40,000 Chinese households).

McKinsey defines China’s middle class as members of the country’s population whose annual income amounts to between $9,000 and $34,000. According to the research firm, the income of 75% of China’s urban population will fall in that range by 2022. It is believed that in the next five years, the expansion of the country’s middle class will be driven by different initiatives, including major financial reforms that will encourage employment and will drive wages up.

China’s population could be classified into four groups, depending on their members’ annual income. Those earning less than $9,000 a year are considered poor. People with annual income of between $9,000 and $16,000 are part of the country’s mass middle class. Members of the population earning between $16,000 and $34,000 are members of the upper middle class. And finally, those whose full-year income exceeds $34,000 are considered affluent.

In its report, McKinsey said that while China’s mass middle class represented the largest portion of the country’s urban population in 2012, accounting for 54% of it, it will be replaced by the upper middle class by 2022. That latter group is expected to account for more than a half of China’s overall urban population in 2022.

Here it is also important to note that the contemporary generation of members of the country’s middle class, particularly of its wealthier portion, are well-educated, well-informed, well-traveled, and tech-savvy. They are thus likely to demand dramatic change of how consumers are treated not just in their homeland but also anywhere else.

And the cohort of Chinese travelers is particularly important to the development of the tourism industry of the Asia-Pacific region. With annual outbound trips of 130 million, Chinese tourists are a powerful group. According to Taleb Rifai, former Secretary-General of the UN World Tourism Organization, Chinese tourists are “the most powerful single source of change in the tourism industry”. With that said it should not be a surprise that gaming and hospitality giants setting up operation in the Asia-Pacific region are paying special attention to what could draw more Chinese visitors.

Traveling Habits and Preferred Destinations

The number of outbound trips from China to different destinations more than quadrupled from 31.03 million in 2005 to over 130 million in 2017, according to data from the Ministry of Culture and Tourism of the People’s Republic of China.

Chinese travelers have seen their disposable income grow significantly over the reviewed period, hence their urge to travel more abroad. What is more, their trips have become longer and they have become more demanding, seeking better quality toruist offering.

As mentioned above, more than 130 million Chinese nationals traveled abroad last year. Thailand was their most popular destination as around 9.48 million of all outbound trips were directed to that particular country, known for its tropical beaches and opulent palaces. Chinese travelers represented 28% of Thailand’s inbound tourism in 2017. Japan with 7.36 million outbound trips, South Korea with 4.17 million outbound trips, and Vietnam with 4 million trips were, too, particularly popular destinations among Chinese tourists.

Middle-class representatives with their growing disposable income traveled quite a lot in 2017. According to a report by financial writer Wu Xiaobo, nearly 45% of China’s middle-class population spent a significant portion of their disposable income on traveling.

China’s Middle Class and Casino Gambling

With annual gross gambling revenue of $33 billion, Macau is indisputably Asia’s (and the world’s) largest hub for casino gambling. The city built its contemporary gaming industry by deploying the integrated resort model and by making itself attractive to well-off visitors from Mainland China.

VIP players from the mainland quickly became Macau’s favorite visitor group and the largest contributor to its casino industry’s revenue due to their spending habits and their tendency to frequent the gaming venues.

According to information from the Gaming Inspection and Coordination Bureau (DICJ), back in 2005, when the regulator published its first annual revenue report, the city’s casinos generated the amount of MOP47.134 billion. Of that amount, revenue from VIP baccarat totaled MOP28.864 billion. In 2017, Macau’s casino revenue stood at MOP266.607 billion, with VIP baccarat totaling MOP150.673 billion. In other words, revenue from a game played exclusively by high rollers accounts for more than a half of the city’s overall gaming revenue.

Macau realized just how dependent it was on its VIP customers in the worst possible way – by losing a great number of them. The city has been subject to heavy criticism for allegedly building its gaming industry on vice, corruption, and ties with criminal organizations. In 2013, that pressure escalated into an open and widely publicized war on corruption, started by Chinese President Xi Jinping.

The anti-graft campaign launched by China’s top official quickly took its toll on Macau, as its precious VIP customers quickly withdrew from the city’s casinos in a bid to keep a low profile, causing double-digit drops in gaming revenue and wreaking a bit of an economic havoc.

It was at that point that Macau lawmakers urged a change that would make the special administrative region less reliant on well-off Chinese gamblers. Gambling operators quickly directed their focus to another group of customers – the mass market ones, those generally represented by China’s mass middle and mostly upper middle class.

While revenue from VIP gamblers still accounts for the greater portion of Macau’s gaming revenue, its mass market seems to be growing rapidly. According to the latest quarterly information presented by DICJ, the mass segment grew nearly 20% year-on-year in the first quarter of 2018. JP Morgan analysts have recently said that the city’s casino market recovery is “highly broad-based” and encompasses all segments, including big and small junkets, “premium/mid-tier mass, and grind mass”.

Here it is important to note that there is one considerable difference between the VIP gambler and the mass market visitor of integrated resorts. While high rollers are mostly there to gamble and gamble a lot, mass market visitors might be spending quite some time at gaming tables and slot machines, but they are also more prone to explore the complexes’ other, non-gaming, facilities.

Building resorts that include different leisure and entertainment options beyond gambling, companies seem to be encouraged by the performance of such properties in the Asia-Pacific region over the past decade and confident in their bigger success in future.

Following Macau’s lead, Singapore, South Korea, the Philippines, and most recently Japan have built or are currently building their gaming industries using the integrated resort model. It is also important to note that operators will certainly look to take the best possible advantage of the warming relations between China and some of the countries in the Asia-Pacific region, such as the Philippines and South Korea to lure customers.

The integrated resort model seems to quite fit the demand of China’s growing middle class for high quality accommodation, entertainment, and food and beverage options. Properties of this kind also offer the convenience of having all of the above options at one place. In other words, designed in a manner that certainly caters to China’s middle class, the Asia-Pacific integrated resorts industry, including its hospitality, gaming, and non-gaming segments, will likely be shaped namely by that demographic group in the years to come.

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