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Macau – A Canary In China's Coal Mine?
Submitted by Pater Tenebrarum via Acting-Man blog,
Gambling Revenues Tumble
The former Portuguese trading outpost Macau, which similar to Hong Kong is a “special administrative region” of China, is a Mecca for China’s gamblers – and China is reportedly brimming with gamblers. Macau’s gambling industry has accordingly been on fire for many years.
Macau has benefited disproportionately from two major trends: the rise of a class of very rich people in China (as well as a growing middle class), and the need of corrupt bureaucrats to launder their money, resp. get it out of China.
China’s new government under Xi Jinping has made battling corruption one of its main agendas – and as it has turned out, it is quite serious about that. A number of quite high-ranking party officials have fallen prey to the effort – something that was previously unthinkable. For instance, former public security minister Zhou Yongkang, once a member of the standing committee of the politburo, is the highest ranking official to have come under investigation for corruption since the times of Mao. China is recently even running out of “luxury prison room” , as former officials who have been convicted are apparently spared the indignity of being locked up in run-of-the-mill prisons.

Xi Jinping: he has ordered a crack-down on corruption and he really means it.
(Photo credit: Thomson / Reuters)
It stands to reason that many officials who got rich in the rather permissive pre-Xi atmosphere are these days very careful about flaunting their wealth, and thinking twice about using well-known avenues for moving money around. Everybody knows about the loopholes related to Macau, so presumably the territory has lost some income from that particular source.
Indeed, the news from Macau are not good. As Marketwatch reports:
“Macau just had its worst month ever. Industry executives, investors and analysts expect 2014 to be its worst-ever year too. But the question they have is: could things still get worse? Gambling revenue in the Chinese territory fell 23% in October from the same month last year to 28 billion patacas ($3.51 billion), government data showed Tuesday. It was the worst monthly decline ever recorded, eclipsing a 17% year-over-year drop in January 2009.
The sharp fall was no surprise. Analysts had expected revenue to fall by at least 20%, and industry executives have been blunt about the grim state of affairs.
[...]
October is the fifth month in a row revenue has fallen in Macau, which had previously enjoyed five years of spectacular, uninterrupted growth. Brokerage CLSA says the losing streak will continue, forecasting revenue will fall 15%-20% in November and December from the previous year. February 2015 could even best October’s record decline, according to the firm, which tips a 25% to 30% drop as February 2014 was one for the record books too–gambling revenue rocketed up 40% to an all-time high of $4.76 billion–showing how quickly fortunes have reversed in the casino hub.
Industry executives and analysts attribute the recent poor performance in Macau to a variety of factors, particularly a Beijing-led crackdown on corruption that has caused VIP gamblers to shy away from the baccarat tables. They also cite issues such as tighter visa policies and a lack of new casino-resort openings recently.
Casino executives say they are confident the territory will bounce back at some point, but they don’t know when. “Everybody’s asking these crystal ball questions,” said a senior executive at a Macau casino company who speaks with investors. “I can’t get people to ask about what we’re doing” in terms of corporate strategy, the executive said.
On an earnings call last week Wynn Resorts Ltd. chief executive Steve Wynn specified that the company’s “nadir” in the world’s largest gambling hub is “current.” A top executive at one of Macau’s largest junket companies–the middlemen that drive the majority of Macau’s VIP gambling revenue–said market conditions are worse now than a couple months ago. The situation in Macau has deteriorated so swiftly that one analyst recently mentioned the sector in the same breath as Russia.
(emphasis added)
[ZH - this is the biggest YoY drop on record in Macau gaming recvenues]
The remainder of the article at Marketwatch deals with the idea that Macau Casino stocks could represent a contrarian opportunity due to their sharp decline. However, this may be a bit premature.
As you can see, the corruption crackdown is getting its share of the blame. However, we would argue that the ongoing economic slowdown in China must have something to do with it as well. It isn’t as though corrupt officials were the only people showing up in Macau, even though it is insinuated above that they represented the main clientele at the Baccarat tables.
China’s Economy – Soft Crash Landing Ahead?
The thing is, China’s new government is also serious about another agenda: reforming the economy. It wants to do away with the economy’s reliance on massive monetary and fiscal stimulus and the associated malinvestment orgies. The time when countless senseless construction projects produced make-believe “growth” seems finally over. Every time prime minister Li Keqiang speaks about the economy, which he essentially does most of the time, there are no good news for stimulus junkies to be had. Instead he talks about “healthy” growth, and “tough economic reform”. The term “stimulus” has yet to cross his lips. In other words, the previous bubble economy is in for a retrenchment – very likely a severe one. Here is an excerpt from one of Li’s recent speeches:
“Development does not only mean enlarging the economy through growth, but also strengthening the economy through improving quality and efficiency, Li said, adding that the ultimate target is to maintain medium and high growth, while also marching toward medium and high-end quality.
Comprehensively deepening reforms is essential, including streamlined administration and delegating power to lower levels as well as removing administrative approvals, market barriers and various other “roadblocks” while making space for markets and entrepreneurship, Li said.
To achieve stable and sustainable growth, the Chinese economy must focus on improving quality and efficiency, boosting development through reforms and seeking upgraded development, Li said.”
It is well known that China’s leadership is very concerned about social harmony and stability. With price inflation low and falling (CPI recently fell to just 1.6%) and employment data still in reasonably good shape (the unemployment rate is at 4.1%), it likely feels it can continue on the reform path without having to fear too great an upheaval from the slowly but surely imploding property bubble.

Economic reformer Li Keqiang: he means it too, by all appearances.
(Photo credit: Ed Jones/AFP)
However, one must doubt that it will be that easy. The bubble was significant, and non-performing loans on the books of China’s banks have recently only just begun to increase somewhat (their NPL data don’t look very credible as it were, something that applies also to a slew of other data coming out of China). Consider the sharp slowdown in China’s money supply growth in this context:
China, narrow money supply M1, 12 month growth: from almost 40% to just 5% in four years, via Saint Louis Federal Reserve Research click to enlarge.
Li is of course quite correct in everything he is saying above, and it is to be hoped that the reform agenda will be continued. The effects of the sharp decline in money supply growth in recent years still have to play out in full though. The property sector is under pressure, but so far, price declines have been relatively mild (note also that it is not a monolithic sector: there are significant differences between larger and medium to small sized cities with regards to the extent of overbuilding). The problems are no doubt set to become more severe.
Whether the government will continue to hew to its new reform-oriented economic policy if there is real pressure on economic growth remains to be seen. The recent decline in Macau’s fortunes is likely a harbinger of more difficult times for China’s economy. Gambling is the ultimate in discretionary spending – it is likely among the expense that are the first to get axed when people start tightening their belts.
Conclusion:
Economic data from China have generally been on the weak side of late, but not catastrophically so. And yet, apart from growing weakness in aggregated data, we also see more and more anecdotal evidence that the economy is deteriorating. Even the adoption of significant economic reform can ultimately not stop the unwinding of previous bubble excesses, although it can certainly hasten the process and lead to the establishment of a sound economic foundation sooner rather than later. Whether the government’s penchant for interventionism and stimulus measures is really gone for good is however something we will only know for sure once times really get tough.
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nothing to see here, just keep moving, everything is alright
When I grow out my hair it covers my bald spots.
Macau is for the middle class. The big fish go to Singapore and now Australia, which has just declared itself the new money laundering capital of the world.
That helps explain where Australia gets the money to blow on things like using 800 cops on a raid to get 2 guys. One that ended up having a plastic sword that the media initially claimed was real
http://www.smh.com.au/national/terror-raids-800-police-and-only-two-men-...
Robo cunts
Not to mention local prperty auction carriedout in chinese
And of the two arrested, one was charged for possessing a taser and four (FOUR) bullets; the alleged evidence against the other is that he received a phone call where the guy on the other end suggested he behead somebody.
The only thing the awake Aussie (all 300 of us) can do about this kind of bullshit is laugh:
http://youtu.be/ho4lcU90DBM?t=9m30s
Yeah, but a sword like that could put out an eye.
It is not at all surprising, then, that over the past decade growth in China’s gross domestic product, powered by very cheap lending rates, has substantially exceeded the growth in household income, which was held back by this large hidden tax. It is also not at all surprising that household consumption has declined over the decade as a share of gross national product from a very low 45 percent at the beginning of the decade to an astonishingly low 36 percent last year.This is how China’s last banking crisis was resolved. It did not result in a collapse in the banking system, but it nonetheless came with a heavy cost. The banking crisis in China resulted in a collapse (and there is no other word for it) in household consumption as a share of the economy.This is why the People’s Bank of China is so worried about another surge in non-performing loans. If the household sector is forced once again to clean up a banking mess, this will make China even more reliant for growth on the trade surplus and on investment, and that is something many in Beijing, including the PBoC, do not want to see. Remember that there is no such thing as a painless banking crisis and anyone who suggests otherwise should not be taken very seriously. There is always a significant cost, and the cost is almost always borne one way or the other by the household sector. In China, with its already too-low household consumption, it will be very risky to force households to clean up yet another surge in non-performing loans. It would only make it more difficult than ever for China to achieve the rebalancing its economy so urgently needs.
- Mike Pettis
Take gold parabolic and it fixes everything. Chinese households get wealth and income effect. RMB appreciates and USD depreciates, restoring international balance as well.
Why launder money at a Casino when you have a Bank that will do it for you? Or better yet...just be a Bank. Then the Government gives you all the money because they think you're the only one who has any.
Let 'em blow a couple of trillion on that one and then let 'em in your little secret. "That guy over there has way more."
Then see if they get the joke.
the usa has an orgy of corruption and malinvestment but to expect real reform is naive. free corzine.
Japan's currency has depreciated about 7% on 7 days. That is bad news for China. If the yen keeps falling, the consequences for China get far more serious and it may have to depreciate its currency.
1.4 billion Chinese may then try to buy gold and silver to try to save their wealth. Let's see if the Fed and its proxies can still control the price of gold and silver then.
Also money will start leaving China and Japan at a faster rate driving the dollar higher.
You just got to to love a "death loop" and the disaster it brings.
Yep gambling is a better statistic than most. It is the index that measures how much money stupid people have. The less money they have the more their net worth reflects who they really are. America is filled with stupid people these days.A lot of them voted for Obama.
Contagion from the events unfolding in Japan certainly won't help. China is already suffering from massive overcapacity. Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need.
For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
Macau needs to install penny slots to scrape the bottom of the barrel, like here in God's country.
The casinos were pretty empty when I was last there May 2013; massively overbuilt in any event. Huge, cathedrals of paigow they are. Not much for a foreigner to do, poker games are few & far between.
You sound like you are from NJ like Atlantic City. Atlantic City needs to import pretty hookers and make pot legal. Nothing is gonna save that place.
I am thinking of opening a few casinos in some of those Chinese ghost towns and doing an IPO in the US of A.
It will be a cssino but also like Ali Baba and Go Pro combined plus Caesars and Las Vegas Sands.
I can photo shop thousands of Chinese at the gaming tables.
I do not know how to explain it to you, but here goes:
The problem is not Macau Macau is the Mafia game that comes from the "boom" happened when it ceased to be a Portuguese colony, it has become a whorehouse of everything you can imagine.
The next step is to Hong Kong.
May believe that the Chinese government has saneou George Shoros lot of little letters and that the NSA, CIA and others who have done demonstrations in HQ.
The Hong Kong dollar is assured.
The next step is Taiwaw, where Chiang Kai-Shek was brought by US and British, that place where they play a role in the ground is capable of firing, that fucking island that seems so boring in Switzerland customs Kkkkkkkkkkkkkkkkk us!
Hong Kong was like before being assimilated by China.
hehe.
And yet ZH keeps ignoring the fact that Russia's pain is China's gain.
Oil down, Gold down, Silver down, Copper down...
China says "Shay shay nee", stupid Round Eye.
Ah, but wait right there! This is just small time slice. China has this history of becoming addicted to shit. Once they get junkied up on oil they'll PAY.
I'm busy hunting down fuel efficient vehicle when fuel prices are low. I KNOW that fuel prices (affordability) are going to whipsaw back up; this is not a question in my mind; the only question I have is how long will there be higher prices (less afforability) before the entire system collapses (and makes it all moot).
But yeah, Russia, as all producers, is going to feel the squeeze. Economies of scale in reverse, hang on!
I don't get it. Why would China say "who who you"? I've never heard any chinese say that.
The US stock market has replaced casino betting
Macau is primarily a casino. It does not make a product, nor does it provide any socially useful services. It just transfers money from one person to another person and takes a cut. essentially, gambling is a tax on ignorance.
Macau could disappear and China would not be any worse off.
Gambling is socially useful service.
"To achieve stable and sustainable growth"
Just stop right fucking there!
That statement is presenting an impossible goal.
Which group is worse with numbers, the ones gambling (against the house) or those presenting central planning goals based on mathematically impossible goals?
Macau is competing with stupid cheap gold right now. Why gamble when you can gamble and save at the same time?
Macau is rat line money laundering. Must be naturally slowing because investments scams are harder to sell and/or the authorites are cracking down.
This directly ties into criminal funding of US Treasuries as discussed here:
http://winteractionables.com/?p=15986
Why would anyone travel to gamble when provably fair online casinos exist?
wait til we fully export our opioid, meth and heroin problems which is the final step after music, technology, banking system and hope. they will need to escape from our imported western dream
We should be selling US BUSINESS BACKED investment vehicles to the CHinese in Macau. Physically pick up 99 Wall Street, stick it in the middle of Macau and stick the ticker tape on the slot machines.
That will fix the US economy. Not joking.
And cut capital gains on PEOPLE (not banks) who are buying these investment vehicles.
Since Clinton busted up the Multilateral Investment Agreement between the U.S. and China circa 1995 (he FAILED to get China to remove it's barriers to the U.S. financial sector- only after Maurice Greenberg of AIG had a lot of success selling them insurance back in 1992)...
Asians LOVE to invest. Ask "Mrs. Wantanabe" and now "Mrs. Wong".
We would actually have leverage in our PRIVATE sector instead of the public sector (the cash flow in the US is only from US Treasury holdings from foreign governments. This is a fallacy of false outcomes. That leverage has given very corrupt legislators WAY too much power over the citizens with little capital and influence to even fend for ourselves let alone actually change things for the better.)
That would really improve our economy.
QE and TARP were horrible. We're using them wrong.