China Slowdown Affecting Roulette Tables in Macau

China Slowdown Affecting Roulette Tables in Macau

Macau, a Chinese territory, has been independent from Portuguese for nearly 20 years. With the anniversary of Macau’s independence is approaching, there has been slow financial growth on China’s mainland simultaneously. The slow economy is due to a weaker yuan and a brewing trade war. These factors threaten to derail further development in Macau, which is the biggest casino hub in the world.

Macau is located on the southern coast of China and is the only location in China, where it is legal to gamble in casinos. However, in January, casino revenue decreased for the first time in over two years, according to the Chinese government. The drop in the industry was due to a lack of wealthy VIP gamblers, as well as a smoking ban enforced at the beginning of the year.

In addition to this, China has also lowered the economic growth target to six to 6.5 percent in 2019. This projection comes as Beijing deals with United States tariffs and weaker domestic demand. Chief executive of Wynn Macau Matthew Maddox states that “we remain watching the situation with caution…global growth is uncertain, and where the trade war ends up is also uncertain. We continue to experience peaks and valleys in Macau.”

Economic Decline and the Government

Economic Decline ChinaChanges in policy and regulations are the primary focus in 2019, since a new leader has been elected in the Chinese special administrative region. In 2020, casino licenses for MGM China, Wynn Macau, Sands China, SJM Holdings, Galaxy Entertainment, and Melco Resorts will start to expire.

Authorities are continuing a clampdown that will last several years. The regulation is on illegal capital flows from mainland China and takes aim at illegal cash transfers and black market lending.

The most recent bust was in January 2019. The bust involved the seizure of over 30 billion yuan, which is about $4.42 billion. This happened shortly after Xi Jinping, the president of China, warned about the deep and complicated risks to Chinas economy. Macau regulators are also making their disclosure and operating rules stronger for junket operators. These regulations include closer account supervision. These intermediaries have the challenging task of bringing in VIP players to spend their money in luxury casinos. The intermediaries are expected to give credit to high-profile gamblers and collect on their debts.

Paulo Chan, director of Macau’s Gaming Inspection and Coordination Bureau, states that a new bill would further regulate junkets. Legislation is expected to improve junket compliance; junkets often use underground networks for banking.

These regulation improvements will likely further cool the VIP market. This market accounts for about 50 percent of casino revenue, which is about $3 billion per month.

An Influx of Tourists

Influx of Tourists in Macau, ChinaDuring Chinese New Year, there was a 26.6 percent increase in visitors to Macau. There was a record 1.2 million arrivals over a seven-day period, according to information from Macau’s Tourism body. This also led to a 97 percent hotel occupancy average. However, the vacationers were spending less money inside the 39 casinos in Macau. Chinese consumers who are looking for vacations that are more memorable are visiting restaurants and cafes in Macau and taking pictures against the backdrop of the regions pastel architecture.

This provides a challenge (and a significant amount of pressure) for casino operators who are struggling to cover increasing costs, according to Praveen Choudhary, a Hong Kong-based analyst at Morgan Stanley. He asserts that data con Chinese domestic loans and total social financing point to negative trends in the next six months.

The new Hong Kong-Macau-Zhuhai Bridge now provides a connection between Macau and Hong Kong’s International airport; the commute is only 30 minutes. The overnight visitor growth is reduced if there are not as many hotels available for overnight stay, according to executives. These leaders also assert that a weaker yuan can affect how much tourists spend, which directly affects the Chinese economy.

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