04-08-2014, 10:36 PM
Rich gamblers in Macau retreat
KATE O’KEEFFE THE WALL STREET JOURNAL AUGUST 05, 2014 12:00AM
Beijing’s intensifying crackdown on corruption is hitting two of the playgrounds of China’s elite: the VIP rooms at Macau casinos and luxury shopping malls in Hong Kong.
Casino revenue in the world’s gambling capital fell for a second-straight month in July, dropping 3.6 per cent from a year earlier as high-rollers from mainland China stayed away from the tables in Macau. In Hong Kong, sales of jewellery, watches and other luxury items dropped 28 per cent in June, marking a fifth straight monthly decline.
The retreat in Macau has been driven by the same VIP gamblers that powered the city’s rise to the top in recent years. Revenue from these gamblers, typically rich Chinese who are brought to Macau by middlemen known as junkets, fell by between 14 per cent and 18 per cent in July, according to analysts at UBS. By contrast, in 2010 VIP revenue jumped by 70 per cent.
Across the Pearl River Delta in Hong Kong, the wealthy mainlanders who have packed the city’s high-end stores have also been holding back. Sales of luxury goods fell by nearly a third in the second quarter, including a 40 per cent decline in April.
Analysts and industry executives said the Chinese government’s fight against corruption was hitting both industries hard. With Beijing keeping a closer eye on conspicuous consumption and capital flight, being seen buying 10 diamond-encrusted watches or throwing millions at a baccarat game wasn’t recommended.
Though the anticorruption campaign began in 2012, President Xi Jinping raised the stakes significantly in the past week with the announcement of an official investigation into Zhou Yongkang, the country’s former domestic security chief and one of the nation’s top nine leaders until he retired in 2012.
“This anticorruption crackdown in China is much more widespread and deeper than the VIP community had anticipated and as a result there could be prolonged weakness in the market,” said Union Gaming Research analyst Grant Govertsen.
The last time Macau recorded revenue declines was in 2009 during the global financial crisis, but that was just a blip in Macau’s stunning growth. The former Portuguese territory generated $US45 billion in gambling revenue last year, or seven times that of the Las Vegas Strip. VIPs who came primarily through junkets accounted for nearly two-thirds of that revenue.
“The ongoing anticorruption campaign is placing considerable focus on the illicit transfer of Chinese funds overseas. Macau is a significant factor in this,” said Steve Vickers, a consultant who formerly led the Royal Hong Kong Police Criminal Intelligence Bureau. Previously junkets had been most visibly affected by the campaign in late 2012 when Chinese police detained backers of one of Macau’s then-largest junkets on suspicions they had ties to Bo Xilai, a prominent politician jailed in the crackdown. The crackdown has increased with Mr Xi’s rise.
“All of a sudden the world is changing,” said one top casino executive who deals with junkets. “The central government is much more concerned about junkets getting out of line.” The situation is worrying both junket operators and their VIP customers, who “don’t want to be involved with people who could get them in trouble,” the person said.
Macau, the only place in China where casino gambling is legal, has long relied on junkets to bring in high-spending gamblers from the mainland, issue them credit and collect players’ debts in exchange for commissions from casinos. The system took root because Beijing limits how much money Chinese can take out of the mainland and doesn’t consider gambling debts valid there.
The poor performance in Macau’s VIP market has hit casinos. The Macau units of Las Vegas Sands and Wynn Resorts both posted earnings last month that missed analyst projections.
KATE O’KEEFFE THE WALL STREET JOURNAL AUGUST 05, 2014 12:00AM
Beijing’s intensifying crackdown on corruption is hitting two of the playgrounds of China’s elite: the VIP rooms at Macau casinos and luxury shopping malls in Hong Kong.
Casino revenue in the world’s gambling capital fell for a second-straight month in July, dropping 3.6 per cent from a year earlier as high-rollers from mainland China stayed away from the tables in Macau. In Hong Kong, sales of jewellery, watches and other luxury items dropped 28 per cent in June, marking a fifth straight monthly decline.
The retreat in Macau has been driven by the same VIP gamblers that powered the city’s rise to the top in recent years. Revenue from these gamblers, typically rich Chinese who are brought to Macau by middlemen known as junkets, fell by between 14 per cent and 18 per cent in July, according to analysts at UBS. By contrast, in 2010 VIP revenue jumped by 70 per cent.
Across the Pearl River Delta in Hong Kong, the wealthy mainlanders who have packed the city’s high-end stores have also been holding back. Sales of luxury goods fell by nearly a third in the second quarter, including a 40 per cent decline in April.
Analysts and industry executives said the Chinese government’s fight against corruption was hitting both industries hard. With Beijing keeping a closer eye on conspicuous consumption and capital flight, being seen buying 10 diamond-encrusted watches or throwing millions at a baccarat game wasn’t recommended.
Though the anticorruption campaign began in 2012, President Xi Jinping raised the stakes significantly in the past week with the announcement of an official investigation into Zhou Yongkang, the country’s former domestic security chief and one of the nation’s top nine leaders until he retired in 2012.
“This anticorruption crackdown in China is much more widespread and deeper than the VIP community had anticipated and as a result there could be prolonged weakness in the market,” said Union Gaming Research analyst Grant Govertsen.
The last time Macau recorded revenue declines was in 2009 during the global financial crisis, but that was just a blip in Macau’s stunning growth. The former Portuguese territory generated $US45 billion in gambling revenue last year, or seven times that of the Las Vegas Strip. VIPs who came primarily through junkets accounted for nearly two-thirds of that revenue.
“The ongoing anticorruption campaign is placing considerable focus on the illicit transfer of Chinese funds overseas. Macau is a significant factor in this,” said Steve Vickers, a consultant who formerly led the Royal Hong Kong Police Criminal Intelligence Bureau. Previously junkets had been most visibly affected by the campaign in late 2012 when Chinese police detained backers of one of Macau’s then-largest junkets on suspicions they had ties to Bo Xilai, a prominent politician jailed in the crackdown. The crackdown has increased with Mr Xi’s rise.
“All of a sudden the world is changing,” said one top casino executive who deals with junkets. “The central government is much more concerned about junkets getting out of line.” The situation is worrying both junket operators and their VIP customers, who “don’t want to be involved with people who could get them in trouble,” the person said.
Macau, the only place in China where casino gambling is legal, has long relied on junkets to bring in high-spending gamblers from the mainland, issue them credit and collect players’ debts in exchange for commissions from casinos. The system took root because Beijing limits how much money Chinese can take out of the mainland and doesn’t consider gambling debts valid there.
The poor performance in Macau’s VIP market has hit casinos. The Macau units of Las Vegas Sands and Wynn Resorts both posted earnings last month that missed analyst projections.