Macau’s rise to the top of the global gaming industry was fueled by visitors from mainland China, from wealthy whales down to mass market gamblers and tourists. That’s why a slowing Chinese economy could be a sign of trouble for Macau in the future.
According to reports from analysts at Sanford C. Bernstein and Co, gross gaming revenue (GGR) in Macau could take a hit if China’s GDP growth continues to slow down during the second half of 2018.
Real Estate Cooldown Looms in China
The brokerage released a report suggesting that there were a number of threats to the growth Macau has seen in mass market GGR in recent years, though the analysis said that the long-term outlook for the territory still looks good.
The report noted that there were a number of economic indicators in China that have historically been correlated with the GGR brought in by Macau’s casinos. Included among them is the Chinese real estate market that the government may work to cool down in the second half of the year, which analysts say could influence premium consumption from Chinese citizens.
“For consumers, real estate is simultaneously a vehicle for store of value, and the most popular asset class for investments and has a major impact on an individual’s notion of wealth,” the analysts wrote. “Real estate is the single largest category of assets held by Chinese high net-worth individuals.”
The Bernstein analysis pointed out that when property prices went up in recent years, Macau GGR also saw strong growth, while a slump in those prices in 2015 lined up with weaker results for the casinos.
These factors were most likely to have an impact on the high end of the mass market segment, analysts said. These are high-stakes players that don’t quite reach the level of VIP gamblers: the types of bettors who won’t take out massive lines of credit to fuel their baccarat play, but who spend a lot more cash than the average tourist.
Slowdown Shouldn’t Cause Long-Term Issues for Macau
China’s economic slowdown has been gradually occurring for years now, in some part simply because the accelerating growth of the urbanizing nation couldn’t last forever. While China has benefited from an increasingly educated and skilled work force in recent decades, those advancements are now slowing, and with it, the explosive rise in productivity that has fueled runaway growth.
But the Bernstein analysts also pointed out that there was no need for panic. Even with a mainland slowdown, China’s GDP was still expected to grow at about five percent annually, a healthy number that represents a manageable expansion rate. In addition, consumer spending was expected to continue to increase, and the number of Chinese citizens wealthy enough to take trips to Macau would also be growing in the coming years.
All of that is good news for Macau, which is on track to set a new global standard in the next few years. According to projections by the International Monetary Fund, the Chinese enclave will become the richest place on Earth by 2020, when the local GDP will reach more than $143,000 per capita, surpassing Qatar.