HONG KONG: Macao, the tiny former Portuguese colony on the coast of southeast China across the Pearl River Delta from Hong Kong, has all it takes to compete with the gambling capitals of the world - glitz, glamour, betting-crazed customers and, as of last year, its very own version of the Rialto Bridge in Venice.
Like many other places in China, Macao, now a special administrative region within the country, has boomed in conjunction with the economic success of China in recent years. Fortunes could be made by the casinos that have mushroomed in the enclave, drawing major investments from Western investors like Sheldon Adelson, a U.S. billionaire.
But the financial crisis and the global economic downturn has not left Macao untouched. As China’s growth cools, and global stock markets remain far below where they began the year, the area’s gambling revenues are no longer growing as fast as they once were, even as competition between the growing number of casinos is fierce.
On Monday, the downturn claimed a prominent victim: Las Vegas Sands, the casino operator run by Adelson, said it was suspending construction on sites in Macao as it laboured to meet financing obligations.
The company recently celebrated the one-year anniversary of the opening of the Venetian Macao and had counted on capitalizing on the boom in the region’s gambling revenues to expand its operations. But it overextended to finance its expansion and now that gambling revenue has fallen 10 percent in the third quarter, to $3.2 billion, it is scaling back its ambitions, at least temporarily.
“Given the current conditions in the global credit environment, we have elected to significantly slow the pace of our development activities” in Macao, William Weidner, president and chief operating officer of Las Vegas Sands, said Monday.
On Tuesday, the territory’s chief executive, Edmund Ho, said Macao had no plans to help Las Vegas Sands with financing. “Because of its overleveraged borrowing in the U.S. and around the world, it’s normal and expected that it has to suspend some of its projects,” Ho said, according to The Associated Press.
The decision by Las Vegas Sands to stop the building in part reflects problems elsewhere, and the cooling off of the Macao gambling boom has been aggravated by Chinese travel restrictions as the authorities seek to curb money laundering and illegal activity.
Ho said he expected monthly gambling revenue in Macao to drop to about $876 million next year, compared with a monthly average of about $1 billion this year.
But the troubles of Macao - and the Sands - are also a consequence of the downturn of the Chinese economy as a whole, exacerbated even more by the fears on the part of lenders to extend credit to any enterprise built on expectations of uninterrupted growth.
The global downturn has taken its toll on China, slowing its pace of growth to 8 percent or less this year, and prompting the government to come forward on Sunday with a huge economic stimulus package worth 4 trillion yuan, or $586 billion.
Fresh data released Tuesday highlighted the challenges ahead. Consumer price inflation - once seen as a key potential worry for the Chinese authorities - in October fell to a 17-month low of 4 percent. This was less than the 4.2 percent that economists had expected, and well below the 4.6 percent in September and the 8.7 percent peak in February.
Economists said this showed the Chinese economy was in a sharp slowdown, with demand and prices dropping off along with production.
Trade figures also published Tuesday showed a record trade surplus of $35.24 billion in October. Exports rose more than expected, by 19.2 percent from a year earlier, holding up relatively well in the face of the global slowdown. Although this looked good at first sight, economists were worried by weaker than expected growth in imports, which rose 15.6 percent, partly because of lower prices in raw materials, like oil, which have fallen sharply in recent months.
“Domestic demand is slowing faster than external demand in China, and although export growth held up relatively well, the worst here is still to come,” said Tao Wang, an economist at UBS in China.
The downturn in domestic spending - notably weakness in the construction sector - was especially worrying, in Wang’s opinion. This is now one of the government’s main areas of action.
But the impact of the stimulus package will not be felt for a while. “It will take until the second half of next year until we see a recovery in housing and construction,” Wang said.
Until then, with mounting evidence of slowing growth, the authorities are likely to come up with yet more stimulative measures. Many economists say that they believe the authorities, who have already cut rates three times since mid-September, will do so again soon.
“Falling inflation permits the government to implement “proactive fiscal policy and appropriately accommodative monetary policy,” Ting Lu and T.J. Bond, economists at Merrill Lynch, wrote in a research note Tuesday, adding that they expect more interest rate cuts near the end of this year and next year.
And comments by Wen Jiabao, the Chinese prime minister, that the government’s economic stimulus package would seek to help the real estate sector could foreshadow further policy steps to also encourage private sector investment in housing, Wang said.
None of this has helped lift stock market sentiment more than temporarily this week. Markets, which had been buoyed by the news of the huge stimulus package on Monday, declined again Tuesday.
1 comment:
Once red-hot, cards turn against Macao
By Bettina Wassener
11 November 2008
HONG KONG: Macao, the tiny former Portuguese colony on the coast of southeast China across the Pearl River Delta from Hong Kong, has all it takes to compete with the gambling capitals of the world - glitz, glamour, betting-crazed customers and, as of last year, its very own version of the Rialto Bridge in Venice.
Like many other places in China, Macao, now a special administrative region within the country, has boomed in conjunction with the economic success of China in recent years. Fortunes could be made by the casinos that have mushroomed in the enclave, drawing major investments from Western investors like Sheldon Adelson, a U.S. billionaire.
But the financial crisis and the global economic downturn has not left Macao untouched. As China’s growth cools, and global stock markets remain far below where they began the year, the area’s gambling revenues are no longer growing as fast as they once were, even as competition between the growing number of casinos is fierce.
On Monday, the downturn claimed a prominent victim: Las Vegas Sands, the casino operator run by Adelson, said it was suspending construction on sites in Macao as it laboured to meet financing obligations.
The company recently celebrated the one-year anniversary of the opening of the Venetian Macao and had counted on capitalizing on the boom in the region’s gambling revenues to expand its operations. But it overextended to finance its expansion and now that gambling revenue has fallen 10 percent in the third quarter, to $3.2 billion, it is scaling back its ambitions, at least temporarily.
“Given the current conditions in the global credit environment, we have elected to significantly slow the pace of our development activities” in Macao, William Weidner, president and chief operating officer of Las Vegas Sands, said Monday.
On Tuesday, the territory’s chief executive, Edmund Ho, said Macao had no plans to help Las Vegas Sands with financing. “Because of its overleveraged borrowing in the U.S. and around the world, it’s normal and expected that it has to suspend some of its projects,” Ho said, according to The Associated Press.
The decision by Las Vegas Sands to stop the building in part reflects problems elsewhere, and the cooling off of the Macao gambling boom has been aggravated by Chinese travel restrictions as the authorities seek to curb money laundering and illegal activity.
Ho said he expected monthly gambling revenue in Macao to drop to about $876 million next year, compared with a monthly average of about $1 billion this year.
But the troubles of Macao - and the Sands - are also a consequence of the downturn of the Chinese economy as a whole, exacerbated even more by the fears on the part of lenders to extend credit to any enterprise built on expectations of uninterrupted growth.
The global downturn has taken its toll on China, slowing its pace of growth to 8 percent or less this year, and prompting the government to come forward on Sunday with a huge economic stimulus package worth 4 trillion yuan, or $586 billion.
Fresh data released Tuesday highlighted the challenges ahead. Consumer price inflation - once seen as a key potential worry for the Chinese authorities - in October fell to a 17-month low of 4 percent. This was less than the 4.2 percent that economists had expected, and well below the 4.6 percent in September and the 8.7 percent peak in February.
Economists said this showed the Chinese economy was in a sharp slowdown, with demand and prices dropping off along with production.
Trade figures also published Tuesday showed a record trade surplus of $35.24 billion in October. Exports rose more than expected, by 19.2 percent from a year earlier, holding up relatively well in the face of the global slowdown. Although this looked good at first sight, economists were worried by weaker than expected growth in imports, which rose 15.6 percent, partly because of lower prices in raw materials, like oil, which have fallen sharply in recent months.
“Domestic demand is slowing faster than external demand in China, and although export growth held up relatively well, the worst here is still to come,” said Tao Wang, an economist at UBS in China.
The downturn in domestic spending - notably weakness in the construction sector - was especially worrying, in Wang’s opinion. This is now one of the government’s main areas of action.
But the impact of the stimulus package will not be felt for a while. “It will take until the second half of next year until we see a recovery in housing and construction,” Wang said.
Until then, with mounting evidence of slowing growth, the authorities are likely to come up with yet more stimulative measures. Many economists say that they believe the authorities, who have already cut rates three times since mid-September, will do so again soon.
“Falling inflation permits the government to implement “proactive fiscal policy and appropriately accommodative monetary policy,” Ting Lu and T.J. Bond, economists at Merrill Lynch, wrote in a research note Tuesday, adding that they expect more interest rate cuts near the end of this year and next year.
And comments by Wen Jiabao, the Chinese prime minister, that the government’s economic stimulus package would seek to help the real estate sector could foreshadow further policy steps to also encourage private sector investment in housing, Wang said.
None of this has helped lift stock market sentiment more than temporarily this week. Markets, which had been buoyed by the news of the huge stimulus package on Monday, declined again Tuesday.
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