Macau: China’s Political Transition Poses Threat To Growth

Business Monitor International (BMI) recently published a lengthy article on the outlook for Macau’s economy over the coming years. Unsurprisingly, the main risk stems from the sharp slowdown in the Chinese economy. Macau’s gaming revenues have plunged in recent months, with growth coming in at just 3.2% y-o-y in October 2012 versus an average of 34.0% over the past five years. The outlook for 2013 remains cloudy, in our view, and we would not be surprised to see negative figures over the coming quarters.

Another less obvious risk comes from political dynamics in China. As Macau’s casinos generate a great deal of their revenues from Chinese officials, the threat of a corruption crackdown by China’s incoming leadership poses a major risk. The mainland’s Communist Party congress is ushering in new leaders who may want to be seen to be taking a tough stand against local officials’ corrupt activities, in particular capital control abuse.

Although Chinese citizens are barred from taking more than US$50,000 out of the country in a single year, Chinese gamblers have found many ways to get around these controls. In a bid to stem the flow, UnionPay, China’s payment processing system, has reportedly lowered the daily limit for overseas transactions to US$160,000 from US$800,000 previously, signaling that the government is already trying to stem illegal money outflows. Under the new leadership, restrictions could be tightened further, and Beijing could further restrict travel permits. With Macau’s gaming industry facing such headwinds, we are forecasting real GDP growth of just 3.0% in both 2012 and 2013. This compares to an average of 13.2% over the past decade.

Further analysis of Macau’s gambling sector and economy is available to subscribers at Business Monitor Online.