China’s Visible Hand Starts to Squeeze
Macau looks likely to be another target of China’s efforts to contain leverage and capital outflows
By Jacky Wong
July 18, 2017 7:57
The problem with a command economy is policies tend to create unintended consequences, which inevitably lead to heavy-handed crackdowns. China apparently is in the crackdown phase now.
After years of encouraging companies to “go global,” Beijing is getting uncomfortable with the capital outflows and leverage that have resulted from some companies’ headlong expansion. In an expression of that discomfort, regulators have blocked China’s big banks from lending to Dalian Wanda Group for several of its overseas deals, according to The Wall Street Journal.
Wanda, controlled by billionaire Wang Jianlin, has built a global media empire by splashing billions on companies like AMC Entertainmentand Legendary Entertainment, the studio behind “The Dark Knight.” Beijing, seeking to expand its soft power overseas, had been supporting such efforts to create rivals to Hollywood.
Another example: China’s support for the housing markets in smaller cities has created many nouveau riche who are betting their newfound wealth in Macau’s casinos.
According to Deutsche Bank , VIP gambling revenue in Macau and third-tier city property prices have a correlation of 0.74, where a correlation of one indicates they move in lockstep. And high rollers have been a big driver in Macau’s recovery this year: VIP revenue was up 35% last quarter, versus 8% for mass-market revenue. That has most benefited Wynn Resorts ’ Macau operations, which caters to the high end more than others.
That undercuts Beijing’s goal of developing Macau into a tourist spot for casual gamblers, rather than a place for China’s rich to contribute to capital outflows. Tightening policies have already appeared. Banks have to report cross-border transfers above 200,000 yuan ($30,000) and ATMs with facial recognition are popping up in the city. The city’s biggest junket operator, Suncity, which brings big-stakes gamblers to Macau and lends them money, sent messages to its customers last week warning about the risks of moving money across the border.
The more the high rollers keep coming, the more likely Macau is to become the next part of the economy to be squeezed.
Write to Jacky Wong at Jacky.Wong@wsj.com
Appeared in the July 19, 2017, print edition as 'China’s Visible Hand Begins to Squeeze.'
