China’s latest attempts to deflate the asset bubbles forming in the country’s economy are likely to have a knock on effect on Macau’s high roller gambling trade.
Last week the State Council—China’s equivalent of a cabinet of key ministers—told the country’s banks to stop loans for third homes in cities with the highest price gains, including Shanghai, Beijing and in Shenzhen across the border from Hong Kong.
On average 65 percent plus of the Macau gambling market’s value comes from VIP baccarat—most of that fuelled by credit-based junket play. One common way for China’s VIP gamblers to pay off credit owed to lenders associated with Macau junkets is to liquidate property assets, sources familiar with the Macau high roller segment tell Asian Gaming Intelligence.
Property is one of the most obviously liquid and appreciating asset classes in China’s current economic boom. It’s likely to follow therefore that any curbs on property price rises are likely also to slow the growth of credit issuance in the VIP-centric Macau casino market. Gross gaming revenues (GGR) in that market grew by around 57% year on year in the first quarter.
There has already been an apparent slowing of the rate of year on year growth of the Macau GGR in March after jumps of 60 percent and above in January and February. This suggests other policies introduced by Beijing earlier this year such as ordering banks to increase their ratio of cash reserves held against cash lent out, may already be having a cooling effect on the wider economy and by implication Macau. China’s National Development and Reform Commission said last week lending by Chinese banks fell 43 percent in the first quarter from a year earlier as the government tightened credit controls while trying to wind down its stimulus.
Nonetheless the domestic appetite for property investment remains strong. China’s central government reported housing prices in 70 major cities rose 11.7 percent in March compared to the equivalent month a year earlier. It was the biggest increase since the property price index began nearly five years ago. The national average for housing price inflation in March was 3.3 percent.
In response the central government last week also gave local governments the power to limit the number of units that can be bought, and made senior officials directly accountable for the stabilisation of property prices.
Jun Ma, Deutsche Bank AG’s Greater China chief economist, said in a note to clients late last week the State Council’s orders were “the most draconian measures on the [Chinese] property market in history.”
The Associated Press, quoting regional Chinese news sources, said there were reports of some small-scale panic selling of properties by investors. It said local media linked the behaviour with investor fears that the government’s moves might lead to a sudden correction or even collapse of some prices in some markets.
Last week the Chinese government announced the country’s gross domestic product rose 11.9 percent year on year in the first quarter of 2010. Food price inflation slowed to 5.2 percent in March from 6.2 percent in February, helping to produce overall consumer price index inflation stated by the government as 2.4% year on year in March.
China reported its first monthly trade deficit in six years for March as imports surged, probably due to China’s faster recovery from the global crisis than its key trading partners.
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