Inside Asian Gaming

INSIDE ASIAN GAMING | February 2013 6 COVER STORY Macau Gaming Revenue and China GDP Gross revenue—games of fortuneYoY % change China real GDPYoY % change 100 80 60 40 20 0 -20 16 14 12 10 8 6 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 Source:Thomson Reuters Datastream Reuters graphic/Scott Barber 8/3/2012 Guangdong Export Growth vs. VIP Revenue Growth (Monthly) GD export VIP yoy Change (R.H.S) 140% 120% 100% 80% 60% 40% 20% 0% -20% -40% Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Source: CEIC, J.P.Morgan Given the close correlation historically between growth in the rolling chip segment and the macroeconomics of mainland China, and particularly of neighboring Guangdong Province, it augurs well for 2013 that experts are confident more or less that the world’s second-largest economy is bouncing back from successive years of relatively sluggish growth. At Deutsche Bank, analyst Karen Tang believes 2013 “will be marked by the return of the VIPs”. “Leading indicators such as fine wine prices suggest an imminent recovery in high-end spending,” she says. “Junkets also believe that pent-up VIP demand is about to be released.” Butit’satrickybusiness,prognostication, especially when it comes to VIP, built as it is upon the workings of a vast, labyrinthine network of gambling room operators and promoters and junketeers and their partners and agents and sub-agents within China and without: an enormous shadow banking system responsible for more than $6 trillion in rolling chip turnover in 2012 even though individuals can legally take no more than $50,000 out of China in a year. And it’s a volatile trade. It’s credit play that operates on slender margins—8-12%, dependingon luck, after taxand the revenue split with the junkets and promoters. And being more demand- than supply-driven, unlike the mass market, it has shown itself more vulnerable than the mass market to Bouncing back—leading indicators such as fine wine prices suggest an imminent recovery in high-end spending.