In 2006, not long after gambling mogul Steve Wynn opened his first luxury hotel-casino in Macau, one of his top lieutenants took me on a tour. We began outside at the “Performance Lake,” a multimedia ballet of music lights and water jets, then worked our way along a concourse of luxury boutiques, through the Wing Lei Cantonese restaurant with its giant crystal dragon, across the crowded casino floor, to arrive at last at a special elevator, which whisked us to one of the lavish VIP suites where high-rollers from China came to indulge their passion for the game of Bacarrat. There my guide, a teetotaling Catholic who had risen up the ranks of Wynn’s operations in Las Vegas from blackjack dealer to floor manager to executive vice president for international marketing, offered to teach me how to play Baccarat on the condition that I swear to never forget the game’s first rule: The house always wins.
That rule has certainly held true for Wynn’s operations in Macau–at least until the last two years. In 2001, Wynn Resorts was among the first gaming companies granted a gambling concession in Macau after the former Portuguese colony’s communist overseers in Beijing decided to the end the two-decade monopoly of local tycoon Stanley Ho. As mainland gamblers flooded in, the tiny enclave boomed. By 2014, Macau’s gaming industry took in seven times the revenue of the entire Las Vegas strip.
On Monday, Wynn will throw open the doors to a second Macau resort, the $4.2 billion Wynn Palace. By all accounts, it will be the most expensive casino in the city. But Wynn’s prospects in 2016 are less certain than a decade ago. Macau’s gambling industry has been hit by a triple whammy of a slowing Chinese economy, Xi Jinping’s crackdown on corruption and a broader effort to transform Macau from high-roller haven to mass-market tourism destination. The Financial Times reports that gross gaming revenue fell 34% last year to $29 billion, and the Macau government forecasts a further decline of 13% this year to $25 billion.
To complicate matters, Wynn says he’s not sure his concession in Macau will be renewed, telling the South China Morning Post in an interview published Thursday: “You can ask what the process of concession renewal will look like but neither me nor, as far as I am aware, any of the other concession holders, are in a position to answer because we don’t know. I have talked extensively with the Macau government on the issue but find myself in the position where planning ahead is difficult.”
Investors seem to like Wynn’s odds. Wynn Resorts’ share price is up nearly 50% over the last six months. But remember: when it comes to betting on China’s gaming industry, Wynn’s only a player. The ‘house’ is in Beijing.
Here are some of the other developments we’re tracking in China.
Monetary policy has become a political issue in China’s leadership succession struggle. So says the Wall Street Journal in an editorial. The WSJ sees an ideological split between premier Li Keqiang and his right-hand man, deputy premier Zhang Gaoli, on one side, versus president Xi Jinping his economic adviser, Liu He, on the other. Li and Zhang want loose monetary policy and promise it will deliver a quick and relatively painless recovery for China’s economy. But Xi and Liu think China has become too reliant on easy credit and are pushing the need for “supply side” reforms to lance asset bubbles and reduce overcapacity in heavy industry. “At times the Xi camp’s diagnosis of the problems in the Chinese economy sounds like the talking points of American investor Jim Chanos and other China bears,” WSJ editors write. “The landscape is dotted with ‘zombie companies’ that need to be closed…But instead of predicting a crash, Mr Xi’s advisers predict that China’s economy will continue to grow at a slower rate and emerge stronger in a couple of years.” For better or worse, they conclude, Xi has “nailed his colors to the mast of tight monetary policy.” WSJ
And in case you’re interested in exploring first-hand some of the products of Beijing’s loose money policy, the Journal‘s China Real Time blog suggests Five Things to Look for When Visiting Ghost Cities in China. My favorite tip is No. 5: “Watch out for the film crew. Ghost cities may not be commercially viable. But they make great sets for documentaries, films and videos….” Maybe they could film the next Ghost Busters in China. Who ya gonna call? WSJ
It’s earnings’ season, and there are some interesting winners and losers.
Mobile games push Tencent Holdings revenues gain 52% for the 2nd quarter. Net profit increased 47%, better than expect. In the three months to the end of June, Tencent raked in $1.45 billion in revenue just from mobile games. Bloomberg
Lenovo’s net profit jumps 64% on cost savings. But those savings come mostly from integrating its acquisition of Motorola’s smartphone business and an IBM server unit. WSJ
Meanwhile, Cathay Pacific Airways reports an 82% slump in first-half net profits, reflecting a decline in corporate travel and hedging loss from a wrong-way bet on fuel prices. Cathay’s cargo-carrying business also faltered, with yield slipping 17.6% SCMP
Is Australia becoming a proxy for Chinese anger towards the United States? Financial Times columnist Gideon Rachman thinks so. The problem started, he says, when the Ausies sided with the US and Japan in support of a ruling by The Hague in favor of Philippines’ claims to China-occupied islets in the South China Sea. But things turned nasty when Mack Horton, the Australian swimmer, dissed his Chinese rival Sun Yang as “drug cheat” at the Olympics in Rio. Then the Australian government blocked Hong Kong billionaire Li Ka-shing and China’s State Grid from buying Ausgrid, a large Australian power generator. “Australian could emerge as a geopolitical flashpoint” for rising tensions between the US and China, Rachman warns. FT
Theresa May will visit China next month. China-UK relations have cooled since May replaced David Cameron as prime minister. Chinese diplomats have made it increasingly plain that Beijing is dismayed by May’s decision to review Chinese involvement in the Hinkley Point nuclear power project. In a letter to Chinese premier Li Keqiang May says she supports the G-20 summit in Hangzhou, says she’s looking forward to attending, and adds that she hopes to build a stronger trade relationship. FT Hang on, hadn’t UK diplomats confirmed that May would be going to Hangzhou for the G-20 anyway? Did she really need to write a letter RSVP-ing? The Guardian’s Mary Dejevsky doubts the Chinese will be impressed.
Japan readies a new missile to counter China’s rising profile in the East China Sea. The FT reports that Japan plans to develop a new tactical ballistic missile to protect disputed East China Sea islands which Japan controls but China also claims. (Japan calls the islands the Senkakus; China calls them the Diaoyus.) The new missile would be positioned on Japanese islands in the East China Sea with a range that stretches to the edge of Japan’s territorial claims. The idea is to discourage naval aggression. Japan is also looking for ways to enhance its existing surface-to-ship missile capacity.Japan scrambled fighter jets a record 199 times in the second quarter as Chinese military activities in and around Japan’s territorial waters intensified. FT
Xi talks up his One Belt, One Road initiative at a party work conference yesterday amid signs that other nations are suspicious of the plan’s objectives. The SCMP notes that a string of reversals for China-led infrastructure projects in Belt and Road countries including the Thai government’s decision to reject Chinese financing for a $15 billion railway project, backtracking on a proposed Chinese joint venture to build a high-speed railway in Indonesia and the suspension of a series of Chinese-backed projects in Myanmar. SCMP, Time
And don’t miss this video excerpt of the SCMP’s interview with Steve Wynn: SCMP.tv