hile Macau, located on China's southern coast, was one of the world's fastest growing economies in 2011, a slowdown in China's turbo-charged economy has started to trickle down to the casino-crammed enclave, most visibly in a drop spending by billionaire VIP gamblers from mainland China.
Analysts have been expecting growth to ease since last year and said May's figure was within expectations. Most remain confident that a financial collapse for the tiny territory, one-third the size of Manhattan, is not on the cards.
Revenue is likely to remain steady due to rising demand from China's expanding middle class and critical infrastructure developments.
Gabriel Chan, an analyst at Credit Suise in Hong Kong, said May marked the start of a tough year-on-year comparison due to the opening of Galaxy Entertainment's new casino on the Cotai strip in 2011. “It is not the time to get in yet, we need to wait for better entry points. I think that will happen likely in August," said Chan. He is not yet revising down a forecast of 24.6 percent annual gambling revenue growth due to stronger than expected growth in the mass market segment.
Falling property prices, weak stock markets and easing overall economic growth in China has dampened the ability of China's high rollers to splurge millions on gambling, resulting in more subdued VIP revenue growth. "The VIP slowdown is more severe than expected but we need to wait until around the fourth quarter for an easier year on year comparison. Loosening in China will also help VIP but between now and then, hang on tight."
Macau's boom over the past two years was aided by ample liquidity in China and escalating property prices that inflated the asset value of many of China's big spenders. High net worth gamblers were also given credit by Macau's junket operators, and their spending helped contribute around 70 percent of Macau's total gross gambling revenue which reached us$ 33.5 billion in 2011.
A new us$ 4 billion casino by Las Vegas magnate Sheldon Adelson's Macau unit Sands China which opened in April this year has failed to lift growth rates significantly. Despite tepid growth rates, casino operators such as Steve Wynn, known for creating Vegas landmarks such as the Bellagio and the Mirage, are pushing ahead with plans to expand in Macau.
Wynn Macau and Galaxy Entertainment are already building new casinos on the Cotai strip, a stretch of reclaimed land off Macau's main peninsula. MGM China, SJM Holdings and Melco Crown are still waiting for permission to start construction on their respective casino projects.