TWS: Dec. 6, 2021

Graph of the Week | Industry

Macau Loses the House on Illegal Gambling

A recent crash in Macau casino stocks is a potential harbinger of tough times to come for the ‘Vegas of Asia.’ The world’s largest gambling hub has become a major target of Beijing’s effort to stem the cross-border outflow of money, deeming it a national security risk, and investors are saying ‘all bets are off’ for the time being.

The city has been crippled by losses amid strict pandemic restrictions on tourism, and casino operators were recently dealt another blow after the arrest of Alvin Chau, the CEO of gambling group Suncity Group Holdings, for alleged links to illegal cross-border gambling. Suncity’s shares were suspended from trade as well, raising fears among investors of a broader industry crackdown.

Casino stocks have continued to drop across the industry in recent months. As of this week, Sands China, Wynn Macau, and MGM China have all seen their Hong Kong share prices drop more than 50% from year-to-date highs.

Bottom line: The economic costs associated with an anti-gambling crackdown are part and parcel of China’s growing pains as Beijing seeks to flush out corruption and illegal capital flows. Yet, despite the current bout of choppy water, Macau still offers plenty with its status as the only place in China where casinos are legal. Once pandemic restrictions ease, pent-up demand could fuel a speedy recovery, and investors may once again roll the dice on Macau’s future.


All’s Gucci for Luxury Brands in China

Global luxury goods sales are catching up to pre-pandemic levels, and China is at the front of the line tying the bow on a sharp “Louis-V”-shaped recovery.

Luxury goods have continued to explode in the country, where the market size has doubled since 2019:

  • China’s share of the global luxury goods market accounts for ~US$68 billion, or 21% of total sales YTD in 2021.

Yet, despite otherwise lackluster domestic retail consumption, the outlook for the domestic luxury goods market looks downright Gucci:

  • The market is projected to account for nearly 50% of all luxury goods sales by 2025.

This is primarily being driven by growing incomes…:

  • ~25% of China’s population belonged to the global middle class in 2018, a drastic increase from under 1% in 2002.
  • The number of Chinese households earning upper-middle class incomes is expected to grow by 68% between 2020 and 2030.

…and new digital sales channels:

  • Tmall’s “Luxury Pavilion” boasts customized services and brand-specific loyalty programs.
  • JD’s “JD Luxury” offers its partners perks like WeChat mini stores and livestream fashion shows.

All the more tasty, the Burberry on top lies in the margins:

  • A new Bain report expects the industry average pre-tax profit margin to grow 21%.

Bottom line: As Chinese e-commerce platforms begin offering more sophisticated digital storefronts and tailored sales experiences to high-end retailers, global brands are signing on the dotted line to vye for a growing population of increasingly affluent and digital savvy consumers. This is all to say, as other industries may be considering reducing their exposure to the Chinese market, expect the luxury goods market to fashion its own trend and Chanel more investment into the country.

Business | Industry

The WTA’s Grand Slam on China

The Women’s Tennis Association (WTA) has officially slammed back at China over the Peng Shuai case. The group announced it will be suspending all competitions in the country after authorities failed to properly acknowledge the tennis star’s claims of sexual assault against a former top Communist Party leader and instead disappeared the Olympic player.

In recent years, more foreign sports-related companies have seen China’s growing middle class as a perfect place to score an ace. As Beijing pushes to enhance cultural life for its citizens, the sports market offers a rapidly growing opportunity for businesses, whether through merchandise sales, competitions, or sponsorships.

As such, it’s not as easy as “game, set, match” for the WTA. Their stance could cost them hundreds of millions of dollars in the women’s tennis market, and the organization itself had set deals to offer millions as prize money in the coming years.

Still, the it’s not alone. Along with the WTA, the Association of Tennis Professionals (ATP) is launching a probe into the #whereispengshuai case. If more organizations follow suit, it could set precedence for high visibility organizations to take a stance against Beijing.

Bottom line: For the past few years, global organizations have found themselves treading a fine line between increasingly nationalistic consumer sentiment in China and growing international calls for activism over the CCP’s human rights abuses. While some organizations have decided the juice is still worth the squeeze, others have deemed the reputational risk of Chinese operations to have grown too large for comfort and begun to push back. The WTA’s case marks a clear line in the sand, and pressure to boycott the upcoming Beijing Winter Olympics has already begun piling up for the International Olympic Committee.

Industry | Technology

Who Wins in the US-China Commercial Space Race?

Many believe that another space race has begun – but this time between the US and China. It’s easy to see the historical parallels with that of the 20th century: a period of political tension between two global superpowers, a surge of innovation in the field of aerospace technology, and individuals who interpret scientific achievements as vindication of their nation’s superpower status.

However, much like the original space race, there is a more positive interpretation of these advancements in the aerospace sector. Rather than viewing the new space race as another geopolitical battlefield, one can view it as a renaissance of aerospace innovation with benefits for both nations.

Read more about how commercial space companies are leading the way in the US-China space race in our latest China Insights article:

Full Article

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