Months before this crash of the Chinese stock-market signs China’s economy was headed for a fall might have been discerned in the sudden and dramatic decline in baccarat play among Chinese rollers at Las Vegas casinos.
According to Gaming Control Board analyst Michael Lawton, the total amount bet on baccarat had been sliding, increasing just three times year-over-year in the last 12 months.
In March alone baccarat play fell over 30 percent. Baccarat now makes up 15 percent of total gaming win in the state and nearly 38 percent of Game and Table win.
This spring the Chinese government began a massive crack down on graft and corruption which either put many baccarat players in jail or made them much more cautious about taking gambling junkets to Las Vegas.
With the perfect vision afforded by hind sight the drop in baccarat play presaged this week’s crash in the Chinese stock market by at least four months.
China’s stock market was riding high in mid-June, but troubles began when the market went into a slide that took it down by 30 percent in early July. Shares lost more than $3 trillion in market value. Over half of the companies listed in Shanghai suspended trading.
Financial firms stepped in, and mutual fund executives injected their own capital into the market. Brokerages made a cumulative $19.3 billion investment in a blue-chip fund to effect stabilization. Firms with IPO designs in Shenzhen and Shanghai postponed those plans and returned capital to investors.
China’s securities regulators also implemented a series of stimulus measures in an attempt to avert the crisis. Pension funds were allowed to invest 30 percent of their net assets in equities. State-owned and state-affiliated firms were directed to buy shares, and had to provide assurances that they would not dump those shares, meaning the government was barring investors from selling the shares they owned. Rules for trading stocks with borrowed money were relaxed. Banks were allowed to loan money to companies using stock as collateral.
For a moment, it looked like the Chinese government’s stimulus measures paired with the actions of financial firms had paid off, wiping away bearish sentiment. There were hopeful signs of a market recovery, and the arrows were red again. The Shanghai Composite was up 16 percent from its lowest point in July. Retail investors were a little less worried.
That didn’t last. The bulls ran with their tails between their legs. The halo around the red Chinese flag in the world of finance lost more than a few lumens.
The drop off in recreational gambling could have indicated that long before the crash an aversion to risk was growing among the Chinese. And while that aversion could have a long lasting impact both on the world financial markets and on the Las Vegas Strip, Nevada Casino industry will survive.
The income generated by baccarat really saved the gaming industry back in 2008 and 2009, since then the industry has recovered enough as not to need baccarat as desperately as it did.