Asian firms chase Chinese cash abroad
SINGAPORE/HONG KONG, (Reuters) – Malaysian casino operator Genting Bhd envisions red and gold pagodas and a panda exhibit on the 87-acre plot of Las Vegas land it bought this week, a new gambling playground for rich Chinese moving their money overseas.
A 90-minute flight away, in San Francisco, China’s biggest property developer has formed a joint venture to develop two high-rise condominium towers that are likely to draw wealthy Chinese buyers. It is China Vanke Co Ltd’s first foray into the US market, and probably not its last.
Combined, the two deals are worth about $1 billion, which could rise to at least $3 billion as Genting builds out its resort, which is due to open in 2016. That’s just a fraction of the $102 billion in outbound investment from Asia-Pacific companies in 2012, according to Thomson Reuters data.
But it signals a strategic shift.
Instead of hunting for natural resources, the driving force behind many of Asia’s biggest foreign acquisitions over the past year, these companies are investing in the United States to cater to Chinese consumers abroad.
Beijing bars individuals from moving more than about $50,000 a year out of the country. Yet vast sums leak out illegally. Estimates vary widely on just how much, but research group Global Financial Integrity said it could have been as much as $472 billion in 2011 alone.
The money goes to places such as Hong Kong, Singapore, Sydney, London and San Francisco, where a heavy flow of Chinese buyers has driven up property prices. But until the Genting and Vanke deals, there was little evidence that large Asian companies were chasing the cash to the United States.
“You have Chinese money sitting in US houses and Chinese money sitting in US banks. If you’re smart, you start setting up places for Chinese people to stay and things for them to buy,” said Derek Scissors, an economist at the Heritage Foundation think-tank in Washington, who tracks Chinese foreign investment.
Scissors said the Genting and Vanke deals represent another step in the progression of Chinese investment in the United States since the global financial crisis. First, individual Chinese investors started pouring money into US property in late-2009. Then, a couple of years later, Chinese property developers began scouring for deals, largely unsuccessfully. The Genting and Vanke transactions are early signs that Asian companies see ways to tap Chinese demand beyond China, something few US firms seem to have recognised.
The property that Genting bought had been abandoned since 2008, and the deal is the biggest new investment on the Las Vegas Strip since then. In that time, China’s gambling capital of Macau has opened four new casinos – two of them built by US gaming company Las Vegas Sands Corp.
Genting has casinos in cities such as Singapore, which is popular with Chinese visitors, but not in Macau, the world’s biggest gambling hub. The firm is not guaranteed success in Vegas, a market with thinner margins and tougher competition than in its power base in Singapore where it operates one of only two casinos.
Its arrival could spell trouble for casino rivals, too. Ratings agency Fitch warned that Genting’s arrival was a “risk” for US operators because its project will add 3,500 hotel rooms in a city where occupancy was flat last year and the average daily rate up a tepid 2.8 per cent.
“We believe the property will target high-end Asian customers, which has been the principal catalyst for gaming revenue growth on the Strip since 2010,” Fitch said, adding that high-end properties run by Wynn Resorts, Sands and others were “especially vulnerable to the increased competition from Genting.”
For Vanke, venturing into the United States makes sense now because Beijing is clamping down on property speculation at home. New restrictions announced on Friday may speed the flow of Chinese property investment abroad.