China's Overextended Consumers Can't Stop Adding Debt

Macau has long been regarded as a barometer of China’s economic activities. This makes sense as long as much of China’s economy continues to be driven by construction and manufacturing. That’s because few “internet bosses” frequent casinos to entertain business associates. It's the coal bosses, steel bosses and real estate bosses who readily throw down large sums of money in the VIP rooms with their guests to lubricate business deals. Keep in mind that Macau is not -- and likely will never be -- Las Vegas. Macau is a place dominated by well-heeled gamblers, not those looking for $5 slot machines.

In that sense, investors and economists are right to trumpet this week’s gross domestic product report that showed China’s economy expanded a stronger-than-forecast 6.9 percent in the second quarter. Gaming revenue in Macau’s fabled VIP rooms has bounced back from a long period of negative growth between mid-2014 and the end of 2016. In the second quarter, gaming revenue from VIP players rose the most in three years, jumping 38 percent from a year earlier. That’s almost 27 percentage points more than the growth in the non-VIP, or mass customer, segment. This acceleration sends a strong signal that China’s old economy is not only back, but it’s booming.