Hong Kong's seedy neighbour hits the jackpot at last - Saturday 12th of March 2005

With mobsters jailed and foreign investors pouring money into its gaming industry, Macau is enjoying a spectacular boom


Michael Swing does not have to go back far to remember the bad old days in Macau, when Triad gangs were blowing up cars and spraying bullets at each other in shopping malls.

In between the gun battles of the late 1990s, he says, some of the most notorious mobsters were regular customers of the Casino Lisboa, of which he is regional manager. "Broken Tooth Ju was one of our high rollers. He was very well behaved. If he lost a lot, he would sometimes get angry and smash an ashtray. But that's all. He never once threatened to kill any of our dealers."

Just five years ago, such tales fitted the worst stereotype of this former Portuguese colony, which was widely viewed as a centre of gambling, prostitution and money laundering, a playground for some of the world's shiftiest tycoons; and a poor and sleazy cousin of nearby Hong Kong. But since it was handed back to Chinese rule in 1999, the territory has experienced one of the most spectacular bursts of economic growth in history and it is now aiming at a new reputation: the entertainment capital of Asia.

Under a $17bn (??8.8bn) plan unveiled yesterday by the Las Vegas mogul Sheldon Adelson, Macau will build a gambling strip on reclaimed land with seven casino hotels, 60,000 rooms, dozens of restaurants and waterways plied by gondolas.

The flagship will be a Venetian resort, similar to the one in Nevada, with 3,000 bedrooms, 585 gaming tables and 5,000 slot machines. "I had a dream one night. All of a sudden it came to me. There's room there and demand to create Asia's Las Vegas," said Mr Adelson, one of the 20 richest men in the world.

Macau, which already generates 90% of its income from gambling, has hit the jackpot again. Thanks to the opening of the gaming industry to foreign investors and a relaxation of travel restrictions on the Chinese mainland, the territory is expected to overtake Las Vegas this year in terms of casino revenues.

For the past two years its economic growth of more than 25% has made even China look like a laggard. The statistics do not stop there. In the past 12 months, property values have jumped more than 50% and visitor numbers by 40%. Incomes are growing so quickly that its 430,000 residents are starting to think the once unthinkable: that they may one day be wealthier than people in Hong Kong.

There is some way to go. Today, Mr Adelson's dreamland is little more than 1.8 sq miles of mudflats beneath a humped bridge linking two of Macau's islands. But a forest of piledrivers has started laying the foundation for the Cotai development, which will be one of the biggest resorts in the world. It is not the only sign of change. New casinos and hotels are opening every few months.

To cope with the influx of 16 million vis itors, the city has built a six-lane bridge and is planning a light railway, an airport expansion and a second ferry port.

More exotic edifices are being thrown up at the Fisherman's Wharf theme park, where construction workers are busy on a half-completed volcano, a giant replica of Rome's Colosseum and a row of mock-Tudor mansions.

The main lure for investors is the market of 1.3 billion potential gamblers in China. In the past two years 14 mainland provinces have loosened travel restrictions, opening the door to Macau for hundreds of millions of people. Similar liberalisations being planned by a further 16 provinces will expand the territory's potential market by half a billion.

"The mainland could send so many people that, if there were no piling, they would sink the strip," Mr Adelson said.

As well as being numerous, Chinese gamblers tend to bet more intensively. In Las Vegas the average visitor stays 3 days, plays mostly slots and loses $140. In Macau, people come for only a third of the time but lose more than twice as much, mostly on the baccarat tables.

"It seems to be a particular feature of Chinese culture that people can't help but gamble," said David Green, a Macau-based analyst for PricewaterhouseCoopers. "When you look at the boom mentality in China now, the indications are that the confidence of foreign investors in Macau is well placed."

Compared with the tuxedo-wearing gamblers of Monte Carlo, the anorak and jeans clad customers of the Lisboa do not look wealthy, but appearances are deceptive. In the VIP room of the Lisboa the baccarat table is scattered with rectangular HK$10,000 chips, each worth more than the average income in mainland China. The house limit for a single stake is HK$2m (??130,000), but Mr Swing says he has seen games with more HK$30m (??2m) riding on the result.

Macau has always attracted more - and shadier - high rollers than other gambling centres, partly because it is so unregulated. There is no limit on credit, ID checks are rare and prostitution is so tolerated that hundreds of women get lottery tickets from the Lisboa security office to determine which of them gets the opportunity to parade in the first-floor pick-up arcade.

Rumours of money laundering are widespread, as are reports about the business connections between the territory's most influential businessman, Stanley Ho, and North Korea's leader, Kim Jong-il. Mr Ho, who owns the Lisboa and 70% of Macau's gaming business, opened a casino in Pyongyang several years ago that has yet to make a profit.

But Macau is under pressure to shed its sleazy image. Amid a flurry of reports about mainland officials squandering millions of public money on baccarat, blackjack and roulette, the government in Beijing has stiffened penalties for the misuse of funds and urged Macau to tighten its identity checks. The success of American casinos is also driving change.

Last May, when Mr Adelson's Sands became the first fully foreign-owned casino to open in Macau, the managers had a clear vision. "We designed this place to be the antithesis of the Lisboa," said Frank McFadden, the Sands chief operating officer. "Where they had low ceilings, we have high; where they were dark, we are light; where they went for the cheapest chairs, we have gone for the most comfortable."

Despite initial scepticism that hardcore Chinese gamblers would appreciate such features, the Las Vegas-style gambling experience has proved popular with low-rolling mainlanders. "I prefer the Sands because the ceilings are higher and it's cleaner than the Lisboa," said Ms Li, a retired cement factory worker who had arrived on the bus from Guangzhou with plans to bet a substantial part of her small monthly pension on the Asian Princess slot machine. "The showgirls are a bit noisy, but otherwise it is a good way to relax. Life would be boring otherwise."

At first sight, it may seem strange that Macau's casino industry has thrived since the territory was handed over from Portugal to the nominally communist government in Beijing. But the mix of authoritarian politics and liberal capitalist economics has created the ideal environment for a gambling boom. Broken Tooth Ju and several other mobsters have been locked up, the gang wars are no longer on the streets, and Mr Ho's monopoly has been broken by foreign competition.

Despite social problems, Macau's residents are embracing the once-stigmatised casino industry. A few years ago, many local families refused to allow their children to work as dealers. But now, with casino salaries twice as high as the average wage, many young people want such jobs.

Kwang Fung of the economic department of Macau University says: "The only problem is that some university students are quitting their courses before graduation to go and work at casinos. They think, 'Graduates earn less than dealers, so why bother to study?'"

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