Macau's casinos rake in cash from Chinese who see gambling as an investment

Washington Post Foreign Service
Sunday, February 13, 2011; 5:39 PM

IN MACAU, CHINA At the end of a successful business trip to southern China, tire trader Yuan Shihao decided to make the most of his good fortune. Instead of catching a train home to Hunan province, he took a bus to Macau, a former Portuguese colony studded with casinos.

"I wanted to invest my earnings," Yuan explained. Only "fools," he said, put money in Chinese banks, which offer less interest than the rate of inflation.

The 30-year-old merchant spent the next 18 hours playing baccarat at the Golden Dragon Casino. Out of cash after a streak of bad luck, he took a break to pawn his watch and cellphone. Then he returned to the Golden Dragon and continued losing.

In all, Yuan blew nearly $15,000. He spent the night wandering Macau's neon-lit streets, mocked by big signs offering Chinese New Year greetings: "Congratulations and Get Rich."

Thanks to Yuan and millions of other Chinese who flock here to the only patch of Chinese territory that allows casinos, Macau now rakes in more money from gambling than Las Vegas. Last weekend alone, nearly 170,000 mainland Chinese visited, crossing a border that separates this "special administrative region" from the rest of China.

When Beijing first took back Macau from Portugal in 1999, the ruling Communist Party's record of ferocious hostility to gambling suggested it might try to slow the roulette wheels. Instead, it approved a plan to open a gambling monopoly run by local tycoon Stanley Ho and let in big players from the United States and Australia. Since 2005, Macau's casino revenue has quadrupled. In the past year alone, it grew by nearly 60 percent to reach $23.5 billion.

"Nobody expected this kind of growth," said Manuel Joaquim das Neves, director of Macau's Gaming Inspection and Coordination Bureau. Neves, the son of a local woman and a Portuguese soldier, has a simple explanation: "It's the China effect."

Its general features are well-known: blistering economic growth that last year pushed China ahead of Japan as the world's second biggest economy, and a mountain of foreign currency that has made the country America's biggest foreign creditor.

The soaring fortunes of Macau's casinos, however, also hint at more volatile forces in China: a country awash with cash following a lending blowout by Chinese banks, a widening gulf between rich and poor, a frenzied pursuit of quick profit and a financial system that penalizes ordinary savers and thus encourages risky speculation.

The gambling boom has also caused fallout in Macau: casino magnate Ho, 89 and ailing, recently became embroiled in a raucous family feud over the division of his increasingly valuable assets among three wives and at least 16 children. "The problem with Stanley Ho is that he thought he is eternal. Nobody is eternal," said Neves, the gambling regulator, who has known the tycoon for years.

Some economists warn that the same fallacy afflicts thinking about China's sizzling economy, which has not only turbo-charged Macau's casinos but also spurred feverish speculative investments, from real estate to bottles of Chateau Lafite Bordeaux wine. Sotheby's auction house last year increased wine sales in Hong Kong by 268 percent, to $52 million.

"I get asked about the 'bubble' word most days," said Robert Sleigh, head of wine for Sotheby's in Asia. "But you can't stop people from wanting something." Fine vintage wine, he said, is a "blue-chip investment."

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