Can Asia's Gambling Industry Continue to Thrive?

When Edmund Ho, Macau's first chief executive, assumed office on December 20, 1999, the former Portuguese colony near Hong Kong was a very different place. Hong Kong business mogul Stanley Ho had a monopoly on the region's sleepy gambling industry. The Triads, southern China's organized crime conglomerates, killed openly in the streets, and the economy was shrinking fast.

But on Sunday, when his successor Fernando Chui officially takes over on the 10th anniversary of Portugal's handover of its tiny holding to China, Ho will be leaving behind a place that's been transformed into the world's must lucrative gambling hub. Macau attracted nearly 18 million tourists and raked in over $12 billion in gambling revenue in the first 10 months of 2009 — not bad for a local population of only 560,000. In terms of gambling revenue, Macau first surpassed Las Vegas Strip in 2006, and the city hasn't looked back, increasing the number of casinos from 24 in 2006 to 33 today.

Though Stanley Ho (who has no relation to Edmund) is still a major player in the gambling scene, his 40-year monopoly ended in 2002, bringing in stiff competition from the likes of Steve Wynn and Sheldon Adelson's Las Vegas Sands. The resulting casino and hotel boom helped Macau average double-digit GDP growth over the last seven years. The Portuguese may have first legalized gambling back in 1847, but Macau's economy has never before grown so fast or relied so heavily on the industry. Macau has bet the house on gambling and so far it's paid off, but can Macau's hot streak continue?

To a certain extent, that will always depend on Beijing. Like Hong Kong, Macau is officially part of China but has a separate system of government. Unlike its neighbor, however, Macau is fully dependent on mainland China for its steady stream of tourists. Macau is the only place in China where casino gambling is legal. In June 2008, when Beijing clamped down on the number of times mainlanders could visit Macau, the number of visitors coming into Macau fell for the first time in five and half years. With China's travel restrictions in place, year on year, gambling revenues fell by 30% in January 2009, and Sands stopped construction of several casino projects, laying off thousands of workers. Since then, China has eased its visa policy to Macau, and by November this year, the baccarat and blackjack tables were once again filled with Chinese mainlanders. Gambling revenues jumped 59% compared to the previous November.

Despite a rough start to the year, Macau has not hedged its bets and has gone all in on casinos. Antonio Ng, a pro-democracy Macau legislator, says so long as Macau "keeps very good relations with the central government, then growth will be maintained," but, he says Macau's "main problem" is that this "is taken for granted."

But the region's focus on casinos doesn't just leave it financially vulnerable to the fickleness of the gambling industry or the whims of Beijing politicians. According to some residents, it has also shifted the government's focus away from topics essential to Macau's cultural identity. The unique artistic and cultural offerings of Macau's mulit-cultural past have not been properly supported by the government or casinos, says Miguel Senna de Fernandes, a Macanese lawyer. These days "everything starts from the casino's point of view," says Fernandes. Macau may be able to bring in Beyonce or the Black Eyed Peas to town, he says, but "that doesn't say anything about Macau." Fernandes and others see Macau's unique background as a Portuguese trading port as an asset that could help attract visitors who might be more interested in the area's rich history than in striking it rich. If the casinos don't help Macanese culture, Fernandes says, "Macau will become just another common city with casinos — nothing more than that."

With few democratically elected positions, Antonio Ng, one of 12 of the 29 legislators who was directly elected, says many of Macau's politicians aren't responding to the needs of Fernandes or other Macau residents. Instead of watching out for the public interest, he says, the "ruling class" is transferring money and influence to private companies. "This is not illegal," he says, because "the chief executive approves these decisions." Chui, the new chief executive of Macau who takes over on Sunday, was chosen by a 300-member committee, and at the moment, he does not appear to have popular support. Though reliable polling data does not exist, in an informal online election, Chui came in a distant third, pulling in just over 10% of the vote. Ng says that right now Macau has an "authority problem," but he expects Chui will try and maintain status quo rather than go out of his way to institute democratic reform.

Still, the current political structure has allowed many of the casinos to succeed, a benefit that has managed to trickle down to Macau's poor. Davis Fong, the director of the Institute for the Study of Commercial Gaming at the University of Macau, says before the handover, there were over 7,000 families living under Macau's poverty line. Today, that number has dropped to about 3,000, a decline widely attributed to the jobs the casinos have created. The government hasn't ignored the people, says Fong, it's just that "the efficiency of the government is not so good." Though no one can predict how Chui will react to calls for electoral reform, Fong says there will be "some pressure from the public pushing the government to give more rights or more political power to the local residents."

Macau can't rely on gambling alone if it's going to continue its economic growth, Fong and others acknowledge, but Fong is optimistic that the success of Macau's casinos has literally helped pave the way to its future. With Macau becoming the world's biggest gambling moneymaker, China has planned ambitious transportation projects like an improved railway system and the world's longest cross-sea bridge connecting Macau to Hong Kong to draw visitors. What happens when they get there remains to be seen: The city still has only about 18,000 hotel rooms, still over 100,000 fewer rooms than Las Vegas and not yet enough to hold major conventions. But with good deals available for rooms and improved infrastructure, Fong is optimistic that Macau will grab a share of the lucrative convention market when the number of rooms increases by more than 10,000 in the next two to three years. This will, in turn, lead to the development of a larger retail and entertainment sectors.

In the end, no one knows what cards Macau will be dealt over the next ten years. China could intentionally slow Macau's growth to allow the infrastructure to catch up with the casino boom. The world could dip into another recession, or China's growing number of millionaires and billionaires could keep streaming into Macau, keeping the region flush with cash. After a decade of unprecedented growth, Macau's skyline is nearly unrecognizable, and the next decade will surely bring more changes to the once quiet colonial town. Fernandes just hopes Chui, as its new leader, will face some of the region's growing pains with new ideas and ensure that Macau turns into something more than just another generic cluster of gambling dens. "There are still a lot of problems to be solved," says Fernandes, "and in order to solve them, you have to be different."