Updated 4:59 PM EDT, Fri, Oct 11, 2019

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Could China Learn Anything From Macau’s Standing in the Gambling World?

  • Macau has flourished as a gambling resort in recent years
  • In 2016 it received 30 million visitors, and in 2017 its weekly revenues eclipsed Las Vegas's
  • China is drafting a proposal to allow gambling on Hainan Island to replicate Macau's success and cater for its population's appetite for gambling
  • In doing so China stands to gain billions more in casino tax revenues and income from tourism

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    Located on the Western side of the Pearl River Delta, Macau is a remnant of European colonialism. A former Portuguese trading port, the city's governance was transferred back to China in 1999, two years after fellow former colony Hong Kong was handed back by the British. Now, Macau has developed a new reputation for gambling as it tries to compete with a city that is culturally different every possible way - Las Vegas. Macau is the most densely populated region in the world; it had a population density of over 21,000 people per square kilometer in 2016. 95% of the population is Chinese, with just 42% of the general population having been born in Macau.

    Macau's gambling culture began in the 1850s when the Portuguese governor legalized it to try and cut down on black market gambling houses. One hundred years later, the Fantan system was introduced to provide Chinese-style gambling and another one hundred years after that, the Sociedade de Turismo e Diversões de Macau (Tourism and Entertainment Company of Macau) established the first modern casinos, with the Casino Lisboa (Casino Lisbon) opening in 1970. Since then, Macau established itself as the world's second most successful gambling tourism destination after Las Vegas, with 40% of the territory's GDP now coming from the gambling industry, and over 70% of its tax revenue collected from casinos. But in 2017, it became the gambling capital of the world as its weekly revenues overtook Vegas's.

    A history of gambling

    Macau is a success story of monumental proportions - and the way gambling has flourished here has only been made possible by a specific set of geographical and political conditions that affected the entire region. As the graph below shows, Macau controls the gaming market, leaving Las Vegas second best when it comes to gaming revenue.

Macau has gone from fishing and trading port to gambling Mecca, complete with sky-scraping hotels

For Hong Kong, horse racing became the preferred gambling outlet, and for Macau, it was casino gaming. This soon led to Macau being nicknamed the 'Monte Carlo of the Orient'. Chinese visitors were permitted to enter the territory, often specifically to gamble, which in turn created an entire tourism industry to serve visitors, just like Las Vegas. The trading port that was more famous for textiles has exploded over the past 50 years, and is now basking in now more of a millionaire's playground rather than a typical Chinese city. This additional freedom is where China is now starting to see that gambling can indeed be very lucrative, with a few ideas already emerging for how gambling will evolve and develop.

China has long had a fascination with gambling, with wagering over games like Mahjong stretching back to the very foundations of the game. When the Chinese Communist Party took power in 1949, all forms of gambling were made illegal and gambling was forced underground. Since then, some legal state lotteries have appeared, but in practice, it's still completely against the law to offer gambling services or indeed to gamble in mainland China. This is where Macau, and fellow Special Administrative Region Hong Kong, were able to offer an answer to this problem, thanks to their laws being dictated by both Portugal and Great Britain before the handovers in the late 1990s.

Getting in on the action 

    Hainan is already a popular destination for Chinese tourists

    One of the biggest tourist migrations in the Far East happens pretty much every day in the city, with China's growing middle and upper classes, as well as those from Japan, Thailand, Malaysia and other Far Eastern countries with growing economies, taking their new-found wealth to the Cotai Strip.

    In 2016, Macau received 30 million visitors - an increase of 7.9% on the previous year. Most of these people tended to stay two or three days, according to the Tourist Office.

    There is a clear correlation between China's GDP growth and Macau's gross gaming revenue, it could be this that is reportedly encouraging China to discuss legalizing gambling, especially given the country's economic boom in the early 2000s to the present. Its emerging middle class now has a greater disposable income, with China's average wage now over 7 times as high as it was in 2002.

    It isn't just Macau that is a factor for reform either, with countries like the UK showing that it's entirely possible to have a heavily-controlled gambling industry that is packed with economic benefits and has shaken the historic associations between gambling and organized crime. In the UK, the online industry alone is now worth well over £4.5 billion to the UK economy each year, with growth expected to continue well into the future. In 2016, online gambling comprised 33% of all gambling in the UK, according to the Gambling Commission.

    This is largely thanks to online gambling operators providing an experience that increasingly replicates the real thing. This is one area that Macau has not embraced yet, licenses cannot be issued to online gambling operators as there is no legal framework for doing so. In contrast, the UK gambling industry is thriving, this largely due to the stance on online gambling, sites like 888 Casino online are able to provide their players with high-quality games in the comfort of their own home, often making them more appealing than a trip to a land-based casino.

    Is a China-run gaming resort on the horizon?

    It's widely anticipated that China will be legalizing gambling on Hainan Island, China has already had the idea of opening up their own specially designed gaming resort, in order to not only compete with Macau, but to act as a test bed for legalized gambling across a larger community. The Island of Hainan on the South coast of China has been mooted as a premier gambling destination since 2010, with the local authorities welcoming the idea of new multi-million dollar resorts from the world's biggest casino brands helping to develop their economy, but talks are still gaining traction, with legislation apparently not far off.

    This spelled concern for Macau, with fears of the current monopoly on Chinese gambling potentially being disrupted with new casinos in Hainan, and this is exactly what the Chinese government wants. Starting fresh and operating state-run casinos would mean more revenue, rather than simply taxing the profits of casinos in Macau who will serve investors and owners before the government.

    It's not all rosy in Macau

    Macau and the casino scene has received its fair share of negative press in recent years. There were fears that large sums of money were leaving the mainland through ATM's near casinos. In order to counter this Macau have added an extra layer of security, China's UnionPay bank card requires users to scan their identity card at ATM's, this uses facial recognition to verify the user and track any illegal activities that may be taking place.

    The UnionPay bank cards first came under fire in 2014, an investigation found that people from mainland China were using the cards in Macau as a way of getting around the cash withdrawal limits. It was suspected that these people were either using the money to gamble, or sending it other countries.

    The Chinese government continued to carefully monitor all of the casinos in Macau, the aim was to prevent money laundering, racketeering and a whole host of other criminal activities. This crackdown had an adverse effect on the casino industry, many big-spenders were deterred from leaving mainland China to visit Macau. In 2014 it was estimated that 6 of the biggest casinos in Macau lost a total of $100 billion in the stock market. There is no doubt that these problems impacted the Chinese government's thought-process surrounding the legalization of casinos in mainland China.

    China may also be reluctant become as reliant on the gambling industry Macau is, as the chart above shows, gaming makes up 58.3% of Macau's industries. This suggests that if the gambling industry in Macau did begin to struggle, there could major implications for the rest of the country.

    The benefits of casino tourism

    The Venetian Macau, complete with gondolas and a mini St Mark's Square

    The other side of the coin for China would be an even bigger boost in tourism, both domestically and from other countries around the world. Casinos like the $1 billion Venetian in Macau, a carbon copy of the world famous Venetian in Las Vegas, are some of Asia's top attractions, and Macau's very own row of casinos, the 'Cotai Strip', have contributed to the city-state receiving over 30 million visitors in 2016. With a resort in Hainan, or others on the mainland, the Chinese government could be raking in the money spent on hotels, restaurants, shopping and tourist trips that more casino visitors would bring with them.

    As it stands, China is still taking baby steps towards having their own Macau-style resort, and of course, there's still the same levels of concern and opposition that can be found in other countries that are mulling over the idea of legalizing gambling. The big difference for China, however, is the proof in the pudding that Macau's gaming industry now only works, and is making plenty of money. And for the world's biggest superpower, money will definitely talk. It might be worth checking those cheap flights to Hainan sooner rather than later.

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