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Macau's casinos rake in cash from Chinese who see gambling as an investment
13 February 2011

From the Washington Post on February 13, 2011:
CHINA -- At the end of a successful business trip to souther 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 Portugese 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 cellohone. Then he returned to Golden Dragon and continued losing.
In all, Yuan blew nearly $15,000. He spent the night wandering Macau's neon-lit streest, mocked by big signs offering Chines 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, it grew by nearly 60 percent to reach $2.3 billion.
"Nobody expected this kind of growth," said Manual Joaquim das Neves, director of Macau's Gaming Inspection and Coordination Bureau. Neves, the some of a local woman and a Portugese 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 hit 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 Rober Sleigh, head of wine for Sotheby's in Asia," By you can't stop people from wanting something." Fine vitage wine, he said, is a blue-chip investor."
An unusual feature of Chinese thinking on money, however, is that it often "mixes up investment and gambling," said Davis Ka-Chio Fong, director of the gaming studies center at the Unversity of Macau. Fong, who co-wrote an academic paper on the phenomenon, said many mainland Chinese "see gambling as an investment and investment as a form of gambling."
His paper found, for example, that many in China view the stock market as being much the sames as a casino - a potential source of "instant or quick rewards."  Chinese banks, by contrast, are seen as a sure way to lose money: inflation far outpaces recently hiked but still-low interest rates on deposits.
Gamblers "are not rational but they are not stupid: they know mathematics," Fong said. He noted that the vast bulk of Macau's casino revenue comes from a single game, baccarat, which offers slightly better odds than alternatives.
Of Macau's total revenue from casinos last yearl, nearly three-quarters came from high rollers, mostly Chinese, playing baccarat. Unlke Yuan. the luckless tire trader, these gamblers place their bets in VIP rooms. Their travel, five-star hotel accommodations, and even gambling money is arranged - often on credit - by a network of agents known as "junket collectors." This system allows high-stakes Chinese gamblers to skirt restrictions that limit the total amount a person can take from the mainland each year to $50,000.
"Of course, this is illegal," Fong said. But it does not mean that gamblers who lose on credit return to China safeult. The agents who loan them money want to make sure they recover their cash.
The junket system highlights another problem at the core of the economic boom in Macau as well as China: rampant corruption.
A 2009 study based on reports in official Chinese media found that 57 percent of Chinese high-stakes gamblers in Macau are either government officials or senior managers in state-run companies, the main beneficiaries of easy credit from state-owned banks. On average, these officials and managers each lost $3.3 million - nearly all of it public money.
In one such case, for example, Li Weimin, the Communist Party cheif in a town in southern China's Guangdong province, gambled away $11.5 million before his arrest in 2006. Though paid an official salary of only a few thousand dollars, Li lived in a 30-room house and owned other property worth millions. All the money he 'invested' in gambling and real estate, according to police, was embezzled from government-owned businesses.
China has since imposed tighter restrictions on state employees traveling to Macau, limiting the number of trips they can make each year. Zeng Zhongly of Macau Polytechnic Institute, a co-author of the 2009 study, believes this has had some effect and estimates that private businessmen have replaced officials and state-run enterprise managers as Macau's biggest source of revenue. But he also noted that since his study China has sharply curbed media reporting of officials who run amok in Macau.
The occasional account of a party official losing his shirt in Macau still trickles out. Shortly before last week's New Year holiday, a newspaper in the western Chinese city of Chongqing reported on a wayward local official dubbed the "gambling king," apparently as a warning to colleagues who might be planning a trip to Macau for the holiday. The official, Lin Xinyong was said to have extorted $4 million in bribes and lost $250,000 of it during a two-day gambling spree in Macau.
Liu Xinyong has two loves: his first love was power, his second, gambling," reported the Chongqing Evening News. A court last year found Liu guilty of bribe-taking and consorting with criminal gangs. He is now on death row in Chongqing.
Neves, the director of the gaming bureau, thinks Macau's casinons have been given a burn rap. Chinese officials who get arrested for embezzling state money "use Macau as an excuse" to protect their stolen assets. "If they say the lost all their money in Macau, how can the government ever get it back?"

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