HOW HE SEES IT Casino boom in Asia could be disastrous

On an average spring Tuesday evening inside the Sands, a shiny, gold-colored casino that resembles a cross between a palace and a windowless Masonic temple, crowds are lined up three-deep at the gambling tables. When one blackjack player folds for the evening, others scuffle to take his place, jostling to grab a seat and quickly smacking down huge piles of chips. On other levels of the casino, guests scarf down buffet food, and high rollers drop their cash in luxurious private rooms.
Fighting for a chance to gamble is not unusual at this casino. When it opened last year, its security force had to hold back a throng of thousands of would-be gamblers. Frantic to get inside, the mob tore the hinges off the massive glass-plated doors, knocking fellow bettors to the ground.
This was not Las Vegas or Atlantic City. It was Macau, a tiny former Portuguese colony in southern China and the only place in China where gambling is legal.
End of a monopoly
Since 2002, when Beijing ended the monopoly on Macau gambling that was held for decades by one local businessman, the city's economy has exploded as Vegas tycoons have descended en masse and embarked upon an orgy of construction. The first foreign-operated casino to open in Macau, the Sands has helped its U.S. parent company nearly double its revenues in the first quarter of 2005 from last year's first quarter. These profits undoubtedly please Sands head Sheldon Adelson, who founded Vegas's famous Venetian hotel-casino. Next year, Bellagio founder Steve Wynn will open his own Macau property, a behemoth featuring a 100,000-square-foot casino. American operators also are planning to open a Macau version of the Vegas strip, a string of gambling resorts -- possibly including an underwater casino -- that might eventually include 60,000 hotel rooms and cost more than $10 billion to build.
The arrival of the American gaming industry, however, augurs a clash that's not about culture alone. It may bring wealth and luxury and bright lights, but it also threatens to bring corruption, money laundering and other law enforcement problems that a place like Macau, or China, is ill-prepared to face.
For now, the attention here is focused on the windfall. Flush with casino loot, Macau saw its gross domestic product grow last year by more than 25 percent. Read that figure again -- it's not a mistake. Tourist arrivals rose by nearly 40 percent in 2004, and Deutsche Bank gambling analyst Marc Falcone believes Macau's gambling revenues will top those of the Las Vegas strip this year.
Already, the former Portuguese enclave of some 450,000 people has changed immeasurably. When I visited Macau before the colony was returned to China in 1999, it was hard to find signs of life on its streets, in its gambling halls, or even in the central business district, a stunning melange of pastel Iberian-style buildings. Empty, rusting structures blighted the low-rise skyline. Inside the tiny, seedy casinos, small groups of gamblers huddled over their chips, chain-smoking and spitting. In the halls outside the gambling rooms, prostitutes dressed like baby dolls grabbed my arm and tried to pull me into a bathroom.
Construction boom
This spring, Macau looked far different. Gamblers flocked to the Sands and other new casinos, and across the territory, now a special administrative region of China, frenzied construction crews poured concrete through the night. Young Macau residents dressed in designer clothes sipped drinks at bistros inside restored colonial villas. Stocks of companies with links to Macau were skyrocketing, while residential property prices were rising. Residents I met seemed shocked by how quickly their once-sleepy city had changed.
Others are following suit. In Thailand, Prime Minister Thaksin Shinawatra has suggested calling a national vote to create legalized casinos. India has launched casinos in Goa, South Korea now has more than 10 casinos, some Indonesian leaders have urged the nation to consider building casinos, and powerful Tokyo Gov. Shintaro Ishihara has pushed for casino construction in the Japanese capital. The governments of Cambodia and Myanmar have permitted casinos to open in remote border regions, where Chinese gamblers stream across the border to wager and watch transvestite shows. Malaysia and the Philippines have casinos. And even reclusive North Korea and Laos are getting in on the action; the former has opened a gambling hall near the Chinese border, while the latter has inaugurated a casino at a mountain resort.
Gambling has suddenly gone legit in East and South Asia for several reasons. Across the region, disposable incomes are rising and governments and casino operators are chasing this new loose change. Countries like Singapore, struggling to keep up growth rates in an era where China increasingly dominates both high- and low-end manufacturing, see casinos as potential cash cows.
Money to spare
The main target audience is the Chinese. In the first quarter of 2005, Chinese urban disposable income per capita rose some 11 percent, and today many Chinese city-dwellers have money to spare. Luxury carmakers, real estate developers and fashion houses have charged into the mainland's cities.
Meanwhile, loosening social mores in traditionally conservative Asian societies allows gambling to be viewed as a more legitimate activity. Divorce, remarriage, homosexuality -- all these former taboos have become more common across Asia.
Yet while this influx of casinos may have some beneficial effects -- in Macau, unemployment is so low that casinos are having difficulty hiring enough workers -- in the long run it could prove disastrous. The expansion of casinos in Macau and, potentially, in mainland China itself, could highlight perhaps the biggest problem in the Middle Kingdom: As wealthy urbanites have gotten rich from the economic opening, most Chinese have barely prospered. China has developed worse income inequality than India and other historically lopsided developing nations. This inequality threatens social stability.
The Asian casino boom could bring other problems. U.S. casinos maintain tight controls on money laundering, yet even with America's strong rule of law, keeping casinos from becoming hubs of illegal activity has sometimes been a battle. While Singapore is famed for its tough rule of law, introducing massive numbers of casinos in Macau, Cambodia, Laos, Myanmar, China or other countries where the good governance remains weak is a dangerous proposition.
The fact that Macau has no laws on reporting large transactions makes it easier for money to be illegally funneled through casinos. The State Department has classified Macau as a "major money laundering country" and reports that "The gaming industry in particular provides an avenue for the laundering of illicit funds."
X Joshua Kurlantzick is a special correspondent for the New Republic and a visiting scholar at the Carnegie Endowment for International Peace.

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