Two years ago Macao's GDP for the first time exceeded that of Hong Kong. All of a sudden Macao, the long neglected stepsister of the glitzy Pearl of the Orient, has become the new miracle city in Greater China. In 2006 Macao's gambling income topped US$7 billion, outstripping the longtime unrivaled Las Vegas casino strip as the world's top gambling destination. Last year the territory's gambling income already exceeded US$10 billion. At the beginning of this year, Macao's per capita GDP topped US$36,000, making it the richest place in Asia and No. 20 worldwide.

Bigger Take than Las Vegas

"Macao's present development exceeds all our initial expectations," Fong Ka Chio, director of the gaming research branch of the University of Macao, reluctantly admits. Like many other economists Fong, who has done research on the ascent of gambling cities around the globe, did not expect Macao to rise so fast. In Macao all economic indicators keep changing rapidly. Due to its rapidly growing GDP, Macao has already become the top Chinese city in terms of growth and competitiveness.

When Macao returned to Chinese rule nine years ago, it became the only place in China where gambling was legal. At the very beginning the University of Macao and Peking University joined hands to research a new road toward boosting Macao's economic competitiveness. The result did not come as a surprise. Scholars at both universities concluded that gambling was the only industry where Macao had a competitive edge.

Chan Ping-keung, chairman of the Association for the Study of Social Development of Macau, who has a thorough knowledge of Macao's economic history, notes that changes in casino operating licenses have always heavily affected the territory's fate. Most recently in 2002 the government of the Macao Special Administrative Region decided to end the monopoly of Macao's "king of gambling" Stanley Ho and open the gambling business to casino operators from around the world.

This was one of the most decisive turning points in Macao's economic history, since it brought international capital and professional gambling concerns into an industry that had long been defined by small-time operations. Three leading casino groups from Las Vegas, including Las Vegas Sands (LVS) and Wynn Resorts, swooped into the territory, bringing with them not only nearly US$10 billion of capital, but also the Las Vegas business model – integration of resorts with entertainment, convention and exhibition space, shopping and, of course, gambling. The casinos from the Nevada desert were simply downscaled and transplanted to the mouth of the Pearl River.

Modeled after its cousin on the Vegas strip, the Venetian Macao features canals with gondolas reminiscent of Venice, and Verdi's Four Seasons constantly plays in the background on premises twice the size of the National Palace Museum. Since its opening in August last year, the resort has already attracted 10 million visitors. LVS spent US$2.4 billion and mobilized 20,000 construction workers to build the lavish complex, claimed to be the world's largest luxury casino. Construction costs for the resort amount to a five-year budget for Macao's government. The power it consumes every day could fulfill the energy needs of 300,000 households. With a staff of 20,000, it has become Macao's biggest employer.

For international gambling concerns, Macao has become the ultimate battleground for business expansion, an irreplaceable trump card. Two years ago LVS opened its first casino resort in Macao. Within eleven months it had recouped its US$330 million investment, a world record for the gambling industry.

"Now that's unheard of," crowed LVS founder Sheldon Adelson with obvious delight. "It just doesn't happen in any business, let alone this one." The company's successful investment in Macao caused its stocks to rise 72 percent in the United States, making Adelson the 19th richest person in the world.

LVS' major rival in the industry, Wynn, chose to set up shop in Porto Exterior, Macao's most raucous district. Adopting the slogan, "The New Macau is Here," it has aimed at high-end affluent clientele in order to distinguish itself in the market from the mass-market luxury of the Venetian. In front of the curved glass façade casino complex, the artificial lake, modeled after its predecessor at Wynn's Bellagio resort hotel in Las Vegas, features choreographed water fountain shows every 15 minutes. Steve Wynn, chairman and CEO of Wynn, also created another spectacle that makes the Macao casino unique, the Tree of Prosperity. Inside the foyer the ceiling opens every half hour, and a crystal chandelier descends while the floor opens to reveal a tree with more than 90,000 leaves made of brass and gold leaf.

Micro-economy Targeting China

There's no need to beat around the bush – the gambling tycoons invest massively in Macao with an eye on the money-flush, hard-driving Chinese market next door. Investment bank CLSA Asia-Pacific Markets estimates that some 2.2 billion people live within a five-hour flight distance of Macao, about five times more than people living within the same distance of Las Vegas. But while Las Vegas attracts about 40 million visitors per year, Macao presently draws just 27 million. The territory still has a quite large potential for growth.

It is the visitors from China who control Macao's travel and tourism economy. Five years ago, the Chinese government allowed the residents of 47 Chinese cities to travel freely to Macao. Since then more than 10 million Chinese visitors have flocked to the seaside resort every year, accounting for 65 percent of its guests. Every day, about 250,000 people enter Macao from the Gongbei border checkpoint in Zhuhai City alone.

Yet Macao cannot compete with the diversity of the Las Vegas entertainment industry. Las Vegas derives only half of its tourism income from gambling, while 70 percent of Macao tourism is gambling-related. Macao's heavy reliance on tax income from the gambling industry also keeps increasing. While 40 percent of tax revenue came from the casinos seven years ago, that share had risen to a staggering 75 percent last year.

"The gambling industry is like a wild horse. If you control it well, it will be useful, but if you don't control it well, it will bolt," Fong contends. Macao is virtually betting the entire family silver on the back of a single horse – gambling.

An even bigger threat is that Macao lacks the capability for industrial innovation. Las Vegas keeps innovating the gambling industry's business models. Year after year it has come up with new approaches toward drawing diverse visitors, be they Impressionist painting exhibitions, eruptions of man-made volcanoes, giant pirate ships or elaborate performances. In contrast, Macao, where straightforward gambling tourism dominates, has only invented the VIP room, but relies on Las Vegas for virtually everything else, such as building design, operation, management and creativity.

Success No Reason for Hubris

It is ironic that Macao has become the world's top gambling brand, Asia's richest place, and enjoys a great increase in international exposure, but that the Macanese are not able to self-righteously pat themselves on the back for the territory's success.

Well-known author Agnes Lam feels that perceptions about Macao have changed. While in the past many people thought that Macao was a part of Hong Kong, no one will make that mistake anymore. But "Macao's dazzle comes from the casinos, and people don't think that gambling is a legitimate business," Lam notes with resignation. Lam, who is also an assistant professor at the Department of Communication at University of Macao, observes that the locals find it difficult to live with the contradiction that Macao struck it rich, not because of any particular feat of their own doing, but "just because others put their money in our pockets."

The Macanese are even more frustrated about the territory's lop-sided economic structure. Macao is a micro-economy whose GDP of US$19.2 billion is only about half the revenue of Taiwan's largest private enterprise, Hon Hai Precision Instruments. The territory has staked its entire future on the gambling industry, which makes it very vulnerable to changes in the industry's economic fate, particularly because it has no other alternative industries that could be developed.

Highly popular legislator Antonio Ng Kuok Cheong, the founding chairman of the pro-democratic political party New Democratic Macao Association, offers several economic figures to illustrate Macao's current state of affairs: The manufacturing industry, which accounted for 21 percent of Macao's GDP twenty years ago, has currently shrunk to less than 5 percent. During the same period the service industry, dominated by gambling, rose from 37 percent of GDP to more than 50 percent. And more than 70 percent of service industry revenues come from tourists from China.

"Macao may be successful right now, but it does not deserve our pride, since it's all just blood that China transfuses to us," says Ng, pinpointing the weaknesses of Macao's recent boom.

Translated from the Chinese by Susanne Ganz