The Taiwanese islands of Matsu do not seem like an ideal spot for one of
the world's biggest casinos. Although they are ringed by rocky beaches and
azure water, only about 10,000 people live on the 19 tightly clustered
flyspecks, some 126 miles away from the main island of Taiwan. An Associated
Press reporter who visited in 2012 described Matsu's few shops as "a complex of
decaying concrete structures that are most notable for their low-wattage
gracelessness." Besides a small tourism industry, the islands' chief draw is a
sorghum-based liquor that, to the uninitiated, smells like embalming fluid.
is best known in the United States as a footnote of Cold War history. China and
Taiwan fought a battle there in 1958 -- Chiang Kai-shek's Nationalist forces had
held onto the islands in their 1949 retreat from the mainland -- causing U.S.
Secretary of State John Foster Dulles to float the idea of dropping a nuclear
weapon on the People's Republic in order to defend Matsu and the nearby island
of Quemoy from communist incursion. As recently as 1999, tensions were high
enough that Taiwan, fearing an invasion, ordered troops stationed on Matsu and
Quemoy to cancel their holidays and remain at their posts.
Relations between China and Taiwan have improved markedly
since then -- in June, the residents finally cleared the last land mine from
Matsu -- and so have prospects for holidays on the islands. In 2009, in an attempt
to encourage tourism and revitalize economic growth, the Taiwanese legislature
passed a law allowing the outlying islands to vote on whether to legalize
gambling. The idea is to take what has historically been one of the islands'
greatest vulnerabilities and turn it into a strength: At its closest point,
Matsu is just a few miles from China -- and its legions of big-spending gamblers.
is illegal in the People's Republic, but its residents are some of the world's
highest rollers, both domestically, where they wager billions of dollars
annually on underground games of chance, and abroad, where over the last decade
a growing number of increasingly wealthy Chinese have driven a huge boom in
casino construction and profit. Spurred by the success of Macau, the world's
hottest gaming spot, casinos have mushroomed in Singapore, the Philippines, and
Australia. The consulting firm PricewaterhouseCoopers forecasts that the
Asia-Pacific gaming market will net nearly $80 billion in 2015, more than
double its take in 2010 -- and investors and gaming companies are looking for the
next best spot to capture Chinese clientele.
Weidner, owner of an eponymous resort development company and former chief
operating officer for gambling giant Las Vegas Sands, wants to make Matsu that
spot. He first considered building a casino in Taiwan's nearby Penghu archipelago,
but after that island county's referendum to allow gambling failed, he turned
his attention to Matsu. As part of his charm offensive, Weidner has said he
will spend $2.5 billion of the project's $8 billion budget to upgrade the
islands' infrastructure and turn Matsu into a "world-class" resort. In addition
to a casino, the project envisions elevated causeways linking Matsu's two main
islands, a university campus, a golf course, a ferry terminal (complete with
luxury high-speed ferries), an expanded airport built on reclaimed land,
boutique hotels, and Mediterranean-style villas for the visitors, the majority
of whom the developers expect to be Chinese.
April 2012, Weidner Resorts posted a slick Chinese-language public relations
video (since been made private) on its YouTube channel, seemingly to impress upon Matsu's residents the
venture's cosmopolitan nature. The video features glamour shots of Weidner with
celebrities ranging from George W. Bush to Sylvester Stallone and promises
Matsu locals "the opportunity to realize their dreams, create history …
and create wealth for their future generations." To sweeten the pot, Weidner
said in July 2012 that if the casino opens and hits its targets, he'll pay each
resident $609 a month -- a sum that will rise to $2,670 after five years. The Matsunese bought the pitch, and that month the islands became the first
Taiwanese territory to approve gambling.
Sui-Sheng, the magistrate who oversees Matsu, is optimistic that the casino
will be built, but he has no illusions as to why Weidner chose his tiny corner
of the Pacific. "If casinos were legalized in China, there would be no chance
that investors would come here," he says. This raises an interesting question:
Why doesn't China, with its growing wealth, consumption-driven economy, and huge unmet demand, take advantage of its own gaming market?
CHINA, WHERE NO VICE is legal but every vice is tolerated, has a
complicated history with gambling. Like opium, it was rife in the early 20th
century. Gen. Chiang Kai-shek, the country's nominal leader in the 1930s and
1940s, saw gambling as a threat to his army's morale and unsuccessfully tried
to curtail it. After Chiang and his supporters made a run for Taiwan and Matsu
in 1949, Mao Zedong took power in China and swiftly outlawed gambling, as well
as other vices. But in the years following his death in 1976, drugs and
prostitution re-emerged, and by the 1980s and 1990s, Chinese people could be
found betting on everything from horse racing to soccer matches to cricket
signs of gambling are nearly ubiquitous in mainland China. Tables for the
rummy-like game of mahjong dot street corners around the country, while more
serious wagering takes place in parlors that, like Chinese brothels hiding
behind foot-massage signs and barber chairs, make little attempt to hide their
purpose. "If you don't play for a profit motive, it's legal -- but if you play to
make money, that's illegal," explains Chen Haiping, a researcher at Beijing
Normal University's lottery research center. But there are also much, much
bigger games: In June, 17 people were indicted in Shanghai for the crime of
opening an online casino into which they allegedly funneled $13 billion in
a rich Chinese tradition of legitimizing morally questionable behavior like
gambling -- you just call it something else. In the sixth century B.C., Confucius
established his theory of the "rectification of names." He believed that social
disorder stemmed from the failure to accurately perceive reality, and the
solution was describing things as they are. Ever since then, the Chinese have
tried to subvert Confucius's dictum: Feet shaped by the excruciatingly painful
process of foot-binding, for example, were called "golden lotuses." The communists under Mao
were notoriously good at euphemisms. The famine caused by the collectivist
government program known as the Great Leap Forward, which killed tens of
millions of people, is referred to as "the three years of natural disasters."
And euphemism remains the key to vice in China. Because a percentage of state
lottery proceeds accrue to the Ministry of Civil Affairs, the lottery is not
considered gambling but a legal, even beneficial, "social welfare" project.
gaming companies have tried to use this trick in their fitful efforts to
penetrate the Chinese market. In 1993, for example, a Malaysian company opened
a slot machine parlor in the dreary northeast city of Harbin, but because it
paid out "gifts," not cash, it was licensed for "entertainment," not gambling,
according to Hong Kong's South China Morning Post. Harbin tolerated
foreign slot machines for a little while -- a 2010 article in a provincial
newspaper described 1994 and 1995 as "the craziest era for gambling" in the
city -- until it formally banned the machines in January 1996.
In 1993, another Malaysian company said it had obtained a
license to operate "electronic and electrical entertainment machines" in the
nearby city of Dalian -- an experiment that appears to have fared worse. Soon
after the company announced the agreement, the city's then-mayor, Bo Xilai -- now
best known for a 2012 political scandal involving coup rumors, attempted
defections, and murder -- said he was not aware of any such deal. He added that
gambling was strictly prohibited and disapproved of by the central communist
government, according to a report in the Straits Times, a Singaporean
newspaper. "If a club with betting machines should open its doors in Dalian, it
would be immediately closed, and you can consider that an official statement,"
a Bo aide said in July 1993.
That doesn't mean that people in Dalian and Harbin
actually stopped gambling or that enterprising businesspeople stopped providing
them with illicit opportunities to do so. As China's economy has grown,
however, the stakes have gotten higher. In 2003, the disposable income of the
average urban resident was about $1,000; in 2012, it was roughly $4,000.
Chinese with the means to scratch the gambling itch go overseas; last year,
Chinese people took 83 million trips abroad, on which they spent more than $100
billion. "The Chinese are now the partygoer everyone wants to invite," says Ben
Lee, managing partner at IGamiX, a gambling consultancy in Macau.
has laid out the red carpet -- nearly 90 percent of its visitors are Chinese, says
Martin Williams, Asia editor of GamblingCompliance, a market analysis firm. The
tiny former Portuguese colony borders southern China's Guangdong province; with
the right travel permit, it is an easy ferry, rail, or plane trip from the
mainland or Hong Kong. Once a sleepy backwater, Macau allowed foreign companies
to open casinos in 2002. In just a decade it has become the world's undisputed
gaming capital, with revenue six times greater than Las Vegas. On the day that
the Sands Macao, that territory's first Las Vegas-style casino, opened in 2004,
more than 20,000 people swept in, literally ripping the doors off their hinges.
Over the next three years, gaming companies will build at least six more casino
resorts in Macau, at a cost of $20 billion.
Most countries that abut China have built casinos to
cater to the country's legion of gamblers. Myanmar, Vietnam, and Laos host
gaming resorts near the border "that exist just because of China," says Andrew
Klebanow, co-founder of the consultancy Gaming Market Advisors. Singapore, which
only allowed casinos to open in 2010, already hosts the world's two most
profitable, with 2012 gaming revenues of $5.9 billion driven by Chinese
punters -- just under the combined haul of all of Las Vegas's dozens of casinos.
Even Kazakhstan has gotten in on the game. The Astoria Club, for example, a
gambling resort in a lakeside town outside Almaty, provides "a Chinese-language
book of rules and tutorials," says the casino's event manager, who asked to go
by his first name, Batikhan. "Chinese visitors are welcome here, for sure!"
Almaty is quite a trip for the roughly half of China's population that lives
along the country's east coast -- the Kazakh city is some 2,000 miles from
Beijing -- and investors and developers are looking for the next big opportunity
to draw those visitors. Major casino projects have recently been announced in
the Philippines and Vladivostok, the largest city in the Russian Far East,
which is a short flight for many of the 120 million people who live in
northeast China. Currently, their nearest legal gaming option is in the
basement of the Yanggakdo International Hotel, on an island in a river in the
middle of Pyongyang, North Korea. (South Korean casinos are somewhat farther
but a lot more inviting.) If it is built, Weidner's Matsu casino
would be the closest option -- and a much swankier one -- for tens of millions of
people in southeast China.
OF COURSE, BUILDING a casino in China would presumably be
the most convenient option, but doing so has proved difficult.
2005, fresh off the success of opening the Sands Macao, American gaming magnate
Sheldon Adelson announced in a statement that the nearby city of Zhuhai had
selected his company, Las Vegas Sands, to "proceed with master planning" for a
resort on the city's Hengqin Island, and in January 2007 the company issued a
news release noting that the local government had formed a committee to
"advance the development" of the project. The island is right next to Macau,
but unlike its neighbor is part of mainland China, so Chinese can fly or drive
there without having to worry about Macau's sometimes onerous visa regulations.
The resort might have been a good testing ground, serving
as a beachhead that could eventually host a casino, if laws changed. But by
2008, with the economic climate worsening and the Hengqin project still not
approved, Las Vegas Sands announced it had suspended its plans for the resort.
In August 2012, the New York Times reported that a contractor hired by
the Sands was the focus of a U.S. federal investigation for bribery; early this
year, the company's annual regulatory report acknowledged that it may have
violated the Foreign Corrupt Practices Act, the U.S. law that prohibits bribing
foreign officials. The company remains under investigation by the U.S. Justice
Department and the Securities and Exchange Commission. (A Sands spokesman
declined to comment.)
Gambling operations in China may have a greater chance of
success a few hundred miles to the southwest in Hainan, China's smallest
province -- principally composed of a large tropical island that administers the
Spratlys and the Paracels, archipelagos whose ownership China disputes with
several Southeast Asian countries. "It's a linchpin to China's regional
policies," says Lee, the IGamiX consultant, so the central government wants it
to be economically healthy. "They want to see Hainan succeed." Sanya, Hainan
Island's southernmost city, "has a number of large resorts," says Adam Pliska,
president of World Poker Tour, which hosts and manages poker tournaments. "If
you look [at them], they look like any nice casino in Las Vegas -- minus one
thing. There are no table games and slot machines, but it's certainly ready."
Hainan has been flirting with legalizing gambling since at
least January 2005, when four delegates to its provincial legislature submitted
a resolution to legalize gambling to "increase employment and boost local
economic revenue," according to an article in Beijing Youth Daily, a
Chinese newspaper. That resolution didn't pass, but in 2009 nearly 60 Hainan
government officials suggested a partial easing of gambling restrictions. And
in 2010, in a little-noticed report, the State Council, China's cabinet,
approved a resolution allowing Hainan Island to function as a "testing ground
for China's lottery and gambling industry." In December 2012, Pliska's company
was allowed to host a poker event, "which looks very much like what the
government has prohibited in the past," he says. The event was held at the MGM Grand Sanya, a massive new resort
built by the American gaming and hospitality company now called MGM Resorts International, which had
tried but failed to build a casino on Hainan in the 1990s.
The closest Hainan has come to legalizing casinos came
this past February, when Zhang Baoquan, a Chinese property tycoon, told Reuters
about a cashless casino bar in his Mangrove Tree resort in Sanya. There,
gamblers could exchange winnings for items like luxury goods, jewelry, artwork,
and accommodations. Zhang told the reporter that China was not yet ready to
legalize casino gambling, "but my personal opinion is, in future, there is a
big possibility that they will have."
Two days after the Reuters story was published, Chinese
authorities said they had shut down the casino. "We are investigating it, and
so far it looks like they have violated their operating regulations," Chen
Guangfa, the deputy director of the Sanya Culture and Sports Bureau, told the
wire service for a follow-up article. In a July 23 interview, Chen told Foreign Policy that Zhang's bar got shut
down because "it offered entertainments that went beyond what our permits had
allowed." Zhang declined an interview request. Chen added that the bar is now
closed and "undergoing reorganization."
THE BENEFITS TO BEIJING of legalizing casinos are plain to see. Macau's economy, for example,
has grown dramatically in the last decade, and its citizens have hit the
jackpot: The territory now boasts an annual per capita GDP of $78,275 -- considerably higher than the average
American's income and more than 12 times that of the average Chinese. But while
Macau captures an average of roughly $1.4 billion a month in tax revenue,
according to Williams of GamblingCompliance, the central government in Beijing
gets none of that windfall. With China's economy expected to continue its
recent slowdown -- annual GDP growth
dropped from 9.2 percent in 2011 to roughly 7 percent in 2013 -- casinos could be
a helpful source of revenue. "Of course I hope the government will open up the
market for gambling," says Wang Xuehong, executive director of Peking
University's China Center for Lottery Studies. She believes legalizing gambling
would help create jobs, bring in tax revenue, and allow Chinese enterprises "to
participate" in the industry. Li Hai, associate dean of the School of
Management at Shanghai University of Sport, agrees. "People's demand is there.
It's a choice between blocking it and channeling it," he says.
But officials worry about the downside. Throughout
Chinese history, there has been a fear that the central government will not be
able to maintain its grip on power and that the provinces might go their own
way (a sentiment captured by the centuries-old expression "The mountains are
high and the emperor is distant"). Legalizing casinos would help provincial
officials not only increase local tax revenues but also strengthen their power
bases -- something Beijing doesn't want.
What's more, high-ranking Communist Party officials are
ardent students of their own history. Gambling was a major social disruption in
the 19th and early 20th centuries -- causing bankruptcies, breaking up families,
and spurring other vices like opium use -- and they fear that legalizing gambling
would revive those problems. "The government's main concern is its potential to
disturb social stability and harmony," says Li. "It is a very sensitive
subject." The Communist Party is also aware that casinos often attract
organized crime -- as they did in Macau, as well as Las Vegas, which for decades
was controlled by the mob.
Teresa Du, a communications manager at MGM Grand Sanya, doubts there will be
any "significant policy changes" for at least the next five years, which is
"frustrating," she said. "Everyone knows MGM specializes in operating casinos, but the only thing we can do is send
petitions to the government." (A spokesman for MGM Resorts International said Du's comments "don't accurately reflect the
company's views.") For investors, then, the key may be "to put your chips where
they're supposed to be," says Desmond Lam, a marketing professor and gambling expert
at the University of Macau. That way, if gambling is legalized in China, "they
are in a good place."
William Weidner appears to be taking the other side of
that bet. "We think the likelihood of China allowing casinos, even in Hainan,
is very low," says Jennifer Lee, vice president of Weidner Resorts Taiwan. But
Matsu has its own complications. Although relations are much better than in the
past, tensions between Taiwan and mainland China still flare up occasionally.
In June, Taipei deployed a multiple-launch rocket system in Matsu to fend off a
potential Chinese amphibious landing. The irony, one imagines, is not lost on
Weidner, who's hoping for a different sort of Chinese invasion.
Other obstacles stand in the way of this flood of
tourists. Unlike traveling to Hong Kong and Macau, it's actually not that easy
for Chinese to travel to Taiwan. And in February, testy Chinese officials in
nearby Fujian province suggested they might ban residents from visiting the
Matsu casino. (Lee said such comments are standard and not cause for concern.)
Yang, the magistrate for Matsu, admitted that officials are still trying to
work out the visa situation.
The Matsu project has been met with skepticism by many in
the industry. Lee says that other companies have looked at
building casinos on Matsu but admitted, "As far as I know, their interest has
not been very high." Steve Tight, president of international development for
Caesars Entertainment, which has been eyeing the more-developed Quemoy as a potential
casino site, says his company rejected the idea of trying to build on Matsu
because it was not as "attractive" a spot for investment. "There's no way
[Weidner] can spend $8 billion on a small island," says one gaming analyst, who
asked to speak anonymously. "That's insane! He could spend that money, but
there's no way he could make it back."
In January, Weidner announced that he plans to build
clusters of 30-floor hotels that would offer 26,000 rooms -- as many as Macau's
total capacity and 13 times the number in Weidner's original proposal for
Matsu. Three months later, Weidner Resorts posted a new video on its YouTube
Channel titled "Weidner's Destiny, A Gem Now Awakening -- Matsu, The Mediterranean
of Asia." The video opens with old images of artillery fire, describes the
economic benefits that a casino resort will bring, and ends with a statement
from Weidner himself. "It's time to change," he says forcefully. "Matsu is my
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