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Gambling And The People's Republic Of China
by Max Drayman

This past week saw the resignations of three executives who had been detained by police this past April for their involvement with Betex, a Chinese lottery scratch card and gaming software operator. The reason given was the Chinese government’s failure to promise not to arrest the three again if they entered China, a move which prompted some industry observers to speculate that a new anti-gambling initiative is underway in The People's Republic.

There are a variety of reasons to discount this speculation, not the least of which is that the arrests were related to "conduct by the individuals" and not "the legality of the company's software product, or the conduct of the company" according to an official statement issued shortly after the arrests.

Although gambling has officially been illegal in China since the Chinese Communist party suppressed it as a "social curse" following the 1949 revolution, the truth is that gambling is big business in China.

Officially, the only legal zone for casino style gambling in China is the Special Administrative Region of Macau, the narrow peninsula and two small islands which reverted back to mainland control in 1999 after having been held by the Portuguese since the 16th century. Although located on the Southern coast of mainland China, the region has much more in common with Hong Kong, which is only 45 minutes away by high-speed jetfoil.

To say that Macau is China's Las Vegas is putting it mildly. In fact, Macau has surpassed Vegas and its 22 casinos generate total gambling revenue of an estimated $10 billion per year: Vegas is listed at approximately $8 billion.

Macau is rapidly becoming China's holiday playground with live shows, world class restaurants and variety of family entertainment. It is also the holiday destination of choice for thousands of Chinese officials who go there to receive as much as $1 billion per year in "lucky gifts", complementary stacks of gaming chips, from anonymous parties. This has, of course, prompted cries of corruption and misconduct. but the officials are usually able to explain the unusual income as "luck" at the tables and roulette wheels.

It goes without saying that all of this casino related activity has not escaped the attention of Vegas itself: major brand names such as the Sands and Wynn have moved in and spurred a new era of rapid growth. Annual income for Macau residents has increased at an average rate of 40 percent for several years running, prompting many students to leave university to pick up casino jobs that pay as much more than they could ever hope to earn as graduates.

The mainland has its own gaming revenue in the form of state sanctioned lotteries, namely of the sports and social welfare variety. According to a Financial Times report earlier this month, the importance of lottery income in helping to make up shortfalls in state social security funding means there will be no turning back the clock.

"The basic government position is that the lottery sector is not open to direct operations by foreign companies, but in fact, it is being stealthily opened," said Li Gang, expert on the Chinese gaming sector at Shanghai Normal University. With lottery sales rising at a compound annual growth rate of 37 percent over the past decade and reaching $10.5 billion last year, international companies are competing for contracts to sell their technology or act as distributors, usually in exchange for a cut of sales.

On the other hand it's not an easy market to enter as a major online casino operator recently discovered to their disappointment. "It was really bad," said a head of marketing, who wished not to have his company identified. "It was the biggest waste of money and effort ever. Good luck to anyone who thinks they can crack this market."

In spite of seemingly anti-gambling related activity by the central government—such as the recent ban of a TV ad for the latest casino to open in Macau, saying it overtly promotes gambling—it is clear that China has a complicated relationship with its gaming industries. There is no evidence to indicate that those relationships are likely to undergo dramatic change anytime soon.

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