Global investors watch how chips fall in China's cashless casino bar

Sun Feb 17, 2013 4:00pm EST

By Farah Master

SANYA, China Feb 17 (Reuters) - Placing bets on green-felt baccarat tables in a new casino bar on China's southern Hainan island, punters seem oblivious to a huge wager quietly being placed around them, one that could potentially siphon business from the world's largest gaming hub in Macau an hour's flight away.

For now, players at Jesters casino bar, part of the newly opened Mangrove Tree Resort World on Sanya Bay, cannot win cash - only points that they can use to pay for accommodation, luxury goods, jewelry and artwork for sale at the resort.

Owned by art, film and real estate mogul Zhang Baoquan, the casino bar marks the Chinese government's first tacit approval of a gaming concept outside of Macau. Global investors, including some of the world's biggest gaming companies, are watching to see how the chips will fall.

"Our casino bar is the first in the country. The government is monitoring, it's a test," Zhang told Reuters in a recent interview at his 23rd-floor office overlooking his sprawling 173-acre property that opened late last year.

"Right now we are not at this stage (legalising casino gambling), but my personal opinion is, in future, there is a big possibility that they will have."

The stakes are enormous -- China's monopoly gambling site, Macau, raked in $38 billion in gaming revenues last year, primarily from Chinese gamblers. If Beijing were to allow gambling elsewhere in the country, cash would follow.

It's not just the Chinese government that is watching the development. MGM Resorts International opened a hotel in Sanya last year and fellow U.S. casino operator Caesars Entertainment is set to open a hotel in 2014.

An MGM spokesman said the company had no plan to introduce "anything of this kind". Caesars did not respond to requests for comment.

Dressed in jeans and a black-and-white Hawaiian shirt during his interview, the 56-year-old Zhang said he aims to create an integrated resort similar to those in Las Vegas and Singapore where gaming, convention space and retail outlets are offered together.

Mangrove Tree Resort World, the newest addition to Hainan's rapidly developing hotel scene, will be China's biggest resort when construction is completed next year. It will have more than 4,000 rooms, a convention hall accommodating 6,000 people and facilities including a water park.

It is one of 10 integrated resorts that Zhang is developing around the country, including one more in Sanya and others stretching from Lhasa in Tibet to the eastern coastal city Qingdao.

While the Chinese government does not permit casinos in the country outside of Macau, Zhang - ranked by Forbes as one of the country's 300 richest people in 2012 with $600 million - said Hainan could become an exception.

Sensitive to existing restrictions, the soft-spoken businessman emphasized cultural attractions such as his art gallery that, along with the casino bar, will be incorporated into the planned resorts.

WINNING "MANGROVE" POINTS

Inside Jesters, which models itself on Macau's casino halls with garish chandeliers and a giant roulette wheel ceiling, players buy tickets costing 500 yuan ($80) each. Bets range from 20-2,000 yuan in the mass area, while the high-limits area is set at 2,000-100,000 yuan. Big whale punters will be able to bet over 100,000 yuan once the VIP room opens on the second floor.

The casino bar, with 50 gaming tables now, is currently open only to hotel guests, but when the resort is completed, local residents will be allowed in.

When players win, they receive "Mangrove" points that can be used to buy products available in the casino such as an iPad 3G or a Rimowa suitcase. Once luxury brands open outlets within the resort, customers will be able to spend their points in those stores. Art work from Zhang's Beijing art gallery is also available for purchase.

Retail stores including Prada and Louis Vuitton will be part of a network of 20 luxury stores that will open at the resort next year, Zhang said.

Zhang, president of Beijing conglomerate Antaeus, has the financial backing of China Development Bank. The state lender invested 70 percent of the cost of the Mangrove Tree expansion.

"The local governments are very supportive," says the boyish-looking Zhang, who started off as a carpenter in his hometown of Zhenjiang in eastern Jiangsu province, and now is well known as an arts philanthropist and prominent film investor.

Married to Wang Qiuyang, a mountaineer whose father Wang Chengbin was a former army commander, Zhang said any potential change to gambling restrictions would take time, adding that the government would need to decide whether to let other operators open similar casino bars.

"Gambling culturally is a very bad thing, but today there is a difference -- gambling is a financial tool," said Zhang.

"In Asia, even North Korea has two casinos. The richest country, Singapore, before you would never think society would accept it there. All over the world the attitude towards casinos is different from what it was traditionally."

SANYA AND BEYOND

China is positioning Hainan as an international tourist destination, approving the construction of 15 large resorts and 63 five-star hotels as part of the country's five-year plan.

As Chinese spend their money in new casinos across Asia from the Philippines to Vietnam, pressure is growing on Beijing to keep more gamblers at home.

"To some extent, the approval of gaming on Chinese soil is inevitable," said Gary Pinge, analyst at Macquarie Group in Hong Kong.

"With regional markets already vying for a share of the Chinese gambling wallet, unless China brings gaming onto its own shores, it will not only lose tax revenues to other countries, but also the 'multiplier effect' from the consumption spend."

In the meantime, Zhang is pushing ahead with his expansion plans. Aiming to list the Mangrove Tree brand on the Hong Kong stock exchange in 2015, Zhang hopes to use the capital raised to take his Mangrove Tree brand outside of China.

"Sydney, the Maldives, the United States, England, Paris and Turkey" would all be good, said Zhang with a shy smile.