China - New southern China resort seen boon to Macau casinos

(Reuters) - Hengqin, once a sleepy island off the southern coast of China, is gearing up to become the country's newest family friendly resort city, providing a big boost for its neighbouring gambling powerhouse, Macau.

Just a stone's throw from Macau's neon lights, Hengqin has become a massive construction site that has attracted international investors such as Starwood Hotels and Resorts Worldwide Inc (HOT.N) since Beijing unveiled a plan two years ago to turn the mountainous island into a tourist destination.

"In the coming year there will be big changes," Zhao Zhen Wu, a Chinese government director working on the development of Hengqin, said during a recent media tour of the island.

"Hengqin's investment philosophy is geared to the world, particularly Hong Kong and Macau. We welcome foreign investment, especially from Fortune 500 companies," he told Reuters at his office in a low rise building with a simple interior.

No gambling will be permitted on the island, which is part of the city of Zhuhai, and gigantic recreational facilities that include a 22,000-cubic-metre whale and shark aquarium, the largest in the world, are ready to open next year.

The emergence of Hengqin as a major seaside resort is a boon for Macau and its casinos, which are keen to secure more revenue from mass-market leisure travellers, while reducing reliance on high-rolling VIP customers, analysts and industry executives said.

"Having a significantly larger Chinese population base immediately adjacent to Macau should serve to drive mass-market gaming revenues," said Grant Govertson, founder of Union Gaming Group, an independent research and advisory firm based in Macau and Las Vegas.

Macau casinos, which currently derive about 70 percent of their revenue from the volatile VIP segment, have been seeking to attract ordinary holiday makers who focus more on leisure activities such as shows and shopping.

While the arrival of Las Vegas titans Wynn Resorts (WYNN.O), Las Vegas Sands (LVS.N) and MGM Resorts (MGM.N) has helped Macau transition to a more upscale destination filled with dancing fountains, extravagant shows and luxury spas, the enclave has failed to lure China's cash-rich visitors away from the baccarat tables.

BUILT FROM SCRATCH

Hengqin, littered with cranes and mounds of rubble, is Beijing's third, state-level new economic development zone after Shanghai's Pudong district and Tianjin's Binhai area.

Branded a free-trade zone and three times the size of Macau, Hengqin is aiming to attract 200 billion yuan in investment by 2015. Total fixed-asset investment in Hengqin rose 149 percent year-on-year to 9.8 billion yuan in the first 10 months of this year.

Pockets of Hengqin, an hour from Hong Kong by ferry and connected by bridge to Macau, are being rapidly built up with bamboo scaffolding surrounding most buildings and slews of construction lorries lining building sites.

A short drive away from the business district stand wooden houses on stilts, while small fishing boats are moored outside on the dark green water.

Macau residents like Harald Bruning believe Hengqin will take off with Beijing's blessing.

"It is condemned to be a success because it has the direct political backing of the central government. Failure would be a loss of face for Beijing," said Bruning, who has lived in Macau for 26 years.

Hengqin is set to unveil Asia's biggest water theme park and the first phase of a 5.8-square-kilometre international business district by next year.

Also in the works is an extensive water and land transportation network. Six-lane highways, framed by rows of palm trees, are already open to vehicles and an undersea tunnel from Macau to Hengqin will be ready in 2012.

Starwood Hotels and Resorts has said it is already planning Sheraton and St Regis properties, set to include a shimmering wave facade and luxury rooms in a skyscraper.

U.S. private conglomerate The Rockefeller Group has also shown interest in Hengqin, but has yet to confirm the scale and cost of any investment, government official Zhao said.

Hong Kong entertainment firm Lai Sun Group, through its listed units eSun Holdings Limited (0571.HK) and Lai Fung Holdings (1125.HK), in September announced a deal with the local Hengqin government to build an 18 billion yuan cultural project.

Backed by state banks China Construction Bank (0939.HK) and Industrial and Commercial Bank of China (1398.HK) (601398.SS), that together are pledging 25 billion yuan in credit line, Lai Sun is developing a one-square kilometer site that will target entertainment industries.

MACAU DIVERSIFICATION

MGM China's chief executive, Grant Bowie, said Hengqin was a big plus for Macau and would be key to enhance engagement between mainland China and Macau, the only destination in China which permits casino gambling.

"Its greater land area allows other tourism, leisure and recreational assets to be introduced to support the diversification of Macau, which would not be possible in Macau," he said.

Beijing is pushing for Hengqin to lure investment in leisure, financial services, healthcare and education. Macau university's new campus will open in Hengqin next year on a site 20 times larger than its current one.

Robert Drake, CEO of Galaxy Entertainment (0027.HK), said the $8 billion firm was interested in investing in Hengqin and will explore options there.

Home to an abundance of green vegetation, Hengqin will also give Macau's small and medium-sized businesses a platform to grow and provide job opportunities outside of the gambling industry, say Zhuhai officials.

Hengqin's population is expected to grow to 120,000 by 2015 and 280,000 by 2020 from 8,000 currently, Hengqin officials said.

In a push to lure investment to Hengqin, China is granting tax benefits to companies that operate in targeted industries and will grant duty-free status for imported goods.

"We are encouraging all foreign companies to come, like Walmart for example, but just no casinos," said Zhao.

Farah Master

(Editing by Charlie Zhu and Matt Driskill)

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