China's sin city: Inside the world's biggest gambling den

Gamblers in the casinos of Macau do not drink cocktails like they do in Las Vegas, they drink tea. For these are serious punters, concentrating on the serious business of playing baccarat and blackjack in the world's biggest gambling den.

But while the green baize tables are still hopping with activity in the former Portuguese colony, it's a far cry from the heady days of last year, when the croupiers of Macau scooped up more money than their counterparts in Las Vegas and Atlantic City combined. Then, city planners were working on an ambitious expansion plan aimed at turning Macau – already the most densely populated place on earth with more than half a million people living in just 11 square miles – into Asia's single biggest tourist destination.

There is still the feeling of a sleepy Portuguese town in Macau's centre, but this sense diminishes as you head to the casinos at the edge of the city. The smooth return to Chinese rule in 1999 marked the arrival of billions of patacas [local currency] in gambling cash from the mainland, where the pastime is strictly illegal. The big players from Las Vegas put their money on Macau. Work began on gaming and hotel facilities on reclaimed land and the southern Chinese city was transformed into the gambling destination of choice for China's high-rollers. They, along with millions of other mainland tourists, helped Macau overtake Las Vegas, earning £7bn last year from the tables alone.

Two-thirds of Macau's gamblers are mainland Chinese, most of them from just across the border in the prosperous province of Guangdong. The Chinese government, keen to stop corrupt government officials gambling away the city coffers and to keep Chinese domestic consumption high in the face of a slowing economy, has put restrictions on the number of mainlanders allowed to visit Macau, limiting them to one visit every three months. Yet a recent investigation revealed that some local government groups visited three times a week to try and sweeten their balance sheets with a roll of the dice.

Only Macau residents can work as croupiers in the casinos, but pouring the tea, emptying the ashtrays, building the new casinos and guarding the loot as it is transported off to the banks is the enclave's army of 98,000 foreign workers. Like the gamblers, most of these migrant workers come from across the border in Guangdong, but a growing number hail from other parts of the region, such as India and the Philippines. They hope to earn enough in this booming city, with its frontier-town atmosphere, to support their families back home.

But along the Cotai Strip, a finger of reclaimed land which merges the Coloane and Cotai islands, building has come to a standstill on major hotel, casino and shopping projects, including international brands like Shangri-La, St Regis and the Sheraton group. Thousands of migrant workers from southern China have been sent back across the border, joining the ranks of unemployed factory workers in a mainland economy already reeling from crashing exports. The Beijing government is now worried that unemployment in industrial zones in Guangdong could lead to social instability on a major scale.

It's in the hotels and casinos where the slowdown can be seen most keenly, at places such as the Venetian Macao. This is a £1.5bn project by billionaire entrepreneur Sheldon Adelson. Opened in August 2007, it has 3,000 hotel suites and has set down a marker for future development – the casino is breathtaking in its scale, and even has gondoliers. This vast pleasure palace is modelled on its Vegas equivalent, itself built on the bombastic principles of Renaissance Venice. But late last year, it slashed the numbers of gondoliers plying their trade along the purpose-built canals. In December, the Las Vegas Sands Corporation cut 500 casino jobs at the Venetian, around 2 per cent of the total workforce, and halted construction of five new hotels, shopping centres and casinos in Macau.

Adelson is now looking at ways to raise the cash to finish the five projects on the Cotai Strip. He needs £1.2bn to do it, and his attention is also on Singapore, which is planning to open major casino businesses soon and will put Macau under even more pressure. But only the most naïve punter would ever write off Macau's chances of winning through. This is a tough city, used to a good fight.

The most famous casino company in Macau is Sociedade de Jogos de Macau (SJM), owned by local kingpin Stanley Ho, the father of the territory's gambling industry. He is a legend, who responded to the loss of SJM's monopoly and the arrival of Las Vegas interlopers by building the Grand Lisboa, which looms lotus-style over the whole area, like a reminder to the Nevada arrivistes of where Macao's story started.

He still runs the old-fashioned Hotel Lisboa casino, which remains a popular draw for the old-school gambler. Scores of legally tolerated prostitutes, many of whom live in the casino's hotel, circle the Lisboa's public areas. The privilege of luring foreign guests by saying "Come to my room" is hard won. They cast lots for who gets to patrol the prime spots and who has to wait for clients in the restaurant or, worse, in their rooms. Everyone has to gamble in Macao, prostitutes included.

And what about the future? Frank McFadden works as president of joint ventures and business developments at SJM, and he is bullish about Macau's prospects. "Macau has seen unprecedented growth in the recent past, surpassing even Las Vegas," he says." That growth went beyond most people's expectations. What we are seeing now is just a natural adjustment. The fundamentals are still rock solid. In the long term, Macau will grow with China. Like China, Macau has one way to go – up."