It’s 8.00 in the casino at the Macau Venetian and the tables are still packed. Amid a thick fog of cigarette smoke, dead-eyed croupiers lay down cards for thousands of Chinese gamblers, wagering vast sums of money, at tables that stretch as far as the eye can see. This frenzied gambling, which four years ago led the tiny territory off the south coast of China to overtake Las Vegas as the most profitable gaming centre in the world, has driven a phenomenal economic and construction boom in Macau over the past decade. But it has also stripped the city of much of its unique identity, stifled cultural growth and foisted a host of architectural monstrosities upon the former Portuguese colony, which was handed back to China in 1999 but, like nearby Hong Kong, keeps its own legal and political system.

The millions of “Mainlanders” visiting Macau’s casinos have led to a kind of Dutch disease not dissimilar to the woes of many developing oil-rich economies. The huge sums of money generated by casinos mean it’s hard to persuade anyone to make a real investment in any other sector, while at the same time corruption has flourished and the vast wealth has not trickled down into the general population.

Now Macau stands at a crossroads. Will it continue to suck up the gambling dollars, or will the huge pots of cash be used to boost a creative sector that is still inchoate but bursting with ideas and talent? In public statements, Macau ­officials talk about the need for economic diversification (several government officials rejected repeated requests to meet with Monocle) but little has been done so far. “Diversification is a term that has been used for years,” says Jose Coutinho, an outspoken member of the territory’s legislative chamber. “But I don’t see anything happening. Everything except the casinos has been neglected. The gap between rich and poor is widening and quality of life is sliding year on year.”

Some people are trying to change this, by focusing on the creative potential of the city and the unique blend of Portuguese and Chinese heritage. “I want to make Macau a design hub,” says Filipe Bragança, a Portuguese-Swiss car designer who has set up the first design faculty at one of Macau’s universities. “I keep saying, we shouldn’t be trying to follow Hong Kong, we have all the potential to be ahead of them. The environment you live in is very important for design and Macau is wonderful for that. But people here don’t appreciate that yet. We just need the motivation.”

Bragança previously worked as a car designer in Europe, working on the Smart car. He has been hired by the city of Guangzhou in mainland China to create an electric taxi, and he runs a workshop of 30 designers in the Chinese city. But for his headquarters, he chooses Macau, which he says is the perfect bridge between East and West. “Macau is open, European. I need to have my HQ here because it’s safe and everything I need from Europe can be brought here with no problems,” he says, from the small office of his company, Axius Design, in central Macau. “In China everything is filtered and censored. I have a huge office but even video conferences are difficult because of slow connections and filtering.”

In addition, the university course he runs teaches local students the basics of design. “China is still a manufacturing country, with little spirit of research, design and creativity. I think Macau could be at the forefront of changing that.”

In architecture too, there is promising local talent, although you wouldn’t know it from looking at the bloated Vegas-style casinos that dot Macau’s ­skyline. Carlos Marreiros is an exciting architect who has built a number of world-class contemporary structures in the city, inspired by the territory’s unusual mix of Portuguese and Chinese heritage. His maternal family has lived in Macau for two centuries and he is the quintessential Macanese, as comfortable speaking Cantonese as Portuguese. Raised in Macau, he studied in Portugal, Germany and Sweden before returning in 1983. Some government commissions allow for innovative contemporary architecture, he says, but private sector construction, led by the casino industry, has been an architectural tragedy for the city.

“What we have seen here is what I call a ‘hamburgerisation’ of architecture and town planning,” says Marreiros, puffing on a cigarette in his studio in a ­renovated Portuguese townhouse that doubles as an exhibition space and arts centre. “Macau is not the Nevada desert where you just parachute in and build fantasy replicas and fakes. This is a city with 450 years of history.”

There is something grotesquely ironic about the millions of Chinese visitors walking in awe through the cheap recreation of Venice at the Macau Venetian, but ignoring the very real historic Portuguese city just a couple of miles away – with spectacular Portuguese buildings and streets paved in the Calçada à Portuguesa style; whirling patterns made with basalt and limestone.

“Eighty-eight per cent of our tourists come from China, Hong Kong or Taiwan,” admits Fanny Vong, director of the Macau Institute for Tourism Studies, although looking at the people huddled around the gambling tables, it seems even higher. But Macau wants to attract other tourists. The plan is to make the city an all-round destination, luring conferences and exhibitions rather than just hardcore gamblers, in the same way that Las Vegas rebranded itself from a den of sin into a more rounded family and business destination. In 2009, the city held nearly 1,500 such events, attracting more than 650,000 delegates.

Vong’s institute also wants to attract tourists who come to see the town’s history and architecture – along with casino management, the institute offers a heritage management course, and runs outreach programmes in schools, teaching children manners and how to say basic greetings and give directions in English.

Konstantin Bessmertny, a Russian painter and sculptor, has based himself in Macau since the early 1990s. Living on Coloane, one of the three islands that make up Macau and where the casinos have not yet arrived, he says few places can rival the territory for atmosphere.

“The artistic inspiration here is unbelievable; this surreal colonial heritage that reminds me of Gabriel García Márquez’s Macondo,” he says, tucking into a Portuguese egg tart in a delightful coffee shop on Coloane’s main square. “If you need to buy materials or get something done, it can be sorted in mainland China at low cost. If you need the conveniences of the metropolis, you have one of the world’s largest cities – Hong Kong – a short boat ride away.” Bessmertny says he has considered leaving Macau but can’t find anywhere where the all-round quality of life would be as high. With his pianist wife, he bought a small derelict house overlooking the sea and hired Marreiros to give it a contemporary fit-out on a shoestring budget. “I think my life is proof you don’t need to be rich to live well. You just need a lot of imagination and a clever architect.”

Other artistic ventures have also found Macau a perfect base, including the trio of Portuguese professionals who in their spare time run Macau Banner Bag, a project where old government advertising banners are turned into bags and accessories. “There’s still something of a creative vacuum in Macau,” says Miguel Quental, a Portuguese lawyer who helps run the company. “But there are a lot of people trying to set up arts projects and cultural centres; give the city more of a cultural edge.”

Macau can also make a difference in facilitating links between China and the West, as well as with Portuguese-speaking countries across the world. China is now the top trading partner of both Brazil and Angola. “Of course, the Chinese can trade directly with these countries, they don’t need Macau,” says Gonçalo de Sá, editor in chief of Macau Hub, an information portal devoted to links between Macau and the Lusophone world. “But there are 40 Chinese firms in Angola. In Brazil and Angola there is an urgent need for translators and lawyers.” More people study Portuguese at Macau’s universities now than did during the colonial period.

“We want Macau to become a ­permanent platform for the exchange of technology, research and development,” says Gary Ngai, a dapper septuagenarian polyglot who used to translate for Deng Xiaoping and now runs MAPEAL, which is devoted to fostering ties between Macau and Latin America. Later in the year, he will take a delegation of businessmen from across the Pearl River Delta on a visit to Mexico and Colombia, and is in the process of negotiating with Chinese and Latin American airlines to set up a direct link between Macau and Mexico, stopping over in Hawaii. In his vision, the knowledge and cultural base the territory possesses is vital in fostering personal links between Chinese and western ­businessmen.

For the territory to thrive in the long term, it needs to develop as a bridge ­between China and the Lusophone world. “Macau is a small place with very big neighbours,” says Manuel Carvalho, the Portuguese consul. “It was founded by the Portuguese because they needed somewhere to stop off between Goa and Nagasaki – it never made sense just by itself.”