Macau’s Golden Curse

There is either a greater awareness in Beijing about corruption arising from the gambling Mecca of Macau, or at least China is going through a periodic bout of show trials while letting most sleaze continue unmolested. Either way, it spells trouble for Macau’s vast wave of new casinos and hotels.

Macau is certainly in Beijing’s sights, but there are questions whether the enormity of the cases will be followed up, a development that could frighten huge numbers of officials and state enterprise managers away from Macau, given its reputation as a place to gamble with ill-gotten gains and launder money.

Three things have come together. First is the trial in Macau of Ao Man-long, the former minister for transport and public works, on charges of receiving payoffs totaling HK$200 million on land deals and helping firms obtain construction contracts on favorable terms. It is described as the biggest corruption trial in Macau’s history.

Second are the trials across the border of Wu Huali, the chief of police in the Pearl River Delta city of Huizhou, who is accused of spending more than 10 million yuan in Macau casinos, and of He Liqiong, the head of a Foshan post office who allegedly gambled away 1.8 billion yuan of postal savings bank money (see accompanying story).

Third, there is an attempt to stop the illicit export to Hong Kong and Macau of currency in cash or through grey market swaps arranged by dealers in Shenzhen. This move was the main cause of a 4 percent drop in the Hang Seng index on November 16. While in theory Beijing should welcome capital outflow at present, it fears loss of control, the volatile impact on Hong Kong stocks and the fact that such flows are often the direct result of corrupt deals as the beneficiaries scramble to get their money offshore and out of sight. Hong Kong and Macau may not be the ultimate destination but they make a useful first stop.

The Ao case alone shows the depth of the problem in Macau. No less than 46 projects were claimed by the prosecution to be involved with kickbacks ranging between 3 percent and 10 percent. Some 76 charges have been filed on corruption, money laundering and abuse of power. According to the charge sheet, the minister was on the take for a huge number of projects, not only public works but also deals related to giant casino projects including The Venetian, the recently opened mega- project owned by the Sands Corporation of the US.

Events have also thrown a spanner in the works of some casino/hotel projects, including the City of Dreams being developed by Hong Kong-listed Melco in a joint venture with Australia’s PBL, controlled by James Packer. Final approval for the NASDAQ-listed Melco-PBL deal has been held up as the matter is now in the hands of Macau Chief Executive Edmund Ho, who took over Ao’s portfolio. According to a filing with the US Securities and Exchange Commission, Melco-PBL “has yet to receive either a formal grant of a land concession or an occupancy permit for the City of Dreams site.”

Ho himself is already under pressure because of a big May Day street demonstration followed up by another one on October 1, National Day. The casino and construction boom is regarded by critics as having benefited just a few owners, professionals and officials, while local wages have been held down and cheap labor brought in from the mainland.

Civil unrest is not the sort of things that endears Ho to Beijing, which had been showering him with praise, seeing Macau as a model business-driven territory free of the political wrangling in Hong Kong. It may now be worried about the depth of corruption and cronyism in Macau. The Ao trial has revealed how much power a few officials could wield without any effective oversight.

“The fabric ... of Macau is being gutted,” security expert Stephen Vickers, who heads up the consultancy International Risk, was quoted as saying. “There has been a gentrification of triad society.” Vickers cited undocumented gambling visits by mainland officials to launder illegally obtained cash, the appearance of murdered bodies along the nearby Chinese coast and graft charges against senior government figures as examples of the worsening situation.

If Beijing is serious about a cleanup it will need to do more than prosecute a few individuals. It may force Ho to clean up the coterie of “patriotic” businessmen who effectively control the territory on behalf of the Communist Party, and did so even in the latter days of Portuguese rule. But will it prevail on Ho to prosecute the companies which paid the bribes? These include big mainland-based contractors as well as many businesses connected with the casino projects.

Beijing knows Macau is a safety valve for Chinese gambling instincts. But while it can live with tens of thousands of small gamblers coming across the border every day to try their luck at the tables, it may well feel a need to keep a closer watch on the mainland high rollers and their sources of cash. That would be bad news for operators who need high rollers with money to burn to fill the casinos, five-star hotels and glitzy new shopping centers of the “new” Macau.

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