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Macau's Big Bet

This article originally appeared in the August 1997 issue of ASIA, INC.

A joke circulates among the cynical inhabitants of Portugal's colony on the mouth of the Pearl River: Casino czar Stanley Ho sits on the righthand side of the governor, they say, and a senior representative from China sits on the left.

"When the governor needs money he turns to his right," explains Paulo Jorge Reis, former deputy director of Macau Government Information Services. "Then he turns left and asks permission to spend it."

In reality, this joke accurately reflects the way Macau has been run since the mid-1970s, when a newly democratized Portugal unsuccessfully tried to give the 440-year-old colony back to China.

The Chinese Communist Party hierarchy preferred to leave the Portuguese as closely monitored tenant-managers. A reluctant Portugal was content to let Ho fill his and the colony's coffers with profits from his monopoly franchise to run the port city's 24-hour, 7-day-week gambling operations. The cozy arrangement has made Hong Kong-born Ho a $2 billion fortune and hugely enriched and rejuvenated what was a crumbling, cash-starved outpost of an impoverished Mediterranean country. In 1996 alone, Macau collected $630 million from Ho's Sociedade de Turismo e Diversoes de Macau (STDM) -- more than 40 percent of government revenues. In the same year, the STDM had revenues of more than $2.1 billion -- roughly 27 percent of Macau's $7.7 billion GDP.

But with the date for Macau's return to China drawing close, life is getting more complicated as aggressive outsiders jostle for position and power.

China takes control of Macau on Dec. 20, 1999, and Ho's franchise expires in 2001. He will then be 78 and is not expected to seek renewal.

The lucrative revenues from gambling and its less savory spin-offs lie at the heart of recent turbulence in tiny Macau, population 460,000. Although officially it is the colony's tax department and Ho and his STDM associates who collect money from the nine casinos, triad gangs have long garnered their share too. However, this is being nibbled at by the outsiders who have muscled in.

Since the beginning of this year, at least 15 people have been killed and dozens injured in triad-related violence that has rocked confidence in Macau -- in particular frightening away large numbers of gamblers. Visits from Hong Kong dropped by 175,800 -- or 10 percent -- in the first four months of this year compared with 1996, says the Macau Immigration Department.

Such a slump is also affecting Far-East Jetfoil Co., a subsidiary of Ho's Hong Kong-listed Shun Tak Holdings Ltd., whose earnings fell 38 percent in the first half of 1996 and did not recover in the second half, according to a report from Hong Kong brokerage house Indosuez W.I. Carr Securities Ltd. "Passenger traffic on the route eased by 6 percent as punters shied away from Macau because of several violent shootings," says Carr analyst Alan Wong.

Worse, the gang warfare has turned on the authorities and exposed their tenuous hold on law and order. The director of Macau's gambling inspectorate -- a veteran of guerrilla warfare in Portugal's former African colonies -- Lt.-Col. Manuel Antonio Apolinario, has been virtually driven out. After surviving a murder attempt that left him with bullet wounds to the head, he needed 24-hour protection.

Though government officials say Apolinario has returned to Portugal temporarily for health reasons, Macau historian Manuel Teixeira says the tough ex-soldier was forced back to Portugal earlier this year because of concerns for his safety. "He could not go anywhere without protection," says Teixeira, who helped nurse Apolinario when he was wounded. "There are more than 4,000 people in triads in Macau. They are stronger than the police."

The power of the two main triad groups -- the 14K and Soi Fong (Water Room) -- is so great that police chiefs admit their ranks have been infiltrated. Commanders now confiscate the mobile phones of police officers prior to crime-busting raids for fear of tipping off the gangsters.

The triad muscle-flexing has brought into question the future direction Macau will take. China has indicated it will permit the casinos to continue operating after 1999, but it is unclear who will be in charge of them. With Ho probably out of the frame, some people are suggesting that Macau's gambling could be run as a non-profit charity similar to Hong Kong's money-spinning gambling equivalent -- the Hong Kong Jockey Club. This idea has been publicly supported by STDM's largest single shareholder, Henry Fok, an old friend and business associate of Ho. Fok also has influential friends in Beijing. He was a leading backer of Hong Kong's Beijing-approved chief executive, Tung Chee Hwa.

Ho does not have the same good connections in China these days. He is known to have insulted Beijing when he spoke out in Hong Kong after the Tiananmen Square massacre in 1989, according to senior Macau government officials.

Ho proposed that the United Nations take over Hong Kong, creating a neutral, independent "Switzerland of Asia." Though supported by various politicians in Hong Kong, the idea was rejected by both Britain and China. "I know the possibility is extremely remote, but as a citizen of Hong Kong, I thought I ought to try to do something to help," Ho said at the time. "Thousands of people are leaving Hong Kong and taking their money with them. We must find ways to restore confidence in our future." It may have been well-intentioned, but Ho has suffered for espousing the idea.

In June, the Sino-Portuguese Joint Liaison Group agreed to confirm Ho's casino monopoly until 2001 -- in return for raising taxation on the STDM's gross casino earnings from 30 percent to 31.8 percent. Until this agreement, Beijing had the option to end Ho's monoply in 1999.

As part of the deal, the STDM will stop funding a controversial Lisbon-based Orient Foundation. The Foundation was supposedly to promote cultural programs in Macau, but Beijing claimed some of the STDM money was being used for other purposes within Portugal. Instead, the STDM will pay a levy into a Macau-based Development Foundation.

Macau security chiefs blame Ho's loosened grip on the casinos -- which he has monopolized since 1962 -- for the triad warfare and air of uncertainty pervading the colony. Beijing, which wields a powerful influence in Macau when it chooses, is understood to have told the warring factions to curb the violence, although it's thought likely that another triad-linked activity, prostitution, is actively condoned by the mainland authorities.

The gang warfare is linked to a fundamental shift in the management of the casinos' highly profitable VIP rooms, which is damaging the triads' income.

Until two years ago, the STDM leased out the VIP rooms to local tour groups. These groups pay handsomely to lure rich Asian gamblers on packaged tours to Macau, with the prospects of easy wins and attractive hostesses. The tour operators pay a monthly fee of up to $1.3 million for the use of just one VIP room.

But police and government sources say the STDM is now inviting tour operators from outside Hong Kong and Macau to bid for the VIP rooms. And these groups -- mainly from Taiwan, China and Thailand -- have brought in outside triads. Police say it is this diversification that has broken down the old balance of power between the two dominant triads in Macau, which have traditionally had a hand in the VIP rooms, albeit illegally.

The changes have come about as close Ho friend Angela Liang Anqi, 35, a former mainland-Chinese ballet dancer, has become increasingly involved in the STDM's operations.

According to STDM officials, these rooms produce up to half of all revenues every year. A minimum bet in a VIP room is HK$1,000 ($130) compared with HK$50 ($6.50) on the casino floor. The maximum bet in a VIP room is HK$1.8 million ($232,560).

The 14K and Soi Fong are now competing with each other for a bigger share of the cigarette-smuggling trade into China to make up for their reduced revenues from casinos, say police. Their intense rivalry triggered the gang warfare -- the most bloody of which was the murder of three dai goh or "big brothers" of the 14K in broad daylight on May 4, near Ho's flagship casino in the Hotel Lisboa.

Ho declined to be interviewed by Asia, Inc., but he stated recently that he had full confidence in the police and expected that "everything will be normal again very soon." His press spokeswoman, Julie de Senna Fernandes, insists that triads have never been involved in any of the STDM's nine casinos. "When people have nothing to write about, they have to find something," she responds angrily, blaming the media for recent bad publicity.

The upsurge in lawlessness in Macau has also led to more visible prostitution. Some observers point to the flooding of the waterfront Hotel Lisboa with mainland girls as further proof that events are moving out of Ho's control.

The hookers now parade brazenly in the hotel lobby, the basement shopping arcade and the casino hallways. In the past, prostitutes -- legal in the colony -- discreetly plied their trade in clubs, saunas and bars. Today's girls visit Macau on 10-day tourist visas and have the cash to book into the Lisboa. There are dark hints that the cross-border trade is controlled by China's security organization, the Public Security Bureau.

The Lisboa's general manager and president of the Macau Hotel Association, Johnson Chan, says there is little he can do. "We do tell our guards to kick them out," he says. "We do it regularly. But they keep coming back. They come with valid tourist visas."

Macau has for years tried to diversify away from gambling and its associated vices, loan sharking and prostitution. But the lure of easy money has proved too strong. Government proceeds from the STDM have risen more than seven-fold from $82 million in 1984 to $630 million in 1996.

Weighing down on the government's efforts is a massively overbuilt real estate market. Some 30,000 residential flats and 600,000 square meters of commercial buildings are vacant. The oversupply is the result of speculative money from China in the early 1990s and government officials who handed out building permits without considering the limited market demand. Critics say some government officials may have acted corruptly.

Today, stagnant economic conditions combined with a shrinking number of tourists from Hong Kong -- who made up more than 60 percent of Macau's 8.2 million visitors last year -- have further helped fuel triad trouble, says Anthony Frazer, chief executive officer of the Hongkong Bank in Macau.

Business leaders agree that Macau must diversify or forever be prone to triad influences. "Macau is more than a casino city," says Eric Yeung, managing director of Perfekta Toys Ltd., one of Macau's largest manufacturers, and the vice president of the Macau Government Economic Council. "It's a misperception because the tourism sector has positioned Macau so that everybody knows it only for casinos. But they are only 40 percent of the economy. I think Macau is at a stage where it should upgrade into many other areas."

Yeung is a leader among Macau's younger entrepreneurial class. Perfekta Toys, which employs 1,200 people, manufactures and exports high-quality model toys and electronic components. "Yes, tourism is important, but it is only one of the pillars," says Yeung, who nevertheless concedes that manufacturing in Macau has dropped from 30 percent of GDP to 20 percent during the last 20 years.

Yeung, who is also chairman of the Macau Productivity and Technology Transfer Center, believes Macau has many advantages, including low wages, real-estate prices one-tenth of Hong Kong's, reliable telecommunications and a new 24-hour international airport. Fourteen foreign manufacturers and service companies invested $151 million in Macau last year, according to the Macau Trade and Investment Promotion Institute.

Plans are being drawn up for a third international school in Macau, making it more attractive for foreign companies to establish offices there. And a project that will help Macau attract more families, says Yeung, is a $150 million, 16-hectare marine park being developed by a consortium that includes the STDM and the Far East International Group. It is due to be completed by 1999. "Most tourists coming to Macau stay for only 1.3 days," says Jose Cheong, president of the Far East International Group. "We want them to stay at least two days."

Other schemes to attract more family tourism include a museum retracing Macau's history. Also under construction is the Macau Convention and Exhibition Center to encourage trade shows.

"We see signs that it is changing," says a confident Yeung. "The restructuring of the economy has already begun."

Whether or not Ho remains much longer at the helm of the gambling monopoly, few would disagree that he has been the single most important business influence on Macau over the last 30 years.

Before Ho established the STDM, Macau was a poor backwater, says historian Teixeira. Buildings were falling apart, water was undrinkable and people were hungry, he recalls. "Stanley Ho is a very good friend of Macau," says Teixeira, whose Catholic welfare charity receives $2,600 from Ho every Christmas.

Ho fled to Macau from the advancing Japanese armies in 1941. Although he came from the wealthy Shanghainese-Eurasian Hotung family, he landed in Macau with just a few coins in his pocket. But as a dashing young man he quickly established himself as a darling of the Macanese belles -- daughters of rich Chinese-Portuguese mixed marriages. Ho eventually married Clementina Leitao, daughter of one of Macau's wealthiest men. And it was through Leitao family connections that he later met the Fu family, which controlled Macau's gambling monopoly from the 1930s until he took over.

Ho's connections brought him close to the ruling Portuguese and he succeeded in wresting the franchise away from the Fu family in 1962 -- with the help of several friends. These included Henry Fok -- who broke the U.S. trade embargo on China in the 1950s -- Ho's brother-in-law Teddy Ip and renowned gambler Yip Hon.

Ho is no stranger to the underworld turbulence now rocking Macau. His earlier, more swashbuckling days in Macau are recalled in the 1992 Hong Kong film Casino Tycoon, starring singer Andy Lau. The movie portrays Ho as a tough but righteous man who was not afraid to challenge gangsters on their own turf, playing by their rules with guns and knives. Ho even has a nickname on Macau's mean streets: He's known as Sun Goh (New Brother).

He may be an avid ballroom dancer today, but Ho was better known in the past for fighting skills that won him much respect in the underworld. There is no suggestion that Ho is a triad member, but his friend the late Yip Hon, a former STDM founding director, was a member of Hong Kong's Hung Mun Triad, according to the U.S. government. It was Ho and Yip's early alliance that built STDM's success.

Ho has invested heavily in Macau beyond the casino world, and has said his business interests will stay put after the handover. He has contributed 25 percent of the $1.4 billion cost of the Nam Van Lakes Project, which when completed early next decade will have converted part of the harbor into two inland lakes surrounded by a ring road, hotels, resorts and parks. And his Macau International Airport Co. controls the new $1.2 billion airport which opened in 1995 and last year brought in 1.3 million new tourists, mostly from Taiwan, Thailand and Southeast Asia. His various Macau businesses are estimated to account for 50 percent of government income. But not everyone in Macau is enthusiastic about his achievements in the colony. A senior Portuguese official shakes his head in disapproval: "We should never have vested so much power in the hands of a few. Henry Fok's idea of returning the casino franchise to a non-profit company is a good one."

Perhaps the real clue to Macau's future is the executive director of the territory's Tai Fung Bank, Edmund Ho. He holds the distinction of being vice president of Macau's Legislative Assembly and a standing member of the National People's Congress of China. While Stanley Ho (no relation) steadfastly built up his business empire, Edmund Ho, 42, garnered political capital. It was a task made easier because his father, Ho Yin, who founded the Tai Fung Bank, had good guanxi (connections) with Beijing.

© 1997 by Asia Inc. Ltd.