Rumblings about gambling make Macau a riskier bet

Hamish McDonald
October 13, 2007

JAMES PACKER'S plunge into operating casinos in the peculiar former Portuguese enclave of Macau is becoming ever more a high-stakes game.

The competition is intense (against the Las Vegas-based magnate Sheldon Adelson and others), funding is getting more expensive, and there are new question marks over the long-term cosy tolerance shown by China's communist leadership that has kept this anomaly on the southern coastline in business.

A partnership with the family of Macau's veteran casino tycoon and former monopolist Stanley Ho should have immunised Packer against political risk.

With his late partner Henry Fok, Ho has long been foremost among the "patriotic" business leaders of Hong Kong and Macau trusted by the comrades in Beijing to help keep the two Pearl River delta fiefdoms free from dangerous political tendencies.

At the land border crossing at Zhuhai, an illegal foreign exchange business has been operating under the noses of Chinese officials, allowing Chinese to convert unlimited amounts of yuan (still officially non-convertible) into Hong Kong dollars or, if they wish, have it waiting as credit with the cashiers at Ho's casinos. The Macau route has been a favourite money-laundering channel for China's billions of dollars in corrupt earnings.

But since August the Communist Party's 72.4 million members have been ordered to watch an educational video titled The Evils of Gambling, produced by the party's Central Commission for Discipline Inspection.

It features the salutary lessons of officials who have succumbed to the evil. Lin Longfei, the party secretary of a Fujian province county, went in for corruption and gambling, as well as keeping 22 mistresses. He was executed.

Wu Huali, police chief in the Guangdong city of Huizhou, got 12 years in jail after blowing 10 million yuan ($1.5 million) in public funds on his 68 trips to Macau. Li Shubiao, a housing official in Henan province, laundered 120 million yuan through underground banks and lost 80 million yuan of it in Macau's casinos. Reports do not say what happened to him.

In Guangdong, authorities have stopped issuing automatic passes for government, party and state enterprise officials who apply to make "business trips" to Macau. Undercover police have been sent into Macau to scrutinise who is doing what at the tables, media reports say.

The crackdown extends beyond officialdom. Under its "Three Represents" ideology, the Communist Party has been trying to co-opt the new entrepreneurial class, and the state sector of course includes corporations that generate a lot of wealth. At companies such as Sinopec (a state oil firm), the Tsingtao brewery and China Power, staff have been ordered to watch the video.

No wonder Ho turned up in Sydney last month when an APEC dinner hosted by the Premier, Morris Iemma, for China's President and party chief, Hu Jintao, offered a chance to sit downtable from the Chinese leader. Mr Hu is likely to set his own stamp on ideology next week at the five-yearly party congress, the first since he took power.

Any limits by Beijing on the flow of mainland punters will increase fears of overinvestment in Macau's casinos. September was the first full month after the opening of Adelson's second casino in Macau, the Venetian Sands, which with 3000 attached hotel rooms and vast gaming halls is the world's biggest.

Through his Hong Kong-listed Melco-PBL joint venture with the Ho family, Packer opened his first casino, the $648 million Crown, in May this year, and has embarked on the massive City of Dreams casino resort projected to open in early 2009 at a cost of about $2.4 billion.

A third casino, Trinity, is projected to open in late 2010 in a central part of Macau, at a cost of $750 million, dependent on the "uncertain impact" of the new visa restrictions by China, according to the company.

Meanwhile, the strains of development are showing in Macau. On two communist festival days this year, May 1 and October 1, thousands of locals held angry street protests against wages depressed by an influx of illegal Chinese workers and other cost-of-living issues. In the first protest, police used tear gas and fired warning shots, with one protester injured by a police bullet.

China's hand-picked quasi-governor in Macau, Edmond Ho, is coming under increasing attack for crony politics. In recent weeks he has had to sacrifice his public works secretary, for bribery, and his labour affairs secretary, for employing illegal workers to build a luxury home.

There is huge wealth to be made from the Chinese gambling habit - Adelson got back the $US265 million he spent on his first casino, the Macau Sands, in one year. But it all depends on the punters and their money getting across the border.