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Cablegate: Macau Scenesetter for Hud Secretary Jackson

VZCZCXRO6106
PP RUEHCN RUEHGH RUEHVC
DE RUEHHK #1801/01 1900040
ZNR UUUUU ZZH
P 090040Z JUL 07
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 2213
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 03 HONG KONG 001801

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM
STATE PASS TO HUD SECRETARY JACKSON

E.O. 12958: N/A
TAGS: ECON EFIN PREL PTER EINV KIPR HK CH MC SENV
SUBJECT: MACAU SCENESETTER FOR HUD SECRETARY JACKSON

1. (SBU) Summary: The U.S. Consulate General Hong Kong
warmly welcomes your visit to Macau next week. U.S.
interests in Macau have increased tremendously since 2002,
when Macau liberalized its gaming market. The U.S. is now
one of the largest investors, behind only Hong Kong and
mainland China. Major U.S. casino and resort operators, such
as Wynn, MGM, and Sands, are opening casinos, hotels and
convention facilities at a rapid pace. This U.S. financial
presence has also caused the American citizen population in
Macau to double in the past two years. The Macau Special
Administrative Region (MSAR) is now depending on gaming to
grow the economy, fill government coffers, and create jobs.
This rapid development is driving social change and straining
the MSAR's political, bureaucratic, and regulatory systems.
Major U.S. interests in Macau include the expansion of
democracy and the protection of human rights; urging the
Macau Special Administrative Region Government (MSARG) to
address trafficking in persons; continued vigilance against
money laundering and other illicit financial activities;
responding to fallout from the Banco Delta Asia/North Korea
issue; and ensuring the sustainable economic development of
Macau within the "one country, two systems" model. END
SUMMARY.

-------------
Economic Boom
-------------

2. (SBU) Macau's rapid economic growth can be traced to the
MSARG's 2002 decision to end the long-standing gaming
monopoly of Stanley Ho's Sociedade de Jogos de Macau (SJM).
Macau now effectively has six separate casino licensees -
three concession holders (SJM, Galaxy and Wynn) and three
sub-concession holders (MGM, Las Vegas Sands and PBL/Melco).
At the end of 2006, SJM ran 17 of Macau's 24 casinos, Hong
Kong's Galaxy Resorts had five gaming facilities, Las Vegas
Sands had one casino (the largest in the world) and
U.S.-based Wynn Resorts had one casino. MGM and Pansy Ho
(Stanley's daughter) are jointly building a casino on the
Macau peninsula.

3. (SBU) In March 2007, Macau's gaming revenues surpassed
those of the Las Vegas Strip. Mainland Chinese visitors
comprise over 50% of visitors to Macau. Gross gaming
revenue in Macau for calendaryear 2007 is estimated to rise
to approximately S$8.0 billion.

---------------
The Cotai Strip
---------------

4. (SBU) The Cotai Strip, a rcently-constructed landfill
area between Macau'sColoane and Taipa islands, will soon
become the enter of Macau's tourism industry. Cotai is
slaed to host 16 mega-resorts and have 60,000 hotel roms by
2009, more than the 40,000 currently in Hong Kong and the
11,000 currently in Macau. Las Vegas Sands owns phase one of
the Cotai Strip and plans US$11 billion in investments there.
Its first resort, the Venetian Macau will open in the fall
at a cost of US$2.3 billion. The Venetian Macau will house
3,000 hotel rooms, a 1.2 million square-foot exhibition and
convention center, and one million square feet of retail
space, making it the largest shopping mall in Asia. Twelve
major international hotel groups plan to operate hotels and
casinos in the Cotai Strip. The Conrad (Hilton), Four
Seasons, Galaxy, Holiday Inn, Inter-Continental, Raffles, St.
Regis, Shangri-La, Sheraton, Starwood, Traders and the
Venetian will all open facilities in the next few years.

5. (SBU) Macau hopes to diversify beyond gambling by branding
itself as a regional convention and exhibition center. When
Macau's new casinos, hotels and convention centers open, it
should have 71,000 hotel rooms, enabling it to handle 38
million visitors annually. To make this growth sustainable,
the MSARG will need to make important policy decisions
concerning transportation, health care, migration/labor,
energy, and the environment.

----------------
Banco Delta Asia
----------------

6. (SBU) The Banco Delta Asia case -- wherein the U.S.
Treasury determined that a weakly regulated local bank had
been exploited by North Korea -- exposed Macau's financial
and regulatory systems' vulnerabilities to money laundering
by criminals and rogue regimes alike. If Macau is to
successfully upgrade its banking and financial services
sector, it will have to ensure that its legislation and

HONG KONG 00001801 002 OF 003


supervisory personnel are robust enough to prevent similar
future abuses of the territory and its institutions.

-----------------
Human Trafficking
-----------------

7. (SBU) The MSARG was ranked "Tier 2 Watch List" in the
State Department's 2007 Trafficking in Persons Report, as it
was in the 2006 report. The State Department's
anti-trafficking office (G/TIP) accepted the Consulate's
recommendation that Macau remain Tier 2 Watch List, but
stressed the need for the Macau government to take steps to
avert a Tier 3 ranking in 2008. G/TIP's judgment reflected
the Macau government's failure to acknowledge a trafficking
in persons problem or take any noticeable measure -- even
simple first steps -- to combat trafficking. In recent
weeks, however, the MSARG has committed to take steps to
combat this crime.

----------
Corruption
----------

8. (SBU) The massive infusion of money into Macau may create
opportunities for financial malfeasance. In December 2006,
Transportation and Public Works Minister Ao Man-long was
arrested for accepting bribes. Hong Kong's Independent
Commission Against Corruption (ICAC) reportedly uncovered
that Ao was moving large amounts of funds through Hong Kong
and handed that information over to Beijing and Macau. Ao's
arrest shows that mainland China's anti-corruption drive also
extends into the MSAR. Macau's Commission Against Corruption
functions independently, reports directly to the Chief
Executive and is charged with investigating acts of
corruption and fraud. Moving forward, the question is how
Macau's political culture and legal system will adapt to the
new economic environment and curb both official and
private-sector corruption.

------------------------
Economic/Social Concerns
------------------------

9. (SBU) Concerns exist that rapid economic growth will tax
the capabilities of Macau society and the MSARG to adapt to
and absorb change. Some have questioned whether the MSARG
has the expertise and wherewithal to promote rapid economic
growth and development, while at the same time promoting
necessary reforms and governing in a transparent manner.
Observers worry that some MSARG officials are making
decisions in the interest of promoting rapid growth, while
ignoring important regulations regarding public tender
procedures, licensing requirements, environmental impact, and
zoning or building limitations.

10. (SBU) Many young Macanese have forsaken or altered their
education for relatively well-paid jobs in casinos. Not only
has this trend reduced the talent pool for the MSARG and
local small/medium private enterprises, it also has created a
growing wealth gap. Housing prices have increased
significantly. These sorts of dislocations have led to more
vocal public protests in Macau, particularly among the less
skilled, middle-aged people who have not received the
benefits of Macau's transformation and are less able to adapt
to the new economic realities. Recent economic growth
already has outstripped the supply of both skilled and
unskilled labor. Nonetheless, some sectors of the Macanese
public strongly oppose the importation of labor. For the
past two years, clashes have broken out with police during
the annual May 1 (International Labor Day) activities, with
labor and immigration issues contributing to the anger of the
demonstrators.

---------------------------------
Health Care & Infectious Diseases
---------------------------------

11. (SBU) Macau's health care system is coping with the
territory's quick economic expansion, rapid population
growth, and large influx of tourists. While existing health
care facilities are able to provide preventive care to local
residents, health care officials acknowledge that Macau's
crisis response capabilities must be expanded quickly,
particularly due to the threat of Avian Influenza and other
emerging infectious diseases. Macau lacks the technical
expertise of Hong Kong and largely depends on it for
information on emerging infectious diseases and how to
develop response strategies. Macau plans to follow Hong

HONG KONG 00001801 003 OF 003


Kong's lead in responding to an Avian Influenza (AI) or any
other pandemic. Macau also needs to build up its emergency
response capabilities, particularly in the Cotai region.
Tuberculosis, HIV/AIDS and dengue fever remain immediate
public health concerns.

-----------
Environment
-----------

12. (SBU) Macau's air quality is worsening due to
manufacturing in Guangdong province, emissions from the
transportation sector and localized diesel electricity
production. Macau's drinking water supply is almost
completely dependent on tributaries of the Pearl River, which
face problems with pollution and excessive salinity. The
Macau Environmental Council (EC), a government body charged
with monitoring the condition of the environment, has neither
regulatory nor law enforcement powers. The Macau Special
Administrative Region Government (MSARG) recognizes the need
to create a body with true regulatory and enforcement
capabilities, but appears to lack the technical expertise and
political will to do so, possibly out of fear that it could
slow down short-term growth.

--------------------------------------------
Transportation & Other Infrastructure Issues
--------------------------------------------

13. (SBU) The MSAR must expand its transportation
infrastructure. Plans are afoot for an inner-city light
train system, a regional rapid rail system, the expansion of
the airport, helicopter and ferry terminals, as the gaming
and entertainment industries are drawing in more tourists and
workers to Macau. The MSARG will have to focus intensely on
the territory's infrastructure needs just to keep up with
estimated future growth. Macau receives its water and
electricity from the mainland; the area of Guangdong adjacent
to Macau also is growing rapidly, raising concerns about
maintaining steady supplies of these resources.
Cunningham

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