The Great Game

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Who would have thought it? Five years ago, when Portugal handed Macau back to China after nearly 450 years of colonial rule, the city had just a handful of proven tourist attractions, such as its annual Formula 3 Grand Prix (which ran its 51st race in November). But beyond that, the city's magnetism extended not much farther than nearby Hong Kong, whose residents used it as a weekend getaway, a place for a few hours of baccarat or a quick tryst with a Russian hooker. The economy had contracted from 1996 to 1999. Abandoned, half-built apartment and office towers sullied the skyline. Triad warfare raged so severely in the streets that in 1997 Macau's Secretary for Security even reassured tourists that they wouldn't get caught in the cross fire because the city had "professional killers who never miss their targets." The chaos seemed part of a malaise that had endured for centuries. When Portuguese adventurers founded Macau in 1557, it became the main gateway for trade with tightly sealed China. Slowly, other European powers ate away at Portuguese dominance in the region, and when the British founded the bustling port of Hong Kong only 60 km away, Macau was relegated to perennial second-tier status.

But several years ago, the tiny peninsula and its nearby islands discovered they had an ace up their sleeve: a 49-year-old former accountant named Edmund Ho. The first Chief Executive appointed to run the city following its return to China, Ho is credited by everyone from local taxi drivers to Beijing bureaucrats as the architect of Macau's revival, a renaissance "written, produced and directed by Edmund Ho," says Steve Wynn. The secretive Ho, a former member of China's National People's Congress who holds a bachelor's degree in business from Canada's York University, had the perfect mix of political connections and business acumen to press for change. His family ties also helped—his father was a respected Chinese community leader. And after taking office, he took the crucial steps that would rev up the economy by dismantling the 40-year casino monopoly held by Macau's most powerful individual, Stanley Ho (no relation to Edmund). Little has happened in the territory for the past half-century without the 82-year-old tycoon being a part of it. Through companies Shun Tak Holdings and Sociedade de Turismo e Diverses de Macau, Stanley Ho is one of Macau's largest property developers, and controls the dominant ferry service to Hong Kong, Macau's main department store, even the dog track, called the Canidrome. But the monopoly was keeping Macau in a straitjacket. "There just wasn't enough investment in new facilities to draw people in," says David Green, a Macau-based gaming consultant at Pricewaterhouse-Coopers. "It's the worst feature of a monopoly."

Macau's turning point came in 2002 when Stanley Ho's license expired. Edmund Ho's government put three new casino permits up for bid, garnering 21 responses from a Who's Who of the global gaming industry. Stanley Ho won one of the licenses, while the other two were awarded to Wynn's company and Galaxy Resort & Casino. Formed by Hong Kong investors, Galaxy then granted rights to its partner, Adelson's Sands, to open casinos. Chen Zuo'er, deputy director of the State Council's Hong Kong and Macau Affairs Office in Beijing, calls the opening of the gaming sector "a revolution." Wynn and Adelson are two of the visionaries who transformed Vegas from a sleazy gambling pit to one of the world's top tourist destinations. And as an added boost, China in 2003 began lifting travel restrictions on mainlanders so that they could go to Macau's casinos more easily. The number of mainland visitors to Macau jumped 73% in the first 11 months of 2004 to 8.7 million, and their spending has since become a mainstay of the city's tourism industry.

The effect of these reforms has been nothing short of miraculous. Macau's GDP grew 47.6% in last year's second quarter—yes, we put the decimal point in the right place—and for all of 2004, it is expected to grow more than 20%. Long-stagnant sectors have been given new life. In 1995 the government opened a grand, new airport, only to discover that few airlines wanted to use it. But last year, Asia's leading no-frills carrier, Malaysian-based AirAsia, began flying in from Bangkok and Kuala Lumpur. Richard Branson's Australian-based airline Virgin Blue is in talks with China National Aviation Corp. to launch a budget carrier with the territory as its base.

But the hottest part of the economy is property. Macau resembles a city-size construction site as many once empty buildings are fixed up or rebuilt and rented out, especially as apartments. New casinos can't be built quickly enough. Galaxy crash-renovated an office building across the street from the Sands into the Waldo Hotel, complete with a small casino, in only five months. As an office tower, it had stood vacant for five years, but since its opening last July, the Waldo has been crammed with some of Macau's wealthiest high rollers. Property prices are spiking. Real estate consulting firm Colliers International estimates that residential property prices have jumped at least 50% in the past 12 months. In a frenzy reminiscent of the heady days of the dotcom boom, investors in Hong Kong have gone crazy over companies listed on the Hong Kong stock market with any connection to Macau, now widely known as "Macau-concept" stocks, though recently some have been cooling off a bit. In November, the shares of little-known technology company Cyber On-Air Group skyrocketed 542% in one day after it announced the possible acquisition of a stake in a hotel-casino project in Macau. Stocks in Stanley Ho's companies have also been a hit. Share prices of his Melco International Development, a restaurant-and-property firm, have increased seven times since September.