The modern, nondescript black building that houses the Handover Gifts Museum of Macau is understated compared to its neighbors. The nearby Sands Casino, for instance, is emblazoned in gold. But inside its vast space, dozens of tapestries and statues send a breathless message of how much the Chinese territory, now known as a gambling mecca, means to the imposing mainland.
Each item is a gift to the city from provinces around China in honor of Portugal handing Macau over to China in 1999. At that time, Beijing established a ‘One Country, Two Systems’ arrangement with Macau, which mimicked the relationship it had brokered with Hong Kong two years earlier. Guangdong, for instance, gave the city a jade ball sitting atop a crystal lotus, which is a described as a “blossoming flower sitting under a full moon” and is supposed to symbolize Macau’s strong work ethic and “bright future.” The gift, like many in the museum, stands exactly 1,999 millimeters tall, a nod to the year of the handover.
Twenty years on, Macau is getting a new set of gifts, this time from Xi Jinping. In December, the China’s president visited the 45-square-mile territory as his government introduced a slate of economic policies and investments to help Macau diversify its economy away from gambling and toward finance, an industry that built Hong Kong, 40 miles east of Macau, into an international metropolis. In fact, Hong Kong was an unspoken theme of Xi’s visit to Macau, as the congratulatory tone stood in stark contrast to Beijing’s disapproval of the anti-government protests in Hong Kong, which have raged for months now.
“The timing was right to punish Hong Kong and reward Macau,” said Nagasaki University professor Geoffrey Gunn, author of Encountering Macau, a book on the territory’s history. “Macau has been the good boy, the good player for China. That’s why [Xi’s] shown up for the anniversary.”
Yet for all the pageantry, the idea that Macau might be able to one day develop a financial industry on par with Hong Kong’s seems farfetched to experts; in fact, the effort may only reinforce Hong Kong’s importance to Beijing.
Gaming the system
The Portuguese first came to Macau in 1557 to set up a colonial trading post largely to deal in silks and silver. Under Portugal’s rule, Macau developed its own systems of civil law, education, government, and its own ethnicity. (The Macanese minority, now only about 1% of the population, come from marriages between Portuguese and Chinese Christians.) And crucial to the city’s future, Macau started allowing gambling in the 1840s in an effort to stem the outflow of residents from the city to Hong Kong, which China ceded to Britain in 1842.
Still, Macau, remained a sleepy backwater for much of the 20th century and for a few years after it was handed over to China in 1999. It wasn’t until 2002, when Macau ended monopoly-rule over casinos and opened the sector to foreign operators like Las Vegas Sands and Wynn Resorts that the city began to take its modern-day shape.
“[Macau] lost the casino monopoly and they set up a system for global bidding of casino operators,” said Gunn. “The tone of the place completely changed from this sleepy, old way of doing things to a cosmopolitan, business-oriented kind of portal.”
But with the evolution came corruption, as China’s nouveau riche—riding China’s unprecedented economic growth—saw Macau as a place to gamble or launder away their newfound wealth, according to Gunn.
Macau’s annual gaming revenue reached a peak of $45 billion in 2013. But Xi’s 2012 corruption crackdown—aimed at reining in Chinese officials’ lavish spending—chilled casino floors and revenue fell to just under $30 billion in 2015. They’ve since thawed, earning roughly $37 billion last year. (By comparison, Las Vegas has consistently produced around $6 billion or $7 billion in revenue per year in the last decade.) There’s no doubt Macau’s economy runs on gambling, with over 80% of the city’s taxes coming from industry revenue. In fact, it’s helped Macau become one of the richest cities in the world, with per-capita GDP hitting $122,489 in 2018.
But such a single-cylinder economy makes the city vulnerable to shocks in the market, so Macau officials have long sought to diversify its economy, even if challenging the financial heft of Hong Kong remains a distant goal.
In his December speech, Xi said that China must “promote the diverse and sustainable economic development of Macao.” Alongside Xi’s boosterism, the Chinese government announced several measures aimed at developing the city’s financial sector and trade with the mainland. Most significant, however, were reports that Macau would soon open a yuan-denominated stock exchange, in part, as a contingency plan in case the protests in Hong Kong became untenable for Chinese businesses. Full plans for the stock exchange have yet to be released, but Macau’s Monetary Authority told Reuters in June it was engaged in early-stage discussions about the project.
In theory, Macau could develop a stock exchange similar to Hong Kong’s since the two share the ‘One Country, Two Systems’ framework that provides relative autonomy from Beijing. But that arrangement has played out quite differently in each territory based on their contrasting colonial histories, making Hong Kong’s financial success hard to replicate.
Britain was far more strict and judicious in setting up democratic institutions—independent of Beijing—in its onetime colony of Hong Kong than Portugal was in Macau, according to analysis by New York University law professor Jerome Cohen. Now, Hong Kong’s reputable common law system is critical to its status as a global financial center. “With its independent legal system and robust public institutions, Hong Kong’s attractiveness is also burnished by the fact it stands apart from mainland China,” said Tara Joseph, president of Hong Kong’s American Chamber of Commerce, in a statement last June. “It is that autonomy under One Country, Two Systems which underpins Hong Kong’s trading and commercial relations with other economies.”
Portugal, meanwhile, set Macau on a different path. It allowed Macau residents to easily attain full Portuguese citizenship, which prompted some Macau residents to leave for Europe. At the same time, Macau saw an influx of immigrants from Mainland China, meaning its current residents have close ties to China, and Beijing arguably sees more of itself in the territory. Hong Kong never saw that kind of turnover since the Brits did not provide an avenue to full British citizenship to residents there.
“Whatever happens in the financial sector [in Macau] is going to be dependent on Beijing and what Beijing wants,” said Professor Paul Spooner of the University of Macau. “Hong Kong’s organizational infrastructure [in financial markets] doesn’t exist in Macau, and that won’t be created overnight… That structure would rely only on Chinese resources and strategies,” he said. It would not rely on international infrastructure like in Hong Kong, which “works spectacularly,” Spooner said.
The challenge of duplicating Hong Kong’s success points to the critical role the city plays for Beijing, despite its on-going turmoil; its status as an independent financial hub remains unparalleled in China. Over half of Hong Kong’s stock exchange is made up of Chinese companies and more firms are eyeing it because Hong Kong provides access to foreign capital and foreign markets. Because the Hong Kong dollar is pegged to U.S. currency, the city is also a critical middleman between China and the rest of the world. And as the Wall Street Journal notes, even amid unrest in Hong Kong, banks in the city still report more in international assets than all of the banks in Mainland China, combined.
In a dimly-lit, back corner of the Handover Gifts Museum, a large wool tapestry depicts Hong Kong’s skyline, a gift from Macau’s neighbor. Below the display, an inscription says that the Hong Kong government hopes the two cities will “develop hand in hand” under ‘One Country, Two Systems.’ But as Beijing looks to remodel Macau in Hong Kong’s image, it’s clear the two territories diverged a long time ago.
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