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China 2.0

How China's Corrupt Are Making Macau Rich

Ahead of the anniversary of Macau passing under Beijing's control, and a delicate visit from Xi Jinping, a closer look at the troubling formula of the former Portuguese colony.

The Sands Macau casino
The Sands Macau casino
Federico Varese

MACAU — President Xi Jinping's visit to Macao to mark the 15th anniversary of the former Portuguese colony returning to Chinese sovereignty won't be any kind of victory lap. China's leader is worried about the growing financial crime in the region, where it is estimated that $202 billion is recycled through the peninsula's casinos every year.

This immense sum comes from the People's Republic as well. Party officials and directors of public companies spend bribes they accumulate during the year at the gaming tables and sauna-brothels in Macau's many hotels, while the rest is used to buy real estate, companies and government bonds in the West.

The explosive mixture of endemic corruption and money laundering on such a massive scale demonstrates capitalism's fragility in the state inaugurated by Deng Xiaoping. For 400 years, Macau was a Portuguese colony. Today, both the young and the elderly chat in the main square near the ancient Catholic cathedral, while the restaurant menus are Mediterranean.

In the heart of the modern city, 33 casinos have been built since 1999 thanks to both Chinese and American investment. Kitsch is a must: The Venetian Hotel has a replica of the Italian lagoon city, with canals and gondoliers who serenade young couples.

Nevertheless, the model works, and Macau now boasts almost triple the profits of Las Vegas. But behind the cardboard facade of the faux St. Mark's Square and the luxury brand shops hides a corrupt economy.

My journey into this world begins in the secret VIP gaming rooms, where the minimum bet is $10,000. To find these VIP rooms, you must head up to the top floors of the most prestigious hotels, such as the Lisboa or Galaxy, where access is strictly invitation-only.

In one of these clubs I met Xin, a gentleman in his sixties with broad shoulders, black hair and a strong, charming smile. He speaks Mandarin, Cantonese and English, and his job is to convince wealthy Chinese to gamble in the club where he works.

It's not necessarily easy work. Advertising green tables in China is illegal, and the citizens of the People's Republic can't legally spend more than $3,200 per day, a figure that doesn't enable gamblers here to do much more than look out the door of their hotel rooms. Public officials are prohibited entirely from entering casinos.

"My art is to convince the Mandarins to come to Macao," Xin says. "I take them to the best saunas in the city, where they can choose from hundreds of prostitutes — from Russian to Thai. Everything is at my expense."

After they are hooked, the next step is to give the players no less than $150,000 in virtual money that can be used only in his club. (It's the same system used in Montenegro's casinos, managed by shady businessmen from the southern Italian city of Bari).

Here, there are no rules that protect vulnerable gamblers who end up on the streets too soon. Once, a customer was at the tables for six days in a row and eventually had to be taken away in an ambulance. The losses are staggering. The head of a propaganda department lost $15 million once, while the former deputy mayor of a small town in northeastern China threw blew $1.6 million in three days. Both were shot.

Organized crime is charged with collecting the debts once players have returned home. In one case, members of the 14K — the most powerful mafia group in Macau — went to Canton to recover $335,000 on behalf of Xin. The unfortunate debtor, who was by then bankrupt, wound up in the hospital. In another case, the same gang visited an official in Shanghai. Because he stubbornly refused to pay, they killed his girlfriend.

Debt collection is a powerful factor in the spread of the mafia on the mainland. The Triad in Macau and Hong Kong have forged alliances with gangs in mainland China, creating powerful transnational groups.

Moving money

The hardcore gamers are responsible for just a fraction of Macau's dirty economy. The rest comes, more or less, from legitimate business in China. Anyone who wants to get money out of the country must go through places such as Zhuhai, a city with more than one million inhabitants near the border of Macau.

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Inside a casino in Macau — Photo: Lablascovegmenu

Here, in a shopping center a few meters away from the border controls, you can buy counterfeit DVDs and video games, cell phones and drugs. There are also about 30 shops that seem to be completely empty. "If you give me the Chinese currency, we'll get you Hong Kong dollars beyond the border," an older woman tells me.

She runs one of the informal "banks" that, according to a Reuters survey, move more than 1 billion RMB (about $160 million) every day from Zhuhai to Macau. This flow of money entirely escapes the controls of Chinese authorities.

Business people who can't wait for official permits to import or export capital, corrupt officials eager to launder bribes, and criminal groups who need to move their immense profits from drug trade and human trafficking all use this banking system that is based entirely on trust.

The lady invites us to a room in the back of the seemingly empty store to explain how the system works. The customer delivers the money, along with their passport number. In return, they get a secret code. With this and their passport, they can withdraw the sum in a foreign currency directly from the tills of Macau's casino the same day.

Bo Xilai, the former party chief of Chongqing, who was accused along with his wife of murdering a British businessman, was able to transfer $1.2 billion. "We must be careful of scams," says the woman, "but they are rare."

The Chinese model of state capitalism has reached a turning point. Widespread corruption generates disastrous choices, environmental damage, property speculation and unsafe construction. The proximity of the turbo-capitalist centers of Hong Kong and Macau allow capital to be hidden abroad easily.

The campaign against state corruption and money laundering President Xi Jinping has launched can't merely limit itself to exemplary execution. It must promote the creation of new laws with institutions that can be monitored. Otherwise it will just remain a cardboard initiative — much like St. Mark's Square at the Venetian Hotel.

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