The tiny coastal enclave of Macau is where foreign investment in China really all began. Some five centuries ago it was on this small peninsula, jutting out into the muddy waters at the mouth of the Pearl River, that imperial Portuguese galleons first dropped anchor and began the European colonization of East Asia.
Shoot forward to December 1999 and – as they were first to arrive – the Portuguese were also, ultimately, the last to leave.
Like Hong Kong two years earlier, Macau had returned to the arms of the motherland; the second Special Administrative Region (SAR) of the People's Republic.
But unlike Hong Kong, the territory the Portuguese handed over was no big-league economic powerhouse.
With a population of just under half a million, Macau had always been the poorer cousin to its bigger, glitzier neighbor – a somewhat sleepy, Mediterranean-style playground to which Hong Kongers would flock on day trips to dine on Portuguese food, drink cheap wine, shop for "antiques," but mainly to gamble at one of the territory's dingy, smoke-filled casinos.
In the run-up to the handover, Macau's reputation had also been tarnished by an outbreak of street warfare between rival triad gangs, fighting for control of the loansharking and other less salubrious elements of the gambling trade.
Now though, as the fifth anniversary of the handover approaches, a transformation is underway.
While the easy-going Mediterranean feel remains, crime has plummeted to virtually non-existent levels. Meanwhile, after years of flat or negative growth, the economy has begun to boom – the result of a surge in mainland tourists and a government-backed push to exploit the SAR's historical, cultural and recreational strengths.
"Macau today is really beginning to wake up to business," said Manuel Geraldes, Portugal's trade commissioner in the territory and a Macau resident for more than 15 years. He has, he said, "never had so much work."
"It's a place that's very open to new businesses and new ideas," offering much lower taxes than neighboring Hong Kong and a range of other incentives for investors.
"There's a feeling that this is a very important time for Macau," he said. It's a sentiment reflected in the hard statistics. In the first quarter of 2004, GDP grew by 25.6% – Hong Kong, by comparison, grew just 2.2%. By the end of June unemployment stood at just over 5%, the lowest level in years; while tourist arrivals and tourist spending have broken records almost every month this year.
A further sign is booming property prices, with some residential properties up more than 40% on last year "a reflection of the optimism people feel about Macau's economy," said Vong Kok Seng, businessman and Executive Director of the Macau Chamber of Commerce.
"People here feel confident that Macau has a strong future to invest in," he said. "New investments are coming in, especially in tourism, and employment opportunities are growing."
Yet another indication can be seen in the approval ratings for the territory's Beijingappointed Chief Executive, Edmund Ho Hauwah. By mid-2004, Ho's popularity was hovering at around the 80% mark – the kind of figure his embattled Hong Kong counterpart can only dream of.
Key to this boom has been the massive growth in tourism from the mainland, coupled with the liberalization of the gambling industry – for years the lynchpin of Macau's economy and one of the most lucrative gaming centers in the world.
In 2002 for example, the latest year for which official figures were available, gaming made up 33.34% of Macau's GDP and accounted for around 70% of government tax revenue.
For more than 40 years Macau's casino trade was under the control of one man, Hong Kong-based tycoon Stanley Ho, whose STDM Group was for a time virtually synonymous with Macau's economy. The government's decision to end Ho's casino monopoly in 2002 opened Macau's doors to international gaming operators, most notably some of the biggest names from the world's gambling HQ, Las Vegas.
But casinos, of course, are nothing without the gamblers to visit them and here the growing number of mainland visitors is providing much of the fuel.
Partnership Arrangement (CEPA), which came into effect at the start of 2004, and the more recent Pan Pearl River Delta Cooperation project, an easing of mainland visa regulations has cleared the way for millions of new visitors traveling to Macau.
As a result, mainland visitors in the first quarter of 2004 jumped by some 67% on the previous year, a trend that operators in the hospitality trade expect to see continue for several years to come.
The first and, to date, biggest of the new casino arrivals in Macau is the waterfront Las Vegas Sands, which opened its doors to huge crowds in mid-May. With more than 30,000 square meters of floor space the Sands' arrival almost doubled the number of gaming tables available in Macau overnight.
Speaking at the casino's opening, Sands' President and COO William Weidner said he expected Macau's gaming revenue to top US$5 billion in 2004, putting it "on the verge of becoming the world's top revenue-producing gaming market" bigger even than Las Vegas.
The driving force, he had little doubt, would be the huge emerging gambling market on Macau's doorstep.
Built by Las Vegas mogul Sheldon Adelson's Venetian group, the US$240 million development markets itself as a new breed of casino in Macau emphasizing cleanliness, service, family-friendliness, and Vegas-style showmanship with an Asian twist.
Rather than free-flowing bourbon, for example, the Sands offers its patrons 200 different kinds of Chinese tea.
Meanwhile the arrival of this glitzy new-kid-on-the-block has sparked an overhaul of the smoky, sleazy, hard-bitten reputation of Macau's established casinos and a surge of investments brought about by the new competition.
Stanley Ho, for example, has unveiled plans for a new 600-room Lisboa II casinoresort complex on a site next to his iconic, though somewhat dated, Lisboa Hotel. The Sands is just the first stage of a planned huge investment by the Venetian group in Macau's casino and convention business.
The company's vision, said Sands spokeswoman Clavier Ng, is to replicate the transformation Adelson brought to Las Vegas with his launch in the early 1980s of the annual COMDEX information technology convention.
By the end of 2006, the company plans to open its Venetian resort a 3,000-suite casino-hotel, complete with canals, gondolas and a 300,000 square meter convention center.
Geraldes, the Portuguese trade commissioner, says the impact of the new gaming licenses and the arrival of new foreign operators has begun a fundamental transformation of Macau's casino industry. "It's really begun to open the minds of business people to other opportunities beyond purely gaming,? he said.
Acknowledging the core role the casino trade plays in the SAR's economy, the government is using the gaming industry as the foundation to develop Macau's infrastructure and build it into a service center and a platform for trade between China and rest of the world.
?The government here is very pragmatic,? Geraldes said. "It knows that the gaming industry is the chicken that lays the golden egg, and it wants to use that as a basis for broadening the economy.?
Vong Kok Seng of the Macau Chamber of Commerce puts it another way: Casinos "are Macau's dragon-head industry. They are the leading force, laying the groundwork on which other service industries can develop.?
One notable offshoot is the growing emergence of Macau as a destination for corporate travel and events: the so-called MICE – or meetings, incentives, conventions and exhibitions – trade.
Among companies courting the MICE trade is Hong Kong-based Shun Tak Holdings, another arm of the Stanley Ho empire, which has plans to invest more than US$128 million in Macau's non-gaming tourism and convention facilities in the coming years.
Already Shun Tak operates what is currently Macau's largest convention center, part of the ultra-modern Macau Tower complex and the focal point of the company's efforts to make the SAR a center of the East Asian MICE business. Aside from convention facilities, the tower also offers daredevil thrills in the form of open air "sky walks? around the tower rim, and climbs to the top of its 338 meter mast – activities that Shun Tak General Manager Daniela Grendene markets as part of a package of corporate team-building exercises.
One of the biggest attractions for Macau is cost, she said. "Holding a meeting in Macau can be as much as 40% cheaper than Hong Kong, and as mainland authorities ease travel restrictions more and more companies are looking at Macau as a venue for corporate events.?
With its well-preserved historic sites, casinos and other activities, Macau also has a "resort feel? making it an attractive venue well-suited to holding regional gatherings, she said.
It's also an increasingly well-connected city, with 24-hour high-speed ferry links to both downtown Hong Kong and Hong Kong airport, as well as a growing number of East Asian destinations served from Macau's own airport.
The latest arrival on that stage is Malaysia- based no-frills airline AirAsia, which began flights to Macau in early July, reporting a virtual sell-out of its discounted tickets for weeks in advance. It has made no secret of its aim to use its daily Bangkok-Macau flight as a foothold into what it sees as a lucrative Chinese no-frills air travel market.
AirAsia's launch is all part of a snowballing effect with hotels, restaurants and airlines all drawn by the growing tourist demand, in turn laying down the infrastructure suited to making the territory a venue for MICE travel.
It's a field in which the government expects massive growth, with plans under development for huge Vegas-style casino-convention resorts on a stretch of reclaimed land between the islands of Taipa and Coloane.
Some reports talk of up to 60,000 new hotel rooms planned for this so-called "vegas strip? (New York City, by comparison, has around 70,000 rooms); although observers such as Paul Hugentobler, General Manager of the Hyatt Regency Macau, say that figure is somewhat on the optimistic side.
"It might not be quite that many rooms, but there are certainly phenomenal changes on the cards and everybody, including Hyatt, is keen to be part of it,? he said.
Already Macau is spending heavily on infrastructure and venues in preparation for hosting the 2005 East Asia
Games – an investment Hugentobler said is just the first stage of Macau's transformation.
"Macau is sitting on the edge of the largest leisure market in the world, and it's only really just beginning to be tapped," he said.
One of the leading figures in the drive to lure new business to the SAR is Lee Penghong, President of the government's Macau Trade and Investment Promotion Institute (IPIM).
Aside from developing the travel and convention business, he sees strong potential for Macau as a cross-border trade platform for small- and medium-sized enterprises (SMEs).
Macau, he said, doesn't consider itself competing with Hong Kong for investment, positioning itself to attract a different kind of customer.
"We never compare ourselves to Hong Kong," Lee said. "We're much smaller and we need to concentrate on where our strengths lie. That means using tourism as the core on which to build Macau into a regional service platform for SME business between China and the international community."
One of the most recent developments in that strategy is the construction of a crossborder economic zone in co-operation with the neighboring mainland city of Zhuhai.
Focused on manufacturing and related services such as logistics, it's an area Lee described as ?the meeting point of the one country, two systems philosophy.? ?Through the new zone we can offer SMEs very low taxation and easy access to both the market and suppliers in southern China,? he said. ?Foreign companies operating here can also get the full tariff-free benefits of CEPA in a European-style environment they can feel comfortable with."
Another key selling point, Lee said, is Macau's Portuguese linguistic and cultural heritage. With backing from the central government in Beijing, Macau has been designated the focal point for China's trade with the Portuguese-speaking world.
Last October, for example, Macau played host to the first meeting of the Forum for Economic and Trade Cooperation between China and Portuguese-speaking countries, a body that has since established a permanent secretariat in the territory.
"Although many of these Portuguese-speaking countries are in the developing world, there's still lots of potential to do business,? said Lee. "In the same way that Portugal itself is a gateway to the EU market, Brazil is a gateway to South America and Angola has the potential to become an important entry to southern Africa."
Added to that, he said, countries such as Brazil, Angola and even East Timor have raw materials and natural resources that China is increasingly short of.
With its cultural and linguistic heritage, and a legal system based on Portuguese law, Macau is the obvious trading interface.
"There are more than 300 million Portuguese speakers in the world," said Geraldes, the trade commissioner. "That's an important market for Chinese goods and a potential source of investment, so Macau is well suited as a platform between the two."
With that in mind, he said, recent years had seen several Portuguese companies move into Macau, investing in sectors such as infrastructure, law and accounting. At the same time, he said, there has been a spike in local interest in learning Portuguese.
"It's a realization that history has given Macau a heritage that has real business value as it becomes more integrated with the mainland economy," Geraldes said.
With that in mind, he has little doubt that despite the rapid pace of development and the planned mega-resorts, Macau will retain its unique Sino-Mediterranean charm.
"Macau's culture is something that is really unique," he said. "It's what makes it so attractive as a tourism and business destination, and it is certainly the key to the territory's future."