PRC CENTRAL GOVERNMENT COMFORTABLE WITH U.S.

C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 000259 SIPDIS SIPDIS DEPT FOR G/TIP AND EAP/CM NSC FOR DENNIS WILDER E.O. 12958: DECL: 02/12/2033 TAGS: KCRM SMIG SOCI PGOV PHUM CACS CH MC MG HK SUBJECT: PRC CENTRAL GOVERNMENT COMFORTABLE WITH U.S. PRESENCE IN MACAU -- BUT LIFT SANCTIONS ON BDA! REF: A. 07 HONG KONG 2775 ¶B. HONG KONG 255 Classified By: Consul General James B. Cunningham, for reasons 1.4 (b) and (d) ¶1. (C) SUMMARY: PRC Ministry of Foreign Affairs Commissioner to Macau Wan Yongxiang told Consul General Cunningham on January 30 that Beijing was comfortable with the rapid rise of U.S. and other foreign investment in Macau's gaming and tourism industry and, despite some stresses as Macau society deals with explosive economic growth, Beijing believes that the Macau government has the capacity and will to deal with the new challenges. Commissioner Wan told the CG that the central government welcomed the U.S. gaming investors and that mainland China was doing a lot to support the growth in Macau's gaming and tourism sectors -- the large majority of Macau's 27 million tourists in 2007 came from mainland China, he noted. Wan also welcomed and encouraged the Consul General's efforts to improve services to and support for the U.S. business community in Macau and to work more closely with the Macau government to set up better coordination channels to deal with potential large-scale accidents or emergencies involving American citizens. Wan's only caution was a quiet reference to President Hu Jintao's comments at the recent Party Congress that China supported Macau and Hong Kong's engaging external exchanges, though it would firmly oppose the "interference" in Hong Kong and Macau affairs by external forces. Emphasizing that he was speaking only "personally," Wan made a clear request that the U.S. recognize the significant contributions Macau made to the Six Party Talks in helping to resolve the BDA case, and claimed that strict regulation and management reforms are now in place at BDA. The United States should consider lifting the sanctions against this popular and long-established local bank, said Wan. END SUMMARY. ¶2. (C) COMMENT: The chain-smoking Wan spent a full hour in conversation with the CG, at all times keeping his remarks calmly up-beat, confident and low-key. Significantly, he at no time gave credence to the sometimes shrill anti-American invective which occasionally finds its way into Macau's press. (Note: These anti-American rants seem to be coming specifically from a very small number of business people allied with former gambling monopoly kingpin Stanley Ho, who now is getting a run for his money from the big, new American gaming investors. They do not seem to be gaining any traction in Macau society at large.) Wan emphasized the positive effects that the influx of foreign investment had on Macau, but indicated the Macau government and Beijing were keenly aware of the need to take practical measures to ensure that Macau's economy remain somewhat diversified and that Macau's more vulnerable citizens were adequately taken care of. He in no way tried to assign blame for social stresses on the American companies and he welcomed, rather than warned against, the Consulate General's playing a more active role with the U.S. community in Macau. His "personal" request for us to lift sanctions against BDA was presented as a possible friendly gesture we could make in the interest of winning approval from the Macau public. END COMMENT. ¶3. (C) In a January 30 meeting with Wan Yongxiang, the PRC Ministry of Foreign Affairs' commissioner in Macau, Consul General Cunningham opened by briefing Wan on the Consulate General's efforts to: assist the growing U.S. community in Macau, establish a distinct American Chamber of Commerce (AmCham),ensure Macau society viewed the U.S. presence positively, and work with the Macau government to establish effective communication and coordination in case of large-scale accident or emergency. The CG noted that the U.S. community has more than doubled in the last couple of years and probably numbers about 2,000 now, a number which is likely to continue to grow. The Consulate must make sure we are actively serving the American community, particularly in the provision of emergency and non-emergency consular services. It is difficult to do this only from our base in Hong Kong, said the CG, so we were having to find ways to engage the American community, and Macau's government and society, more than we had in the past. The CG noted that ideally he would like to be able to have an officer located in Macau full-time, but within the U.S. government system that is not easy to do. Thus we have to find other ways to better serve the community. ¶4. (C) Citing as an example the January 11 ferry collision in Macau, in which 19 passengers were seriously injured and more than a hundred less seriously injured, the CG told Commissioner Wan that we had discovered that, if Americans HONG KONG 00000259 002 OF 003 had been among those injured (they were not) there would have been no way for Consulate General officials to get over to Macau in a timely way -- both the ferry and helicopter services were suspended after the accident, because of heavy fog. ¶5. (C) The chain-smoking Wan told the CG that governments need to assist and support their nationals overseas, the Macau government does the same thing, as does the Chinese government. It was understandable that we would seek to do this. He welcomed the CG's reaching out to the Macau government to establish good coordination and communication, particularly for emergencies. Wan asked the CG how the new American Chamber of Commerce in Macau was doing; the CG replied with a quick overview of the chamber's growth in the last year, the structure of work committees focused on particular business issues of interest to members and the desire of the AmCham to play a role in organizing the U.S. business community to ensure that Macau society at large benefited from the large inflows of American investment and very rapid economic growth Macau was experiencing. Commissioner Wan indicated he saw these as positive developments. ¶6. (C) Wan gave his own assessment of the current economic and political situation in Macau, which he judged to be good and moving in a positive direction, despite some stresses. Macau government statistics indicated GDP growth of about 26%, "extremely fast, and a big change from the past." He acknowledged that U.S. investment in the gaming industry was a key driver of this growth, which had brought a lot of good to Macau: government revenues and personal incomes were both rising. Most Macau citizens were satisfied with the Macau government's performance and the foreign investment. Wan noted that when he first arrived in Macau five years ago, the Macau government only provided nine years of public education; now, they have raised it to 15. The government has lowered the age at which citizens can receive retirement benefits from 65 to 60, and medical and other government support can now reach many more citizens. ¶7. (C) Some downsides existed, however, and "a small number of citizens are complaining." The rate of growth is too fast and imbalances are arising. "Some have gained more, some have gained less from the growth." In some sectors, new balance points would be established, in others, maybe not. But this is normal in developing economies, said Wan. One issue of concern to both the Macau and central governments was the growing disequilibrium between different economic sectors, and the stresses that a booming gaming sector was causing for businesses in other sectors. For instance, the well-funded and highly profitable gaming enterprises were expanding very rapidly and bidding up prices of salaries for workers and managers. Small and medium size enterprises (SMEs) and manufacturing simply could not match the new salaries offered by the casinos and hotels and were losing workers. This was causing the Macau economy to become overly reliant on the gaming/tourism sector and this increasing lack of diversification was a concern. For instance, said Wan, should there be another pandemic like SARS, the flow of tourists might dry up dramatically, and the Macau economy would have no other productive sectors to cushion the blow. ¶8. (C) Other negative social effects were being felt. Many students were dropping out of high school to take up relatively well-paid jobs at the casinos. "Even if they stay a few more years and complete their education they won't make any more money, so they quit." Citizens were manifesting their complaints in recent public demonstrations, Wan said, citing larger than normal crowds at the traditional May Day labor rally, as well as large demonstrations on PRC National Day (October 1) and Macau SAR establishment day, December 20. Thousands of people took to the streets, said Wan, most of whom represented the "most vulnerable" members of society. "A few" of the demonstrators were calling for political reform, Wan admitted, and, "Frankly, we have the same problems in mainland China. These problems come with development. We need to pay attention to them, and deal with them by reform," he claimed. Wan credited the Macau government for carefully researching and understanding the nature of the problems Macau faces and dealing with them in a frank and direct manner. "The SAR government will resolve these problems gradually, one by one," said Wan. ¶9. (C) The Macau government remains open to U.S. investors, Wan affirmed, and continued to take measures to help the foreign companies; Wan also indicated the central government is basically comfortable with the massively increased HONG KONG 00000259 003 OF 003 presence of the U.S. and other foreign investors. "Any company is welcome here, so long as they abide by the laws. The central government and mainland Chinese citizens have been big supporters of the development of Macau's gaming and tourism sectors. More than half of Macau's 27 million tourists come from mainland China, and the individual visitor scheme has been very successful. The Macau government will carefully protect the security and the property of foreign investors in Macau. The central government's policies are very clear on this, as Hu Jintao said at the recent Party Congress: The central government supports Hong Kong and Macau to have interactions with foreigners, so long as there is no interference." ¶10. (C) The Consul General remarked that we have welcomed the willingness of the Macau government to cooperate with us on important issues, such as money laundering and trafficking in persons; we think this is in China,s interest as well. Wan focused quickly on money laundering, noting that it was a problem which governments around the world are only now beginning to understand better. The SAR government is paying a lot of attention to it, he said, pointing to the anti-money-laundering laws Macau passed in 2006. Wan affirmed that fighting money laundering is within the autonomous purview of the Macau SAR government, but when he has talked to them about it, he found them taking it very seriously. When the CG noted his interest in seeing Macau implement the recommendations in the recent Asia Pacific Group (APG) survey of Macau (reftel),Wan noted that the APG "had not found big problems here." ¶11. (C) Commissioner Wan then raised the matter of Banco Delta Asia. The CG said that from the USG point of view, the BDA issue is resolved. The owner has decided not to sell it or put it under new management, and it will thus likely remain cut off from the international financial system. Wan nodded but said, "The Macau government understood your concerns about BDA and helped you get the Six Party Talks re-opened. The help that Macau provided on this was not easy -- the way the SAR government resolved the matter of the (North Korean) funds was not in accordance with normal financial regulation." "In my personal, not official, opinion the SAR government took very serious measures to deal with the problems at BDA. After serious investigation, the government in fact did not find very compelling evidence of money laundering at BDA, though it did find evidence of mismanagement. The government had to give BDA back to the owner, but the owner has significantly tightened internal controls and the government has tightened regulation of BDA." ¶12. (C) Once again emphasizing he was speaking "personally," Wan asked, "Since the SAR government and BDA have done so much to resolve these problems, isn't it time to consider lifting the sanctions against BDA? BDA is a local bank with a 70-year history. Keeping it on the list not only affects the bank, it affects the perceptions of the people of Macau about the United States. Lifting the sanctions would have a very positive effect on public opinion here." The CG repeated that without a change in the management of the bank, he doubted that the USG would change its view. Wan then pushed for details about what needed to change within the management and noted that BDA had cut off all contact with the North Koreans. The CG deflected discussion of this. Cunningham