LABOR TENSIONS RISE IN MACAU OVER PROTECTION OF

C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 001362 SIPDIS STATE FOR EAP/CM E.O. 12958: DECL: 02/25/2019 TAGS: ECON EFIN EINV ETRD MO HK SUBJECT: LABOR TENSIONS RISE IN MACAU OVER PROTECTION OF LOCAL WORKERS REF: A. HONG KONG 937 ¶B. HONG KONG 350 ¶C. HONG KONG 283 ¶D. HONG KONG 166 ¶E. HONG KONG 164 ¶F. 08 HONG KONG 1962 Classified By: Consul General Joe Donovan, reasons 1.4 (b) and (d) ¶1. (C) Summary: Las Vegas Sands (LVS) Macau President Steve Jacobs criticized recent labor-related actions by the government of Macau (GOM),local police and Macau's gaming union. He provided details about three separate incidents in June and July 2009 that he believes unfairly targeted his company -- two of which directly involved senior GOM officials, and the other in which he suspects GOM complicity. The most serious case, in Jacobs' view, involved the initial refusal of Macau police to help control a "small mob" of union activists that attempted to gain entry into LVS's Venetian hotel/casino on June 26. Other gaming concessionaires in Macau also complained about the GOM's restrictive policies and actions regarding foreign workers. Our Macau-based gaming interlocutors agree that the GOM's labor-related actions will likely moderate following the current election cycle. Unemployment among locals totals only 3.5 percent, and Macau's continued gaming expansion will require thousands of additional foreign workers. End summary. ¶2. (C) Comment: Macau's six gaming concessionaires have privately complained to us for months about the GOM's efforts to tightly restrict foreign work permits. In contrast to LVS, the other five concessionaires have thus far been able to handle their labor disputes with the GOM and the local gaming union in a private manner. LVS stands somewhat apart. As the largest and most visible foreign investor in Macau, the company has been publicly criticized for announcing the layoffs of thousands of employees (both local and foreign) and ceasing construction of four large hotels/casinos in Macau, due to the company's financial difficulties. LVS' combative management style also appears to have irritated the GOM, fellow concessionaires and portions of the company's work force. These factors make LVS the most inviting public target for GOM and gaming union officials who wish to demonstrate their toughness in protecting local workers during the current election cycle. LVS Hit by Union, GOM Labor Actions -------------- ¶3. (C) Newly named President of LVS Macau Steve Jacobs complained to EconOff on July 20 about three recent labor-related incidents involving GOM officials and the Macau Gaming Enterprises Staff Association (MGESA) union. Each case stemmed from the GOM's tightened labor policies designed to protect the jobs of local residents and ensure that foreign workers bear the brunt of workforce downsizing efforts within Macau's private sector. (Note: The MGESA was established in July 2007 as one of 47 members of the Macau Federation of Trade Unions (MFTU) -- the most influential and pro-Beijing labor organization in Macau. The MFTU has four representatives in Macau's Legislative Assembly. MGESA Director General Tam Pou-iong has been a vocal advocate for Macau residents employed in the gaming sector. The 57-year-old Tam is also a member of the Chief Executive Election Committee. End note.) Case 1: Union, Police, GOM -------------- ¶4. (C) The first of LVS' recent contentious labor cases involved the layoff of 53 Macau residents at the Venetian hotel/casino, as part of LVS' publicly announced plans to reduce its Macau workforce by up to 4,000 individuals by September 2009. Jacobs said LVS offered each of the 53 local workers new positions in other departments along with salary reductions of only USD 125 (MOP 1,000) per month. He said the MGESA "strongly encouraged" the workers to refuse LVS' offer. LVS subsequently called all 53 employees to a meeting on June 26 in the Venetian to explain the company's cost-cutting rationale and provide the employees with termination notices. Jacobs said the MGESA received advance notice of the meeting, brought a "small mob" to the Venetian as the meeting commenced, and demanded to be allowed inside the property to talk with the workers and LVS officials. LVS refused their entry, fearing a violent confrontation between the union-allied group and the Venetian's security staff. HONG KONG 00001362 002 OF 003 ¶5. (C) According to Jacobs, LVS Macau's chief of security called the local police to request assistance in controlling the group outside the Venetian, but local police refused the request and said they "would not interfere in a labor matter." Jacobs then called the Macau Police Chief, who also declined to provide police assistance. "I couldn't believe it. The Venetian is one of the 100 largest cash-handling institutions in the world. They were messing around with the physical security of both our building and our cash," he said. After ending his conversation with the police chief, Jacobs said he immediately phoned the GOM's Secretary for Public Security and "threatened to go across the street to the PLA and ask for help." (Note: The People's Liberation Army garrison in Macau is located adjacent to the Venetian and has housed several hundred Chinese soldiers since the handover of Macau to China in December 1999. End note.) Jacobs said police officers arrived at the scene five minutes later. They established a protective barrier between the protesters and the Venetian's entrance and helped defuse the situation. Media reports stated that a Venetian security guard and one of the fired workers were injured and transported to a local hospital. ¶6. (C) Jacobs said, "The whole thing with the police had a staged feel to it. I can't prove it, but I think some element of Macau's political leadership told the police not to respond." Several days later, on June 30, MGESA Director General Tam held a press conference to denounce LVS' termination of the 53 Macau residents, claiming LVS had replaced the fired local workers with imported labor. She said the Venetian had offered new positions to only 30 of the laid off workers, with each of those workers asked to accept a pay cut of 33 percent. Tam said LVS must accept more "social responsibility" toward local workers in Macau, and she encouraged the GOM to closely examine the number of foreign workers employed by LVS. The company has not commented publicly about the lay offs and Tam's press conference. Jacobs told Econoff that LVS employed 2,841 foreign workers as of July 21; this equals approximately 15 percent of LVS Macau's total work force. Case 2: The Hooded Thieves -------------- ¶7. (C) The second labor-related case involves twelve Macau resident food service workers at the Venetian who were fired in mid-July, based on a three-month internal investigation and related surveillance videos that Jacobs said "clearly showed" the workers engaged in petty theft. He said the MGESA contacted GOM Labor Affairs Bureau Director Shuen Ka Hung to ask for assistance in dealing with LVS on the matter. Jacobs said, "Can you believe it? After Shuen spoke with the union, he actually asked me to rehire the twelve thieves." LVS refused to adjust its position and the MGESA held a press conference on July 17 together with all twelve fired workers (each of whom wore a hood to protect their identity). The twelve attempted to justify their actions as "normal" and sanctioned by their supervisor at the Venetian. The union said it was examining "further actions" to pursue in the matter. Case 3: "Go Ahead and Shut It Down" -------------- ¶8. (C) The third labor-related conflict involved the Four Seasons hotel/casino owned by LVS and managed by the Toronto-headquartered Four Seasons Resorts and Hotels Company. According to Jacobs, the general manager of the Four Seasons property in Macau "failed to show the proper humility and deference" to the GOM's Human Resources Office (HRO),when the Four Seasons laid off ten Macau residents in early July 2009. (Note: The GOM established the HRO in 2007 to assess and regulate Macau's growing need for imported labor. The HRO adjudicates all private sector requests to hire foreign workers and issues/rescinds foreign labor work permits. The HRO operates as a distinct entity alongside the Bureau of Labor Affairs. Each group reports independently to the Secretary for Economy and Finance. End note.) Jacobs said the HRO retaliated by revoking the work visas -- with only 30 days' notice -- of all 78 foreign housekeepers employed at Four Seasons Macau. The Four Seasons management told the HRO the visa revocation would force the hotel to shut down. According to Jacobs, the HRO responded by saying, "OK, then go ahead and shut it down." He said LVS "scrambled" to find the means to work around the HRO's decision and has forbidden the Four Seasons general manager from further interaction with the HRO. HONG KONG 00001362 003 OF 003 Other Gaming and Tourism Companies Also Affected -------------- --- ¶9. (C) Senior executives at four of Macau's five other concessionaires -- MGM Macau, Wynn Macau, SJM (Stanley Ho's gaming holding company),and Melco Crown -- told Econoff on July 20-21 that they are also severely affected by the GOM's foreign labor policies. The gaming executives said the harsh enforcement of the policies is largely related to the current Chief Executive and Legislative Assembly election cycle. They believe the GOM's extensive efforts to protect its resident workers are unsustainable, due to the combination of Macau's very low unemployment (currently 3.5 percent) and the anticipated growth of Macau's gaming and tourism industries. The View Forward: New Capacity, New Foreign Workers -------------- -------------- ¶10. (C) Over the next 18 months, thousands of new gaming tables and hotel rooms are expected to become operational; all will require staffing at least in part by foreign workers. Jacobs confirmed that LVS has arranged funding to restart construction by late September 2009 on four large hotel/casinos adjacent to its Venetian property. He said LVS will need to hire up to 15,000 (mostly foreign) construction workers to complete the initial phase of the project by late ¶2010. He said LVS will also soon announce plans to pursue an initial public offering (IPO) in Hong Kong for its Macau operations. ¶11. (C) While compliance with GOM labor policies consumes significant executive management man-hours, and competition for unskilled Macau resident workers drives up labor costs, casino operators expect the work permit restrictions for foreigners to be significantly loosened after new Chief Executive Fernando Chui takes office. "If that doesn't happen, the private disputes over foreign labor could break out into the open in a very ugly way," said Melco Crown Senior Vice President of International Marketing Kelvin Tan. DONOVAN