The Portuguese government lowered its flag over this seaside gambling enclave for the last time Sunday and, as the clock struck midnight, returned to China Europe's first and last colonial outpost in Asia.

Moments after the change of power, Chinese President Jiang Zemin stood proudly before dignitaries from both countries and exhorted Macau's 430,000 residents, most of them Chinese, to "return to the embrace of the motherland."

The handover ceremony--celebrated with dancing and singing on Macau's waterfront and fireworks above Beijing's Tiananmen Square--marked the end of 442 years of Portuguese rule in this hilly promontory on China's southern coast. It leaves Beijing's Communist leaders in control of a free-wheeling port once famed as a hub of the world's most lucrative trading route but now better known for gaudy casinos, abundant prostitutes and bloody gang wars.

Macau's casinos will remain open for business under Chinese rule. Gambling is illegal on the mainland, but it accounts for more than 50 percent of public revenue here, and even the local Roman Catholic clergy acknowledge that the economy would collapse without it.

Macau's residents, though, are hoping that their new rulers will crack down on warring Chinese gangs, or triads, who are believed to be responsible for 37 killings this year alone. That may be the main reason that people in Macau--unlike those in Hong Kong, a territory 40 miles east that Britain handed over to China two years ago--say they look forward to rejoining the mainland.

To Veng Lam, a restaurateur, the matter is simple: China has the muscle to end the car bombings and the shootings. "Gangs scare the tourists," he said. "No tourists means no customers. No customers means no money."

Lam, like many others here, said Beijing's desire to make good its claim of sovereignty over Taiwan ensures that Macau's new rulers will govern with benevolence.

Jiang reminded listeners at the handover ceremony of that ambition by calling for an "early settlement" of the Taiwan question. Beijing has regarded Taiwan as a renegade province since Communist forces won a 1949 civil war and Nationalist forces retreated to the island and set up a rival government. While Beijing has repeatedly called for unification, Taiwan has refused, calling on Beijing to institute democratic reforms first.

Under its agreement with Portugal, Beijing promised to grant Macau 50 years of semiautonomy under the "one country, two systems" policy also in effect in Hong Kong. China's leaders have promised to uphold basic democratic principles in Macau, such as freedom of speech, assembly and religion.

Those assurances were shaken Sunday, however, by treatment of about 40 members of the Falun Gong spiritual movement here. Members of the group--which is legal in Macau but outlawed in China--were carted off by police when they attempted to perform breathing exercises outside the Lisboa Hotel, home of Macau's largest casino. Immigration authorities also turned away or detained about a dozen Falun Gong members who attempted to enter Macau by ferry from Hong Kong.

Falun Gong representatives in Hong Kong said that Portuguese officials violated democratic principles at Beijing's behest. But at a breakfast meeting with reporters Sunday, Macau's outgoing Portuguese governor, Vasco Rocha Vieira, dismissed that notion.

Antonio Ng, a legislator often described as Macau's most outspoken advocate of democracy, said that concerns about law and order trump concerns about individual liberties or due process.

"Most Chinese people in Macau will welcome the arrival of Chinese troops to our streets," said Ng. "They believe that they will bring security. . . . It is only the marginal people who won't be happy."

The first of those troops arrived at midday today--several hundred of them aboard trucks and armored personnel carriers. Ultimately, the army garrison here will number about 1,000.

For a time, Chinese insistence that the troops enter before the handover threatened to scuttle talks between Beijing and Lisbon. For the most part, though, the negotiations were free of the bickering that characterized Britain's return of Hong Kong two years ago. Whereas the British took Hong Kong from China at gunpoint in the 19th century, Portugal has had a more amicable relationship with the mainland.

Indeed, Lisbon tried to give Macau back to China twice before--once in 1967 after China's Cultural Revolution sparked riots here, then again in 1974 after a revolution in Portugal replaced a decades-old dictatorship with left-leaning leaders determined to give up the colonies. Beijing rejected both offers.

Portugal's presence in Macau dates to the 1500s, when China allowed shipwrecked Portuguese sailors to take shelter here and repair their vessels. Over the next two centuries, Macau evolved into a spectacularly wealthy port as Portuguese navigators plied trade routes around China, Japan and southeast Asia.

But the enclave was hard hit when Japan's shogun, fearing the growing influence of Christianity, closed Nagasaki to foreign traders and shut down a key trading route. The hardest blow came in the 1840s, when British opium traders established a rival harbor on Hong Kong. The Portuguese were the first Europeans to gain control of parts of Asia, and they are the last to leave. Macau was the last colony of a Portuguese empire that once spanned four continents.

At the midnight ceremony, Portuguese President Jorge Sampaio spoke of Macau's return to China as a "sensible, peaceful way" of "changing what had to be changed," while preserving "all the things that made Macau unique."

The new leader of Macau will be Edmund Ho, a banker selected by a Beijing-appointed panel earlier this year. But remaining a major power in the enclave will be Stanley Ho, no relation, who has held the casino franchise here for decades.

As officials formalized the transfer of power, there was no sign of interest at the Lisboa, Ho's flagship casino, where gamblers placed their bets at crowded tables.

Background

MACAU

LAND, PEOPLE: Macau, which comprises a peninsula and two small islets, is a six-square-mile Portuguese dependency adjoining China's Guangdong province and about 40 miles west of Hong Kong. It has a population of about 435,000 people, 95% of whom are ethnic Chinese. The languages of the enclave are Cantonese and Portuguese, with Buddhism and Roman Catholicism the predominant religions. Literacy is 90%.

ECONOMY: The economy relies on tourism, with a large gambling casino component, and textile and fireworks manufacturing. The territory depends on China for most of its food, water and energy imports. The 1998 estimated GDP per capita was $16,000.

HISTORY: Macau was established in 1557 as a Portuguese colony, the first European enclave on the China coast. A Sino-Portuguese treaty of 1887 confirmed Portugal's rights to the territory. A century later, in July 1987, Portugal agreed to return Macau to China on Dec. 20, 1999, when, like Hong Kong, it is to become a special administrative region of China. Macau will enjoy considerable local autonomy and more freedoms than mainland Chinese for a 50-year period.

CAPTION: Performers wave a traditional dragon in Beijing's Tiananmen Square to celebrate Portugal's handover of Macau to China. In Macau, many residents celebrated at the gambling tables.