In 1966 during the Cultural Revolution, a confrontation between local, militant leftist Chinese elements and the Macao police provoked civil disturbances. From December 1-4, massive demonstrations launched by militant leftists against the Macao government turned into riots. At least eight people were killed, 212 injured, and 61 arrested. Macao's Portuguese Governor was reported to have offered to abandon Macao within one month.

The People's Republic of China was not ready to accept this offer, apparently because it feared acceptance would adversely affect the prosperity of Hong Kong. The PRC generated about half of its foreign exchange earnings through its annual trade with Hong Kong and Macao. Any sign of instability, such as a change in sovereigns, would have been immediately felt in Hong Kong. The PRC feared a flight of capital from the British colony, as later happened during 1967 riots, so the PRC wished to maintain the status quo.

The confrontation was resolved in January 1967. A protocol was signed between the Portuguese officials in Macao and leftist organizations. The Portuguese accepted responsibility for the riots, and agreed to pay about H.K.$2.5 million compensation. In addition, the Portuguese agreed to eliminate the Kuomintang influence, and to close its border to refugees from the mainland. As a result of the riots Beijing gained a real ability to influence Macao's affairs.

After Portugal's April 25, 1974 revolution, its new socialist government quickly introduced a new constitution which, among other things, abolished Portugal's long-time colonial policy. This prompted proposal to return Macao in 1975, but the PRC was still satisfied with the status quo.

After the settlement of the Hong Kong issue in 1984, the PRC showed renewed interest in repossessing Macao. During the first visit by Portuguese President Ramalho Eanes in May 1985, the PRC raised the Macao issue.

The PRC originally wanted to take over both Macao and Hong Kong at the same time in 1997. Portugal, on the other hand, did not want to return Macao in 1997. There were several reasons. Portugal believed that, unlike the return of Hong Kong, there was no deadline for the Portuguese government to turn over Macao. Portugal maintained that Macao was not a colony, rather it was a territory under Portuguese administration. Also Portugal believed that it would benefit financially if Macao were not returned to the PRC right after the PRC takeover of Hong Kong. Apprehensive Hong Kong businessmen might transfer capital and investments from Hong Kong to Macao if the Portuguese were to keep Macao for decades after 1997. However, the PRC insisted for a year before 2000 as the Sino-British Joint Liaison Group in Hong Kong would be dissolved in 2000 and eventually the year 1999 was agreed upon.

Source: Settlement of the Macao Issue: Distinctive Features of Beijing's Negotiating Behavior, Jaw-ling Joanne Chang, 1988