Economy and Trade
The Macau Special Administration Region consists of two islands, Coloane and Taipa, connected by an area of land reclaimed from the sea. The Region is on the western side of the Pearl River delta, with three bridges connecting Macau to mainland China. Macau’s international airport is itself on reclaimed land jutting out into the South China Sea. The entire area is less than one-sixth the size of Washington DC. Colonized by the Portuguese in the 16th century, Macau was the first European settlement in the Far East. Pursuant to an agreement signed by China and Portugal on April 13, 1987, Macau became the Macau Special Administrative Region (SAR) of the People’s Republic of China on December 20, 1999. Under this agreement, China promised that, under its “one country, two systems” formula, China’s socialist economic system would not be practiced in Macau, and that Macau would enjoy a high degree of autonomy in all matters except foreign and defense affairs for the next 50 years.
Economic Policy over 12 Months
An essentially urban area, Macau’s major growth areas have been tourism and gaming. After opening up its locally controlled casino industry to foreign competition in 2001, the territory attracted tens of billions of dollars in foreign investment, transforming Macao into the world’s largest gaming center. By 2006, Macau’s gaming revenue had surpassed that of the Las Vegas strip, and gaming-related taxes accounted for 75% of total government revenue. In 2008, government revenue from gaming was set to double 2006 collections. The expanding casino sector, and China’s decision (beginning in 2002) to relax travel restrictions, re-energized Macau’s tourism industry. In a World Tourism Organization report on international tourism statistics for 2006, Macau ranked 21st in terms of tourist arrivals, and 24th in terms of tourism receipts. From 9.1 million visitors in 2000, arrivals to Macau rose to 18.7 million visitors in 2005, and 22 million visitors in 2006, with more than 50% of the arrivals coming from mainland China, and another 30% from Hong Kong. The figure for 2007 was around 25 million visitors. Since the handover, Triad underworld violence, a deterring factor for tourists, has virtually disappeared, to the benefit of the tourism sector. This city of just over 500,000 people hosted more than 30 million visitors in 2008. Moreover, visitors from mainland China comprised 60% of total visitor numbers, despite increasing restrictions on travel to the SAR.
Macau’s traditional manufacturing industry has been in a slow decline since the termination of the Multi-Fiber Agreement in 2005. In 2008, exports of textiles and garments generated only US$1.1 billion, compared to US$13.7 billion in gross gaming receipts. The Closer Economic Partnership Agreement (CEPA) between Macau and mainland China, which came into effect on January 1, 2004, offers many Macau-made products tariff-free access to the mainland. Macau’s currency, the pataca, is closely tied to the Hong Kong dollar, which is also freely accepted in the territory.
Macau’s casinos and gambling industry had been operating under a government-issued monopoly license going back to 1962. This ended in 2002. The ending of the monopoly license saw several Las Vegas casino operators entering the territory, with massive investments in purpose-built casino and hotel complexes. The Las Vegas Sands Corporation opened the Sands Macao, a 229,000 square feet casino with a 51-suite VIP hotel, which became a day-trip destination for millions of visitors from the Chinese mainland who do not, in general, stay over.
Economic Performance over 12 Months
As a region heavily dependent on tourism, Macau’s economy, which had been booming since the opening up of the gambling sector in 2002, fell back in the second half of 2008. Growth in mainland China has been badly affected by the global downturn, and the number of day visitors coming across to Macau from the mainland has fallen sharply. As a result, GDP for the fourth quarter of 2008 registered the first negative growth for five years. For the whole of 2008, Macau’s GDP was estimated by the Chinese government (see: www.gov.mo) to be MOP171.87 billion, up by 13.2% on GDP for 2007. Per capita GDP amounted to US$39,036. However, GDP for the fourth quarter contracted by 7.6% in real terms, with declining revenues from gambling adding to falling export demand to explain the shrinkage. However, first and second quarter growth in 2008 had been very strong, despite the fact that a number of developed economies by that stage were already going into recession. According to the government, growth in the first quarter amounted to 32.5%, and in the second quarter to 22.4%. Growth for the third quarter over the same quarter in 2007 was down to just 10.4%, creating a clear downward trend through the year, which finally turned negative in the fourth quarter.
According to the Chinese, visitor arrivals in 2008 totaled almost 23 million, with both per capita and total visitor spending rising over the previous year. More jobs and higher wages also pushed private consumption up by 7.5%, year on year, in real terms.
Annual gross gaming revenues saw a growth surge to 31.0%. Net exports of goods and services (which equates to exports minus imports) outstripped Macau’s GDP growth, rising from 41.4% in 2007 to 51.2% in 2008, according to Macau government statistics.
Support for Inward Investment and Imports
The Macau Trade and Investment Promotion Institute is the body responsible for attracting and providing services to potential investors. Macau offers a number of fiscal incentives for inward investment.
There is a range of possible exemptions, depending on the project being put forward and its potential relevance and benefit to Macau. Further information can be obtained from the Macau Trade and Investment Promotion Institute.
GDP growth: 15% (2008)
GDP per capita: US$38,000 (govt. of Macau)
Key interest rate: 5.25%
Exchange rate versus dollar: patacas per US dollar—8.011 (2007)
FDI: US$7.9 billion
Current account deficit/surplus: N/A
Population: 559,846 (July 2009, est.)
Source: CIA World Factbook except where stated