Macao, China WT/TPR/S/181 
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I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. The tiny territory of Macao SAR, is situated at  the Pearl River Delta on the southeast coast of 
Mainland China, sixty kilometres south-west of Hong Kong.  The total land area of 28.2 km2, 
consisting of the Macao peninsula and the islands of Taipa and Colo ane, is home to half a million 
people, and has been enlarged by more than 50% since 1912 by extensive land reclamation, which is 
continuing.  The Region's infrastructure – public transport, water and power supplies, and waste 
disposal systems – will need to be upgraded to accommodate population growth and the rapidly 
increasing visitor numbers. 
2. Since its previous Trade Policy Review in 2001,  Macao, China's economy has been able to 
recover from the Asian crisis and achieve outstandi ng growth rates, led by rapid tourism growth.  
There are various attractive tourism sites, but the main draw is the gaming industry.1  The most 
significant economic policy action during the period under review has been the liberalization of the 
gaming sector.  Until March 2002, all of Macao's 11 casinos were owned by the STDM casino syndicate.
2  However, in February 2002, rather than re new or extend the existing sole concession held 
by STDM since 1962 and due to expire in March 2 002, the Government held a competitive tendering 
process, and awarded three new casino concessions.3 
3. The resulting competition between gaming operators has stimulated massive private 
investment in casinos, hotel resorts, and other tourist facilities, which is expected to continue into the 
foreseeable future.  Between 2003 and 2005, an est imated US$1.55 billion was invested and between 
2006 and 2010, several billion dollars of investment ar e planned.  The potential for growth is thought 
to be considerable.  Macao, SAR, the only place in China where gaming has been legalized4, has a 
developed gaming industry and is re latively easy and cheap to reach for Mainland visitors compared 
with most other gambling destinations in the regi on.  Importantly, the introduction in 2003 of the 
"Individual Traveller Scheme", wh ich relaxed visa restrictions on travel by Mainland Chinese, has 
enabled strong growth in tourism to Macao, resultin g in the doubling of the number of visitors from 
10 million in 2001 to nearly 22 million in 2006.  Th e majority are Mainland Chinese tourists, who are 
consistently the highest-spending visitors, at an average of US$384 per head, per visit in 2005, double 
the average for all visitors.5 
4. In part to hedge against the risk of demand not keeping pace with supply in the tourism 
sector,  the Government has taken measures to enc ourage the diversification of the economy.  It 
introduced a number of incentive schemes for industria l and commercial sectors that had not directly 
benefited from growth in the tourism and gaming sectors.  These include the introduction of a guaranteed loan scheme to small and medium-sized enterprises, as well as fiscal incentives for the 
corporate sector as a whole.  Another effort towards diversifying the economy was the start in 2004 of 
the construction of the Macau-Zhuhai Transborder Industrial Park.  The objective is to attract 
                                                     
 
1 Gaming has a long history in Macao, China.  It has been legal since the 1850s when the Portuguese 
authorities legalized the activity in the colony and began to rely on gambling as the main economic pillar. 
2 Sociedade de Turismo e Diversões de Macau. 
3 The first of the new concessions was signed in March 2002 with Sociedad de Jogos de Macau, a 
subsidiary of STDM;  the other two concessions were signed three months later with Las Vegas-based Wynn 
Resorts and with Galaxy Casino Company, a subsidiary of Hong Kong-based Galaxy Entertainment Group. Galaxy subsequently granted a sub-concession to the Venetian Group from Las Vegas.  
4 Except for football and racing bets in Hong Kong SAR.  
5 Macao Statistics and Census Service (DSE C) online information.  Viewed at:  
http://www.desc.gov.mo. WT/TPR/S/181 Trade Policy Review 
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higher-end manufacturing production in  order to take advantage of the tariff concessions under the 
CEPA to access the larger Mainland Chinese market.6  Macao SAR exports more services than 
merchandise and it is probably the services sector, and the sale of services to the Pearl River Delta region of neighbouring Guandong province, rather th an manufacturing, that will make better use of 
preferential access to the Chinese mark et under CEPA's services provisions. 
5. Macao, China is heavily dependent on the exte rnal sector.  In 2005, exports of goods and 
services were equivalent to 96% of GDP.  Gaming an d related tourism services constitute the core of 
the economy with gross gaming receipts accounting fo r 49% of GDP in 2005 and direct taxes on 
gaming providing 75% of government  revenue in 2006 (Table I.1).  In  the external sector, 
merchandise exports did not play a major part in  Macao, China's economic growth during the period, 
and actually fell by 12% in 2005 as a consequence of the elimination of the international quota system 
for textiles and clothing, the Macao SAR's main e xport products.  The prospects for growth of the 
manufacturing sector, consisting largely of textiles and clothing, are limited by its relatively low 
labour productivity and competition from low-wage Mainland China.  Import growth has been driven 
by higher fuel prices, rising incomes, and positi ve growth in domestic demand as well as a surge in 
construction activity as large-scale development of  casino resorts and other tourism infrastructure 
continued. 
Table I.1 
Major features of Macao, China's economy, 2006 
Areaa 28.2 sq.km. Current GDPa US$11.6 bn 
Resident populationb 508,473 GDP per capitaa  US$24,274 
Unemployment rateb 3.8% Gross gaming receipts/ GDPa 49.5% 
Labour force participation rateb 65.9% Exports of goods and services/GDPa 96.1% 
Employment distribution   Imports of goods and services/GDPa 58.9% 
Manufacturingb 10.6% Number of tourist visitorsc 15.9 million 
Constructionb 12.0% Average length of stay by visitors (in days)b 1.1 
Othersb 77.4% Per capita spending of visitorsb US$178 
a 2005. 
b 3rd quarter 2006. 
c January to September 2006. 
Source:  Information provided by the Macao, China authorities. 
(2) RECENT ECONOMIC DEVELOPMENTS  
(i) Macroeconomic performance 
(a) Overall trends 
6. Since 2001, Macao, China has achie ved an average annual real GDP growth rate of 14.5%, 
which marks a robust turnaround from the stagnation suffered prior to the resumption of sovereignty 
by China in December 1999, with real GDP declin ing for four consecutive years up to 1999.  Badly 
hit by the 1997-98 Asian financial crisis, the economy recovered in 2000 when GDP expanded by 
5.7%, led by external demand, and then slowed  as the world economy entered a sharp downturn. 
Growth since then has been strong with GDP growing by 10.1% in 2002, underpinned by strong 
                                                      
6 The signing of the Closer Economic Partnership Agreement in October 2003, and its supplements in 
2004, 2005, and 2006, between Macao SAR and Mainland China provides, inter alia,  tariff-free access to the 
Mainland for goods from Macao, China.   Macao, China WT/TPR/S/181 
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expansion in gaming and tourism (Table I.2).  Over all, the economy grew by an impressive 14.2% in 
2003.  Except for a temporary decline of 3.1% in the second quarter, due to the effects of the outbreak of the Severe Acute Respiratory Syndrome (SARS)  in neighbouring cities, the economy experienced 
strong growth in the second half of 2003, partly  supported by strong casino-related investment and 
partly by the efforts of the Chinese Government to assist growth in Macao by permitting more 
Chinese residents to visit the Macao SAR under th e Individual Traveller Scheme, which led to a 
tourism boom in the latter months. 
Table I.2 
Performance of Macao, China's economy, 2000-06  
 2000 2001 2002 2003 2004 2005 2006 
 (Annual percentage change based  on constant prices of 2002) (Q1 to Q3) 
Real GDPa 5.7 2.9 10.1 14.2 28.4 6.7 15.4 
Private consumptiona -1.0 1.9 4.5 3.6 8.8 7.3 7.6 
Public consumptiona -13.0 0.1 2.5 6.8 4.3 11.0 1.4 
Gross fixed capital formationa -30.2 -3.7 9.4 45.7 37.1 57.9 46.5 
Savingsb/investmentc gap 53.2 7.3 17.3 17.4 46.9 -9.9 9.8 
Exportsa 19.1 5.6 13.3 14.5 31.6 1.4 14.7 
Goodsa 14.1 -5.8 5.5 9.4 8.3 -11.5 18.2 
Servicesa 22.7 13.2 17.6 17.1 42.3 6.0 13.7 
Importsa 5.3 4.7 10.9 12.7 21.5 10.5 18.0 
Goodsa 1.8 3.4 9.3 13.3 24 9.1 19.1 
Servicesa 18.4 8.6 15.6 10.9 13.9 15.1 14.8 
 (Annual percentage change, end of period) (Q3) 
Effective exchange rated 3.1 3.3 -4.8 -5.1 -2.7 3.2 -2.4 
Money supply (M2) -1.4 7.8 8.1 12.3 8.9 12.2 21.3 
Consumer price index  -1.61 -1.98 -2.64 -1.56 0.98 4.40 5.15e 
Domestic credit -13.8 -11.1 -16.1 -15.4 -26.3 -5.9 -24.0 
Total credit for the private sector -7.1 -7.0 -5.4 -1.4 8.5 21.8 15.2 
Interest rates (pataca)        
Base rate (AMCM) 8.00 3.25 2.75 2.50 3.75 5.75 6.75 
3-month deposit rate 5.20 0.64 0.46 0.04 0.09 2.87 2.76 
3-month interbank ratef 5.92 2.05 1.49 0.16 0.35 4.23 4.21 
Unemployment rate 6.8 6.4 6.3 6.0 4.8 4.1 3.5g 
a Calculation of the annual percentage change is based on the local currency (i.e. the pataca). 
b Savings = gross domestic product - private consumpti on expenditure government fina l consumption expenditure. 
c Investment = gross fixed capital fo rmation + changes in inventories. 
d As from February 2004,  a new series of effective exchange rate indices has been co mpiled to replace the old series.  The wei ghts 
used in the new series are based on the average merchandise trade pattern from 1999 to 2001.  The base period is changed to 
January 2000. 
e The whole year. 
f Macau interbank offer rate (MAIBOR). g October to December. 
Source:  Information provided by the Macao, China authorities. 
7. The expansion in the tourism sector continued into 2004 when services exports rose by 42% 
over the previous year, as strong investment in infrastructure as well as in casinos and hotels continued.  Spending on gross fixed investment increased by 39%, down from the 45% recorded in 
2003.  The overall result was an historically high 28% growth of GDP in 2004.  Partly the result of a 
tourism surge following the easing of travel restrict ions, as well as very large one-off investments;  WT/TPR/S/181 Trade Policy Review 
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real GDP grew by 6.7% in 2005, a more moderate pe rformance.  From an expe nditure perspective, the 
main factors contributing to GDP growth have been  a steady increase of services exports and, since 
2003, a sharp increase in investment expenditure.  GDP  growth in 2006 is expected to return to 
double-digit rates following the opening of Macao, SAR's first theme park (Fisherman's Wharf) as 
well as several new casino attractions, which have he lped to ensure strong growth in investment, 
tourist arrivals, and gaming receipts.  According to the authorities, real GDP growth rates for the 
first two quarters of 2006 were 19.2% and 16.3%, respectively.  
(b) Employment  
8. The Government estimates that 65.3% of th e population was economically active in the 
second quarter of 2006 with the labo ur force participation rate showi ng an upward trend.  Most people 
work in manufacturing, construction, the wholesale and retail sector, hotels and restaurants, and the 
casinos.  Less than 0.1% of the labour force is empl oyed in primary industry.  The unemployment rate 
has declined steadily to reach a pre-Asian-crisis leve l of 4.1 % at the end of 2005.  The rate was 3.9% 
in mid 2006 as the economic boom increased employment .  The creation of new jobs in the services 
and construction sectors more than compensated fo r the relocation of labour-intensive industrial 
processing to neighbouring parts of China in recent years.  Structural unemployment remains a 
problem;  the Government is attempting to reso lve this in the long term through retraining 
programmes.7 
9. The increase in the number of gaming facilities and hotels is having a positive impact on 
employment, and a shortage of skilled workers is  developing.  Macao, China has labour importation 
schemes for unskilled and skilled workers who cannot be  recruited locally.  At the beginning of 2003, 
11.6% of the city's employed population fell within  the cultural, recreational, gaming, and other 
services category;  by the second quarter of 2006, after the opening of casinos by new operators, and 
the surge in visitor arrivals following the easing of  travel restrictions on Mainland Chinese wishing to 
visit Macao and Hong Kong, 19.1% were in the same  category (Table I.3).  The construction sector 
has undergone very rapid recent expansion, almo st doubling the number of resident construction 
workers since 2003 and attracting large numbers of migrant workers.8  However, Macao SAR's 
rapidly growing tourism and gaming industries are dr iving up the city's rents and wages, making it 
difficult for SMEs to compete.9  
10. Wages are well below those in Hong Kong, China and there are no requirements in 
Macao, China's labour regulation for employers to pay minimum wages10, except for security and 
cleaning services outsourced by the Government, st arting from 2007.  According to the Macao SAR 
                                                      
7 According to the authorities, the majority of the unemployed are middle-aged persons with low 
educational levels.  The Government is therefore providing retraining courses designed to equip them to meet 
the needs of the labour market and find new employment.  
 8 With only 10,000 workers without jobs, Macao SAR ne eds to import foreign labour on  a large scale 
to staff current projects.  The migrant labour pool is around 56,000 compared with a total resident workforce of 
271,000 in June 2006.  The Chief Executive announced in his 2005 policy address a new tax on the import of 
temporary workers.  The Government will use the proceeds to retrain locally unemployed people. 
9 Companies employing 20 staff or fewer account for about 95% of registered businesses in 
Macao, China.  
10 Decree-law No. 24/89/M, 3 April 1989, modified by Decree-law No. 32/90/M, 9 July 1990.  A new 
draft labour law is being drafted with the aim of better protecting the rights of workers, women and children. 
Under the proposed law, the minimum age limit for workers will be raised from 14 to 16 years and the hiring of employees under sixteen will require Government approv al.  The proposed law will also abolish the maximum 
10.5 hour working day.  According to the authorities, public consultation has been completed and the comments 
and suggestions received are under analysis.  The final draft of the law will be s ubmitted to the Executive 
Council and Legislative Asse mbly for consideration.  Macao, China WT/TPR/S/181 
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legislation, all employees must be enrolled in the Social Security Fund, as stipulated by 
Decree-Law No. 58/93/M and amendments introd uced by Decree-Law No. 29/98/M.  Monthly 
contributions are paid by employers and employees.  The social security system comprises several allowances, among which are pensions, unemployment benefit, and sickness allowance.  In 1984 the 
territory's first labour law banned the use of child  labour and prescribed a six-day working week and 
minimum annual leave, but there appears to be little re gulation of the many small factories that spring 
up and rapidly disappear, making Macao a flexible  labour market.  The large labour force that 
commutes from Mainland China may partially reflect the Government's reluctance to permit 
permanent settlement in Macao SAR but also the increased cost of housing resulting from the real 
estate boom, that has caused some Macao residents and non-residents to relocate to the Mainland and 
to commute. 
Table I.3 
Resident and non-resident workers, 2003-06 
(Number and % change) 
 2003 2004 2005 2006 
(Q3) Structure 
(%) 
Employed population ('000)  202.6 218.0 237.8 271.2 100.00 
 (1.0) (7.6) (9.1) (12.6)  
Manufacturing 37.1 35.9 35.4 28.8 10.6 
 (-9.4) (-3.3) (-1.2) (-13.0)  
Construction 16.3 18.1 23.2 32.5 12.0 
 (8.3) (11.4) (27.7) (28.5)  
Wholesale and retail 32.8 35.2 35.5 35.1 12.9 
 (6.6) (7.3) (0.9) (0.0)  
Hotels and restaurants 22.1 23.9 24.9 33.3 12.3 
 (-4.5) (8.0) (4.2) (33.7)  
Transport, storage and communications 14.2 14.9 14.9 16.5 6.1 
 (11.0) (4.9) (-0.3) (15.4)  
Financial services 6.2 6.1 6.5 7.4 2.7 
 (0.6) (-1.4) (6.8) (7.2)  
Real estate, renting and busine ss activities 11.9 12. 6 14.5 17.0 6.3 
 (9.5) (6.4) (14.6) (8.3)  
Public administration, defence and compulsory  
social security 17.8 
(5.1) 17.9 
(0.7) 18.8 
(4.8) 19.7 
(5.3) 7.3 
 
23.5 30.9 40.3 55.3 20.4 Other community, social and personal services 
(2.0) (31.6) (30.4) (28.6)  
Non-resident workersa  (Number)  24,970 27,736 39,411 56,553 100 
 (6.4) (11.1) (42.1) (62.9)  
Manufacturing 13,716 13,643 14,334 14,255 25.2 
Construction 1,715 1,850 5,012 6,847 12.1 
Wholesale and retail 166 275 625 1,164 2.1 
Hotels and restaurants 2,556 2,778 5,007 6,379 11.3 
Other community, social and persona l services 1,804 2,858 5,968 16,379 29.0 
Sauna and massage parlours,  other entertainment and 
performing activities 1,114 1,264 1,399 1,631 2.9 
Gaming 577 1,447 4,333b 14,406c 25.5 
a As stipulated in Government Decision Nos. 12/GM/88 and 49 /GM/88 regarding the importation of non-resident workers and 
professionals, and Administrative Regulation No. 17/2004 regardin g the application of administ rative permit by non-residents 
exercising activities for direct personal gain. 
b Among them, 2,455 are construction workers employed directly by gaming companies. 
c Among them, 8,960 are construction workers employed directly by gaming companies. 
Note: Per cent change in parenthesis. 
Source:  Macao Economic Bulletin . WT/TPR/S/181 Trade Policy Review 
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(c) Prices 
11. At the beginning of the period under review, the composite Consumer Price Index (CPI) 
registered consecutive declines, due partly to de flation in Hong Kong, China, which provides a 
substantial part of Macao, SAR's imports.  The contr action in the real economy and falling rent prices 
due to the property glut also contributed to fa lling prices between 2001 and 20 03.  Consumer prices 
fell by 2.6% in 2002 alone and, despite the recovery  in the economy, prices dropped by 1.6% in 2003.  
However, from the second half of 2004, strong dom estic demand intensified the spill-over effect of 
rising prices in Macao, China's major import sources,  and inflation has risen since.  Although the 
growth of the MSAR's economy slowed markedly fro m 28.3% in 2004 to 6.7% in 2005, inflation rose 
from 1% to 4.4%, the highest rate since 1997 (3.5%) , reflecting the rapid pace of economic growth.  
By the second quarter of 2006 year-on-year inflatio n had risen to 6.1%, attributable, according to the 
Monetary Authority of Macao, to domestic price ri ses across all consumption items, soaring rent and 
housing expenses, and a sharp increase in prices of imported fuels and lubricants.  According to the 
monetary authorities, inflation in 2006 is e xpected to be over 5% higher than in 2005. 
(ii) Macroeconomic policies 
(a) Monetary and exchange rate policies 
12. Macao, China's currency, the pataca, is pegge d at 1.03 to the Hong Kong dollar and hence 
indirectly to the U.S. dollar.  This means that inte rest rates in Macao, China are determined largely by 
the U.S. Federal Reserve (the U.S. central bank), ra ther than the territory's monetary authority.  The 
Currency Board Arrangement (CBA),  which ensu res full backing of monetary liabilities is the 
underlying monetary mechanism to support the linked rate.  The prevailing CBA requires the 
two note-issuing banks, the Bank of China (Macao branch) and the Banco Nacional Ultramarino to 
deliver Hong Kong dollars to th e Monetary Authority of Macao (AMCM) in return for the non-
interest-bearing Certificates of Indebtedness as th e backing for the banknote issue.  The Hong Kong 
dollar receipts are then counted as part of the offici al foreign exchange reserves held in the AMCM.  
Foreign reserves stood at US$6.7 billion at the end of 2005, up from US$3.3 billion at the end of 
2000, representing approximately nine times the mone tary base and covering 11.8 months of the total 
value of imports of goods and services. 
13. There have been no major policy or institutional changes regarding monetary or exchange rate 
policies during the review period.  As the currency is indirectly fixed to the U.S. dollar, domestic 
prices, rather than the nominal exchange rate, have ad justed to the external shocks that have affected 
the economy in recent years.  For this reason, the scope for flexibility in interest rate policy is limited.  
Monetary policy, conducted by the AMCM, is set w ithin a broad framework stipulated by the Basic 
law, and with the fundamental objective of providing long-term monetary stability.  The authorities are aware of the pros and cons of the pegged exch ange rate system and wh ile CBA constrains their 
ability to conduct a discretionary monetary policy, th ey consider it to be a helpful tool to enhance 
credibility of the pataca.  They consider that it w as instrumental in maintaining public confidence in 
the stability of the pataca exchange rate in the wake  of the Asian crisis;  and that there is no viable 
alternative as Macao's economy will continue to be closely integrated with Hong Kong, China, whose 
dollar circulates widely in Macao, SAR and curren tly accounts for over half of the measured broad 
money of the banking system. 
14. Given the pataca's link to the Hong K ong dollar under the CBA, interest rates of 
pataca-denominated instruments closely follow thei r Hong Kong-denominated counterparts with an 
approximately 24-hour delay and onl y an occasional slight differential.  Similarly, the exchange link 
between the HK and U.S. dollar through a CBA m eans interest rates in Hong Kong, China do not Macao, China WT/TPR/S/181 
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deviate much from those in the United States.  Du e to the indirect exchange rate peg with the 
U.S. dollar, the U.S. dollar's exchange rates agains t other currencies determine those rates against the 
pataca.   
15. Merchandise exporters continue to be obliged  to convert 40% of their export proceeds in 
foreign currency into patacas.  The authorities state that the sole objective of this regulation is to 
encourage local currency circulation, which at e nd 2005 had only a 27% share of Macao, SAR's broad 
money supply.  There continue to be no other restrictions legally imposed on capital flows, fund flows 
or foreign exchange operations. 
(b) Fiscal policy 
16. The Basic Law requires the MSAR Government to  strive to achieve fiscal balance, which 
accords with the authorities' traditional practice of fiscal discipline and prudence. Throughout the period under review, the Government has consistently run a budget surplus, mainly on the basis of 
revenue from the gaming industry.  The fiscal surplus rose to P 7 billion in 2005, equivalent to 7.6% 
of nominal GDP or 44.5% of the Government's  expenditure (excluding expenditure of public 
autonomous agencies).  The surplus was due mainly to the continued rise in gaming taxes and, in 
2005, the sharp increase in property income (Table  I.4).  The fiscal position has benefited from a 
thriving economy in recent years;  income from gaming tripled between 2001 and 2005.  Consequently, the share of direct gaming taxes in  total tax revenues has increased, and reached 85% 
in 2005, up from around 70% before the establishment of  the SAR.  As a result, there was no public 
borrowing requirement during the period under review, and Macao, China's debt-free position 
remained intact.
11  According to the 2006 SAR Government B udget, the fiscal surplus is estimated to 
reach P 7.5 billion.  At the end of 2005, the Government financial  position remained strong in view of 
the high level of fiscal reserves, with the MSAR Reserve Fund at P 11.1 billion or 12% of GDP, and 
the absence of public sector debt. 
Table I.4 
Government budget and fiscal reserves, 2000-06 
(P million) 
 2000 2001 2002 2003 2004 2005 2006a 
Fiscal deficit/surplus 314.2 420.9 1,740.0 2,657.7 6,160.5 7,016.6 7,493.8 
Total expenditure 8,501.7 9,393.9 9,344.3 11,462.6 13,184.4 15,752.1 19,060.9 
Current expenditure 7,484.1 8,274.9 7,788.6 8,742.2 9,267.5 11,212.0 12,414.9 
Capital expenditure 1,017.6 1,119.0 1,555.7 2,720.4 3,916.9 4,540.2 6,646.0 
Total revenues 8,815.9 9,814.8 11,084.3 14,120.2 19,344.9 22,768.7 26,554.7 
Direct tax 6,895.4 7,547.4 8,876.2 11,342.8 16,124.5 18,069.1 21,724.4 
Business registration tax 25.4 24.7 0.4 0.2 0.1 0.2 0.1 
Salaries tax 288.3 301.1 259.5 212.4 248.1 343.2 424.0 
Profits tax 437.7 515.9 532.9 497.0 651.3 660.2 900.1 
Property tax 275.6 301.6 234.0 245.7 266.8 291.4 328.0 
Property transfer tax 251.2 126.2 0.0 0.0 0.0 0.0 0.0 
Gifts and inheritance tax 8.0 4.3 0.1 0.0 0.0 0.0 0.0 
Table I.4 (cont'd) 
                                                      
11 Based on the debt-free government finance, the high level of fiscal reserves, and the expanding 
current account surpluses, Moody's Investors Service ch anged the outlook of Macao's A1 rating in July 2006 
from "stable" to "positive", suggestin g a possible upgrading of Macao's rating in the foreseeable future.  This 
appears to confirm the healthy solvency position of the MSAR, and helps strengthen the confidence of local and 
foreign investors.   WT/TPR/S/181 Trade Policy Review 
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 2000 2001 2002 2003 2004 2005 2006a 
Road tax 8.7 11.5 107.2 115.2 125.8 137.3 147.0 
Income from gaming 5,467.8 6,133.3 7,639.4 10,178.4 14,740.0 16,561.9 19,870.0 
Income from public services 132.7 128.8 102.8 93.8 92.3 74.9 55.2 
Indirect tax 532.6 840.8 926.0 987.6 1,297.3 1,494.9 1,290.3 
Stamp duty 204.8 433.0 498.7 491.5 737.6 887.7 728.3 
Consumption tax 180.9 233.2 219.0 224.5 255.9 274.9 250.0 
Other sources 1,387.9 1,426.6 1,282.0 1,789.8 1,923.1 3,204.7 3,540.0 
Duties, fines and other penaltie s 228.5 296.7 331.9 339. 7 435.2 539.9 526.7 
Property and capital income 920.2 912.3 551.8 980.5 775.9 1,727.9 2,080.2 
Macao SAR reserve fund 10,531.9 10,721. 2 10,734.6 10,902.3 10, 889.1 11,073. 3 11,600.0 
a Forecast. 
Source:  Information provided by the Macao, China authorities. 
17. On the expenditure side, current transfers, mainly to autonomous agencies and autonomous 
funds, constitute nearly two thirds of current expendi ture.  Capital expenditure increased markedly in 
2004 and 2005, with spending largely related to  improvement in urban road networks, land 
reclamation,  refuse disposal, and airport expans ion as well as new venues for the 2005 Asian Games.  
Although the Government eliminated certain taxe s and granted different tax incentives to the 
corporate sector to attract investment, total pub lic revenues grew by approximately 130% between 
2001 and 2005.  This can be explained by the outst anding growth of tax re venue on gaming income, 
which accounted for 76% of total government revenues in 2005. 
(iii) Balance of payments 
18. A large current account surplus remains the ma jor contributor to Macao, China's favourable 
balance-of-payments position.  Balance-of-payments surpluses over the last four years have been 
growing, mainly due to a series of consecutive a nd increasing current account surpluses, which reflect 
a positive services trade balance12 (Table I.5).  The capital account has presented positive inflows over 
the period.  However, in the financial account, net outflows in portfolio investments (largely the result 
of low domestic interest rates in 2002-04) have off set the inflows of net direct investment and have 
turned the capital and financial account into defic it.  The overall balance ha s been translated into 
double-digit growth in official foreign exchange reserves.   
Table I.5 
Balance of payments, 2000-05  
(US$ million) 
 2000a 2001a 2002 2003 2004 2005b 
I. Current account .. .. 2,739.0 3,179.0 4,252.3 3,366.8  
   Merchandise trade balance -275.8 -624.9 -919.7 -1093.0 -1,842.1 -2,792.3 
      Merchandise exports 2,539.3 2,299.5 2,357.8 2,584.7 2,815.4 2,478.4 
      Merchandise imports 2,815.1 2,924.4 3,277.5 3,677.7 4,657.5 5,270.7 
   Services trade balance 2,452.8 2,875.2 3,687.2 4,429.9 6,699.2 7,037.9 
      Services exports 3,280.4 3,767.4 4,758.3 5,604.8 8,063.0 8,614.1 
         Tourism exports 3,011.1 3,469.2 4,306.1 5,154.7 7,479.0 7,980.3 
      Services imports 827.6 892.2 1,071.1 1,174.9 1,363.8 1,576.2 
Table I.5 (cont'd) 
                                                      
12 The Individual Traveller Scheme, launched in 2003, led to an increase in the number of visitors, and 
hence has significantly increased the export of tourism services. Currently, resident s from 44 Chinese cities are 
allowed to visit the MSAR as individual travellers.  Macao, China WT/TPR/S/181 
 Page 9 
 
 
 2000a 2001a 2002 2003 2004 2005b 
   Income receipts and paymen ts .. .. -19.5 - 153.0 -578. 3 -779.2 
   Current transfers .. .. -9.0 -4.9 -26.7 -99.6 
II. Capital and financial accountc .. .. -947.1 -1,588.6 -1,260.8 97.5 
   Capital account .. .. 138.8 88.0 273.9 514.6 
   Direct investment  .. .. 343.7 521.9 862.7 1,801.3 
      Foreign direct investment .. .. 414.9 516.6 767.5 1,848.1 
   Portfolio investmentd .. .. -784.4 -1,305.3 -2,764.6 -1,139.9 
   Others .. .. -645.3 -893.3 367.2 -1,078.4 
III. Errors and omissions .. .. 1,499.3 1,066.1 1,893.7 2,229.9 
IV. Change in foreign reserve assets .. .. 292.5 524.4 1,097.8 1,234.4 
V. Memorandum:  Exchange rate       
(Patacas per US$) 8.026 8.0335 8.0334 8. 0214 8.0226 8.0109 
.. Not available. 
a The first official balance-of-payments statistics were disse minated in 2003 with 2002 as the reference year.  Hence, no 
information is available for 2000 and 2001. 
b Figures are subject to revision. 
c Financial account excludes financial reserve assets. d Portfolio investment incl udes financial derivatives. 
Source:  Information provided by the Macao, China authorities. 
(iv) Structural policies 
19. Governments in Macao, China have traditionally kept a broadly "hands-off" approach to the 
economic management of the territory.  Macao, Ch ina adopts an open approach to economic policy, 
giving full play to market forces.  Little, if an y, direct assistance is given to specific firms or 
industries, the Government preferring to give priority to large infrastructure projects designed to improve flows of people and goods between the territory's islands and across the border to Zhuhai.  
The MSAR relies largely on private-sector funding  for undertakings such as industrial parks and 
information technology development
13;  in addition, the light tax regime, made possible largely by the 
success of the gaming industry, contributes significantly to the attractiveness of the MSAR for 
domestic and foreign investors. 
20. However, in order to attract investment, th e Government continues to use various tax 
incentives as instruments of industrial policy (Cha pter III).  Although the labour market is highly 
flexible, structural unemployment is a long-term pr oblem and the Government is tackling this through 
retraining programmes.  The Government has  taken measures to encourage the diversification of the 
economy including a guaranteed loan scheme for SM Es that are not directly benefiting from the 
expansion of the tourism and gaming sectors.  The exte nt of its "hands-off" approach is such that it 
has no competition policy to address anti-competiti ve practices (such as abuse by conglomerates of 
their dominant position), especially in the services sector. 
(3) DEVELOPMENTS IN MERCHANDISE TRADE  
21. Revised figures published by the authorities i ndicate that Macao, China's merchandise trade 
balance was in surplus during 1997-00 and has been in  deficit since 2001;  its trade deficit grew more 
                                                      
13 The Concordia Industrial Park is run as a priv ate company in which both  the Macao SAR and the 
Investment Promotion Institute (IPIM) have stakes.  In 2001, the New Technologies Incubator Centre was set up 
to accelerate the development of a local information t echnology sector;  the Government owns 15% of the 
company with the remainder bein g funded by private business.  WT/TPR/S/181 Trade Policy Review 
Page 10 
 
 
than 15-fold between 2001 a nd 2005 to US$1,438 million.14  Total merchandise exports fell by 9.4% 
in 2001;  grew, on average, by 6.1% annually during 2002-04, and fell again by 12.1% in 2005.  According to the authorities, the elimination of international quotas on textiles and clothing is the 
main factor negatively affecting exports.
15  While domestic exports decre ased slightly over the period 
2001-05, re-exports increased overall by 63.2% in va lue.  Merchandise exports are expected to 
continue falling in the short run, as the new opport unities created by the CEPA will probably not fully 
compensate for the losses due to the textiles and clothing quota elimination. 
22. By contrast, imports grew steadily, on average,  by 13.1% annually during 2001-05, reflecting 
the impact of a substantial strengthening of dom estic demand on the consum ption of consumer goods 
and in particular raw materials.  Merchandise im ports are likely to continue to grow, against a 
backdrop of an improved employment situation, hi gher disposable income, and strong local demand 
for intermediate goods. 
(i) Composition of merchandise trade 
23. Macao, China's domestic export product concentr ation continued to increase over the period 
2001-05 (Table AI.1).  The share of clothing in domestic exports increased from 88.1% in 2001 to 
91.3% in 2005;  if re-exports are included, the share of clothing drops to 66.8% in 2005. 
24. Imports remain considerably mo re diversified.  As a result of the downward trend in the 
absolute value of the exports of clothing, the share of textiles in total imports fell from 35.2% in 2001 
to 18% in 2005 (Table AI.2).  Other major imports include telecommunication and transport equipment, food, clothing, fuels and lubrican ts, and other consumer  goods (Chart I.1). 
(ii) Direction of trade 
25. Macao, China's major export destinations are the United States, the European Communities, 
Mainland China and Hong Kong, China (Table AI.3).   During 2001-05, the United States' share of 
exports remained constant at around 50%, while that  of the European Union declined significantly, 
from 27% to 17.1%.  The shares of Mainland Ch ina and Hong Kong, China in Macao's exports 
increased from 11.7% to 14.9% and from 6.4% to 9.8% , respectively.  More than 78.2% of re-exports 
went to Mainland China and Hong Kong, China in 2005.
16 
26. In 2005, the major suppliers of goods to Macao SAR continued to be Mainland China 
(43.1%), the European Communities (14.1%), Ja pan (10.9%), and Hong Kong, China (10.0%) 
(Table AI.4).  During 2001-05, the shares of Mainland China and the European Communities 
remained roughly constant, while Japan's share dou bled.  On the other hand, the import share of 
Hong Kong, China has continued to decline (Chart I.2). 
 
                                                      
14 Macao Statistics and Census Service (DSE C).  Viewed at:  h ttp://www.des c.gov.mo. 
15 The quotas were eliminated under the WTO Agreement on Textiles and Clothing. 
16 Re-exports represent 92.6% in 2005 of Macao's exports to China. Macao, China WT/TPR/S/181 
 Page 11 
 
 
Chart I.1
Product composition of merchandise trade, 2001 and 2005
2001 2005
(a)    Exportsa (f.o.b.)
Manufactures
97.4
Total:   US$2,300.5 million Total:  US$2,474.8 million  
(b)    Imports (c.i.f.)
Textiles
35.2Chemicals   3.6
Transport  
equipment 
4.3Manufactures
77.3
Electrical machines
10.3
Non-electrical 
machinery
3.4Clothing
10.2
Mining/fuels
8.1
Non-electrical
machinery
6.2Electrical machines
13.1Clothing
66.8
Other
 semi-manuf.   
4.1
Transport
 equipment  
5.7Chemicals
4.8Manufactures
76.6
Total:   US$2,387.2 million Total:   US$3,912.2 million Per cent
Manufactures
92.5Agriculture   1.8
Other manufactures
10.4Mining/fuels  0.6
Textiles
12.1Other
manufactures
7.4
Textiles
11.1
Source :  UNSD, Comtrade database (SITC Rev.3);  and 2005 data provided by the authorities.Other 
manufactures
6.8
Other semi-
manuf.  3.2Electrical machines
2.8Agriculture  2.0
Agriculture
12.9Agriculture
14.5
Textiles
18.0Mining/Fuels  5.7
Clothing
72.3Electrical
 machines
3.8Other 
manufactures
9.9
Clothing
10.9Mining/fuels
10.3
a      Including domestic exports and re-exports.Non-
electrical 
machinery
3.4
Iron & steel
3.4Iron & steel  0.4
 WT/TPR/S/181 Trade Policy Review 
Page 12 
 
 
Chart I.2
Direction of merchandise trade, 2001 and 2005
2001 2005
(a)    Exportsa (f.o.b.)
Hong Kong, China
6.4
Total:   US$2,300.5 million Total:  US$2,474.8 million  
(b)    Imports (c.i.f.)
Hong Kong, China
13.9
Japan
5.4China
42.6Chinese Taipei
6.7EC25
12.6
China
43.1EC25
17.1
Japan
10.9EC25
13.1
Total:   US$2,387.2 million Total:   US$3,912.2 million Per cent
Hong Kong, China
9.8Other
5.6
Other Asia
7.0Other
1.7United States
48.2
EC25
26.7Other
Asia
3.8
Source :  UNSD, Comtrade database (SITC Rev.3); and 2005 data provided by the authorities.Other Asia
10.2China
14.9China
11.7
Other
2.6
United States
4.2
Hong Kong, China
10.0United States
48.7 Other 
Asia
3.3Other 
3.7
Chinese Taipei
4.0United States
4.1
a      Including domestic exports and re-exports.Singapore
5.2Singapore
2.7
 Macao, China WT/TPR/S/181 
 Page 13 
 
 
(4) FOREIGN DIRECT INVESTMENT  
27. Between 2001 and 2004 flows of foreign direct  investment (FDI) into Macao, China more 
than tripled and then surged to over P 10 billion in 2005.  Most of the investment was in the 
recreational and gaming sector (Table I.6).  It is  expected to increase substantially in 2006 and 
beyond.  Previous foreign investment projects have  been dwarfed by recent commitments by foreign 
investors to develop the gaming, hotels, and conventions subsector.17  The massive expansion in 
capacity will mainly target visitors from the Chinese Mainland and elsew here in Asia.  The 
liberalization of the gaming subsector and the resu lting competition in the industry have played an 
important role in attracting new investments. 
28. Hong Kong, China has traditionally been, by a wide margin, the most important origin of FDI 
into Macao, China, concentrated mainly in the non-financial sector.  Mainland China, was the 
second-largest origin of FDI from 2001 to 2004, respons ible for approximately 50% of the investment 
in the financial sector, mostly banking.  Howeve r, since the end of 2003 American companies that 
were granted gaming concessions have invested heav ily in the territory and have become the main 
source of FDI locally , accounting for 41.6% of the 2005 inflow.  
Table I.6 
Inward direct investment by industry a nd investors' place of residence, 2001-05 
(P million) 
 Flows of inward direct investment Stock of inward 
direct investment 
 2001 2002 2003 2004a 2005 2004a 2005 
Total 1,285 3,012 3,295 3,886 10,592 31,173 41,369 
Non-financial sector 896 2,595 2,462 3,376 9,269 24,107 33,059 
Industrial production 132 129 159 65 99 2,837 2,865 
Construction 78 45 12 23 360 619 902 
Wholesale and retail 53 324 454 508 574 -237 174 
Hotels and restaurants 79 102 -65 127 922 1,377 2,244 
Transport, storage and communications -31 517 305 425 189 1,278 1,272 
Cultural, recreational, gaming and othe r services 585 1,477 1,597 2,228 7,125 18,234 25,602 
Financial sector 389 417 833 510 1,323 7,066 8,310 
Bank and securities 427 366 703 429 1,104 6,350 7,404 
Insurance -38 51 130 82 219 715 906 
Hong Kong SAR 867 1,497 1,795 791 4,559 20,025 25,436 
Mainland China 69 296 532 92 440 3,711 3,907 
Portugal 345 260 211 232 330 2,766 2,620 
United Kingdom 35 112 200 213 86 610 644 
United States 14 369 275 2,413 4,406 3,045 7,430 
Others -45 479 283 146 771 1,015 1,332 
a Revised figures. 
Source:  Information provided by the Macao, China authorities. 
                                                      
17 Among the leading projects are: th e first Las Vegas-style casino, opened on the Macao Peninsula in 
2004.  Las Vegas Sands is also developing the Cotai Strip, linking the islands of Taipa and Coloane:  the first 
phase is planned to include a US$1.8 billion hotel, gaming, convention, and trade fair complex scheduled to 
open in 2007;  and six additional hotel resorts to be deve loped by other investors, for more than 10,000 hotel 
rooms in total.  On Macao Peninsula, Wynn Resorts has completed a US$700 million 600-room luxury casino 
resort in September 2006.  Galaxy  Casino Company has opened several cas inos on the Macao peninsula and is 
investing in an additional mega resort on the Cotai strip.  MGM Grand Paradise, a joint venture between MGM Mirage and another investor affiliated with SJM, is  constructing a US$975 mill ion project on the Macao 
peninsula, expected to open in 2007.  Another SJM a ffiliated company, Melco International Development Ltd, 
has a joint venture with Publishing & Broadcasting Ltd of Australia to develop a large resort, casino, and entertainment complex on the Cotai strip. WT/TPR/S/181 Trade Policy Review 
Page 14 
 
 
(5) OUTLOOK  
29. The economic outlook is favourable.  The ec onomy is expected to achieve double-digit 
growth rates of more than 15% for 2006 as service e xports continue to be the main driving force of 
the territory's economy.  As large construction proj ects come on-stream, the opening of brand-name 
casinos, hotel resorts, and other tourism-related faciliti es are expected to be strong tourist attractions.  
Visitor arrivals continued to increase in the first three quarters of 2006, to nearly 16 million, as Mainland China's Individual Traveller Scheme was implemented more widely.  As of May 2006, the 
scheme covered residents from 44 Chinese cities wher e annual income and consumption expenditure 
are among the highest in the country.  The inflation ra te is expected to edge  up to over 6%, and the 
unemployment rate to drop further to below 4% as  new jobs are created by new large hotels and 
casinos and related services.  There is a risk of  a labour shortage, which could constrain growth, 
unless the Government continues to import foreign labour.  For 2007, the authorities expect economic growth to continue in the 12-15% range, on the basis of strong capital formation and growth in 
services exports. 
30. The main thrust of economic policy for the coming years will be to ensure the smooth 
progress of gambling subsector liberalization in coor dination with the healthy development of other 
sectors. As was made clear in the MS AR Chief Executive's Policy Address for 2007
18, the gaming 
industry is only one constitutive element in Macao , China's tourism sector, which is not focused on 
pursuing a one-track path of development based  on gaming.  The high dependence on gaming and 
tourism poses risks to economic stability.19  The Government is therefore pursuing efforts to diversify 
the economy in general and the tourism market in particular.  The many new private investment 
projects have the potential of turning Macao, Ch ina's economy from a day-trip market heavily 
dependent on gaming revenues to a more dive rsified family resort and business conference 
destination. 
                                                      
18 Policy Address to the Legislative Assembly, 16 November 2006.  Viewed at:  http://www.gov.mo. 
19 The sector tends to be highly sensitive and vulnera ble to external shocks, such as an outbreak of 
avian flu or other epidemics, adverse economic performan ces in the MSAR's main tourism markets, or a shift in 
overseas interest in casino investment.