Communication from the Commission to the Council and the European Parliament - Macao Special Administrative Region: third Annual Report - 2002
Date: 2003-07-10
Institutions: European Commission
Subjects: China, EU relations, Macao, economic situation, gaming establishment, report

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 10.7.2003
COM(2003) 415 final

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Macao Special Administrative Region: third Annual Report - 2002

TABLE OF CONTENTS

1.

2.

3.

4.

5.

6.

7.

Introduction.................................................................................................................. 3

IMPLEMENTATION OF THE “ONE COUNTRY, TWO SYSTEMS” PRINCIPLE.3

LEGAL AND ADMINISTRATIVE DEVELOPMENT ............................................. 4

LIBERALISATION OF THE GAMBLING INDUSTRY .......................................... 5

THE ECONOMIC SITUATION ................................................................................. 5

EU – MACAO RELATIONS ...................................................................................... 6

CONCLUSION............................................................................................................ 7

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1.

INTRODUCTION

The European Commission continues to monitor the implementation of the “One country, two
systems”  principle  in  Macao  Special  Administrative  Region  of  the  People’s  Republic  of
China and has therefore followed the evolution of the Macao SAR with great interest. As in
the Commission’s two previous annual reports, this report aims to assess the development of
the Macao SAR and its relations with the European Union.

In  year  2002,  Macao  enjoyed  sustained  economic  growth.  Consistently  with  its  strategy  of
diversification  of  the  Macao  economy,  the  SAR  Government  launched  some  important
reforms,  in  particular  restructuring  of  Macao  gambling  industry.  The  implementation  of  the
“one country, two systems” principle remained satisfactory, though in the long run the SAR
authorities  should  be  strengthened  by  upgrading  the  civil  service.  The  adoption  of  an  anti-
subversion legislation might bear some incidence on the specific status of the SAR and will
be closely followed by the EU.

2.

– 

IMPLEMENTATION  OF  THE  “ONE  COUNTRY,  TWO  SYSTEMS”
PRINCIPLE.

Reaffirmation of the principle

The  Central  Government  of  Beijing  again  reiterated  its  adherence  to  the  “one  country,  two
systems”  principle  in  its  official  statements.  In  a  speech  to  the  National  People’s  Congress
(NPC) on 5 March 2002, Prime Minister Zhu Rongji reaffirmed:

“We should fully implement the principle of “one country, two systems” and the Basic Law
of  Hong  Kong  and  Macao  Special  Administrative  Regions.  It  is  our  firm  and  unswerving
objective to maintain the long-term  stability,  prosperity and development  there.  The Central
Government will continue to render full support to the efforts of the governments and Chief
Executives of Hong Kong and Macao to govern the regions in accordance with the law, and it
will  further  strengthen  economic,  trade,  scientific,  technological,  cultural  and  education
exchanges and co-operation between the Mainland and Hong Kong and Macao. We have full
confidence in the futures of Hong Kong and Macao.”

– 

Implementation of the principle

Article 23 of the Basic Law

The  Secretary  of  Administration  and  Justice,  Miss  Florinda  Chan  announced  on  1  October
that the Government would prepare a national security bill, for the enactment of Article 23 of
the  Basic  Law.  The  Government  planned  to  draft  the  Article  23  legislation  and  submit  the
draft to the Legislative Assembly in early 2003 in order to start  the  legislative process. The
Legislative  Assembly  is  to  be  approached  by  the  Government  regarding  the  best  way  to
consult Macao citizens about the proposed legislation.

Both  the  Secretary  of  Administration  and  Justice  and  the  Chairwoman  of  the  Legislative
Assembly stated that the enactment of Article 23 is a constitutional duty for Macao SAR, thus
the  consultation  will  be  limited  to  the  draft  bill  and  not  on  the  necessity  of  such  draft
legislation. Although the text of the legislation had not been published  yet,  as  at  the  end  of
2002 the people of Macao seemed to face quietly this perspective.

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Unlike Hong Kong SAR, where the draft legislation on Article 23 took up and updated some
existing  ordinances,  the  Macao  Government  insists  that  the  Article  23  legislation  will  fill  a
loophole  in  the  law.  This  is  because  Portuguese  legislation  on  the  subject  became  null  and
void  when  Macao  reverted  to  Chinese  administration  in  December  1999  and  the  existing
Macao penal code covers only “issues against the territory” but not against the State.

Negotiation  of  an  agreement  to  avoid  double  taxation  between  Macao  and  Mainland
China

The  Macao  SAR and  Central  Beijing  Governments started negotiating an agreement  for  the
avoidance  of  double  taxation  in  2002.  The  agreement  will  be  based  on  the  OECD  and  UN
models. The Macao SAR Government hopes to finalise the agreement during 2003, and plans
to negotiate more agreements later, with other trade partners.

3.

LEGAL AND ADMINISTRATIVE DEVELOPMENT

After  the  consolidation  of  various  institutions  established  in  2000,  the  Macao  SAR
Government proceeded to gradually build up the legal capacity and improve the efficiency of
the administration.

– 

Legal capacity building

Macao SAR suffers from not having sufficient legal experts capable of law drafting (both in
Portuguese and in Chinese) and judicial work. This resulted in the delay of both the legislative
work of the Legislative Assembly and the judicial work of the tribunals. The president of the
Court  of  Final  Appeal  paid  particular  attention  to  these  inadequacies  in  his  speech  at  the
opening ceremony of the judicial year at the end of October.

The government listed 179 laws and regulations subjected to short and medium-term plans of
study,  enactment  or  amendment.  The  SAR  government  plans  to  provide  general  legal
knowledge  to  civil  servants  and  to  train  specialists  in  law  and  regulation  drafting.  In  this
respect,  it  is  worth  noting  that  the  implementation  of  EU-Macao  legal  co-operation  project
started at the end of 2002. One of the first activities of the project was in the field of laws and
regulation drafting training.

The government  also plans to reinforce  the  consultation  on  legal  works  which  will  include:
Article  23  of  the  Basic  Law,  establishment  of  a  tribunal  for  limited  debt  issues  and
amendments to the tax system.

– 

Progressive reform of the administration

On the eve of the establishment of the Macao SAR at the end of December 1999, the majority
of  Portuguese  civil  servants  of  the  Portuguese  administration  left  Macao.  Thus  the  Macao
SAR administration is rather a young one which necessitates training and progressive reform.
The  Chief  Executive  has  emphasized  the  need  for  an  administration  adapted  to  the  new
international and regional environment of Macao.

The Government launched a training programme with the help of the Civil Servant college of
Singapore in 200l. Six hundred senior or middle-rank civil servants had already accomplished
the management-training programme by the end of 2002.

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The aim of the Government is to increase the efficiency, the service quality and the sense of
responsibility of the civil service. After the training programme, civil servants are encouraged
to  propose  ways  to  streamline  the  administration  structure  and  simplify  the  administrative
procedure.

However, the Government will proceed with reform of the administration in an orderly way.
A Public Administration Observatory was  created in 2002.  It will  submit  suggestions to the
SAR  Government  on  three  topics  :  how  to  rationalize  the  administrative  structure,  simplify
the administrative procedure and increase the service quality of the administration.

4.

LIBERALISATION OF THE GAMBLING INDUSTRY

The SAR Government pursues a more diversified strategy to develop Macao into a regional
entertainment, exhibition and conference centre headed by the gambling industry. The Macao
SAR Legislature adopted a new gaming industry regime in September 2001, under which the
monopoly  system  was  abolished  and  three  new  licences  were  issued  based  on  public
tendering. The casino monopoly of tycoon Stanley Ho’s Sociedade de Turismo e Diversoes de
Macao (STDM), which was granted in 1962, expired on 31 March 2002.

The three new concessionaires are:

– 

Galaxy Casino Company Limited

–  Wynn Resorts (Macao) Limited

– 

Sociedade de Jogos de Macao, S.A. (SJM)

SJM is the subsidiary of STDM and takes up the casino business of the former monopoly. The
other two licensees are US investors from Las Vegas, and their Hong Kong partners. Foreign
ownership  is  allowed,  but  mainland  investments  in  the  gambling  business  remain  strictly
prohibited  [The  managing  director  of  the  concessionaire  must  be  a  Macao  SAR  permanent
resident and holds at least 10% shares of the company.] The concession period ranges from 18
to 20 years. Investment from the three new concessionaires amounted to $17.5 billion patacas
(2.3  billion  euro)  in  total.  Construction  of  the  new  hotels  started  in  2002  and  the  first  new
hotel is expected to be operational by the end of 2003.

The move to end  the  monopoly  is  regarded  as  an  attempt  to  enhance  economic  growth  and
boost fiscal revenue. To these ends, the Macao Government was highly successful in the first
year of liberalization. Real GDP growth and gambling tax revenue rose sharply in 2002.

5.

THE ECONOMIC SITUATION

Gambling and tourism have remained predominantly the economic pillars of  Macao.  In  line
with  the  liberalization  of  the  gambling  industry,  the  Macao  SAR  Government  aims  to
diversify its economy into other sectors such as convention and exhibition businesses in the
future. Real GDP registered a remarkable growth of 9.5% for 2002, following a mild growth
in the previous two years. The vibrant growth was attributable to the robust tourist industry,
coupled with the new impetus brought along by the liberalisation of the gambling industry.

Exports of goods achieved an overall growth of 6.4 in real terms% in 2002, thanks primarily
to  the  exceptional  performance  of  the  Chinese  mainland  market.  Nearly  all  major  markets

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recorded  negative  growth  except  the  U.S.  Textile  and  garments  remained  the  main  export
category, occupying about 84% of the export total.

For exports of services, the number of visitor arrivals reached a record level of 11.5 million in
2002, up 12.2% from 2001. Over 90% of the tourists were from Hong Kong, Mainland China
and Taiwan. The fastest growing source of visitors came from Mainland China, 40% higher
than 2001 and taking up close to 40% of the total arrivals. Though Hong Kong remained the
largest source of visitors, the number of visitor arrivals dropped slightly by 1.8%.

Fiscal position of the Macao SAR Government was sound. The SAR Government recorded a
fiscal surplus of $1.7 billion patacas (244 million Euro) for the fiscal year of 2002 or over 3%
of its nominal GDP. Gambling tax revenue rose sharply by 24.6% to reach a record level of
$7.6 billion patacas (1 billion Euro) in 2002, partly because of the increase of gambling tax
rate from 31.8% to 35% in 2002. It is notable that gambling tax accounted for over two-thirds
of the fiscal income, significantly higher than its share of 46%-60% in the past few years.

Despite the strong economic  growth in  2002,  Macao still  suffered  from  prolonged  deflation
with  prices  falling  by  9%  on  an  accumulative  basis  since  1999.  The  consumer  price  index
dropped 2.6% in 2002

Unemployment  was  fairly  stable  at  the  6%  level  throughout  the  year.  Yet  social  discontent
seemed  to  have  subsided  along  with  government  relief  measures.  In  particular,  a  retraining
fund  of  $400  million  patacas  (52.6  million  Euro)  has  been  set  up,  providing  training
opportunities  and  direct  financial  aid  to  the  unemployed.  Tax  cuts  and  concessions  for  tax
payers and businesses introduced for 2002 will also be maintained for 2003.

In  an  attempt  to  prevent  manufacturing  activities  to  leave  Macao,  especially  with  the
elimination  of  textile  quota  in  2005,  the  Macao  SAR  Government  has  initiated  talks  with
Zhuhai,  the  neighbouring  mainland  city,  to  build  a  cross-boundary  industrial  zone.
Governments  on  both  sides  have  agreed  in  principle  to  develop  an  industrial  zone  on  a
reclaimed area. Difficult details would have to be worked out especially on compliance with
country of origin rules, jurisdictions, customs clearances, taxation, and proportion of Macao
and Chinese mainland workers.

6.

EU – MACAO RELATIONS

– 

Economic relations

The  EU  is  one  of  the  most  important  trading  partners  of  Macao.  In  2002,  the  EU  was  the
second  largest  export  market  after  the  U.S.,  and  the  third  largest  supplier  of  goods  after
Mainland  China  and  Hong  Kong.  Total  bilateral  trade  between  the  EU  and  Macao  reached
1.04 billion Euro (imports : 711 million Euro ; exports : 328 million Euro).

– 

Intellectual Property Rights

Macao has undeniably made important progress in the field of intellectual property protection,
notably by bringing its legislation in line with the international standards of the WTO TRIPs
Agreement and by improving the enforcement structure through setting up of a new customs
department devoted to this issue. The European Commission remains nonetheless concerned
regarding  some  activities  linked  to  piracy  and  counterfeiting  in  macao,  especially  on  issues
concerning the protection of copyrights.

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– 

Visa free access and re-admission agreement

Following the Council Regulation (EC) n°539/2001 of 15 March 2001 by which 13 of the 15
EU member states granted visa free access to Macao SAR passport holders as from 10 April
2001,  the  UK  and  Ireland  also  granted  the  same  with  effect  from  17  and  29  April  2002
respectively.  The  negotiations  for  a  re-admission  agreement  between  EU  and  Macao  were
finalized  in  June  2002.  The  re-admission  agreement  was  initialed  in  October  as  one  of  the
sidelines of the meeting of the EU-Macao Joint Committee.

– 

Joint Committee

The  ninth  meeting  of  the  Joint  Committee  established  under  the  EC  –  Macao  Co-operation
Agreement  was  held  in  Brussels  on  18  October  2002.  Both  sides  reviewed  domestic
development  and  examined  the  state  of  their  bilateral  relations.  The  Joint  Committee
welcomed the successful completion of three EC-Macao funded co-operation projects, as well
as the start up of a new project on legal co-operation.

– 

Asia Enterprise

The second edition of the EU – China business meeting was held in Macao from 3 to 5 June
2002.  The  meeting  was  co-financed  by  the  European  Commission  and  the  Macao  SAR
Government.  Over  300 companies  from the EU  and from China  participated in the  meeting
which focused on six sectors (textile and clothing, metal and machinery,  IT and electronics,
construction material, environment technology and food processing).

– 

Visit of the European Economic and Social Committee

A  delegation  from  the  Economic  and  Social  Committee,  led  by  the  president  of  the  study
group on the relations between EU and China, Mr. Sukhdev Sharma, visited Macao in July. It
had  meetings  with  the  Macao  General  Chamber  of  Commerce,  the  Federation  of  Trade
Unions,  the  Catholic  Church  and  university  professors.  The  visit  focused  on  economic  and
social issues.

7.

CONCLUSION

Three  years  after  the  handover,  the  Macao  SAR  Government  benefits  from  a  relatively
thriving economic situation. The authorities’ strategy of diversification of the economy stems
from  a  clear  vision  of  the  territory’s  economic  assets  and  weaknesses.  The  liberalization  of
the gambling industry already bore its first fruit and will bring in more or less 2 billion Euro
investments in the coming years. This success has contributed to the creation of an optimistic
social  atmosphere  for  the  mid  term  perspective  and  to  the  Chief  executive’s  current
popularity.

Yet, many important tasks are still to come: diversification of export structure, reform of the
legal  system,  upgrading  of  the  administration  and  the  hospital  system,  improvement  of  the
social welfare, adaptation of the labor force etc.  It is very encouraging that the Macao SAR
Government remains aware of these challenges and committed to undertake relevant reforms.

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