Report from the Commission to the Council and the European Parliament - Macao Special Administrative Region : Annual Report 2005
Date: 2006-09-06
Institutions: European Commission
Subjects: China, EU relations, Macao, economic situation, parliamentary election, political situation, report, trade relations

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 6.9.2006 
COM(2006) 480 final 

REPORT FROM THE COMMISSION TO THE COUNCIL AND 
THE EUROPEAN PARLIAMENT 

Macao Special Administrative Region : Annual Report 2005 

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REPORT FROM THE COMMISSION TO THE COUNCIL AND 
THE EUROPEAN PARLIAMENT 

Macao Special Administrative Region : Annual Report 2005 

The  political  situation  in  the  Macao  Special  Administrative  Region  (SAR)  remained  stable 
throughout  2005.  The  key  political  event  of  the  year  was  the  holding  of  legislative  elections. 
Despite a number of allegations of electoral fraud during the campaign, the elections themselves 
proceeded  in  a  fair  and  orderly  manner.  The  record  high  turnout  was  a  positive  indicator  of 
Macao’s political development. The European Commission welcomes this and believes that the 
increasing political maturity of the people of Macao provides a good foundation for progressing 
towards universal suffrage. 

In  his  annual  address  in  November,  Chief  Executive  Edmund  Ho  announced  a  number  of  new 
initiatives,  including  an  increase  in  resources  for  education,  welfare  and  housing.  He  also 
announced the likely launch of a democracy development plan in 2007, though at the same time 
implicitly  ruling  out  direct  elections  and  universal  suffrage  for  the  2009  Chief  Executive  and 
Legislative  Assembly  elections.  The  Commission  welcomes  Mr  Ho’s  new  initiatives  and  looks 
forward to the launch of the democracy development plan.  

Anti-Money  Laundering  and  Anti-Terrorism  Bills  were  put  before  the  Legislative  Assembly  in 
October 2005. Both legislative proposals were passed in principle and are expected to be enacted 
before summer 2006. The Commission welcomes the SAR Government’s swift response to these 
issues  and,  on  the  issue  of  money  laundering,  underlines  the  importance  of  eradicating  illicit 
activity linked to money laundering in the territory. 

Macao’s  economy  continued  to  expand  in  2005,  although  more  slowly  than  the  (double-digit) 
growth  in  the  previous  three  years;  nonetheless,  there  was  strong  GDP  growth  of  6.7  percent. 
Tourism  and  the  gaming  and  entertainment  sectors  continued  to  expand  and  drove  economic 
growth.  Merchandise  trade,  on  the  other  hand,  declined  primarily  due  to  the  lifting  of  global 
textile  quotas  in  2005.  According  to  Macao  statistics,  exports  to  the  EU  dropped  by  31%  to 
3.4 billion patacas (€340 million) or 17% of total exports.  

On trade issues, the Commission recognises the continued efforts of the Macao SAR Government 
in upgrading its legislative framework and enforcement structure for the protection of intellectual 
property rights. However, the Commission has expressed its concern about TV signal piracy. The 
Commission  urges  the  SAR  Government  to  take  the  measures  necessary  to  protect  legitimate 
signal providers and copyright owners.  

2005  was  a  good  year  for  bilateral  relations  between  the  EU  and  Macao.  President  Barroso 
visited  Macao  in  July  -  the  first  visit  by  a  Commission  President  to  the  territory.  President 
Barroso  and  the  Chief  Executive  underlined  the  importance  of  further  strengthening  bilateral 
relations. 

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ANNEX 

1. 

POLITICAL DEVELOPMENTS 

The  political  situation  within  the  Macao  SAR  remained  very  stable  for  another  year,  with  the 
legislative elections being the year’s political highlight. 

Legislative Elections 

Two  previous  legislative  elections  have  been  held  in  the  Macao  SAR,  once  under  Portuguese 
administration  and  once  in  2001,  two  years  after  the  territory  returned  to  Chinese  sovereignty. 
The 2005 elections were characterised by the addition of two more directly-elected seats in the 
legislature, in accordance with the provisions of the SAR’s Basic Law.  

On  25  September,  Macao’s  voters  turned  out  in  record  numbers  to  elect  12  legislators  to 
complete  the  29-strong  Legislative  Assembly  (LA).  Election  Day  went  relatively  smoothly, 
despite  a  number  of  complaints  made  to  the  electoral  office  and  some  isolated  election-related 
scuffles.  Almost  130  000  voters  cast  their  vote  in  Macao’s  third  LA  direct  election,  making  a 
record  turnout  rate  of  59%  compared  to  52%  in  the  2001  elections.  The  pro-democracy  camp 
emerged  as  the  winner  in  the  direct  election,  gaining  the  support  of  approximately  25%  of  the 
electorate.  However,  due  to  Macao’s  complex  election  system  of  mixed  proportional 
representation, they only managed to secure two seats. The traditional business, labour and civil 
service unions won six seats and casino-related candidates the remaining four. 

A  further  ten  legislators  were  elected  unopposed  through  indirect  election  from  Macao’s  four 
functional  constituencies.  Those  candidates  were  elected  by  a  small  group  of  voters  from 
business,  labour  and  professional  organisations  whose  total  votes  did  not  exceed  2,250.Finally, 
seven legislators were appointed directly by Macao’s Chief Executive, Edmund Ho. 

Although  Election  Day  itself  proceeded  in  an  orderly  manner,  the  two-week  election  campaign 
was  marked  by  a  series  of  allegations  of  vote  buying  and  unfair  practices,  as  well  as  the 
authorities’ attempts to combat electoral graft. Observers believe that those incidents are related 
to  the  increasingly  important  role  that  business  and  casino-related  legislators  play  in  Macao’s 
overall  policies.  The  campaign  was  focused  mainly  on  “livelihood  issues”,  including  public 
transport,  education,  health,  the  importing  of  labour,  unemployment,  social  welfare,  public 
security and care for the elderly. Unlike Hong Kong, Macao politics were dominated by mainly 
local issues, while democratisation and relations with the mainland received little attention. 

Despite the aforementioned incidents, the European Commission is of the view that, overall, the 
elections were conducted in a fair and orderly manner. The record high turnout, despite torrential 
rain and a typhoon warning, is a positive indicator of Macao’s political development and a sign of 
a rising civic awareness in Macao and of its people’s commitment to democracy.The European 
Commission welcomes this and believes that the increasing political maturity of Macao’s citizens 
provides a good foundation for progress towards universal suffrage in Macao.  

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Chief Executive’s Policy Address  

Macao’s  Chief  Executive  delivered  his  7th  policy  address  on  15  November  2005.It  focused 
mainly on the development of human resources, social welfare, economic development and civil 
service reform. One of the main innovations of this policy address is the introduction of a labour 
import  surcharge,  which  will  be  used  for  retraining  employees  and  subsidising  SME’s  that 
employ local Macao citizens. This has been a very delicate issue over the years, as Macao opens 
its doors to more professionals in order to cope with its economic growth. This measure, running 
in  parallel  with  a  scheme  giving  priority  in  employment  to  Macao's  citizens,  should  provide 
comfort to local people.  

On  the  political  front,  the  Chief  Executive  underlined  the  objectives  of  political  pragmatism, 
continuity  and  gradual  reform.  However,  although  announcing  that  a  democracy  development 
plan  is  likely  to  be  launched  in  2007,  he  implicitly  ruled  out  direct  elections  and  universal 
suffrage  for  both  the  Chief  Executive  and  Legislative  Assembly  elections  in  2009.  The  Chief 
Executive, referring to the national  security legislation under Article 23 of the Basic Law, said 
that the law is still being drafted. 

Currently,  41%  of  the  Legislative  Assembly  is  returned  by  direct  election,  whereas  the  SAR’s 
Chief Executive is elected by a 300-strong selected Election Committee. Under the Basic Law, 
Macao may change its methods for forming the LA “if  there  is a need in and after 2009”.  The 
European  Commission welcomes the Chief Executive’s comprehensive policy planning and his 
new  initiatives  on  increased  resources  for  education,  welfare  and  housing  and  it  awaits  the 
announced democracy development plan with great interest.  

Legislative efforts to combat money laundering and terrorism  

To  strengthen  the  regulatory  framework  on  anti-money  laundering  activities,  the  Macao  SAR 
Government tabled an Anti-Money Laundering Bill in the Legislative Assembly in October 2005. 
The  aim  of  this  Bill  is  to  combat  money  laundering  activities  involving  terrorism,  organised 
crime,  commercial  crime,  bribery,  drug  and  human  trafficking,  and  illegal  trading  of  arms.  In 
September  2005,  a  local  Macao  Bank,  Banco  Delta  Asia  SARL,  was  alleged  by  the  US 
Department  of  the  Treasury  to  be  “a  primary  money  laundering  concern”  with  connections  to 
financial  activities  of  the  Democratic  People’s  Republic  of  Korea  (North  Korea).  The  Chief 
Executive,  Edmund  Ho,  responded  that  “no  conclusion  should  be  drawn  without  any  proof 
concerning  such  a  grave  allegation.”The  Macao  Monetary  Authority  immediately  set  up  a 
committee  to  investigate  the  matter.  The  bank  was  placed  under  the  control  of  a  management 
committee appointed by the Macao government. 

At the same time, an Anti-Terrorism Bill was put to the Legislative Assembly. Both legislative 
proposals were  passed  in principle  after  general  discussion,  and  are  awaiting  further  legislative 
procedures  before  final  enactment,  which  is  expected  before  summer  2006.  The  European 
Commission welcomes the SAR Government’s swift response to this incident and underlines the 
importance  of  effectively  eradicating  any  illicit  activities  linked  to  money  laundering  in  the 
territory. 

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2. 

THE ECONOMY 

The  very  rapid  expansion  resulting  from  the  liberalisation  of  the  casino  regime  was  well 
sustained. Following double-digit growth for the preceding three years, the economy continued to 
expand at a less rapid pace in 2005, with GDP growing by 6.7% in real terms. Huge investment 
inflows related to new casinos, entertainment facilities and property development emerged as the 
primary sources of growth last year. Visitor arrivals reached a new peak, boosting growth in the 
gaming and tourism sectors. On the other hand, merchandise trade recorded a marked decline due 
to  the  lifting  of  global  textile  quotas  in  2005.  The  employment  market  improved  significantly, 
although there were initial signs of inflationary pressure. 

The  number  of  casino  operators  is  expected  to  increase  from  three  to  six  in  2006.  The  new 
investors  have  already  started  to  implement  their  large-scale  investment  plans  for  the  next  few 
years.  Private  investment  surged  substantially  as  a  number  of  hotel  and  casino  projects  got 
underway. As at end of 2005, about 50 hotels were under construction or the subject of project 
assessment by the Macao authorities, adding over 28 000 new guest rooms to the current capacity 
of around 11 000. The operating environment of the gaming industry is expected to experience 
significant changes in the near to medium term, and in particular to become more competitive.  

Along  with  the  opening  of  more  casinos  and  entertainment  facilities,  the  tourism  sector 
performed  favourably  in  2005.  Visitor  arrivals  rose  by  12%  to  a  record  level  of  18.7  million. 
Mainland China was the main source of visitors, accounting for over half of the arrivals, followed 
by Hong Kong (30%) and Taiwan (8%). In July 2005, Macao won the bid to include “the Historic 
Centre  of  Macao”  on  the  United  Nation’s  World  Heritage list.  This  prestigious  status  will  help 
broaden Macao’s appeal, reputation and visitor base. 

The  gaming  sector  directly  benefited  from  buoyant  tourism  growth.  Gross  revenue  from  all 
gaming  activities  in  2005  totalled  45.8  billion  patacas1(€4.6  billion),  of  which  98%  were 
contributed  by  17  casinos.  Casinos  in  Macao  pay  35%  of  their  gross  receipts  as  direct  gaming 
taxes,  which  accounted  for  72%  of  fiscal  income  last  year.  The  Macao  SAR  government  thus 
enjoyed a comfortable fiscal surplus position and was able to introduce a series of social welfare 
and education policy initiatives. 

Thanks to strong investment sentiment and a robust economic performance, the property market 
continued  to  boom.  Average  residential  prices  and  transaction  volumes  went  up  markedly,  by 
20% and 30% respectively in 2005. On the other hand, inflationary pressure became a cause for 
concern, rising rapidly from around 1% in 2004 to 4.4% in 2005 due to strong domestic demand, 
higher prices of imported goods and rising oil prices. 

The employment market became tight as the demand for manpower increased in a fast growing 
economy. The unemployment rate dropped steadily from 4.8% in 2004 to 3.9% in the last quarter 
of 2005 - the lowest in eight years.Macao faces some structural problems in the labour market, 
where it lacks adequate professional staff and possesses a large group of under-employed middle-
aged, lower-skilled workers who are finding it difficult to work in the emerging service economy. 

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average exchange rate for 1 euro to patacas in 2005=9.9721. 

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There were about 10 000 unemployed persons and 39 000 imported labour in the fourth quarter 
of last year 

Merchandise trade was the weakest sector of Macao’s economy last year. Total exports declined 
by 12% to 19.8 billion patacas (€1.99 billion) due to the lifting of global textile quotas after the 
WTO  Agreement  on  Textiles  and  Clothing  expired  in  January  2005.  Nevertheless,  textiles  and 
clothing continued to make up the bulk of Macao’s merchandise exports, accounting for 77% of 
total  exports.  Concurrently,  the  strong  domestic  demand  brought  about  a  12%  increase  in 
imports, which reached 31.3 billion patacas (€3.1 billion), resulting in an enlarged trade deficit of 
11.5 billion patacas (€1.15 billion). According to Macao statistics, exports to the EU fell sharply 
by 31% to 3.4 billion patacas (€340 million) or 17% of total exports.The US, Mainland China and 
Hong Kong were the other major markets, taking up about 48.7%, 14.9% and 9.8% respectively 
of Macao’s total exports. 

3. 

TRADE ISSUES 

CEPA III 

The  Closer  Economic  Partnership  Arrangement  (CEPA)  between  Mainland  China  and  Macao 
entered its third phase in 2005. A framework agreement (CEPA I) which sets out a platform for 
on-going discussion on trade liberalisation between the two places was concluded in 2003, and a 
supplementary  protocol  (CEPA  II)  was  signed  in  2004.  Under  CEPA  III,  all  goods  currently 
originating  from  Macao  enjoy  tariff  free  treatment.  Taking  the  agreed  rules  of  origin  of 
91 products under the Mainland Customs Tariff codes negotiated in 2005, a total of 600 Macao 
products  enjoy  tariff  free  treatment  starting  from  1  January  2006.  For  trade  in  services,  further 
relaxation in market access in 10 of the total 26 service sectors was introduced. As CEPA does 
not  commit  to potential trade  or “other” tariff lines, it is characterised by a very low tariff line 
(or product) coverage. 

Only a small amount of goods was exported under CEPA in the first two years of implementation 
(about  8.3  million  patacas  or  €920,000).  The  service  industry  made  greater  use  of  the 
opportunities  offered  by  the  free  trade  arrangement  than  the  manufacturing  sector.he  transport 
and logistics industries were the most active service sectors in applying for CEPA certification to 
expand their business in Mainland China. 

Offshore tax regime revised 

From 14 June 2005, the Macao SAR Government has amended its offshore company tax regime 
to cool down its overheating economy. The offshore regime was introduced by the former Macao 
Government in 1999 to help develop Macao into an offshore commercial centre. The scope of the 
approved offshore activities has been reduced from the original 20 sectors to eight sectors, which 
mainly involve technical support activities. The majority of the offshore companies are believed 
to  be  Hong  Kong-based  companies  taking  advantage  of  the  lower  tax  regime.  The  Hong  Kong 
SAR Government has welcomed the change. 

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Macao-Zhuhai Cross-boundary Industrial park 

The Cross-boundary Industrial Zone located in between Macao and Zhuhai was endorsed by the 
State  Council  of  the  People’s  Republic  of  China  Central  Government  in  late  2003  and  was 
acclaimed as an innovative experiment in regional cooperation within the Pearl River Delta. The 
zone is divided into the Zhuhai  Park  and the Macao Park, managed respectively  by the Zhuhai 
municipal government and  the Macao Industrial Park Development Co. Ltd. It is noted that no 
preferential treatment (in terms of labour import arrangements and tax concessions) will be given 
to the park tenants. As far as rules of  origin are concerned, CEPA rules of origin will apply to 
products  made  in  the  Macao  Park  and  exported  to  Mainland  China.  For  products  exported 
elsewhere,  the  Macao  certificate  of  origin  will  be  issued  in  accordance  with  WTO  rules  or  the 
origin rules of the importing countries. 

The Macao Park is under construction and is expected to be operational by the end of 2006. The 
Macao Government hopes that the industrial park will attract higher-end industries into the SAR. 
The  first  phase  development  met  with  a  favourable  response  from  the  industry.  Major  tenants 
mainly concentrate on pharmaceutical and garment manufacturing. It remains to be seen whether 
the  future  industrial  park  will  be  able  to  diversify  the  narrow  industrial  base  and  cushion  the 
impact of the global abolition of textile quotas. The textile and clothing sector employs close to 
80% of Macao’s manufacturing workforce and accounts for 77% of its exports. 

Protection of intellectual property rights 

While  recognising  the  continued  efforts  being  made  by  Macao  in  upgrading  its  legislative 
framework  and  enforcement  structure  for  the  protection  of  intellectual  property  rights,  the 
European Commission is concerned about the current situation of TV signal piracy in Macao. It 
notes that antenna companies have for years been providing pirated TV signals for channels with 
European and American content without a licence or authorisation from the respective copyright 
owners.Macau  Cable  TV  has  signed  a  contract  with  the  Macao  SAR  Government  for  the 
exclusive  provision  of  pay  TV  services,  covering  worldwide  and  European  channels.The 
company has filed complaints with the Macao authorities against the antenna companies and for 
several  years  has  been  seeking  civil  remedies,  without  much  progress.  Despite  repeated 
diplomatic efforts by the European Commission and the host countries of right holders, Macao 
has  yet  to  find  solutions  to  redress  the  situation.  The  European  Commission  urges  the  Macao 
SAR  Government  to  take  the  necessary  measures  to  effectively  protect  the  legitimate  signal 
provider and copyright owners. 

4. 

EU-MACAO RELATIONS 

To  highlight  the  importance  that  it  attaches  to  the  “one  country,  two  systems”  principle  that  is 
applied  to  the  Macao  SAR,  the  European  Commission  maintained  its  active  bilateral  relations 
with the Macao SAR Government in 2005. 

The President of the European Commission, Mr Jose Manuel Barroso, visited Macao on 17 and 
18 July as the last stop of a 5-day China tour, which included Beijing, Shanghai and Hong Kong 
SAR. This was the first visit to the territory by a Commission President. He took the opportunity 
to visit the enclave’s land reclamations, major new casino and industrial zone developments and 

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to meet with European residents in Macao Mr Barroso held talks with Macao’s Chief Executive, 
Mr  Edmund  Ho,  and  Secretary  for  Administration  and  Justice,  Ms  Florinda  Chan.  In  a  brief 
statement  the  two  leaders  underlined  the  importance  of  further  strengthening  EU-Macao 
relations, identifying new areas of co-operation and continuing to co-operate closely on areas of 
mutual interest. 

On  2  June,  the  11th  EC-Macao  Joint  Committee  took  place  in  Brussels.  Both  parties  expressed 
their  willingness  to  develop  their  co-operation  in  areas  such  as  the  new  general  system  of 
preferences,  translator  and  interpreter  training  and  continued  legal  co-operation.  The  EC 
encouraged  Macao  to  participate  in  EC  worldwide  programmes  such  as  the  Erasmus  Mundus 
Higher Education programme, building on Macao’s role as a bridge builder between Europe and 
Asia. Both parties also agreed to explore new fields of co-operation. 

In  order  to  discuss  and  explore  possible  content  and  means  to  deepen,  develop  and  broaden 
cooperation between the EU and Macao, the Office of the European Commission in Hong Kong 
accredited to Macao held a seminar in Macao on 26 October 2005 with over 30 representatives of 
various sectors of Macao society. 

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