Report from the Commission to the Council and the European Parliament - Macao Special Administrative Region : Annual Report 2006
Date: 2007-08-14
Institutions: European Commission
Subjects: EU relations, Macao, activity report, cooperation policy, economic policy, economic situation, political situation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.8.2007 
COM(2007) 471 final 

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

Macao Special Administrative Region : 
Annual Report 2006 

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REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

Macao Special Administrative Region : 
Annual Report 2006 

Before  the  handover  of  Macao  to  China  in  December  1999  the  Commission  made  a 
commitment  to  "closely  monitor  and  promote  the  implementation  of  the  'one  country,  two 
systems'  principle  in  order  fully  to  support  Macao's  political,  economic  and  cultural 
autonomy."1 In 2006 the Commission again promised to continue to issue annual reports on 
the constitutional, political, trade, economic and bilateral developments in Macao2. This is the 
seventh such report since 2000. 

Macao  continues  to  be  an  important  partner  for  the  EU,  sharing  values  and  interests  in  the 
economic,  regulatory,  educational,  social  and  cultural  spheres.  Since  the  handover  relations 
between the EU and Macao have continued to deepen and widen across these areas, remaining 
practical  and  based  on  mutual  interest.  In  2006  EU-Macao  co-operation  and  relations  have 
been further reinforced.  

1. 

Political developments 

The political and constitutional situation within the Macao SAR in 2006 remained stable for 
another  year  although  a  major  governmental  incident  marked  the  end  of  2006–(see  below). 
Proposals regarding Macao's future constitutional development were postponed until 2008 or 
later.  Following  the  2007  Policy  Address  made  on  16th  November  2006,  the  Macao 
Government  Chief  Executive,  Edmund  Ho,  said  that  it  would  not  be  possible  to  introduce 
direct  elections  in  2009  or  immediately  after  2009  and  the  matter  should  be  first  carefully 
studied. It was stated that the draft bills on the electoral arrangements for Chief Executive and 
Legislative Assembly in 2009 would be submitted to the Legislative Assembly in 2008. The 
European Commission takes note of Mr. Ho’s announcement and looks forward to the launch 
of the democracy development plan. 

In  Macao  the  government  and  people  are  facing  increasing  challenges  arising  from  the 
remarkably  accelerating  economic  and  social  changes  since  2002.  Several  problems  are 
resulting  from  Macao’s  own  success:  affluence  for  some,  but  declining  real  incomes  for 
poorer people, stresses from rapid social change and externalities and costs resulting from all 
these developments. One quarter of the labour force is now imported labour. Local residents 
who  have  lost  their  jobs  are  expressing  their  discontent.  Macao's  boom  is  causing  the  rapid 
inflation of the costs of living, especially of property-related costs rising faster than the pay 
rises  of  some  of  the  poorer  groups,  reducing  thus  their  real  level  of  income.  Huge  building 
projects  are  changing  the  character  of  Macao,  engendering  environmental  stresses.  Rapid 
expansion in the numbers of cars and motor cycles in the small streets of Macao have led to 

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Communication  from  the  Commission  to  the  Council  and  the  European  Parliament  "The  EU  and 
Macao: Beyond 2000" Brussels, 12.11.1999, COM (1999) 484 final. 
"The  European  Union,  Hong  Kong  and  Macao:  possibilities  for  co-operation  2007-2013". 
Communication  from  the  Commission  to  the  Council  and  the  European  Parliament.  COM(2006)  648 
final of 26.10.2006. 

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congestion and pollution. The administration has the challenge to optimise the management of 
the social system to ensure that the government's generous benefits schemes are delivered to 
those in need of benefits, and to improve the regulation and conditions of imported labour. 

On 1st May 2006, these pressures led to a significant public demonstration where  grievance 
was  expressed  over  government  labour  policy  with  claims  that  illegal  workers  were  being 
tolerated  and  inadequately  regulated  in  Macao.  The  disturbances  that  occurred  at  the 
demonstration  indicated  a  ground-swell  of  serious  discontent,  albeit  apparently  limited  to 
groups who are not benefiting from the booming economy and labour market.  

There  was  a  major  governmental  incident  in  December  2006  when  one  of  Macao's  top 
officials- the Secretary for Transport and Public Works, Mr. Ao Man-long - was arrested for 
alleged  corruption.  This  was  reportedly  after  a  joint  Hong  Kong-Macao  anti-corruption 
investigation.  Ao  is  the  most  senior  official  arrested  for  alleged  corruption  since  Macao 
returned to Chinese rule in 1999. Announcing the arrest, Macao Chief Executive Mr Edmund 
Ho said that there was evidence that Ao was involved in corruption and has abused his power 
for  personal  gains.  Ao  had  been  in  charge  of  the  Macao  government's  infrastructure,  land 
disposal,  transport  and  environment  projects  since  the  handover  in  1999.  The  lack  of 
transparency  in  Macao's  land  disposal  system  and  public  works  contracts  placement 
mechanisms have widely been criticised in the press. 

The  aforementioned  issues  raise  some  concern  regarding  their  overall  impact  on  Macao’s 
socio-economic  tissue.  The  Commission  hopes  that  the  SAR  Government  will  take  all  the 
appropriate measures to tackle these pertinent problems. 

On the external front Macao continued to play a role as a platform for China's international 
relations  with  Portugal  and  the  Lusophone  world  through  mechanisms  managed  in  co-
operation  with  the  People's  Republic  of  China  Central  Government.  In  September  Macao 
hosted  the  second  Ministerial  Conference  of  the  China  and  Portuguese-speaking  Countries 
Economic Cooperation Forum. Macao also hosted the Lusophone Games in October 2006. 

2. 

Economic developments 

In 2006 Macao was one of the fastest growing economies in the world. GDP leapt by 16.6% 
in real terms in 2006, following a moderate increase of 6.9% in 2005. The growth was driven 
by  gambling  revenues,  an  investment  and  construction  boom,  strong  consumption,  and 
buoyant  exports  of  goods  and  services.  Economic  expansion  gathered  pace  with  the 
construction  and  opening  of  new  casinos,  other  gaming-related  facilities  and  hotel  and 
residential property developments. Visitor arrivals have continued to reach new record highs 
year  after  year  since  the  2002  liberalisation  of  the  gaming  regime  and  mainland  China's 
liberalisation and extension of Mainland Visitor schemes. It is estimated that around 500.000 
visitors arrive in Macao per week, which equals Macao’s total population. By the end of 2006 
the unemployment rate fell to the lowest level (3.5%) since the handover, while inflationary 
pressure  became  increasingly  acute  -  especially  in  the  property-related  items.  Per  capita 
income  in  Macao  reportedly  surpassed  that  in  Hong  Kong  for  the  first  time  in  2006.  The 
Macao SAR however is characterised by a steep and widening inequality of incomes. 

In 2006 Macao's total gaming revenue surpassed that of Las Vegas, making Macao the largest 
gaming market in the world. Macao is taking initiatives to diversify into non-casino business 
such  as  conventions  and  exhibitions,  resort-type  vacation  business,  sports  and  cultural 

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tourism. However the huge growth in casino revenues means that it has continued to account 
for an increasing proportion of the economy.  

The private sector took on a number of property development projects during the year. Total 
hotel  rooms  are  expected  to  triple  upon  realisation  of  these  projects  in  the  next  few  years. 
More new casinos are coming on stream, expanding the gaming facilities and capacity. There 
is, however, a concern of possible oversupply in the future. Merchandise exports recovered in 
2006  from  the  sharp  fall  in  2005  when  global  textile  quotas  were  lifted.  Domestic  exports, 
comprising  mainly  the  formerly  restricted  textile  and  garment  items,  surged  by  more  than 
50% in the first half of 2006.Imports continued to increase along with robust investment and 
consumption, resulting in an enlarged merchandise trade deficit. Manufacturing accounted for 
only 5% of Macao's GDP in 2006. 

Fiscal revenue continued to record very high growth from substantial increases in gambling 
tax  revenues.  The  large  and  growing  fiscal  surplus  position  allowed  the  Macao  SAR 
Government to invest in long term programmes for economic, infrastructural and educational 
development. Major long term projects include the light rail rapid mass transit system, urban 
re-development  and  land  reclamations.  As a result of the strong economy the labour supply 
became  very  tight  –  especially  as  regards  skilled  construction  and  service  sector  workers. 
During 2006, labour import increased significantly by over 60% to more than 50,000 workers. 
Most of the imported workers are employed in the construction, services, and gaming sectors. 
The main sources of imported labour are Mainland China, and more recently Hong Kong. The 
unemployment  rate  continues  to  decline  to  the  very  low  level  (3.5  %  in  the  last  quarter  of 
2006).  

Signs are that the coming years will see the Macao economy and government facing increased 
challenges to achieve sustainable development; to cope with the rising costs and externalities 
(environmental,  congestion,  social  differences)  from  the  booming  economy;  to  expand  its 
capacity in terms of infrastructure and manpower to meet demand; and to widen the narrow-
base of the economy to a more diversified one. 

3. 

Trade and Sectoral Issues 

Intellectual Property Rights. While recognising the continued efforts of Macao in upgrading 
its legislative framework and enforcement structure for the protection of intellectual property 
rights,  the  European  Commission  remains  concerned  about  IPR  infringements  in  some 
sectors. Most notable case is the one of antenna companies that have been providing for years 
pirated  TV  signals  of  European  and  American  programmes  and  infringing  the  rights  of  the 
litigation, 
licensed  broadcasting  company,  Macau  Cable  TV.  Following  prolonged 
government intervention and repeated diplomatic efforts by the EU and host countries of right 
holders,  the  IPR  dispute  has  probably  come  to  a  possible  solution  with  the  acquisition  of 
Macau  Cable  TV  by  a  Macao  antenna  company.  The  Commission  hopes  that  the  new 
ownership structure will lead to a remedy of the previous IPR abuses of broadcasting content, 
and will continue to monitor the situation. 

Anti-money  laundering.  The  European  Commission  welcomes  Macao's  efforts  in  enhancing 
its legal framework on anti-money laundering and anti-terrorism. Legislation on anti-money 
laundering and anti-terrorism were enacted in April 2006. The Financial Intelligence Office, a 
new  government  office  dedicated  to  anti-money  laundering  and  anti-terrorist  financing,  was 
set up during the year to strengthen surveillance. Given the huge and burgeoning volumes of 

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cash  passing  through  Macao's  casinos,  the  matter  will  continue  to  need  attention  from  the 
Macao authorities. 

Banco  Delta  Asia.  In  2006  the  Macao  Government  continued  its  "administrative" 
management of Banco Delta Asia, which had been accused of money laundering on behalf of 
DPRK/North  Korea  by  the  US  Treasury  department  in  2005.  The  Macao  government  has 
reportedly  continued  to  be  in  close  and  co-operative  relations  with  its  key  international 
partners  in  this  regard  -  especially  the  USA  and  mainland  China  -  on  this  matter  of 
international importance.  

The EU Savings Taxation Directive. In 2006, the Commission expressed its interest in starting 
exploratory talks with the Macao SAR Government with a view to promoting the introduction 
of measures equivalent to the EC Directive on taxation of savings. In line with its stated tax 
policy  of  promoting  internationally  accepted  good  governance  principles  as  widely  as 
possible,  the  Commission  proposes  to  work  with  Macao  to  improve  transparency  and  the 
exchange  of  information,  strengthening  enforcement  measures  to  prevent  the  avoidance  or 
evasion  of  taxes,  and  in  particular  promoting  application  of  measures  equivalent  to  those 
applied within the EU on taxation of income from savings. The Commission would welcome 
the SAR Government’s formal agreement to working-level exploratory dialogue on this issue. 

The Closer Economic Partnership Arrangement (CEPA) between Mainland China and Macao 
entered its fourth phase in 2006. Under the Supplement III to CEPA (CEPA IV), which was 
signed  in  June  2006,  13  new  liberalisation  measures  in  trade  in  services  were  introduced, 
opening up altogether 26 service sectors for Macao businesses in Mainland China. For trade 
and investment facilitation, new cooperation areas were introduced, including IPR, exhibition 
services and Chinese medicine. All measures became effective on 1 January 2007. 

Environment.  The  priority  the  EU  attaches  to  addressing  climate  change,  air  and  water 
pollution  is  well  known.  The  Commission  believes  that  international  cross-border  co-
operation in this regard is essential and to global benefit. The Commission stands ready to co-
operate  with  Macao  to  assist  and  encourage  the  implementation  of  such  measures,  and  to 
explore scope for trilateral co-operation with mainland China as appropriate. 

4. 

EU-Macao relations and co-operation 

On  26th  October  2006  to  map  out  its  proposals  for  future  EU-Macao  relations,  the 
Commission  adopted  a  Communication  entitled  "The  European  Union,  Hong  Kong  and 
Macao:  possibilities  for  cooperation  2007-2013"3,  which  was  endorsed  by  Council 
Conclusions  on  12th  December.  The  Communication  identified  key  sectors  for  moving 
forward  cooperation: 
links  (including 
academia);  transport;  the  environment;  health;  and  food  safety.  It  also  proposed  that  there 
should be continued dialogue between the Commission and the Macao SAR on matters under 
their respective competences. 

trade  and  customs;  finance;  people-to-people 

On  21st  December  2006  the  Council  adopted  a  financing  instrument  for  co-operation  with 
industrialized countries and other high income countries and territories, including Macao. The 

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"The  European  Union,  Hong  Kong  and  Macao:  possibilities  for  co-operation  2007-2013". 
Communication  from  the  Commission  to  the  Council  and  the  European  Parliament.  COM(2006)  648 
final of 26.10.2006. 

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Commission will discuss and agree with Macao the elements of a co-operation programme, to 
be funded by this instrument, which should begin in late 2007. 

On  19th  June  2006  President  Barroso  received  Macao  Chief  Executive  Edmund  Ho  in 
Brussels.  The  two  leaders  agreed  that  Macao  and  the  European  Union  should  continue  to 
develop,  broaden  and  deepen  cooperation  in  areas  of  common  interest.  They  agreed  to 
maintain close contacts at all levels and ensure relations develop positively, recognising and 
responding  to  any  challenges  and  opportunities  quickly  and  effectively.  Macao  Chief 
Executive Edmund HO also met with leaders of the European Parliament in Brussels. 

EU-Macao co-operation in the fields of customs co-operation,  in interpretation  co-operation 
and  training  continued  in  2006.  An  EU  financing  under  the  AENEAS  programme  –  for 
MIGRAMACAU  -  was  approved  for  the  training  of  Macao  immigration  officers.  The  EC-
Macao Readmission Committee met in January 2006 and reviewed implementation of the EC-
Macao Readmission Agreement and other ongoing immigration co-operation. 

The  European  Commission  has  observed  that  the  traditionally  well  established  presence  of 
EU companies in Macao has been fading; the European Commission hopes that level playing 
field would be respected for all stakeholders that are seeking business opportunities within the 
Macao SAR. 

The  European  Commission  Office  accredited  to  Macao  (based  in  Hong  Kong)  continued  to 
maintain extensive relations and regular visits and contacts with Macao. Throughout the year, 
it undertook an active and expanded information and public diplomacy programme projecting 
through Macao media and society the EU's values and policies in the economic, regulatory, 
social, educational and cultural spheres. The Commission also renewed its contract with the 
University of Macao which provides an EU i – European Information Centre.  

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