Report from the Commission to the Council and the European Parliament - Macao Special Administrative Region : Annual Report 2008
Date: 2009-02-26
Institutions: European Commission
Subjects: EU relations, Macao, activity report, cooperation policy, economic policy, economic situation, political situation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 26.2.2009 
COM(2009) 85 final 

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

Macao Special Administrative Region : Annual Report 2008 

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REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

Macao Special Administrative Region : Annual Report 2008 

Executive Summary 

Nine years after the handover, implementation of the “one country/two systems” concept for 
Macao continues to be satisfactory, upholding its unique society, way of life, rule of law and 
fundamental freedoms. In 2008, co-operation with the EU, fostered by a pragmatic approach 
on  both  sides,  continued  to  deepen  .It  will  be  further  enhanced  by  the  EU  Business 
Information  Program.  The  remarkable  revival  of  Macao’s  economy  since  2002  which  owed 
much to the liberalization and resulting boom in the casino sector and a privileged access to 
the  mainland’s  markets  is  now  in  jeopardy  because  of  the  global  financial  crisis.  The 
government  of  the  Macao  SAR  is  well  aware  of  the  challenges  it  faces  in  the  social, 
environmental  and  administrative  sectors.  These  challenges  shape  the  agenda  for  its 
involvement with its neighbours in the Pearl River Delta region as well as for its international 
links, in particular its cooperation with the EU . 

Introduction 

Nine  years  have  now  passed  since  Macao  became  a  Special  Administrative  Region  of  the 
People's  Republic  of  China.  The  Commission  made  a  commitment  in  1999  to  issue  annual 
reports  on  developments  in  the  Macao  Special  Administrative  Region  (SAR).  This  report 
covers the year 2008.  

The reunification of Macao with Mainland China is based on the “one country, two systems” 
principle  as  established  in  the  Basic  Law  of  Macao,  which  was  adopted  by  the  National 
People's Congress of the People's Republic of China in 1993. The Basic Law guarantees that 
Macao's previous system, its business environment, rule of law and protection of fundamental 
rights and freedoms will remain unchanged for 50 years. This principle has continued to work 
well in the Macao SAR. 

Political and economic developments 

2008 has been a difficult year for the Macao Special Administrative Region, despite the fact 
that  it  has  enjoyed  economic  growth  of  more  than  20%  on  average  over  the  last  five  years, 
after the liberalisation of the gaming regime. The casino-driven economic boom in Macao has 
made it one of the richest places in Asia. For 2007, GDP per capita (US$ 36.357) was more 
than double that of 2003 (US$ 17.805). 

Macao's  economy  grew  by  33%  in  the  first  quarter  of  the  2008,  based  on  strong  gaming 
revenues, accounting for about two-thirds of GDP. However, growth slowed to 22% and 11% 
in  the  following  two  quarters  respectively.  Investment  in  construction  and  machinery  also 
dropped  particularly  following  the  gradual  completion  of  large-scale  construction  projects. 
Exports of goods continued to decline due to the shrinking textiles trade which still accounts 
for about 60% of Macao's total exports. 

Macao’s economy reached full employment as a result of the jobs generated by the gaming 
sector (the unemployment rate was 3.1% in the third quarter of 2008). But its strong economic 
growth  has  put  pressure  on  its  labour  market  particularly  in  skilled  categories.  This  has 
prompted  businesses  to  look  abroad  to  meet  their  staffing  needs  and  has  also  resulted  in  an 
influx  of  non-resident  workers.  Inflation  remained  very  high,  around  8-9%  for  most  of  the 

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year. Property prices and rental costs rose much faster than salaries. Maintaining stable prices 
has  become  a  challenge  for  the  Macao  SAR  Government  which  introduced  allowances  and 
social programmes, including reforms in health and education, to ease the burden on lower-
income groups.  

Macao’s  casino  industry  has  entered  into  a  phase  of  adjustment  after  a  period  of  rapid 
expansion.  In  April  2008,  Macao's  Chief  Executive  Edmund  Ho  announced  a  freeze  on 
gaming  licences  and  new  land  resources  for  casino  development.  The  number  of  gaming 
licences in Macao now remains capped at six and Ho has stated that this restriction will be in 
place  for  "a  long  period  of  time".  To  lessen  the  intensity  of  competition  among  casino 
operators,  the  Macao  Government  legislated  in  August  on  capping  commission  levels  for 
junket operators, who bring most of the VIP business, (estimated to account for about 70% of 
the total gaming revenue).  

China continues to have a strong influence on Macao's economic development, as the Special 
Administrative Region relies heavily on Mainland Chinese tourists to support its gaming and 
tourism  industries,  the  pillars  of  Macao's  economy.  But  Beijing's  concerns  about  Macao's 
rapid  growth  prompted  the  Central  Government  to  gradually  tighten,  in  June  and  again  in 
September 2008, restrictions on visa issuance to Mainland residents to visit Macao. 

The global financial crisis has affected the financing of new casinos and hotel developments 
in Macao. Some of Macao's biggest casino developers have suspended their new projects or 
delayed their investment plans because of financing difficulties. This has caused thousands of 
workers to lose their jobs, and is having an immediate impact on Macao's economy. 

Macao is therefore trying to diversify its economy from the gaming industry to conventions 
and  exhibition-related  activities.  In  order  to  help  out  the  tourism  and  catering  sectors,  the 
Macao SAR Government abolished in August its consumption tax on wine and all alcoholic 
beverages. It also scrapped duties on fuel to alleviate inflationary pressure from energy prices.  

Macao and Mainland China signed a framework agreement known as the "Closer Economic 
Partnership  Arrangement"  in  2003  (CEPA),  which  is  similar  to  the  arrangement  between 
Hong Kong and Mainland China. Since its implementation in 2004 up until June 2008, 346 
Macao service-sector companies have benefited from the CEPA. The logistics and transport 
sectors made the most use out of this arrangement, followed by the convention and exhibition, 
management  consulting,  construction  and  distribution  services  sectors.  But  the  scope  of  the 
advantage for companies involved in the trading of goods has been limited. 

Macao continues to play an important role as the platform for China's international relations 
with Portugal and the Portuguese-speaking world. In this context one notes a renewed interest 
in  the  language  and  legacy  of  Portugal.  China’s  stronger  links  with  Brazil  and  Portuguese 
speaking countries in Africa are a contributing factor.  

There  is  also  an  increase  in  the  number  of  students  from  Mainland  China  attending  higher 
education institutions of Macao.  

In  his  annual  policy  address  delivered  on  11  November  2008,  Chief  Executive  Edmund  Ho 
made clear that his priority for 2009 is to ensure Macao's economic stability amid the global 
financial  crisis.  He  announced  a  MOP10.2  billion  (€1  billion)  invest ment  plan  in  public 
infrastructure  works,  including  improvements  at  heritage  sites  and  public  housing.  He  also 
offered  a  series  of  incentives  to  help  residents  and  small  and  medium-sized  enterprises, 
including subsidies for new homes and household bills, salary tax breaks and cash handouts of 
up to MOP 5,000 (approx €500) to residents.  

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On  22  October  2008,  Chief  Executive  Edmund  Ho  presented  his  plan  to  enact  national 
security laws in accordance with Article 23 of the Basic Law. Article 23 requires the Macao 
SAR to enact laws on its own to “prohibit any act of treason, secession, sedition, subversion 
against  the  Central  People's  Government,  or  theft  of  secrets,  to  prohibit  foreign  political 
organisations  or  bodies  from  conducting  political  activities  in  the  Region,  and  to  prohibit 
political  organisations  or  bodies  in  the  region  from  establishing  ties  with  foreign  political 
establishments  or  bodies.”  Chief  Executive  Edmund  Ho  launched  a  40-day  public 
consultation period of 40 days on the national security bill lasting until 30 November 2008, 
with a view to securing its approval by the Legislative Assembly before his term ends on 19 
December  2009.  The  national  security  bill  covers  seven  offences,  such  as  acts  of  treason, 
secession,  sedition  and  subversion  against  the  Central  Government,  and  the  theft  of  state 
secrets. The European Commission strongly hopes that the fundamental rights and freedoms 
enshrined  in  the  Basic  Law  will  not  be  reduced  by  the  national  security  bill  now  going 
through the legislative procedure. 

The judiciary and law enforcement services in Macao continue to have a good track record. 
That  was  demonstrated  on  30  January  2008,  when  former  transport  and  public  works 
secretary Ao Man-long was found guilty of taking millions of MOP in bribes and abusing his 
power to help property developers win construction contracts. He was sentenced to 27 years 
in prison. The Chief Executive said the sentence was just and that "the court ruled according 
to the law". 

2008 also saw a number of protests, albeit on a much smaller scale than the May Day protest 
in  2007  which  turned  violent  after  demonstrators  clashed  with  police.  These  protests  were 
peaceful  and  called  for  the  Government  to  improve  people's  livelihoods  and  to  give  local 
residents priority with job opportunities, following an influx of non-Macao residents.  

EU – Macao cooperation 

Macao continues to be a significant partner for the EU. It has an important European heritage 
and  shares  similar  values  in  areas  such  as  the  economy,  the  environment,  education  and 
culture. The framework for developing EU-Macao relations is the Agreement for Trade and 
Cooperation signed in 1992 between the Commission and Macao. The 2008 Joint Committee 
meeting,  held  annually  under  this  framework  agreement,  has  been  postponed  to  February 
2009. 

EU-Macao bilateral trade in goods continued to decrease as a result of dwindling imports of 
clothing  from  Macao  following  the  phasing  out  of  the  Agreement  of  Textiles  and  Clothing 
Agreement.  For  the  first  nine  months  of  2008,  imports  from  Macao  fell  by  around  48%  to 
€190 million. EU exports to Macao also  declined by 10.2% to €131 million.  

The European Commission's Communication, "The EU, Hong Kong and Macao: possibilities 
for cooperation 2007-2013", remains the guiding policy framework for the EU’s cooperation 
activities with Macao. It sets a number of challenging objectives to move EU-Macao relations 
forward  by  deepening  and  broadening  cooperation  in  seven  key  areas:  trade  and  customs, 
finance, people to people links, transport, the environment, health and food safety. 

The implementation of the agreed policy and regulatory cooperation measures in these seven 
sectors has been boosted by the launch in 2008 of the "European Union Business Information 
Programme"  for  Hong  Kong  and  Macao  (EUBIP),  which  will  run  a  programme  of  content-
driven events until 2011. The EUBIP will serve as a vehicle to promote better understanding 
and share knowledge and best practices between Macao and the European Union with a range 
of bilateral cooperation activities in areas such as trade and investment, standards, intellectual 
property, the environment, transport and logistics, health, food and product safety. A call for 

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proposals was launched in August 2008 and the contract was awarded to a consortium led by 
the  European  Chamber  of  Commerce  in  Hong  Kong,  and  with  strong  Macao  participation, 
namely  the  Macao  Trade  and  Investment  Promotion  Institute  (IPIM),  and  the  Institute  of 
European  Studies  of  Macao.The  EUBIP  was  signed  in  Macao  in  December  2008  and  it  is 
expected to be fully operational in early 2009.  

The  environment  is  an  important  concern  for  the  Macao  SAR  Government  and  will  be  the 
focus  of  one  of  the  cooperation  activities  within  the  EUBIP.  The  Macao  authorities  are 
concentrating  their  efforts  on  tackling  problems  regarding  water  salinity,  promoting  energy 
efficiency  and  raising  public  awareness  of  environmental  protection.  In  addition,  Macao  is 
trying  to  enhance  its  role  as  a  platform  for  exchanges  on  environmental  issues  between  the 
Pan-Pearl  River  Delta  Region  and  the  EU.  The  Commission  noted  that  the  Macao  SAR 
Government  has  put  substantial  resources  into  leading  the  organisation  of  an  international 
environmental  cooperation  forum  and  exhibition  to  promote  international  awareness  of 
environmental  protection  and  society  development  in  Macao.  The  Macao  International 
Environmental  and  Cooperation  Forum  and  Exhibition  (MIECF)  took  place  in  April  2008, 
with the participation of the European Commission alongside Member States. A second forum 
is planned for 2009.  

EU-Macao  cooperation  has  progressed  in  a  number  of  sectors.  Macao  has  proposed  to  the 
Commission  that  the  EU-Macao  cooperation  programme  in  the  legal  field  enter  a  second 
phase,  following  the  successful  completion  of  the  first  phase  in  2007,  in  order  to  enhance 
public  administration,  legal  and  judicial  expertise.  Contacts  were  initiated  in  January  2008 
between  senior  Commission  officials  and  Macao's  Secretary  for  Finance,  Francis  Tam,  to 
explore possible means of cooperation in the area of taxation of savings. The Commission has 
also  contributed  to  the  EU's  joint  participation,  along  with  Member  States,  in  the  Macao 
International Fair (MIF) in October 2008 with a prominent EU pavilion. It has also supported 
the  Jean  Monnet  chair  at  the  University  of  Macao  by  participating  in  the  successful  Jean 
Monnet Conference held in May. 

Outlook for the future 

2009 will be an important year for the Macao SAR. It will be celebrating the tenth anniversary 
of the handover of Macao to the People's Republic of China.  

Elections to the Legislative Assembly and the Chief Executive elections are also scheduled in 
2009.  This  will  be  a  significant  step  in  Macao's  electoral  process.  The  issue  of  universal 
suffrage  is  not  a  controversial issue  in  Macao  (as  it  has  been  in  Hong  Kong).  Unlike  Hong 
Kong's Basic  law, the  Basic  Law  of Macao does not state that the introduction of  universal 
suffrage is the ultimate goal of constitutional development. However it does provide for the 
possibility  of  amending  the  method  of  selecting  the  Chief  Executive  and  members  of  the 
Legislative  Assembly.  In  February  2008,  the  Secretary  for  Administration  and  Justice, 
Florinda  Chan,  proposed  changes  to  Macao's  electoral  laws.  These  changes  focus  on 
optimising  voter  registration  procedures  and  combating  corruption.  There  was  no  mention 
either  of  universal  suffrage  or  of  increasing  the  number  of  directly-elected  seats  in  the 
Legislative  Assembly.  Chan  said  that  these  changes  will  help  facilitate  the  election  process 
and  emphasised  that  democratic  development  does  not  necessarily  mean  introducing  more 
elected  seats  in  the  legislature.  These  changes  are  in  line  with  statements  made  by  Chief 
Executive Ho in his annual policy address for 2008 (delivered in November 2007), where he 
stressed that it would be impossible to introduce direct elections in 2009 or immediately after 
2009. The Commission encourages the Macao SAR to introduce measures that would lead to 
a more representative electoral process. 

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Edmund Ho, the first and only Chief Executive of the Macao SAR since the handover, will be 
leaving office at the end of 2009. Before this, he will face a testing challenge in preserving 
Macao’s economic stability in a global financial crisis and maintaining Macao’s position as a 
tourist centre in Asia.  

Tackling  environmental  challenges  such  as  water  problems,  air  pollution  and  waste 
management, reinforcing the administrative and legal framework, increasing people-to-people 
exchanges and promoting Macau’s cultural heritage are areas in which EU cooperation with 
Macao could be extended in 2009. 

The  Commission  will  continue  to  monitor  closely  institutional,  economic  and  societal 
developments  in  Macao  and  support  the  implementation  of  the  "one  country  two  systems" 
principle. 

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