MACAU

COUNTRY OVERVIEW

LOCATION AND SIZE.

Macau is located in Southeast Asia, approximately 60 kilometers (37 miles) southwest of Hong Kong, bordering China. Made up of Macau city and the islands of Taipa and Coloane, Macau has a land area of 21 square kilometers (8.3 square miles). Comparatively, the territory of Macau is 4 times smaller than the Manhattan area of New York City. Macau is joined to the Chinese province of Guangdong by a narrow land corridor. Because of land reclamation efforts, Macau has enlarged its territory by 50 percent since 1912.

POPULATION.

The population of Macau, which is virtually all urban-based, was estimated at 445,594 in July 2000. In 2000, the birth rate stood at 12.54 per 1,000 and this low level is mainly attributed to the effect of urbanization. The death rate stood at 3.64 per 1,000. The estimated population growth rate is 1.83 percent, although unofficial estimates show higher figures due to a high net migration rate, which has been estimated at 9.41 migrants per 1,000. Macau has one of the highest population densities in the world, standing at a level of around 21,218 people per square kilometer (or 54,954 per square mile).

The Macau population represents 2 major ethnic groups, with ethnic Chinese making up almost 95 percent of the population, and Macanese (mixed Portuguese and Asian ancestry) and other ethnic groups making up the remaining 5 percent. Around 100,000 inhabitants of Macau hold Portuguese passports that give them the right to settle in Portugal. Approximately 23 percent of the population is below the age of 15, and just 8 percent of the population is older than 65. The current ethnic structure was formed in the 19th century and remains practically unchanged. Buddhism is the primary religion, with 50 percent of the population practicing; Roman Catholicism follows with 15 percent, and the remainder is made up of numerous other faiths.

The government is keen to limit the inflow of illegal immigrants from China. Between 20 and 25 illegal immigrants are deported daily, although foreigners may legally buy residential permits for US$250,000. New chronic diseases such as AIDS are also of great concern to the Macau government, since the country is a busy tourist destination.

OVERVIEW OF ECONOMY

Manufacturing and services are the 2 main pillars of the modern Macau economy. Macau, like Hong Kong and Singapore, has an export-oriented economy, which benefits from growing trade with Western Europe and the United States. Throughout the 20th century, Macau specialized in manufacturing for the export market and servicing international merchants and bankers.

Macau was established as a Portuguese colony in 1557, becoming one of the most important trade distribution centers in the region for the next 3 centuries. Its significance as a trading center rose as the Chinese government maintained a policy of voluntary isolation from the world, allowing international trade only in few assigned ports. Portugal proclaimed Macau a free port (such ports were set up in Asia by the European colonial powers in the 19th century in an effort to promote international trade with a minimum of tariffs and other barriers) in 1849. However, in the 19th century Macau's importance declined with the rise of the British colony in Hong Kong.

The Macau administration has maintained a free-market economy, which in combination with the entrepreneurial skills of the local population and the region's political stability, has contributed to growth of wealth and prosperity. Macau's main exports are textiles, clothing, and services, though it lags behind Hong Kong and Singapore in the proportion of value-added production.

Tourism also plays a significant role in Macau's economy. However, it has been the gambling industry that has contributed so much to the image of Macau as a tourist destination. The gambling industry also has attracted organized criminal syndicates, called "triads," which are involved in gambling, illegal people trafficking, prostitution, and pirated production of various goods, including music and computer CDs. During the 1990s, the government made considerable efforts to restrain and eliminate the power of these criminal groups.

The territory depends heavily on imports of foodstuffs and raw materials from neighboring China because it has no agriculture, due to its very small size. Nonetheless, it maintains a relatively high standard of living due to its sound infrastructure, promotion of economic balance, low inflation, stable currency, and foreign trade surplus.

POLITICS, GOVERNMENT, AND TAXATION

Throughout the 20th century, Macau remained a remote outpost of the Portuguese colonial empire. The situation changed, however, after the 1974 revolution in Portugal. The new democratic Portuguese government offered Macau back to China, although it took more than a decade before Portugal and China formally agreed on the future of Macau in 1987. This agreement was very similar to the one struck between the British government and China on the future of Hong Kong. On 20 December 1999, the administration of the territory was formally handed over to China. Macau became a Special Administrative Region (SAR) of the People's Republic of China with a "high degree of autonomy" (self-government) in domestic affairs for a period of 50 years under the principle of "one country, two systems." In 1999, Edmund Ho Hau-Wah became the first governor appointed by China's central government, replacing General de Rocha Vieira, the last Portuguese governor of the territory. According to the Macau's Basic Law (the territory's constitution), the governor has strong policy-making and executive powers, which are limited only by the central government in Beijing and by the Macau legislature. The Legislative Assembly is comprised of 8 directly elected members, 8 indirectly elected members, and 7 members appointed by the governor, totaling 23 members. After establishing its control over Macau, Beijing stationed its army on the territory. However, the military does not play any active role in Macau's economic development.

The Macau authorities traditionally did not attempt to establish control over the territory's economy and, unlike the communist Chinese, they always supported free-market institutions. Nevertheless, since the early 1980s, the Macau government has begun to adopt a more active role in the economic development, encouraging economic variety, promoting large infrastructure projects, and introducing attractive fiscal initiatives for local and foreign investors.

In order to compete with neighboring Hong Kong, Macau established very low direct taxes and abolished currency exchange controls. The property tax ranges up to 15 percent and the wage tax up to 10 percent; this is a very low rate compared to countries in Europe or North America. There are also profit and business taxes on industrial enterprises. Nevertheless, the web of various fiscal initiatives reduces business and other taxes considerably. Imports are free of duty, but they are subject to a consumption tax. The main source of revenue in Macau is taxes on gambling, accounting for 44 percent of total revenue (1999). The pataca, the Macau currency, is pegged to the Hong Kong dollar at the rate of 1.03 patacas per Hong Kong dollar. Unlike South Korea, Thailand, or Indonesia, the pataca remained stable despite the Asian financial crisis in 1997 and the Russian foreign debt default in 1998.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Macau's infrastructure and well-developed transportation network were established mainly during the colonial era. Visitors can reach Macau by ferry, hydro-foils, or helicopters from Hong Kong, or by cars or buses from China. The territory's international profile was boosted by opening the US__BODY__ billion international airport built on reclaimed land on Taipa island. It is capable of carrying 6 million passengers and 180,000 metric tons of cargo per year. Macau was eclipsed long ago by Hong Kong as the area's leading port, because its surrounding waters were not deep enough for large ocean cargo vessels. Nevertheless, the Macau authorities made considerable efforts to develop its seaport as an alternative to Hong Kong, and Macau's port is currently able to handle container cargo vessels and oil tankers. In 1993, a new ferry terminal capable of carrying 30 million passengers a year was opened.

Macau is served by a network of 50 kilometers (31 miles) of highways, all of them paved. In the 1990s, there was a steep increase in private car ownership, leading to traffic congestion and rising air pollution. In 1999, there was a total of 55,144 registered motor vehicles or 123 cars per 1,000 inhabitants, an increase of almost 30 percent from the 40,600 cars in 1995.

Macau is totally reliant on imports of mineral fuel for domestic consumption, and these imports accounted for almost 6 percent of merchandise imports in 1999. This makes Macau particularly vulnerable to world oil prices. Electrical power plants, which use imported fossil fuel, have a total capacity of 351.6 megawatts (mw). In 1999 electricity net supply stood at 1.53 billion kilowatt hours (kWh) and imports stood at 194.4 million kWh.

Macau had 70,403 new telephone lines installed in 1999, bringing the number of telephones up to 300,000, or 686 telephones per 1,000 people. The number of mobile cellular telephones was growing rapidly, reaching 55,000 in 1998. Macau has only 2 radio stations—both FM—and no television stations, receiving their television signals from Hong Kong. Macau's Internet service was to be opened to applicants in October 2000, having formerly been a monopoly owned by Macau Telecom.

ECONOMIC SECTORS

Macau has the advantage of being an entry point to the huge China market, although its economic development has been held back by its small territory, small population,

and extremely limited natural resources, as well as competition from neighboring Hong Kong. The policy of encouraging private entrepreneurship, giving priority to the development of export-oriented sectors and capital intensive industries—combined with a relatively cheap labor force —has contributed to the rise of Macau's prosperity. By 2000, manufacturing (textiles, clothing, toys, and electronics), gambling, and tourism became the largest sectors of Macau's economy.

The 1997 Asian financial crisis contributed to the slowing of economic growth in all sectors of the economy, although Macau managed to avoid an economic decline on the scale of Indonesia or Thailand. The crisis also indicated the need for a further broadening of the economy. Throughout the 1990s, the Macau government struggled to attract value-added manufacturing on the same scale as Hong Kong or Singapore, especially in such important sectors as computer hardware and information technologies (IT). Due to the small size of Macau's market, it lags behind neighboring Hong Kong in providing business and banking services. Macau tries to compete with Hong Kong by offering good infrastructure, cheaper business property rent and labor, and efficient administrative services.

AGRICULTURE

Agriculture and fishing play a negligible role in Macau's economy, accounting for just 1 percent of the GDP and employing less than 1 percent of the workforce. For a long time, Macau has been fully reliant on imports of foodstuffs, mainly from neighboring China. The territory has a very small fishing industry, consisting of a small fishing fleet, which supplies local restaurants and the fish market with fresh catch. There is a small land area under cultivation mainly for fresh vegetables. A very small livestock industry supplies chickens and ducks to the restaurants specializing in traditional Asian cuisine.

INDUSTRY

MANUFACTURING.

Macau has a well-established manufacturing sector that plays an important economic role. Manufacturing contributes 40 percent of the GDP, providing employment to 87,141 people or 31 percent of the workforce (1998). In the 1960s and 1970s, Macau attracted investment and technologies to its manufacturing industry (mainly textiles, clothing, toys, and electronics) through low cost and efficiency, producing a range of exports to Europe and the United States. However, Macau fell behind Hong Kong and Singapore in attracting electronic assembling and computer technologies in the 1980s and 1990s. Since the early 1990s, however, the manufacturing sector's share in the GDP has been steadily declining because of strong competition from China's Special Economic zone of Zhuhai. The manufacturing sector is dominated by small- and medium-size enterprises, which specialize in small-volume and high-quality garments, toys, leather goods, and artificial flowers. It also produces optical goods, electronics, and machinery.

Manufacturing was negatively affected by the 1997 Asian financial crisis. However, Macau escaped a large-scale recession because the local business community switched quickly between markets and products, and because most of the goods were produced by small private enterprises for export to the United States, Europe, and East Asia. Macau benefited from the existence of U.S.-imposed quotas for goods made in China. Such restrictions can provide an initiative for re-export of goods manufactured in China and labeled as Macau-made products. During recent years, Macau reportedly became heavily involved in producing pirated computer software, CDROMs, and DVDs, which have been distributed in Southeast Asia, Eastern Europe, and even in the United States.

SERVICES

TOURISM.

Tourism is the most important sector of Macau economy, providing direct employment (such as in hotels and restaurants) for 28 percent of the labor force or 78,708 people. Macau has long been a tourist destination for business people and other travelers due to its famous gambling facilities. Macau promotes itself as a "dream come true," offering 24-hour gambling services, a multicultural environment, exotic festivals, and tax-free shopping (most items are 50 percent cheaper than in Hong Kong). According to the national authorities, Macau had a total room capacity of 8,886 in 1999, although most of the hotels report an occupancy rate below 60 percent. Most visitors come for a short stay, arriving from Hong Kong, China, Taiwan, and Japan. The number of tourists visiting the territory rose steadily throughout the 1980s and 1990s, reaching a peak in 1996 with 8.1 million tourists. There was, however, a sharp decline of around 15 percent in 1997 and a further 3 percent in 1998, because of economic turmoil in the region and the outbreak of gangster-style killings and bombings on Macau's streets. In 1999 and 2000, tourism was helped by the economic recovery in Hong Kong and Taiwan.

GAMBLING.

Gambling, together with tourism, is one of the most important sectors of Macau's economy. Macau's casinos and its facilities for horse and greyhound racing have attracted visitors to the region for decades. The government has benefited from the gambling industry by imposing direct taxes, which accounted for 44 percent of its revenue in 1999. However, the dark side of the industry is gambling addiction and criminal activities. In fact, the outbreak of violence in hotels, restaurants, and casinos in 1997 and 1998 was largely attributed to feuds between powerful organized crime syndicates.

FINANCIAL SERVICES.

Macau has a small but vibrant financial services sector, which provided employment for 8 percent of the labor force, or 22,488 people, in 1999. It is built around banking, insurance, and business services. The banking sector was opened for international competition in 1992, and there were 9 local and 13 foreign incorporated banks in 1998. The largest banks are Banco Comercial Portugues and Bank of China. The 1997 Asian financial crisis hurt the financial services sector, although there were no major bank collapses or bankruptcies.

RETAIL.

The retail sector is well-established in Macau, providing inexpensive products to the local population and foreign tourists. Large supermarkets are complemented by thousands of small retail shops where tourists and local consumers can buy a wide variety of duty-free products much cheaper than in Hong Kong. Thousands of small- and medium-size restaurants serve exotic Asian cuisine, attracting gourmands (sophisticated diners) from across the region.

INTERNATIONAL TRADE

Macau was declared a "free port" in 1849, establishing very few barriers against the import of goods and services and promoting export to the international market. Historically, the United States has remained one of Macau's major trading partners, with exports to the United States reaching US__BODY__ billion dollars in 1999 or 46.9 percent of all exports, consisting mainly of textiles, garments, and manufactured electronics. The European Union is the second-largest trading export market, accounting for US$663 million or 30.2 percent of total exports. China and Hong Kong were also important destinations for Macau exports, accounting for 9.2 percent and 6.8 percent of exports, respectively.

Imports originating from China accounted for US$725 million, or 35.6 percent of its total imports in 1999, so Macau was running a considerable trade deficit with this country. Hong Kong was the second largest source of import accounting for US$368 million or 18.1 percent of total imports. The European Union, Japan, and the United States were other major sources of imports.

Macau's economic vulnerabilities were exposed during the sharp oil price increases in 2000 and 2001. It also faces increasing competition from low-cost, mass-production enterprises in neighboring China and is vulnerable to changes in the U.S. and EU markets.

MONEY

Macau's currency, the pataca, is pegged to the Hong Kong dollar and remains stable. The territory managed to avoid high inflation or economic recession during last

2 decades, although the Asian financial crisis of 1997 did hurt its economy. There was an economic slow-down in 1997 and 1998, affecting all sectors and bringing a small rise in inflation. However, in 1999 and 2000 the economy overcame these difficulties and began to grow again. One of the unique features of Macau's economy was that in 1998 it experienced deflation of 4 percent.

Due to the regional economic downturn, the value of the Macau patacas declined slightly against the U.S. dollar from 7.962 in 1996 to 8.1 in January 2000.

POVERTY AND WEALTH

Macau has no official poverty line, so the number of citizens living at that level is difficult to determine. Also, many foreign workers illegally enter Macau looking for jobs, and these individuals cannot be accounted for in official statistics. Their presence in Macau ebbs and flows, as the government fights a continuing battle to deport illegal entrants into the region.

Macau's gap between poor and rich is wide. Macau's per capita GDP was listed in 2000 at US$17,500, placing it 37th in the world. While impressive considering Macau's small size, such wealth does not get equally passed among all strata of society. Gambling, which provides

more than 40 percent of Macau's income, benefits the poor very little.

WORKING CONDITIONS

In 1998, Macau's labor force stood at 281,117 people, with an unemployment rate of around 6.9 percent. Macau's economy experienced 2 difficult years in 1997 and 1998, when the unemployment rate was on the rise. However, since the beginning of the economic recovery in 1999 and 2000, there has been some improvement in the labor market. Wages are generally below those in neighboring Hong Kong, but much higher than in China, although there is no regulation of minimum wages or unemployment compensations.

The Macau government encourages women to work, and women made up around 40 percent of the workforce in 1999. In 1984 child labor was banned in Macau, but the law has never been strongly enforced.

Trade unions are allowed in Macau, within the framework of its labor law and other regulations. Labor actions, such as strikes, slow downs, and other protests, are very rare in Macau.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1513. First Portuguese ship anchors in the Pearl River estuary.

1557. Portuguese establish a trading post on the islands.

1849. Portugal proclaims Macau a free port.

1949. Communist party comes to power in China.

1951. Portugal officially makes Macau an overseas province.

1974. A military coup takes place in Portugal. The new democratic Portuguese government offers to return Macau to China.

1979. Portugal and China establish diplomatic relations.

1987. Portugal and China reach a formal agreement on future status of Macau.

1989. People demonstrate in Macau in support of the pro-democracy demonstrations in Beijing.

1989. Chinese language is made an official language along with Portuguese.

1992. A new banking ordinance is introduced, opening the banking sector for international competition.

1997. Outbreak of contract killings and bombings indicate the beginning of the war between organized criminal groups.

1999. Macau officially returns to Chinese jurisdiction.

FUTURE TRENDS

Macau has experienced 2 decades of economic growth, benefiting from the rise of international trade and the dismantling of barriers to free movement of goods and services in the global market. This has elevated standards of living and brought prosperity to Macau's people. However, globalization also made the territory's economy vulnerable to downturns in the international market and to increasing competition from other Asian economies. Still, Macau has been able to find its economic niche in services and manufacturing.

On the eve of the 21st century, the territory was finally returned to Chinese sovereignty, but was given a high degree of economic autonomy. In the longer term, Macau will depend on economic and political developments in China and Hong Kong. Future economic development depends fully on the capability of the government to maintain the country's economic position and to promote economic growth based on capital-and skill-intensive technologies.

DEPENDENCIES

Macau has no territories or colonies.

BIBLIOGRAPHY

Economist Intelligence Unit. Country Report: Macau. London: Economist Intelligence Unit, December 2000.

International Financial Statistics Yearbook, 1999. Washington, DC: International Monetary Fund, 2000.

Macau Economic Services. <http://www.economia.gov.mo>.Accessed February 2001.

Macau Statistics and Census Service. <http://www.dsec.gov.mo>.Accessed February 2001.

Macau Statistics and Census Service, Macau. Yearbook of Statistics. Macau Special Administrative Region, People's Republic of China: DSEC, 1995.

Macau Trade and Investment Promotion Institute. <http://www.ipim.gov.mo/pageen/home.asp>. Accessed February 2001.

Monetary Authority of Macau. <http://www.amcm.gov.mo>.Accessed February 2001.

Porter, Jonathan. Macau, The Imaginary City: Culture and Society, 1557 to the Present. New Perspectives in Asian Studies. Boulder, Colorado: Westview Press, 2000.

U.S. Central Intelligence Agency. World Factbook 2000: Macau. <http://www.cia.gov/cia/publications/factbook/geos/mc.html>. Accessed February 2001.

—Rafis Abazov

CAPITAL:

Macau.

MONETARY UNIT:

Pataca (MOP). One Macau pataca equals 100 avos. Coins include denominations of 1, 5, 10, 20 and 50 avos, as well as MOP1 and MOP5. Paper currency comes in denominations of MOP5, 10, 50, 100, and 500.

CHIEF EXPORTS:

Textiles, clothing, toys, electronics, cement, footwear, machinery.

CHIEF IMPORTS:

Raw materials, foodstuffs, capital goods, mineral fuel, consumer goods.

GROSS DOMESTIC PRODUCT:

US$7.65 billion (1999 est).

BALANCE OF TRADE:

Exports: US__BODY__.7 billion (1999 est.). Imports: US__BODY__.5 billion (1999 est.).