economy of Macau

8/7/2019 economy of Macau

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A Report on Economy of

Macau


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Abstract

This report deals with the economy of Macau. Firstly this report gives a brief idea about some

of the macroeconomic indicators of Macau and how they have varied over the years. Secondly,it gives some idea about the structure of economy of Macau. The report then gives some of the

recent and some past policies implemented by Macau government. Also the report deals in

brief about the WTO, IMF and its influence on Macaus economy. Finally the report gives some

of the future trends expected in Macaus economy and also some of the risks associated with

its economy.

Keywords: SAR, WTO, IMF, CEPA, Tourism, Gambling.


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Contents

Introduction to Macau .4

Macro-Economic Indicators6

Structure of Economy.9

Policies..11

WTO and Macau.20

Future Trends22

References..24


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Introduction to Macau

As a Chinese Territory under Portuguese Administration for more than 400 years, Macau,

which is comprised by the Macau Peninsula, Taipa Island and Coloane Island, is situated on the

western coast of the Pearl River in the southern part of China. In 1998, the enclaves annual

gross domestic product (GDP) was valued at MOP (Macau currency) 54.6 billion (USD6.8

billion), which was equivalent to about half of that of Beijing, the capital of the Peoples

Republic of China, but only four percent of the GDP of its neighbouring city, Hong Kong. Since

1994, Macau has been a high income economy under the World Banks classification. Its GDP

per capita was over MOP128, 100 (USD16, 055) in 1998, and ranked fourth in Asia, just behind

Japan, Hong Kong and Singapore.

On the 20th

of December 1999, the Peoples Republic of China resumed the exercise of its

sovereignty over the tiny enclave. Since then, Macau has become the second Special

Administrative Region (SAR) of China.

Macau has unique economic features and history, which provides a valuable real-world

reference for many economic studies. As one of the two SARs in China, Macau is allowed to

retain a different economic system from its sovereign power for fifty years. Under the

pioneering practice of the one country, two systems policy, Macau maintains its own

currency unit and independent public finance. In terms of land area, Macau is the second

smallest independent economy in the world, just behind Monaco. Manufacturing (textiles,

clothing, toys, and electronics), gambling, and tourism are the largest sectors of Macau's

economy.


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Given below is a graph of real GDP growth rate of Macau which has shown tremendous rise

over the years, even in the periods when the world was facing economic recession.

Figure 1.0[1]

[1]http://www.indexmundi.com/macau/gdp_real_growth_rate.html
http://www.indexmundi.com/macau/gdp_real_growth_rate.htmlhttp://www.indexmundi.com/macau/gdp_real_growth_rate.htmlhttp://www.indexmundi.com/macau/gdp_real_growth_rate.htmlhttp://www.indexmundi.com/macau/gdp_real_growth_rate.html


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Macro-Economic Indicators

Following are a list of macroeconomic indicators that will help in analysing the economic

performance of Macau over the years.

GDP for the second quarter of 2010 expanded by 49.1% in real terms upon favourable

performance of the gaming and tourism sector. GDP per capita for Macau was USD 33,000

(ranked 39 in the world) in 2009 as compared to USD 31,800 in 2008 and USD 28,400 in 2006

despite global economic recession. GDP for Macau has grown over the years.

The economyof Macau is based largely on tourism (including gambling) and textile. In the year

2009 the sectorial distribution of GDP of Macau was 97.1% from service sector, 2.8% from

industrial sector and 0.1% from agriculture. Gambling alone contributed almost 70% of GDP

through the first three quarters of 2009. The opening of the formerly monopolized gambling

sector in 2002 has led to significant new investment in casinos, hotels, and related facilities and

which has led to an increase in GDP over time. As the economy is tourism oriented the no. of

visitors to Macau gives an idea about the countrys GDP for a particular year. Data clearly show

that the number has increased over the years with slight downfall in some years. The statistics

service also said that total number of visitor arrivals reached 14.39 million in the first sevenmonths of 2010, up by 18.7% year on year, with the majority of visitors coming from mainland

China

Unemployment increased to3.6% 2009 (country comparison to the world: 29) from 3% in 2008.


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Inflation rate was controlled as it dropped from 7.2% in 2008 to 6.2% in 2009. Before 2004

inflation rate was negative for Macau.

Exports fell from $2 billion in 2008 to $950 million 2009. After a sharp rise in export from 2004

to 2006 exports fell sharply.

Imports had a gradual rise till 2005 after that there was a considerable rise in imports.

Literacy rate has been consistent and high over the years, being around 91% to 94%.


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Life expectancy at birth has been high more than 80 years over the past 10 years. Life

expectancy was high after the year 2007 (a sharp rise in 2007).

Even population growth rate has been under control being around 1 to 3% over the years. But

there were considerable ups and downs in some years as can be seen from the graph.

Industrial production rate was 3.8% in 2008.

Stock of FDI at home increased to$13.6 billion (2009 est.) from $11.1 billion (2008 EST.)


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Structure of Economy

1. The territory's economy is heavily dependent on gambling and tourism but also includes

manufacturing.Macau is known for its developed Casino industry. In 2007, the revenue fromthe Gaming industry for the first time surpassed Las Vegas and Macau became the top Gaming

City in the world.

2. Macaus economy is based largely on tourism and also Macau won the award of World

Culture Heritage for its historical and cultural district in 2005, the World Culture Heritage Sites

added new factors to the local attractions. Based on the past studies, the culture tourism is a

very important sector in the tourism market; it stands for one of the future trends in the

tourism development. To the regional development, the culture tourism can lead to economic

promotion, culture upgrade and image-rebuilding. Macao is a city with a blending of eastern

and western cultures. Its unique landscape and a mixture of Euro-Asian architecture attract

tourists from all over the world. As one of the principal industries in Macao, tourism employs

approximately a third of the territorys workforce and generates about 40% of the territorys

GDP.

3. Other chief economic activities in Macau are export-geared textile and garment

manufacturing, banking and other financial services. The clothing industry has provided about

three quarters of export earnings, and the gaming, tourism and hospitality industry is estimated

to contribute more than 50% of Macau's GDP, and 70% of Macau government revenue.

4. Macau is a free port which has developed into a leading manufacturing centre for the west Pearl River

Delta attracting manufacturers to its Free Trade Zone. Goods, capital and foreign exchange can flow

freely in and out of Macao. It represents a typical example of laissez faire comparable to Hong Kong,

which is reputed to rest upon its free-market environment to sustain its economic growth. Macau is one

of those countries which have registered a rapid pace of economic development through export-

oriented industrialization in the last two decades. The economy of Macau has remained one of the most

open in the world since its reversion to China in 1999. Macau has few basic resources except its strategic

location as the gate of South China. With small internal markets and limited resources, it heavily

counts on foreign markets, capital and supplies. The Territorys merchandise trade relies on the US, EU

and China, and its invisible trade relies on the Greater China Region (Mainland China, Hong Kong andTaiwan). Apparel exports are one of the major contributors to its GDP.

5. Traditionally, fishing and harvesting oysters has been the major form of food production.


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Macau is a founding member of the WTO and has maintained sound economic and trade

relations with more than 120 countries and regions, with European Union and Portuguese-

speaking countries in particular. Macau is also a member of IMF.

6. Since Macau has little arable land and few natural resources, it depends on mainland

China for most of its food, fresh water, and energy imports. Macau has a simple and relaxed

tax system, no meaningful capital control, and minimum government influence in economic

activity

7. Private Property: Macau is a capitalistic city that people have the right to own private

property, including currency, cars, real estates, stocks and so on, and they are all well

protected. Although Macau is part of China, it does not practice socialism which is applied in

China because of the "one country, two systems" policy. The government cannot take people's

property away. Foreigners are also protected. Under the pioneering practice of the one

country, two systems policy, Macau maintains its own currency unit and independent publicfinance. Macau is a capitalistic economy.


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Current policies in Macau:

The current challenges of Macau are raising discontent among people about the Macaus

return to Chinese rule and Corruption. So, the chief executive of Macau is planning to

diversify the Macaus economy which is mainly overlaid on gambling today. Real GDP is

forecasted to recover gradually in 2010-11, following a sharp contraction in 2009 amid falling

visitor numbers and a slump in new casino investment. The government, which is in a healthy

financial position, will come under pressure to increase spending to support growth. A decision

by the Chinese government to abolish its policy of limiting the number of mainland visitors to

Macau would help to boost economic growth, but this is unlikely in the forecast period.

Domestic Economy

Economic growth in Macau reached 8.2% year on year in the third quarter of 2009. Therecovery is being driven by strong growth in service exports, although fixed investment

continued to decline. The non-seasonally adjusted unemployment rate fell to just 3.1% in

December 2009, from a recent high of 3.8% in August. Inflationary pressures remain subdued.

Inflation reached 0.8% year on year in December.

Some past Policies of Macau

1. Freedom from internal control: Previously people of Macau had the restriction of enteringthe mainland of China. Macau which is one of the SAR countries of China has now been

permitted to enter freely into China with a permit which is easy to obtain and that is validfor a period of 10 years.

2. Private Property: Macau is a capitalistic city that people have the right to own privateproperty, including currency, cars, real estates, stocks and so on, and they are all well

protected. Although Macau is part of China, it does not practice socialism which is applied

in China because of the one country, two systems policy. The government cannot take

peoples property away. Foreigners are also protected.

3. Commercial Banks: Commercial banks in Macau are dependable. They mainly operate ondeposits and loans, as well as foreign exchange, insurance, trust, stocks and bonds, lease,remittance, credit card service, and safe deposit box. Enterprises can easily borrow money

from banks to develop their business, and people feel secure to deposit their property in

banks.


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4. Communication Systems: People in Macau can access all kinds of communication telephone (both fixed and mobile), television (broadcast and cable), radio, fax, newspapers

and magazines, and internet you name it. People can send and receive what they want to

and from various places all over the world. Though there are different kinds of

communication, there are few choices within each of them.

5. Transportation: Transportation within Macau is pretty convenient. Effective bus service isprovided by two bus companies. Plenty of taxis are running all around the city, charging

passengers reasonable fare. Macau International Airport commenced operation in 1995,

connecting Macau with to several cities in Mainland China, Taiwan, Korea and Southeast

Asia. People can travel to several destinations on direct flights or catch connecting flights to

different parts of Asia, Europe or America.

6. Education: Most children and teenagers in Macau can easily access to education. Althoughthere is no rule to enforce school-age minors to enroll in school, 83.5% of schools in Macau

attend the 10 years-free education scheme of the government, so most students can have

education until junior high school. Moreover, the enrollment rate of secondary education

was 87.5% in 2002/2003.

7. Political Effectiveness: Since Macau is such a small city (27.3km2, about the size asBerkeley, California), governmental administration in Macau works without regional

difference. In addition, the government is doing pretty good. According a survey in 2001,

74.5% of Macau people said that they trusted in Macau government. Another survey done

in May 2004 showed that 76% of Macau citizens felt satisfied with the probity of Macau

government. Only 1.8% of the interviewees said that they met corruption involved in the

government departments. By and large, all citizens are equal before the common laws in

Macau. Although Macau was used to be colonized by Portuguese and the bases of many

common laws are from Portugal, Portuguese did not enjoy any privilege even before the

handover of Macau. Also, richness does not make any difference in treatment. However,

some of the laws are not very effective, and some are not enforced practically.

8. Government Enterprises: Some businesses in Macau have the patents based on thecontracts with the government. Power, water, airport management, buses, communication

and gaming businesses are franchised in Macau. Most of them can make a profit and do not

need governments aids; on the contrary, the patent taxes from these businesses, which

makes up 40% of the government income, is the chief income of Macau government. The


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biggest part of theses patent taxes is gaming tax from casinos, lottery, horse racing and dog

racing. However, the broadcast corporation of Macau (TDM) is an exception. TDM was a

public utility when it was established in 1983, but it restructured to be a limited company in

1988 because of sustaining loss. In 2002, all the shareholders sold their shares back to the

government, so TDM is now completely held by the government. TDM has been losing sinceit was established 20 years ago, and Macau citizens are always paying attention to how the

government deals with this burden.

9. International Security Agreements: Although Macau is a part of China, it may maintain anddevelop relations and conclude and implement agreements with foreign states and regions

and relevant international organizations in the economic, trade, financial and monetary and

shipping fields, by using the name "Macao, China". Macau is a separate customs territory

which is independent from China. It participates in international organizations and

international trade agreements, including preferential trade arrangements, such as WTO

(Macau joined the General Agreement on Tariffs and Trade as a dependent member of

Portugal in 1975, and became a formal contracting party of GATT in 1991) and

arrangements regarding international trade in textiles.

10.The gaming industry opened to foreign investment in 2001 and the gaming market wasliberalized in 2002. Since then, there has been a dramatic influx of foreign direct investment.

Macaus gaming sector is now similar in size to that in Las Vegas. Its gross gaming revenue

roared by 31% to US$ 13.7 billion in 2008. On the other hand, the direct taxes from gaming

generated US$ 4.9 billion in 2008.

11.On the other hand, the Macao SAR government planned to develop the MICE (Meetings,Incentives, Conventions and Exhibitions) market to foster diverse economic development.

12.The most significant financial authority in Macau is the Monetary Authority of Macau. Itallows Macau citizens to buy foreign currencies with the Macao Pataca directly in banks or

money exchange centers. As there is currently no restrictions on the import or export of

either local or foreign currency into or from Macau, visitors can change their currency in,

banks and authorized exchange dealers located all around the city. There are also 24 hour

exchange counters in the Macau International Airport (Taipa Island) and in the Lisboa Hotel

(Macau Peninsula) for customers if they want to change their currency to Macau Pataca

outside working hours. Banks, hotels or silver numbers and traveler's checks are available in

foreign currency exchange services, and location, very convenient.


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Monetary Policy

Since its tourist sector (including hotels/restaurants, transport, gaming/recreational, and other

related services) accounts for 68% of Macao GDP in 2006, visitor arrivals play a key role in

affecting economic performance. As depicted in Chart 2 using quarterly data in 2002Q1-

2007Q3, Mainlander arrivals make a significant contribution to Macaos real GDP. Mainlander

arrivals make a significant contribution to Macaos real GDP. The two variables appear to be

highly correlated with each other (apart from certain cyclical fluctuations), but the truth is that

this is a unidirectional causal link from Mainland arrivals to GDP performance since tourist

spending in Macao is observed as a primary determinant of its aggregate output.

The Mainland is a major financier of some sort for Macao growth, and this can be seen from

Chart 3 on the basis of end-June 2007 data on the international assets and liabilities of Macaos

banking sector (RSD 2007).

Plenty of Hong Kongs FDI has gone to real estate development, helping create skyrocketing

property bubbles and contributing greatly to high inflation in Macao. Much of the local

population has been and will continue to get hurt by unhealthy bubble growth, with inflation

being expected to persist.

With excess liquidity flooding in various parts of the Chinese territory (including Macao, Hong

Kong, and the Mainland), Macao itself has much more savings than its investment and there is

no shortage of money for project undertaking. Thus the Mainland as an unlimited source of

customers to the Macao economy is, of course, far more important to its healthy growth thanspeculative investors from Hong Kong and foreign sources.

The appreciation of the RMB (Chinese currency) to be continuing indefinitely and substantially

will have a long-lived adverse impact on Macaos economic welfare if it still sticks with its

patacas link to the HKD which in turn is linked to the continually depreciating USD.

Given this long-lasting prospect of big RMB appreciations, what will happen to the economic

welfare of Macao if its monetary system remains unchanged? We may as well look first at what

has happened to Macao under the largely dollarized, HKD-anchored CBA since the RMB rose inJuly 2005. There are two points, among other things, worth examining here. First, Macao has

suffered a significant loss of depreciation in its financial wealth from the RMB appreciation;

how much is that loss of wealth depreciation? Second, Macaos terms of trade have been

deteriorating while its competitiveness will be under threat if its inflation becomes more severe

than the appreciation and inflation combined of the RMB; how serious is that terms-of-trade


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deterioration? These two results will remain robust with bigger losses to be incurred in the

future if Macao sticks to its current monetary regime.

The Monetary Authority of Macao is a regulatory institution established on December 20,

1999, upon the transfer of the sovereignty of Macau from Portugal to the People's Republic of

China as the Macau Special Administrative Region (MSAR). Its worth mentioning because it

plays a handsome role in governing the monetary policy of Macau.

The following are the functions of Monetary Authority of Macau:

To advise and assist the Chief Executive in formulating and applying monetary, financial,exchange rate and insurance policies;

To guide, co-ordinate and oversee the monetary, financial, foreign exchange and insurancemarkets, ensure their smooth operation and supervise the actions of those operating within

them according to the terms established in the regulatory statutes governing each

respective area;

To monitor internal monetary stability and the external solvency of the local currency,ensuring its full convertibility;

To exercise the functions of a central monetary depository and manage the territory'scurrency reserves and other foreign assets;

To monitor the stability of the financial system.

Fiscal Policy

Fiscal policy was rarely used by the Macao colonial government to manipulate the economy.

This was because the government had kept the tax rate low (with a maximum profits tax of 15

percent), and non-gambling taxes had not been a major source of revenue. Hence, a change in

tax rates would not be too effective in influencing economic activities. But certain taxes have

been manipulated to achieve social, if not economic, goals. For example, in the early 1990s the

government reduced the tax on unleaded fuel in order to encourage environmental protection

(Ho 1995: 98-106) and thereby also to enhance the tourism industry.

Macao's tax system is derived from Portugal. The rent received from granting franchises is

considered a direct tax and has been the most important source of revenue, as indicated above.


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Other direct taxes include an industrial tax (similar to a business registration fee), a

complementary tax (profits tax, complementary to the industrial tax), a professional/salary tax,

an urban property tax, a gift and inheritance tax, and a property transfer tax (replaced by a

stamp duty). Indirect taxes include a tourism tax (waived for restaurants in 2002), stamp duties,

a consumption tax, and revenue from certificates of origin (a kind of export tax) (Noronha 1996:3-10).

The low tax rates have kept Macao's social welfare spending at a low level (see Table). Although

the Macao government has not adopted the Keynesian approach in economic planning, its

expenditure policy does have significant economic effects. In recent years, spending on security

and education has been increased quite noticeably. Increasing security expenditure has been

required to maintain law and order, as increasing criminal activities affected the tourism

industry badly in late 1990s. Since the reunification with China in 1999, law and order have

improved and the tourism industry has recovered.

Distribution of Government Expenditure by Policy Area[1]

1993 (%) 2001 (%)

Administration 15.3 22.4

Security (Law and Order) 9.6 14.0

Education 5.3 15.2

Health 7.2 8.5

Social welfare 6.0 8.9

Housing 0.6 1.2

Other social services 4.9 6.9Economic Services 17.5 10.5

Miscellaneous 33.6 12.4

Total Expenditure 100 100

After China's WTO accession, Macao's manufacturing industry, in particular textiles and

garments, is expected to decline further. The Macao government has been urging the private

sector to move towards value-added and hi-tech industrial development. Increasing education

expenditure is thus needed to upgrade the technical competence of the younger generation.

Although Macao's new SAR government has not been under the same political and socialpressure as its counterpart in Hong Kong, the public's expectations of a better government

capable of responding effectively to economic problems, has weighed heavily on the

government in its attempts to improve efficiency and revive the economy. In the budget for

2002, it reduced professional tax and urban property tax, as well as waiving the industrial tax,

business license fees and tourism tax (for restaurants only) in order to stimulate economic

[1] Macao Economic Services and Finance Bureau, Macao SAR


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activity.7 Furthermore, it froze all public sector fees and charges for 2002.8 In the near future, it

proposes to increase government spending by 14 percent9 (including a MOP700 million

package to assist the development of small and medium-sized businesses) and to cut salary tax

rates from 10-15 percent to 7-12 percent.10 This all indicates that it is more willing than the

colonial regime to use fiscal policy for economic intervention.

Rise in GDP in 2010 1st quarter

Secretary for Economy and Finance Francis Tam Pak Yuen disclosed last week. Macaus GDP in

the first quarter of this year showed a 31.4 percent increase in comparison with the same

period of 2009. This was strongly linked to the gaming sector, which soar between 30 to 40

percent. If the gaming grows at least 20 percent in the third quarter, the economy would

increase 27.53 percent, and note that analysts are talking about a gaming growth of 30 to 40

percent.

Reasons for GDP Growth rates at crucial points (Refer fig 1.0):

2002

Macaus economy grew strongly in 2002, with real GDP up more than 8 percent in the fir st

three quarters, compared to only 2.1 percent growth in 2001. Rising activity in its two main

sectors, gaming and tourism, drove this performance. Tourism benefited by a surge in tourists

from China. Public finances remained sound, with a budget surplus, and foreign exchangereserves rose 7.7%.

2004

There was a phenomenal increase in GDP by 28.6% in 2004 which was again due to a boom in

gaming, tourism and construction necessary for such endeavors. China's decision to ease the

travel restrictions led to a rapid rise in the mainland visitors. Hike in taxes on gambling profited

to 70% of government revenue.

2005

Macau's GDP growth rate for 2005 recorded at 6.7%. In Macau, exports of goods in 2005 were

adversely affected by the cancellation of the global textile and garment quota system. But

exports of services continued to be bolstered by the strong growth of the tourists from

mainland China.


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Boom in the gaming and tourism sector brought about large amount of investment, which

soared on the back of the construction in gaming and tourism facilities and became one of the

impetuses for Macau's economic growth. Some other important economic figures, which

contributed to Macau's GDP growth last year, include a "robust performance" in the gaming the

tourism sector, with total investment up 56.9% in real terms over 2004, the increase in grossgaming receipts and number of visitors in 2005, as well as "the improvement in residents'

employment condition and the rise in income", which resulted to "a real growth of 7.5% in

private consumption expenditure over 2004".

Interesting Offshore Investment Banking in Macau [3]

On October 13 1999, just 61 days before the hand-over of Macau from Portugal to China, the

then Governor, Vasco Rocha Vieira, signed and approved the Offshore Law of Macau, (Decree-

Law No. 58/99M) and was effective from November 1, 1999. The offshore law of Macau

provides the regulation of various offshore vehicles, namely, offshore institution authorization

granted to corporations conducting business activities, insurance companies, banks and

offshore trust.

This is done to enable Macau to become an International Business Centre.

The structure of the Offshore Law

The law is divided into seven chapters with 80 articles. Chapter I and II are general provisions

and definitions. Chapter III concerns the regulation of offshore financial activity, including

offshore banks, offshore insurance, re-insurance and captive insurance activities. Chapter IVconcerns the regulations of Offshore Trust Activities. Chapter V is of interest to the audience

today, it regulates offshore commercial and auxiliary services, that is, Offshore Institutions

which engaged in commercial activities. Chapter VI and VII deal with transitional matters,

sanctions and penalties and other final provisions.

In summary, the offshore laws regulate the following types of offshore industry:-

Offshore banking and insurance activities Offshore trust and asset management activities Offshore commercial activities Offshore auxiliary services Activities.Offshore banking services provide wide range of benefits and opens up distinct

opportunities. Opening such an account provides a powerful tool for keeping money secure


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and making it exempted from taxes. Using an offshore bank account provides opportunities

that are not available to domestic banking users. The most important of those are bank

secrecy / confidentiality and exemption from taxes on gains. Income generated in form of

interest on deposits is not taxed by the income tax. Customers also get possibility

to invest globally.
http://www.offshorebankingtoday.com/offshore-investing-disadvantages-loopholes-tax-avoidance/http://www.offshorebankingtoday.com/offshore-banking-offshore-investing/http://www.offshorebankingtoday.com/offshore-banking-offshore-investing/http://www.offshorebankingtoday.com/offshore-investing-disadvantages-loopholes-tax-avoidance/


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WTO and Macau

The World Trade Organization (WTO) is an organization that intends to supervise and liberalize

international trade. The organization deals with regulation of trade between participating

countries; it provides a framework for negotiating and formalizing trade agreements, and a

dispute resolution process aimed at enforcing participants' adherence to WTO agreements.

Macau being a member of WTO has benefited from its trade policies. As we know that Macau is

a free port and its strategic location makes it open for trade and also exports to other countries

is a major contributor to its GDP, so it becomes extremely important that its trade policies are

not violated and it benefits from the same. So WTO oversees the implementation,

administration and operation of the covered agreements with the member countries. Macau

trade and investment regime remains among the most open in the world. The Government's

approach has long been to let free and open markets be the main determinant of the allocation

of resources within the Macau SAR and thus its economic development. The high degree ofopenness of the economy for trade in goods is indicated by the duty-free entry of all imports

into Macau.

IMF and Macau

The International Monetary Fund was created in July 1945, originally with 45 members, with a

goal to stabilize exchange rates and assist the reconstruction of the world's international

payment system. The International Monetary Fund (IMF) is the world's central organization for

international monetary cooperation. It is an organization in which almost all countries in the

world work together to promote the common good (IMF 2006). Thats IMF is an international

organization that oversees the global financial system by observing exchange rates and balance

of payments, as well as offering financial and technical assistance. The primary purpose of IMF

is to ensure the stability of the international monetary system in order to sustainable economic

growth and rising living standards of the member countries. And IMF also granting short-term

loans and promotes free-trade to conserve foreign exchange reserves. Countries contributed to

a pool which could be borrowed from, on a temporary basis, by countries with payment

imbalances. The primary mission of the IMF is to provide financial assistance to countries that

experience serious financial and economic difficulties using funds deposited with the IMF from

the institution's member countries.

Macao Special Administrative Region of the People's Republic of China (Macao SAR) began

participating in the International Monetary Fund's (IMF's) General Data Dissemination System

(GDDS) in 2007, marking a major step forward in the development of its statistical system. The

GDDS was established by the IMF in 1997. It provides a framework to help countries to develop


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Future Trends

Macau has experienced two 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.

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.

Macaus economy is largely based on gaming and tourism, and its growth and development arehighly dependent upon external economic conditions, particularly those in China.

Necessity for a shift in Macaus currency anchor from Hong Kong Dollars to RMB (Yuan). The

economic booming has given rise to a substantial increase in tax revenues and in balance-of-

payments (BOP) surpluses. The accumulation of foreign exchange (forex) reserves has swollen

even further under the sustained expansion in exports (of tourism services), rising fiscal

surpluses, and the rushed influx of FDI. Some annoying problems emerging from the current

economic booming have become increasingly serious. The most annoying among them are

internal and external monetary imbalances, i.e., Macaos domestic currency (Pataca measured

in MOP) has been losing its value very fast both internally and externally. The internal value loss

is reflected by asset bubbles and high inflation, and the rate of inflation escalated from 1.7% in

2004 through 4.8% in 2005 and 6.0% in 2006 to 6.2% in 2007(3rd quarter). The external value

loss is brought about by continued large appreciations of the Mainland currency (RMB

measured Yuan), and Macao has already suffered a significant loss due to a deterioration in its

terms of trade and an effective depreciation in its financial wealth. Two reasons for a shift in

Patacas anchor from HKD to Chinese Yuan:

1. In many economic aspects, Macao has grown tied more closely to Mainland China while therelevance of Hong Kong to healthy Macao growth is relatively diminishing, thereby makingthe Pataca-HKD link somewhat groundless but a Pataca-Yuan peg practically meaningful.

2. Since Yuan receipts from its Mainland-related service activity provide enough reservecurrency for its monetary reform, there will be no problem for Macao to have the Yuan as

an anchor for the Pataca.


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Risks:

1. First of all, Mainland China is tightening up Self-organized travelling" policy. Since themajority of tourists are from China Mainland, the policy will no doubt have negative effects

on the demand sector in the market, especially the tourists from the metropolis in China

Mainland.

2. The internal challenge of Macaus society and economics is that Macau is a typical micro -economy, the land and other resources are more or less limited.

3. Heavy dependence on gambling and tourism can be harmful; diversification of the economyis required.

4. Also Macau faces stiff competition from its neighbour Hong Kong in terms of internationaltrade.


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References

1. International Journal of Trade, Economics and Finance, Vol. 1, No. 2, August, 2010. 2010-023X

2. Recent Developments and Prospects of Macaos Tourism Industry by Jay W. Pao3. Evolution of Macau's Economy and Its Export-Oriented Industries by VICTOR F.S. SIT4. International Journal of Trade, Economics and Finance, Vol. 1, No. 2, August, 2010. 2010-

023X

5. Macau: Money and Reform- Xinhua Gu. AMB Country Risk Report.6. http://books.google.co.in/books?id=V4tQHe6bdYC&pg=PA381&lpg=PA381&dq=macau+gdp

+rise+in+2004&source=bl&ots=3Ou_gIz03w&sig=lvh_SDO-

oKsPPuCGB3BOsoMjagM&hl=en&ei=Syy_TLfqG43yvQPm6Yw6&sa=X&oi=book_result&ct=r

esult&resnum=5&ved=0CCUQ6AEwBA#v=onepage&q=macau%20gdp%20rise%20in%20200

4&f=false

7. http://www.reportbuyer.com/countries/asia_pacific/china/country_report_macau_march_2010.html

8. http://www.mkeever.com/macau.html9. http://www.olamacauguide.com/offshore-law.html10.http://bo.io.gov.mo/edicoes/en/dse/cepa/11.http://www.imf.org/external/np/sec/pr/2007/pr07179.htm.12.http://www.offshorebankingtoday.com/
http://www.imf.org/external/np/sec/pr/2007/pr07179.htmhttp://www.imf.org/external/np/sec/pr/2007/pr07179.htmhttp://www.offshorebankingtoday.com/http://www.offshorebankingtoday.com/http://www.offshorebankingtoday.com/http://www.imf.org/external/np/sec/pr/2007/pr07179.htm

Documents

economy of Macau