VZCZCXRO2560
RR RUEHCN RUEHGH RUEHVC
DE RUEHHK #0183/01 0281100
ZNR UUUUU ZZH
R 281100Z JAN 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 4011
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 05 HONG KONG 000183 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/IFD/OIA 
OSDOC FOR 3132/USFCS/OIO/EAP 
TREASURY FOR OASIA 
STATE PASS USTR FOR LEE AND RAGLAND 
 
E.O. 12958:  N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC MO
SUBJECT: MACAU'S 2008 INVESTMENT CLIMATE STATEMENT 
 
REF: 07 STATE 158802 
 
¶1. The following is the 2008 Investment Climate Statement for the 
Macau Special Administrative Region. 
 
----------------------------------- 
A.1 Openness to Foreign Investment 
----------------------------------- 
 
¶2. Macau became a Special Administrative Region (SAR) of the 
People's Republic of China on December 20, 1999. Macau's status 
since reverting to Chinese sovereignty is defined in the 
Sino-Portuguese Joint Declaration (1987) and the Basic Law, Macau's 
constitution.  Under the concept of "One Country, Two Systems" 
articulated in these documents, Macau is promised a high degree of 
autonomy in economic matters and its economic system is to remain 
unchanged for 50 years.  Since 1999, the Macau Government has 
maintained a transparent, non-discriminatory and free market 
economy. Macau has separate membership in the World Trade 
Organization (WTO). 
 
¶3. The Government hopes to diversify Macau's economy by attracting 
foreign investment and is committed to maintaining an 
investor-friendly environment.  Corporate taxes are low.  The tax 
rate is 12 percent for a company's net profits greater than 
US$37,500 (300,000 Patacas).  For net profits less than US$37,500, 
the tax ranges from 3 percent to 12 percent. The top personal tax 
rate is 12 percent. 
 
¶4. In 2002, the Government ended a long-standing gaming monopoly, 
awarding two gaming concessions to consortia with U.S. interests. 
This opening has encouraged very substantial U.S. investment in 
casinos and hotels, and has spurred exceptionally rapid economic 
growth over the last few years.  Macau is positioning itself to be a 
regional center for gaming, incentive travel, conventions and 
tourism. 
 
¶5. Macau and the PRC implemented a free trade agreement, the Closer 
Economic Partnership Arrangement (CEPA), on January 1, 2004.  The 
agreement is similar to the Hong Kong-PRC CEPA.  As of 2007, it 
provided open markets for all Macau-origin products and preferential 
treatment for 28 service sectors.  In December 2005, the Government 
inaugurated the cross-border industrial zone located between 
northern part of Macau and Zhuhai.  Manufacturers have begun 
operating in the industrial zone, including one U.S. manufacturer of 
gaming tools. 
 
¶6. Macau is heavily dependent on the gaming sector and tourism 
industries.  In addition, a single product category, textiles and 
apparel, accounts for approximately 64.9 percent of its goods 
exports.  Macau's textile and apparel exports decreased by 14.1 
percent for the first ten months of 2007, resulting from the 
elimination of the textile quota system at the end of 2004. 
 
¶7. Foreign firms and individuals are free to establish companies, 
branches and representative offices without discrimination or undue 
regulation in Macau.  There are no restrictions on the ownership of 
such establishments. Company directors are not required to be 
citizens of, or resident in, Macau. 
 
¶8. The Government is liberalizing the telecommunications sector 
under a law passed in August 2001.  Macau has liberalized the mobile 
phone market and Internet services. It has issued three mobile 
telephone licenses to two foreign companies and one local firm.  In 
March 2005, the Government issued a license operating a Code 
Division Multiple Access (CDMA) network.  In October 2006, the 
Government issued three 3G licenses.  3G operators began providing 
service in Octber 2007. 
 
¶9. Certain requirements are iposed on three professional services 
sectors as described below.  Under Maau law (Decree Law 14/95/M, 
22/96M and 22/97/M),qualified profssionals and executives may 
applyfor the right of temporary residency. 
i) Educatin - An individual applying to establish a school mut 
have a Macau Certificate of Identity or hav the right to reside in 
Macau.  The principal of a school must be a Macau resident. 
ii) Newspapers and Magazines - Applicants must first apply for 
business registration and register with the Government Information 
Bureau as an organization or an individual.  The publisher of a 
newspaper or magazine must be a Macau resident or have the right to 
reside in Macau. 
iii) Legal Services - Lawyers from foreign jurisdictions who seek to 
practice Macau law must first obtain residency in Macau.  They also 
must pass an examination before they can register with the Lawyer's 
Association, a self-regulatory body.  The examination is given in 
 
HONG KONG 00000183  002 OF 005 
 
 
Chinese or Portuguese.  After passing the examination, foreign 
lawyers are required to serve 18-month internship before they are 
able to practice law in Macau. 
 
------------------------------------- 
A.2 Conversion and Transfer Policies 
------------------------------------- 
 
¶10. Profits and other funds associated with an investment, including 
investment capital, earnings, loan repayments, lease payments, and 
capital gains, can be freely converted and remitted.  The domestic 
currency, Macau Official Pataca (MOP), is pegged to the Hong Kong 
Dollar at 1.03 and indirectly to the U.S. Dollar at an exchange rate 
of approximately MOP8 = US$1.  The Monetary Authority of Macau, the 
de facto central bank, is committed to exchange rate stability 
through maintenance of the peg to the Hong Kong Dollar. 
 
¶11. Although Macau imposes no restrictions either on capital flows 
or foreign exchange operations, exporters are required to convert 40 
percent of foreign currency earnings into MOP.  This legal 
requirement is not applied to tourism services. 
 
----------------------------------- 
A.3 Expropriation and Compensation 
----------------------------------- 
 
¶12. The U.S. Consulate General is not aware of any expropriation 
actions.  Expropriation of property may occur if it is in the public 
interest.  In such cases, the Macau SAR Government will exchange the 
private property with an equivalent public property based on the 
valuation and conditions of the property.  The exchange of property 
is in accordance with established principles of international law. 
There is no remunerative compensation. 
 
----------------------- 
A.4 Dispute Settlement 
----------------------- 
 
¶13. The U.S. Consulate General is not aware of any investor-state 
disputes involving U.S. or other foreign investors or contractors 
and the SAR Government.  Private investment disputes are normally 
handled in the courts or via private negotiation.  Alternatively, 
disputes may be referred to the Hong Kong International Arbitration 
Center.  Macau has an arbitration law (Decree 55/98/M), which adopts 
the United Nations Commission on International Trade Law (UNCITRAL) 
model law for international commercial arbitration.  The Macau SAR 
Government accepts international arbitration of investment disputes 
between itself and investors. 
 
¶14. Macau's legal system is based on the rule of law and the 
independence of the judiciary.  Macau has commercial and bankruptcy 
laws (Decree 40/99/M).  Courts in Macau include the Court of Final 
Appeal, Intermediate Courts and Primary Courts.  There is also an 
Administrative Court, which has jurisdiction over administrative and 
tax cases.  These provide an effective means for enforcing property 
and contractual rights.  Commercial and bankruptcy laws are written 
under the Macau Commercial Code (Decree 40/99/M). 
 
--------------------------------------------- 
A.5 Performance Requirements and Incentives 
--------------------------------------------- 
 
¶15. To attract foreign investment, the Macau SAR Government offers 
investment incentives to investors on a national treatment basis. 
These incentives are contained in Decrees 23/98/M and 49/85/M and 
provided if companies can fulfill at least one of the following 
purposes: promoting economic diversification, contributing to 
promotion of exports to new unrestricted markets, promoting added 
value within their activity's value chain, or contributing to 
technical modernization.  There is no requirement that nationals own 
shares.  These incentives are categorized as fiscal incentives, 
financial incentives, and export diversification incentives. 
 
¶16. Fiscal incentives include full or partial exemption from 
profit/corporate tax, industrial tax, property tax, stamp duty for 
transfer of properties, and consumption tax.  The tax incentives are 
consistent with the WTO Agreement on Subsidies and Countervailing 
Measures as they are neither export subsidies nor import 
substitution subsidies as defined in the WTO Agreement.  Financial 
incentives include government-funded interest subsidies (ranging 
from 4-6 percent) on private bank Pataca loans for buying/leasing 
new equipment or construction/leasing of industrial buildings. 
Export diversification incentives include subsidies given to the 
companies and trade associations, who attend the trade promotion 
activities organized by Macau Trade and Investment Promotion 
 
HONG KONG 00000183  003 OF 005 
 
 
Institute.  The companies have to be registered with the Economic 
Services before they are entitled the subsidies to cover fully or 
partially their costs on rental of exhibition space, decoration 
costs of exhibition booths, publication cost, production cost of 
audio-visual materials, etc.  In addition, Macau provides other 
subsidies for the installation of anti-pollution equipment. 
 
--------------------------------------------- ---- 
A.6 Right to Private Ownership and Establishment 
--------------------------------------------- ---- 
 
¶17. Macau law and regulations provide for the right of foreign and 
domestic private entities to establish, acquire and dispose of 
interests in business enterprises. 
 
---------------------------------- 
A.7 Protection of Property Rights 
---------------------------------- 
 
¶18. Macau is a member of the World Intellectual Property 
Organization.  Macau has acceded to the Bern Convention for the 
Protection of Literary and Artistic Works.  Patents and trademarks 
are registered under Decree 97/99/M.  Macau's copyright laws are 
TRIPS-compatible and government offices are required to use only 
licensed software.  The Macau SAR Government devotes considerable 
attention to intellectual property rights enforcement and 
coordinates with copyright holders.  Source Identification Codes are 
stamped on all optical discs produced in Macau.  Macau Economic 
Services (MES) uses an expedited prosecution arrangement to speed up 
punishment of accused pirate retailers. 
 
¶19. The Macau Government has devoted considerable resources to 
combating optical disc piracy in recent years and claims to have 
closed down all illicit optical disc production lines.  Signal 
piracy remains problematic, with significant piracy of television 
signals (and much U.S.-origin program content).  The Macau 
Government also does not have a clear position on whether there is 
criminal liability for commercial end-use piracy of copyrighted 
works.  The Consulate General continues to raise these issues with 
Macau officials. 
 
------------------------------------------ 
A.8 Transparency of the Regulatory System 
------------------------------------------ 
 
¶20. The Government has transparent policies and laws that establish 
clear rules and do not unnecessarily impede investment.  The basic 
elements of a competition policy are set out in Macau's 1999 
Commercial Code. 
 
--------------------------------------------- ---------- 
A.9 Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ---------- 
 
¶21. Macau allows free flows of financial resources.  Foreign 
investors can obtain credit in the local financial market.  At 
present, there are 28 financial institutions in Macau, including 12 
local banks and 16 branches of banks incorporated outside Macau.  In 
addition, there are eleven moneychangers, two cash remittance 
companies, two financial intermediaries, five exchange counters and 
one representative office of a financial institution.  These 
institutions provide a range of credit instruments.  Banks with 
capital originally from Mainland China and Portugal have a combined 
market share of about 66.7 percent of total deposits in the banking 
system.  Total deposits amounted to US$22.3 billion in September 
¶2007.  In September 2007, banks in Macau maintained a capital 
adequacy ratio at 14.22 percent, well above the minimum 8 percent 
recommended by the Bank for International Settlements.  Accounting 
systems in Macau are consistent with international norms. 
 
¶22. Macau has no stock market, but companies are able to seek a 
listing in Hong Kong's stock market.  There is cooperation between 
Macau and Hong Kong financial regulatory authorities. 
 
¶23. Under the Macau Insurance Ordinance, the Monetary Authority 
authorizes and monitors insurance companies. There are 11 life 
insurance companies and 13 non-life insurance companies in Macau. 
Total gross premium income from insurance services amounted to 
US$309.7 million in 2006. 
 
¶24. Offshore finance businesses, including credit institutions, 
insurers, underwriters, and offshore trust management companies, are 
regulated and supervised by the Monetary Authority.  Profits derived 
from offshore activities are fully exempted from all form of taxes. 
 
 
HONG KONG 00000183  004 OF 005 
 
 
------------------------ 
A.10 Political Violence 
------------------------ 
 
¶25. Macau is politically stable.  The U.S. Consulate General is not 
aware of any incidents in recent years involving politically 
motivated damage to projects or installations. 
 
---------------- 
A.11 Corruption 
---------------- 
 
¶26. Macau's anti-corruption agency is called the Commission Against 
Corruption (CCAC).  The CAC has powers of arrest and detention.  Its 
budget and manpower have been increased in recent years.  The number 
of complaints of corruption handled by CCAC has increased 
significantly as a result of these changes, and an accompanying 
public outreach campaign. 
 
¶27. The highest profile corruption charge was leveled at Macau's 
Secretary for Transport and Public Works, who was arrested in 
 
SIPDIS 
December 2006 for corruption.  The court finished the trial on 
December 12, 2007 and is expected to hand down judgments in January 
¶2008.  The CCAC's overall effectiveness remains constrained by 
legislation limiting the scope of its authority to government - but 
not private - sector corruption.  However, the government plans to 
amend in 2008 the law that would empower CAC to also investigate 
private sector corruption. 
 
------------------------------------- 
A.12 Bilateral Investment Agreements 
------------------------------------- 
 
¶28. Macau has signed investment protection agreements with Portugal 
and the Netherlands. 
 
--------------------------------------------- ----- 
A.13 OPIC and Other Investment Insurance Programs 
--------------------------------------------- ----- 
 
¶29. Overseas Private Investment Corporation (OPIC) coverage is not 
available in Macau. 
 
----------- 
A.14 Labor 
----------- 
 
¶30. Macau's unemployment rate is falling rapidly.  By the end of 
November 2007, the jobless rate was 2.9 percent, down from a high of 
6.1 percent in 2003.  While the relocation of manufacturing 
facilities across the border to Zhuhai in Mainland China adversely 
affected unemployment rates, the increase in gaming facilities and 
hotels are positive impacting employment, and some shortages of 
skilled workers have developed.  The government is studying 
proposals to resolve the human resources problem.  Macau has labor 
importation schemes for unskilled and skilled workers who cannot be 
recruited locally.  The Government is considering additional 
measures.  The current migrant labor pool is approximately 81,700 
out of a total workforce of 320,200.  The Government is successfully 
using the proceeds of a 2005-implemented tax on the import of 
temporary workers for retraining local unemployed people. 
 
------------------------------------------ 
A.15 Foreign Trade Zones/Free Trade Zones 
------------------------------------------ 
 
¶31. Macau is a free port. 
 
------------------------------------------ 
A.16 Foreign Direct Investment Statistics 
------------------------------------------ 
 
¶32. According to the Direct Investment Statistics 2006 conducted by 
the Statistics and Census Service, there were 1,698 foreign direct 
investment companies in Macau, employing 69,334 workers.  Hong Kong 
was the largest foreign investor in Macau, accounting for 57.2 
percent of total foreign direct investment.  The U.S. now exceeds 
China as the second largest foreign investor in Macau, accounting 
for 18.5 percent of foreign direct investment. 
 
--Table 1: Stock of foreign direct investment by country, 2006, 
Source: Statistics and Census Service 
 
           US$          %Share 
Country         Million       of Total 
 
HONG KONG 00000183  005 OF 005 
 
 
-------        ---------      --------- 
Hong Kong   3,710.6    57.2 
United States   1,200.5        18.5 
China     587.9          9.1 
Portugal         380.4          5.9 
United Kingdom     81.1          1.2 
Others         531.6      8.2 
   ---------      --------- 
TOTAL       6,492.1        100.0 
 
Note: Total not sum due to rounding. 
 
--Table 2: Stock of foreign direct investment by industry, 2005, 
Sources: Statistics and Census Service 
 
                  US$          %Share 
Industry               Million       of Total 
-------            ---------      --------- 
Gaming          4,095.8     63.1 
Banks and Securities   1,114.6     17.2 
Industrial Protection    366.5          5.6 
Hotels and Restaurants 323.6          5.0 
Construction             196.4          3.0 
Insurance                166.5      2.6 
Transport, Storage 
 and Communications      136.4          2.1 
Wholesale and Retail      63.5          1.0 
Cultural, Recreational 
 and Other Services       28.8          0.4 
          ---------      --------- 
TOTAL              6,492.1        100.0 
 
Note: Total not sum due to rounding. 
 
¶33. Resources: 
--Macao Special Administrative Region Government: 
http://www.macau.gov.mo 
--Macao Trade and Investment Promotion Institute - IPIM: 
http://www.ipim.gov.mo 
--Macau Fair & Trade Association: http://www.macaufta.com 
--World Trade Centre Macau: http://www.wtc-macau.com 
 
CUNNINGHAM