2009 Index of Economic Freedom

Quick Facts

Population:

• 0.5 million

GDP (PPP):

• $21.0 billion
• 16.6% growth
• 15.0% 5-year compound annual growth
• $43949 per capita

Unemployment:

• 3.1%

Inflation (CPI):

• 5.6%

FDI Inflow:

• $739.0 million

The 2009 Index is the first to assess Macau's level of economic freedom. Macau’s economic freedom score is 72, making its economy the 21st freest in the 2009 Index. Macau is ranked 6th out of 41 countries in the Asia–Pacific region.

Macau is an open and vibrant free-market economy. Foreign investors are welcome to conduct business on the same terms as local business people. Taxation is low and relatively efficient. Since opening up the gaming industry in 2002, Macau has attracted more foreign investment, spurring tourism and overall consumption. Other growth areas include finance, insurance, and real estate.

Macau scores well above the world averages in eight of the 10 economic freedoms. The financial sector is modern, competitive, and free from state influence. The overall business environment is efficient and streamlined. As a free port, Macau has long benefited from global commerce. Property rights are well respected, and Macau's score is more than 15 points above the world average. Corruption is perceived as significant.

Background Back to the top

Macau became a Special Administrative Region of China in 1999. Like Hong Kong, it retains much of its historical political governance structure and economic system, though its chief executive is appointed by Beijing. Macau opened its gaming sector to foreign investment in 2002 and is now the world's largest gaming center; gambling revenues totaled over $10.6 billion in 2007, and direct taxes on gambling account for well over half of all government revenue. Macau continues to host a significant but contracting textile and garment industry. Its economic fortunes are tied to China and Hong Kong, and its currency enjoys full convertibility with the Hong Kong dollar, which is pegged to the U.S. dollar.

Business Freedom 60.0 Back to the top

Macau's overall regulatory environment is transparent and efficient, and it takes three to four weeks to incorporate a company. License requirements vary by type of economic activity. General business activity such as retail, wholesale, and business consultancies does not require a license application. A one-stop shop assists investors with company registrations and other relevant procedures.

Trade Freedom 90.0 Back to the top

Macau's weighted average tariff rate was 0 percent in 2007. Some import restrictions, services market access restrictions, import taxes, import and export licensing, non-transparent regulations and government procurement, and problems with the enforcement of intellectual property rights add to the cost of trade. Ten points were deducted from Macau's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 79.3 Back to the top

Except for the gambling industry, taxes in Macau are generally low. The top income and corporate tax rates are 12 percent. Gaming taxes account for a large percentage of government revenue (over 75 percent last year) and act as the primary corporate tax. Gross casino revenues are subject to a 35 percent direct tax and an additional 4 percent social contribution tax. In the most recent year, overall tax revenue as a percentage of GDP was 20.1 percent.

Government Size 93.2 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 15 percent of GDP. Despite rising expenditures, there is a budget surplus.

Monetary Freedom80.3 Back to the top

Inflation is moderate, averaging 5.4 percent between 2005 and 2007. Macau's currency is closely tied to the Hong Kong dollar, which is also freely accepted. Macau has had a transparent and non-discriminatory free-market economy since 1999. No products are subject to price controls or administered prices. Prices for bus fares, taxi fares, and such public utilities as water, electricity, telephone, and the postal service are administered or monitored. Five points were deducted from Macau's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom70.0 Back to the top

Foreign investors generally may establish companies, branches, and representative offices. Regulations and bureaucracy are generally efficient and transparent, but there is corruption. Profits, investment capital, earnings, loan repayments, lease payments, and capital gains can be freely converted and remitted. Most exporters must convert 40 percent of foreign currency earnings into the domestic currency. Land ownership is subject to restrictions.

Financial Freedom70.0 Back to the top

Macau's financial system functions without undue government influence but is not fully developed. It employs less than 3 percent of the labor force, and banks account for about 98 percent of total assets. Credit is allocated on market terms, and sound regulation and supervision assure free flows of financial resources. Easy access to financing enhances private-sector activity. The Monetary Authority of Macau, a quasi-central bank, supervises the financial system. There are 28 banks, including 16 foreign bank branches. The Postal Savings Bank is the only banking institution wholly owned by the government. Macau has no stock exchange, but domestic firms are allowed to list in Hong Kong's stock markets.

Property Rights60.0 Back to the top

The legal system is based largely on Portuguese law. The territory has its own judicial system with a high court. Macau is a member of the World Intellectual Property Organization and has acceded to the Bern Convention for the Protection of Literary and Artistic Works. Patents and trademarks are registered. Copyright laws are TRIPS-compatible, and government offices must use only licensed software. The government devotes considerable attention to enforcing intellectual property rights and coordinates with copyright holders. It has made a particular effort against optical disc piracy and claims to have closed all illicit optical disc production lines. Piracy of television signals (and much U.S.-origin program content) is rampant.

Freedom From Corruption57.0 Back to the top

Corruption is perceived as significant. Macau ranks 34th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The Commission Against Corruption has powers of arrest and detention. Its budget and manpower have increased, and a public outreach campaign has led to a significant increase in the number of complaints handled.

Labor Freedom60.0 Back to the top

Macau has relatively flexible labor regulations. The government sets minimum standards for the terms and conditions of employment. Severance payments range from seven to 20 days' salary per year of service. There is a minimum wage for cleaning and security services in the public sector.