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Cablegate: Macau's 2008 Investment Climate Statement

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

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