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Cablegate: 2010 Investment Climate Statement for Macau

VZCZCXYZ0000
RR RUEHWEB

DE RUEHHK #0086/01 0151019
ZNR UUUUU ZZH
R 151019Z JAN 10
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 9406
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS HONG KONG 000086

SIPDIS

STATE FOR EAP/CM AND EB/IFD/OIA

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD KTDB OPIC USTR HK CH
SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT FOR MACAU

REF: 09 STATE 124006

Openness to Foreign Investment
------------------------------

1. 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", Macau is promised a high degree of autonomy in
economic matters and its economic system is to remain
unchanged for fifty years. Since reversion, the Macau
Government has maintained a transparent, non-discriminatory
and free market economy. Macau has separate membership in the
World Trade Organization (WTO).

2. Macau is heavily dependent on the gaming sector and
tourism industries. Exports of manufactured goods, once an
important pillar of Macau,s economy, began to decline after
the elimination of the multi-fiber agreement in 2004 and are
no longer a significant business sector. 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,s 2009
gaming receipts exceeded those of the state of Nevada and
Atlantic City combined, totaling almost US$15 billion, and
accounting for almost 70 percent of Macau,s GDP. The
Government hopes to diversify Macau's economy by attracting
foreign investment in non-gaming sectors and is committed to
maintaining an investor-friendly environment.

3. Corporate taxes in the non-gaming sector 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. Gaming revenue is taxed at
a higher level, with the government taking 39 percent of
gross receipts.

4. 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.

5. The Government liberalized the telecommunications sector
in 2001, including opening the market for mobile phone 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 to a company
operating a Code Division Multiple Access (CDMA) network. In
October 2006, the Government issued three 3G licenses, and 3G
operators began providing their services in October 2007.

6. Certain requirements are imposed on three professional
services sectors as described below. Under Macau law (Decree
Law 14/95/M, 22/96M and 22/97/M), qualified professionals and
executives may apply for the right of temporary residency.

-- Education - an individual applying to establish a school
must have a Macau Certificate of Identity or have the right
to reside in Macau. The principal of a school must be a Macau
resident.
-- 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.
-- 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 Chinese or Portuguese.
After passing the examination, foreign lawyers are required
to serve an 18-month internship before they are able to
practice law in Macau.

Conversion and Transfer Policies
--------------------------------

7. 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 MOP8.02 = 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.

8. Although Macau imposes no restrictions on capital flows
and foreign exchange operations, exporters are required to
convert forty percent of foreign currency earnings into MOP.
This legal requirement is not applied to tourism services.

Expropriation and Compensation
------------------------------

9. The U.S. Consulate General is not aware of any
expropriation actions. Expropriation of property is allowed
by law if it is in the public interest. In such cases, the
Macau SAR Government is required to exchange the private
property with an equivalent public property based on the
valuation and conditions of the property. Although we are
unaware of this provision ever being invoked, Macau officials
assert that the exchange of property is in accordance with
established principles of international law. There is no
provision in law for remunerative compensation.

Dispute Settlement
------------------

10. The U.S. Consulate General is not aware of any
investor-SAR disputes involving U.S. or other foreign
investors or contractors and the Macau 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.

11. 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.

12. Macau's legal system is based on the rule of law and the
independence of the judiciary. Macau,s commercial and
bankruptcy laws (Decree 40/99/M) are derived from Portuguese
law and reflect the continental legal tradition. 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. Macau's dramatic economic expansion in
the last few years, combined with a shortage of qualified
jurists, have put a strain on the operations of the judicial
system, leading in some cases to delays in case resolution.

Performance Requirements and Incentives
---------------------------------------

13. To attract foreign investment, the Macau SAR Government
offers investment incentives to investors on a national
treatment basis. These incentives are categorized as fiscal
incentives, financial incentives and export diversification
incentives and are contained in Decrees 23/98/M and 49/85/M.
They are 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 Macanese residents own shares.

14. Fiscal incentives include full or partial exemption from
profit/corporate tax, industrial tax, property tax, stamp
duty for transfer of properties, and consumption tax. 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
companies and trade associations attending trade promotion
activities organized by Macau Trade and Investment Promotion
Institute. Only companies registered with Macau Economic
Services may receive subsidies for costs of space rental and
decoration, production of audio-visual materials, etc. Macau
also provides other subsidies for the installation of
anti-pollution equipment.

Right to Private Ownership and Establishment
--------------------------------------------

15. Macau law and regulations provide for the right of
foreign and domestic private entities to establish, acquire
and dispose of interests in business enterprises.

Protection of Property Rights
-----------------------------

16. 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 may
use an expedited prosecution arrangement to speed up
punishment of accused retailers of pirated products, but
given the low level of goods piracy, prosecutions are rare.

17. The Macau SAR Government claims to have closed down all
illicit optical disc production lines. Piracy of television
signals (and much U.S.-origin program content) is rampant,
however. The Government does not have a clear position on
criminal liability for commercial end-use piracy of
copyrighted works. The Consulate General continues to raise
these issues with Macau officials.

18. Starting January 1, 2010, the Macau SAR Government sped
up the registration processes for trademarks and patents by
doubling the publication frequency of applications to two
times per month.

Transparency of Regulatory System
---------------------------------

19. 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.

Efficient Capital Markets and Portfolio Investment
--------------------------------------------- -----

20. Macau allows free flows of financial resources. Foreign
investors can obtain credit in the local financial market.
There are twenty-seven financial institutions in Macau,
including twelve local banks and fifteen branches of banks
incorporated outside Macau. Moneychangers, remittance
companies, and other non-bank financial companies are also
present in Macau. These institutions provide a range of
credit instruments. Mainland Chinese and Portuguese banks had
a combined market share of about 80.6 percent of total
deposits in the banking system at the end of October 2009.
Total deposits amounted to US$ 25.4 billion in September
2009. In September 2009, banks in Macau maintained a capital
adequacy ratio of 16.05 percent, well above the minimum eight
percent recommended by the Bank for International
Settlements. Accounting systems in Macau are consistent with
international norms.

21. In December 2009, the Macau Monetary Authority signed a
memorandum with the People,s Bank of China to develop the
Renminbi (RMB) settlement mechanism for cross-border trade.
According to the memorandum, the quota on the value of RMB
exchange for each individual transaction will be increased
from RMB 6,000 (USD 878) to RMB 20,000 (USD 2,928). The list
of designated merchants who are allowed to exchange RMB for
Pataca from Macau banks will be expanded to include
institutions that provide telecommunications, education and
exhibition/convention services. In addition, Macau residents
will be allowed to use RMB cheques to pay for consumer
spending in Guangdong Province up to RMB 50,000 (USD 7,320)
per account per day. The implementation timeframe for these
RMB-related measures remained uncertain as of year-end 2009.

22. Macau has no stock market, but companies can seek a
listing in Hong Kong's stock markets. Macau,s financial
regulators cooperate with their Hong Kong counterparts.

23. Under the Macau Insurance Ordinance, the Monetary
Authority authorizes and monitors insurance companies. There
are eleven life insurance companies and thirteen non-life
insurance companies in Macau. Total gross premium income from

insurance services amounted to US$ 299.2 million in the first
nine months of 2009.

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.

Competition from State-owned Enterprises
----------------------------------------

25. Macau,s gaming sector accounts for over 70 percent of
the local economy. The Macau SAR Government has no ownership
in any gaming companies. Several economic sectors )
including cable television, telecommunications, electricity,
the airport and port management are run by private companies
under concession contracts from the Macau SAR Government. The
government holds a small percentage of shares in these
government-affiliated enterprises ranging from one to ten
percent. The government set out in its 1999 Commercial Code
the basic elements of a competition policy to restrict
commercial practices that can distort the proper functioning
of markets, but there is no independent competition law.
Court cases related to anti-competitive behavior remain rare.

Corporate Social Responsibility
-------------------------------

26. The six gaming concessionaires that dominate Macau,s
economy pay two percent of gross gaming revenues to the
government to fund cultural and social programs in the SAR.
Several operators also directly fund gaming addiction
rehabilitation programs. Some government-affiliated entities
maintain active CSR programs. For example, electric utility
Companhia de Electricidade de Macau sponsored Macau,s
regional Special Olympics program in January 2010, and the
company,s volunteer programs include education programs and
repair services provided free-of-charge to underpivileged
residents.

Political Violence
-----------------

27. 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.

Corruption
----------

28 Macau's anti-corruption agency is caled the Commission
Against Corruption (known by its Portuguese acronym CCAC).
The CCAC has powers of arrest and detention. Its budget and
manpower have been increased in recent years. Macau's
explosive economic growth, a public outreach campaign to
encourage reporting, and increased CCAC resources have led to
significant increases of corruption cases in recent years.

29. The highest-profile corruption case to date was leveled
at Macau's Secretary for Transport and Public Works, Ao Man
Long, who was arrested in December 2006. The CCAC reported
that Ao had received bribes from real estate and construction
companies in excess of US$23 million in return for contracts
and approvals in 20 public works projects. Assisted by family
members and others, Ao used shell companies in Hong Kong and
the British Virgin Islands to launder money. On January 30,
2008, he was convicted on 55 counts and sentenced to 27 years
in prison. In addition, US$31.5 million of his assets were
seized, including assets not directly linked to his
corruption and money laundering cases. His wife was sentenced
in absentia to 23 years in jail. His father, younger brother
and sister-in-law were convicted of 6-14 counts of money
laundering, and were sentenced to 10-18 years.

30. In 2009, the Director of the Financial Services Bureau
was forced to take indefinite leave when it was discovered
that she and two subordinates had inflated reimbursement
claims to defraud the government out of almost US$500,000.

31. Until 2009, the CCAC's overall effectiveness remained
constrained by legislation limiting the scope of its
authority to government - but not private - sector
corruption. In August 2009 the Legislative Assembly passed
amendments that will empower the CCAC to also investigate
private sector corruption. The bill will become effective
from March 1, 2010.

Bilateral Investment Agreements
-------------------------------

32. Macau has signed investment protection agreements with
Portugal and the Netherlands.

OPIC and Other Investment Insurance Programs
--------------------------------------------

33. Overseas Private Investment Corporation (OPIC) coverage
is not available in Macau.

Labor
-----

34. Macau's unemployment rate in November 2009 was 3.1
percent, down from a high of 6.1 percent in 2003, primarily
due to the increase in gaming facilities and hotels. Rapid
economic growth has increased demand for skilled workers.
Macau has labor importation schemes for unskilled and skilled
workers who cannot be recruited locally, but concerns that
foreign labor will supplant local Macanese workers makes
labor and immigration policy a sensitive political issue. The
Legislative Assembly passed a bill in October 2009
establishing stiff criminal penalties for employers of
illegal migrants. Upon becoming law in the second quarter of
2010, the bill,s provisions will also impede foreign workers
from changing employers in Macau and require them to leave
for six months before applying for a new work permit with a
different employer. As of October 2009, Macau businesses
employ 75,944 foreign workers out of a total workforce of
314,900. The Government uses the proceeds of a 2005 tax on
the import of temporary workers for retraining local
unemployed people.

Foreign-Trade Zones/Free Ports
------------------------------

35. Macau is a free port without foreign trade zones. 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
2009, it provided tariff-free access to Mainland China for
all Macau-origin products and preferential treatment for 41
service sectors. In December 2005, the Government inaugurated
the cross-border industrial zone located between the northern
part of Macau and Zhuhai. Manufacturers have begun operating
in the industrial zone, including one U.S. manufacturer of
gaming tools.

Foreign Direct Investment Statistics
------------------------------------

36. According to the Direct Investment Statistics 2008
compiled by the Statistics and Census Service, there were
2,020 foreign direct investment companies in Macau, employing
106,440 workers. Hong Kong was the largest foreign investor
in Macau, accounting for 36.5 percent of total foreign direct
investment. The United States now exceeds Mainland China as
the second largest foreign investor in Macau, accounting for
20.0 percent of foreign direct investment.

37. Table 1: Stock of foreign direct investment by
country/territory, 2008

Country/Territory US$ Million % Share of Total

Hong Kong 4,037.0 36.5
United States 2,208.0 20.0
China 1,239.1 11.2
Portugal 511.9 4.6
United Kingdom 97.8 0.9
Others 2,959.4 23.9
TOTAL 11,053.8 100.0
Source: Statistics and Census Service


38. Table 2: Stock of foreign direct investment by industry,
2008

Sector US$ Million % of Total

Gaming 7,554.1 68.3
Banks and securities 1,931.4 17.5
Industrial production 398.8 3.6
Hotels and restaurants 56.4 0.5
Transport, storage, communications -10.6
-0.1
Insurance 263.3 2.4
Construction 449.1 4.1
Wholesale and retail 368.4 3.3
Cultural, recreational, services 43.0
0.4
TOTAL 11,053.8
100.0

Note: Total does not sum due to rounding.

Web Resources
-------------

Macao Special Administrative Region Government:
http://www.macau.gov.mo
Macao Trade and Investment Promotion Institute - IPIM:
http://www.ipim.gov.mo/en/index2.asp
Macau Fair & Trade Association: http://www.macaufta.com
World Trade Centre Macau: http://www.wtc-macau.com
MARUT

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