Macao SAR at its silver jubilee: Towards greater economic diversification

Editor's note: Alexandr Svetlicinii, a special commentator on current affairs for CGTN, is associate professor of Global Legal Studies at the University of Macau, where he also serves as program coordinator for the Master of Law in International Business Law. The article reflects the author's opinions, and not necessarily the views of CGTN.

December 20, 2024, marks the 25th anniversary of the establishment of the Macao Special Administrative Region (MSAR) of the People's Republic of China (PRC). Twenty-five years ago, on December 20, 1999, the PRC resumed the exercise of sovereignty over Macao under the "one country, two systems" policy, which entails two inter-connected parts: The unity between the Chinese mainland and the MSAR ("one country" part) and the autonomy of the MSAR in organizing its political, economic, and social structures ("two systems" part).

In practice, "one country, two systems" allowed Macao to preserve its low tax status and significantly expand the revenue from the tourism and leisure industries. By remaining a distinct customs territory, Macao maintained an open door to the world by implementing a free trade policy without foreign exchange controls, and safeguarding free movement of goods, intangible assets and capital. Since 2003, the MSAR benefited from the Closer Economic Partnership Arrangement with the Chinese mainland including preferential access to the mainland’s markets for the purposes of trade and investment.

The MSAR's economic development and its economic diversification efforts were continuously supported by the central government in Beijing. The MSAR can play a special role within the Belt and Road Initiative (BRI) by enhancing China's connection to the world and further intensifying its economic growth. As part of the BRI, the central government sought to further integrate its two SARs – Hong Kong and Macao – by leveraging their strong points and creating synergies for more sustainable regional development. In 2017, in the presence of Chinese President Xi Jinping, Macao officials signed the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area (GBA). The GBA project is an ambitious plan of integrating the three constituent parts of the GBA with their distinct economic, social, and legal structures in order to foster synergies for mutual development and enhance the international competitiveness of the region.

The gradual construction of the GBA over the past five years has witnessed impressive infrastructure projects facilitating exchanges between the constituent parts of the GBA region. The Hong Kong-Zhuhai-Macao Bridge (HZMB), the longest sea-crossing bridge in the world, completed in 2018 , significantly improved connectivity within the GBA by reducing the time and costs required for transportation of passengers and goods between the three cities. In the past two years, travel between the GBA cities was further facilitated by allowing Hong Kong and Macao residents to use their private cars for travel to the Chinese mainland and enjoy exemptions from customs duties.

The enhanced flow of goods and people within the GBA was accompanied by increases in capital flow and investment. The year of 2021 saw the establishment of the GBA cross-boundary Wealth Management Connect (WMC) scheme, which allowed qualified GBA residents to invest in wealth management products offered by banks in each other's markets. The WMC scheme offers new business opportunities for financial institutions in the GBA and allows GBA residents to diversify their investment portfolios.

While Hong Kong and Shenzhen preserve their lead in financial sector development, the construction of the GBA offered additional opportunities for diversification of Macao's financial service industry. In 2023, Macao launched trading of Daily Revenue Obligations (DROs) on the Micro Connect Macau Financial Assets Exchange (MCEX) focusing on providing funding to SMEs in exchange for part of their daily revenues. This supplemented the existing Chongwa (Macao) Financial Asset Exchange (MOX) used for bond offerings. This platform has achieved a recent linkage with the Luxembourg Stock Exchange, which allows a dual trading of the MOX-listed securities. These examples suggest that in the competitive market of financial services, the MSAR can find its niche within the GBA by providing funding for Chinese SMEs and further developing cross-border bond issuance markets with Luxembourg and other jurisdictions.

The unprecedented economic growth stemming from economic exchanges with the Chinese mainland, primarily in the service industry, allowed the MSAR to reach a GDP per capita of more than $134,000 in 2024, making it the second wealthiest territory in the world. While the tourism and leisure industries account for a substantial part of the region's revenues, the development of the GBA offered further opportunities for economic diversification. Thus, after celebrating its silver jubilee in 2024, the MSAR is expected to continue moving forward on its path towards moderate economic diversification.

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