Macaus Path To Economic Diversification
The free flow of goods and services, money and capital has turned Macau into one of the most liberal trading regimes in the world
. This free trade approach is of vital importance to the regions economic survival as it boasts limited natural resources and a very small domestic market.Economic development
Since the liberalization of its gaming sector in 2002, Macaus economy has expanded rapidly with significant investment in new hotels, casinos and convention facilities by developers from Hong Kong, Australia, and the United States. In 2011, the regions GDP expanded by 20.7 percent in real terms to MOP292.1 billion, with a 41.9 percent increase in gross gaming revenue and a 79.4 percent surge in public investment.
However, with the global economic downturn, the city only reported a 7.3 percent year-on-year GDP increase in real terms in the second quarter of 2012, after 12.6 percent growth in the first quarter. This slowdown was mainly due to a deceleration in gaming services, total visitor spending and investment. Gambling has been especially affected, and revenue in May registered a 7.3 percent increase, the slowest growth rate witnessed since July 2009.
Macaus gaming industry
Since being legalized in the 1850s, gaming has always been an important source of revenue for the government, and from 2000 onwards, direct tax on gambling accounts for well over half of the total government revenue. Having surpassed Las Vegas in 2006, the city now represents the worlds largest gaming capital. Last year, gaming revenue in Macau rose by 41.9 percent, reaching MOP267.87 billion, more than five times the gaming revenue of the Las Vegas Strip.
Why economic diversification?
The monopoly status of the gaming industry in the economy presents an unstable factor to the sustainable development of Macau. The fast expansion of the industry has gathered a great deal of production resources, thereby squeezing the development space of other industries; for example, of the regions 321,000-strong work force, 24.8 percent of them are employed in the gaming industry. Rapid development of the gaming industry and a shrinking of none-gaming industries has increased the regions dependence on casino revenue, leaving the whole economy incredibly fragile.
The spread of H1N1 flu in 2009 is a good example, where the downward slide in tourist arrivals caused by the flu seriously impacted Macaus gaming industry and in the first quarter of 2009, the region witnessed a decline of 12.9 percent in GDP growth. Moreover, as the citys gambling business is heavily dependent on tourists from the Mainland China, any hiccup in Chinas economy is likely to have a direct adverse impact on the regions economy.
This over-reliance on the gaming industry has made the Chinese central government worried about the citys sustainable development. During Chinese Premier Wen Jiabaos visit to Macau in 2010, he warned the region not to rely on the gaming industry, and in his meeting with the regions chief executive a year later, he suggested that the local government should prepare a strategic plan to diversify the regions economy. Ever since then, economic diversification has become the overlying direction of the regions economic development.
Spotlight on Hengqin
The Hengqin Project was first brought to the table in January 2009 by Chinese Vice President Xi Jinping, who is convinced that the development of Hengqin Island will provide new areas for development and diversification within Macaus economy. This view is echoed by the present chief executive of Macau, who highlighted that making use of the Hengqin Development Zone and expanding cooperation with neighboring regions can help to diversify the local economy.
As Macau is quite small in size, the government is thinking about ways to expand the scope of attraction outside its current domain. AsChinas southern door to the world, Hengqin triples Macau in size, providing the city with the necessary space to build facilities that are essential for leisure tourism, such as wetland parks and theme parks, as well as new resorts and hotels closer to nature. Hengqin will also offer many precious opportunities to small and medium-sized enterprises, especially in the areas of medical science and innovative industries. A formal document titled the Administrative Measures on Registration of Hengqin Zhuhai Special Commercial and Economic Zone has been promulgated to create a better business environment by simplifying registration formalities.
Tough road ahead
The road to develop a diversified economy will be long and difficult. Construction of proper infrastructure in Hengqin may take decades and other elements, such as adequate transport capacity, need to be completed in the coming decade before the region can really diversify away from its existing gaming-based economy. Moreover, as the gaming industry is already making a large amount of profit, investors willingness to invest in new areas appears to be fairly low. However, as long as economic development heads in the right direction, Macau will eventually get there.
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