Structural reform can drive Macao's growth

In the two decades since its return to the motherland, the Macao Special Administrative Region's economy has made great achievements thanks in no small measure to the Chinese mainland's expanding economy, the central government's preferential policies and the efforts of hardworking Macao residents.

Macao's economy has grown rapidly, especially after the mainland joined the World Trade Organization in 2001, launched the Individual Visit Scheme for Hong Kong and Macao in 2003, and began opening up the gambling industry in the SAR and launched the yuan's internationalization process.

In the two decades preceding its return to China, Macao's average GDP growth rate was 4.9 percent, while the average GDP growth rate in the two decades since its return has been as high as 8.1 percent. Macao's GDP grew from 103.4 billion Macao patacas ($12.82 billion) in 1999 to 416.2 billion Macao patacas in 2018. And at the end of last year, Macao's per capita GDP was $82,000, second highest in the world, with the International Monetary Fund saying it could be the highest by next year.

Macao's rapid economic growth has led to a sharp decline in its unemployment rate－from 6.3 percent before its return to China to 1.8 percent this year－and accumulation of huge fiscal and foreign exchange reserves, which respectively accounted for 122 percent and 39 percent of its GDP in 2018.

Moreover, Macao's public debt is zero, and its financial and real estate markets, and external account have all remained stable, which has been praised by the IMF.

In its Article IV consultation report on the SAR in May, the IMF commended Macao's macroeconomic performance over the years, which has made its per capita income the second highest in the world. The report also said prudent macroeconomic policies and high reserves provide strong buffers against shocks for the SAR.

Expecting Macao's financial sector to remain sound with healthy liquidity and asset quality, the IMF report said the current macro-prudential housing stance and related fiscal measures appear generally appropriate, and systemic risks in the housing market seem broadly contained. It also said the exchange rate peg has provided monetary stability, continues to serve the SAR well, and should be maintained.

In the IMF's assessment, Macao's external position is substantially stronger than indicated by the medium-term fundamentals. Such high praise from the IMF is not easy for an economy that centers on the gambling industry to get.

No matter which economic index we use, Macao has achieved a miracle in terms of economic growth since its return to China. And thanks to the rapid economic growth, the SAR government has decided to improve Macao residents' livelihoods by adopting a series of re-distribution policies including cash sharing, tax cuts, fiscal subsidy and affordable housing. Macao has set a good example of a small but affluent economy in China.

Yet Macao's economic growth still faces many challenges, and moderate and diversified economic development is necessary for its sustainable and healthy economic growth. So Macao should focus on three aspects to achieve sustainable development.

First, it should have a foolproof plan on how best to utilize its limited land area, especially since the lack of land is restricting its development. Macao's total land area is only 31 square kilometers, but it has a population of 670,000, which makes the Macao peninsula one of the most densely populated places in the world. So how to deal with its limited land problem should be Macao's top priority.

Second, the ratio of the gambling industry in the SAR's industrial structure is very high, which means its economy is highly vulnerable to economic fluctuations. Since its fiscal revenue greatly depends on the gambling industry, the Macao government should enhance the SAR's economic structural diversification, and promote emerging industries such as the conference and exhibition sector.

Third, Macao's aging population has become a serious problem, which could lead to declining productivity and create a heavier economic burden on the SAR government. As such, the Macao government should take appropriate measures to overcome the negative impacts of the aging population.

Maintaining rapid and high-quality growth is of great significance to not only Macao but also the entire country and the success of "one country, two systems". In this context, Macao can maintain the pace and quality of its economic growth by helping build the Guangdong-Hong Kong-Macao Greater Bay Area, because experts believe the SAR's economy will step into a new era of high-quality development after the greater bay area is constructed.

Shu Youjun is office director of the Bank of China, Macao branch, and Ding Meng is a senior analyst with the Bank of China, Macao branch. The views don't necessarily reflect those of China Daily.