A Study on ContemporaryMini-economiesIeong W. C.，Ieong S. L .，Tang O .K.，Lin S.S.，et al.Union of Macao Scholars

M acao S cho la rs ’ Series V o l.ⅢA S t u d y o n C o n t e m p o r a r y M i n i - e c o n o m i e sIeong W .C .，Ieong S .L .，Tang O .K .，L in S .S .，et al.U n io n o f M a c a o S c h o la r sNovember 2007

ContributorsIeong Wan Chong is a PhD in Economics in Jinan University，Guangzhou and PhD in Law in Renmin University，Beijing. He is currently a senior advisor to the rector，acting director of the Centre for Macau Studies，University of Macau，deputy to the 10th National People’s Congress，PRC，member for the Basic Law Committee of the Macao SAR under the Standing Committee of NPC，member of the Independent Commis- sion for the Recommendation of Judges of the Courts，member of the Economic Commission of the Macao SAR，president of the Union of Macao Scholars，vice-president of the Association of the Lotus Culture of Macao，visiting Professor of Peking University，Beijing，Nankai University，Tianjin，Renmin University，Beijing，Sun Yat-sen University，Guangzhou，Jinan University，Guangzhou and other seven universities，chief editor of the Journal of Macau Studies，and member of the General Editorial Committee of the Grand Encyclopedia of China.His recent publications include Macao Economy in Transformation （1991），Macao and Modern Economic Growth （1992），Macao & the Basic Law of the Macao SAR （1993 & 1995），“One Country，Two Systems” and the Modern Constitutional Science （1996），Macao：A Model of Mini-economy （1997），Annotations to the Basic Law of the Macao SAR （1998 & 2003），The Mini-economy：Its Orientation and Development （1999），Macao 2020- The Long Term Objectives and Development Strategies in 20 Years （2000，chief-author），“One Country，Two Systems” and as Practised in Macao （2002），“One Country，Two Systems” and the Macao SAR （2004，chief-author），Encyclopedia of Macao （1999 & 2005， co-editor-in-chief），A Comprehensive Study on Mini-economies （2006，chief-author），“One Country，Two Systems” and International Competitiveness （2007，chief editor），etc.Ieong Sao Leng was educated in China and the UK with a BA，MA and PhD in English. She is currently an associate professor and Associate Dean of Faculty of Education，University of Macau and vice- president of the Union of Macao Studies. Her recent publications include Children’s Trilingual Picture Dictionary，Macao China （English translation），a Chinese translation of Parker J. Palmer’s The

Courage to Teach （editor）, Classical Chinese Poetry Glowing with the Dynamics of Modernism on Ezra Pound’s Cathay, and over a dozen conference and journal papers including ones published by Common Ground, Australia, ALC Press, Japan, University of Paris, France, and ERIC, USA.Tang On Kei is a PhD Student in Public Administration in Sun Yat-sen University, Guangzhou, Master in Public Administration and BSSc in Contemporary China Studies in University of Macau, Macao. She is currently an administrative officer in the Centre for Macau Studies, University of Macau, secretary-general of the Union of Macao Scholars, executive board member of the Macao Association of Economic Sciences, executive board member of the Macao Inter-regional Public Administration Study Association and supervision board member of the Chinese Association for Human Resource Research. She is the co-author of “One Country, Two Systems” and the Macao SAR （2004） and “One Country，Two Systems” and International Competitiveness （2007）.Lin Son Sam is a PhD Student in Public Finance in Wuhan University, Wuhan, Master in Social Sciences （Economics Programme） in University of Macau and Bachelor in International Trade and Economy and in E-commerce （double degree） in Peking University, Beijing. He is currently a junior research assistant in Centre for Macau Studies, University of Macau and member of the Union of Macao Scholars and the Macao Association of Economic Sciences. He is the co-author of A Comprehensive Study on Mini-Economies （2006）.long Hoi Sun is a PhD Student in International Relations in University of Macau, Master in Public Administration and BSSc in Contemporary China Studies in University of Macau, Macao. She is currently an administrative officer in the Centre for Macau Studies, University of Macau and financial secretary of Union of Macao Scholars. She is the co-author of “One Country, Two Systems” and the Macao SAR （2004） and “One Country, Two S ystem sand International Competitiveness （2007）.

Tsoi Weng Kuan is a Master in European Studies and BSSc in Contemporary China Studies in the University of Macau，Macao.Sheng Li is an invited assistant professor in the Institute for Tourism Studies，Macao，and a PhD in economics in the University of Freiburg，Germany. His research interest mainly focuses on applying economic models in tourism studies. His publications include two monographs，six journal articles，and over 60 essays in various newspapers and magazines，covering various economics and tourism related current issues.Chang Chak Io is a MA and BA in Jinan University，Guangzhou，one of the compliers of Encyclopedia of Macao，an executive board member of the Macao Association of Economic Sciences，Macao Development Strategy Research Centre，Union of Macao Scholars and Macao Gaming Research Association. He has been involved in many research projects in recent years.Tan Fei is a PhD Candidate in Management in Macao University of Science and Technology，Macao，MA in Linguistics in the University of Macau，Macao and BA in Portuguese Language and Culture in the Shanghai International Studies University，Shanghai.Leong Sok Man is a MA in Foreign Linguistics and Applied Linguistics，BA in English Language and Literature and in International Economics and Trade （double degree） in Beijing Normal University，Beijing. She is currently an administrative assistant in Centre for Macau Studies，University of Macau.Language AdvisorThomas Ned Rendall holds a PhD in English from Stanford University，USA and is a well-known linguist and literary scholar.

The Opening Ceremony of the Forum for Cooperation on Economy and Commerce between China and Portuguese-speaking Countries （Macao） on 12th October 2003.The signing of the Mainland-Macao Closer Economic Part­nership Arrangement （CEPA） by An Min，Vice Minister of Commerce of the PRC，representing the Central People’s Government，and Tam Pak Yuen，Secretary for Economy and Finance of the MSAR，representing the MSAR Government.The opening ceremony of the 10th Macao International Trade and Investment Fair hosted by Edmund Ho Hau Wah，the Chief Executive of the MSAR in October 2005.The opening ceremony of the Pan-PRD Regional Cooperation which involves nine provinces/regions and the Hong Kong and Macao SARs in June 2004.

The applause of the Chinese Delegation Team at the moment when “The Historic Centre of Macao” was announced to be inscribed on the World Heritage List by UNESCO.UNESCO World Heritage Committee approved Macao’s application for the World Cultural Heritage status on 15th July 2005.The signing of Supplement Agreement 4 of CEPA by Liao Xiaoqi，Vice Minister of Commerce of the PRC and Tam Pak Yuen，Secre­tary for Economy and Finance of the MSAR on 2nd July 2007.The visit of the 170 representatives of the Travel Industry Council of Hong Kong to Macao in May 2006.

The commercial district in Praia Grande.The commercial district on Avenida Do Infante D.Henrique.The Venetian Macao-Resort-Hotel，a mega-casino complex in the Cotai Strip.Central district of Macao where the buildings of the gaming indus­try are densely situated.

St. Paul’s Ruins 一 the symbol o f Macao.The vigorous expansion o f the property industry in Macao.（Some p ic tu res are p rov ided by the G o v e r n m e n t I n f o r m a t i o n Bureau，M S A R ）Due to the deve lopm ent o f lo g is t ic s，Macao has strengthened the construction o f its internal traffic network.The European-style district o f Largo do Senado.

Location of Twelve Subject Mini-economies and Macao① Tonga ② Bahamas ③ Bermuda ④ Luxembourg ⑤ Monaco ⑥ Liechtenstein ★ Macao⑦ Malta ⑧ Cyprus ⑨ Bahrain ⑩ Seychelles ■ Brunei ■ Fiji

PrefaceThe establishment of the Macao Special Administrative Region （SAR） on 20th December 1999 symbolized the fact that the city has already stepped into a new stage of historical development. The beginning of the 21st century has seen great economic expansions in Macao，which is an international free port and has over 450 years of history. Under favorable policies such as the opening-up of the gambling sector，the launching of the Individual Visit Scheme to Hong Kong and Macao in the Mainland China，and the signing of the Closer Economic Partnership Arrangement （CEPA），the economy of this city has escaped the Asian recession and is starting to recover.At the moment，Macao is enjoying the greatest period of expansion it has ever had，and is attracting attention from all over China and the world. In the years between 1999 and 2006，the GDP of Macao increased from 47.3 billion patacas to 114.3 billion patacas （14.28 billion US dollars），while the actually GDP growth was 16.6％ in 2006 and the GDP per capita is now 227，508 patacas （28，436 US dollars）.The average life expectancy of Macao citizens was 79.3 years in 2005. People here live a peaceful and content life. The World Trade Organization has stated that the trade and investment regime of the territory continues to be among the most free and open in the world. On 26th July 2007，the famous Moody Investor Service upgraded Macao’s foreign and local official currency issues rating from A1 to Aa3. In 2006，Foreign Direct Investment （fD i），a publication of the Financial Times Group，rated Macao as the “Best Economic Potential City” in Asia in the “2005-2006 Best Economic Prospect City in Asia” selection. At the moment，Macao is experiencing a sound period of development in which the rate of expansion is accelerating，economic quality is improving and investment confidence is being enhanced.Macao’s economy is heading forward stably，but Edmund Ho Hau Wah，the Chief Executive of the Macao SAR，has reminded Macao people several times on various occasions that it is of great importance to keep a sense of caution during this peaceful period. The meaning and requirements of keeping a sense of caution vary for different industries and for people with different social roles. Scholars who devote

themselves to academic research have their unique way to meet the Chief Executive’s requirement. Macao scholars share the responsibility of helping the society to keep this sense of caution by carrying out continuous academic discussions at every stage of economic development. They bring together views and opinions from different disciplines and schools of thought，and innovate new approaches and methodologies. With all these careful and comprehensive studies and explorations，they make well timed assessments of the social and economic development of Macao，and they also provide their insightful suggestions for the sustainable development of the city.It is widely known that Macao is a typical model of an island-type mini-economy. Its total area is only 28.6 km2，with a population of around 520，000. The capital，human and natural resources of Macao are rela- tively scarce，which limits the scale and depth of various economic activities. The “mini” characteristic of Macao brings the city a number of advantages and opportunities；yet，at the same time，the uncertainties embedded should not be underestimated. How to avoid the shortcom- ings and continue to develop the merits，thus，becomes an important topic，worth-researching in the study of mini-economies.As a result，based on previous foundations，this research takes the “mini” characteristic of Macao as the starting point，exploring the main features of mini-economies，their regular development patterns and their future perspectives. It is hoped that through systematic，meticulous empirical study and thorough assessments of the economic growth，the successful experiences and hidden uncertainties of some mini- economies with global significance can be presented；thus，some objective and practical strategic suggestions for the economic develop- ment of the Macao SAR can be made. Another aim is to make some contributions to the systematic study of mini-economies，an innovative research topic. By adopting modern economic theories and methodolo- gies and combining specific case studies，the present research hopes to enhance its practicability and academic value. Moreover，the research subject is mini-economies，a kind of economic system which possesses certain influential power but has long been ignored in the academic field.This may help to contribute towards the perfection of the study of modern economics. Since “mini-economies” are a brand-new topic，the present research tries to propose some preliminary ideas on the research

scale，content and method of mini-economies study in a relatively well-knit theoretical framework，which is actually an invitation to more comprehensive research work from our research members.The research group wish to express their sincere gratitude to the Macao SAR government，the authorities of the University of Macau，Macao Economic Services，Macao Foundation and other social organizations who have showed their care and support to this project. It is hoped that this research can serve as helpful reference for the healthy economic development of Macao and the study of mini-economies.Criticisms and comments are heartily welcomed.

C o n t e n t sPreface.................................... ....................................................... xivChapter One Introduction........................................................ 11.1 An Overview of Economic Development ofContemporary World....................................................... 11.2 Theoretical Framework and References........................ 111.3 Research on Economic Growth in Mini-economies......... 171.4 Definition of Mini-economies.......................................... 191.5 Significance of the Study of Mini-economies.................. 24Chapter Two Economic Globalization and the Growth ofMini-economies................................................... 342.1 Globalization and Its Accelerating Development............ 342.2 Assessment of the Positive and Negative Effectsof Economic Globalization............................................... 352.3 Positive and Negative Effects of Globalization onMini-economies................................................................ 442.4 Country Size，Specialization Patterns andEconomic Growth............................................................ 472.5 Structural Vulnerability in the Light of Globalization...... 492.6 Facing Challenges and Seizing Opportunities.................. 512.7 Some Concluding Remarks............................................. 53Chapter Three Common Features of Mini-economies......... 563.1 Comparatively Higher Levels of Overall Development.... 563.2 Unitary Nature in the Structure of Industries................. 583.3 Governments’ Commitment to IndustrialDiversification................................................................. 59

3.4 Pursuit of Free Trade Policies and Greater Openness inForeign Trade................................................................... 603.5 Active Participation in Regional Trade CooperationOrganizations................................................................... 613.6 Mini-economies：Multiply Affiliated to Big Powers........ 613.7 Some Concluding Remarks............................................. 62Chapter Four Case Studies on Typical Mini-economies：A Global Perspective （Ⅰ）..................................... 644.1 The Bahamas.................................................................. 664.2 Bahrain............................................................................ 754.3 Bermuda.......................................................................... 824.4 Brunei............................................................................. 894.5 Cyprus............................................................................. 974.6 Fiji.................................................................................... I l lChapter Five Case Studies on Typical Mini-economies：A Global Perspective （Ⅱ）..................................... 1255.1 Liechtenstein.................................................................. 1255.2 Luxembourg.................................................................... 1335.3 Malta .............................................................................. 1435.4 Monaco........................................................................... 1525.5 Seychelles....................................................................... 1565.6 Tonga.............................................................................. 167Chapter Six The Prospects and Strategies for theDevelopment of Mini-economies..................... 1796.1 The Uncertainties for Mini-economies in the New Era .... 1796.2 Possible Development Strategies for Mini-economies..... 1846.3 Implications for Macao................................................... 1906.4 Some Concluding Remarks............................................. 202

Chapter Seven Macao——A Shining Star amongMini-economies................................................. 2047.1 General Information........................................................ 2047.2 External Relations.......................................................... 2077.3 Business Environment.................................................... 2157.4 Education，Health Care and Social Welfare................... 2187.5 A High Degree of Autonomy.......................................... 2207.6 Economic Structure and Its Competitiveness................. 2237.7 Acceleration of the “Dragon-head” Industry.................. 250Chapter Eight Major Advantages and Constraints of Macao’sDevelopment...................................................... 2678.1 Macao’s Major Advantages............................................. 2678.2 Macao’s Major Constraints and Uncertainties................ 2788.3 Some Concluding Remarks............................................. 290Chapter Nine Orientation and Requirement of Macao’sFuture Development.......................................... 2929.1 Capitalize on the Strengths and Minimize theWeaknesses..................................................................... 2939.2 Some Objectives Needed to be Realized with Full Effort.... 2969.3 A Dream Society............................................................. 2979.4 The Four “Centres” in the Making................................. 2999.5 Strategic Planning Needed for SustainableDevelopment.................................................................... 3019.6 A Well-Planned Development Consciousnessis Needed........................................................................ 301Chapter Ten Final Conclusion................................................. 308Postscript....................................................................................... 310Bibliography .................................................................................. 312

I n t r o d u c t i o nSince the beginning of the 20th century，human civilization has been progressing on a scale and at a velocity that has never been seen in history，bringing about drastic changes on all fronts of human activities.In the 20th century，mankind has witnessed roughly three historical periods：the wars and revolutions lasting for nearly half a century from 1900 to 1945，a period of peace and development from 1946 to 1990，and the economic globalization that began in about 1991 and is now accelerating at an unprecedented speed. The existence of opportunities and challenges，successes and risks，and the diversifications，acceleration and optimum quality of economic pursuits have had a profound impact on the theories of economics，and naturally created a boundless space for economists to explore and reflect on. However，for years enormous research and attention has been focused on big powers and on highly developed economies，especially on the traditionally advanced economies of Europe and North America，while mini­economies struggling to survive in the world have been grossly ignored and their laws of development hardly touched on. As Macao is typical of mini-economies and there is a lot for Macao to learn from similar economies for its sustainable development，this book is an attempt at rethinking and responding to the issues relating to mini-economies from a new perspective.1.1 A n O v e rv ie w o f E c o n o m ic D e v e lo p m e n t o f C o n te m p o ra ry W o r ldThe leading theme of an era constitutes the main content of international relations，and summarizes the fundamental1

characteristics of the world and its trends of development.1 In discussions of economics and economies of the world，authors may differ in their views and in defining the historical periods and their themes，depending on their observations and preferences. Over the past century，especially since 1970s-1980s，thanks to institutional reforms and the impact of science and technology，the majority of countries and regions have made fast progress in their economic development，but in general and overall，we can divide the world economy of the last hundred years into three periods，each focusing on one unique theme. They are “wars and revolutions，” “peace and development” and ‘‘economic globalization，” which can objectively serve as a common ground for discussions.1.1.1 The Development of World Economies in Context of Wars and Revolutions （1900-1945）The world experienced a period of wars and revolutions during 1900-1945. After long struggles and preparations，the Bolsheviks succeeded in their revolution in Russia in 1917，and established a new socialist power that existed side by side with the capitalist powers.During and after World War I，the great thinker，Vladimir Lenin，having analyzed the development stages of capitalism from late 19th century to early 20th century，pointed out that capitalism had developed into the stage of monopoly capitalism，i.e.，the stage of imperialism，in which all fundamental conflicts and contradictions of the world were critically intensified.2 From Lenin’s analysis we can see that the global scrambling for hegemony by big powers had thrown the world economy into chaos and the only way to get out of it was to change the existing system by revolution and force. The outbreaks of the two world wars，with all the unforgettable events，have given mankind many a lesson to learn. It was during this period that two important events happened that would bear profoundly on the development of world economy. One was the “New Economic Policy” put forward by Vladimir Lenin and the other，the “New Deal” led by the 32nd US President，Franklin D. Roosevelt，signaling the thematic change of world economy.Lenin’s “New Economic Policy” focused on the opening up of markets，invigorating rural economy，reforming the operations of state enterprises，practicing free trade and introducing foreign investment.

The “New Economic Policy” was a theoretical initiative，an experiment trying to make the market system and its mechanisms compatible with socialism，indicating that the planned economy under the traditional socialist system would sooner or later gave way to market economy through reform and restructuring. This restructuring was not intended to split the integration of the world economy and the unity built on market economy；rather，it aimed at materializing this integrity and unity through various approaches characterized by national features. However，owing to the premature death of Lenin and the over-concentration of power after Joseph Stalin took over power，the “New Economic Policy” failed to be carried out. The ensuing bureaucratic planned economy led to poor efficiency and lacked international competitiveness，which was also a remote cause for the collapse of the Soviet Union in the early 1990s.Franklin D . Roosevelt pledged the “New Deal” for the country during the campaign of 1932. He embarked on an active state economic involvement to combat the Great Depression. The first “New Deal” （1933-1934） was concerned primarily with restarting and stabilizing the economy and the second “New Deal” （1935-1939） with social reform.The “New Deal” aimed at integrating finance，industry，agriculture and transportation，developing infrastructure and public works and utilities，and boosting market demands and economic development to solve the contradictions between over-production and low demands. Its significance lies in the exposition that the smooth development of modern market economy depends on the “invisible hand” of the market mechanisms as well as the “visible hand” of government intervention.This was a nation-wide experiment with Keynesianism and succeeded in getting the United States out of the Great Depression of the 1930s.Table 1-1 lists the major economic events of this period，which are representative of an era of wars and revolutions. The first period of the 20th century history consisted of two world wars，the development of modern capitalism and the rise of socialism in Russia. It was also the period of the beginning of the modernization process of world economies in developed countries，the development of the second technological revolution and the preparation for the third technological revolution.3

Table 1-1 Major Economic Events of the World 1900-1945Year Major Events1900The 6th Economic Crisis of the World in 1900；the US President, William McKinley promulgated by law that the gold standard system be adopted.1903The Ford Motor Company sold its first automobile in Detroit； the Wright Brothers succeeded in first flight； the Union of Tariffs Reform of the British Empire was established.1904British engineer Henry Rice completed the double-cylinder 10-hp car；the Iron and Steel Union of Germany was established.1906General Union of Labor, Italy was founded； the US Government imposed sanctions against John Rockefeller’s Standard Oil Company under the Sherman Antitrust Act formulated in 1890.1908Trusteeship was spreading in the US；the General Motors Corporation was founded in New Jersey, USA.1911Japan and the US signed the “New Trade and Navigation Agreement”；the US Supreme Court ordered the breakup of the Standard Oil Company into 33 independent companies.1914 World War I broke out and lasted for 4 years.1919Britain resumed the practice of the Most Favorable Tariffs System of the British Empire.1920The League of Nations was established； the first economic crisis of the world took place in major capitalist countries, including the US, Britain and Japan；wireless broadcasting started in the US.1921 Belgium and Luxembourg formed a tariffs alliance.1925 Britain resumed the gold standard system.1926A Scottish engineer gave a demonstration of the new machine that he had invented which could show/project movies, calling the invention “Television.”1929The Soviet Government implemented a number of economic reforms；American shares plummeted in the Stock Exchange in New York；the Bank of England initiated securities trust.

（continued）Source: Wang，Luolin and Yu，Yongding，Yellow Book on World Economy 2001/2002: An Analysis of World Economy and Predictions，Beijing: China Social Sciences Press，2001，p.281.1.1.2 World Economy in the Context of Post-War Peace and Development （1946-1990）With the detente and easing off of various contradictions and the rise of national capitalism， the world economy experienced a transition from “war and revolutions” to “peace and development.” The concept of “peace” mainly refers to the overall situation of the world， free from world wars， especially from large-scale devastatingly destructive wars. Efforts were also made by peoples of various countries to stop local wars and armed conflicts within a region or a country after World War Ⅱ.4 The post-war world went through a scenario characterized by peace under the shadow of the cold war and the three great blocs of the world - the economic power of developed capitalist countries， the socialist bloc and that of developing countries - all striving for growth and1931The German Government ordered that all banks and exchanges be closed down in order to avoid the collapse of the economy; Japan invaded and occupied by force the three provinces of Northeast China and started a massive war of aggression against China in 1937，causing enormous damage, casualties and untold sufferings to China.1934 The US issued the Gold Reserve Law.1936The International Chamber of Commerce issued “Regulations Governing Trading Terminology and Interpretation 1936”；France abandoned the Gold Standard, resulting in the complete disinte- gration of the Gold Standard-based financial system of the world; the US, Britian and France signed the “Tripartite Monetary Agreement.”1939Britain and France declared war against Germany and World War Ⅱ broke out.1945“United Nations Charter” began to take effect with the establish- ment of the United Nations; the Breton Woods Conference repre- sented by 28 countries led to the official establishment of the International Monetary Fund （IMF） and the World Bank.

development. The second period of modern world history，i.e.，contemporary world history，started with the end of World War II in early September 1945 and closed with the collapse in the early 1990s of the Soviet Union and East European socialist bloc，which marked the end of the Cold War and the decline of the Yalta world order. While the first period （1945-early 1990s） was characterized by the Cold War between socialism and capitalism，the second （beginning from early 1990s） was a period of coexistence and competition between economic globalization and political diversification.5 After the World War II，the world did not see causes leading to world wars. Indeed，during the East-West Cold War period under opposing systems，the contradictions among the major Western powers greatly diminished and they strengthened political and military cooperation in their joint efforts to fight against the Soviet Union and resist “the threats from the communist world.” Starting from the 1980s，there were efforts at massive disarmament. In July 1991，the Soviet Union and the US signed the “Treaty on the Reduction of Strategic and Offensive Weapons.” While the two super powers were engaged in an armament race，the European economic powers，by way of integration，and Japan，by way of intensive economic development，also became great economic powers，thus forming a tripartite economic base for contemporary capitalism.The economic integration of the European Union began with a tariffs alliance followed by common agricultural policies，deepening internal market reforms，and the unification of currencies into the Euro.A whole set of management and monitoring mechanisms were also established. At the same time the members of the Union were also vigorously engaged in the integration of foreign affairs，defense and social affairs. The European Union has become the greatest world economic bloc with the highest degree of integration，strong enough to compete with the US and powerful enough to play an exemplary role for other regions. Japan succeeded in its economic rise by following the road of peaceful development and had overtaken the US in its GDP per capita by late 1980s，thus becoming the second economic power of the world. After the East-West antagonism，the US took the lead in integrating Western economic powers，established a world monetary system based on the US dollar and helped maintain a stable exchange rate by pegging the US currency with gold reserves and pegging other currencies of the world with the US dollar so that an international

economic and trade order was established on the basis of the US dollar. In the meantime， Joseph Stalin put forth a closed-door policy of “Two Parallel Markets，” thus permanently excluding the economy of the socialist power from the world system and resulting in the economic backwardness and the eventual collapse and disintegration of the Soviet Union， deteriorating with the misguided policies of M. S. Gorbachev and B.N. Yeltsin.The developing countries were also rising as a whole in the economy of the world， but due to discriminative restrictions imposed by developed Western economic powers in the form of trade barriers and quota systems， the north-south divide is still widening. The only exceptional case of surprise is China. China， as a great ancient civilization of the East， having summed up and drawn a lesson from her experiences of three decades after the founding of the People’s Republic of China （PRC）， carried out opening up and reform policies under the guidance of Deng Xiaoping and his new concepts and achieved rapid and continuous economic growth for over three decades. In 2006， China’s GDP reached 21，087.1 billion （2，811.6 billion US dollars） with a growth rate of 11.1％.6 During the period 1978-2006， China maintained a stable annual economic growth rate of more than 9.5％， with the country’s GNP currently ranking the fourth （after the US， Japan and Germany） in the world， turnover of foreign trade ranking third， and foreign exchange reserves totaling 950 billion US dollars by the end 20067 ranking the country top in the world. China has already accounted for 4％ of the world’s GDP total quantity in four consecutive years （2003-2006）， drawing a growth of 15％ of the global economy. This contributes approximately 1.5 trillion US dollars for the world’s GDP growth in the four years.8 According to The World Competitiveness Yearbook 2007 issued by the International Management Development （IMD）， the ranking of China’s competitiveness has risen 3 grades from the 18th to the 15th in 2007.9 In recent years， China has still maintained its economic growth， which is a double of the world’s average growth rate （Figure 1-1）. According to the famous Japanese entrepreneur Shoichiro Toyota， “China not only has become one of the formidable core countries in the East Asian economy circle， but also has been acting as a new power in the global economic growth. From now on， it can be said that without China’s development， the world will find it difficult to maintain its sustainable development. All countries in the

world have enormous anticipations of China，including Japan and other peripheral East Asian countries.”10 Though China is still a developing country，far from being a big developed power，this vast country with a huge population exceeding 1.3 billion has made remarkable achievements 一 a sensational success story that has stunned the world and won the admiration of other countries and people.The greatest breakthrough in the development of world economy has been achieved in conceptual developments. After World War II，the economic development of the world went through a conceptual evolution from “growth = development，”to “coordinated social and economic development，”and to “sustainable development.” Now “sustainable development” has become the latest consensus for the common development of the humanity，and more and more countries have come to accept it as the most important strategic policy for their social and economic developments.1.1.3 Globalization and Regional Integration：Cross- Century Development of World Economies （1991-）1.1.3.1 The basic characteristicsFrom the 90s of the 20th century，the development of world economies has achieved further acceleration，which was distinguished by the following characteristics：Figure 1-1 GDP Growth of China and the World

① Economic revival has taken place repeatedly in many regions and countries，thus contributing to the general economic recovery the world over.② There has been a dramatic rise in global trade，with bilateral and multilateral trade being the motivating force boosting economic growth.③ There have been impressive increases in international currency flow，with corresponding jumps in foreign direct investments.Multinationals are able to optimize the allocations of their resources，thus contributing to the formation and development of international industries and operations and to the emergence of a knowledge economy in developed countries.④ The integration of regional economies has been accelerating and radiating amidst global competition. Other than the European Union and North American，China and other Asian regions，including the Association of South East Asian Nations （ASEAN），hopefully will further accelerate conformity and development.⑤ The former Soviet bloc or East European markets have been integrated into the West；many developing countries have developed diversified market economies and implemented opening-up policies.The globalization of market economies and vice versa has reinforced the integration and unification of world economies. Economic globalization and economic regionalization，in particular，the unification of economies，has drawn more attention from various regions and countries. Regional organizations for economic cooperation are making more vigorous efforts to extend and speed up the integration process and develop more large-scale economic zones or groups，thus further promoting economic globalization and economic integration.11⑥ Uncertainty and instability in the development of world economies have increased，as revealed by the more frequent financial crises，with far reaching implications and repercussions. In the 21st century，all countries are focusing their efforts on building up their overall national strengths centred on science and technology，giving rise to the growing trend of international competition among and within countries.12⑦ Inequity in world economies is accelerating. On the one hand，the world has seen increasing awareness of environmental protection amidst rapid economic developments；on the other hand，protectionism

in world trade，the so called “green wall，” has been widening the North- South Divide.⑧ Thanks to the unprecedented development of science and technology，especially the breakthroughs in information technology and economic globalization and regionalization （including initiatives in enterprise technology），the world economy will continue to maintain robust growth with fluctuations.⑨ The greatest success in world economies over the past two decades has been made by China by means of opening-up and reform. The peaceful rise of the most populous country in the world is self sufficient with unique features and experience，which will provide valuable lessons and fresh topics of study for both Chinese and international economists to reflect on and learn from.⑩ While North America，the European Union and Japan can maintain a good growing trend，following the Chinese market rapid rise，Russia，India，Brazil as well as South Africa and Mexico，which possess both fruitful natural and human resources and geographical superiority，hopefully one after another will become new members in economic globalization advancement.1.1.3.2 The major tendencyWorld economies are faced with and are undergoing important changes at the beginning of the 21st century. Though cyclical fluctua－ tions in world economies will continue to exist，it is very unlikely that there will be great crises similar to the economic crisis or the Great Depression of the 1930s. Indeed，the first two decades of the 21st century，or even longer，can be a period of stability and opportunities under the influence of the main theme：Peace and Development.Technological revolution has greatly boosted the productivity of human society，triggering great changes to the structure of world economies，shortening the cyclical periods of production and the duration of services.With the acceleration of economic globalization，global trade will go up dramatically，multinationals will be more aggressive in investments，and cooperative activities among countries will increase，all contributing to the prospects of enhancing the progress of human civilization. At the same time，the 21st century could also be a century full of high risks.Though many countries have developed self-protection awareness，the diverging differences in concepts and ideals may lead to conflicts，for

which mankind may have to pay a high price. On the world economic map，the developed countries are always the most profitable. However，development is certainly not the prerogative of just a small number of countries. Those countries which have already developed can maintain their development level；those countries which have not yet developed can accelerate and merge into the developed countries/economies；those ultra and large economic scale countries can lead，and so it is possible for the small and mini economies to develop as carriers of a high economic and social development index. A most obvious phenomenon that we see now is that some mini-economies are playing a unique and prominent role in the mega-trend of world economies and some of them have even become shining success stories.1 .2 T h e o re tic a l F ra m e w o rk an d Re ferencesAll disciplines，including economics，aim to study abstract realities and facts and solve actual problems by following a methodology unique to the specific discipline under discussion. Economics，the study of the allocation of resources among competing ends，the creation and distribution of wealth and national income，is both an ancient and a new integrated discipline. For over two hundred years since Adam Smith （1723-1790），economics has gradually become a positivist discipline with maturing methodology. In his An Inquiry into the Nature and Causes of the Wealth of Nations （1776），Adam Smith，starting from the theory of human nature，maintained that human beings，directed by their self-ego，pursue their individual interests but in the meantime also create general benefits to the whole of society. Under a free market system，free competitions—the “invisible hand”一 will automatically monitor the process of production.David Ricardo succeeded Adam Smith and developed a theoretical system based on labour values，with the theory of distribution at the centre，which exerted great influence on the studies of economics. In its centuries of development，the study of economics has focused on the themes of economic growth，unemployment，inflation，consumption，savings，economic development，etc.，of which economic growth has been the principal concern of mainstream economists. They have made giant strides in their research in recent years. By the 1980s，the ideas emphasizing sustainable development by harmonizing and coordinating nature，economy and

society had become universally accepted.Gu Yuanyang of the Chinese Academy of Social Sciences has pointed out that the mechanism of automatic monitoring of free competition and the law governing the conscious acts guided by rational judgment and reasoning are not mutually exclusive nor mutually conflicting. On the contrary，they play different but equally important roles in our economic system. It is exactly this system that has enabled the economies of North America，Western Europe and Japan to grow rapidly and to have scored incomparable achievements.13 Reviewing the general development of economic studies in recent history，one finds there have emerged a number of schools of economics such as the Swedish Economics，neo-classical economics，Keynesian economics，institutional economics，rational-prediction economics，neo-institutional economics，public choice theory，game theory and behavioral economics.Though they each have different emphases and thrusts in their approaches，they all aim at reflecting as best as they can the fundamental laws of economic growth. And it seems that more attention should be paid to neo-classical economics，Keynesian economics，neo-institutional economics，game theory and the Comparative Economics. Owing to the diversity，complexity and interrelation of mini-economics，this book uses the theories and methodologies of these five schools as its primary approach to research and analysis on this topic.1.2.1 Neo-classical EconomicsTowards the close of the 19th century，A. Marshall，the renowned British economist，had his Principles of Economics published，advo－ cating a policy of laissez-faire and establishing Neo-classical economics by elaborating such vital elements as land leases，interests，wages and profits on the basis of price equilibrium theory.With Paul Samuelson and Robert M. Solow being its principal protagonists，this contemporary mainstream economics，i.e.，neo－ classical economics，has for years dominated the arena of post-war Western economics as the orthodox school. They first focused on using the theory of equilibrium between supply and demand，for example，if the demand equaled the supply in the labour market，the market wage scales would work. They also based their methodology on these three hypotheses：

① Within the economic system，the subjects，both individual and collective，are reasoning rational beings that make sure of their gains and losses by following certain rules of calculation and then weigh them up.② Operators observe the rule of maximizing their profits or of optimizing efficiency. In the manufacturing process，therefore，manufacturers will inevitably try，by all possible means，to maximize their profits and minimize costs. As for consumers，they will look for all possible ways or matrices to maximize value for their money，and to maximize the functions and the sense of satisfaction that the products/ commodities that they have purchased will give them.③ There is sufficient market information，with the same and full information equally available to every individual.It is on the basis of these three presumptions that economic matters are given the optimum interpretations in mathematical terms，such as economic growth and development，consumption and the problem of an ageing population. In particular in theories concerning economic growth，the school of neo-classical economics developed a sound framework of analysis and achieved rich academic results. Later the neo-classical economists gradually relaxed the three criteria and developed the theory of incomplete information，the industrial structuring theory and the general equilibrium theory. Meanwhile，they became well versed in their own mathematical models to carry out research and tests by making use of the instruments of quantitative economics.With the understanding that economics concerns selection and studies how people make choices so that scarce or limited resources such as land，labour，equipment，knowledge，etc. will be turned into commodities such as wheat，beef，garments，concerts，roads，rockets，etc. and distributed to members of the society for consumption，Paul Samuelson gave his own definition of economics. He defined economics as a study of how men and society make choices to turn scarce resources into commodities and distribute them among members and groups for consumption. This shows that to the neo-classical economists the fundamental task of economics is to study how scarce resources are best allocated and commodities consumed.

1.2.2 Keynesian EconomicsThe Keynesian school，as represented by J. M . Keynes （1883- 1946） best known for his The General Theory of Employment，Interest and Money，has been acclaimed as the forerunner of modern Macroeconomics. In 1930s，the US suffered from a great economic recession，causing world-wide repercussions and dragging other economies into it. A group of economists headed by J . M . Keynes maintained that，contrary to the predictions of the neo-classical economists，the market could not always make automatic self－ adjustments to return to full employment. They pointed out that economic stagnation and recession were caused by insufficient effective demand，and therefore the government should intervene in order to boost demand. The unemployment crises of the 1930s inspired two of Keynes’s great works，A Treatise on Money （1930） and The General Theory of Employment，Interest and Money （1936），bringing about what was called the “Keynesian revolution”. These studies changed the view of how economies should be managed，arguing that economies could be in equilibrium at less than full employment. Unless demand in the economy is stimulated，growth and therefore full employment are not possible. The heart of Keynesian economics is the theory of employment，putting forward the new concept of “non-voluntary unemployment.” Keynesian theories at once became the theoretical basis for various governments to set policies for financial and monetary interventions and are still adopted by some countries，both developed and developing，today. Indeed，for three decades after World War II，Keynesian economics has helped to bring about a whole generation of prosperity to the capitalist countries of the West. On the basis of Keynesian economics，John Richard Hicks developed the IS-LM Model，with interest rate as a variable in the study of products and money markets to find general factors contributing to equilibrium in an economy.The Phillips curve，another theoretical product of the Keynesian economics，shows the inverse ratio or proportion between the unemployment rate and inflation rate. The Keynesian school believed in government interventions by showing a “visible hand” in the market and maintained that the government should improve welfare distribution and income distribution and take the initiative to help check economic fluctuations. Keynesian theories were subject to critical appraisal in the 1960s and 1970s by monetarists and after revisions developed into a

1.2.3 Neo-institutional EconomicsInstitutional Economics has Canadian economist and diplomat，John Kenneth Galbraith，American economist Kenneth Ewert Boulding and Swedish economist and Nobel Prize winner for Economics in 1974，Karl Gunnar Myrdal as its leading figures. It is a school of thought studying the emergence and development of economic institutions and their roles as incentives or restrictions to behaviors. Earlier Institutional economists，represented by van Buren，held that institutions were shaped by human ideas and habits stemming from human psychological motives and basic instincts. Therefore，they maintained，institutions were nothing but ‘‘thinking habits” and “mentality，” and economic institutions were the behavior patterns of human beings who seek to make further continuous progress in their physical contexts of social life.14 Perhaps the greatest contribution made by neo-institutional economics is the new economic concept of “transaction costs.” Neo-institutional economists have pointed out that within an economic system not every member- every subject of the economy 一 is completely rational.When making decisions，people tend to base their decisions on their experiences or limited information，which can only be called “limited rationalism.” As a result of ‘‘limited rationalism，” economic activities are not free from “transaction costs，” as previously assumed by some traditional economics. Neo-institutional economists further emphasized that a strong economy must be supported by a complete set of institutions that will minimize the transaction costs in the country or region. As a result，institutions are considered a vital factor affecting economy and the economic development of a country. Particular importance has been attached to this school in countries and regions undergoing institutional changes，and the success experience in China’s opening up and reform has enriched the institutional theories and provided a convincing example of their validity.1.2.4 The Game TheoryDifferent from mainstream economics，game theory has its thrust of analysis on the behavior of inter-personal strategies in the economic system and a range of problems involving decision-making. Led by John Nash，the game theory economists attempted to reach equilibriums of

behavior among various individuals by analyzing their different positions in different situations. These equilibriums may be efficient，but more often they are not. In addition to its wide applications to economics，game theory plays an extremely important role in international politics.For example，Robert J. Aumann and Thomas C. Schelling successfully applied game theory to the analysis of political acts among countries and found solutions to the problems that had remained unsolved for long years. They were awarded the Nobel Prize for economics for their immense contributions in 2005. Game theory can be applied to both short-term and long-term collaborative theoretical analysis. With the development of economics，the study of strategic behaviors has been attracting more and more attention，and game theory has been applied to the analysis of confrontations and collaborations among international economies. In other words，game theory has provided a new perspective and methodology for people to understand the world of economies.1.2.5 Comparative EconomicsNowadays，people are paying more and more attention to the abilities and competitiveness of countries or regions. To conduct a comparative study among economies in different economic scales is a worthwhile task. Firstly，comparison in different dimensions is essential.This can involve the comparison among elements of the economy itself.It can also involve comparisons among developed mini-economies，developing mini-economies，developed economies，developing economies and so on. Secondly，the question of what should be compared is also important，for example the historical background，natural resources，human resources，development level，development path，development strategies，development prospects，the main obstacles，competitiveness and so on. Last，but not least，methodology is a dominant element in conducting such a study. Here included the governmental behavior and social behavior. It is important to break through the primitive concepts of dependence and superstition. Instead，it is necessary to build up the concepts of scientific development，independence and innovation，and to grow with each passing day.The five schools briefly described above have developed their own respective theories under different circumstances against different historical backgrounds. It is difficult and may not be right to simply

attempt to decide which is the best. However，we still find it possible to study and explore mini-economics by referring to the five major schools of economics and by taking advantage of their academic achievements.We are aware that in addition to these five major and greatly influential new schools of economics，there have been many other new schools or theories in our field of international economics，such as rational-prediction economics，monetarism，public choice theory，and behavioral economics. They have all made scholarly contributions of varying degrees to national and global developments，though they also have their own limitations and inadequacies. Owing to limited scope of this book，only the five major schools outlined in some detail above will be referred to in the following discussions.1 .3 R e s e a r c h o n E c o n o m ic G r o w th in M i n i - econom iesThe world of economics has never been short of brilliant minds.Indeed，over the past fifty years there have been a constellation of brilliant stars glowing with achievements in international economics，each school of thought being complete with its theoretical grounding，methodology and approach to a wide range of topics. And economic growth is definitely a topic of greatest interest. In fact，economic growth has always been a research problem that economists regard as promising no final solution. Furthermore，economic growth is one of the principal concerns of political leaders of all countries and therefore often hits the headlines of various mass media.However，in our world today when the construction of a harmonious society is emphasized，some may have reservations about “economic growth，” which is quite understandable. As a matter of fact，in general，when we discuss normal economic growth，we do not mean the blind pursuit of high-speed or fast growth regardless of quality. On the contrary，we believe in economic growth with sustainable prospects，in economic growth without sacrificing our environment or increasing the consumption of energy and resources.In earlier years，mainstream economists used to focus their attention on advanced countries and only later gradually switched their attention to the study of economic growth of developing countries and some small economies，with quite remarkable results. However，

perhaps for too long，the economic growth of very small economies，namely，mini-economies，has been ignored，resulting in only a few scattered studies and meagre findings. It is exactly for this reason that our research group has decided to focus our study on the growth of mini-economies，trying as best we can to make a theoretical analysis and thus an objective assessment of the economic growth and successful experience of some mini-economies with global significance.It is hoped that this study and its findings will also provide valuable reference for the healthy economic development of the Macao Special Administrative Region （SAR） of the PRC.As mentioned above，theoretically，this study is based on the major schools of modern economics；methodologically，the classic analytical approach，namely，the growth model developed by Nobel Prize winner for economics，Robert M . Solow，is adopted. Solow，s model is based on three strictly defined hypotheses and the function of economic output resulting from interactions between capital and labour. In the process of his argument，Solow used the Cobb-Douglas Function，depending on accurate mathematical calculations. After a meticulous study，Solow pointed out that without technological progress the growth of economic output could not be maintained permanently by depending on capital and labour input alone，which suggested that poor and rich countries would converge eventually in the growth of economic output. However，what was witnessed was the fact that the rich countries were becoming richer and richer while the poor countries were becoming poorer and poorer，which is referred to as Mathew Effect. Later researchers made a thorough study of Solow’s growth model and found out why rich and poor countries did not converge in economic growth as Solow had thought they would. They pointed to technological progress and institutional and other innovations as potential factors boosting economic growth in rich countries. Such hidden factors had been ignored by traditional economists. The Solow Residual refers to all the factors influencing economic growth apart from capital and labour，hence the equation：Growth Rate of GDP = ∑ （wage share of labour） x （growth of labour） + （rate of return on capital） x （investment/GDP） + technical progress. To have a firmer grasp of economic growth，the most pressing task before economists is to identify and locate all the factors under the umbrella of the Solow Residual，a subject that is of great interest to political leaders the world over. For example，Professor Lin Yifu of the China Centre

for Economic Research，Peking University，carried out a quantitative research project on rural economic growth，with the finding that the institution of “family contract joint production” was an innovative initiative that helped accelerate rural economic growth in China for a certain period of time. And Professor Zou Hengfu of Wuhan University established a quantitative model using official financial data and discovered that decentralization and separation of powers had an apparently negative effect on the economic growth in China.As the subject of the current study is mini-economies，it attempts to make a qualitative analysis of economic growth in mini-economics by following the traditional line of economics and referring to modern and contemporary theories. At the same time it also tries to locate the Solow Residual in mini-economies by examining their respective experiences.Specifically，this research study attempts to answer the following questions：① Quite a number of mini-economies have made their way to the rank of high per-capita GNI countries，though they are so much smaller in size than big powers in terms of capital and labour. Why?② What are the factors unique to mini-economies that have contributed to the success of mini-economies，economically and socially? What are the worries or threats to mini-economies that deserve attention? What development strategies should mini-economies adopt so as to meet the challenges of the 21st century?③ How should the Macao SAR Government gain a better understanding of the nature of its economy as a mini-economy and what development strategies should Macao adopt to optimize its potential strengths and further develop its economy?1 .4 D e f in it io n o f M in i-econom ies1.4.1 The Three CriteriaThough international economics has not yet come up with a clear-cut definition for mini-economies，some Macao scholars started their discussions on the topic of “mini-economy” as early as the beginning of the 1990s. In 1991，Ieong Wan Chong used this term in one of his presentations at the University of Macau. He said，“What we call mini-economies mainly refer to those economic systems with limited

economic activities and without global or regional influences. With small populations，they have each developed their own styles，taken on their unique characteristics and operated independently. The criteria for defining mini-economies are，first，a small population，not exceeding one million；second，a relatively independent economic operation；third，internationally recognized status.”15 He also pointed out that the 50-odd mini-economies of the world are distinguished by the following features：① Their economic developments have reached above-average levels.② A remarkable phenomenon of uneven development is observed.③ Geographically they are mostly island countries. Indeed 38 of them virtually consist of islands scattered over vast oceans. Only 7 of the 50-odd mini-economies of the world are inland countries.④ Quite a number of these mini-economies used to be British，French，Dutch or Portuguese colonies and have gained independence or autonomy over the past fifty years.16It seems that some major motivators can be identified for the fast economic growth of these mini-economies over the past few decades.① Some of these countries are well supplied with natural resources.For example，countries like Brunei and Qatar are new emerging oil-producing economies.② Some of these countries，like Luxembourg，Liechtenstein，Andorra，San Marino，etc.，are well positioned within highly developed regions.As they remain politically neutral or semi-neutral，they not only benefit from the advanced economic development of their neighbors but also are exempted from the burdens of military costs and foreign aid.③ For island countries，distances are shortened thanks to modern communication and transportation. And thanks to their unique natural and national features，these countries have developed into famous tourist destinations.④ Some countries，as former colonies of highly developed suzerain states，have continued their economic ties and thus benefited from the fast economic development of these advanced countries.⑤ Some of the less advanced economies have been given most favored nations status in trade and tariffs by advanced countries.17

1.4.2 The Five CriteriaA few years later，in 1997，Ieong Wan Chong and Ricardo Chi Sen Siu published their English monograph entitled Macao：A Model of Mini-Economy，elaborating the definition to include five criteria：① The population should be under one million.As the term suggests，mini-economies are characterized by their small size，as well as their small size of population. The most important factor of a country’s economy is its people；namely，all the participants engaged in economic activities，such as the production of goods，consumption of commodities and trade.② The internal capacity of economic activities is very small，which is related to the size of population and restricts the local market capacity.③ Mini-economies are relatively independent in their operation.As the internal capacity of economic activities is very small，in international trade mini-economies，as price takers，hardly exert any influence on world prices and do not pose direct confrontation or challenge to big economic powers. As a result，they are able to maintain comparatively independent internal operations.④ Mini-economies depend on external factors for the composition of manufacturing industries. Though they can maintain independence in internal economic operations，owing to the limitation of internal markets and resources，such as human resource，finance，etc. it is difficult for them to become self-sufficient. Though it is not possible for them to become completely self-sufficient，some countries resort to imports to help them become more self-sufficient. They generally take an active part in international trade and adopt export-oriented strategies in manufacturing.⑤ Mini-economies enjoy international identity and acceptance in their economic activities with foreign countries. Thanks to their special environments for survival，mini-economies see the need to actively integrate themselves into neighbouring economies or even become member states of the WTO or other international organizations，with their unique status being recognized the world over.In 1999，prior to Macao’s hand-over to China，Ieong Wan Chong published his The Mini-economies：Its Orientation and Development，further elaborating on mini-economies，with a focus on exploring the road of development for Macao after its historic return to China and in the 21st century. Nowadays，“mini-economies” has become a term

often referred to by scholars as a feature of Macao’s economy. It has also found its way to the annual policy addresses by Edmund Ho Hau Wah，the Chief Executive of the Macao SAR.“Ours is a mini-economy，with limited resources and internal potential，and a lot of dependence on external factors. So，in addition to mobilizing the initiatives of local entrepreneurs and residents，we must also try our best to attract foreign investors and promote regional cooperation to expand our economic scale，intensify manufacturing structure and enhance technical and management quality.”18 “As a small island-type mini economy，Macao is open to the influences of globalisation. In order to deal with this situation，apart from relying on our own capabilities and efforts，we should also fully exploit regional cooperation.”19 “As an export-oriented mini-economy，one of Macao’s characteristics is its dependence on external markets. So，we should not seek to develop behind closed doors.Indeed，we could not succeed if we tried to do this.，”20 Economists in the Chinese Mainland，Hong Kong and Taiwan have also shown great interest in the discussions of mini-economics.1.4.3 The Other CriteriaMeanwhile，there have existed different definitions based on different criteria for mini-economies，the most traditional standard being the geographical land area or “Arable Land” as an important reference.21 There have also been others who used the size of population as a criterion for defining mini-economies.22 However，both are based on certain assumptions. By calculating the geographical area，we assume that the natural resources in the country are evenly distributed，namely，the type of natural resources and the amount of natural resources per 100 m2 are the same. But in actual reality，natural resources are often unevenly distributed；for example，oil resources tend to be concentrated in a few countries. On the other hand，if the size of population is used as the criterion，the quality of the population may be ignored. However，it is exactly the quality of the population that is a key factor in determining the economic growth and the size of economy of a country. There have been still others who maintained that the economic factor，GDP should be included as a one of the criteria for defining mini-economies.23 As a result，in 1990 Joze P. Damijan created a single set of quantified criteria for defining what are considered big powers，medium-size，small-size and micro-states by making use of the

geographical，population and economic data of 193 countries.According to Joze P. Damijan，countries，each with a population under one million，arable land under 30 thousand square kilometers and GNI under 1.3 billion US dollars，are defined as micro-states.24His first criterion，namely the population is under 1 million，coincides with ours mentioned above. Therefore，by referring to the data provided by the World Bank，we have located 65 economies25 meeting the first criterion （Table 1-2）.With this picture in mind，we have also discovered that there are very few exceptions in terms of the other two criteria，i.e. land area and GNI. Indeed，only Iceland，having a land area of 103，000 km2，exceeds the limit for mini-economies. Even so，the land area of Iceland is still smaller than the average of small economies，which is 504，000 km2. As far as the GNI （PPP） is concerned，15 of the 65 economies on the list exceed the limit （under 1.3 billion US dollars） for mini-economies in GNI.26 （This figure is drawn from the comparable data available to the World Bank only. In fact，Macao as a mini-economy has also exceeded this limit in GNI.） Even so，these 15 economies，with the exception of Luxembourg，are still smaller in their GNI than the average of small states （22 billion US dollars）.What is especially worth noting here is the fact that，unlike the factors of geographical area and population，which are comparatively static or stable，the factor of GNI is more mobile and may change greatly as time goes on. Therefore we have also included in our consideration the influence of inflation on GNI since 1990.27 According to IMF figures，advanced economies and rising economies，as well as other emerging markets and developing economies experienced an inflation rate of 3.5％ and 56.6％ respectively from 1987 to 1996. If we accept the more conservative figure of advanced economies，the average GDP of small states should be readjusted to 34.4 billion US dollars. From this we can conclude that all the 65 economies selected here basically meet the criteria for mini-economies （Table 1-2）.Therefore，the 65 economies spreading over five continents have been chosen as our objects of study of mini-economies.

1.5 S ig n if ic an ce o f the S tu d y o f M in i- econom ie s1.5.1 The CreativeMini-economies， put forward both as a new concept and scientific study， reflect the reality of our present-day world. And mini-economics， as a branch of economics complements and meets the objective demand of modern economics. Owing to geographical features and social， cultural and economic factors， a variety of states have come into being and a number of strategies have been developed. Generally speaking， countries with large economies attract remarkable attention because their economic and foreign policies exert greater influence. Indeed， there have been numerous volumes published on the economic theories and practice and the foreign policies of great powers， but there have been scarcely any books focusing on small economies. Though there may be a few books on some individual micro-states， they are hard to come by. There have been a few in-depth case studies， but most of them focus on small countries with population exceeding one million and land area exceeding 10，000 km2. Consequently， the study of mini-economies is just at the beginning stage. As mini-economies are endowed with social and economic features entirely different from those of big powers， the theories and practices of general economics may not be applicable to the actual conditions of mini-economies， which makes it more important and necessary for us to study mini-economies and mini-economics.1.5.2 The RepresentativeAccording to World Bank statistics， there are 209 economies in the world， of which at least 53，28 accounting for a quarter of the total， are mini-economies judging by the criteria set above. It is evident that they are a group that cannot be ignored as far as numbers are concerned. More importantly， though in general mini-economies suffer from a shortage of natural resources and tend to be unitary in the structure of industries， the level of development cannot be equated to the size of the economy and national income. According to World Bank categories， 24 micro-economies， accounting for 45.3% of the total， are high-GNI economies， （Macao is in this category）， per capita GNI being over 10，066 US dollars； 14， accounting for 26.4%， are above-average GNI economies， per capita GNI ranging 3，256-10，065 US dollars. For the

rest，11 are below-average GNI economies，with per capita GNI ranging 826-3，255 US dollars and 4 are low-GNI economies，with per capita GNI at 826 US dollars or below. It is clear that mini-economies have made remarkable economic achievements，and some have even made their way to the top of the world list in per capita GNI. For example，in 2004，the per capita GNI of Luxembourg was 61，220 US dollars，making Luxembourg rank first in the world and the US rank second，with a per capita GNI of 39，710 US dollars and Iceland came up sixth with its per capita GNI at 32，360 US dollars.29 Moreover，both Luxembourg and Iceland are in the first 10％ in the ranking of The World Competitiveness Yearbook 2007 issued by the IMD，ranking the 4th and the 7th respectively.301.5.3 The RealityWhen is it opportune to draw proper conclusions concerning the laws of development? How should we make a sensible and rational reflection on the direction of development? And how could we better understand our environment for further development? All these seem to be abstruse and yet very practical topics of study. We find it a pressing task for economists to explore mini-economies and mini-economics and to draw a proper summary. We believe that we are now well equipped with the basic conditions to make an in-depth study of mini-economies and mini-economics. Macao is a typical mini-economy，sharing a number of fundamental characteristics with many other mini-economies.At least we can find many common features among mini-economies. By systematically studying mini-economies，we hope to fill a gap in the research of traditional economics while meeting the demand of accelerating regional economic development；to deepen our own understanding of the Macao economy and enhance our confidence in sustainable development. At the same time，by summarizing the experiences of other mini-economies，we hope to learn from them，thus making the best use of our strengths and overcoming our weaknesses.We are confident that their experiences and lessons will prove to be valuable references for the future development of Macao.1.5.4 The ProspectThe study of mini-economies is brand new trend in the academic field. Its implication on and enhancement to the theoretical development

Table 1-2 The Principal Indicators of Mini-economies ItemsCountries/ Regions Population（thousands,2004）Land Area（thousandskm2,2002）Density（perkm2,2004）GNIGDP Per Capita Growth Rate （%,2003-2004）Life Expectancy at Birth（2003）Adult Literacy Rate （%aAge 15 and above, 2004）CarbonDioxideEmissionPerCapita（metrictons,2000）HumanDevelop­mentIndex（HDI, 2004）a（millions of US$ 2004）PerCapita（US$2004）PPP（millions of US$ 2004）PPPPer CapitaMaleFemaleA S I ABahrain7250.71,0228,83412,41012,86018,0704.7717686.529.10.859Bhutan89647.0196777602.3626547.0c0.50.538Brunei3615.869e747992.714.20.871Cyprus7769.38413,63317,58017,320g22,330g2.9768196.88.50.903Macao4490.0316,6309,605 g21，880g8.9778291f3.80.909oMaldives3000.39987522,5106.5687196.31.80.739Qatar63711.058e757589.069.60.844Timor-Leste92515.062506550-3.5606458.6hi0.5120 C E A N I AAmericanSamoa570.2285dFiji84818.3462,2812,6904,893g5,770g2.268710.90.758FrenchPolynesia2464.067e71772.3Guam1640.6298e768026.3Kiribati980.7134959700.360660.3

(continued)0 C E A N I AMarshallIslands600.21741422,370-3.6Micronesia, Fed. Sts.1270.71812521,990-5.56771Nauru130.02650GDP per capita （PPP） 5,000 （2005）nNew Caledonia22918.613e70787.8Northern Mariana Islands （US）770.5161dPalau200.46431376,8700.512.7Samoa1792.8633331,8601,015g5,670g2.6677399.010.80.778SolomonIslands47128.91726055082981,760g0.768710.40.592Tonga1020.81411861,830735 g7，220g1.3697498.9 j1.20.815Vanuatu21512.2182871,3406002,7900.7677074.0j0.40.670E U R 0 P EAndorra660.5136eChannelIslands1490.2745e7584Faroe Islands （Denmark）481.434eGibraltar280.0074,000GDP per capita （PPP） 27,900 （2000）nIceland290103.012511,19938,6209,38432,3604.87882m7.70.960Isle of Man770.6135eLiechtenstein340.2213cLuxembourg4502.617425,30256,23027,54961,2204.07582m19.40.945Malta4010.34004,91312,2507,50718,7200.9768187.9 j7.20.875Monaco330.002159c

(continued)San Marino280.1463653eVatican City b0.90.00042,250Cape Verde4814.01198521,7702，720g5,650g2.9667276.010.30.722Comoros6142.22763285301,131g1,840g-0.5606356.010.10.556Djibouti71623.2317391,030l，624g2,270g1.643430.60.494A FEquatorialGuinea50628.118d3,7457,4007.4505487.00.40.653R IMayotte(France)1720.4460dCReunion (France)b7842.5314São Tomé and Príncipe1611.0167603702.463690.60.607Seychelles850.51886858,0901,32015,590-3.2697791.82.80.842Western Sahara3822661Antigua and Barbuda800.418280010,00082910,3602.3737885.8 hk4.90.808A MAruba(Netherlands)990.2521eFBahamas32013.9324,68414,9205,06816,140-0.666745.90.825RBarbados2720.46322,5079,2704,07515,0600.97277100 14.40.879IBelize28323.0121,1153,9401,8406,5100.9707375.1 hk3.10.751CBermuda (UK)640.11,280e75807.2A SCayman Islands (UK)440.23745eDominica710.8952613,6503755,2501.6757988.0 hk1.40.751French Guianab202842.4

(continued)Greenland(Denmark)57410.50c65739.9Grenada1060.33113973,7607407,000-3.8707696.0k2.10.762Guadeloupe (France)b4051.6249Guyana772215447659903,173g4,110g1.158672.10.725A M E R I C A SMartinique (France)b3991.1354NetherlandsAntilles2220.8277e737997.0146.2St. Kitts and Nevis470.41313577,60052611,1903.3697497.8 12.40.825St. Lucia1640.62687064,3109105,5601.6727694.8 hk2.10.790St. Vincent and the Grenadines1080.42783963,6506776,2504.870761.40.759Suriname443163.339972,2503.5687389.65.00.759Virgin Islands (UK)b220.2260Virgin Islands (US)1130.3333e7780121.2Notes:a. Data from UN, Human Development Report 2006.b. These countries or regions are not included in World Development Reports by the World Bank.c. United Nations Children’s Fund (UNICEF), State of the World's Children 2005.d. Estimated to be upper middle income (3,256-10,065 US dollars)e. Estimated to be high income (10,066 US dollars or above)f. Data from World Bank, World Development Report 2006. It refers to the adult literacy rate （%） age 15 and above between 1998 and 2004. National estimate based on census data.

g.The estimate is based on regression；others are extrapolated from the latest International Comparison Programme benchmark estimates.h.Data refer to a year other than that specified.i.National estimates based on survey data.j.Data refer to the most recent year available between 1995 and 1999.k.Data are from the Secretariat of the Organization of Eastern Caribbean States，based on national sources.1.Data from World Bank，World Development Report 2006.It refers to the adult literacy rate （％） age 15 and above between 1998 and 2004.m.For purposes of calculating the HDI，a value of 99.0％ was applied，n.CIA Fact-book，https：//www.cia.gov./cia/publications/factbook/index.html.o.The most recent figure for Macao is year 2004.Source：World Bank，World Development Report 2006.

of international economics should not be under estimated. Its importance and urgency is even more obvious for a typical mini-economy like Macao. At the same time，the kind of researches is also meaningful for other mini-economies，both the developed and the developing ones.Therefore，without exaggeration，the study of mini-economies is highly related to the global development trend. It is greatly relevant to the global harmony and stability as well. As a result，equipping with a prospective thought towards it is beneficial.N otes1 See Deng，Xiaoping，The Selected Works of Deng Xiaoping，Vol. 3，Beijing：The People’s Press，1993，p.105.2 See Huang，Liangyi，Hou，Yuanchang and Sun，Yujie （Eds.），The Politico- Economic Culture of the Contemporary World，Beijing：China Economics Publishing House，2002，p. 2.3 See Huang，Annian，“Diversities and Integration of the 20th Century World History，” http：//www.jianwangzhan.com/cgi-bin/index.dll7page5? webid=cc333&userid= 129362&columnno= 1 &articleid=2084，28th July 2004.4 See Huang，Liangyi，Hou，Yuanchang and Sun，Yujie （Eds.），The Politico- Economic Culture of the Contemporary World，Beijing：China Economics Publishing House，2002. p. 5.5 See Huang，Annian，“Diversities and Integration of the 20th Century World History，” http：//www.jianwangzhan.com/cgi-bin/index.dll7page5? webid=cc333&userid=129362&columnno=l&articleid=2084，28th July 2004.6 The People’s Daily （Overseas），12th July 2007，p. 5.7 By the end of June 2007，the number increased to 1，332.6 billion US dollars，according to the announcement of the People’s Bank on 11th July 2007.8 Macao Monthly，Macao，August 2007.9 Tai Kung Pao，Hong Kong，11th May 2007，p. A2.10 Shoichiro Yoyota，“Sincerely Wishing China a Harmonious Development，” in The People’s Daily （Overseas），8th May 2007，p. 1.1 See Huang，Liangyi，Hou，Yuanchang and Sun，Yujie （Ed.），The Politico- Economic Culture of the Contemporary World，Beijing：China Economics Publishing House. 2002.p .5

12 Gu，Yuanyang，Basic Features of Current World Economies and Trend of Development，Beijing：Institute for Political Studies of the World，the Chinese Academy of Social Sciences，2005.13 Leontief，W.，Input-Output Economics，New York：Oxford University Press，1966；and （Chinese version） Beijing：Commercial Press，1982.14 See Fu，Yincai，The Institutional Economics，Wuhan：Wuhan Publishing House，1996；Wang，Hui，“The Development of Western Economy Analysis Paradigm，”in Journal of Beijing Institute of Education，Vol. 19，No.1，2005，pp. 27-29，36.15 See Ieong，Wan Chong，Macao and Modern Economic Growth，Macao：Macao Association of Economic Sciences，1992，p. 30.16 Ibid.17 Ibid.，pp. 30-31.18 Ho，Hau Wah，Policy Address for the Fiscal Year 2001，Macao：Macao Government Printing Bureau，2000，pp.10-11.19 Ho，Hau Wah，Policy Address for the Fiscal Year 2002，Macao：Macao Government Printing Bureau，2001，p.15.20 Ho，Hau Wah，Policy Address for the Fiscal Year 2004，Macao：Macao Government Printing Bureau，2003，pp.10-1121 Marshall，A.，Industry and Trade，Bristol：Overstone Press，1997 （reprinted from 1919）.；Ohlin，B.，Interregional and International Trade，Cambridge：Harvard University Press，1952 （reprinted from 1933）.22 Kuznets，S.，“Economic Growth of Small Nations，”in Robinson，E. A. G.（Ed.），Economic Consequences of the Size of Nation：Proceedings of a Conference，London：Macmillan & Co.，1960，pp. 14-32；Deans，H. D. and Bernstein，R. E.，“Country Size，Trade Concentration and Trade Instability：An Alternative Approach，” in Weltw irtschaftliches Archiv，Vol. 114，No. 2，1978，pp. 258-274；Hughes H.，“Industrializing Small Countries，” in Industry and Development，Vol. 12，No.3，1984，pp. 88-99.23 Fabricant，S.，“Study of the Size and Efficiency of the American Economy” in Robinson，E. A. G.（Ed.），Economic Consequences of the Size of Nations：Proceedings of a Conference，London：Macmillan & Co.，1960，pp. 35-53；Kuznets，S.，“Economic Growth of Small Nations” in Robinson，E. A.G.（Ed.），Economic Consequences of the Size of Nations：Proceedings of a Conference，London：Macmillan & Co.，1960，pp. 14-32；Lloyd，P. J.，International Trade Problems of Small Nations，Durham：Duke University Press，1968.24 Damijan，J. P.，“Main Economic Characteristics of Small Countries：Some Empirical Evidence，” in Salvatore，D.，Svetlicic，M. and Damijan，J. P.（Eds.），Small Countries in a Global Economy：New Challenges and Opportunities，Basingstoke，New York：Palgrave，2001，pp. 91-130.25 These are not independent sovereign states；rather they refer to independent economies in World Bank categories.

26 The World Banks statistics are based on GNI，which includes both GDP and net income of the country or region.27 Of course population flows and natural population growth are not static，but compared with GNI changes，their changes are relatively smaller. For example，out of the 64 mini-economies，Bhutan has a population nearest to one million limit，but it will take quite some years for the population to grow from 850，000 to one million.28 This is because the other twelve economies listed in our tables are not included in the World Bank statistics.29 See World Bank，World Development Report 2006，pp. 292-293，300.30 Tai Kung Pao，Hong Kong，11th May 2007，p. 4.

2E c o n o m i c G l o b a l i z a t i o n a n d t h e G r o w t h o f M i n i - e c o n o m ie s2.1 G l o b a l i z a t i o n a n d I t s A c c e l e r a t i n g D e v e lo p m e n tThe term “globalization” may have been first proposed by Theodore Levitt in 1985. Globalization refers to the increasing global connectivity，the development of human life on a global-scaled basis and the rise of a global sense. Under the process of globalization，countries are highly interdependent in the spheres of politics，economics and trade. In other words，globalization means “the rapid global integration in economy through international trade，movement of capital，emergence of technology，advancement of information network and frequent exchange of culture.”1 Globalization is an umbrella term that covers almost all the fields including politics，economics，technology，labor force，cultural industries，media，ecology and social identity. Generally speaking，economic globalization is divided into three aspects：international trade，movement of capital and human migration.According to most scholars，the phenomenon of economic globalization has been accelerated since World War II due to advances in technology. At the same time，international agreements on trade such as the General Agreement on Tariffs and Trade （GATT） have lessened or removed trade restrictions. The free trade system thus led to the internationalization，and later，globalization of the economy of every country or region. Therefore，some experts refer to globalization as “the integration of an international market through the unitary movement of materials，labor force and capital.”2 Another important reason for globalization is the rapid advances in technology，especially the rapid development of communication，transportation and electronic media.

Electronic media，such as the Internet，encourage the expansion of international exchanges by shortening exchange time and lowering cost.The basically peaceful diplomatic relations between countries also help promote international exchanges of goods and services.A globally united market with large-scale，free operation and high efficiency，therefore，is established. Nowadays，economic globalization has already become a basic concept widely accepted and used by international organizations，international conferences and academic fields.2 .2 A s s e s s m e n t o f th e P o s it iv e a n d N e g a t iv e E ffec ts o f E c o n o m ic G lo b a liz a t io nGlobalization is a widely mentioned concept. To some extent，globalization is the expanding process of the space and scale of human activities. From the economic perspective，“globalization can be seen as a global interdependence in economic activities which results to the establishment of a world market. Capital gets beyond national borders and flow around the world. Resources are allocated in a global basis.”3 The originally separate economies of countries gradually have become globally connected，and finally have developed into a unitary free market.This development definitely brings a number of positive and negative effects. Generally speaking，the positive effects exceed the negative ones.2.2.1 Positive EffectsThe tide of globalization keeps advancing，and its effects on all countries are increasingly obvious. Neo-liberalist scholars believe that the free market system is the best solution for all the economic problems and therefore encourage economic growth. Each country or region in the world possesses its own competitive advantages.According to Neo-liberalists，the competitive advantages can be further developed and perfected when the country takes part in international competition and division of labor，as it can focus its attention on its strengths，improve its quality and efficiency of the whole production process，and at the same time reduce capital and production costs. As a result，a free market is the best economic system for all participants.The globalization process benefits a large number of countries and helps to improve the living standard of their people.Globalization also expands

the domestic markets by bringing more development opportunities to the countries. Generally speaking，the positive effects can be summarized as follows.2.2.1.1 Expanding international trade marketThe concept of globalization removes regional and natural restrictions，and the market continues to expand. The globalizing trend leads to the appearance of regional or international cooperative organizations such as the World Trade Organization （WTO），the European Union （EU），the North America Free Trade Agreement （NAFTA） and the Asia-Pacific Economic Cooperation Summit （APEC）.These organizations and their cooperating relations encourage free trade and regional economic integration. The trade barriers between countries are weakened and the trade market can be globally expanded.According to the statistics provided by the WTO，the total value of the world trade is obviously growing.（Table 2-1，2-2 and Figure 2-1）Table 2-1 Growth in the Value of World Merchandise Trade byRegion，2005* Including：Hong Kong，Malaysia，South Korea，Singapore，Taiwan and Thailand Source：World Trade Organization，International Trade Statistics 2006，p . 16.ItemsExports ImportsValue(billions of US$)Annual PercentageValue(billions of US$)Annual PercentageCountries/ Change (% ) Change (% )Regions2005 00-05 2004 2005 2005 00-05 2004 2005North America 1,478 4 14 12 2,285 6 16 14South and Central America355 13 30 25 298 8 28 23Europe 4,372 11 20 8 4,543 10 20 9European Union (25) 4,001 10 19 7 4,135 10 20 9Commonwealth of Independent States (CIS)340 18 36 28 216 22 31 25Russian Federation 244 18 35 33 125 23 28 29Africa 298 15 30 29 249 14 29 19M iddle East 538 15 32 35 322 14 31 17Asia 2,779 11 25 16 2,599 12 27 16China 762 25 35 28 660 24 36 18Japan 595 4 20 5 515 6 19 13Six East Asian Traders* 983 9 24 12 905 8 27 14World 10,159 10 22 13 10,511 10 22 13

Table 2-2 Growth in the Value of World Trade in Commercial Services by Region，2005* Including：Hong Kong，Malaysia，South Korea，Singapore，Taiwan and Thailand Source：World Trade Organization，International Trade Statistics 2006，p. 16.Figure 2-1 World Merchandise Trade by Region，2005Source：World Trade Organization，International Trade Statistics 2006，p. 5.ItemsCountries/RegionsExports ImportsValue(billions of US$)Annual Percentage Change (% )Value(billions of US$)Annual Percentage Change (% )2005 00-05 2004 2005 2005 00-05 2004 2005North America 422 5 13 10 366 6 15 9South and Central America 68 8 16 19 70 5 15 21Europe 1,245 12 19 8 1,120 11 17 8European Union (25) 1,121 12 19 8 1,038 11 16 7Commonwealth of Independent States (CIS)42 20 29 20 62 21 28 19Africa 57 13 20 12 69 13 19 21Middle East 55 11 14 13 85 12 20 18Asia 525 11 26 14 573 9 24 12China 74 20 34 19 83 18 31 16Japan 108 8 25 14 133 3 21 2Six East Asian Traders* 216 8 20 9 215 8 21 12World 2,415 10 20 10 2,345 10 19 10

2.2.1.2 Lowering production costs and product price while improving production efficiency and competitivenessGlobalization leads to large increase in production scales and short commodity production cycles. The advances in technology enable mechanical production which decreases the cost of labor. Labor- intensive production processes are moved to countries whose the cost of labor is relatively cheaper. These enable a continuous reduction in production costs and product prices. Furthermore，due to the expansion of the market and the continuous emergence of competitors，a highly tense competitive relationship exists. Competition usually stimulates innovation and improvement in efficiency. Therefore，higher competitiveness can be achieved.2.2.1.3 Accelerating com m unication and in fo rm ation technology developmentThe appearance of the Internet has brought information technology into the sphere of the modern economy. New ways of trade such as electronic-commerce rapidly develop during the advances in the technology of communication networks and the process of globalization.On the other hand，globalization also stimulates the development of communication and information technology，which brings great changes to the industrial structure of the world. IT industry not only becomes the dominant industry in developed countries and regions，but also a new industry in developing ones.2.2.1.4 Increasing foreign investmentDue to the global integration of the capital market，world foreign direct investment （FDI） has increased greatly since the 1990s as the value of world trade and the world economic growth keeps rising. The activities of cross-border mergers and acquisitions （M&As） have grown rapidly as a result of globalization. “Recorded global inflows grew by an average of 13％ a year during 1990-1997. Driven by large M&As，these inflows increased by an average of nearly 50％ a year during 1998- 2000，reaching a record 1.5 trillion US dollars in 2000.”4 The activities of M&As dropped during 2001-2003 mostly as a result of a correction in world equity markets；thus，a decline could be seen during that period.However，according to the United Nations Conference on Trade and

Development （UNCTAD），after the decline in 2001-2003，the global FDI became buoyant again and increased substantially in 2005 over those in 2004.5 “Global FEI inflows rose by 29％ to $916 billion in 2005，compared to a 27％ increase in 2004，largely reflecting a significant increase in cross-border M&As，both in value and in number of deals.FDI inflows increased in both developed and developing countries.”6 （Figure 2-2 and Table 2-3）Figure 2-2 FDI Inflows，Global and by Group of Economies，1980-2005（billions of US dollars）Source：UNCTAD，based on its FDI/TNC database （www.unctad.org）.72.2.1.5 Diversifying market supplyFierce competitive and innovative environment encourages and requires countries to bring out new products and services so as to maintain their market share. This not only improves the quality of the products and services，but also leads to the diversification of product and service types. Globalization brings access to a new set of goods.These may be goods that are either new varieties of products that already exist in the absence of trade，like new brands of rice，or they may be new goods entirely，like personal computers.2.2.1.6 Imparting an expanded set of opportunitiesGlobalization imparts an expanded set of opportunities for what is sometimes called outsourcing or fragmentation of the production process.This typically means that firms headquartered in developed countries may elect to do part of their manufacturing processes in developing

Table 2-3 FDI Inflows of Selected Countries/Regions(millions of US dollars)Countries/ Year Regions19951996199719981999200020012002200320042005World340,336392,424489,709712,0321,099,9191,409,568832,248617,732557,869710,755916,277Developed economies219,672239,384287,186511,903861,7331,145,913610,181442,766360,831410,941555,927European economies133,651131,124153,835296,665522,514721,616393,144314,168274,095217,696433,628United States58,77284,455103,401174,439283,676313,997159,48174,45253,146122,40199,443Japan422283,2243,19212,7418,3236,2419,2396,3247,8162,775Developing economies115,861146,733190,423189,477227,716254,593210,538162,055172,846260,236320,670American economies29,61046,27373,32684,615103,55996,76378,48852,81243,84585,71090,047African economies5,6425,86110,9489,27912,4539,57719,89412,99918,51317,19930,672Asian economies79,91893,925105,77395,249111,285147,993112,04596,125110,137156,622199,554China37,52141,72645,25745,46340,31940,71546,87852,74353,50560,63072,406Hong Kong, China6,21310,46011,36814,76524,57861,92423,7779,68213,62434,03235,897Macao, China262-189-1160375411498770Chinese Taipei1,5591,8642,2482222,9264,9284,1091,4454531,8981,625Economies in transition4,8036,30812,10110,65210,4719.06211,52912,91124,19239,57739,679Russian Federation2,0662,5794,8652,7613,3092,7142,7483,4617,95815,44414,600Source: The UNCTAD databases, http://stats.unctad.org/FDI/.

countries. In a closed economy，these options do not exist and all parts of the production process take place domestically.2.2.2 Negative EffectsAlthough most people are in favor of globalization as they believe that it can help to increase national incomes and improve people’s living standards，some scholars are not that confident in and optimist about globalization. The school of Skeptics believes that internationalization does not necessarily help to solve the problem of the disparity between the north and the south. The trade and investment trend in developed and prosperous countries goes on，which further drives out opportunities for developing countries. As a result，the economic positions of a large number of so-called “Third World” countries continue to be marginalized. Moreover，Skeptic scholars believe that from the political perspective，the idea of globalization has underestimated the ability of governments’ control of their own economies. Therefore，the present phenomenon is simply a trend of internationalization instead of globalization，which is an establishment of a real unitary market. As a matter of fact，globalization is not necessarily benefiting every country. On the contrary，the failure of complete integration in the process of globalization actually brings negative effects.2.2.2.1 Causing an imbalance of tradeEconomic globalization encourages free trade and removes trade restrictions.At the same time，it also brings along the negative products of free trade 一 the aggravation of imbalance in world economic development （Table 2-4）.Due to the advantage of cheap labor in China and other Asian countries，a large number of multi-national corporations （MNCs） have moved their manufacturing industries to these countries.This has led to a large growth in the value of imports in the Asian countries which brings them great trade surplus. Under this circumstance，imbalance of trade between countries cannot be avoided and conflicts between them thus become frequent and serious. Countries with trade deficits start to lay down protective policies to eliminate the trade imbalances. These approaches are not good for the relationship between countries and will have bad effects to their economic development in the long run.

Table 2-4 Trade Surplus/Deficit of Selected Countries（millions of US dollars）Source：Information is obtained from WTO Statistics Database，cited from http：//stat.wto.org/Home/WSDBHome.aspx，on 27th July 2006.2.2.2.2 Increasing the unemployment rate in developed countriesThe industrial structure of the developed countries is gradually transformed to be composed of tertiary industries in which high-technology is employed. The mechanical and labor-intensive manufacturing industries are moved to countries whose the cost of labor is cheaper. Globalization thus decreases the demand of labor in developed countries and lowers the value of human resources. In the long run，it will influence the national economy. It will also arouse conflicts between the people in developed and developing countries.2.2.2.3 Worsening the disparity between rich and poorOne of the expressions of economic globalization is the economic activities of MNCs，such as mergers，acquisitions and joint venture establishments. Through these activities，MNCs centralize their power in the world economy so that large enterprises make the greatest profits.On the contrary，the profits of labor and workers are further exploited by their employers on the excuse of improving competitiveness and increasing economic benefits. Instead of improving the living standard of low-income populations，globalization in fact has worsened the problem of disparity between the rich and the poor. The rich earn more while the poor suffer. The Gini Coefficient goes up while the disparity is widened and deepened.YearCountry1970 1975 1980 1985 1990 1995 2000 2005US 852 2,976 -31,418 -127,335 -88,465 -116,835 -407,889 -763,844EU - - - - - 15,600 - 1 0 5 , 6 2 0 - 6 1 , 5 9 5China 28 -237 -1,842 -14,238 10,381 10,491 18,397 1 0 1 , 8 8 1Japan 437 -2,041 -10,855 3 7 ,0 7 2 9 ,316 54,489 57,414 5 0 ,3 4 3India -98 -2,026 - 6 , 2 7 8 - 7 , 3 2 9 -6,945 -7,376 -12,010 - 4 1 ,8 0 5

2.2.2A Arousing global instability by regional threatsGlobalization makes an economy more sensitive to international shocks such as exchange rate crises. Under the process of globalization，cooperation between countries and regions is frequent and tight.Countries are highly dependent and influential on each other.As a result，if one of the countries has problems，the interdependent relation will cause chain effects on other countries. For example，global financial integration appears to be an energy source of global economic growth；but at the same time，serious speculative activities in the financial markets embed uncertainty for the world economy. Regional economic fluctuation may possibly attack the world economy heavily. As a matter of fact，this kind of disaster has happened. A good example is the Asian Financial Crisis in 1997. The sudden crisis brought enormous economic loss to a number of south-east Asian countries. These countries devalued their currency and largely decreased their imports；their internal economic system was greatly damaged. This financial crisis provides a complete demonstration of the possible destructive outcome of free global capital inflows between countries. This negative result of rapid globalization has long been ignored.2.2.2.5 Losing autonomic control of pricesGlobalization means the prices of internationally traded goods，even at constant exchange rates，are susceptible to changes beyond the control of forces in the domestic economy. With the existence of one or two superpowers，most of economies will have no control over the world prices of its rapidly increasing imports and exports.2.2.2.6 Exhausting natural resources and destroying the environmentUnder rapid global production and development，natural resources such as raw materials are greatly exploited and consumed. The over-consumption of natural resources and the pollutions caused by the huge amount of mechanical production seriously damage the natural environment. The environment is greatly damaged，which brings irretrievable loss to the world. The United Nations established the World Commission for Environment and Development （WCED） in 1983，and issued the research report Our Common Future in 1987. In 1992 and 1995，the WCED held world summit conferences in Brazil and

Denmark to raise awareness of the necessity of sustainable development.However，some developing countries，including China，are still sacrificing nature for development.2 .3 P o s i t i v e a n d N e g a t i v e E f f e c t s o f G lo b a liz a t io n on M in i- econom ie sGlobalization poses new questions as to the relation between size and economic development. On the one hand，globalization is making all countries smaller relative to the world market. This is also true in terms of macroeconomic variables，as capital mobility has reduced the effective autonomy that macroeconomic authorities enjoy even in large economies. However，size has certainly not become an irrelevant factor in the current phase of globalization. In this regard，it can be argued that mini-economies have both advantages and disadvantages，in particular disadvantages relating to economies of scale，less diversification and macroeconomic policy autonomy，but also sociological and political advantages in achieving greater social cohesion. The latter is important because these factors are generally recognized as important determinants of the investment climate and prospects for economic growth. In short，both advantages and disadvantages exist，but advantages exceed disadvantages；both opportunities and challenges appear，but opportunities outweigh challenges.2.3.1 Positive Effects2.3.1.1 Enhancing regional cooperationGenerally speaking，countries，especially countries and regions of mini-economy，which can rapidly integrate with the world through the process of globalization，enjoy high economic growth. Due to inborn weaknesses，such as the scarcity of natural resources and limited human resources and capital，the development of mini-economies is highly restricted. During the process of globalization，their inborn weaknesses can be offset by regional and international cooperation.For mini-economies，the concept of competitive advantage is not seen from a national basis，but from a regional or even a global cooperative basis. Therefore，through the strengthening of regional cooperation and world economic integration，mini-economies can put their advantages to full use.

2.3.1.2 Bringing new opportunities through advances in communication，transportation and information technologyModern communications，transportations and information technology are developing rapidly. The transfer and spread of news and knowledge is rapid. The world economy is tightly connected and the global village is becoming smaller. Under these circumstances，mini-economies are able to absorb information quickly and make in-time adjustments in their internal and external policies. The advancement of communication and information technology enables the governments of mini-economies to establish effect strategies. At the same time，enterprises are able grasp the global trend of development so that they can make a better prediction for their future development direction.2.3.1.3 Accelerating development of the flnancial industryNowadays，financial industry can be seen as the sector in which globalization is largely realized. Thanks to advances in technology，all the financial markets in the world can be truly connected together and gradually establish a unitary market. Commercial and financial services are expanding at a high speed and becoming mature and globalized.Some mini-economies，such as Luxembourg，though with limited resources，can provide excellent financial services and seize an important position in the world financial market. Their GNP per capital is among the highest in the world.Globalization gives mini-economies more opportunities and larger space for the development of their financial industries.2.3.1.4 Transferring high-cost services from developed countries to mini-economiesRecently，due to the process of globalization，a number of industrial procedures （especially labor-intensive ones） and their production bases have been moved from developed countries to developing ones so as to reduce production costs. This has led to a new international division of labor. The change of production places not only brings new business opportunities to the nearby mini-economies，it also helps mini-economies to import new knowledge and techniques from their developed counterparts，which in turn helps to develop their own economies and cultures. The reduction in production costs leads to the

decrease of product prices，which benefits both sides. Furthermore，the aging of population is a big problem faced by developed countries. It burdens the nations with an enormous amount of medical and pension expenditures. Compared to developed countries，medical and daily services in mini-economies are cheaper. This encourages people to migrate to nearby countries of mini-economies. This human migration stimulates the demand for services in these countries.2.3.2 Negative Effects2.3.2.1 Stimulating possible economic fluctuationsEconomic fluctuation is a frequent phenomenon in mini-economies.Compared to large countries，mini-economies are more easily affected and greatly suffer from instability. Their financial systems are especially likely to be victims of economic fluctuations. Globalization increases the risk to the economic system. If there is any political instability or the government is not strong enough to provide correct direction and help for the market，mini-economies are very likely to become the target of international speculators. A good example is the Asian Financial Crisis in 1997. International speculative attacks seriously affected countries with low foreign exchange reserves and the governments were forced to devalue their currency which led to financial collapse and long-term economic difficulty.2.3.2.2 Bringing culture shocks and cultural threats to mini-economiesGlobalization leads to the development of MNCs. The huge amount of foreign investments brings not only money，but also foreign cultures.This is a great shock to the domestic cultures of the mini-economies.Sometimes，the culture shocks can even be destructive. While enjoying the large economic growth brought by the investments of MNCs，some mini-economies find that their own cultures and regional characteristics are gradually assimilated or even replaced by those of the imported cultures. The diversification of the world cultures thus is affected.2.3.2.3 Threatening the existence of medium and small enterprisesThe entry of MNCs threatens the development of the local infant

industries and the domestic industries which are of medium or small scale. Normally speaking，the development of medium and small enterprises in mini-economies is relatively immature. It is hard for them to compete with MNCs in the spheres of production costs，product quality and enterprise culture. Even if they can provide more personalized services，their general competitiveness is still too low to get them a market share. As a result，domestic enterprises especially those of medium and small size may be diminished or even extinguished by the entry of MNCs.2.3.2.4 The danger of high external dependencyUnder the process of globalization，mini-economies increase their regional cooperation with their surrounding countries which brings economic growth and more opportunities to their countries. However，due to the scarcity of natural resources and human capital，most of their resources and raw materials are imported；at the same time，most of their products and services produced are exported. This results in a high dependency on foreign countries. If the countries they depend on experience any economic depressions or political instability such as wars，the mini-economies will be seriously affected. Due to this chain effect，there will be a great decrease in the value of trade and the economy will slow down. Furthermore，domestic demand can no longer be filled due to the decrease in imports. The production of some basic necessities may be halted due to the break up of international division of labor. The problem of shortages may be solved by importing the daily necessities directly from foreign countries；yet that will cause an increase in cost and lower the living standard of the people of the mini-economies.Therefore，mini-economies should avoid being highly dependent on their foreign counterparts while making good use of their own competitive advantages. It is extremely important for mini-economies to keep a balance between these two elements.2 .4 C o u n t r y S iz e ，S p e c ia l iz a t io n P a t te r n s an d E c o n o m ic G ro w thAccording to mainstream textbooks of economics，openness and internationalization are supposed to be beneficial to min-economies.Their internal markets are so small that the alternative import substitution

strategy pursued almost universally by their larger neighbors is not viable.However，development in both trade and growth theories since the 1980s has shed doubt on these conclusions，by demonstrating that instead of facilitating convergence in productivity and income levels，trade among asymmetric countries may well lead to an increase in income gaps，as technological advantages may be cumulative and polarization will then be the rule rather than the exception. The essential factor in this regard is scale economies，both internal and external to firms. Thus，to the extent that small economic size implies that economies of scale and scope cannot be attained，higher production costs and an unfavorable competitive position will result.8 The factors underlying this result are diverse and affect both public and private sectors：2.4.1 Ind iv isib ility of Public Goods and Infrastructure ServicesMost public goods and infrastructure services are characterized by their indivisibility. As a result，the cost of public services per capita in mini-economies is usually higher than in larger economies. Limitation of scale economies may also force these countries to provide a wide array of goods and services by government that are now typically offered by private sectors in larger economies.2.4.2 Firm Size and Production CostsPrivate activities are faced with the same difficulties，because the smallness of the domestic market implies that economies of scale cannot be achieved. Trade flows in processed products are determined by economies of scale and specialization rather than by comparative cost advantages associated with factor endowments.2.4.3 Market Structure，Employment and Adjustment CostsSmallness also determines production and market structures.Being mainly composed of small firms，the domain of viable production alternatives is naturally more limited in mini-economies. Small firms are also financially weak and tend to be viewed by financial institutions as more risky borrowers. They are thus more vulnerable to shocks than larger enterprises，including those which compete with them in international markets. On the market side，high unit costs and small market size naturally tend to create monopoly situations.

The size of labor markets matters too，and has adverse consequences for both suppliers and customers. Because the pool of human capital is naturally limited，firms must compete for scarce labor skills and may have difficulty in finding the full range of the skills they require in the labor market. On the other hand，specialized workers have very few employment alternatives. This is particularly acute when industries have to restructure. Thus，social costs associated with structural adjustment are not transitional in mini-economies，because alternative domestic employment is at best scarce，and at worst non-existent.2.4.4 Advantages of Small SizeSmall market size also has some microeconomic advantages，especially when it comes to diseconomies of scale associated with transaction costs. The smallness of the population involved promotes better information for economic partners and thus reduces risks associated with information asymmetries and moral hazard. Reputation and peer pressure to behave according to established ethical standards is a partial substitute for regulation and law enforcement. Smallness also favors better social cohesion and facilitates the relationship between the state and its citizens in that public policy is decentralized in a small democratic state and there is no great distance between policy makers and policy takers.2 .5 S t r u c t u r a l V u ln e r a b i l i t y in th e L ig h t o f G lo b a liz a t io nTranscending development levels，mini-economies are consistently more vulnerable to external shocks than larger ones. Thus，vulnerability is the other relevant factor，besides growth and income，for analyzing the relationship between country size and economic welfare in the context of globalized economies. Vulnerability is attributable to interrelated geographic，demographic and economic factors.2.5.1 Geographic and Demographic FactorsThe conjunction of geographic and demographic factors leads to higher population density and increases the pressure on already limited

domestic resources，in particular water and arable land，and threatens fragile ecosystems. Location in tropical areas prone to natural disasters compounds the problem. In many mini-economies，natural disasters are recurrent and affect a large proportion of the national population and economy. In the face of such catastrophes，the capacity of national authorities to cope domestically with the costs of reconstruction is limited.2.5.2 Trade and Capital Account ShocksEconomic characteristics of mini-economies are another source of risk. In particular，their level of openness may entail a high degree of vulnerability to external shocks in that mini-economies are much more open than the larger ones. Moreover，exports from the mini-economies tend to be highly concentrated in a narrow range of products and markets.Thus，they are very exposed to external shocks in prices，and quantities and tend to suffer from higher terms-of-trade volatility than larger states.Additionally，some export activities，but also investment in tourism，benefit from fiscal subsidies，further eroding the tax base of public finances and increasing economic vulnerability.92.5.3 Macroeconomic PoliciesThe shallowness of domestic financial sectors，low domestic savings rates，and reduced margins for changes in relative prices due to strong links between domestic and international prices exacerbate the traditional macroeconomic constraints faced by open developing economies. Under these conditions，it is more difficult to cushion shocks by resorting to internal financing or devaluing the currency. More than anywhere else，macroeconomic policy has been geared towards controlling inflation and preserving nominal exchange rate parity，two closely interwoven targets in mini-economies. The commitment to fixed exchange rates has reinforced price stability. However，it has also placed the burden of adjustment to external shocks on income effects，thus reinforcing the risk that large shocks and misalignments may translate into recession and unemployment. Furthermore，when this kind of exchange rate policy has resulted in overvaluation，persistent pressures on the balance of payments has adversely affected growth and increased the dependence on external financing.10

2.5.4 Fiscal VulnerabilityIn a framework where monetary policy is determined by the exchange rate regime and the domestic financial sector has little depth，the scope for autonomous fiscal policy is naturally reduced. Additionally，in many economies current government income is quite dependant on trade tax revenues，and public investment depends largely on official assistance. Obviously，the situation is potentially worse for those countries which are both dependent on trade taxes and face a relatively large fiscal deficit.2.6 F ac in g C ha llenges and S e iz ing O p p o r tu n it ie sStructural conditions in mini-economies impose particular constraints，calling for specific measures by national governments and multilateral bodies to create greater margins of flexibility in national and regional development strategies aimed at overcoming these constraints.Reform should be undertaken involving market liberalization combined with monetary and fiscal discipline. The new trade regime should move away from inward-looking strategies and towards open regionalism. As such，it should combine deeper regional integration with a stronger orientation towards extrarregional markets.2.6.1 Macroeconomic StabilityMonetary policy in a globalized world should not be tied solely to the reduction of inflation，especially when this is accompanied by an increase in the volatility of growth. Macroeconomic stability should be pursued with a broad view of stability in mind，which includes not only price but also real economic stability and sustainable balance of payments accounts. This means，first of all，loosening the tight link between balance-of-payments performance and monetary policy. This can be accomplished by providing greater exchange-rate flexibility in order to mitigate external disequilibria.Macroeconomic stability and long-term economic growth not only hinge up on competitive exchange rates and moderate real interest rates，as a result of more flexible policies，but also depend on sound fiscal systems that provide the necessary resources for the public sector to do its job，as well as upon deep financial markets. A corollary of this policy package is the need to adopt medium-term fiscal frameworks

that allow for the use of suitable instruments，particularly broad tax stabilization funds that will facilitate counter-cyclical fiscal management.It is also necessary to strengthen the fiscal balance through more efficient administration together with a reduction in reliance on trade taxes and a shift in the burden of taxation to internal sources.In mini-economies，a competitive group of small firms cannot be expected to emerge spontaneously because of the lack of adequate externalities and the inherent learning processes involved. Policy intervention is required to stimulate strategic change and promote alliances between existing firms that will lead to the formation of dynamic，competitive，productive and technological linkages. The smoother flow of information in smaller economies，together with the possibility of closer interaction between the public and private sectors，facilitate the design of policies aimed at building dynamic production clusters.2.6.2 Open RegionalismRegional integration creates rather than diverts trade flows.Moreover，the trade flows it generates tend to be of a high quality.This is borne out by the tendency of regional flows to have greater technological content and to create more production linkages. One of the main advantages of these processes is that countries with similar levels of development can take advantage of specialization economies that generate intra-industry trade. Another advantage is that lower transaction costs allow smaller firms to participate in intrarregional trade.This helps to counter the effect of production asymmetries and the tendency for external trade operations to be in the hands of larger firms.11Active investment strategies aimed at better integration into the world economy should preferably be pursued as sub-regional strategies，and should also be supported by multilateral financial institutions.They can provide for joint marketing strategies and common financial services，including integrated capital markets and common credit guarantee funds for small enterprises. In areas which are crucial for systemic competitiveness，such as transportation and communications，common strategies may be essential to deal with large multinational firms that adopt monopolistic practices. Common institutions may thus

be optimal in relation to competition policies and utilities regulation.12Since asymmetries that characterize globalization process are closely linked to differences in access to technology，an essential ingredient of investment strategies is the generation of regional and sub-regional innovation systems. This should include the development of broader schemes for co-operation in education，research and technical development. They can also provide a suitable framework for strategic alliances in the areas of research and development or for the formation of new production clusters made up either of domestic firms in countries that are members of a regional or sub-regional agreement or of these firms and transnational corporations.2.6.3 Importance of International SupportThe forces of divergence in development levels associated with scale economies and the vulnerabilities that are specific to mini-economies provide a strong argument for special and differential treatment for these economies. In multilateral trade agreements，this would include longer transition periods to meet new policy demands，more flexibility in setting or defining legal and institutional obligations，more room for active investment strategies，broader safeguards and the provision of technical assistance. Some of these special provisions can be temporary but most should be permanent. Such provisions should also be incorporated into agreements on trade in services as well as trade-related investment measures.The combination of high vulnerability and limited flexibility characteristic of mini-economies indicates that special financial arrangements should be made available to them to manage external shocks. Such mechanisms could be provided by a mini-country liquidity fund in the International Monetary Fund or a fast-disbursing fund administered by multilateral development banks. According to the principle of subsidiarity，decentralization in the management of these funds would be highly desirable. They should thus provide rediscount windows to which regional reserve funds or banks can have automatic access.2 .7 S om e C o n c lu d in g R e m a rk sMini-economies are especially vulnerable to structural shocks，and

adjustments have a particularly strong impact on domestic labor markets. The social costs associated with globalization are particularly difficult to absorb on a purely national basis. Promoting greater international labor mobility is thus a clear priority for mini-economies.On the other hand，the diseconomies of scale characteristic of labor markets in mini-economies indicate that firms must look at regional or even international markets to find the required labor skills. This represents an additional argument for greater international labor mobility.One of the priority items on the international agenda should therefore be to forge agreements that will increase labor mobility and strengthen the governance of international migration.The main objective here should be the conclusion of a global agreement on migration policy.The role and impact of mini-economies upon the world economy should not be under-estimated or ignored. Under the process of globalization，they not only can survive and develop，but are also connected，in various aspects such as economy，politics and culture，with their surrounding countries especially their larger nearby counterparts. In order to keep up with the pace of globalization and enjoy all the development opportunities it brings，mini-economies should firstly maintain their internal stability，improve the general quality of human resources and lay down strong policies to ensure correct development direction. Our history has already proved that isolated countries and regions normally can only enjoy small economic growth.This is true especially for mini-economies. Isolation brings only calamity.Therefore，it can be seen that the process of globalization has strong influences on the development of mini-economies.With an open economy，the internationalization of enterprise activities，fast and effective adjustments and a united society，mini-economies will be able to maintain their place in the world market. As many economists have already pointed out，the success of mini-economies are always related to the quality of their strategies and policies. Therefore，the role of the government is of a greater significance in mini-economies than in large countries. With correct government policies，mini-economies can make enormous wealth and improve their people’s living standard through the process of globalization.

Notes1 Yue，Changling，“A Review on Foreign Globalization Theories，” in Strategy and Management，Vol. 6，1995，pp. 84-95.2 Ibid.3 Yang，Xuemei，Globalization，Taipei：Yang-Chih Book Co. Ltd.，2003.4 Patterson，N.，Montanjees，M.，Motala，J. and Cardillor，C.，Foreign Direct Investment：Trend，Data Availability，Concepts and Recording Practices，Washington，D. C.：International Monetary Fund，2004，p. 5.5 United Nations，World Investment Report 2006：FDI from Developing and Transition Economies：Implications for Development，New York and Geneva：United Nations，2006.6 Ibid.，p. 3.7 Ibid.，p. 4.8 Deraniyagla，S. and Fine，B.，“New Trade Theory versus Old Trade Policy：a Continuing Enigma，” in Cambridge Journal of Economics，Vol. 25，2001，pp. 809-825.9 Kose，A.，Prasad，E. and Terrones，M.，“Growth and Volatility in an Era of Globalization，” IMF Staff Papers，No. 52，2005.10 Eltis，W.，“The Fundamental Problem，” in Oxford Economic Paper，Vol. 33，1981，pp. 1-8.11 Roland-Holst，D.，Verbiest，J. and Zhai，F.，“Growth and Trade Horizons for Asia：Long-term Forecasts for Regional Integration，” in Asian Development Review，Vol. 22，No. 2，2005，pp. 76-107.12 Ibid.

3C o m m o n F e a t u r e s o f M i n i - e c o n o m ie s3 .1 C o m p a r a t iv e ly H ig h e r L e v e ls o f O v e r a l l D e v e lo p m e n tAs mentioned earlier，though mini-economies suffer from innate factors that restrict their development，such as markets being too small to produce an economy of scale and the lack of natural resources，they are not necessarily weak or stagnant economies. In fact，out of the 64 mini-economies that we have identified and listed in Table 1-2，a significant number are high GNI economies. If we follow the World Bank category where only 54 are defined as micro-states/mini- economies，we find an even higher percentage，i.e.，45％ of them being high GNI countries or regions；26％ being above-average GNI countries or regions；only 7.5％ being low GNI countries or regions.1 According to the 2005 World Development Indicators，there are 24 mini- economies among the 56 high per capita GNI countries or regions，among which two of them are OECD members，the other 22 are non-OECD members （Table 3-1）.Therefore，as a whole the economic development of mini-economies has been quite impressive and some have made such giant economic strides that they perform even better than some of the richest countries in the world.If measured by the United Nation’s Humanity Development Index （HDI），the performance of mini-economies is above average. The HDI，which is an indicator simple and easy to operate，covers，in addition to GDP，education （literacy rates，percentages of students in primary and secondary schools and in tertiary education），and healthcare （such as life expectancy）.In 2005，31 mini-economies were included in the UN statistics.2 Iceland and Luxembourg ranked the 2nd and the 4th

Table 3-1 High Per Capita GNI Countries/RegionsNote：Those marked with * are mini-economies，a total of 24.Source：World Bank，World Development Report 2005，p. 291.East Asia & Pacific regionsEurope Americas Middle EastAustraliaJapanSouth Korea New ZealandAustriaBelgiumDenmarkFinlandFranceGermanyGreeceIceland*IrelandItalyLuxembourg*NetherlandsNorwayPortugalSpainSwedenSwitzerlandUKUSCanadaBrunei*French Polynesia Guam*Hong Kong, China Macao, China* New Caledonia* Singapore Taiwan, ChinaAndorra*ChannelIslands*Cyprus*Faroe Islands* Isle o f Man* Liechtenstein* M alta* M onaco*San Marino* SloveniaAntilles*Aruba*Bahamas*Bermuda*CaymanIslands*Greenland*Puerto RicoVirgin Islands*Bahrain*IsraelKuwaitQatar*Saudi Arabia The United Arab Emirates12 28 10 6RegionsGNI GroupingHigh GNI Per Capita (over US$10,066)24 OECD Member States32 Non-OECD Member StatesTotal 56

respectively. Thirteen mini-economies，accounting for 40.6％，were high HDI （above 0.8）；18 of them accounting for 56.3％ were average HDI；and only one is a low HDI country，thus achieving an average of 0.767，which is higher than the average of 0.718 of 177 average HDI countries and regions.3 In 2003 the HDI of Macao was 0.909，compa- rable to that of highly developed countries.A feature of mini-economies is their small populations. However in countries and regions where there is a shortage of working population，the quality of the population is all the more important. For this reason，the governments of mini-economies pay special attention to the implementation of their various education and healthcare policies. At the same time，thanks to the small size of population，these policies are more clearly and effectively directed，and resources put to better use.As a result，they can afford better education，better healthcare，better and more comfortable livelihood for people，all of them contributing to the strengths of their economies. In addition，mini-economies tend to focus on primary or tertiary industries，and their processing and manufacturing industries tend to be relatively backward. Such a phenomenon has enabled these countries/regions to better preserve nature and protect their natural environments，which，in turn，benefits the health of their peoples and thus maintain a quality population.3 .2 U n ita ry N a tu re in the S tru c tu re o f In d u s tr ie sSmall markets and small populations are characteristics of mini- economies；they are also characteristic of most colonies or former colonies. The small scale of markets determines that unlike big countries，these economies cannot afford to invest their resources in a wide variety of industries. In other words，they run greater risk if they invest their limited resources in many different industries. Therefore they have to make sensible decisions and invest the resources in the industries that they are best at and from which they get the best returns so as to make the best use of the limited resources to boost economic growth.Some mini-economies make a head start by maximizing the use of their resources to develop their own flagship industry and then move on to diversify their industries appropriately. Some mini-economies may establish their own traditional industries by relying on their own natural resources，while others may develop their own strong industries by

taking advantage of their institutional resources. For example，in 2004，the three key leading industries of Bermuda，which included financial services，real estate and international commerce，already accounted for 48.3％ of its GDP.4 In 2003，the petroleum and gas industry of Brunei accounted for 40.4％ of its GDP，5 and in 2004，transportation，logistics and communications in Seychelles made up 30.34％ of the country’s GDP.6 The unitary nature of industries in mini-economies is reflected not only in the fact that these single industries account for high percentages of their GDPs，but is also reflected in the close correlation between certain industries，thus exerting significant impact and influence on the overall economy. The unitary nature of industries，though imposing certain restrictions on economic development，is not completely negative. If the strong industries of a mini-economy have not yet been given，full play，and if the potential has not been fully tapped，too much emphasis on diversification of industries，even if the industries are appropriately diversified，may not necessarily bring about good results.3 .3 G o v e r n m e n t s ’ C o m m itm e n t to I n d u s t r ia l D iv e rs if ic a t io nIn the 1990s，all mini-economies made progress of varying degrees，and some even achieved remarkable successes. With the deepening of globalization and intensifying of economic collaboration among countries，it can be said that nowadays no country or region in the world can boast of a permanent monopoly of resources，and big powers may not depend permanently on mini-economies for monopoly of privileges or resources.In addition，globalization boosts interactions and mutual influences.Economic fluctuations in one country may send repercussions and exert huge influences on other countries. It is imperative for mini-economies relying on single industries to diversify their industries to protect themselves from external shocks brought about by the tidal waves of globalization.In most mini-economies，the governments play a leading role and are in a strong position to exercise influence and steer economic development. Therefore it is through government policies that industrial diversification is promoted，both vertically （under the umbrella of the same industry） and horizontally （in a range of different industries）.The

direction for industrial diversification depends on the actual and specific situations of various mini-economies. In general，governments can help promote diversification by introducing foreign investments，developing infrastructure and enhancing the service sectors.3 .4 P u r s u it o f F ree T rade P o lic ie s a n d G re a te r O penness in F o re ig n T radeMini-economies are short of resources and small in area. However，according to comparative trade theories，this shortage of resources does not necessarily hinder their business activities. It is exactly the lack of resources that makes it necessary for these economies to control the scope of industries and excel in professionalizing their foreign trade and in focusing on exporting their unitary，most prestigious products and commodities. At the same time，mini-economies depend on huge imports to meet domestic demands，and they need to export on large-scales in exchange for imported goods，thus resulting in greater openness in foreign trade that has obvious influence on their economic development. Most mini economies pursue free trade policies and often create institutional strengths by practicing low tariffs. In fact a country has two options in its foreign trade policies：one is a high-tariff policy，which is regarded as a measure of protection and the other，a low-tariff policy （including zero-tariff），which is regarded as a policy for pursuing free trade. As the size of population and trade of mini-economies is small，their influence on world trade，as in the prices of imported/ exported commodities，is minimal or only theoretical.Under this condition，if the high-tariff policy is enforced for the purpose of protection，it will lead to rising prices in exports，which will make the trade environment deteriorate and eventually cause damage to the welfare of the state.Therefore micro-economies or mini-economies should opt for low-tariff，or even zero-tariff policy in foreign trade.Mini-economies usually have as their partners big powers in their neighboring regions. They depend，in varying degrees，on big countries for foreign trade. Such dependence，coupled with a vulnerable production base，renders mini-economies prone to economic fluctuations，the “external shock problem” as often discussed in economics. It is an important field of study for the mini-economies and their governments to minimize the occurrence of this problem and its repercussions.

3 .5 A c t iv e P a r t i c i p a t i o n in R e g io n a l T ra d e C o o p e ra t io n O rg a n iz a t io n sMini-economies enjoy relatively easier trade access to the support of big powers and some big powers even provide economic aid to mini-economies. From a long-term point of view，the dependence of mini-economies on big powers will gradually weaken the independence and flexibility of these economies. Mini-economies have become aware of this threat，so，as if by a prior arrangement，they have almost all joined important regional trade cooperation organizations as platforms to develop their economies. These regional cooperation organizations have enabled the mini-economies to integrate into regional economies so as to make up for their shortage of resources. Besides，as the lack of economic status is still a problem for mini-economies，their participation in regional trade organizations boosts their political and economic status.However，no inference should be made that it is not appropriate for mini-economies to involve themselves in global trade organizations；only regional trade organizations are more relevant to mini-economies and provide them with more opportunities to play their unique roles. Most of the mini-economies are members of international organizations such as the WTO where as Luxembourg，Cyprus and Malta are members of the EU. Brunei is a member of ASEAN.3 .6 M in i- e c o n o m ie s ：M u lt ip ly A f f i l ia te d to B ig P o w e rsMini-economies are mostly geographically affiliated to or neighboring on big countries. They used to be colonies or are still affiliated to sovereign states，depending politically or economically on big powers for their political stability and economic growth. Out of the 64 mini-economies on our list，15 are colonies or special administrative regions of other sovereign states，such as Samoa （US），Antilles （Netherlands），Bermuda （UK），and Gibraltar （UK）.Moreover，even independent sovereign mini-economies are under the heavy influence of their neighbors politically or economically. For example，Luxembourg，an inland country surrounded by France，Germany and Belgium，was once a victim of wars between France and Germany but after World War II has given vigorous support to the integration of Europe led by France and Germany and actively participated in the EU as its greatest

trade partner. Malta，situated in the Mediterranean，is only 93 km away from the Italian Island of Sicily. In addition to political ties as an EU member，it has signed a bilateral defense treaty in order to remain neutral，which means militarily it is protected by Italy. Liechtenstein has established economic ties with Sweden，uses Swiss currency and is protected by Swiss military forces. The Bahamas，situated in the Pacific Ocean，is only 80 km away from Florida，USA. In addition to political influence，the US is a key focus in Bahamas’ foreign policies. The two countries have very close cooperation in finance，and in efforts combating terrorism and drug-trafficking，with the US even having an organization called “Drug Interdiction Operation” stationed permanently in the Bahamas. The two countries have also signed a Comprehensive Marine Agreement. Tourism，the key industry of the Bahamas，depends on visitors from the US. In the Middle East，Saudi Arabia plays an important role the political and economic development of Bahrain by allowing the latter to have all the proceeds from their joint ventures oil fields，in addition to the daily supply of 50，000 barrels of crude oil.3 .7 Som e C o n c lu d in g R e m a rk sThe existence of mini-economies has been determined by specific social and historical circumstances. In other words，they are special socio-economic phenomena created under special circumstances. For mini-economies，it is an important principle not to let others dictate or manipulate their economies. They should take the initiative for their own development. For big powers，neighboring countries or non mini-economies，it is necessary to respect the relative autonomy of mini-economies，neither interfering nor setting obstacles. The existence itself of a large number of mini-economies reflects the diversity of our world. They are established members of the international family，though they are so small in size that sometimes they become negligible as far as numbers are concerned. In our more and more globalized world with peace and development as the theme of our era，all economies，big or small，should be equal，respecting each other，meeting each other’s needs，and mutually complementary with each other’s strengths. Our planet should be peaceful，prosperous and harmonious. This understanding should be universally accepted.It is with this common understanding that the authors of this book

would like to appeal to all economists and scholars to pay more atten- tion to mini-economies，study mini-economies and promote the healthy development of mini-economies. We are confident that people from all walks of life in Macao，who have now become the masters of their own destiny，i.e.，Macao people running Macao，together with government officials and other academics，will look further ahead，think deeper and work harder together，striving for a road of development for our mini- economy which is both environment-friendly and sustainable.N otes1 See World Bank，World Development Report 2006.2 Though Macao was not included in the UN list，the Macao Statistics and Census Service worked out the HDI of Macao by using the same methods.In 2003 it was 0.909，ranking 25th after Greece，but ahead of Singapore. As a result，a total of 32 mini-economies had their HDI worked out.3 United Nations，Human Development Report 2005.4 Economist Intelligence Unit， Country Profile 2005 - Bermuda， p. 5.5 Economist Intelligence Unit， Country Profile 2005 - Brunei，p. 13.6 Economist Intelligence Unit， Country Profile 2005 - Seychelles，p. 36.

4C a s e S t u d i e s o n T o p i c a l M i n i - e c o n o m i e s ：A G l o b a l P e r s p e c t i v e （Ⅰ）Around the world，there are over 60 countries/regions in the scope of mini-economies. It is impossible and，in any case，not necessary to describe or study them one by one，due to the difficulty and complexity of collecting information and data about them. Instead，we follow the strategy of choosing some representatives of mini-economies on which to conduct in-depth cases studies. Following the principles of scientific analysis，twelve mini-economies are chosen in a macroscopic approach.Based on recent data and materials，Chapter 4 and Chapter 5 present the valuable development experience of mini-economies other than Macao and intend to shape out a possible path that will lead Macao to sustainable development.In this study，to avoid one-sidedness，we choose the subject countries/regions not only based on the ranking of gross domestic product （GDP） but also based on many other underlying factors （i.e.，GDP per capita，industrial structure，trade volume，degree of regional corporation）.Analyzing the similarity and diversity of case study countries helps to identify positive elements in Macao’s development and to identify cautiously potential problems.The subject countries，covering the continent of Asia，Africa，Europe，Oceania and America，are chosen globally and are well known.The existence of mini-economies is not only a unitary phenomenon of any single economic area，but also a precious economic experience for international society. Therefore，choosing the subject countries in a more global sense is beneficial to reach scientific and comprehensive theoretical findings.The twelve selected countries/economies are all have achieved

relatively strong economic performance in their region （with higher GDP per capita） or have achieved a better result in Human Development Index （HDI）.For instance，Luxembourg is both one of the richest states in Europe and the world；Bahamas is one the wealthiest countries in the Caribbean；and Bahrain has a relatively advanced economic structure.In addition，besides Brunei which is endowed with rich natural resources （oil），the rest of these economies have scarce natural resources or in other cases resources are in depletion. The advantages of low labor cost in manufacturing has been lost due to the rise of a group of newly industrialized nations and the challenges raised by globalization. A majority of these economies have undergone the phase of economic restructuring and received remarkable results. Being the mini-economies，many of them are regional financial hubs or tourism centres with high reputation.This study not only aims at enhancing the understanding of mini- economies，but also targets providing a reference for Macao in future development，drawn from the valuable experience of the selected economies. There are still a number of problems unsolved in Macao’s development orientation. Politically，Macao is destined to be a model of successful launching of “one country，two systems，” while in the economic sphere，its “dragon-head industry” （gambling） needs further consolidation，and diversification in economic structure is urgently required. The development track of other economies with similar characteristics to Macao serves as an important source for reference.Although mini-economies possess similar characteristics to Macao in their nature，their number has reached 64 in quantity and there is a great variation among them in background and level of development.Therefore，in selection of the comparative targets，for the sake of avoiding generality，the research group has tried to filter out the economies possessing close economic structure and level of development. For instance，in Europe，Luxembourg，Malta，Cyprus and Monaco are chosen.They all have comparable levels of economic development with Macao.Luxembourg’s GDP is more than double of that of Macao and Monaco is famous for its casino business. Similar with Macao，the service industry plays a dominant role in these economies，in which tourism is considered to be the most important ingredient （Luxembourg to a lesser degree）.Furthermore，besides Monaco，the 3 states have actively participated in regional integration. In Latin America，Bermuda and the

Bahamas are both mini-economies specializing in tourism. In addition，they share a common interest with Macao in enthusiastic development of offshore business to invite foreign capital. What is more，being an overseas territory of Britain，Bermuda has a similar political system with Macao. Both possess a great deal of autonomy in economic and internal affairs；however，military power and foreign relations are controlled by the sovereign state.4 .1 T he B ah am as4.1.1 Brief DescriptionThe Bahamas is located in the Caribbean Sea，north of Cuba and 80 km off the north-eastern coast of Florida. The islands spread from the north-west to the south-east，with a length of 1，220 km and width of 96 km. The Bahamas consists of 700 islands and more than 20，000 islets，of which 20 are inhabited. It has a land area of 13，939 km2 and an administrative area （including sea area） of 259，000 km2.In 2005，the Bahamas had a population of 325，000，of which 85％ of them are Blacks，and the remaining Caucasians and Asians. The majority of the population is Christian. The official language of the Bahamas is English. Nassau is the capital and has a population of 222，000.1The First English settlers came to the Bahamian island of Eleuthera in 1647. The British governor led a group of settlers and occupied the island in 1649. It became one of the British colonies in 1717. After almost two hundred years of colonial governance，the Bahamas was granted internal self-governance 1964 and finally gained full independence in 1973. However，it stayed as a member of the Commonwealth of Nations.As the thin soil and dry climate were not suitable for plantation agriculture，development followed a different pattern from that of the UK’s other Caribbean colonies，with an economy based first on piracy，then on small-scale agriculture，salt production，fishing and trade.Sources of income at various periods included pineapple cultivation，sponge fishing，gunning-running during the US civil war and rum- smuggling during prohibition.Tourism development started in 1861 with the opening of the government-built Royal Victoria Hotel，although it

was not until the 1950s that tourism began to provide a firmer basis for the economy. Meanwhile，the earnings in tourism provides the Bahamas a source of revenue for compulsory free education，improvement in social welfare and increase in governmental employment.The Bahamas possesses a stable political environment. After independence in 1973，the Progressive Liberal Party （PLP） rule became a permanent feature of Bahamian politics. Due to the closeness in geography，the Bahamas had been a popular route for US-bound cocaine and marijuana and this resulted in cast a dramatic political shock in the 1980s. Following a Royal Commission of Enquiry report in 1984 stating that the illegal drug trade had corrupted Bahamian society，five ministers left the government. Later，the fact that Bahamian government allows the US to operate a semi-permanent drug interdiction operation on the islands and a decline in tourism led a fall in income from the cocaine trade. Subsequently，drug traffic in the Bahamas has been diverted to other routes.4.1.2 External RelationsThe Bahamas maintains good relations with US，Canada and Europe，enjoying privileged market access under the US Caribbean Trade Partnership （CTP），the Tariff Treatment for Commonwealth Caribbean Countries （with Canada） and the Cotonou agreement （with the EU）.However，it is not a member of the World Trade Organization （WTO） as the Bahamas has been reluctant to lose its tariff-based revenue system. It only gained observer status in 1999 and in 2004 applied for membership.2 It established diplomatic relations with China in 1997.The US is Bahamas’ largest origin of tourist and consumption goods. It is also a major transit route of drugs and illegal immigrants to US. The two countries have close cooperation on finance，anti-drug trafficking and anti-terrorism. They signed a judicial mutual assistance agreement in 1987 and an agreement on exchanging taxation information in 2002. In 2004，the two states signed an agreement on marine cooperation. However，in recent years，there is a tendency of drifting apart in their relations.The Bahamas has a traditional intimate relation with Britain and is a member of the Commonwealth of Nations. In 2002，the British government donated 45，000 US dollars to the Health Department and Environmental Science and technology Commission，sponsoring

ecological protection of rare spices of animals and plants.3The Bahamas is a member of the Caribbean Community （Caricom），grouping 13 Commonwealth countries，along with Haiti and Suriname.Nevertheless，due to its more solid economic strength in the region，it hesitates to enter full regional economic integration，worrying that the free movement of people and goods will create a large influx of immigrants from the neighborhood. Therefore，the islands do not participate in Caricom’s trade-related activities or proposed single-market and economy. Relations with Haiti have been affected by the issue of illegal immigration. The Bahamas argued against the legitimacy of the new Haiti’s government and opposed the resumption of its membership in Caricom in 2004.4.1.3 Resources，Infrastructure and Culture4.1.3.1 Natural resourcesThe principal natural resources of the Bahamas are its warm climate，sandy beaches，clear waters and proximity to the US，which are important factors of tourism development in the islands. Meanwhile，agricultural resources are limited. Soils are thin，patchy or non-existent，rainfall is low and irrigation is needed for most commercial agriculture.However，exploration for oil and gas is now in progress.Since the Bahamas lacks rivers or streams，water resources are also limited. Nevertheless，the shallow waters of the Bahamas Banks provide excellent conditions for the establishment of commercial fishing grounds. In 2001 lobster made up 94％ of the fisheries export earning.44.1.3.2 TransportationNassau has good air connection，with direct flights to more than a dozen cities in the US and Canada. There are also direct flights connecting the capital with 5 European cities and Jamaica. Besides the capital airport，several major islands also provide flights to Europe and the US，especially to Florida. Domestic traffic （between islands） is dominated by air transportation. The boat service is used mainly for freight. Within each island，transportation is by road. Traffic density is high in Nassau，and the government has launched a series of plans for road improvement. Yet traffic congestion is still a problem. The public transport system in Nassau is limited to privately-owned daytime buses.

The Hong Kong-based Hutchison Whampoa has been in partner- ship with the Grand Bahamas Port Authority，a local private-sector company，to operate a long-distance transshipment hub for the Americas.The Phase IV expansion，which cost 75 million Bahamian dollars，will expand capacity to 1.5 million TEUs annually，with dredging to 15.8 m.Meanwhile，Hutchison is developing a 318-ha air/sea industrial part on the island.54.1.3.3 Telecommunication and energyTelecommunications services in the Bahamas are provided by a state-owned Bahamas Telecommunications Ltd （BTC）.The government has been working on privatization since 1997，but the government rejected all proposals at the final stage in 2004. A further proposal was under discussion in mid-2006 and BTC is expected to lose its monopoly rights sometime later，though no firm schedule has been announced.6In the absence of natural resources，all commercial energy of the Bahamas is derived from imported oil products. The state-owned Bahamas Electricity Corporation （BEC） supplies electricity to Nassau and the Family Islands. A 96 million US dollars investment programme to increase power generation capacity has been planned. However，due to the late coming of the new capacity，blackouts sometimes occur，especially in the summer season. In 2005，the Bahamas agreed to a proposal with Venezuela and other Caribbean countries for the PetroCaribe preferential oil supply programme，in which 5％ to 50％ of the cost of oil imports from Venezuela would be financed with a soft loan repayable over 15-25 years with a 2-year grace period and an interest period of 1-2％.74.1.3.4 Education，culture and healthcareChildren age 5-14 gain access to compulsory education in public schools. The adult literacy rate in 2005 was 95.5％ .In the financial year of 2004/2005，201 million Bahamian dollars was devoted to education，an amount equal to 17.1％ of the government budget.8 Normally students of Bahamas continue their higher education locally，and the government is planning to upgrade the College of the Bahamas （the most important higher education institution） to university status. In addition，a small University of the West Indies campus teaches hotel and tourism management.

The Bahamas has a relatively good standard of healthcare. There are government-run hospitals in both Nassau and Freeport，and clinics on the Family Islands. However，rates of human immunodeficiency （HIV） infection are among the highest in the Caribbean. Nevertheless，the number of new patients testing HIV-positive has fallen since the mid 1990s.4.1.4 Economic DevelopmentThe Bahamas is one of the most prosperous countries in the Caribbean，with a GDP per capita of 18，051 US dollars in 2005.9 Tourism and financial services are the most important economic sectors.The net receipts from tourism and offshore financial services sector contribute 27％ and 15％ respectively of its GDP in 2004.10 With certain success，in recent years the government adjusted its economic policy and proposed the idea of sectoral diversification to attract foreign investment. The government also emphasized development in agriculture and industry，in the hope to realize industrialization and self-sufficiency in food supply.There are some characteristics in the Bahamas’ economy which can be summarized as follows.4.1.4.1 Tourism industry is highly developed，but the tourist origin is extremely concentratedMore than 80％ of the tourists come from US. The remaining visitors are concentrated on Europe and Canada. Most of them prefer staying in large resorts and hotels in Grand Bahama. Group，package and incentive travel is a large component，and casino gambling is an important attraction. The average time of stay per visitor reached 6.4 nights in 2005 （excluding visitors from cruise travel）.11 Some islands strongly promote yacht-based tourism and second homes long-stay in winter. The Bahamas has the natural advantage in resort development as it is endowed a much longer coastline than most other Caribbean states.During 1993-2000，the number of visitors to the Bahamas by air increased by 2.4％ annually and cruise-ship passenger numbers increased by an average of 10.2％ per year in 1996-2000. Following the 911 terrorist attacks in the US，a decrease in number of visitors was recorded in 2001-2002. A recovery in 2003-2004 left the total still

1％ below the 1999 peak. Meanwhile，there was not much impact on the number of cruise passengers，even a steady increase. Although the number of cruise passengers doubled the number of stop-over visitors （3.34 million and 1.61 million respectively in 2005），the total expenditure was 183 million US dollars in 2005，only 1/10 of the amount of stop-over visitors （1.88 billion US dollars）.12 Stays are short and meals are usually eaten on board，the only significant economic benefit brought by the cruise traffic is the head tax of 15 Bahamian dollars per passenger （Table 4-1）.Table 4-1 Major Tourism Indicator of Bahamas （2005）Source：The Bahamas Ministry of TourismThe largest investor in Bahamas’ tourism is US. It built the claimed largest tourism complex outside the Las Vegas，with 2，395 rooms.134.1.4.2 The finance sector is well-developed after years of effortBesides tourism，the other economic pillar of the Bahamas is financial service. Nassau is an international financial centre and it accounted for 12.8％ of gross value added （GVA） in 2004.14 Interna- tional banks operating in the Bahamas in June 2005 managed aboutVisitor arrivals 5,035,818Means of arrivalby air 1,514,532by sea 3,521,286Place of stayingNew Providence 2,978,860Grand Bahama 651,853Family Islands 1,405,105Average length of stay (days) 6.4Total Visitor Expenditure (Millions of Bahamian dollars) 2,071.8Stopover 1,883.9Cruise 182.9Day 5.0

316.5 billion Bahamian dollars （316.5 billion US dollars） in assets，with a further 164.1 billion Bahamian dollars in 653 locally-managed mutual funds. The sector employed 4，253 people in 2003，comprising only 3％ of the labor force. However，the salary offered is well above the national average.15Poor regulation and an international reputation tarnished by association with drug-trafficking have deterred the development of the Bahamas’ financial services. Therefore，legislations on international business companies （IBCs） and mutual funds were updated in 1995，followed by reforms on money-laundering in 1996 and trusts in 1998.These changes helped the Bahamas to win back a significant market share from rival offshore financial centres. At the same time，incentives have been launched to attract capital inflow，such as the development of new tax-minimizing products （offshore insurance-based investments）.The Bahamas was listed in June 2000 by the Financial Action Task Force （FATF） as a non-cooperative jurisdiction in respect of money-laundering and by the OECD as a tax haven. In response，the government swiftly drafted a new package of financial legislation that was passed in 2000-2001，including establishing a Financial Intelligence Unit，improving the framework for international legal cooperation and tightening the rules on the reporting of suspicious transitions and the beneficial ownership of offshore companies. Finally，13 bank and trust company licenses were suspended in early 2001. Those efforts caused the Bahamas to be removed from the FATF list in 2001. Nevertheless，the new regulatory regime also faces some challenges，one of which is the annual 200 million US dollars revenue from casino gambling.In addition，the Bahamas has had its own stock exchange starting in 2000. However，trading volumes are low in relation to cost，totaling 36.3 million Bahamian dollars in 200516，and the survival of the exchange is in question.Earnings from offshore companies’ spending in the Bahamas’ economy totaled 134 million US dollars in 2004，which demonstrated a strong recovery from 2002 after a four-year consecutive downward trend. During the ebb in 2001，the corresponding figure was only 56.4 million US dollars.17 The recovery showed that improved regulation did not mean the end of the finance sector. However，banking secrecy laws and tax-free status have prevented the negotiation of tax information exchange agreements. This links with deterring the development

of captive insurance business and some tax management and investment-related business. A Tax Information Exchange Agreement with the US was signed in January 2002，but in 2004 the Bahamas withdrew from its previous commitment to the exchange of information on criminal tax investigations by 2004，and civil tax investigations by 2005/2006. The reason is that some OECD members had failed to take similar measures. Nevertheless，mutual legal assistance treaties with the US，Canada and the UK remain in existence，allowing for the exchange of information on criminal activities.4.1.4.3 Shipping an outstanding sectorThe Bahamas ranks first in the world in terms of cruise ship registry and is the third largest in terms of gross registered tonnage，behind Panama and Liberia. Low annual charges compensate for a comparatively high initial registration fee.In addition，services to shipping are an important source of income.Grand Bahama provides repair and renovation facilities for cruise and cargo ships，tankers and container vessels. It has the largest floating dry dock in the western hemisphere.4.1.4.4 Agriculture and manufacturing not competitiveAgriculture accounts for only 0.4％ of the GVA in 200418 and occupies 1.5％ of the land area. There are only a few commercial farms，supplying eggs，chickens，fruits and vegetables for the domestic market.Poultry products are protected by high rates of import duty. However，the diminishing level of tariff protection makes local agricultural products uncompetitive. A few vegetables and fruits are exported to the US.The manufacturing sector is also underdeveloped. The local market is small and labor costs are too high for most export-oriented garment and assembly industries. In addition，local agriculture does not provide a basis for agro-processing. Various incentives have failed to overcome these disadvantages. There are only a few manufacturing establishments such as brewery，soft-drink bottlers，printers and publishers and small clothing factories，focusing on the domestic market.A distillery on New Providence uses imported molasses to produce duty-free exports to Europe under the Cotonou agreement.

4.1.4.5 Construction promoted by tourismConstruction and tourism are closely related，as the latter greatly stimulates the booming of construction business.Along with residential，commercial and some public-sector projects，the construction sector has developed rapidly and its share in the GVA increased from 4.7％ in 1993 to 7％ in 2004.19 Large-scale construction projects in the Bahamas are conducted generally by overseas companies and some projects employ large number of foreign manual workers. Most construction materials are imported.4.1.4.6 The balance of payments highly accounted for by the export of services and government retains a relatively high rate of foreign debtSince the number of goods the Bahamas can export is very limited，almost all goods consumed in the islands are imported. Thus，the Bahamas has a large structural trade deficit on goods. In 2005 the deficit reached 2.12 billion Bahamian dollars.20 The US is the main source of non-oil imports. Currently，lobster is the most important export of the Bahamas while chemicals，salt，rum and fisheries products occupy the major share of what remains.The economy of the Bahamas is dominated by service industries.Tourism and travel are the main credit items on its balance of payment，counteracting the large trade deficit. The spending of offshore companies also contributes to the local economy. The current account has been in the red since 1993，and it reached 10.6％ of GDP in 2005.21On the other hand，there have been significant inflows of foreign direct investment （FDI），and the capital account has remained surplus.In regard to public finance，the government debt has gone up rapidly since 2001. However，the public external debt stock was reduced to 531 million US dollars at the end of 2005，equivalent to only 1.9％ of government revenue.22The Bahamian dollar is pegged at parity to the US dollar. US banknotes circulate freely alongside the local currency. Until the end of 2005，the foreign reserve of the Bahamas was 577 million US dollars，a decrease of 13％ over the previous year.23

4.1.5 SummaryThe Bahamas is a mini economy with a relatively advanced development level. Its tourism industry，financial services and shipping are well-known in the globe. On the other hand，it faces certain challenges as well，such as maintaining a harmonious relation with the US and the neighboring Caribbean states. It is believed that it has the potential for further advancement in several developmental indicators.4 .2 B a h ra in4.2.1 Brief DescriptionBahrain is an island country in the Persian Gulf and lies between Qatar and Saudi Arabia. The capital of Bahrain is Manama，and its total land area is 717.5 km. According to the 2003 year-end estimation，the total population of Bahrain is 689，418 of whom 427，955 are Bahraini nationals.24 The daily languages are Arabic and English.Bahrain is a constitutional monarchy and declared its dependence on 15th August 1971. Bahrain is headed by the King，Shaikh Hamad bin Isa al-Khalifa；the head of government is the Prime Minister，Shaykh Khalifa bin Salman al-Khalifa. Bahrain，previously an absolute monarchy，became a constitutional monarchy in February 2002.25In July 2005，the National Assembly approves the Political Societies Law，a controversial piece of legislation that delineates the activities of political associations.264.2.2 External Relations and Economic CooperationBahrain follows a nonalignment diplomatic policy and promotes the unity of Gulf countries. Bahrain is a member of the United Nations，Gulf Cooperation （GCC），League of Arab States and Arab Monetary Fund （AMF）.At the year end of 2003，Bahrain was elected as the chairman of GCC till the year end of 2004. Up to now，Bahrain has established diplomatic relations with over 150 countries. On 18th April 1989，Bahrain established diplomatic relation with China.Bahrain’s small size，geographical location and the Sunni-Shia division make the government acutely sensitive to development in its larger neighbors，in particular Saudi Arabia and Iran.27

Bahrain has a close association with Qatar，where plans to build a causeway between the two countries has made gradual progress，and in January 2002 the two states signed a Memorandum of Understanding for the supply of Qatari gas to Bahrain.28Bahrain keeps close military and political ties with the US and the UK. Relations with the US have since strengthened，most notably with the introduction of the US-Bahrain free-trade agreement. Economic and political ties with the UK have remained close.294.2.3 Economic DevelopmentBahrain is one of the earliest countries exploiting oil reserves，but its production is much less than other Gulf oil producers. Production from Bahrain’s only onshore oilfield，Awali，was around 37，390 barrels/day in 2004，compared with output of 2.3 million barrels/day in neighbouring UAE.30GDP growth rates in Bahrain in recent decades have tended to mirror developments in the international energy markets；the economy grew in real terms at 5.1％ in 2002，6.8％ in 2003 and 5.4％ in 2004.31 The real GDP growth rate of Bahrain was 5.9％ in 2005，when consumer price inflation was 2.7％.32The biggest treasure in Bahrain has proved its oil and natural resources，with a proved of 1.25 billion barrels of oil and 92.4 billion m3 of natural gas. These abundant resources have led to good development of oil and natural gas refineries，iron and steel and ship repair industries.Based on the abundant oil and natural gas，Bahrain exports mainly petroleum products，natural gas and aluminum. The major trading partners of Bahrain are India，Saudi Arabia，America，Japan，England，Australia，Korea and Germany. Bahrain remains heavily import dependent，with one of the highest import/GDP ratios in the Arab world，at over 60％ in 2004.33 In 2004，total imports （CIF） of Bahrain were2，657.9 million Bahraini dinars，and total exports were 3，412.8 million Bahraini dinars.34 （Table 4-3 and Table 4-4）

Table 4-2 Main Components of Trade in Bahrain，2000-2004（millions of US dollars）Source：Bahrain Monetary Agency，Quarterly Statistical Bulletin.Table 4-3 Imports of Goods and Services，2001-2005（millions of Bahraini dinars）Source: Bahrain Monetary Agency, Quarterly Statistical Bulletin.Table 4-4 Exports of Goods & Services，2001-2005（millions of Bahraini dinars）Source：Bahrain Monetary Agency，Quarterly Statistical Bulletin.YearItems2000 2001 2002 2003 2004Exports fobPetroleum 4,477.9 3,681.1 3,956.4 4,680.1 5,551.3Aluminium & aluminium products 826.6 857.4 803.5 912.5 999.2Total exports including others 6,194.9 5,544.7 5,785.6 6,600.5 7,667Imports cifPetroleum 2,051.3 1,538.3 1,672.3 2,066.8 2,914.6Total 4,633.5 4,262.8 4,985.4 5,395.5 6,642.8Year Total ImportsImports ofServicesNon-OilImportsOil Imports2001 1,802.8 281.1 875.2 646.52002 2,114.2 348.4 1,066.7 699.12003 2,333 333 1,222.9 777.12004 2,657.9 351 1,267.2 1,039.72005 3,227.1 367.2 1,292.1 1,567.8Year Total ExportsExports of ServicesNon-OilExportsOil Exports2001 2,454.2 357.3 621.9 1,4752002 2,580.3 401.6 616.1 1,562.62003 2,967.3 473.8 733.8 1,759.72004 3,412.8 585.8 739.7 2,087.32005 4,394.2 625 842.6 2,926.6

Bahrain is an important regional banking and finance centre. At the end of 2004 there were 367 financial institutions operating in Bahrain，including 52 offshore banking units （OBUs）；Finance is the largest component of real GDP，accounting for 19.2％ in 2003.35 In 2004 and2005， the financial sector accounted for 24.22％ and 24.6％ of GDP respectively （Table 4-5）.There were 37 investment banks based in Bahrain at the end of 2004 and 29 representative offices of international banks，where the leading bank is Investcorp Bank.36 At the end of 2004，there were 24 commercial banks，mostly foreign，including Citibank，Standard Chartered Bank of the UK and HSBC.The Bahrain Stock Exchange （BSE） opened in June 1989 and in 1999 started electronic trading on a trial basis；The BSE listed 45 firms valued at a total of 13.6 billion US dollars at the end of 2004.37 Commercial banking activity is dominated by personal loans- these accounted for 46％ of total credit at the end of 2004，a proportion that has risen steadily in recent years.38As a core regional trading center，Bahrain has excellent transport facilities. The 25-km causeway linking Bahrain and Saudi Arabia，which cost 600 million US dollars to build and opened in 1986，provides easy access for manufactures to mainland markets.39 A major extension of the deepwater harbour at Port （Mina） Salman has provided 14 berths and two container terminals，as well as a roll-on roll-off berth；Vessels of up to 65，000 deadweight tons （dwt） can be accommodated.40 An expansion programme at Bahrain International Airport （BIA），completed in 1994，included the construction of a new passenger terminal capable of handling 10 million passengers per year，and the improvement of cargo and other facilities.41In 2001，the government acquired a 60％ stake in a telecoms system run by a UK company，Cable & Wireless （C&W）.The system operates as a locally registered pubic shareholding company，Batelco.International Telecommunication Union （ITU） data show that there were an estimated 191，600 fixed lines，equivalent to 25.9 lines per 100 persons，at the end of 2004，in addition to some 649，800 mobile subscribers operating under the GSM standard （87.9 subscriptions per 100 persons）.According to the ITU，there were about 152，700 internet users.42

Table 4-5 GDP By Type of Economic Activity （Current Prices），2001-2005（ millions of Bahraini dinars）Sector 2001 2002 2003 2004 2005The Non-financial Corporations2，198.73 2,370 2,619.89 2,973 3,672.81Agriculture & Fishing 21.67 20.98 22.29 19.57 19.23Agriculture 13.82 13.56 13.96 12.09 12.46Fishing 7.85 7.42 8.32 7.48 6.77Mining & Quarrying 740.01 784.21 910.45 975.15 1,282.57Crude Petroleum & Natural Gas731.78 773.97 899.53 963.07 1,267.4Quarrying 8.23 10.24 10.92 12.09 15.17Manufacturing 358.09 374.79 405.01 445.02 655.77Electricity & Water 42.77 43.83 49.55 49.72 51.63Construction 119.42 134.33 139.05 153.09 188.42Trade 252.43 288.45 320.46 426.09 504.2Hotels & Restaurants 64.55 66.53 65.32 92.5 105.98Hotels 42.26 42.11 38.96 58.89 67.57Restaurants 22.29 24.43 26.36 33.61 38.41Transport and Communication224.17 248.88 262.63 295.39 312.46Social & Personal Services90.35 104.74 124.53 141.25 159.29Private Education Services22.79 28.77 41.76 49.78 55.18Private Health Services10.62 14.82 18.52 23.31 30.91Other Social & Personal Services56.93 61.16 64.25 68.16 73.2Real Estate and Business Activities285.27 303.26 320.59 375.22 393.25Real Estate 254.16 259.96 271.06 318.43 325.81Business Activities 31.11 43.3 49.54 56.8 67.44The Financial Corporations 556.91 558.53 772.21 1,018.46 1,237.93Financial Institutions 165.15 186.39 205.12 224.91 258.18

（continued）Source：Ministry of Finance，Bahrain.4.2.4 Education and HealthcareA high standard of education and good healthcare have played a part in Bahrain’s prosperous economy. Education for all Bahrainis is free，and Bahrain’s adult literacy in 2003 stood at 87.7％ .Pupil/teacher ratios are steadily improving：in the academic year 2001/2002，for every teacher there were 15 students in government schools and 16 in private schools.43 The Bahrain Training institute，set up in 1992 and partly funded by the government，has provided vocational skills for tens of thousands of Bahrainis.44Bahrain also has a highly developed system of social services. The life expectancy，at nearly 74 years，is among the highest in the region，and the United Nations Development Programme （UNDP） ranked Bahrain the first among Arab countries and the 43rd worldwide in its 2005 HDI.45 At the end of 2003，the state’s free health service incorporated nine hospitals （as well as six maternity hospitals） withOffshore Financial Institutions296.44 289.53 433.5 611.97 751.36Insurance 95.33 82.61 133.59 181.57 228.39Government Services 472.35 507.24 555.1 580.79 628.34Government Education Services98.94 114.31 130.7 143.27 154.08Government Health Services52.11 56.12 64 67.29 72.45Other Government Services321.3 336.8 360.4 370.24 401.81Private Non-Profit Institutions Serving Households2.8 3.47 4.08 4.6 4.73Households with Employed Persons18.92 19.95 20.46 20.79 21.35Minus Financial Intermediation Services Indirectly Measured-325.81 -329.61 -374.65 -446.5 -593.32GDP at Producer Prices 2,923.9 3，129.6 3,597.1 4,151.1 4,971.8Import Duties 57.59 46.89 49.86 53.41 59.36GDP at Purchaser Prices 2,981.49 3,176.47 3,646.95 4,204.56 5,031.19

1，904 beds and 24 health centres. As well，a series of specialised private health clinics have been built as part of the government’s efforts to develop private healthcare and expand the country’s services sectors.464.2.5 Other Aspects of BahrainBahrain’s government has a positive attitude towards foreign capital. The EDB is looking to entice 600-800 million US dollars of foreign direct investment a year in six key areas：financial services，tourism，information technology，healthcare，education and training，and downstream aluminum manufacturing. Bahrain has signed a series of bilateral economic agreements，in particular with Asian nations，partly to attract investment.47 In 2002，the authorities revealed an ambitious financial services project known as Bahrain Financial Habour.48The Bahrain government also holds an active attitude towards investment diversifcation. Since the accession of King Hamad bin Isa al-Khalifa，capital spending allocations have risen sharply in an effort to improve the living standards of the poorer elements of the population，as well as to improve the investment environment.49 One advantage of investment environments is pointed by foreign entrepreneurs that they can deal with quarrels fairly by local business law.Along with the development of Bahrain，Bahrain’s government has noticed some potential long term factors affecting the country’s competitiveness. In March 2005，the government set up the Bahrain National Competitiveness Council to study the strategy of raising international competitiveness. Eight months after foundation，BNCC produced a report on Bahrain’s competitiveness，relating industrial exploitation，internal economic reforms，potential market and characteristics of potential competitors，etc. It is credible that，with persistent efforts，Bahrain will overcome its inherit drawbacks.4.2.6 SummaryBahrain is a typical mini-economy relying on particular resources.Its oil and gas industry plays an important role in economic growth.Recently，financial industry has accelerated and Bahrain will probably become a regional financial center with a very good geographical posi- tion and previous foundation of development. In the future，Bahrain will probably fulfill the conditions of becoming an strong actor in the Arab world.

4 .3 B e rm u d a4.3.1 Brief DescriptionBermuda is located in the Caribbean Sea with a territory size of 55 km2. It comprises eight major islands and 130 smaller islands，situated around 900 km east of the US North Carolina coast. A population of 62，059 was recorded in the last census. Hamilton is Bermuda’s capital. The official language of Bermuda is English.Bermuda is currently the largest overseas territory of the UK，as well as having the longest history. English sailors arrived in the territory in 1909，and it has been a British colony since 1612. The economy was initially based on whaling，piracy and shipbuilding. As early as the establishment of the British colony，slaves from Africa were shipped to the islands. Slavery was officially abolished in 1834.Economically speaking，Bermuda has a close relationship with the US. The US civil war and later the Prohibition Act offered opportunities for Bermuda engaging in smuggling business. International business took off and has become a major economic pillar only until the 1970s.Bermuda won limited self-governance in 1968. However，pro- independence activists assassinated five of the island’s governors between 1972 and 1973 and caused political instability. The political climate became more settled by the mid 1980s. The moderate United Bermuda Party （UBP） has remained in power for 30 years consecutively （1968-1998） until the Progressive Liberal Party （PLP），which struggled for full independence，won election in 1998. Although the issue remains a political concern，independence from Britain was rejected in the referendum of 1995. Defense，security and international affairs are still overseen by a governor appointed by the British government.4.3.2 External RelationsAs an overseas territory of Britain，Bermuda does not have the authority to establish external relations as a sovereign state，but it main- tains a 700-strong Defense Regiment. Until 1995，the US maintained a naval air station in Bermuda，which occupied 10％ of its land area. The land was formally handed back to the Bermuda government in 2002.In 2002，the British government granted Bermudians full British citizenship rights. This offer received a great response in its initial days

with around 3，500 applicants. However，interest subsequently lessened as the Bermudians enjoy much higher per capita incomes than the British average and are therefore unlikely to migrate to Britain. However，opportunities in higher education in Britain serve as a major benefit to Bermudians.Policies of the EU and OECD towards tax havens do not have much impact on Bermuda. An IMF review in 2005 found no significant change in regulation or practice was necessary. Moreover，the attempts to legislate against tax-driven relocations of the US companies by American congressional proposals have turned out fruitless.4.3.3 Resources，Infrastructure and Culture4.3.3.1 PopulationAccording to the 2000 census，population density in Bermuda was1，119 inhabitants per km2，which is a high by international standards.The population in 2000 increased by 6％ compared with the previous census. In 2000，blacks made up 55％ of the total population while whites and mixed shared 34％ and 11％ respectively. In Bermuda，many employed have more than one job and there were 38，947 filled jobs in 2005. However，the nationality split of the workforce （between local and foreign） has become a political and public concern as non-Bermudians possess greater employment opportunities than Bermudians. In 2005，foreign workers comprised 28％ of the employed population. More importantly，the median income of non-Bermudians is 1/4 higher than the locals and racially speaking，the whites earn 22％ more than the blacks on average.504.3.3.2 Education and healthcareAll children age 5-16 receive compulsory education and 39 public schools offer complimentary education，which comprise 2/3 of the number of students. The standards of education are generally high.There is only one higher education institution，Bermuda College，which was established in 1997. Hence，a significant share of students have their tertiary education overseas.Standards of healthcare are high in Bermuda. In fiscal year 2003/ 2004，21％（equivalent to 139 million US dollars） of the government expenditure was devoted to healthcare.51

4.3.3.3 Natural resourcesA majority of land has been densely developed for residential and commercial usage. Agriculture is limited to a few hundred acres of land. However，the government has devoted considerate resources to preserve a small number of heritage sites to attract tourist businesses.4.3.3.4 TransportationThe transportation and telecommunication infrastructure is of a good standard，reflecting Bermuda’s high income and demand for the international business. British Airways operates flight between the islands and London. In addition，6 US airlines connect Bermuda and the US and 1 with Canada. There are 3 major ports in Bermuda，in which the one in Hamilton is equipped with container facilities. In 2005 a total of 47，115 vehicles （21，978 private cars，19，087 motor cycles and 4，058 trucks） were registered.52 In order to curb traffic congestion，one family is restricted to have one passenger car. However，traffic conditions have still deteriorated in recent years. Transport costs are high as import duty on motor parts is 33.5％ of fob costs for importers and import duty on cars starts at 75％ of fob cost. Meanwhile，the government has purchased ferries and constructed docks to ease the traffic.4.3.3.5 Telecommunication and energy provisionThe monopoly operation of telecommunication ceased to exist in 1997 as a new operator was introduced. At the moment，the new company has seized 50％ of the international call market and the prices have fallen to among the lowest in the Caribbean. In addition，Internet penetration is among the highest in the globe. Hence，Bermuda is aimed at developing as an e-commerce hub and has played a leading role in some niche areas such as multi-currency platforms. To cope with this aim，the Bermuda government introduced e-commerce legislation as early as in 1999.Bermuda is wholly dependent on imported energy. Hence，it is greatly vulnerable to the trends of energy price. However，the government has exerted close control in the electricity rates. The increase of electricity rates in 2005 was the first time in nine years and the electricity rates were increased by 1.5％ per year in 2005，2006 and 2007.53

4.3.4 Economic DevelopmentBermuda is among the high-income economies in the world. Its GDP per capita reached 76，403 US dollars in 2005，as calculated by current prices. International business，financial intermediation，as well as real estate and property services，accounted for 49.7％ of Bermuda’s GDP in 200554 and are the major source of Bermuda’s foreign exchange earnings. Bermuda is a major world center for insurance，especially reinsurance. Tourism is also an economic pillar in Bermuda’s economy.Tourists’ expenditure made up 8％ of its GDP in 2005.55The same as other mini-economies，Bermuda’s economy has witnessed great fluctuation. Its openness and intimate economic relations with the US determined its pattern of economic growth.A contraction in the early 1990s was caused by a downtown in the US，which affected its tourism industry. On the other hand，there was less negative impact felt on financial services，although the sector’s growth rate slowed down. In recent years，the sector has become the largest source of foreign exchange earnings，accounting for three-quarters. Economic expansion in mid-1990s was led by the prosperity of international finance. However，meanwhile，tourism has declined over the past decade clue to intense competition from less expensive vacation destinations in the Caribbean. The economic growth between 2000 and 2004 was only 1.6％，far lower than the previous rate of 3.4％ recorded between 1996 and 1999.56The economy of Bermuda possesses the following characteristics.4.3.4.1 Highly developed sector of finance，insurance and international businessBermuda is one of the leading offshore financial and business centres in the world，concentrated particularly on insurance，trusts，mutual fund management and corporate services. Until the end of 2005，there were more than 12，599 international companies registered in Bermuda.57 Net premiums written by Bermudian insurance companies reached 86 billion US dollars in 2005，and the total assets of insurance companies were 330 billion US dollars.58 After the 911 terrorist attacks，3/4 of the global premiums were flown to Bermudian insurance companies. Although the industry suffered in the wake of the attacks due to （the rapid increase in claims），it led to a subsequent flow of business.

Bermuda is also the world’s largest captive insurance domicile with a global share of 37％ in 2004. Locally-based companies account for 1/3 of the world’s catastrophe reinsurance business. In the past，Bermudian insurance companies concentrated on property and casualty business. However，since 2000，the greatest growth has come from the life，health and annuity reinsurance sectors. Changes in legislation also have formed a catalyst of the development for the growing “segregated cell companies” sector. Another increasing area of specialty，hedge fund investments，provides remarkable tax benefits to US investors.International business plays a significant role in the Bermudian economy as it contributes almost double the amount of foreign exchange earned from tourism. It includes the world’s 5th largest shipping register. In spite of the slowing down of growth in early 1990s，the effort of government in diversifying the range of service offered quickly made the sector energetic again. At the end of 2005，13，961 international business companies were registered in Bermuda，compared with 7，002 in 1990.59 The number of collective investment schemes （mutual funds in a majority as well as a smaller share of unit trusts） was 1，182 at the end of 2005 and increased by 45％ by the end of 2000.Concurrently，the net asset value of these funds totaled 187.5 billion US dollars.60In order to compete with other offshore centres，Bermuda has struggled to maintain its reputation in financial and insurance centres by strengthening its anti-money laundering laws in 1998 to meet international standards. Although in 2003 legislation was passed to permit the government greater power to pass on information in cases of proven terrorist or money-laundering activities，the government resisted relaxing its secrecy laws.Bermuda is the only British Overseas Territory not included in the list of EU countries and dependent territories，it was exempted from the European Saving Directive，which came in force on 1st July 2005.Despite this，capital flight to Bermuda was not realized as expected.The directive was designed to provide information to domestic EU tax authorities for all savings interest payments made by agents to residents for all purposes in an EU member state and some financially prosperous European states，while Luxembourg，Austria and Belgium apply withholding taxes on the interest tax paid on all non-resident accounts instead. Funds domiciled in Bermuda，whose administration is

conducted within directive-affected countries，especially Switzerland，have been forced to withhold income tax；hence，Bermuda was also negatively-affected by the directive and it lost collective investment schemes with assets of about 25 billion US dollars to the Cayman Islands in the second half of 2005.61Non-Bermudians and foreign corporations are restricted from owning more than 40％ of local companies doing business in the territory，except for international companies which do not aim at local markets and in those industries which need high investment such as hotels.However，the government relaxed the restriction in 2000 as banks were granted exemption from local majority rules. This enables them to seek listings on US exchange and to raise capital in international markets. In 2004 HSBC （UK） purchased the Bank of Bermuda while the First Curacao International Bank （Netherlands Antilles） owns 32％ of the Bermuda Commercial Bank.4.3.4.2 Greater intensity of competition in tourismBesides Finance and international business，tourism is the major industry in Bermuda，and was once the dominant economic pillar.However，it has suffered a steady decline for most of the period since the 1980s and 12 major hotels have been closed down. The reason lies in the severe competition from cheaper destinations as well as the growth of cruise-ship tourism. Together with the 911 terrorist attack in 2001，tourism in Bermuda experienced a prolonged ebb，and the hotel occupancy rate fell to 40％ in October 2001. A hurricane in 2003 also caused serious damage on to all the major hotels. However，recovery took place in 2005.Air arrivals increased by 10.9％ in 2006，to 298，973，which is still significantly lower than that in 1980，491，640. On the whole，the number of higher-end stopover tourists （air visitors） declined while the number of cruise passengers rose significantly，reaching 336，299 in2006， a jump of 36％ than previous year. Consequently，the contribution by tourists，consumption dropped significantly from 421 million in 2000 to 394 million in 2005. However，robust tourist expenditure was recorded，an increase of 18％ to 464 million in 2006.62 It should be noted that the average number of nights tourists stay in Bermuda has remained more than 6 nights in the period （6.4 nights in 2005）.In addition，although tourism has lost its dominant position in the economy，it retains its contribution as one of the largest employers in the territory.

Table 4-6 Tourism Statistics in Recent Years，2003-2006Source：Bermuda Department of Statistics，Quarterly Bulletin of Statistics，4th Quarter2006.4.3.4.3 Agriculture and manufacturing marginally placed in the economy while construction is growing rapidlyBermuda has to import 90％ of agricultural products，although there are some exports of potatoes，bananas and flowers. The farm land area totals around 320 ha，of which a large portion is devoted to vegetables and fruit production. A small fishing industry meets around 1/3 of the local demand.The natural endowment of lacking natural resources destines Bermuda’s manufacturing to be in small scale，including boat building，ship repair and tourism-related crafts，such as woodwork and pottery.Meanwhile，construction is one of the fastest-growing sectors of the economy. Employment in the sector rose to 8.2％ in 2005，compared with only 2.6％ in manufacturing.63 Commercial and high-end residential properties and office buildings in the capital，Hamilton，are the main focus of this growth.4.3.4.4 Government finance sound and inflation kept at low rateThere is no income tax or value-added tax in Bermuda. Payroll tax （4.75％ of the income earned by employees and 8.5％ contributed by the employers） accounts for 1/3 of government revenue. Another 1/3 isYearItems2003 2004 2005 2006Tourist arrivals 482,673 477,754 516,827 635,272Cruise passengers 226,097 206,133 247,259 336,299Air visitors 256,576 271,621 266,568 298,973US (%) 77.1 77.0 75.7 76.2Canada (%) 9.5 9.8 10.6 9.3UK (%) 8.4 7.9 8.3 9.0Other (%) 4.9 5.4 5.4 5.5Estimated visitors’ expenditure 347.9 393.4 394.1 464.0Cruise passengers 56.1 50.3 53.7 74.8Air visitors 291.8 343.1 340.4 389.2

contributed by customs duties. Other significant revenue sources are company fees，land and stamp taxes，vehicle license fees and taxes on hotel occupancy，passenger departures and cigarette sales. In order to enhance government revenue，successive budgets have increased the variety of taxes and fees levied for government services. In addition，a capital gains tax on property sales by non-locals was introduced in 1995.Government finances are consistently in the black and small deficits are financed by issuing bonds. The total debts are estimated as 216 million US dollars.64 Moreover，the government is restricted in increasing debt as borrowing exceeding 10％ of the GDP requires the approval from Britain. However，the increasing expenditure in capital investment and the negative influence on tourism caused by the 911 terrorist attack，lowered government income，and has increased government debt increased in recent years.Since the Bermudian dollar is pegged with the US dollar （1：1） and since the US is its largest partner in goods import，Bermuda has kept inflation low，in line with trends in the US. The inflation rate has remained 2-3％ in most of the 1990s. Higher energy costs and the upswing of US inflation pulled the rate to 3.5％ in 2004，and then fell a bit to 3.1％ in 2005.65 In addition，both the Bermudian dollar and the US dollar are used in the territory. The former is used in most domestic transaction while the latter is used by business visitors，tourists and international companies.4.3.5 SummaryBeing an isolated island mini-economy in the Atlantic Ocean，Bermuda possesses a high international reputation and competitiveness by its prosperous off-shore finance business and tourism. However，dependency on the US is its major weakness. Therefore，Bermuda must pay attention to developing potential edges on top of its existing advantages in order to retain its high development standard.4 .4 B ru n e i4.4.1 Brief DescriptionBrunei is located in the northwest of the island of Borneo （the 3rd island in size） and completely surrounded by the states of Sarawak and

Sabah in East Malaysia. The area of Brunei is 5，765 m2. The climate in Brunei is equatorial tropical，with an annual average temperatures between 22-31℃ .The total population of Brunei is 379，444 （July 2006 estimation） with an average growth rate of 1.87％ （2006 estimation），and the life expectancy of Brunei’s population has reached 75.01 （2006 estimation）.66 Classified by ethnic groups，Brunei’s population consists of Malay （67％），Chinese （15％），indigenous （6％） and other groups （12％） （i.e.，people from ASEAN，workers from South-Asia，skilled workers from England，Australia）.67 The official language of Brunei is Malay，while English and Chinese are widely used languages in daily life. Brunei is a country with high literacy. 93.9％ of population aged 15 and over can read and write.68Historically，the politics of Brunei took place in a framework of constitutional monarchy. The present Brunei political system is inherited from the Sultan Dynasty of 14th century，in which governments in Brunei possessed an absolute power. In 1984，Brunei became an independent country. In 1988，England began to act as regent in the politics of Brunei’s，nonetheless，the Sultan of Brunei has never stopped to be the head of the country and government. The same as England，Brunei separates its national power into administrative power，legal power and judicial power.Brunei，in spite of its small size，is far above most other developing countries in terms of GDP per capita.69 In 2006，Brunei’s GDP per capita was 23，600 US dollars ranking 36th in the world.70 This well-to-do economy heavily depends on its crude oil and natural gas production for nearly half of the GDP and more than 90％ of government revenues.71 The official currency in Brunei is Brunei dollars，which is also called the Ringgit.4.4.2 External Relations and Economic CooperationIn spite of small political and economic power，Brunei participates vigorously in international affairs and keeps a neutral diplomatic attitude for the purpose of ensuring its significant role in international and regional cooperation. Brunei became a member of the United Nations on 24th February 1984. On 1st January 1987，Brunei became the 6th member of ASEAN and utilizes the diplomatic environment of ASEAN to fulfill the aim of keeping the region peaceful and prosperous.

Meanwhile，Brunei，which is also a member of APEC and ASEM，plays an important role in keeping regional peace and economic stability and promoting a free environment of international investment and technology diffusion. Brunei became a member of GATT and WTO on 9th December 1993 and 1st January 1995，respectively.In recent years，Brunei has developed a good relationship with leading powers （i.e.，America，Japan and China）.Brunei established diplomatic relations with China in 1991. Besides this，Brunei gets along well with Islamic countries. Brunei is a member of the Commonwealth and a member of the Non-Aligned Countries.4.4.3 Economic DevelopmentAccording to the IMF，Brunei’s nominal GDP reached 13，306 and 15，864 million Brunei dollars in 2004 and 2005 （Table 4-7）.Its annual GDP per capita was 37，188 and 42，864 Brunei dollars in 2004 and 2005，where the average real GDP growth rate in 2001-2005 was2.08％ （Table 4-7）.Exports and imports of Brunei were 11，132 and 4，329 million Brunei dollars respectively （Table 4-9）.Table 4-7 Major Economic Indicators of Brunei，2000-2005YearItems2000 2001 2002 2003 2004 2005Nominal GDP (millions of Brunei dollars)10,346 10,034 10,463 11,424 13,306 15,864Real GDP growth rate (%)- 2.7 3.9 2.9 0.5 0.4Consumer prices (Index, 2000=100)100 100.60 98.301 98.596 99.481 100.562Inflation (%) 1.2 0.6 -2.3 0.3 0.9 1.1Land area (km2) 5,770 5,770 5,770 5,770 5,770 5,765Population - 332,844 - 348,800 357,800 -Oil and gas sector (millions of Brunei dollars)5,950 5,352 5,532 6,530 8,236 10,540Non-oil and gas sector (millions of Brunei dollars)4,396 4,682 4,931 4,894 5,070 5,324GDP per capita, (Brunei dollars)31,853 30,151 30,398 32,678 37,188 42,864

（continued）Notes：Main Exports- commodities：crude oil，gas，refined products，clothingMain Imports- commodities：machinery and transport equipment，manufactured goods，food，chemicalsMain Exports- commodities （2005）：Japan，Indonesia，South Korea，US Main Imports- commodities （2005）：Singapore，Malaysia，Japan，UK Source：Brunei Darussalam Statistical Yearbook，Department of Economic Planning and Development，cited in Brunei Darussalam：Statistical Appendix. IMF；EIU Country Profile 2001-2006，Brunei；IMF，World Economic Outlook Database.April 2007.Table 4-8 Oil and Liquefied Natural Gas Production and Sales，2000-2005Source：Brunei Darussalam Statistical Yearbook，Department of Economic Planning and Development，cited in Brunei Darussalam：Statistical Appendix，IMF.There is no foreign indebtedness in Brunei’s financial system，and 20 billion US dollars are in the foreign exchange reserve system. At the end of 2003，the total assets of Brunei’s nine banks valued 1，349.5 billion Brunei dollarsBrunei Darussalam is the third largest oil producer in Southeast Asia and also the fourth largest producer of liquefied natural gas in theExports of goods and services(millions of Brunei dollars)6,968 6,977 7,012 7,916 9,154 11,132Imports of goods and services(millions of Brunei dollars)3,706 3,933 4,355 4,109 4,399 4,329Exchange rates (per unit of US$)- 1.792 1.791 1.742 1.690 1.664YearItems2000 2001 2002 2003 2004 2005Oil production(thousands of Barrels per day)193 195 203 207 206 201Gas production 11.6 11.7 11.8 12.7 12.5 12.2Oil Export Volumes (thousands of barrels per day)189 189 199 199 196 193LNG Export Volumes (trillion of BTU per year)4.53 4.41 4.17 4.54 4.9 5.67

world.72 It produced an average of 200，833 barrels of oil per day and produced an average of 1.2 billion m3 in 2000-2005.According to official statistics，the proved reserves of oil and liquefied natural gas in Brunei are 1.4 billion barrels and 320 billion m3.In addition，there are eleven protective forests in Brunei （total area is2，277 km2），which account for 39％ of the country size. A major part of these protective forests （86％） are still virgin.Brunei mainly exports crude oil，oil products and liquefied natural gas and imports machine，transportation facilities，industrial goods，food products and medicine. The major trade partners are Japan，Korea，Australia and China and member countries of ASEAN. In recent years，Brunei has been keeping a positive balance of trade and is highly merged into international economic activities as indicated by the high openness of Brunei in 2004.Table 4-9 Trade Statistics in Brunei，2000-2005（billions of Brunei dollars）Source：Brunei Darussalam Statistical Yearbook，Department of Economic Planning and Development，cited in Brunei Darussalam：Statistical Appendix，IMF.Brunei is a rich mini-economy. Following are the characteristics of its economy.4.4.3.1 Brunei tries its best to diversify the economyBrunei’s economy highly relies on exports of oil products and liquefied natural gas products，which made up 40％ of GDP and 88％ exports income.73 Brunei’s economy is dominated by the oil and gas sector and yields 75-90％ of government revenue.74 In an economic sense，the unitary economic structure may suffer from economic instability more easily. According to a report issued by the BruneiYearItems2000 2001 2002 2003 2004 2005Exports of goods and services696.8 697.7 701.2 791.6 915.4 1,113.2Imports of goods and services370.6 393.3 435.5 410.9 439.9 432.9Balance of Trade 326.2 304.4 265.7 380.7 475.5 680.3

Darussalam Economic Council，Brunei should develop the non-oil and gas sectors. Due to stagnant private investment in the beginning of economic diversity planning，the Brunei government still highly relies on income from oil and liquefied natural to finance its development programmes and increasing expenditures.After some years，the share of the non-oil and gas sectors has steadily increased and now accounts for about 60％ of GDP. Especially，the building trade is the fastest growing sector in Brunei and became an increasingly important sector following the oil and gas sector；at the same time，service industries have developed very well and have become the second most important export income source. In a more recent experiment，Brunei has emphasized carrying out more exploitation of new oil products，enlarging the capacity of harbors for the purpose of diversifying the economy. In 2004，the government continued to adopt the strategy of diversity. The government launched policy measures to encourage more private investments and sets up a department specifically formulating long term economic planning.4.4.3.2 B rune i g radua lly creates a protec tion from external shockThe external shock problem，which is a problem shared by all mini-economies，may confront the development of Brunei. The financial crisis in 1997 brought an economic tragedy to Brunei’s economy and caused a great economic loss for many state-owned companies.Although Brunei is very easily influenced by external shock，it learned a lesson from the 1997 financial crisis and now exerts macroeconomic control over the inflation rate. As a result，the inflation rate has been controlled in a range of less than 5％ for the last five years. This indicates that Brunei is gradually obtaining economic stability.4.4.3.3 Brunei imports a great deal of agricultural productsBrunei’s agriculture sector only accounts for 2％ of GDP and just few farmers still cultivate several types of tropical crop （i.e.，paddy rice，rubber，pepper，coconut，papaya）；thus it imports 90％ of food products.75 Brunei farmers supply approximately 60％ of local demand for vegetables，and the production of tropical fruits is being encouraged with a view to creating an export market.76

4.4.4 Culture and Social Development4.4.4.1 Education and hygieneBrunei has a good educational and hygiene environment. This can be seen from that fact that the Brunei government does not impose any taxation on personal income and supports a medical and health care system and free compulsory education system at all education levels. The HDI for Brunei Darussalam was 0.871 in 2004，which gives Brunei Darussalam a rank of 34th out of 177 countries with data （Table 4-10）.In 2004，the life expectancy of Brunei’s population was76.6 years （Table 4-10）.Table 4-10 Brunei Darussalam’s HD I，2004Source：Country Factsheets，Brunei，in Human Development Report 2006.Brunei promotes a free education system and provides financial assistance for foreign studies for local students，although Chinese stu- dents are not covered in the system. The literary rate of people aged above nine years has reached 92.5％ and adult literacy rate （aged 15 and above） has reached 92.7％.77 Detailed information on education in Brunei is presented in Table 4-11，Table 4-12 and Table 4-13.Table 4-11 Education Statistics in Brunei，2006Source：Website of Ministry of Education in Brunei.HDIValueLife Expectancy at Birth (years)Adult Literacy Rate (% of ages 15 and older)Combined Primary, Secondary and Tertiary Gross Enrolment Ratio (%)0.871 76.6 92.7 77.2School and Educational Institutions NumberGovernment primary level 123Secondary level 30Technical & Vocational level 7Higher Institutions (UBD, ITB) 3Private Educational Institutions 95Total 258

Table 4-12 Number of Teachers in Brunei，2006Source：Website of Ministry of Education in Brunei.Table 4-13 Number of Students in Brunei，2006Source：Website of Ministry of Education in Brunei.4.4.4.2 Environmental protectionIn order to achieve the diversification of economy，Brunei is continuing to follow a development strategy in accordance with its comparative advantages.Apart from the abundant oil and liquefied natural gas，Brunei’s forests are another abundant source. In Brunei，the government places a strict protection on forest resources in order to keep their primitive appearance. The forest resources are protected by law and it is forbidden to export lumber to other countries. Nowadays，80％ of the country land is covered by forest and 60％ of the land is covered by primitive forest. Within strict rules，exploiting forest resources is to some extent allowed under government supervision.The government fully notices that tourism is a promising and key industry in the future development of service industries. Tourism is increasing its share in Brunei’s economy. Brunei is planning to carry out many preferential arrangements to attract more foreign tourists. By 2000，Brunei had become a hot scenic spot of Chinese citizens travelingCategories Number PercentageNursery/Primary schools 2,707 40.11Secondary schools/Pre-university 3,055 45.27Technical & Vocational 448 6.64Nursing 60 0.89Institute of Technology Brunei 102 1.51University of Brunei Darussalam 377 5.59Total 6,749 100Categories Number PercentagePre-School/Primary schools 32,662 43.21Secondary schools and Pre-university 35,910 47.51Technical and Vocational 2,669 3.53Institute of Technology 668 0.88University of Brunei Darussalam 3,674 4.86Total 75,583 100

at public expense. Brunei had approximately 1 million foreign visitors in 2003，the vast majority arriving from Malaysia through land-entry points.784.4.5 SummaryBrunei relies on its abundant natural resources to enter the group of rich countries. Besides this，the forest resource is rich and the ecological environment is good in Brunei. The service industry possesses a set of distinguishing features. The quality of education and social security system seems to be comparatively advanced. Under a stable social environment，Brunei still has space to achieve better economic performance and probably becomes a leading country of South Asia （even the Asia Pacific Zone）.4 .5 C y p ru s4.5.1 Brief DescriptionCyprus is located in the eastern part of Mediterranean Sea and is the 3rd largest island in the Mediterranean Sea，with an area of 9，251 km2.However，the northern part of 3，355 km2 is controlled by Turkey.The internationally recognized the Republic of Cyprus （the southern part of the island） had a population of 766，000 at the end of 2005.79 The major languages on the island are Greek and Turkish while English is also widely spoken. Orthodox Christianity and Islam are the religious beliefs of the Greeks and Turks respectively. It is estimated that the population size of Turkish Cypriot Zone was 264，000 in 2006.80A UN buffer zone divides the capital of Cyprus，Nicosia，into two. The population size of the capital totaled 393，000 （303，000 in the Republic of Cyprus and 90，000 in the Turkish Republic of Northern Cyprus （TRNC））.As early as in 1500 B.C.，the Greeks had been living on the island.It was later conquered by Egypt，Babylon and was incorporated to the Roman Empire in 58 B.C. In 395 A.D. the island was controlled by Byzantine Empire and in 1571 it was governed by Ottoman Empire.In 1878 Cyprus was ceded to the Britain and became its colony in 1925. The UK，Greece and Turkey negotiated in 1959 and drafted a constitution for Cyprus，The Treaty of Guarantee and the Treaty of

Alliance led to the foundation of the Republic of Cyprus in 1960. Britain only retained 2.8％ of the territory as its sovereign base area （SBA）.After independence，Cyprus established a complex power-sharing structure between Greece and Turkey and remains a member of the Commonwealth Countries. However，the minority Turkish Cypriots complained that the municipal authorities and the army never conformed to the planned ethnic proportions and that the 7：3 ratio in public service positions was not realized. They made extensive use of their veto rights and ethnic conflicts sometimes occurred. British troops intervened and established a ceasefire line，known as the Green Line，in Nicosia.However，it failed to restore peace and the Greek Cypriots appealed to the UN to dispatch a peacekeeping force The fact that the UN acknowledged the government consisting solely of Greek Cypriots as the government of the republic was crucial as the basis for the Greek Cypriot authority’s claim to be the legitimate government of the whole island. However，the Turkish Cypriots claimed that the recognition was illegal. Gaining the support from the Greek government，a coup took place on the island. In the meantime，Turkey claimed the right of unilateral intervention under the 1959 Treaty of Guarantee and occupied the northern third of the island. About 1.16 million fled to the south in response while 40，000 Turkist Cypriot moved north. The leaders of the two communities agreed in principal that the island should become a bizonal，bicommunal federation in 1977 and 1979，but the result was fruitless. Later，in 1983 the Turkish Cypriot administration declared independence and established the TRNC. Turkey is the only country that recognizes the newly-established TRNC.In 2004，under the efforts of former UN secretary-general，Kofi Annan （the so-called Annan Plan），the two sides undertook referenda respectively on the unification. The plan was passed in TRNC （with 64.91％ of voter support） but rejected by 75.83％ of the Greek Cypriot voters. The question of unification remains unsolved. On 1st May，Cyprus was admitted to EU. Nevertheless，until now，no further plan has been formulated to settle the separation.4.5.2 External RelationsSince the UN acknowledged the Greek Cypriot’s administration as the legitimate government of the island，the Republic of Cyprus has been exerting force to secure resolutions against Turkey and the

Turkish Cypriots in international forums. The Turkish Cypriots claim that Greek Cypriots have used their international recognition to impose a trade embargo on the north. In the meantime，since the airport located in the north was not approved internationally by the Greek Cypriot government，only Turkey has established direct flights to the area.Cyprus maintains an intimate relationship with the EU. It started negotiation with the European Community （the former body of the EU） and created a custom union with the EU in 1987. The Cyprus government applied for full EU membership in 1990 and in 1997，it was granted to be one of the first group of candidate countries in the EU accession and tedious negotiation took place afterwards. Finally it joined the EU on 1st May 2004. Although in theory the whole island is included in the union，the Republic of Cyprus is the only legitimate government of Cyprus recognized internationally，and therefore the EU directives are only applicable in the southern part of the island. The EU is now seeking a solution to ease the isolation of the north，but receives opposition from the government of the Republic of Cyprus. On the positive side，the trade between the south and the north has been gradually normalized. The government of the Republic of Cyprus established diplomatic relationships with China in 1974.Cyprus also has a close relation with its former governing country，Britain. It is one of Commonwealth countries while Britain is the largest source of tourists，investors and trading partner of Cyprus.Britain retains two sovereign base areas. The British government supports the Annan Plan in solving the unification of the island. However，the rejection of the plan by the southern part has caused a sharp deterioration in the relations between Greek Cypriot and Britain，which further leads to more Greek Cypriots to question the legitimacy of the British presence on the island. On the other side，Greece is an indispensable partner of Cyprus. The Greek Cypriots share the same language，cultural traditions and religious beliefs with their Greek counterparts. Greece is also responsible for guaranteeing the security of Cyprus，and strengthening the relationship with Greece is regarded as the most important issue in Cyprus’ foreign policy. In return，Greece always supports Cyprus’ accession to the EU and its position on the unification issue. It grants Cyprus 200 million US dollars annually for assistance. On the contrary，Cyprus does not have diplomatic relation with Turkey and the two sides are in conflict on various issues. Turkey

insists on supporting Turkish Cypriots. In 2006 Turkey initiated plan to ease the tense relation by promising to open its airports and seaports to Greek Cypriots on the condition that Greek Cypriots removed the trade embargo on Turkish Cypriots and opened the airports and seaports in the north for international connection. In addition，it was required that North Cyprus would be included in the European Customs Union as an economic entity.4.5.3 Resources，Infrastructure and Culture4.5.3.1 PopulationIn 2003 non-Cypriots accounted for 9.3％ of the population，with Greeks and Britons making up the largest share in non-nationals，27％ and 18％ respectively. In comparison with other EU countries，Cyprus has a comparatively favorable demographic structure-only 12.1％ of the population were aged over 65 at the end of 2005 （far lower than the EU 25 average of 16.5％）.However，the continuing low fertility rate （1.4‰ in 2004，closed to 1.52‰，the average of EU-25 but well below the replacement rate of 2.l ‰） will have an important impact on its population growth in the long term.814.5.3.2 Education and healthcareEducation attainment levels in Cyprus are comparatively high.According to the Labor Force Survey for the 2nd quarter of 2005，27.8％ of population aged 25-64 in the Cyprus labor market had completed tertiary education，which was significantly higher than 22％，the average of EU-15. Education is free and compulsory until the fourth year of secondary school or until the age of 16. In recent years the government has been making efforts in improving quality of public education and raised government expenditure on education to 7.4％ of GDP in 2003/2004.82 In addition，Greek Cypriots generally have a comparative advantage of good command of English as a result partly of being British colony in the past，but also because many Cypriots have relatives in Britain or have studied in English-language universities.Most students continued their higher education abroad. In the academic year of 2003/2004，17，631 students were studying abroad，67.1％ in Greece and 15.9％ in Britain.83 Meanwhile，the local Univer- sity of Cyprus had 4，110 students. Cypriot’s colleges are increasingly

attracting students from South Asia and China. The government is beginning to notice the potential of education as a source of foreign-exchange revenue. There well-regarded private colleges were granted university status in 2005 and a Technological University of Cyprus is planned as part of a new Technology Park in Limassol that aims to attract international researchers and encourage more Cypriots to study science and technology. The higher education institutes of Cyprus have established a reputation in fields such as researching regional environment and public hygiene.Health expenditure，excluding capital spending，is rising. In 2004，it reached 6.2％ of the GDP. However，it is low by west European standards （an average of 8％）.84 This could be explained by the relatively general younger population of Cyprus. Although free medical care is technically available to a large proportion of the population，private healthcare expenditure accounted for the majority of total healthcare spending.Legislation for a new healthcare system，funded by insurance contributions and with British style general practitioners acting as “gatekeepers” to specialist treatment，was passed in 2001 and was planned to be implemented in 2006. Nevertheless，in the absence of supporting legislation，it is unlikely to be implemented successfully.4.5.3.3 Natural resourcesCyprus only has limited agricultural land and natural resources.The island is also occasionally threatened by the earthquakes of significant strength. Thus all the buildings are required by law to withstand tremors. In addition，the island is scarce in water resources and often faces the risk of water shortage. The Southern Conveyor Project transports paper from the water-rich Paphos district in the west to Kouris dam in the south-east of the island. However，the shortage of water remains and has constrained development in general. The government has built two desalination plants to fill the gap.In 2001，the government announced the possible existence ofoil and gas reserves under the eastern Mediterranean within Cyprus’s economic zone. Cyprus signed an cooperation agreement with Egypt in 2003 for defining exploration rights. Similar agreements are being negotiated with other neighboring countries （except Turkey）.There are also some copper deposits in Cyprus，but the exploitation has been

limited and is decreasing. There is also quarrying of bentonite and some exporting of cement.4.5.3.4 TransportationThe main road network is in good condition，but the opposite is true for smaller roads. Car ownership is high as the public transport is underdeveloped. Generally only the foreigners with lower incomes take public transport. Since the capital airport is located on the Green Line，civil aviation was closed following the division of the island in 1974. The main airport is at Larnaca，which takes around 4.8 million passengers per year. A smaller airport at Paphos is dominated by tourist charters and is reported to have around 1.3 million passengers per year.Civil aviation has now been fully liberalized in line with the EU rules.As a result，any EU airline can fly from Cyprus to any other EU destination （in the past only flights to airlines’ home countries were allowed）.Cyprus’s ports are used mainly for transshipment，particularly to smaller ports in the Middle East.The largest port of the island is Limassol.It is a customs-free port for transshipment and distribution as well as port for all grain imports，and has an annual handling capacity of 60，000 TEUs.4.5.3.5 Telecommunication and energyIn comparison with other EU members，Cyprus lags behind in development of telecommunication. The data of Eurostat revealed that in 2006，only 29 out of 100 Cypriot residents used the Internet at least once a week，far lower than 47，the average of EU-25. It further showed that only 12％ of households had a broadband Internet connection，compared with 32％ for the EU25 as a whole. However，the penetration rate of mobile phones is relatively high in comparison.There were 90 mobile phone subscribers per 100 inhabitants in 2004.85 The monopoly of the mobile phone market was terminated in 2003 when a record mobile phone license was granted. Liberalization in the field of Internet service provision is also under way. In general，the cost of fixed-line and mobile phone calls is low.Cyprus has no indigenous primary energy sources. 98.7％ of its energy input comes from imported oil. The electricity market was liberalized in 2004，and the government granted generation licenses to four private-sector companies in 2005.

4.5.4 Economic DevelopmentDuring the 1960s，the structure of the Greek Cypriot economy was based on agriculture. Since the division of the island in 1974，the economic structure of the south has undergone dramatic change.Between the 1970s and 1980s，manufacturing accounted for the major economic sector. Service industries （tourism and financial services） replaced manufacturing as the major economic force afterwards. In 2006，the service sector made up 77.6％ of the GVA.86 Nevertheless，in terms of employment，manufacturing remains important as it made up the second largest part in economic active labor，yet the share is declining in the past decade （Table 4-14）.Generally，tourism remains the single most important economic pillar. It accounted for an estimated 15％ of the GDP when the restaurant and hotel sector are combined with the impact on retailing，construction and transport. However，as the quality of services has failed to keep pace with rising costs，the contribution of tourism has declined in recent years. On the other hand，business services are becoming more important. Cyprus has enjoyed a low unemployment rate by EU standards （5.1％ in the 4th quarter of 2005，compared with 8.5％ of EU average）.The difference can be explained by the presence of more than 55，000 laborers of foreign origin.87 Another factor supporting employment is a fairly low tax burden on employers as well as the low rate of salaries by EU-15. Based on Eurostat，Cyprus had a GDP per head （PPS） 89％ of the EU average in 200588 and is enlisted in high income economies by the World Bank.Table 4-14 Share of Economic Active Labor by Sectors （％）Sector 1995 1999 2004Agriculture, hunting and forestry 10.0 8.2 6.9Fishing 0.4 0.4 0.4Mining and quarrying 0.2 0.2 0.2Manufacturing 15.3 12.7 10.5Electricity, gas and water supply 0.5 0.5 0.5Construction 9.6 8.8 10.1Wholesale and retail trade; repairs 17.2 17.7 17.5Hotels and restaurants 10.5 10.6 9.9

（continued）Source：The Statistical Service of the Republic of Cyprus.The economic characteristics of Cyprus are as follow：4.5.4.1 Tourism plays a significant role in the economy，but its competitiveness is diminishingThe sector developed rapidly in 1980s and a gradual growth followed at the beginning of 1990s. The second half of the 1990s saw a recovery of the business. However，the sector experienced a difficult path after 2000 by the 911 terrorist attacks in 2001 and the Iraq War in 2003. Only weak recovery was seen in 2004 to 2006. The foreign exchange earned from tourism dropped from 119 billions Cypriot pounds in 2000 to 1.03 billion Cypriot pounds in 2006. The average tourist expenditure also declined from 444 to 428 Cypriot pounds in the same period.89 Although the foreign exchange generated by tourism accounted for 13％ of the GDP in 2005，compared with just 9.4％ in 1980，the ratio has fallen from the high of 22.7％ recorded in 1994.90 Nevertheless，tourism remains the most important source of foreign exchange. Cyprus’ tourism is dependent on British market，which accounted for 56.6％ of the total number of tourists in 2006.91 Thus implies that the exchange rates against sterling as well as the economic performance of the UK are of considerable importance for Cyprus’s economy. Another 1/5 of tourists come from Germany，Sweden，Russia and Greece （Table 4-15）.Although Cyprus has experienced a GDP growth rate of more than 3％ in recent years，the tourism industry has not benefited much.Transport, storage and communication 6.2 6.8 6.7Financial intermediation 4.3 5.1 4.9Real estate, renting and business activities 4.4 4.9 5.4Public administration and defence; Compulsory social security6.5 7.0 7.5Education 4.6 5.3 5.5Health and social work 3.6 3.9 3.9Other community, social and personal services activities4.2 4.5 4.6Private households with employed persons 1.4 2.2 4.4Trans-territorial organizations 1.1 0.9 0.9

Cyprus lacks sufficient attractions，and its major advantages lie on the traditionally low-cost “sea-and-sun” packages，which are exposed to the weakness of rising costs due to economic development. In addition，the government’s delay in liberalizing air transport has exacerbated this problem by keeping air fares much higher than many other destinations in Europe. In order to boost higher spending and all-year tourism，the government’s long-term policy has been orientated towards promoting tourism with higher value-added elements，such as golf，marinas，sports and conference tourism. However，these initiatives have not started smoothly as efforts to upgrade the airport have been delayed and the government has just begun the preparation of new marinas construction.Table 4-15 Tourism Statistics of Cyprus in selected yearsSource：The Statistical Service of the Republic of Cyprus.4.5.4.2 Financial services are developing steadilyCyprus has a relatively developed financial services industry. There are 11 so-called Cyprus-incorporated banks and 2 Cyprus branches of foreign banks，a further 27 international banking units and one Cyprus representative office of a foreign bank. In addition，there are several institutions providing specialized banking services，such as medium and long-term financing for housing，tourism and industrial projects. A large number of co-operative banking institutions，consisting of credit societies，co-operative saving banks and other credit institutions，account for 32％ of the total deposits.92YearItems2000 2003 2006Tourist arrivals (thousands) 2,686.2 2,303.2 2,400.9UK (%) 47.5 58.5 56.7Germany (%) 9.8 5.6 6.4Greece (%) 3.4 4.8 5.3Russia (%) 4.7 4.6 4.8Sweden (%) 5.2 3.8 3.9Average stay (nights) 10.3 10 9.5Receipts from tourism (millions of Cypriot Pounds) 1,025.0 1,015.0 1,027.3

The banking system of Cyprus is criticized as over-branched.European Central Bank （ECB） data show that cost-to-income ratios in Cyprus are higher than the EU average. In addition，strong unions have made it difficult to lay off staff for cost reduction. Normal commercial banks are supervised by the Central Bank，while cooperative credit institutions are monitored by a special unit that is under supervision of a cooperative commissioner. In order to harmonize with the EU banking system，from the end of 2007，the cooperative units will apply in full the EU banking directive that the Cooperative Central Bank act as their lender，although in practice most credit cooperatives are net lenders to the Cooperative Central Bank. The IMF report in 2005 also pointed out the “locus of the lender-of-last resort responsibilities remains unclear”.Starting from the end of 2005，all local and foreign banks have been treated the same in taxation，account and other regulatory rules.By international standards，the amount of assets and liabilities held by foreign banks is small，only 14 billion Cypriot pounds and contributes directly around 26 million Cypriot pounds annually.93 However，given the small size of the economy，the role of foreign banks in the balance of payments is still important.In 2005，there were 35 licensed insurance companies in Cyprus，a decrease from 37 in 2002. The total premium income was 583 million Cypriot pounds （345 million Cypriot pounds from life and 187 million Cypriot pounds from non-life）.94 The industry suffered from the downturn of local stock market in 2000-2003.Cyprus has had its own stock market since 1997. In order to attract listings，the government introduced tax exemption for newly listed firms on the first 100，000 Cypriot pounds profits for five years. In addition，tax breaks were given to investors for new stocks subscription.Offshore companies were also allowed to invest in listed stocks and bonds without losing their offshore status. These policies stimulated the stock market to reach its peak in 1999. An incredible increase of almost 700％ in the stock index，compared with the previous year，was recorded，which is the strongest annual increase of any stock exchange in the world in the past half century.However，the stock market suffered from ineffective regulation and irrational speculation of investors from the end of 1999 and the downturn lasted until 2005. The general index dropped from 713.97 （the historical height） to 244.5 in 2000，and further to 72.6 in 2004. 2005

witnessed an upward trend and the general index rebounded to 110.1.95 The market has since revived due to institutional investors investing in banking shares.Nevertheless，even with tightened regulations，individual investors still have weak confidence in the market.4.5.4.3 Cyprus has become an in ternationa l business centreBesides its role as an international （offshore） financial centre，Cyprus has become a centre for non-banking offshore activity. Cyprus has been benefited by a low-tax regime and double-taxation treaties with more than 40 countries. In addition，the presence of a large pool of UK-qualified accountants in Cyprus also helps the development of the business. According to the estimates by the Central Bank of Cyprus，the international business sector accounts for 6％ of GDP currently.Special tax incentives and loose regulations were advantages in the offshore centre’s development in the initial period. The civil war in Lebanon encouraged relocation to Cyprus in the 1980s. Later，the break-up of the former Soviet Union and wars in former Yugoslavia helped in attracting new clients in the early 1990s. However，the tense relationship with Turkey and the emergence of new competitors such as Dubai have challenged Cyprus’s position as a service center in the area.In response to the EU and the OECD demands，the 4.25％ special cooperate tax rate for offshore companies was fully phased out in January 2006 and a universally applicable 10％ cooperate tax rate was adopted instead. In addition，previously loose regulations，such as those on money laundering and shipping safety，have been tightened.Although it is reported that the number of international companies newly established in Cyprus has decreased，the quality has improved. Overall，foreign-exchange income from international business and related services has become increasingly important，accounting for 688 million Cypriot pounds in 2004，which is more than half of that from tourism （1，054 million Cypriot pounds）.Since 1975，more than 61，000 permits have been granted to international business units，equivalent to offshore companies.964.5.4.4 N a tu ra l endow m ents and taxa tion benefits encourage the development of shipping industryCyprus lies in an advantageous location in the Mediterranean Sea

and has 4 major ports on the island，Limassol，Larnaca，Dhekelia and Moni. Although the shipping industry in Cyprus is estimated to account for only 2％ of the GDP，but the related demand for accounting and financial services implies that it could contribute an estimated 10％ in the GDP. Tighter safety standards enforced partly due to the EU-driven initiatives have made some shipping companies shift from the Cypriot flag to a different register. By the end of 2004 the Cypriot-flagged merchant fleet had slipped to the 9th position in the world in terms of tonnage. In turn，the number of ships registered in Cyprus decreased from 2，240 in 2000 to 1，919 in 2004. However，Cyprus remains the 3rd largest in the EU，which and made up 15.5％ of the total number of registered fleet. The shipping business is dominated by international companies，especially from Greece and Norway，which were attracted by the favorable tax regime of the island.4.5.4.5 Agriculture remains important in goods exportAlthough one or two generations ago agriculture was the major economic pillar of the island，the rapid growth in services over the years has undermined agriculture’s importance. In 2006，the contribution of agriculture，forestry and fishing to the GDP was just 2.8％.Nevertheless，it maintains its crucial position in trade of goods.Among Cyprus’ top five merchandise exports；agricultural goods （citrus fruits，potatoes and cheese） occupy the top three on the list. The industry accounted for 7.4％ of the employed workforce in 2004.974.5.4.6 Manufacturing restructuring in face of challengeAlthough Cyprus has natural resources of copper，due to high cost of extraction there has been no copper output since 1993，as shown by official statistics. Therefore，apart form extraction of raw gypsum，the main activity of mining is quarrying. There are about 205 quarries which provide building stone and other construction materials on the island.The sector is insignificant to the economy，accounting only 0.3％ of Cyprus，GDP in 2006.98Manufacturing developed rapidly between the mid-1970s to beginning of the 1980s，but has been in decline since then. The contribution of manufacturing output to the GDP was only 8.5％ in 2006 and made up 10.6％ in total employment （2004）.99 In 2005 the most important sector of manufacturing was food，beverages and tobacco，

with a gross production value of 741.7 million Cypriot pounds. The second position was production of non-metallic and mineral products，which has a gross value of 262.7 million Cypriot pounds.100Previously Cyprus’ manufacturing was protected by imposing high taxation on foreign products. The commitment made by entry of the EU by lifting customs and the current rapid trend of global marketing opening made a change. Cyprus’ manufacturing，particularly garment production，has been hit severely by other low-cost competitors. The only two sectors that have recorded reasonable growth since 1999 have been pharmaceutical products and non-metallic minerals，suggesting that manufacturing the island’s shifting towards higher valued added products.4.5.4.7 Construction relatively importantThe division of the island in 1974 led to a construction boom fuelled by the building of new public housing for refugees and heavy investing in infrastructure，such as airports，seaports，lost to the north.A second boom of construction was led by tourism，including a rapid build-up of hotels and restaurants，in the late 1980s. Recently，due to local and foreign interest in real estate and government infrastructure projects，the industry has recovered from protracted recession in the 1990s. Construction accounted for 8.4％ of the GDP in 2006 and 10.2％ of total employment （2004）.1014.5.4.8 The current account deficit significant and the gov- ernment debt rather largeSimilar to other small island countries，Cyprus is highly dependent on imports of goods. Hence，there is a persistently huge trade deficit.Since many of the manufacturing ingredients must be imported，the increase in exports entails a corresponding simultaneous increase in exports. In 2006 the trade deficit amounted to 27.5％ of GDP，reaching a sum of 2.3 billion Cypriot pounds.102Cyprus is one of the few countries in which a wage-indexation mechanism is still applicable. Labor costs have risen faster than productivity in recent years and consequently some competitiveness has been lost. Domestically produced goods accounted for only 40.2％ of total exports in 2006103；the remaining are re-exports and ship stores，which are closely connected by Cyprus’ role as a distribution centre for the Middle East.

The surplus in the service sector （23.4％ of the GDP in 2006） offset part of the deficit on trade in goods. Consequently，the current account deficit was 5.9％ of GDP in 2006.104On the other hand，the large current account deficit is normally offset by a large surplus in the financial account，derived primarily from “other investment”，made up mainly of foreign loans and bank deposits.Foreign direct investment also plays an important role. In 2006，direct investment in Cyprus amounted to 684 million Cypriot pounds （1.57 billion US dollars）.105Being the EU candidate member since 1998，Cyprus has under- taken adjustment on economic policy and economic structure upon the request of EU. The monetary policy of Cyprus closely followed that of the EU in 2005. The Cyprus pound entered the EU’s system of pegged exchange rates （ERM2） at a parity rate of 0.585274 Cypriot pounds = 1 euro and a 15％ fluctuation band. The government aims at adopting the Euro on 1st January 2008.For the past 20 years Cyprus has tended to run fairly large budget deficits，usually close or above 5％ of the GDP. The recession in 2002 and 2003 further led to a budget deficit of 6.3％ in 2003. Since then，the government has determined to fulfill the criteria for adopting the Euro，and this has led to fiscal consolidation. Longer-term stability of the public finances will depend on structural reform，especially of the pension and social security system and the wage-indexation mechanism.The general government debt in 2005 was estimated to be 70.5％ of the GDP，well above the limit stipulated by the EU.106The reserve position of Cyprus is rather weak. The foreign offi- cial reserve was only 3.08 billion Cypriot pounds （7.07 billion US dollars）.It is equivalent to the level of less wealthy countries in OECD.4.5.5 SummaryCyprus is a new member in the EU. Although its level of development is relatively low among the EU members，it is a well- developed mini-economy. Its unique geographical location and favorable climate make its tourism and financial services industry prosperous. In addition to manufacturing，agriculture and shipping，its economic structure is rather diversified among mini-states. On the condition that the issue of territorial division is settled smoothly，greater social stability will further accelerate the pace of its development.

4 .6 F iji4.6.1 Brief DescriptionFiji is located in the center of Southwest Pacific Ocean and is a traffic junction of South Pacific Zone. The capital of Fiji is the city of Suva. Fiji possesses a total area of 18，270 km2.107 Its estimated total population in mid-2005 is 846，085，where indigenous Fijians made up an estimated 54.8％ in 2005，with Indo-Fijians accounting for 37.4％.108 The official languages are English，Fijian and Hindi.The development of politics in Fiji is a process of twists and turns.Fiji became a British colony on 10th October 1874 and remained under colonial rules until independence on 10th October 1970；from April 1972 until 1987 Fiji was governed by the Alliance Party （AP），composed of organizations that were mainly indigenous Fijian. In April 1987，the AP lost office to a coalition of the FLP and the National Federation Party （NFP），the main political vehicles for Indo-Fijians；although the FLP leader，Timoci Bavadra，was an ethnic Fijian，the coalition’s support came mainly from Indo-Fijians.109Forest reserves are abundant in Fiji. According to the Food and Agriculture Organization （FAO） of the UN，forests covered 815，000 ha of Fiji （44.6％ of the total） in 2000.110 With a good base of forest resources，high quality and quantity of hardwood and pinewood are pro- duced for the domestic economy. The fishery resources are also wealthy in Fiji and tuna is produced extensively. The economy has traditionally heavily relied on the agriculture sector，where sugar is by for the most important crop；Sugar has also been an important source of foreign exchange.111 With a series of supporting policies，tourism is becoming the mainstay of Fiji’s economy.4.6.2 External Relations and Economic CooperationFiji has long adopted active diplomatic attitudes towards South Pacific islands countries，and its diplomatic policies are oriented forwards promoting economic development. Fiji puts a priority on getting along well with all countries，while it puts extra attention on Western countries （Australia and Newland）.Many regional institutions are based in the capital，Suva，including the Secretariat of the Pacific Islands Forum （PIF），the UNDP，the main campus of the University of the South Pacific，the South Pacific Applied Geoscience Commission

（SOPAC） and most regional diplomatic missions.112 The successor agreement to Lome’ Convention was signed in Fiji in mid-2000 and is known as the Suva Agreement. In addition，Fiji published a new report named “Facing Asia in 2000” which formulate a strategy to develop relations with northern countries，such as China，Japan and Korea. Fiji established diplomatic relations with China on 5lh November 1975.Fiji actively joins international and regional economic organizations so as to keep a good trade relationship with other countries. Fiji is a member of the United Nations，the Commonwealth，the WTO，the Pacific Island Forum，the Melanesian Spearhead Group （MSG） and the Pacific Community，Caribbean and Pacific （ACP） group. There are about 70 countries which have diplomatic relation with Fiji and 11 diplomatic envoies，at the time，there are 18 resident ambassadors settled in Fiji.113 Among diplomatic relations of Fiji，Australia and New Zealand are by far the important in terms of geographical，historical or economical relations.Australia and New Zealand are not only major trading partners but also influential economic assisting countries of Fiji. In 2002，Australia gave aid to Fiji’s infrastructure with a value of 800，000 Australian dollars.114The Pacific Islands Forum （PIF） is the most important organization in the region. The Forum Secretariat （based in Suva，the capital of Fiji，with a staff of about 70） administers a series of programmes aimed at promoting regional cooperation among member states through trade，investment，economic development and political and international co-operation.115 Fiji is the locations of many organizations. The Asian Development Bank set up a general office in Suva in 2004.4.6.3 Economic DevelopmentAlthough Fiji is not a developed mini-economy，it is a very highly open economy in the Pacific Islands. In 2005，the nominal GDP growth rate was 7.66％，consumer price inflation was 2.4％ and the current-account balance was -787.6 million Fijian dollars （Table 4-16）.

Table 4-16 GDP by Activity at Current Prices in Fiji，2000-2005Source：Fiji Islands Bureau of Statistics.Fiji’s economy has long depended on agriculture，where sugar is by far the most important crop. Sugar has also been an important source of foreign exchange.116 In 2002，the share of sugar in total exports was 22.5％ and rose to 25.8％ in 2005.117 At the same time，the garment industry，which is an important industry in Fiji，is in decline. From 1985，manufacturing became more diversified with the development of a garment export industry based on tax breaks and concessional access to the Australian market；but the garment industry has been adversely affected by the gradual erosion of Australian concessions and loss of a market quota agreement with the US at the end of 2004.118 In recent years，the economy of Fiji has become more diversified and there are some new products （i.e.，timber and tuna） in the exports sector. The economy of Fiji has the following characteristics.4.6.3.1 Tourism the mainstay of the economyTourism is a pillar industry in Fiji’s economy. The development of tourism in recent years has to some extent reduced the heavy dependence on sugar for foreign-exchange earnings. The main markets of Fiji are Australia，New Zealand and the USA. Visitors’ arrivals reached a record of around 500，000 in 2004 and rose further to around 550，000 in 2005119；increasing tourist numbers have encouraged substantial investment in a number of new resorts，notably by the international hotel chain and the Accor Group.120 The numbers of visitors of Fiji in 2000-2004 are presented in Table 4-17.YearItems2000 2001 2002 2003 2004 2005Total GDP (thousands of Fijian dollars)3,142,649 3,300,221 3,485,144 3,684,242 3,990,696 4,296,708Inflation rate (%) 1.1 4.3 0.8 4.2 2.8 2.4Balance on current account (millions of Fijian dollars)-100.1 -285.9 -5.7 -330.5 -776.9 -787.6

Table 4-17 Visitor Arrivals by Country of ResidenceSource：Embarkation and Disembarkation Cards，Department of Immigration.Table 4-18 Room and Bed Night Occupancy Rates，2000-2005Source：Fiji Islands Bureau of Statistics.4.6.3.2 Infrastructure maturing in FijiIn the stream of globalization，infrastructure is become a more and more important element of regional economic development and isYearOrigins2000 2001 2002 2003 2004Australia 76,883 98,213 123,606 141,873 176,310New Zealand 49,470 66,472 68,293 75,016 103,918US 52,534 57,711 58,815 58,323 65,188Canada 10,532 10,752 9,802 10,990 12,417UK 29,215 30,508 43,393 49,794 48,819Continent Europe 22,506 20,917 21,654 21,847 22,553Japan 19,674 20,411 26,382 23,464 24,173Taiwan 610 776 922 870 731Malaysia 277 304 316 268 311South Korea 3,386 8,413 6,992 8,380 9,100Rest of Asia 5,863 8,263 11,128 10,283 11,847Pacific Islands 21,534 23,608 24,051 28,167 25,429Others 1,586 1,936 2,505 1,525 1,969Total 294,070 348,014 397,859 430,800 502,765Items Year Room Night Occupancy Bed Night Occupancy2000 48.7 36.32001 46.5 37.32002 55.6 43.72003 55.9 44.92004 61.3 51.72005 64.4 54.6

considered as an important input in economic growth. The success of regional economy is often determined by the infrastructure linkage between regions. Fiji has developed a better infrastructure environment in recent years and more infrastructure linking other islands countries.In present，about a dozen international shipping lines serve Fiji；the main ports of entry are Suva，Lautoka，Levuka and Savusavu.121 However，competition increased in 2004，following the launch of “no frills” services by competitors from New Zealand and Australia，and such services are having a positive effect on the country’s tourism industry.122 In Fiji，there are telephones or radio telephones linking almost all inhabited islands；many towns and larger villages have automatic telephone exchanges and direct dialing；it was estimated in 2004 that 90，000 land telephone lines were in use，along with more than 100，000 mobiles phones. In August 2005，the Fiji Commerce Commission instructed Fiji International Telecommunications LTD （Fintel） and Amalgamated Telecom Holdings LTD （which owns Telecom Fiji，the main telecoms operator） to cut overseas call rates by an average of 50％.123 Water power is a major source of power in Fiji. Fiji’s government has invested heavily in hydroelectricity，which is now a key source of power.124Table 4-19 Gross Domestic Products by Activity at Current Prices（ millions of Fijian dollars）Source：Fiji Islands Bureau of Statistics.4.6.3.3 The government keen to diversify the economyAs analyzed in Chapter 1，mini-economies have a small amount of natural resources and skilled labor and thus their usual rational choice is to gather economic resources into one major sector；thus they more easily attain unitary economic structure. Thus，to diversify the economy is an essential step to their sustainable future. Fiji’s government is keen to diversify the economy；to decrease reliance on the sugar crop within the agricultural sector and more generally，to reduce the economy’s dependence on agriculture.125 Within the agricultural sector，timberActivity 2000 2001 2002 2003 2004 2005Manufacturing 438.436 515.059 519.230 511.326 598.691 565.133Total GDP 3,142.649 3,300.221 3,485.144 3,684.242 3,990.696 4,296.708

industry and maturing mahogany plantations make an increasingly significant contribution to export earnings. The economy seems to be balanced in Fiji.（Table 4-20 and Table 4-21）Table 4-20 GDP by Activity at Current Prices（millions of Fijian dollars）Source：Fiji Islands Bureau of Statistics.YearActivity2000 2001 2002 2003 2004 2005Agriculture,forestry,fishing& subsistence535.432 489.542 533.661 545.776 579.969 614.981Mining & quarrying29.683 29.331 32.293 35.769 46.277 35.098Manufacturing 438.436 515.059 519.230 511.326 598.691 565.133Electricity & water92.012 97.968 102.051 106.238 111,586 113.148Construction 139.588 133.530 144.281 160.285 170.879 227.930Wholesale & retail trade, hotel and restaurants495.578 538.388 590.319 626.294 788.787 857.787Transport & communica­tions502.255 553.195 575382 640.014 626.432 742.257Financial, insurance, real estate & business services441.562 443.220 426.636 429.636 443.285 518.474Community, social & personal services597.596 619.960 660.999 738.326 754.108 807.212Less imputed bank charges102.549 118.314 116.291 109.423 129.317 185.313Total GDP 3，142.649 3,300.221 3,485.144 3,684.242 3,990.696 4,296.708

Table 4-21 GDP by Sectors’ Share，2000-2005 （％）4.6.4 Social Development4.6.4.1 Education and healthEducation in Fiji is more developed than other Pacific islands countries. The government provides free education for the first eight years of schooling. Adult illiteracy is low and was recorded at 6.8％ in 2001，according to the UNDP. The University of the South Pacific，funded by regional governments and aid donors，is based in the capital，Suva126；Education will receive 333 million Fijian dollars，an increase of 29 million Fijian dollars from last year. 232 million Fijian dollars has been set aside for infrastructure.127The healthcare standard in Fiji is high compared with those in most Pacific developing countries. According to the UNDP，the life expectancy at birth in 2003 was 67.9 years，and the infant mortality rateYearActivity2000 2001 2002 2003 2004 2005Agriculture, forestry, fishing & subsistence17 15 15 15 15 14Mining and quarrying 1 1 1 1 1 1Manufacturing 14 16 15 14 15 13Electricity & water 3 3 3 3 3 3Construction 4 4 4 4 4 5Wholesale & retail trade, hotel and restaurants16 16 17 17 20 20Transport & communications16 17 17 17 16 17Financial, insurance, real estate & business services14 13 12 12 11 12Community, social & personal services19 19 19 20 19 19Less imputed bank charges3 4 3 3 3 4Total GDP 100 100 100 100 100 100

in 2003 was about 16 per 1，000 population （compared with 50 per 1，000 in 1970）.128 Official statistics of F iji’s education and health are presented in Table 4-22，Table 4-23 and Table 4-24. In 2000，public health expenditure was equivalent to 2.6％ of the GDP，with a further 1.4％ of the GDP funded privately.129Table 4-22 Students Enrolled and Number of TeachersSource：Ministry of Education.Type of InformationJune 2003 June 2004Male Female Total Male Female TotalPrimary EducationNumber of primary schools 712 714Number in primary education 73,765 69,016 142,781 74,553 69,305 143,858Number of teachers 2,228 2,899 5,127 2,270 2,959 5,229Student teacher ratio 27.5 27.8Secondary EducationNumber of secondary schools 157 160Number in secondary education33,284 34,894 68,178 33,315 35,459 68,774Number of teachers 1,994 1,941 3,935 2,231 2,200 4,431Student teacher ratio 17 15Teacher TrainingNumber of schools 4 4Number in teacher training 33,284 34,894 68,178 538 478 1,016Technical vocational schoolsNumber of technical vocational schools54Number in technical & vocational schools1,536 783 2,319 1,071 1,169 2,240

Table 4-23 Key Health Indicators from Population CensusSource：Fiji Bureau of Statistics.Table 4-24 Key Health IndicatorsSource：Ministry of Health.4.6.4.2 Other aspectsAlthough political problems will remain unresolved，the economies of the Pacific Islands continue to boom in 2006-2007. Tourism arrivals have increased in several countries （New Zealand and Australia），thanks to better air services and increased hotel investment.130Foreign investment regulations have been revised in Fiji and the Solomon Islands，but a backlash against liberalization is possible.The health ministry has been allocated 155 million Fijian dollars （91 million US dollars） in the 2007 budget，up from 147 million Fijian dollars in 2006.131 China’s vice minister for health，Jiang Zuojun，Indicators1996 1986Male Female Total Male Female TotalEstimated life expectancy at birth64.5 68.7 66.6 64.8 69.0 66.9Infant mortality rate per 1,000 live births (＜1 year old)22 23 22 25 20 22Child mortality rate per 1,000 live births (1-4 years old)5 5 5 6 5 5Total fertility rate - 3.26 - - 3.51 -Indicators2002 2003Fijian Indian Others Total Fijian Indian Others TotalInfant mortality rate per 1000 live births (＜1 years old)- - - 15.4 - - - 17.8Standardized death rate7.98 6.57 - 7.28 6.23 5.98 - 5.89Totalfertility rate3.20 1.68 2.15 2.50 3.30 1.83 1.91 2.60

offered his country’s assistance in setting up health programmes during a visit to Suva at the end of September in 2006.132Fiji’s 2007 budget included a rise in the country’s value-added tax （VAT） rate. The 2007 budget increases VAT，which is to rise from 12％ to 15％ from on 1st January 2007.133In the future，Australia，New Zealand，Japan，China and Taiwan，will continue to have significant impact on Fiji’s development.4.6.5 SummaryFiji is located in the South Pacific Ocean and has gained a good development after its independence，especially in the beginning years of the 21st century. Although Fiji is not the conscious model of mini- economies，it has achieved a good economic foundation for future growth.By efficiently using the island resources for tourism，it will be possible for Fiji to attain a faster economic growth.N otes1 Ministry of Foreign Affairs of People’s Republic of China，http：//www.fmprc.gov.cn/chn/default.htm.2 Economist Intelligence Unit，Country Profile 2006- Bahamas，p. 7.3 Ministry of Foreign Affairs of People’s Republic of China，http：//www.fmprc.gov.cn/chn/default.htm.4 Economist Intelligence Unit，Country Profile 2006- Bahamas，p. 11.5 Ibid.，p. 11-12.6 Ibid.，p. 12.7 Ibid.8 Ibid.9 Central Bank of The Bahamas，http：//www.centralbankbahamas.com/index.lasso.10 Economist Intelligence Unit，Country Profile 2006- Bahamas，p. 13.11 Central Bank of The Bahamas，Quarterly Economic Review，Vol. 15，No.4，2006，p.31.12 Ibid.

13 Economist Intelligence Unit，Country Profile 2006- Bahamas，p. 1914 The figures are at current market prices. The figure of 2005 is only provided at constant 1991 prices and the corresponding share is 12.8％.Source：Central Bank of The Bahamas，http：//www.centralbankbahamas.com/index.lasso.15 Economist Intelligence Unit，Country Profile 2006- Bahamas，p. 17.16 Ibid.，p. 18.17 Ibid.，p. 17.18 The figures are at current market prices. The figure of 2005 is only provided at constant 1991 prices and the corresponding share remains the same at 0.4％.Source：Central Bank of The Bahamas，http：//www.centralbankbahamas.com/ index.lasso.19 The figures are at current market prices. The figure of 2005 is only provided at constant 1991 prices and the corresponding share remains the same at 8.8％.Source：Central Bank of The Bahamas，http：//www.centralbankbahamas.com/ index.lasso.20 Central Bank of The Bahamas，http：//www.centralbankbahamas.com/index.lasso.21 Economist Intelligence Unit，Country Profile 2006- Bahamas，p. 21.22 Ibid.，p.21.23 Ibid.24 Economist Intelligence Unit，Country Profile 2006- Seychelles，p. 3.25 Economist Intelligence Unit，Country Profile 2006 — Bahrain，p. 4.26 Ibid.，p. 8.27 Ibid.，p. 12.28 Ibid.，p. 13.29 Ibid.，p. 14.30 Ibid.，p. 28.31 Ibid.，p. 26.32 Ibid.，p. 20.33 Ibid.，p. 36.34 Ibid.，p.45.35 Ibid.，p. 32.36 Ibid.，p. 33.37 Ibid.，p. 34.38 Ibid.，p. 34.39 Ibid.，p. 17.40 Ibid；p. 18.41 Ibid.42 Ibid.，p. 19.43 Ibid.，p. 16.44 Ibid.，p. 17.45 Ibid.46 Ibid.

47 Ibid.，p. 22.48 Ibid.，p. 32.49 Ibid.，p. 22.50 Bermuda Department of Statistics，Labor Market Indicators 2006；Economist Intelligence Unit，Country Profile 2006- Bermuda，p. 7.51 Economist Intelligence Unit，Country Profile 2006- Bermuda，p. 8.52 Bermuda Department of Statistics，Facts and Figures 2006，p. 12.53 Economist Intelligence Unit，Country Profile 2006- Bermuda，p. 10.54 Bermuda Department of Statistics，Bermuda Gross Domestic Product by Indus- try 2005.55 Bermuda Department of Statistics，Quarterly Bulletin of Statistics：4th Quarter 2006.56 Economist Intelligence Unit，Country Profile 2006- Bermuda，p. 12.57 Bermuda Department of Statistics，Facts and Figures 2006，p. 6.58 Bermuda Monetary Authority，http：//www.bma.bm/.59 Bermuda Department of Statistics，Facts and Figures 2006，p. 6.60 Bermuda Monetary Authority，Annual Report 2005，p. 14.61 Economist Intelligence Unit，Country Profile 2006- Bermuda，p. 14.62 Bermuda Department of Statistics，Quarterly Bulletin of Statistics：4th Quarter 2006，p. 2.63 Ibid.，p. 8.64 Economist Intelligence Unit，Country Profile 2006- Bermuda，p. 15.65 Ibid.，p. 12.66 2006 CIA World Fact book，https：//www.cia.gov/cia/publications/factbook/geos/ bx.html#People.67 Ibid.68 Ibid.69 Ibid.70 2006 CIA World Factbook，http：//www.photius.com/rankings/economy/ gdp_per_capita_2006_0.html.71 2006 CIA World Fact book，https：//www.cia.gov/cia/publications/factbook/geos/ bx.html#People.72 Official Website in Brunei，http：//www.brunei.gov.bn/about_brunei/economy.htm#l.73 Website of Ministry of Foreign Affairs of the People’s Republic of China.74 Economist Intelligence Unit，Country Profile 2005- Brunei，p. 13.75 Website of Ministry of Foreign Affairs of the People’s Republic of China.76 Economist Intelligence Unit，Country Profile 2005- Brunei，p. 15.77 Human Development Report 2006，p. 19.78 Economist Intelligence Unit，Country Profile 2005- Brunei，p. 18.79 Statistical Service of Republic of Cyprus，http：//www.mof.gov.cy/mof/cystat/ statistics.nsf/index_en/index_en.

）80 Newspaper Today’s Zaman，http：//www.todayszaman.com/tz-web/detaylar.do? load=detay&link=32847.81 Statistical Service of Republic of Cyprus，http：//www.mof.gov.cy/mof/cystat/ statistics.nsf/index_en/index_en；Eurostat，http：//www.ec.europa.eu/eurostat.82 Economist Intelligence Unit，Country Profile 2006- Cyprus，p. 19.83 Ibid.84 Ibid.85 Eurostat，http：//www.ec.europa.eu/eurostat.86 Statistical Service of Republic of Cyprus，http：//www.mof.gov.cy/mof/cystat/ statistics.nsf/index_en/index_en.87 Economist Intelligence Unit，Country Profile 2006- Cyprus，p. 27.88 The volume index of GDP per capita in Purchasing Power Standards （PPS） is expressed in relation to the European Union （EU-25） average set to equal 100.Source：Eurostat，http：//www.ec.europa.eu/eurostat.89 Statistical Service of Republic of Cyprus，http：//www.mof.gov.cy/mof/cystat/ statistics.nsf/index_en/index_en.90 Economist Intelligence Unit，Country Profile 2006- Cyprus，p. 31.91 Statistical Service of Republic of Cyprus，http：//www.mof.gov.cy/mof/cystat/ statistics.nsf/index_en/index_en.92 Economist Intelligence Unit，Country Profile 2006- Cyprus，p. 28.93 Ibid.94 Insurance Association of Cyprus，http：//www.iac.org.cy/Home/tabid/36/Default.aspx.95 Cyprus Stock Exchange，http：//www.cse.com.cy/en/default.asp. In 2006 a new index CSE General Index replaced the original General Index. The CSE General Index recorded an increase of 68.4％ compared with the previous year.96 Economist Intelligence Unit，Country Profile 2006- Cyprus，p. 32.97 Statistical Service of Republic of Cyprus，http：//www.mof.gov.cy/mof/cystat/statistics.nsf/index_en/index_en.98 Ibid.99 Ibid.100 Statistical Service of Republic of Cyprus，http：//www.mof.gov.cy/mof/cystat/statistics.nsf/index_en/index_en.101 Ibid.102 Central Bank of Cyprus，http：//www.centralbank.gov.cy/nqcontent.cfm?a_id= 1.103 Statistical Service of Republic of Cyprus，http：//www.mof.gov.cy/mof/cystat/statistics.nsf/index_en/index_en.104 Central Bank of Cyprus，http：//www.centralbank.gov.cy/nqcontent.cfm?a_id=l.105 Ibid.106 Economist Intelligence Unit，Country Profile 2006- Cyprus，p. 25.107 2006 CIA World Fact book，https：//www.cia.gov/cia/publications/factbook/geos/ fj.html.108 Economist Intelligence Unit，Country Profile 2005- Fiji，p. 16.

109 Ibid.，p.4.110 Ibid.，p. 12.1 Ibid.，p. 15.112 Ibid.，p. 10.113 Website of Ministry of Foreign Affairs of the People’s Republic of China.114 Ibid.115 Economist Intelligence Unit，Country Profile 2005- Fiji，p. 20.116 Ibid.，p. 15.117 Author’s calculation.118 Economist Intelligence Unit，Country Profile 2005- Fiji，p. 17.119 Ibid.120 Ibid.121 Ibid.，p. 12.122 Ibid.123 Ibid.124 Ibid.，p. 13.125 Ibid.，p. 14.126 Ibid.，p. 11.127 Economist Intelligence Unit，Country Report December 2006- Fiji，p. 10.128 Economist Intelligence Unit，Country Profile 2006- Fiji，p.11.129 Ibid.130 Economist Intelligence Unit，Country Report December 2006 — Fiji，p. 13.131 Ibid.，p. 10.132 Ibid.，p. 9.133 Ibid.，p. 10.

C a s e S t u d i e s o n T y p i c a l M i n i - e c o n o m i e s ：A G l o b a l P e r s p e c t i v e （Ⅱ）5.1 L ie ch te n s te in5.1.1 Brief DescriptionLiechtenstein is located in Central Europe，between Austria and Switzerland. Its total land area is 160 km2. The capital of Liechtenstein is Vaduz. The total population of Liechtenstein is 33，987 （July 2006 estimation），where 86％ is Alemannic and Italian，Turkish，and others account for 14％.1 The official language is German but the Alemannic dialect is widely used.2 People aged between 15 and 64 account for 70.2％ of the population （2006 estimation by CIA）.Liechtenstein was established within the Holy Roman Empire in 1719；it became a sovereign state in 1806.3 For centuries，the orientation of the Liechtenstein economy was primarily agricultural. The first wave of industrialization was relatively late. The basis of this industrialization was especially the Customs Treaty of 1852 with Austria-Hungary.4 An actual boom only took place after the Second World War，sustained primarily by strongly increasing industrial exports.The financial services sector （banks and later also insurance companies） experienced high growth primarily in the 1980s and 1990s.5Due to the small domestic market，Liechtenstein owes its above average success to customers from foreign countries. Accordingly，international memberships of Liechtenstein are very important.Liechtenstein joined EFTA in 1991，the European Economic Area （EEA） Agreement in 1995，and the World Trade Organization （WTO） and its subsidiary organizations also in 1995.65

In 1998-2003，the GDP，the GDP per employed person and the GNI were an average of 4，053.8 million Swiss francs，166，666.7 and 3，755.5 millions Swiss francs respectively （Table 5-1）.In 2004，the GNI of Liechtenstein was 3.78 billion Swiss franc，where 1 US dollar = 1.2508 Swiss francs （2006 estimation）.The inflation remains low in Liechtenstein，with an average inflation equal to 0.6％ （2004）；the unemployment rate in Liechtenstein is 2.2％ （2004）.7 The unemployment rate in Liechtenstein is traditionally very low；the maximum rate so far has been 2.5％.8The highly industrialized economy of Liechtenstein is character- ized by a broad diversification of sectors，businesses，and products. The average added value is very high，based on research and development，qualified expertise，a wide range of high-tech and niche products，strong export orientation，and a highly developed financial services sector.9 The trade balance has remained positive in 2000-2005 and the export and imports are 3，227 million Swiss francs and 1，909 million Swiss francs in 2005 respectively （Table 5-2）.Table 5-1 National Accounts Indicators Since 1998 at Current PricesNote：* Provisional numbers Source：Liechtenstein in Figures 2006.YearGDP GDP Per Person GNI GNI Per(millions of Employed (millions of InhabitantSwiss Francs) (Swiss Francs) Swiss Francs)1998 3,595 163,000 3,534 112,0001999 4,002 178,000 3,869 121,0002000 4,195 176,000 4,112 125,0002001 4,205 165,0 3,782 112,0002002 4,191 160,000 3,698 109,0002003* 4,135 158,000 3,538 104,000

Table 5-2 Direct Goods Exports and Imports in Liechtenstein，2000-2005Source：Liechtenstein in Figures 2006.5.1.2 External Relations and Economic CooperationLiechtenstein actively cultivates relations with other States and multilateral cooperation at the European and global level. Liechtenstein is therefore particularly engaged in human rights policy，the progressive development of international law，development cooperation，international humanitarian assistance，including disaster relief and assistance for Eastern Europe，as well as individual areas of international environmental policy. Unlike most other states，Liechtenstein does not maintain armed forces.10Switzerland also concluded the “Swiss-Austrian Agreement on Cooperation in Consular Affairs” on 3rd September 1979，which entered into force on 1st January 1980. On the basis of the accord between Liechtenstein and Switzerland of 1919 on the representation of interests by Switzerland，Liechtenstein is also included in this agreement.11Numerous states，including Germany，Austria，and Switzerland，have entered into diplomatic relations with Liechtenstein through non- resident ambassadors （who generally reside in Bern，since they are also accredited to Switzerland）.12In addition to maintaining bilateral relations with other states，multilateral cooperation is an important element of Liechtenstein foreign policy.13The 1990’s brought further important European and globalDirect goods exports(without Switzerland)Direct goods imports(without Switzerland)Year millions of Swiss Franc Year millions of Swiss Franc2000 3,032 2000 1,4562001 3,002 2001 1,4882002 2,820 2002 1,3782003 2,877 2003 1,4902004 3,203 2004 1,8812005 3,227 2005 1,909

agreements in the foreign economic field；European integration，namely relations with the European Union （EU），is of particular importance in this respect. Liechtenstein joined the European Free Trade Association （EFTA） as a full member in 1991，became a member of the European Economic Area （EEA） on 1st May 1995，and joined the World Trade Organization （WTO） on 1st September 1995.145.1.3 Economic DevelopmentLiechtenstein is traditionally agricultural economy，and in recent years，it has developed into a highly industrialized economy. Farmland （excluding the Alps） accounts for some 24％ of Liechtenstein’s 16，000 ha. In 2005，1％ of all those employed in Liechtenstein worked in agri- culture and horticulture，while 0.2％ were employed in forestry.15 There are plentiful marble reserves in Liechtenstein.The industrial sector is very prosperous in Liechtenstein. Those major products are refined metals，machinery，instruments，ceramics，chemicals，medicines，electronics，textiles and food processing.16Liechtenstein has a good geographical location. This small state attracts many visitors from foreign countries. In August 2005，there were 43 hotels and guests houses and 1，248 beds available.111，289 visitors stayed overnight in 2005 （as at August） （Table 5-4）.Table 5-3 Rate of Prices Increases in Liechtenstein，1990-2005Source：Liechtenstein in Figures 2006.Year % Year %1990 5.4 2002 0.61995 1.8 2003 0.62000 1.6 2004 0.82001 1.0 2005 1.2

Table 5-4 Tourism in Hotels and Guest HousesNote：* As in AugustSource：Liechtenstein in Figures 2006.5.1.3.1 Liechtenstein one of the highly industria lized countriesNowadays，Liechtenstein is one of the most highly industrialized countries，with economy diversity，highly specialized products and competitive know-how. Since the conclusion of the Customs Treaty （1923），Liechtenstein has formed a common economic area with Switzerland. Liechtenstein has been a member of the European Economic Area since 1995. Many Liechtenstein companies work in specialized，research-intensive market niches，in which they are considered global market leaders. In 2004，the expenditure for research and development in the industrial companies of the Liechtenstein Chamber of Commerce and Industry amounted to 307 million Swiss francs. This corresponds to more than 7％ of the Liechtenstein GDP.17Exports sales of the industrial companies in the Liechtenstein Chamber of Commerce and Industry are 5.144 billion Swiss francs，in which European Economic Area （EEA） accounts for 45.5％ and Americas and Switzerland accounts for 28.7％.185.1.3.2 Promotes high quality productsThe most important branches of the heavily export-oriented indus- try are mechanical engineering，plant construction，and manufacturing of precision instruments，dental technology，and the food-processingItemsYearHotels And Guest Houses*BedsAvailable*Guest ArrivalsOvernightStays1960 59 1,060 40,136 76,3621970 70 1,415 72,421 145,2471980 64 1,387 85,033 182,4431990 60 1,387 77,735 149,8612000 49 1,314 62,894 133,4852003 43 1,194 50,207 107,1522004 43 1,159 50，103 103,7242005 43 1,248 51,056 111,289

industry. In all of these areas，the emphasis is less on the production of mass and inexpensive goods，but rather on the development of high quality，high-tech products.19 Employees in Liechtenstein distinguish themselves by high qualifications and productivity.A particular strength of the Liechtenstein economy is rooted in the innovative research and development work of the domestic industry. In 2004，LCCI industrial companies invested around 307 million Swiss francs in research and development. This corresponds to almost 8，900 Swiss francs per capita.205.1.3.3 A sound business external environmentSince the influence of Liechtenstein is very small，the general conditions for business activity must be stable and favorable. The Liechtenstein government follows a non-intervention approach to create a liberal economic order.The favorable location helps the financial services sector to have great financial strength with a low interest rate. This contributes to favorable investment conditions. The highly developed Liechtenstein national economy with a strong export industry，efficient financial enterprises，and a broad spectrum of small and medium-size businesses，especially in the various trades，requires highly trained and educated employees. The educational institutions are of a high quality. The retirement age is relatively high，and the working hours are longer than in other European countries.215.1.3.4 F inancial services an im portant economic and successful sectorFinancial services represent an important economic sector in Liechtenstein. Due to the high added value intensity of this economic sector，persons employed in the financial services sector contribute a share of about 30％ to the Liechtenstein GDP in 2004.22 Financial services shares in gross value added in 2003 were 24％.23The accession to the European Economic Area in 1995 acted as a catalyst for a series of fundamental changes and made access to the markets of other countries possible.The Liechtenstein banking，insurance，and investment fund center plays its trumps only quietly. After all，it is one of the most attractive in Europe，and the service sector keeps growing and growing. With the

most modern instruments，financial experts expand their skills and develop innovative financial products and services. At the same time，reliability and fairness ensure responsibility.The financial services fulfill the highest standards against money laundering and financing of terrorism；nevertheless，Liechtenstein is committed to the protection of privacy and therefore of bank client secrecy.245.1.4 Education and HealthcareEducation is good in Liechtenstein. The whole population，aged 10 and over，can read and write.25 In 2005 （reference date 30th June 2005），the number of the population aged 29 or under was 12，573 （36.2 ％ of the total population）.Approximately 50 ％ of them were registered in educational institutions.26 There were about 4，201 young people of compulsory education age.German is the official language of instruction.In 2004/2005 approximately 95.4 ％ of all students attended public schools and 4.6 ％ private non-grant-aided institutions.27 In 1999 class size regulations were enacted. In primary and secondary classes the minimum number of students per class is 12，the average number 20 and the maximum number 24.28Universities in Liechtenstein are the Liechtenstein University of Applied，Sciences （HL），the International Academy for Philosophy （IAP），the University of Human Sciences （UFL） and the Liechtenstein Institute （LI）.Indirectly，the Interstate University of Technology Buchs （NTB） in Switzerland can be seen as a part of Liechtenstein’s higher education system.The State offers educational subsidies in the form of scholarships and interest-free loans. Persons living in Liechtenstein who can demonstrate at least three years of uninterrupted residence or a total of at least five years of regular residence in Liechtenstein at the time of the application are entitled to claim subsidies.29There are 96 doctors in the country，including 68 interns.30 The State offers a number of benefits in the area of preventive health and healthcare. It contributes to the various hospitals in the neighboring countries that have concluded agreements with Liechtenstein.Screening examinations are mandatory and are coordinated by the Office of Social and Preventive Medicine.31 The State pays for the entire cost of dental care for children，a total of about 520，000 Swiss francs annually.32 The State is also responsible for mandatory

vaccinations and addiction prevention.33The infant mortality rate is 4.64 deaths/1，000 live births in 2006.The life expectancy of Liechtenstein population is 79.68 （2006 estimation）.345.1.5 Other AspectsCommunication and transports infrastructure are developed in Liechtenstein. There is a total 20 km gas pipelines （2006） and 9 km of 1.435m gauge railways （electrified）.The total length of roadways is 380 km，while the length of waterways is 28 km （2005）.35 There are no ports and terminals in Liechtenstein.36In 2002，main telephones lines in use in Liechtenstein were 19，900，where there were 11，400 mobile cellular in 2002；According to official estimation，20，000 internet users were in Liechtenstein in 2002.37Liechtenstein has a tax system which comprehensively takes into account the current and future demands of business and society in the 21st century and that enables Liechtenstein to continue to position itself as an internationally successful business location and financial centre，and from which everyone may benefit in the long term.The FL Tax Roadmap is based on the goal of formulating essential basic ideas and guidelines for a reform of tax law in the Principality of Liechtenstein.385.1.6 SummaryLiechtenstein is a leading developed mini-economy in the world.Its experience in economic development is not only an impressive example for other mini-economies，but also a good model for the sustainable development of the global economy：Liechtenstein has maintained its relative independence during the rapid progress of the EU；and it keeps improving its population quality and general competitiveness in the trend of economic globalization. By doing so，this small country has not been marginalized；instead，it has become a reference of development index for its counterparts.

5 .2 L u x e m b o u rg5.2.1 Brief DescriptionLuxembourg is situated in the northwest of Europe，in the heart of the so called “flat banana”. It is a land-locked country sharing a southern border with France，an eastern part with Germany and the remaining border area with Belgium. The total area of Luxembourg is 2，586 km2，and it has a population of 460，000 （2006），in which 60.4％ are Luxembourg people and remaining 39.6％ are foreigners，mainly from Portugal，Italy，France，Belgium，Germany，UK and Netherlands.39 The official languages of Luxembourg are French，German and Luxembourgish. French is predominately used in public administration，the judiciary and foreign relations.German has been widely adopted in media，and Luxembourgish is an oral folk language，which is also used in local administration and judiciary. It is estimated that 87％ of Luxembourg people are Roman Catholics，and the other 13％ are mostly Protestants，Orthodox Christians，Jews，and Muslims.40The capital of Luxembourg is Luxembourg City. In 2005 the population of the capital stood at 76，400.Luxembourg was inhabited by Gaulish people in ancient times. It was conquered by Germanic people in 400 A.C. and later became part of the Frankish Empire and the Carolingian Empire. In the 15th to 18th centuries the territory was ruled by Spain，France and Austria in sequence.The origins of present-day Luxembourg can be traced back to the Congress of Vienna in 1815. The Dutch king was created as grand duke，the ruler of Luxembourg. By the Treaty of London in 1839，Luxembourg was acknowledged as an independent country and became a neutral state in 1867. The personal union with the Dutch crown ended in 1890 as the Dutch king did not have a male heir. The authority was passed to Adolph of Nassau-Weilburg. During both world wars，Luxembourg was conquered by Germany. In 1945 Luxembourg enrolled in United Nations. The status of neutrality was abandoned in 1948 and Luxembourg joined NATO in 1949.Together with France，West Germany，Italy，Netherlands，Belgium，Luxembourg became one of the six founding members of European Economic Community. Under the Schengen Agreement，Luxembourg was among one of the first 7 countries which opened borders for free movement in EU. Luxembourg was confirmed as one of the 11 countries which first adopted the Euro

in May 1998.5.2.2 External RelationsLuxembourg’s external relations are focused on Europe. Since Luxembourg is located in the center of continental Europe，between two large，traditionally hostile nations，France and Germany，it was inevitably involved in wars between the two. Thus after the two world wars，the normalization of relations between the two provided a stable external political environment for Luxembourg. In addition，in view of the main characteristic of its economy 一 smallness. Luxembourg has been working vigorously in searching opportunities for cooperation with its neighbors. In 1842 Luxembourg joined the German customs union，Zollverein. Then in 1921，Luxembourg formed an economic union with Belgium；the Benelux Custom Union （Belgium，the Netherlands and Luxembourg） was founded in 1944. Later，in 1951，Luxembourg became one of the founding members of the European Coal and Steel Community （ECSC）.In international relations，Luxembourg asserts the principle of equality，no usage of force and coercion，anti-armament race，abiding with international law，respect for human rights and caring for small states’ interests. Luxembourg also supports the establishment of a European collective security regime within the framework of NATO，EU and European Security Organization. It believes that the US could play an important role in European affairs and strongly believes that the stability of Russia and former Yugoslavia assist the maintenance of European security. Furthermore，developing and enlarging the scope of economic cooperation with Asian-Pacific countries are goals of its external relations，strategy. Currently 146 countries have established diplomatic relationships with Luxembourg，and the formal relationship between Luxembourg and China was forged on 16th November 1972.41Being a founding member of the EU，Luxembourg strongly supports and vigorously promotes European integration. In July 1992 the Maastricht Treaty was ratified，and in 1998 Luxembourg was confirmed as one of the 11 counties which first adopted the Euro.Luxembourg ratified the Amsterdam Treaty in July 1998 and was the first country which passed the Treaty of European Constitution by referendum. In addition，Luxembourg supports NATO’s eastern expansion and believes that the political significance of NATO is much

larger than its military impact after the Cold War.Hence，Luxembourg’s international influence （predominately in the EU） considerably outweighs its size：with only 0.1％ of the EU population，the country has 1.7％ of the votes in the Council of Ministers. Like other member states，Luxembourg retains a veto in important areas.In addition，generations of Luxembourg leaders have enjoyed a high profile in EU. The most prominent one is the late former prime minister，Pierre Werner，who drew up the first plan for a European single currency in 1970.Two former prime ministers，Gaston Thom and Jacques Santer，were presidents of the European Commission. The current Prime Minister Jean Claude Junker，is spoken of a future candidate for the planed job of permanent EU Council President.5.2.3 Resources，Infrastructure and Culture5.2.3.1 PopulationLuxembourg has an extraordinary high percentage of foreign population （40％） and the number is still growing at a much faster pace than local population.Among the immigrants，Portuguese accounted for 1/3 （about 63，000 people）.In addition，more than 100，000 cross-border laborers from neighboring countries commute daily to the country for work. They take up 1/3 of the employment posts.42Table 5-5 Classification of Population in Luxembourg（thousands）Source：STATEC，Luxembourg in Figures 2006.5.2.3.2 Education and healthcareThe law stipulates that children over 6 years old must receive9 years of compulsory education. The most evident feature ofTotal Population 459.5Luxembourgers 277.7(60.4%)Foreigners 181.8(39.6%)Country of origin (top 3): Portugal 67.8France 22.9Italy 18.8

Luxembourg’s education system is linguistic diversity. Most of the population can speak fluent Luxembourgish，French and German as well as having a good command of English. Most pupils reach a high Istandard of education，whether of an academic or a vocational nature.Among the OECD countries，Luxembourg ranks first in terms of total expenditure per pupil in both primary and secondary schools.43 However，since students have to master three languages simultaneously，a growing number of immigrant children face language difficulty in study.Luxembourg did not have a comprehensive university before 2003 （only higher institutes existed）.Consequently，almost 70％ （in academic year 2004/2005） of students studies abroad （counting only those on grants），with Germany and France as the most popular destinations.44Healthcare expenditure is funded through a combination of general taxes and earmarked contributions that are managed by several public funds. Contributions by the foreign workers has largely supported the generosity of the system. However，as the population ages and，the number of foreign workers decreases，（highly important for economic prosperity）.Luxembourg is facing a rising burden in healthcare expenditure.5.2.3.3 Natural resourcesLuxembourg’s iron ore deposits along the southern border were the basis of the country’s industrial expansion in the 19th century.However，the last iron mine was closed in 1981. The only other natural resource lies in medium-quality wine，mainly for domestic and Belgian consumption，produced in the Mosel valley.5.2.3.4 TransportationLuxembourg has a good transportation network. However，due to the inflow of more than 100，000 daily commuters from neighboring countries and the fact that many of these take private vehicles，traffic congestion has increased. The government is making efforts in promoting usage of public transportation such as announcing plans in 2002 to allocate e 298 million euros in view of improving the national railway infrastructure.45 In addition，the Luxembourg government agreed to contribute up to 100 million euros to finance the High Speed Line （TGV） to lay the main line in France. It is expected that the work will be completed in 2007. In addition，a railway linking Brussels，Luxembourg

and Strasbourg has been incorporated within the TEN-T Priority Axes，and Projects 2005 and is scheduled to finish in 2013. By then the time required to travel from Luxembourg to Paris and Strasbourg will be shortened to 2.15 hours and 1.25 hours respectively.The international airport of Luxembourg （Findel） saw a 2.5 times and 7.5 times increase in passengers and freight respectively between 1980 and 2000. However，terrorist attacks and general economic gloom in the region have affected the aviation industry. Nevertheless，only passengers flow was affected，from the peak of 1.67 million in 2000 to 1.57 million in 2005 and increased to 1.61 in 2006. Meanwhile，freight transport recorded magnificent growth，from 500 thousands tons to 752 thousands tons in the same period.46 Findel is the 5th largest freight airport in Europe.5.2.3.5 Telecommunication and energyThe telecommunication market was opened in 1998，and until 2000 there have been more than 19 licenses which have been granted to a variety of companies covering the fixed telephony，pre/post paid mobile，calling card，and interest markets. In 2002 two third-generation 3G universal mobile telecommunications services （UMTS） were granted and a total of four operators. The penetration of mobile phones is the highest in EU，with 143 subscribers per 100 inhabitants in 2004.47 However，the report from the OECD reveals that Internet charges in Luxembourg are significantly higher than the OECD average，which affects its penetration. Only 59％ of the households have been connected to the Internet.48There is some energy production from hydropower and wind sources. The completion of a gas-stream turbine in 2004 is now supplying 20％ of Luxembourg’s electricity demand. A share of 75％ of the electricity market was opened to competition in 2005. However，the gas market is less liberalized than that for electricity.5.2.4 Economic DevelopmentThe GNI per capita （PPP） of Luxembourg reached 65，340 US dollars in 2005，which made Luxembourg the richest country in Europe，as well as in the globe.49 During the mid-1980s until 2000 the country maintained an economic growth rate of more than 5％ .Although there has been a declining trend，Luxembourg achieved a 4.65％ of growth

rate between 2002 and 2005. In addition，the unemployment rate was only 4.5％，much lower than the EU 25 average of 8.7％.50Due to the limited size of the economy，Luxembourg’s economy had been dominated by a single industry，steel，until mid-1970s. It accounted for about 1/4 of its GDP. Together with keener competition，emergence of steel substitutes and world overproduction，the prices were under serious pressure and thus production slumped sharply from 6.45 million tons in 1974 to only 3.2 million tons in 1983. Nevertheless，this emerged as a stimulus for the government to make a determined effort in diversifying the economy，and the financial sector started to develop.The financial sector overtook the steel industry as the mainstay of the economy. The change of the structure of the gross valued added （GVA） in the last decade can be seen from Table 5-6.Luxembourg has the following economic characteristics.5.2.4.1 A diversified and developed financial sectorThe financial sector is by far the most important sector in Luxembourg. In 2005，23.4％ of the gross valued added came from financial activities and 11％ of domestic employment was created by financial intermediation.51 It is also the major source of trade surplus，with a significant share of almost 3/4.52 The financial sector of Luxembourg can be subdivided into 5 main components. They are holding companies，the stock exchange，banks，undertakings for collective investment （UCIs） and insurance companies.The 1929 law on holding companies made Luxembourg highly attractive to foreign capital，by exempting profits and capital gains from tax and not deducting tax at source. In addition，considering the drawback of holding companies that may be double taxed，the Luxembourg government has forged double-taxation agreements with more than 42 countries.Luxembourg’s stock exchange has a history of almost 80 years.The world’s first international foreign-currency bond was quoted in Luxembourg in 1969. Later，in considering Germany’s introduction of valued added tax on gold coins and France’s abolition of anonymous gold buying，the stock exchange was innovative in introducing gold trading in 1981. Over the years，the Luxembourg stock exchange has consolidated its predominant role in international bonds and investment funds.

Table 5-6 Structure of the Gross Value Added at Basic Prices （％）Source：STATEC，Luxembourg in Figures 2006，p. 31At the end of 2005，there were 156 banks employing more than 2，300 workers in the country，of which 97％ were foreign banks.In 1950，there were only 14 banks in Luxembourg. The number only increased slightly to 17 by 1960. The external factors （change in tax and regulatory measures and other policies） and the preferential fiscal and regulatory treatment （such as low tax rate，bank secrecy and quick adoption of EC directives） have turned the Grand Duchy into a popular place for foreign banks. In addition，a lenient reserve requirement，early capital account liberalization，multilingual workforce，large pool of professional （including cross-border workers） add to the list of attractions. Among the foreign banks，Germany accounted for the largest share （45 banks）.Second came France and Italy （both have 15 banks）.53Furthermore，a remarkable portion of income in Luxembourg’s banking is generated from private banking and asset management.Commission and fees income made up 46.3％ of Luxembourg bank’s total income in 2005.54 In addition，being the first European countryYearSectors1995 2000 2005Agriculture 1.0 0.7 0.4Iron, steel and metal possessing industry 3.9 3.6 3.0Other manufacturing industry 10.0 7.9 6.1Energy and water 1.4 1.2 1.3Construction 6.5 5.7 5.8Distribution trades; lodging and catering; transports and communication21.3 21.8 20.8Financial activities 22.1 25.0 23.4Estate activities, rent services and services to companies17.2 18.7 21.7General government services 5.6 5.2 5.5Education，health and social protection 7.9 7.7 9.1Other public and private services 3.2 2.6 2.8

stipulating a clear-defined e-commerce regulation，there is a great potential for the development of Internet banking.The booming of Luxembourg’s UCIs took place during 1980s.This was largely generated by the setting up of a modern and flexible legislative framework before the European directive on UCITs. The directive granted a “European passport” to the fund as it could sell its shares in any member states simply by giving notice that it intended to do so once it was harmonized in a member state. Being the very first country in adopting the directive，Luxembourg had a big head start over its competitors. In addition，taxation benefits （the funds are not taxed on their revenue or capital） and only insignificant registration fees and annual subscriptions made Luxembourg emerge as one of the largest investment center in the world. At the end of 2006，more than 2，238 UCIs were registered in Luxembourg and the total assets reached 1，844 billion euros.55Insurance is also one of the major components in Luxembourg’s financial sector. Luxembourg’s insurance companies concentrated exclusively on the domestic market before 1980s. It was only after the stipulation of new EU directives on insurance in 1988 and 1990 that the insurance companies in Luxembourg could target their customers outside the national boundaries by free provision of services. The quick adoption by the authority once again made Luxembourg take a leading role in the market. The total amount of premiums reached 8.738 billion euros in 2004，a 29 times increase compared with that in 1990. In addition，the re-insurance business is also highly developed. In 2004 there were 271 re-insurance companies in the territory.565.2A.2 Agriculture plays an insigniflcant role in the economyAgriculture employed 3，900 people in 2005，in which only 1，100 were engaged full-time. Its contribution to the GVA was a mere 0.4％ in 2005.57 Despite EU and national subsidies，the average income of farmers is about 1/2 of the average employment income for the economy as a whole.5.2.4.3 M anu fac tu r ing focused on h igh value-added productsIn line with economic restructuring，the steel industry lost its dominant position in the economy. However，the steel industry did not

“disappear” in Luxembourg. Rather，it has undergone restructuring as well and remains important in the country’s industrial fabric. In 2004 the sector contributed 1/3 of the total valued added of industry. The production of steel （including all kinds of steel and steel products） reached 6.35 million tons.58The world’s largest steel company，Arcelor，was created through the merger of a Luxembourg company，Arbed，with a French company，Usinor，and Spain’s Aceralia，in 2002. The head office is in Luxembourg.The company’s annual production has achieved 46 million euros and the annual sales volume is about 30 billion euros. In 2006，the world’s largest steel company，Mittal，merged with Arcelor and formed Arcelor Mittal. It accounted for more than 10％ of the global market share.59Simultaneously，Luxembourg’s manufacturing is focused on high-valued added products. Beginning in the 1950s，the government started a policy of sectoral diversification to attract foreign investors （especially US） establishing factories in the country. Many of those attracted are of a capital-intensive nature including chemical products，tyres and cassettes. In 2005，the largest share of goods exported by Luxembourg was metal manufactured goods （28.9％），and the machinery came next （19.6％）.Chemicals and related products （6.6％） and transport equipment （6.3％） are also major sources of exported goods.605.2.4.4 Construction undergoing an adjustment periodThe construction sector benefited greatly from strong growth in the economy and high public spending in the 1990s. However，due to the deficit of public finance in recent years，public-sector projects have been reduced. Demand for housing remains strong and has compensated for part of the drop-off. The construction sector comprised 5.8％ of Luxembourg’s GVA in 2005.615.2.4.5 The emergence of other potential sectorsThe media sector in Luxembourg is highly developed. The RTL Group，Europe’s largest broadcasting company with an annual turnover of around 5 billion euros and control of 34 television channels and 30 radio stations，was formed in 2000 from the merger between Pearson TV of the UK and a Luxembourg company，CLT-UFA. In addition，satellite transmission should not be neglected. Societe Europeenne des

Satellites （SES），for which the state brought 20％ of the capital upon its establishment，is the largest private satellite operator in the world after acquiring GE Americom in 2002 to create SES Global.Benefiting from the EU directive requiring that all companies selling virtual products over the web to register themselves for value-added tax （VAT） in at least one member state，Luxembourg is a transaction center for e-commerce. Four globally important firms in e-commerce （Amazon，AOL，Miscrosoft and Skype） are now selling virtual and other products around the EU from Luxembourg. Low value-added tax，a multilingual workforce and quality information technology are Luxembourg’s attractions. The sector is said to provide the state 200 million euros，about 2％ of total tax income.5.2.4.6 G rea t surp lus from service and has a solid public financeSimilar to other mini-economies，Luxembourg recorded a deficit in merchandise trade，though it was not significantly large. The corresponding figure in 2005 was 3.4 billion euros （11.8％ of the GDP）.The trade partners are predominately from the EU，comprising 88.1％ of the total import and export value. Germany，Belgium and France in particular account for the vast majority of the merchandise trade.Nevertheless，the significant surplus in services could compensate wholly the merchandise deficit （12.4 billion euros）.In 2005，there was 3 billion euros left in current account surplus.62According to UN statistics，Luxembourg was the largest FDI receipt in 2002-2003，reaching 245 billion US dollars in 2003.63 This should be attributed to the fact that multinational firms use Luxembourg as a tax-efficient base for their financial transactions. In addition，the budget of the Luxembourg government has generally been in surplus.However，the surplus has slumped rapidly since 2000，from 1.29 billion euros （5.9％ of the GDP at current price） to a deficit of 0.55 billion euros in 2005.64 This was largely due to the slowing down of economic growth together with growing social expenditure. However，the public debt remains at very low level，compared with other EU countries （1.77 billion euros in 2005，6.1％ of the GDP at current prices）.65Before joining the Economic and Monetary Union （EMU） with ten other EU countries in 1999，Luxembourg had an economic and

monetary tie with Belgium. The Belgium franc was legal tender in Luxembourg. The right to issue francs in Luxembourg was limited by a ceiling which takes account of the number of Belgian francs in circulation and the relationship between the populations of the two countries. Furthermore，the National Bank of Belgium was responsible for the liquidity of the Luxembourg banking system and also intervened in the exchange markets. The Belgian/Luxembourg franc was locked into the other participating currencies at the rate of 40.3399 Belgian/ Luxembourg francs ：1 EMU. EMU also led to the creation of a Central Bank of Luxembourg. Up to the end of 2005 the Central Bank of Luxembourg had 241 million US dollars in reserves.665.2.5 Summary“We want to remain what we are”——the popular slogan of the Luxembourg people. Luxembourg is a highly developed country. It has ranked 1st in various development indicators in the world for the past two decades. Its economic success does astonish no matter whether compared with developed economies or with mini-economies. The restructuring of the steel industry，prosperous financial services，tourism，together with transportation and communication，are regarded as a good learning model by government executives，scholars and entrepreneurs.Being a strong economic power，Luxembourg receives unique respect within the EU. The assertion of peaceful development，sectoral diversi- fication besides specialization，taking advantage of its geographical advantage，and emphasis on innovation are approaches Luxembourg adopts in forging a harmonious relationship with neighboring countries and a healthy economic structure. Based on the current foundation，scholars are optimistic that Luxembourg can maintain its leading position in the world economy.5 .3 M a l t a5.3.1 Brief DescriptionMalta is located on the Eastern Mediterranean Sea，with an area of 316 km2. It consists of 7 islands （two of them are un-inhabited），in which the island of Malta is the largest （246 km2） and the second largest is

island of Gozo （67 km2）.In 2005，the population of Malta was 404，039 with 90％ Malta nationals. The population of Malta is predominately Roman Catholic with over 60％ participating in church-organized activities，among the highest rate in Europe. The official languages of Malta are Maltese and English. Valletta is the capital of Malta and had a population of 6，315 in 2005.67The Roman，governed the islands beginning in 218 B.C. From the 9th century the island had been conquered by Arabs and Normans.Following the departure of the Order of St. John in 1798，French Nepoleonic forces occupied Malta until 1800，when they were expelled by Britain. Malta became a British colony in 1814. In 1964 the island gained independence and the republic was established in 1973. Malta remains as a member of the Commonwealth countries. The left-wing and highly interventionist Malta Labor Party （MLP） governed the islands uninterrupted from 1971 to 1987. During 1980s there were some outbreaks of low-level political violence. However，since the 1990s，the political environment has remained calm. Since 1987 the government has gradually withdrawn from state intervention in the economy as the centre-right Nationalist Party （PN） gained power in 1987. This party has governed with the exception of 22 months between 1996 and 1998.Malta，together with other 9 Mediterranean and Eastern European states，jointed the EU in 2004.5.3.2 External RelationsThe constitution of Malta requires that the state should maintain neutrality. Malta has a bilateral defense agreement with Italy to “guarantee Malta’s neutrality.” In 1996，the MLP government discontinued participation in the NATO-sponsored partnership for Peace framework.Nevertheless，Malta maintains an intimate relationship with the EU.In the early 1970s Malta signed an association Agreement with the European Economic Community （now EU） on trade-related matters.Since the 1980s，joining the EU or remaining outsiders dominated the domestic political debate. Although the negotiation of membership was sometimes suspended，Malta became an EU member in 2004.Concurrently，economic reform，such as removal of trade barriers and capital controls with the EU is continuing，despite of securing membership.In recent years，the country has strengthened its relations with both the

south and north coast countries in the Mediterranean Sea and become an important bridge in Europe-Mediterranean Sea cooperation. Malta established a diplomatic relationship with China on 31st January 1972.5.3.3 Resources，Infrastructure and Culture5.3.3.1 Natural limitationsThe population density of Malta reached 1，278 inhabitants/km2，which makes it one of the most densely populated countries in the world.This casts pressure on land and water resources. Therefore，despite of the high cost，a growing portion of drinking water has been delivered through seawater desalination since the 1980s，making up half of the water supply. Poor soil，limited arable land and water shortages combine to limit agricultural output. The government has sponsored off-shore oil exploration from time to time；however，no good news has been heard so far.The high population density，together with the boom in the construction industry in the past 15 years，has made waste management a problem. The island’s sole landfill site has been closed since it does not conform to EU standards.A new site has been identified. Meanwhile，Malta is planning to use its waste for land reclamation purposes and the EU has funded the construction of a recycling center for domestic waste.Basically，Malta does not have a clear development plan. Its industrial development is concentrated in the centre and the south of the island，while tourism and agriculture are clustered in the north and on Gozo.5.3.3.2 TransportationMalta lacks a railway network. Domestic transportation depends on private cars. It is estimated that the number of private cars reached 204，702 in 200468，which implies that two inhabitants will have one private car，one of the highest rates in the world.Malta is connected by its aviation network with most major European cities and with North African and Middle Eastern countries.However，limited competition and high taxes turn air travel costs to and from the island relatively high.The state-owned Malta Freeport has been operated by French CMA-CGM Group since 2005. It was set up in 1988 to develop the port

of Marsaxlokk into a commercially viable hub port for the central Mediterranean region. The port ranks 12th among Mediterranean trans-shipment ports by volume handled，and it has network connections to over 100 ports in the world.5.3.3.3 Telecommunication and energyThe telecommunication infrastructure is extremely important to Malta，since it is a peripheral island economy. Due to the internal （enhancing the competitiveness of the enterprises and consumer benefits） as well as the external （opening of market promoted by EU） pressure，the telecommunication market has been open since early 2000s. Since the introduction of a second mobile phone operator，the penetration rate of mobile phones has increased significant （from 55.9 per 100 persons in 2001 to 76.8 per 100 person in 2004）.695.3.3.4 Education and healthcareAll public institutes，including universities，provide free education.The government also provides a comprehensive and free health service to all residents. It is claimed that health service of Malta is one of the best in the world，according to the World Health Organization，despite of the low levels of expenditure.5.3.4 Economic DevelopmentAlthough Malta lacks any indigenous raw materials，its location at the periphery of Europe and Africa and a small domestic market do not restrict its economic development. The economy has been transformed since independence. In early times Malta focused on servicing British military bases. After independence，emphasis was shifted to commercial ship repair and shipping，tourism，and industries such as textiles and clothing，exploiting its cheap labor force. However，following the path of other developed economies，manufacturing is declining，and it accounted for less than 17.87％ of the GVA in 2004.70 The industry is also undertaking restructuring to capital-intensive activities，which are dominated by large foreign enterprises. The food processing and furniture sectors，two of the main labor intensive industries，are faced with severe foreign competition and the reduction of tariffs imposed by EU. The service sector is now the prime driver of Malta’s economy，in which tourism is the leading one，in terms of output

as well as employment and foreign-exchange earnings. Financial services and telecommunications have been growing in economic importance in recent years.Figure 5-1 The Trend of the GVA by Industry of Malta in2001-2005Gross Value Added by industry Source：Malta National Statistical Office，Structural Indicators，4th Quarter 2006；Malta National Statistical Office，Malta in Figures 2005，p. 2.In order to shorten the development gap between Malta and the EU，the Malta government approved the “Business Promotion Law” in2001. It was aimed at encouraging investment and assisting SMEs in doing business. Simultaneously，the government adjusted its role in the economy to be less interventionist. In 2004 it was agreed that the public lottery would be privatized and the government granted a 30-year concession to the French CMA-CGM Group to operate and develop Malta Freeport. In late 2005，a 40％ share in Malta International Airport was sold to the public with the government retaining a 20％ stake.71 In addition，the state decided to close down the state-owned oil bunkering company，and some other privatization projects are being considered.The economic sectors and characteristics of Malta are described in the following part.

5.3.4.1 Tourism the most important sector in the economy，but its growth is stagnatingTourism is encountering a number of challenges. These include the price and quality of overall tourist packages and the reliance on a small number of tour operators. Although there are a growing number of non-package holidays booked through the Internet，there is increasing competition both from other Mediterranean destinations，such as countries of the former Yugoslavia，and from long-haul destinations.Moreover，high airport charges make low cost carriers leave Malta as a landing spot. Consequently，although the number of tourists increased 3.5％ in 2004，the number of nights spent on the islands decreased 0.4 nights to an average of 8.6 nights. The revenue from tourism increased slightly （2.9％） to 269 million Maltese liri in 2004，a share of 17.1％ of GDP.72 However，compared with the figure of 2000，the development of tourism is actually stagnating. The number of tourists declined from 1.22 million in 2000 to 1.17 million in 2005.Correspondingly，the foreign-exchange earned by the industry only rose 0.3％.73The UK is the largest source of visitors to Malta. It comprised39.1％ of the number of visitors in 2004. The second largest market was Germany （11.7％） and other major markets are France and Italy.74The cruise liner is one unique market of Malta’s tourism. However，in 2004，the number of cruise passengers slipped by near 26％，since the two largest markets （UK and Spain） had a 45％ drop in the number of cruise passengers.75 The situation improved gradually as the completion of a new and larger cruise terminal in 2005 attracted a number of companies to make Malta their Mediterranean hub.On the whole，the Malta government is making efforts in promoting tourism，and accommodations continue to upgrade. However，the supporting infrastructure，especially roads and ancillary services，continues to lag behind and requires considerable investments.The Malta Tourism Authority will encourage the private sector to play a more active role in the strategic planning of this “price sensitive” sector.5.3.4.2 The finance services industry rising rapidly to be a mainstay in the economyDespite the fact that the share of the financial services sector in the economy is still low，contrary to tourism，it is expanding rapidly. The share of financial intermediation in Malta’s GDP increased from 5.6％

in 2003 to 6.6％ in 2004 and its share was only 4.8％ in 2000.76 The financial services industry is dominated by banking，investment and fund management. The banking system is largely controlled by two major banks，HSBC Group and Bank of Valletta. Although competition between domestic credit institutions has increased，and diversification into other financial services has been undertaken，there remains some way to go before the financial system is fully modernized. In response，the government has stipulated a series of liberalization measures since 2000，including removal of restrictions on long-term inward and outward investment flows and exchange controls. In 2002 an “Investment Registration Scheme” （tax amnesty in essence） was launched to encourage the repatriation of funds invested overseas.In line with the change of role of the Central Bank of Malta，Malta Financial Services Authority （MFSA） was set up in 2002. It acts as the sole regulator for all banking，savings，investment and insurance business in Malta.Malta reached an agreement with the OECD in 2000. The autho- rity established the Money Laundering Compliance office in exchange for removal of Malta from the list of tax havens. In 2002 the Financial Intelligence Analysis Unit was set up to enhance Malta’s reputation as a financial service centre. On the same year，MFSA was admitted as a full member of the International Organization of Securities Commissions. MFSA amended various directives governing banking，insurance and investment services sectors to harmonize with the EU regulatory regime.5.3.4.3 A g r icu ltu re sh r in k ing while fish fa rm ing is becoming a mainstay of the sectorMalta’s agriculture is restricted by its natural environment and water supply. Full-time employment in agriculture and fisheries only accounts 2.6％ of the total workforce and is on a declining trend. On the other hand，part-time employment is increasingly important，with a share of about 30％ of the total employment in the sector. Malta’s agriculture is skewed towards meat and dairy farming. Thus it can satisfy the domestic demand in pork，poultry and eggs. The EU membership of Malta implies that the sector faces growing competition after the abolishment of protective barriers. Furthermore，the sector does not benefit from the EU’s common agricultural policy as price supports do

not cover most of the farm goods produced in Malta.Due to over-fishing and pollution，fish farming is growing in importance. Annual production from fish farms has grown to over 2，200 tons and which is mainly exported to Italy and Japan.The amount doubles the 1，068 tons caught from wild fisheries in 2004. Malta’s main fish exports are sea bass，sea bream and tuna.775.3.4.4 Manufacturing dominated by large-scale foreign enterprisesIn 2004，less than 20％ of the workforce of Malta engaged in manufacturing. Based on a survey of about 440 manufacturing firms，the turnover of manufacturing declined by 1.2％ in 2004，but a 3.7％ of increase was recorded in the previous year.78 The major sectors of manufacturing are radio，television and telecommunication. These accounted for almost half of total turnover in manufacturing. Machinery and transport equipment accounted 63.5％ of the value of manufacturing and is the most important category of goods in export.79The semi-conductor industry slowed its growth in 2005 while the pharmaceutical industry witnessed a rapid increase，becoming a source of growth in manufacturing.Malta’s manufacturing industry is characterized by some 400 media to large sized export-oriented firms，mostly foreign owned.However，their relative importance in terms of employment is much lower than their share in turnover. A large number of micro and small enterprises，with less than 10 employees is，oriented towards producing goods fulfilling domestic demand.5.3.4.5 Construction developing prosperouslyIn 2004 the construction industry comprised 5.1％ of the GVA and 5.7％ of the total workforce.80 The prosperous development of construction in recent years has been led by strong private housing investment and public expenditure on infrastructure projects. Property prices have also been driven up by the extension of the maximum repayment period （from 30 to 40 years）.5.3.4.6 The current account defic it is large and the government has a high ratio of public debtMalta has consistently run a large trade deficit. In 2005 the deficit

amounted to 496.5 million Maltese liri，an increase of 93 million compared with 2004 and is equivalent to 25.7％ of the GDP. Malta has trade connection with more than 100 countries and regions，among which the EU is the most important trading partner. In 2004 EU accounted for 61.2％ of Malta’s external trading volume. France and Italy are the largest and second largest partners. The goods imported by Malta mainly include consumption goods，machinery and transport equipment，food and raw materials. Electronics，garments and simple machinery are the major export items. The country imported 1，319 million Maltese liri of goods in 2005，an increase of 0.7％.Meanwhile，822 million Maltese liri of goods were exported，a decline of 9.3％ （Figure 5-2）.Although there is a large surplus in service industry trade，the growing deficit in goods trading （27.7％），the shrinking of service surplus （0.7％） and the decrease in net investment income made the current account in the red in 2005. The deficit widened significantly to 213 million Maltese liri，a remarkable increase of 52.1％，reaching a share of 11 ％ of the GDP in 2005.81During 2005 Malta continued to record net inflows of capital.However，these were insufficient to cover its current account deficit，163 million Maltese liri.82 Meanwhile，significant capital grants were offered from the EU and Italy. However，it should be noted that the fluctuations in the financial account are largely attributable to large flows resulting from international banking institutions based in the country，which have an insignificant impact on the local economy.Figure 5-2 Amount of Imports and Exports in Malta （2000-2005）Source：Malta National Statistical Office，Structural Indicators、4th Quarter 2006；Malta National Statistical Office，Malta in Figures 2005，p. 35.

In 2005，the government debt amounted to 74.7％ of Malta’s GDP，1，439 million Maltese liri （equivalent to 4，167 million US dollars）.At the same time，the external reserve of Malta amounted to 939.7 million Maltese liri in 2005.83Up to the end of April 2005 the Maltese lira remained pegged to a basket of currencies composed of the Euro，the US dollar and the pound sterling. On 1st May 2005，Malta participated in the EU’s exchange-rate mechanism （ERM-2） and the exchange rate was fixed at 0.4293 Maltese liri = 1 Euro. The government had aimed at adopting Euro in 2008，although this is seen to be too optimistic as both budget deficit and government debt have been over the highest acceptable range of the EU.5.3.5 SummaryMalta is an island country in the Mediterranean Sea and is a member of the European Union. Its favorable location and moderate climate have supported its rather smooth economic development after independence. Even in the face of severe global competition，its financial business is growing rapidly. Together with high value added manufacturing dominated by large scale foreign enterprises，Malta’s economic structure is becoming more diversified. Malta is classified as a developed economy. However，the government should reduce the public debt determinedly in order to fulfill the requirement of joining the EU.5 .4 M o n a c o5.4.1 Brief DescriptionHaving an area of only 2 km2，the Principality of Monaco is the second smallest independent state in the world，after Vatican City. It is located on the Mediterranean coast，18 km east of Nice and near the Italian border. It is surrounded on three sides by France and borders on the French villages of La Turbie and Roquebrune-Cap-Martin. Monaco consists of a narrow strip along the coast at the bottom of the foothills of the Alps and its highest point is “le Rocher” at 141 m. It does not possess any significant natural resources for economic activities.In ancient history，the Rock of Monaco was a shelter for primitive

populations. The recorded history of Monaco itself started in the 13th Century. On 10th June 1215，the Genoan family of the Gibelins laid the first stone of the castle，which is still today the Prince’s Palace.To attract new inhabitants，the initial masters of the Rock offered advantageous conditions to newcomers：territorial concessions are tax exemption. The history of Monaco has been linked to that of the Grimaldi Dynasty which celebrated in 1997，the 100th anniversary of its accession to the Principality of Monaco.Monaco has a population of 32，020，of which 19％ are Monegasque，32％ are French and 20％ are Italian.84 The official language is French，although Italian and English are widely spoken. The traditional Monegasque language，“le Monegti，” is spoken amongst the elderly and is taught in all local schools. The currency is the Euro. Monegasque coins are used.Monaco has been governed as a constitutional monarchy since 1911，with the Sovereign Prince of Monaco as head of state. The executive branch consists of a Minister of State （the head of government），who presides over a four-member Council of Government （the Cabinet）.The minister of state is a French citizen appointed by the prince from among candidates proposed by the French government. Under the 1962 constitution，the prince shares his power with the unicameral National Council （parliament）.The twenty-four members of this legislative body are elected from lists by universal suffrage for five-year terms.The principality’s local affairs are directed by the Communal Council，which consists of fifteen elected members and is presided over by the mayor.855.4.2 External RelationsMonaco government highly supports international humanitarian actions. It plays special attention to global environmental matters，predominately by research on oceans and protection of ecosystems.Monaco enrolled as a UN member in 1993. It is now a member of more than 60 international organizations.Although Monaco is not an EU member，it maintains an intimate relationship with EU via a customs union with France. In addition，the Euro is used as legal tender in the territory.An agreement between Monaco and France in 1918 stipulated that any diplomatic actions adopted by Monaco should gain approval by French

government in advance. In 2002 the two sides signed a new agreement，and Monaco was granted an independent authority on external relations，which became effective in November 2005. Monaco has established diplomatic relationships with France，Italy，and China etc. since early 2006.86 The state does not have a military force，and the defense of the nation is provided by France.5.4.3 Resources，Infrastructure and Culture5.4.3.1 EducationChildren age 6-16 receive compulsory education. The education system is the same as that of France. Monaco has one university，the International University of Monaco，and there are ten state-operated schools，including seven nursery and primary schools，one secondary school，one lycee that provides general and technological training and one lycee that provides vocational and hotel training.875.4.3.2 TransportationMonaco does not have its own airports which schedule regular flights. Travelers have to transit from Nice International Airport，which is 22 km away from Monaco. Helicopter and bus services，taxis and hire cars provide permanent links between the airport and the Principality.Monaco is connected by a railway network as The Monaco-Monte Carlo （SNCF） railway station is a stop for many international trains. In addition，the A8 highway，which connects with the whole European highway system，serves the Principality by means of easy access roads. There are also inter-town coaches running from Monaco to Nice and Cannes.Finally，the two harbors of the Principality，the Condamine （Hercule harbor） and Fontvieille，are equipped to handle yachts of all weights and sizes while intercontinental liners are able to anchor in the bay of Monaco.885.4.4 Economic DevelopmentMonaco is a popular resort，attracting tourists to its casino and pleasant climate. The principality has successfully sought to diversify into services and small，high-value-added，non-polluting industries. The state has no income tax and low business taxes and thrives as a tax heaven both for individuals who have established residence and for

foreign companies that have set up businesses and offices. The state retains monopolies in a number of sectors，including tobacco，the telephone network，and the postal service. Living standards are high，roughly comparable to those in prosperous French metropolitan areas.89For a long period of time，the government did not publish national income figures which are compatible for international comparison. In March 2007，the government announced for the first time that the GDP of Monaco in 2005 was 3.44 billion euros，which implied a GDP per capita of around 49，899 euros.90Due to the lack of natural resources，since the 1950s，the Monaco government has made an effort to adopt diversification，high-value added and non-pollution as its economic strategy and promoted the development of service industries. One of the most successful achievements is the prosperity of finance services. Besides 12 local banks，a great number of international banking groups have established branches or subsidiaries in Monaco and there are more than 70 financial entities operating in the territory with transactions of more than 70 billion euros in 2005.91 Industry is not significant in the economic fabric but is concentrated on high-value added products such as chemicals，medicine and cosmetics.Benefiting from no income tax for individuals，the Principality is often regarded as a tax haven，and most of its inhabitants are millionaires from other countries，who earn the majority of their income from activity outside Monaco.However，this draws criticism as in 2000，a report by French parliamentarians Arnaud Montebourg and Vincent Peillon alleged that Monaco has lax policies with respect to money laundering，including within its famed casino，and that the government of Monaco puts political pressure on the judiciary so that alleged crimes are not properly investigated. In response，the Government of Monaco ordered reports be made to OECD and the Financial Action Task Force on Money Laundering. These reports revealed most of these allegations to be untrue.92One of Monaco’s main sources of income is tourism. Monte- Carlo is the heart of Monaco where the tourists are concentrated. It hosts an internationally famous casino，luxury hotels and leisure facilities，some of which have been created recently such as Larvotto Beach，Monte Carlo Sporting Club and the Boulingrins Gardens.93

The annual Formula One Grand Prix is also a major attraction for visitors and Monaco receives around 420，000 tourists per year.94 The oceanography research activities are leading among the best in the world.5.4.5 SummaryMonaco’s economy is a mini-economy which is famous throughout the world for its casino，tourism and financial services. Acknowledging the natural constraint of the state，the government was proactive in seeking for an economic edge and specializing in a niche market.5 .5 Seyche lles5.5.1 Brief DescriptionSeychelles is an archipelago nation of 158 islands in the Indian Ocean.It lies adjacent to Europe，Asia and Africa. Seychelles is an important transit platform between Asia and Africa.The land area of Seychelles is 455 km2. According to the August2002 census，the total population of Seychelles is 81，117 and is growing about 1.4％ per year. In 2003，approximately 29％ of the population was under 15 years old，while 65％ was between 15 and 64 years old.95 Most Seychellois are descendants of French settlers，freed African slaves or Indian laborers. Creole is the native language of over 90％ of the population，but most islanders also speak English （the language of government and commerce） and French.96France Albert Rene，the president since 1977，resigned in April 2004 to be replaced by his designated successor the vice- president，James Michel. The islands were uninhabited when France took possession in 1756；Seychelles was subsequently declared an independent republic within the Commonwealth in 1976，with James Mancham as president.97 The UK assumed control in 1814 and the archipelago was administered from nearby Mauritius until 1903.In 2005，at the SPFF （Socialist Seychelles People’s United Party） annual congress in May the vice-president，Joseph Belmont，was nominated as Michel’s running mate in the 2006 elections. However，René retains his powerful background influence，being elected for another five-year term as party chairman；in 2006，Michel was re-elected

to office in the July presidential election.98Bowing to pressure from France and the UK，Rene announced a return to multiparty politics in 1991，and presidential and parliamentary elections took place in 1993 following the adoption of a new constitution.René and the SPPF recorded convincing wins over Mancham’s Democratic Party and the smaller United Opposition （UO，now the SNP）.99Seychelles possesses an exclusive economic zone extending to 320 km. It can lay claim to enormous fisheries resources spread over more than 1 million km2 of ocean. Fishing and the tourism industry are the two mainstays of Seychelles’ economy. In the mid-1980s，the government was keen to diversify the economy through promoting tourism and creating a Free Trade Area. Moreover，Seychelles’s government works to attract foreign investment and domestic private investment.Seychelles is noted for its sound environmental policies，and the country has the highest proportion of protected land in the world （over 50％ of the total land is protected）.100The road network totaled 458 km at the end of 2003，of which 440 km was surfaced. The government has continued to invest in improving roads in recent years.101 Mahe Island International Airport and Praslin International Airport are two major airports. The opening of the international airport in Pointe Larue，Victoria in 1971 marked a turning-point in the development of tourism. Shipping plays a key role in Seychelles’ economy，both as the main conduit for trade and because of the revenue earned by providing services for international cruise liners，fishing vessels and freight carriers.102 The number of mobile-phone subscribers rose from 26，000 in 2000 to nearly 50，000 in 2003，and the number of internet users rose from 6，000 in 2000 to 11，736 in 2002.103 Seychelles relies on both water transport and air transport. Victor Harbour is the only deepwater port，which is an important hub in the Indian Ocean.5.5.2 External Relations and Economic CooperationThe target of Seychelles’ foreign policy is to advocate a new international order，which suggests that a multipolar political world is beneficial to regional stability. Seychelles’ government opposes dual standards and promotes the cooperation of regional countries.

Relations between Seychelles and France deteriorated in the late 1990s and improved in February 2001 with the first visit in four years by a French minister to the islands and the signing of a maritime boundary agreement between Seychelles and French possessions in the Indian Ocean.104A new foreign policy blueprint was announced in the mid-2005.This has five themes：reinforcing ties with traditional allies；building closer links with Indian Ocean neighbors；renewing support for regional organizations that are concerned with the problems of being a small island；promoting the uniqueness and safety of the islands as a tourist destination；and promoting the country’s efforts to protect the environment.105Tonga is the member of the African Union，the Common Market for Eastern and Southern Africa （Comesa），the Southern African development Community （SADC） and the Indian Ocean Rim Association for Regional Cooperation （IOR-ARC）.Tonga established diplomatic relations with China on 30th June 1976. Seychelles places extra attention on the whole development of Africa and it advocates that African affairs should be controlled or resolved by African countries.Seychelles suggests that African countries should rely on their own mechanisms and powers to solve their problems. Seychelles is a member of the Commonwealth and established diplomatic relations with England on 29th June 1976.5.5.3 Economic DevelopmentTourism and fishing are the two most important industries in Seychelles. Foods and daily products are mainly imported from foreign countries. Beginning in the 1980s，the Seychelles government has been keen to adjust its policies to approach the target of economic diversification，with the government focusing on promoting the development of the tourism industry，the fishing industry，bond industries and agriculture. Lately，the pushing of Seychelles’ privatization and the improvement of the investment environment are part of the agenda of the government.While real GDP growth averaged over 6％ in the 1960s and 1970s，t became far more volatile in the 1980s and 1990s，although it remained positive，averaging around 3％.106 However，growth has turned negative in recent years. Tonga experienced real negative growth in

2001 （-2.2％），2004 （-2％） and 2005 （-1.5％）.The consumer price inflation of Seychelles is 0.9％ in 2005.107 The economy of Seychelles has the following characteristics.Table 5-7 Gross Domestic Product （GDP） Estimates at Current PricesSource：Seychelles in Figures 2004 Edition Online，2004.5.5.3.1 Services industry shares the biggest part of the economyThe services sector，including transport，communications，commerceValue-added Year by Sectors(millions of Seychellois rupee)2000 2001 2002 2003Primary 99.4 103 110.3 100.5Agriculture, forestry & fishing 99.4 103 110.3 100.5Secondary 1,019.5 1,023.7 1，148.80 1,044.40Manufacturing 674.9 654.8 698 623.2Electricity & water 47.8 61.5 74.7 78.7Construction 296.8 307.4 384.2 342.5Tertiary 2,243.70 2,360.00 2,417.70 2,395.60Wholesale & retail trade, restaurant & hotels777.4 858.8 869.6 830.2Transport, storage & communication579.7 594.7 620.8 609.2Finance & services 453.6 463.5 469.3 471.9Government services 433 443 458 484.3Imputed bank service charge -165.2 -175.6 -153.2 -167.4Import duties 315.9 311.4 304.9 417.3GDP at market prices(millions of Seychellois rupee)3,531.70 3,622.50 3,836.60 3,790.40Per capita GDP at market prices(Seychellois rupee)43,531 44,611 47,470 47,452GDP at factor cost(millions of Seychellois rupee)3,197.40 3,311.10 3,531.70 3,373.10

and tourism，dominates the Seychelles economy and has accounted for just under 70％ of GDP in recent years.108 Although data from the Central Bank of Seychelles （the Central Bank） show that tourism generated 19％ of GDP directly in 2004，this excludes the fact that it supports numerous secondary services，such as air transport and car hire，and plays a key role in the economy.109 The manufacturing sector keeps a share of 15-20％ of GDP in recent years，while public infrastructure investment has kept construction buoyant，with its share of GDP at around 10％ .However，given the small size of the economy （estimated at 750 million US dollars in 2005），the islands remain vulnerable to external shocks.1105.5.3.2 High level of capital investmentTwo consecutive national development plans，between 1985 and 1994，focused on the rapid modernization of infrastructure and the productive sector and reserved for state companies many activities that had previously been the preserve of the private sector；capital spending as a portion of GDP，which averaged 32％ between 1995 and 1998，has been much higher than in economies of a similar size or stage of development.1115.5.3.3 The Seychelles governm ent keenly proposes reformsSeychelles’s government is an important promoter of the economic growth of its state and the biggest employer in the economy. Due to a bad growth performance in 2003，the government is keen to promote the recovery of the economy and proposes gradual economic reforms.While still finance minister，James Michel started to push ahead with reform and was a key figure in drawing up the Macroeconomic Reform Programme，which was introduced on 1st June 2003.1，2 The government promises a significant privatization and liberalization of the trade and investment regime.113Additional measures have been taken to improve the environment for foreign investment，including the establishment of the Seychelles Investment Bureau in 2004 and the passage of a new investment code in late 2005.114 Direct foreign investment has picked up，and more than doubled in 2005，to 82 million US dollars. The government’s most recent attempt to resolve the foreign exchange problem was in

February 2004，when it established the so-called “pipeline” system whereby importers would be required to deposit the rupee equivalent of the value of their imports with a commercial bank pending the award of an import permit （which can take up to three years）.115Construction in Seychelles is largely dependent on public spending.Construction activity has been characterized by a sharp contrast between the public and private sectors，and the state has invested heavily in infrastructure，including new electricity，desalination and sewage facilities.116The president，James Michel，unveiled a new five-year plan，in June，for the industrial fisheries sector，based on total investment of 200 million US dollars，to greatly improve facilities at Port Victoria and cement its reputation as the premier fishing port in the south-west Indian Ocean.117 At the same time，government revised the law in the tourism sector to promote private investment in the sector. However，there is a series embedded problems to be addressed by Seychelles’s government，where government information is not transparent and administration efficiency is too low. As we may see，government imposes a positive impact on the economic development of Seychelles.5.5.3.4 Telecommunications and the internet are compara- tively well-developedThe Seychelles government places extra attention on the develop- ment of its telecommunications infrastructure. Telecommunications and the internet in Seychelles are better developed than in other African countries. There are 21，191 installed fixed lines，49，229 mobile-phone subscribers and 2，713 internet accounts118 （Table 5-8）.The increased competition and introduction of mobile phones and the Internet has driven rapid growth in the sector. Sectors including tourism，fishing and financial services could benefit from the development of well-developed telecommunications infrastructure.1195.5.3.5 Small domestic market hinders manufacturingManufacturing is constrained by the small size of the local market. The main player is SMB，which has a monopoly on trade in basic foodstuffs and preferential access to foreign exchange.120 There are tuna canneries and some major factories producing beer，cigarettes，concrete，beverages，forage，paints and dairy food. The quantity of

output of industrial products in 2000-2002 is shown in Table 5-9.Table 5-8 Transport and Communications in Seychelles，2000-2003Source：Seychelles in Figures 2004 Edition Online，2004.YearItems2000 2001 2002 2003International Air transportAircraft movements 2,242 2,251 2,829 3,204Passengers off (thousands) 157 160 173 163Passengers on (thousands) 158 159 181 174Passengers in transit (thousands) 4 4 0 0Freight off (tones) 4,592 3,954 4,366 3,748Freight on (tones) 1,801 1,759 2,105 1,429Domestic Passengers (thousands) 289 264 268 242of whom visitors (thousands) 134 130 127 119Sea transport(thousands metric shipping tones)Imports 564 518 397 689Exports 108 71 4,495 4,500Transhipment (fish) 55 48 69 81CommunicationsTelephone exchange lines (no.) 20,641 21,376 21,249 21,191International calls (hours) 111,748 114,910 117,251 88,032Telex subscribers (no.) 34 32 24 11Telefax subscribers (no.) Cellular mobile telephone634 899 590 0subcribers (no.) 24,509 44,116 44,731 49,229Payphones (no.) 231 179 205 177Internet accounts (no.) 1,285 2,055 3,332 2,713Local PressDailies 1 1 1 1Weeklies 2 2 3 3

Table 5-9 The Output of Major Industrial Products in Seychelles，2000-2002Source：2003 Statistics by the Management and Information Systems Division，Seychelles.Table 5-10 Trade Statistics in Seychelles，2000-2003Source：Seychelles in Figures 2004 Edition Online，2004.YearItems2000 2001 2002Beer (1,000 liters) 7,046 7,241 7,605Soft drinks (1,000 liters) 8,806 8,700 9,421Cigarettes(millions) 40 36 24Canned tunas(tons) 28,781 27,789 34,503YearItems2000 2001 2002 2003Total Exports (f.o.b. value) 1,108.50 1,263.20 1,249.10 1,500.70Domestic exports 706.3 892.4 957.5 1,154.40Re-exports 402.2 370.8 291.6 346.3Total Imports (c.i.f. value) 1,949.80 2,776.00 2,294.90 2,258.50Balance of visible trade -841.3 -1,512.80 -1,045.80 -757.8Domestic Exports (f.o.b)by commodityCanned Tuna 630.9 771.2 843.7 1,023.10Fish (fresh/frozen) 20.7 17.3 18.2 27.6Frozen Prawns 18.3 13.2 8.7 39.9Cinnamon bark 1.4 1.3 1.2 0.9Other processed fish 24.7 50.4 47.3 27.1Other 10.3 39 38.4 35.8Domestic Exports (f.o.b)by country of destinationUK 316.5 331.7 404.7 447.6Italy 59.6 134.9 91.6 167.6France 153.7 222.9 286.1 365.3Germany 86.1 54.2 81.2 86.1

5.5.3.6 Large merchandise trade deficitSeychelles follows an import substitution strategy and relies much on imports. The trade deficit narrowed to 757.8 million Seychellois rupees in 2003，but expanded quickly，to 1，315 million Seychellois rupees in 2005，as imports grew even more rapidly than exports；imports of good and live animals，machinery and transport，and mineral fuels accounted for 71 ％ of all imports in 2005.121 Canned tuna is the major exported product；the UK and France are two important export destinations （Table 5-10）.5.5.4 Education and HealthcareAccording to UNDP，s Human Development Report 2006，the human development index of Seychelles is high （0.842），ranking the 47th in the world. This indicates that Seychelles is a highly livable country. Education and healthcare have been priorities for the ruling Seychelles People’s Progressive Front （SPFF） administration since 1977.Spending on education accounted for 8.9％ of total government outlays in 2004. Education is free，and compulsory between the ages of six and sixteen. According to official figures，21，878 individuals were enrolled as students in 2004 （26.4％ of the population），including 2，812 in pre-school，9，504 in primary school and 7，827 in secondary school.122 According to the official figures，91％ of the population was literate at the end of 2002，although this figure is almost 100％ for school-aged children. There are also impressive pupil/teacher ratios of around 15：1 in Seychelles （Table 5-11）.123The healthcare spending took up 9.7％ of the total current outlay in 2004. The current infant mortality rate is around 17 to 19 per 1，000 live births.124 There were seven hospitals，with 419 beds in 2003，and 17 health centers，although there have been shortages of drugs in recent years due to the general foreign-exchange shortages. Although the HIV infection rate was relatively low at 0.14％ of the adult population in 2000，the islands are vulnerable because of their extensive maritime connections （Table 5-12）.1255.5.5 Other Aspects about SeychellesLow inflation is helped by price controls. In an effort to counter the problem the government introduced strict new foreign-exchange laws in June 2001，which also established a dedicated new price control unit；owing to such direct regulation，the inflation rate fell quickly to just

0.2％ in 2002 and 3.9％ in 2004.126Net official development assistance averaged 11.8 million US dollars per year in 2000-2004. The EU is the main provider of multilateral aid，but its disbursements have tailed off as well：they averaged 3 million US dollars in 2000-2004. This has left France as the largest source of foreign assistance.Visitor arrivals continued for rise in the first half of 2006. Visitor numbers remained buoyant in the first half of 2006，rising by 10.9％，to 65，672，the best first-half performance since 2002. Arrivals rose by8.1 ％ year on year in the first quarter and by 14.6％ in the second quarter，shrugging off concerns about chikungunwa fever.127 New marketing and new development for tourism led to the rise in visitor numbers.Table 5-12 Education Statistics in Seychelles，2001-2004YearGovernment and Private Schools2001 2002 2003 2004Pre-primary (creche)Schools 35 35 33 33Enrolment 2,775 2,805 2,663 2,812Teaching staff 195 202 181 195Pupil/Teacher ratio 14:1 14:1 15:1 14:1PrimarySchools 26 26 26 26Enrolment 9,782 9,623 9,477 9,504Male 4,988 4,924 4,867 4,884Female 4,794 4,699 4,610 4,620Teaching staff 712 693 675 638Male 98 98 100 91Female 614 595 575 547Pupil/Teacher ratio 14:1 14:1 14:1 14:1SecondarySchools 14 14 12 12Enrolment 7,514 7,525 7,551 7,827Male 3,701 3,767 3,757 3,876Female 3,813 3,758 3,794 3,951

(continued)Source：Seychelles in Figures 2004 Edition Online，2004.Source：Seychelles in Figures 2004 Edition Online，2004.Table 5-13 Health Statistics in Seychelles，2000-2003Teaching staff 525 540 552 464Male 246 244 259 226Female 279 296 293 238Pupil/Teacher ratio 14:1 14:1 14:1 15:1Post secondary non tertiarySchools 11 11 11 8Enrolment 1,740 1,636 1,652 1,655Teaching staff 216 180 193 213Pupil/teacher ratio 8:1 9:1 9:1 8:1Special educationSchools 1 1 1 1Enrolment 80 88 83 80Teaching staff 26 22 25 26Literacy rate (aged 12 plus) (%) 2000 2001 2002Both sexes 92 94 91Male 92 95 90Female 91 93 92YearItems2000 2001 2002 2003Life expectancy at birth (years)Both sexes 72.44 72.94 71.50 70.92Male 67.93 67.39 67.43 66.17Female 77.92 79.27 76.00 76.10Early neonatal mortality rate 4.63 6.94 6.08 9.35Late neonatal mortality rate 3.97 2.78 8.78 4.01Perinatal mortality rate 12.57 13.19 18.9 21.1Infant mortality rate 9.9 13.2 17.6 16.0

However，international perceptions of corruption in the Seychelles have worsened between 2004 and 2005，according to the latest Corruption Perceptions Index by Transparency International （TI），a Berlin-based non-governmental organization. Seychelles’ score slipped from 4.4 in 2004—the first time it was included—to 4 in 2005 （on a scale where zero is totally corrupt and 10 totally clean）.1285.5.6 SummaryThe development level of Seychelles ranks ahead of many mini- economies. It has a good development foundation，good regional geographical position and a sound environment. The tourism industry is facing a bright future.With a good education and healthcare environment，further gains in development can be expected.5 .6 T onga5.6.1 Brief DescriptionTonga is an independent archipelago in the Southern Pacific Ocean.Tonga’s land area is 748 km2. The capital of Tonga is Nukualofa. As estimated by the Asian Development Bank，the total population of Tonga is 101，800 （mid-2004），while 98％ of total population are Tongans.129 Population growth is mitigated by a high rate of emigration，particularly to the US and New Zealand. Languages are English （official language） and Tongan.Tonga became fully independent from the UK in 1970. It is a constitutional monarchy，but the king retains significant power. The king has the power to appoint senior officials，such as the head of the Legislative Assembly，and the Cabinet. Until the beginning of 2006 the prime minister was Prince ’Ulukalala Lavaka Ata，the king’s younger son，who took office in January 2000.130 In the legislative body，civilian seats and nobles’ seats are balanced in number. Although the political environment is stable in Tonga，the government power still remains under the hand of nobles.The resources are very limited in Tonga. Tonga has hardly any minerals，except for relatively abundant fishery resources and fertile soil. The economy of Tonga is highly dependent on agriculture，while the industrial sector is very underdeveloped. The productivity of Tonga

is quite low. The country remains dependent on external aid and remittances. Agriculture，fishing and tourism are three major pillars in Fiji’s economy. In recent years，the government is emphasizing the development of the private sector，especially the encouragement of investment，and is committing increased funds for health and education.131 Policies encouraging the use of information technology have been developed to increase the employment opportunities.5.6.2 External Relations and Economic CooperationIn the past，Tonga was a colony of England. After independence，Tonga still kept a tight relationship with England. Due to foreign aid，Tonga has diplomatic relations with many leading powers. New Zealand and Australia established diplomatic relations with Tonga in 1970，and New Zealand has been increasingly providing economic aid to Tonga. In2002-2003，the economic aid from New Zealand reached 5，600，000 New Zealand dollars. New Zealand is an important trading partner of Tonga，and the import figures of New Zealand in 2003 and 2004 are 42.6 million US dollars and 46.7 million US dollars. In 2001-2002，Australia offered9，670，000 Australian dollars as foreign aid to Tonga.Due to military reasons，Tonga has developed diplomatic relations with America，as a result，of which America provides help to Tonga to develop its military as well as to establish education funds. In 2003，Tonga actively supported the Iraq War. Tonga established a consulate general at San Francisco in America，while some important international organizations （i.e.，the EU） have representative institutions in Tonga.Tonga was accepted as a member of the United Nations in 1999. Tonga is a member of the Pacific Islands Forum and the Pacific Community.5.6.3 Economic DevelopmentTonga faces limited natural resources and geographic isolation.The economy of Tonga is heavily dependent on agriculture.Agriculture，fishery and tourism are major pillars in Tonga’s economy （Table 5-14）.The real growth rate in 2005 was 1.6％ and average consumer price inflation is 8.3％.132 In 2005，1 US dollar exchanges 1.943 Tongan pa’anga.133 Tonga’s economy faces similar conditions of other Pacific island countries，but Tonga has some special features.

5.6.3.1 Tonga relies on in te rn a t io n a l trade and is vulnerable to external shockTonga is vulnerable to external developments and natural disasters，such as cyclones；principal exports of Tonga are fish，squash and vanilla and principal imports of Tonga are food，animals，fuels，minerals，machinery and transport equipment. In 2004，the main destinations of exports were Japan （51.4％），US （24.9％），New Zealand （3.9％），Fiji （2.4％） and Australia （1.6％），while main origins of imports are New Zealand （46.7％），Fiji （21.1％），Australia （10.3％），US （6.7％），Japan （2.5％）.134 The export sector is dominated by a single crop，squash pumpkins，developed for a single market，Japan.135 Japan absorbed 51％ of total exports in 2004.136 Growth was just 1.6％ in fiscal year 2003/2004 （July-June），owing to low squash prices，a slump in the fish catch and weaker activities in the transport，power and communications sectors.137 Tonga has been running a trade deficit in recent years （Table 5-14）.Furthermore，Tonga depends heavily on foreign aid and remittances from nationals living aboard.5.6.3.2 Agriculture is important and tourism is boomingAgriculture is a pillar industry in Tonga and accounts for a major part of the GDP in Tonga. Agriculture lags behind because of undeveloped technology. Agriculture accounted for 28.9％ of Tonga’s GDP in 2003.138 Squash，coconuts，bananas，and vanilla beans are the main crops，and agricultural exports make up two-thirds of total exports.139The government wants to diversify key export crops. The agricultural sector is vulnerable to cyclone damage，but Cyclone Ami in January 2003 hit mainly breadfruit trees，alarmed by the economy’s dependency on squash exports，the government announced in June 2004 that it would increase its focus on diversifying fruit and vegetable crops grown for export. But increased exports of squash，along with seaweed，offset losses from fishing in 2005 as catches declined.140 The prospects for the coffee industry are also improving.The manufacturing production base is weak in Tonga. The manufacturing base is small and the main activities are brewing and the production of concrete building blocks，clothing，furniture，handicrafts and coconut oil；many local firms are struggling to survive owing to their

inability to compete with cheaper imports.141 Manufacturing，mining，construction and utilities totally account for 12％ of real GDP in2003-2004 （latest available data）.142Fishery resources are relatively rich in Tonga. Nowadays，Tonga begins to limitedly open the fishery market to foreign fishers. In 2002，the fishery exports were about 1，085 tons and made a total exports revenue of 15，214，700 Tongan pa’anga.5.6.3.3 Tourism as a new promising industry promoted by the governmentTourism is an emerging industry in Pacific islands countries.Tonga’s tourism industry has been developed steadily and acted as an important generator of foreign revenue. Around 41，000 visitors，mainly from New Zealand，America，Australia and European，arrived by air and sea in 2004. The government is keen to boost development of the tourism industry for the purpose of promoting other sectors. There are around 700 rooms in Tonga. However，there are fears that the tourism industry could be adversely affected by the Samoan government’s decision in mid-2005 to transfer international air services currently operated by the state-owned Polynesian Airlines to a new joint line venture with the Australia-based no-frills airline，Virgin Blue.1435.6.4 Education and HealthcareAccording to Human Development Indicators 2005，published by the UNDP，government expenditure on education stood at 4.9％ of GNP in 2000-2002.144 In 2003，the adult literacy rate was 98.9％.Tonga has the highest rate of tertiary graduates in the Pacific island region and a large proportion of emigrants leave the country for well-paid jobs overseas，making a significant contribution to the economy by remitting money back to their extended families.145 Tonga’s government provides free education for children aged between 5 years-old and 14 years-old.There is no university in Tonga and partial scholarships are provided for students studying abroad.Life expectancy at birth in Tonga was 72.2 years in 2003，according to the UNDP’s Human Development Indicators 2005，while infant mortality stood at 14 per 1000 live births；in 2002，public health expenditure accounted for 5.1％ of GDP，according to UNDP figures.146

Table 5-13 Gross Domestic Product at Current Prices，by IndustrySource：National Accounts Report，Statistics Department.5.6.5 Other aspects of TongaThe forecast slowdown in growth in 2006 is being blamed on the detrimental effects of civil-service restructuring，but it is unclear exactly how this will affect the economy.147Industry Year (Thousands of Tongan pa’anga)2002 2003 2004Agriculture, forestry & fishing 72,899 84,805 86,326Mining and quarrying 1,033 1,144 1,287Manufacturing 12,269 13,168 14,482Electricity & water 4,891 5,270 5,607Construction 24,108 24,991 24,880Commerce, hotels & restaurants 39,777 45,777 55,386Transport & communications 19,853 22,237 20,724Finance & business services 28,715 33,118 38,742Government administration & community services33,969 34,186 35,803Entertainment，recreation & personal services15,682 17,654 20,065Ownership of dwellings 10,796 11,030 11,639Less imputed bank service charge -8,970 -9,853 -12,120GDP at factor cost 255,021 283,527 302,821Plus net indirect taxes 55,747 65,921 69,121GDP 310,768 349,448 371,942Exchange rate US$ / Tongan pa’anga 0.447 0.447 0.480GDP in US$ 138,963 156,061 178,520GNI in US$ 142,906 159,813 180,398GDP per capita (Tongan pa’anga) 3,121 3,498 3,711GDP per capita (US$) 1,396 1,562 1,781

Table 5-14 International Trade Summary in Tonga，2000-2005（thousands of Tongan pa’anga）Source：Foreign Trade Reports，Statistics Department.Table 5-15 Government Revenue in Tonga，2003-2005（thousands of Tongan pa’anga）Source：National Accounts Report，Statistics Department.There are about 198 km of all-weather roads on Tongatapu，74 km on Vava’u，and about 20 km each on Ha’apai and ‘Eua；there were more than 20，000 motor vehicles in the country in 2004，compared with just 7，000 in 1992.148 After 22 years of operation by a UK firm，Tonga’sItemsYearImports Exports Re-exportsBalance of TradeExports as a % of Imports2000 123,144 15,715 350 -107,080 12.82001 155,092 14,376 296 -140,421 9.32002 195,130 30,433 152 -164,546 15.62003 199,214 34,522 343 -164,348 17.32004 206,380 30,557 366 -175,458 14.82005 234,512 19,334 425 -214,753 8.22006 MarchQtr.Ⅰ58,638 2,334 95 -56,209 4.0June Qtr. Ⅱ50,237 2,488 98 -47,650 5.0YearItems2003 2004 2005Direct taxes (value) 16,086.9 14,000.0 16,000.0Indirect taxes (value) 61,105.9 67,980.1 71,012.7Other (value) 24,636.9 30,946.9 26,310.4Government operations (value) 4,253.6 8,296.6 5,741.1Fees (value) 11,531.8 12,109 11,804.8Budgetary aid (value) 7,946.8 9,000.0 7,085.5Other (value) 904 1,541.2 1,679.0

international telecoms services were taken over in August 2000 by Tonga Telecommunications International （TTI），a new company wholly owned by the government.149 Tonga is developing a reasonably sound basic infrastructure. The Crown prince’s Shoreline group claims to have invested more than 30 million Tongan pa’anga （15 million US dollars） in improvements to the electricity infrastructure in recent years and is now seeking 60 million Tongan pa’anga from the government.150Towards the end of June letters were distributed to almost 900 civil servants，outlining the terms of the proposed redundancy package，and on 30th June，871 people retired from their duties.151The trade deficit widened in 2005. According to the IMF，exports dipped from 29.5 million Tongan pa’anga （15 million US dollars） in 2004 to 25.3 million Tongan pa’anga in 2005，while at the same time imports increased from 206.5 million Tongan pa’anga to 213.7 million Tongan pa’anga. As a result，the country’s already substantial trade deficit widened further，to 188.4 million Tongan pa’anga.1525.6.6 SummaryTonga is a Southern Pacific islands country a small population.Among the twelve mini-economies studied，Tonga’s is the worst.However，through persistent exploitation of tourism and natural resources，Tonga will be able to achieve a higher growth rate. Moreover，to enforce the social stability and diplomatic economic relations is an important step toward sustainable growth.

N otes1 2006 CIA World Factbook，https：//www.cia.gov/cia/publications/factbook/ geos/ls.html.2 Ibid.3 Ibid.4 Official Website of Liechtenstein，http：//www.liechtenstein.li/en/.5 Ibid.6 Official Website of Liechtenstein，http：//www.liechtenstein.li/en/ eliechtenstein_main_sites/portal_fuerstentum_liechtenstein/fl-wuf- wirtschaft_finanzen/fl-wuf-wirtschaftszahlen/fl-wuf-wirtschaftszahlen- wirtschaftsgeschichte.htm.7 Website of Ministry of Foreign Affairs of the People’s Republic of China.8 Official Website of Liechtenstein ，http：//www.liechtenstein.li/en/ eliechtenstein_main_sites/portal_fuerstentum_liechtenstein/fl-wuf- wirtschaft_finanzen/fl-wuf-wirtschaftszahlen/fl-wuf-wirtschaftszahlen- wertschoepfung.htm.9 Official Website of Liechtenstein，http：//www.liechtenstein.li/en/.10 Ibid.11 Ibid.12 Ibid.13 Ibid.14 Ibid.15 Liechtenstein in Figures 2006. Official Website of Liechtenstein，http：// www.liechtenstein.li/en/.16 Website of Ministry of Foreign Affairs of the People’s Republic of China.17 Liechtenstein Industrial Location Report，http：//www.liechtenstein.li/en.18 Ibid.19 Official Website of Liechtenstein，http：//www.liechtenstein.li/en/.20 Ibid.21 Ibid.22 Liechtenstein in Figures 2006，Official Website of Liechtenstein，http：// www.liechtenstein.li/en/.23 Ibid.24 Ibid.25 2006 CIA World Factbook，https：//www.cia.gov/cia/publications/factbook/ geos/ls.html.26 National summary sheets on education systems in Europe and ongoing reforms，Liechtenstein.27 Ibid.28 Ibid.29 Official Website of Liechtenstein，http：//www.liechtenstein.li/en/.

30 Website of Ministry of Foreign Affairs of the People’s Republic of China31 Liechtenstein National Report，Second report pursuant to article 44 of the Convention on the Rights of the Child of 20th November 1989.32 Ibid.33 Ibid.34 2006 CIA World Factbook，https：//www.cia.gov/cia/publications/factbook/ geos/ls.html.35 Ibid.36 Ibid.37 Ibid.38 Liechtenstein （LI） Tax Roadmap，http：//www.liechtenstein.li/en/pdf-fl- staat-regiering-tax-roadmap.pdf.39 STATEC，Luxembourg in Figures 2006，p. 9.40 CIA World Factbook- Luxembourg，https：//www.cia.gov/library/publica- tions/the-world-factbook/index.html.41 Ministry of Foreign Affairs of People’s Republic of China，http：//www.fmprc.gov.cn/chn/default.htm.42 Economist Intelligence Unit，Country Profile 2006- Luxembourg，p. 10.43 European Commission，Progress towards the Lisbon Objectives in Educa- tion and Training：2005 Report，Commission Staff Paper.44 Luxembourg STATEC （Service central de la statistique et des études economiques），Luxembourg in Figures 2006，p. 43.45 US Commercial Service，Department of Commerce，United States of America，Country Commercial Guide Luxembourg FY 2004，http：//www.export.gov/ comm_svc/index.html.46 Luxembourg Airport Authority，http：//www.aeroport.public.lu/en/adminis- tration/index.html.47 Eurostat，http：//www.ec.europa.eu/eurostat.48 Organization for Economic Co-operation and Development，Communica- tion Outlook 2005.49 World Bank，World Development Report 2007，p. 298. Gross National Income （GNI） is the broadest measure of national income，measures total value added from domestic and foreign sources claimed by residents. GNI comprises GDP plus net receipts of primary income from foreign sources.50 Luxembourg STATEC （Service central de la statistique et des études economiques），Luxembourg in Figures 2006，pp. 14，30.51 Ibid.，pp. 12，31.52 Economist Intelligence Unit，Country Profile 2006- Luxembourg，p. 22.53 Central Bank of Luxembourg，http：//www.bcl.lu/en/index.php.54 In 2005，the gross income of Luxembourg’s banks reached • 8，483 million.Source：Central Bank of Luxembourg. Source：http：//www.bcl.lu/en/index.php.

55 CSSF，http：//www.cssf.lu/index.php?&L= 1.56 Luxembourg STATEC （Service central de la statistique et des études economiques），Luxembourg in Figures 2006，p. 28.57 Ibid.，p. 12.58 Ibid.，p. 21.59 Ministry of Foreign Affairs of People’s Republic of China，http：//www.fmprc.gov.cn/chn/default.htm.60 Luxembourg STATEC （Service central de la statistique et des études economiques），Luxembourg in Figures 2006，p. 34.61 Ibid.，p. 31.62 Ibid.，pp. 35，36.63 United Nations，World Investment Report 2006：FDI from Developing and Transition Economies：Implications for Development，New York and Geneva：United Nations，2006，p. 12.64 Luxembourg STATEC （Service central de la statistique et des études economiques），Luxembourg in Figures 2006，p. 33.65 Ibid.，p. 33.66 Economist Intelligence Unit，Country Profile 2006- Luxembourg，p. 23.67 Malta National Statistical Office，http：//www.nso.gov.mt/；Ministry of Foreign Affairs of People’s Republic of China，http：//www.fmprc.gov.cn/ chn/default.htm.68 Malta National Statistical Office，Malta in Figures 2005，p. 23.69 Ibid.70 Ibid.，p. 27The most updated data of 2005 released by Malta National Statistical Office，Structural Indicators，4th Quarter 2006 stated that “production” （including mining and quarrying，manufacturing，electricity，gas and water supply but excluding construction） contributed 18.6％ of GVA in 2005.71 Economist Intelligence Unit，Country Profile 2006- Malta，p. 9.72 Ibid.，p. 15.73 Malta National Statistical Office，http：//www.nso.gov.mt/；Economic Intelli- gence Unit，Country Profile 2006- Malta，p. 9.74 Economist Intelligence Unit，Country Profile 2006- Malta，p. 15.75 Ibid.，p. 16.76 Ibid.，p. 14.77 Economist Intelligence Unit，Country Profile 2006- Malta，p. 12.78 Ibid.，p. 13.79 Malta National Statistical Office，Malta in Figures 2005，p. 35.80 Economist Intelligence Unit，Country Profile 2006- Malta，p. 13.81 Malta National Statistical Office， Structural Indicators：4th Quarter 2006.82 Malta National Statistical Office， http：//www.nso.gov.mt/.83 Malta National Statistical Office， Structural Indicators：4th Quarter 2006.84 Monaco Official Website， http：//www.visitmonaco.com/index.cfm.

85 Wikipedia，http：//en.wikipedia.org/wiki/Monaco.86 Ministry of Foreign Affairs of People’s Republic of China，http：//www.fmprc.gov.cn/chn/default.htm.87 Wikipedia，http：//en.wikipedia.org/wiki/Monaco.88 Monaco Official Website，http：//www.visitmonaco.com/index.cfm.89 CIA Factbook，https：//www.cia.gov/library/publications/the-world- factbook/index.html.90 Since over 80％ of employees do not live in Monaco. The Monegasque State therefore took into account，not only the number of residents （34，021），but also the number of non-resident workers （31，386 French and 3，566 Italians），which represents 68，973 individuals，in the calculation of GDP.Source：Official Press Center of Principality of Monaco，http：//www.gouv.mc/304/wwwnew.nsf/HomeGb.91 Ministry of Foreign Affairs of People’s Republic of China，http：//www.fmprc.gov.cn/chn/default.htm.92 Wikipedia，http：//en.wikipedia.org/wiki/Monaco.93 Monaco Official Website，http：//www.visitmonaco.com/index.cfm.94 Ministry of Foreign Affairs of People’s Republic of China，http：//www.fmprc.gov.cn/chn/default.htm.95 Economist Intelligence Unit，Country Profile 2006- Seychelles，p. 10.96 Ibid.，p. 11.97 Ibid.，p. 4.98 Ibid.，p. 6.99 Ibid.，p. 4.100 Ibid.，p. 13.101 Ibid.102 Ibid.103 Ibid.，p. 14.104 Ibid.，p. 9.105 Ibid.，p. 10.106 Ibid.，p. 20.107 Ibid.，p. 15.108 Ibid.109 Ibid.110 Ibid.，p. 16.111 Ibid.112 Ibid.，p. 17.113 Ibid.114 Ibid.115 Ibid.116 Ibid.，p. 23.117 Ibid.，p. 16.

118 Ibid.，p. 14.119 Ibid.120 Ibid.，p. 23.121 Ibid.，p. 26.122 Ibid.，p. 11.123 Ibid.124 Ibid.125 Ibid.，p. 12.126 Ibid.，p. 20.127 Economist Intelligence Unit，Country Report December 2006- Seychelles，p. 17.128 Ibid.，p. 15.129 Economist Intelligence Unit，Country Profile 2006- Tonga，p. 3.130 Ibid.，p. 4.131 2006 CIA World Factbook，https：//www.cia.gov/cia/publications/factbook/ geos/tn.html#Econ.132 Asian Development Bank；IMF，International Financial Statistics.133 Ibid.134 Asian Development Bank；Fiscal year ending 30lh June，National Reserve Bank of Tonga.135 Economist Intelligence Unit，Country Profile 2006- Tonga，p. 9.136 Ibid.，p. 11.137 Ibid.，p. 9.138 Asian Development Bank；Fiscal year ending 30th June.139 2006 CIA World Factbook，https：//www.cia.gov/cia/publications/factbook/ geos/tn.html#Econ140 Economist Intelligence Unit，Country Profile 2006- Tonga，p. 10，141 Ibid.142 Ibid.143 Ibid.，p.11.144 Ibid.，p.7.145 Ibid.146 Ibid.147 Economist Intelligence Unit，Country Report September 2006- Tonga，p. 6.148 Economist Intelligence Unit，Country Profile 2006- Tonga，p. 7.149 Ibid.，p. 8.150 Ibid.151 Economist Intelligence Unit，Country Report September 2006- Tonga.p. 9.152 Ibid.，p. 10.

6T h e P r o s p e c t s a n d S t r a t e g i e s f o r t h e D e v e l o p m e n t o f M i n i - e c o n o m ie s6 .1 T he U nce rta in tie s fo r M in i-econom ies in the N ew E r aMini-economies have occupied a prominent position in the global economy. In some aspects，they even possess advantages that large economies do not have，and many of them have already grown into developed economies. In the new era，mini-economies have sought their way toward sustainable development based on their comparative advantages together with government-led policies，innovation，and active diplomatic attitudes. Besides distinctive development，mini- economies are also facing some unpredictable uncertainties which will be discussed below.6.1.1 The Lack of Competitive AdvantagesThe trend of globalization has led to rapid competition for the world’s economies.The cost of production is not the only criteria for competition；recently there is more concern with other aspects such as the quality of the products and the increasing political influence on the economy etc.Due to the fact that most mini-economies’ development is founded on the basis of rich natural resources，however，under global competition，countries cannot rely on comparative advantages alone；they must develop other sources of advantages to enhance the overall competitive ability.Along with the development of international trade，the advantage in low labor cost or endowment in natural resources can no longer become competitive factors for sustainable development. Traditional trading theory assumes the immobility of factors of production internationally. Nowadays，factors of production and resources are able to freely transfer from one place to another，and some natural resources

are being replaced by newly developed material. Because of this，in future development，mini-economies must recognize that their comparative advantages might be replaced；they should at an earlier stage shift their comparative advantage to competitive advantage or develop new advantages.It is known from Table 6-1 that most mini-economies are still relying on their natural resources as their comparative advantage. For example，Brunei relies heavily on crude oil and natural gas. Crude oil is a source of non-renewable resources which will be exhausted in the foreseeable future. On top of this，it is difficult innovating by-products of crude oil which require large investment in research and development.Therefore，Brunei should actively reduce the dependence on crude oil for its domestic economy. In the cases of the Bahamas，Bermuda，Malta，Monaco or Luxembourg，their economic development is not based on natural resources or they have successfully get out from the dependence on natural resources. Their GDP is on an advanced levelTable 6-1 Comparative Advantage of Natural Resources of 12Mini-economiesSource：EIU Countries Profile.Countries Continent Important ResourcesImportance of Natural Resources to Domestic EconomyBahamas America — —Bahrain Asia Crude oil MedianBermuda America — —Brunei Asia Crude oil, natural gas HighCyprus Europe Copper, forestry LowFiji Oceania Forestry LowMalta Europe — —Monaco Europe — —Liechtenstein EuropeHydroelectric potential, arable land LowLuxembourg Europe — —Seychelles Africa Tuna MedianTonga Oceania Forestry, fishery Median

when compared with all other mini-economies. One other common feature of these economies is that their competitive advantages are built up from institutional advantages such as free monetary policies；low tax rate polices etc. Their distinctive development has indicated to us，in this global economic context，these countries should utilize natural resources but not rely on them alone；they should adjust readily to the changing environment，and discover other types of advantages in order to promote sustainable development.6.1.2 The Constraints of Unitary Industrial StructureFrom the previous discussion of twelve mini-economies，a unitary industrial structure is the common characteristics. This unitary industrial structure has kept mini-economies from achieving balanced growth through a diversified industrial structure. That is to say，it is very likely that their foreign trade has been dominated by one or two major industries. Table 6-2 displays the industrial structure of the twelve mini-economies.As shown in Table 6-2，the degree of diversification for the industrial structure of these mini-economies is moderate，while someTable 6-2 Industrial Structure of 12 Mini-economiesCountries Continent Leading IndustriesDegree of Industrial Structure DiversificationBahamas America Money and finance, tourism MedianBahrain Asia Oil and gas, money and finance MedianBermuda AmericaMoney and finance, international business, tourismLowBrunei Asia Oil and gas LowCyprus EuropeAgriculture, money and finance, navigationHighFiji Oceania Tourism HighMalta EuropeManufacturing, wholesale and trade, real property mortgageMedianMonaco Europe Tourism and entertainment Low

（continued）Source：EIU Countries Profile.countries are still highly dependent on a single industry. A highly dependent industrial structure will affect the stability of government revenue. Unstable government revenue is unfavorable to long term government reform；it will also have adverse effects on the accumulation of information and human resources. If these mini- economies are not able to find a substitute for the single industry promptly，this factor，along with the changes in the division of labor of regional industrial environments，together with intensified competition in the global market，will cause them to gradually lose competitiveness.6.1.3 A High Dependence on Foreign Trade and Single Export DestinationThe lack of land，human resources and capital in most mini- economies has led them to rely on the export of its natural resources in exchange for import of production material to develop their local economy. Mini-economies are often highly dependent on foreign capital，and as a result，the success in exports determines the performance of its national economy. The rate of dependency on foreign trade is often measured by the ratio of total import and export to gross national product.Mini-economies often have a higher dependency ratio which reveals that a large part of its domestic economy is occupied by foreign trade.Besides，the lack of resources means a lack of diversification in its exports，for example，36.7％ of Brunei’s exports go to Japan1，and over 50％ of F iji’ s exports go to Australia and America. In 2004，90.72％ of Tonga’s exports went to Japan and the US.2The important role of foreign trade in the national economy together with the high concentration of exports to single destinations means that mini-economies have to keep intimate contact with the largerLiechten-steinEuropeIndustryand Manufacturing.MedianLuxem-bourgEurope Money and finance, metallurgy LowSeychelles Africa Transportation and communication LowTonga Oceania Agriculture, fishery, tourism Median

nations.They are often in a position to fulfill the larger nations’ demands；in the long run，mini-economies are likely to lose autonomous decision power over their own economic development as their dependence on large economies grows. Unlike most developed countries，many mini- economies have not experienced the development from primary （agriculture） to secondary （manufacturing） industry，and then the progress to the tertiary （service） industry. Their economic development rests solely upon international trade which is often easily affected by external economic situations. Under such conditions，the industrial foundations of most mini-economies are not strong enough to withstand the competition and challenges in the 21st century.6.1.4 Improvement of InfrastructureIn academic terms，infrastructure is often considered as public goods that can enhance economic growth. Overseas scholars often regard infrastructure as an input to national economic production activity. It is observed that developed nations have well-equipped infrastructure，with a higher input of technology and scientific management than developing countries. Infrastructure is important for overall economic development.It is a public good that is managed and provided by the government，often with the assistance of a joint-effort with public and private entities to improve management efficiency. Theoretically，governments raise funds for the provision of public goods through taxation. For this reason，the tax rate should be within the limit of public acceptance and the provision of goods should reflect actual demand. However，because of the small population of the mini-economies，under the condition of same tax rate and national income，each citizen’s contribution to the national economy is comparatively higher than in countries with a large population. Therefore，public fund raising for the construction of infrastructure through high tax rate is unfavorable to the national economic development；it will even reduce the initiative of foreign enterprises’ investment in the domestic economy. Besides，small population often requires a larger government investment capital for public infrastructure；it will also limit the incentives for citizens to actively voice their demand for government services and administration，which consequently lowers the private suppliers’ initiatives to provide service.For the 12 cases discussed previously，some have well developed

infrastructure，some are inadequate. However，the expectations for the future development of infrastructure，especially for the development of tourist industry，will not rest on the problem of have or have not. A higher level of managerial and technological innovation is necessary to enhance the infrastructure development for the mini-economies.6.1.5 Ability of Crisis ResistanceThe special features of a unitary industrial structure and a high dependency on foreign trade suggest that the ability of crisis resistance for the national economy is relatively weak. The undiversified human resource composition，a unitary industrial structure and a single source of capital have weaken mini-economies’ ability to withstand crisis.Therefore，any changes in the price of crude oil or any crisis in foreign trade will have an impact on the economy and the recovery from such an impact may be rather slow.Every economic system will try to establish a set of mechanisms for crisis resistance，which is normally achieved by the coordination of corresponding sub-systems to withstand any fluctuations in the domestic economy. In this respect，large nations will have absolute advantages in the establishment of such a mechanism. However，for mini-economies；their crisis resistance mechanism may be rather weak and inadequate. For instance，apart from the risk of economic fluctuation，the isolated geographical location also makes rescue and prevention work difficult，especially during natural disasters. Mini-economies have to take special precautions against such frailty，which is brought about by the highly specialized industrial structure，a single source of income，and unstable government policies.6 .2 P o ss ib le D e v e lo p m e n t S tra te g ie s fo r M in i- econom iesThe environments for the development of mini-economies are similar，although some are stronger，and some are weaker；some have comparative advantages over others，some are faced with limitations and restrictions for development. The essential requirement for their development is to seek common ground on major issues while reserving differences on minor ones and to make the best use of the advantages and bypass the disadvantages. After the analysis of twelve cases of

mini-economies，our research group would suggest the following strategies for enhancing competitiveness.6.2.1 Option 1：Acceleration of a Diversified Industrial StructureThe limited available resources of mini-economies have required the allocation of resources to be concentrated in a number of industries having comparative advantages. The success or failure of these industries determines the rise or decline of the economy，which increases the risk of economic crisis. To avoid such risk，the establishment of a diversified industrial structure is a long term strategy. Specific strategies included diversification between industries or within the industry itself. For mini-economies，diversification within an industry is a better strategy. Due to the fact that most of the limited resources are reserved for the use of specialized industries，therefore an industrial chain can be developed in response to the leading industry to allow a higher degree of diversification within the industry itself. In addition，mini-economies should not position their leading industry on a fixed number of supporting industries；they should modify the industry structure in accordance with the changing economic situation. It is assumed that high value-added service will lead to a dominant role in the future，therefore，mini-economies should expand the scope of their industrial structure in accordance with their comparative advantages in specific resources and open up special products and industries，so as to pursue the establishment of a service-oriented industrial system with unique characteristics.6.2.2 Option 2：Selectively Strengthening the InfrastructureInfrastructure is a weak sector for mini-economies. The small size and scale of mini-economies can cause them to be marginalized.Therefore，it is inadvisable on the first hand to request mini-economies to establish a well-equipped infrastructure system. They should act according to their capability，and they should put their priority on the improvement of some fundamental and immediate infrastructure facilities，especially in the areas of traffic，transportation，internet etc，to allow a greater degree of regional integration and to avoid being marginalized. Besides，these facilities are particularly important for the development of tourist and service industries. The improvement of

tourism-related infrastructure is critical to many mini-economies；therefore，progress should be speeded up.6.2.3 Option 3：Improvement of the Technological Content for Products and ServicesThe importance of modern technology has been commonly accepted.For mini-economies，the initiation of research and development based on available resources to enrich the technological content for products and services should not be underestimated. Technological content is closely related to the quality，stability and sustainability of development.Government and enterprises should realize the importance of the use of technology. A timely adjustment to policy orientation is a determinant for a new trend of successful development. With a few exceptions，many mini-economies still lag behind in technological foundations.Whether a large or small investment，human effort is a decisive factor.With the concept of technological advancement as a priority，the path to technological breakthrough is clear.6.2.4 Option 4：The Development of a High-value-added Tourist IndustryIn the past，governments of mini-economies attempted to diversify their industrial structure. In recent years，tourism development is one of the major targets because of its capacity to employ large numbers of the labor force and the support to the local economy from foreign tourists，expenditure and consumption. In the path toward tourism development，a “low production cost” strategy is not a wise policy while a "high- value-added” strategy is favorable. For instance，the tourism industry in Malta and Cyprus have remained stagnant by remaining solely dependent on low price competition. Instead，they should actively pursue the path of “high-value-added” development.Fortunately，many mini-economies are still able to protect their natural landscape of forests and beaches before any industrial development and pollution occur. In such a way，mini-economies can still enjoy a comparative advantage by the development of tourism based on natural vacation destination. In recent years in particular，many tourists have changed their preference from modernized cities to natural destinations. This provides a breakthrough for mini-economies to utilize their advantages to develop a high-value-added tourist

industry. Besides the development of a natural destination for tourists，commercial tourism is also a potential industry. In recent years，due to the low price competition imposed by other economies，the tourist destinations of mini-economies have lost their attractiveness and competitiveness. To avoid such competition，mini-economies should enlarge the scope of tourism to encompass commercial elements，and to open up new types of tourist activities with their own characteristics. In accordance with the rule of economic tourism，commercial tourism is characterized by a low price elasticity and high consumption ability；therefore，adherence to commercial tourism to avoid price competition through the utilization of natural resources to pursue a high-value-added tourism development should be the long term strategy for mini-economies.In this regard，trading relationships are a prerequisite for the development of commercial tourism；therefore，focus on countries that have an intimate trading association with the mini-economy should be emphasized. However，based on present conditions，there is still room for improvement of the infrastructure facilities for tourist industry of most mini-economies.6.2.5 Option 5：Regional Cooperation and the Establish- ment of a Regional Free Trade ZoneRegional cooperation is a special feature of economic integration in a globalized world. Regional integration is an approach to enhance mutual economic prosperity among member countries. That is to say，in a competitive environment with a widening disparity in poverty，integration can help to utilize resource allocation to enjoy the benefits of economies of scale and a common market. Among today’s regional economic systems，the European Union is a successful example. Due to the lack of resources，mini-economies have to utilize the regional resources to make up for their own insufficiency；by the already well-established linkages with foreign countries，together with the institutional and humanities advantages，mini-economies have to grasp the opportunity to become the functional platform for regional economic development. In addition，through active participation in regional cooperation，mini-economies can seek opportunities for further development；together with the existing flexible economic system，it is believed mini-economies can establish a solid foundation for regional cooperation.Apart from this，it is highly recommended that a free trade

area be established in cooperation with the big countries within the region，so as to lower the import cost and to open up new markets for trade and consumption. In other words，it is necessary for mini-economies to utilize external resources and information for their own development.Thus the establishment of a free trade area is an important target.6.2.6 Option 6：Intensify and Popularize Education，Develop High Quality PersonnelEducation is an important process for personnel training.Governments of mini-economies value the importance of public education and they have been trying to keep the illiteracy rate low.However，a high literacy rate does not mean manpower with high productivity. Due to the small population，to be undefeated in the global economy，mini-economies should maintain a qualified and professional workforce，especially a labor force with professional skills and techniques.The government should cultivate and train the labor force in accordance with the needs of the crucial industrial chain.Under the condition of lack of resources，mini-economies can refer to virtual organization in utilizing foreign technicians and personnel.They can even cooperate with research institutions abroad for the establishment of distance learning institutes，virtual universities or technological organizations etc. to provide training to domestic labor force. It is more favorable to develop virtual education since it requires a lower cost and lower usage of resources than conventional education.For mini-economies，the basic target for education is to serve the development of service industry，while education in other areas such as marketing，international trade，tourism management，personnel training of public servants etc. should be the short term targets. It is necessary for mini-economies to maintain a healthy labor environment，since foreign labor import can only be a short term solution；more emphasis should be placed on human resources preservation and attraction.6.2.7 O ption 7：Further Im provem ent of the M arket Economy，as well as the Legal and Business EnvironmentThe lack of hard resources，such as human resources，capital and infrastructure，has placed restrictions on some of the mini economies’ development；fortunately，based on the existing legal system and institutional arrangements，some mini-economies have turned into

successful functional centers within their region. For example，Luxembourg and Bahrain have become regional monetary centers. As we know，a well established market mechanism is an essential soft resource for successful development. In the twelve cases discussed previously，most of them do not have a very well-developed market economy；their first step should be to strengthen this mechanism.Recently，some foreign enterprises have pointed out that the legal and business environments of mini-economies are even more favorable and flexible than those of large economies，with flexible legal and institutional arrangements. Therefore，the establishment of a well- defined legal environment and free market mechanism are the necessary soft power that a mini-economy should try to consolidate.6.2.8 O p tio n 8：The Im provem en t of G overnm ent AdministrationMany mini-economies have previously been under colonial governance. After their independence，an administrative-led government was responsible for the general economic affairs，hoping for the establishment of the basic mechanism and maintenance of order and peace for the domestic economy. For mini-economies，government plays a leading role in the domestic economy. Neo-institutional economics recognizes the role of the government in reducing economic transaction cost and providing public goods. Much research has pointed out that there is an optimal scale for government，and that the government itself can be the source for ineffectiveness. Figure 6-1 is the Armey curve.Once the government reaches its optimal scale，it can bring no more efficiency to the economy，and a large bureaucracy would even damage the growth of national economy. On the international level，government scale is measured in terms of the percentage of government expenditure to GDP. In such a way，mini-economies should define their optimal government scale to avoid any damage to the national welfare due to the increase in transaction cost. In the short term，government still plays a leading role in most mini-economies；therefore，a general improvement in government administration is unavoidable. Porter has asserted that the importance of the state has been increasing due to globalization and liberalization. The uniqueness and cultural differences among states will not be threatened by global competition. Instead these characteristics are the indispensable factors

for successful enterprise development in the global context of competition.3 In order to enhance the government administration，the governments of mini-economies should move towards a “citizen oriented” concept for the development of a service oriented government，which is the basic foundation for the establishment of a sound policy environment for mini-economies to attract investment，bring in human resources，as well as to carry out policy implementation and local infrastructure construction. In addition，mini-economies should persistently enhance their administrative and governance level by employing the reform strategies advocated by public administration theory. This is because only a solid government can play a steering role in the mini-economy，and maintain a low transaction cost for the economic environment.6 .3 Im p lic a t io n s fo r M ac aoThe successful development of the twelve mini-economies discussed above has implications for Macao. Five main implications are listed below for further discussion.6.3.1 The Development of a Diversified Industrial Struc- tureThe twelve cases discussed above have relied on a particular type of economic activity as the leading industry，for example，tourism，money and finance，or crude oil production. Despite a highly concentrated involvement in a certain industry，the twelve cities or countries are ac- tively developing a diversified industrial structure. They possess moreFigure 6-1 Armey Curve

balanced industrial structures than Macao. For Macao，the share of three leading industries already composes 86.58％ of the GDP，which is the highest among the 12 countries/regions. The single industry composed of public administration，social services and personal service （including gambling） alone made up for over 50％ of the GDP，which is even higher than the share of the three leading industries in the total GDP or the GVA of Fiji，Bahrain，Cyprus，and Malta （Table 6-3 and Table 6-4）.In the case of Malta and Cyprus，tourism was once the single most important industry，unfortunately under a competitive environment；it is no longer possible to enjoy advantages from low price competition. In such case，the governments of Malta and Cyprus have carried out actions to optimize their environment and facilities for the tourist industry. In addition，they have also moved towards the development of a regional center in trade，money and finance，in order to provide a wider range of employment opportunity and a greater source of government income. In another case，Luxembourg has emphasized the effort to optimize the diversification within a single industry. For instance，the financial industry has been chosen to be the major supporting industry （30％ of the GVA）.Diversification within the financial industry includes the development of five major financial activities （holding company，stock market，banking，funding and insurance），which will help to create an industrial chain that can give an impetus to the development of other industries such as accounting，legal affairs and rental services. Despite the fact that Brunei is rich in natural resources，with oil production guaranteeing an impressive income and putting people’s living standard at an above average level，the government of Brunei has realized the risk of a single industry. It has endeavored to develop other non-oil related industries and consolidate the existing oil and natural gas industries as well as to improve harbor facilities. All these arrangements have gained significant result. The King of Brunei （having highly concentrated，absolute power），in his speech on National Day，2006，stressed the importance of economic diversification，emphasizing the fact that resources are not inexhaustible.46.3.2 Emphasis on Education to Enhance the Comprehen- sive Quality of the CitizensDespite the fact that some of the mini-economies under investiga-

tion are not prosperous，they have put a strong emphasis on education.As a result，they possess a relatively high level of education which contributes to labor mobility among regions.As shown in Table 6-5，among the 12 mini-economies studied，the expenditure on education over government total expenditure for 4 （Bahamas，Cyprus，Fiji and Tonga） is higher than the average （12.9％） of OECD countries （most of them are high income countries）.The figure is also high in its percentage of the GDP，with Cyprus as the highest （7.4％），which is higher than the OECD by 2％ .Cyprus has already become an academic centre for research inTable 6-3 The Three Leading Industrial Structure of Macao and The Other 12 Mini-economies （2004）*ItemsCoun- tries/RegionsThe Three Leading Industries and Their Share of GDP or GVA (%)Share(%)Bahamas Financial services and real estate30.40 Publicadministr-ation20.40 Whole-saleand retail11.30 62.10Bahrain Money and fin- ance23.92 Oil and Naturalgas13.09 Manufac turing， whole- sale and retail*12.38 49.39Bermuda Interna-tionalbusinessactivities20.60 Real estate, renting and busi- ness activities24.50 Financialintermedi-ation11.90 57.00Brunei Oil and naturalgas40.40 Communi- ty, social andpersonalservices27.70 Whole- sale and retail6.80 74.90

（continued）Cyprus Real es- tate, rent- ing and business activities16.40 Whole- sale and retail11.85 Publicadmini-strationanddefense9.52 37.77Fiji Communi- ty, social andpersonalservices18.84 Transpor-tationandcommuni-cation15.75 Manufac-turing14.96 49.55Liechten-steinIndustry and goods production42.00 Generalservices27.00 Financialservices24.00 93.00Luxembourg Financialservices29.40 Whole- sale and retail, hotels and res- taurants, transport andcommuni-cation20.70 Real es- tate, rent- ing and business activities18.10 68.20Macao Publicadmini-stration,socialandpersonal services (includ- ing gam- ing)54.39 Financial intermedi- ation, real estate renting andbusinessactivities19.36 Whole-sale,retail,repair,hotelsandrestau-rants12.83 86.58

（continued）Note ：Reference from EIU Countries Profile.*Data of Brunei and Tonga are based on 2003，Monaco does not publish economic figures such as gross domestic product；and data of Liechtenstein is based on data of GVA in 2005 which is from Liechtenstein in Figures 2006.# Share of manufacturing and wholesaling are the same，one is counted only.regional environment and public health，which has attracted students from as far away as the Mainland China and South Asia to study.Another example is Tonga. Although it is on a less developed level，Tonga has been unsparing in developing education，and their education expenditure （in term of GDP） is not far below that of the OECD countries.Among the island regions in the Pacific，Tonga possesses the largest percentage of population earning a high income abroad；the earning from money remittance has had a positive effect on the economy of Tonga.Education is the basis for social development. To mini-economies，this is especially significant. For example，Luxembourg’s position as an important financial center is not solely due to her advantage inMalta Manufac-turing19.20 Real estate, renting and busi- ness activities14.27 Educa-tion,medicalandsocialservices13.95 47.42Monaco — — — — — —Seychelles Trans- port, whole- sale and communi- cation30.34 Manufac- turing and handi- craft16.68 Publicadmini-stration12.74 59.76Tonga Agricul-ture,forestryandfishery28.51 Commerce,restau-rantsand hotels18.29 Financial and busi- ness activities12.79 59.59

geographical location and effective government policies. One other factor is its possession of a large number of professional personnel and its emphasis on training and education. Luxembourg has directed a lot of resources toward education，which is the highest （in term of input per student） among OECD countries （primary and secondary schools）.Even though university education has a slower pace of development，the government has granted financial support to nearly 7，000 students each year for overseas study.Furthermore，the self-constraints in land area and resources have led many mini-economies to concentrate on the development of tertiary industry，especially international business and tourism-associated industries. For this reason，language ability is a key factor for development. In Luxembourg for example，a student receives his or her education in three or four languages （Luxembourgian，German，French and English） starting from a very young age. Such language proficiency has attracted many transnational companies to consider Luxembourg as a gateway to the European market. In Cyprus，Malta and Bermuda，apart from the low tax rate and institutional advantages，the prosperous development in international business is due to the fluency in English found in these countries. This is largely due to their historical legacy as British colonies. English is the official language or is commonly used in daily life. For Macao to be the platform to serve the outside regions，language ability is an important factor. According to a survey by the Macao Development Strategy Research Centre，only 20％ of Macao citizens can speak，read and write English. 35％ know some and 40％ know no English. As for Portuguese，one of the official languages，only 3％ of Macao people know how to speak，read and write Portuguese，10％ know a bit and nearly 85％ know none. Categorized by occupation，only the category of “legislators，public bureaucrats，community leaders，enterprise managers and directors，” 10％ of the people，can speak Portuguese；of professional people，only 8.3％ know Portuguese，indicating a language deficiency.

Table 6-4 Industrial Structure of Macao and the Other Twelve Mini-economiesItemsCountries/RegionsAgriculture,ForestryandFisheryMiningIron,MetalandMetalWork-ingIndus-tryCrude Oil and NaturalGasWaterandElectric-ityWater, Gas and Electric­ityManu-fac-tur-ingCon-structionWholesale and RetailWholesale and Retail, Hotels and Restau- rantsCommerce, restaurants and hotelsHotelsandRestau-rantsTrans- portation, whole- sale and commu- nicationTrans-porta-tionandcom-muni-cationBahamas2.803.605.307.2011.309.808.80Bahrain0.6813.092.1612.384.1712.382.328.93Brunei40.404.406.80Bermuda0.801.801.706.008.405.506.00Cyprus2.960.332.099.007.7811.857.207.91Fiji14.491.162.7914.964.2719.7315.75Luxem-bourg0.502.601.206.905.6020.7*Macao2.105.104.4012.805.00Malta2.460.9119.205.17#12.346.739.95Seychelles2.601.5816.689.8210.0630.34Tonga28.510.431.854.788.2218.296.84AgricultureIndustryLiechtenstein6.0039.00Monaco04.90

(continued)FinanceandCom­merceFinance,FinancialIntermediation,FinanceandInsur-anceFinan-cialServicesandRealEstateCommunity, Social and Personal ServicesRealEstate，RentingandBusinessActivi-tiesInterna-tionalCom-mercialServicesPublic Administra- tion/ Public Administra- tion and Social ServicesEducation, Medical and Social ServicesEntertain-ment,LeisureandPersonalServicesOthersSubtract: Indirect Service Charge of BankImport TaxValue-addedTaxBahamas30.4020.40Bahrain24.183.619.149.457.16-9.981.39Brunei27.70Bermuda11.902.1024.5020.604.806.80Cyprus6.2216.409.528.964.39-4.591.628.37Fiji11.2318.84-3.23Luxem-bourg29.4018.105.408.302.90Macao19.4054.40-3.10Malta6.6014.278.2613.955.21-5.06Seychelles9.8612.746.33Tonga12.7911.826.633.84-4.00ServicesLiechten-stein55.00**Monaco95.10Note: *The category for Luxembourg is wholesale, retail, restaurants and hotels, transportation and communication. # The construction industry include mining

（continued）** Data of Liechtenstein and Monaco are from CIA Fact book，2007 which is limited to three major industries only.https：//www.cia.g0v/library/publicati0ns/the-w0rld-factb00k/ge0s/mn.html#Ec0n Source：Economist Intelligence Unit，Country Report — Brunei，June 2006，p.4；Fiji Islands Bureau of Statistics，http：//www.statsfiji.gov.fj/Economic/gdp_current.htm；Tonga National Accounts Report，http：//www.spc.int/prism/Country/TO/stats/Economic/National_Account/current-new.htm；Economist Intelligence Unit， Country Profile 2005 Seychelles，p.36；Economist Intelligence Unit， Country Profile 2006 Bahrain，p.44；STATEC，Luxembourg in Figures 2005，p.15；Economist Intelligence Unit，Country Report-Bahamas，June 2006，p.5；Economist Intelligence Unit， Country Profile 2006 Bermuda，p.30；Cyprus National Economic Accounts 2004 （Provisional Estimates），http：//www.mof.gov.cy/mof/cystat/statistics.nsf；Economist Intelligence Unit， Country Profile 2006 Malta，p.2.

6.3.3 Engagement in Regional IntegrationAs shown in Table 6-6，among all the 13 cases of mini-economies，except Bermuda （a British overseas possession） and Monaco，all have been actively participating in regional organizations for cooperation.In order to overcome the defects in a small market and enhance international status，some of the geographically remote districts have engaged in good neighborhood relationship or formed alliances to develop a greater common market. The most active participants are the three European states Luxembourg，Malta and Cyprus. Luxembourg joined the German Zollverein as early as 1842，and later in 1921 it entered into a currency union with Belgium，and joined the economic union with Belgium and Holland in 1944. Besides，it is the founding member of the European Union （successor to the European Coal and Steel Community） and it often takes the role of coordination among European members. In another case，after hard years of economic reform，Malta and Cyprus have amended their domestic law in correspondence with the EU. After becoming EU members，they are still working hard to consolidate economic and financial sector reform，hoping to integrate into the European market，and one of the representations is their entrance into the Euro zone.6.3.4 Necessity of Implementing CountermeasuresWith the opportunity provided by the new historical era，emphases have to be given to the quality，the effectiveness and the pace of development. Growth that is unevenly distributed and development that sacrifices our environment should not be encouraged. Simon Kuznets indicated a few years ago that modern economic growth is based on the fact that GDP per capita is dependent on the quality of input，but not the quantity of input，which is attributed to the higher efficiency and a higher input per unit by person，together with the growth in practical knowledge and the institutional arrangement for the use of knowledge.5 Due to the lack of resources and unique environment，it is more important for mini-economies to maintain a stable social environment.For example，in Luxembourg，under the scheme of Cooperative Social Partnership Arrangements，trade union，employer union，and government can achieve consensus on the arrangement of a social welfare system which can safeguard the rights of the domestic labor force，and also can maintain the benefits of the employers. Such a scheme has ensured

that the input of the foreign labor force cannot affect the rights of the local labor force.6 Apart from maintaining stability，mini-economies should also have concern for their power resources，water resources and countermeasures. Cyprus has already implemented plans for the transfer of water from the west to the east and for the desalination of sea water.Table 6-5 Expenditure on Education of Macao，OECD Coun- tries and the Twelve Cases in 2004Note：* Brunei is based on the data of 2000，Bahrain on 2001，Bahamas on 2004/2005.Bermuda on 1998，Cyprus on 2003，Malta and other OECD countries （average） on 2002.** Luxembourg is based on the data of 2002，which has not accounted for the expenditure on university education.*** Liechtenstein is based on the data of 2005.Source：OECD，Education at a Glance 2005；Macao Statistical Year Book 2004；Fiji Islands Bureau of Statistics，http：//www.statsfiji.gov.fj/index.htm；Tonga Department of Statistics，http：//www.spc.int/prism/country/to/stats/；Items Expenditure on Expenditure onEducation Education to the GDPto Government (%)Countries/Regions Expenditure (%)Bahamas* 14.52 -Bahrain * 11.59 3.20Bermuda* 17.00 2.92Brunei* 9.10 5.26Cyprus* 16.37 7.40Liechtenstein*** 16.30 -Luxembourg** 9.20 4.00Fiji 15.37 4.53Macao 14.00 2.30Malta* 9.97 4.60Monaco - 4.30Seychelles 11.98 5.40Tonga 13.42 4.80OECD member countries(average)*12.90 5.40

Seychelles in figures 2004，http：//www.seychelles.net/misdstat/；Liechtenstein in Figures 2006. UNESCO，http：//www.uis.unesco.org；The figure stands for “total expenditure on educational institutions and administration as a ％ of GDP （public sources，all levels，2004）.Table 6-6 Participation in Regional Cooperation— Macao andthe Twelve CasesSource：* Station in Fiji# Macao is not a sovereign country；different from other countries and regional organizations，there is not any organizational mechanism within the pan-Pearl River and Pearl River Delta regions，and they cannot be claimed as free trade zone as well.6.3.5 Developing its Unique CharacteristicsWhen a thing is unique，it becomes precious. Mini-economies are developing their unique characteristics：some depend on the production of traditional products and provision of services；some develop new forms of tourism based on natural destination；some rely on theCountries/Regions Participation in Regional CooperationBahamas Caribbean Community and Common Market (Caricom)Bahrain League of Arab States (LAS), Gulf Cooperation Council (GCC)Bermuda -Brunei Association of Southeast Asian NationsCyprus European UnionFiji Pacific Islands Forum*Liechtenstein European Free Trade Association, European Economic AreaLuxembourg European Union, Union Economique BeneluxMacao Pearl River Delta Cooperation and Pan-Pearl River Delta Cooperation#Malta European UnionMonaco -Seychelles African Union、Common Market for Eastern and Southern Africa (COMESA)Tonga Pacific Islands Forum

development of offshore financial services；some even depend on manufacturing，money and finance. In a time of globalization，mini- economies are actively strengthening their own advantages. Luxembourg and Liechtenstein are now developing satellite and internet sales industry；Monaco，Cyprus，Malta and Brunei are emphasizing the development of a high-value-added tourist industry，the main focus of which is on tourism-associated industries like meetings，exhibitions and incentives activities. Mini-economies must find a way to have unique development，based on the domestic needs and with the fostering of benchmarks；it is believed that the overall competitiveness can be enhanced. In short，to cultivate a unique development path is the way forward for mini-economies.6 .4 Som e C o n c lu d in g R e m a rk sAmong all the mini-economies，the successful development of Luxembourg，Liechtenstein，Brunei，Bermuda，Bahrain，etc，have great implications not only for mini-economies，but also for other countries and regions of the world. In the new century，after Macao’s return to the People’s Republic of China，it is clear that Macao is on its way to becoming a highly developed mini-economy. Macao is rich in advantages and opportunities that enhance its overall competitiveness.In the future，Macao should focus its efforts on the quality and speed of development，as well as effectiveness and sustainability，and pursue these goals determinedly.

N otes1 Economist Intelligence Unit，Country Profile 2005- Brunei，p. 19.2 Economist Intelligence Unit，Country Profile 2005- Tonga，p. 20.3 Porter，M. E.，The Competitive Advantage of Nations，Taipei：Common- wealth Publishing Co.，Ltd.，1996 （Chinese version translated from New York：Free Press，1990），pp. 44-45.4 Asian Weekly，30th July 2006，p. 6.5 Kuznets，S.，Modern Economic Growth：Rate，Structure and Spread，Beijing Economic Institute Publisher，1989，p. 433 （Chinese version translated from London：Yale University Press，1966）.6 Chan，Sau San，“Luxembourg Experience：Implications for Macao’s Optimal Strategy，” in Liu Bolong and Chan，Sau San （Eds.），Macao：Development and Reform，Macao：Macao Social Science Society，2001，p. 19.

7M a c a o ——A S h i n i n g S t a r A m o n g M i n i - e c o n o m ie s7 .1 G e n e ra l In fo rm a t io nThe Macao Special Administrative Region （SAR） is an integral part of the People’s Republic of China. The Macao SAR is comprised of the Macao Peninsula and two islands，Taipa and Coloane，with a total area of 28.6 km2，which is just 1/36 the size of Hong Kong and 1/24 the size of Singapore.1 Macao’s latitude is between 22°06'39"N and 22°13'06"N and its longitude is between 113°31′33″E and 113°35′43″E.Bordering on Guangdong Province，Macao is located 60 km from Hong Kong and 145 km from the city of Guangzhou. Its coastline is 42.44 km long and its local time is 8 hours ahead of Greenwich Mean Time.The resident population of Macao was estimated at 513，427 at the end of 2006，an increase of 29，150 persons over 2005. Among the resident population，49.2％ （252，475） were male and 50.8％ （260，952） were female.2 Macao is one of the most densely populated places in the world. The population density is 17，952 persons per km2.3 The adult population （aged 15-64） accounts for 78.3％ .Macao’s total population is 1/14 of that in Hong Kong and 1/6 of that in Singapore. In 2006，a total of 4，058 births were recorded and the crude birth rate was 8.1‰.This represented a natural increase of 5.0％ on the previous year’s figure.Macao people’s average life expectancy is 82.27.4 Following this growth tendency，the estimated increase of the population over the next 20 years is about 159，000.5Macao is situated in a subtropical zone and enjoys a marine monsoon climate. The average temperature is 22.5℃ and average relative humidity is 79％ .The total rainfall is 1，898.8 mm and the typhoon season is from May to October. The total green area is

5，935，544 m2 and the green area per capita is around 12.2 m2.6 Macao International Airport began operating in November 1995. Both land and water transportation are convenient. Telecommunication and media services are well developed. Broadband coverage on the Macao peninsula，Taipa and Coloane islands is 100％，99.9％ and 99％ respectively.7Macao has been part of the territory of China since ancient times.The Portuguese came to Macao to do business in the middle of the 16th century and developed it as an overseas colony beginning in the 4th decade of the 19th century. On 13th April 1987，a joint declaration was signed between the Chinese and the Portuguese governments in order to provide for the future of the territory. The date and procedure for the handover of sovereignty and was defined then. On 20th December 1999，the Macao SAR of the People’s Republic of China （PRC） was established and China took back the sovereignty of Macao. Like the Hong Kong SAR，the Macao SAR greatly benefits from the principle of “one country，two systems” and the policy of “Macao people ruling Macao” and enjoys a high degree of autonomy.At the same time，Macao enjoys executive，legislative and independent judicial powers，including that of final adjudication. The official languages are Chinese and Portuguese. The systems and policies，including the social system，the economic system，and the institutions that protect basic rights and freedom of residents，executive，legislative and judicial power and respective policies，are all in accordance with the Macao Basic Law.To keep the prosperity and stability of Macao in the long run is the basic national policy of China. The development of the Macao SAR was emphasized by the Central People’s Government in the 11th Five-Year Plan for the nation. When speaking of Macao，the Plan states that the Government will especially aim at “supporting Macao in developing its tourism and services industry and facilitating the development of Macao’s economy in a reasonably multi-dimensional way，”8 apart from strengthening and promoting cooperation and exchanges between the Mainland and Macao in the areas of commerce and trade，science and education，culture，sports and hygiene，implementing gradually the Closer Economic Partnership Agreement （CEPA），boosting cooperation in the areas of infrastructure，industry development，resources utilization and environment protection.9

Table 7-1 Macao’s Main Economic Indicators* For CPI in and after 2006，the base period is July 2004 to June 2005.** Net exports of goods and services （based on the GDP estimates）.*** Figures are subject to revisions later on.Source：Macao Economic Services，Main Economic and Financial Indicators- Table 1 Main Economic Indicators，http：//www.economia.gov.mo/servlet/ShowContent/ cms/EI_ERS_MEFI/table 1 ?locale=en_US，8th August 2007.Since the 1960s，the development of Macao’s economy has been accelerating. The gaming industry，one of Macao’s oldest and most predominant industries，and the tourism industry became Macao’s economic pillars. Macao was therefore renowned as the “Monte Carlo of the Orient.” However，after 40 years of monopoly by a local company，it was decided by the Macao SAR government to open the gaming sector so as to introduce competition into this market. Hence，MacaoYearItems2003 2004 2005 2006Population (thousands) 446.7 462.6 484.3 513.4Population by mid-year (thousands)443.6 454.7 473.5 498.9Nominal GDP (millions of US dollars)7,924.6 10,341.6 11,603.1 14,294.5***GDP per capita (US dollars) 17,805 22,634 24,369 28,436***Unemployment rate (average) 6.0 4.9 4.1 3.8Real GDP growth (%) 14.2 28.4 6.9 16.6***Inflation, C. P. I. growth (%)* -1.6 1.0 4.4 5.2Exports of goods, f.o.b. (millions of US dollars)2,569.0 2,790.9 2,457.6 2,538.7Imports of goods, c.i.f. (millions of US dollars)2,742.4 3,452.1 3,884.14 4,531.9Trade balance (millions of US dollars)-173.5 -661.2 -1,426.8 -1,993.1Balance of current accounts** (millions of US dollars)3,336.7 4,857.2 4,242.49 4,820.3***Pataca exchange rate (1 US$ =) 8.021 8.023 8.011 8.001

entered into its best time ever for development. It is expected that Macao will become a world class gaming centre competing with Las Vegas.While Macao is facing this challenging new opportunity，both the Macao SAR Government and all the people in the society are working hard to find effective strategies which are balanced and sustainable for future development that the strategy of diversification is the rational way to follow with regard to economic development has become the consensus of both. Besides the gaming industry，the tourism industry is another area in which great development can be seen. With over 400 years of cultural exchange between the western world and Chinese civilization，Macao’s architectural heritage，predominantly European in nature，stands in the midst of traditional Chinese architecture in the historic settlement，providing contrast and appeal to millions and millions of visitors from different places worldwide. On 15th July 2005，the Historic Centre of Macao was inscribed on the World Heritage List，making it the 31st designated World Heritage site in China.7 .2 E x te rn a l R e la t io n sMacao has a free market economic system. Although its economic scale is tiny，it depends strongly on the external world，as over 90％ of the gaming and tourism revenue comes from outside and more than 90％ of its manufactured products is exported to outside markets. Therefore，a good external relationship is both important and necessary to Macao.As a non-sovereign region，Macao enjoys wide-ranging and close relationships with most countries and regions throughout the world. It has longstanding，extensive，direct，friendly and beneficial relationships，particularly with the Romance language-speaking countries，European Union （EU） member states and numerous international organizations.After the establishment of the Macao SAR，it maintained a sepa- rate status under the name “Macao，China” in 11 intergovernmental organizations，namely：the World Trade Organization （WTO），the United Nations Educational，Scientific and Cultural Organization （UNESCO），the International Maritime Organization （IMO），the World Meteorologi- cal Organization （WMO），the World Tourism Organization （WTO），the World Health Organization Regional Committee for the Western Pacific，the Customs Cooperation Council （now known as the World Customs Organization），the Asia Pacific Telecommunity （APT），the Asia and

Pacific Development Centre （APDC），the United Nations Economic and Social Commission for Asia and the Pacific （ESCAP），and the International Textile and Clothing Bureau （ITCB）.As of July 1998，Macao was a member of 29 international non-governmental organizations. They included the European Telecommunication Standards’ Institute （ETSI），the International Union of Family Organizations （IUFO），the Asia Association of Convention and Visitors Bureaus （AACVB），the World Savings Banks Institute （WSBI），the Union of the Portuguese Speaking Capital Cities （UCCLA），the International Association of Labor Inspection （IALI），the Consumers International and the International Federation of Library Associations （IFLA）.10As of February 2006，224 multilateral treaties were applicable in Macao. They included treaties on civil aviation；customs；drugs；economic and financial；education，science，technology，culture and sport；environment and conservation；foreign affairs and defense；health；human rights；intellectual property；international crime；labor；maritime；private international law；road traffic；telecommunications and postal；and treaties establishing international organizations.11At the end of 2006，68 countries had established consular services in Macao. Some recognize the Macao SAR as a separate consular district，while others have extended the duties of their consulates general in Hong Kong to include Macao，or have empowered them to execute consulate duties in the Macao SAR，while others have appointed honorary consuls in the Macao SAR. Portugal is the only country that has set up a consulate general in the Macao SAR （the Philippines has signed an agreement with China，but it has not yet been opened）.Fifty two countries have assigned their consulates general in Hong Kong to handle consular affairs in the Macao SAR. Ten countries have appointed honorary consuls to the Macao SAR and 7 countries with honorary consulates in Hong Kong cover or extend services to the Macao SAR.12The visa-free entry or visa-on-arrival was accorded between the Macao SAR and more than 72 countries and territories. Nationals or citizens of these countries and territories who are in possession of valid passports can stay in Macao for periods of 30-90 days. Visitors from certain countries such as Cape Verde，Iceland，Japan，South Korea and the some EU member countries that are signatories to the Schengen Agreement，are granted a 3-month period of stay；while citizens of others.

such as the United Kingdom，may be given permission to stay for 6 months. Passport holders from the following countries may be granted a visa-free stay up to 30 days：Australia，Brazil，Canada，Chile，India，Indonesia，Japan，Kiribati，Liechtenstein，Malaysia，Mexico，Monaco，Namibia，New Zealand，Philippines，Samoa，Seychelles，Singapore，South Africa，Switzerland，Thailand，Turkey，Uruguay，the United States of America. Visa-free access is granted to visitors of Chinese nationality who hold legally valid travel documents for entry into/departure from Macao. Residents from the Mainland and Taiwan can stay for a period of up to 30 days while Hong Kong SAR residents holding Hong Kong Identity Cards with symbols “*”，“***” or “R，” Permanent Hong Kong Identity Cards，or Return Permits are allowed to stay for a period of up to one year.13 By July 2007，76 countries and territories have agreed to grant visa-free access or visa-on-arrival to Macao SAR passport holders.14 With the assistance of the Office of the Commission of the Ministry of Foreign Affairs of the People’s Republic of China in the Macao SAR，Macao’s citizens who are also Chinese citizens，if necessary，can enjoy the protection and the services provided by the Office of the Commission of the Ministry of Foreign Affairs overseas. The office is now planning to issue the E- Macao SAR passports before 2008.Macao holds an important connection with the EU countries，the Portuguese-speaking countries and the Association of South East Asian Nations （ASEAN） member countries，as well as overseas Chinese businessmen. Macao’s advantageous geographical position and historical relations with Europe have transformed it into an economic and trading bridge between the Mainland and the EU. Macao itself also has maintained good relations with the EU in terms of economic and trade affairs since the establishment of the Macao SAR. The EU is one of the most important trading partners of Macao. It is Macao’s second-largest export market. In 2006，19.5％ of Macao’s exports went to EU countries，accounting for about 4 billion patacas，while 13.1％ of its imports came from the EU，accounting for about 4.8 billion patacas.15 In Europe，there are 3 offices representing the Macao SAR Government：the Macao Economic and Trade Office to the European Union in Brussels，the Macao-China Economic and Trade Representative Office in Portugal and the Macao Economic and Trade Office to the World Trade Organization，in Geneva.Official relations between Macao and the EU have been steadily

built on the foundation of the trade and cooperation agreement between Macao and the European Community （as the EU was then known），which was signed in 1992 and came into effect in 1993. Under the agreement，both sides cooperate in industry，investment，science and technology，energy，information，training and other areas. Since the signing of the trade and cooperation agreement，Macao and the EU have rolled out a number of joint projects，such as the Euro-Info Centre in Macao，Asia’s very first European information centre，established in 1992 and the Institute of European Studies of Macao，which offers Master’s degree courses in European studies and was founded in 1995.Since the establishment of the Macao SAR，Macao has remained on good terms with Portugal. Macao and Portuguese-speaking countries enjoy long-standing and deep relationships. Eight Portuguese- speaking countries，namely Portugal，Brazil，Cape Verde，Sao Tome and Principe，Guinea-Bissau，Angola，Mozambique and East Timor，with a population of 230 million，formed the Community of Portuguese- speaking Countries in Lisbon，the capital of Portugal，in 1996. Besides its close links with Portugal，Macao also has traditional and special relationships with other members of the community. It is the only Chinese city capable of a developing a special relationship with the Portuguese-speaking countries. One of the Macao SAR Government’s policy objectives is to transform Macao into an economic and trading service platform between China and the Portuguese-speaking countries.The Central People’s Government also attaches importance to this role.It arranged for Macao to host the first Forum for Economic and Trading Cooperation between China and Portuguese-speaking countries in October 2003. China and 7 Portuguese-speaking countries，namely Portugal，Brazil，Cape Verde，Guinea-Bissau，Angola，Mozambique and East Timor，sent government and business delegations to this big event.During the forum，ministerial-level officials of China and the seven participating countries signed the Economic and Trade Cooperation Action Plan. According to the plan，the forum is to be held every three years in Macao；besides，a permanent secretariat for the forum was established in Macao. During the first three years after the forum，the trading volume between China and the Portuguese-speaking countries doubled. In 2005，the volume mounted to 23 billion US dollars. It is estimated that the volume in 2006 is between 33 and 35 billion US dollars，and it is expected that in 2009，the volume will reach 45 to 50 billion US

dollars.16 In September 2006，ministerial-level officials of the eight members of the forum held the 2nd ministerial-level meeting in Macao and a new action plan for the duration of 3 years was approved. The Ministers’ participation reaffirms that Macao should continually exert its role of being a platform，so as to reinforce the cooperative relationship between China and Portuguese-speaking countries in terms of economics and trade，and emphasizes that it is necessary to improve cooperation between China and Portuguese-speaking countries，and among the enterprises of Macao SAR，of the Mainland and of Portuguese countries，in trading，transportation，investment，agriculture and fishing，source exploration，construction of infrastructure，hygiene and communication，developing cooperation of different types，and agreeing on continuously stimulating and encouraging the training of human resources of Portuguese-speaking countries by Macao.Besides working on developing international connections，Macao is paying special attention to cooperation with Hong Kong，Taiwan and especially the Mainland. Hong Kong is linked closely to Macao by the water and pairs with Macao as the other special administrative region of China. The two share a similar historical background，economic and social systems and future goals，and cooperation between the two re- gions is complementary and mutually reinforcing，and the leading role of Hong Kong is obvious. Taiwan and Macao also share similar economic systems and the historical connection between the two has been deep and frequent. The complementary relationship between the two places is also outstanding. Macao and Zhuhai are territorial neighbors and are also partners which have complementary advantages. The relationship between Macao and the Pearl River Delta of Guangdong Province is continuously developing.On 17th October 2003，the Mainland and Macao Closer Economic Partnership Arrangement （CEPA） and its six annexes were signed officially and became effective on 1st January 2004. It marked a closer economic relationship between the two sides. After its enactment，four supplements were signed on 29th October 2004，21st October 2005，26th June 2006 and 2nd July 2007，which broaden and deepen the range of cooperation. The Supplement to the CEPA further enhances the economic and trade interflow and the cooperation level between the Mainland and the Macao SAR by broadening and enriching the contents about the trade in goods and services stated in the CEPA. The

Supplement II to the CEPA states that from 1st January 2006，the Mainland shall fully implement zero tariff on imported goods of Macao origin，17 and further relax the market access conditions in a number of areas in the service trade. The Supplement Ⅲ to CEPA further elaborates on the sphere of trade in services and that of trade and investment facilitation. With the signing of this supplement，the Mainland shall further relax the market access conditions in 8 areas of trade in services；the two sides also agreed to include cooperation in the convention and exhibition sector and protection of intellectual property rights as supplementary components of Industrial Cooperation in the Trade and Investment Facilitation under CEPA. The most updated content on CEPA is stated in its fourth supplement. According to the Supplement IV to CEPA，from 1st January 2008，the Mainland shall，on the basis of the commitments on liberalization of trade in services under CEPA，the Supplement to CEPA，the Supplement II to CEPA and the Supplement Ⅲ to CEPA，further relax the market access conditions in 28 sectors，namely，legal，medical，computer and the related services，real estate，market research，management consulting related services，public utilities，job intermediary，building-cleaning，photographic，printing，translation and interpretation，convention and exhibition，telecommunications，audiovisual，distribution，environmental，insurance，banking，securities，social services，tourism，cultural and recreational，sporting，maritime transport，air transport，road transport and individually owned stores. The two sides will also further strengthen their cooperation in the finance sector and intensify the cooperation in the convention and exhibition sector.According to Macao’s official statistics，since the implementation of the CEPA，both sides have confirmed the rules of origins for 656 types of imported goods. By the end of May 2006，the Macao Economic Services has already issued 217 “Certificates of Origin，” and the total value of exported goods to the Mainland with zero tariff reached 12.32 million patacas，saving tariff in the amount of 1.04 million patacas.Moreover，it has also issued 237 “Certificates of Service Supplier”，allowing 24 Macao enterprises establish business in the Mainland. In 2005，there were 221 individual merchants registered in Mainland with altogether 426 employees.18The economy of the Mainland is developing rapidly into a well-off society and many people now are enjoying a richer life and better living

standards. They have long been the main and long-lasting source of Macao’s visitor arrivals. In 2005，the total number of visitor arrivals in Macao was 18.7 million，among which，10.5 million （55.9％） are from the Mainland. In 2003，the Central People’s Government implemented the Individual Visit Scheme which allows travelers in certain cities of the Mainland to visit Hong Kong and Macao on an individual basis. By 1st January 2007，the scheme was extended to 49 cities，including the whole of Guangdong Province，four direct-controlled municipalities，capitals of a number of provinces and some important cities，covering a population of about 270 millions （Table 7-2）.In 2005，the scheme has brought 11.5 million visitors from the Mainland to Macao. Their consumption in Macao is around 30 billion Renminbi.19Table 7-2 Cities in the Mainland Implementing the IndividualVisit SchemeDate CitiesPopulation(millions)28th July 2003 Guangdong Province: Zhongshan, Jiangmen, Dongguan and Foshan1820th August 2003 Guangdong Province: Guangzhou, Shenzhen, Zhuhai and Huizhou261st September 2003 Shanghai and Beijing 321st January 2004Guangdong Province: Shantou,Chaozhou, Meizhou, Zhaoqing, Qingyuan and Yunfu2420th April 2004Guangdong Province: Zhanjiang, Yangjiang, Maoming, Shaoguan, Jieyang, Heyuan and Shanwei231st May 2004 The Whole Guangdong Province 77*1st July 2004Jiangsu Province: Nanjing, Suzhou and Wuxi; Zhejiang Province: Hangzhou, Ningbo and Taizhou; Fujian Province: Fuzhou (urban area only), Xiamen, and Quanzhou50

（continued）* It is the whole population of Guangdong Province.** The total population is calculated by adding up the population of the whole Guangdong Province and that of direct-controlled municipalities and cities of other provinces in- cluded in the table. The population of individual cities in Guangdong Province imple- mented with the Individual Visit Scheme before 1st May 2004 is included in the population of Guangdong Province.Source：Macao Daily News，12th October 2006，p. A01In recent years，the Pan-Pearl River Delta （PPRD） regional cooperation is greatly encouraged. The “PPRD Cooperation Framework Agreement” was signed on 2nd June 2004，which launched cooperation between 9 provinces，namely Guangdong，Fujian，Jiangxi，Hunan，Guangxi，Hainan，Sichuan，Guizhou and Yunnan，as well as the 2 SARs，Hong Kong and Macao. This Agreement has set forth that the cooperation will be hinged on the principles of voluntary participation，market-orientation，openness and fairness，complementarities with each other’s advantages and joint prosperity. In the framework agreement，the participants will fully cooperate in 10 major areas，namely infrastructure，enterprise and investment，information development，tourism，commerce and trade，agriculture，labor，science，education and culture，environmental protection and health and disease prevention.Under this framework，the potential of Macao can be further developed.1st March 2005Tianjin and Chongqing (restricted for 15 zones and counties only)Over 401st November 2005Sichuan Province: Chengdu; Shandong Province: Jinan; Jilin Province:Dalian: Liaoning Province: Shenyang201st May 2006Jiangxi Province: Nanchang; Hunan Province: Changsha; Guangxi Province: Nanning; Hainan Province: Haikou; Guizhou Province: Guiyang; Yunnan Province: Kunming261st January 2007Hebei Province: Shijiazhuang; Jilin Province: Changchun; Anhui Province Hefei; Henan Province: Zhengzhou; Hubei Province: Wuhan23.38Total 49 cities About270**

The PPRD area is the core on which Macao is highly dependent on for future development.7 .3 B usiness E n v iro n m e n tThe Macao SAR Government is highly concerned about building a free and efficient business environment for investors. It offers “One-Stop Service” through the Macao Trade and Investment Promotion Institute （IPIM），providing support and assistance to investors.In August 2002，the IPIM，in collaboration with many other government bureaus，established the Macao Business Support Centre （MBSC）.The MBSC provides a wide range of business support for enterprises and commercial chambers of different countries and regions，especially for small and medium enterprises. It serves foreign investors by helping them to reduce set-up costs and familiarize with the business environment and the relevant administrative procedures in Macao. The free services provided by MBSC include modern offices，small rooms for business talks，computers，Macao business enquiry service，multi-function conference rooms，exhibition hall，broad-band internet service and general information and business navigation services.Macao International Trade and Investment Fair （MIF） is currently the largest trade event held in Macao as well as being the only exhibition accredited by the Global Association of the Exhibition Industry （UFI） as an approved event. MIF is an integrated exposition comprised of high rank political and economic forum，product exhibition，business matching，international purchasing and professional presentation. Over the years，MIF has played an active role in promoting trade and investment，economic cooperation，diverting investment，increasing imports and exports and information exchange. The yearly MIF has already become one of the most famous events in the Macao SAR，and the 12th MIF will be held in the newly opened Venetian Macao Convention and Exhibition Centre from 18th-21st October 2007. There are several exhibition zones in the MIF such as the exhibition zone for international small and medium-sized enterprises，including Chinese provinces exhibition zone，Macao exhibition zone，Portuguese-speaking countries exhibition zone，Portugal exhibition zone，European community exhibition zone，trade and investment promotion institutes and international convention and exhibition zones，and international

exhibition zone.In addition，the Macao Productivity and Technology Transfer Centre （CPTTM），a non-profit organization jointly established by the Macao Government and the private sector，also supports enterprises to utilize effectively new conceptual thinking，information and resources in order to increase the value-added dimension of its products or services，through trainings and technical support，in different forms.The Macao SAR Government lays no restrictions on the setting up of business. The administrative procedures are the same for local people and entities and foreign investors. However，for running certain kinds of businesses，special licenses are needed. Forms of commercial entities，a company’s internal structure and commercial operations are regulated by the Commercial Code of Macao，enacted on 1st November 1999.According to the Code，commercial entities in Macao can be of 3 types：① Individual Entrepreneur （EI） or Commercial Entrepreneur，natural person，same as “Sole Proprietorship” under the previous Commercial Code of Macao：this kind of business is exercised by one person using his own name or by his employees. He is wholly liable for all debts incurred in the business；② Company or Commercial Entrepreneur，corporate body：the members of the company contribute either in capital or in industry for the company，practicing profit reverting economic activities back into the company and sharing the profit with the members；③ Economic Interest Group （AIE）：joining 2 or above companies without affecting their qualifications of legal persoi aimed at promoting and developing each other’s economic activities oi simply improving and expanding the economic activities of their companies.Macao，as a highly open market，is a free port and an independent custom region. There is no foreign exchange control and the place is favored by free capital flows. No customs duty is imposed to imported goods （such as raw materials and machines）.Excise duty is levied on concrete，fuel，lubricants，tobacco，alcoholic drinks and sparkling soft drinks containing flavors and minerals.Macao has a low tax rate and levies 14 types of taxes in total. The major types of taxes levied in Macao SAR are profits tax，business registration tax，salaries tax，property tax，consumption tax，motor vehicle tax，tourism tax and stamp duty，among which，profits tax rate ranges from 3％ to 12％ and salaries tax rate from 7％ to 12％.

Table 7-3 Profits Tax RateSource：Macao Finance Services Bureau，http：//www.dsf.gov.mo/Impostos/C_impostos_fs.htm，8th August 2007.Table 7-4 Salaries Tax RateSource：Macao Finance Services Bureau，http：//www.dsf.gov.mo/Impostos/C_impostos_fs.htm，8th August 2007.Taxable Annual Profit Range Percentage (%)≤ 32,000 patacas Exempt32,001 - 65,000 patacas 365,001 - 100,000 patacas 5100,001 - 200,000 patacas 7200,001 - 300,000 patacas 9≥ 300,000 patacas 12Taxable Yearly Income Percentage (%)Income up to 95,000 patacas ExemptPortion exceeding 95,000 patacas:Up to 20,000 patacas(i.e. from 95,001 to 115,000 patacas)720,001 to 40,000 patacas(i.e. from 115,001 to 135,000 patacas)840,001 to 80,000 patacas(i.e. from 135,001 to 175,000 patacas)980,001 to 130,000 patacas(i.e. from 175,001 to 225,000 patacas)10130,001 to 280,000 patacas(i.e. from 225,001 to 375,000 patacas)11Above 280,000 patacas(i.e. total above 375,000 patacas )12

The Macao SAR has adopted a simple taxation structure with low tax rates. All investors can enjoy very low income tax and business tax.Most imported goods are not subjected to any custom duty. The Government does not interfere in profit allocation. Various favorable measures are adopted for improving the business environment.In Macao，the Commission Against Corruption （CCAC） functions as the supervisory body of the Macao SAR Government. Starting from 20th February 2006，the United Nations Convention against Corruption applies to the Macao SAR. In May 2006，the Macao SAR was endorsed as one of the 27 members of the “Anti-Corruption Action Plan for Asia and the Pacific.” In March 2006，the Political and Economic Risk Consultancy publicized its Annual Report Trend of Corruption in Asia，in which Macao ranked the 4th with a grade of 4.78，following Singapore，Japan and Hong Kong.20 （Grades range from 0 to 10，with 0 being the best grade possible and 10 the worst.）7 .4 E d u c a t io n ，H e a lth C a re and S o c ia l W e lfa reThere are both public and private schools in Macao. The free education program was first implemented in 1995 in public schools.Private schools that join the public school network may also benefit from the free education scheme and subsidies from the Government. In the 1995/1996 school year，a 7-year free education scheme was implemented，which started from the preparatory class for primary till the end of the primary education. In the 1997/1998 school years，the scheme was extended to junior secondary level. In the 2005/2006 school year，the licensed kindergarten was also included in the scheme. In February 2007，Chui Sai On，the Secretary for Social Affairs and Culture，announced that the SAR government has decided to advance the date of free education for all students of non-higher educational institutions to the 2007/2008 school year instead of the promised year of 2009/ 2010. In the 2007/2008 school year，schools within the public school network will provide free education in kindergarten，primary，junior and senior secondary stages.21There were 123 schools providing non-tertiary education in Macao during the 2005/2006 school year，employing 4，526 teachers and enrolling a total of 91，398 students. There were 10，216 students （11.2％） in pre-school level，35，187 （38.5％） in primary level，43，751 （47.9％） in secondary level and 2，244 （2.5％） in vocational schools.22

The human development index in the year of 2004 was 0.909.23Currently，there are in total 12 higher education institutions in Macao24，including the University of Macau，the Macao Polytechnic Institute，Institute for Tourism Studies，Academy of Public Security Forces which are public while the remainder are private. The University of Macau，founded in 1981，was the first modern tertiary education institution in Macao，with an integrated teaching system. It consists of five faculties，namely，the Faculty of Business Administration，the Faculty of Education，the Faculty of Law，the Faulty of Social Science and Humanities，and the Faculty of Science and Technology.The total number of registered students in 2006/2007 school year was 6，283 offering around 100 doctoral，masters’ and bachelor’s degree programs.25 The Macao University of Science and Technology，founded in 2001，is a private university with integrated teaching systems.In the field of health care，specialist medical services are provided by Conde S. Januario Hospital and the Kiang Wu Hospital. In 2006，the two hospitals provided a total of 1，120 hospital beds，including 980 in-patient hospital beds for general hospitalization，intensive care units，newborns and others，and 140 non in-patient beds for emergency rooms，day hospital and other usages.26 In 2006，the number of doctors and nurses were 1，149 and 1，212 respectively. Numbers of residents per hospital bed，per doctor and per nurse are 447，424，and 524 respectively.27 Speaking of primary health care，in 2004，there were a total of 434 primary health care establishments in Macao，including 13 health centres under the Government Health Bureau and 421 private clinics.28 Traditional Chinese medical services and medicine are widely taken and welcomed in Macao. Both the University of Macau and the Macao University of Science and Technology offer research institutions specializing in the area of Chinese medicine.In 2006，the major underlying causes of death were neoplasm （33.5％），circulatory system diseases （24.3％） and respiratory system diseases （13.9％）.29The social welfare system is well established in Macao. In 2006，there were a total of 32，629 recipients who benefited from various kinds of government social welfare funds and help，including old-age pension，disability pension，social security pension，special payment，unemployment benefit，sickness allowance，birth allowance，marriage allowance，funeral subsidy，compensation for pneumoconiosis，and etc.

The total number of payments was 240，445 and the total amount was about 266.7 million patacas.307 .5 A H ig h Degree o f A u to n o m yThe Basic Law of the Macao SAR，established and adopted by the National People’s Congress，the highest organ of state power，is，just as the name of the law says，the legal basis of the Macao SAR. In Chapter I- General Principles，it stipulates：“The National People’s Congress authorizes the Macao Special Administrative Region to exercise a high degree of autonomy and enjoy executive，legislative and independent judicial power，including that of final adjudication，in accordance with the provisions of this Law.” （Article 2）“The socialist system and policies shall not be practiced in the Macao Special Administrative Region，and the previous capitalist sys- tem and way of life shall remain unchanged for 50 years.” （Article 5） ‘‘The right of private ownership of property shall be protected by law in the Macao Special Administrative Region.” （Article 6）“The land and natural resources within the Macao Special Admin- istrative Region shall be State property，except for the private land recognized as such according to the laws in force before the establish- ment of the Macao Special Administrative Region. The Government of the Macao Special Administrative Region shall be responsible for their management，use and development and for their lease or granting to individuals or legal persons for use or development. The revenues derived therefrom shall be exclusively at the disposal of the government of the Region.” （Article 7）In Chapter V 一 Economy，the Basic Law stipulates：“The Macao Special Administrative Region shall，in accordance with law，protect the right of individuals and legal persons to the acquisition，use，disposal and inheritance of property and their right to compensation for lawful deprivation of their property. Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay. The ownership of enterprises and the investments from outside the Region shall be protected by law.” （Article 103）“The Macao Special Administrative Region shall have independent

finances.All the financial revenues of the Macao Special Administrative Region shall be managed and controlled by the Region itself and shall not be handed over to the Central People’s Government. The Central People’s Government shall not levy taxes in the Macao Special Administrative Region.” （Article 104）“The Macao Special Administrative Region shall practice an independent taxation system. The Macao Special Administrative Region shall，taking the low tax policy previously pursued in Macao as reference，enact laws，on its own，concerning types of taxes，tax rates，tax reductions，allowances and expenditures，and other matters of taxation. The taxation system for franchised businesses shall be otherwise prescribed by law.” （Article 106）“The monetary and financial systems of the Macao Special Administrative Region shall be prescribed by law. The Government of the Macao Special Administrative Region shall，on its own，formulate monetary and financial policies，safeguard the free operation of financial markets and all kinds of financial institutions，and regulate and supervise them in accordance with law.” （Article 107）“No foreign exchange control policies shall be applied in the Macao Special Administrative Region. The Macao Pataca shall be freely convertible. The foreign exchange reserve of the Macao Special Administrative Region shall be managed and controlled by the Government of the Macao Special Administrative Region according to law. The Government of the Macao Special Administrative Region shall safeguard the free flow of capital within，into and out of the Region.” （Article 109）“The Macao Special Administrative Region shall maintain the status of a free port and shall not impose any tariff unless otherwise prescribed by law.” （Article 110）“The Macao Special Administrative Region shall pursue the policy of free trade and safeguard the free movement of goods，intangible assets and capital.” （Article 111）“The Macao Special Administrative Region shall，in accordance with law，protect the free operation of industrial and commercial enterprises and make its own policies on the development of industry and commerce. The Government of the Macao Special Administrative Region shall improve the economic environment and provide legal guarantees for promoting the development of industry and commerce

and for encouraging investments，technological progress and development of new industries and new markets.” （Article 114）“The Macao Special Administrative Region shall，on its own，make policies on tourism and recreation in the light of its overall interests.” （Article 118）“The Macao Special Administrative Region shall carry out the protection of environment in accordance with law.” （Article 119）The afore cited provisions state that the Macao SAR，one of the administrative regions of the People’s Republic of China，is ruled directly by the Central People’s Government and enjoys a high degree of autonomy. The fundamental policies such as “one country，two systems，” “Macao people ruling Macao，” “a high degree of autonomy” and unchanged for 50 years，” etc. offer a general and sufficient guarantee of the healthy development of Macao. Confidence in the fundamental national policy of keeping the stability and prosperity of Macao in the long run，firmness in maintaining the principle of “one country，two systems” as well as the attention from all the Chinese people and efforts which they are willing to make toward supporting the development of Macao in a healthy way are all undoubted.Nevertheless，effort on the part of the government of the Macao SAR is at the same time crucial for ensuring the success of the policy of “one country，two systems，” in a complete and a creative way. In practice，the Macao SAR shall follow the basic policies，especially in the following aspects：① Keep the previous economic system unchangedAs the economic system is the fundamental base of the whole society，in order to reach the goal of “the socialist system and policies shall not be practiced in the Macao SAR，and the previous capitalist system and way of life shall remain unchanged for 50 years，” the basic issue is to keep the economic system whose core is to protect the private property rights. The economic system defined by Chapter V （Economy） of the Basic Law，is actually an extensive explanation of the original economic system，reflecting the characteristic of the free market economy of capitalism of Macao. On the other hand，it also provides room for harmonious development under the new circumstance and in the new age.

② Assure a high degree of autonomy in terms of economic affairsAdministration，including management of economic affairs，is one of the important aspects of the Macao SAR when exercising a high degree of autonomy. Provisions in Chapter V which reflect the characteristic of “Macao people ruling Macao，” imply that Macao itself can manage its local economic affairs.③ Establish a legal economic systemThis is one of the important requirements of the Macao SAR in terms of administration in accordance with law. Management of economic affairs should depend on laws which regulate these affairs.Only by managing the economy in accordance with law can the relative subjects access and exit from the market in free order. Hence all economic activities should be practiced under fair and reasonable principles. Fair competition must be assured，and the economy should develop in a continuous and stable way.④ Adopt an ideology of modernized developmentIn order to keep pace with economic globalization，informatization and legislation，and to upgrade the quality of human resources and international competitiveness，it is necessary to set up，under the protection of the Basic Law and in a timely manner，an ideology of modernized development which includes concepts for scientific positioning，making good use of advantages，competition，breakthrough in adversities，creative thinking，etc.317 .6 E c o n o m ic S tru c tu re an d Its C om pe titivenessDuring the 1960s and 1970s，Macao’s industries started to grow at a high speed and entered a stage in which the territory established a solid economic foundation. The characteristics of the industries at that time were basically intensive production meeting the textile quota restriction with cheap labor and favorable tax incentives. In the 1980s，due to advances in automation and information technology，the labor-intensive export processing activities changed to become more technological and capital-intensive. Services industries began to rise in the 1980s. At the beginning of the 1990s，due to the transformation of the economic patterns，tertiary industry started to take up a remarkable share in the overall Macao economy. The GDP of Macao increased

from 9.8 billion patacas in 1985 to 52.3 billion patacas in 1995，and GDP per capita increased from 33，742 patacas to 127，715 patacas.32 However，it was recorded as a negative economic growth for four consecutive years following 1996；the figures were -0.4％，-0.3％，-4.6％ and -2.4％ respectively.33 Severe imbalance in the inner structure of the local market，low investment intention，weak market demand，and the Asian Financial Crisis all led to the economic recession.Macao was handed over to China on 20th December 1999. Under the principles of “one country，two systems，” “Macao people ruling Macao” and “a high degree of autonomy，” different policies were adopted to boost the economy：the granting of more gaming concessions，the approval of numerous infrastructure projects which stimulate investment，the signing of the CEPA between the Mainland and Macao in 2003，and the Individual Visit Scheme all greatly promoted growth of the tourist industry. Under these initiatives，the economy of Macao not only gradually recovered but fully rebounded and entered into the best development cycle ever in history. During the 7 years between 1999 and 2006，Macao’s GDP grew from 47.3 billion patacas to 114.4 billion patacas.34 The real growth rate of the GDP was as high as 28.4％ for 2004，6.9％ for 2005，and 16.6％ for 2006.35 The GDP per capita grew from 110，637 patacas in 1999 to 227，508 patacas in 2006 （Table 7-5）.36 By the end of 2006，the unemployment rate was 3.8％ while the median monthly earnings of employed population was 6，701 patacas which was an increase of 16.1％ comparing with 5，773 patacas in 2005.37 By the end of June 2007，the foreign exchange reserves of Macao accumulated 89.6 billion patacas （equivalent to 11.1 billion US dollars）38，indicating the health of Macao’s economy.Table 7-5 Estimation of GDP at Current Prices （1982-2006）ItemsYearGDP (thousands of patacas)GDP Per Capita (patacas)Real Growth Rates of GDP (% at constant prices of 2002)1982 6,360,652 24,9761983 7,587,965 28,175 101984 9,503,356 33,481 8.51985 9,775，167 33,742 0.7

（continued）Source：Macao Statistics and Census Service，Estimates of Gross Domestic Product 2006，pp. 58 & 66.Judging from its scale of economic development，Macao can be considered as a typical example of a mini-economy，and a highly opened free market economy. Limited though the scale is，Macao’s economic activities are energetic. Macao has earned an international reputation.On 26th July 2007，Moody’s Investors Service upgraded Macao’s foreign- and local-currency government issuer ratings to Aa3 from A1 in light of solid government finances. It has also upgraded Macao’s foreign currency bank deposit ceiling to Aa3 from A l. The outlook for all these ratings is stable.39 In 2006，Foreign Direct Investment （fDI），a publication of the Financial Times Group，rated Macao as the “Best1986 11,026,709 37,245 6.71987 14,311,401 46,641 14.31988 16,781,702 53,107 7.81989 19,914,453 61,257 5.01990 23,984,213 71,603 8.01991 27,734,297 78,869 3.71992 36,522,779 98,475 13.31993 42,070,402 109,563 5.21994 46,715,289 117,737 4.31995 52,273,851 127,715 3.31996 52,805,487 127,211 -0.41997 53,231,506 127,563 -0.31998 49,360,446 116,884 -4.61999 47,287,433 110,637 -2.42000 48,972,396 113,739 5.72001 49,704,405 114,501 2.92002 54,818,745 125,058 10.12003 63,566,339 142,825 14.22004 82,899,362 181,580 28.42005 92,590,909 194,214 6.92006 114,364,400 227,508 16.5

Economic Potential City” in Asia in the “2005-2006 Best Economic Prospect City in Asia” selection. At present，Macao is experiencing a period of sound economic growth.For a better understanding of the economic structure of this city，the following sub-sections will explain in detail the main characteristics of Macao as a mini-economy，its development pattern and future orientation by further analyzing its economic situation.7.6.1 Distribution of Industrial StructureThe proportion and transformation of the three types of industries in Macao did not occur in the normal order. “The economy of Macao did not develop in the progressive manner usually noted in the global economy. Primary industries such as agriculture and farming never held an important position in Macao. Processing activities dominated by wear- ing apparel and textiles industries became prosperous，without depending on a capital fund and labor force from the agricultural sector.Similarly，tertiary industry grew independent of the secondary industry.The tourist sector，the predominant tertiary industry，benefited indirectly from the gaming industry.”40 This explains why Macao did not develop in an orderly way. Under the economic structure of Macao，the primary sector had declined and was of little significance；only the fishery persists nowadays. Secondary industries，once deemed the main support of Macao’s economy making up as much as 35.9％ of the economy in the middle of the 1980s，have been decreasing. They have been replaced by the tourist and gaming industries which have been under rapid development since the late 1980s. In 2005，secondary industries only made up of 14.73％ of the GDP （with 8.61％ by the construction industry）.41 The economy，instead，was mainly supported by the gaming and tourist industries. The tourist industry ranked first among the tertiary industries with 88.75％42 of the GDP in 2005 （-3.48％ was adjusted for FISIM），and the gaming industry made up 34.65％43 （Table 7-6）.The tertiary industries accounted for 78.7％44 of the total employment population of Macao in the 1st quarter of 2007.Though the capacity of Macao’s economy is tiny，its internal economic activities are relatively independent.

7.6.1.1 Primary industriesThe primary industries of Macao are mainly agriculture and fishing. In its early days，about 2％ of the land in Macao was dedicated to agriculture and a very small portion was used for the livestock industry.45 Fishing was one of the oldest economic activities in Macao.In the early 1980s，the total fish haul increased year by year and reached 6，642 tons in 1980. But this old industry started to decline in late 1980s，with only 1，930 tons in 1994 and 1，624 tons in 1995 which was only 15％ of the local market consumption.46 Now agriculture no longer exists and the fishery is still declining. The decline of the fishery is owing to the worsening water pollution，the decreasing supply of aquatic products due to over-fishing and the fact that many fishermen have moved their business to Hong Kong for there are not sufficient piers for unloading due to the renovation of Macao’s inner harbor.477.6.1.2 Secondary industriesMacao’s secondary sector is subdivided into four main categories，namely the mining and quarrying industry，the manufacturing industry，the electricity，gas and water supply industry，and the construction industry. The manufacturing industry has once been the most important sector. It accounted for 20.61％ of the total GDP in 1989 （Table 7-6）.However，it decreased most substantially among other industries in GDP from 10.08％ in 2000 to 4.28％ in 2005，with a drop in its gross value added （GVA） of 18.1％ in 2001 and a slight decrease of -1.8％ in 2005.The average growth rate of its GVA is -4.88％ .Then，due to the construction of the casino-resort projects，the construction industry boomed rapidly. The year 2005 witnessed a rocketing growth of the sector with a GVA of 131.1％ （Table 7-7）.However，the secondary industries of Macao are mainly labor-intensive and do not involve high technology. Most of the products produced in Macao factories are low value-added goods. The manufacturing industry involves mainly light knitting. Moreover，the secondary sector in Macao is characterized by incompleteness and uneven distribution. It consists of mainly light industries，for the lack of natural resources restricts the development of any heavy industries. As a result，the secondary sector of Macao is of low diversification.48

7.6.1.3 Tertiary industriesThe tertiary sector of Macao is classified into four main categories：the industries of wholesaling，retailing，restaurants and hotels；the industries of transportation，warehouse storage；the industries of financial intermediation，real estate；and the industries of public administration，social and personal services. In 2005，public administration，social and personal services （including the gaming industry） made up the biggest proportion （49.48％） among all the others in tertiary industries，followed by financial intermediation，real estate，renting and business activities （22.52％），wholesale，retail，repair，hotels and restaurants （12.09％） and transport，storage and communications （4.65％） （Table 7-6）.Due to the granting of more concessionaires and the introduction of the Individual Visit Scheme，the gaming industry has recorded a GVA growth of 31.4％ in 2003，31.1％ in 2004 and 4.4％ in 2005，the highest in tertiary industries in recent years.Driven by gaming sector，other industries，especially retail and hotel sectors，also grew by 35.9％ in 2004 and 10.4％ in 2005 （Table 7-7）.Though the tertiary industries have been under steady development，they do have an impact on the industrial structure of Macao as a whole.First of all，they created an imbalance among Macao’s industries. There was a significant difference between tertiary industries and primary and secondary industries，making the fundamental structure of Macao’s economy unstable and highly dependent on external sources. Secondly，the internal structure of tertiary industries was also uneven，with public administration，social and individual services which include the gaming industry making up the largest proportions of GDP. The concentration on the gaming industry was an underlying threat to the sustainable development of Macao’s economy.

Source：Macao Statistics and Census Service，Estimates of Gross Domestic Product 2006，pp. 92-93.Table 7-6 Structure of Production-based GDP at CurrentPrices，1989-2005 （％）1989 27.8 0.06 20.61 2.42 4.71 75.14 13.95 3.48 19.76 37.941990 24.48 0.03 17.04 2.46 4.95 78.52 13.0 3.57 20.14 41.811991 21.81 0.04 14.9 2.21 4.66 81.32 12.51 3.54 21.97 43.31992 20.68 0.04 11.9 2.14 6.6 82.28 10.81 3.56 24.82 43.091993 18.96 0.06 9.59 2.29 7.03 95.43 10.22 3.59 27.46 44.151994 17.75 0.05 8.74 2.14 6.82 96.72 11.2 3.72 26.32 45.471995 16.34 0.03 8.08 2.23 6.0 87.82 10.78 3.62 25.74 47.681996 15.54 0.02 8.35 2.61 4.56 89.42 13.16 4.82 24.33 47.121997 15.74 0.02 8.58 2.68 4.46 89.95 10.78 6.86 25.16 47.141998 16.97 0.02 9.81 3.32 3.82 89.85 10.71 7.33 27.43 44.381999 16.79 0.01 9.79 3.4 3.59 88.89 10.47 7.58 26.19 44.742000 15.68 0.01 10.08 2.96 2.64 90.33 11.18 7.64 23.96 47.552001 13.75 0.01 8.32 3.14 2.28 92.12 11.83 6.91 22.64 50.732002 12.63 0.01 7.18 2.76 2.68 92.69 12.54 6.76 21.68 51.722003 12.68 0.02 6.15 2.6 3.91 91.45 11.69 5.32 20.23 54.212004 11.56 0.02 5.09 2.08 4.36 91.56 12.82 4.97 19.25 54.512005 14.73 0.01 4.28 1.83 8.61 88.75 12.09 4.65 22.52 49.48Indu-striesYearSecondary Industry Tertiary IndustryTotalMining & quarryingManufacturingElectricity, gas & water supplyConstructionTotalWholesale, retail, repair, hotels & restaurantsTransport, storage & communicationsFinancial intermediation, real estates, renting and business actPublic administration, other community, social & personal services (including gaming industry)

Table 7-7 Growth-rates of Production-based GDP and GVA atCurrent Prices，1995-2005 （％）Source：Macao Statistics and Census Service，Estimates of Gross Domestic Product 2006.pp. 104-105.7.6.2 Adjustment of the Four Major IndustriesThere were four distinguishing economic divisions among the major industries in the 1980s，export and processing，finance servicing，real estate construction and tourist and gaming industries. Tourist and gaming industries have always been ahead of the other industries.Export and processing，used to be of great importance，appeared to haveIndu-striesSecondary Industry Tertiary IndustryYearTotalMining & quarryingManufacturingElectricity, gas & water supplyConstructionTotalWholesale, retail, repair, hotels & restaurantsTransport, storage & communicationsFinancial intermediation, real estates, renting and business actPublic administration, other community, social & personal servicesGaming industry1995 1.4 -42.6 1.8 14.9 -3 11.6 6.1 7.3 7.8 20 13.019% -7.7 -34.3 0.3 13.4 -26.3 -1.2 18.4 29.0 -8.3 -1.7 -5.81997 2.5 14.6 3.8 4.1 -1.1 1.7 -17.1 44.1 4.6 0.7 1.51998 -3.3 4.4 2.6 10.9 -23.3 -10.4 -10.9 -4.2 -2.2 -5.2 -22.31999 -3.6 -46.6 -2.8 -0.3 -8.4 -3.5 -4.8 0.7 -7.0 2.3 -5.12000 -4.1 -51.1 5.8 -10.7 -24.5 4.3 9.7 3.5 -6.0 -2.6 19.32001 -12.9 132.1 -18.1 5.6 -14.1 1.3 5.1 -10.1 -6.1 3.5 7.72002 0.7 2.5 -5.3 -3.8 28.7 10.3 16.2 7.2 5.0 5.7 16.02003 15 55.5 -1.9 8.0 67.3 13.0 6.8 -9.9 6.9 1.7 31.42004 13 31.6 2.7 -0.6 38.3 24.1 35.9 16 18.0 10.9 31.12005 49.2 -20.5 -1.8 2.9 131.1 13.4 10.4 9.5 36.8 10.5 4.4

a slight recession under impact of both internal and external factors.The overall economy became more reliant on the service sector （Table 7-6 and Table 7-7）.7.6.2.1 Export processing industry （M anu fac tu r ing industry）Before 2005 when the construction industry grew rapidly due to the building of casinos，hotels and resorts after the opening of the gaming sector，the manufacturing industry made up the largest proportion in Macao’s secondary industries. In 2005，there were 1，238 manufacturing establishments in Macao （consisting of various types of products such as food products and beverages，textiles，wearing apparel，publishing and printing，plastic products，etc） with 34，688 persons engaged49 which was 14.61 ％50 of the total employment. 4.28％ of the GDP in 2005 was made up of manufacturing.51 These figures were comparatively lower than in 1993 which were 9.59％ of the GDP52 and 25.13％ of the total employment.53 In the middle and late 1980s，it was likely that the manufacturing industry of Macao started to diversify with moderate growth in non-textile commodities such as toys，electronic goods and plastic products，etc. However，the manufacture of such products suffered a setback in the 1990s and was replaced by textiles and wearing apparel industries.The manufacturing industries of Macao are characterized as below：Firstly，the manufacture of textiles and wearing apparel had been an essential constituent of Macao’s export processing activities. Since the United Kingdom adopted quota restrictions on the import of textile and wearing apparel products of Hong Kong in the 1960s，some factory owners diverted their investments to Macao. So the textile products of Macao started to open up the European and the US markets and the manufacture developed rapidly. In the 1970s，41 countries and areas worldwide signed the MFA （Multi-Fiber Arrangement） which restricted the import of textile products into Europe and the US. But due to its relationship with Portugal，the textile quota of Macao was under protection. Stimulated by the economic boom of the US in the 1980s，the textiles industry in Macao became so successful that it made up 20.61％ of the GDP in 1989. Under trade protectionism brought forward after the 1990s，and other local problems such as increasing production cost and labor shortage，textiles manufacturing factories

started to move to the Mainland，and thus its growth slackened. The establishments and people engaged in the manufacture of wearing apparel decreased year by year. There were 745 establishments for wearing apparel manufacturing in 1990，but only 454 in 2005. The number of people engaged also decreased from 35，917 to 23，993. The gross outputs of the industry have also decreased in term of patacas in recent years，from the peak of 9.56 billion patacas in 2000 to 7.7 billion in 2005. Similar to the wearing apparel industry，the manufacture of textiles in Macao was under similar challenges. The establishments and people engaged decreased in number between 1990 and 2005. The number of establishments dropped to 71 in 2005 from 290 in 1990，while that of people engaged dropped to 4，085 in 2005 from 10，304 in 1990.The gross output in term of patacas reached its peak in 2000 at 3.3 billion patacas，then it started to fall. The output was valued at 2 billion patacas in 2005 （Table 7-8）.Table 7-8 Development of Macao’s Manufacturing IndustriesItems Number of EstablishmentsNumber of Persons EngagedGross Outputs (billions of patacas)Year\WearingApparelTextileWearingApparelTextileWearingApparelTextile1990 745 290 35,917 10,304 6.83 2.621991 687 266 34,734 10,654 7.04 2.751992 644 237 31,346 9,666 7.32 2.921993 588 227 28,497 9,018 7.20 2.591994 512 178 26,547 8,353 7.23 2.491995 422 165 25,332 6,931 7.66 2.491996 449 147 25,040 6,474 8.17 2.611997 408 140 23,916 5,980 8.61 2.911998 441 134 25,520 2,878 8.30 2.921999 394 115 26,429 6,200 8.54 2.952000 426 109 27,988 6,003 9.56 3.342001 418 96 28,827 5,901 8.69 3.152002 411 89 26,773 5,456 8.39 3.16

（continued）Source：Macao Statistics and Census Service，Industrial Survey.54Secondly，most of the manufacturing industries in Macao are small and medium enterprises with relatively smaller investment in fixed assets and they lag behind in technology. In 2005，there were 1，242 manufacturing establishments with 35，745 person engaged. Analyzed by size of establishments，the 969 establishments （78.0％ of the total） with less than 30 persons engaged employed 18.7％ of the total workforce，with 6，697 persons. In contrast，the 87 establishments （7.0％ of the total） with 100 or more persons engaged absorbed 50.5％ of the total workforce，with 18，035 persons. Judging from the value of gross fixed capital formation，there was an increase of about 236 million patacas in 2005，an average increase of around 190，000 patacas for each establishment. However，a large amount of fixed capital formation in the manufacturing industry was for large-scale establishments. The 4 establishments with over 500 persons engaged made up 68.2％ of the total value of gross fixed capital formation in the sector，with an average of 154.7 million patacas for each. On the other hand，small-scale establishments received less investment. The establishments with less than 30 persons engaged held only 4.6％ of the total gross fixed capital formation of the industry. The year of 2004 even saw a negative growth （Table 7-9）.Moreover，establishments with less than 30 persons engaged were less than 100 m2 in size in 2003 which indicated that land available for expansion was limited. Based on small scale and low level production technology of the enterprises，the manufacturing industry of Macao was basically classified as labor intensive with a low technology level. Aiming to improve the trading environment of small and medium enterprises （SMEs），the Macao government introduced three incentive measures in 2002，the “SMEs Credit Assurance Scheme，” “Project-based SMEs Credit Assurance Scheme” and “SMEs Operations Finance Support Scheme.” The government was to provide bank guarantees of 5％ to 100％ for loans and credit applications by SMEs so that they could obtain enough capital funds for further development.2003 394 81 27,316 4,678 8.63 2.662004 469 85 25,774 4,474 8.81 2.842005 454 71 23,993 4,085 7.70 2.00

Table 7-9 Principal Statistics of the Manufacturing Industry in Macao by Scale of Persons EngagedSource：Macao Statistics and Census Service，Industrial Survey 2004，p. 7 and Industrial Survey 2005，p. 7.Thirdly，the manufacturing industry of Macao is export-oriented.In 2006，the value of total exports increased 3.2 ％ year-on-year to 20.46 billion patacas. The US and the EU remained as Macao’s major export markets，together making up 63.6％ of the total value of exports.As regards the Asian markets，the Mainland and Hong Kong together absorbed 26％ of Macao’s total value of exports in 2006 （Table 7-10）.Regarding the types of exports goods，71.6％ of them are textile and garment.55 The high concentration of both the markets and the types of export goods reflects the fragile structure of Macao’s manufacturing industry. Since the export market depends largely on the textile quotas of Macao，textiles manufacturing was under severe impact when the quota system was cancelled in 2005. In addition to export quota，the said industries also rely heavily on the Mainland. China is an immense source of cheap labor，and many factory owners have moved their locations or processing activities to the Mainland，with the original locations in Macao functioning only as an office for orders negotiation，procurement of raw materials，management，etc. Production and processing activities were taken up by branch factories in China. This explains why the textiles industry of Macao and the Mainland are related and dependent on each other.56 Due to further setbacks toI t e msEstablishments Persons EngagedGross Fixed Capital Formation (thousands of patacas)Scale 2004 2005 2004 2005 2004 20051-29 977 969 6,039 6,697 -15,516 41,44530-49 90 76 3,491 3,001 5,246 46,56650-99 111 110 8,286 8,012 5,132 72,930100-199 64 59 8,422 7,880 38,589 57,587200-499 28 24 8,844 7,371 69,455 69,599≥500 4 4 2,512 2,784 568,199 618,977Total 1,274 1,242 37,594 35,745 671,105 907,104

manufacturing industries，the Macao SAR government proposed the idea of a “Cross-border Industrial Zone” in 2002. Under this scheme，manufacturing activities can be carried out in the trans-border zone. This was one of the preventive measures to stop further moving of factories to the Mainland. The implementation of CEPA under which almost all locally manufactured products can enjoy zero tariff also fully supported the proposal of a Cross-border Industrial Zone.Table 7-10 Exports by Main Country/TerritoryNote：Due to rounding，the totals may not correspond to the sums of the partial figures.Source：Macao Statistics and Census Service，External Trade Statistics December 2006，p. 2.7.6.2.2 The construction and real estate industriesA serious crisis appeared in Macao’s construction and real estate sector in the middle of 1990s. However，this poor situation began to recover gradually starting in 2003. Afterwards，with the opening of theItems 2005 2006CountryValue (thousands of patacas)Structure(%)Value (thousands of patacas)Structure(%)Year-on-year % ChangeEU 3,387,794 17.1 3,996,737 19.5 18Germany 1,173,345 5.9 1,497,073 7.3 27.6UK 741,418 3.7 837,838 4.1 13.0France 533,472 2.7 677,935 3.3 27.1Portugal 16,215 0.1 7,215 0.0 -55.5US 9,646,803 48.7 9,021,307 44.1 -6.5Mainland 2,946,071 14.9 3,035,366 14.8 3.0Hong Kong 1,943,334 9.8 2,292,054 11.2 17.9Taiwan 182,287 0.9 135,571 0.7 -25.6Japan 170,750 0.9 158,901 0.8 -6.9Australia 38,040 0.2 36,691 0.2 -3.5Others 1,508,263 7.6 1,784,638 8.7 18.3Total 19,823,342 100 20,461,265 100 3.2

gaming sector and the continuous economic improvement，it is foreseen that the prospects of the construction and real estate sector will grow brighter. Macao’s modern construction and real estate business started in the beginning of 1960s. By then，horizontal property policy was implemented by the Government，which brought prosperity to Macao’s real estate sector. However，this good situation of development was soon affected by uncertainties in the society as well as lack of confidence for the future. The early 1990s witnessed the booming of Macao’s construction and real estate sector. In 1991，198 buildings were completed and/or extended （among which，164 for residential purpose），with 11，440 units and 1，260，050 m2 in gross floor area. In 1996，there was a new record of 166 completed buildings （among which，131 for residential purpose），with 16，866 units and gross floor area of 1，908，260 m2，which is a 51％ increase compared with that in 1991 （Table 7-11）.The boom of the construction and real estate sector in the 1990s was due to the following three factors.① In order to stimulate the construction and real estate sector，the Government invested a lot in infrastructure projects.② A large number of oversea investors or investors from Hong Kong were attracted by the low prices of Macao’s real estate market. At that time，Hong Kong’s real estates’ prices were 4 or 5 times higher than that of Macao.③ As the Mainland loosened policies on credit，more investment from the Mainland flowed into Macao. The other reason for the booming in 1996 was because the Government stipulated that conceded land and approved building projects should be completed within a fixed period.57 However，while entering the second half of 1990s，development of the construction and real estate sector of Macao began to decline. In 2001，only 22 buildings were started，and the year after，only 26 buildings were completed，with 381 units，which is the lowest number ever. Owing to the opening of the gaming sector，the construction and real estate sector revitalized in 2003.In 2005，prosperity of the construction sector in Macao was led by the implementation of various large-scale tourism and gaming projects and the lively real estate market. 133 building projects were started，completed and extended，with 2，524，506 m2 in gross floor area.（Table 7-11）

Table 7-11 Buildings Started, Completed and ExtendedSource：Macao Statistics and Census Service，Buildings Stated，Completed and Extended，http：//www.dsec.gov.mo/index.asp?src=/english/indicator/e_ec_indicator.html，8th August 2007.From the sales volume or price of transacted units，it is seen that currently，the real estate market of Macao is quite active. 26，400 units with a total value of 25.1 billion patacas were transacted in 2006，down 21.5％ and up 5.5％ separately over 2005. Among the units transacted，65.1％ was residential units （17，175），valued at 19.1 billion patacas，showing a decrease of 16.6％ in units and an increase of 11.5％ in value over 2005. The average transaction price of residential units per square metre of usable area in 2006 was 10，578 patacas，an increase of 5.5％ over 2005.The average transaction price of residential units in the Macao Peninsula，Taipa and Coloane were 9，301 patacas，14，495 patacas and 15，344 patacas per m2 respectively，higher than the level recorded in 2005.58Items Year Buildings Completed and Extended Buildings StartedNumber of BuildingsNumber of UnitsGross Floor Area (m2)Number of BuildingsNumber of UnitsGross Floor Area (m2)1991 198 11,440 1,260,050 — — —1992 184 12,983 1,198,633 219 13,552 1,413,4881993 206 15,668 1,427,298 170 14,386 1,616,1291994 142 9,553 1,140,882 199 17,136 2,231,2521995 235 9,432 1,221,131 154 12,584 1,581,9851996 166 16,866 1,908,260 109 8,253 758,6041997 108 9,096 1,149,961 92 7,684 853,2511998 90 8,321 969,192 74 3,825 569,9871999 65 5,389 668,778 55 3,619 417,2252000 76 3,146 370,315 34 1,167 202,7762001 61 2,622 404,325 22 812 158,2792002 26 381 102,549 38 1,326 157,4942003 33 1,566 243,023 38 2,658 533,0162004 28 1,108 215,108 93 2,757 715,2092005 48 1,277 391,487 85 4,947 2,133,0192006 86 3,026 1,276,321 71 4,756 1,054,289

Furthermore，infrastructure is also the main pillar of the construc- tion sector of Macao. The number of large-scale infrastructure projects has increased along with the economic development of Macao. Before the 1970s，while the general economic development was at a relatively low level，there was only one cross-water bridge in Macao- the Nobre de Carvalho Bridge- which could be described as “large-scale.” Between 1980s and 1990s，various large-scale construction projects，including the Macao International Airport，the Friendship Bridge and the New Maritime Terminal between Hong Kong and Macao，were started.At the beginning of 1990s，expenses on large-scale infrastructure represented only 10 to 15％ of the total expenses of the Government on yearly basis，while in 1999，when those aforementioned construction projects were concluded，the Government’s expenses on infrastructure dropped to 4.9％.59 The airport，the bridge and the Nam Van Lake renovation projects proceeded during the transitional phase before the establishment of the Macao SAR，not only bettering the environment of Macao，which was beneficial for attracting investment and for building up a good image of Macao，but also improving the living standards of the residents，enhancing their confidence on a smooth handover of Macao’s sovereignty. After the Handover，due to the construction of the stadiums and sports facilities for the East Asian Games and of the Sai Van Bridge，the Government’s expenses on large-scale constructions increased again. In 2004，it was recorded that expenses on such projects represented 15.6％60 of the total and in 2005，the amount reached 6 billion Macao patacas. It is believed that along with further economic development of Macao and in order to improve the general living standard of Macao residents and to improve the global environment of Macao，expenses on big-scale projects，such as land reclamation of the new zone，old town renovation，and a cross-water tunnel，will increase further.7.6.2.3 The financial industryThe financial industry is one of the 4 economic pillars of Macao.The main financial institutions in Macao are banks. The banking system of Macao started in 1902 when the Macao Branch of Portugal’s Banco Nacional Ultramarino was opened in Macao. Until the 1970s，there were only around 10 banks in Macao. In August 1970，the Macao government published the Macao Financial System Act，i.e.，the

Decree-Law No. 411/70，after which，the financial system of Macao and business activities in the financial market were disciplined and regulated and foreign banks including those from Hong Kong could open branches in Macao. In the eighties，the new Macao Financial System Act，i.e.，the Decree-Law No. 35/82/M was promulgated，which allows more overseas banks to open branches in Macao. Besides，the Association of Foreign Exchanges and Bankers’ Association were founded. In 1993，the Macao Financial System Act was revised again，and reforms were introduced that emphasized preventative measures with strict entry barriers to the industry，monitoring of the suitability of shareholders and managers，monitoring of new operation risks and consolidating the supervision of financial groups.The Monetary Authority of Macao （AMCM） is now responsible for the supervision of the monetary and financial operations in Macao.According to law，AMCM is vested with，amongst others，the authori- ties and responsibilities to advise and assist the Chief Executive of Macao SAR in formulating and implementing all policies relating to monetary，financial，exchange rate and insurance issues；to guide，co-ordinate and oversee the monetary，financial，foreign exchange and insurance markets，ensure their smooth operation and supervise the actions of those operating within them according to the statutory regulations applicable to these activities；to monitor internal stability and external solvency of the local currency so as to ensure its full convertibility；to perform the functions of a central treasury depository and manage the territory’s currency reserves and other foreign exchange instruments；and to uphold the stability of the financial system.61With continuous development of the financial industry of Macao，the amount of deposits and loans increased rapidly. In 1991，the grand total of residents’ deposits in local banks was 41.3 billion patacas and the grand total of credits to domestic companies and individuals was 20 billion patacas，while in 2005，total deposits were 165.2 billion patacas and total credits were 44.7 billion patacas.62 The pataca is the legal currency of Macao and the power for issuing currency belongs to the Macao SAR Government.The Banco Nacional Ultramarino and the Bank of China Macao Branch are the appointed note-issuing banks. Currently，the financial development of Macao is not perfect enough and we can sum up its characteristics as follows.Firstly，Macao’s financial industry refers mainly to the business of

commercial banks and the financial tools which can be operated in Macao and are not diversified. Macao banks offer stocks，gold，notes in foreign market and foreign exchange services. Apart from banks，there is a small number of financial companies，insurance companies and investment companies which provide financial services to clients.However，the development of Macao’s financial industry has been quite slow as in Macao there is neither a stock exchange office，nor regulated stockbrokers，nor a foreign exchange market. Those financial institutions which provide stock business only buy and sell stock on clients’ behalf，and the dealing amount is rather small.63 In 2006，there were 26 banks in Macao，with a total of 149 branches that offer commercial banking services.Those banks employed 4，047 persons，which represented 1.5％ of the local employed population.64 The banking industry of Macao is limited by the size of the territory and the business activities are not diversified. Macao’s financial activities mainly focus on deposits and loans. In recent years，with further development of Macao’s economy，total assets and the amount of deposits and loans of commercial banks increased. For example，the total assets of Macao’s commercial banks were 273.8 billion patacas in 2006，with an increase of 26.5％ compared to 216.4 billion patacas in 2005. The total amount of resident deposits was 165.2 billion patacas in 2006 while the amount was only 132.7 and 118.2 billion patacas in 2005 and 2004 respectively，which reveals the continuous development of the commercial banks.（Table 7-12）Table 7-12 Assets and Liabilities of Commercial BanksYear 2004 2005 2006ItemsValue (millions of patacas)Structure(%)Value (millions of patacas)Structure(%)Value (millions of patacas)Structure(%)Foreign assets 103,190.6 60.3 139,855.5 64.6 181,484.2 66.3Domestic credit 55,759.4 32.6 66,481.4 30.7 79,423.0 29.0Sundry assets 12,077.9 7.1 10,073.4 4.7 12,916.9 4.7Total assets/ Total liabilities171,027.9 100.0 216,410.3 100.0 273,824.1 100.0Foreign liabilities 24,797.9 14.5 54,260.5 25.1 73,941.1 27.0Resident deposits 118,174.3 69.1 132,685.5 61.3 165,171.2 60.3

（continued）Source：Macao Statistics and Census Service，Yearbook of Statistics 2006，p. 402.Secondly，foreign assets also occupy a significant proportion of Macao’s banking industry. Among the registered banks in Macao，there are 15 foreign banks，which represent 57.7％ of the total. Very few banks in Macao are registered with solely local capital. Besides，apart from the Macao pataca which is the currency in circulation in the Macao market，the Hong Kong dollar and Renminbi as well as some other currencies also circulate in Macao. With regard to the money supply，in 2006，the total value of the money supply （M2） was 168.9 billion patacas，among which，Macao patacas amounted 45.3 billion patacas （26.8％），Hong Kong dollars amounted 91.0 billion patacas （53.9％） and other currencies took up the value of 32.6 billion patacas （19.3％）.The total value of the currency supply （M 1） was 18.3 billion patacas，among which，Macao patacas amounted to 8.4 billion patacas （45.9％），Hong Kong dollars amounted to 8 billion patacas （44.0％） and other currencies made up 1.8 billion patacas （10.1％）65，which means that Hong Kong dollar has a significant percentage in the currency circulation volume （Table 7-13）.Besides，when speaking of the structure of assets and the liabilities of commercial banks，in 2006，there were 181.5 billion patacas of foreign assets，representing 66.3％ of the total assets while the value of domestic credit was 79.4 billion patacas，which was only 29％ of the total. In terms of liabilities，the value of foreign liabilities was 73.9 billion，representing 27％ of the total while the value of residents’ deposit was165.2 billion patacas，i.e. 60.3％ of the total.66 This manifested that foreign assets /liabilities have some proportion in local commercial banks.Table 7-13 Money Supply （M l and M2）（millions of patacas）Capital Accounts 9,511.1 5.6 11,879.5 5.5 14,172.6 5.2Sundry liabilities 18,544.6 10.8 17,584.8 8.1 20,539.2 7.5TypeYearMl M2Patacas HK$ Others Patacas HK$ Others1995 2,924.9 2,670.7 22.2 20,169.4 39,099.2 10,175.01996 3,240.9 2,442.7 32.3 22,255.0 41,211.8 10,865.91997 3,216.5 2,037.6 54.9 23,821.5 41,781.4 12,580.0

（continued）Source：Macao Statistics and Census Service，Yearbook of Statistics （various years）.Thirdly，in terms of domestic credit，the purpose of loans granted to individuals is mainly for the purpose of home ownership. In 2006，personal credits occupied 40.1％ of the total value of credit （with 29.4％ for home ownership and 10.7％ for other purposes），trade （wholesale and retail） 6.4％，manufacturing industries 8.5％ and construction 8.5％ .Moreover，from the perspective of maturity，loans up to 3 months represented 15.8％ and for more than 2 years represented 60.3％.67 These facts demonstrate that the real estate industry has turned out to be the main object of the domestic credit.Fourthly，among Macao’s financial institutions，the insurance sector has a relatively short history in comparison with other institutions.The insurance industry did not develop at a reasonable speed until regulatory norms were established in 1980s and 1990s. In 2006，there were 24 insurance companies in Macao，among which，11 are life insurance companies，while the remaining 13 are involved in non-life insurance. By origin，8 are local companies and the remaining 16 are branches of overseas companies. In recent years，the development of the insurance industry was ideal. From the perspective of insurance companies’ gross premiums，the total value increased from 2.24 billion patacas in 2005 to 2.48 billion patacas in 2006，with an increase of 10.5％.The gross premium of life insurance reached 1.75 billion patacas （70.7％ of the total），which revealed its leading role in the insurance market. Besides，the income of non-life insurance in 2006 also reached 725.3 million patacas （29.3％），which is a 27.4％ increase compared1998 3,277.8 2,170.4 60.5 24,684.5 42,966.4 12,796.61999 3,670.7 1,652.3 40.3 27,950.1 44，122.6 14,023.62000 3,178.5 1,698.6 68.4 23,220.6 44,506.4 17，190.92001 3,522.7 2,329.6 64.4 26,107.1 46,906.7 18,536.22002 3,931.2 2,361.8 57.8 27,544.1 51,224.2 20,191.02003 4,871.7 3,533.3 384.5 29,668.5 59,440.4 21,981.22004 6,285.2 6,746.1 409.4 31,369.7 66,214.0 23,363.32005 6,848.4 5,398.7 541.8 36,688.2 70,145.4 28,826.22006 8,376.4 8,039.0 1,839.8 45,323.9 91,012.0 32,575.9

with that in 2005. From the perspective of gross claims，the total value was 783.6 million patacas. The gross claims for life insurance totaled 576.9 million patacas （73.6％ of the total），while that of non-life was 206.7 million patacas （26.4％）.68 （Table 7-14）Table 7-14 Gross Premiums and Gross Claims by Branch ofInsurance（thousands of patacas）* Year-on-year changeSource：Summarized and calculated from Yearbook of Statistics 2006，p. 415.Fifthly，offshore services are emerging in Macao. The establish- ment of an offshore company in Macao refers to setting up of a company in Macao and running oversea business but enjoying the favorable taxation in Macao. Being a free port，with low tax，low operation costs and in open market environment，Macao has unique advantages for operating offshore services. According to the Offshore Service Law （Decree-Law No. 58/99M） promulgated in 1999，offshore institutions are exempted from a number of taxes including Profits Tax，Business Registration Tax and Stamp Duty. Employees （non-Macao residents） of the administrative level in offshore companies enjoy the exemption of Salaries Tax in the first 3 years. Services fees，such as the establishment fees and the operation fees paid every 6 months are low and flexible in practice. Since 2001，from the very first license for offshore services issued till the end of 2005，there was a total of moreYear Gross Premiums Gross ClaimsItems2005 2006Change(%)*2005 2006Change(%)*Life 1,673,713 1,725,436 3.1 543,799 576,869 6.1Non-life 569,360 725,297 27.4 129,887 206,705 59.1Labor 106,005 131,606 24.2 43,336 65,979 52.2Fire 120,347 143,034 18.9 2,234 10,586 373.9Motor vehicle 77,687 91,165 17.3 51,000 68,214 33.8Marine cargo 10,690 11,422 6.8 919 1,557 69.4Miscellaneous 254,631 348,070 36.7 32,398 61,369 89.4Total 2,243,073 2,477,733 10.5 673,686 783,574 16.3

than 500 licensed companies running offshore services among which，80％ are companies from Hong Kong.69 In fact，according to needs，in recent years，IPIM has simplified procedures for application and setting-up offshore companies. Detailed information is shown on the Internet，and the Macao SAR government pays great attention to the development of offshore services. Setting up an offshore company could help the company enlarge its market worldwide and facilitate multi-national activities，such as avoiding quota restriction，customs，foreign currency management and enjoy tax-free treatment. Besides，activities of the offshore companies are kept secret and the administra- tion is relatively easy and flexible as there is no need to convoke shareholders’ general meetings and board meetings. However，it is a new challenge for the Macao government in terms of supervision Basic requirements for operating offshore service business include：① using only non-Macao currency in their activities；② targeting only non-Macao residents as customers；③ focusing only on non-Macao markets. Besides，offshore companies need to prepare a plan for investing in Macao，set-up an office and hire at least 2 staffs，so as to assure the real operation and investment.Before 2005，there are 20 types of offshore businesses that could be operated in Macao. After the adjustment，the Macao SAR government make efforts to attract 8 major types of offshore businesses，namely，hardware consultant，software consultant，data processing，database related activities，bank offices activities，research and development activities，tests and technical analysis activities，management and administration of ships and aircraft. These businesses employ high technology. The government proposes to attract more international consultancy and management companies to operate services in Macao，so as to transfer international experiences and techniques to the SAR，which will certainly help to diversify Macao’s economic structure and to promote the general development of the logistics and convention and exhibition sectors.7.6.2.4 The Toursit and gaming industryThe tourist and gaming industry，an umbrella term for tourism，hotels，catering，retails and gaming，is a major driving force of Macao’s economy.The gaming industry by itself is the largest source of direct tax in Macao.The rapidly growing tourism and service industries are the main source

of income for Macao. The income generated from tourism has exceeded the total value of exports since 1992. Over the 1990s，the tourism industry in Macao has prospered and development quickened following the establishment of the SAR. With a history dating back to the mid 19th century，gaming is one of Macao’s oldest industries. Entering the 20th century，the gaming industry has developed a very close relation with the tourism industry，becoming the two pillars of Macao’s economy.In 1962，the Sociedade de Turismo e Diversoes de Macau，S.A.R.L. （STDM） was granted the casino concession and the monopoly expired on 31st December 2001. In the 1990s，half of the government’s annual income came from the Gaming Tax，which accounted for one-third of Macao’s total GDP. After its establishment，the Macao SAR government decided to liberalize the gaming industry upon the expiration of the STDM concession，so as to introduce competition into the industry and to increase the employment ratio of Macao residents and to consolidate Macao’s position as a gaming centre in the region.Gaming licenses were finally given to the Sociedade de Jogos de Macau （a subsidiary of STDM），Wynn Resorts （Macao） and Galaxy Casino Company，while afterward，the Venetian Group，MGM and PBL have also received licenses through sub-contractual arrangement.In the last decade，the gaming industry has contributed about 30％ of Macao’s total income. After the establishment of the SAR，as public security improved significantly，the industry continued to grow. In 2006，revenue from gaming tax accounted for 75.8％ of the total public revenue，which was 20，747.6 million patacas. The figure was a 19.8％ increase compared with 17，318.6 million patacas in 2005.70 Driven by the gaming industry，the number of visitors recorded an annual increase. In 2006，22 million visitor arrivals were recorded in Macao.71Liberalization of the gaming industry has led Macao toward an economic pattern with the gaming and tourism as the dragon head，while the development of the services sector and other industries follows in a harmonious way. Besides，inside the gaming industry，the development is toward vertical diversification and a prolonged industry chain，especially in the direction of leisure and entertainment. In the next chapter，the author will give a detailed presentation on the development of the tourism and gaming industry.

7.6.2.5 Attention and promotion of industry diversificationAfter the establishment of the Macao SAR，especially after the opening-up of the gaming industry in 2001，foreign investment in tens of billions of US dollars flowed into Macao，which made Macao’s GDP growth remain at two digits，financial revenue double and the unemployment rate drop dramatically. It would not be exaggerating to say that Macao was entering its best time ever in its own history.However，with the opening-up of the gaming industry，a negative influence is also revealed. Therefore，inducing diversification of the industry has become the consensus of the society. Just as Edmund Ho Hau Wah，the Chief Executive said：“To strengthen our comprehensive competitiveness and responsiveness，support the development of local SMEs，and promote the overall coordination and harmony of our society，the government will continue to foster the diversification of local industries through the practical implementation of effective measures.”72 “Supporting Macao in developing its tourism and services industry and facilitating the development of Macao’s economy in a reasonably multi-dimensional way”73 was set in the 11th Five-Year Plan of the Central People’s Government，making it one of the principles of the general development of the country. “Keep the long term prosperity and stability of Hong Kong and Macao. Insist in the policies of ‘one country，two systems，’ ‘Hong Kong people ruling Hong Kong” ‘Macao people ruling Macao，’‘a high degree of autonomy” ‘doing thing according to the Basic Laws of the SARs strictly，’ strengthen and promote exchanges and cooperation between the Mainland and SARs in terms of commerce and trading，science and education，culture，hygiene，sports，continue implementing the CEPA between the Mainland and Hong Kong and Macao，reinforce cooperation of the Mainland and the two SARs in terms of infrastructure，development of industries，utilization of resources，and environment protection.”74 With the enthusiastic support of the Mainland，promotion of industry diversification will be pushed forward smoothly. Likewise，potential cultural and communication projects，related to Historical Centre of Macao now inscribed in the World Heritage list，are also a good choice for Macao’s future development.7.6.3 Ranking of Macao’s International CompetitivenessAccording to the Research on Macao SAR’s International

Competitiveness done by the Research Centre for Competitiveness and Ranking System at Renmin University of China and the Centre for Macau Studies at the University of Macau in 2005，Macao was ranked 20th among over 60 countries and regions who participated in the ranking.The investigation was based on the ranking system defined by the International Institute for Management Development （IMD），which includes 8 main ranking factors，namely，the economic performance，the level of internationalization，the government efficiency，the financial system，the business administration，the infrastructure，the science and technology，and the human qualification. The overall international competitiveness of Macao was improved steadily since 1999，the year of Macao’s return to China. In 2004，Macao was ranked 17th，while in 2000，it was ranked 22nd.75 As well，this research has some conclusive comments upon the 8 ranking factors separately：① the economic performance of Macao has grown rapidly，catching up from the place number 45th in 2000 to 11th in 2005；② the level of internationalization of Macao has always being at a relatively high level of competition. From the soft perspective，the level of internationalization of Macao is quite outstanding as the territory is one of the most open places in the world and it has broad connections with different places. From the hard perspective，Macao’s performance was not very stable and the whole volume is not large enough；③ the government efficiency of Macao has always been at a high level and is growing fast after the handover in 1999；④ the financial system of Macao is at an upper middle level and development in financial areas in recent years been relatively stable；⑤ the infrastructure of Macao has been at the middle level；however，there are some perturbations；⑥ the business administration level of Macao enterprises has been at the upper middle level and has certain competitive advantages；⑦ the science and technology level of Macao has been relatively low；however，investment in science and technology and resources development promises a brighter future；⑧ the human qualification of Macao varies greatly；improvement measures should be taken in the field of education and cultural life.The development of Macao’s international competitiveness with regard to the 8 factors is quite balanced. While the competitiveness of the government administration is obviously strong，the competitiveness of infrastructure，science and technology and human qualification needs

to be improved. Figure 7-1 reveals the scores of competitiveness of 6 countries or regions with either a close relationship or a similar size in area or population with Macao，including the Mainland China，Hong Kong China，Singapore，Portugal，Luxembourg and Iceland. Among these，Macao’s scores are outstanding and even. As for the score of competitiveness of government’s administration，Macao ties with Singapore and Hong Kong. The scores of economic performance，level of internationalization，financial system and business management，are all above 60. Scores for competitiveness of infrastructure，science and technology and human qualification are around 50，a little bit behind the others.76Regarding international competitiveness，the protection of intellectual property rights （IPR） has always been one of the important elements indicating the competitive level of a country or region. Macao，as a member of the WTO，is strongly committed to upholding the rule of law and fulfilling its obligations regarding trade-rated aspects of intellectual property rights （TRIPS）.The Secretary for Economy and Finance，Tam Pak Yuan has pledged that Macao will further intensify regional cooperation in the protection of IPR so as to foster a better environment for investment and trade and further enhance the Macao’s competitiveness in the region.77 In recent years，the Macao SAR government has taken a series of measures to enhance the protection of IPR，including the perfection of the legislation and the fortification of the enforcement against IPR piracy. The Macao Customs Service was awarded the “6th Annual Global Anti-Counterfeiting Awards” by the Global Anti-Counterfeiting Group in 2003.78 Furthermore，besides the enforcement against IPR piracy，the Macao SAR government also greatly encourages innovations and inventions. Applications for both trademark and patent registrations in Macao are welcomed. Table 7-15 shows the current situation of trademark and patent registrations in the SAR. Just as its counterparts in the Asia-Pacific region，Macao aims at intensifying its IPR protection through the strengthening of legislation and the related management. All of these approaches contribute to the economic，social and cultural development of Macao.

Figure 7-1 Scores Comparison of International Competitive- ness between Macao and Other Places Source：The Centre for Research on Competitiveness & Assessment，Renmin University of China and Centre for Macau Studies，University of Macau （Eds.） Research on the Macao SAR’s International Competitiveness，Guangdong People’s Publishing House，2005，p. 17.

Table 7-15 Number of Applications for Trademark and Patent Registrations in MacaoSource：Macao Daily News，24th July 2007，p.A10.1 .1 A cce lera tion o f the “ D ragon-head” In d u s try7.7.1 Gaming IndustryAlthough Macao is tiny in size，its economic structure is rather special due to its unique environment and history. In recent years，the economic development of Macao has been highly dependent on the tertiary sector which includes gaming，wholesale and retail，hotels and restaurants，and off-shore services，among which the gaming industry is obviously and doubtlessly the “dragon-head.”The history of Macao’s gaming industry can be traced back to the 1840s. In 1847，the Portuguese authorities decided to set up a gambling system，and so in 1937，a franchised system was introduced to Macao’s gaming market and the gaming industry was initiated by several enterprises. Tai Heng Entertainment Corporation was set up with gaming as its main business. The company operated 3 casinos under a franchise concession contract with the government of Macao by paying a special gaming tax. Gaming in Macao was a multi-culture industry with rich variety of gaming activities. The three general types were：Games of Luck，also called gambling games，including 17 types of games such as fan-tan，dice/craps，poker，roulette，slot machine，Chinese dominoes （pai gow），etc；Pari-Mutuels which included greyhound betting，jai alai，horse trotting，etc；and Lotteries which included “pacapio” and other types of lottery tickets.79In 1961，the gaming industry in Macao took a big step forward.The Law No. 1496 promulgated by the 119th Macao Governor，Marques，Items Year Trademark PatentExtended Patent from MainlandDesign / New Model2004 2,906 22 3 502005 4,651 120 41 832006 5,504 131 41 682007 (Jan.-June)3,666 59 53 48

officially stipulated for the first time laws and regulations concerning the operation of gaming activities in Macao，that is，operations should be subject to a monopoly franchise system. In 1962，the syndicate jointly formed by Henry Fok Ying Tung，Stanley Ho Hung Sun，Ip Hon and Teddy Ip Tek Lei won the open bid for the casino gaming license and established the Sociedade de Turismo e Diversoes de Macau，S.A.R.L.（STDM） which replaced the Tai Heng Entertainment Corporation. To make it more entertaining，STDM introduced several other types of games such as different kinds of baccarat and card games. At that time，the company operated 7 gaming institutes，including the Lisboa Casino，the Marina Infante Casino，the Kam Pek Casino，the Oriental Casino，the Diamond Casino，the Macao Jockey Club and the Yut Yuen Canidrome Co Ltd. Since then，the gaming sector has become the leading industry of Macao’s economy.Driven by this granting of the gaming concession，Macao’s gaming sector underwent excellent development. It also contributed to the development of Macao’s economy and society，as well as the financial income of Macao’s government. Tai Heng Corporation paid a gaming tax of 2 million patacas in 1961. Based on this figure，the gaming tax increased 7，548 times until the year 2004 （Table 7-16）.Obviously，the gaming tax has always been the main source of Macao’s public revenue.Table 7-16 Overview of Macao’s Gaming Tax Income between1957 and 2004Sources：Wang Wuyi，Reflection on Liberalization of Gaming Monopoly System，Macao：YearGaming Tax (billions of patacas)YearGaming Tax (billions of patacas)1957 0.0015 1992 3.5221961 0.002 1993 4.3391964 0.003167 1994 4.6321965 0.005167 1995 5.3571973 0.009 1997 6.2791976 0.08 2002 7.5551988 0.96 2003 10.4271989 1.46 2004 15.0981990 1.967 2005 17.3191991 2.6 2006 20.747

Macao Polytechnic Institute，2005，p. 25；Macao Finance Services Bureau：“Fran chise Concession，” 5th July，2006，http：//www.dsf.gov.mo/newdsfhomepage/ ConPub/c_ConPub/c_ConPub_Fs.htm；Macao In figures 2007，p. 10.Taking into consideration public suggestions and requests on the opening of the gaming monopoly franchise system and with a desire to maintain Macao’s advantages of tourism and gaming industry in international competition，the Chief Executive，Edmund Ho Hau Wah，promulgated the Administrative Order No.120/2000 in July 2000 and set up the Macao Gaming Committee to study the future development of the gaming industry.80 The Arthur Anderson Worldwide Consultant Company was also employed to do an in-depth research on possible reforms of the industry. According to Arthur Anderson’s advice，the Macao SAR government decided to open the gaming sector and introduced competition after STDM，s monopoly franchise contract expired on 31st December 2001 （later extended to 31st March 2002），in a bid to promote modernization and internationalization of Macao’s gaming industry and strengthen Macao’s status as a regional gaming and tourist hub.81STDM's franchise contract expired on 31st December 2001. Due to the importance of the gaming sector to Macao’s development，the SAR government made the most of this opportunity for a historic decision，that is，to open the 65 years long gambling monopoly system for competition in 2002. Meanwhile，development strategy was confirmed after taking into consideration Macao’s advantages and conditions- an economic structure headed by tourism and gaming sectors with a services sector as the mainstay of the economy and supported by other sectors.82 From then on，the gaming and tourism sectors became the “dragon-head” sectors in Macao in promoting the economic development of the SAR.The Legislative Assembly of Macao enacted Law No. 16/2001，“Legal Framework for the Operations of Casino Games of Fortune，” in August 2001. Under the law，the number of concessions granted was limited to 3，each with a maximum validity of 20 years. This was to introduce gradual competition into the gaming market. In late October，the SAR government received a total of 21 bidding papers. It then published the Administrative Regulation No.26/2001 stipulating the “Open Bidding for the Operation of Casino Games of Fortune and the

Eligibility and Financial Capability of the Companies that participated in the Tendering Process.” The Casino Concessions Committee for the 1st Open Bidding was also set up under the Executive Order No.216/2001. The eight-member committee，chaired by the Secretary for Economy and Finance，was responsible for coordinating work related to open bidding for casino operation licenses.83On 8th February 2002，the Macao SAR announced three winners in the bidding for casino and gaming operating licenses，Galaxy Casino，S.A.，Wynn Resorts （Macao） S.A. and Macao Tourism and Amusement Company. Later，the number of concessionaries was divided through three sub-concessions into six：first of all，the joint venture company formed by Galaxy Entertainment and the Venetian Group was split into Galaxy and Sands，that means their gaming license doubled. Subsequently，the other two consortiums also got the authorization to transfer their casino operating rights. In 2005，STDM granted its sub-concession to the joint venture company owned by Pansy Ho and the American funded MGM Company. Wynn also transferred its ownership of sub-concession to the joint venture company comprised of Melco and PBL for 900 million US dollars in 2006. After the last sub-concession had been officially confirmed by the SAR government on 11th September 2006，Macao’s gaming industry entered into a new competitive era with six operators. The SAR government has always emphasized that the sub-concession policy facilitated diversified development of the gaming industry，consolidating the sector and enhancing its power of regional competitiveness.84With the official opening of Sands Casino on 18th May 2005，an American funded company，it brought with it for the first time in Macao the Las Vegas style and format of operations. This was a milestone in the gaming industry，meaning that the old monopoly system no longer existed. Competition among gaming operators became more vigorous when Wynn with 220 tables began to operate on 8th September 2006.According to Tam Pak Yuen，Secretary for Economy and Finance，no other license for operating casino will be granted in Macao before 2009 as now the capital distribution among the six concessionaries is quite moderate.85 Furthermore，Edmund Ho Hau Wah，the Chief Executive，said in September 2006 that no more licenses would be issued for the next ten years.86 The number of casinos has increased to 26 by June 2007，while tables and slot machines also increased to 3，102 and 8，234

respectively which was fivefold compared with figures four years ago （Table 7-17）.The number of employees in the gaming sector reached 30，000，indicating an increase of more than three times compared with the figure before opening the gaming market. When the Sands Casino began operation on 23rd August 2006，it was ranked the largest casino worldwide with its 740 tables and 1，254 slot machines.87 According to sources，the total number of tables in Macao will be increased from 2，800 in 2006 to 6，400 in 2008.88 At present，the core projects of STDM，Galaxy，Venetian，MGM and PBL are all proceeding day and night at full speed.Table 7-17 Number of Gaming Tables，Slot Machines and Pachinkos in 2002-2007Notes：* Quantity as at period end.Source：Gaming Inspection and Coordination Bureau，http：//www.dicj.gov.mo/EN/Estat/ DadosEstat/2007/estat.htm#n5，22nd October 2007.Table 7-18 Number of Casinos in Macao in 2002-2007YearTypes 2002* 2003* 2004* 2005* 2006*2007*1st Qtr. 2nd Qtr. 3rd Qtr.Gaming Tables 339 424 1,092 1,388 2,762 2,970 3,102 3,992Slots Machines 808 814 2,254 3,421 6,546 7,349 8,234 11,510Pachinkos 188 188 188 - - - -Year 2007*Concessionaires2002* 2003* 2004* 2005* 2006* 1stQtr.2ndQtr.3rdQtr.S.J.M. 11 11 13 15 17 18 18 18Galaxy Casino, S.A.- - 1 1 5 5 5 5Venetian Macao, S.A.- - 1 1 1 1 1 2Wynn Resorts (Macao) S.A.- - - - 1 1 1 1

（continued）Notes：* Quantity as at period end.Source：Gaming Inspection and Coordination Bureau，http：//www.dicj.gov.mo/EN/Estat/ DadosEstat/2007/estat.htm#n5，22nd October 2007.The gaming sector is continuing to expand，and is likely to create more world records in the future. The gaming revenue in Macao stood at 6.98 billion US dollars in 2006. On 28th August 2007，the Venetian Macao Resort Hotel，the mega-casino complex with total investment of2.4 billion US dollars on the Cotai Strip has officially opened. “This is truly a defining moment for Las Vegas Sands Corp. as our work to open Macao’s first multi-use integrated resort comes to fruition and our vision of creating ‘Asia’s Las Vegas’ comes one step closer to reality，” stated Sheldon G. Adelson，chairman and chief executive officer of the company. Measuring 10.5 million square feet，the Venetian Macao will be the second largest building in the world and the largest in Asia，according to the statement. It will feature 3，000 all-suite rooms，1.2 million square feet of meeting，convention and exhibition space，a 1，800-seat Cirque du Soleil theatre，a 15，000-seat arena，and one million square feet of retail space，comprising 350 stores.89 The statement also said the launch of the mega-complex also marked the opening of the first property on the Cotai Strip，adding that upon completion，the Cotai Strip would feature 20，000 hotel rooms，more than three million square feet of retail space，and more than 2.5 million square feet of meeting and convention facilities，including hundreds of individual meeting rooms. The entire Cotai Strip development is reportedly budgeted to cost 11 billion US dollars （88 billion patacas）.According to Standard’s Poor’s prediction，the average annual income of Macao，s gaming industry is expected to surpass 10 billion US dollars in the next five years （before 2010）.90 Analysts on Wall Street estimate that the annual gaming revenue will reach 15 billion US dollars to 18 billion US dollars in the next 10 years91，showing that Macao will probably become the city with the highest gaming revenue in the world.Melco PBL Gaming (Macao) Ltd.1 1MGM Grand Paradise, S.A.- -Total 11 11 15 17 24 25 26 27

However，the relative social cost increase is also a problem that cannot be ignored.The number of gaming entities increased from one to six with the end of the monopoly system which was a fair quantity for a resource-limited city as Macao. All of these operators are going to begin their business in Macao after 2007，and more severe market competition could be expected by that time. It has been clearly defined in the Basic Law that the “Macao Special Administrative Region was to formulate its own tourist and entertainment policy in accordance with its overall local interests，” and therefore，people expect that the development of the gaming industry will be maintained of a moderate speed and the market operated in an orderly manner. Being a “mini” economy，Macao has a small economic structure. Moreover，the gaming sector has always been predominant，making it difficult for diversification of industries. Because of this，the SAR government identified gaming and tourism as leading industries with the intention that it might push development of other industries. It is hoped that this strategy can help Macao further expand，improve its quality and enhance its comprehensive competitive potential，thus creating a healthy path for the economic development.The gaming industry is a special kind of industry developing under the protection of government policy. It needs to operate in accordance with the normal market competition rules，and at the same time，under a strict supervision from the government. It is the responsibility of the government to ensure that its legislation policy is correct and effective so as to benefit the society by bringing the positive effects of the gaming industry into full use and lowering the possible negative effects.Furthermore，the development direction of the gaming industry in Macao should be clear and definite. It should be based on the oriental culture and aim at serving the general development of Macao. It would not be a very wise idea to simply copy and paste the Las Vegas customs and operation to our city.7.7.2 TourismTourism，as a pillar industry in Macao，plays a very important role in Macao’s economy. It is also one of the main sources of the government’s revenue. The tourist and gaming industries have become the most important industries in Macao. In recent years，the proportion

of these two sectors in the GDP has become higher and higher.They shared 45.4％ of the total GDP in 2004 （Table 7-19）.In 2006，21，998，122 tourists visited Macao，with an increase of 17.57％ over 2005 （Table 7-19）.Analyzed by mode of transport，there were 7，655，800 visitors arriving in Macao by sea in 2006，97％ through the Outer Harbor，mostly from Hong Kong，with the other 3％ through the Inner Harbor.Most visitors arrived in Macao by land，around 58％ of the total，55％ of which came through the Checkpoint at the Border Gate，whereas only 3％ arrived through the Checkpoint of Cotai as it was temporarily closed since mid-September of 2005. Visitor arrivals by air totaled 1，236，200，the majority of which come from Taiwan and Mainland China，representing 53.4％ and 20.42％ respectively. Visitors who arrived in Macao through the Macao International Airport reached 1，225，640，a rise of 16％ over 2005，representing 99％ of the total arrivals by air （Table 7-20）.Visitor arrivals by helicopter were registered at 10，538；most of them were from Hong Kong （49％）.92 Analyzed by place of residence，11，985，617 Mainland visitors came to Macao in 2006，representing 54.5％ of the total arrivals，followed by 6，940，656 from Hong Kong and 1，437，824 from Taiwan，31.6％ and 6.5％ respectively.As a result，the visitor arrivals from the above three places made up 92.6％ of the total arrivals.93 The rest were from Southeast Asia，America，Japan，Europe，etc.Table 7-19 Tourism and Gaining Industry in GDP （％）Source：Macao Statistics and Census Service，Estimates of Gross Domestic Product 2006，pp. 102-103.ItemsYearTourism (travel agency, hotel, restaurant)Gaming industry1999 5.8 23.982000 5.95 27.862001 6.64 30.202002 6.74 31.942003 5.87 36.642004 6.66 38.752005 6.16 34.65

Table 7-20 Number of Visitor Arrivals by Modes of TransportSource：Macao Statistic and Census Service，Tourism Statistic 2006，p. 51.As mentioned previously，The Central People’s Government introduced the Individual Visit Scheme in certain cities in the Mainland in 2003，so as to ensure the development of Hong Kong and Macao.This policy was launched in 49 Mainland cities by the beginning of 2007，including almost all important cities of coastal developed regions and part of the central region. This speeded up Macao’s tourist industry with a sharp growth of visitors and huge demand in gaming facilities.Moreover，the Mainland has become the biggest potential market of visi- tors for the gaming sector due to its location. It is predicted that the number of visitor arrivals in Macao will keep growing in the following year and will reach 32 million in 2010.94 Per capita spending of visitors in 2006 was 1，610 patacas，up by 6％ over 2005. Per-capita spending of Mainland visitors was 3，215 patacas.95 In addition，the limit for individual purchase of foreign exchanges was raised from 20，000 to50，000 US dollars since 1st February 2007. The significant rise in the limit for purchasing foreign exchange is of great benefit not only to Macao’s tourist sector but also to the retail industry. It is expected that it will further stimulate the tourist industry in Macao and attract more high-spending consumers from the Mainland. Besides that，although gaming expenses were not calculated in the per-capita spending，about 49％ of all interviewed visitors claimed that they had gambled during their stay in Macao.96ItemsYearBy Sea By Land By Air Total Growththousand (%) thousand (%) thousand (%) thousand (%)1999 4,436.3 60 2334.7 31 672.9 9 7,443.9 7.12000 5,190.5 57 3,137.5 34 834.2 9 9，162.2 23.12001 5,267.7 51 4，149.4 40 861.8 8 10,279.0 12.22002 5,700.7 49 4,924.7 43 905.4 8 11,530.8 12.22003 5,174.6 44 6,058.7 51 654.6 6 11,887.9 3.12004 6,304.6 38 9,506.2 57 861.8 5 16,672.6 40.22005 6,719.9 36 10,951.2 58 1,040.1 6 18,711.2 12.22006 7,655.8 34.8 13,106.0 59.6 1,236.2 5.6 21,998.1 17.57

Table 7-21 Per-Capita Spending of Visitors and ChangesSource：Macao Statistic and Census Service，Tourism Statistics 2006，p. 13.With regard to the hotel sector，there were 80 establishments operating at the end of 2006，of which 49 were hotels and 31 were guest-houses （Table 7-22）.These hotels can provide 12，978 rooms，and 26，851 in terms of bed places，an increase of 19.81％ and 25.12％ respectively over 2005. The average occupancy rate of the hotel sector was 72.25％，slightly higher than that in 2005 （Table 7-23）.The average length of stay of visitors was 1.1 days which was similar to that of 2005.Tourists and same-day visitors spent an average of 1.6 days and 0.2 days respectively.97 It is expected that there will be two to three times more guest rooms available within the next few years with more mag- nificent hotels opening.Table 7-22 Number of Hotels in MacaoSource：Macao Statistic and Census Service，Tourism Statistics，2006. pp. 95-94.ItemsYearPer-capital Spending of Visitors (patacas)Changes (%)1999 1,373 -1.42000 1,367 -0.42001 1,389 1.62002 1,454 4.72003 1,518 4.42004 1,633 7.52005 1,523 -6.72006 1,610 6GradeYear5-Star 4-Star 3-Star 2-StarGuest-housesTotalOccupancy Rate (%)2001 8 9 8 12 33 70 60.662002 8 9 8 10 33 68 67.132003 9 9 8 11 32 69 64.272004 9 9 9 12 31 70 75.552005 9 11 12 12 31 75 70.932006 11 12 15 11 31 80 72.25

Source：Macao Statistic and Census Service，Tourism Statistics，2006，p. 95.7.7.3 Convention and Exhibition IndustryThe convention and exhibition industry，one of the sectors diversified from the leading industries，has yielded satisfactory results in recent years，and is also an industry with a bright future. The Macao Tower Convention and Entertainment Centre opened in 2001. Its grand hall can accommodate thousands of guests for parties and banquets.Around 100 standard display booths can be set up in its exhibition hall. Its 338 m high tower consists of a huge revolving restaurant and a sightseeing hall，which has become the new landmark of Macao. Fisherman’s Wharf is located at Macao’s Outer Harbor. The construction，completed at the end of 2004，occupies an area of over93，000 m2. It is a combination of architectural features of both the east and the west，and is a complex of entertainment，shopping，food，hotel，marina，convention and exhibition. Its convention and exhibition centre covers a total area of 3，000 m2，with a pillar-less main hall as high as6.4 m that can house up to 2，800 guests at one time.The Macao-Resort-Hotel，owned by the Venetian Group，offers not only a 360，000 m2 convention and exhibition area and a 2，000-seat showroom，but also a 300，000 m2 Grand Canal Shopping Centre，a 15，000-seat entertainment theatre，all kinds of top entertainment shows and 3，000 suites. The Venetian Group signed contracts with various exhibition organizers to hold more than 20 conference and exhibition activities in the first year （2007） after the completion of the Macao- Resort-Hotel. It is expected that each exhibition will attract an attendance of 5，000-20，000 visitors. These exhibitions feature variousTable 7-23 Numbers of Avai able Rooms and BedsItemsYearHotels Rooms Beds2001 70 9,030 18,7772002 68 8,954 18,6282003 69 9，185 19,1172004 70 9,168 18,5912005 75 10,832 21,4602006 80 12,978 26,851

kinds of products and services，including police and security，jewelry，tourist service，leather products，real estate，automobile accessories，high-grade commodities，luxury yacht，and investment forum.98Macao International Trade and Investment Fair （MIF），the largest exhibition and commercial event in Macao，has been held 11 times in Macao as of September 2006. It is Macao’s largest comprehensive commerce and trade exhibition activity and the only fair approved by UFI （The Global Association of the Exhibition Industry）.In 2006，according to the “2nd Ministerial Meeting of the Forum for Economic and Trade Cooperation between China and Portuguese-Speaking Countries （Macao），” there were around 141 commerce and trade delegations coming from 47 countries and regions. There were more than 30 forums，conferences and promotions programs，and a “Business Matching Service” was also provided. At this event，there were 326 booths of exhibition，of which 226 were indoors and 100 were outdoors，and 17 pavilions including “Portuguese-Speaking Countries Pavilion，” “Construction Material Pavilion，” “Small and Medium Enterprises Pavilion，” “Macao’s Features Pavilion，” “Macao Products Pavilion，” “Good-quality Products Pavilion，” “Made in Macao Pavilion”，“Macao- Ideal Place to live，” “Macao Convention and Exhibition Pavilion，” “Portuguese Pavilion，” “German Pavilion，” “Overseas Commercial Pavilion，” “Shanxi Province Pavilion，” “Guangxi Province Pavilion，” “Shantou Pavilion，” “Chongqing Pavilion，” “Shenzhen Pavilion，” etc.99 Over 60，000 visitors attended this MIF，and among them about 4，000 were trade visitors. 22 documents were signed with a total value of over 300 million patacas.The document “Research on Strategies of Developing the Macao’s Conference & Exhibition Industry，” published during the period of the 11th MIF，indicated that “the spring of Macao’s conference and exhibition industry is coming soon” and “it’s time to develop in an all-round way Macao’s conference and exhibition industry.” In the coming years，2008-2010 will be a critical period for its development，and then starting from 2016-2020 will come its fruitful years. The Report pointed out that “Macao’s conference and exhibition industry should work towards the advantage that international commercial tourists are in favor of the city’s environment，thus facilitating its development of all kinds of international conferences and business meetings to offer opportunities to both overseas and local exhibition

institutions.”100 It seems that，with the completion of large conference and exhibition establishments and the improvement of integrated service quality，the future of Macao’s exhibition industry will be brilliant and that Macao is likely to become a conference and exhibition centre in Asia or in Asia-Pacific region. Macao’s exhibition industry will experience an incubation period from 2008 to 2010，followed by fast growth in 2011-2015 and maturity in 2016-2020. At that time，“Macao should have gained popularity with some of its exhibitions，making it capable to take part in international competition. Macao will become a metropolis in Asia-Pacific featuring conference，exhibition，business，tourism，entertainment and leisure.”101N otes1 Macao Statistics and Census Service， Macao in Figures 2007.2 Macao Statistics and Census Service， Demographic Statistics 2006，p. 21.3 Macao Statistics and Census Service， Macao in Figures 2007.4 Macao Daily News，p. A2.5 Final Report on “A Preliminary Study on Urban Development in Macao SAR”，March 2005，p. 16.6 Macao Government Information Bureau，Macao Yearbook 2006，p. 8.7 Ibid.，p. 421.8 National People’s Congress，Guidelines of the 11th Five-Year Plan for National Economic and Social Development of the People’s Republic of China，2006.9 Document Collections for the Fourth Session of the Tenth National People’s Congress of the People’s Republic of China，p. 138.10 Macao Government Information Bureau，Macao Yearbook 2006，p. 185.

11 Macao International Law Bureau，Multilateral treaties applicable to Macao SAR，http：//www.gadi.gov.mo/docs/tratadosen.htm，8th August 2007.12 Macao Government Information Bureau，http：//www.gcs.gov.mo/files/ factsheet/External—TCN.pdf，8th August 2007.13 Macao Immigration Department of the Public Security Police，http：//www.fsm.gov.mo/psp/sm/default.htm，8th August 2007.14 Macao Government Information Bureau，http：//www.gcs.gov.mo/files/ factsheet/External_TCN.pdf，8th August 2007.15 Macao Statistics and Census Service，External Trade Statistics：December/2006，pp. 2 and 4.16 Macao Daily News，25th September 2006，p. A3.17 Imported goods do not include those prohibited by the Mainland’s rules and regulations and those prohibited as a result of the implementation of international treaties by the Mainland，as well as products that the Main land has made special commitments in relevant international agreements.Imported goods subject to zero tariff must fulfill the rules of origin con firmed after consultation by both sides.18 People’s Daily （Overseas Edition），6th July 2006，p. 3.19 Ibid.20 Macao Commission Against Corruption，CCAC Newsletter，No. 1，June 2006.21 Macao Daily News，2nd February 2007，p. A08.22 Macao Statistics and Census Service，Education Survey 2005/2006，pp.35-36 and 74.23 Macao Statistics and Census Service， Macao in Figures 2007.24 Macao Statistics and Census Service， Education Survey 2005/2006，p. 35.25 University of Macau website，http：//www.umac.mo，8th August 2007.26 Macao Statistics and Census Service，Health Statistics 2006’ pp. 37 and 65.27 Ibid.，p. 33.28 Ibid.，p. 55.29 Macao Statistics and Census Service， Macao in Figures 2007.30 Macao Statistics and Census Service， Yearbook of Statistics 2006，p. 214.31 Ieong，Wan Chong，Annotations to the Basic Law of the Macao SAR （revised edition），Macao：Macao Legal Affairs Bureau，2003，pp.152-153.32 Macao Statistics and Census Service，Estimates of Gross Domestic Product 2006. p. 58.33 Ibid.，p. 66.34 Ibid.，p. 5835 Ibid.，p. 66.36 Ibid.，P. 58.37 Macao Statistics and Census Service，Macao in Figures 2007.

38 Monetary Authority of Macao，http：//www.amcm.gov.mo/economic_ statistics/economic.htm，8th August 2007.39 Macao Daily News，27th July 2007，p. A1040 Ieong，Wan Chong，The Mini-economies：Its Orientation and Development，Macao：Macao Association of Economic Sciences，1999，p. 65.41 Macao Statistics and Census Service，Estimates of Gross Domestic Product 2006，p. 92.42 Ibid.43 Ibid.，p. 10344 Calculated from the data obtained from Employment Survey：1st Quarter 2007 issued by Macao Statistics and Census Service.45 Economist Intelligence Unit，Country Profile 2005- Macao，p. 15.46 Macao Statistics and Census Service，Fishing Industry Survey 1995.47 Wu，Zhiliang and Ieong，Wan Chong （Editor-in-chief），Encyclopedia of Macao （Revised Edition），Macao：Macao Foundation，2005，p. 410.48 Ieong，Wan Chong，The Mini-economies：Its Orientation and Development，Macao：Macao Association of Economic Sciences，1999，p. 66.49 Macao Statistics and Census Service，Industrial Survey 2005，p. 2.50 Calculated with the statistics obtained from Industrial Survey 2005 and Employment Survey 2005.51 Macao Statistics and Census Service，Estimated of Gross Domestic Product 2006，p. 92.52 Ibid.53 Macao Statistics and Census Service，Industrial Statistics 1993.54 Data in the table are organized from the statistics obtained from Industrial Statistics of various years issued by Macao Statistics and Census Service.55 Macao Statistics and Census Service，External Trade Statistics：December/2006，p. 2.56 Macao Development Strategy Research Centre & Research Centre for the Hong Kong and Macao SARs Economy，Jinan University，The Global Abandon of Textile Quota Restraints in 2005：Its Impact on the Macao and Macao's Corresponding Strategy，2001，p. 6.57 Wong，Hong Keong，Economy of Macao，Beijing：Xinhua Publishing House，1999，p. 92.58 Macao Statistics and Census Service，Construction Survey 2006，p. 29.59 Macao Statistics and Census Service，Yearbook of Statistics （various years）.60 Macao Statistics and Census Service，Yearbook of Statistics 2004，p. 360.61 Monetary Authority of Macao，Annual Report 2006，p. 10.62 Macao Statistics and Census Service，Money，http：//www.dsec.gov.mo/ index.asp?src=/english/indicator/e_mon_indicator.html，8th August 2007.63 Ng，Lap Seng and Chang，Kuok Kin （Eds.），Stability and Prosperity：

Strategic Research on Economic Development of the 20th and 21st Centuries，Hong Kong：Wen Wei Publishing Co. Ltd.，1998，pp. 116-117.64 Macao Statistics and Census Service，Yearbook of Statistics 2006，p. 401.65 Ibid.，p. 398.66 Ibid.，p. 402.67 Ibid.，pp. 406-408.68 Ibid.，pp. 414-415.69 Macao Style，Vol. 2，July 2006，p. 44.70 Macao Statistics and Census Service，Macao in Figures 2007.71 Ibid.72 Ho，Hau Wah，Policy Address for the Fiscal Year 2006，Macao：Macao Government Printing Bureau，p. 12.73 National People’s Congress，Guidelines of the 11th Five-Year Plan for National Economic and Social Development of the People's Republic of China，2006.74 Ibid.75 Centre for Research on Competitiveness & Assessment，Renmin University of China and Centre for Macau Studies，University of Macau （Eds.），Research on the Macao SAR's International Competitiveness，Guangzhou：Guangdong People’s Publishing House，2005，p. 976 Ibid.，p. 17.77 Macao Post Daily，24th July 2007，p. 2.78 Macao Daily News，24th July 2007，p. A10.79 Ieong，Wan Chong，Huang，Hongchao and Chong，Man Wing，Macao Culture and Cultural Macao：the Utilization of Cultural Advantages and the Exploitation of Cultural Industries，Macao：Centre for Macau Studies，University of Macau，2005，p. 162.80 5 members in the Macao Gaming Committee when founded，Chairman：the Chief Executive；Members：Secretary of Economic and Finance Bureau，Secretary of Gaming Inspection and Coordination Bureau，representatives of Social Culture Bureau and Security Bureau.81 Macao Association of Economic Sciences，A Study on the Optimization of the Industrial Structure in Macao and the Appropriate Diversification，2006，p. 38.82 Ho，Hau Wah，Policy Address for the Fiscal Year 2002，Macao：Macao Government Printing Bureau，p. 1883 Wu，Zhiliang and Ieong，Wan Chong （Editor-in-chief），Encyclopedia of Macao （Revised Edition），Macao：Macao Foundation，2005，p. 32084 Daily News，“Macao Today，”12th September 2006，p. AA1.85 Macao Daily News，9th March 2006，p. NB3.86 Daily News，7th September 2006，p. AA01.87 Ta Kung Pao，“Colorfulness in Macao，” Hong Kong，25th August 2006，p. 11.

88 Macao Daily News，12th September 2006，p. A10.89 Macao Post，14th June 2007，p. 1.90 Ta Kung Pao，Hong Kong，9th June 2006，p. 11.91 Cited from Chance，Vol. 2，2006，p. 45.92 Macao Statistic and Census Service，Tourism Statistics 2006，p. 7.93 Ibid.，2006，p. 6.94 Macao Daily News，10th July 2007，p. A10.95 Macao Statistic and Census Service，Tourism Statistics 2006，http：//www.dsec.gov.mo/index.asp?src=/english/indicator/e_tur_indicator.html，6th August 2007.96 Macao Statistic and Census Service，Tourism Statistics 2005， pp. 15-1697 Macao Statistic and Census Service，Tourism Statistics 2006，p. 99.98 Macao Economy and Commerce，June 2006，p. 4899 Macao Daily News，24th September 2006，p. A1.100 Macao Daily News，27th September 2006，p. B10.101 Ibid.

8M a j o r A d v a n t a g e s a n d C o n s t r a i n t s o f M a c a o ’ s D e v e l o p m e n t8 .1 M a c a o ’s M a jo r A d van tage sHistorically，Macao has experienced both prosperous and stagnant times. During the years from the 1960s until now，especially after the establishment of the Special Administrative Region （SAR） on 20th December 1999，Macao has achieved rapid and impressive development.Now，as the second Special Administrative Region of China after the Hong Kong SAR，it is an example to mini-economies around the world. To summarize Macao’s overall successful experiences，and to understand and evaluate Macao’s present development situation，only one or two research projects are not representative enough. However，this does not mean that Macao people cannot find a suitable approach for investigating Macao’s economy. The understanding of certain problems can be improved gradually if we enlarge the area of Macao’s economy that we should pay attention to，and thoroughly explore the relevant problems. Therefore，we，the research members of this project，have tried to summarize some points as follows.8.1.1 Ow ning a Big and Well-located H interland for Internal and External DevelopmentAlthough Macao was ruled by the Portuguese for over 400 years directly and indirectly，Macao has been a part of the sovereignty of the Mainland China.After its 30 years of serious exploration since the 1960s，there are earthshaking exchanges in the great ancient country，which is generally acknowledged as a “Chinese phenomenon.” Macao，after its return to the People’s Republic of China （PRC），is joining a most powerful motherland. Among the Macao citizens，over 95％ are

Chinese citizens.Geographically，Macao is connected with the Mainland，China especially the beautiful Zhujiang Delta area，and therefore，Macao does not feel isolated. Instead，Macao demonstrates a liveliness and vitality which are important conditions for social geography. To ensure the Macao and Hong Kong SARs’ prolonged prosperity and stability is the basic national strategy of China，and this is also related to the nation’s basic interest. Moreover，having the enthusiastic support of the big and powerful motherland，Macao will have a prolonged and stable develop- ment along with that of China.8.1.2 Located in a Superior Situation400 years ago，Macao opened its port during the “sailing period.” Entering the “mechanical period，” as the port conditions are not really adapted to development，it is difficult to bring the port into its full play.However，with its superior situation，Macao has been a transfer post on the marine Silk Road. Added to this，after the postwar period，Macao lay midway along the West Pacific Ocean. Macao has also directly benefited from the comprehensive reform and opening policy of the Mainland China for the past 30 years. At present，Macao has been acting as a part of the “3 services platforms”：serving the western PRD，PRC，serving the Portuguese-speaking countries，and serving the overseas Chinese.Portuguese-speaking countries with a total population of around 200 million on four continents （Table 8-1），which are mostly developing countries，have abundant resources and therefore have a lot of potential for the developments of business. With China being the biggest developing country in the world，trade co-operation between it and Portuguese-speaking countries is complementary，and therefore co- operation between them holds vast businesses opportunities. This also provides vast business opportunities for Macao as a service platform.On 12th-14th October 2003，the first Forum for Co-operation on Economy and Commerce between China and Portuguese-speaking Countries was held in Macao. This forum was hosted by the Ministry of Commerce of the PRC，and undertaken by the Macao SAR，aiming to strengthen the economic cooperation between China and the Portuguese-speaking countries，to display Macao’s platform function in the relation between China and the Portuguese-speaking countries，and last but not least，to promote the communal development between China

Table 8-1 The Portuguese-speaking Countries* Before establishing diplomatic relations with China.and the Portuguese-speaking countries. This forum has been the highest administrative level international convention since the foundation of the Macao SAR. The ministerial rank officials and the international organizations of the Mainland China，Portugal，Brazil，Angola，Mozambique，Cape Verde，Guinea-Bissau and East Timor participated in the forum. During the forum，several subjects of conventions and the trade and investment business conference were held，including the “Economic Cooperation and the Development Forum，” the “Ministerial- level Conference” and the “Trade and Investment Forum.” The ministerial rank officials of China and the 7 Portuguese-speaking countries signed together in the ministerial-level conference on economics and trade cooperation programme of action 2003.Three years later，in September 2006，the 2nd Ministerial Meeting of the Forum for Co-operation on Economy and Commerce between China and Portuguese-speaking Countries was held in Macao once again. The objective— ‘‘deepened co-operation，communal development”— brought both sides into a new cooperation stage and revealed Macao’s status as an intermediary between China and the Portuguese-speaking countries. In order to resolve the relations across the Taiwan Strait，andCountry LocationArea (10 thousand km2)Population (10 thousand)Angola South-west Africa 124.67 1,200BrazilEast Coast of South America854.74 16,390Cape Verde West Africa 0.403 41.4Guinea-Bissau West Africa 3.61 117Mozambique South-east Africa 79.93 1,730Portugal South-west Europe 9.20 992East Timor South-east Asia 1.48 84Sao Tome and Principe*South-west Africa 0.1 13.7Total 1,074.13 20,568.1

to promote the peaceful unification goal of the nation，Macao’s status is considerably important and prominent.Trade between China and Portuguese-speaking countries has grown rapidly since 2003. The total trade volume were around 6 billion US dollars in 2002 and 34.1 billion US dollars in 2006 （exports from Portuguese-speaking countries were 9.8 billion US dollars and imports to them were 24.3 billion US dollars）.The imports from Portuguese-speaking countries rose from 4.2 billion US dollars in 2004 to 24.3 billion US dollars in 2006，an increase of 500％，reflecting the fact that products from Portuguese-speaking countries imported into China are very competitive （Table 8.1 and Table 8.2）.Table 8-2 Trade Between China and Portuguese-speakingcountries 2006（Millions of US dollars）Source：Ministry of Commerce of PRC website （http：//www.mofcom.gov.cn）* Export volume refers to the exports from China to Portuguese-speaking countries **Import volume refers to the imports to China from the Portuguese-speaking countries.Data shows that the imports to China from the Portuguese- speaking countries are mainly energy resources，raw materials and electronic products，among others. In fact，wine，coffee，non-staple foodPortuguese-speakingCountriesImport-ExportVolume(million)ExportVolume*(million)ImportVolume**(million)Compared with 2005Import-ExportVolume(%)ExportVolume*(%)ImportVolume**(%)Angola 11,830 890 10,930 +70.1 + 139.9 +66.1Brazil 20,290 7,380 12,920 +37.0 +52.9 +29.3Cape Verde 10.09 10.09 0 +94.6 +94.6 -Guinea-Bissau 5.68 5.68 0 -2.0 -2.0 -Mozambique 210 130 80 +25.9 +39.9 +8.5Portugal 1,710 1,360 350 +38.7 +49.1 +9.3East Timor 16.76 5.79 10.96 +1,215.9 +355.2 -São Tomé and Príncipe1.22 1.22 0 +121.4 + 121.4 -Total 34,100 9,800 24,300 - - -

products and even new and high technology products （such as aeroplanes） from Portuguese-speaking countries are considerably competitive in the international market. Meanwhile，the demand for these products on the Mainland is constantly increasing，so it is worth looking at the related business opportunities for trade.Table 8-3 Natural Resources and Export Products of Portuguese-speaking countriesPortuguese-speakingCountriesNatural Resources/ProductsAngola● Main exports: crude oil, diamonds，refined oil products, natural gas.● The most outstanding industrial area: Tyres, fertilizer, chemical fibre, glass and iron.Brazil● Main exports: iron ore, soybeans, footwear, coffee and automobiles.● In Latin America, the manufacturing industry of Brazil is the largest and most diversified. Apart from tradi- tional industries, (such as mechanical tools, electrical machinery equipment and automobiles), technically more advanced industries have been developed in the last ten years, the most outstanding being the manu- facturing of aircraft and telecom equipment.Cape Verde● Main exports: fuel, garments, footwear and accessories, fish and shellfish.● Main industries include: food and beverages, fish processing, footwear and garments, salt, ship repairs.Guinea-Bissau● Main exports: cashew nuts, frozen shrimps, frozen fish, peanuts, timber.● In terms of industry, it relies mainly on agricultural products and food processing. The main cereal crops are rice, cassava, beans, potatoes and sweet potatoes.

（continued）The characteristics of Portuguese-speaking countries’ products and their market opportunities in China are detailed above. According to the “Economic and Commercial Co-operation Action Plan between China and Portuguese-speaking countries （2007-2009）” of the second Ministerial Meeting of the Forum for Co-operation on Economy and Commerce between China and Portuguese-speaking countries，signed in September 2006，the participating countries agreed unanimously to take measures to promote mutual trade among China and Portuguese- speaking countries，striving to boost bilateral volumes to 45 to 50 billion US dollars by 2009，especially in increasing the export value of Portuguese-speaking countries to China. This is important information regarding the prospect of Portuguese-speaking countries’ products in China.8.1.3 Having Its Own System and Gaining Admission to International SocietyBeing an active mini-economy and a special administrative region with a high degree of autonomy，and based on the Macao Basic Law，Mozambique● Main exports: prawns, cotton, cashew nuts, sugar, copra and citrus fruits, electricity and timber.● Mainly processing industries: sugar refining, tea, food and cashew nuts processing, cigarettes, oil extracts, textiles, timber, cement, oil refining, engines and vehicles, batteries and tyres.Portugal● Main exports: transportation accessories，machinery and utensils, clothing and footwear.● Cork is an important export product and its production is half of the global output. The quality of its wine and olive oil is recognized around the world.East Timor● Main exports: coffee, sandalwood, marble, petroleum and vanilla beans.● Key industries: printing, soap production, handicrafts and textiles.São Tomé and Prí ncipe● Main exports: cocoa, copra, coffee and palm oil.● Key industries: small-scale construction, textiles, soap, beer, fish processing and timber.

Macao can maintain its previously existing external relations with international organizations or conferences and participate in certain international activities，so as to promote its internationalization.“Representatives of the Government of the Macao Special Admin- istrative Region may，as members of delegations of the Government of the People’s Republic of China，participate in negotiations at the diplomatic level directly affecting the Region conducted by the Central People’s Government.” （Article 135）“The Macao Special Administrative Region may，on its own，using the name ‘Macao，China’，maintain and develop relations and conclude and implement agreements with foreign states and regions and relevant international organizations in the appropriate fields，including the economic，trade，financial and monetary，shipping，communications，tourism，cultural，science and technology，and sports fields.” （Article 136）“Representatives of the Government of the Macao Special Administrative Region may，as members of delegations of the People’s Republic of China，participate in international organizations or conferences in appropriate fields limited to states and affecting the Region，or may attend in such other capacity as may be permitted by the Central People’s Government and the international organizations or conference concerned，and may express their views，using the name ‘Macao，China’ .The Macao Special Administrative Region may，using the name ‘Macao，China’，participate in international organizations and conferences not limited to states.” （Article 137）“The application to the Macao Special Administrative Region of international agreements to which the People’s Republic of China is a member or becomes a party shall be decided by the Central People’s Government，in accordance with the circumstances and needs of the Region，and after seeking the views of the government of the Region.” （Article 138）“The Central People’s Government shall authorize the Govern- ment of the Macao Special Administrative Region to issue，in accor- dance with law，passports of the Macao Special Administrative Region of the People’s Republic of China to all Chinese citizens who hold permanent identity cards of the Region，and travel documents of the Macao Special Administrative Region of the People’s Republic of China to all other people lawfully residing in the Region. The above passports

and travel documents shall be valid for all states and regions and shall record the holder’s right to return to the Region.” （Article 139）“The Central People’s Government shall assist or authorize the Government of the Macao Special Administrative Region to negotiate and conclude visa abolition agreements with relevant foreign states or regions.” （Article 140）“The Macao Special Administrative Region may，as necessary，establish official or semi-official economic and trade missions in foreign countries and shall report the establishment of such missions to the Central People’s Government for the record.” （Article 141）This can make Macao a famous international traveling city and a service platform and contact station of the international conference and business trade activities.The First Games of Lusofonia，Macao 2006 was held 7th- 15th October 2006. 12 countries and regions were participants in the original sports event. They were Portugal，Cape Verde，Guinea-Bissau，Equatorial Guinea，São Tomé and Príncipe，Brazil，Angola，Mozambique，India，Sri Lanka，East Timor and Macao，China.Figure 8-1 The 12 Portuguese-speaking Countries Participating in the 1st Lusofonia Games8.1.4 Having a Number of Great Talents which Contribute to International CompetitivenessMacao residents share the excellent tradition of the Chinese nation to be diligent，trustworthy and reliable. In accordance to the

principles of “loving the nation，loving Macao，” Macao has made unremitting efforts to improve itself steadily，especially in the proper use of the historical opportunity of the international quota，tariff preference.This has allowed Macao to benefit in the international market，including in the European and American markets. Furthermore，with the opening and reform of the Mainland China，Macao has seized the opportunity to enter the Pearl River Delta region through the channels of funding，technology，management and information，creating a cooperative situation between the two regions. As a result，Macao residents should be confident about both the Macao’s future development and the successful implementation of the “one country，two systems” principle.8.1.5 M a in s tre am of the M acao Soc ie ty：Respect，Understanding，Coexistence and HarmonyThe fundamental rights and freedoms，including the political，personal，economic，cultural rights and freedoms of the residents，are protected by the Basic Law of the Macao SAR：“All Macao residents shall be equal before the law，and shall be free from discrimination，irrespective of their nationality，descent，race，sex，language，religion，political persuasion or ideological belief，educational level，economic status or social conditions.”（Article 25） “Permanent residents of the Macao Special Administrative Region shall have the right to vote and the right to stand for election in accordance with law.” （Article 26）“Macao residents shall have freedom of speech，of the press and of publication；freedom of association，of assembly，of procession and of demonstration；and the right and freedom to form and join trade unions，and to strike.” （Article 27）“The freedom of the person of Macao residents shall be inviolable.No Macao resident shall be subjected to arbitrary or unlawful arrest，detention or imprisonment. In case of arbitrary or unlawful detention or imprisonment，Macao residents have the right to apply to the court for the issuance of a writ of habeas corpus. Unlawful search of the body of any resident or deprivation or restriction of the freedom of the person shall be prohibited. Torture or inhuman treatment of any resident shall be prohibited.” （Article 28）“Macao residents shall not be punished by law，unless their acts

constitute a crime and they shall be punished for it as expressly prescribed by law at the time. When charged with criminal offences，Macao residents shall enjoy the right to an early court trial and shall be presumed innocent before convicted.” （Article 29）“The human dignity of Macao residents shall be inviolable.Humiliation，slander and false accusation against residents in any form shall be prohibited. Macao residents shall enjoy the right to personal reputation and the privacy of their private and family life.” （Article 30） “The homes and other premises of Macao residents shall be inviolable.Arbitrary or unlawful search of，or intrusion into，a resident’s home or other premises shall be prohibited.” （Article 31）“The freedom and privacy of communication of Macao residents shall be protected by law. No department or individual may，on any grounds，infringe upon the freedom and privacy of communication of residents except that the relevant authorities may inspect communica- tion in accordance with the provisions of the law to meet the needs of public security or of investigation into criminal offences.” （Article 32） “Macao residents shall have freedom of movement within the Macao Special Administrative Region and freedom of emigration to other countries and regions. They shall have freedom to travel and to enter or leave the Region and shall have the right to obtain travel documents in accordance with law. Unless restrained by law，holders of valid travel documents shall be free to leave the Region without special authorization.” （Article 33）“Macao residents shall have freedom of conscience. Macao residents shall have freedom of religious belief and freedom to preach and to conduct and participate in religious activities in public.” （Article 34）“Macao residents shall have freedom of choice of occupation and work.” （Article 35）“Macao residents shall have the right to resort to law and to have access to the courts，to lawyers’ help for protection of their lawful rights and interests，and to judicial remedies. Macao residents shall have the right to institute legal proceedings in the courts against the acts of the executive authorities and their personnel.” （Article 36）“Macao residents shall have freedom to engage in education，academic research，literary and artistic creation，and other cultural activities.” （Article 37）

“The freedom of marriage of Macao residents and their right to form and raise a family freely shall be protected by law. The legitimate rights and interests of women shall be protected by the Macao Special Administrative Region. The minors，the aged and the disabled shall be taken care of and protected by the Macao Special Administrative Region.” （Article 38）“Macao residents shall have the right to social welfare in accordance with law. The welfare benefits and retirement security of the labour force shall be protected by law.” （Article 39）“The provisions of International Covenant on Civil and Political Rights，International Covenant on Economic，Social and Cultural Rights，and international labour conventions as applied to Macao shall remain in force and shall be implemented through the laws of the Macao Special Administrative Region. The rights and freedoms enjoyed by Macao residents shall not be restricted unless as prescribed by law. Such restrictions shall not contravene the provisions of the first paragraph of this Article.” （Article 40）“Macao residents shall enjoy the other rights and freedoms safeguarded by the laws of the Macao Special Administrative Region.” （Article 41）“The interests of the residents of Portuguese descent in Macao shall be protected by the Macao Special Administrative Region in accordance with law，and their customs and cultural traditions shall be respected.” （Article 42）Although there are various contrasts in nationality，religion，language，custom and political conviction，Macao still maintains a relaxing and caring atmosphere in its society. The main reason is that Macao persists in maintaining a harmonious and coordinated society instead of creating conflicts. As a result，Macao residents have become the beneficiaries of this harmonious atmosphere and in turn，become also the protectors of this harmonious environment.8.1.6 M aintaining Prosperous and Sustainable Develop- ment with the Foundational Safeguard of the Principle of “One Country，Two Systems”To ensure the prolonged prosperity and stability of the Macao SAR is the basic national strategy of the Mainland China. Entering the new century，Macao’s traditional superiority may continue to be developed

and utilized while its emerging industry may have a huge positive impact on the development of the entire society，in the same way as the security brought by the Macao Basic Law and the support of the Central People’s Government and the citizens. Certainly，in order to maintain the Macao SAR’s future development with balance and sustainability，we have to adjust the internal development concept and fully utilize the concept of dependence for external factors at the same time. “While a high rate of aggregate growth is almost inevitably accompanied by a high rate of shift in production structure，extensive application and a high rate of shift in production structure are，in turn，indispensable for a further high rate of aggregate growth. Hence，rapid structural shifts，not only in economic production but also in other aspects of an economy and society must be viewed as requirements，and possibly costs，of a high rate of aggregate growth.”1 Article 5 of the Macao Basic Law states，“The socialist system and policies shall not be practiced in the Macao Special Administrative Region，and the previous capitalist system and way of life shall remain unchanged for 50 years.” This indicates the effectiveness of the original system. After the establishment of the Macao SAR，the government has not only made a decision on the open gaming sector，hut also further emphasized the low tax system advantage of the region，by lowering the salaries tax rate and profits tax rate to 12％ upper limit in 2002 and 2004.8 .2 M acao ’s M a jo r C onstra in ts and Uncertainties8.2.1 Scale of Development Creates RestrictionsMacao development environment and the characteristics of its industries are formulated by the special historical condition.Among them，there are two big restrictions. Firstly，the development space is excessively narrow and so it is difficult to obtain a breakthrough.Secondly，the development concept will be in further adjustment.Before the establishment of the Macao SAR，it was certainly not possible to make adjustment to the landscape. However，with the implementation of the concept of “one country，two systems，” the Macao SAR has already been brought into line with the entire national development plan；therefore，it is possible to alleviate the problem.Though it will be a new challenge for the Macao people to adjust to a new

development concept，with their striving spirit，emergency ability，experience and political wisdom，it is entirely possible for the Macao people to seek a better development result in the 21st century.8.2.2 Industrial Structures are UnitaryMacao’s economy is now in a high speed development period，depending on the gaming and tourism industries. In 2004，Macao achieved a peak GDP growth of 28.3％ which has been seen rarely in the past.However，there will be risks if Macao’s industrial structures depend too much on the gaming industry，causing a great challenge to its sustainable development. For many years，Macao’s industry has formulated a structural trend，with tourism and gaming as the leading industries and exports，construction，real estate，and the financial industry as auxiliary industries.Macao’s industrial structure has the following characteristics.Firstly，the industrial structure revolution has not followed the usual development stages of the world’s industrial structure revolution：“agriculture society，industrial society and then post-industrial society （service industry）”.Macao did not experience an agriculture society before. In the 1960s to 1970s，Macao’s economic growth mainly depended on the manufacturing industry （transit trade） as the leading development system. In the 1980s to 1990s，the development of the gaming industry pushed forward the development of other industries，such as the service industry，the construction industry and the finance industry，which then became the leading industries of Macao’s economy.Since that the tertiary industry was not directly pushed forward by the secondary industry，Macao’s industrial structure development has its own identity.Secondly，Macao’s industrial structure is unitary and centralized，creating a disadvantage for its industrial development.① Macao’s industrial structure is not balanced. The proportion of the primary industry，secondary industry and tertiary industry is obvious，with the tertiary industry as the core，and so formulating a unitary and centralized characteristic. Macao’s primary industry is too negligible while the secondary industry has had a fruitful achievement in the 1980s，with its value of output reaching 35％ of the GDP. To comply with the fact that more and more merchants have moved their workshops to the Mainland in order to reduce the production cost，and in addition，with the

gradually cancellation of the quota system according to the Agreement on Textiles and Clothing in 1994，the manufacturing industry has been losing its comparative advantage in Macao’s economy. In 2004，the manufacturing industry accounted for just 5.1％ of the GDP. In contrast，the proportion of the tertiary industry in the GDP had been rising unceasingly，accounting for 88.44％ of the GDP in 2004. After the establishment of the Macao SAR，the government seized the opportunity to adopt the policy of liberalizing the gaming sector，and the Central People’s Government adopted the Individual Visit Scheme to allow more people from the Mainland to visit the Hong Kong and Macao SARs. With these two relevant and timely policies，Macao’s gaming industry achieved a prosperous development with a gross value added （GVA） of 25.35 billion patacas in 2005.② The internal structure of each industrial sector in Macao also appears to be unitary，partial and disproportionate，and the industry classification appears to be incomplete and imbalanced. In Macao’s secondary sector，light industry occupies the priority position while heavy industry hardly exists.Meanwhile，in the tertiary sector，the main focus is on gaming and tourism，especially gaming which occupies the core position. The gaming industry has accounted for 38.75％ of the GDP while other industries like the hotel industry and the dining industry only account for 2.26％ and 4.4％ of the GDP respectively. This kind of centralized structure has revealed the fact that the entire industrial structure is too dependent on the gaming industry. In other words，it has also showed that the Macao tourism reception ability is insufficient，and the scenic site quantity is to be further developed and renewed.The unitary industry structure has become the bottleneck of Macao’s sustainable development. Regarding Macao’s problems in industrial structure and development orientation，we may possibly find the solutions in the policy addresses for various fiscal years delivered by Edmund Ho Hau Wah，the Chief Executive of the Macao SAR. In the Policy Address for the Fiscal Year 2003，it was mentioned that the Macao SAR government will highlight the strong sectors of the economy，while valuing diversity，as it is the guiding principle of industrial structural reforms. “In the coming year，the primary efforts of the Macao SAR Government will be directed towards facilitating further economic recovery，promoting business and employment and more rapidly optimizing our industrial structure.” “Under our

planned industrial structure，tourism and the gaming industry remain our development priorities. The time is now favorable for building a world-class gaming industry and improving its related services，thus enhancing the industry competitiveness and the dominant role it plays in Macao economy.”2 On the other hand，by carefully evaluating the competitive advantages and potential of the Macao SAR，the government “will continue to develop and support newly emerging industries，such as the convention and exhibition industry，offshore services，logistics，Chinese medicine and industries related to the environment.”3 Furthermore，the government will also enthusiastically build up Macao’s three service platforms，including the Trade Service Platform for the Western Part of Guangdong Province，the Economic and Trade Cooperation Platform between China and the Portuguese- speaking Countries and the Cooperation Platform for the Global Network of Overseas Chinese Business people. Therefore，the basic direction of the industrial structure policy of the Macao SAR is to enhance and strengthen the advantages of tourism and the gaming industry，to promote the transformation of traditional industries，to develop certain newly emerging industries，so as to achieve a multivariate approach in all industries.4 However，as Macao’s economic scale is relatively small，and its development lacks prolonged planning，and with its unitary industrial structure，it is necessary for Macao to choose a developing path under the “multivariate” framework.Regarding the problem of “multivariate，” the Macao Association of Economic Sciences has finished and published a book on Macao Industrial Structure Optimization and Moderate Multivariate.Bringing together the ideas of relevant scholars in this field，the report has suggested a series of development strategies for the Macao SAR.Firstly，Macao should develop a comprehensive tourism. With the natural and historical advantages，and the humanities tourism foundation，Macao is able to develop its gaming tourism into a comprehensive tourism which includes gaming，sightseeing，culture，resort，relaxation，health，convention and exhibition. In the necessary facilities aspect，it is also suggested that Macao should emphasize promoting related hotels，and strengthening the development of history and humanities tourism resources in Macao. Secondly，Macao should improve the infrastructure and service system of the convention and exhibition industry，which could be a dominant industry in Macao. Thirdly，Macao should develop

its aviation shipping industry enthusiastically into a regional aviation cargo transportation centre. Meanwhile，Macao should also develop its low cost aviation and third-party logistics. Fourthly，Macao should further improve the overall planning and management of the “Cross-border Industrial Zone，” and develop a high value textile industry and a upper middle level of manufacturing industry. Fifthly，Macao should further improve the investment and business environment，strengthen the support and renovation on the small and medium-sized enterprises，speed up with the international standard connection，and formulate a detailed moderate multivariate industrial policy.58.2.3 A Shortage and Low Quality of Human ResourcesHuman resource has become a more and more important element in economic growth. Moreover，abundant human resources play a vital role in sustainable economic growth. Along with the economic changes in recent years，Macao’s labor market has undergone some obvious changes. According to the Employment Survey of Macao Statistics and Census Service，in the second quarter of 2006，the total labor force was estimated at 274，000，within which 96.2％ were employed and 3.8％ were unemployed. Since 1998，the unemployment rate has been the lowest at 3.8％，and the underemployment rate at 1.3％.6 The data reflects that Macao inhabitant’s employment situation has improved considerably. However，at the same time，Macao’s human resources presents various kinds of structural irrationality. The quality is somewhat low and the talented people are in short supply，causing the bottleneck in Macao’s sustainable economic growth. Recently，these situations have become more serious. After the opening of the Macao gaming industry，many large-scale hotels and recreation areas have been completed ane after another. Therefore，the gaming industry needs massive human resources，and so many people have entered this vital industry. Especially as the salary level is rather high in the gaming industry，many fresh-graduated teenagers join the gaming industry，causing a serious shortage of human resources to appear in the small and medium-sized enterprises.According to those fresh-graduated students joining the work force，the comparatively high salary does have an attraction. In December 2005，the average salary of the gaming industry was 11，269 patacas7，meanwhile，the monthly median employment income of other industries

was 5，765 patacas. Comparatively，the salary of the gaming industry is almost double that in other industries，and so it is very attractive.Moreover，most of the enterprises in Macao are small and medium.Their salary level is rather limited. Therefore，it is natural that most of the human resources prefer the gaming industry.Here，we suggest building up a pre-vocational practicum system for young people. This system aims to know more about the labor demand，and to discover and accumulate talented people，so as to promote a better foundation for the Macao economy. Some developed countries like the US，Germany，England，France and Japan have introduced a successful pre-vocational practicum system for the youth，which was built up gradually during the shortage of human resources period. Meanwhile，to some extent，this system demonstrates the unique judgments on sustainable development of the European and American enterprises，creating talented human resources at an early stage. In fact，“The Youth Occupation Programme in Leisure Times” of the Macao SAR government is just like the pre-vocational practicum system in the foreign countries. This programme provides opportunities to the youth to practise and work in the government departments in the summer holidays. However，it is too weak if it is just the government providing practice opportunities to the youth.At present，Macao is situated in an economic expansion period.Both the gaming industry and other enterprises urgently require massive human resources. As there is not enough sufficient human resources in the market，some companies have employed imported labors to fill the human resources insufficiency. From the third quarter of 2004 to the first quarter of 2006，the job vacancies in Macao were around 10，000 on average （Table 8-5）.Meanwhile，in 2003-2005，the unemployment population in Macao was nearly 10，000 persons （Table 8-5）.These indicate that the Macao unemployment population has not been able to adapt to the present enterprises changes and fill the job vacancies.This unemployment population is mostly the middle-aged，low educated and low skills labor force. Although the unemployment rate has dropped recently，we cannot deny that the labor market in Macao is in a situation of structural imbalance. The development of the gaming industry has further intensified this imbalance situation in a short period of time. However，the main reason for this imbalance situation is that the unemployment population has not improved its quality to meet the

needs of economic development.According to the Employment Survey of the Macao Statistics and Census Service，in 2005，among the employed population of 237，800，30.6％ had primary or lower education，31.6％ had junior secondary education，22.3％ had senior secondary education and 15.4％ had tertiary education. In the first quarter of 2006，the employed population was estimated at 255，400，within which 29.0％ had primary of lower education，32.5％ had junior secondary education，22.7％ had senior secondary education. Although these data show obviously that the educational attainment of the employed population in Macao has been improved，the employment population which attained the tertiary education is still to be further enhanced and promoted. The growth rate of the educational attainment of tertiary education is only between0.1％ and 0.3％ （Table 8-4），which indicated that the quality of the human resources in Macao should be further improved.Education is an important element to enhance the quality of human resources. As Edmund Ho Hau Wah，the Chief Executive，has said before，“Education determined the quality of an individual，the quality of a society，and the quality of a government. Whether something is done correctly or wrongly，whether we succeed or fail，depends on the qual- ity of the individual people involved，and hence on their education.What- ever the task may be，no matter how well intentioned it is or how clear the directions are，whether it can be achieved smoothly or not will be decided by the abilities of the people who carry it out. These abilities are nurtured by education.”8 Therefore，in order to promote the quality of human resources，we should start from education，grasping the primary education and the tertiary education，as well as the regular edu- cation and special education. For stable education promotion，the quality of the education should be further enhanced，thus enhancing the competitiveness of human resources.

Table 8-4 The Characteristics of Macao’s Labor PopulationSource：Macao Statistics and Census Service，Employment Survey，2004-2006 and 2ndQuarter，2007.Table 8-5 Job Vacancies between 3rd Quarter，2004 to 1st Quarter，2006 YearIndicators2004 2005 20062007 1st Quarter2007 2nd QuarterLabor force 230,327 247,709 275,464 293,300 305,600Employedpopulation219,143 237,451 265,054 284,000 296,400Unemployedpopulation11,184 10,258 10,410 9,300 9,200Primary education or lower (%)33.5 30.2 27.8 27.3 26.6Junior secondary education (%)30.9 31.6 31.5 29.8 31.1Senior secondary education (%)20.0 22.5 23.8 24.5 24.0Tertiary education(%)15.5 15.7 16.9 18.4 18.3YearIndustries2005 1st Qtr.2005 2nd Qtr.2005 3rd Qtr.2005 4th Qtr.2006 1st Qtr.2006 2nd Qtr.2006 3rd Qtr.2006 4th Qtr.Manufacturing 6,694 - 6,272 - 7,839 - 5,580 -Electricity, gas and water supply24 - 50 - 10 - 13 -Wholesale and retail- 1,924 - 2,269 - 3,340 - 3,609Hotels and restaurants2,796 - 2,724 - 3,863 - 5,787 -Transport, storage and communications- 555 - 557 - 749 - 833

（continued）Source：Macao Statistics and Census Service，Macao Economic Bulletin，4th Quarter，2006，p. 47.8.2.4 Excessively High Degree of External DependencyAs its degree of external dependency is quite high，Macao is easily affected by the external and regional environments. Meanwhile，the industrial structure in Macao is also dependent on the external environ- ments in all dimensions. Firstly，the degree of dependency shows in its heavy service exportation. The service exportation provided by the tertiary industry accounts for 79.1％ of the GDP，showing that t services occupy a leading position in the industrial structure and that highly dependent on the external environment. In addition，the external dependency of the tertiary industry，especially tourism and the gaming industry，is quite high too. In 2004，the gaming industry accounted for 38.7％ of the GDP，in which the gaming expenditure was 70％ of the total Macao tourist expenditure. In the same year，the total number of visitor arrivals increased 40％ over 2003 to a historical high of 16，672，556. Most of these visitors came from the Mainland China （52％），Hong Kong （30％） and Taiwan （14％）.9 Per-capita spending of visitors in 2004 was 1，633 patacas，up 8％ over 2003. Per-capita spending of Mainland visitors topped the list with 2，991 patacas. Secondly is the high degree of dependency of the manufacturing industry products. In 2004，the total value of exports was 22.56 billion patacas，in which the export products account for 23.2％ of the GDP. In addition，the productFinancialservices151 - 102 - 182 - 188 -Investigation and security activities- - - 826 - 1,210 - 931Sewage, refuse disposal， sanitation and similar activities- - - 3 - 8 - 20Gaming - 13,046 - 6，167 - 5,699 - -Sub-total 9,665 15,525 9,148 9,822 11,894 11,006 11,568 5,393

exportation of Macao concentrates highly on the European and American countries； European and American markets occupy 60% of the manufacturing industry exportation. Thirdly, the degree of dependency can be seen in the financial industry and the money supply. The major assets in Macao’s financial industry and the money supply are foreign assets. In the M2 money supply, the Hong Kong dollar and other currencies account for 72.9% of the total amount. Moreover, in the property structure of the commercial banks, foreign assets occupy 60%, which shows that the financial system in Macao is also highly dependent on the external market.Table 8-6 A Statistic on Degree of External DependencyNotes: The calculation method of the degree of external independency is the total value of export and import of a country or region by the GDP. The formulae is as follows:Degree of External Independency= × 1 0 0According to the indicators showing the degree of external dependency，the degree of Macao is 82.3. Compared with Luxembourg （336.2），Hong Kong （167.7） and Singapore （192.9）, the degree of ex- ternal dependency of Macao is relatively low. However, compared withthCountries/Regions Degree of External DependencyLuxembourg 336.2Singapore 192.9Hong Kong 167.7Belgium 106.7Ireland 106.7Malta 104.9Estonia 85.4Macao 82.3Holland 74.9Hungary 69.5Bulgaria 63.5Taiwan 47.4China 30.1

the Mainland China （30.1） and Taiwan （47.4），in contrast，the degree is relatively high （Table 8-6）.10The higher the degree of the external dependency，the more easily a country or region is affected by the external environment. As a result，with the major role of the gaming industry in the industrial structure，Macao should adopt a moderate multivariate policy for its industrial structure. For example，Macao can strengthen the development of the tourism and cultural industry，enhance its unique characteristics as a European-style city，and promote the overall city development plan，in particular the protection and reconstruction of the historical areas. Also，Macao should continuously development tourist resources，so as to attract more visitors from different countries，other than the Mainland China and Hong Kong. In return，this can also prevent the unitary tourist structure. Furthermore，with respect to exportation that is highly concentrated on the manufacturing industry and on the European and American countries，and the cancellation of the quota system according to the Agreement on Textiles and Clothing in 1994，there has been a great impact on the exportation of the manufacturing industry of Macao.Therefore，Macao should gradually establish its own brand image，for example in the textile and manufacturing industry，cultural industry，publication industry and the multimedia production industry.Macao should fully show off the wisdom of the local designers and the local cultural superiority and creativity. With these achievements，Macao will be a to create a new miracle within the manufacturing industry and t overall service industry.8.2.5 Further Improvement of InfrastructureBeginning with a small fishing village，Macao has developed into a city of prosperity and a rather high degree of modernization，and experienced different kinds of transformation. Although the infrastruc- ture in Macao has increased gradually according to the economic and social development and the basic demand of inhabitants in their daily lives，it is not sufficient enough yet. Added to this，along with the vigorous development of tourism，the gaming industry，the hotel industry and the real estate industry，and in accordance with the principle of “Serving People as First Priority” and the Macao SAR government’s policy direction of enhancing the quality of life of Macao’s citizens，the present infrastructure is not sufficient to meet with the future needs of

the economic and social development.The most prominent problem is the transportation in Macao. In Macao city，the number of vehicles，including the light and heavy passenger cars and motorcycles，has increased dramatically in recent years. In 2005，the number of vehicles reached 151，000 （Table 8-7），causing great pressure on the city’s transportation and infrastructure.Regarding the number of newly registered vehicles in Macao，there has been a progressive increase since 2002. In 2005，the number of newly registered vehicles reached 17，550 （Table 8-8）.In addition，along with the large-scale recreation areas that have opened，more and more tourists will be attracted unceasingly. In 2006，the tourist arrivals in Macao have broken through 2.1 billion，creating a further pressure on Macao transportation.Table 8-7 The Numbers of Vehicles in MacaoSource：Macao Statistics and Census Service，Yearbook of Statistics、2004，pp. 390-391；Transport and Communications，May 2006，p. 1；Transport and Communications，May 2007，p. 1.Table 8-8 The Number of Newly Registered Vehicles in MacaoSource：Macao Statistics and Census Service，Yearbook of Statistics，2004，p. 389；Trans，port and Communications，May 2006，pp. 1-2；Transport and Communications，May 2007，p. 1.I temsYearPassenger Cars Trucks Motorcycles OthersTotalLight Heavy Light Heavy Light Heavy Light Heavy2004 61,265 1,807 2,271 1,791 34,188 38,340 380 2,541 142,5832005 65,544 1,996 2,415 1,947 38,409 40,407 375 2,774 151,8672006 68,775 2,135 2,578 2,059 42,970 42,398 373 2,911 164,199Items Year Light and Heavy VehiclesMotorcycles Total Growth Rate(%)2002 4,499 5,606 10,105 -2003 5,476 6,606 12,082 19.62004 6,509 8,803 15,312 26.72005 7,283 10,267 17,550 14.62006 6,838 11,500 18,338 4.49

Nowadays，there are two kinds of public transportation in Macao.They are buses and taxis. Along with the continuous increase of the transport utilization of the Macao citizens and tourists in recent years，there has been a more and more serious traffic jam problem during the peak hours. Obviously，at this moment，the supply of transportation cannot meet the demand. In order to solve the transportation problem in Macao，improve the transportation in the city，and enhance the quality of life of Macao citizens，it is necessary to develop a collective transport means and that，the introduction of a light rapid transit system to Macao is the only feasible solution to the city’s traffic problems. A light rapid transit system would not only promote the modernization of Macao city，but also enhance the international image of Macao as a travel destination. The light rapid transit system would also reduce the quantities of vehicles in the traffic lanes，and decrease the volume of traffic which affects the environment. Moreover，it would integrate with the historical buildings and the entire Macao city. This will further help to build up the reputation of the city as a centre of history and culture. It is hoped that a modern transportation system will eventually be developed in Macao.In order to ensure the city’s security in the future and the goal of sustainable development，it is extremely important to protect the ecological environment. The limited forested area and the seacoast wetland should be protected with care. The old city districts should be improved with scientific plan. The water supply，the power supply，the supply of fuel and the garbage disposal also require the implementation of a scientific plan and direction，so as to avoid attending to one thing without losing track of another and sacrifices the basic requirements of the territory for the sake of development.8 .3 Som e C o n c lu d in g R e m a rk sIn conclusion，every country or region has its own advantages and disadvantages. The government and the society itself should have a clear and explicit understanding of both，and exercise imagination and innovation to build a path towards intelligent development. Macao，already entered the first phase of the mini-economies competition，has no reason to slow down its forward momentum.

N otes1 Kuznets，S.，Economic Growth of Nations：Total Output and Production Structure，Cambridge：Balknap Press of Harvard University Press，1971，p. 333.2 Ho，Hau Wah，Policy Address for the Fiscal Year 2003，Macao：Macao Government Printing Bureau，2002，p. 8.3 Ibid，p. 9.4 Macao Association of Economic Sciences，A Study on the Optimization of the Industrial Structure in Macao and the Appropriate Diversification，2006，p. 39.5 Ibid.，pp. 44-84.6 Macao Statistics and Census Service，Employment Survey：2nd Quarter 2006，pp. 17-18.7 Macao Statistics and Census Service，Manpower Needs and Wages Survey：4th Quarter 2005.8 Ho，Hau Wah，Policy Address for the Fiscal Year 2004，Macao：Macao Government Printing Bureau，2003.9 Macao Statistics and Census Service，Tourism Statistics 2004，pp. 39-41.10 Eurostat.，http：//epp.eurostat.cec.eu.int；Macao Statistics and Census Service，Yearbook of Statistics 2004.

9O r i e n t a t i o n a n d R e q u i r e m e n t o f M a c a o ’ s F u t u r e D e v e l o p m e n tMacao has seen drastic change since its return to China in 1999 when it became a Special Administrative Region （SAR）.To restore the battered economy left over by the Portuguese administration，the SAR government adopted the policy of “consolidating the foundation for steady economic development.” A number of measures were taken to support this policy such as tax reduction，SME funding，employee retraining，infrastructure improvement，etc. Later，an important step，the liberalization of the gaming industry，was taken to revitalize the economy. The SAR government has clearly defined its strategy for economic development：“gaming and tourism as the leading sectors，other service sectors as the backbone while overseeing the development of other industries.” Efforts have also been made to construct the so-called “three service platforms”：one for world Chinese entrepreneurs，one for trade and commerce in Western Guangdong，and one for economic cooperation between China and Portuguese-speaking countries.Along with the recovery of the economy as a result of the SAR government’s effort，employment improved soon after the sovereignty handover. Coinciding with the Individual Visit Scheme for tourists from the Mainland China，considered as the central government’s policy stimulus of the SAR’s economic development under the framework of the Mainland and Macao Closer Economic Partnership Arrangement （CEPA），the liberalization of the gaming industry has served as the driver of economic growth. New casinos have sprung up；tourists have flocked in；and foreign investments have poured in. Macao’s annually average GDP growth in real terms was 15.24％ from 2002 to 2006. In short，it is an unprecedented period for Macao.

The unprecedented economic growth has posed for Macao problems such as shortage of labor，deterioration of the environment，inflation of housing prices，etc. It seems that the gaming industry has not helped the development of other industries. The new casinos have attracted labor from non-gaming businesses，especially small and medium enterprises （SMEs），which，together with rising labor costs and rents，has driven out some non-gaming businesses. Parks have given way to casinos；high-rise buildings are springing up；the influx of tourists has added pressure to the infrastructure；traffic congestion and lack of parking have become more severe. All these have contributed to environmental issues，thus adversely affecting the quality of life.Macao’s current situation is something like what Candace Evart describes when discussing some casino venues around the US after the introduction of the gaming industry：“with the heightened activity within a community，it is not unreasonable to expect local residents to wonder if gaming is worth it even with the economic benefits to be derived.Residents begin to remember the ‘good old days’...” 1As a mini-economy with strengths in certain areas，Macao today should pursue quality of economic growth instead of a fast pace of growth.The ultimate objective of economic development is to improve the qual- ity of people’s lives. With this objective，there is much more to do than to attain a high GDP growth. Macao needs a vision — one that compels people into the future.9 .1 C a p ita liz e on the S treng ths and M in im iz e theW eaknessesMacao is an economically highly developed region with strengths and weaknesses for future development. In view of an imbalanced industrial structure with concentration on the gaming industry，we need to identify these strengths and weaknesses in order to reposition Macao for sustainable growth.9.1.1 Macao’s Major Strengths① The Macao society is a highly stable one with tolerant people.Since Macao’s return to the People’s Republic of China （PRC），local people have shown a stronger recognition of national sovereignty and their identities as Chinese citizens. The cohesion of the Macao society

lays a foundation for future development.② Under the “one country，two systems” policy，which is guaranteed by the Basic Law，Macao is strongly supported by the central government and local governments around China not only economically but in every aspect. This is a constitutional strength and the core advantage for Macao.③ Macao is among the fast-growing economies in the world and one the few fast-growing mini-economies with the GDP per capita being 28，436 US dollars in the year 2006 and HDI being 0.909 in the year 2004.④ As an open economy，Macao has developed its ability to respond quickly to changes in the international market. The new generation of local entrepreneurs is more creative than the older generation.⑤ Various races，religions and cultures from both the East and West have long coexisted harmoniously in Macao，which projects a positive image for Macao as an international city.⑥ Macao has close relationships with thousands of oversea Chinese and Portuguese all over the world，which offers Macao a good business and information network.⑦ Macao will maintain its status as an international free port with a low tax system and a stable financial system.⑧ Macao serves as a bridge between the Mainland China and Taiwan，thus benefiting from the growing trade and passenger traffic between the two sides.⑨ Located in the fastest growing region in the world，Macao has a strategic position，with the Mainland China as its strong back.⑩ For historical reasons，Macao has close links with the European Union，which be fruitfully developed.⑪ Macao has the potential to develop its relationships with Portuguese-speaking countries. Nowadays，such countries as Brazil，Mozambique，Angola，etc. are playing a more and more important role in their own regions.9.1.2 Macao’s Weaknesses① The Macao economy relies too heavily on the gaming industry；gaming tax accounted for 75％ of the government revenue in 2006. The share of manufacturing is declining. The economy is becoming more and more vulnerable to economic and even policy changes outside.

② Land scarcity and a small population result in a small domestic market and make it difficult to achieve economy of scale.③ The lack of a deep sea port hinders the development of the maritime industry and undermines the Macao’s role as a free port.④ The lack of a complete transportation network directly connecting to other parts of the world holds Macao back from becoming a modern logistic and transit hub.⑤ The lower quality of labor as compared with neighboring regions impedes the growth of knowledge-based industries.⑥ While being tolerant，the people in Macao are often considered traditional，conservative，and slow to accept new things.9.1.3 Macao’s Core Competencies DevelopmentThe economic globalization is bringing enterprises in different countries and regions into a global competition arena，where they compete and survive or die. The position of a country or region is determined，to some extent，by the performance of its enterprises in global competition. To maximize the benefits，minimize the risks from globalization and achieve sustainable growth，a region or enterprise has to develop core competencies.The concept of core competencies was introduced by C . K .Prahalad and Gary Hamel，who proposed that companies should consider their “core competencies” in order to succeed. According to them，a core competency is “an area of specialized expertise that is the result of harmonizing complex streams of technology and work activity.” They pointed out three characteristics of a core competency：it provides potential access to a wide variety of markets；it increases perceived customer benefits；and it is hard for competitors to imitate.2 Later，Gallon，Stillman，and Coates defined core competencies as ‘‘aggregates of capabilities，where synergy is created that has sustainable value and broad applicability.”3 Coyne，Hall，and Clifford suggested that “a core competence is a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world class standard.”4The idea of core competencies can also be applied to the develop- ment of a region’s competitive advantages. For Macao，gaming is not a core competency as it can be copied quickly. Singapore is building casinos；

other Asian countries and regions are considering gaming legalization.Its culture and heritage，and a calm and leisurely ambience are Macao’s uniqueness，which cannot be imitated. With the Historic Centre of Macao inscribed on the UNESCO’s World Heritage List in 2005，Macao is in a position to capitalize on its uniqueness to develop tourism and cultural products that visitors uniquely value.9 .2 Som e O b je c tiv e s N eeded to be R e a liz e d w ith F u ll E ffo r t“Now the question Macao faces is not ‘Do we need to develop?’ but ‘How should we develop?’ What Macao needs is to establish a set of new concepts，new theories and new ideas that are both pragmatic and innovative. It will not be difficult in the least for Macao，a newly invigorated city，to adopt new ideas and concepts，and it is vitally important to do so.”5 “Macao cannot rely on just one single industry，that is，gaming.Nobody dares to deny that there will be risks and changes in the future. But it is essential to maintain a diversified industrial structure，which can always provide alternative strategies for development. Macao should not be ‘dependent’，but independent in good times and bad. Macao should not be satisfied with a ‘small，framework - small business，small markets and small profits- but should think big：big markets and fierce competition，allowing Macao to achieve closer integration in the process of globalization. Short-term profits should not be the primary concern；rather，practical，long-term strategies should be prepared. Sticking to the existing framework will do Macao’s development no good；rather，innovative ideas should be introduced in order to reach our goal.”6From the above discussion，it can be seen that when Macao is setting up long-term development goals and appropriate policies for the future，the following short term objectives can never be neglected.① A highly efficient，corruption-free，accountable and innovative government that has a team of well-trained civil servants who work in accordance with law and within the limits of their authority，and have a strong sense of service to their fellow citizens.② A positive image that is recognized around the world and especially in the surrounding countries and regions. Macao should be known as a place with a comprehensive judicial system，where rights

and interests are protected by law，and whose citizens and government units have a strongly ingrained consciousness of the law.③ A united，open-minded and hardworking community，in which residents will not only consider their own interests but also the interests of others：a community in which people will not only innovate，but also co-operate；in which people will not only strive together to overcome difficulties，but will also share their success with others and have full confidence in the future. To some extent，this is what people always call a “civil society.”④ A team of modern entrepreneurs who have the courage，modern business philosophy and international competitiveness to surf the rising tide of the new economy.⑤ A well-thought-out，practical perspective and direction for development，in which there are continuous explorations of appropriate development patterns，full autonomy，and a best combination of various internal factors in the society that functions rationally and scientifically.This should be a shared understanding in the society，a core value among the community and a basic standard of all qualified people.9 .3 A D re a m Soc ie tyWith the rapid expansion of the gaming market，Macao is in a phrase of fast economic growth but we seem to have lost direction. Where are we going? What should Macao look like in the future? There should be answers to these questions. The dream society should be one in which local residents enjoy living and working and which tourists enjoy visiting.Therefore it should have the following characteristics：9.3.1 An Exquisite SocietyAn exquisite society concentrates on quality rather than quantity.Given the land scarcity，it is unlikely that Macao will become a big city like Hong Kong. For the long run，we should aim at building Macao as a great brand on a limited piece of land，a brand that is well-known not only in Asia but also in the world. A great economy must be built by quality people and a quality government，thus finally producing quality products of its own.

9.3.2 A Society with a High Degree of Rule of LawStability and prosperity rely not only on economic development but also the rule of law which guarantees a fair and just society and a fair business environment thus guaranteeing the Macao’s long-term success.According to the terms of the Basic Law，any laws，decree laws，administrative regulations and other normative acts which were previously in force in Macao will，in principle，remain in force after the handover as long as they do not contravene the Basic Law. However，the laws，regulations，etc. left over by the Portuguese administration seem to have lagged behind social and economic changes，which，together with the loose enforcement of law，has already given rise to various social and economic problems and hampered the territory’s development. In spite of the establishment of the Legal Reform Office and Legal Reform Consultative Council in 1995 by the Macao SAR government as an effort to carry out legal reforms，little progress has been made. The call for speeding up legal reforms is getting louder and louder.9.3.3 A Society with High Competitiveness and Adaptabi- lityOne of the characteristics of a mini-economy is heavy dependence on external demand，which makes it highly susceptible to external changes. For Macao，with the decline of the manufacturing industry，gaming，tourism and other service sectors dominate the economy，which greatly exposes Macao to external risks. Although Macao was ranked eighth in overall competitiveness of 200 Chinese cities in 20067 and shared the top spot with Seoul for the best economic potential cities in the competition，8 its adaptability to the changing global economic environment needs to be improved to sustain long-term development. In fact the central government has repeatedly called for “appropriate industrial diversification” in Macao in order to foster new areas of economic growth.9.3.4 A Harmonious SocietyMacao has been praised for having a harmonious society where people of different races，religions and cultures have long been living together peacefully. For a long time，conflicts and disputes between interest groups have been settled through dialogue and negotiations.

Nevertheless，Macao is going through tremendous changes both socially and economically as a result of the liberalization of the gaming industry.The harmonious society of Macao is under threat from a number of factors：the widening gap between the rich and the poor，deteriorating employer-employee relationships，a lagging legal system，etc. While it is believed that some conflicts and disputes can still be settled through dialogue and negotiations，many more have to be settled by the rule of law. More importantly，conflicts and disputes should be minimized by creating a fair and just social environment. After all，a harmonious society can be maintained only on the basis of justice and fairness.9 .4 T he F o u r “ C en tre s” in the M a k in gWith the advantage of “one country，two systems”，its strategic position and its culture and heritage，Macao can play a multi-role in the course of China’s development and demonstrate its own value of existence. Macao can become a gaming-tourism centre，a multi- service centre，a centre for east-west cultural exchange，and a centre for demonstration of the success of the principle of “one country，two systems.”9.4.1 A Gaming-tourism CentreUnder the “one country，two systems” policy，Macao is the sole jurisdiction with legal gaming in the territories of the People’s Republic of China- both for now and in the near future. The liberalization of the gaming industry has lured foreign operators and is making Macao an Asian gaming centre，contributing partly to the dramatic increases in visitation and rapid development of infrastructure. Another important stimulant to the influx of visitors is the Individual Visit Scheme program adopted by the central government as a support to the two SARs，Hong Kong and Macao. Along with gaming，other segments of the tourism market，such as MICE （meetings，incentives，conventions and exhibition），cultural touring，etc. are expected to see growth. The Historic Centre of Macao，which became China’s 31st site on the World Heritage List in2005， has enhanced Macao’s position as tourist destination that offers experiences other than gaming.

9.4.2 A Multi-service CentreSince Macao’s return to China，the SAR government has been endeavoring to construct the “three service platforms”：one for world Chinese entrepreneurs，one for trade and commerce in Western Guangdong，and one for economic cooperation between China and Portuguese speaking countries.To improve the territory’s competitiveness，the SAR government lowered the maximum rate of professional tax to 12％ in 2003 and that of corporate income tax also to 12％ in 2005，maintaining Macao among the few low-tax regions in the world. With its well established relationships with Portuguese countries and the support from the central government，Macao hosts the Forum for Economic and Trade Cooperation between China and Portuguese-speaking countries every three years and support the permanent forum office located there.In addition，Macao has gone into partnership with Western Guangdong in tourism and exhibition and logistics and become a party of the Pan-Pearl River Delta Cooperation Agreement. Moreover，Macao is playing an increasingly important role in strengthening cooperation between Chinese people in the world.9.4.3 A Centre for East-West Cultural ExchangeWith a history of over 400 years，Macao is well-known for its rich cultural attractions. Macao was China’s earliest port，opened to foreign trade in the 16th century. Since then eastern and western cultures have blended harmoniously in Macao. Today，Chinese and Portuguese are the official languages for the Macao SAR with English widely used in the business world；traditional Chinese and western festivals are celebrated throughout the year；cuisine of different styles or mixed styles are so available；customs and ways of living from different cultures have been adopted. Macao’s role as a centre for east-west cultural exchanges can be further enhanced when it becomes more and more internationalized.9.4.4 A Centre for Demonstration of the Success of “One Country，Two Systems”As one of the two administrative regions in China which enjoy a high degree of autonomy and are directly under the central government，Macao is standing the test of “one country，two systems”. Following

Hong Kong，Macao’s future success will be of vital importance not only to its own long-term stability and prosperity but also for China’s peaceful reunification.9 .5 S tr a te g ic P la n n in g N eeded fo r S u s ta in a b le D e v e lo p m e n tIn the present stage of fast economic growth，Macao needs strategic planning for sustainable development. Strategic planning will help develop a vision for Macao through identifying its strengths and weaknesses，opportunities and threats. This vision will enable local residents to see what Macao will be，strengthen their confidence in the future，and help direct all possible efforts towards the goals defined.Once there is a vision，a series of strategies should be developed for implementation.9 .6 A W e ll- P lanned D e v e lo p m e n t C onsc iousness is N eededWhen Macao was celebrating the 5th anniversary of its return to the motherland in 2004，President Hu Jintao played his first visit to the SAR. After his inspection，he pointed out that “Macao enjoys social stability，sustained economic growth and a peaceful and contented population. Facts have proved that the Macao people have the wisdom，ability and means to properly administrate，build and develop Macao.”9 The Central People’s Government gives great encouragement to and holds strong expectations of Macao. It thus requires the SAR government to further establish a scientific conceptualization about the source of power，so that it will be used rationally. The government is also required to put the people first and to govern according to the law.With the existing foundation in development，Macao is able to step forward confidently and make more progress. At this moment，it is necessary for Macao citizens to keep a clear and rational mind，so that they are able make more contributions to the advancement of the harmonious society.Simon Kuznets，the famous American economist and Nobel Laureate in Economics，once claimed that modern economic growth is a factual index，which means the increase in the growth rate of

GDP per capita is due to the improvement in the quality of input instead of the increase in the quantity. In other words，it results from a higher efficiency or an increase in the amount of output produced by each single unit of input，or from a growing capacity based on advancing technology and the institutional adjustments that it demands.10 In this era of knowledge economic，the institutional adjustments for improving development quality，cultivating qualified human resources，accumulating knowledge，encouraging innovation，upgrading general competitiveness and modulating development conceptualization are of great significance especially for a mini-economy that is restricted by scarcity of resources.The Macao SAR has been established for 8 years. This sound beginning provides a solid foundation for the further development of the city. Macao has already entered the new stage. It is obvious that the new age and the new situation require Macao people to establish new ideas and new concepts by summarizing the existing development patterns and directions，exploring the unknown and innovating the new based on the present achievement，behaving rationally and keeping up pace with the modern world. Only by doing so can Macao successfully put the idea of “one county，two systems” into real practice.11 Being the first generation to live in the SAR，Macao citizens of today are lucky to be involved in the foundation laying and the actual construction of the “SAR building.” It is also their honor to be among the creators of this historic experiment in civilization：“one country，two systems.” As beneficiaries of the “one country，two systems” policy of the SAR，they should try their best to make progress and work hard so as to further develop the city and maintain a stable and prosperous society.In order to sustain development，it is necessary to set up a modern development perspective：the coherent and rational co-ordination of the factors of production；the constancy and stability of development；the synchronization of economic and social development；the coordinated development of natural and social ecosystems；the priority of human resource development；and respect for the value of high-calibre professionals. Sustainable development requires a society to maintain a win-win attitude and enhance international competitiveness.This modern developmental perspective is a multifaceted concept that includes the following characteristics：

① A Rational and Scientific OrientationThe establishment of an appropriate orientation towards develop- ment is of top priority for all countries- developed，developing or underdeveloped — and all economies- large-scale，medium-scale，small-scale，or “mini.” In-time adjustments of the development directions and strategies are definitely essential. Macao，as a typical model of a mini-economy，is both economically and socially developed.A positive attitude should be held towards any changes. Temporary setbacks or instabilities caused by unfavorable times should not shake the confidence of the city. On the other hand，prosperity and stability in good times should not be a reason for blind optimism and lack of caution.This is the unquestionable basis for development.② Proper Utilization of ResourcesDevelopment relies on the utilization of various resources：natural and social resources；internal and external resources. Scarce resources should be treasured；while abundant resources should be appropriately utilized. Effective exploitation should be encouraged；while inappropriate distribution should be prevented.Like other mini-economies，Macao has the problem of limited resources. At present，there are huge amounts of capital invested into the city due to the new gambling concessions. It is extremely important for Macao to make good use of this capital together with the limited natural resources it possesses. Proper utilization of resources is necessary so as to avoid resources redundancy.③ Elaboration of StrengthsBoth strength and weakness are relative and dynamic concepts that develop historically. No strength or weakness will remain the same eternally. Macao should clearly consider its proper orientation，fully elaborate its strengths and overcome its weakness so as to bring its comparative advantages into full use. It is equally important to realize the timeliness and suitability of its strengths so that their utmost effectiveness can be realized.④ Complementary and Beneficial CooperationThe characteristics of every country and its economic system are different. Those in-born features may create obstacles which a country or region needs to overcome in order to develop. In this sense，complementary and mutual beneficial cooperation among countries/ regions can provide vital help. No matter how large in scale and how advanced an economic system is，it cannot survive solitarily. Global and

regional cooperation is both important and unavoidable for all countries，especially for small-scale and mini-economies. With limited resources and other natural constraints，small-scale and mini-economies should establish an extensive network of communication and cooperation，drawing support from external resources and markets to complement the deficiencies in their own domestic situations. Therefore，global and regional cooperation is an important development direction for Macao.⑤ Quality as Top PriorityIn the early period，quantity is inevitably an important concern of a society. However，when a certain scale of development is achieved，the priority should be shifted to quality. This usually involves a shift of focus from external quantity expansion to internal quality improvement；a change of a low-level division of labor to a high-level one with the production of high-quality and value-added products. In fact，the concern of quality not only emphasizes the perfection and enhancements of the material standard，performance，and branding of a commodity，it also pays attention to the refinement of the quality of the entire production line，and indeed，of all the members of the society.Nowadays，many developed countries have popularized higher education. Individual contributions and values are highly appreciated in their countries. This kind of practice is a good example for Macao. Macao has reached the level in which the attention should be paid to quality instead of quantity.The exploitation of human resources is the basic and crucial way to achieve quality improvement. Macao is in need of appropriate distribution of its skilled workforce，and at the same time，it should try its best to eliminate any misallocation or waste of human capital.⑥ Fair CompetitionEvery industry，every unit of production and consumption，and every member of society is a resource that supports，complements，and supplements the others. The principle of mutual benefit suits the reality of the complex division of labor in the modern world；it is the basic condition for a stable and harmonious society. Various social systems and economic models share certain similarities which are crucial features for development. They share common development patterns，common types of resources，common development opportunities，common need of trade and the common goal of environment protection.These commonalities bring the different countries and regions to a common path and make them close companions on the journey；yet，at

the same time，the commonalities also lead to competition. In order to win in the competition，it is necessary to upgrade competitiveness by quality improvement. Therefore，fair and healthy competitions actually can lead to progress. Macao should not be frightened by the fierce competition in the modern world. On the contrary，it should actively compete with its counterparts so as to obtain more opportunities for development. With less selfishness and more cooperation，less conservatism and more innovation，fewer constraints and more benefit sharing，everyone will profit from fair competition，which will create more resources and opportunities. Therefore，even a mini- economy like Macao can greatly benefit from competition and cooperation. With great enthusiasm and activeness，Macao will certainly not be isolated，disregarded or marginalized.⑦ Confronting SetbacksNo one can claim that he or she has never faced adversity.Naturally，the impact that adversity has will be different for different people；some will experience a heavier blow than others. Sometimes，the setbacks in our life are due to unexpected factors or to our own blindness to risk. Therefore，the cause of adversities and the ways to get beyond them are not always the same；specific and careful analysis is necessary when facing each setback. However，adversity can strengthen our resolve and test our wisdom，adversity may even precede success. Therefore，it is necessary to keep up our spirit of innovation and to face challenges with a sober mind. Nurturing a positive psychological outlook in the face of possible adversity is a key component in enhancing economic competitiveness.⑧ Innovative MindsInnovation is a psychological process of exploring and discovering new things. It is an activity focusing on new features and new relations.This requires people to continue updating and improving the knowledge and experiences that they have already obtained. Innovative minds are a vital requirement of modern development. It is a realization of the internal motivation for competition. Innovative minds and the determination to explore in complicated situations are vital for a society’s competitiveness；this capacity is even highly relevant to a society’s future existence and development. As is proposed by J. A . Schumpeter，innovation means the establishment of a new production functions. It is a new type of integration of various factors of productions under

certain environments in the production system. The success of China’s innovative conception of reform and opening-up，and the achievement of the opening-up of the gambling sector in Macao prove that innovation is extremely important for economic development. Therefore，Macao should keep an innovative and creative mind，so as to break through stereotypes of thinking and set up a new production function.With new ideas and updated methodology，Macao is well-equipped for all the challenges and demands of future development.In conclusion，Macao is a small but special region. It is at a beginning stage of development but with some large-than-life performances already on record. Though this fortunate place has with a number of restrictions that need to be overcome，countless opportunities are seen and can be fully realized. Macao should establish a large view. Size is simply a basic characteristic.A large-scale economy definitely possesses some advantage due to its largeness，yet small-scale or mini-economies also greatly benefit from their smallness.Small can be beautiful，small can be refined，and small can be thorough. With its smallness，Macao can generate a unique type of development pattern and its smallness can actually lead it to a higher level of development and thus to gain the respect of the whole world.At present，Macao is experiencing the best moment in its history.With all its present advantages，this city should strive to achieve all it can and plan carefully for the future. This is a historical mission of both the SAR Government and each Macao citizen. With determination and effort，Macao will go on to be a stable and prosperous，healthily developed and fully modernized city.

N otes1 Evart，C.，“Casino Gaming and the Unwary Host Community- Lessons Learned，” in Eadington，W. R. and Cornelius，J. A.（Eds.），Gambling：Public Policies and the Social Sciences，Reno：Institute for the Study of Gambling and Commercial Gaming，College of Business Administration，University of Nevada，Reno，1997，p. 3202 Hamel，G. and Prahalad，C. K.，“The Core Competence of the Corporation，” in Harvard Business Review，Vol. 68，No. 3，1990，pp. 79-93.3 Gallon，M. R.，Stillman，H. M. and Coates，D. “Putting Core Competency Thinking into Practice，” in Research Technology Management，Vol. 38，No. 3，1995，pp. 20-29.4 Coyne，K. P.，Hall，S. J. D. and Clifford，P.G.，“Is Your Core Competence a Mirage?”，in Me Kinsey Quarterly，Issue 1，1997，pp. 40-54.5 Ieong，Wan Chong and Ieong，Sao Leng （Eds.），“One Country，Two Systems ” and the Macao SAR，Macao：Centre for Macau Studies，Univer- sity of Macau，2004，p. 422.6 Ibid.，pp. 422-423.7 Annual Ranking Report of Urban Competitiveness among Chinese Cities，released by the Chinese Academy of Social Sciences on March，2006.8 Asian Cities & Regions of the Future 2005/06 conducted by Foreign Direct Investment （FDI）.9 People’s Daily Online，http：//english.peopledaily.com.cn/200412/20/ eng20041220_168003.html，20th December 2004.10 Kuznets，S. Modern Economic Growth：Rate，Structure and Spread，Beijing：Beijing Economics College Press，1989 （Chinese version translated from London：Yale University Press，1966）.11 Ieong，Wan Chong，Correctly Practising of “One Country，Two Systems”，Macao：Centre for Macau Studies，University of Macau，2005，Preface.

1 0F i n a l C o n c l u s i o nThe duration of the present research has been almost two years，and we have provided a relatively systematic and comprehensive presentation of the topic of mini-economy. It is perhaps the largest scale academic work about such a topic found in the economic field. A careful reader can easily discover that the detailed discussions in this book can be generalized into the following conclusions：① Mini-economy is a representative phenomenon in the modern economic development. The existence and development of mini-economies are highly related and relevant to that of the world，in- cluding both the developed and the developing countries. The success of certain mini-economies is worth investigation，and their experiences can be used as references for others.② Strengthening the study of mini-economies is essential.Frankly speaking，the systematic study of mini-economies in the academic field can be said to be a rarity of rarities. The economists in developed countries are seldom aware of this topic. The experts and scholars in the mini-economies do not pay attention to it either. This insufficiency and ignorance in knowledge should be eliminated as soon as possible.Given this situation，the authors of this book insist that mini- economies should be an urgent research topic in the academic field of international economics.③ Macao is a mini-economy with the advantages brought along by the policy of “one country，two systems.” It is the member of the first league among the mini-economies. With the exist- ing foundation，the Macao SAR government and Macao citizens should make great efforts to conclude the present stage of development of the region and to study its future development directions and strategies.

Only through these efforts can the region truly develop on a scientific and orderly basis.As a result，Macao will grow rapidly and harmoniously；at the same time，it will develop in a balanced and sustainable way. Its industrial structure can be further optimized and the direct benefits of the citizen can be further enlarged.④ The development trend of human civilization in the 21st century indicates that the sustainable and effective open policy of an economy is a medium for the appropriate utilization of internal and external resources. The rational and practical perfection of systems，social and economic，is the best way to release energy and remove obstacles. There is no limit for the development of material and spiritual civilization. Thus，people’s knowledge of development patterns has no boundaries either. The correct approach is the persistence of rational thinking，objective and positive explorations on possible development patterns.⑤ In short，the number of mini-economies is large. They deserve sufficient attention and fair treatment from the international economic community. Their special developing environment should be respected. Their special position in the world should be recognized. The study of mini-economics，which is a sub-topic in the discipline of modern economics，should receive more attention. Those who are qualified to join should directly or indirectly present their contributions to this study.

P o s t s c r i p t“We must lay equal stress on social sciences and natural sciences and give full play to the important role of philosophy and other social sciences in economic and social development”——the fundamental poli- cies of our country. Strengthening the development of social sciences has always been a fundamental policy of our country. It is impossible and unimaginable to see a society develop without social sciences and humanity studies. Academic research is one of the basic divisions of labor in a society. Its meaning and value speak for itself.Macau has entered the most prosperous period in its history. Its bright future is ensured by the “one country，two systems” policy and the Macao Basic Law. As intellectuals who contribute to the society with knowledge，we should adjust our viewpoint in a timely manner and deepen our research perspectives. It is our duty to provide useful and practical research results as our government’s reference for the healthy and further development of our SAR. We are obligated to serve in the construction of a harmonious society and in the correct practice of “one country，two systems.”Hereby，the research group would like to show our great apprecia- tion to the Macao SAR Government for its scientific orientation and direction for academic activities. We are greatly indebted to our Chief Executive Mr. Edmund Ho Hau Wah，Secretary for Economy and Finance Mr. Tam Pak Yuen，Secretary for Social Affairs and Culture Mr. Chui Sai On for their attention and encouragement of this research. We are grateful to the University of Macau Rector Prof.Iu Vai Pan，Vice Rectors Prof. Rui Martins and Dr. Lai Iat Long for their support and promotion of this research. We also thank all faculties in the University of Macau and the University of Macau Library for

their information support，the Statistics and Census Service and the Government Information Bureau of MSAR for their reliable statistics and news photos，the Union of Macao Scholars，Macao Association of Economic Sciences，Macao Development Strategy Research Centre，Macao Association of Social Sciences and other non-governmental organizations and friends for their care and help. These are core factors contributing to the success of the research.Due to the limitation of our own ability and time，inadequacies and errors are inevitable. We sincerely invite comments and corrections from our respected fellow scholars and readers.The AuthorsNovember 2007

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Title：A Study on Contemporary Mini-economiesAuthors：Ieong Wan Chong，Ieong Sao Leng，Tang On Kei，Lin Son Sam，et al.Publisher：Union of Macao ScholarsCover Design：Tang On KeiDate of Publication：November 2007Printer：Tipografia KAVAFormat：155X230mmCopy Run：1000Price：MOP120ISBN 978-99937-897-3-4

The publication of this book is sponsored by the Macao Economic Services and Macao Foundation.