Macau has a highly developed market economy, which has remained one of the most open in the world since its handover to China in 1999. Apparel exports and gambling-related tourism are mainstays of the economy. Since Macau has little arable land and few natural resources, it depends on mainland China for most of its food, fresh water, and energy imports. Japan and Hong Kong are the main suppliers of raw materials and capital goods. Although Macau was hit hard by the 1997–98 Asian financial crisis and the early 2000s recession, its economy grew approximately 13.1% annually on average between 2001 and 2006. During the first three-quarters of 2007, Macau registered year-on-year GDP increases of 31.4%. A rapid rise in the number of mainland visitors due to China's easing of travel restrictions, increased public works expenditures, and significant investment inflows associated with the liberalisation of Macau's gaming industry drove the five-year recovery. The budget also returned to surplus after 2002 because of the surge in visitors from China and a hike in taxes on gambling profits, which generated about 70% of government revenue.

Macau is a full Member of the World Trade Organization. Public security has greatly improved after handover to the People's Republic of China. With the tax revenue from the profitable gambling industry, the Macau government is able to introduce the social welfare program of 15 years of free education to all Macau citizens. In 2015, Macau's economy saw a sharp decrease (-26.4% year-on-year in Q2 2015) due to the reduced spending by visitors from mainland China since the Anti-corruption campaign under Xi Jinping. The Hong Kong dollar is itself a reserve currency for the Macanese pataca, which is pegged at the official rate of around 1 Hong Kong dollar to 1.03 Macanese pataca.

History Macau was a barren fishing village with a population of about 400 before the Portuguese arrived in the 16th century, during the Age of Discovery. In 1535, the Portuguese traders obtained by bribing the right to anchor ships in Macau harbours and engage in trading activities. Portuguese and Chinese merchants flocked to Macau, and it quickly became an important regional trading center in Portugal's lucrative trade along three major routes: Macau-Malacca-Goa-Lisbon, Guangzhou-Macau-Nagasaki and Macau-Manila-Mexico. However, with the decline of Portugal as a world power in the 17th and 18th centuries, the trading routes were challenged by other powers such as the Dutch and the British. After China ceded Hong Kong to the British in 1842, Macau's position as a major regional trading center declined further still because larger ships were drawn to the deep water port of Victoria Harbour. In an attempt to reverse the decline, from 1848 to the early 1870s Macau engaged in the infamous trade of coolies (slave labourers) as a transit port, shipping locals from southern China to Cuba, Peru, and other South American ports to work on plantations or in mines.

Fishing re-emerged as a dominant economic activity in Macau as it lost its position as a regional trading center. In the early 1920s, over 70% of Macau's 84,000 residents were engaged in fishing. Meanwhile, some other businesses started to develop, such as matches, firecrackers, incense and fishing-boat building. But the most notable was the gambling business. Gambling was first legalised in the 19th century in an attempt to generate revenues for the government. The first casino monopoly concession was granted to the Tai Xing Company in 1937. The company was, however, too conservative to fully exploit the economic potential of gambling. The industry saw a major breakthrough in 1962 when the government granted the Sociedade de Turismo e Diversoes de Macau (STDM), a syndicate jointly formed by Hong Kong and Macau businessmen, the monopoly rights to all forms of gambling. The STDM introduced western-style games and modernised the marine transport between Macau and Hong Kong, bringing millions of gamblers from Hong Kong every year.

In the 1970s Macau also saw a rapid development in its manufacturing sector. With Macau's low-cost operating environment and its surplus quotas under the Multi Fiber Arrangement (MFA), many Hong Kong industrialists established textile and garment manufacturing bases in Macau. At its golden age in the 1980s, the manufacturing sector accounted for about 40% of Macau's GDP; textiles and garments accounted for about 90% of Macau's total visible exports. However, the manufacturing sector has experienced a gradual decline since the early 1990s due to phasing out of the MFA quota system and the rising labour costs relative to mainland China and Southeast Asian countries.

Sectors

Tourism and gambling

Visitor arrivals by place of residence in 2006Place of residenceNo. of visitor arrivals (in thousands)Mainland China11,985.6Hong Kong6,940.7Taiwan (ROC)1,437.8Southeast Asia693.4Total21,998.1

Tourism is the backbone of Macau's economy, and much of it geared towards gambling, which was legalised in the 19th century and has since been the linchpin of the economy and an important source of revenue for the government. As of at least 2015, 90% of tourist revenues in Macau are derived from gambling. For the Macau government, taxes derived from the table game of baccarat are the largest single source of public funds.

From 1962, the gambling industry operated under a government-issued monopoly licence by Stanley Ho's Sociedade de Turismo e Diversões de Macau (STDM), which replaced the Tai Heng Entertainment Corporation that had held a gaming monopoly for the previous 24 years. The monopoly ended in 2001 when the gaming industry was liberalised and several casino operators from Las Vegas entered the market. These new operators include Las Vegas Sands, which opened Sands Macao, the largest casino in the world as measured by total number of table games, in 2004 and Venetian Macau in 2007; Wynn Resorts, which opened Wynn Macau in 2006; and MGM Mirage, which opened MGM Grand Macau in 2007.

In addition, other casino owners, including Australian Crown Casino and Hong Kong Galaxy Entertainment Group have also opened several hotel casinos in Macau. As a result of the surge in number of casinos and construction from other new casino entrants, Macau's economy has grown rapidly, and gambling revenues from Macau's casinos are now greater than those of Las Vegas Strip, making Macau the highest-volume gambling center in the world. Numerous other hotel casinos, including Galaxy Cotai Megaresort and Ponte 16, are also to be opened in near future.

Due to the opening of the new hotel casinos and China's easing of travel restrictions, there has been a rapid rise in the number of mainland visitors. From 9.1 million visitors in 2000, arrivals to Macau has grown to 18.7 million visitors in 2005 and 22 million visitors in 2006, with over 50% of the arrivals coming from mainland China and another 30% from Hong Kong. Macau is expected to receive between 24 and 25 million visitors in 2007. Macau also received the Future Award 2007, voted by 26,000 German travel trade members of GoAsia, for being regarded as the most promising future tourism destination in Asia. Macau is currently rated as one of the world's top tourism destinations by the World Tourism Organization.

Because Macau benefits from favorable taxation rules, it is a favored location for tourists from elsewhere in China to purchase luxury goods like cosmetics, jewelry, and designer fashion goods.

Manufacturing Macau's manufacturing industries emerged in the first few decades of the 20th century, which mainly consisted of junk building, factories for matches, firecrackers and incense. Modern industries, however, did not take off until the 1970s when the textiles and garments industry was rising rapidly, while other light industries such as plastics, electronics, toys, and artificial flowers also experienced respectable growth. Textiles and garments further increased its dominance in the manufacturing sector towards the end of the 1980s.

Much of Macau's textile industry has moved to the mainland as the Multi-Fiber Agreement is phased out. The territory has relied more on gambling and tourism-related services to generate growth.

Banking

Macau is an offshore financial centre, a tax haven, and a free port with no foreign exchange control regimes. The offshore finance business is regulated and supervised by the Monetary Authority of Macao, while the regulation and supervision of the offshore non-finance business is mainly controlled by the Macau Trade and Investment Promotion Institute. In 2007, Moody's Investors Service upgraded Macau's foreign and local currency government issuer ratings to 'Aa3' from 'A1', citing its government's solid finances as a large net creditor. The rating agency also upgraded Macau's foreign currency bank deposit ceiling to 'Aa3' from 'A1'.

There are twenty other licensed banks, sixteen of which are foreign. Macau has five of the top 500 commercial banks in Asia, including Banco Tai Fung and Industrial and Commercial Bank of China.

Construction

In 2014, the construction sectors in Macau engaged 45,368 people. The value of construction was MOP78.15 billion, in which MOP66.88 billion belong to the private sectors. The intermediate consumption was MOP61.03 billion and labor cost was MOP11.35 billion.

Education

Healthcare

Transport

Air Macau is Macau's Flag carrier and is based out of Macau International Airport."Contact Us Service ." Air Macau. Retrieved on 23 September 2009.

Telecommunications and media

Macau has reportedly the highest "media density" in the world - nine Chinese-language dailies, three Portuguese-language dailies, two English-language dailies and about half a dozen Chinese-language weeklies and one Portuguese-language weekly. About two dozen newspapers from Hong Kong, mainland China, Taiwan and the Philippines are shipped to Macau every early morning.

Economic diversification Heavy reliance on the gambling and tourism sectors has long constituted a structural risk for Macau's economy, as any decline in visitor arrivals leads to significant economic volatility. Diversification efforts began during the final years of the Portuguese administration under Governor-General Vasco Rocha Vieira and continued after the handover under Chief Executive Edmund Ho. Although the government sought foreign investment as a catalyst for diversification, the majority of capital inflows followed the 2001 liberalization toward the gaming sector, with the exception of foreign entry into the telecommunications and internet service markets.

Macau is currently classified as a mono-industrial economy, with the gaming industry accounting for approximately 70% of government revenue and 50% of the GDP. The COVID-19 pandemic underscored this systemic vulnerability, as the territory recorded a record GDP contraction of 55.3% in 2020 following the collapse of tourism.

To address these challenges, the Chinese government is adopting the "1+4" strategy for the 2024–2028 period. The "1" stands for retention of tourism, and the "4" for areas for development: health and traditional medicine; finance; technology; and sports and culture activities including conferences and exhibitions.

This strategy relies on targeted fiscal incentives; a 2024 study showed that the technology sector was the most responsive to these incentives, with an elasticity coefficient of 0.28, followed by cultural tourism at 0.22.

Political economy and social welfare