Throughout the 20th century, Macau remained a remote outpost of the Portuguese colonial empire. The situation changed, however, after the 1974 revolution in Portugal. The new democratic Portuguese government offered Macau back to China, although it took more than a decade before Portugal and China formally agreed on the future of Macau in 1987. This agreement was very similar to the one struck between the British government and China on the future of Hong Kong. On 20 December 1999, the administration of the territory was formally handed over to China. Macau became a Special Administrative Region (SAR) of the People's Republic of China with a "high degree of autonomy" (self-government) in domestic affairs for a period of 50 years under the principle of "one country, two systems." In 1999, Edmund Ho Hau-Wah became the first governor appointed by China's central government, replacing General de Rocha Vieira, the last Portuguese governor of the territory. According to the Macau's Basic Law (the territory's constitution), the governor has strong policy-making and executive powers, which are limited only by the central government in Beijing and by the Macau legislature. The Legislative Assembly is comprised of 8 directly elected members, 8 indirectly elected members, and 7 members appointed by the governor, totaling 23 members. After establishing its control over Macau, Beijing stationed its army on the territory. However, the military does not play any active role in Macau's economic development.
The Macau authorities traditionally did not attempt to establish control over the territory's economy and, unlike the communist Chinese, they always supported free-market institutions. Nevertheless, since the early 1980s, the Macau government has begun to adopt a more active role in the economic development, encouraging economic variety, promoting large infrastructure projects, and introducing attractive fiscal initiatives for local and foreign investors.
In order to compete with neighboring Hong Kong, Macau established very low direct taxes and abolished currency exchange controls. The property tax ranges up to 15 percent and the wage tax up to 10 percent; this is a very low rate compared to countries in Europe or North America. There are also profit and business taxes on industrial enterprises. Nevertheless, the web of various fiscal initiatives reduces business and other taxes considerably. Imports are free of duty , but they are subject to a consumption tax. The main source of revenue in Macau is taxes on gambling, accounting for 44 percent of total revenue (1999). The pataca, the Macau currency, is pegged to the Hong Kong dollar at the rate of 1.03 patacas per Hong Kong dollar. Unlike South Korea, Thailand, or Indonesia, the pataca remained stable despite the Asian financial crisis in 1997 and the Russian foreign debt default in 1998.