Macau’s size makes the city unable to compete with the modern finance industry of Hong Kong, Shenzhen or Guangzhou. For the same reason, Macau can serve as a “back office” for these markets, and can also “specialize in the financing of resorts and tourism”. In this way, a complementary market is developed that is able to thrive in a competitive and out-of-reach universe, says Jacky So, vice-chancellor and director of the Faculty of Management and Administration of the University of Science and Technology of Macau.
– A survey conducted by HSBS in December 2021 reveals that the response to “Northward Transactions” (towards Mainland China) has been positive, but the total amount deposited by investors in “Southern Transactions” products ( from Mainland China), represent 94% of total transactions. 90% of Mainland investors also expressed interest in participating in financial management products, and 83% in investment funds, followed by deposits and bonds. How do you rate these numbers?
Jacky So: Bank deposits in Hong Kong and Macau are unattractive for investors in Southbound Transactions unless there are opportunities for interest rate arbitrage. On the other hand, it may be more profitable to invest in financial products. It should be noted that several Mainland residents purchased life insurance policies in Hong Kong in the past, many with an “investment facet”, but were eventually banned by the Inland government. Since then, we have seen a decline in the number of investors in these insurances towards the South.
In my view, the Cross-Border Financial Management Project is the opposite of a system of “small/individual investors”, Qualified Foreign Institutional Investors (QFII) or Qualified National Institutional Investors (QDII). Despite China wanting to internationalize the RMB, the country continues to fear a large flow of capital. To prevent such a scenario, it is important to keep the flow of capital within systems such as the QFII and QDII under government control. The Cross-Border Financial Management Project allows Chinese residents to purchase financial products or services from Hong Kong and Macau. These are products not necessarily available in the Mainland and their main purpose is to attract capital to China.
– Some people believe that the “Cross-Border Financial Management Project” will help to promote the internationalization of the RMB. According to your analysis, to what extent will the project be useful in this regard?
J.S: If the “internationalization of the RMB” is defined according to its active use in international transactions, the “Cross-border Financial Management Project” is undoubtedly an active form of its promotion, the effect of which will be determined by the net result of the flow of capital in North and South direction.
Firstly, in terms of transactions towards the South, due to: first, China’s rapid economic growth which has led to significant growth in per capita income and disposable income, and second, the fact that Chinese markets are not yet comparable to those of developed nations. , and Chinese investors look for alternative investment opportunities. These factors are in agreement with studies carried out on finance and investment, which prove that the risk/return ratio in China is lower than in other countries. This means that this capital is not being used effectively in China. As more Chinese investors engage in international financial management portfolios, they will be able to convert RMB into currencies such as HKD or MOP. Then, when they receive interest income or dividend income in foreign currencies, they can convert it into RMB.
For Northbound transactions, the direction and effect are opposite to that mentioned above. When investors convert their currency into RMB to invest in China, the demand for Chinese currency will rise, thus enabling it to enter the international market.
– Over the past few years, Macau has sought to develop its financial industry, with the bond market as one of its objectives. With the launch of the Macau Securities Deposit and Settlement Center, the region’s government intends to develop its local bond market. Do you think this market will succeed together with the development of the Cross-Border Financial Management Project?
J.S: Yes. Macau’s bond market is in effect and has already helped many Chinese companies and government agencies to issue corporate and municipal bonds. Thanks to its history, Macau serves as an intermediary between Portuguese-speaking countries and China through the “One Belt, One Road” Initiative. It is important to remember that, with the exception of Portugal and Brazil, these countries all have a relatively small market. The rest of the members will be able to engage in bond financing to assist in their marine and agricultural industries. Green bond bonds are also an option. However, given the credit ratings of these countries, interest rates could rise if they have difficulty meeting their minimum requirements. However, with the large volume of capital and technological advancement available in China, cooperation with Portuguese-speaking countries in social assistance may be more useful. Macau can also share its experience in promoting tourism with these nations and encourage them to develop tourism and hotel services, financed by bonds in Chinese currency. This scenario will help the RMB to become a currency used for international transactions.
Many of the recent bonds issued in Macau are denominated in US dollars. It may be important to consider using the RMB for these, reducing exchange rate risk. However, due to the quality and liquidity of the US dollar, the cost may be higher.
– Faced with a new international political situation, what will be the dimension of the development of Macau’s financial market? What will your competition be?
J.S: New “Tourism+” financial services such as smart tourism and smart hotels have immense potential. Digital currencies and digital credits for international trade, tourism and of course banking services will also be valid options. However, all transactions involve a risk. The risk associated with the platforms and technologies involved can bring a system to a complete halt and cause significant damage. I have pointed out several times that Macau will not be able to be a financial center like Hong Kong, however, given its status as a free port and special administrative region of China, the city could be a regional financial market in the Greater Bay by specializing in in the financing of international resorts. Macau is too small a city to compete with Hong Kong, Shenzhen or Guangzhou in terms of stock and bond trading, but it can still serve as a “back office” for these larger financial markets. You can specialize, for example, in resorts and in the tourist industry in general, in this way, instead of competing, you will be a complement to these markets.
– What do you think are the main obstacles to the development of the modern financial market in Macau? What will be the government’s plans in the short, medium and long term?
J.S: Shortage of talent and qualified human resources is an important issue in Macau. Border and customs control in the city is too strict, despite its salary levels being well below international values. I don’t know if this lack of talent can be filled without major structural changes. The recent talent development plan mentions prospects of attracting Nobel Prize winners and top scientists to Macau, but are these people interested in the city if they are better received in places like Hong Kong, Singapore or even Shenzhen? Apart from pay, education and health care services are also important factors for these talents, even for new financial experts used to receiving the highest salaries on Wall Street. In the short term, the government is starting simple, focusing on Greater Bay, but in the medium term, it will have to update its regulations and border policies to attract more talent from Portuguese-speaking countries. In the long term, it will have to work with Hong Kong, Shenzhen and Guangzhou to serve as an auxiliary market.
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