Illustration: Xia Qing/GT

On July 4, the central government issued government bonds worth two billion yuan ($291 million) in the Macao Special Administrative Region (SAR), marking the first yuan-denominated government bonds in the Macao SAR. The move could be seen as Beijing's encouragement to Macao to develop its financial services.

It then begs a question: Will Macao rise to compete with Hong Kong as another global financial center?

Macao has long been overshadowed by Hong Kong, which indeed has remarkable advantages. As an international financial center, Hong Kong's core competitiveness lies not only in the preferential policies by the central government or the number of companies listed in Hong Kong, but in the cluster effect as a result of the gathering of many professionals like lawyers, accountants, investment bankers and consultants. Such transaction-oriented infrastructure and financial ecology have laid a solid foundation for the consolidation and development of Hong Kong's status as a financial center.

By comparison, Macao's disadvantages are also obvious. Its area is only about one-fortieth of that of Hong Kong, with its population around one-tenth of that of Hong Kong. Also, Macao has long been reliant on the gaming industry.

Thus it seemed meaningless to discuss whether Macao can compete with Hong Kong two months ago, but today the question has become meaningful and interesting, which could be elaborated from the following three perspectives.

First, when the Japanese occupied Hong Kong in 1941, many of the city's wealthiest people moved to Macao, where they maintained their business resources so that they could re-establish them in Hong Kong in the future.

Macao also supported the status of the Hong Kong dollar. During the Japanese occupation of Hong Kong, the Hong Kong dollar was not allowed to be used in Hong Kong, but the currency was still recognized and could be circulated in Macao, which thus helped restore the statutory status of the Hong Kong dollar after the World War II.

In today's Macao, currencies are freely convertible, capital flows are subject to no restrictions and taxes are very low. Moreover, since the return of Macao to the motherland, its legal system, accounting and supervision system have undergone rapid improvement and have become increasingly recognized by the outside world. All these are necessary conditions for it to become an international financial center.

Second, while Macao is not big in terms of its area and population, it is a special administrative region. In China, Hong Kong and Macao enjoy the same special status.

In particular, Macao's economy has always outperformed Hong Kong. In 2018, per capita GDP in Macao was $82,800, higher than Hong Kong's $48,700. Moreover, according to an IMF forecast, Macao's per capita GDP will reach $143,000 by the end of 2020, making the city the world's richest area. Hong Kong will take the 10th spot with over $60,000 GDP per capita. 

More importantly, Macao has an advantage that Hong Kong lacks: that is, a harmonious populace. Because of their strong support for the central government, Macao's development can be closely linked to the development of Guangdong Province and even of various parts of the mainland. By deeply integrating into the national strategy and regional development strategy, Macao has been able to make use of its "one country, two systems" advantage to gain greater development for its economy.

Third, there are abundant funds in Macao, where risk tolerance level is higher, making it more suitable for the development of innovative financial services. As a traditional and mainstream global financial center, Hong Kong has comprehensive investment channels and categories. In the Hong Kong market, investors generally tend to evade risks and to pursue low-risk and even risk-free stable profits. As a city with a mature gaming industry, Macao has a higher risk tolerance level. Meanwhile, compared with other cities in the Guangdong-Hong Kong-Macao Greater Bay Area such as Shenzhen, Macao is not subject to the mainland's financial policy restrictions. Therefore, it has a policy advantage for conducting financial innovation.

Of course innovative financial business cannot be done overnight. It takes a long time to build. However, it is undeniable that many of Macao's characteristics offer good soil for innovation, which will gradually attract innovative financial talent unsatisfied with the traditional financial industry of Hong Kong.

Obviously, Macao now has the solid foundation for further development. Although it is too early for it to compete with Hong Kong in the short term, the future role of Macao deserves more attention from the policymakers.

In the future, making good use of the land reclamation measures and the land of Zhuhai's Hengqin New Area, as well as solving the talent problem, will require concerted efforts from the Macao SAR government, the Guangdong provincial government and even the central government for coordinated development.

 The author is chairman of the China Silk Road iValley Research Institute. bizopinion@globaltimes.com.cn