Graphics: GT

Macao has no intention of competing with Hong Kong, said government officials, as Macao reveals its ambitions to develop offshore yuan business. 

Such ambitions, in a city whose economy has been dominated by gambling for years, has triggered heated discussion and led to divided opinion among economists. 

Some are optimistic that the former Portuguese colony will evolve into China's offshore yuan center, and some question whether Macao has the intention to challenge Hong Kong's role as a financial hub, when the latter is experiencing social instability that is also spilling over into the financial sector. 

"We (Macao and Hong Kong) are not rivals, we'll do things that others won't do," said Ip Sio Kai, deputy general manager of the Bank of China's Macao Branch.

Chan Sau San, chairman of board of the directors at the Monetary Authority of Macao, told the Global Times in a recent interview that Macao has no intention of competing with Hong Kong, as it has a much smaller pool of offshore yuan.

Over the past two decades, Macao has seen rapid economic development. Compared with the time when it returned to the motherland in the late 1990s, the city now enjoys stable social order, booming investment and trade, and has more ambition to enhance its competitiveness in the financial sector. 

Macao recently submitted a proposal to the central government for the establishment of a securities exchange that is to become "the offshore yuan-denominated Nasdaq", said He Xiaojun, director of the Guangdong Local Financial Supervision and Administration Bureau, in October. 

The city is carrying out feasibility studies on the establishment of such a market, as designated by the Chinese government in February when China revealed its outline development plan for the Guangdong-Hong Kong-Macao Greater Bay Area, a program to create an economic hub incorporating Hong Kong, Macao and South China's Guangdong Province. 

In July, the central government issued 2 billion yuan ($284.2 million) in bonds in Macao, the first official issuance by the central government in the former Portuguese colony. 

"Macao will further focus on yuan-denominated transactions to help boost the internationalization of the yuan," Ip told the Global Times.

Photo: Qiantu

Different focus

The cities of Hong Kong and Macao will each have a different focus when it comes to developing their financial sector, making them allies rather than enemies, officials and experts said. 

Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, said that Macao will focus on offshore yuan settlements while Hong Kong will have advantages in stock listings and insurance. 

"Macao is on the way to becoming a one-stop investment and trading platform for offshore yuan, with businesses ranging from securities and bonds to bank lending," said Dong. 

Macao will become the ultimate offshore yuan center, one that is distinguished from the current offshore yuan hubs in Hong Kong or London that only deal with simple deposit businesses. 

Such an arrangement would also enhance the offshore yuan's investment functions and encourage its global usage, he said.

Another thing that will set Macao's financial sector apart from Hong Kong's is that Macao will tilt toward business with Portuguese-speaking countries, given the historic connection it has with those economies. 

"The Macao and Hong Kong financial markets could be complementary, as Macao aims to facilitate financial services and transactions with Portuguese-speaking countries," said Chan. 

For historical reasons, Macao has sustained regular contact with Portuguese-speaking countries, the EU and Latin American countries in fields including economic matters, culture, law and trade. 

Merchandise trade between China and Portuguese-speaking countries reached $96.985 billion in the period from January to August 2019, up 2.31 percent year-on-year, according to official data. 

Lin Jiang, an economics professor at Lingnan College, said that Macao can develop financial businesses in western Guangdong on behalf of Hong Kong, considering its proximity to the area. 

For or against Macao? 

But opinion is still divided as to whether Macao can become as the offshore yuan center. 

Dong is one of those betting on the city. He said one advantage that Macao has is that it allows free capital flows, unlike the mainland, and yet is very much integrated with the mainland economy. 

The Chinese government has been rolling out measures to develop Hengqin Island, a kind of gateway located west of Macao and south of Zhuhai. Parts of the island have been leased to Macao to support development of the Greater Bay Area. 

"I presume most of Macao's offshore yuan business will be operated on Hengqin Island in the future, where advantages from both sides - talent from the mainland and Macao's high-standard services - can each play a part," Dong said. 

But some also expressed worries as to whether Macao has enough financial resources to support its ambitions. 

"Are there enough investors or international financial institutions in Macao? Does it have a sound legal environment to attract financial activities? Will transactions be active if such a securities market opens?" Lin told the Global Times.

Macao's securities exchange, if it materializes, will need to find its own place amid a cluster of financial institutions - not only from Hong Kong but also in surrounding mainland areas, such as the Shenzhen Stock Exchange and a futures exchange that is expected to be established in Guangzhou, capital of Guangdong.