On Oct. 12, He Xiaojun, director of the Guangdong Local Financial Supervision and Administration Bureau, said at the Lingnan Forum that he helped to make a proposal about establishing an offshore yuan-denominated stock exchange in Macao.
According to He, the plan has already been submitted to authorities in Beijing for review and it could possibly be part of the gifts from the Central Government to celebrate the 20th anniversary of Macao’s return to the motherland, which will fall on Dec. 20.
Since there are already two stock exchanges within the Guangdong-Hong Kong-Macao Greater Bay Area, such words have aroused strong curiosity and wild guesses from home and abroad. The Monetary Authority of Macao on Oct. 13 confirmed in a statement that a feasibility study on the proposal was being conducted by an international consultancy company.
In my point of view, setting up a yuan-denominated stock exchange in Macao can serve many purposes.
Firstly, such a stock market will facilitate Macao to diversify and even transform its long-existing one-dimensional economic structure, which is mainly reliant on the gambling industry. According to statistics, the GDP of Macao was US$54.5 billion in 2018, and about 85 percent of the SAR government’s revenue comes from the gambling industry. Employment in the sector accounts for one-third of its total work force. Frankly speaking, without the help of the Central Government and other cities within the bay area cluster, it is virtually impossible for Macao to adjust and upgrade its industrial structure on its own.
Secondly, the stock market in Macao can complement the two other bourses in Hong Kong and Shenzhen. As one of the strongest economic powerhouses in China, Guangdong now has more than 600 listed companies, but it accounts for only 1.3 percent of a total of 45,000 national-level high-tech companies in the province. This means that the existing Chinese stock exchanges cannot meet the demands of those Guangdong companies which are on the queuing list of going public. Under these circumstances, Macao is expected to set up a NASDAQ-style bourse to help more qualified Guangdong enterprises get listed as quickly as possible.
Thirdly, different from the Hong Kong bourse, which mainly attracts investments from Britain and the United States, Macao’s legal system is basically built on the Portuguese and the continental European laws, thus showing great appeal to capital and enterprises from Europe and South America. If the Macao bourse really becomes a reality in the near future, it will greatly enhance China’s diplomatic relations and economic ties with these regions.
Despite the fact that setting up an offshore yuan-denominated bourse in Macao is feasible and promising, the road is surely uneasy and even uneven. The casino industry is so deeply rooted in the city and it is very hard to change the minds and life style of local people. Meanwhile, Macao is in great need of talent and qualified financial and legal experts who can build and operate a bourse. Considering Macao’s total land area of about 32 square kilometers, the city’s ability to accommodate visitors is very limited. It is also difficult for the city to encourage and maintain long-haul flights given its small market size.
More importantly, it is tough for Macao to differentiate its future bourse from the other two strong stock exchanges within the bay area and find its own competitive and sustainable edges. Hong Kong is undoubtedly one of the largest financial centers in the world, while the status of the Shenzhen bourse is also rising quickly with the improvement of the city’s comprehensive strength and the Central Government’s determination to build Shenzhen into a socialist pilot demonstration zone for modern China.
(The author is the editor-in-chief of the Shenzhen Daily with a Ph.D. from the Journalism and Communication School of Wuhan University.)