Macao's 'financial center' achievable

Recent reports that the central government will roll out new policy initiatives to help the Macao Special Administrative Region develop itself into a financial center have raised quite a few eyebrows in Hong Kong.

But this is a logical move and believed to be part of the gambling enclave’s all-out efforts to diversify its casino-dependent economy, which also includes becoming an international tourism destination and an international convention and exhibition center, as well as a platform for trade and business between Portuguese-speaking countries and China.

Besides serving the purpose of diversifying the city’s economy, a financial center — be it a regional one or an international one — is also imperative for the smooth operation of the said platform. Indeed, a financial center and a platform for trade and business are complementary and mutually reinforcing.

Skepticism about Macao’s ability to successfully develop a financial center is invalid. The city has the advantage of promoting itself as a financial service platform between the mainland and Portuguese-speaking countries, given its strong connections with Portuguese-speaking countries and its pool of Portuguese-speaking talents.

Of course, a financial center will not come out of thin air. It must be supported by demand — for both capital and investment opportunities. In other words, it exists to serve the needs of a large-enough economic hinterland. With the expected strong support from the central government, Macao can count on a vast hinterland — the mainland — for demand for capital.

As a matter of fact, Hong Kong’s journey to becoming an international financial center has been greatly facilitated by the central government’s policies allowing and encouraging mainland companies to raise funds in the city. Now mainland companies account for approximately 70 percent of the total market capitalization of Hong Kong’s stock market — not to mention other fundraising activities, such as bond issuing. It is questionable that Hong Kong could have gained its current status as the third-largest global financial center after New York and London without the influx of mainland companies.

With support from the central government, Macao can count on servicing the financial needs of some of these mainland companies, as well as the capital needs of new companies emerging on the mainland as the mainland economy continues to expand, while meeting the investment needs of Portuguese-speaking countries that wish to benefit from the Chinese mainland’s economic growth by investing in Macao-listed mainland companies.

Conceivably, Macao has a long way to go before it can catch up with Hong Kong in the development of financial services. But Hong Kong could be the proverbial hare that loses the race with the tortoise should it continue to indulge in pernicious politics, as it has been doing over the past several years — particularly in the past six months.

Hong Kong’s greatest strengths lie in its rule of law, open market and the support from the central government. However, politics is eroding the city’s competitive advantages. To maintain its competitiveness and relevance to national strategy for development, and to continue to benefit from the rapid growth of the mainland economy, Hong Kong needs to refocus on its own economic development.