Macau SAR: Speeding up the financial diversification

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Steps to achieve this include preparing a new legal regime for the financial system and creating the required infrastructures

On November 16 2020, Macau SAR's chief executive (CE) Ho Iat Seng delivered the Policy Address for the Fiscal Year of 2021 to the Legislative Assembly. In the speech, he stressed the importance of adequately diversifying the economy – and the business sector – of Macau SAR, a matter that has been put into the agenda in recent years with the aim of progressively decreasing its gaming-related dependency.

As part of such policy, the Macau SAR CE highlighted speeding the modernisation of the financial sector as an objective for 2021. Steps to achieve this include preparing a new legal regime for the financial system, creating the required (physical and digital) infrastructures, developing the bond market, promoting wealth management activities, and promoting the cross-border renminbi real time gross settlement system (RMB RTGS).

A general background note of the policy is to continue efforts to strengthen the Guangdong-Hong Kong SAR-Macau SAR Greater Bay Area (GBA) and to cooperate further with the Portuguese-speaking countries (PSC), and thus, the financial sector would not be an exception to that goal. Hence, the CE announced that Macau SAR will assist in promoting business by Chinese-based financial and insurance companies in the PSC, which shall establish its regional headquarters in Macau SAR, stimulate the issuance of bonds in Macau SAR by GBA companies, and promote the communication of the financial markets between Macau SAR and mainland China, inter alia.

In this respect, on October 15 2020, the Monetary Authority of Macao announced it had signed a memorandum with the China Securities Regulatory Commission (CSRC) to strengthen cross-border financial cooperation in terms of supervision, exchange of information, staff training, and technical assistance, amongst other areas. The Secretary for Economy and Finance, Lei Wai Nong, stressed the importance of this memorandum for the stability and development of cross-border cooperation in the securities and bonds market.

It is worth mentioning, in respect of the RMB RTGS, that it first came into play back in March 2016 as a platform to enhance and facilitate the cooperation and the transactions between China and the PSC, between financial institutions and with clients as well. It requires Macau SAR to make use of its strategic location and play its role as a connecting point between China and several countries in Europe, America, Africa, and even in Asia (East Timor).

The RMB RTGS is one of the platforms available to procure the internationalisation of the Chinese currency, as may also be the Chinese central bank-backed digital currency (the DCEP), which is in the pipeline and may further contribute to the economic integration of the GBA. Should this sovereign digital currency be officially launched and become a regular currency in trading at a regional level, it may make it to international markets, in particular the PSC.

Also in the agenda of the Macau SAR CE is to promote electronic commerce at a cross-border level. This will be achieved by implementing policies to incentivise renowned e-commerce companies to establish themselves in Macau SAR, and to incentivise local companies to strengthen their online business, while also stressing out the importance of such a tool in establishing business with companies based in the PSC.

As the creation of a modern financial industry requires reliable sophisticated infrastructure, as well as capable and well trained manpower, the CE also announced that Macau SAR will actively participate in the development of the International Technology Innovation Centre of the GBA. Moreover, it has outlined a series of goals and guidelines for the improvement of education, scientific research, innovation and entrepreneurship.

The legal regime of tax benefits for technological and scientific innovation-related activities is already in the pipeline of the Legislative Assembly, the first draft of which provides for the exemption of stamp duty in the acquisition of real estate, the exemption of complimentary income tax for three years, and the exemption of income tax regarding dividend distribution to the stakeholders.

Macau SAR may not be the traditional market for investors to look for financial products, but is certainly deploying efforts to create the infrastructure required to become one. Taking the benefit of its strategic location and historical background, Macau SAR may play a significant role in boosting the financial cooperation between the GBA and the PSC.

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