Macau gets its ‘red packets’ from Xi

President Xi Jinping’s visit to Macau last week for its 20th anniversary celebration ended up being everything that the SAR expected – and more.

A lot more.

In a series of announcements that came late in the day – after most media outlets had put to bed their Macau coverage – central government agencies unveiled policies designed to boost Macau’s economic development and integrate it more closely with neighboring Zhuhai via the special economic zone of Hengqin.

The most eye-catching of these came from the National Development and Reform Commission (NDRC), which focused on plans to support Hengqin in establishing a so-called “Guangdong-Macau Deep Cooperation Zone.”

This is different from the Cross-Border Industrial Park that already exists on Hengqin. In fact, it seems there is nothing like it currently in the Greater Bay Area.

The NDRC did not go into much detail, referring only to its intention to “actively support” the zone’s establishment by setting up a “system of mechanisms for joint discussion and co-management between Guangdong and Macau.”

It did not say where the boundaries of this zone might be, yet it is not impossible to believe that it could be the entire developable area of Hengqin, which is about five times larger than Macau’s Cotai district.

The NDRC did hint at some tantalizing possibilities. It said it wanted to “optimize the ‘separation management’ policy”, which could mean major changes are coming in joint border inspection procedures.

The new Hengqin Port, which opened its immigration facility on Friday – although the trains are not yet running, for technical reasons –  is perhaps just the start of a series of initiatives aimed at integrating management of ports between Guangdong and Macau. The enormous complex, which includes China’s second-largest railway station (after Shenzhen’s Futian Station) has Immigration and Customs officers from both Macau and Guangdong co-located inside one building.

What could this mean? Special visas for mainland visitors accessing Macau via Hengqin? Special cross-border work permits for mainlanders based in Hengqin to support the demand for human resources of Macau’s integrated resorts? These and other possibilities are worth considering.

Perhaps even more significantly for the longer term, the NDRC said it was “looking at ways to explore the application of civil and commercial laws”. This raises the obvious question of whether Macau law or Guangdong law will prevail in Hengqin, or, eventually, a hybrid of the two? Prominent Macau lawyer, Leonel Alves, hinted at this direction in an interview with the Macau Inc magazine last year.

The impetus seems to be for the Guangdong side of this cooperation to move toward the Macau side. The NDRC used language such as “deepen trade reforms” and “expand the Opening Up process,” to create a business environment that is “highly connected with international rules.”

In doing all of this, the objective is to help Macau’s economy to develop in a moderately diverse manner, the NDRC said.

The second “red packet” came from the China Banking and Insurance Regulatory Commission (CBIRC), which said it would:

  • Encourage and support banks in Macau to set up institutions in the mainland to conduct business.
  • Include Macau in the list of “overseas investable regions” of mainland insurance funds, and support these funds to invest in the SAR.
  • Support mainland financial leasing enterprises to set up in Macau, and promote the development of Macau’s so-called “characteristic finance”.

The third “red packet” came from the State Administration of Foreign Exchange (SAFE), aimed at further facilitating cross-border investment flows for Hengqin-based, Macau-invested enterprises. These measures are a bit harder to understand, but could have major significance for the development of Macau’s financial-services industry. Their language is quite vague, as is the style of SAFE administrators, who are renowned for their prudence.

Basically, the statement talks about using Hengqin to carry out a pilot reform of “foreign debt-registration management”.

This appears to refer to the ability of Macau-invested companies based in Henqgin to raise debt, at up to twice the value of their assets, in a currency other than the Renminbi, i.e. offshore, and then trade that debt in Macau (or the new joint zone in Hengqin).

It also, however, alludes to changes in how these Macau companies based in Hengqin would be governed by China’s forex regulations. It seems that these companies can draw down on these debts onshore, in Renminbi, and repay them, also in Renminbi.

All of this would be handled through the “local foreign exchange bureau”, SAFE said.

Needless to say, follow-up measures are going to be fine-picked by analysts in the weeks to come.

The fourth “red packet” was the one most eagerly anticipated, because it had been scooped by a Reuters report the week before Xi’s visit. This was unveiled by the Securities Times news portal, which reported that Guangdong would work with Macau to accelerate the feasibility study of establishing a Macau Stock Exchange, which would be denominated in Renminbi.

Moreover, Guangdong would support Macau in establishing itself as a financial center for equity exchanges in general. This appears to be alluding to Guangdong’s bigger plans for getting more Small and Medium Enterprises listed on OTC markets.

Earlier in the week, the Central Bank (PBOC), got the ball rolling by announcing four initiatives:

  • Increasing the daily remittance limit of Macau residents to RMB accounts in the mainland from 50,000 yuan to 80,000 yuan;
  • Formal approval of Macau mobile payment platforms for use in Zhuhai;
  • Individual banks approved as pilot banks to open bank accounts in the mainland for Macau residents by proxy;
  • Canceling the 20,000 yuan limit on transactions within Macau for exchanging Renminbi.

Put together, the measures indicate major ambitions for Macau on Beijing’s behalf in the years ahead. They will inevitably elicit howls of indignation from Hong Kong, as the measures can easily be interpreted as designed to erode the other SAR’s competitiveness. And the timing obviously carries political connotations, coming as President Xi has warned Hong Kong about not following the “One Country, Two Systems” principle in the way Beijing would like to see.

Yet such commentary would be short-sighted. Regardless of what is happening in Hong Kong, Macau is needed under the Greater Bay Area plan as an engine of growth on the western side of the Bay. Its primary industrial pillar is, and always will be, tourism. The diversification of its economy into financial services need not be seen as a zero-sum game by Hong Kong.

And, of course, the devil remains in the details. What comes next in Hengqin will be interesting to watch. Stay tuned.

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