Full cooperation between Macau and Hengqin in areas of finance under a new Master Plan announced this week will face considerable challenges unless authorities remove barriers that limit the flow of capital and people between the two cities, according to a Macau-based scholar.
Edmund Loi, Associate Professor of the Social, Economic and Public Policy Research Centre of Macao Polytechnic Institute, told IAG that although the development of the financial industry is an important direction for Macau under China’s new Master Plan of the Development of the Guangdong-Macao Intensive Cooperation Zone in Hengqin, the SAR’s position as the gaming epicenter of the world means it inevitably serves as a loophole for capital outflow. As such, if deeper cooperation between Macau and Hengqin is to become a reality, constraints of cross-border capital flows must be resolved.
The Master Plan is the latest key document to address the future development of Macau following the Framework Agreement on Cooperation Between Guangdong and Macao (2011) and the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (2019).
Targeted at helping the SAR achieve greater diversity, it is expected to create new impetus for Macau’s development by bringing fresh vitality into higher education, scientific research and development, the tourism and leisure industry, and finance.
The Master Plan repeatedly mentions that the development of modern finance is an important breakthrough for the moderately diversified development of Macau’s economy, including the policy goal of “exploring the free inflow and outflow of cross-border capital and promote capital account convertibility in the cooperation zone.”
But according to Loi, while the Master Plan provides detailed and targeted preparation for the early stages of development, achieving the deeper cooperation outlined as the ultimate goal could be easier said than done.
“For the time being, we don’t see big breakthroughs in areas such as cross-border capital flows,” he said.
“Whether the RMB can flow cross-border is related to the internationalization of RMB, and as RMB is not yet freely flowing, the constraints of cross-border capital flows must be resolved.
“Eyeing further cooperation between Macau and Hengqin, the constraints of cross-border capital flows must be resolved.
“Due to its positioning as a gaming center, Macau has not been able to reassure the Central Government that it can avoid becoming a loophole of capital outflow. Macau has always faced this ‘open versus closed’ dilemma.”
Loi believes that one of the ways to “reassure the Central Government” is by making two key adjustments to its gaming industry: reducing its reliance on the VIP sector and increasing non-gaming elements.
The former already appears to be in motion, with VIP revenue having fallen from more than 70% of Macau-wide GGR a decade ago to less than 40% for the first time in 4Q20 at just 34.9%.
In addition to the impact of the COVID-19 pandemic, VIP has also been a central focus of tightening regulatory controls by Beijing against cross-border gambling.
China’s newly amended criminal law, which includes casino operation and cross-border gambling facilitation, has been effective since March this year, and China has significantly strengthened the supervision of cross-border capital flows over the past 12 months.
In addition, China’s Ministry of Culture and Tourism announced last year the establishment of a blacklist aimed at overseas tourist destinations it says are targeting Chinese citizens for gambling activities. Although the identity of these destinations has not been made public, some analysts believe Macau is on the list.
“While the direction proposed by the Master Plan is bright, the final outcome will depend on the management team and their ability to deliver,” said Loi. “The government has to release further details with implementation.”
The Macao Government and People’s Government of Guangdong Province will hold a press conference on Friday to announce more details.
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