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Macau submits proposal for 'offshore yuan Nasdaq' to Chinese government

He Huifeng and Eric Ng

A proposal to set up an offshore yuan-denominated Nasdaq in Macau has been submitted to China for consideration, according to a senior official from neighbouring Guangdong province.

He Xiaojun, director of Guangdong's Local Financial Supervision and Administration Bureau, said he hoped China's central government might give its blessing to the plan by mid-December, which marks the 20th anniversary of the city's return to Chinese administration, the Sina Finance news portal reported on Sunday.

Guangdong, a hi-tech hub, is seeking to tap more capital for the sector.

The Monetary Authority of Macau said that a feasibility study was continuing into the establishment of a securities exchange. It reiterated it would "differentiate [itself] from incumbent financial centres nearby" and "serve the country's needs".

Beijing tasked Macau with carrying out a feasibility study on establishing a securities market " denominated and settled in yuan " in February when it revealed its outline development plan for the Greater Bay Area " a scheme to create an economic and innovation hub incorporating the cities of Hong Kong, Macau, Guangzhou and eight others in Guangdong.

A yuan-based stock market could help Macau diversify away from gaming, its main revenue source.

The city has begun to develop its financial services sector, but its scale is dwarfed by that of neighbouring Hong Kong, which is the region's primary centre for offshore deals and trades denominated in yuan.

"We helped the Macau government to make a plan for [setting up] the stock exchange, with the aspiration to make it an offshore [yuan] Nasdaq," He, the Guangdong official, was quoted as saying at a forum on Saturday.

"[The plan] has been submitted for the central government's consideration. We hope a new exchange is on [Beijing's] gift list for the 20th anniversary."

He did not say what Beijing's response to the proposal had been.

He said the province has 45,000 hi-tech firms but only 600 Guangdong companies " not all of which are hi-tech " are listed, underscoring that the existing exchanges in Shanghai and Shenzhen could not meet the sector's needs.

In June, the Monetary Authority of Macau said it had commissioned a consultancy to carry out the study.

However, its chairman, Chan Sau San, said at the time that the authority would consider only the "long-term development" of a stock exchange in the city as there were already several mature financial centres in the region, such as Hong Kong and Shenzhen.

The idea for an exchange would be considered as part of the wider development of the Greater Bay Area, he said.

Tom Chan Pak-lam, chairman of Hong Kong's Institute of Securities Dealers, said Macau was unlikely to pose an immediate challenge to Hong Kong's leading position in offshore yuan financial services.

"I can't see Macau's advantage in being a securities trading centre given Hong Kong has already established itself as a proven offshore securities centres for Chinese firms," Chan said. "Macau will need to start from scratch on a listing approval and regulatory system.

"As to the idea of being an offshore yuan-based securities exchange, even Singapore, not to mention Hong Kong, has a much bigger pool of offshore yuan to facilitate such trading."

Macau's legal system is mostly based on Portuguese and continental European law " but common law, the basis for Hong Kong's legal system, is far more widely accepted for international trading.

"In case of disputes, how many companies or international fund managers are comfortable in resolving them using Macau's legal system?" Chan asked.

Gordon Tsui Luen-on, managing director at Hantec Pacific, said Macau's aspiration to become a financial centre depends on how it can truly differentiate itself from Hong Kong and Shenzhen and offer something different.

"After all, it takes decades to build up the necessary talent pool and regulatory policy regime for such a centre to come about," Tsui said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.