Speech by Anselmo Teng, Chairman of the Monetary Authority of Macau at
CEPA - Financial Cooperation and Capital Market Forum
in Beijing on 8 January 2004
Distinguished friends from
the financial and business sectors,
ladies and gentlemen,
Good morning! As the Closer Economic Partnership Arrangement (CEPA) between the Mainland and Macao started to be effective and, in this special occasion, I am delighted to be here for the purpose of exchanging information concerning ways that Hong Kong and Macao can gain access to the Mainland market, as well as strategies to make the Mainland understand the two SARs better. We have to materialise the opportunities that CEPA has bestowed upon us in the attempt to tap each other’s markets under lower barriers of entry. Also, we can explore ways to map out plans that allow Hong Kong, Macao and the Mainland to demonstrate full potentials. The ultimate goal is to promote joint prosperity and create new business opportunities in the ever-growing market.
According to the history of China, Macao is the first port ever opened up for trading with overseas. Geographically, it is situated right on the entrance point of the Pearl River and is right next to the Zhuhai Economic Zone. In terms of size, Macao has a total area of 26 square kilometers, consisting of the Macao Peninsula, Taipa Island and Coloane Island. With a population of 0.45 million, Macao is a small and open economy which is mainly driven by the gaming and tourism business. Gross domestic product for the year ranges from USD7 billion to USD8 billion while per capita value exceeds USD15,000.
The financial system has always been playing an important role in the local economy. Being one of the four major economic pillars, the financial sector has assets worth over MOP160 billion (approximately USD20 billion), contributing around 10% to the GDP of Macao. In the meantime, the financial system consists mainly of the banking and insurance sectors, along with the backup support extended by institutions such as Postal Savings Bank and financial intermediaries like securities trading companies, financial companies and exchange houses.
Compared with the insurance sector, the banking sector takes absolutely a leading position as its contribution to total assets and GDP is around 95% and 9% respectively. The banking sector captures an entrenched foothold in Macao due to its centenary history. The first bank was established in 1902 and is still in operation nowadays. However, the development of “modern banking” actually initiated in the seventies of the last century.
Of the 23 banks authorised to operate in Macao, 10 are locally incorporated whereas the other 13 are branches of overseas banks. Apart from one offshore bank, the other 22 are engaged in universal banking business.
Among these banks, with the exception of those incorporated with local capital, are banks coming from countries or territories such as Mainland China, France, Portugal, Singapore, the United Kingdom, the United States, Hong Kong and Taiwan. Collectively, they have over 130 offices (including branches and subsidiaries) established in Macao. Some of them have representative office established overseas. The total workforce is 3,500.
The scope of the local banking sector is relatively small when compared with others. However, the sector has become very open, modernised and experienced during the course of development over the past 30 years. The sector, which has gradually cranked up mainstream international activities globally, displays the following characteristics:
The banks can provide tailor-made and various standardised financial products in addition to some of the traditional services, such as taking deposit, extending loans and conducting remittance.
Basically, the operation and management of banks have made progress in electronic form. Consumer-wise, banking services such as telephone banking, mobile banking and Internet banking are made available through the extensive use of information technology. Besides, the internal risk management system is also being upgraded on an ongoing basis.
Internationalised business
The scope of the banking sector in Macao is relatively small. By giving priority to monitor global market situation and identify appropriate niche in the global market, Macao banks manage to overcome size limitation and actively participate in international financial operation.
Modernised management
This can be examined from the perspective of management ideology and tactic. Concerning modernised management ideology, it is reflected from the banks’ pursual in continuously strengthening corporate governance, internal control and risk management mechanism. Besides, the banks comply with international standards and introduce competitive mechanisms to boost production. As to modernised management tactics, they are demonstrated from the banks’ effort to monitor daily operation in a timely manner through the use of centralised information system and different parameters such as the warning systems.
The objective of bank management is not only shareholder wealth maximisation but also placing emphasis on the interest of other stakeholders such as investors and customers, and to truly maintain the stability and sound operation of the banking sector.
Diversified business operation
Banks in Macao, with the exception of offshore banks, strive to deliver comprehensive banking services. Apart from general products, many banks provide complementary service ranging from insurance to other financial products through their subsidiaries or affiliated companies. Due to this development, the banking sector is being heavily involved as the “axis” of power in many kinds of diversified business operations.
Standardised supervisory approach
Aside from enacting laws and regulations based on the actual situation of Macao, the regulators managed to live up to international practices, particularly the recommendations made by the Basle Committee on Banking Supervision. The International Monetary Fund, the Offshore Group of Banking Supervisors and the Asia Pacific Group on Money Laundering expressed a positive view upon their assessment of the regulatory standard of the financial system.
It is true that the local banking sector has been hit by the worst financial turmoil – the Asian Financial Crisis. Macao had once been dragged into extreme difficulty when it coped with challenges posed by managing a portfolio of non-performing loans, confronted with the real asset bubble shaped during the early 1990s and struggled within the seven-year period of sharp slowdown prior to the handover. Now, the worst is over. The banking sector has been refined through hardship and become well-organised with effective internal mechanism in place and enhanced risk management and service quality. Keeping a mind-set for expansion, the sector has improved its overall asset quality and operational efficiency. Literally, the banking sector is ready for new challenges and higher level of development with confidence.
CEPA for Hong Kong and Macao is fundamentally similar. However, Hong Kong differs greatly from Macao in terms of structure and scope economically and financially. Under the framework of CEPA, Macao banks may not be able to tap into the Mainland market directly by setting up subsidiaries due to size limitation. With further regional integration, however, Macao banks will pick the Mainland as the target zone for strategic planning. Actually, Macao banks will take it as a natural course to pursue further expansion in the Mainland given its high capacity and extensive market potential. Most importantly, many market segments in the Mainland have not yet be exploited or still in the early stage of development. In this regard, the market pie is either awaiting or in the process of being subdivided. Market entrants have choices to position themselves or select a particular market segment based on their unique strengths.
Subsequent to the Mainland’s accession to the World Trade Organization and the enforcement of other free trade agreement such as CEPA, the financial sector of the Mainland will be in a critical time interval during the next 3 to 5 years. The new form of market blueprint will become clear day by day.
After the handover, Macao has developed a closer relationship with the Mainland. Given that the process of economic integration is progressing well, it now depends on the part of Macao banks to draw up strategies that can overcome the restrictions of CEPA and benefit from vast opportunities available in the rapid growing market. Not soon, Macao banks will discover that they can find opportunities, reveal their competitive edge and inherent capabilities in the thriving Mainland market by capitalising on their strong financial capacity, prudent business practice, sound risk management measure, modernised and diversified operational approach as well as expansion oriented modernised strategies.
Now, the question remains, what are Macao banks supposed to do in order to reap the desired outcome? I believe that business sectors in Macao have given a good thought to this question and some may already have come up with business methods and requirements that can appropriately address the problem. Taking this opportunity, I would like to propose the following insights:
First, I consider that CEPA is a free trade agreement made between a country and its separate customs territories. It is a framework which adopts an open approach. Much can be said and done under the free trade agreement made available by CEPA. Every business sector, with no exception to the banking sector, has tremendous responsibilities to carefully study and grasp any business opportunities. According to CEPA, the asset requirement for Hong Kong and Macao banks to set up branches in the Mainland is USD6 billion. From a practical standpoint, some banks in Hong Kong may be able to satisfy the asset requirement. However, this situation does not occur in Macao given that the asset being held by the biggest locally registered bank is only USD3 billion. Yet, it is not an impossible mission to match the asset requirement of USD6 billion as there are still many strategic alternatives such as alliance and amalgamation available. Rest assured that the banking sector will be able to find its place under the CEPA framework.
Being the regulator in Macao, we support the effort made by banks to enhance their competitiveness. We are glad to accept and approve application for incorporation in Macao by overseas investors, provided that these investors manage to fulfill certain requirements and their plans correspond with the strategic direction of the Government. The acceptance of overseas investors will not only help to foster steady development of the Macao banking sector, their background and experience will facilitate advancement on business operations, management competencies and risk management techniques as well.
Outside the framework of CEPA, the expansion plans undertaken by many Mainland banks have provided vast opportunities for Macao banks to access the Mainland market. This can be achieved through joint venture or shareholding acquisition. Macao banks can acquire the shares of Mainland banks, or act as minority shareholders when incorporating new banks with foreign banks or Mainland financial institutions. Under the current situation, it may be an ideal choice for Macao banks to pursue the strategy of shareholdings acquisition, which will not be hampered by asset requirement and the proportion can reach over 20%. Besides, the banks can harness the network to exploit new opportunities.
Clearly, the materialisation of this strategy depends on the interaction between cross border entities as well as the joint cooperation between the cross-border regulators. Actually, we have taken the initiative to work on this issue. With the support of the People’s Bank of China and China Banking Supervisory Commission, we are already on the path to propel business relationship between Macao and Mainland banks, in particular, banks located in the Pearl Delta River Region, or other market players that are closely associated with us. Through acquaintance, understanding and reciprocal cooperation, we will assist in the development of Macao into a service platform for “China and Portuguese speaking countries,” “Commercial Service Platform for Western Guangdong” and “Communication Platform for Overseas Chinese Businessmen.”
The establishment of overseas offices or the expansion of overseas network is not the only solution for business expansion. It is not necessary for banks to set up overseas offices should they intend to cultivate or conduct business in another market on account of today’s advanced technologies, liberalised financial measures, new financial products, economic integration and internationalised financial development. As a matter of fact, there are many kinds of services that would not be restricted by geographical location or physical form. These services include project finance, syndication, financial consultancy, international settlement, bank card, fund settlement, securities and fund investment, agency service, trade credit and fund management.
China’s economic infrastructure is quite outstanding after 20 years of liberalisation. Today, China is entering a new phase of development for well-to-do middle class society. A distinguished infrastructure will nurture potential business opportunities and induce the desire and vision on the part of foreign investors to capture a slice of the market pie.
Under the upsurge in market sentiment, Macao banks can follow the steps of other overseas investors to market into the Mainland. Macao banks can harness its advantage on geographical proximity and resource through alliance and the flexible use of CEPA so as to reap the intangible outcome of business expansion.
We see that Macao banks are classified as latecomers in the China market. Bearing in mind that no matter we cooperate with others or compete with others, we should recognise our own strength and understand the Mainland market by keeping abreast with latest developments, anticipating opportunities, demonstrating potential, adopting appropriate positioning strategy and avoiding cutting corner. We have to stand on the principle that we will not work against one’s principle in the process of building brand awareness. Besides, it is a “don’t” for being too diversified.
The above shows some of the preliminary views concerning ways that Macao banks can have access to the Mainland market. Being a regulator, we are expecting the moment when Macao banks have successfully tapped into the Mainland market. With the purpose of reinforcing cooperation between the financial sectors in Macao and the Mainland, we are in the process of establishing a communication mechanism to facilitate information exchange with Mainland regulators over possible business opportunities ranging from free flow and settlement of yuan, interactive business cooperation to market liberalisation. Our intention is to build up a better service platform for cross border financial institutions to work out cooperation plans.
Concerning the intention to conduct yuan business, we are exploring the issue with Mainland authorities while concurrently, the application for conducting yuan business has been made to the Central Government and related government departments. We expect to receive the green light from the Central Government subsequent to its careful assessment on Macao’s market situation. The approval of conducting yuan business will facilitate the steady development of the banking sector, which in turn, make possible the prosperity of Macao’s economy. Besides, the related approval demonstrates the successful application of the “one country, two systems” principle.
After the handover, the MSAR Government has undertaken a series of measures to position gaming and tourism as the driving force for Macao’s economic growth, and services as the principal sectors with coordinated developments of other sectors. The deployment of the policy is starting to show result as the investment environment has been upgraded continuously while increased inflow of foreign investment has been observed. With the operation of CEPA, the establishment of Cross-border Industrial Zone and the full play of the function of Macao as service platforms, the future economic prospect of Macao is promising and the business environment of the banks will continue to be enhanced.
The Mainland economy is growing in strength and in particular, the ongoing reform of the financial market, and the liberalisation of financial regulations and the marketplace will help the betterment of the financial sector. Notwithstanding that Macao banks may not be able to establish a presence in the Mainland in the interim, it is expected that Macao banks can still manage to participate in the vigorous Mainland financial market by making full use of their competencies through strategies discussed earlier, such as shareholding acquisition and cooperation. Building up on the support provided by the Central Government, the utmost effort contributed by the MSAR government and the market players, the financial sectors in Macao and the Mainland will reap fruitful result together by forging ahead business exploitation. The banking sector in Macao is stepping on the jumping board for further and ongoing business development.
Thank you.