In February 2019, the central government promulgated the Outline Development Plan for the Guangdong-Hong Kong-Macau Greater Bay Area.
Professor Jean Jinghan Chen
Dean of Faculty of Business
Administration and Chair Professor in Accounting and Finance
University of Macau
Dr Hung Wan Kot
Finance Programme Leader and Assistant Professor in Finance
Faculty of Business Administration
University of Macau
Macau is positioned as one of the four major central cities in the development of the bay area. Its main goal is to build itself into a world tourism and leisure center with distinctive financial services and moderately diversified economy, and a business cooperation service platform between China and Portuguese speaking countries. In April 2020, the chief executive mentioned in his Fiscal Year 2020 Policy Address that finance is a key development direction for the SAR government to achieve diversified economic development. Measures include expanding RMB financial services and product innovation, and building a Portuguese speaking national RMB clearing center, etc.
At the end of June, the People’s Bank of China, the Macau Monetary Authority and the Hong Kong Monetary Authority jointly announced the “Wealth Management Connect (理財通)” pilot business, which allows individual investors from Guangdong, Hong Kong and Macau to invest in the financial products of banks in the region. At present, Macau’s banks provide more on mutual fund and insurance services, while banks provide channels for customers to buy stocks themselves. Chinese banks have some structured products, such as swaps and high yield credit-linked investment. It is worth mentioning that both Chinese and foreign banks have few bond products, and some of them even have no bond products.
According to the 2016 census data of the Macau Statistics and Census Service (DSEC), there are 226,620 local residents in Macau over the age of 45, accounting for 42% of the local residents. Most of the residents who go to the bank for business belong to this age group. There are three reasons for this phenomenon: first, young customers are better at using online banking services, while Macau’s major banks have been working hard to improve their online banking services. Even credit products can be applied in online banking, which greatly reduces the opportunities for young customers to go to banks. Second, people who are ready to retire or who have retired have more spare time, and they are not familiar with the services of online banking. Third, people who are ready to retire and those who have already retired pay more attention to service and physical objects. For example, they prefer to choose bankbook accounts when they open an account.
This phenomenon leads banks to focus on products for such customers. In the first half of 2020, there are many advertisements about annuity on the streets of Macau, which is the common product of Macau banks in the first half of 2020. Annuity is aimed at the aging customers with certain wealth accumulation. These people enjoy the economic dividend after the opening up of gambling rights in Macau. They are rich and the Macau government has the financial strength to support their retirement life. Therefore, they are not willing to take risks. Time deposit, insurance and annuity are attractive products for them. However, from the actual situation, annuity products are not very popular because Macau people do not like products with long investment period. According to past experience, people prefer investment products with a year or so, no more than three years at most.
DSEC 2016 data also shows that more than 90% of Macau citizens over the age of 45 have no degree education, which means that they are not very interested in complex products. They will refuse to buy and take risks when they hear the product name. There is little chance for young people to accept bank promotion products when they come to the bank, because their consumption confidence and consumption desire are quite strong, and they have not accumulated wealth. Middle-aged and elderly people use savings as wealth management. Even if they buy investment products, they also use the concept of saving – investment means saving money. Middle-aged and elderly people do not like to invest in products with a long period of time. The popularity of products with a product life of more than one year begins to decline, and a significant decline occurs after more than two years. In terms of customer service experience, most middle-aged and elderly people will provide funds to buy a car and a house for their next generation’s marriage, and they also like to go out and buy luxury goods. Elderly people need security, they rarely buy health insurance – cash gives them the most security. It can be seen that the development of wealth management in Macau has a bright future, but it has a long way to go. The launch of Wealth Management Connect in the Greater Bay Area provides an opportunity for Macau banks.
We believe that the banking sector in Macau should at least focus on the development of the financial market in the following two aspects.
First, Macau is the only big city in the Greater Bay Area has close ties with Portuguese speaking countries. Therefore, Macau has inherent advantages in the development of investment products related to Portuguese speaking countries, which cannot be replaced by the first-tier cities of Hong Kong, Shenzhen and Guangzhou. Macau should take advantage of the launch of Wealth Management Connect to develop relevant financial products. On the one hand, the introduction of financial products related to Portuguese can fill the market gap, attract rich people from the Greater Bay Area to open accounts in Macau, enhance Macau’s position in the financial market in the region and increase Macau’s market share in the financial market of the Greater Bay Area. On the other hand, from an investment point of view, Portuguese related financial products should be less relevant to most financial products on the market. If it is put into the investment portfolio, the risk of the portfolio can be greatly reduced, and the purpose of risk diversification can be effectively achieved. Such products should be welcomed by the market.
Second, banks in Macau need to develop financial products for young people. One of the purposes of investment is to prepare for retirement in the future. Therefore, the earlier an investor starts investing, the more his retirement amount will be when he retires. But the relationship between the two is not linear. The reason is very simple, because the earlier the investment is, the wealth effect of money generating money will be doubled with the increase in investment years. For example, suppose that investor A starts to invest at the age of 25 and deposits 3,000 MOP a month with an annual interest rate of 5%. If he retires at the age of 65, he will receive a total of 4,578,060 MOP. Investor B starts to invest at the age of 35. Under the same conditions, he only received 2,496,776 MOP when he retired at the age of 65. A has invested 1,440,000 MOP in total, while B has invested 1,080,000 MOP in total. The difference between the total investment in 40 years is only 360,000 MOP, but in the end, the wealth difference between the two is 2,081,285 MOP. The difference between the two shows that the investment effect of wealth varies significantly in different investment horizons.
Investment while young. For young people’s financial products, in addition to the earlier the better, we can also try to educate the concept of compulsory savings, that is, to reserve money for savings and investment first, and then use the remaining money for entertainment and consumption. The bank can act as a financial consultant, tailor-made professional financial management plans for customers, let customers understand what an asset purchase is, what is spending and consumption, launch products of deposit small sums of money every month and draw out both the principal and interest in a lump sum when the specified time comes up (零存整取), and cultivate young people’s habit of savings. At the same time, Macau should pay attention to financial education for young people. The general education course of personal finance at the University of` Macau is designed for young people who are about to enter the society and are widely welcomed by students.