Opinion | by José I. Duarte
Sometimes really surprising news pops up. That was the case, I dare to say, of the recently announced bid by Macau to create a Nasdaq style, yuan-denominated stock exchange. According to the news, and quoting Guangdong province official sources, Macau may have just submitted such a proposal to the central government. (The reasons for this cautious statement will be apparent below.)
To be fair, the matter is not entirely new. Earlier in the year, a reference to the issue appeared in the development plan for the Greater Bay area. But other than a vague request to carry out a feasibility study, little was discussed on the topic. It is not a minor issue. The making a new stock exchange in China is not an obvious need or proposition, and doing it in a city mainly known worldwide for its gambling prowess can always raise a few eyebrows.
The actual status of the matter is, however, not entirely clear. Guangdong sources seemed to imply that the feasibility study was carried out under the auspices of the Monetary Authority of Macau, and an actual submission was made. Which would, in turn, indicate that the feasibility study had concluded that the scheme was indeed feasible, and the conclusions were detailed enough to sustain an actual application. If that were the case, it would be an achievement in such a tight timeframe. This is a complex mater on several levels -technical, financial, and legal, to state the more obvious ones.
However, the recent statement by the Monetary Authority, conveyed through the press office of the government, only acknowledges it commanded a study to “international consulting companies,” and the process is “ongoing orderly.” The Monetary Authority goes no further than stating that it will take into account the other existing exchanges and the needs (not detailed) of the country.
That does not help much in clarifying what exactly the authorities have in mind. Doing the same others are already doing would not look plausible, and doing it against the stated or perceived interests of the country would be downright nonsensical. No press release available at the Authorities’ website refers to the subject. No reference seems to exist there, no matter how one searches for clues.
There was hope, apparently expressed to the press by the Guangdong sources, that the central government would give the green light to the scheme in time for the 20th-anniversary celebration – a kind of birthday gift. But the specifics are still scarce. That is regretful, as the rationale for such an exchange is less than straightforward, and the feasibility assessment in short order fundamentally implausible.
One may consider that an offshore exchange denominated in yuan, may be attractive to Chinese companies. Let us assume that is the case without further argument. But a stock exchange in a city where millions flow daily through casinos is bound to be problematic, both in political and regulatory terms.
Then, the elements that make a location attractive for a stock exchange cannot spring up overnight. They involve a wide pool of technical skills, reliable infrastructure, a robust regulatory framework, and predictability of the judicial process, to name a few. These requirements form the basis for business confidence without which such an endeavor is problematic. Such trust may take decades to build.
In sum, it is not just that the rationale for the initiative is unclear. The confusion about the actual state of affairs, the conflicting statements by authorities on both sides of the border, and the uncertainty about the proposal contents and timeframe are unhelpful. It is not a good start, admitting that this is actually the start of something.