Special Report – Wealth management

Of the entire financial area, wealth management seems to be the most advanced in the Greater Bay Area logic. Macau will benefit, but some warn of money laundering risks

MB April 2021 Special Report | Financial Hub in the making

Last February Macau, Hong Kong, and mainland Chinese regulators signed a “Memorandum of Understanding on the Launch of the Cross-Boundary Wealth Management Connect Pilot Scheme in the Guangdong–Hong Kong–Macao Greater Bay Area” (which we’ll call the “Scheme”).

This document set out the principles of supervisory cooperation to protect investors’ interests, improve cooperation to prevent supervisory discord, regulatory arbitrage and other related cross-boundary illicit or non-compliance activities.

The “Scheme” will allow Macau residents to buy onshore wealth management products sold by Chinese banks, while Bay Area residents can invest in products sold by Macau’s banks, explains Oriol Caudevilla, a FinTech advisor and researcher from Hong Kong. “The ‘Scheme’ will greatly boost the assets under management over the next decade, with global private banks and big players likely to tap into the Bay Area opportunities,” according to a Bloomberg Intelligence report quoted by the pundit.

“It will not only help Macau’s plans to diversify its economy and shift the focus towards finance, but it will also help Hong Kong increase significantly the assets under management over the next decade. Macau is in a perfect position to leverage the ‘Scheme’ but also to benefit from its proximity to Hong Kong to tap into the opportunities provided by the ‘Scheme’. At the end of the day, the ‘Scheme’ opens up a broader market for the financial sector of all the GBA cities,” states Mr Caudevilla.

When in 2015 the Macau Government proposed the development of the so-called “specialized [or featured] financial industry” to help diversify the city’s economy, wealth management was one of the proposals on the table, along with financial leasing (see text on these pages).

“The ‘Scheme’ will allow Macau residents to buy onshore wealth management products sold by Chinese banks, while Bay Area residents can invest in products sold by Macau’s banks” – Oriol Caudevilla

A year ago, the Secretary for Economy and Finance explained that the “various measures of support from the Central Government in favour of Macau should be taken advantage of, in an effort to explore the business of wealth management, of a bidirectional character, in the Greater Guangdong–Hong Kong–Macau Bay.”

When Lei Wai Nong speaks of “measures of support from the Central Government in favour of Macau”, he is referring specifically to the “Scheme”, which for the Macau SAR is of greater importance: it was the first time that the Monetary Authority of Macau (AMCM) had been called to sign a cooperation agreement with its Hong Kong and Mainland counterparts. (This was actually the third mainland–Hong Kong cross-boundary financial arrangement, after the introduction of the Stock Connect scheme in 2014 and the subsequent Bond Connect in 2017, but the first involving Macau.)

Despite the “Memorandum of Understanding”, the “Scheme” has no start date, but it is generally believed it will leverage an area that has grown but is currently limited to Macao residents, who own 93 per cent of assets traded as wealth management (non-residents, with most of them residing in Guangdong Province and Hong Kong, represent 7 per cent, according to DSEC data).

And in Macau the market cannot grow any more. “More than 90 per cent of Macau citizens over the age of 45 have no degree education, which means that they are not very interested in complex products,” urged two professors from the University of Macau, Jean Jingchan Chen and Hung Wan Kot, in an opinion article last year for Macau Business. “It can be seen that the development of wealth management in Macau has a bright future, but it has a long way to go.”

However, there are those who warn of the dangers inherent in greater investment in this area.

Former Macau Monetary Authority president António Felix Pontes understands that attracting funds from Chinese millionaires will require extra care regarding the source of these funds. Chairman until recently of the Executive Board in the Macau Institute of Financial Services, he has warned in several interviews, and now repeats it to Macau Business, that the risk of money laundering may increase significantly.

Financial leasing

The former AMCM executive director and insurance commissioner (1990 and 2015) Felix Pontes has doubts whether Macau would be able to develop another area on which the Government is betting, financial leasing.

In several recent interviews, the last president of the Macau Institute of Financial Services has said what he now stresses to Macau Business: he doesn’t believe the Portuguese-speaking African countries or East Timor can turn to Macau’s leasing system to buy equipment from China, because that would imply, for example, that Chinese companies accept Macau as the jurisdiction for settlement of any disputes.

“Besides,” says Mr Pontes, “it’s not guaranteed that the importers from these countries are willing to give financial leasing a chance instead of the traditional borrowing from the banks to buy the Chinese equipment. Other core factors are the price (annual loan interest rate versus annual rent in financial leasing), the period of leasing or the banking loan and the treatment provided by the legislation of these countries for the two options.”

Dr Felix Pontes reminds that large-scale projects in Macau are either financed by public money, when they are promoted by the Government, or if originated by the private sector, as with casinos, they usually prefer syndicated bank loans.

To broaden the geographical limitation, the “Legal Regime for Leasing Companies” was revised during 2019. “This new legal regime aims to be more in line with the development needs of the current international leasing activity, with a view to contributing to the creation of a more favourable environment for the development of financial leasing in Macau and enabling the establishment of a greater number of companies from Mainland China and abroad operating in the scope of financial leasing in Macau,” according to AMCM.

After this review, the president of AMCM, Benjamin Chan, predicted the arrival of more leasing companies in Macau, but in fact this movement, so far, has not occurred.

Along the way, there seems to be another bet from the ‘specialized financial industry’ site, the law on trusts. The previous government promised that it would deliver a bill to the Legislative Assembly in 2017 but the promise did not come true. That is why trusts are not available in Macau.

Like Qingdao

“Given my knowledge of the system in China, I think that there would be sufficient support to develop financial services in Macau if the central government were to continue to support the idea. It is likely to be more successful if there is a clear niche or specialism that can be developed in Macau, like for example the focus on wealth management in Qingdao,” states Mike Wardle, from the organization who runs the survey that underpins the Global Financial Centres Index.

Qingdao (Shandong Province) is home to the financial comprehensive reform pilot zone focused on wealth management, established by the Chinese government. As an emerging financial centre, the city ranks 29th on the Global Financial Centers Index.

“Qingdao has differentiated itself from other Chinese coastal metropolises by making great strides toward the transition into a financial centre alongside continuing its appeal as an emerging destination of choice for wealth management,” according to the Information Office of Qingdao Government.

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