Anselmo L S Teng: Industrial transfer and financial services viewed from
the perspective of Macao
Keynote speech by Mr Anselmo L S Teng, Chairman of the Monetary Authority of Macao, at
the 5th Pan Pearl River Delta Regional Cooperation and Development Forum, Nanning,
14 August 2009.
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Honourable Heads of Delegation,
Dear Delegates,
Ladies and Gentlemen,
Good day!
I would like to express gratitude to the host and Mr. Ma Jing, President of the People's Bank
of China Guangzhou Branch who have given me an opportunity to communicate with you
over how we can make use of the opportunity provided by industrial transfer to promote the
development of financial services. At the same time, I would like to make use of the
opportunity to greet the financial practitioners from other provinces who attend this meeting
and hope that we can enhance our link with a view to fulfilling our common target of
achieving regional development.
Industrial transfer is a relocation of assets for more profitable results. Through more effective
combination with other production factors, a higher economic growth can be achieved. In
general, industrial transfer can be realized via different forms, such as partnership, mergers,
re-organization, cooperation and capital pooling. In the process of transfer and acceptance, it
will involve a financial platform to facilitate initiation of investment, finance, merger and
acquisition which will certainly give rise to a demand for financial services and enhancement
of financial efficiency. The demand needs to be satisfied through innovation of financial
products and services, business channels and management expertise which financial
institutions are expected to provide. The whole process can strengthen the foundation of the
financial institution, reinforce its competitiveness and resistance against risks, which to a
certain extent enhances the safety and stability of the financial system as a whole.
Industrial transfer obviously triggers demand and development of financial services. Yet, the
success of an industrial transfer depends on the result of a series of interactions and related
promotions, which may involve financial elements and non-financial elements, such as the
incentive, guidance or encouragement arising from government policy relating to industrial
transfer. Market demand cannot be neglected. The impact on local inhabitants and
environment, the economic gains before the enterprise, the capability of the region to
accommodate the transfer should be considered. This will include accessory industries and
professional services, local financial services including investment and credit services which
the newly relocated industry badly needs. So much the better if a bank which treasures its
clients will set up a branch in that location to provide tailor-made financial services.
Now, I would like to revisit the stages of economic development and industrial development
of Macao in the past 400-odd years, which is of help in making a conclusion on past
experience, uncover its pattern and put forward the views.
As we all know, Macao is a tiny but open economic entity. At the same time, it is an
international city where old and new, western and eastern cultures mix. In the past 400 years
of development, Macao economy experienced prosperity - recession - recovery - stagnation
- recession. Recovery came back after return to China and then we experienced high growth
rate. Simultaneously, its industrial structure also had a mutation in tandem with development.
At the moment, after 10 years of fast growth, Macao economic structure is facing a new
metamorphosis and a need for further diversification.
Macao port opened in 1535. We can demarcate its economic development into four stages.
The first stage was 1535-1840. In the 300 years, especially the 100 years from late 16th
century to early 17th century, Macao was one of the most prosperous trading ports in the Far
East. It was a hub for marine trade between the East and the West. The second stage was
1841-1960. In view of the rise of Hong Kong, Macao was not able to maintain its position as
an entrepot in the Far East. In 1847, the Macao Government under Portuguese
administration announced legalization of gambling. The third stage was 1961-1999, the
Macao economy started its modernization and diversification. First, gaming developed along
the natural path to modern tourism services. Second, processing and export flourished.
Under the locomotive effect of tourism services industry and processing and export industry,
real estate, construction, banking and insurance burgeoned. Thus, the four major pillars of
economy gradually came into shape; they were tourism services industry, processing and
export industry, real estate and construction industry, as well as banking and insurance
industry. In the ten-odd years from the 80's to early 90's, Macao's economy, due to the
opening-up of China, grew by leaps and bounds. The economy expanded rapidly due to very
rapid growth. In 1993, with the popping of economic froth, there was an imbalance in
economic structure, Macao then experienced recession for a number of years. The fourth
stage is 1999 to now. After return to the Motherland, the Macao economy recovered and
started rapid growth again. During this period, the financial industry made use of the
opportunity offered by economic growth, consolidated the foundation for sustainable and
stable development.
A brief look back of past history of the Macao economic development and change in industry,
we can perceive the pattern; the two significant developments of Macao financial industry
were brought about by the rapid growth of the economy and prosperity. In the 70's and 80's,
the policy to diversify manufacturing industry enabled new manufacturing industries to
flourish. Coupled with the prosperous development of other pillar industries and the
legislation promulgated in 1982 which allowed banks in Macao to expand their activities, the
financial system had a rapid growth which in turn stimulated economic development. In 1999,
after the return to the Motherland, under the auspices of the Central Government and
leadership of the MSAR Government, Macao experienced economic consolidation to rapid
growth. The financial industry also benefited from phenomenal economic growth. Financial
products became highly diversified and differentiated. Services network, channel and related
quality were enhanced. Risk control, management and resilience continued to be
strengthened. In the face of this unprecedented global financial crisis, our financial system
emerged relatively unscathed, while the operating results continued to stay at a high level.
All along, capitals from the Mainland, Portugal and Hong Kong dominate the Macao banking
industry and account for a large chunk of the market. Together with branches of the US, the
UK, France, Singapore and Chinese Taiwan banks, the banking system of Macao as a whole
is pivotal to the industrial transfer of Macao.
In the 80's to the beginning of the 90's in last century, the Pearl River Delta was the ideal
relocation area in attracting industrial transfer due to its comparative advantage in its
convenient location, availability of labour and cheap land cost. Macao enterprises made full
use of the opportunity provided by the reform/opening-up policy of the nation to move their
labour-intensive production base to this area.
From a micro point of view, the migrant enterprise, in the course of transfer, will face the
problem if it can obtain the much sought financial services in the new location. How the local
financial institutions can provide the necessary funding services for the migrant enterprise
under controlled risk is an issue for financial regulator. Generally speaking, the local financial
institution has limited information on the migrant enterprise. There is insufficient knowledge
of the financial condition of the migrant enterprise, its cash flow, its profitability, its debt
servicing ability, the quality of management, hence it gives rise to risk not compatible with
information available. The financial institution has difficulty in conducting due diligence on the
credit risk and other related risks. This will ultimately undermine the borrowing capacity of the
migrant enterprise and hence the chance to secure a loan. In the event that the collateral
offered by the migrant enterprise is not domiciled in the Mainland (e.g. in Macao), the
situation will become more complicated. As the legal system and jurisdiction of the two
regions are different, particularly when it involves cross border asset pledge, execution and
settlement. The limitation will impose a constraint on the related credit transaction, giving rise
to risk attached to cross border asset pledge. Such difficult situation applies to Macao
enterprises operating on the Mainland and vice versa.
To solve such a problem, banks of the two regions can, as permissible by law, or under full
authorization from client, exchange information of client, obtain the required information for
credit appraisal, so as to eliminate risk arising from insufficient information. On the other
hand, for asset pledge across the border, arrangement can be made to eliminate such
uncertainties. The Macao enterprise can pledge its assets to a Macao bank who will provide
a guarantee to Mainland bank who intends to provide the credit to the Macao enterprise.
When a Mainland enterprise operates in Macao, the same model can be adopted. As such,
banks in the two jurisdictions can enhance such credit guarantee operation model, such as
setting out the legal documents and format relating to credit guarantee which are legally
enforceable. It will certainly help to solve cross border asset pledge issue.
From a wider angle, industrial transfer can happen in one nation or cross border. All along, in
view of its unique geopolitical and historical condition, Macao plays an important part in the
liaison platform for economic and commercial cooperation between China and Portuguese
speaking countries (including Angola, Brazil, Cape Verde, East Timor, São Tomé and
Príncipe, Guinea-Bissau, Mozambique and Portugal). These countries are from four
continents (Asia, Europe, South America and Africa). They are endowed with abundant
natural resources and have a total population of 200 million. Given the historical background
of Macao, its relation with the Mainland, interaction between Macao and Portuguese
speaking countries, it can perform certain functions to facilitate the process of industrial
transfer in the Pan Pearl River Delta region or even the Mainland, such as introducing factors
of production from Portuguese speaking countries, accessories or even partnership. It can
also help Mainland enterprises to establish in Portuguese speaking countries.
For the financial services which are pertinent in industrial transfer involving China and
Portuguese speaking countries, banks of Macau can be of help. All along, Mainland capitals
and Portuguese capitals are major players in the Macao banking sector. Mainland capitals
operating in the Macao banking sector come from mega banks of the Mainland. They have a
network with wide coverage. At the same time, Portuguese capitals operating in Macao
banking sector come from banking conglomerates which have outlets in most of the
Portuguese speaking countries. These China and Portugal funded banks have a long record
of communication, interaction and cooperation in Macao. They can effectively solve or assist
in solving possible financial services problems arising from the process of cooperation in
industrial transfer between China and Portuguese speaking countries. As a matter of fact, the
process may bring in motivation and initiation to stimulate financial innovation of Macao
banks and Mainland banks.
Based on the above analysis, retrospection and experience of Macao, I have the following
observations:
1) For an economy which has an immature, underdeveloped and incomplete financial
market, or when the economy is at its initial stage of development, the function of
financial institutions is of utmost importance. Thus, the services provided by financial
institutions should satisfy the needs arising from economic development, with the
ultimate goal of achieving a hand-in-hand growth through interactions.
2) When an economy has developed to a certain stage, financial services should
outpace economic development to play the role of navigator for further burgeoning of
the economy. At the same time, financial services can serve a function in risk
management, providing security for stable development of the economy.
3) Industrial escalation and transfer provide a wide horizon and more business
opportunity for financial innovation. Therefore, in the course of accommodation of
industrial transfer, a fine financial environment has been created. There is a further
need for promoting modern financial system and order in a proactive manner. This
will effectively perform the leverage function of rational allocation of resources we
expect from a financial system which will actually enhance financial innovation and
service quality.
4) In the course of economic globalization, cross border industrial transfer will be
accelerated. In the process, we should start from cooperation between governments
which should be extended to practical and cross border cooperation between
financial institutions. Such cooperation helps financial industry to grow which in turn
prompts industrial escalation and transfer. Through the function of financial services
cooperation platform, better and more efficient use of resources can be realized
which facilitates economic development.
At last, we come back to the Pan Pearl River Delta Region, which includes nine provinces
and the two SAR's of Hong Kong and Macao. We are striving to achieve in this holistic
system a rational regional layout, improvement in environment, high efficiency in industrial
operation, streamlined work mechanism and co-ordination in regional industrial transfer. In
the course of action, the retrospection mentioned above combined with analysis of past
experience can be of help. In December last year, the State Council promulgated "The
Outline of the Plan for the Reform and Development of the Pearl River Delta". The message
is clear that the plan for various economies of the region to become one entity is on the
drawing board already. It is my conviction that Macao's platform function and its indigenous
banking system will be able to play a more important role in the process of industrial transfer
in the region through the implementation of the Outline mentioned above. The MSAR, as a
member of the Pan Pearl River Region, gladly and candidly hopes that we can, through all
possible channels, participate in regional cooperation and development.
The above is my initial view and observation. I hope it will provide food for further thought
and discussion.
Thank you!