China's Bond Issuance in Macau to Boost Economic Diversification

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In a strategic move to diversify its economy and strengthen the financial sector, China has announced its plans to issue 5 billion yuan (US$685 million) worth of sovereign bonds in Macau.

This initiative aims to popularize the use of the yuan currency within its special administrative region and further deepen ties between the Chinese mainland and Macau.

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China's Strategic Bond Issuance in Macau

The decision to issue these bonds is a significant step by the central government to support Macau's burgeoning financial sector and promote a diversified economic approach. According to a statement released by China’s Ministry of Finance, this move is crucial for the "appropriate diversification of the economy." It's noteworthy that prior to the pandemic, Macau's gambling market constituted over half of the country's GDP and was responsible for a staggering 80% of the government's revenues.

This upcoming bond issuance, scheduled for launch on September 20, marks the government's third offshore bond issuance in Macau. The previous issuances include a 2 billion yuan offering in 2019 followed by a 3 billion yuan issue the subsequent year.

China's decision to issue these bonds is not just an economic strategy for Macau but also a testament to the strengthening financial cooperation between the mainland and its special administrative region. The government's statement emphasized that this move would provide investors with "secure and stable investment options."

Macau has been actively working towards bolstering its financial services sector to reduce its heavy reliance on the gaming industry. Earlier this year, Macau’s Chief Executive Ho Iat Seng expressed the city's intent to actively promote its local bond market, which is currently in its nascent stages.

Recent data from the exchange reveals that bonds worth 502 billion patacas (US$62 million) were issued in Macau during the first half of this year. Gordon Tsui Luen-on, a director of the Hong Kong Securities Association, highlighted the significance of this move, stating:

The plan to issue yuan bonds in Macau indicates the commitment of the Central Government to support Macau in its efforts to diversify its economy and reduce its gaming dependency. It is also part of the Central government’s plan to boost the internationalization of the yuan by offering more offshore yuan bonds for international investors to buy. They should be popular with institutional investors who want to increase their holding in yuan assets.

Gordon Tsui Luen-onDirector of the Hong Kong Securities Association

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Macau and Hong Kong as Complementary Financial Hubs

This initiative is aligned with the Central government's broader strategy to enhance the international appeal of the yuan. By offering more offshore yuan bonds, international investors, especially institutional ones, are presented with attractive opportunities to bolster their holdings in yuan assets.

However, it's essential to note that this bond offering in Macau will not impact Hong Kong. Over the past decade, both the central and regional governments, along with numerous mainland firms, have issued a plethora of dim sum bonds in Hong Kong.

Tsui emphasized the complementary roles of the two cities, stating, “Hong Kong and Macau are not competitors. Both can serve as offshore financial hubs for China. Hong Kong holds a distinct advantage with its deep capital market and a vast pool of financial professionals."

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