The Dichotomy of Hong Kong and Macau

The year 2019 saw a significant number of headlines covering Hong Kong’s protests, sparked by the proposed and now withdrawn extradition bill. Since the first protest on March 31, 2019,  the scale has evolved uncontrollably, resulting in retail and tourism slumps.  The damaging sequels on the special administrative region (SAR)’s economy include recession after the global financial crisis  and a stark increase in the unemployment rate. In addition, the trade war between China and the United States also took a significant toll on Hong Kong’s exports.

Recent surveys and studies (See Figure 1) showed that the financial market showed great resilience. The number of offshore companies and homegrown businesses grew, and large companies like Alibaba and ABinBev (Budweiser beer) continued to list in Hong Kong’s stock exchange. Contrary to expectations, the city’s stock exchange rose about $40.3 billion in 2019 amid the turmoil, cementing its position as the top exchange in the world. This not only helps to calm market sentiments, but also highlights the city’s long-regarded macro-fiscal strengths.

In contrast to the city-wide marches and clashes between citizens and law enforcers in Hong Kong, another SAR of China, Macau, is a perfect poster child adopting a docile approach towards legislative implementations. This stark distinction between Macau and Hong Kong in their relationship with Beijing runs deep into the historical handover transition when pro-Beijing activists were more prevalent in Macau.  In addition, the Portuguese colonial government was keen to integrate elements of Chinese governance before the return of the region. Hong Kong, on the other hand, was intentional in stabilising the region during the transition period, amidst peacekeeping and economic challenges. With more than half of Macau’s population migrating from China, this explains a softer, if not absent, pro-democracy challenge towards China.

Is Macau the Greener Pasture?

Being the blue-eyed boy of the mainland government, Chinese president Xi Jinping recently announced plans to integrate Macau’s capacity with Beijing’s economic expansion. The economic policies’ implementation sees Xi’s lofty dreams to diversify the world’s gambling capital’s gaming-dependent economy and rebrand the region as a new international financial hub. Additional frameworks in the proposal include an establishment of a yuan-denominated stock exchange, the acceleration of a RMB settlement centre (construction underway) and others as illustrated in Figure 2. With these economic support from China, Macau has since bolstered much global attention and is geared up for a brighter future.

Albeit the rosy outlook that paints Macau in supremacy to Hong Kong as a global financial center, many expressed dubiety as there are significant challenges that snub this development. The lack of physical infrastructure in terms of land space for office buildings, and the inadequacy of the legal system are just two out of many other obstacles that undermine investors’ confidence. For instance, the minimum share capital for a Macau private limited company is 25,000 patacas (~USD 3,115), whereas there is no such requirement in Hong Kong.

Vast differences in the economic fundamentals of both cities are also the basis for Macau’s inept assumption of the role as an international financial center. Hong Kong’s economic prosperity was built mainly by its own entrepreneurs and strengths while Macau relied largely on China for help. In 2019, one of the big three credit rating agencies, Fitch, downgraded Macau’s outlook from ‘stable’ to ‘negative’ due to its concentrated economic base which consists of gaming tourism from mainland China. This is in line with the grand master plan of China’s efforts to spur the economy with each city executing a niche economic role. For instance, Hong Kong wears the hat of a finance, transport, dispute resolution and trade city while Shenzhen represents an innovative and core economic city, on top of being “the world’s largest special economic zone (SEZ)”. These three cities form the great bay area, which consists of nine Chinese cities in Guangdong province and two special administrative territories.  

Undertaking the role of tourism and leisure in China’s plan, the economy of Macau has been primed in a way to serve mainland China. Coupled with the failure to diversify its economy despite much efforts, the casino enclave is extremely susceptible to China’s temperament. On the other spectrum, besides retail and tourism, Hong Kong’s long-standing trade and finance hub has made it less vulnerable to China’s whine. This can be seen from the GDP of both SARs in 2018 (See Figure 3) – Hong Kong had a clear lead of USD 362.682 billion with trade industry representing 39% of the aggregate activity while Macau raked in USD 55.084 billion with gaming industry constituting 51% of aggregate activity. As such, while Macau is spirited to take on the role of a global financial hub, the city is below par in various aspects. In view of other veteran global financial centers, Macau is limited in its autonomy and thus, is unlikely to be elevated to be on par with Hong Kong.

Two Distinct Cities

There are no cookie cutter cities. Even twins that look alike are different. Ambitions to diversify Macau’s financial services are reasonable but the circumstances are unique such that it is impossible for Macau to replace Hong Kong entirely. While investments for economic expansion are seen as an encouragement and drive towards one country, two systems, the casino enclave and global financial hub each has distinctive characteristics and should be embraced for their uniqueness. 

Treading the complexity of global expansion

In present times, geopolitics are increasingly prevalent, and businesses may need to tread on a fine line for global expansion especially in politically or culturally sensitive regions. Experienced cross-border professionals can assist in strategising how to move forward even in delicate situations. With over 15 years of experience, Desfran has the expertise to provide the latest information which companies can leverage to make smart and calculated decisions. If you are interested to know more about the business landscape in Hong Kong or Macau, or if you would like to have a detailed market report on the cities, contact us today


China wants to make protest-free Macau its next Hong Kong,

Fitch Warns Credit Rating Depends on Political, Economic Autonomy,

Hong Kong Outlook 2020: Challenges Galore,

Hong Kong Pins Hopes on Trade, Finance to Restore Economy,

National Income,

Quotas and capital,

Well-Behaved Macau Can’t Compete with Unruly Hong Kong’s Financial Clout,

When It Comes to Returns, Hong Kong’s IPO Market Is Living It Up,

Why Macau hasn’t been swept up by pro-democracy protests,

World GDP Per Capita Ranking,

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