Gov’t pledges Guangdong-Macau fund’s absolute security

The local government has pledged the absolute security of Macau’s public money that will be allocated to the Guangdong-Macau Cooperation and Development Fund.

Yesterday, government representatives, including Benjamin Chan Sau San, chairman of the board of directors of the Monetary Authority of Macau, introduced the Fund to Macau’s lawmakers at the Legislative Assembly (AL).

Upon questioning from several lawmakers regarding the Fund, Chan said that Macau “does not need to take any risks at all, and that all risks will be taken by the Guangdong side.”

The Fund, which involves an investment of RMB20 billion (MOP25.6 billion), is capital and interest-protected as a matter of principle, with a mechanism that allows participants to withdraw their involvement if they wish to do so.

The local government is guaranteed to have a 3.5 percent return annually under the plan.

If average returns exceed 7.8 percent, the outstanding value – net of a reserve figure held to cover risk – will then be shared by Macau and Guangdong according to a predetermined ratio of 55 to 45 percent respectively. Under the previous situation, returns over 7.8 percent were taxed at the rate of 25 percent by the mainland tax authority.

However, any amount below 3.5 percent will be taxed by Guangdong, whereas Macau’s 3.5 percent return is always ensured.

“When returns are between 3.5 percent and 7.8 percent, they will belong to the Guangdong side,” Chan explained.

“The Fund, as an innovative project of cooperation, [through the Macau government] has negotiated tax benefit terms with the relevant mainland authority,” said Chan, further declaring that the local government hopes to achieve the best tax benefits for Macau, which, in this case, would be zero percent.

The Macau government would have the status of a Qualified Foreign Limited Partner (QFLP) when injecting some of its fiscal reserves into the Fund.

The Fund, with a lifespan of 12 years, would mainly invest in infrastructure projects in Guangdong.

Lawmaker Wu Chou Kit asked what would happen if the investment went towards projects that would only see the highest returns after a period of 12 years.

According to Chan, the investment projects will be chosen cautiously based on developments within the financial market.

Investment decisions will be made by the Guangdong government.

When the Fund reaches its seventh year of operation, the returns generated by the Fund will be calculated.

During the first phase of the 12-year plan, RMB2 billion will be invested.

“Currently, both partners do not have any intention to increase investment,” disclosed Chan, who also told lawmakers that the government “temporarily does not have considerations or arrangements to have residents participating in the Fund.”

According to Chan, if Macau participates in the Fund for more than ten years, but pulls out before the 12th year, then “there will be no fines” applied to the MSAR.

In order to safeguard sufficient liquidity, Macau can withdraw from the Fund if the value of the guarantor’s net assets is less than 2.5 times the actual value Macau contributed to the Fund.

Guangdong Hengjian Investment Holding Co., Ltd., the guarantor, is said to have assets exceeding RMB160 billion.

As the investor, Macau also enjoys a right of veto over the Fund’s investments, including drawing up a negative list of investment projects.

“We have just received the first list containing the first batch of projects. There are 14 projects. Temporarily, we haven’t made any negative list,” said Chan, adding “before the actual investment, [Macau] can execute its right of denial [related to certain investments].”

The funds will be invested generally into mainland China’s infrastructure sector.

Lawmaker Au Kam San commented that “many of [the] mainland’s investment projects, including industrial gardens, are over-invested.”

Both Guangdong and Macau sides will involve a third party, which will conduct an audit report.

Guangdong will produce an annual audit report, while Macau will produce a seasonal one.