Silk Road Headlines_22nd Feburary, 2019

China's State Council has issued a plan to link Hong Kong and China and the surrounding area to become a new 'Silicon Valley'. The idea is that Hong Kong will focus on international finance, navigation and trade. Guangzhou becomes an administrative hub, whilst Shenzhen will become more of an economic zone and a tech hub. The role of Macau is an interesting one. The idea is to make it an international tourism city, but also a platform for trade for Portuguese speaking countries, e.g. Brazil (= the Lusophone world) [China unveils plan to tie Hong Kong, Macau closer to mainland].

Macau has a legal monopoly for gambling. Some investment banks have downgraded their forecast for the gambling sector. Morgan Stanley revised its forecast of Macau's growth in gambling revenue from 12 percent to 5 percent and Deutsche Bank thinks that the revenue will fall with 5 percent, instead of a 4 percent growth. These revisions might be at the periphery of the US-China trade war. The revenue was around $ 3.1 billion in November 2018, which is 8,5 percent higher than the same month one year earlier, November 2017. Yet it was 8,5 per cent down compared to October 2018, possibly due to the economic developments of China and reduced cash flow. Policy risk is another concern because of existing ties between certain gaming businesses in Macau and the United States, e.g. Venetian Macau. With recent developments in mind, it is not unimaginable that China may exert its influence on the licensing for these (partially) US-owned casinos in relation to the trade wars.

Furthermore, the interest of China in Portuguese speaking countries is intriguing, especially in relation to African countries. Angola is the third largest economy in Africa, after Nigeria and South-Africa. Already it has a $ 23 billion outstanding debt to China, with a trade volume of
$ 27.755 billion in 2018. The most exported natural resource of Angola is oil, which makes up for around 90 percent of its GDP. Mozambique on the other hand, is deemed underdeveloped, but it has an abundance of natural resources, e.g. natural gas. Exports from Mozambique to China are around $ 651 million. Mozambique is, after Brazil, Angola and Portugal, the fourth largest trading partner in the Lusophone world. Last year China traded around $ 147,35 billion with the eight Portuguese speaking countries. Opening up the Yuan for these countries helps China solidify its position in the geopolitical landscape, and ever increasing influence in Africa.

Another development in Africa might also affect investment behaviour vis-a-vis BRI. DP World, an operator owned by the United Arab Emirates, sues the China Merchants Port Holdings (CM Port), part of China Merchants Group based in Hong Kong. The grounds of the law suit are that CM Port is infringing upon DP World’s exclusive port agreement with Djibouti. The strategic location of Djibouti is already of geopolitical significance, not only from a business perspective, but also from a security point of view[Lawsuit against Chinese port builder in Djibouti highlights risks in Beijing’s plan to expand influence through ‘belt and road’].

As mentioned in earlier editions of SRH, the ever-increasing influence of China gains traction to the diminishing interest and influence of other geopolitical actors in certain regions, i.e. Yin and Yang.

By Clingendael