Building the future – One belt, one road between China and the Portuguese-speaking community

17 June 2016

Saturday afternoon, 16th April: as the city of Praia basks in a perpetual warm breeze, Cabo Verde’s capital rests from an intense week-long music festival, simultaneously anticipating the close of its annual Kriol Jazz Festival that same evening. Located near the centre square in the heart of the “Plateau” overlooking the city harbour and offering a 3600 view of this African culture capital sits the presidential palace. Here, a more exclusive event is about to take place.

People stop in their tracks to catch a glimpse of the arriving VIPs, including the president, the prime minister and executive ministers, along with the diplomatic corps. It is a visual kaleidoscope: the glamourous red-carpet attire, the 1950’s governor´s car parked outside, the performance stage set for a live musical show (the pride of Cabo Verdean culture, no celebration is complete without the sounds of Cesária Évora, its queen). Amidst all this, the colonial-style palace–the night’s star–still manages to catch the eye, its bright yellow walls sparkling.

Completely refurbished outside and inside with all new furniture and facilities, the building has been upgraded into the 21st century. One member of the diplomatic corps is particularly pleased with the turnout: the Chinese chargé d´affaires, as the evening’s unveiling was made possible by the Chinese government who sponsored this emblematic project to the tune of roughly 11 million USD.

Having restored this colonial building to its ancient splendor, this Chinese cooperation is additionally responsible for rehousing all major institutions, including government offices and the national assembly as well as the national library, the national stadium, and the iconic Poilão Dam.

President Jorge Carlos Fonseca is also plea-sed with the results of the recent collaboration. He and the new Cabo Verdean government will be hosting the next business forum between Macao and Portuguese-speaking countries in 2017, and Fonseca is confident this will be a major event.

“We have had a privileged relationship with China since our independence, and our outlook is very positive. We are now expanding and diversifying our economic and financial cooperation. Forging a strong link between economic, business, and entrepreneurial cooperation is important to making this relationship even more dynamic,” he asserts.

In an effort to build such a link, Fonseca “personally made a point” to attend the 2015 Forum on China-Africa Cooperation (FOCAC) in Johannesburg and met privately with President Xi Jinping. A state visit to China is also being planned.

THE FACE OF NEW CHINESE INVESTMENT

Historically, Cabo Verdeans are no strangers to Chinese investors, having interacted with Chinese traders living and conducting small businesses in the most remote parts of the islands.

These entrepreneurs integrated into Cabo Verde, even attaining fluency in the native Creoule language. Small Chinese businesses are literally everywhere: lining the roadsides of the island´s arteries and in the street that flows from the presidential palace to the heart of the Plateau. Now, Cabo Verdeans are encountering a new generation of Chinese investors on a different scale.

One such investment lies at the base of the Plateau on Gamboa beach and its namesake island, site of one of Praia’s most recent and anticipated projects: David Chow´s casino resort. This 250 million dollar project will not only transform the capital´s tourism but will also provide a major boost for a growth-hungry economy.

All this is happening during a period in which, for the first time in many years, trade between China and Portuguese-speaking countries is plunging. However, this, as Gustavo Plácido dos Santos from the Portuguese Institute of Inter-national Affairs (IPRIS) points out, has not deterred Chinese interest in countries like Cabo Verde.

At this year’s forum between Macao and Portuguese-speaking countries in Guinea-Bissau (which Cabo Verde will host in 2017), a total of 11 agreements were signed, an “example that China intends to strengthen its bonds with Portuguese–speaking nations and that it recognises their economic and financial importance as well as political and diplomatic significance, ” according to dos Santos.

Moreover, the governments of China and Guinea-Bissau signed a joint agreement proposing new infrastructure construction, indicating that Guinea-Bissau may now be included in China’s “One Belt, One Road” initiative. The terms of the agreement will consider the Buba deep-water port, the new Bissau International Airport, as well as local roads and bridges.

Guinea-Bissau thus will become China’s “link between the Atlantic and West Africa,” asserts dos Santos. China´s commitment to Portuguese–speaking African nations, he adds, is “part of a larger strategic vision by a country that wants to benefit from being a global power.”

A NEW INDUSTRIALISATION

Using the 2015 Johannesburg FOCAC as an international platform, China loudly and clearly demonstrated their support and endorsement of the African continent. Historically, China has consistently doubled its projected financing for development in Africa at each FOCAC summit. This year, however, the amount tripled. Moreover, the authorities are clearly committed to broadening trade and investment away from commodities in order to foster industrial cooperation and skill sharing.

In cash-starved Angola, China´s long-time major trade partner in Africa, the recently restructured chamber of commerce aims to make the most of China’s credit lines, worth 5.3 billion USD. These credit extensions have become even more vital with Angola’s recent economic slowdown and will be applied primarily to joint ventures, not road or railway infrastructure.

“Confidence is the most important thing in business, and it hasn´t been a present factor until now. Chinese entrepreneurs’ lack of confidence for various reasons will be minimised with this restructured Chamber. Our partners have our guarantee of quality, which means that they are getting married, so to speak, to people from the same church. There is no distrust here. That is fundamental in business,” attests Arnaldo Calado, head of the Angolan Chamber of Commerce and former president of the national diamond company Endiama.

According to dos Santos, there are signs that China wants to move labour-intensive industries to Africa and export to countries like Angola or Mozambique to support infrastructure projects and help develop technical skills locally. But he cautions that this could be deterred by current political instability in countries like Mozambique and Guinea-Bissau and also by further economic slowdown in Angola. Chinese investments in other African nations like Ethiopia and Kenya are further down that road.

MACAO’S ROLE

Analysts acknowledge the obvious strategic diplomatic value of China investing in the Portuguese-speaking African community, investment facilitated by institutions like the Macao Forum. These Portuguese-speaking countries are divided into distinct regional areas of influence and are members of their respective regional organisations. Cabo Verde is a prime example of good governance and political and economic stability in an African nation.

“It may be the geography of these Portuguese-speaking countries that makes the community so attractive to the One Belt, One Road initiative, linking China to the Persian Gulf and the Mediterranean Sea”, surmises dos Santos. China´s contribution to the development of infrastructure in Africa, namely, construction of roads, ports, airports, and railways, suggests that the initiative could eventually extend further than Africa´s east coast.

São Tomé and Príncipe, the site of a major Chinese-funded deep-water port to be built in coming years, is, along with Angola, a critical point in trade between the Atlantic, Africa, and the Indian Ocean despite having established any bilateral diplomatic relations. Intercontinental links are an important part of One Belt, One Road, allowing for accelerated trade between China and the African continent.

Fernanda Ilhéu, associate professor at the Instituto Superior de Economia e Gestão (ISEG) and author of numerous publications on the relationship between China and Portuguese-speaking countries, believes that the initiative could indeed generate “new globalisation dynamics able to transform the world.” The project´s area of influence now comprises 4.4 billion people (roughly 63 per cent of the world´s population) in 65 countries and generates around 40 per cent of global GDP.

Ilhéu agrees with Hu Shisheng, Director of the Institute of South and Southeast Asian and Oceanic Studies at the China Institute of Contemporary International Relations, asserting that the initiative is not like the Marshall Plan but a mutual undertaking. “That means the countries should come forward with projects that fit into the One Belt, One Road and New Silk Road spirit Looking at the map, Portugal is included in the project, obviously Macao as well, and through Forum Macao, also Brazil, Angola, and the other Portuguese-speaking countries.”

It is in Macao´s DNA to foster relationships with Portuguese-speaking countries, and while major public and private businesses are not obliged to conduct their affairs through Macao, the special administrative region´s role is to foster and facilitate them as necessary. Ilhéu points out that this could guarantee Macao an important position in the One Belt, One Road strategy.

China’s trade strategy for the 21st century largely has been a response to sudden changes in global economic trends and its own economy. The commodities markets show no signs of recovery, oil-producing countries in particular have been hit hard, and China’s economy has slowed in growth in the last decade.

With the One Belt, One Road initiative, Chinese authorities expect to boost trade with over 40 countries to 2.5 trillion USD within a decade, with a 1 trillion USD public investment. The government is particularly motivating state–owned enterprises and financial institutions to invest in infrastructure and construction abroad.

“The vision,” says Ilhéu, “is to create a network of free trade areas: a way for countries to link their development strategies, adding to each other’s competitive advantages.” The projects being developed “will mainly depend on the initiatives that countries choose in response to the goals, project frameworks, and negotiations with the Chinese government. China will work with countries on the Road in bilateral and multilateral projects. Cooperation priorities will include coordinating policies and increasing links, trade, and investment flows as well strengthening interpersonal relations.”

AFTER THE SETBACK

Since the establishment of the Macao Forum in 2003, trade growth among One Belt, One Road partners has been unstoppable. Brazil and Angola have become major Chinese trading partners. But in 2014 and 2015, due to the plunging prices of commodites, trade started slowing and eventually moved into the “red”. The value of Angolan oil imports decreased as did that of Brazilian soybeans and copper.

Angola has reacted quickly, and all the talk in its capital Luanda is of diversifying the economy. Authorities have been pushing hard to maintain investor confidence in the country. One supporter who has been especially active is António Luvualu de Carvalho, renowned scholar of international affairs and ambassador at large, who has tirelessly advocated for Angola in London, Washington, Lisbon, and other global capitols.

From his office in Luanda’s presidential palace, he contends that China´s approach to Portuguese-speaking nations has been “clearly positive” and maintains an unrelenting confidence in this partnership. “It´s only natural that we find some aspects that should be pursued further on both ends, but I believe quite sincerely that this frank interaction, this open relationship of mutual respect and cooperation that has been designated as win-win, is bound for growth.”

With a new silk road on the horizon as well as continued growth and diversification of Chinese investment, de Carvalho believes Macao has a major role to play. “Macao could carry on being a port of reference… trade routes in the Far and Middle East as well as those on Africa’s east coast could bring added value to opening new markets explored by the Community of Portuguese-speaking countries. The People’s Republic of China (PRC), as a major producer, could certainly use this important route to export products, machinery, technology, and of course build upon cultural relationships that should bring the great PRC and the Portuguese-speaking universe even closer.”

Interviews with leading experts on the One Belt, One Road initiative

Thomas Chan, president of the Maritime Silk Road Association (Macau) and head of China Business Centre at the Hong Kong Polytechnic University

MACAO MAGAZINE: What does China want to achieve with the One Belt, One Road initiative?

THOMAS CHAN: China does not have a single purpose for the strategy. It may have several: to rectify and co-ordinate existing outbound investment projects, which have not been performing very well on their own alone; to push further investment projects to serve specific purposes. The investment in Pakistan as the first national programme under the strategy is used to strengthen the political alliance with Pakistan and support the ruling regime, to help to develop the economy of Pakistan as development aid and as a way to build up the market there for Chinese exports and investments. It also aims to stop the infiltration of terrorists into Xinjiang; use Gwadar port as a military port for China’s navy in the Indian Ocean; build an alternative pipeline to supply oil and gas to China from the Middle East; promote China’s industrial exports of nuclear power plant, coal fire, wind and solar power equipment, telecommunication networks; build up China’s overseas strength in construction and related industries. With the development of Pakistan, China wants to promote peace and development (with political and economic interests in the background) in West Asia, extending to Afghanistan and beyond, where China has already been the largest source of FDI.

It also wants to build connectivity in Eurasia and Africa to serve trade and investment purposes and achieve wider political stability in the regions of this huge landmass. Its ultimate aim is to transform the world political and economic regime from a single hegemony of the USA to a multi-polar system to provide more space for the development of China and others. Space is not just economic and political, but also social, cultural and in the realm of ideas. Each country will be free to choose its own path of development without intervention and hindrance from the superpower.

MM: How can China and other countries gain with this strategy?

TC: What China achieves and gains will probably be the same for other countries participating in the strategy, an open-ended and participatory one, not dictated by China.

MM: Can Macao play a key role?

TC: It depends on Macao itself: whether it is able to learn and re-orient and reorganize itself to use the strategy for its transformation and upgrading. Macao is a free port but nowadays it does not have sea and overland trade transport advantages. Its potential advantages are the support from the Chinese government, proximity and ties to Hong Kong and its flexibility and openness. It could develop into one of the offshore financial, education and knowledge hubs of countries involved in the strategy relying on the China factor. It needs to build up the institutions – in particular a very pro-business and well-regulated offshore financial institution regime, free access to all strategy countries, including Russia, Iran and from Africa, and a knowledge-intensive learning environment. It must transform the existing infrastructure to provide lower housing cost, greater connectivity and accessibility to strategy countries and better quality of life to attract talent and firms. It could and should become an education hub for the learning of knowledge of and about the strategy and strategy countries, not for the top countries – i.e. not to compete in world rankings – but for the less known emergent market countries of the strategy. The strategy is poised to create a new world and open up many countries that have been neglected by the developed world. So Macao needs to learn, re-educate, bring in more talent and innovations in its institutions and meet specifically the changes unleashed by the strategy. By doing so, it could prove its competitiveness and importance to the strategy and to China.

José Luís Sales Marques, Vice President of the Maritime Silk Road Association (Macau) and President of the Institute of European Studies of Macau

Macao Magazine: Should the Portuguese-speaking countries (PSCs) be included in the Maritime Silk Road?

José Luís Sales Marques: The original Maritime Silk Road was about connecting China, Europe, and Africa through sea trade. Portugal and Macao played major and innovative roles at the very early stages of China trading with Europe and Africa.

Along with trade came religion, culture, science, and the arts, as well as interpersonal relations. That was a great boon for mankind: the exchange of commodities, knowledge, and so many other incredible things by people from such distant places via the sea, paving the way for the global maritime trade that we have today.

The 21st-century Silk Road – integrated into the One Belt, One Road (OBOR) initiative– is also about trade and investment, cultural engagement, and mutual benefit. Most of all, it is about connectivity. Its initial layout of connections starts at China’s southern coast at Fuzhou, then down Southeast Asia and into the Indian Ocean reaching the Port of Mombasa near Nairobi, before heading north into the Arabian Sea and towards Europe. However, Chinese leaders have repeatedly asserted that the OBOR initiative is flexible, and former Chinese Ambassador to Lisbon Huang Song Fu has encouraged Portugal to take part.

As a matter of fact, Portugal is one of the founding partners of the Asia Infrastructure Investment Bank (AIIB) that was set up specifically with OBOR investment needs in mind. In the same vein, when officials of the Macao Special Administrative Region (MSAR) government reference the region’s engagement with the Belt and Road initiative, the connection with PSCs is always there. Therefore, I believe that PSCs should and shall be part of the New Silk Road/OBOR initiative as it would be benefit all parties.

MM: How would PSCs benefit? Are there many state companies within PSCs? And is this new project good for small – and medium-sized enterprises (SMEs)?

JLSM: Portuguese-speaking countries shall benefit through improving their networks both at the regional and global level. This would allow their products to reach their destinations faster and in better condition and would eventually improve their competitive edge. Additionally, the extension of the sea corridor from Mombasa down the Indian Ocean and up the South Atlantic African Coast up to Lisbon would generate new investments in infrastructure for most of the PSCs along the way as well as for roads and railways within the African continent, thereby boosting economic potential.

MM: How can the Maritime Silk Road benefit Macao?

JLSM: The Maritime Silk Road could definitely benefit Macao, but it will require a more open mentality from local businesses and a strong sense of entrepreneurship. It cannot rely solely on the goodwill of the MSAR government.

First, it opens the door for new investment opportunities in areas that, until now, were not priorities for local private and institutional investments. However, as Macao’s economy continues to slow down, these new investment opportunities might come in handy.

The AIIB and Silk Road Fund’s involvement with such investment projects provides extra guarantees, as the quality of those investments will have been considered carefully. It could also open doors to SMEs, particularly in the service sector.

Such SMEs would have to be very competitive in the international market and have experience in handling international clientele.  (Macao Magazine, by Patrícia Magalhães)

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