China blurs borders with Macau to advance chipmaking and AI plans

Special administrative region to share economic zone located on Chinese soil


China has revealed plans to create a special economic zone that focuses on development and manufacturing of semiconductors – and will create some fabulous geopolitical interest along the way.

The new "Guangdong-Macau in-depth cooperation zone" will be located on Hengqin island, part of which is currently leased to the former Portuguese colony of Macau.

Macau is governed under China's "One country, two systems" constitutional principle, which acknowledges the territory had its own system of governance before Portugal ceded it to China in 1999. China committed to allowing Macau's governance mode to persist for 50 years beyond 1999 and promised a "high degree of autonomy". A similar arrangement was promised to Hong Kong but has been substantially unwound in recent years, leading to fierce pro-democracy protests and equally fierce crackdowns by Beijing.

Macau has not experienced similar ructions because its population is broadly pro-Beijing – an attitude reflected in the lease of parts of Hengqin island. The space is very welcome, given Macau is just 115km2 but is home to over 650,000 people.

The plan calls for the island to become home to a special economic zone that aims to bring together talent from all of Guangdong Province, the region that encompasses Hong Kong and Macau. The zone will have a mission "to promote the interconnection of innovation chains between Hong Kong, Macau and the mainland". Chipmaking and silicon design are among the desired innovation chains, as are AI, the Internet of Things, financial tech and health services innovation.

The really interesting bit? The zone will be on Hengqin, in Chinese territory, but will be jointly administered by Macau and Guangdong province. Chinese state police will reportedly have a presence.

That blurring of lines between Macau and China is new. Just what it means is uncertain – other than to participants' bottom lines, because the special economic zone will offer low rates of tax.

China's announcements of the zone and Macau's involvement mention diversification of the territory's economy as another benefit. Left unsaid is that in the 2010s Macau's economy boomed on the back of gambling – the territory allowed foreign investment in casinos and quickly built an industry that vastly exceeds the turnover of even Las Vegas.

Visiting Chinese gamblers were the main source of that revenue, but Beijing later all-but-prohibited mainland visitors as it felt money moving to Macau created security risks.

A special economic zone dedicated to technology development is presumably less worrying to Chinese authorities. Blurring borders between Macau and the mainland also seems not to be worrisome, given that a certain viral pandemic means Macau's economy can use a boost. Whether Hong Kong businesses will come to play – and by doing so place themselves closer to Beijing's influence – remains to be seen. ®

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