As early as 200 B.C., the “Silk Road” began to take form. Roads, marketplaces, and maritime routes combined into a well-traveled path for goods and ideas, For nearly 2,000 years the Silk Road made individuals rich (or famous) and turned rest stops into legendary cities. Knowledge, innovation, and prosperity followed wherever the Silk Road led. But caravans gave way to sails, and sails were replaced by steam> Eventually, the Silk Road faded into legend. And time marched on.
In 2013, China’s leader Xi Jinping began promoting his “One Belt – One Road Initiative” (BRI). Xi met with world leaders to discuss how thousands of miles of new roads, trains, gas pipelines, ports, and maritime routes could be merged into a single global system. A New Silk Road.
With an expected cost of $8 trillion dollars, the BRI would connect 60 countries, including Russia, India, and Ukraine. Goods would flow out of China into markets in the US and Europe, and raw materials would flow into China from Africa and Asia.
Hundreds of billions of dollars will be spent on infrastructure in just the next couple of years, kickstarting developing economies. When completed, tens of trillions of dollars in new commerce will flow through BRI member nations, elevating the global economy. According to Xi, everyone will benefit.
While Xi started promoting the BRI long before the 2016 elections, or the Brexit in the UK, Xi is now the only man standing on the global commerce stage. The BRI is the only credible vision for globalization with an open checkbook and with the backing of 60+ nations.
China has committed the first downpayment… One Trillion dollars. The BRI will cost trillions to build, but it will generate tens of trillions in new revenue, and much of that will be in the poorest regions of the world. If the BRI delivers on its potential, the world will be lifted on a wave of prosperity that will last for generations. That doesn’t sound like a bad deal!
The Chinese economy is still developing and expanding. Today, China needs to move $2 trillion in physical goods annually. Like any other developing nation, China is offloading the lowest value-added goods to less developed nations and focusing on the development of higher value goods. Known as the “Made in China 2025” initiative, China’s economy is expected to nearly triple in size between 2015 and 2025, surpassing the size of the US economy.
If the world economy does not significantly expand in the next 10 years, then the US, the EU, and China will be in a desperate struggle to cannibalize each other’s markets in order to survive. On the other hand, if the BRI works as advertised, the global economy will expand (especially in poor nations) and everyone can prosper. It is a win-win for everyone. What could possibly go wrong?
China must move huge quantities of goods within China and around the world. China also needs to develop and transport new natural resources. Unfortunately, undeveloped resources are often found in remote regions. Today, China primarily moves goods and resources through the South China Sea. This route is notorious for pirates, friction between the neighboring nations, and patrols by US and Chinese warships.
China has taken the unprecedented step of building islands across the South China Sea (with airstrips and garrisons) to support their claims to this region. Still, China will not accept the risks of a single route. Their BRI partner, Russia, is working with China to provide access to a… ummm… less heated route, across the Arctic. As we will see a little later, when China needs a helping hand, partners can be a wonderful thing!
China is already the world’s largest manufacturer, but they have plenty of room to grow especially if poor countries develop and can afford to buy Chinese products. But for China’s exports to feed these growing markets, it needs access to new resources.
Africa has both mineral wealth and low-cost labor. However, England, France, America and earlier world leaders failed to exploit most of Africa’s wealth, because so much of it is inaccessible. Critical road, rail and port projects failed to obtain financing. China, however, is taking a different approach. Western banks looked at the financial returns on individual projects. China it is interested in the WHOLE Belt and Road initiative.
Individual projects may not be financially viable, but if that project fails other projects may never launch. Consider a complex engine. If just a single one cent ball bearing fails, it could stall or destroy a $1,000 engine. While it may be more than the market price, paying two cents for a superior ball bearing may be the best solution.
Hundreds of billions of dollars of BRI construction project will roll out around the world in just the next few years, but some projects will be in nations known for corruption. The projects may be successfully completed, but corrupt politicians and criminal organizations may skim so much money that loans go into default. This happened over and over again in Western-funded projects. Will China be any different?
Maybe. Consider Greece. They borrowed money that they could not repay and refused to follow a renegotiated repayment agreement. Greece was repeatedly condemned by the EU. When China offered financial assistance without condemnation, Greece eagerly accepted. Coincidentally, when the EU prepared to condemn China for human rights violations, Greece supported China and stopped the resolution.
Did I say coincidence? Sorry… typo. I meant to say a carefully developed strategy to block global organizations via financial incentives to the weakest nations. For example, rather than convincing Germany ($4 trillion economy) to change a vote on a critical issue, it is much more cost effective to ask Greece ($0.2 trillion). A vote from any EU member is just as good when you need to block an EU resolution, and there are many more small-scale deals that are possible when negotiating with a smaller nation. Recent business deals converted the Philippines from bitter enemy to firm supporter of Chinese territorial claims in the South China Sea.
The BRI requires tens of thousands of miles of roads and rail, plus scores of seaports. It’s going to take a lot of contracts to purchase train engines and vehicles, build repair shops, set up support services, etc. to keep the BRI running. How will these contracts be distributed among the 60 member nations, and the thousands of businesses they represent?
Western nations financed projects and took financial risks, it was assumed that they would also take the first (and largest) share of the returns on that investment. China will undoubtedly seek similar arrangements. An analysis of 178 Chinese transportation projects showed that when funding was international, local contractors received 41% of contracts, foreign contractors got 30%, and the remaining 29% were awarded to China. Pretty reasonable, right?
But when projects were solely funded by China, 7% went to local contractors, just 3% to foreign contractors, and China got a whopping 89%. Even with strong involvement by the World Bank and other international funders, we can expect China to be awarded 60% to 75% of the total contracts and dollars.
US citizens were frequent targets of opportunity during foreign political upheavals. In countries where the US paid local governments for development, where American corporations replaced local businesses, and economic change became revolution… Americas are an obvious target for reprisals. When Americans have major interests in unsettled areas, such as the Middle East, military bases are usually not far away.
China’s rise in global power has already coined a new term… “New Colonialism.” If China offers “Partnership” or “Colonialism” doesn’t really matter. BRI members will need to make room for, and report to, Chinese executives and consultants. In the least developed areas of Africa, hundreds of thousands of Chinese workers are likely to be needed. Soon after, Chinese built seaports will start to see the first warships docking among the container ships.
China has traditionally been a land power. If a political hotspot develops in Europe, newly built roads and high-speed rails will move Chinese troops from one end of Europe to the other in a few hours. But for Africa and parts of Asia, it takes sea power. Aircraft carriers.
Aircraft carriers are the pinnacle of sea power. With 10 carriers, America rules the waves. Russia? Just 1 small carrier. China? In 2012 they launched their first carrier, a rebuilt Russian ship. Last year, they launched a new Chinese built carrier. By 2020, China will have 4 carriers, the newest of which will be nuclear-powered. Outside of the US, that puts China heads and shoulders ahead of any European nation. Of course, if China needs to protect its citizens in over 60 countries, 4 carriers may not be enough.
In 2005, the American consulting firm Booz Allen Hamilton proposed the “String of Pearls” theory… where China expands its naval presence by building civilian maritime infrastructure along the Indian Ocean. These seaports could be dual purpose, handling warships as easily as supersized container ships. Compare the “String of Pearls” ports with proposed BRI members along the coast of the Indian Ocean. We have a MATCH! Which is undoubtedly a coincidence. Did I say coincidence? That may have been a typo.
Membership in the Silk Road Club is not free. China requires compliance with “good citizen” standards, including compliance with environmental standards based on protocols developed by Oxford University. Yes, THAT Oxford University. A pretty lofty goal for one of the most polluted nations on earth.
The BRI aims to expand the global economy, develop the poorest nations, and improve the environment. It’s hard to condemn these goals. However, everyone… every nation… must adhere to the principals of the BRI, which have yet to be developed. Yet, compliance is required to maintain your membership.
China’s President Xi Jinping has called this new stage in world government, “Globalism with Chinese characteristics.” But what happens when newly invited nations turn down a BRI invitation? Or when existing members want globalism, but without as many Chinese characteristics? If all Silk Roads lead to China, there may be no offramp on the BRI.