The breathtaking sweep of the New Silk Road initiatives

First, look at this graphic to view the vast geographic sweep of the New Silk Road. Now let’s consider that hundreds of billions of dollars are being loaned to poor countries that can’t repay them, and where 40 year loans with no amortization for 10 years get interest rates of 2-3%. Reuters:

Behind China’s trillion-dollar effort to build a modern Silk Road is a lending program of unprecedented breadth, one that will help build ports, roads and rail links, but could also leave some banks and many countries with quite a hangover. At the heart of that splurge are China’s two policy lenders, China Development Bank (CDB) and Export-Import Bank of China (EXIM), which have between them already provided $200 billion in loans throughout Asia, the Middle East and even Africa. They are due to extend at least $55 billion more, according to announcements made during a lavish two-day Belt and Road summit in Beijing

In Indonesia, CDB has offered a 40-year concessionary loan, without asking for government debt guarantees, to finance 75% of the $5.29 billion Jakarta-Bandung Railway, Indonesia’s first high-speed railway and a model infrastructure project for China’s Belt and Road effort. The loans carry a 10-year grace period. A 60% portion is denominated in U.S. dollars carrying a 2% interest rate, and the remaining 40% calculated in Chinese yuan, carrying a 3.4% rate, according to a note by Bank of China International.

Forty-seven of China’s 102 central-government-owned conglomerates participated in 1,676 Belt and Road projects, according to government statistics. China Communications Construction Group alone has notched up $40 billion of contracts and built 10,320 kilometres of road, 95 deepwater ports, 10 airports, 152 bridges and 2,080 railways in Belt and Road countries.

Industrial and Commercial Bank of China participated in 212 Belt and Road projects,
providing $67.4 billion in credit in total, Chairman Yi Huiman said on Monday. Bank of China plans to offer $100 billion in credit to such projects by year-end.

For Laos, one of Asia’s poorest countries, the $7 billion cost for the China-Laos railway was more than half its 2015 gross domestic product. Its concessionary loan from EXIM was set below 3% interest.

The Reuters piece notes that China is owed $65 billion by Venezuela, but this situation is different because of the connectivity of the parties via the New Silk Road itself. National Interest:

Chinese ambitions now go far beyond just clearing a trade route. Beijing is building a naval base in Djibouti to help overwatch its expanding global network. The Chinese are also shifting resources into their “gator navy”—a mix of maritime forces that could potentially be deployed to protect their sea lines of communications. Meanwhile, China continues to expand its military influence into the Indian Ocean.

Put it all together, and it’s clear that China is shifting from a remote presence to (A) a neighbor whose sidewalk extends to Europe’s front door and (B) a significant player in the global commons that Europeans previously plied without much likelihood of ever crossing paths with a Chinese frigate.

“Beijing is pledging tens of billions of dollars of investment and aid and signing major cooperation agreements with everyone from the Republic of Georgia to Romania to Belarus, and in the process is gaining political influence and beginning to reshape the geopolitics of the region,” scholar Paul Coyer wrote in 2015, “This influence will come at the expense both of Russia and of the West.”

In 2012, Beijing initiated the “16+1 initiative,” a dialogue between China and central and eastern European countries. The “sixteen” comprise eleven member states of the European Union (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) and five Balkan countries (Albania, Bosnia and Herzegovina Montenegro Serbia and Macedonia). The initiative’s extensive portfolio encompasses “the fields of investments, transport, finance, science, education, and culture.”

Xi Jinping is taking advantage of historically low interest rates, China’s massive finance industry, and its breathtaking industrial overcapacity to create one of the major strategic initiatives of all time. How well it works in the long run remains to be seen, since, among other issues, the loans being made carry greater risk to China’s financial system, since they are outside the closed loop of China’s internal lending system. But for today, this looks like a brilliant stroke. Meanwhile, as Wretchard notes, “the West was busy guarding against the perils of climate change and politically incorrect attitudes.” Ugh.

3 Responses to “The breathtaking sweep of the New Silk Road initiatives”

  1. feeblemind Says:

    I have been thinking about this ‘silk road’ and the more I think about it the more dubious I become. Geopolitics is driving the development of the Silk Road and not economics. Infrastructure development by decree generally doesn’t work so well.

    1) As the Dinocrat well knows, ocean freight costs but a fraction of shipping over land.

    The argument is that China needs the Silk Road as a back up, but don’t forget the maintenance costs will be coming quickly on the heels of the completed projects. This project will have to pay its way or it will quickly become a financial bleeding ulcer for the Chinese.

    2) Their Silk Road traverses a perpetually politically unstable area of the world. Just keeping it open may become a problem in itself.

    3) For the trillions they are spending, why not put the steel industry to work and put a huge effort into a blue water Navy? With our Navy in decline, it is not out of the question that China could dominate the sea lanes to the middle east. $50 trillion would by a lot of boats for anyone’s Navy. If they can control the sea lanes the Silk Road is redundant.

    4) The power and influence China hopes to gain can only be sustained if they continue to hurl money at the countries being traversed by the Silk Road. If the money runs out the loyalty and influence may well run out as well.

    I understand that at least in the short run this works very well for the Chinese, particularly because it is helping write paychecks to Chinese workers which seems to be Beijing’s greatest concern.

    Long term, I don’t know, but then I seem to be a pessimist by nature.

  2. feeblemind Says:

    Wretch as usual is spot on with his comments about western leadership. While the rest of the world moves on they continue to wallow in self-absorption, living by The Narrative so they don’t have to see reality.

    I have my doubts that things can be turned around it time.

  3. Neil Says:

    I mostly agree with feeble. Big infrastructure projects like this must earn their way, once built, or they return to the dust from whence they came. A successful example is the transcontinental railways across the Western U.S. They could not have been built without the initial infusion of subsidies and graft (J. J. Hill notwithstanding). Truth be told, they spent much of the 1870’s and 80’s in a poor state of repair and most of them went bankrupt. But ready transportation allowed Americans to develop the territory, and the railroads flourished.

    The New Silk Road will run through some of the most economically barren land in the world. The land is not barren because it lacks resources, it is barren because the cultures which reside there do not develop the land. Will the new infrastructure change that? Or not?

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