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China rising

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It’s a massive worldwide project. It spans more than 65 countries. It will cost over $US1 trillion. And it will redefine global trade. It’s being led by the Chinese and is the brainchild of China’s president, Xi Jinping. It’s quietly reshaping the world, but you probably haven’t heard about it.

In 2013 China announced what is arguably the most ambitious political and economic initiative ever undertaken by a single country. President Xi revealed plans to commence a vast program of infrastructure building throughout China’s neighbouring regions to create two new foreign trade routes. The stated aim is to connect major Eurasian economies through infrastructure and trade.

Known as the One Belt, One Road (OBOR) initiative, it’s reminiscent of the ancient Silk Road trading routes. The 21st century version is a combination of land-based and sea-based trade connectors. The “belt” is a network of overland road and rail routes (the Silk Road Economic Belt). The “road” is a network of ports and other coastal infrastructure projects (the Maritime Silk Road).

OBOR will see China build a web of infrastructure - railways, roads, ports, pipelines, bridges, energy systems and telecommunication networks - that will more thoroughly connect China with the economies of Europe, Asia and the Middle East as well as emerging markets in Africa. OBOR will also cement China’s influence among Pacific nations like East Timor, Fiji and Papua New Guinea.

If China’s massive transcontinental infrastructure drive succeeds, it will rewire global trade and create the world’s largest economic platform. Moreover, it will usher in a new world economic order. To quote The New York Times:

It (OBOR) is global commerce on China’s terms. Mr. Xi is aiming to use China’s wealth and industrial know-how to create a new kind of globalization that will dispense with the rules of the aging Western-dominated institutions. The goal is to refashion the global economic order, drawing countries and companies more tightly into China’s orbit.

The projects inherently serve China’s economic interests. With growth slowing at home, China is producing more steel, cement and machinery than the country needs. So Mr. Xi is looking to the rest of the world, particularly developing countries, to keep its economic engine going.

Some commentators have compared the OBOR initiative to the Marshall Plan. This plan saw America provide vast amounts of aid to regenerate European Allies after the Second World War and to insulate the Soviet Union. OBOR is said to be 12 times bigger in absolute dollar terms than the Marshall Plan.

In contrast to the Marshall Plan, OBOR is based on 21st century economic development, not 20th century Cold War alliances. China is spending hundreds of billions of dollars in the hope of winning new friends around the world, without requiring military obligations.

China’s OBOR initiative has been a widely discussed topic in geopolitics since it was proposed by President Xi. It’s a subject of hot debate and has both opponents and supporters. Critics see it as a massive expansion of Chinese imperial power that will fuel the rise of a new Chinese empire. Enthusiasts contend that it will boost the economies of less developed regions and lift millions out of poverty.

Reality, as is typically the case, lies somewhere in between. My sense is that China is using her financial clout to help poorer nations become wealthier so that they can buy Chinese products - an apparent win-win. But nations do not want China’s funding at any cost. In November, Pakistan and Nepal both pulled out of deals to build dams with China because of disagreements over the terms of the deals.

Over the past three decades, China has undergone an astounding transformation. It has gone from an inward-looking nation mired in poverty to an emerging superpower that rivals the US. China achieved this status by becoming an industrial powerhouse via low-cost manufacturing producing toys, apparel, electronic goods and textiles for the world. Now it is morphing again, this time from the world’s factory to the world’s builder.

China is expected to pass the US economically in the next decade. As well as soon boasting the world’s biggest economy, China may also be able to claim that it has encircled the world thanks to the OBOR. Significantly, China’s rise to global pre-eminence will be a peaceful one, without bloodshed.

Some argue that China’s growth strategy is based on the philosophy of the ancient Chinese strategists, Sun Tzu. His 1500-year-old text, The Art of War, is a paradox. Despite its name, the book teaches how to avoid conflict and win battles without fighting. This makes modern China a harbinger of world peace.

At the recent world economic forum in Davos, the contrast between America’s nationalist agenda and China’s global outlook was stark. Mr. Trump’s remarks focussed on encouraging inbound investment in the US while Chinese leaders proposed a new global economic system.

It’s hard to fathom how America’s global retreat will trump China’s great outward leap. It is President Xi, not President Trump, who is making his nation great. The global economic order is shifting and history will judge Mr. Trump harshly for closing off America’s economy from the world.

There will undoubtedly be many twists and turns along China’s belt and road. The journey will be challenging but the rewards great. My suspicion is that we will need to modify our language from “all roads lead to Rome” to “all roads lead to Beijing”.

Regards,
Paul J. Thomas, CEO

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CEO Paul Thomas