The New Silk Road

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Tracking the way money moves in the world today is one of those things. It is very important as it helps with making informed investment decisions as well as on a grander scale, gives a behind the scenes look at the way global politics is playing out in its most honest manner – global politics follows the money as commentators and analysts from Benjamin Cohen to George Shambaugh have to fervently strained. But the world is more or less broke with many countries being increasingly frugal with their spending even on their own local economies. We see just how apt this deduction is when we consider the economic relationships between the United States and China as one “go to” example. After so much borrowing to bankroll the middle-eastern invasion between 2002 to date among other projects, the US, heavily indebted to the tune of more than a trillion dollars to China, began making bad trade deals that saw the country try to pay off debts, not with money, not with more bonds, not with gold, but in whole industries and jobs leaving the US to China. The trade deal agenda was one of The Donald’s biggest selling points in his election campaigns and his evident disposition for economic protectionism between the US’ economy and that of the rest of the world is beyond breaking news. As remarked earlier, the world is broke and literally living on credit, but when a country decides that in 2017, it intends to spend $1.3trn (almost a tenth of the US GDP – $18tr (approx.)) to reopen a trade route that was famous from around the ancient to medieval periods all but out of the goodness of their hearts and to help people build more stuff for less, well then…

The old Silk Road consisting both land and sea routes existed between 120BC and as recently as 1450AD. Its main purpose was to allow the commercial passage of consumer goods mainly silk for tastefully expensive clothing from which the historical route would be named, between mainland Asia and as far as Somalia and Rome. The Silk Road is arguably one of the biggest reasons why philosophers like Confucius were known and quite popular in faraway Europe as in addition to silk; horses, spices, religions, diseases and philosophical beliefs were also traded.

Alongside India, the Chinese economy has been one that has seen tremendous progress in recent times. The strides made by the Chinese in capitalising on their population advantages and increasing their productivity has seen the GDP per capita swell from $132 in 1962 to $6497.50 in 2015 and average income per capita increasing from around $3,600 as recently as 2006 to almost $10,000 in 2015. Even as the US continues to decry the “problem” of “unfair” trading as the costs of labour and production of goods in China remains around a fraction of the value in the US and the Chinese’s tendency to arbitrarily manipulate the value of their currency, the Chinese have not slowed down in their role of being the world’s chief manufacturing station. This has seen the Chinese government pull an astounding 82% of its population out of poverty between 1981 and 2012 when the population of China living above the poverty lines of $2 daily is considered. However, while researchers like Jose Montalvo and Martin Ravallion in collaboration with the World Bank argue that the bulk of the progress was owed to agricultural reforms from which much of the rural and poor parts of China may have profited, other commentators like Tim Marshall have analysed the situation in China regarding their role as global producers, adding that this situation hangs on a delicate balance; in essence, China has said to the world: “give us your stuff to produce, we will do a very good job and we will make it very cheap”. Comparing the two sets of thoughts, the springing out of poverty may be linked to two different economic sectors; primary (agriculture) and tertiary (services industry), the rates of development and the changes in economic determinants would however suggest a combination of these factors and a strict discipline in socio-political/socioeconomic organisation.  But for everyone who gets one of these tertiary sector jobs in China, someone elsewhere very likely loses theirs and as the global economy continues to be more protective of their own ability to produce consumer goods of good quality while abiding by labour laws that the Chinese and many other Asian countries more or less disregard, the rates of growth of the Chinese economy faces very strong spells of uncertainty that have to be proactively tackled effectively and quickly as an unemployment crisis in a country with a population like China may have serious imperatives for Asia and many other countries in the world.

The $1.3tr New Silk Road has been explained by the Chinese to be some sort of investment in linking China with most of other Asian countries on the way to Western Europe and along the way, they seek to provide services of infrastructural development. But one country spends around a tenth of the GDP of the United States just to build a road to a destination, how much exactly do they stand to gain on arrival? Perhaps, the investment is sort of future jobs markets claims for the Chinese labour force by their government. Looking at the routes the Old Silk roads takes, China has been strategically located in such a way that westward reaching land and sea trade routes can be structured to pass through virtually every Asian country as well the old eastern European bloc on the way to the West excluding only Japan and Korea – unfortunatley. Setting up shop at virtually every stop from Beijing to London with personal funds and no assurances of economic integration may be what China seeks to build to ensure that she can keep her people busy for the long-term.

On another slightly more sinister hand that may require some time to be proven given the current atmosphere of world security with the US looking to put down more of its global security burdens, there is the possibility of China being in it for military expansion.

The Chinese have come a long way from being the country that was militarily embarrassed by the Brits in Opium Wars of 1856 that marked their famed “Century of Humiliation”. Boasting both powerful allies on practically every side of the global power discourse as well as deep personal pockets and astonishing technological innovation, the development of the Chinese military has also seen tremendous progress; enough that they have gone toe to toe with the almighty US (air and naval) in confrontations on the much disputed South China Sea and with Taiwan. With the current cutbacks on both military spending from the Americans as well as the leadership role they play when NATO is considered, an understandable vacuum is being created from Washington’s insistence that Europe especially and some of the US’ wealthier Asian allies like Japan and South Korea, increase their defence spending. While this has been met with a bit of western reluctance, the situation on the east is strikingly different with Russia and China; having a seeming equivalent of the relationship between the US and the UK, teaming up with the infamously trouble making, nukes wielding North Korea and others like Iran who have been deemed misfits and outcasts by the west. Within this eastern caucus, the responsibility of military expansion for the region and its allies, lies almost entirely on the Chinese as any form of westward movement by the Russians would rekindle the old Soviet animosities and may spark a new spout of conflicts even when the expansion is within states allied with the Russians (i.e. Kazakhstan, 1974; Crimea, 2014). Other than Russia, while North Korea is stunted economically and at the brink of war with practically every western power; Iran seems to have had their hands full for a while with dealing the ISIS situation to their north as well as living under the US led economic sanctions placed on them by the UN in respect of their involvement in developing a weaponised nuclear capacity. The rest countries that may be possible participants are either both economically and militarily not strong enough to contend on a global scale and this leaves China. Although the Chinese would tread carefully, making efforts to turn a few of the western allies especially those like Vietnam and The Philippines permanently in favour of the east, while renegotiating existing deals on loans and credit with countries like Sri Lanka and Laos as well as promises of increased protection, economic and infrastructural development on all sides is very likely to be expected and in return, military bases belonging to China and stationed to “protect economic interests” would be expected. The real question here most likely would be: which would be the first central – western European country to join the rising eastern powers. However, while the above stated reasons may hold true, military expansion is usually a means to a grander goal. The US used military expansionism to quell the rise of communism after WWII and retained most their bases in and around Eastern Europe and the Middle East to check the movement of the USSR and later, terrorism and conflicts within the Arab/Middle Eastern bloc. As for the reasons why China would see military expansion as a necessity at this point in time, other than protecting economic assets, entertaining spreading communism once more would be quite far-fetched. Farfetched it might be but perhaps accurate non the less.

The US and the western supremacies that were, seem to have reached the heights of their powers; any further attempts at forcing a retention of global influence might see them spread too thin to be of any effect and as such, the world may be thought to be at another pivotal point in history. Much as the US spread the gospel of capitalism much to the demonization of other forms of governments (not limited to communism) after WWII, the Chinese might be leaders at the point where it is their turn to suggest the paths that the global future might consider following. The self-acclaimed Communist Chinese government have made their system work in a new way at a period where global faith in the practise of US styled capitalism continues to dwindle. Other than an audacious $1.3tr project to link China even more with the rest of the world and with India being projected to have a larger and stronger economy than the US by 2050; other than the world’s largest military further increasing capacity and budget by almost a half million personnel and $150bn respectively, perhaps military expansion is not it. Maybe it was just the US’ claim to becoming a global superpower and the Chinese are looking to do things a bit differently. Rather than building military bases and taking power by “not” force, they intend to trade goods and services no matter how small until they attain global superiority. Perhaps, this is just what power changing hands from the west to the east, looks like.

Third and probably most importantly, China may be planning to use this investment as some sort of economic pre-emptive strike on a Europe that has been almost desperate for Chinese cash for years.  The Chinese already boast an impressive $3tr investment in European ports as just one sector. In recent years, the Chinese have been responsible for the largest share of investment in the American property market without going into details of Chinese exports into these regions. However, all this money being raked in by China puts some economic on them pressure from Europe especially as calls for opening up the very tightly regulated Chinese market continues to persist. The Bilateral Investment Agreement (BIA) between Europe and China which has been in the works since 2008 is the go to policy when economic relations between the two regions is concerned. Trade and investment between China and the EU have understandably been tagged as a potentially successful venture with strong long-term prospects. However, while foreign direct investment from the EU into China only makes up around 5% of European investment abroad, this meagre figure may be linked to the regulations surrounding trading in the Chinese market. A move like the new silk road might bring some new economic vigour to the lesser well off countries of Eastern Europe especially, it may also be thought to be indicative of China’s confidence in the projections for the future of international trading and the global economy at large. Currently, China’s investments in Europe make up around 3% of their global FDI, a bid to increase it such as this, is a bid to increase profit repatriation. The Chinese remain reluctant to open their markets up to international determinants even though and quite hypocritically, they remain active players in the markets of countries with lesser regulated and more open markets. This might simply be a move to draw as much cash from the regions on the route, seal up and finalise the BIA with the EU and use the cash earned through this policy to fund for the next 5-10 years, the “discomforts” the Europeans will bring along with their incessant moanings for a more open Chinese market. To the Chinese, the current system works, why would they want to change it? To every other major player, barring the fact that they ar erestricted by the campaigns for human rights and labour laws to which the Chinese are no party, it is an irreproducible model and maybe it works a bit too well. This makes China’s most reasonable option to spend big now to control possible future losses and cast an even bigger net for more even gains while realising that time is of the essence.

On the issues of a broader base for the deployment of environmentally sustainable practices specially regarding global warming for which much of the world is extremely concerned, China’s current position on the debate might mean well for the globe if it still remains a top issue for consideration among her political and economic policy makers. The NSR may see the injection of the Chinese’s vigour and commitment regarding the business of sustainability and transform them into prominent issues for consideration among the lesser developed countries of Asia as well as hasten the deployment of renewables technology around other countries of Eastern Europe and perhaps, by virtue of the proximity to the gulf regions, a considerable windfall as the project would command an extremely energy intensive developmental period.

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