China plans $90bn spend on new “Silk Roads”

Economic growth


Silk Road Nov14

I am just back from my first World Economic Forum meeting, having been invited to join its global chemicals council.  My first impression was astonishment – at the complete disconnect between the real knowledge of the experts at the Forum and today’s “consensus wisdom” .

China is a great example.  The external consensus still thinks the new leadership is focused on GDP growth, like its predecessor.  They expect it will soon do another stimulus programme aimed at propping up the housing market, and that it will then be back to ‘business as usual’.

But nobody at the Forum was expecting this to happen.  I spoke to large numbers of Chinese delegates, in all types of roles.  And they all regarded the last 10 years as having been largely a ‘lost decade’.  Even worse, it had created major problems of pollution and corruption which will take years to resolve.

Equally important is that President Xi Jinping has completely different ambitions for his leadership decade.  If you have a moment, please read my June post on Xi’s “China Dream” – I am even more certain today that his ‘Dream’ is critical to understanding China’s change of course.  More and more tangible evidence is emerging to support this argument:

  • On one side, house prices are now falling and lending reduced, as the government bursts the property bubble
  • On another side, the government has now announced a planned $90bn investment in new “Silk Roads”

These new “Silk Roads” involve a recreation of the major trade routes that used to run across Asia.  This time, as the map shows, Xi plans to extend them to Africa as well as Europe, via development of maritime and railway links to Berlin, Paris, Moscow, Rotterdam and Helsinki.  As The Diplomat noted earlier this year:

China’s ambition is to reclaim its place as the “Middle Kingdom,” linked to the world by trade and cultural exchanges.  Even the name of the project, the Silk Road, is inextricably linked to China’s past as a source of goods and information for the rest of the world.”

And, of course, they will no longer just be focused on silk:

  • Last month, China gave $50bn to the new Asian Infrastructure Investment Bank to help drive the project forward
  • Last week, it put $40bn into the creation of a “Silk Road Economic Belt” and a “21st Century Maritime Silk Road”
  • Yesterday, it announced plans for a cross-border eCommerce platform to boost trade on the Maritime Silk Road

This is yet another sign that companies and investors need to abandon any idea that China will blink, and revert back to the old ways.  Xi’s father, Xi Zhongxun, never blinked.  And I don’t believe his son will either – as I argued in March last year after he had taken office.

Instead, businesses need to refocus on the challenges and opportunities created by this change in direction.  The challenges are becoming more and more citical in the short-term, as we are already seeing with the collapse of oil prices, and the rise of the US$.



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