China Is About To Hold a Giant Meeting on Spending Billions To Reshape the World

China has rapidly climbed the ranks to become the world’s second-largest economy. In fact, China’s own economy is already significantly larger than that of the U.S. on the Purchasing Power Parity (PPP) estimates. While being the largest consumer of raw materials, China also exports more finished goods by value than any other country. But it isn’t content to stay second fiddle. Indeed it seems the “sleeping giant” is just starting to wake up as this most populous nation on the planet—flush with cash after decades of rapid growth—is continuing to build its “One Belt, One Road” (“OBOR”) infrastructure. I have spoken frequently with F. William Engdahl on my radio show about this development. But the western media have paid little attention to this “new silk road” until now. A recent interview on CNBC provides some very good information about this development, which you can watch here:

China’s CRRC ‘achieved success participating in the One Belt One Road initiative’: Chairman   Monday, 8 May 2017 | 8:59 PM ET | 03:50

Most of what you read below has been picked up from the CNBC link set out above.

The One Belt, One Road policy is connecting Asia, Europe, the Middle East and Africa to bolster trade and development. In fact, this weekend, hordes of foreign diplomats and business leaders are expected to descend on Beijing for a two-day meeting about the policy.

What is “One Belt, One Road”?

President Xi Jinping first announced the policy in 2013; it was later named one of China’s three major national strategies, and morphed into an entire chapter in the current five-year plan, to run through 2020.

The plan aims to connect Asia, Europe, the Middle East, and Africa with a vast logistics and transport network, using roads, ports, railway tracks, pipelines, airports, transnational electric grids and even fiber optic lines. The scheme involves 65 countries, which together account for one-third of global GDP and 60 percent of the world’s population, or 4.5 billion people, according to Oxford Economics.

Why does China want to do this?

This is part of China’s push to increase global clout—building modern infrastructure can attract more investment and trade along the “One Belt, One Road” route. It could be beneficial for western China, which is less developed, as it links up with neighboring countries. And in the long run, it will help China shore up access to energy resources.

The policy could boost the domestic economy with demand abroad, and might also soak up some of the overcapacity in China’s heavy industry, but analysts say these are fringe benefits.

It’s clear China wants to wield greater influence—Xi’s speech in January at the World Economic Forum in Davos touted the benefits of globalization, and called for international cooperation. And an article by Premier Li Keqiang published shortly after also called for economic openness.

How much is China spending?

Most of the funding is coming via China’s policy and commercial banks, though there is no official data on OBOR projects and spending estimates vary.

In 2015, the China Development Bank said it had reserved $890 billion for more than 900 projects. The Export-Import Bank of China announced early last year that it had started financing over 1,000 projects. The China-led Asian Infrastructure Investment Bank is also providing financing.

China’s big four state-owned banks are estimated to have extended $90 billion in loans to OBOR countries in 2016, according to analysis by Oxford Economics. And Credit Suisse estimates China could invest as much as $500 billion in about 60 countries over the next five years. The assumption is that these countries will be able to pay China back, and that lenders will know how to manage credit risk. This means the obvious challenge is that if these projects fail to deliver as expected, bad debts could create a strain. However, it should be noted that China has very wisely kept western banks largely out of its economy, thus avoiding the downfall of other nations in Asia (think Asian crisis), Latin America, and elsewhere that have allowed foreign banks to enter their markets with venomous dollar loans. When their economies blew up, the Anglo American Empire stepped in to gain greater and greater control over their political economies. 

What OBOR projects have already launched?

Plenty have launched thus far, including a 418-kilometer rail link with Laos, and a collection of infrastructure projects totaling $46 billion, named the China-Pakistan Economic Corridor. A freight train service is linking China and Europe. And China and France are jointly developing the $24 billion Hinkley Point nuclear power plant in the U.K.

China’s state-owned enterprises and private companies have long invested abroad. In some ways, experts at research firm IHS say the OBOR initiative is simply smart branding for what China was already doing. At the same time, this is Beijing using its political might—China announcing with a bullhorn its support for investment abroad could help grease the wheels to get deals and contracts through faster. 

Who benefits?

Much of the projects heavily involve China’s state-owned enterprises, from oil & gas companies to railway construction—think oil firm Sinopec, rail car manufacturer CRRC and utilities like State Grid. Analysts say foreign construction machinery companies are also poised to benefit. Other major foreign companies including General Electric and Siemens have made clear they’re targeting participation in OBOR projects.  In the long run, “OBOR could boost internationalization of the renminbi by encouraging its use in both trade and financial transactions,” wrote Tianjie He of Oxford Economics.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.