The People's Republic of China, the country that aspires to become a superpower capable
of emulating and rivaling economically and militarily the United States of America itself.
A country that over recent decades has experienced tremendous growth and has become nothing less
than the great factory of the world.
But we are not only talking about the economy!
Now China also wants its geo-political role.
Yet VisualPolitik viewers, lately, Xi Jinping's regime has been in the soup.
It doesn't matter if we are talking about Ukraine, Iran, Venezuela, Brazil or the South
Pacific.
This country is constantly making headlines that almost always have one common denominator:
The ambition to extend its influence throughout the world as quickly as possible.
Beijing has drawn up many plans to achieve this goal.
But so far practically all of them have always relied on one main ingredient: investment,
investment and more investment.
But you already know all that.
The important thing comes now, because at this point in time suddenly things might be
starting to change.
Why?
Well, basically because the Chinese economy is basically going through a rough patch:
they have a real estate bubble about to burst.
Foreign companies are increasingly distrustful of this country and... its GDP growth is not
what it used to be.
True, this year they may seem to be bouncing back, but this is due to the reopening of
the country after their Covid-Zero policy.
To make matters worse, many of the investments that China has made in the rest of the world
are now falling through.
Have you heard about the New Silk Road?
The Belt and Road project?
Well, that's exactly what it's all about.
It is one of the most ambitious infrastructure projects in history and Xi Jinping's biggest
gamble.
It was announced with great fanfare in 2013, that is, already a decade ago.
So the question is: What result is Xi Jinping getting from his most ambitious project?
Is the future of the New Silk Road threatened?
Why is China devoting tens and tens of billions of dollars to bailing out other countries?
Well, pay very, very close attention because this is the flip side of the grand headlines
that China has been giving us over the last few years.
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you already know what the New Silk Road is.
For those who don't know, here's a summary: in recent years, Beijing has invested and
plans to invest a fortune more in building all kinds of infrastructure: ports, roads
and bridges all over the world.
This is in order to extend its tentacles all over the world and become the epicenter of
the global economy.
We are talking about a catalog of projects including pharaonic works such as this one.
(Pakistan approves railway upgrade worth $6.8bn.
The project is part of the multibillion-dollar China-Pakistan Economic Corridor (CPEC) agreement.
China plans to spend $60bn on infrastructure projects in Pakistan.
– Railway-technology)
(China mulls 7,000 km bullet train to connect Beijing and Moscow.
– The Hindu)
This is a gigantic gamble, full megalomania with which Xi Jinping wants China to regain
the greatness of the ancient and powerful Chinese Empire.
To give you an idea, between 130 BC and 1450 AD, the Silk Road was positioned as one of
the most important trade routes in the world.
The flow of goods to and from China came to set the geopolitics of the time.
The old silk road boosted diplomacy, spread religions and benefited and promoted the expansion
of the Roman Empire, the Byzantine Empire, the Persian Sassanid Empire, the Kushan Empire
and China’s own Tang dynasty.
However...
every great story has a great ending.
(At the beginning of the 15th century, the Ottoman Empire boycotted trade with the West,
which led to the closure of most of the trade arteries that formed the historic Silk Road.
This circumstance forced the emerging European powers to look for new ways to reach Asia.
Do you remember that Christopher Columbus arrived in the Americas looking for a new
route to the Indies?
Well, now you know why.)
Of course, when Europeans discovered America...
Everything changed.
Suddenly, the Atlantic sea route became fashionable and the Silk Road lost all its importance.
However, in 2013, Xi Jinping decided to raise it from the ashes.
The Chinese giant was returning to the global stage after centuries of lethargy.
But what exactly is Xi Jinping's plan?
Well, we are about to find out.
FROM DISCRETION TO GIGANTISM)
The new Silk Road has positioned itself as the spearhead of the new Chinese expansionism.
However, the origin of this idea was totally different.
The project was born in a very narrow way, as a way to boost inter-Asian trade.
Check it out.
(7 September 2013: China proposes the recovery of the Silk Road in a visit to Central Asia.
– El País)
("In order to strengthen economic ties and cooperation, and expand the development space
of Eurasian countries, we can implement a new model by creating the Silk Road economic
corridor.
– Xi Jinping)
The Chinese leader made the first mention of this plan in the middle of a trade agenda
with Kazakhstan and Indonesia.
Therefore, the plan was "born" with two parts: the new land route and the maritime route,
the so-called String of Pearls.
In any case, the project was limited to very specific and defined initiatives for promoting
trade.
However, the interest that was immediately aroused in many countries made Beijing realize
the enormous potential of this gamble: the plan seemed simple to carry out, provided
jobs for Chinese companies and would strengthen trade with China.
But that's not all!
For a lot of countries, this project was an opportunity to get money from China.
A line of governments ready to roll out the red carpet for Chinese capital immediately
formed.
And so, in 2017, Xi Jinping upped the ante.
Suddenly, it was no longer something limited to Asia but to the whole world.
He opened six major corridors and described it as "the project of the century".
(Since then, projects have multiplied to build mainly transportation, energy and telecommunications
infrastructure, although hospitals, educational centers and other projects of a more social
nature are also being considered.
In all cases, China finances the works in exchange for the construction, as a rule,
and sometimes also the management falling to Chinese companies.
In return, the recipient countries are expected to be more receptive to the Asian giant's
foreign policy, for example with regard to clashes with Taiwan or the United States).
Do you want an example?
I'll give you one.
Energy.
China is promoting all kinds of projects, especially non-conventional energy.
And above all, it has financed or is financing 44 projects to build coal-fired power plants.
Then they are also building thousands of miles of roads and railroads.
And do you know what?
This already gives us some important clues: Conventional energy sources?
Basic infrastructure?
Exactly which countries need these investments?
Well...
Listen up.
TELL ME WHO YOU HANG OUT WITH AND I'LL TELL YOU WHO YOU ARE)
Here comes a key fact for Beijing: Almost half of the countries that are part of this
initiative are low-income countries.
In other words, a large part of the developing economies are on board.
For example, 43 countries in sub-Saharan Africa have joined the project.
And why is this important?
Well, because we are talking about countries – and especially governments – with relatively
few resources that may find it very difficult to access capital for financing large projects.
And that's where China, Xi Jinping's huge Credit card and what we know as "sugar daddy
diplomacy" comes in.
The West won't give you the money?
Don't worry, Papa Xi Jinping will take care of everything.
And what does he ask for in return?
Your political loyalty.
Well, your political loyalty and also business.
You don't believe me?
Well, look, in 2020, when China brought out the National Security Law in Hong Kong, out
of the 53 countries that signed a statement of support for China at the UN Human Rights
Council, 25 were African.
And three other major countries: Nigeria, South Africa and Kenya, although they did
not support it, did not join the criticism against Beijing either.
It is what many have come to refer to as the Debt Trap strategy.
That is, China promotes these countries getting into debt up to their necks so that they become
completely dependent States.
Practically vassals.
Be that as it may, this is what the map of the new Silk Road currently looks like.
China is already joined by countries that account for more than a third of the entire
global economy.
Take a look at this map.
However, one important note: lately the collaboration of many European countries is in danger.
Why?
Well, in our Patreon bulletin we have already told you recently about the political crisis
that China has unleashed because of its persecution of Lithuania.
If you want to support us and at the same time receive extra content, you have the link
in the description.
But let's not get sidetracked.
Up to this point, everything looked very good: China has agreed to move forward with joint
investments with about 140 countries.
That’s 140 countries that now have a much closer relationship with and much greater
dependence on Beijing.
And, keep in mind, this is perhaps the most important and revealing part of this whole
story:
According to Freedom House's political and civil liberties ranking, the countries with
the lowest scores are the most likely to associate with China.
No less than two thirds of all China's partners in this macro project are countries that score
very low in this ranking.
In other words: Beijing wants to form a bloc made up of countries that have a common pattern:
they are relatively poor, have few civil liberties and their democratic system is weak or non-existent.
Of course, most of the dictatorships that currently exist in the world are already on
board with China in that adventure.
To give you an idea, there are 57 countries in the world that are considered authoritarian
and "not free", that is basically quite authoritarian dictatorships where things like freedom of
speech or freedom of the press are not tolerated.
Of these 57 countries, 52 are actively participating in Xi Jinping's macro project.
Think of it this way: the less democratic a country is, the easier it is to win its
unconditional loyalty.
It is enough to convince the ruling elites and supply them with money and vanity projects
to win their loyalty.
This is the key to sugar daddy diplomacy.
And I know what you're thinking!
This all sounds evil and Machiavellian...
But it works!
Are we looking at the ultimate plan for global domination?
Or...
Maybe not?
Well, it's been a lot of years since China decided to become the sugar daddy of international
politics...
enough time to see some results.
Let's take a look!
THE FIRST SPANNER IN THE WORKS)
Including China itself, more than half the world is involved in one way or another in
this project.
In this sense, Beijing's gamble has paid off:
Almost all developing countries now have much closer ties with Beijing.
The problem is that not all of these countries have their finances in order.
What has come to be known as the debt trap is now in danger of becoming a kind of boomerang
for Beijing.
The policy of grow, grow, and grow at any cost has begun to stop working, both inside
and outside China.
We have already told you: the Chinese economy is going through a bit of a rough patch.
Check it out.
(Economic stimulus in China may worsen distortions.
– Reuters)
("Stimulus measures in infrastructure could raise growth over the projected horizon, but
could lead to a further build-up of imbalances and misallocation of capital, and thus lead
to weaker growth in the medium term" – OECD Survey of the Chinese Economy.")
Starting in 2016, the Chinese authorities began to do everything possible to reduce
the excess debt they had, especially SOEs.
However, things did not work out and in 2019 the outlook started to become more complicated.
(In November 2020, a series of high-profile state-owned enterprise defaults sent shockwaves
through China's corporate bond market into the financial system [...] In February 2021,
the People's Bank of China withdrew interbank liquidity, leading to a significant increase
in interest rates.
– BBVA Research)
This is something that is not often mentioned, but both regional and municipal governments
and China's own SOEs are completely addicted to debt.
They are leveraged to the hilt.
In fact, the amount of debt already accumulated by the Chinese economy is very high.
Yes, being the world's factory and having a relatively competitive private sector gives
you certain advantages, but the truth is that China's public finances are in worse and worse
shape.
And, take note, because although the national government's debt is apparently low in official
statistics, the problem is camouflaged in the balance sheets of public enterprises.
And that is something that is causing more and more concern.
Not only that, but it also means that it is no longer enough to call on debt and spend
more and more in order to meet the government's annual economic growth targets.
In part, precisely because of this, China's economic growth has been slowing in recent
years.
And that's not all, since 2018 corporate bond defaults have grown exponentially.
("The main problem with a rapidly increasing corporate debt burden, even if SOEs are the
ones taking on debt: is that significant amounts of new credit must be used to service older
debt, so that each yuan of new credit no longer generates the same economic activity as in
the past.
– Grasping Shadows: The Politics of China's Deleveraging Campaign (Rhodium Group, April
2023))
The problem is so immense that, to give you an idea, the interest on the debt issued in
China already exceeds the country's economic growth.
So naturally, if the economy grows less, then the debt burden increases, which in turn punishes
growth and it's back to square one.
But, okay, the question is, but [Name of Host] What on earth has all this got to do with
the Silk Road?
Have we lost our minds and suddenly changed the subject?
Well, obviously not.
The problem is that in the last decade, China has sustained its economic growth by getting
deeper and deeper into debt.
That is to say, by carrying out huge macro-projects that have created an investment bubble in
the country that is not generating the expected benefits.
In fact, quite the opposite, now they have to start paying for the party.
And do you know what?
That is very similar to what is already happening in many of the countries that happily joined
the new Silk Road project.
Pay very, very, very close attention.
RAISE A CROW AND IT WILL GOUGE YOUR EYES OUT)
With the New Silk Road, or the "One Road, One Belt" plan as it is formally known, money
started flowing in big time.
China sent a huge flood of dollars.
The problem?
That, when it comes to recouping those debts, the money is just trickling in.
In other words, many of the countries that received Chinese investment are now unable
to meet the debt payments they had agreed to, which is forcing the Chinese government
to bail them out.
Yes, yes, that’s right, to rescue them.
And, the problem is that the game is already getting too expensive.
According to a recent study by researchers from AidData, the World Bank, the Harvard
Kennedy School and the Kiel Institute for the World Economy, China has had to bail out
almost $100 billion in debts between 2019 and 2021 alone.
In total, we are already talking about $200 billion in bailouts to countries such as Angola,
Pakistan, Venezuela, Sri Lanka and Sudan.
But wait a minute because this is not the worst of it!
All these loans were to build infrastructure.
But in countries that are so corrupt and so poor, the money quickly disappears in bribes
and cost overruns.
Many of these infrastructure projects have not been used to build anything that works.
Not surprisingly, more than one dictator has struck gold with Daddy Xi Jinping's money.
And we are not talking about one or two projects.
Check it out...
("Thirty-five percent of the Belt and Road Initiative's infrastructure project portfolio
has faced serious implementation problems, including corruption scandals, labor violations,
environmental risks and public protests."
Aidata, Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese
development projects).
Now, does this mean that the new Silk Road will become history?
Well, it does look bad, but for now all we can say is that it is in trouble.
Of course, China will just have to grin and bear it.
EVERY CLOUD HAS A SILVER LINING)
For the first time since the start of the 21st century, China is facing a sharp economic
slowdown.
The investment bubble it has created at home and abroad could be about to burst.
However, wait a minute, there is something disturbing about the conclusion of the research
mentioned above.
According to this study, China's current crisis may be part of its competitive maturation
against the US:
This study literally states the following:
("We see historical parallels with the time when the United States began its rise as a
global financial power, especially in the 1930s and after World War Two, when it used
the US Ex-Im Bank, the US Exchange Stabilization Fund and the Fed to provide bailout funds
to countries with large liabilities to US banks and exporters.
Over time, these ad hoc US activities became a proven system of global crisis management).
In other words, China could learn how to deal with problems with its investments in these
countries and develop the necessary mechanisms to manage them.
That could be a very valuable tool for boosting its economic and financial relations with
all these States.
Of course, there are many differences: after World War Two, the US economy was booming;
we cannot say the same right now for China.
And that's not to mention that Xi Jinping's regime is a harsh dictatorship.
And if there is one thing dictators know for sure, it is that they cannot trust many of
the other satraps, that is why in the end they all take their money to the United States.
Be that as it may, the truth is that the new Silk Road has become yet another huge headache
for Beijing.
The question now is, do you think China will be able to deal with all these problems?
Can it finish this macro project that’s turned into a huge budget gap?
Is this the end of Xi Jinping's big dream?
Leave us your impressions in the comments and let's open a debate.
And now, if you found this video interesting, don't forget to like and subscribe to VisualPolitik
if you haven't already done so.
All the best and see you next time.