In 2013, China announced what is being seen as the "Project of the Century", its
One Belt One Road initiative, otherwise known as the New Silk Road.
Their plan is to connect China with Europe, Africa and South East Asia through two routes
across land and sea. Since its announcement, it has grabbed many
headlines, including speculation about what the true ambitions of this project are.
As this is a project that could potentially lead to as much as $8 trillion in investment
for infrastructure in 68 countries, or in other words, 65% of the global population
and a third of global GDP, this is clearly a project that is important to understand
when considering the global economic picture, including how this could potentially be used
to reduce the international dependency on the US dollar and bring more control to Asia.
In this video, we will provide a brief overview of the project, the expected outcomes and
what China may be attempting to achieve. This will give you the high level details,
to assist in your understanding of related economic headlines and future videos where
we will refer to more specific details of this groundbreaking project.
The One Belt One Road initiative focuses on connectivity and cooperation in three directions.
The West, involving West China, Central Asia, the Middle East and Europe; the East, involving
Southeast Asia; and the South, involving South Asia and Africa.
The priority will be given to Eurasia and Southeast Asia, as the sea routes are expected
to be developed later. This is in part due to China's relative disadvantage in building
sea routes and potential opposition from other countries.
The plan is expected to take 30 to 40 years of development, with the year 2049 being touted
as a potential major milestone, since this is the 100th anniversary of the People's Republic
of China. Although China has not published a comprehensive
list of all related projects, possibly so they can remain vague about the plans and
include any future projects they desire into it, there are some flagship projects already
being discussed. These include a $46 billion China-Pakistan
Corridor, a 3,000km high-speed railway connecting China and Singapore and gas pipelines across
central Asia. As mentioned at the start of the video, according
to McKinsey, the total investment could reach as high as $8 trillion for infrastructure.
The China Development Bank has already set aside almost $900 billion for over 900 projects
and China's big four state owned banks issued loans last year of $90 billion to the economies
related to the initiative, including those in Central Asia and Africa.
It is estimated that 50 Chinese state owned banks have now invested in nearly 2000 projects.
In fact, just today it was reported that the focus had now shifted to European banks and
investment firms to tap funds and expertise.
So as we can see, this is an extremely large-scale investment and development project, which
will be providing a lot of financing to economies that would usually not receive such high levels
of foreign money. This can lead to many investment opportunities and shifts in the economic landscape.
But why are China willing to do this?
Due to their large emphasis on certain industries and government intervention in the economy,
China now faces the issue of extreme overcapacity in certain areas. This includes sectors such
as steel and coal. The One Belt One Road project is an appropriate
solution to offsetting some of this overcapacity, as it provides them the opportunity to export
their materials, equipment and construction and engineering expertise.
In addition to this, the improved connectivity will lead to a major boost in trade across
Asia, Europe and Africa. As well as improving the growth in China's underdeveloped provinces
thanks to the improved transport links.
Although China's official position is that there are no political strings attached and
that this project should not be seen as a political alliance, there are clearly some
geo-political implications and it's fair to assume the investment in these economies will
have conditions of some form. Firstly, China will be using its foreign reserves
to finance international infrastructure projects, which will be leading to less of a dependency
on the US dollar. Something that has been a key theme for a while.
It will also give them exposure and potential control over resources from Central Asia,
which may be up to 40% of the global total. This is very different to the approach used
by the US, which follows a strategy whereby the US will offer security to its allies through
its military power and will protect them against threats. However, this approach comes at a
high financial cost, which China will be avoiding by becoming closer with aliies through physical
connectivity. Therefore improving China's control and influence
over these important regions.
As mentioned, these political intentions are not publicly announced and China has instead
chosen the route of being seen as a champion of globalisation. Something that comes across
as clearly opposed with the US's more protectionist approach recently, with Donald Trump's view
on international trade agreements, including his withdrawal of the United States from the
Trans-Pacific partnership. While prominent figures such as Mario Draghi, publicly suggesting
the threats of taking a protectionist approach. This space allows China the room to grow into
more of a global superpower.
We expect this project will remain in news headlines for the coming months and years.
However, it's yet to be seen how this scenario will develop.
With this brief overview of the initiative in mind, we will be making reference to this
project in future videos and delving deeper into the economic and investment implications
of this huge development. This is obviously a very complex initiative with many possible