Today’s world seems to have become obsessed with China like never before - as an indifferent bystander you may wonder what all the fuss is all about. It was long ago in the end of the eighties that, we had written off the Communist ideology with the collapse of the USSR. What has changed since then, is that away from the spotlight, the Chinese economy, prodded ahead for years as the world’s factory, growing, steadily but surely into a world power.
Let’s be clear that despite all the progress, the ordinary Chinese, are still way behind their counterparts, however their emergence from being mainly a peasant working class is looking nearer.
Like any other autocratic leadership, the Chinese Communist party, which last year celebrated its 70th year in power, knows that to avoid popular unrest, it needs to provide a certain level of stability and wellbeing to its people. In this aspect, it has taken enormous strides in ensuring economic stability, some level of crackdown on corruption and a decent level of improvement in the lives of the Chinese.
However, at a point or another it should have dawned on the Communist leadership that, driving a nation of over one thousand four hundred million people to a western level standard of living, is going to require them to look beyond their borders.
Enter the Belt and Road Initiative (BRI) also dubbed as the new Silk Route. Based on the romantic idea of the trade route traders from Europe and the Arab world took centuries ago, to trade with the Chinese, who were back then considered as a major trading power, in this way China is trying to re-imagine this concept for the 21st century.
This project serves two fronted objectives for the Chinese. The first is that, through such a project it would significantly increase trade with the nations involved, and secondly, giving the Chinese a lever in terms of soft power that it could wield on other countries. So, what does the BRI initiative entail? This can be broadly described as large-scale infrastructural projects, financed by China, in countries which have signed an accord with China. These are financed, mainly, through loans, and partially as equity.
In terms of numbers, since its launch in 2013, these are staggering. It is estimated that China has already spent $200 billion in these projects, with the targeted expenditure set to reach $1,300 billion by 2027. The initiatives centre mainly around transportation and logistics, with the objective of increasing connectivity.
This entails the construction of ports, rails, roads and airports. These are followed by energy which entails power stations and its eventual distribution, together with telecommunications and water and sanitation. Looking at the history books, it is noteworthy to remember that, the last time an international spending in infrastructure of this scale was last undertaken was by the US through the Marshall Plan, after World War II, which entailed the reconstruction of Europe. That effort had resurrected a continent which was basically bombed into the stone age. International critics have long been arguing that the world needs further infrastructural spending if it is to break away from the current global growth stagnation.
This time it is China taking the lead, which continues to re-enforce the coming of China to the world stage. Despite that, in recent years investors have shunned or held back from investing in China, due to the different sources of uncertainty which include the trade war, outbreaks of deadly viruses such as the Sars and more recently the Coronavirus and a general cloud of skepticism, there is no ignoring the elephant in the room. China, within the Emerging Market sphere, offers a source of diversification and a much-sought stream of yield, in a world dominated by sub-zero returns.
Disclaimer: Daniel Gauci is a financial advisor at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, views and opinions provided in this article are solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.