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“Whoever has an army has power.” - Mao Zedong
In March Italy broke ranks with its EU partners in joining China’s Belt
and Road Initiative, known also as One Belt, One Road or the New Silk Road.
Students of history know the original “Silk Road” refers to the ancient
network of trading routes between China and Europe, which served as both a
conduit for the movement of goods, and an exchange of ideas, for centuries.
The “New Silk Road” is the term for an ambitious trade corridor first
proposed by the Chinese regime under its current president, Xi Jinping, in
2013. The grand design also known, confusingly, as the Belt and Road
Initiative (BRI), is a “belt” of overland corridors and a “road” of shipping
lanes.
It consists of a vast network of railways, pipelines, highways and ports
that would extend west through the mountainous former Soviet republics and
south to Pakistan, India and southeast Asia.
So far over 60 countries, containing two-thirds of the world’s population,
have either signed onto BRI or say they intend to do so. According to
the Center
for Foreign Relations, the Chinese government has already spent about
$200 billion on the growing list of mega-projects projects including the $68
billion China-Pakistan Economic Corridor. Morgan Stanley predicts China’s
expenditures on BRI could climb as high as $1.3 trillion by 2027.
The Belt and Road Initiative is seen by proponents as an economic driver
of proportions never seen before in human history. It would not only allow
Asia to relieve its “infrastructure bottleneck” ie. an $800 billion
annual shortfall on infrastructure spending, but bring
less-developed neighboring nations into the modern world by providing a
growing market of 1.38 billion Chinese consumers.
Opponents argue that is naive and the real intent of BRI is to carve new
Chinese spheres of influence in Asia that will replace the United States,
in-debt poor nations to China for decades, and restore China to its former
imperial glory.
This article leans heavily towards the latter interpretation of BRI,
particularly its linkages between China’s industrial and military build-up.
It explains why Belt and Road is really a dangerous trojan horse hiding
behind China’s territorial ambitions, that should be resisted, especially by
vulnerable countries that are risking long-term debt servitude.
The New Silk Road
The “silk routes” connected China, India, Tibet, the Persian Empire, the
Mediterranean countries and parts of North and East Africa. The 7,000-mile
Silk Road begins at the Chinese city of X’an(formerly Chang’an).
When it reaches Dunhuang the Silk Road splits into three routes - the
Southern Route, Central Route and and Northern Route. These trade
routes spread throughout the Xinjiang Uygur Autonomous Region, and extended
as far as Pakistan, India and even Rome.
The Silk Road routes were established during the Han Dynasty, which opened
trade to the West in 130 BC, and they lasted until 1453 AD, when the Ottoman
Empire boycotted trade with China and closed them. The Han extended the Great
Wall of China to protect the movement of Chinese goods along the Silk Road.
The Maritime Silk Road was a network of shipping lines from the Red Sea to
East Africa, India, China, and Southeast Asia. The network consisted of ship
routes in two general directions: the East China Sea routes and the
South China Sea routes.
The East China Sea routes connected the Chinese mainland to the northeast
Asian regions of the Liaodong peninsula, the Korean peninsula, and the
Japanese islands. The South China Sea route heads down, then up, through the
Malacca Straits into the Bay of Bengal, opening up China to the
coasts of the Indian Ocean, the Red Sea, the Persian Gulf and the African
continent.
These shipping lanes are still in use.
As mentioned the “Belt” part of the Belt and Road Initiative, introduced
by President Xi Jinping in 2013, refers to a network of overland road and
rail routes and oil/ natural gas pipelines planned to run along the major
Eurasian land bridges: China-Mongolia-Russia, China-Central and West Asia,
China-Indochina peninsula, China-Pakistan, Bangladesh-China-India-Myanmar.
They’ll stretch from Xi’an in Central China through Central Asia, reaching as
far as Moscow, Rotterdam and Venice.
The “Road” is a network of ports and other coastal infrastructure projects
from South and Southeast Asia to East Africa and the northern Mediterranean
Sea.
 
China is already the world’s largest consumer of commodities. Why does it
need to build a belt and road? There are a few reasons. The first as
mentioned is to construct physical infrastructure such as railways, roads and
bridges that will help the region to meet its $800 billion annual
infrastructure shortfall estimated by the Asian Development Bank. China would
also build 50 “special economic zones” modeled after the Shenzhen Special
Economic Zone, first launched in 1980 under economic reformer, President Deng
Xiaoping.
Less benevolently, BRI would allow China to expand the use of the Chinese
currency, the yuan, something we have written about, as the global
influence of the US dollar as the world’s reserve currency wanes.
According to the Centre for Foreign Relations, BRI is also a central tenet
of Xi Jinping’s pushback against Obama’s “pivot to Asia” (contain China by
extending US ties to southeast Asia), and distancing himself from his
predecessors who followed Deng’s philosophy “bide your strength, bide your
time.”
For Xi, the waiting is over: the time for imperialist expansion is now.
Political aspirations
An Asia geopolitical expert says that, while the New Silk Road
satisfies a number of economic goals for China - including
expanding its supply chains, accessing overseas labor, and preventing massive
layoffs when companies run out of domestic infrastructure to build - the
over-riding goal is regional influence.
Richard Javad Heydarian, author of ‘Asia's New Battlefield: The
USA, China, and the Struggle for the Western Pacific’, writes:
“Above all, however, it allows China to lock in precious mineral
resources and transform nations across the Eurasian land mass and Indian
Ocean into long-term debtors. A leading credit rating agency recently warned that
the OBOR is "driven primarily by China's efforts to extend its global
influence", where "genuine infrastructure needs and commercial
logic might be secondary to political motivations".
The result is what one observer aptly described as
"debt-trap diplomacy", since some nations end up piling up
unsustainable debts to China…
Meanwhile, larger nations such as India have raised concerns over China's
geopolitical intensions, since the project runs through the disputed Kashmir
region.
Other countries, from Indonesia to the Philippines and Nigeria, have
raised concerns over the quality of Chinese infrastructure investments, their
compliance with good governance and environmental regulations, and Beijing's
tendency to employ not only Chinese technology and engineers, but also
Chinese labourers for overseas projects.
Debt trap
So far we have learned the 5Ws of the Belt and Road Initiative.
It’s easy to see how the trillion-dollar infrastructure network benefits
China, but what about the 60-odd nations who have said they want in? What’s
in it for them?
The huge projects need to be paid for somehow. China’s idea is for Chinese
state-owned firms to build the infrastructure, paid for by participating
countries. Those who can’t afford it, and that is most of them, would be
offered inexpensive loans and credit. It’s no different from banks offering
rock-bottom interest rates to homeowners whose incomes are below that needed
to support a mortgage.
Chinese state-owned banks and China-led international financial
institutions, like the Asian Infrastructure Investment Bank (AIIB), would
shoulder the debt burden. China has set upan initial
$40 billion Silk Road Fund, while the AIIB is allocating an additional $50
billion. But the loans come with huge risks.
In 2017, when Sri Lanka couldn’t pay off its Chinese creditors, Beijing
took control of Colombo, a strategic port, through a 99-year lease. By
the end of 2018, nearly a quarter of Sri Lanka’s foreign debt was owed to
China - the money accepted for around $8 billion worth of ports and highways
planned through BRI.
Some countries have scaled back or canceled BRI projects due to the
specter of unsustainable debt burdens, states
Al Jazeera. Hopefully Italy is aware of the risks. The southern European
country is heavily in debt and went into recession last year; it reportedly
wants to re-balance Sino-Italian trade by exporting more to China.
It is the 13th EU member country that has signed an MOU with China
regarding BRI, but the first G7 nation to do so, sparking condemnation from
the United States which is engaged in a trade war with China; and the EU,
which earlier this year branded China a “systemic rival” and wants to
restrict Chinese investment in Europe, Al Jazeera said.
Military buildup
Is it a coincidence that the Chinese president, Xi Jingping, is
racing around trying to sign countries onto BRI while at the same time posing
for photos in full military uniform saluting Chinese soldiers? We don’t think
so.
Tuesday was the 70th anniversary of the founding of the People’s
Liberation Army (PLA) and the Chinese navy did not squander the opportunity
to show its latest show of power - a stealth destroyer.
According to a Reuters story the
combat-ready 10,000-ton Nanchang (101) is armed with 113
vertical-launch sales able to fire HHQ-0 surface-to-air missiles, YJ-18
anti-cruise missiles and CJ-10 land-attack cruise missiles.
We have written extensively on the escalating tensions
between the US and China in the South China Sea, where China holds
historical claims despite international treaties to the contrary (ie. the UN
Convention on the Law of the Sea). China has been dredging seabed and
building islands, on which it has constructed outposts including missile
batteries, despite claims of ownership by Vietnam, Malaysia, Philippines,
Taiwan and Brunei.
Ongoing maneuvers demonstrate that Beijing is willing to flex its muscles
in a region it sees as strategically and economically important. China is
increasing its military drills around Japan, with Japanese interceptors
scrambled 638 times within a year, against Chinese aircraft, according to
Japan’s annual military White Paper.
There are also frequent tensions in the Taiwan Strait, the body of water
separating China and Taiwan, a US ally.
The United States supplies weapons to Taiwan despite not having diplomatic
relations with the island and its government. China sees Taiwan as a breakaway
territory that must be re-united with the Chinese mainland; its independence
is not recognized by Beijing. A forced reunification between China and Taiwan
would almost certainly cause a war between China and the US.
Meanwhile China continues to expand its military. A year ago it
was reported that China planned to boost military spending by 8.1% in 2018,
compared to a 7% increase in 2017.
A Reuters
in-depth report on how China is displacing America as the world’s predominant
military power in Asia, is required reading for anyone interested in how
the geopolitical balance of power in the North Pacific is shifting.
It details how Xi Jinping is overhauling the PLA (which includes the
navy), by pouring more resources into the navy and ridding the PLA’s ranks of
corruption:
In just over two decades, China has built a force of conventional
missiles that rival or outperform those in the U.S. armory. China’s shipyards
have spawned the world’s biggest navy, which now rules the waves in East
Asia. Beijing can now launch nuclear-armed missiles from an operational fleet
of ballistic missile submarines, giving it a powerful second-strike
capability. And the PLA is fortifying posts across vast expanses of the South
China Sea, while stepping up preparations to recover Taiwan, by force if
necessary.
For the first time since Portuguese traders reached the Chinese coast
five centuries ago, China has the military power to dominate the seas off its
coast. Conflict between China and the United States in these waters would be
destructive and bloody, particularly a clash over Taiwan, according to
serving and retired senior American officers. And despite decades of
unrivaled power since the end of the Cold War, there would be no guarantee
America would prevail.
“The U.S. could lose,” said Gary Roughead, co-chair of a bipartisan
review of the Trump administration's defense strategy published in November.
“We really are at a significant inflection point in history.”
Industry-military connection
We know that China is planning a huge infrastructure buildout in its
trillion-dollar BRI involving some 60-odd countries. And we know that Beijing
is at the same time bulking up its military. What we don’t know is if the two
are related. Is China covertly funneling money from BRI into its military?
In December 2018 the New
York Times reported on a secret proposal to expand a program by the
Pakistani Air Force, by building Chinese military jets, weaponry and other
hardware. There would also be increased cooperation between China and
Pakistan in space, where rocket-propelled technology often overlaps with the
military. According to the article, the military projects were designated as
part of China’s Belt and Road Initiative.
Pakistan-Chinese JF-17 ‘Thunder’
fighter
In response to that claim, CNBC
quoted Michael Fuchs, a senior fellow at the Center for American
Progress, and a former U.S. deputy assistant secretary of state for East
Asian and Pacific affairs from 2013 to 2016:
That doesn’t necessarily mean the Chinese military will use the entire
BRI to its advantage, but it will certainly tap into a number
of projects, he added. BRI infrastructure schemes in member countries
such as Pakistan, Sri Lanka and Djibouti “are all about giving access to
China’s military,” he said.
A 2018 report by C4ADS, a US-based research group, sought to tease out
whether China’s portrayal of BRI as strictly economic is true. As explained
by South China Morning Post, the report looked at 15 Chinese-funded port
projects in Bangladesh, Sri Lanka, Cambodia, Australia, Oman, Malaysia,
Indonesia, Djibouti and elsewhere in the Indo-Pacific region.
It found that the projects were not “win-win” for China and the host
countries, as China claimed. “Rather, the investments appear to generate
political influence, stealthily expand China’s military presence and create
an advantageous strategic environment in the region,” the report stated.
Resource raids
Of course none of this should come as a shock, if we look at how
China has repeatedly sought raw materials necessary to feed its
resource-ravenous economy.
We’ve covered How
China is locking up critical resources in the US’s own backyard.
We also know that BRI, whatever China’s motivations, is going to require a
hell of a lot more mined commodities it doesn’t have an abundance
of, like copper, zinc, iron ore, etc.
MINING.com
reported in under 10 years, the number of China-headquartered mining
companies with assets in Africa went from just a handful in 2006, to 120 in
2015. Two high-profile examples are the acquisition, by China General Nuclear
Power Corporation, of the Husab uranium project in Namibia, and
Zijin Mining’s involvement (39.6%) in the
massive Kamoa-Kakula copper deposit in the DRC.
While iron ore and copper have been the hot targets of overseas
acquisitions by Chinese firms, the Chinese have also gone after gold, nickel,
tin and coking coal.
More recently the most desired metals are those that feed into the
tectonic global shift from fossil fuels to the electrification of vehicles.
China Molybdenum bought the Tenke copper and cobalt mine in the
Democratic Republic of Congo for $2.65 billion in an effort
to secure a supply of cobalt for EV batteries.
Last summer China’s Ganfeng
Lithium paid Chilean state lithium miner $87.5 million for SQM’s 50%
stake in the Cauchari-Olaroz lithium project in Argentina. The purchase
means China now effectively controls half of the world’s lithium production
necessary for lithium-ion batteries.
Conclusion
China’s ascent from an economic backwater to a 21st century superpower is
nothing short of incredible. Within 30 years the country whose citizenry was
oppressed, impoverished, and riding around on bicycles, is now the world’s
biggest consumer of mined commodities, influences real estate markets
worldwide (just look at Vancouver), and has obscenely rich people driving
$100,000 luxury cars.
Except for its horrible air quality, China is now the envy of many poorer
countries.
But that doesn’t mean they should roll over and let China take advantage
of its weaker brethren. The Belt and Road Initiative is not some modern-day,
Asian version of The Marshall Plan. The United States had obvious economic
motivations in giving $12 billion to help rebuild Western Europe, but there
was also the strategic imperative of helping Europe to get back on its feet,
in order to contain a rising USSR.
No such threat exists with BRI. China has no reason to come to its
neighbors’ aid with multi-billion-dollar infrastructure loans other than to
gain economic and political influence over them.
Sure, there may be some programs where it’s a win-win, but it appears the
deck is way stacked against BRI host nations where the outcome will almost
certainly leave China the clear winner.
As Uncle Ben in ‘Spider-Man’ said, “With great power comes great
responsibility”. That assumes that the one wielding the power doesn’t have an
ulterior motive. With China, though, we can be pretty much certain it does.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he
believes to be reliable but which has not been independently
verified. Richard Mills makes no guarantee, representation or warranty and
accepts no responsibility or liability as
to its accuracy or completeness. Expressions of opinion are those of
Richard Mills only and are subject to change without notice. Richard Mills
assumes no warranty, liability or guarantee for the current relevance,
correctness or completeness of any information provided within this Report
and will not be held liable for the consequence of reliance upon any opinion
or statement contained herein or any omission. Furthermore, I, Richard Mills,
assume no liability for any direct or indirect loss or damage or, in
particular, for lost profit, which you may incur as a result of the use
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