China Road to World Domination Hits Snags

… it’s almost certain that the amount of money that makes its way into Belt-and-Road projects will be significantly lower than advertised. Grand in ambition but short on details, Xi’s sweeping initiative may be better thought of as a “philosophy” or “party line,” rather than a fixed commitment. One thing’s for sure: It’s going to be a lot harder than putting [out endless press releases and putting on conferences]. __ Why China Can’t Afford Its Grand Scheme

China’s leaders wish to build Chinese railways and seaports from Asia to Europe, across Africa, and through the heart of Latin America. But planning something and doing something are not of equal difficulty.

Belt-and-road projects are failing already. In Kara-Balta in Kyrgyzstan, Zhongda China Petrol, a state-owned company, built a big oil refinery—then found it could not buy enough crude oil to run it at more than 6% of capacity. The country’s deputy prime minister called the plant’s construction “ridiculous”; locals are protesting against its environmental impact. __ Economist

China’s ambitions are grand in scope. But as a modern industrial power, China is still experiencing growing pains. Chinese expertise in many areas of technology is simply not up to par:

… Chinese companies need to demonstrate that they are able to do the job. The CNPC subsidiary that built Abu Dhabi’s key strategic oil pipeline to the Indian Ocean port of Fujairah was heavily criticized over construction faults. As with BP in Iraq’s Rumaila field and Total in South Pars, Chinese firms may lean on international partners for technical and management skills in tricky, novel environments. __ Bloomberg

Just at the moment China was poised to step onto the stage which the US President Trump threatens to abandon, obstacles for the dragon’s ambitions suddenly appear. Clearly China is not really ready for prime time on the scale that its leaders seem to desire.

The scheme is running into three linked problems. First, it is unclear what its priorities are, or who is running it. “We haven’t really come up with a specific goal,” says Zou Tongxuan of Beijing International Studies University. Every province has its own belt-and-road investment plan. So do hundreds of state-owned firms. The government’s strong backing has helped to get many projects up and running faster than might have happened otherwise (Mr Xi first began to talk about the idea only in 2013). But no one is in day-to-day charge, so thousands of financially dubious schemes have the imprimatur of a belt-and-road project. And the overweening behaviour of Chinese companies in some countries where they operate has stoked fears in some places of an over-mighty China.

… [China’s economy] is so vast that belt-and-road countries fear being overwhelmed by it. Loans from one bank, China Eximbank, for example, account for a third of Kyrgyzstan’s foreign debt. Yunnan is one of China’s poorer provinces. Yet its economy is still four times bigger than that of its more populous neighbour, Myanmar. Countries both long for and dread Chinese investment. __ Economist

China’s Demographic Conundrum

50% Working Women Childless

China’s women left the farms to work in the cities. But working women in China are having few if any children. Robots will need to take up the slack.

And Then There is Russia

Putin is not ready to accept a subservient role as junior partner in the Grand Dragon Express Global Control Enterprise. He has his own neo-imperial dreams which involve the conquest of many of the countries that China wants to make deals with. Conflicts between these frenemies are certain.

For its part, China sees great possibilities for the Russian Far East, if it can only be pried from the weakening grasp of an increasingly Europe-focused Moscow. The dragon wants a huge piece of the bear’s lunch.

One Yellow Brick Road a Fantasy in Flux

At least China has a grand goal toward which to aim as a national enterprise. Much of Europe and the Anglosphere are adrift without significant plans or goals, content to be slowly absorbed by less developed, less intelligent populations of official and unofficial immigrants — more prolific than the natives they will be replacing.

China alone, of the high IQ populations, continues to shoot for the moon as a nation.

Russia is so corrupt as to be doomed, economically and demographically. The EU is sinking quickly under a flood of dysfunction from ruinous energy and immigration policies. Only elements of the Anglosphere (+ Japan, S. Korea, Switzerland etc.) continue to allow freedom of investment and enterprise which keeps them ahead in a wide range of science, technologies, and innovative industrial potential. For now, China must continue to steal, cheat, and spy to keep up. Even so, it will take time for China’s real expertise in performance to catch up with what it knows in databases.

The US, finally, is producing a larger part of its own energy at ever cheaper costs, as well as food and other essentials. Most of the US economy involves deals within the US itself, and with Canada and Mexico. Under US President Trump, expectations have been high that the US will back away from the role as world policeman, opening up that role to another would-be superpower. China would like the option to step in and take control, if it only could.

Another viewpoint on China’s quest to export its own dysfunction … Debt mountain imperialism: so all the third world can be leashed to the Chinese experience.

China’s Imperial Overreach

Silk Road to Nowhere

The risk of non-performing loans at state-owned banks is already clouding China’s future economic prospects. Since reaching a peak of $4 trillion in 2014, the country’s foreign-exchange reserves have fallen by about a quarter. The ratings agency Fitch has warned that many OBOR projects – most of which are being pursued in vulnerable countries with speculative-grade credit ratings – face high execution risks, and could prove unprofitable.

Xi’s approach is not helping China’s international reputation, either. OBOR projects lack transparency and entail no commitment to social or environmental sustainability. They are increasingly viewed as advancing China’s interests – including access to key commodities or strategic maritime and overland passages – at the expense of others.

In a sense, OBOR seems to represent the dawn of a new colonial era – the twenty-first-century equivalent of the East India Company, which paved the way for British imperialism in the East. But, if China is building an empire, it seems already to have succumbed to what the historian Paul Kennedy famously called “imperial overstretch.” __

China’s hard working, enterprising, and resourceful people can prop up even the worst of governmental systems for a time. But eventually the misallocation of capital and the straitjacketing of individual opportunities and freedoms will catch up to the dysfunctional system. At that point the long delayed train wreck can trigger long lasting destructive repercussions over a wide geopolitical area.

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3 Responses to China Road to World Domination Hits Snags

  1. Lab Guy says:

    A bit off topic, but you might like this link if you do not already have it:

    Click to access Lynn_Meisenberg_2010_National_IQs_calculated_and_validated_for_108_nations.pdf

  2. Abelard Lindsey says:

    David Goldman (aka Spengler) has a different perspective on China:

    • alfin2101 says:

      Goldman is welcome to invest as much of his money in China as he wishes based upon his analysis. But saying that “everything is fine in China except for state owned enterprises” is like saying “everything is fine with this patient except for the aggressive and massive malignant tumour in his brain.”

      Goldman’s analysis fails to penetrate to the heart of China’s failure to shift from redundant overproduction, overbuilding, and overinvestment in dubious infrastructure. His numbers do not actually reveal so much as obscure. When China was forced to shift away from a rich export driven economy to an internal stimulus driven economy, the numbers became government tools of deception. The broken window fallacy combined with the captive audience phenomenon of the Chinese investor should tell even the slowest witted analyst what he needs to know about the reality behind the numbers.

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