Note: Robert Berke has written 3 articles on the Silk Road project in the past, you can find them here:
In Part 1 of “The New Silk Road,” we examined the China’s plan for rebuilding the silk-road, stretching from Europe to Asia.
In Part 2, we looked at currently proposed projects, and geopolitical rivalries that could stall and hamper progress.
In Part 3, we examine the geopolitical rivalries, prospects for success, and investment implications.
Will China's Slowing Economy Stall the Silk Road Project?
Only two years ago, the world press headlined exciting stories about the Chinese proposed project to rebuild and modernize the ancient Silk Road, re-opening the fabled route to the world, both on land and across seas. Numerous new 'Silk Road' websites sprang up across the internet almost overnight, promising an information-thirsty world news of progress on the new, new thing.
Optimists had high hopes that the project would also have global reverberation, not only as a connector of Europe, Asia, and Africa, but also as a model for regional development in other regions of the world. If China could do it across Asia, why not an American Silk Road, across North and South America? Or an African Silk Road?
For a world that faced a tepid economic recovery, the Silk Road seemed to offer the prospect of a much needed global economic stimulus that was and still is largely lacking in the west. Related: Why India Matters More For Oil Than China
Now, it seems the excitement has died down, and is no longer front page news. What changed is the slowing of the global and Chinese economies, and with it, a growing skepticism that China could manage this multi-trillion dollar project while at the same time struggling to keep its economy afloat.
That has led much of the western financial press to dismiss the massive attempt to connect the world as just another utopian dream. No doubt, the critics make a believable case, but if they're wrong, they could be missing out on the largest economic development project and building effort ever undertaken.
In a new report from HSBC, “On the New Silk Road IV,” which looks at the continued globalization of China’s capital. “We believe the economic case for the continued globalization of China’s capital is intact despite (or because of) the slowdown in its domestic economy,” the report concludes. “China is looking to invest in assets that will make long-term returns.”
There's little indication that China is stopping or even slowing its Silk Road plans. Instead, the project continues to move forward at an astonishing pace, not only as a part of China’s major growth plan, but also a major component of its defense.
In Europe, which has a thousand year trading history across the Silk Road, the plan is viewed far more optimistically. Practically every European nation has plans or signed agreements to become a Silk Road partner, with hopes that the Road may also provide some relief to Europe's continuing economic doldrums.
Growth of the Maritime Silk Road
A look at recent developments of the Maritime Silk Road (i.e., sea route) gives ample evidence of the projects continuing growth. Last week brought news of the $400+ million purchase of the Greece's largest port in Piraeus by China's Cosco, the world's fourth largest container shipper. Also announced, another new China take-over of a port in Djibouti, on the Horn of Africa, adding another node on the Maritime Silk Road. Related: OPEC Report Suggests Massive Oil Price Rebound
Other reports include development of logistic centers by Alibaba in Bulgaria's second largest port city of Burges, on the Black Sea, "which will be connected to the Chinese city of Zhengzhou by a cargo train line..." Cosco is also developing another major port in Singapore, as its main container trans-shipping center in Southeast Asia, while China Communications Construction Co. (CCC) has reported a $1.4 billion deal with Sri Lanka's Colombo to build a major port on the Indian Ocean. Another major ongoing project is the ongoing Chinese development of the port of Gwadar, Pakistan on the Arabian Sea.
In March, the European countries seeking to join the Road were Italy, Spain, Austria, Czechoslovakia, Hungary, Romania and Bulgaria. In February, it was Middle Eastern countries, vying to become prime energy suppliers and partners with China.
In Asia, most nations in the region are lining up to join the venture. One example, where the first-ever cargo train from China to Iran pulled into Tehran, reducing the time of the journey to just 14 days from the usual sea born route of one month.
The Western consensus is that China is going through a slowing, but much needed transformation from a manufacturing led economy to a consumer led economy. But what if the consensus is wrong? What if China is moving towards a totally new trajectory, creating not only a new export market for its products and services but also for its finance, engineering, construction, and labor, along the entire length of the New Silk Road?
It's not only increased trade that we're talking about here, but also bringing modern technology to large parts of the developing world. The alluring high-tech product that China is selling is the promise of economic development, and its proving irresistible to many developing nations in the region.
Lighting the Earth
One of the most intriguing part of the Silk Road project is China as 'power source builder,' across the Silk Road. As reported here, China is already a surplus power producer, having invested heavily since 2004 in hydro, coal fired plants, nuclear, and renewables. China has also mastered ultra-high voltage technology, enabling it to transmit power across large distances from its eastern plants to its far west.
Power, in every sense, is key to the Chinese plan, with a focus on nuclear plants that it hopes to develop for export to clients along the Silk Road. China, currently the largest growth market for nuclear power plants, has aspirations to build some 300 of the projected 400 nuclear plants that are expected to be contracted over the next decade. Related: Why the Saudis Want a Deal in Doha
As it has done with several other key Silk Road-related industries, China has recently consolidated most of it giant nuclear development companies, merging China Power Investing with general contractor State Nuclear Power.
The new company is in partnership with Westinghouse, the former U.S. company, now part of Toshiba, with agreements to build plants in Turkey, while also pursuing an agreement with South Africa.
The plan envisions building nuclear plants, developed by China National Nuclear Corp (CNNC) at an estimated cost of $2.5 billion apiece, far below the costs of western plants that often exceed $10 billion.
As stated here, the goal is no less than development of an Asian super-grid that connects a super-continent that holds almost half the world's population, and the focus of many market experts as the place where most economic growth will occur.
China also has also been busy acquiring foreign power companies in a growing portfolio of power assets, as a base to build upon. These include companies in Brazil, Italy, Australia, and the Philippines.
China's plan to develop renewable energy as part of the Road is no less ambitious, featuring plans that its critics would undoubtedly see as utopian. These include drawing electricity from windmills at the North Pole and giant solar arrays in the African deserts.
If, as we think, the Silk Road project should be viewed as a crucial part of China's economic future rather than a hazy dream of reviving past glories, then the world needs to become familiar with the industries most likely to benefit from the fact that Road development continues apace. These will be covered in future articles.
Coming Soon: Future articles will continue to follow Silk Road progress, investment opportunities, competition, and continuing rivalries.
By Robert Berke for Oilprice.com
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