China Steers Investments Toward Belt and Road Projects
China’s plan to dominate world trade, tech, manufacturing and raw materials is now the road map for where China wants companies to invest their own money.
As independent investors in China have become more flush with cash, they have for some time been seeking opportunities with the best possible returns, regardless of where and what these are. No more. China is now treating that so-called independent-investor money as the country’s means to pursue what some see as its grand plan to take over the world.
Up until the very recent past, these newly-rich Chinese investors and investment groups had looked at opportunities such as the movie industry, high-end real estate, hotels, agribusiness enterprises (including one of the largest Gmo-based seed makers) and even European soccer clubs. There were some restrictions the government imposed – to keep out of more “sinbased” industries such as the sex trade and gambling casinos – but, for the most part, the world was wide open to these increasingly wealthy businesses and individuals. For example, when the London real estate market plunged in the face of Brexit, it became a prime place for China to place big bets on a future when that market eventually rebounded. And with the Chinese government taking its own cuts of the soaring gains of these savvy short- to medium-term investments, it was a genuine win-win program.
However, as the senior government leadership came to realize precisely how wealthy the country was becoming, it realized that all that so-called “independent” investor money could be steered to help China invest in “the right things.”
Those “right things” turned out to be a far more focused set of types of investments, all targeted to support what some see as the tangible manifestation of China’s long-term plan to conquer the world in the 21st century. The plan became known as the “Belt and Road” initiative.
What the initiative looks like is both world-encompassing and deceptively simple in nature. Taking its lead from the ancient concept of the Silk Road, which helped connect ancient China to the rest of the world and transformed its once-isolated civilization, this plan includes two separate connection routes to bring China closer to the rest of the world – and the rest of the world closer to China.
There is a land-based “Silk Road Economic Belt,” a set of China-backed infrastructure and trade agreements that connect China to Europe, Central and Western Asia, South Asia and Southeast Asia primarily by land.
Then there is also what is referred to as “The Maritime Silk Road,” which connects China via the Sea of Japan, the South China Sea, the Indian Ocean, the Red Sea, the Suez Canal and the Mediterranean. In this second route, keys to the process are a series of highly developed ultra-modern ports along China’s coastline plus strong alliances with many of the parties involved along the way.
As envisioned by the planners, these two “roads” cover 63% of the world’s population, 35% of the world’s merchandise trade and 30% of the world’s GDP. These
trade routes are also designed so that China can connect with 48% of the population along its routes within a maximum of five hours.
China already dominates U.S. trade. This master Belt and Road initiative will bring all of South and Southeast Asia in connection with China quickly and will soon link rapidly growing Africa, emerging markets in Central and Western Asia and the “old guard” of mainland Europe into its grasp.
What the Belt and Road initiative also does is target Chinese-guided involvement and control of strategic infrastructures such as roadways, railway systems and telecommunications in some of the fastest-growing emerging markets in the world. Another sector in which China is interested in strategic control and investment is unique or high-value natural resources. China also often invests regionally in major mining, oil, natural gas and related enterprises, often with carefully-crafted restrictions. While China may help subsidize the investments involved, the companies who supply the equipment and/or do the work often must be Chinese, and a percentage of the raw materials harvested, after the equipment and plants have been built, often must be available for resale back to the Chinese government at a highly-favorable rate.
In all cases, those overseas ventures were carefully selected both as good business deals and as ways to establish a locus of control for China in every key country, in every bit of infrastructure that furthers the objectives of the Belt and Road initiative and in every raw material source that China considers important to its long-term plans.
The latest twist in how China is implementing this plan is equally brilliant. The Chinese government must provide approval for most major overseas investments by its country’s companies, which – especially because there is so much investment capital available in the country at this time – gives it a unique power. China can now actively steer money into Belt and Road “investments” outside its borders without having to use government funds to do it.
As one example of how this has worked recently, just a few weeks ago China’s Wanda Group made an unusual about-face. The company is a conglomerate that in the past had invested in luxury hotels, numerous acquisitions in the film industry (such as the studio Legendary Pictures and AMC Holdings, the largest cinema theater chain in the world) and numerous real estate ventures. Up until mid-august, its latest investment target was Nine Elms Square, a high-end multi-use real estate opportunity deemed artificially depressed in price, thanks to the impact of Brexit. The Wanda Group had planned to spend £470 million on that purchase.
That was mid-august. On August 22, the Wanda Group announced it was pulling out of that deal. This time, unlike virtually every other time Wanda pivoted on a deal, it was not because it thought it was a bad investment or because the other side wanted out. It was because the Chinese government wanted Wanda to instead invest in projects, facilities and infrastructure that would support Belt and Road.
The architect behind the decision to redirect Wanda’s money away from the likely highly lucrative London real estate opportunity was Zhang Zhijun, the secretary-general of the Belt and Road unit at the China International Association for Promotion of Science and Technology. That unit was set up only as recently as May, based on a directive from Chinese President Xi Jinping to find ways to steer more Chinese overseas investment capital in direct support of Belt and Road.
Instead of going into what China’s leaders have referred to as “irrational overseas investment” in areas such as entertainment, sports and media, the investments getting the green light from above most easily are items like railway systems in Africa, mass transit in the Philippines, telecom networks in the Pacific island of Vanuatu and even a New Zealand road information system.
The Chinese government may not want to admit it, but there are some who feel the latest “win” for the single largest electric bus contract in American history, which went to Chinese electric bus manufacturer BYD Auto (announced in late August 2017), may have been yet another example of leveraging the power of Belt and Road to subsidize just the right kind of contract wins. What is certain is that if, as is currently rumored, a Chinese company ends up buying ailing company Fiat Chrysler, that will only be approved if it somehow plants the equivalent of a Chinese flag in an important strategic investment niche that Zhang and President Xi feel are “the right things.”
For those interested in reading more about China’s latest power moves on the global stage, go to trillions.biz/articles/135642-china-fills-the-vacuum-left-by-the-west.html.