China Steers In­vest­ments To­ward Belt and Road Projects

Trillions - - In This Issue -

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 tril­­ti­cles/135642-china-fills-the-vac­uum-left-by-the-west.html.

Photo by Iunwto-silkroad, CC

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