China’s empire of money is reenergising new silk road
CHINA is building a very 21st century empire-one where trade and debt lead the way, not armadas and boots on the ground.
If President Xi Jinping’s ambitions become a reality, Beijing will cement its position at the center of a new world economic order spanning more than half the globe. Already, China has extended its influence far beyond that of the Tang Dynasty’s golden age more than a millennium ago.
The most tangible manifestation of Xi’s designs is the new Silk Road he first proposed in 2013. The enterprise morphed into the “Belt and Road” initiative, a mix of foreign policy, economic strategy, and charm offensive that, nurtured by a torrent of Chinese money, is rebalancing global political and economic alliances.
Xi calls the grand initiative “a road for peace.” Other world powers such as Japan and the U.S. remain skeptical about its stated aims and even more worried about unspoken ones, especially those hinting at military expansion. To assess the reality of Belt and Road from the ground up, Bloomberg Markets deployed a team of reporters to five cities on three continents at the forefront of China’s grand plan.
What emerges is a picture of mostly poor nations-laggards during the past half-century of global growth-that jumped at the promise of Chinese-financed projects they hoped would help them catch up. And yet as some high-profile ones falter and the cost of their Chinese funding rises, would-be beneficiaries from Hambantota, Sri Lanka, to Piraeus, Greece, are questioning the long-term price. In Malaysia, one of the biggest recipients of Chinese investment in Southeast Asia, newly installed Prime Minister Tun Dr Mahathir Mohamad is pushing back. Expressing concerns about loan conditions and the use of Chinese labour that limit benefits to the local economy, he’s put billions of dollars of Chinese-funded rail and pipeline projects on hold.
Xi intends a century-long enterprise. China has already outspent the post-World War II US Marshall Plan, measured in today’s dollars. Within a decade, according to Morgan Stanley estimates, China and its local partners will spend as much as US$1.3 trillion on railways, roads, ports, and power grids. “Economic clout is diplomacy by other means,” says Nadege Rolland, Washington-based senior fellow for political and security affairs at the National Bureau of Asian Research. “It’s not for today. It’s for mid-21st century China.”
Belt and Road is very much about politics at home, too. With the government and state-owned enterprises investing vast sums outside China, Xi is encouraging Chinese companies to channel their spending into domestic projects that will directly benefit the economy and, incidentally, the popularity of his regime.
Businesses aren’t exactly defying Xi, but they’ve adjusted their plans to fit his. With the Belt and Road project enshrined in the Communist Party’s constitution as of last year, Chinese companies are using it to help them navigate Xi’s restrictions on foreign investment and capital outflows. Many are sheltering their overseas projects under the umbrella of Xi’s pet project to get the state’s blessing. Belt and Road, says Michael Every, head of financial markets research for Rabobank Group in Hong Kong, is “a political special sauce. ... If you drizzle it on anything, it tastes better.”
At first, the sauce whetted the appetites of many developing countries in Asia and Africa. As the notion of a modern Silk Road gained traction, Belt and Road meandered into places that had never had any connection with ancient caravans. This year it reached South America, the Caribbean, and even the Arctic. In June it rocketed into space: Beijing announced that Belt and Road-participating countries will be among the first in line to plug into China’s new satellitenavigation services.
China’s plans to build or rebuild dozens of seaports, especially around the Indian Ocean, have sounded alarm bells in Washington and New Delhi: How many of those docks will end up hosting Chinese warships? Just as mighty navies and global networks of military bases helped support trading empires for Britain in the 19th century and the US in the 20th century, so China is building a fleet of submarines, aircraft carriers, and warships that will rival US power.
China has said it has no intention of using Belt and Road to exert undue political or military influence and that the initiative is designed only to enhance economic and cultural understanding between nations. “In pursuing the Belt and Road initiative,” Xi said in 2015, “we should focus on the fundamental issue of development, release the growth potential of various countries, and achieve economic integration.”
If that’s the case, Xi will need to change the perceptions of people who live along the length and breadth of his latter-day Silk Road. And that can only happen in the towns and cities that are being transformed by China’s empire of money.
Yiwu, China: Nestled in the mountains of Zhejiang province, Yiwu is the embodiment of “Made in China.” The market here is unlike any other. A vast complex of five-story buildings houses 75,000 booths selling 1.8 million kinds of goods across an expanse the size of 650 soccer fields. If you’ve picked up cheap jewellery and toys in District 1, you may need to hop onto a motorcycle taxi to reach auto parts in District 5. Most of those thousands upon thousands of stalls specialize in single itemsscissors, for example: scores and scores of different kinds of scissors.
An ancient market town about 180 miles southwest of Shanghai that’s grown into a city of 1.2 million people, Yiwu got a big boost from Belt and Road. People from Beirut to Seoul and beyond have come to start businesses. Some 13,000 traders from around the world now live here. More are arriving every day, says Mohanad Ali Moh’d Shalabi, a Jordanian businessman who owns the Beyti Turkish restaurant in the centre of the city and a company that exports goods to the Middle East. “In my restaurant,” he says, “I have met people from countries I have never known of.”
It wasn’t always like this. When Bloomberg reporters visited in early 2014, business was so slow that bored shopkeepers played computer games, read newspapers, or slumped over in their chairs, asleep.
Janey Zhang, whose Zhejiang Xingbao Umbrella Co. employs about 200 workers, remembers the bad old days. In 2013 the vast, labyrinthine halls of Yiwu-a legacy of 1978, when it became one of Communist China’s first wholesale markets-were almost deserted. Wholesalers and producers struggled with soaring manufacturing costs and the rise of online marketplaces such as Alibaba.
Then came a glimmer of hope. On social media and television, Zhang started seeing reports about a new freight train that would roll west for thousands of miles, crossing China into Central Asia and on into Europe. This was part of the Xi government’s “New Eurasian Land Bridge,” a seemingly endless skein of stacked container wagons replicating ancient Silk Road camel caravans. “The impact of the railway was huge,” Zhang says. “I remember seeing pictures of it piled high with cargo. After the service started, our sales and customers quickly increased.”
The first Europe-bound train pulled out of here in November 2014, heading to Kazakhstan and Russia, then through Eastern Europe and on to Madridan 8,000-mile journey that supplanted the Trans-Siberian Railway as the world’s longest freight-train route. Since then, more routes have opened to destinations including London, Amsterdam, and Tehran.
Trains have cut the time to Europe by a third or more compared with ships.
The return journeys bring European goods such as wine, olive oil, vitamin pills, and whiskey. China Railway Express Co. said the value of outbound freight from Yiwu in the first four months of 2018 jumped 79 per cent from a year earlier, to 1.8 billion yuan (RM1.1 billion), while imports tripled to 470 million yuan.
Hambantota, Sri Lanka: In a southern Sri Lankan jungle, Dharmasena Hettiarchchi plucks green chile peppers that grow in the shade of banana trees. His grandfather tended the same patch of land when this island was the British colony of Ceylon. Hettiarchchi takes a break from the heat under a teak tree, removes his wide-brimmed hat, and says, “If a jeep with Chinese characters comes down the road, the whole village will gather in protest.”
Hettiarchchi’s village and the surrounding town of Hambantota have become a cautionary tale for Xi’s Belt and Road aspirations. The idea was to take an inconsequential harbour visited by fewer than one ship a month on average and turn it into a modern, bustling seaport adorning a southern Belt and Road maritime route. It hasn’t turned out so well. — Bloomberg