In April, Chinese President Xi Jinping marked a historic visit to neighboring Pakistan. China, via Beijing’s “One Belt, One Road” initiative, will invest some $50 billion in Pakistani infrastructure, including power plants, roads, railways, and, perhaps most importantly, the Iran-Pakistan natural gas pipeline. The vast sum represents 53% more than the US has given Islamabad over the past 13 years combined. China is also set to invest an equally large sum in Brazil and is even considering the construction a railroad over the Andes, which would connect Brazil to China via the Pacific and ports in Peru.
On Sunday, Hungary became the first European country to sign a Silk Road MOU. Reuters has more:Hungary has become the first European country to sign a cooperation agreement for China’s new “Silk Road” initiative to develop trade and transport infrastructure across Asia and beyond, China’s foreign ministry said late on Saturday.
Projects under the plan include a network of railways, highways, oil and gas pipelines, power grids, Internet networks, maritime and other infrastructure links across Central, West and South Asia to as far as Greece, Russia and Oman, increasing China’s connections to Europe and Africa.
Although highly publicized, “One Belt, One Road” isn’t well understood (which partly reflects the sheer size and scope of the initiative). The program has been cast, by some, as a Chinese Marshall Plan, an interesting characterization, given that we’ve cast the AIIB as an implicit attempt by Beijing to institute a kind of Sino-Monroe Doctrine.As an aside, this also demonstrates an overwhelming tendency (and we may be guilty here as well), to view the world through glasses tinted by the unipolarity that has dominated global politics for more than six decades. Or perhaps it’s a reflection of the fact that China is indeed a rising hegemon, and as such its policies and programs resemble those of the US at critical historical moments when Washington seized opportunities to expand American influence.
Here, to cast some light on “The Yi Dai Yi Lu”, is Barclays:
* * *
Not just a Marshall Plan – bigger, more comprehensive and more inclusive
The Yi Dai Yi Lu (YDYL) initiative has been labelled a “Chinese Marshall plan” in some global commentary. There are some similarities between China’s new initiative and the post World War II US-driven European Recovery Program (popularly known as the Marshall Plan after US Secretary of State George Marshall).
- The emphasis on infrastructure and heavy industry as a mode to kick-start growth or recovery.
- The Marshall Plan amount of US$13bn (c.US$120bn in current dollar value) is in the same order of magnitude as the initial US$40bn envisaged for the New Silk Road Fund.
- The establishment of the Asian Infrastructure Investment Bank (AIIB) could be perceived to be analogous to the formation of the IMF and the World Bank to aid the structural transformation of economies.
- The perception (in some quarters) of potential for Chinese hegemony in the YDYL countries.
We note that the Chinese government has expressed its displeasure at the Marshall Plan moniker. A government spokesman said in early March 2015 “It is inappropriate to simply describe the Belt and Road initiatives as another Marshall Plan. These initiatives seek common development of countries with different ethnicities, religions and cultures, focusing on wide consultation, joint contribution and shared benefits.”
More than just a political slogan – this concept has potential, in our view
We expect companies in China from SOEs to private enterprises to embrace the YDYL initiative, indentifying the value it could bring to their businesses, rather than simply paying lip service to the leadership’s latest pronouncements. We believe YDYL has captured the imagination of the market. During the FY14 results season, around 70% of the companies in our Chinese metals & mining coverage universe – including both SOEs (eg, Shenhua, Chalco, Jiangxi Copper) and private companies (eg, Hongqiao) – had YDYL formulated in their strategy and plans in some form or other.
Not just about big projects – infrastructure building is just the start
We believe it would not be overstating the case to say that China’s economic power to date has not been reflected in its influence on the world. China’s economic power has not translated into “soft power” being projected into the outside world.
Our China Economist, Jian Chang, also believes that development along the New Silk Road could contribute to sustainability of China’s growth at 5-7% in the coming years and have a positive impact on China’s industrial upgrading and economic transformation.
* * *
As you can see, One Belt, One Road has far-reaching implications for China. For Chinese state-owned companies, return on investment is falling (diminishing returns in the face of overcapacity) and now sits just above 4%. Investments in US Treasurys yield even less.
Full article: “One Belt, One Road” May Be China’s ‘One Chance’ To Save Collapsing Economy (Zero Hedge)