The New Silk Road, or One Belt One Road (OBOR) initiative, hasn’t been too extensively covered in the media. But it warrants far more attention. China’s pet project could change the very nature of our global economy over the next few decades.
Long ago, specifically from between 100BC and 1450AD, China ruled the land and seas. It controlled the Indian Ocean, Strait of Hormuz, and far beyond with multiple trade routes flowing into Western Europe.
This helped China become one of the wealthiest nations on the planet. Exporting to Europe was made much easier because of the country’s well-established trade routes.
Invading Mongols and Turkmens eventually led to the decline of the Silk Road. However, China has big plans to revive its historic trade routes for the 21st century.
A massive amount of infrastructure investment will make these plans a reality. Billions of dollars’ worth of ports, railways, and roads are already being built across Eurasia. China is financing the vast majority of it.
China’s not giving away all this modern infrastructure just for the benefit of others. The terms vary based on the specific project and country. But typically, China either loans money for these projects or is given the right to operate and profit from them.
The New Silk Road will also let China export its products easier, faster, and at a lower cost. Workers and materials are also exported during the construction phase. This is aimed at keeping the Chinese economy strong as the mainland becomes oversaturated with new roads and railways.
Who Will Benefit from the New Silk Road?
China is the obvious beneficiary of the New Silk Road. However, a few places should have even more upside because of their geographic location.
Kazakhstan is one such country. It’s the 9th largest in the world by land size and shares China’s northwestern border. This makes Kazakhstan essential for China to build infrastructure between them and Europe.
Just looking at Kazakhstan on the map makes it easy to understand why China needs them for the OBOR initiative.
Without Kazakhstan, there would only two options for China to build a land-route into Western Europe. The first would be a much longer one through Russia. The second would mean going through the far more treacherous and unstable middle-East.
Cambodia also stands out. It isn’t nearly as vital to transportation across Eurasia. But the Southeast Asian nation is one of China’s only “true friends” in the region. Geopolitical necessity means it will see a large amount of investment.
For example, Cambodia has stopped the Association of Southeast Asian Nations (ASEAN) from having a unified stance about disputes in the South China Sea. They’ve used their veto power against fellow ASEAN members Vietnam, Malaysia, and the Philippines whenever the issue comes up.
The unspoken treaty is that Cambodia protects China’s interests in Southeast Asia. In return, China takes care of Cambodia economically. There’s no reason this “agreement” will end anytime in the near future.
Mongolia will also get a lot of financing relative to its size. It’s the least densely populated nation in the world. But Mongolia is also rich in natural resources such as coal, tin, copper, and iron despite this.
Perhaps more important is that Mongolia shares its southern border with China. This had led to a surge of cross-border trade and investment between the two. After all, China’s starting to deplete its own natural resources.
Of course, Mongolia also needs China. This is because the country is landlocked between China and Siberia. There’s no other option besides having a modern rail transportation system – and good relations with China – if Mongolia wants to profit from its vast resource wealth.
Less About Money, More About Power
Some people remain skeptical about China’s true motives. The developmental benefits are obvious. However, it’s very possible that China’s goals are more geopolitical in nature.
The New Silk Road will give China vast economic and political leverage over its investment “partners”. In some cases, the infrastructure loans given out by China have high interest rates and recipients have little ability to pay them back.
Being in debt to China could mean having to compensate with other favors.
Furthermore, China is able to “lock in” future military and economic alliances with the countries they invest in. Would you really want to side against China in a possible war when they own and operate all your infrastructure?
These are very interesting topics to me. Our global power structure could depend on how these events unfold. But as investors, our main concern is making money – not political speculation.
The good news is that there’s plenty of money to make in the New Silk Road.
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