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NEW SILK ROUTE, WILL CHINA DOMINATE THE WORLD?

In 2013, the President of China, Xi Jinping, presented a project that includes the development of infrastructure to facilitate the exchange of goods through land and sea corridors around the world. Currently, 80 countries participate in this project, whose official name is ” Belt and Row Initiative ” , referring to the ancient silk route used in the times of the Han Dynasty, in the first century BC. This initiative consists of the financing by the Chinese government of infrastructure around the world in exchange for political, commercial and strategic benefits.

China is the second economic power of the planet and, according to experts, it has the potential to become the most important commercial power in the world. China went from being one of the most impoverished countries in the world, after the policies of Mao Zedong “One Step Forward” and the “Great Cultural Revolution”, to be the main creditor of developing countries for the construction of infrastructure.

Among the objectives of the New Silk Road are: to facilitate regional development by eliminating barriers to trade, increase communications with neighboring countries and increase the flow of raw materials to China. To achieve these ends, we seek to create alternative maritime and land routes to those currently used, such as the Strait of Malacca and the Suez Canal, where 20% of world trade passes through.

It is estimated that this initiative could generate a market ten times greater than the United States. To fulfill this colossal goal, resources are available from the New Development Bank (composed of the BRICS countries: Brazil, Russia, India, China and South Africa), the Silk Road Fund and the Asian Investment and Infrastructure Bank (origin Chinese). Likewise, if the stated objectives are met, this initiative would add 56,000 MDD to Chinese exports and 61,000 MDD to imports, which represent 36% of world GDP, according to Euler Hermes consultancy reports . However, the International Monetary Fund warned that “resurrecting the silk route … can also lead to a problematic increase in debt, creating challenges for the balance of payments.”

One of the great advantages of these Chinese loans to finance infrastructure is that they are bilateral in nature. This allows loans, despite being more expensive, to be more advantageous and flexible compared to loans provided by multilateral institutions such as the World Bank. This makes them extremely attractive to countries that have restrictions in accessing international financial markets such as, for example, Venezuela. It is worth mentioning that, although these Chinese credits are given with fewer restrictions than others, the conditions always benefit the Chinese economy, for example, in the case of Ecuador it was stipulated that only Chinese companies would be used to develop the projects with this country.

According to Stephan Monier, Chief Investment Officer of Lombard Odier , China has found a way to acquire a central role at a global level while the United States is losing it due to the adoption of protectionist policies. Thus, this initiative has accentuated the economic rivalry between China and the United States, generating geopolitical frictions due to the capacity of influence that the Chinese government has gained in the international concert.

This new area of ​​influence is the result of the fact that, with the New Silk Road, China is reinforcing and increasing its presence in Asia and Europe, that is, places where the United States traditionally exerted influence. Likewise, China has considerably increased its presence in African countries, where it finances the construction of entire cities in, for example, Kenya, Guinea, and Ethiopia. Thus, this program has strategic implications for world politics since it could generate the legitimacy of Chinese actions, especially in the South China Sea, where there are tensions with its neighbors for their sovereignty, on the part of the international community.

There are still many elements to analyze in order to measure the degree of success of this project. However, the first steps have been taken, the world has to be prepared to take advantage of the advantages that this brings and, at the same time, protect against the threats that come with a project of this magnitude.

 

Are you interested in knowing what opportunities and risks your company has as a result of Chinese economic policies? Write to info@riesgospoliticos.com.mx to provide you with the advice you need.

 

Photo by wu yi on Unsplash

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