U.S. President Donald Trump is good for China’s One Belt One Road project.
That’s why one of the happiest people on Trump’s first day in office in January had to be Chinese President Xi Jinping.
On Trump’s first day in office, the U.S. president abandoned the Trans-Pacific Partnership (TPP), a trade agreement encompassing a dozen countries from Asia, the Pacific and the Americas.
That’s because, on Trump’s first day in office, the U.S. president abandoned the Trans-Pacific Partnership (TPP), a trade agreement encompassing a dozen countries from Asia, the Pacific and the Americas.
And that created a huge opportunity for China and its One Belt One Road (OBOR).
The TPP would have brought the U.S. closer to Asia, providing a counterbalance against China’s growing economic and political clout in the region.
China steps into the void
In the January issue of The Churchouse Letter we wrote:
“… Donald Trump’s geopolitical philosophy is one of isolationism and withdrawal.
And make no mistake: China will fill the vacuum. The Chinese already look across the Pacific and see an America of waning influence and power.
They view themselves as the rising power. And in their eyes, Trump’s election is a perfect validation of that belief.
The key point here is this: If the U.S. abandons its leadership role on geopolitical initiatives, tears up trade treaties and purely focuses on economic self-interest then China will fill in the gaps.”
Whilst the U.S. might be entering a phase of withdrawal from the global stage, China is pushing hard in the other direction. And China is filling the gaps left by the U.S.
Over the weekend, Chinese President Xi Jinping hosted heads of state and government from 29 countries (including Russia’s Vladimir Putin and Turkey’s Recep Erdogan) in Beijing for the Belt and Road Forum for International Cooperation.
The “Silk Road Economic Belt and the 21st-century Maritime Silk Road”, otherwise known as China’s One Belt One Road is a large-scale development and infrastructure programme announced by China in late 2013.
Spanning the breadth of Asia into Europe, the OBOR initiative incorporates around 60 countries, which account for a third of global GDP and around 60 percent of the global population.
China’s One Belt One Road is a massive investment
China says it will invest US$4 trillion into OBOR initiatives, although this could be over an extended period of time.
Investment bank Credit Suisse estimates that the initiative could lead to US$500 billion in investment across the participating countries over the next five years.
In his remarks to the Forum, President Xi described the initiative as a “project of the century”, and announced another US$80 billion in OBOR-related funding. This is in addition to the US$40 billion committed to its state-owned Silk Road Fund, an OBOR-specific investment fund as well as tens of billions of commitments to infrastructure development banks (see below).
But for China, One Belt One Road is about more than building roads, ports, bridges and infrastructure connecting the East and Western hemispheres. It’s about China staking its claim as the preeminent force driving globalisation.
As part of this, OBOR is a way that China can cement its strategic interests across a huge swathe of Africa, Central Asia and Eastern Europe at the same time.
China is also building institutions to support its OBOR ambitions. It launched the Beijing-headquartered Asian Infrastructure Investment Bank (AIIB) in January 2016 as a counterweight to the largely western-dominated International Monetary Fund (IMF) and World Bank. As a development bank, it is capitalised by its members, with the proceeds being used to fund Asia-Pacific infrastructure projects.
Over the weekend, an additional seven members were welcomed to the AIIB, bringing the total to 77 (which counts the likes of Australia, the U.K., India, Russia, Germany, France and Brazil amongst its members).
The U.S. is a notable omission from the member registry, having opposed the creation of the AIIB right from the start. The Treasury Department slammed the AIIB as an attempt to undermine other, more established development bank institutions (dominated, it should be noted, by the U.S.).
The opportunities of OBOR
The hundreds of billions of dollars in infrastructure spending up for grabs represent a huge opportunity for infrastructure-related companies to profit. We’re talking about everything from ports in Sri Lanka, to an airport in Nepal, from energy pipelines, to high-speed rail from China to Laos.
Companies with broad global reach and a strong presence in China will be particularly well positioned. Firms like heavy machinery maker Caterpillar, and conglomerates Siemens AG, and General Electric are the notable beneficiaries. And alongside them, China’s large state-owned companies also stand to gain given their size and proximity to the “money” behind OBOR.
But there are lots of smaller regional companies that stand to benefit as well (we are currently researching several for our flagship publication The Churchouse Letter).
Naturally, there is plenty of suspicion surrounding China’s real motives around the OBOR project.
Are they trying to export all their excess domestic capacity overseas (that is, instead of making painful capacity reductions in their domestic smokestack industries, are they using OBOR as a source of fresh demand for these industries)?
Or is China perhaps using its size and wealth to affect an infrastructure “colonisation” in OBOR countries?
China sees OBOR as a means of announcing its place on the global stage, stepping into a leadership role that it sees the U.S. abandoning, and creating deep regional economic ties.
It frames OBOR as a win-win for both China and OBOR countries. China develops more influence and connectivity with its neighbours. And in return, it provides a platform for sorely needed infrastructure across a huge part of the world that sorely lacks it.
(We wrote about Asia’s infrastructure needs in our September edition of The Churchouse Letter. Subscribers who followed our recommendation are up 21 percent so far.)
Expect to see much more news emerge on OBOR. It represents a signature policy of President Xi Jinping, and with the all-important twice-a-decade Chinese Communist Party National Congress slated for later this year, Xi will want to ensure that the OBOR initiative is developing quickly.
P.S. A couple of weeks ago we released our latest edition of The Churchouse Letter. We said we believed our recommendation could double within twelve months. Subscribers who followed our recommendation are already up 24 percent in under three weeks. Click here for your no-risk trial to The Churchouse Letter and get the full details yourself.