US Progressives and Conservatives/Nationalists combined arms to torpedo TPP. I don’t want to re-litigate the merits & demerits of the partnership in this article. However, an outcome of cancelling the agreement is that America lost its voice to rally countries against China’s competing plan.
China last week announced it response to TPP and it is a slippery slope to Imperialism and has sparked fears of neo-colonism. America, the World’s only super power spent time figuring out the intelligence levels of Trump instead of keeping China’s imperialism in check.
China’s OBOR: One Belt and One Road
One Belt One Road is the short form for The Silk Road Economic Belt and the 21st-century Maritime Silk Road initiative. Conceptually, China wants to create an infrastructure and energy corridor from China to western edges of Europe, the southern borders of the Asian continent and take it North into Russia. The intent is to bring infrastructure & energy to some of the backward areas and connect them to the developed nations in Europe and sparking the next level of Global commerce. The plan calls for 2 infrastructure channels — recreating a land based New Silk Route and a maritime centered trading route. Together the initiative plans to spend $1Trillion annually over the next 10 years. China has committed to over $126B of funding through new banking ecosystems and participation of Chinese financial companies in these programs.
Slippery Slope to Vassal States or worse
Capitalism gets a bad rap and it deserves much of it in these days of corporate focus of maximizing profits and offloading losses to society & government. However, every other model has failed. My college professor once called capitalism and democracy as weak gravitational forces that together holds a stable & prosperous society together.
China’s OBOR hides the risk of creating vassal states for many reasons:
- China’s OBOR popularity has grown in recent years as opportunities for infrastructure spend, excess steel & raw material capacity, RoI diminishes in their own country and Chinese firms look for other regions to deploy their surplus capacity
- Most of the OBOR programs have heavy Chinese buyback. China banks underwrite the loans; Chinese companies bring raw material & IPs; Chinese engineering firms bring man power from China as well. In summary, China getting land rights for Chinese firms & nationals to make money
- For Eg: Coal plants in Pakistan with 25% RoI for investors are signed and nations have to underwrite high cost of energy purchases. Deals with purchase price of $0.14/kwh — 12% more than the average cost PAID by US Consumer in a country with 1/6th the purchasing power of USA
- Countries have to generate trade surplus with China to pay back loans. Today EVERYONE of them have a trade deficit
- For many countries, repayment of Chinese loans is a massive layout of their yearly budget. Pakistan’s CPEC outflow will account for 10% of their annual currency transfers. China $6B China-Laos railway line is 50% of their 2015 GDP.
- Outside of a few exceptions, the corridor & investment is centered in some of the world’s most corruption prone regions. An unintended (or deliberate) outcome is the growth of vassal states
- Government to Government loans are at 2% over 30 years while bank loans are pegged to Yuan and have 8% annual interest rate (Incidentally, World Bank charges up to 20% in some of these nations on USD loans
To make matters worse, Trump and his government are not only going to turn a blind eye towards OBOR program but also sent a representative for last week’s summit in Beijing and thereby enhancing the credibility to the program.
Hoping that USA can keep China’s imperialism steps in check and countries see the downside to accepting Chinese ‘fully wrapped gifts’