CHINA’S SOLUTION – THE BIGGEST INFRASTRUCTURE SPENDING BINGE IN HISTORY

In 2014, Chinese President Xi Jinping announced a staggeringly ambitious new foreign policy and economic investment initiative, the One Belt/One Road (or New Silk Road) initiative.  The goal of One Belt/One Road is to better connect China with the rest of the global economy through specific infrastructure projects, including enhanced port facilities for shipping lanes and new highway and high speed rail connections for overland routes. New infrastructure projects are intended to connect China North into Russia, south into Southeast Asia and west across Central Asia and Europe all the way to the Atlantic coast.  In addition to opening new markets for Chinese products, One Belt/One Road is being marketed as a way for places like Pakistan and Uzbekistan to potentially enjoy an economic explosion similar to the one China has experienced over the past 20 years.

The planned scale of One Belt/One Road is unprecedented, with even America’s post-World War ii Marshall Plan paling by comparison. Although the plan initially encountered resistance and roadblocks, new projects have been coming on line fairly rapidly over the past several months and approximately #$1 trillion in One Belt/One Road projects are currently under construction. According to a McKinsey report, China hopes to eventually scale the program up to an annual expenditure of $2-3 trillion and intends to maintain this level of expenditure for several years. To put that into perspective, President Trump is targeting an infrastructure plan of around $1 trillion, and that $1 trillion expenditure is expected to be spread out over a 10 year period.

David Fuller's view

The Marshall Plan, mentioned above, focussed on rebuilding a devastated Europe, including all countries which were not part of the Soviet Union.  In contrast, the oddly named One Belt/One Road project is another grandiose scheme, favoured by Chinese governments, to jumpstart faltering GDP growth.  At least it is better than building more ghost cities.

I hope it succeeds because that would be good for global GDP growth.  However, I would prefer to see China create more of a free market environment for its entrepreneurs.  China’s economic emergence over the last 30 years has been inspired, disciplined and often spectacular but the next stage of development is more challenging.  Their population has the potential to achieve anything but their political system encourages corruption and the best talent is seldom given free reign.   

Here is The Strategic View.