Looking back over my last few columns and reading the mainstream press one would be forgiven that the only story of any import is the standoff between Europe and the UK. It is not. Let us cast a glance over the top of Europe further East to China and learn how a country that views 2017 too soon to judge the effects of the French Revolution has embarked on a grand plan for their future the like of which is at least the equal of Marshall aid and in truth much greater.
The Chinese have embarked on building an infrastructure the like of which the world has never seen a new silk road. The original Silk route was the trading artery upon which traders embarked on till the end of the 14thc which reached ended in Andalucia where the Eastern world met with the moors that were ruling much of Spain. It is difficult to get hard and fast routes attached to the new “road” but it seems to reach across via Turkey through Northern Europe to Rotterdam from which it drives down to Venice where it meets the Maritime silk “belt. The belt connects Europe to The Arab World, then onto the African and back through India , Indonesia and the Malacca straits to Mainland China. Despite large investments having been made in Spain, around Valencia, it seems destined to have that area only as a secondary ports. Another great investment by Europe.
The vision and ambition is breath taking and the benefits, at last initially, are clear to see from both sides. China can suck in all the raw materials it needs to support its extraordinary growth whilst using the same route to export finished goods. Similar in many ways to Great Britain when we had an Empire. We imported the raw materials from the Empire to manufacture goods and then exported the finished goods. To digress slightly I have always thought a story about my father exemplified the way we thought …He imported Kangeroo skins from Australia and manufactured a Koala Bear soft toy from them and then exported the said toys back to Australia. Now that’s arbitrage .Sadly one only has to go the old docks around Canary wharf to get an idea of the breadth of our earlier ambition. Sadly because the wharves are mainly flats now. I suppose its sweet justice that Canary Wharf is one of the leading centres in the World for financial arbitrage.
The cost estimates on the building of rail tracks etcetera are not clear but what is clear is the reported $900bln set aside by the Chinese Development Bank to work on infrastructure projects. As yet I have heard no “if you don’t pay us billions you won’t have access to the Silk Road” so is it safe to presume that Europe is too busy looking at its own naval to have looked East and presumably the Chinese are too bright to be relying on Europe for its trade or forcing countries into trade agreements. The new routes for transport will help boost local economies and thus help China export and I suspect the RMB , London is the global centre for its trading, will become a more widely traded currency against all the countries the route touches and the route goes through countries that account for 29% of the World GDP ( Source HSBC). President XI has stated he was wishing for $2.5 trillion of trade along the road within a decade. But where does this leave London and the USA?
London has played a key role in the financing of these ambitious plans and will continue to do so whatever the outcome of Brexit. The UK has a long history of interaction with the Chinese (admittedly not always in a manner we should be proud of see Opium) and retains close ties especially through Hong Kong where we are seen to have behaved honourably by the Chinese. Our ambitions also explain the lengths that the present government has gone to in building relationships with China. We also maintain ties through such lauded names as HSBC (some forget that Hong Kong and Shanghai Banking Corporation is its full name ), Standard Chartered and Jardines. History may not be fashionable but is of great importance to China and should not be underestimated. When it comes to helping finance the infrastructure of this reported trillion Dollar project the fees generated by the undiminished prowess of London will provide a timely boost to our post Brexit finances.
Where does this leave America? It’s hard to see its role or place in this project. No doubt Goldman Sachs will dip its tentacles in but when you look through the banks and advisors that are being used, apart from The World Bank, I could not find an American name. Not only is America missing out on a slice of some gargantuan fees but by its very location it cannot be part of the adventure. As yet very little has been said on this but I wonder if there is some politicking going on with Donald Trump using North Korea as leverage in some way ?
A new silk road and sea belt that benefits Europe and in particular the UK is fantastic news and a subject no doubt I will revert to again in months to come but is it all gladness and light? The Chinese are suffering a bout of indigestion with their internal markets and as the 10 year bond yield continues to flirt with 4% we may be seeing the start of a marked slowdown there. If you had invested $1000 in Chinese 10 year last year that investment would be worth approximately $650 now and that’s with very little currency movement and this move would make private investors nervous but I doubt it will slow down the likes of the EBRD and the Chinese Commercial banks investing. As the Chinese proverb says Bú pà lù cháng zhǐ pà zhì duǎn – which translates as Not fear a long road; fear aspiration to start or as we more prosaically say Rome wasn’t built in a day.