Whether it was my longing to travel or the sight and sounds’ of trains but I have always been enamoured by the romance of continental rail travel. Out of all the great London Train stations I used to love Victoria above all others. Not for any other reason than the fact that the boat train left there and on the giant display the magical word Paris appeared . Not Leeds, Newcastle, Watford or Birmingham but Paris. I loved it fifty years ago and I still get a childish excitement at St Pancras when I see the destinations for Eurostar and well , if I am in a station in mainland Europe that’s a whole new level of excitement. My wife will endorse this because as recently as three years ago I persuaded her to take the night train from Paris to Florence which was in all honesty not quite as romantic as I had sold it, never mind the sights and tastes of Florence made up for it.
Last January 18th a train arrived at Barking from far afield, not loaded with Elephants , Giraffes or Clowns (well if it did no one has mentioned it )as in last week’s column but with general household commodities. The train had left Yiwu in Eastern China and travelled across Kazakhstan, Russia, Poland , Germany, Belgium and France before arriving at its glamourous destination, Barking. In reality whether it was Barking, Stratford or Millwall doesn’t matter as it had traversed 7,500 miles and arrived in London. This journey was the first illustration of the success of the one Trillion Dollar new Silk Road initiative that President Xi Jinping is presiding over and since then trains have taken, what a surprise, Whiskey in the opposite direction. The great advantage is time as it takes 18days by train as opposed to about 30 by the more traditional sea routes.
As I wrote last year this initiative has ramifications far and wide and it continues to be financed through London, to the annoyance of other centres. The project is forecast to affect nearly 60% of the world’s population with one area losing out . The good old USA. The USA by nature of its location cannot directly benefit from this project and indeed with the rumours surrounding the Chinese restricting purchases of US Treasuries in the last week the impact may be greater. Indeed President Xi has stated that lending some of their trade surplus to build infrastructure across Africa, Asia and Europe that benefits so many, not least the Chinese, is a better way to recycle their massive surplus.
The influence of this project on commodity prices should be positive as the will be used in not only building the infrastructure but also be sucked into China to feed its massive industries. The ramifications of its financing and the effect of opening up trading in the RMB which will unsurprisingly be located in London will create wealth and ensure that London remains the preeminent European Financial centre. Boo sucks to those that wish to see London fail. As the influence of the project grows so will the importance of RMB which at the moment lags behind USD, JPY, EUR and GBP in terms of trading turnover which is surprising for the Worlds second, some would argue that they are first , largest economy .
A fantastic project for those that sit on the continents that will benefit and an irritant to those that don’t with the biggest loser appearing to be the US and we are now starting to see the reaction and the ramifications. President Trump is occasionally presented by the press as the world’s most powerful toddler who is prone to throw his toys from his pram. This to my way of thinking is harsh but there can be no disguising his annoyance with Xi , a man who he thought he could business with. It is a clash of visions and both leaders think their place in history is to restore their countries to their former glories be it in a militarily or industrially and as such we have the problem of the world’s two most powerful men competing head on.
China for all its great strides is one hell of a partner to do business with. One simple fact shows this above all others . If you partner with a Chinese firm there is a requirement to reciprocate IP and yet one suspects that this is always one way traffic into China. From Trump’s point of view they partner with US companies, steal the IP, manufacture cheaper and dump the product back onto the American market. Then use the profit to expand their sphere of influence. As Trump came to the end of his first rocky year and passed the Tax reform bills there seems to be a swagger in his step and the refusal to approve the purchase of MoneyGram by Ant Financial (which is controlled by Jack Ma of Alibaba fame) may well prove to be the first of many mergers and takeovers that the US blocks as a 21st Century trade war breaks out.
I wrote earlier about President Trump’s decision to block aid to Pakistan and how this although appearing harsh at first can be likened to cutting off the supply of drugs to a junkie- the junkie will eventually clean themselves of the addiction. In the same way it is hoped that Pakistan will clean itself of the radical element in its military and government . Enough reason to restrict aid but if you do a little digging this action also hurts China who had lent Pakistan upwards of $56bln to develop Silk Road infrastructure . Pakistan’s debt and interest payments to China have started and without US aid Pakistan will struggle. The Chinese must have thought it a wonderful game to recycle its trade balance in the form of loans to Pakistan and then get the US to pay the interest on them whilst at the same time aiding North Korea break trade embargoes. Will President Xi take stock and stop helping North Korea import oil? We will see.
In the background to the great adventure of the new Silk Road there is going to be increasing tension between China and the US and for Trump to stay close with Russia may make sense from a Geo Political stance if for no other reason than balance. As this game plays out there will be plenty of trading opportunities be it commodities, Bonds or RMB and let us just hope that Trump and XI just circle each other like two sumo wrestlers and resist the temptation to see who has the biggest button.