China has launched a huge One Belt, One Road strategy to linking its industrial overcapacity with the populations of some 50 countries across Asia, Africa and Europe. The project enhances distribution of China’s products including TiO2 to hundreds of millions of potential consumers around the world. In fact, the railroad across Asia to Europe and new sea lanes may be the largest infrastructure project ever undertaken.
But that’s not all. The Panama Canal poses practical and political issues for China. Its massive container ships are too large for the century old shortcut from the Pacific to the Atlantic. In addition, there are some political considerations. With its commitment to build pathways to markets, a techcom billionaire in China is negotiating a second canal that will give his country a pathway to markets on the Atlantic side of the Americas and the Caribbean.
The proposed Chinese supported canal across Nicaragua will, or perhaps, would open faster access to countries on both sides of the Atlantic, especially in Latin America and Africa, thus completing access around the world to increased flows of goods from China to say nothing of exacerbating the unease concerning China’s political aspirations.
The New Silk Roads by Land and Sea
The government in China is focusing on an investment strategy to build its position in world trade. As a first step, it created the Asia Infrastructure Investment Bank, which has US$40B to US$50B to fund the development of this project. A point of note: the bank uses national currencies, not the US dollar.
One Belt, One Road will touch at least 40% of the world’s population with an Interbank Credit System that is independent of the IMF and the World Bank.
The trade alignments involved in the New Silk Road and the 21st Century Maritime Silk Road include:
- The Eurasian Economic Union (the Silk Road)
- The Shanghai Cooperation Organization (the Maritime Road)
- The ASEAN Economic Area and pending TPP
The China government is expecting numerous benefits to evolve from One Belt, One Road. Among them, building the infrastructure provides stimulus during its economic slowdown; it opens new markets for the industrial overcapacity that is plaguing TiO2 and other manufacturers, and, finally, it serves as a process to improve industry cooperation with the government.
This project raises concerns in Australia, the current source for many of the minerals and much of the energy now powering Chinese production. The future impact on its economic position is unclear. Will China rail and China sea lanes shift the supply source of ore and minerals to the countries of Southeast Asia?
The massive land-based Silk Road required construction of power grids to enable construction of the railroad track. Part of the railroad line is already in operation; last November, the first Silk Road train left China with 82 containers headed to Madrid, a journey of more than 6,000 miles. It reached the terminus of the line in 21 days, a dramatic reduction from the time involved in a trip by sea.
The maritime Silk Road requires infrastructure of ports and naval bases through the waters from China to Africa to Europe. With increased speed to reach far off markets, China is positioning itself for greater economic power on the world stage.
China Trade Strategy in the Western Hemisphere: A Canal Across Nicaragua
China continues to move forward with plans to extend its influence, power and financial base in the Western Hemisphere, especially Latin America.
A Chinese businessman has proposed building a monumental canal and supporting infrastructure across Nicaragua in competition for shipping traffic with the Panama Canal. Techcom billionaire Wang Jing has negotiated an agreement for his Hong Kong Nicaragua Canal Development and Investment Company (HKND) with the government in Nicaragua. HKND will construct a canal large enough to permit traffic of China’s huge container ships and tankers.
Many of these cargo ships are too large to navigate the Panama Canal. In addition, heavy traffic limits access to the canal and slows speed to markets for China’s massive production output. Controlling a link across Central America would give that country the access to new and expanded markets that will support its economy at home. There’s no question that the proposed canal will dramatically shift trade throughout the Americas.
Estimated costs for this undertaking vary from US$40B to US$50B. However, the economics and the physical feasibility of the project remain cloudy.
- The 173-mile canal will be three times as long as the Panama Canal.
- Geological characteristics, seismic and others, pose daunting challenges.
- The ecological impact has not been calculated.
- The investment vs. value has not been determined.
Some say the economics just don’t measure up to a financial success. The lack of progress since the announcement of ground breaking more than one year ago may reflect the significant losses Wang Jing has incurred in his personal wealth of US$10B. Reportedly he has lost 80% to even 85% of its value. Other factors hindering progress may include the yet-to-come results of engineering feasibility studies.
Some estimate that the costs to construct the 173 miles canal could reach as much as US$100B. That would mean fees would need to be more than double the current Panama Canal fees. Without the engineering study and the environmental impact analysis, it’s hard to judge the economics of the project. Given the lack of transparency in this as well as other Chinese projects, it’s anybody’s guess.
At the same time, constructing the canal would boost the economy of Nicaragua, the poorest country in the hemisphere with the exception of Haiti. More than 40% of the population lives in poverty. The forces for and against this project are strong. However, at present, there are no signs of construction activity.
No one knows what role the government in China has in this. Clearly a China-controlled canal would increase the power of that country throughout the Americas. How much economic benefit it would bring to the people in China is not clear. Perhaps that doesn’t matter. Political influence and power may be the key factors in this.