Asia Unhedged isn’t going to waste much time stating the obvious: China’s economy is slowing.
First-quarter GDP expanded by 7% – its weakest pace since the 2009 global recession, with a slowdown most apparent in the output, investment and retail sectors. Wednesday’s GDP number is predictably stirring calls from western analysts for China’s government to unleash fresh stimulus measures. These would be follow ups to the interest-rate cuts, relaxed home-buying and bank reserve rules already enacted.
Asia Unhedged wants to take a longer view of the implications raised by today’s GDP report. It’s old hat to point out that China’s traditional export markets with the U.S. and Europe are maturing. But China is headlining the fact that it intends to replace such plateauing demand with a far-reaching New Silk Road project that will expand its economic and political ties with Asian countries astride its old Silk Road of 500 years ago.
When China first broached the idea of a massive “One Belt, One Road” plan linking China, Central Asia and Europe by land and sea, it sounded to some outside analysts like an opium dream, something akin to Mao’s Great Leap Forward.
But now that China’s buttressed its concept with a $40 billion Silk Road Fund and the creation of a $100 billion Beijing-led Asian Infrastructure Investment Bank (AIIB) – a lot of the laughter has died away. To date, a total of 57 nations have now joined the AIIB vs. 67 for the U.S. and Japan-led Asian Development Bank. Many are U.S. allies.
According to Bloomberg McKinsey & Co. says the New Silk Road “has the potential to contribute 80% of global economic growth and vault 3 billion more people into the middle class by 2050.”
Where millions of Americans buy Chinese-made products at Wal-Mart today, millions of more Mongolians, Kazakhs, Sri Lankans and Indonesians will be doing the same in their shopping malls of the not-too-distant future.
None of this, of course, is going to happen overnight. But while the ancient Silk Road took centuries to build, things may happen a lot quicker, given China’s capital clout, transport technology and signs of an economic and demographic revolution in what used to be known as the sandy wastes of Central Asia.
Some say China’s grand plan will be more successful by sea than by land. This is “simply because there is vastly more economic activity” there, David Dollar, a senior fellow at the Brookings Institution in Washington, who previously worked for the U.S. Treasury in Beijing, told Bloomberg.
“Think of coastal China, the Philippines, Vietnam, Indonesia, continuing on to Bangladesh and India — there is a huge amount of economic activity already and an insufficient degree of integration,” said Dollar, a former head of the World Bank in China. “Plus sea transport is less expensive than land transport.”
Given the huge growth of China’s shipping industry despite economic shocks in the last decade, Beijing also has plenty of maritime muscle to bring into play.