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As a general
rule the most successful man in life is the man who has the best information
The Silk Routes,
collectively known as the "Silk Road", refer to a 7000 mile network
of interlinking trade routes that were used for three millennia. They
connected China, India, Tibet, the Persian Empire, the Mediterranean
countries and parts of North and East Africa.
The Maritime
Silk Road was a network of shipping lines from the
Red Sea to East Africa, India, China, and Southeast Asia. The network
consisted of ship routes in two general directions: the East China Sea routes
and the South China Sea routes.
The East China
Sea routes connected the Chinese mainland to the Northeast Asian regions of
the Liaodong Peninsula, the Korean Peninsula, and the Japanese Isles. The
South China Sea route heads down, then up, through the Malacca Straits into
the Bay of Bengal, opening up China to the coasts of the Indian Ocean, the
Red Sea, the Persian Gulf and the African continent.
These shipping
lanes are still in use.
A
Southern Silk Road
Willem Buiter
and Ebrahim Rahbari, Citigroup Inc. economists, predict growing trade links
between emerging markets will increase worldwide trade in goods and services
from $37 trillion in 2010 to $149 trillion in 2030. They also estimate that
China will overtake the U.S., within four years, to become the world’s
largest trader.
“It is
the start of a new cycle. China has companies that are willing to invest,
they have products that are good enough, and they are backed by abundant
liquidity in the country’s financial system.” Ben Simpfendorfer,
author The New Silk Road
Today trade is
flowing on a "Southern Silk Road" connecting Asia, the Middle East,
Africa and Latin America:
- Trade between China and South Asia
is still growing
- China's trade with Africa is
expected to double by 2015
- Africa's top trading
partners, in terms of bilateral trade volume, are China and India
- Over 50 per cent of India's trade
is now with other Asian countries while only 32 per cent is with the
United States and Europe
- China's trade with Arab countries
is growing by 30 percent annually and India’s is expected to grow
even quicker
- China's trade with Latin America
is growing twice as fast as U.S. trade with the region and India’s
trade within the region has increased 10 fold in a decade
Trade between
developing nations is forecast to be larger than trade among developed
nations by 2015 - HSBC is calling for a ten-fold increase in developing
nations intra-trade over the next four decades.
“Thick
borders discourage capital inflows, keep people trapped in rural poverty and
leave economies persistently underperforming. Only if they can connect with
each will emerging nations be able to turbo-charge their economic
futures.” Stephen King, HSBC’s London-based chief economist,
author of Losing Control: The Emerging Threats to Western Prosperity
The MSCI
Emerging Markets Index has risen 102 percent since January 2009, that’s
compared to the 41 percent gain in the MSCI World (MXWO) Index of 24
developed markets.
The New
Steel Silk Road
The real point
of modernizing railways, and the major reason for China’s global
push for High Speed Rail, is the increased movement of cargo - a shift in
passenger traffic to the new high speed routes frees up space on the older,
now congested legacy lines for increased freight shipping.
Shippers can
switch to cheaper rail transport instead of using trucks for long haul of
heavy bulky cargos. According to the World Bank, because of this shift and
the construction of additional freight lines, the tonnage hauled by
China’s rail system increased, in 2010, by an amount equal to the
entire freight carried by the combined rail systems of Britain, France,
Germany and Poland.
China's total
investment in high speed rail was first reported to be about US$300 billion -
the Chinese planned a 12,000km high speed passenger network supplemented by
20,000km of mixed traffic lines capable of 200-250kph.
Recent reports
indicate that over US$600 billion will be spent on rail construction during
the 2011-2015 Five Year Plan. By 2020 there would be at least 16,000 km of
passenger dedicated high speed rail. The total rail network by 2020 would be
120,000 km - 80% of it electrified.
China has plans
to construct its high speed rail line through Asia and Eastern Europe in
order to connect to the existing infrastructure in the European Union (EU).
Additional rail lines are planned into South East Asia as well as Russia
– this will likely be the largest infrastructure project in history.
The project will
include three major high speed lines:
- UK/Europe to Beijing (8,100 km)
and then extend south to Singapore
- A second line will connect into
Vietnam, Thailand, Burma and Malaysia
- The third line will connect
Germany to Russia, cross Siberia and then back into China
Financing and
planning for this monumental project is being provided by China – who
is already in negotiations with 17 countries to develop the project. In
return the partnering nation will provide natural resources to China.
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"We will use government money and bank
loans, but the railways may also raise financing from the private sector
and also from the host countries. We would actually prefer the other
countries to pay in natural resources rather than make their own capital
investment." Wang Mengshu, a member of the Chinese Academy
of Engineering and a senior consultant on China's domestic high-speed rail
project
The exact
route of the three lines has yet to be decided, but construction for the
South East Asian line had already begun in the Chinese southern province of
Yunnan and Burma is about to begin building its link.
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China offered to
bankroll the Burmese line in exchange for the country's rich reserves of
lithium, a metal widely used in batteries.
Russia
Russian
Railways, the state rail monopoly, plans to build a €15bn high speed
railway line between Moscow and St Petersburg that will eventually reach at
least ten Russian cities in the European part of the country.
China sees
Russia as a land bridge to Europe and has urged the country to extend its
planned HSR network further east to connect the two countries.
Russia and China
have announced plans to build a new trans-Siberian link.
Russia wants to
build a $65 billion railway from Siberia to North America. This line would
extend the proposed Chinese-Russian rail line across 3/4 of the Northern
Hemisphere.
Tibet,
Iran, Pakistan and India
China has
already built a line linking Tibet to the rest of China - it crosses 550km of
continuous permafrost and experiences extreme temperatures swings.
Iran, Pakistan,
and India are each negotiating with China to build domestic rail lines that
would link into the overall transcontinental system. Iran's Press TV reported
that the two countries had signed a $13bn contract for China Railways to
build 5,000km of track in Iran.
Vinay Mittal,
the Chairman of the Indian Railway Board, told Indian media that high-speed
trains were feasible and necessary for India, especially for freight
corridors.
Planning
Commission Deputy Chairman Montek Singh Ahluwalia said if India is looking at
a GDP growth rate of 5 per cent, the present rail infrastructure is fine, but
if it wants to grow by 9 per cent, it needs the high-speed rail networks.
Turkey
The Turkish
State Railways started building high-speed rail lines in 2003 and
are targeting a 1500 km network of high-speed lines by 2013 and a 4000
km network by the year 2023.
The Marmaray
project is a rail transport network around Istanbul and the world's deepest
immersed railway tunnel under the Bosphorus strait.
Marmaray is an
important junction as it will act as the connector between subway and railway
lines in the European and Asian parts of Turkey.
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South-East Asia
China
is laying tracks to mainland South-East Asia. It has recently signed
agreements to build new lines in Laos and Thailand, while it extends its
network from Kunming to the China-Laos border.
These
lines are meant to be ready by 2015.
Laying
lines into Myanmar would add an Indian Ocean port - a railway into Myanmar
would give China access to the Indian Ocean and allow it to bring oil
supplies up into its southwest without going through a vulnerable choke
point in the narrow Straits of Malacca.
Greater Mekong Sub-region
Trains
already run between China and Vietnam, which has a north-south railway.
This existing linkage opens up a circuitous
eastern route into South-East Asia, via Cambodia and Thailand.
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By 2014, once
this route is operating, it would carry almost 7m tonnes of cargo among
Greater Mekong countries, rising to 26m tonnes by 2025.
Latin
America
China is
proposing to build a new, and dry alternative to
rival the almost century old Panama canal – a 220km railway.
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The rail link
would connect the northern Atlantic coast of Colombia with its Pacific
coast. The plan also includes a proposal to build
a new city south of Cartagena to assemble Chinese exports.
This is just
one of several transportation projects the Chinese and Colombians are
looking at. The most advanced is a 791 km railway and expansion of the
Pacific port of Buenaventura.
If the US
ratifies the negotiated free trade agreement with Colombia the country
would become an important access point for exports to the U.S. market.
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Last year China
National Petroleum Corp. struck deals with Venezuela’s national oil
company (PDVSA) to develop the Orinoco Belt oil field and to explore for oil
in southern Venezuela. The output will need to be transported to Pacific
ports for shipment to Asian markets using Colombia’s proposed rail
lines.
China has
already started building a railway in Venezuela and
recently signed a deal with Argentina to construct another.
Africa
“All
across Africa, new tracks are being laid, highways built, ports deepened,
commercial contracts signed—all on an unprecedented scale, and led by China, whose
appetite for commodities seems insatiable. Do China’s grand designs
promise the transformation, at last, of a star-crossed continent?” Howard W. French
The National
Railways of Zimbabwe has begun replacing 144 km of permanent way with rail
secured from China.
Botswana is
looking for an infusion of Chinese money for its proposed Trans-Kgalagadi
railway linking Botswana with Namibia.
The rail line
between Angola’s southern port of Namibe and the frontier provinces of
Huila, Namibe and Kuando-Mubango has been almost completely rebuilt with
Chinese help.
The Caminhos de
Ferro de Benguela (CFB) rail line is also being rebuilt with help from the
Chinese. Its over 1300km long and crosses Angola from west to east joining up
with the rail network in the Democratic Republic of Congo, which is being
rebuilt with Chinese help.
The 1900km
Tanzania-Zambia Railway, linking half of Africa - from Cape to Cairo - was
built and funded by the Chinese. The Chinese government recently cancelled 50
per cent of the unpaid loan and gave a new loan of
$39.9 m to the Tanzania and Zambia Railways Authority.
Fixed
Asset Investments
China’s
economic development to date has been largely driven by fixed asset
investments (FAI). Fixed assets include items such as land and
buildings, motor vehicles, and plant and machinery - meaning China's
annual growth has been fueled by energy-intensive heavy industry and
infrastructure construction, not yet by consumer demand.
"Especially
in the U.S., consumer spending is essential: It drives about 70 percent of
economic activity — more than for most European nations and well above
the rates in developing countries such as China." Martin Crutsinger
Associated Press
China's
fixed-asset investments rose 25 percent year-on-year to hit 18.06 trillion
Yuan (2.83 trillion U.S. dollars) during the first eight months of 2011.
China is able to
invest so much into FAI because, in addition to the inflow of foreign direct
investment (FDI is a measure of foreign ownership of productive assets, such
as factories, mines and land) its citizens have a very high savings rate as a
percentage of income. Because of controls on how and where they can
invest that money, Chinese savers have little choice but to invest at home.
As trade along
the Steel Silk Road builds and intensifies Chinese savings will increasingly
be used for infrastructure investment in foreign lands, not the buying of US
Treasuries. Deep-sea ports, rail lines, airports, roads, bridges and power
generation will be the investments of choice.
"Rail
lines not only function as the circulatory system for a national and global
economy, but are the backbone for internal development. The rail lines
proposed are not simple railroad lines, no matter how they might appear on a
map, but are designed to be "infrastructure corridors." The New
Federalist, Newspaper, 1995
Conclusion
"From a
western perspective, it’s tempting to believe that either the eurozone
debt crisis or the US slowdown is the greatest show on earth. That temptation
should be resisted. The greatest show on earth is happening elsewhere: the
creation of a southern Silk Road, a network of new “South-South”
trading routes connecting Asia, the Middle East, Africa and Latin
America." Stephen King, Time to put the Southern Silk Road on the Map,
There’s
been a shift in global trade taking place with developing countries
increasingly interacting with each other instead of their old trading
partners, the developed nations.
Given the fact
that Eurasia, Latin America, the Middle East and Africa comprise most of the
world's population will The New Steel Silk Road be the building block
for a truly developed global economy? It’s something that’s
definitely on my radar screen. Is it on yours?
If not, maybe it
should be.
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