Soviet Collapse Echoes in China’s Belt and Road

It’s not called the People’s invading army, it’s called the People’s Liberation Army. Now who needs liberating?

So what? The trade route only just opened up. The numbers started at zero and started only recently, so of course they are small. By how much the trade is going to increase and at what rate is what everyone is arguing about. People underestimate how large Eurasia is along its east-west axis and how underdeveloped it is in parts. I predict the naysayers and doomsayers will be eating their hats.

In nominal terms the US is the world's largest economy. Let's put it at ~$20tn gdp nominal with moderate growth. EU is about ~$17tn with less than moderate growth say and China is about ~$13tn and growing fast. Problem is that EU and China are at opposite ends of the Eurasian landmass. Anything that reduces trade times and cost between the poles of this massive continent and interconnects a combined ~$30tn economy is going to have an enormous impact.

But even so the article contradicts itself.

“The overwhelming majority of China's trade with Europe is by sea and air. Overland routes don't cut it”

What the detailed stats show is that by value rail is 2% and road is 6% of total trade. (Air is 28%). Take into account that,

“Just 10 years ago, regular direct freight services from China to Europe did not exist. Today, they connect roughly 35 Chinese cities with 34 European cities.”[1]

And that,

“Rail services are considerably cheaper than air and faster than sea”[2]

So 2% of trade captured in 10 years. So if people stop thinking in terms of years and start thinking in terms of decades it is obvious that improvements in land logistics will far surpass those of sea and air. By the middle of the century it is anybody's guess what fraction of total trade will be capture by road and rail but it could be very significant. From my reading most analyses put Khazakstan as one of the major bottlenecks, an upgrade there could have huge knock on effects. (And that's not even taking into consideration different sized rail gauges.)

[1] https://www.csis.org/analysis/rise-china-europe-railways

[2] https://csis-prod.s3.amazonaws.com/s3fs-public/180228_fig1.p...

If I try to connect the facts presented in this article, I don't get to quite the same conclusions. Let me walk through the article:

The article presents a chart of top investments. The top 3 are all in Malaysia, costing from $8.4B to $14.1B. OK, China is spending a lot of money in this Belt & Road thing.

The article details how the China-Myanmar gas and oil pipelines (a $2.5B investment) are under-utilized. Now we see that some of that money could have been spent more wisely.

The article points out that the majority of China's trade with Europe is by sea and the Malacca Strait is a choking point. The article doesn't say, but it seems to validate that the both investments above are good ideas:

* This validates that the vast investment in Malaysia is a really good idea. By having Malaysia's economy integrated with, or even reliant on China's economy, China secures the trade route by sea.

* This also validates that the China-Myanmar pipelines may also be a good idea, even if they are under-utilized now. It hedges the risk of the Malaysia investment, and gives China more leverage when it comes to issues in the Malacca Strait. Even at peace time, Malaysia, Indonesia, or the US could threaten to deny Chinese ships passage of the Strait and apply a lot of leverage to China. That leverage is gone with the Myanmar pipelines. It is under-utilized now and will probably remain under-utilized because it's a strategic tool.

The article then shows how the Soviet economy went down due to investments in Siberia. I strongly feel it is the wrong comparison: not only because Malaysia and Myanmar are very different places from Siberia, but also because Siberia is part of Russia while Malaysia and Myanmar are not part of China. I am not implying that foreign investments are automatically better than domestic investments, but the analogy is a poor one here.

The article also shows how China's domestic investment is shifting from the east coast to the west inland areas, apparently trying to draw a better analogy with Russia's decline. That looks like a more valid point to me, but why the sudden shift to domestic investments near the end? Probably it is because the author wants to conclude the article with the following sentence:

> China’s rise this century was driven by its embrace of world trade and the coastal provinces most exposed to it. In this retreat inland, it’s sowing the seeds of decline.

But if the reader still remembers the earlier parts of the article, they should see that China is doing several things:

* Foreign investments along the traditional maritime trade routes -- most notably Malaysia

* Foreign investments along the new land trade routes -- I understand this to hedge the risk of maritime trade routes being blockaded

* Domestic investments to less-developed areas

This is hardly a "retreat inland", it is diversification of investments. Sounds good to me.

> an in-depth analysis of the project really looking at the consequences with an eye on the long-term effects

You won't find them because these aren't projects being developed (a) with private capital nor (b) for their economic merits. When a bridge is built in America, someone issues a bond. That issuance--both leading up to it and once in the wild--produces an incentive to do good analysis.

That incentive isn't there with Belt and Road. State-owned banks provide the capital. And the reasoning for the development is strategic, so you get geopolitical and military talking heads instead of good economists, whose services are ironically better allocated to analyzing other projects.

Worsened because of wealth extraction by the British. Many gains in productivity were not reinvested, hence the decline relative to the Mughal era.