Why is China Building An $8T Silk Road?

Explore China’s $8 trillion Belt and Road Initiative (BRI), its impact on global trade, geopolitics, and concerns about debt diplomacy. Is this the start of a new world order in which China (not the USA) calls the shots? Or will it end up being an $8T gamble

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Timecodes
0:00 An $8T Intro
1:00 Why Trade Matters
3:21 The 3 Types of World Orders
4:34 Breaking Down the BRI
8:28 Global Implications
10:00 Debt Trap Diplomacy
14:40 The Price of Bad Debt
18:00 China or the US?

China has this dream of overtaking the United States as the most influential Global superpower and their secret weapon in achieving the stream Bridges lots of bridges as well as ports and dams and a long list of other infrastructure projects that are all a part of China’s belt and Road initiative

Or BR announced by xianping in 2013 the BR intends to more efficiently connect 155 countries and improve international trade for over half the world’s population and all for just $8 trillion in this video we are going to answer the following questions what is a world order and why does China think a Silk

Road reboot will change our existing one what is the scope of the brri and how is it being financed is the BR just another Silk Road or is it entirely different and finally will the BR allow China to successfully overtake the United States as the world’s largest global power

A world order is essentially the rule book that powerful countries use to keep peace and stability across the globe when we talk about a new world order we’re discussing a shift in power where the current leading Nations and their rules are swapped out for Rising Powers with different ideas during this

Transition the dominant Powers form new institutions establishing new guidelines from which international relations will develop right now the United States is the chief rulemaker of the world thanks to the influence it’s afforded by its economy military and technological advancements but emerging powers like China have historically opposed the

Political and economic ground rules that the liberal West tries to establish for the rest of the world it seems that China rather than conform is evolving into a revolutionary power that aims to reestablish new Global norms and new institutions and the reason reason China is hoping to achieve that through the

Brri is because China plans to shape the world not by making the fastest fighter jets or the next metaverse but by controlling global trade for China this is a major show of strength against the US especially when you consider that most of China’s International Trade transits by sea go through the Mala

Straight near Singapore a major Ally to the US the BR aims to establish new trade routes ones much more beneficial to China that aim to increase the global economy’s dependency on China as recently as 2021 xianping publicly criticized us Global Leadership and interference stating that the rules set

By one or several other countries should not be imposed on others and the unilateralism of individual countries should not give the whole world a rhythm but is that not the intention of the brri much like the US’s Marshall Plan of 1948 that provided economic aid to Europe to prevent the spread of

Communism the BR is an infrastructure project designed to expand the influence of one ideology and diminish the influence fluence of another but today China not Russia will bring about the largest geopolitical change of this Century the era of Western political and economic domination is ending and for

The first time in modern history the East and the West can coexist on equal terms making it unclear whether the world is moving towards a unipolar bipolar or multi-polar order a bipolar order is a global structure dominated by two superpowers where the majority of global influence is evenly split the

Cold War era marked by the US and the Soviet Union is perhaps the best example of this in a multi-polar order the world isn’t dominated by one or two ideologies but several competing factions everybody has their considerable clout but no one is dominating anyone and in a unipolar

World order one country is the solo superpower calling the shots perhaps the best example is the world order that we’re in today where the US has been in the driver seat since the end of the Cold War I suppose only time and the comment sections will tell which of

These three power structures the future may actually hold but China’s bid for world domination interestingly enough was actually a response to a major Global disservice by the United States the 2008 Global Financial crash in response to their share of the financial turmoil China rolled out a massive $650 billion stimulus package majorly

Targeting infrastructure while this helped China’s domestic Market in the short term it soon left the market oversaturated with construction companies this saturation paved the way for the BR I offering Chinese firms opportunity on the international Stage in China the BR is actually the OBO the one belt one road initiative its official name was the Silk Road economic belt and 21st century Maritime silk road development strategy but not only is that a mouthful the assertiveness of the word strategy didn’t play well it seemed

To World Domination and was rebranded to an initiative it’s like rebranding a shark as a friendly fish so what is in a name well one belt is shorthand for the Silk Road economic belt a set of proposed roads and Railways through the landlock regions of Central Asia you’d

Think the one road part of the one belt one road initiative would be about the roads but actually one road refers to the 21st century Maritime Silk Road the indopacific sea routes from Southeast Asia to South Asia the Middle East and Africa the Crown Jewel of the belt

Component in China’s belt and Road initiative is the China Pakistan economic Corridor or CPC this 3,000 km infrastructure network is designed to provide an alternative route to the malaka strait allowing China to reroute its energy imports from the Middle East through Pakistan and in doing so enhancing its trade prospects with the

Energy deficient Europe while protecting itself from the possibility of us interference with trade going through the malaka straight the CP DC is also a vital part of Pakistan’s transformation from an agricultural economy to an industrial one as it will bring the stable source of electricity the country so desperately needs Pakistan’s

Officials project that the CPC will create 2.3 million jobs between 2015 and 2030 and add an additional 25% to the nation’s annual GDP as for the road half of China’s BR and remember the road half refers to the not Road water-based projects China’s strategy goes far beyond Sid stepping the malaka straight

China is envisioning a global infrastructure grid that includes fuel stations trade ports and bridges spanning Sri Lanka Dubai jibuti Greece Spain and even Peru the brri actually encompasses over 2,600 infrastructure projects in over 100 countries illustrating that the BR is more of a broad economic Vision than

A crystallized plan by 2027 China will have invested a staggering $ 1.3 trillion in the BR leading many economists and YouTubers likee to coin the brri as the trillion dollar sequel to The Silk Road but actually the brri is hardly a new Silk Road considering just how different and just how

Complicated it is the most prominent difference between the Silk Road and the brri is that one evolved naturally over time while the other is a state engineered strategy second the br’s scope is enormous its Partners include over 155 countries 30 of the world’s largest financial institutions and it

Engulfs 65% of the world’s population and 40% of the world GDP the Silk Road in contrast almost seems novel The brri aims to connect economies across continents integrate commodity Rich Nations into China’s orbit and Elevate demand for the Chinese W as a Global Currency it’s not just about trading

Goods it’s about amassing geopolitical power and that difference is the reason China’s approach to to financing the BR differs from the traditional infrastructure financing we’ve seen from the IMF or the World Bank while these International organizations typically set clear conditions for their aid and take a scrutinous approach to assessing

The borrower’s ability to repay the loans China sidesteps these formalities and just offers a bunch of money for infrastructure the strings are attached later and boy are there strings as Illustrated in our video on the un’s $50 billion oil for food Scandal even well-intentioned programs can face major operational challenges especially

Corruption in the case of the BR the secrecy surrounding the deals makes it hard to track who’s managing the money and the projects this lack of transparency has led to failures in the past for instance in Ecuador a Dam built by Chinese firms was found to have over 7,000 craps

And was located near an active volcano because the Bri is broken up into so many projects it’s difficult to gauge exactly how successful the Bri has been as a whole but since its launch a decade ago the BR has undoubtedly faced periods of slowdown and various production

Challenges to make things all the more complicated brri projects typically employ Chinese labor over local workforces which creates several issues when local individuals are not involved there’s a lack of local expertise to maintain and manage these projects this practice can also generate resentment among communities as they see job

Opportunities given to non-local workers exacerbating social tensions and hindering the perception of future BR projects so it seems China’s generous piles of money certainly come with a host of intangible costs as well as very real very tangible costs considering these obscenely large sums of money are not just investments in infrastructure

Their loans and the thing about loans is you’re got to pay them back but many of these countries simply can’t afford to do that creating what is called a debt trap a debt trap is a situation where a borrower is forced to take on new loans simply to repay existing ones getting

Trapped in a never-ending cycle of debt China has in this context been accused of debt trap diplomacy which describes an International Financial relation reltionship where a creditor country or institution exercises increased political leverage and control over a borrowing Nation LA’s debt to China is estimated at 45% of its GDP djibouti’s

Debt to China is estimated at 70% of its GDP now if this sounds unsustainable it’s because it is but don’t worry China is always willing to refinance when Sri Lanka had been borrowing billions from China to build a new trading Port it was struggling to repay its loans and the

Port was still far from completion this led to the Sri Lankan government selling an 85% stake in the port to China who issued another 1.15 billion for the Project’s completion upon receiving a 99-year lease to control the port providing China more influence over a pivotal part of Asia off the southern

Coast of India this example of debt diplomacy raises an interesting question if China controls Sri Lanka’s second largest port for the next Century what does that say about Sri Lanka’s sovereignty in light of all of this the West isn’t just lying down without a fight they know that disrespecting the

Sovereignty of developing economies was their thing from way back when and so in June 2021 the White House announced that President Biden had met with G7 leaders to discuss strategic competition with China and commit to concrete actions to help fill the $40 trillion infrastructure Gap in the developing

World they developed the b3w or build back better World a values driven infrastructure partnership led by Major democracies this announcement was meant to serve as a unified vision for Global infrastructure development a counter jab to hinder China’s bid for a new world order but despite having some cool

American sound bites about democracy and cooperation this plan surprisingly has even less tangible details than the brri it has no budget no timetable and there’s not even a clear indication of exactly who is going to be in charge so in some sense the BR has created yet another axis of competition between

China and the west but as the plot thickens it’s unclear if the US and China are racing to see who can save more of the world or who can control it through a little thing called neocolonialism neocolonialism refers to Global Powers perpetuating Colonial forms of exploitation and control through the operations of international

Capitalism rather than by means of direct rule so from the perspective of developing countries it may not really matter whether the money comes from China or the US it’s still money and they could still use it to their advantage the World Bank estimates that the B alone could pull 7

Million people out of extreme poverty and boost global trade by as much as 65% but China isn’t only aligning with some of the world’s poorest countries it’s also aligning strategically with the US’s allies and Rivals China has now become Saudi Arabia’s largest trade partner and all amidst a weakening

Relationship between Saudi and the United States in Saudi Arabia the BR is positioned to align with the country’s massive Vision 2030 initiative as China and Saudi are joining forces to finance the construction of Mega projects and bolster their existing energy trade China’s B has also substantially shaped their trade relations with Russia which

Have only increased in the aftermath of the war in Ukraine in the last year China’s imports from Russia including discounted oil coal and metals has risen by 16% while China’s exports to Russia Russia have increased by 91% despite rumors that China’s B investments in Russia slowed down after Ukraine’s

Invasion China actually invested nearly $2 billion into Russian construction projects in 2022 so although some of China’s projects in Russia aren’t officially labeled as BR Investments that’s just a matter of labeling in practice these Investments serve the same goals as the brri initiatives so while it’s undeniable that China’s Bri

Is certainly ambitious and vast that doesn’t mean it’s immune to flaws and challenges which we haven’t really discussed as China has been fueling the development of the BR on a true double-edged sword bad debt today China is the largest lender in the world and it’s not even close in

Total the Chinese state and its subsidiaries have lent out about $1.5 trillion in Direct Loans and trade credits to more than 150 countries around the globe this has turned China into the the world’s largest official creditor by a mile surpassing the values issued out by both the World Bank and

IMF combined in fact outstanding debt to China now exceeds more than 5% of the global GDP The Fallout of the co 19 pandemic however has left China and many other indebted BR Partners battling a host of context specific economic headaches leaving more and more of these countries unable to pay China’s loans

According to a recent study since 2013 China has had to bail out 20 countries by essentially delaying or restructuring $230 billion worth of loans this happens through one of two methods the first is China just gives them more money the second method is through swap lines where Chinese central banks tell other

Country central banks that they can convert as much of their local currency into Chinese wand for instance China has a swap line with Argentina who in the past eight years has had to use the swap line 8 times bolstering its foreign reserves by converting a whole load of

Basos into Chinese wand these foreign reserves help Argentina more easily pay off International creditors by converting W to US dollars but is this economically viable for China China has set up swap lines with 40 countries to promote the use of the Chinese war in international trade but this has only

Been used by countries struggling to pay back the loans the number of financial bailouts has increased exponentially during coid going from $1 billion in 2011 to 40 billion in 2021 the implications of this mean that a quarter of China’s BR loans have been defaulted on and required restructuring now while

A part of this can be blamed on the co related Global slowdown there’s also an argument to be made that the Chinese government has acted recklessly with the issuing of these loans just look at its $1 billion loan to montegro to build a road that’s going nowhere I guess

Considering the development of the project is far from finished and riddled with corruption allegations Sri Lanka similarly borrowed billions to build the Lotus Tower a vanity project that isn’t expected to generate substantial revenue streams for the country it seems piling on more debt can certainly be a one-way ticket through financial quicksand as

We’ve seen in Pakistan Sri Lanka and Zambia as well as several other countries who all ran to the IMF when they were unable to pay their loans to China but perhaps if you’re China a bit of bad debt is a all inconvenience when you have your mind on world domination

But in the absence of establishing a new world order all this bad debt must certainly be a concern for China’s financial future as Michael always says on E no one can predict the future least of all economists and that certainly holds true in a world where the risk analysis of China’s loans have

Completely changed for the worse in light of the co 19 pandemic however coid or no coid the BR for the reasons we’ll outline in the last chapter of this video video ultimately is not going to be enough to put forward a new world order the belt and Road initiative May

Boost China’s economic influence but it falls short of positioning China to create a new world order for several reasons the first has to do with the military reach of China and the US the United States maintains Global dominance with an extensive network of military bases and Superior technology in 202 2

Alone the US invested $877 billion in its military more than three times China’s budget of 292 billion the American Market benefits greatly from Global Investors who find comfort in the transparency and predictable nature of the American legal system in contrast China’s markets are often subject to auditing scandals which typically evoke skepticism from

International investors political unrest in China creates further fears as well and to further complicate things all of China’s bad brri debt also has the potential to jeopardize their financial stability the US economy is also much more Diversified than that of China’s boasting a mix of services manufacturing and technology companies that together

Paint the picture of a resilient multifaceted economy meanwhile China’s manufacturing Reliant economy exposes it to demand driven risks additionally the US is a magnet for Global Talent and invest due to its innovative Edge and strong intellectual property rights in contrast China’s reputation for IP infringement deter foreign collaboration

But perhaps the greatest Testament to the economic might of the US is the United States Dollar’s unrivaled position as the world’s Reserve currency while the Chinese W doesn’t share this Global trust part of the B’s vision is to make the Chinese won a more regularly circulating Global Currency in recent

Years China has made tremendous progress in institutionalizing the W more in international trade as well as convincing bricks allies to follow its lead as it continues to offload US Treasury bonds despite this though the US dollar is still very strong and some would argue that it’s only going to get

Stronger in no small part due to how much conflict is going on in the world right now while the brri may be a significant stride towards greater Global influence for China it doesn’t spell a seismic shift in the world order the us at least for now retains its advantageous position through military

Superiority economic robustness a culture of innovation and the global relevance of the US dollar for China transcending these multifaceted challenges requires more than infrastructural investment it necessitates fundamental Transformations within and Beyond its borders