Invest in the Silk Road

The Silk Road, extending more than 6,000 kilometers (3,728 miles) across Central Asia 2,000 years ago, was China’s path to the West since the Han Dynasty (206 B.C. - A.D. 220). It got its name from the lucrative trade in Chinese silk that ended up as the biggest fashion item for the upper-classes of Europe. German geographer Ferdinand von Richthofen, who made numerous expeditions to China, first called it the Silk Road.

China is trying to rebuild its past glory and the reputation of the ancient transcontinental trade route while the United States and Russia are struggling with setbacks in the Middle East and Ukraine. President Xi Jinping introduced a grand plan of building a Silk Road Economic Belt to stretch halfway around the world via an Arab section to reach Europe and a 21st Century Maritime Silk Road, that could connect the waters of Asia and Africa. The so-called “One Belt and One Road” project is an unprecedented vision to connect the economies of the Asia-Pacific and Europe. It is a grand idea that would make China the center of the economic world again, backed by its colossal wealth.

There is a Chinese saying that if you want to build wealth, build a road first. When there is a road, people will pass and when people pass, they take commodities with them. Money follows where commodities go. The Xi Jinping government is dipping into its $3.9 trillion foreign reserves to resurrect the Silk Road and expand it by adding a sea route, this time based not on silk but the hard cash it has been piling up over the decades.

Beijing will put up $110 billion for the initiative, which involves gigantic infrastructure construction in roads, railways, ports and airports. It will offer $50 billion through the Asian Infrastructure Investment Bank, $40 billion via the Silk Road Fund, and $20 billion through direct loans to Asean countries. The United States intimidates the Middle East and Asia with the might of its arms, while China entices them with economic muscle.

The Chinese economy has problems of different sorts: a surplus of dollars, overcapacity in production, and need for an uninterrupted flow of resources and energy to sustain a population of 1.37 billion. A modern Silk Road could solve some of those problem at once. China signed contracts with 20 nations to build expressways. It has found new markets to sell its surfeit supplies of steel and cement.

There is another Chinese belief that people can die of greed for money. The Chinese have concluded that the Qing Dynasty came to its doom because its silver supplies were out of control. China is trying to pump out its oversupply of U.S. dollars. The best way is through legitimate investments on the Silk Road. China had pulling in money over the past 30 years and now that it has ascended to the No. 2 position among world economies, it is turning its attention to splashing out its riches. It plans to spend some of them on regional infrastructure.

Through investments on a massive scale, China can bolster its assertiveness in the region and on the foreign affairs front and rein in a sharp appreciation of the Chinese yuan and inflationary pressure at home. China plans to receive repayment for the construction funds in raw materials and energy, of which China can never get enough.

The One Belt and One Road Initiative can be a cure-all for the country’s three major headaches. What Xi Jinping orders tends to get accomplished and that has made him an Asian leader of great value.

Before the 19th century, China was the wind and countries surrounding it were the grass. The grass was swayed by the wind. All of Asia is once again tilting towards China, hoping for a gust of wind and the riches that float upon it. China is moving ahead for its ambition for hegemony in Asia backed by its newfound riches.

Asean has pushed away suspicions about China and how it will use its No. 2 superpower strength and is enjoying its generous gifts. What does this say about their attitude toward their traditional partners, the United States and Japan? The wave of globalization came to a frozen halt with the financial meltdown in 2008. In Asia, no money can be made without China. China’s policy, or Xi Jinping’s words, are now the color of money.

The $110 billion China offered to invest in the first-stage Silk Road modernization plan can be covered through just two months’ growth in its foreign exchange reserves. The United States, with national liabilities exceeding its gross domestic product, may intimidate smaller countries with its military weapons. China tempts Asian neighbors with investments and business deals. Will Asia choose the leader of the rich G-7 group with military resources or the leader of emerging economies armed with cash?

South Korea should play a balancing act. What can be even more lucrative than trying to draw Chinese tourists is investment in Chinese companies involved in the gigantic Silk Road project. Since November, foreigners have been free to invest in Chinese shares. The best bet would be investing in Chinese companies that can profit from reading Chinese public policies well. That’s a partnership that can be close, but not too close for comfort.

Translation by the Korea JoongAng Daily staff.

JoongAng Sunday, Dec. 7, Page 19

*The author is the director of China Economy and Finance Research Institute.

by Jeon Byeong-seo