Wednesday 1 November 2017

China upgrades its vendor financing model via Belt and Road

China is upgrading its vendor financing model from trinkets for Americans to heavy industry and infrastructure for Belt and Road recipients. 

Question is what basic goods will the recipients produce for China? If the answer is more or less zippo, the history of imperial economics is one of eventual default by the borrowers and control by the lenders. 

Its a brilliant geopolitical move by the CCP in my view. And one the China bears usually fail to understand. 

The following was posted on social media by someone to prove that point:

"In September 2016, the Indus Water treaty was threatened by India that would have essentially created food and water riots in Pakistan. Sensing the sensitivity, Pakistan responded by a) calling it as an "act of war" and b) essentially added "water security" to the "national security" scrolls.  

Under President Xi's Belt and Road Initiative (BRI), we have seen barrage of dams being constructed - large, medium and small sized. A $50bn commitment from China's Three Gorges Corporation would finance the dams worth generating 22,300 MW of clean energy. Pakistan's current water storage capacity is 30 days and availability per capita has dwindled to border line 1000 cubic meter per person.  In light of such transformation, the work has commenced on Diamer-Bhasha Dam (4500MW), Dasu (4230MW), Suki Kinari (870MW) and Karot (720MW). Expected to come online within 3-7 years, they would not only reduce the water shortage but would also bring the overall cost of electricity down in Pakistan thereby giving a competitive edge to the industries.  

Amidst the topsy-turvy nature of the equity investors over political uncertainty and widening Current Account Deficit (CAD) in Fiscal Year 2018, what we are seeing is good dividends in years after that!" 

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