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| Forecasters of the West-East power shift: From top left – Martin Weiss, Tony Sagami, Sean Brodrick, and Larry Edelson. |
Over one decade ago, we made a global forecast that most people found hard to believe at the time. We declared that …
The world’s economic, political and military center of power will shift from the West to the East. China will be at its core. And efforts by the United States or its allies to buck the tide will be a continuing struggle.
What’s happening right now is a classic illustration:
Most investors in the West are being bombarded by fast-breaking news about Washington intrigue, Russian meddling and terrorist attacks.
Meanwhile, most investors in the East are making their moves to cash in on the sprawling China-led megaproject commonly known as the New Silk Road.
UNESCO explains the historical background and popular misconceptions. They debunk the notion that the old Silk Road (circa 120 BC — 1450s AD) was all about silk. In reality, the goods were far more diverse, including valuable spices, other textiles, grains, animal hides, tools, wood and metal works, religious objects, artwork, and precious stones.
Some observers also associate the Silk Road strictly with China. True, China was the primary source of the silk. And it was China’s imperial envoy, Zhang Qian, that led the effort to establish a trade route linking China to Central Asia and the Arab world. But the Silk Road sprawled far beyond China, encompassing at least half the planet’s economy and most of its population, including India, the Middle East, Europe, and parts of Africa (see map).
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| Click here for larger image, Source: UNESCO. |
Nor was it just one road. It was a myriad of crisscrossing networks both by land and by sea, which, over the centuries, gradually linked up to form what’s more accurately named the “Silk and Spice Routes of Eurasia.”
Most important, these vast networks carried far more than just trade goods: The constant movement and mixing of populations also brought about the transmission of knowledge, ideas, cultures and beliefs. It shared and disseminated science, arts, literature, crafts and new technologies.
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| Top: Laying of Trans-Pacific Express (TPE) cable from the U.S. to Asia. Bottom: We talk to Asia all the time via Skype. It’s like our own, “Personal Silk Road” for cultural exchange and new investment ideas. |
The impact on civilizations was profound. New cities and nation-states were born. One big difference today: The acceleration of time itself.
In the days of the old silk road, technological advances that helped fuel trade growth evolved over a span of nearly 1,600 years. Now it can all happen in a matter of decades.
Consider communication, for example. Back in 1941, around the time the Japanese Imperial Air Force attacked Pearl Harbor, you could count on your fingers the number of phone and telegraph links between Washington and Tokyo.
But fast forward to 2010, and you witness the completion of the Trans-Pacific Express (TPE), a massive high-speed cable that connects California to East Asia.
For China alone, the TPE multiplied data capacity 60 times. And with the ability to trasmit up to 5,000 terabytes per second, it could theoretically support up to 68 million Skype calls to China, all at the same time.
The key is, communications is just one aspect of what China has now dubbed …
“One Belt One Road” (OBOR)
This is their name for the New Silk Road. And a July 2016 review by McKinsey&Co. leaves little room for dispute regarding a series of critical facts about this massive, global development project, each with broad consequences for investors.
Fact #1. China has jumped into the leadership role. Beijing says it effectively “owned” the project nearly 2,000 years ago when it dominated the silk trade. And it clearly aims to own it again in the 21st Century.
Fact #2. It was China’s President Xi Jinping that kicked the project into high gear in 2013, proposing a modern, high-speed/high-tech network of cargo railways, roads, pipelines, and utility grids that would link China to Central Asia, West Asia, and parts of South Asia.
Fact #3. Remembering the old Silk Road, China’s vision goes far beyond strictly physical goods or trade links. Xi Jinping also aims to create the world’s largest levers for influencing the Asian economy, which, in turn, is likely to dominate the world economy. His stated goals seem reasonable enough:
- “Economic cooperation”
- “Policy coordination”
- “Trade and financing collaboration”
- “Social and cultural cooperation”
But from the Roman Empire to the American Century, history proves that “cooperation, coordination, and collaboration” really mean hegemony, control, and power.
Fact #4. China’s new OBOR master plan, first announced by Xi in 2013, is especially ambitious. Again, like the silk roads of prior millennia, it proposes trade routes both by land and by sea:
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These include …
- The Silk Road Economic Belt (red in above map) with three major routes connecting China to Europe via Central Asia, the Persian Gulf and Mediterranean through West Asia, and the Indian Ocean via South Asia, plus …
- The 21st Century Maritime Silk Road (blue) to create connections among regional waterways.
Fact #5. The project, although still young, has clearly gained traction globally:
- More than 60 countries, with a combined GDP of $21 trillion, have expressed a strong interest in jumping on board. That’s already $3 trillion more than the total GDP of the United States.
- China’s bucket list of trade deals is getting checked off at a steady pace, including bilateral pacts with Hungary, Mongolia, Russia, Tajikistan, and Turkey.
- Rail links are being laid, including connections between eastern China and Iran, to be expanded to Europe; another in Laos and Thailand; plus high-speed-rail projects in Indonesia.
- China’s Ningbo Shipping Exchange is collaborating with the Baltic Exchange on a container index of rates between China and the Middle East, the Mediterranean, and Europe.
- More than 200 enterprises have signed cooperation agreements for projects along OBOR’s routes. So far!
Big Money
Exactly two weeks ago, Beijing hosted 130 countries, including 21 heads of state of major nations. Also present were the Secretary-General of the United Nations, the President of the World Bank, and the Managing Director of the International Monetary Fund.
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Some media outlets, particularly in the United States, sought to downplay the initiative. One assembled a list of all the countries that did not send heads of state. Forbes highlighted China’s persistent modus operandi of using bribes to close deals. But with an initial price tag of $4 trillion, no one can deny that the OBOR initiative is set to become the biggest economic development program in history, far outspending the Marshall Plan that helped rebuild Western Europe after World War II.
The Straits Times lays out the numbers unambiguously:
- Since the official OBOR launch in 2013, China has already invested more than $50 billion in economies along the Belt and Road.
- A total of 56 economic and trade cooperation zones have been set up by Chinese businesses, generating nearly U.S.$1.1 billion in tax revenue and creating 180,000 jobs.
- The China Development Bank alone has earmarked $890 billion for some 900 projects.
- China’s Asian Infrastructure Investment Bank (AIIB), with $100 billion in initial capital, has the mission of financing infrastructure in the economies along the trade routes.
- China’s Silk Road infrastructure fund has an additional $40 billion, and the Shanghai-based New Development Bank has $50 billion.
- And they’re just warming up.
Where Is the United States in This Game?
Conspicuously absent.
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Three days after Inauguration, President Trump signed the Presidential Memorandum Regarding Withdrawal of the United States from the Trans-Pacific Partnership Negotiations and Agreement.
That fulfilled a key campaign promise, which was also echoed by the Clinton campaign.
But it also ended the one megadeal that could have competed with China’s OBOR. It nixed, for now at least, America’s remaining chances to assume a leadership role in the region.
Some historians of the future will blame Trump. Others will rightfully point out that, even if Trump had not dumped the deal, Congress would have done so on its own. Nevertheless, no one — today or in the future — will be able to question the prescient wisdom of our forecast made here over a decade ago: The centers of global power will shift from West to East.
In any case, debating the politics of this is not our job. Our sole mission is to help you find investment opportunities. And our Money and Markets editors are all over this one. So for guidance on when and where to invest, be sure to follow their insights, including regular columns …
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by Tony Sagami, such as “Cash-In on China with These U.S. Stocks.” (Tony was born in Japan and now lives in Asia. He knows his stuff.) Or …
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by Mike Burnick, including “Asian Markets Offer a Bullish Combination of Growth and Value.” (These picks have soared, by the way.)
Plus, also peruse some of our classics like this one …
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by Larry Edelson: “Larry here, from Yichang, China, on Silk Road 2.0.” It was one of the very first on-the-scene reports, long before investors realized how important this new phenomenon would be.
Better yet, to search for any author or topic among the 3,778 morning articles we’ve published since inception, just go to www.moneyandmarkets.com. Click on “Issues,” and select a year. Then, above the list of articles, specify the author, topic, year, or keywords; and press “Submit.”
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One final word: Don’t assume all markets will go up in a straight line. In most sectors, there are bound to be intermediate dips and even better buying opportunities, as Mike explains in “Why China Will Trigger Our Next Stock Market Selloff.”
Good luck and God bless!
Martin
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 12 comments }
Thanks for the “heads up”. Very well written article. My gut feeling is that your insight is right on.
If the US took care of the N Korea situation, once and for all, China loses power. Why be intimidated?
I keep reading these stories about how China is going to fall,due to excessive debt.Seems to me that China gets something for it’s spending.The U.S. wastes so much on social spending,our infrastructure is not only not growing,it is falling apart.Would be worrying about our situation, more than China’s.
China’s waste comes from the need to keep employment up to maintain political stability, at least until Xi’s tenure will be extended this fall. To prevent restless laid off workers, China will need to continue to build empty cities and apartments unless China is able export its workers for employment on One Belt One Road projects outside of the country.
I do not believe that China will be able to export its workers for employment on OBOR projects outside of China for long. I should expect strain from other nations interested in employment opportunities to come their way from any OBOR projects carried out within their own countries. We shall see what happens, but it is important to keep an eye on how and if China can export its workers. Construction of empty cities can not go on forever, sooner or later this practice will end in pain. In fact, present funding for these construction projects is set up through Chinese banks offering 7% to open a savings account to fund such construction, as opposed to 2% interest on a normal bank savings account. Looks like a Ponzi scheme to me, but guess which of the two accounts is most frequently selected.
The U.S. govt sure knows about Ponzi schemes and we’re still going.
I’m glad to have expressed my thanks to Larry before he passed away, for his efforts at showing the magnitude of this Chinese project, and especially for showing the growth it would trigger. It’s growth that creates a return on investment. The poverty-stricken south of Asia can grow massively, merely in seeking the same standard of living that prevails in Shanghai or Canton.
Doing this will mean exploiting non-renewable energy and materials resources, to create the infrastructure that is planned. US and German investors who imagine a windfall return from the likes of Tesla Motors, that with the aid of massive subsidies, can temporarily appear to compete with nonrenewable energy, using solar energy, will be left in the dust of this giant project, for OBOR will demand most of the world’s remaining fossil fuels and then replace them with atomic energy as well as solar.
No one in the US and European renewable energy lobby has proposed a realistic solution to the one climate-change issue that can be proven with any scientific precision: Rising sea levels. This challenge affects the entire poverty-ridden coast of South Asia. Proposals to stop the combustion of oil and coal, predict that they will slow down the rise in sea levels, not reverse them. Principally, that’s because it cannot be proven that carbon dioxide emissions cause global climate change. The highest carbon dioxide concentrations occur during the Northern Hemisphere winter, and decline during the warm months of the spring, summer and autumn, opposite of what would happen if carbon dioxide caused warming. It is entirely possible that volcanic activity beneath the Antarctic Ice Cap is causing sea levels to rise, by melting the two-mile-thick accumulation of glacial ice there.
OBOR offers South Asian nations another alternative: Build upward, above the ocean, and give the rising seas somewhere to flow.
US policy toward China has been to push China into agreeing never to tap the petroleum reserves beneath the China Sea, so as to avoid adding to carbon emissions, and also to increase China’s dependence on Middle East oil that is traded in the Dollar currency that we control. Nothing in that carbon policy, suggests that South Asia’s seas will stop rising. Only that they might rise more slowly, if Al Gore and other leaders are correct, and carbon is causing sea levels to rise.
Simply making South Asia rich enough, to move above the rising seas, solves the rising-seas problem that’s being observed, regardless of what’s causing it.
CO2 emissions are claimed to raise the global temperature only a couple to a few degrees, so that winter still feels like winter, as a couple to few average degrees increase do not make winter into summer. Unless volcanic activity is also under Greenland, the North Pole, and mountain glacier ice sheets everywhere, where there is above average ice melting, there is more to it than volcanic activity. It is estimated that sea level will rise 6 feet by the end of the century, although it may be somewhat more than 6 feet, as sea level seems to be rising faster than estimated. This assumes that only a fairly small fraction of the surface ice melts. If all of the surface ice is melted, sea level will rise around 200 feet, according an article a few years ago in National Geographic Magazine. With the 2 meter (6.6 feet) sea level rise estimated for the end of this century, some coastal cities may have to built sea walls, and levies to protect them from the 6 feet sea level rise, and to protect them from storm surges. It is still a long ways to the end of the century. In the mean time earlier this year, USA Professor Goodenough, who co-invented the current lithium-ion battery, and his co-researchers published their article on the new glass-battery, which is claimed to provide 3 times more charge than the current lithium-ion battery, to be able to be recharged more than 10 times faster in minutes rather than hours, to be not easily catch fire, to last longer with more recharge cycles, and to be cheaper as it can use cheaper sodium (as in table salt) in addition to use lithium. The Quartz website has it that there are lab samples that can have 5, 10, and even in one sample an estimated 30 times more charge. If the 30 times sample can be made commercially, it will be mind boggling, as it means that a 200-mile rated Tesla car will get 30 times 200 equaling 6000 miles range, so that it can go from New York to San Francisco, and back to New York on a single initial charge. With anything near that kind or range, electric cars and trucks will most likely totally replace gasoline cars and trucks. At the 10 to 30 times level, electricity becomes transportable like an oil tanker equipped with such batteries can carry electricity like oil at present from sun drenched countries to for example Europe without having long transmission lines that needs to span many countries. Home-based, and Mom-and-Pop electricity generation, together with such distribution and selling of electricity via trucks may become possible, and thus eliminating the need for electricity utility companies with their fossil fuel electricity generators, and their transmission line networks. Unlike oil, natural gas, and coal, which only exists in very few areas, electricity can be generated everywhere, can be generated by many means, and by everybody. For example, there are cheap flashlights with a crank or lever that a person can generate electricity.
An excellent article, thank you for posting it. The “economic rent” created by this development creates infinite opportunity and prosperity into the future and even a “base income” for all. I am sure China and Europe understand economics far better than we capitalists.
This OBOR is going to be the biggest wasted money spent on a project the planet has never know. The US will be smart to stay out of it, and work to ensure it fails.
The article fails to mention that india is not very keen on the project. In a few years time, india will have a population greater than china. A lot of synergies alludes to may just not happen without participation from india.
There is also the question of debt. The trade benefits touted don’t seem real to me.
We are also moving toward a post-oil world. The middle East will not have much of its wealth accumulated by the selling of petroleum products. Europe is Cleary a mess. I don’t see how trade with china through the road is any better than trade through the oceans.
The Chinese are heading toward a demographic collapse due the disastrous and moronic one child policy. It has been well said that the Chinese will grow old before that grow rich. I am keenly awaiting to see how the Chinese fare during the next credit crisis.
The US did well to withdraw from the TOP. I think the induction of china into WTO also was a mistake that will need to be reversed.
I don’t believe the century belongs to china. We need to wait for china to collapse. The world is better off without the communist party in China.
Is there gonna be a gold tranche? A return to the gold bullion standard, even possibly a rise in GDP at factor costs, and a rise in GDP at market prices. What about the current account surplus, are we gonna see a rise in the governments current budget surplus, are we gonna see a movement towards a recovery, growth in the economy and eventually a boom. What’s gonna happen to the solow steady state residual? Is there gonna be increasing returns to labour and capital in the cobbe Douglas production function. Are there gonna be economies of scale from the advantages of large scale production that accrue from an ever increasing world economy? Larry’s insightful articles will be truly missed. He was a master of his game.
Even China does not use “Tax Revenues” to fund its work. It created its currency, and can always buy whatever is for sale out of thin air, no borrowing or saving required.
The cost of a new silk road will amortised by the business it creates and the construction, by the costs it generates like wages, which raise the surrounding nations GDP. It has no government debts needing to be repaid. Only private debts matter,
What’s gonna happen to leveraged, unleveraged exchange traded funds? What about mining stock, futures and options? Is there gonna be call options, buying gold or put options selling gold? What about the gearing ratio? How much debt leverage are multinational companies gonna take on? Are we in for a gold tranche? A return to the gold bullion standard? Are we possibly in for the possible dollarization of the world economy? Maybe even another boom. Where in the boom, recession, depression, recovery and growth cycle are we in? Are we in for another boom? What about current account GDP at factor costs, and GDP at market prices? What about the solow steady state level of income? Are we in for a rise in the solow steady state level of income?