China’s Lending Wisdom in Its One Belt One Road Initiative


China has to lend its massive foreign exchange reserve. Previously, it lent to the US by purchasing of US treasury bonds. To avoid the risk, Chinese President Xi Jinping switched to lending to infrastructure projects in his Silk Road economic belt and 21st century maritime Silk Road (OBOR) plan mainly to countries in China’s backyard.

In its report “Behind China’s Silk Road vision: cheap funds, heavy debt, growing risk” yesterday, Reuters says that the OBOR “lending program of unprecedented breadth,” “could also leave some banks and many countries with quite a hangover”.

Certainly, there are risks and even serious risks in OBOR lending but are there no risks in lending to the US?

The US is heavily in debt but still get good rating for its debts. However, as US government is making no efforts to reduce its debts and its politics are in chaos now, the risks in lending to the US are by no means small compared with the lending to the countries with poor rating.

Moreover, there is in addition the risk of the falling exchange rate of US dollars.

Reuters says that the interest rates of the loans to OBOR are low, but are the interest rates of US treasury bonds high?

The most important in Xi’s OBOR lending strategy is that the lending to the US helps the US to maintain its excessive military budget in building and developing weapons to attack China such as B21 bombers that the US is developing for bombing Beijing.

In fact, China shall not lend even a penny to the US to enable the US to have the funds to deploy its military near China to threaten China. China buys US treasury bonds because it lacks alternatives.

Xi is wise to use China’s massive foreign exchange reserve to lend to countries within its OBOR plan. The infrastructures built by the lending, even if giving rise to bad debts, will first of all strengthen China’s national security instead of weakening that as the lending to the US does.

The infrastructures built under the OBOR plan will facilitate development of China’s and other countries economies. When those countries have grown rich, their politics will be more stable. China will be benefited by such stability in expanding its trade and investment there.

The lending to the US on the contrary will enable the US to have funds to invade other countries or interfere with their politics and thus may give rise to losses in China’s trade and investment there. Libya and Iraq are good examples.

The amount of lending to OBOR projects, though large, is but a fraction of China’s lending to the US. In fact, China shall gradually sell all its US treasury bonds and spend the proceeds mostly in OBOR projects since it is difficult to make good investment in the US and other developed countries.

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at http://www.reuters.com/article/us-china-silkroad-finance-idUSKCN18B0YS.

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4 Comments on “China’s Lending Wisdom in Its One Belt One Road Initiative”

  1. Gon says:

    Back in the 1990s when China lacked capital funding and requested joint ventures, those who shortsightedly rejected such offers have, ever since, been kicking themselves in the butt at the opportunities forgone. I know because the company I was with then, turned down politely, my suggestion in this regard. It was a British owned cement production company.

    The B & R initiative nows offers a similar second opportunity “wave”. Who will snottingly turn it down and who will gamely take the risk and the potential rewards? The Amerikan fake news medias will do and say anything to throw cold water at this initiative to brainwash weak willed and gullible international leaders.

    For all of Washington’s original avowed intention to “pivot” economically and take a ride on the Chinese growth engine, the former Obama Administration unexplicably shot itself repeatedly in the foot by inhibiting itself in cooperating economically with China.

    Ego and misplaced pride seemed to be at the forefront of all their decisions. “Incredible” is the only word bystanders can say claim and shake their heads in disbelief at Washington’s stupidity.

    Germany, South Korea, Japan and ASEAN countries made hay while the sun shined but middle Amerika did and crumbled economically instead. The aforementioned countries did not prosper because of “Pax Americana” but despite it. The claim that U.S. “policing” of China brought peace and prosperity is as false a statement as you can make.

    Perhaps Mr Trump is more rational than his former neocon presidents. His sending of a delegation to the forum is a good sign. He probably recognises the potential rewards from the B & R initiatives and that is where the real “pivot” should be.

    If the second “wave” is to prosper the world including the U.S., my suggestion is that the world make full use of this opportunity. There may not be a third “wave”.

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  2. Joseph says:

    Well, we have to get used to the tirades of Western media, feeling helpless to stop China spreading its wings. And Reuters will have to get used to writing tirades instead of its usual nonsense fake news. The OBOR is a reality, whether the West likes it or not. They can weep and mourn for their dying exploitative capitalism. Now only time can tell if the OBOR is going to be successful or not. Although according to history, whatever the Chinese initiated will have impacts positively to the people they touched for centuries. Just look at the South East Asia. Just mere 50 years since the European colonization ended, and mere a decade since Western hegemony is eradicated, the region is back to old Chinese-influenced trading value. All the West can do is to wail for lost glory.

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  3. Steve says:

    Will it be a question of Shrewd and Shred.

    Trump’s few options are to reduce domestic tax for it’s entrepreneurial manufacturing enterprises to encourage made in US, cheap loans, growth in productivity and employment. US faces strong headwinds from international competitors and growing markets in developing countries with much cheaper loans, labour and transport.

    OBOR initiatives, will provide long term duration of economic growth along the corridor where low end manufacturing can be established in countries like Cambodia, Laos, Vietnam, Pakistan and other Asian countries. It may take up to another decade, but there is no doubt that OBOR global marketing projections will be highly successful in providing growth in trade and prosperity.
    Other than high end technology manufacturing, it’s difficult to envisage US survivability in the next decade.

    Shrewd business acumen belongs to China in the last three decades and when timing seemed propitious, China will shred the America 1st and sink the scoundrels by selling the trillion dollar treasury bonds.

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  4. Fre Okin says:

    China got no choice but to establish OBOR to protect her import and increase export opportunities. It’s a brilliant strategy to employ Chinese workers and consume the excessive Chinese steel. China play long game and hope her OBOR partners are not too backward, filled with corruption and nationalist sentiments that could delay or even cancel the project.

    Hopefully OBOR improve the livelihood of people in OBOR region and no corruption. This will help to ensure a stable government to make OBOR successful. Perseverance is key to success. China however should beware of another Venezuela or Myanmar Myitsone dam experience. China should beware of NGO’s, dirty politics from India in CPEC route looking for every opportunity to try to disrupt China’s plan by rising environmental issue and covert support for terrorism.

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