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❝While commodities producers grapple with the lowest prices in more than a decade, the slump could prove a blessing for President Xi Jinping’s signature initiative to build an intercontinental web of infrastructure and trade links with China at the center.
The New Silk Road program announced by Xi more than two years ago is finally gathering steam just as the prices of oil, steel, concrete and other building materials sink. That’s making it easier for China to sell its ambitious vision to build roads, railways, pipelines and ports from Xian to Athens, diversifying the country’s trade options and exporting excess industrial capacity…
❝The so-called Silk Road Economic Belt and 21st-Century Maritime Silk Road — or “One Belt, One Road,” for short — sits at the center of Xi’s effort to bolster geo-economic clout across more than 70 countries in Asia, Europe and Africa. With many nations along the route dependent on commodities exports, the prices slump could make them more willing to accept Beijing’s investment pitch and a share of its $40 billion Silk Road infrastructure fund.
Think “shovel ready”
❝The Silk Road, which until recently appeared to be a nebulous collection of existing projects and civil engineer pipe dreams, is finally taking shape. Xi hosted senior financial officials from 57 countries in Beijing…to mark the formal launch of the Asian Infrastructure Investment Bank, which he envisions as a big sponsor for OBOR projects…
“This year was the year of action for the One Belt, One Road, the year when the concept materialized to action and implementation,” Chinese Foreign Minister Wang Yi told a conference in Beijing on Dec. 12. China signed more than 20 country-to-country energy cooperation deals last year to facilitate the plan…
❝The Silk Road has been cast as a solution to several of China’s most vexing challenges, from reducing reliance on oil shipped through Pacific ports to converting economic strength into geopolitical might. The project, outlined in a 9,000-word action plan released in March, would eventually “directly benefit 4.4 billion people, or 63 percent of the global population,” Xinhua said…
❝With the plan still ramping up, Chinese steelmakers, who produce about half the world’s steel, are already exporting at record levels. Outbound cargoes soared 20 percent to more than 112 million tons last year, an all-time high.
Low commodity prices also make it cheaper for Chinese state-owned companies to acquire energy and material assets along the Silk Road route in exchange for infrastructure, said Hong Hao, chief China strategist at Bocom International Holdings Co. in Hong Kong. “The commodity cycle is still in a secular bear market, and will probably start to consolidate at low levels,” Hong said. “As such, these assets can be had at a cheap price.”
Though there isn’t a direct parallel, it’s worth pointing out the cost-savings China is using to implement new construction could have been directed to repairing and improving our own crap transportation and traffic systems. Decrepit highways and bridges, archaic railways, airport terminals akin to backwater warehouses instead of modern people-movers – all could use some of those cheap commodities.
Instead our own politicians waver between advocacy for 19th Century social idiocy and doing exactly nothing. Wall Street is more concerned with commodities investors – especially those invested in fossil fuels – going down in flames.