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Problems and perspectives of the New Silk Road

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Since becoming General Secretary of the Communist Party of China in 2012 and then President in 2013, Xi Jinping has launched a number of strategic initiatives at home and abroad. These are aimed at ensuring the country’s political stability and economic growth, while affirming China as a new major player internationally. Certainly the most notable is the New Silk Road, which is now more often called the Belt and Road Initiative (BRI). Invoking the historical imagery of the ancient Silk Road, the BRI project envisages the construction of massive infrastructures that connect China to the rest of the world, but also an intense collaboration in the financial, economic, scientific, educational, communication and health fields. The goal is to strengthen trade and improve connectivity between China and Africa, Eurasia, Europe, the Middle East and South and Southeast Asia. Although several elements of these New Silk Roads are already in place or under construction, most of the project currently exists only on paper.

Beyond their economic dimension, obviously not to be overlooked given the pharaonic sums invested, often at the expense of the debt of the partner countries, these new Silk Roads benefit above all from an effort by Chinese diplomacy and a deployment of soft power completely without earlier in the 21st century. Interpreted from the Western point of view, this is a hegemonic project aimed at creating a new world order, capable of redefining the hierarchies that arose after the Second World War. But seen by emerging societies – such as African ones – this is a project that brings hope, but also uncertainties and sometimes even disappointments.

I. On which lines is this project developed?

Announced in two speeches in Kazakhstan (September 2013) and Indonesia (October 2013), the BRI project has two components, one on land, the Silk Road Economic Belt, SREB, and one maritime namely the Maritime Silk Road, MSR. Unlike many previous initiatives, China is supporting its project with significant funds.

The BRI project is therefore a complex, very ambitious project, comprising several dimensions: that of transport, that of finance, customs policy, and political partnership. In other words, it offers:

1) An important land, rail and road component (Silk Road Economic Road).

2) A maritime component with the promotion of two axes, China-Malacca-Suez and, since 2017, the northern maritime route (21st Century Maritime Silk Road).

3) Enhanced economic cooperation, including freer trade and customs integration, financial integration and coordination of economic policies.

4) An energy cooperation with the strengthening of energy interconnection, in particular through the construction of transport infrastructures (oil and gas pipelines, high and very high voltage lines) and production (dams, nuclear reactors).

5) A Cooperation aimed at strengthening ties between populations through better telecommunications infrastructures (submarine cables, optical fibers, 5G); harmonization of educational programs; tourism promotion; cooperation in the health sector (renovation and construction of hospitals, training of hospital staff) and cultural with the construction of museums dedicated to the history of the Silk Road in the countries crossed by the Belt and Road Initiative.

In other words, this program obviously seems extremely ambitious and expensive. Estimates vary and place the cost of all these projects between $ 4,000 and $ 26,000 billion, which China does not intend to finance: the beneficiary countries of the projects will have to contribute to their financing, in particular by borrowing the necessary capital, often from Chinese banks. , which raises the question of their solvency on the financial markets. This is important because the media often report Chinese investments under the BRI, while most of the time China lends, and it is the states that invest and borrow. There are obviously counter-examples, such as when Chinese companies take a stake in a project, but for many of them it is commercial loans at rather high rates in the field of international finance, between 2% and 3%.

In the short term, the BRI aims above all to promote transport corridors, on the sea with the Maritime Silk Road, and on the mainland with the promotion of 6 land, rail and road corridors, between China and Europe, Central Asia, the Middle East, Asia Southern and Southeast Asia. Several projects are already partly underway, others are being studied.

II. Port component

The first aspect of the transport component aims to strengthen the position of Chinese companies in the development of a port network between China and Europe through the traditional route of the Strait of Malacca acca and the Suez Canal, but also includes the development of port infrastructure in Africa. More recently, Chinese projects in the Arctic, mainly along the North Sea route in Siberia, have been integrated into this maritime component, making it a flexible framework of variable geometry projects, allowing for new projects to be included and which can even see some of them fail. It should also be noted that the active projects of many Chinese companies in port development in Central America (Nicaragua Canal project; actual equity investments in the ports of Cristobal and Colon on both sides of the Panama Canal) are not currently part of the BRI project .

The development of this maritime component essentially involves either the acquisition of a stake in Chinese companies in the management of ports along the main sea route (as in Greece in the case of Piraeus), or the construction of port terminals in Build, Operate, Transfer mode. (BOT), granting Chinese operators control over the long-term management of the terminal and thus allowing them to control the development of the terminal, but not representing the acquisition of these infrastructures.

In this regard, we mention the gradual acquisition of the Greek port of Piraeus by the shipping company COSCO (China Ocean Shipping Company), starting from 2010, with the aim of transforming it into a gateway for Chinese products in Mediterranean Europe. ; the acquisition in 2015 of a majority stake in Turkey’s 3rd largest container terminal, Kumport, by COSCO, China Merchant Holdings and CIC Capital. Also noteworthy is the acquisition for 99 years by the company China Merchants Port Holding of 85% of the capital (1.12 billion dollars) of the company that manages the port of Hambantota, in a context of over-indebtedness of the Sri Lankan government ; Djibouti, with the acquisition of 23.5% of the capital of the port by China Merchants Port Holding; the acquisition of a stake in several other ports or terminals by COSCO, including Chancay in Peru (60%) , Antwerp Gateway (20%), Noatum Container Terminal in Valencia (Spain) (51%), Noatum Container Terminal in Bilbao (39, 78%).

the expansion of the port of Gwadar in Pakistan, the hub of the China-Pakistan economic corridor, with a 43-year lease until 2059; the construction of the port of Bagamoyo (Tanzania) for $ 10 billion; the construction of the port of Lamu (Kenya), completed in 2019; the planned modernization of the port of Mombasa (Kenya); Davao, Cebu (Philippines), Sihanoukville (Cambodia) and Kyaukpyu (Myanmar) In addition, Chinese companies have also won large contracts such as for the construction of the new terminal in Walvis Bay (Namibia): China Harbor Engineering Company is the contracting authority, but the project is financed by the African Development Bank. This strategy allows the Dragon to link up with the “pearl necklace” project as evidenced by the opening in 2017 of a Chinese military base in Djibouti and by the Chinese warships in Gwadar . In the short term, commercial infrastructure development appears to be the priority and there is no evidence that there is a genuine Chinese military strategy. In the long term, however, the integration of this port development into a naval military strategy cannot be excluded.

III Terrestrial component

China wants to take full advantage of the comparative advantages of the regions concerned by adopting a proactive strategy of opening up and improving interaction in Asia. The Silk Roads initiative is divided into six corridors connecting China to Europe and covering the entire Asian continent. The railway infrastructure plays a central role.

Its main axis (or northern route) designates the network of railways and gas pipelines that should eventually cover Eurasia and connect China to Europe through Mongolia, Russia and Kazakhstan (Eurasian corridor or China-Kazakhstan-Russia). Some of these corridors related infrastructures already exist and are used daily by freight trains connecting China to several European cities.

The other two main axes of the land initiative are the Central Corridor linking the Great West of China to Central Asia and the Middle East to Turkey via Iran, and the China-Pakistan Corridor (CEPC), or Southern Route, from the province of Xinjiang at the Pakistani port of Gwadar, Pakistani-owned but under the operational control of a Chinese company, China Overseas Port Holding Company Pakistan.

Three secondary corridors must complete the network of land roads: the China-Mongolia-Russia corridor, the Bangladesh-China-India-Myanmar (BCIM) corridor – the least advanced of the six corridors due to the lack of transnational agreements – and finally China-Indochina through i l Northern Laos through the construction of a new line which requires numerous structures.

The railway infrastructure is located in the six corridors officially defined by the government body responsible for overseeing the Silk Roads project, National Development and Reform Commission (NDRC) in 2015: this is the backbone of the Belt and Road initiative (hereinafter BRI) , even if the BRI project is not limited to the railway aspects. This great weight of railway transport can be understood from an economic point of view: it is in fact a matter of promoting trade and facilitating the reorganization of the distribution of manufacturing companies in China and Asia and for this reason the railway constitutes a more efficient and more economical, especially compared to the road, due to the large volumes it can carry.

Through these corridors, rail freight services are rapidly expanding between China and Europe and are starting to develop between China and the Middle East. In 2013 there were 80 trains between China and Europe; 815 in 2015; then 1,752 in 2016, 3,673 in 2017 and 6,363 in 2018.The volume of China-Europe traffic increased from 114,000 tons in 2013 to 511,000 tons in 2016 while the volume of containers is also booming.

The development of these trade links is not limited to trade between Western Europe and China: links are also established with Russia, with Iran, and China also wishes to develop rail services to “Southeast Asia” . Although there are plans to build new tracks, these China-Europe services rely heavily on the existing network.

These connections then mobilize existing, sometimes relatively old networks: so for the Trans-Siberian (1916), the TransMandchourien (1903) or the TransMongolien (1961) for the northern route. The central road crosses the Lanzhou-Urumqi line completed in 1962, extended from Urumqi to Alashankou in 1990 with a single track, to connect at the time to the USSR at Druzhba / Dosty (1990). The current service then passes through Kazakhstan on the former Soviet network via Astana. China intends to complete and modernize this network, which is sometimes insufficient to cope with a significant increase in traffic. In addition to the possibility of doubling the single-track sections and completing the electrification of the networks, several projects have recently been completed or started:

1) The Lanzhou – Urumqi high-speed rail line (LGV, 250 km / h at commercial speed) (1,776 km), completed in 2013, clears the conventional track for passenger transport.

2) The Jinghe – Yining – Khorgos line (286 km), completed in December 2009. In December 2011, a railway line between Khorgos and Zhetigen, near Almaty, was completed in Kazakhstan, allowing connection to the Kazakh network. China has high hopes for the development of the Khorgos multimodal station to increase capacity in Europe as well as in Central Asia and the Middle East.

3) A Kashgar – Osh railway line is planned through the Torugart Pass, and from there to Tashkent and the Central Asian network.

4) In June 2016, the Pap-Angren line was opened, connecting the Ferghana valley network to the Uzbek network and thus doubling the route that passes through Tajikistan via Khujand.

5) The Kunming-Dali railway line was completed in 1998 and its extension began in Ruili, on the border with Myanmar, in 2011.

Finally, projects have been developed for the construction of new infrastructures.High-speed lines are rarely designed for the mixed transport of passengers and heavy goods, but they allow to free conventional tracks from passenger traffic and thus offer greater flexibility to freight convoys. . The Moscow-Kazan LGV project, with Chinese but substantially Russian participation (1.52 m), was signed in 2015, as part of the vast LGV Moscow-Beijing project decided in 2014, but the future of this project remains uncertain.

IV. Southeast Asia

The future Boten-Vientiane line in Laos is part of the Belt and Road Initiative which is not limited to the ancient space of the Silk Road. The most visible aspect of the New Silk Roads is China Railway Group Limited’s investments in new railway lines, including Kunming-Singapore. The China-Indochina corridor completes the economic belt by connecting to the Greater Mekong program, i.e. the peninsular part of Southeast Asia where China is seeking to develop rail (and sea) transport for easier access to the Indian Ocean , making it possible to bypass the South China Sea, a strategically unstable region.

Repeatedly announced and postponed since 2010, work on the Kunming-Boten-Luang Prabang-Vientiane line began in early 2017. Its 4 14 kilometers is expected to include 32 stations (21 of which have been operational since inauguration), 75 tunnels (198 km) and 167 bridges (62 km) on the most direct route to Bangkok via Nong Khai (Thailand) Thailand is developing a railway network with Laos through two railway projects in the north-east in Kuala Lumpur (Malaysia) and Singapore thanks to the construction of a TGV between them. Until then, the freezing of the project was linked to financial, technical and administrative reasons between Laos, China and Thailand. On December 25, 2016, a Sino-Laotian ceremony was held in Luang Prabang to mark the start of construction, which was attended by Laotian Prime Minister Thongloun. These works led by the China Railway Group Limited, particularly in the provinces of Luang Namtha (Boten) and Luang Prabang, consist mainly in the drilling of tunnels. The railway line, combined with a motorway, is expected to open in 2021.

Widely reported in the national and international press, the cost of the Boten-Vientiane project amounts to nearly 6 billion dollars. Laos and China have agreed on a split of 30% -70%. To start the construction ($ 2.38 billion), Laos provided $ 715 million while the rest of the sum ($ 1.67 billion) comes from the China Development Bank. As for the financial commitment of Laos, Vientiane takes 250 million dollars directly from its national budget (50 million dollars per year during the 5 years of construction) and has taken out a loan of 465 million dollars from the Export-Import Bank of China or Eximbank at the rate of 2.3% on a period of 35 years (no refunds during the first 5 years). However, no information is available on the remaining 60% ($ 3.62 billion) that would be provided by Chinese banks, in exchange for a significant stake in Laos-China Railway Company Limited (in particular the establishment and operation of a buffer zone 20 at Largo 50 m on both sides of the railway line on the entire route between Boten and Vientiane), a Sino-Laotian joint venture that manages the Laotian section.

Finally, the railway economic corridor that crosses northern Laos should make it possible, on the one hand, to reduce the costs of intra-Laotian transport and, on the other, to guarantee the transport of goods between the Chinese provinces in the interior. overseas markets in Southeast Asia (Thailand, Malaysia, Singapore, etc.).

V. Some critical issues

Media rhetoric suggests that the BRI is a plan designed by China, matured in Beijing and implemented according to a well-ordered strategy. The reality is more complex. First, all the corridors promoted by the BRI largely reflect previous projects, some dating back to 1959 with the Trans Asia Railway (TAR) project launched by the United Nations Economic and Social Commission for Asia and the United Nations for the Pacific (UNESCAP ) and its European counterpart, UNECE. The European Union with the TRACECA project (1993), the Asian Development Bank whose main shareholder is Japan, with the CAREC project (1997), and Western companies such as Deutsche Bahn, Hewlett Packard, Volkswagen, Audi in 2008, have surpassed China and considered building trans-Asian transport corridors.

Furthermore, China has set milestones well before 2013 and the official announcement of the launch of this strategy, without these currently qualifying as steps towards transport corridors, which suggests that the BRI is partly in the synthesis. of many previous projects, foreign and Chinese. Thus, the railway line to Alashankou was completed in 1990; in Kashgar, in 1999; in Khorgos, in 2009; the Kunming-Ruili route to Burma was designed in 1971.

The Kunming-Singapore project, which provides the substrate for railway projects in Southeast Asia, picks up on the projects of the colonial era, then of the ASEAN in 2000, then of the joint China-ASEAN project of 2004. If the line project is high speed via Laos is proceeding, other sub-projects are experiencing evident uncertainties: the Kunming-Burma railway project, relaunched in 2011, was canceled in 2014 by the Myanmar government. The Singapore-Malaysia TGV project, dating back to 2010, is experiencing significant political uncertainties: canceled in May 2018, it was postponed to June 2018 after Prime Minister Mahathir’s visit to Japan.

Some projects are not moving forward: the Bangladesh-China-India-Myanmar (BCIM) corridor, which largely mirrors the 1959 TAR project, was relaunched in 1998 by the Yunnan government but remains in a dead end. The Kashgar-Gwadar railway line, the leading element of the China-Pakistan economic corridor, planned in 2010, is also not progressing; the Islamabad-Kashgar line is no longer even mentioned in the CPEC Long Term Plan 2017-2030 where only the road project remains. The Moscow-Kazan LGV project, originally designed by the Russians in 2009, is now the first stop on a Moscow-Beijing line. This project sees the start date of the works constantly postponed in a context of tensions on the financial package and the acquisition of shares of Chinese partners. The Kashgar-Osh railway project, designed in 1992, is also not progressing due to the large differences between China and Kyrgyzstan on the route.

The large Bagamoyo port project in Tanzania was first canceled in 2016, then relaunched, then discontinued again in 2019.

Furthermore, the very complex governance process of the BRI initiative does not support an interpretation in favor of a carefully planned and implemented project. Of course, the central government, mainly through the National Commission for Development and Reform (NDRC), directs and undertakes to coordinate all projects integrated in an often opportunistic way to the BRI, integrating projects that are often older and that sometimes matched the logic regional development. But many other actors intervene and make management more complex: central actors, of course, but with sometimes different programs, investment banks (policy banks), ministries, state-owned enterprises; and regional actors, especially provinces whose interests do not necessarily coincide with those of Beijing. The administration process of the People’s Republic also complicates the coordination of a homogeneous initiative: the leaders try to interpret very general political orientations issued by the central government, but according to their framework and their particular interests. It is this process that explains the opportunism that characterizes the addition of many projects to the BRI platform.

VI. An overall evaluation of the New Silk Roads

China wishes to reorganize Asia on the basis of a system of political and economic partnerships of which it would be at the center, and no longer on that of the American system of security and economic alliances, which it considers illegitimate. This is a long-term goal desired by Xi Jinping by 2049 (a date that coincides with the 100th anniversary of the PRC) and its success would allow Beijing to definitively establish its new status as a world power, which to date remains incomplete. especially at the military level. But the realization of the Silk Roads remains complex, despite the will shown by Xi Jinping. The challenges in China and abroad are many and the construction of the numerous infrastructures alone will not produce long-term political effects.

On the one hand, the construction of the new Silk Roads requires colossal funding. As creator and creator of the initiative, China has so far released 575 billion dollars to finance the initiative, but the plausible total of investments deemed necessary by 2049 is estimated between 4,000 and 26 trillion dollars, about double the GDP. China’s annual ($ 13.6 trillion in 2018).

Well, the mission of the Belt and Road Initiative is to provide and develop financing solutions. The financial resources announced by China are provided by a multitude of actors, both public and private, including the China Development Bank (900 billion), the Silk Roads Fund (40 billion), the Asian Infrastructure Investment Bank (50 billion ), the New BRICS Development Bank (10 billion), but also gold funds (Shandong Gold Group, Shaanxi Gold Group, etc.), etc. However, although China owns the New Silk Roads, it will necessarily need financing from foreign commercial banks, even if the latter do not seem very interested in financing the Chinese initiative given the enormous infrastructure projects that are not very profitable in the short and medium term. To attract them to the BRI project, China has therefore decided to accelerate the opening of its banking and financial sector to foreign investors, with limited success so far.

On the other hand, Xinjiang province is one of the key provinces of the New Silk Roads. Three of the six earthly economic corridors are expected to pass through it. However, this region shows inter-ethnic and inter-religious tensions and internal difficulties in the country (Tibet, Inner Mongolia). China is not immune to the uprisings of Uyghurs, of Muslim faith, in the vast territory of Xinjiang, which is slow to see economic growth translate into development, or even in urban areas (especially the capital Urumqi) where cultural-economic gaps create frustrations towards the non-Han community. The increasingly firm Uyghur nationalist demands and the new security formalities put in place by Beijing to prevent the radicalization of the Uyghur community (“re-education” camps, restriction of movement, collection of biometric data) are all problems that could slow down trade between Xinjiang and Central Asian countries.

Additionally, security threats have intensified along the route of the New Silk Roads. Whether in the Middle East, Central Asia, South Asia, Southeast Asia and other regions that are part of the initiative, terrorism could block the development of the six land corridors and piracy could do the same for sea routes. Undoubtedly, Central and South Asia, essential regions for land and sea interconnectivity projects, is facing serious problems linked to terrorism: many countries are regularly hit by attacks by Islamist groups and / or independence movements. The integration of different regions into the Chinese initiative therefore requires greater security and the participation of minorities, some of which are in armed conflict with the central power.

Finally, by its nature, the “Belt and Road” initiative is a project that promotes free trade and customs harmonization. After decades of rapid development, we are seeing a relative decline in globalization. Brexit and the rise of populism in many parts of the world have resulted in the stagnation of the regional and multilateral integration process and the establishment of protectionist policies. In the short term, the fact that the United States withdrew from the Trans-Pacific Partnership (TPP) negotiations, means the death of a competing project, may be beneficial to the Chinese initiative, but it is also a source of concern for Beijing. Trade protectionism and isolationism place uncertainties on foreign investment and international cooperation, the very foundations of the Belt and Road Initiative, which remains above all a project for the development of trade in the world.

And yet, the poor coordination of this project does not mean the absence of a general orientation led by the central government, which now has considerable political, economic and financial weight on the world stage. Although China is taking the lead, the success of the New Silk Roads does not entirely depend on Beijing. The challenges and obstacles are not only multiple, but the list seems to grow, as a consequence of the resistance of partner countries that do not necessarily accept the financial or economic constraints of Chinese companies. However, China now appears to be able to exert sufficient influence on the international stage to carry out a project whose reach will permanently mark the regional and global political landscape.

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Finding Fulcrum to Move the World Economics

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Domenico Fetti / Wikimedia Commons

Where hidden is the fulcrum to bring about new global-age thinking and escape current mysterious economic models that primarily support super elitism, super-richness, super tax-free heavens and super crypto nirvanas; global populace only drifts today as disconnected wanderers at the bottom carrying flags of ‘hate-media’ only creating tribal herds slowly pushed towards populism. Suppose, if we accept the current indices already labeled as success as the best of show of hands, the game is already lost where winners already left the table. Finding a new fulcrum to move the world economies on a better trajectory where human productivity measured for grassroots prosperity is a critically important but a deeply silent global challenge. Here are some bold suggestions

ONE- Global Measurement: World connectivity is invisible, grossly misunderstood, miscalculated and underestimated of its hidden powers; spreading silently like an invisible net, a “new math” becomes the possible fulcrum for the new business world economy; behold the ocean of emerging global talents from new economies, mobilizing new levels of productivity, performance and forcing global shifts of economic powers. Observe the future of borderless skills, boundary less commerce and trans-global public opinion, triangulation of such will simply crush old thinking.

Archimedes yelled, “…give me a lever long enough and a fulcrum on which to place it, and I shall move the world…”

After all, half of the world during the last decade, missed the entrepreneurial mindset, understoodonly as underdog players of the economy, the founders, job-creators and risk-taker entrepreneurs of small medium businesses of the world, pushed aside while kneeling to big business staged as institutionalized ritual. Although big businesses are always very big, nevertheless, small businesses and now globally accepted, as many times larger. Study deeply, why suddenly now the small medium business economy, during the last budgetary cycles across the world, has now become the lone solution to save dwindling economies. Big business as usual will take care of itself, but national economies already on brink left alone now need small business bases and hard-core raw entrepreneurialism as post-pandemic recovery agendas.

TWO – Ground Realities:  National leadership is now economic leadership, understanding, creating and managing, super-hyper-digital-platform-economies a new political art and mobilization of small midsize business a new science: The prerequisites to understand the “new math” is the study of “population-rich-nations and knowledge rich nations” on Google and figure out how and why can a national economy apply such new math. 

Today a USD $1000 investment in technology buys digital solutions, which were million dollars, a decade ago.Today,a $1000 investment buys on global-age upskilling on export expansion that were million dollars a decade ago.  Today, a $1000 investment on virtual-events buys what took a year and cost a million dollars a decade ago. Today, any micro-small-medium-enterprise capable of remote working models can save 80% of office and bureaucratic costs and suddenly operate like a mini-multi-national with little or no additional costs.

Apply this math to population rich nations and their current creation of some 500 million new entrepreneurial businesses across Asia will bring chills across the world to the thousands of government departments, chambers of commerce and trade associations as they compare their own progress. Now relate this to the economic positioning of ‘knowledge rich nations’ and explore how they not only crushed their own SME bases, destroyed the middle class but also their expensive business education system only produced armies of resumes promoting job-seekers but not the mighty job-creators. Study why entrepreneurialism is neither academic-born nor academic centric, it is after all most successful legendary founders that created earth shattering organizations were only dropouts.  Now shaking all these ingredients well in the economic test tube wait and let all this ferment to see what really happens.

Now picking up any nation, selecting any region and any high potential vertical market; searching any meaningful economic development agenda and status of special skills required to serve such challenges, paint new challenges. Interconnect the dots on skills, limits on national/global exposure and required expertise on vertical sectors, digitization and global-age market reach. Measuring the time and cost to bring them at par, measuring the opportunity loss over decades for any neglect. Combining all to squeeze out a positive transformative dialogue and assemble all vested parties under one umbrella.

Not to be confused with academic courses on fixing Paper-Mache economies and broken paper work trails, chambers primarily focused on conflict resolutions, compliance regulations, and trade groups on policy matters.  Mobilization of small medium business economy is a tactical battlefield of advancements of an enterprise, as meritocracy is the nightmarish challenges for over 100 plus nations where majority high potential sectors are at standstill on such affairs. Surprisingly, such advancements are mostly not new funding hungry but mobilization starved. Economic leadership teams of today, unless skilled on intertwining super-hyper-digital-platform-economic agendas with local midsize businesses and creating innovative excellence to stand up to global competitiveness becomes only a burden to growth.

The magnifying glass of mind will find the fulcrum: High potential vertical sectors and special regions are primarily wide-open lands full of resources and full of talented peoples; mobilization of such combinations offering extraordinary power play, now catapulted due to technologies. However, to enter such arenas calls for regimented exploring of the limits of digitization, as Digital-Divides are Mental Divides, only deeper understanding and skills on how to boost entrepreneurialism and attract hidden talents of local citizenry will add power. Of course, knowing in advance, what has already failed so many times before will only avoid using a rubber hose as a lever, again.  

The new world economic order: There is no such thing as big and small as it is only strong and weak, there is no such thing as rich and poor it is only smart and stupid. There is no such thing as past and future is only what is in front now and what is there to act but if and or when. How do you translate this in a post pandemic recovery mode? Observe how strong, smart moving now are advancing and leaving weak, stupid dreaming of if and when in the dust behind.

The conclusion: At the risk of never getting a Nobel Prize on Economics, here is this stark claim; any economy not driven solely based on measuring “real value creation” but primarily based on “real value manipulation” is nothing but a public fraud. This mathematically proven, possibly a new Fulcrum to move the world economy, in need of truth

The rest is easy  

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Evergrande Crisis and the Global Economy

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China’s crackdown on the tech giants was not much of a surprise. Sure, the communist regime allowed the colossus entities like Alibaba Group to innovate and prosper for years. Yet, the government control over the markets was never concealed. In fact, China’s active intervention in the forex market to deliberately devalue Yuan was frequently contested around the world. Ironically, now the world awaits government intervention as a global liquidity crisis seems impending. The Evergrande Group, China’s largest property developer, is on the brink of collapse. Mounding debt, unfinished properties, and subsequent public pressure eventually pushed the group to openly admit its financial turmoil last week. Subsequently, Evergrande’s shares plunged as much as 19% to more than 11-year lows. While many anticipate a thorough financial restructuring in the forthcoming months, the global debt markets face a broader financial contagion – as long as China deliberates on its plan of action.

The financial trouble of the conglomerate became apparent when President Xi Jinping stressed upon controlled corporate debt levels in his ongoing drive to reign China’s corporate behemoths. It is estimated that the Evergrande Group currently owes $305 billion in outstanding debt; payments on its offshore bonds due this week. With new channels of debt ceased throughout the Mainland, repayment seems doubtful despite reassurances from the company officials. The broader cause of worry, however, is the impact of a default; which seems highly likely under current circumstances.

The residential property market and the real estate market control roughly 20% and 30% of China’s nominal GDP respectively. A default could destabilize the already slowing Chinese economy. Yet that’s half the truth. In reality, the failure of a ‘too big to fail’ company could bleed into other sectors as well. And while China could let the company fail to set a precedent, the spillover could devastate the financial stability hard-earned after a strenuous battle against the pandemic. Recent data shows that with the outbreak of the delta variant, the demand pressure in China has significantly cooled down while the energy prices are through the roof. Coupled with the regulatory crackdown rapidly pervading uncertainty, a debt crisis could further push the economy into a recession: a detrimental end to China’s aspirations to attract global investors.

The real question, therefore, is not about China’s willingness to bail out the company. Too much is at stake. The primal question is regarding the modus operandi which could be adopted by China to upend instability.

Naturally, the influence of China’s woes parallels its effect on the global economy. A possible liquidity crisis and the opaque measures of the government combined are already affecting the global markets: particularly the United States. The Dow Jones Industrial Average (DJIA) posted a dismal end to Monday’s trading session: declining by more than 600 points. The 10-year Treasury yields slipped down 6.4 basis points to 1.297% as investors sought safety amid uncertainty. The concern is regarding China’s route to solve the issue and the timeline it would adopt. While the markets across Europe and Asia are optimistic about a partial settlement of debt payments, a take over from state-owned enterprises could further drive uncertainty; majorly regarding the pay schedule of western bondholders amid political hostility.

Economists believe that, while a financial crisis doesn’t seem like a plausible threat, a delayed response or a clumsy reaction could permeate volatility in the capital markets globally. Furthermore, a default or a takeover would almost certainly pull down China’s economy. While the US has already turned stringent over Chinese IPOs recently, a debt default could puncture the economic viability of a wide array of Chinese companies around the world. And thus, while the global banking system is not at an immediate threat of a Lehman catastrophe, Evergrande’s bankruptcy would, nonetheless, erode both the domestic and the global housing market. Moreover, it would further dent Chinese imports (and seriously damage regional exchequers), and would ultimately put a damper on global economic recovery from the pandemic.

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Economy Contradicts Democracy: Russian Markets Boom Amid Political Sabotage

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The political game plan laid by the Russian premier Vladimir Putin has proven effective for the past two decades. Apart from the systemic opposition, the core critics of the Kremlin are absent from the ballot. And while a competitive pretense is skilfully maintained, frontrunners like Alexei Navalny have either been incarcerated, exiled, or pushed against the metaphorical wall. All in all, United Russia is ahead in the parliamentary polls and almost certain to gain a veto-proof majority in State Duma – the Russian parliament. Surprisingly, however, the Russian economy seems unperturbed by the active political manipulation of the Kremlin. On the contrary, the Russian markets have already established their dominance in the developing world as Putin is all set to hold his reign indefinitely.

The Russian economy is forecasted to grow by 3.9% in 2021. The pandemic seems like a pained tale of history as the markets have strongly rebounded from the slump of 2020. The rising commodity prices – despite worrisome – have edged the productivity of the Russian raw material giants. The gains in ruble have gradually inched higher since January, while the current account surplus has grown by 3.9%. Clearly, the manufacturing mechanism of Moscow has turned more robust. Primarily because the industrial sector has felt little to no jitters of both domestic and international defiance. The aftermath of the arrest of Alexei Navalny wrapped up dramatically while the international community couldn’t muster any resistance beyond a handful of sanctions. The Putin regime managed to harness criticism and allegations while deftly sketching a blueprint to extend its dominance.

The ideal ‘No Uncertainty’ situation has worked wonders for the Russian Bourse and the bond market. The benchmark MOEX index (Moscow Exchange) has rallied by 23% in 2021 – the strongest performance in the emerging markets. Moreover, the fixed income premiums have dropped to record lows; Russian treasury bonds offering the best price-to-earning ratio in the emerging markets. The main reason behind such a bustling market response could be narrowed down to one factor: growing investor confidence.

According to Bloomberg’s data, the Russian Foreign Exchange reserves are at their record high of $621 billion. And while the government bonds’ returns hover at a mere 1.48%, the foreign ownership of treasury bonds has inflated above 20% for the second time this year. The investors are confident that a significant political shuffle is not on cards as Putin maintains a tight hold over Kremlin. Furthermore, investors do not perceive the United States as an active deterrent to Russia – at least in the near term. The notion was further exacerbated when the Biden administration unilaterally dropped sanctions from the Nord Stream 2 pipeline project. And while Europe and the US remain sympathetic with the Kremlin critics, large economies like Germany have clarified their economic position by striking lucrative deals amid political pressure. It is apparent that while Europe is conflicted after Brexit, even the US faces much more pressing issues in the guise of China and Afghanistan. Thus, no active international defiance has all but bolstered the Kremlin in its drive to gain foreign investments.

Another factor at work is the overly hawkish Russian Central Bank (RCB). To tame inflation – currency raging at an annual rate of 6.7% – the RCB hiked its policy rate to 6.75% from the all-time low of 4.25%. The RCB has raised its policy rate by a cumulative 250 basis points in four consecutive hikes since January which has all but attracted the investors to jump on the bandwagon. However, inflation is proving to be sturdy in the face of intermittent rate hikes. And while Russian productivity is enjoying a smooth run, failure of monetary policy tools could just as easily backfire.

While political dissent or international sanctions remain futile, inflation is the prime enemy which could detract the Russian economy. For years Russia has faced a sharp decline in living standards, and despite commendable fiscal management of the Kremlin, such a steep rise in prices is an omen of a financial crisis. Moreover, the unemployment rates have dropped to record low levels. However, the labor shortage is emerging as another facet that could plausibly ignite the wage-price spiral. Further exacerbating the threat of inflation are the $9.6 billion pre-election giveaways orchestrated by President Putin to garner more support for his United Russia party. Such a tremendous demand pressure could presumably neutralize the aggressive tightening of the monetary policy by the RCB. Thus, while President Putin sure is on a definitive path of immortality on the throne of the Kremlin, surging inflation could mark a return of uncertainty, chip away investors’ confidence: eventually putting a brake on the economic streak.

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