Should the World be worried about China’s Belt and Road Initiative (BRI)?

Policy makers and politician across the World are stunned and watching with consternation, the massive ‘Belt and Road Initiative’ undertaken by China. Is this infrastructure investment project centered on China? Is this similar to nation building foundational utilities for a nation similar to building freeways, electricity and other amenities? Keynesian theory has been underpinning the development of several countries across the world. It has consistently shown results and it is this formulation that scares the policy makers across the world. Should the world not be worried?  https://wp.me/p7XEWW-14k

BRI China

Fundamentally this infrastructure investment cannot be based on flawed interpretation of the vision for the future. However, it assumes a unipolar work wherein, they are extrapolating the analysis of the last 25 – 40 years of fulfilling the global demand for products, especially in Europe and North America. This intelligence is based on few fundamental assumptions that the world will forever be a unipolar manufacturing house, wherein the customers are perpetually based in Europe and North America. As long as the status quo remains, i.e., China is the manufacturing hub and the consumers are the developed world, this assumption provides a competitive advantage by investing in Belt and Road Initiative (BRI). Somewhere, this model emulates how the US-UK controls the Suez or Panama Canal and its impact of the global economic flow. Let us understand the situation other than the happy path.

Increasing competition:

First, in the last few decades, the world has grown more multipolar. There is significant competition amongst the nations for capturing the marketplace. Especially those nations, which were at the precipice, are gradually bouncing back to garner their share in global economy. After their chaotic transition, these nations are gradually stabilizing and as the maturity proceeds, they will enter the fray and be competitive.

Dwindling Customer Base in First World:

Last decade has been a testimony to how several Western European countries are gradually receding economic footprint or into recession. This will eventually erode the customer base from Europe. Overall, the population growth is stabilizing and the median age is rising. That does not mean, the customer base will vanish altogether. However, even a modest erosion of customer base from Europe would wipe the profits to make it uncompetitive.

Does that mean the global demand for consumption will decrease? The answer is obviously no. Where is the consumer base moving? First, the consumption will not decrease; instead, it will increase, as is indicated by several policy planners. This will follow phasic manner – the initial burst and the sustained period. The immediate burst will be centered on China, India and South East Asia and the sustained phase will be around the growing economies from African Nations and Latin America along with the traditional customer base in North America and Europe. South East Asia, China and the Indian peninsula will has a potential future growth due to dual factors – rising income levels and incremental recruitment of the expanding population base to propel the consumer market. The sustainment phase will be due to two major pockets – the traditional consumer base in Europe and North America and the expanding base in rising economies. Irrespective, the consumer base will move and be multipolar.

Transition of Blue Collar to White Collar Workforce in China:

As the population is China evolves makes a transition from blue collar to white collar, it will also see an increase in consumption. This can be very well corroborated with the Maslow’s phases of self-actualization. This transition will not support the earlier model of cheap low cost labor required to support a manufacturing economy. In fact, the white collar will propel consumption and China will move towards a net consumer economy.

Collaborative rather than pugilistic policies:

In the last decade, China has been increasingly assertive, lean heavily towards currency manipulation, disrespect world order and hegemonist in its approach. All these would deter the business environment and move the fulcrum towards unfriendly business environment, not realizing the impact of its short sighted policies at the detriment of its national cause.

Simply following Keynesian theory and investing in infrastructure in unlikely to propel the country in eschewing the benefits of it investment policy. China knows that and it will not be a surprise to see either the partner nations pulling out of such collaborations or China itself pulling out of such investment execution with the resultant fall in those ‘Belt and Road Initiative’ bridges.

The Economist | Planet China

https://www.economist.com/news/leaders/21746901-project-century-may-help-some-economies-political-cost-chinas-belt-and-road?frsc=dg%7Ce

https://www.rand.org/blog/2018/03/one-belt-one-road-one-ruler-china-term-limits-ban-imperils.html

 

Chinese (ill) Competition

China’s state protection for their enterprise is equivalent to parents holding their kids in their arms and running the race for the kids.

Almost daily, I see messages to boycott Chinese products. How often have we thought of investing more and buying a costly product made by our local industry? How often do you really research (at the store) about the origin of the product?

Buying locally promotes local economy and consequently, helps a local ecosystem. If one wants to willfully subject our community to despair, we should stay away from contributing to our local economy. We also lose a lot of foreign currency perpetually, when we buy substandard products again and again, it affects the Macroeconomy of the country.

Despite, we all buy cheap products from China. What drives this ambivalence? Or is it that we are only as active as forwarding some messages? What would drive us to actively change our behavior?

Bloomberg published a very interesting story on how Chinese Airlines are flooding the market with cheap ticket airlines and creating an unhealthy competition of killing other national airlines. The Link is here, http://bloom.bg/2hmk28x. Below is generally and most commonly felt reaction to this Chinese Imperialism.

We need to protect our customers, our market and our ecosystem of supply chain and customers. Why? The consequences are grave. Yesterday, it was Imperialist England, tomorrow, it will be Imperialist China. We need to break this vicious cycle, somewhere. What about the protections offered through WTO?

China is circumventing WTO approved competition

Article 20 of the General Agreement on Tariffs and Trade (GATT) allows governments to act on trade in order to protect human, animal or plant life or health, provided they do not discriminate or use this as disguised protectionism. However, WTO is still lopsided with built-in obsolescence and China have found a way to circumvent competition with State Protection.

Ambivalence or Apathy?

Almost daily, I see messages to boycott Chinese products. Mostly, we all agree that we should not buy or abandon Chinese products, either for their substandard component or built in obsolescence.  How often have we thought of investing more and buying a costly product made by our local industry? How often do you see really investigating yourself at the store about the origin of the product? Despite, we all buy cheap products from China.

We all know, buying locally promotes local economy and consequently, helps a local ecosystem. If one wants to willfully subject our community to despair, we should stay away from contributing to our local economy. Now, these are not unknown dynamics, despite, we all show apathy in actively changing our behavior. Some little facts not thought off generally, we lose a lot of foreign currency, it affects the Macroeconomy of the country too.

What drives this ambivalence? Or is it that we are only as active as forwarding some messages? What would drive us to actively change our behavior?

Value for Money

My father bought a ceiling fan from Usha in 1965 and except for occasional repairs or change of coil, as of 2016, that ceiling fan is still working. I knew a Professor, who worked as a fellow around at a US University at around the same time. While going back, he bought a refrigerator and barring occasional change of Freon, that is still working. That ceiling fan or that refrigerator, both hold a value despite fifty years of it continuous work. These are examples of Value to Money.

The Supply Chain – Willful Omission

In 2003, I bought a pedestal fan to withstand the summer heat of Texas. It was $39.99 plus taxes. I was so excited for the savings on that pedestal fan. Within three years, the legs broke and I had to discard that pedestal fan. Obviously, it was made it China. However, China is not to be blamed alone.

It is a completely well oiled machinery that is destroying the value of the customer. I bought that fan from one of the biggest retail outlet. This retail outlet, as is usual in the industry, has several vendors that procure for them from China. The manufacturers, the vendors, the retailers all know that the fan will last beyond the three months of warranty period. Despite, they promoted the product. This is not an act of omission, this is an act of willful commission in promoting a product that destroys the money of your customer. Why would an entire chain do that? Why would others keep watching? Obviously, their business model runs on these cyclic purchases occurring every so many years.

Lack of collective thinking is organized society

Almost daily, I see messages to boycott Chinese products. Almost all agree that we should ban or abandon Chinese products, either for their substandard component or built in obsolescence. Despite, we all proceed and buy cheap products from China. How often have we thought of investing more and buying a costly product made by our local industry? How often do you see really investigating yourself at the store about the origin of the product?

This is primarily dictated by individual interests which overrides our norms of collective living, how can we change this behavior?

We should boycott Chinese products, including Chinese services. This is slowly going towards economic imperialism. First, low cost products with built in obsolescence and state funded manufacturing with substandard material flooding the market to kill competitive industry built on true enterprise. Now, State sponsored services killing competitive industries.

This sounds similar to a competition at school where parents are (cheating) to help their kids win the game. It is fair to drop kids to school, it is fair to be with them while they are studying, but it is not fair to do their homework. Here, China is actually holding these enterprises in their arms and running for them.

Chinese State funded Enterprise a Threat to Global Economy at Local Scale.

State funded subsidized industry with gross mismanagement of labor and environmental laws. The model is reminiscent of a philosophy adopted from vexed state machinery. If we think, this is specifically affecting only one country, we are wrong. This is almost universal. Chinese state sponsored protectionism is a threat across the globe. Almost all local economies, irrespective of the countries are likely to to affected, to a greater or lesser degree.

If a vendor has apathy towards his customer and their sentiments, if a customer lacks that collective social thinking and the Government lacks the oversight, can we really get rid of these substandard products built with obsolescence from China?

Cognitive dissonance or Collective Apathy 

Samuel Beckett famously said in his Novel Waiting for Godot, “Nothing happens. Nobody comes, nobody goes. It’s awful.” Or is it…“Let’s go.” “We can’t.” “Why not?” “We’re waiting for Godot.”

I believe, only a collective responsible thinking will drive this change. Who would do that?

(Wow, don’t get me wrong – Be careful; let’s differentiate Chinese man from China. Yes, it has always been challenging for us to differentiate between Pakistan and Pakistani. So, let us not repeat that).

http://bloom.bg/2hmk28x