POTHOLES IN THE NEW SILK ROAD PROJECT

August 22, 2018 By Joseph P. Farrell

So far, it has seemed like China's New Silk Road initiative has been progressing more or less uniformly. The first freight trains between London and China have already run (an eleven day journey), and all seems good.

Except...

...some potholes are beginning to emerge, and they are probably only going to get bigger. Mr. B.G. shared this story, plus his own high octane speculation which I'm going to pass along, and add to it my own:

Malaysia's Mahathir cancels China-backed rail, pipeline projects

You read that correctly, Malaysia has unilaterally cancelled its part of the Silk Road railroad pipeline project. And it's instructive to note why:

Malaysian Prime Minister Mahathir Mohamad said on Tuesday that the Chinese-funded $20 billion East Coast Rail Link (ECRL) project and a natural gas pipeline project in Sabah will be canceled for now, according to media reports.

Mahathir made the comments while addressing the media in Beijing during his five-day trip to China. He said the projects, would be canceled until such time as Malaysia can afford it.

The Prime Minister's office confirmed the comments Mahathir made to reporters in Beijing.

Prior to his China visit, Mahathir had vowed repeatedly to discuss what he called "unfair" Chinese infrastructure deals authorized by his predecessor Najib Razak, whose near-decade long rule ended in electoral defeat in May amid a massive financial scandal. (Emphasis added)

In other words, Malaysia wants a "better deal", and this comes in the wake of similar behavior from Pakistan, and I suspect there's a simple reason why, and that can be summed up in three words: "Donald Trump", and "tariffs". With America wanting to "level the playing field" with China, it was only a matter of time until others would as well. Whether or not this is a thought-out strategy against the Silk Road project or not matters little, for the result is the same: as more nations abandon their original deals with China, and re-negotiate them under better terms, this puts even more economic pressure on China as this will put a dent into the liquidity and investment capital that China can offer. In effect, the potholes are driving up the realization and maintenance costs, so to speak. This was the essence of Mr. B.G.'s speculation to me when he sent me this article, and I strongly suspect he is correct.

But we might extend that scenario a bit and assume that so many nations renegotiate their terms with China that extreme pressure is put on it. Does that mean the end of the Silk Road? Not necessarily, for Russia will continue its own version. Theoretically, even before China came along, it was already possible to travel from London all the way across Asia to Vladivostok via Russia's massive trans-Siberian railway. Mr. Putin will not abandon that aspect of the Silk Road, and has already signaled that he intends to expand the trans-Siberian lines and trunk lines in order to serve the expansion of Russian agriculture. Take China out of the Silk Road equation, and one is left with Russia. But how will Russia expand (and upgrade) existing lines without an influx of Chinese capital?

Three words: "Shinzo Abe", and "sanctions." Inevitably, Russia would have to turn to the West, and in particular the European powers, and Japan, for capital. One may predict that the former would only expand their capital investments and lift the sanctions in return for Russia capitulating to the West's, that is to say, to Washington's, demands, unless the unthinkable happens, and Europe grows a pair and and removes the whole sanctions regime from the table to begin with. Mr. Putin shows no signs of "capitulation" nor does Europe show any signs of entering puberty any time soon.

But then there's Mr. Abe, who has already shown a certain "independence" from the West with the deals he has already concluded with Mr. Putin. It may seem counter-intuitive, but it is a fact that Mr. Abe's Japan had quietly wished for a more vigorous American response to Mr. Putin's re-occupation of the Crimea in the wake of the referendum in that province to return to Russia. America's response was perceived as weak in Japan, and was met with more Japanese defense spending, and the extension of diplomatic feelers to Russia. The logic is simple: if the USA would not stand up to Mr. Putin in the Crimea, how could Japan rely on it in case of a conflict with China? Those deals already inked between Tokyo and Moscow run into the billions, and one can expect more of the same.

The lesson of all of this is that China's glorious project is showing more and more signs of potholes, and with it, the geopolitical order predicted as a result of the Silk Road project just a decade ago is changing already. And the key emerging player is Japan...

See you on the flip side...