Monday, September 10, 2018

Belt & Road Initiative - a ponzi scheme?

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Further to my earlier post on One DEBT, One Road – The Silk Road to Debt Trap, I would here be explaining what is in store for Chinese in the coming months.
Am actually tired of explaining a simple fact that the Chinese economy is unsustainable in long term. Let me try it once more on this.

Some investment gurus and those planning domestic economy at a macro level are still believing in Chinese magic! No worse joke than this! Would like to both pity at them and also give them a tight slap (not literal one!) to wake them up. And make them smell coffee! That 'magic' train has already left. Even some are writing about it these days. Boldly. Been shouting about it for years now. Even my last two blog posts were about that.

I am not going to go into minute details & bore you with numbers. I let you google about it. Let me make this a bit interesting. Let me take you a few centuries back on & off.

Imagine that you are right now in 18th Century. Around the same time, when imperials started to conquer territories. China & India had been dominating majority of world's market with its goods. Silk Roads existed then too. There was neither one belt nor one road. More so, no debt.

What happened now? Why people are against the ponzi scheme?

Because, people are simply realizing this as unsustainable. How? Unqualified / unaffordable loans.

The age old civilization has survived for thousands of years, by living along with the nature and not thereby exploiting it. Today, what is happening is exploiting the resources in a fast pace. But with lots of money! Something people can't even afford. More than money, criminal waste of resources.

It is like this: A countryside town needs a basic bridge that can transport people from one shore of a river to another. But what if Chinese build a tunnel.

Now, a few points:
(a) Though a tunnel serves the purpose, was there a cheaper alternative? Yes, a bridge.
(b) Will the countryside town be ever be able to pay that amount? Highly doubt that.
(c) Is it not like an intern given a credit card by a ponzi bank scheme where in he / she has a credit limit of say, 100K? What will the kids do with it? Investment? Come on!
(d) This much money HAS to be recovered. So, the ponzi bank uses tactics to recover it from you. Suppose you had a family wealth, you would be forced to sell it to the bank at dirt cheap rates.

You think, I am kidding? You know Hambantota? You know what is happening with Railway that Chinese built in Africa? You read about Ghost cities in Nigeria & other places? Well, of late things are beginning to get better. Malaysia, Kenya have been talking about cruel Chinese investments. In Sri Lanka, Chinese investments are seen as a liability clearly.

Malaysia even went & cancelled a few projects officially. Read report here.

Vietnam is in full throttle to go against Chinese in South China Sea. Look at recent interactions of Vietnamese officials / Government with India, Sri Lanka, Bangladesh, Burma & Thailand? The process started few years ago. Last year, this interesting piece spoke of it in detail.

You can't forget how Philippines President Duterte shunned China in South China Sea. He is making right moves & showing signs that will have deep impact for us to see during his tenure. Most importantly, he is linking with Israel to chase jihadis in Southern City of Marawi. But, that is not all! This piece has some more details.

Kenya & Nepal would soon fall prey to Chinese debt. While former for railways (Read here & here)

So, at the the end of the day, what we thought as a debt trap for countries is actually turning to become one of the notorious loan sharks of the world which is funding rogue nations - including Pakistan!

All the money is circling back to China, after making you bankrupt. For them, it is just cash - which they can print anyways. For rest of the world, it is natural resources & wealth. Something that they have lived with & sustained for thousands of years. This should be stopped. It is unviable & unsustainable.

Hope loan shark is isolated sooner than later. Glad that India stayed away & is unmaksing Chinese without even being part of the project to deplete world resources.

China is walking on glass. One that is already beginning to crack. A glass once broken can't be fixed that easily. Am sure, that glass will break fully soon. How?

(i) In due course, when countries start defaulting loans, few companies in China would also go bankrupt.
(ii) Lot of common people who deposited money in these banks would soon realize that their savings was irresponsibly used to fund these projects.
(iii) China would soon realize that it can't reach Indian Ocean easily as it has to cross several Nations before reaching here.
(iv) Clock is ticking. Time is not far, when China's bluff will be called out. Not by any major nations. But, by people & governments of smaller nations.
(v) With Tariff war with US only to get worse for China, around end of the year, things can't be better soon as China may be up for default around January 2019.
(vi) That's not all. The capital flight issue is still not tackled. If not taken seriously, it would be turn to be much worse issue than declining economy itself.
(vii) It only matters until China receives first major default. Thereafter, it is pack of cards. Brace for it. It will be a brutal correction for China.

What worst insult to the nation that aspires to be a super power? You are cheating small nations.

So, in a nutshell, China is undoubtedly a Loan shark running a ponzi credit card scheme of a dubious bank called PRC! That's some dubious reputation. Not sure, if China wants to live with that.

Suggested reads:
(i) China’s Debtbook Diplomacy: How China is Turning Bad Loans into Strategic Investments
(ii) China's debt-trap diplomacy reaches the Philippines, which is likely to accept Chinese loans 1,100% more expensive than other options