China’s New Silk Road

A new Silk Road is by no means an insignificant story. On the contrary, the size, scope and financial contribution to remaking much of Central Asia, Africa and the Middle East economically should be food for thought for all of us. It seems that slowly China is attempting to remake the world’s economic order; but so many industrialized nations are so busy with self-examination, bordering on pity, that nobody’s seeing the obvious. When someone attempts to discuss this massive movement for international realignment, it’s immediately interrupted by people of bias and without facts.

That last part should surprise no one, as we are now in the third decade of people trying to shout down reality.

Interest in the big story started with a number of smaller articles connected to the auto industry. General Motors made the announcement that it would pull out of India, having already left Russia; is about to finish the sale of its European operations to Peugeot; will divest of its South African operations to Isuzu after 90 years; and will walk away from Australia when it shuts Holden down. Before we forget, Venezuela seized GM’s factory there a few weeks back. So we can haul the American flag down there, too.

Now GM neither makes money, nor even sells many vehicles in most of these countries it will soon take off its global site list. However, for what was once the world’s largest and most profitable corporation, this is still major retrenchment. As someone pointed out last week, by the time all of these subsidiaries are shut down GM will no longer be the world’s third largest automaker, and may even fall behind Renault Nissan internationally.

At the same time, another story surfaced that BMW will expand its manufacturing operations in China to produce another 150,000 luxury vehicles annually, which will raise the number of Chinese-built Beemers to 450,000 per year. As a comparison, in 2016 Chinese consumers purchased slightly more than 516,000 BMW, Minis and Rolls; while here in America we managed to purchase just 365,204 BMW and Minis. One will assume that much of BMW’s South Carolina facilities’ excess production, which is currently exported to China, may be diverted elsewhere in the future. Failing that, production rates could be slowed in this country.

But even this is not what most should worry about. No, we may have walked away from the Trans-Pacific Trade Partnership, but across two continents China is busily bringing more and more developing countries into its sphere of economic influence and betting $1 trillion on the outcome.

Where in America we seem increasingly to elect individuals who are, shall we say, historically challenged, the Chinese have a thorough sense of their history, including a downfall that lasted a few hundred years. But China’s history also includes the world’s first true wealth-creating long-distance trade route, what we now refer to as the original Silk Road. Much of the world’s trade took place via that overland route from 200 bce until the Europeans established trade routes to the Orient by sea. Over time, maritime shipping made Europeans the dominant power in Africa, Central and East Asia.

Now China is betting another $1 trillion that its new One Belt, One Road infrastructure plan will pull even more nations into its economic gravitational field. According to the New York Times this will include a new port in Greece to land Chinese-made goods, new rail lines in the Eastern part of Europe and Africa and some already under construction in Southeast Asia. This on top of rail lines that China has built over the past 50 years to reconnect to places such as Kazakhstan and since then has moved into Tehran.

Then there’s the oil project announced two years ago. It would connect Iran’s oil and natural gas supplies in pipelines that skirt the lower regions of Central Asia, then go up through Pakistan and into China for their consumption.

Of course everything needed to build these ports, rail lines, pipelines and so on will come from China’s industrial output. It’s combined with billions of dollars in loans backed by the Chinese government, because China believes in buying friendships for future economic growth, the way America did at the conclusion of the Second World War. It’s only a matter of time before Chinese-made automobiles are put on Chinese-built railroads to bring mobility to more third-world (developing) countries that China is eager to develop as trading partners, but that we find too costly to mess with.

Still, it was that $1 trillion figure that I found so outrageous, because it covers Chinese projects in at least 60 countries. So, on my radio show I mentioned that China has $1 trillion lying around to build infrastructure for much of the world so it can expand and expedite trading; we can’t come up with a trillion dollars to fix our highways without putting tolls on our roads and selling our motoring souls to Wall Street.

Almost immediately someone called in to the radio show to let me know that the reason we can’t do these infrastructure projects is because of unions — and (alluding to environmentalism gone wild) the fact that every project takes 10 years to make happen. Next Chris emails me that the entire discussion of infrastructure is patently unfair to Texas because, he says, we pay our construction workers between $17 and $27 an hour, while the same worker in New York gets $75. He then adds, “I say that those contracts should pay the rates of the low-tax areas to all as conservation of the taxpayers’ money. Maybe the ‘give everything to everyone’ high-tax locales would get a clue.”

Great. Two people can take a serious discussion of how China is actively trying to realign the entire world to its economic sphere, and turn it into an argument blaming unions, environmentalists and low-tax states’ not subsidizing high-tax states.

Now, these two individuals think they are shutting down documented facts and conclusions with more-meaningful ideology. And they may do it; we live in an age where ideology, screamed loudly and incessantly enough, can carry more weight than facts and pragmatic realism. But not a word of what they claimed to “know” is factual.

Anti-facts, anyone?

First, only 6.7 percent of all private sector workers are unionized today; and here in Texas, a right-to-work state, I doubt sincerely that most road construction workers belong to any union. In any case, America built the entire Interstate highway system, all of our major airports and the good farm-to-market roads across our country in an era when almost a third of the working population belonged to some union. But Chris alluded to that, too, when he brought up the difference in pay between workers in Texas and New York. The problem is that he was just making his numbers up.

Turns out the Bureau of Labor Statistics shows that last year, the average construction worker in Texas earned just $30,400 or, based on a 40-hour workweek, $14.42 per hour. In New York the average construction income was $48,080, but that’s just $23.11 per hour, not $75. Then again, as I pointed out, if you are talking about building or fixing highways, the state of Texas covers 261,700 square miles, New York state 47,214. Which of the two states do you believe has the most highways and farm-to-market roads? Obviously, the one that is more than five times larger. Now the question is, who is subsidizing whom?

Oh, and then there’s that bit about how much the citizens and corporations in each state pay in federal taxes vs. what federal monies come back to each state in return. Turns out there are only 14 states that pay more in federal taxes than they receive back in federal funding. According to The Atlantic’s 2014 article, “Which States are Givers and Which are Takers?” South Carolina rakes in the most, getting back $7.87 for each dollar its citizens and corporations pay in federal taxes. The article’s graph also makes it look like Texas gets back around $1.40 for each dollar paid.

But none of this matters; this is not a Texas vs. any state or the rest of the nation argument.

No, every mile of Interstate highways benefits the entire nation because we use it all, to haul goods across the country in all directions. The part about the 10-year environmental study is overstated at best. But again, not one of these issues matters anyhow. Because there’s no $1 trillion in our savings account to rebuild and fix our infrastructure to begin with, much less the $3 – 4 trillion it could cost today to bring our country’s infrastructure systems back up to code.

Having no money to fix anything is priority No. 1. The rest is just mindless speculation and excuses. And none of it has anything to do with China spending so much money right now, so fast, to turn the world’s economic power picture into one it controls.

So our car companies are downsizing worldwide and bragging about how really smart that is, while we are cheering for the return of any job to America that was sent out of the country when we once expanded internationally. Meanwhile, we are walking trade deals that may in fact not be great, but still tie the rest of the world to us economically. Yet, while we claim we have no money even to maintain the infrastructure our parents and grandparents paid for, China is going in the exact opposite direction.

They’re sending their money, engineers, corporations and crews around the world in an effort to align everyone much more closely with their vision of the world’s economic future. GM may not like the prices and margins it got on its cars in India, but cheap cars with low margins today are right up China’s alley. One can hardly wait for some election in our future when the economic tide has turned and people scream, “Who let this happen?!” No one will like the answer: We did.

This story was originally published May 26, 2017 at 12:00 PM with the headline "China’s New Silk Road."