Tuesday, January 19, 2021

The Emperor's New Road


One of the more exciting opportunities for investors and enterprising young professionals is the Belt and Road Initiative and for yonks, it has been hard to find a book that can summarise it well for Western audiences. Worse, I heard that the analysis coming out from China was overly optimistic about its prospects, so The Emporer's New Road is a welcome addition to an investor's library. 

I don't a have the academic training to really appreciate the work, as I suspect that a student of political science can possibly benefit from having a framework to arrange all the information shared in the volume, I will do my best to share three points I picked up from reading this volume.

a) Somehow major rivals must fight each other.

Almost every book on geopolitics must reference the rivalry between China and the US and no expert will rule out the possibility of a  Cold War evolving into Hot War between the two superpowers. The term is Thucydides Trap - Athens and Sparta must go to war because an incumbent cannot countenance the emergence of a new superpower that will replace it as the next hegemon.

What is surprising to me is that smaller states can play on this trope and threaten to go with the other party if they cannot get support from one. Superpowers can keep using their hard-earned taxpayer funds to support a finding black hole to get an edge over a rival power.

What is sad is that even with really smart people in charge, nation-states cannot find an alternative to the escalation of rivalries.

b)  When it comes to development funding, the country that receives is more important than the generosity of the country that gives 

When a superpower funds or assists a country's development, the question of whether the country prospers under such support depends on the receiver rather than the giver. The Belt Road Initiative is often compared to the Marshall Plan when the US was helping Western Europe and Japan recover from the ravages of World War II. 

The Marshall Plan succeeded because of the industriousness and work-ethic of the recipient countries. The BRI has a much harder time because recipient states may not even be genuine about their own economic development. 

This book details the various fiascos of the BRI and has very few good things to say about countries like Pakistan or Sri Lanka. 

While this is not mentioned in the book, China may be wasting their resources on nations that simply are not culturally disposed towards progress and improving their lot in life. 

c) Progress is slow where land rights are too strong

Another thing I learnt about the development of nation-states is that optimal progress requires property rights that are not that strong. Singapore grew fast because our laws allow the government to confiscate someone's land for development with some compensation. Imagine going to an emerging market and obtaining enough land to make way for a railroad. Another problem is that politicians are already in the pockets of wealthy land-owners. 

If you are expecting an analyst from the US to say really nasty things about China's Pet Project of the 21st Century, this book will definitely meet your expectations. It is well researched, with footnotes spanning a quarter of the text. 

After reading this book, I've come off with an extremely negative view of BRI after reading this book. The BRI has too many moving parts and many countries have an incentive to see it fail. I have no doubts that you will feel the same way after going through this text.


  1. BRI is mainly to help support SOE's & associated employment (most of BRI investments had a criteria to award major contracts to Chinese companies), and to transfer malinvestment & bad debts (but not 100%) onto target countries (bad debt diplomacy). In exchange, China gets access to cheaper industrial commodities e.g. in central asia & africa. And in certain cases, confiscate fixed assets/land e.g. Sri Lanka's Hambantota port.

    It was particularly helpful to China in the aftermath of the 2015/16 bursting of their infrastructure / building sectors with huge ghost cities & overhang of hundreds of billions of dollars worth of unneeded infrastructure.

  2. Maybe I'm naive, but China can easily use their resources to beef up their own internal "software" even resolve some issues on inequality. Hambantota and Djibouti will taint their reputation and create suspicion of their intentions for decades. Now there we have a US president who will not deal with China on his own, this will look quite bad for them.

  3. China wiped out 1/3 of its national reserves in trying to rescue zombie companies, industries, and jobs by end-2016. Which is why ever since, Beijing had been very careful in using fiscal bazooka, even during this covid pandemic where it has spent only a fraction of 2015-2016.

    Even our own expenditure of close to $100B for covid is probably only around 10% of our national reserves.