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(Con): China Economy Answers

Turn – BRI will undermine China’s economy. Expansion just increases overstretch risks

Cavanna, July 2019, https://tnsr.org/2019/07/unlocking-the-gates-of-eurasia-chinas-belt-and-road-initiative-and-its-implications-for-u-s-grand-strategy/, Thomas P. Cavanna is a visiting assistant professor at the Fletcher School of Law & Diplomacy in the Center for Strategic Studies. He writes on U.S. grand strategy and U.S. foreign policy toward China and South Asia. He holds a French “Agrégation” and a Master’s degree and doctorate in history from Sciences Po. He was also a Fox Fellow at Yale. Dr. Cavanna is currently working on a book on the Belt and Road Initiative and U.S. grand strategy., Unlocking the Gates of Eurasia: China’s Belt and Road Initiative and Its Implications for U.S. Grand Strategy

At the same time, most experts contend that China’s prospects of success are slim. Belt and Road’s closest equivalent, the Marshall Plan for Western Europe, which the United States launched while at the height of its power, had a much narrower financial reach and timeline (1947 – 1951) and covered far fewer nations — but ones that were economically stronger.8 While some scholars anticipate that Belt and Road will generate modest returns,9 many criticize it as a mere slogan or an “endless list of unrelated activities” that will drain Beijing’s finances and damage recipient countries.10

Foreign infrastructure building won’t protect China’s economy and more capital financing creates more financial risks for China

Panos Madourakotas, July 27, 2019, https://www.forbes.com/sites/panosmourdoukoutas/2019/07/27/trade-war-is-hiding-chinas-big-problems/#4d826d8a5bb3, Forbes, Trade War Is Hiding China’s Big Problems

Meanwhile, there’s the infrastructure investment bubble at home and abroad, as discussed in a previous piece here. At home infrastructure investments have provided fuel for China’s robust growth. Abroad infrastructure investments have served its ambition to control the South China Sea and secure a waterway all the way to the Middle East oil and Africa’s riches. City overpass in the morning City overpass in the morning GETTY While some of these projects are well designed to serve the needs of the local community, others serve no need other than the ambitions of local bureaucrats to foster economic growth. The trouble is that these projects aren’t economically viable. They generate incomes and jobs while they last (multiplier effect), but nothing beyond that—no accelerator effect, as economists would say. That’s why this sort of growth isn’t sustainable. The former Soviet Union tried that in the 1950s, and it didn’t work. Nigeria tried that in the 1960s ;Japan tried that in the 1990s, and it didn’t work in either of those cases. That’s why bubbles burst – and leave behind tons of debt. Which is another of China’s other big problem s. How much is China’s debt? Officially , it is a small number: 47.60%. Unofficially, it’s hard to figure it out. Because banks are owned by the government, and give loans to government-owned contractors, and the government owned min ing operations and steel manufacturers. The government is both the lender and the borrower – o ne branch of the government lends money to another branch of government, as described in a previous piece here. But there are some unofficial estimates. Like one from the Institute of International Finance (IIF) last year, which place d China’s debt to GDP at 300%! Worse, the government’s role as both lender and borrower concentrates rather than disperses credit risks. And that creates the potential of a systemic collapse. Like the Greek crisis so explicitly demonstrated. Meanwhile, the dual role of government conflicts and contradicts with a third role — t hat of a regulator, setting rules for lenders and borrowers. And it complicates creditor bailouts in the case of financial crisis, as the Greek crisis has demonstrated in the current decade.