China’s New Silk Road Rage
Zambia’s going through some challenging times south of the Sahara. The country is drowning in Chinese debt, thrashing and fighting desperately to restructure, renegotiate, and refinance arrears. But it’s not just Zambia. Shivers are running down the spines of entire continents, investors along China’s ‘Belt and Road’ scrambling to undo their exotic bets. China’s what?
China’s vast ‘Belt and Road Initiative’ has been dubbed the ‘New Silk Road’ by many, a global investment route running past Singapore, the southern tip of India, and East Africa. It goes up through the Red Sea and finally into Europe, stopping at 152 countries and not due for official completion until 2049. The premise is that Beijing lends the Renminbi to build infrastructure in emerging countries, and pretends not to notice the ominously high rates of default in those nations.
Eventually, “a Zambia” happens. Sovereign debt rises to 96% of gross domestic product (GDP), blackouts begin and the Internet turns off, Chinese debt collectors taking the most diamond-rich mines they can find as loan collateral. “这是我们的!” they say, translating to “this is ours now” in English. As if that’s not enough, Beijing also holds Zambia’s national broadcasting in check as an attached string to original agreements.
President Xi says the Belt and Road Initiative is a generous service to impoverished nations and wonderful for Chinese free enterprise. The rest of the world has something else to say about it!
These aren’t healthy debts that investors want exposure to either when they dip a toe into African markets. Stocks there are already volatile in choppy waters, with chaotic political environments and corrupt regimes able to capsize companies overnight. Returns from the iShares MSCI South Africa exchange-traded fund (ETF) are down 28% on a 5-year basis.
“Not yet,” is what most investors maintain today. Unless, of course, the Serengeti smart money is in the iShares China Large-Cap ETF, up 10% over the same period?
