The Power Play Happening Across Asia Right Now

The Power Play Happening Across Asia Right Now
  • A revelation from a China insider
  • New alliances are forming
  • Credit lines signal the rise of the yuan

Have we got a pissing contest going on right now?

I think we do.

In case you didn’t catch the news, Japan’s foreign minister announced last week that the country plans to take the lead on ‘quality’ infrastructure spending across the Indo-Pacific region.

There’s data to suggest that Asia needs $1.7 trillion per year to meet its infrastructure needs — until 2030.

Was he taking a jab at China in part here? This is a bit of speculation on my part. He’s quoted as saying,

Substandard infrastructure will not only inhibit sustainable development, but could even become bottlenecks to growth.’

Apparently, the Japanese don’t rate Chinese construction standards.

They also perceive China to be muscling into territory like Southeast Asia, where Japan has spent a long time cultivating strategic partnerships.

Japan’s refreshed push into infrastructure spending in Asia is designed to try and keep the country’s regional influence high, and provide a counter to a rising China.

So, Japan might push back against China’s ‘One Belt, One Road’ rollout across Central Asia to Europe.

We’re talking big money here from China’s spending alone. If Japan comes in as well, that’s an awful lot of construction to go on.

I find it hard to be bearish on the world when countries are competing to build massive projects…

What this China insider says

I picked up on this theme after reading Tom Miller’s book, China’s Asian Dream,recently. It’s a look at why China is spending so much money outside the country.

Actually, that might be a bit of a misconception in a way. According to Tom, currently Japan and the EU spend more in Southeast Asia.

Japan has actually led the way on financing infrastructure around Asia since 1966.

But China’s One Belt, One Road initiative may end up involving over 60 countries. It could be huge.

But why?

Tom says there’s multiple motivations behind China’s press to invest in roads, railways and ports.

The first is to draw neighbouring countries into its sphere of influence, and buttress China’s regional security. China figure countries are more likely to act in her interests if they have jobs and money at stake.

Tom Miller says the benefits of the One Belt, One Road project go even deeper…

All these infrastructure investments also allow China to exports its services to the world — commodity producers, engineering firms and capital good firms.

It will also provide thousands of jobs for Chinese workers. Tom says it will also usher in further trade settlement in China’s currency — the yuan.

Not only that, but it could give China a better return on its massive foreign exchange holdings.

China set up the Asian Infrastructure Investment Bank (AIIB) in 2015 to help these projects get going.

57 countries joined in. There were two notable exceptions — the US and Japan.

Not only that, but the US tried to dissuade its allies from joining.

China set up the AIIB basically to give the bird to the US and Japan, who kept blocking China from having a bigger say in existing institutions.

According to Tom’s book, the Asian Development Bank, set up by Japan years ago, is worried China’s AIIB will compete with it for the same projects — but with lower standards.

Japan and China have an uneasy history.

Watch this space.

New alliances are forming…

The One Belt, One Road rollout also helps China secure its energy supply lines.

Currently, something like 80% of China’s oil imports come via the South China Sea.

China wants to change this.

The Financial Times reported last week that one of China’s energy companies took a US$8 billion stake in Russian oil company Rosneft.

Apparently, this particular Chinese player has been pushing into the former Soviet bloc with similar deals around oil and energy assets.

This all could potentially allow China to build overland supply lines, from Eastern Europe to Central Asia.

The name of the game is for China to distance itself as much as possible from the power of the US Navy ­— which controls the South China Sea.

Credit lines signal the rise of the yuan

Also of note last week is the report that a Chinese government investment firm provided a credit line to Iranian banks.

The credit line will use euros and yuan to bypass these. There’s big money here too — Chinese policy banks may end up investing US$35 billion into the Iranian economy.

Iran is currently under US sanctions, and it’s looking to get around them as much as possible.

Donald Trump called the government in Iran a ‘murderous regime’ in a hostile speech last week.

Of course, as we talked about previously, he doesn’t mind selling US arms to Iran’s next-door neighbour, Saudi Arabia — hardly known for its benevolence.

Typical government hypocrisy. Blah blah. Probably the US warmongers are looking for another country to invade under false pretences.

The more China invests in Iran, however, the more inclined it might be to defend it.

Trump is clearly trying to isolate Iran again — for what end I don’t presume to know.

There’s a potential flashpoint brewing here.

Stay tuned.


Callum Newman Signature

Callum Newman
Editor, The Daily Reckoning Australia