2015-06-19

New Silk Road: Overrated Growth Strategy

China's was the leader of the Third World during the Cold War. China's 21st Century strategy is not much different, this time its richer, and will spend billions upon billions of its own capital to develop countries.

WSJ: Venezuela Oil Loans Go Awry for China
As Venezuela’s economy totters thanks to low oil prices and years of mismanagement, a Chinese government-owned bank is badly on the hook.

China Development Bank has lent nearly $37 billion to Venezuela since 2008, helping to prop up the regime of Hugo Chávez and his successor, Nicolás Maduro, while becoming one of the Latin American nation’s biggest creditors. Venezuela says China has pledged billions more.

CDB’s plan was simple. In return for its largess, Venezuela would send China millions of barrels of crude each year. Since the middle part of the last decade, the bank has doled out tens of billions in similar loans to energy companies and governments in other oil-producing countries to help secure resources for China’s expanding economy.

In Venezuela, the strategy has gone awry. In recent months, CDB has extended loan maturities and eased repayment terms, allowing the country to send it less oil than agreed and to pay bolivars instead of hard currency into a mutual-development fund intended to finance projects there. As other investors flee amid triple-digit inflation and social unrest, Venezuela has become more dependent on CDB.
The best thing about the New Silk Road is the link between China and the West, but it passes through a lot of unstable territory. The cost of protecting key infrastructure from bandits, be they roving bands of Islamic terrorists or the official government, will drive returns much lower than expected.

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