There is a new Silk Road and the world is starting to feel it: China’s post-covid economic recuperation has been almost miraculous, in the first quarter of this year its exports bounced back by almost 50% year-over-year to about $710 billion. No other country has been able to recover at China’s pace.
But is this recovery due to accurate politics or due to a global scenario – not necessarily under the control of the Chinese? Is this the sign of economic planning that has turned China into the global superpower, or it is a rekindling of a geographical struck of luck, like the one that produced the fabled times of the Silk Road?
In other words, is the Chinese government the one steering the boat of this prosperity or history has placed, again, all roads of global trade linked to the land of the Dragon? Let us find out!
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The original Silk Road dynamic
To properly understand the current phenomena, we need to paddle back through the river of time to the days of Marco Polo, the camel caravans, and the fabled Silk Road. The Silk Road was an interconnection of trade routes that linked, more or less, the entirety of the then “known world”.
Trade routes that lasted for approximately 1.400 years. Slowly developing, overlapping, and mutating, according to the needs, resources, and cultures that flourished and disappear during those ages.
It was not the kings or emperors, the traders or warriors, who “built” the Silk Road. No one built it. It was a direct consequence of geographical reality: China’s huge extension allow it to have a large segment of the natural land route inside its borders, or at least, inside its area of influence.
This is the first key element that we need to understand to analyze the current situation: The original Silk Road was not made by any government – especially not by the Chinese government – it was a slow evolution derived from simple geography, more than from any politic.
The second element that defined the original Silk Road, was the fact that the goods were – mostly – traded. The goods exchanged on the original Silk Road were made in Europe and the Middle East, and traded to Asia, or in Asia and the Middle East and traded to Europe, or in the Middle East and traded to both Europe and Asia… or Africa, you can get the gist already don’t you? It was a far more egalitarian production if we could call it somehow. The Silk Road connected global production centers from all cultures, and even when the main part of the trade route was under China’s control – in any of China’s political mutations during those centuries – the production was not localized or controlled by any civilization.
Is it the same thing that is currently happening? No, and that is both the scary and the amazing part of all this.
Is China the world’s factory?
The industrialization of China took ages to happen: It actually started in the late 50’ when Mao introduced the “Five Year Plan” and it was the late 60’ when China started to manufacture goods for the rest of the world.
So far, it would seem that this time China’s role as a global trade hut was derived from a political ideal, and also, it was anchored on a different concept: not only as traders but as the source of the products itself.
Currently, China controls close to 15% of global trade and accounts for over 28% of the global manufacturing of goods. These numbers have never ever happened before in the entire history of mankind: China is the world’s first global factory.
🎯 In fact, in some sectors China controls well over 40% of the global production of that particular good: According to the statistic shown, almost 1.5 billion cell phones have been produced in China in 2020. 🎯
How much of the global trade is actually done by China?
Currently, the top three titans of global trade are China, the USA, and Germany. China is leading the race with 15% of the global trade. The USA follows with 11% – a significant difference when we realize that we are talking about billions of dollars in that gap – and in the third position stands Germany – Europe economic powerhouse – with 7% of the global commerce.
Indeed, China rules international trade. But it is due to the goods being produced in China? Well, it seems so.
So this time, the New Silk Road seems a bit different than before: China is both the route and also the manufacturer. And global production seems to be focalized in China, rather than decentralized in multiple regions.
This centralization of global manufacturing poses, obviously, new challenges and weaknesses.
Power outages and the energy crisis
China’s big factories had, in November, their worst month since the Covid-19 pandemic began. Several power outages slowed its manufacturing capacities.
A government survey of manufacturing activity released over the last week of November showed that production fell for a second straight month, down to 49.2 in October from September’s 49.6. Any reading below 50 indicates contraction.
Manufacturing in China has been battered by a handful of problems, including an energy crunch, shipping delays, and rising inventories.
Even so, it remains as the main global “factory”, and other countries who are also manufacturing centers, are suffering from similar or related constraints. The energy crisis is slowly growing all over the world, and power outages – or increases in the price of electricity, gas, or any other form of energy – are affecting nations in all regions. This is not a China-exclusive situation.
All in all, if the former Silk Road lasted 1.400 years, in this new scenario where China is far more powerful – from a trade perspective – and has even more control over the trade itself, one can only imagine that the world global trade will be riding atop the mighty dragon for at least another 2000 years.