The Banking and Strategy Initiative

Chillin' out till it needs to be funded

China pushes for third world aid!

Infrastructure spending is supposed to reach $35 trillion ( that’s 10 China’s or maybe 5 including the future growth) in the next 20 years according to CIBC World Markets and thus the deficit we have been running in infrastructure spending will soon reflect in national deficits and the economic paradigm may shift too! ( more on that later !)

China has been increasingly activating itself in the last few weeks, what with the $6 billion bid for Nigerian Oil, and the bid for mineral resources in Guinea. However, it is not new to Africa and while Tianxiu mansions of Beijing come in for extraordinary notice ( Africans in China live there?)

The Chinese GDP of $3.4 trillion thus has built up at least $44 billion in aid extended by it to others including 28 countries in Africa) Though any attempt to measure it might fail in relating the two figures, it is important that this has been done without jeopardising their debt to GDP ratio and now when that ratio may be in threat after the $8 trillion bubble of new 2009 domestic debt

In 2004-05 China’s investment in Sub Saharan Africa was a not-so-insignificant $7.5 billion, while OECD itself is estimated to provide support for $5 billion only and another $2billion has since been added for Angola. Of course there has been the almost mandatory follow up discussion on Environment and Labor regulations of China (Ref:Building Bridges: China’s Growing Role as Infrastructure Financier for Africa )

The recent state visit to China has fructified a lot of new initiatives for the emerging Afro-nation. China is getting to consider the infrastructure financing for Kenya, even as Sudan backed out of a $3.5 bn Lamu port project and rail and road links to Ethiopia. China’s foray in Northern Kenya thus adds to its mandatory OIL quest with CNOOC also prospecting for Oil in the neighbourhood within the month. Ref: (China Kenya in Infrastructure talks)

China Kenya trade is currently less than $100 million dollars and has grown in the last 3-4 years with Telecom (Huawei), Titanium (Jinchuan), TV Sets, and vehicles (First Automobile) China also signed aid worth Sh2bn in 2005 to Kenya

However, China has started facing infrastructure financing blockages of its own and this project could well signify a rubicon given the increasing deficits and inflation which would emerge from such financing off the national GDP of China

Additionally, China also plans to get this ready as an alternative for the Sudan oil which is under threat because of a change in regime in Sudan in 2011.

In the meantime Russia has already collapsed from printing money to fund deficits contracting 5% in 2009 and Brazil and Venezuela have gone thru multiple cycles of redenominating currencies and surrendering debt even as Lehman, IMF and AIG continued extolling the irtues of leverage and prnting money. The world hasn’t changed a wee bit but the lessons to learn might be new, whether China or Brazil or Good old USA and India trying deficit financing. The infrastructure spend however, will not suffer this time whether in China or in Kenya.

Unfortunately, Sovereign Wealth Funds including the CIC, Temasek and Dubai World have already suffered reverses at the break of dawn and the same cultural anathema that broke global banks in 2001 and 2008 is the over riding culture at banks allowing Taiwan over India and Venezuela and Russia over China in economic is the language, it is the global classroom and it is the incapacity to give the deserving a place in the face of an opportunity to screw yourself with leverage instead, as depicted in the Cold War movies and James Bond, in the Gazprom pipeline crossing all Western Europe without a bit to the Eastern padres and in the social catastrophe that was communism.


This entry was posted on October 15, 2009 by in China, India, Private Equity and tagged , , , , , .


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