Saturday, January 19, 2019

Makers, Takers, and Stuff

ASK THE CFP® PRACTITIONER


 

 

“The world is a book, and those who do not travel, read only a page.”

~ Saint Augustine

China’s Belt Road Initiative (BRI) or One Belt One Road (OBOR) was introduced in the last column with a promise to expand on the concept in this issue. As a refresher, the purpose of China’s OBOR project is to provide expanded and efficient trade routes connecting over sixty countries to facilitate the movement of goods throughout the Asian-Pacific area.

Marco Polo’s Great Silk Road Economic journey is the blueprint for this undertaking. The “Belt” refers to roads, high speedrailways, pipelines and telecommunications, while the “Road” addresses shipping routes and ports for the maritime movement of products. In October 2013, China’s President Xi Jinping announced his desire to establish the BRI. The hope is that BRI will create demand for China’s excess exports, and provide a route back to China for needed imports including energy and food.

 

 

According to the National Bureau of Statistics, China is number one in worldwide farm output. But it’s still not enough to feed the 1.4+ billion people that make up 20% of the world’s population. China’s arable land only represents 10% of the total planet’s land suitable for growing crops. The numbers don’t work. China’s appetite for higher quality protein sources such as meat and nuts continues to increase while their farmland cannot accommodate growing demand. The addition of transportation infrastructure to import food could benefit the Chinese.

Trade routes and infrastructure matter; ask anyone who was here during Hurricane Irma. We experienced shipment delays for water, ice, and food while experiencing the temporary and short-lived breakdown of infrastructure to include electricity, water and sewage treatment at times (thank you municipal workers!). Highways, railways, shipping lanes, ports and electric grids allow for the movement of goods. It starts with production, requires transportation, and concludes with consumption. Put another way, the real components of economic growth are makers, takers and consumers of stuff.

China’s natural resources include coal, concrete, steel and rare earth minerals. They lack food and fresh water is scarce. Many of the materials necessary to build the ports, roads, bridges, and airports necessary for OBOR are native to China. The question is, who will provide funding for these projects? Take a Ride on the Reading Railroad

Every Monopoly player knows that it takes cash to acquire properties and build infrastructure.

To help fund the OBOR initiative, the Asian Infrastructure Investment Bank (AIIB) was founded as a multilateral financing institution with headquarters in Beijing. As referenced in a Forbes’s article by Salvatore Babones on January 16, 2018, the AIIB had a lofty goal of lending $10-15 billion each year, but in the past two years has only loaned $1.13 billion and $3.30 billion. There’s no indication of how much of that has been disbursed. Yet, even before project funding began, OBOR did have a record achievement with the world’s longest roundtrip railway adventure covering 16,156 miles from China to Spain and back again in early 2015. Alistair Dawber, a journalist from the U.K. called it the “China to Spain Cargo Train.” Monopoly

The relationship between economic growth, income, and debt is relatively straightforward, even to an eleven-yearold. Over the Martin Luther King, Jr. holiday we met our daughter and grandson in Jekyll Island, Georgia, the birthplace of the Federal Reserve Bank. This beautiful island is rich with history, and no matter how you feel about the Fed, my hope was for our grandson to learn about our monetary system. Not surprisingly, Luke was more interested in riding shotgun in the RV with Papa, Cracker Barrel, miniature golf, and playing Monopoly. This geeky Grandma didn’t give up, and was able to use the Monopoly game as a learning opportunity to demonstrate the finer points of banking and finance. Luke was the designated banker and he did have fun, but we’ll need to wait for our next long weekend to discuss deficit spending.

China has an ambitious goal of building the world’s largest platform for economic and cultural connections. My goal today was to provide you with an overview of the One Belt One Road (OBOR) initiative and explore why China is fascinated with this project. China is interested in increasing its rate of growth using infrastructure to expand its reach for exports while bringing home the bacon so to speak. With increases in productivity and consumption, the intent is to add real economic value while creating global connectivity. How successful the OBOR initiative will be remains to be seen. Stay focused and plan accordingly.

All investments are subject to risk. The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and are subject to change at any time. There is no assurance that any investment strategy will be successful. Asset allocation does not guarantee a profit nor protect against loss.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”

This article is provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. Call or email Darcie at 239-389- 1041 or darcie.guerin@raymondjames.com with questions or suggestions for future columns. Visit her website: www.raymondjames.com/Darcie.

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