by David Fickling | Bloomberg August 12 at 2:00 AM
What causes empires to fall?
According to one influential view, it’s ultimately a question of investment. Great powers are the nations that best harness their economic potential to build up military strength. When they become over-extended, the splurge of spending to sustain a strategic edge leaves more productive parts of the economy starved of capital, leading to inevitable decline.
That should be a worrying prospect for China, a would-be great power whose current phase of growth is associated with an increasingly aggressive military posture and a tsunami of capital spending in its strategic neighborhood.
Like the Soviet Union in the 1970s, China is coming to the end of a long labor-force boom, and hoping that an orgy of investment will keep the old magic going while stabilizing its fraying frontiers. The success or failure of its Belt and Road projects – and the still greater sums it’s spending domestically – will determine whether the nation achieves its dream of prosperity or succumbs to the same forces that doomed the U.S.S.R.
The conventional worry about the Belt and Road initiative – an open-ended framework for an estimated $1.5 trillion of infrastructure projects over the next decade across Southeast Asia, South Asia and Central Asia – is that it will doom the recipients of its largess to a future as indebted clients of Beijing.
Failed projects like Sri Lanka’s Hambantota port may indeed be a way for China to quietly extend its strategic power around the world. But defaults on investments cause problems for creditors as well as debtors. The risk for President Xi Jinping is that the toll of all that misdirected spending gradually undermines the productivity growth on which China’s current might was built.
Consider some of the projects still on the drawing board. Think the $1.6 billion price tag Nomura Holdings Inc. has put on Hambantota looks excessive? Then