A matter of Asian connectivity
At a November 8 meeting involving the leaders of China, Bangladesh, Cambodia, Laos, Mongolia, Myanmar, Pakistan, and Tajikistan, Chinese President Xi Jinping announced plans for a new commercial “Silk Road.” China plans to invest $40 billion in a Silk Road fund—a financing mechanism intended to break the bottleneck in Asian connectivity.
Improved connectivity between Asian nations, and between Asian nations and Europe, will benefit businesses that operate in these economies. Similarly, it should benefit exchange-traded funds investing in Asia and Europe such as the iShares China Large-Cap ETF (FXI), the iShares MSCI Hong Kong Index Fund (EWH), the Vanguard FTSE Europe ETF (VGK), the iShares MSCI EMU Index Fund (EZU), and the WisdomTree India Earnings Fund (EPI).
What is the Silk Road?
The Silk Road envisaged by this plan is a network of railways and airports that will facilitate the movement of goods and products by land across Central Asia, Russia, and eventually to Europe. The network will also include shipping lanes for goods and products to be transported from South-East Asia to the Middle East and Africa.
The plan involves the revival and linking of key corridors:
• The ancient Silk Road between China and Europe via Afghanistan and Central Asia
• The Bangladesh, China, India, Myanmar (or BCIM) corridor
• The China-Pakistan economic corridor through Pakistan-occupied Kashmir
A three-way combination
According to Jinping, the attempt to link Asian economies through the Silk Road is not merely about building roads and bridges to facilitate linear connections. “More importantly, it should be a three-way combination of infrastructure, institutions and people-to-people exchanges and a five-way progress in policy communication, infrastructure connectivity, trade link, capital flow and understanding among peoples,” he said.
This, and the $50 billion bank we’ll examine next seem to support Xi’s stance that China is shifting to a new normal.