From world dominance through economic corridors to much more
Today, we explore the economic corridors and do a deep dive on China's BRI, while looking at Brazil's PIX, while we end with the thirsty AI.
The race for economic corridors
Examining historical records, we find that the vital role of economic corridors and trade routes linking the East and West has been a cornerstone of modern civilization for centuries. This phenomenon likely commenced during the modern era, notably with the inception of the Silk Road during the Han Dynasty of China, dating back to approximately 130 BC.
In the 21st century, nations still place significant emphasis on connecting the East and West through cost-effective, efficient, and swift transportation networks. The establishment of these trade routes not only fosters economic expansion but also paves the way towards global influence and dominance.
In the modern era, Suez Canal alone handles around 12% of the global trade by volume. It serves as a shortcut for ships traveling between Europe and the eastern parts of Africa and Asia, reducing the distance and transit time for vessels.
In 2013, China came up with its Belt and Road Initiative (BRI), connecting China with Europe. It has its land-based corridor connecting through Central Asia and Middle East. It further had a separate maritime trade route connecting China to Southeast Asia, South Asia, Africa, and Europe. More on China’s BRI in our next article this week.
In the G20 summit of September’2023 at New Delhi, India, US, EU and Saudi Arabia announced a trade corridor that would connect India to the UAE through the sea and then would cross Saudi Arabia, Jordan and Israel before linking up to Europe. This would include a digital link and the rail link would make India and Europe 40% faster. This is seen as the Western world’s counter to China’s BRI amidst the increased hostilities between US/EU and China. However, details of this corridor are not yet published, and it’s expected to be announced in next 2 months.
Within a few days of the above announcement, Turkey, after being “left out” from the India - Europe trade corridor, announced a separate trade corridor as a counter to that. President of Turkey mentioned ““there can be no corridor without Turkey”, adding “the most appropriate route for trade from east to west must pass through Turkey”. This is approximately a $17 billion project, envisioning a transportation route stretching southern region of Iraq and then reaching Turkey. The project, is designed to utilize a comprehensive infrastructure network, comprising a 1,200-kilometer high-speed rail system and a parallel road network. The initial phase is scheduled for completion by 2028, and the final phase anticipated to be ready by 2050.
However, analysts have pointed out their concerns on the economic feasibility of this plan. While Turkey alone cannot fund this project & Iraq is economically & politically weak, they are likely to bank upon some of the Middle East countries like Iran, Syria and others.
It's evident that the intersections of geopolitical conflicts, the pursuit of economic expansion are converging as they underlie the declarations concerning these economic corridors.
China’s Belt & Road Initiative & it’s path ahead
China proposed the Belt and Road Initiative (BRI) in 2013 to improve connectivity and cooperation on a transcontinental scale. 18 of the EU’s 27 members had signed up to the BRI. In 2015, China also introduced a "digital silk road" as part of the BRI, which would help its private and state-owned organisations establish business in sectors like telecommunications and cloud computing. However, China’s BRI remains one of the most controversial initiatives running in the world.
China claims that currently the BRI has led to the creation of more than 400,000 jobs in the BRI countries and has enhanced the lives of more than 40 million people, who were otherwise living under poverty.
However, the West accuses this scheme to impose a “debt trap” on poor countries, apart from creating trade barriers, only suitable for Chinese goods. It mentions than more than 75% of the contracts does not include the conventional “Paris Club” terms and hence enforces stricter terms in case of debt defaults from the different countries.
The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries.
China often begins as an economic partner of a small, financial weak country and then gradually enlarges its footprint in that state to become its economic master. As on 2018, Eight nations will find themselves vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan.
China's BRI faces growing scrutiny in Europe, with the EU tightening oversight of foreign investments. As a result, there are only a few major BRI projects underway in Europe, such as a high-speed rail line connecting Hungary and Serbia. China plans to extend this line to Piraeus, but North Macedonia and Greece have not yet decided how to proceed.
Based on an American research group, China extended $185 billion in bailout loans between 2016 and 2021. It’s mentioned that the interest rate on Chinese rescue loans averaged 5%, higher than the typical 2% rate offered by the IMF.
Critics worry China could use “debt-trap diplomacy” to extract concessions over territorial disputes in the South China Sea. In 2011, China apparently wrote off an undisclosed debt owed by Tajikistan in exchange for 1,158 sq km (447 sq miles) of disputed territory.
Many countries have been walking out of the offers given by China through their BRI initiative:
In May'21, Australia cancelled the Belt and Road (BRI) agreement with China.
Bangladesh cancelled the Sonadia deep-sea BRI project in October 2020. China was also forced to withdraw from funding three railway projects in Bangladesh in 2021.
Myanmar in Southeast Asia has also cancelled another project China was eyeing for the Myitsone dam project.
China is now facing challenges in retaining the support of Italy, the only G7 member that joined the BRI. This was covered in the weekly newsletter of 7th September, the link of which is provided below.
Despite evolving perceptions and challenges, the Belt and Road Initiative remains a central focus for China, with official media emphasizing that it remains President Xi's cherished project in the lead-up to the upcoming BRI summit in October’2023
Brazil’s PIX
Pix, Brazil's instant payment system, is revolutionizing the way people pay for goods and services.
To make a Pix payment, the seller enters the amount on a card machine, generating a QR code. The customer scans the QR code with their mobile banking app and taps "confirm." The money is transferred instantly.
Pix is now the most common form of payment in Brazil by number of transactions, accounting for 29% of transfers in 2022.
It is also the second most-used real-time electronic transfer system globally, behind only India's United Payments Interface (UPI).
Pix is relatively inexpensive to run, costing only $4 million to develop and $8 million to operate in 2022.
However, it still only represented 12% of the value of non-cash money transfers in Brazil last year. Other forms of payment, such as debit and credit cards, remain popular, especially credit cards due to the option to pay in installments.
AI is damn thirsty !
In April 2023, a report revealed that training the AI model ChatGPT-3 alone consumed a whopping 85,000 gallons (700,000 liters) of water. The report also estimated that using ChatGPT to have a discussion with a user of around 25 to 50 questions would consume the equivalent of a 500-milliliter (60-ounce) water bottle.
Data centers, where AI computations are run, need large-scale cooling solutions to prevent the servers and other equipment from overheating. HVAC (heating, ventilation, and air conditioning) systems and cooling towers use a significant amount of water.
In addition, AI computations can be energy intensive. In some places, producing the electricity required for these operations can lead to a lot of water use, especially when using power generation technologies like thermoelectric plants, which rely heavily on water for cooling.