Do you remember China’s Belt and Road Initiative, also known as the ‘BRI’?
A multi-trillion reworking of the historic Old Silk Road that connected East to West.
A network of highways and railways linking China with strategically important nations across Eurasia and Africa.
The BRI was set to entrench China as the world’s most important superpower as it paved exclusive access to commodity rich nations.
A huge strategic advantage as we approach an era of shortages across energy and raw materials.
The building of the BRI, itself, was set to require huge investment in infrastructure, driving demand for industrial commodities like iron ore, nickel, copper and aluminium.
But against the backdrop of lacklustre growth and a struggling real estate market, China’s BRI looks like it’s on a road to nowhere.
Yet according to the latest report from Australia’s Griffith University cumulative investment just breached US$1 trillion for the first time in 2023.
So much for a China meltdown!
China’s Belt and Road is back. In fact, investment has surged.
However, over time the direction of this megaproject has changed shaped.
According to the Griffith Asia Institute, participating African nations were among the biggest winners last year:
‘BRI countries in Africa saw a 47 percent increase in Chinese construction contracts and a 114 percent increase in investments.
‘In consequence, Africa as a continent became the largest recipient of Chinese engagement worth USD 21.7 billion, overtaking Middle Eastern countries that saw USD 15.8 billion in engagement.’
The African continent offers a vast untapped frontier for mineral discovery and already hosts major deposits of copper and cobalt.
In a playbook from the colonial powers of the past, China is looking to connect itself with the riches on offer.
Yet, by digging into the specific countries receiving the largest share of Chinese investment it becomes clear which commodities the Middle Kingdom is targeting.
According to the Griffith report, Indonesia was the largest recipient hauling in US$7.3 billion from China last year.
So, what’s driving the flow of capital here?
One reason could be the country’s vast nickel supply.
Indonesia has already established a major presence in the nickel market thanks to years of Chinese investment.
The flow of investment has allowed Indonesia to tap into its vast nickel laterite deposits and construct downstream processing.
In recent times that’s flooded the nickel market and depressed prices.
With mine closures across the west and strong investment links to Indonesia, China has built a commanding position in the nickel supply chain.
Next comes Hungary.
This East European nation doesn’t host major commodity reserves but it is geographically important to China’s BRI ambitions.
As part of its broadening reach into Eastern Europe, China is funding a high-speed railway connecting Budapest to the Serbian capital Belgrade.
This is a flagship project under China’s Belt and Road Initiative.
But according to Griffith University the third largest recipient of Chinese investment in 2023 was Peru.
A country located on the opposite site of the world and well beyond the historic Silk Road trading route.
Importantly though, Peru is the world’s second largest supplier of global copper.
In fact, China has already established a presence here via MMG, a Chinese-backed firm who owns and operates the enormous Las Bambas copper mine.
An operation contributing 2% of global copper production.
China appears to be narrowing its BRI focus by tapping into key minerals.
From Africa’s vast copper and cobalt deposits, nickel laterites in Indonesia and copper rich Peru.
No doubt, China views this as strategically important.
Copper and nickel are set to play a critical role in electrification and industrial expansion.
Targeted investment into these commodity rich regions demonstrates China’s understanding that securing metal supplies will be critical in a future economy that promises more instability between East and West.
As an investor you should be paying attention.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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