Economic Revolution From Southern Silk Road: HSBC

A Southern Silk Road connecting Asia, the Middle East, Africa and Latin America will lead to turbocharged growth between emerging economies this century, according to HSBC.

“We’re talking about an absolute revolution in terms of world trade,” Stephen King, chief economist at HSBC, told CNBC on Monday.

Beijing, China
Keren Su | Getty Images
Beijing, China

The bank believes that these “South-South” connections will revolutionize the global economy and create a new Silk Road.

The renminbi may replace the dollar as the world’s most important reserve currency if the new trading relationships develop as HSBC envisages.

King believes that the growth will be driven first and foremost by China, which is already the largest foreign investor in Brazil, Laos, Myanmar, Iran, Mongolia and Afghanistan.

Its progress will be helped by its increasing power at sea. China now accounts for five of the world’s top ten biggest container ports, although twenty years ago, not one Chinese port was in the top twenty.

New infrastructure such as proposedrailways coast-to-coast across Colombia and from China through to Turkey alongside new port construction in the Indian Ocean will help alter trading relationships, according to HSBC.

Trade borders are still relatively high between many of these countries, according to King.

“When you look at the kind of (trade) borders they’re still very high. That’s one of the reasons for optimism because if they weren’t so high there wouldn’t be as much room for expansion,” he said.

“All this change will happen in the near future.”

“The other side is the urbanization of countries in Asia. There’s still a huge amount of opportunity for the growth of rural income in China and the growth of trade,” he added.

“There are other countries around the world that will do really well including Indonesia.”

As China and India develop new products for their increasingly wealthy populations, they may be exported to other emerging markets.

Chinese and Indian cars, such as the Tata Nano, the world’s cheapest car, are cheaper, lighter and simpler than their Western counterparts, so may appeal to consumers in other emerging markets.

There will also be an Energy Silk Road as the demand from China and India for commodities such as oil and gas helps build relationships.

The building of these relationships could be threatened if the Chinese clash with the United States at sea, King said.

“One threat is if China builds its relationships with Latin America and needs to protect them. To protect them you need a Navy and the question is whether you will have room on the high seas for both a Chinese and American Navy,” he added.