Wednesday, 11 January 2017

China Launches Beijing-London Freight Train Route

A 200-container block train pulled out from the West Railway Station of Yiwu, in China’s coastal Zhejiang province, on Monday, January 2nd. Its destination was not nearby Shanghai, Beijing, or even the booming city of Chengdu in the west, but Barking — as in the London borough. This train, laden with clothes, bags, and household items, will make the 12,000 kilometer journey in 16 days, and symbolically usher in a new stage in China-UK trade relations.

This new rail route, which will traverse Kazakhstan, a part of Russia, Belarus, and the EU before entering the UK via the Channel Tunnel, is part of a rapidly growing network that now consists of 39 rail lines, which directly connect 16 cities in China with 15 cities in Europe. On Sunday, the Chinese government launched a rail freight service between China and London. This is the first direct rail link between China and Great Britain. The route of the service will traverse from Beijing, across Asia and Europe, before terminating in London.

Now, Beijing is aiming to resurrect this historic trade route by using rail power. The journey is as much an engineering challenge as a logistical problem. Freight must swap trains along the way, as railway gauges vary between the connecting countries. In its 18-day journey, freight will span 7,456 miles of railways, crossing Kazakhstan, Russia, Belarus, Poland, Germany, Belgium, France and the UK. The new route unlocks a new option for shippers. Currently, the choice is two-fold. One, take an ocean-bound route, which, although cheap, can be slow. Two, use an air carrier that is considerably faster, but much more expensive.

A direct rail link between Beijing and Western Europe enables manufacturers to explore new means to lower transport costs. The line may not provide a suitable alternative to all producers, but canny negotiators can leverage the new market entrant to lower prices of their established pathways by boat or plane.

China is reviving the historic Silk Road trade route that runs between its own borders and Europe. Announced in 2013 by President Xi Jinping, the idea is that two new trade corridors – one overland, the other by sea – will connect the country with its neighbours in the west: Central Asia, the Middle East and Europe.

The project has proved expensive and controversial. So why is China doing it?

There are strong commercial and geopolitical forces at play here, first among which is China’s vast industrial overcapacity – mainly in steel manufacturing and heavy equipment – for which the new trade route would serve as an outlet. As China’s domestic market slows down, opening new trade markets could go a long way towards keeping the national economy buoyant.

Hoping to lift the value of cross-border trade to $2.5 trillion within a decade, President Xi Jinping has channelled nearly $1 trillion of government money into the project. He’s also encouraging state-owned enterprises and financial institutions to invest in infrastructure and construction abroad.

“It is not an economic project, it is a geopolitical project — and it is very strategic,” Nadège Rolland, an analyst at the National Bureau for Asian Research, told foreignpolicy.com. He's not alone in suspecting China of a tactical repositioning in the global economy; it's clear that relationships with the ASEAN region, Central Asia and European countries stand to improve significantly if China directs more of its capital into developing infrastructure overseas.

Moreover, by striking up economic and cultural partnerships with other countries, China cements its status as a dominant player in world affairs.

"We will support the One Belt, One Road project," said President of the Asian Infrastructure Investment Bank, Jin Liquin. "But before we spend shareholders' money, which is really the taxpayers' money, we have three requirements." The new trade route should be promote growth, be socially acceptable and be environmentally friendly.

U.S. Support for the New Silk Road

The New Silk Road initiative was first envisioned in 2011 as a means for Afghanistan to integrate further into the region by resuming traditional trading routes and reconstructing significant infrastructure links broken by decades of conflict. Today, Afghanistan and its neighbors are leading the way in key areas, creating new North-South transit and trade routes that complement vibrant East-West connections across Eurasia. The region is reducing barriers to trade, investing in each other’s economies, and supporting international development and cross-border projects.

With multiple transitions underway in Afghanistan, the United States and its allies can bolster peace and stability in the region by supporting a transition to trade and helping open new markets connecting Afghanistan to Central Asia, Pakistan, India and beyond. Countries in the region know they have more to gain economically by working together than by being isolated. Promoting connectivity in a region that is the least-economically integrated in the world is challenging, but the benefits can be transformative. This is why the United States is promoting the New Silk Road initiative linking Central and South Asia in four key areas:

Regional Energy Markets: With a population of more than 1.6 billion people, South Asia’s economies are growing rapidly, and South Asia’s demand for inexpensive, efficient, and reliable energy is growing in turn. At the same time, Central Asia is a repository of vast energy resources – including oil, gas, and hydropower. Directing some of these resources southward from Central to South Asia, through Afghanistan, would be a win-win for the region’s energy suppliers and energy users alike.  

Trade and Transport:
Improving trade and transit in South and Central Asia means improving the “hardware” of reliable roads, railways, bridges, and border crossing facilities. But it also means working on the “software” side, harmonizing national customs systems, bringing states into multilateral trade institutions, and getting neighbors to work together to break down institutional and bureaucratic barriers to trade. 

Businesses and People-to-People: Regional economic connectivity is more than infrastructure, border crossings, and the movement of goods and services. Sharing ideas and expansion of economic markets also creates opportunities for youth, women, and minorities and enhances regional stability and prosperity. 

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