[China’s ‘New Silk Road’ railway from the
Pacific to London showcases the country's turn toward Europe at a time of
tension with the United States.]
By Robbie Gramer
China’s “New Silk Road” just got a glitzy new
route: a freight train service from the Zheijang province in eastern China all
the way to London. China Railway Corp. announced on Monday the departure of the
first train from Yiwu, a city of 1 million near Shanghai. It’s an impressive
logistical feat, connecting 7,500 miles of rails to reach one of Europe’s
largest capitals in 16 days.
More importantly, the Yiwu-London line lays
bare the geopolitical ambitions underpinning China’s “One Belt, One Road”
policy that aims to recreate the ancient ‘Silk Road’ trade route that connected
China with Central Asia, the Middle East, and Europe. Until recently a U.S.
ambition to help develop a bring security to Central Asia, this “New Silk Road”
could take on even more importance if the U.S.-China trade relationship goes
south, as early and hawkish postures by President-elect Donald Trump and his
team have indicated.
China’s goal of connecting Asia to Europe
over the old Silk Road heartlands goes by many names, including the “Belt and
Road Initiative.” The idea is to make it easier to trade with 65 countries that
represent 60 percent of the world’s population. China, suffering from
overcapacity in plenty of key sectors from steel to cement, is looking for new
markets to keep its economy growing at a healthy clip.
“What China is doing is exporting its own
labor and construction equipment,” said Simeon Djankov, former Bulgarian
finance minister and World Bank official.
So far, Chinese state banks have earmarked
$250 billion for transportation and construction infrastructure for the
project. At maturity, according to a report from the Peterson Institute for
International Economics, investments in “One Belt, One Road” could reach $4
trillion.
Beyond the money, it’s a boon to China’s
foreign policy. “The ‘new Silk Road’ combines a lot of foreign policy aims that
China has,” said Frans-Paul van der Putten, an expert on Europe-Chinese
relations with the Netherlands Institute of International Relations. Chinese
investment in energy projects, railroads, and port facilities in Europe and
around the rim of the Indian Ocean may pay bigger geopolitical dividends than
economic returns.
“It allows China to strengthen its diplomatic
influence in Asia, Africa, and Europe,” van der Putten said, which “compensates
for the geopolitical pressure it faces in East Asia from the United States and
Japan.”
The project could become even more important
to China, which is still reliant on exports despite years of trying to
rebalance its economy more toward domestic consumption, due to looming tensions
with the United States. Trump has been a vocal critic of free trade deals, and
has surrounded himself with China-bashing economists and trade advisors who
blame Beijing for what ails the U.S. economy. That worries leaders in China:
The U.S. trade relationship totaled $659.4 billion in 2015, according to the
U.S. trade representative.
If that takes a hit from higher tariffs,
currency wars, or the like, the new Silk Road to Europe may be a Chinese escape
hatch.
“If the incoming administration takes a hard
stance on trade,” said Djankov, then China can leverage the infrastructure it
is starting to build “to say Europe is now becoming our main trading partner.”
China Railway already runs freight train
services to other European cities, from Hamburg to Milan to Madrid, though rail
isn’t the most efficient shipping method for huge cargoes: The Yiwu-London
train can only carry 200 containers, a small sum when compared with the 20,000
a huge cargo ship can carry. But it can be cost effective for certain goods.
A rail shipment to London could take half as
long as maritime routes, and cost half as much as air shipments, said Mike
White of Brunel Project Cargo, the the U.K.-based freight service involved with
the Yiwu-London train route. “We believe this is going to change the way a lot
of forwarders and shippers view their imports and exports for China,” he said.
Above all, it’s a symbolic milestone. “From
the time that the [One Belt One Road] initiative was first fleshed out in 2011,
this was plan — to get to the heart of Europe and to London,” said Djankov.
Britain, one of the largest economies in the
world, importing $663 billion in 2014 alone, is an attractive prize for China’s
export-based economy. In recent years, China has increased investment in British
industry and energy, and has been received — at least until recently — with the
red-carpet treatment by British leaders eager to gain access to the world’s
second-biggest economy. Faced with the possible loss of trading privileges with
Europe after Brexit, the U.K. will be only more eager to deepen trading ties
with Beijing.
“One Belt, One Road” isn’t just about
railroads; confusingly, the “belt” refers to overland connections including
roads and pipelines across Central Asia, while the “road” refers to a Maritime
Silk Road recreating the old Indian Ocean trading routes that brought Chinese
silks to Roman markets.
But Chinese President Xi Jinping has made
railway investment a top priority, with a $503 billion expansion in its
national rail system by 2020 to reach its new export markets, according to
Bloomberg. “Rail is the most important component of the new Silk Road,” said
Djankov.
Those on the receiving end are thrilled at
what the new rail services could offer, especially corners of Europe that still
lag economically and still need hefty investments in transport, energy, and the
like.
“Regional governments in Europe and European
companies have been the most enthusiastic respondents so far,” said van der
Putten, because of the cash they reap from China’s new rail services.
Photo credit: Feature China / Barcroft Media
via Getty Images
