China’s railway from the Pacific to London showcases the country's turn toward Europe at a time of tension with the United States.
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 re-create 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 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 still relies 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, Germany, to Milan to Madrid, though rail isn’t the most efficient shipping method for huge cargoes: The Yiwu-London train can carry only 200 containers, a small sum when compared with the 20,000 a huge cargo ship can haul. 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 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 the plan — to get to the heart of Europe and to London,” Djankov said.
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 received — at least until recently — 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 re-creating 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,” Djankov said.
Those on the receiving end are thrilled at what the new rail services could offer, especially corners of Europe that still lag economically and need hefty investments in transport, energy, and the like.
“Regional governments in Europe and European companies have been the most enthusiastic respondents so far,” van der Putten said, because of the cash they reap from China’s new rail services.
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