Carriage of Trade – Railway from Chongqing opens new Silk Road to Europe

6 March 2015

Three times a week, a train pulls out of the main station of Chongqing, southwest China, on one of the longest journeys in the world – 11,179 kilometres over 16 days through five countries to Duisburg in the west of Germany.

Most of the cargo on the train, with up to 50 40-foot containers, are laptop computers. Chongqing is the world’s largest producer, with output of 55 million last year, 25 percent of global output. The European Union, with 510 million people, is its biggest export market.

This is the new ‘Silk Road’, named after the route in the second century BC that took Chinese goods to the Middle East and Europe.

The line, which opened in 2011, has helped to transform what was once an isolated backwater into one of China’s major industrial centres.

It has enormous economic and diplomatic importance. It is essential to Beijing’s plan to move a substantial part of its industry to the western region and keep the country competitive with low-cost countries like Vietnam, Cambodia, Thailand, Myanmar and Bangladesh.

It is also part of Beijing’s ambition to reduce its dependence on the sea transport that accounts for the vast majority of its trade and energy imports; if there were a war with Japan or the United States, this transport would be at risk.

The Chongqing route is the cheapest of five railway routes from China to Europe, costing US$ 0.7 per kilometre or US$ 9,300 per container. It is twice as fast as shipping by sea and half as expensive as air freight. The sea route is down the Yangtze and then across the oceans from Shanghai.

The Chongqing route is especially important for manufacturers of electronics and automobiles because the value lost on goods such as engines and computer components during the longer sea journey is relatively high. That makes it attractive for manufacturers of electronic goods like mobiles and laptops, of which Chongqing has become a centre.

The operators have developed air-controlled railcars so that the goods do not suffer from changes of temperature along the route.

“The Chongqing-Duisburg route has great potential, and a daily service is definitely a goal, also from the Chinese side,” said Julian Boecker, a spokesman for Duisburg Port. “For companies such as car producers that want to ship quality ‘made-in-Germany’ parts to their assembly plants in China, this route is a good alternative to sea transport.”

On 29 May this year, during a visit to Germany, President Xi Jinping went to Duisburg to meet the arrival of a train; it was his way of showing the importance the government attaches to the new route.

The line opens

The line opened in July 2011, bringing a cargo of LCD television screens and laptops to Duisburg. An industrial city of 500,000 people, it is the largest inland port in the world. Each year more than 20,000 ships call at the port on the docks, where the Ruhr joins the Rhine river, and carry more than 40 million tonnes of cargo. It is the ‘heart of Europe’.

The line had been technically useable for nearly ten years but the five countries along the route could not reach agreement on technical issues. For 12 months before the opening, Beijing invested substantial time and resources into resolving these issues, especially that of customs in Russia.

The train goes through Xinjiang, Kazakhstan, Russia, Belarus and Poland before reaching Duisburg. On arrival in Kazakhstan, the cargo is transferred on the wide gauge line that is used in that country and Russia. In Poland, it is transferred on narrow-gauge lines for shipment to Duisburg. The plan is to extend the route to Antwerp, Belgium.

It is competing with several other lines to Europe – from Chengdu, Wuhan, Zhengzhou and Xian – which began service after July 2011, as well as the trans-Siberian railway through Siberia and Mongolia.

The problem is over-capacity, with many goods going from east to west but few coming the other way. Each city government is eager to make its line the first in China and has provided subsidies and benefits.

So far the one from Chongqing has been most successful – 17 journeys in 2011, 41 in 2012 and 36 in 2013 – carrying goods worth more than US$ 2 billion. Most of the goods were laptops. In 2013, Chongqing exported 48.7 million of them, one third to Europe.

“This new land route connects Chongqing with the European Union, the largest single market in the world,” said Gerold Amelung, the German consul-general in Chengdu. “As China’s most important trading partner in Europe, Germany will greatly benefit from it.” Bilateral trade last year was 140 billion euros, making China Germany’s third biggest trading partner.

To increase cargoes, the Chongqing government has proposed one-to-two trains a week from Yantian port in Shenzhen, to bring goods and postal items from onward shipment to Europe.

Chongqing

Chongqing is the largest city in the world, with a population of 30 million.

From 1937 to 1945, during World War II, it was the temporary capital, after the government withdrew to escape the Japanese military.

After 1945, it suffered from isolation in its location in the far interior of China; its main link with the rest of China and the outside world was the Yangtze river. It was a centre for production of arms and motorcycles. New industries developed in coastal cities in the east, especially the areas around Shanghai, the Pearl River delta and the Bohai Gulf.

This process accelerated in the 1980s as China became a major trading power; the export markets were Japan, North America and Europe and shipments went by sea or air from ports and airports on the east coast.

Millions of people from Chongqing and Sichuan province next to it left to find work in the eastern industrial centres; initially, the men went on their own. When they had established themselves, they brought over their families. The economic gap between east and west China widened.

To change this, Beijing decided in the mid-1990s on a ‘Go West’ policy, to encourage domestic and foreign companies to invest in cities like Chongqing and turn them into major industrial centres.

In March 1997, the National People’s Congress decided to merge the urban area of Chongqing with three neighbouring counties to create a mega-city, one of four under the direct control of the central government, like Beijing, Shanghai and Tianjin.

It became the spearhead of the national effort to develop the western region and coordinate residents from the reservoir area of the Three Gorges Dam project. In June 2010, the city set up the Liangjiang New Area, one of three such ‘new areas’, together with Pudong in Shanghai and Binhai in Tianjin, designed to be the new industrial centre.

Electronics as strategic industry

The city government targeted electronics as a strategic industry. It courted major global producers who were suffering from rising costs of land, labour and electricity in major cities in the Yangtze and Pearl river deltas. It set up industrial parks that specialise in electronics manufacturing.

In 2008, a city delegation went to Palo Alto, California, to the headquarters of Hewlett Packard to invite them to invest. They argued that the city could provide 80 percent of the parts needed for a laptop. They convinced the board of HP; this was the start of the city’s laptop industry.

Since then, it has also succeeded in attracting Toshiba, Sony, Acer, Asus, Foxconn, Inventec and Wistron. In 2013, the city produced 55 million laptops, 29.5 percent more than in 2012, with a value of 157 billion yuan.

In 2013, PCs accounted for 10 percent of the city’s industrial value, up from zero in 2008. The growth of the industry has promoted production of the parts and components needed for them, including batteries, connectors, displays, memory and storage devices.

The city target for 2014 is 70 million laptops, 18 million printers, 15 million displays and 90 million pieces of network communication products.

Since most of these goods are for export, good transport links to the final market are essential for the investors.

Economic Silk Road

In a speech in Kakakhstan in 2013, President Xi Jinping proposed that China and the Central Asian countries build “an economic belt along the Silk Road”.

This is becoming a reality. In late June, the State Council approved the construction of Horgos, a new city on Xinjiang on the border with Kazakhstan on the route. The plan calls for a city of 1,970 square kilometres, including an existing Horgos Special Economic Zone with 73 square kilometres.

The zone includes an international border centre straddling the two countries; it has duty-free shopping, an industrial innovation park and cross-border logistics hub. Horgos has already become the largest land port in northwest China, with trade volume in 2013 of 22 million metric tonnes.

The idea has also aroused strong interest in the countries on or close to the route. Like Chongqing, the Central Asian countries need good transport links to Europe − to reduce their economic and military dependency on Russia and export more of their products there.

The new Silk Road and links to it provide just such an opportunity.

Currently, the trains travel through Poland but do not stop there. But its government wants to change that, said Boleslaw Kosciukiewicz, minister counsellor of the country’s embassy in Beijing.

“Poland is very much interested in paving safe, secure and more efficient trade routes connecting trade partners in Europe and China,” he said.

Soren Link, mayor of Duisburg, said that the new line had boosted economic cooperation between all the countries on the route.

Beijing’s ambition does not stop there. Work is due to begin soon on a long-planned line from China to Kyrgyzstan and Uzbekhistan.

China has also started research on a line 1,800 kilometres long from Kashgar in the south of Xinjiang to the deep-sea Pakistani port of Gwadar on the Arabian Sea, passing through Islamabad and Karachi.

In May 2013, China Overseas Ports Holding signed an agreement with the Port Authority of Singapore to operate Gwadar. Such a railway would be a very challenging engineering project, running through the Pamir Plateau and the Karakoram mountains.(By Louise do Rosário/Macauhub)

MACAUHUB FRENCH