The China-Europe Railway Express: China’s Quest for a New Silk Road, by Amit Bhatnagar.

Amit Bhatnagar is Professor of Marketing, Lubar College of Business, University of Wisconsin-Milwaukee, and Visiting Professor of International Marketing at the MBA International.

The?international trade routes are the backbone of all goods-based international business, lying behind smooth manufacturing in complex industrial supply chains and e-business-driven global retail alike. In this article, we take an in-depth look at the trade routes that tie China with the West, how these have evolved over time, and what challenges are associated with different alternatives.

The Silk Road was a legendary network of land and sea routes that wove East Asia, Northern Africa, and Southern Europe into an intricate web that made international trade possible in historic times. Caravans laden with silk, tea, dyes, perfumes and porcelain would travel west from China, while horses, honey, wine, and gold would similarly travel east from Rome, Egypt and Greece. After lasting for nearly 1500 years, the silk road trade was disrupted by the rise of the Ottoman empire that sought to control it. To bypass the Ottoman empire, European powers sought new routes to Asia. ?With the discovery of sea passage to Asia around the Cape of Good Hope and later with the establishment of the Suez Canal, goods started flowing exclusively along these new sea routes and the Silk Road slowly withered away. The new sea routes were controlled exclusively by western powers, first Europe and then the US, that also dominated the world economy.

The birth of the twenty-first century saw the integration of China in the world economic system. For the first few years, China focused on the nuts and bolts of modernizing its economy, acquiring technical know-how, establishing world-class universities, and developing export markets. Within a decade, this led China to become the second strongest economy in the world as well as its biggest exporter. To safeguard this new role, China realized the need to gain control of the trade routes. In 2013, China launched the Belt and Road Initiative (BRI) to improve its access to world markets by investing in global transportation infrastructure. This initiative is also commonly called the ‘New Silk Road’ in homage to the old silk road.

China’s first attempt to gain control of the trade infrastructure was to take over ports in other countries. The leading European ports, such as Rotterdam, Antwerp-Bruges, Hamburg, and Le Havre were firmly in the control of leading European economies, such as Germany, Netherlands, and France and they were unlikely to yield control to China, their main trade adversary. So, China looked around and found a country with a legendary port, the Piraeus port in Greece, which is not only the 7th largest European port in terms of annual containers TEU, but also the largest trans-shipment hub in the East Mediterranean. China used a vulnerable moment in Greece’s history, the euro crisis, to make their play and by 2016 had acquired a two-thirds stake. They used similar approaches to build and acquire other ports, mainly in Asia and Africa. For instance, they acquired Hambantota port in Sri Lanka, Gwadar port in Pakistan, Chittagong port in Bangladesh, and Sudan port in Sudan. In all, by 2023, China owns 96 ports around the world.

However, the port strategy is fraught with three major weaknesses, and they must have become obvious to Chinese policymakers at some point. First, all the major European ports lie on the west and north coast of Europe, where they are linked by a well-developed network of roads and rail to the rest of Europe. On the contrary, Piraeus port lies on the south-east end of Europe where the road network connecting to the rest of Europe, where main consumer markets lie, is quite poor. Greece is also not connected by rail to the rest of Europe. This makes it very inconvenient to send goods from Piraeus port to the rest of Europe. Second, all ships sailing from China to Europe must pass through the Malacca straits, which is only 40 miles wide at its narrowest point. In times of conflict, any modest-size navy can choke Chinese trade by blocking the Malacca straits. All major powers around Malacca strait, such as Malaysia, Singapore, and Indonesia remain firmly in the US camp. Therefore, the Malacca straits constitute a strategic vulnerability. Third, piracy in the Red Sea has recently become a major challenge to shipping. To protect its ships, China opened its first overseas military base in already in 2016 in Djibouti where the Bab al-Mandab Strait marks the narrow entry to the Red Sea, but policing the entire Red Sea remains both costly and difficult, if not impossible.

To develop an alternative land-based trade path to Europe, China decided to connect with Europe by a multi-modal container rail system. This initiative, while part of BRI, is called China-Europe Railway Express or China Railway Express (CRE). It initially sought to leverage the Trans-Siberian Railway (Transib), which dates to Czarist times and connects Vladivostok in Russia’s east with Moscow in the west. It is the longest railway line in the world. China initially built a railway track from Yiwu on China’s east coast through Manzhouli in Inner Mongolia to Transsib. Moscow is connected by rail to the rest of Europe via Belarus and Poland. In 2013, the first train travelled on this route from Chongqing in China to Duisberg in Germany. ?A secondary route also connects to Hungary via Ukraine. Later, China connected cities in central and southern provinces to Transsib. These two routes are now called the eastern and central routes. However, while diminishing China’s dependency on US-controlled sea routes, both these land routes make China dependent on Russia’s goodwill. While, in recent years there has been détente between the two governments, the sibling rivalry that led to the Sino-Russian border clashes of 1969 has not completely died down. Moreover, after Russia’s full-scale invasion of Ukraine, the situation is becoming even more complicated and conflict-sensitive with all parts.

To hedge its bets, China is also developing a western railway route which bypasses Russia. It enters Kazakhstan from Xinjiang Uygur Autonomous Region. It then traverses Uzbekistan, Turkmenistan, Iran, Turkey to Europe. Another line goes from Kazakhstan to Azerbaijan via Caspian Sea and then to Georgia and then via Black sea to Romania and Europe. But these southern routes are also very vulnerable to the geo-political climate prevailing in these parts. For instance, the route through Iran cannot be currently used due to US sanctions on Iran.

Despite the complicated and sensitive situation, CRE has now expanded to many cities in China and Europe. Its trains run on 73 routes that connect more than 50 cities in Mainland China to 217 cities in 25 European countries. In 2023, it celebrated its 10th?anniversary. During this period, it transported goods valued at $340 billion in 7.31 million TEUs. The variety of goods carried has also increased to 50,000. Map overviews of CRE are available, for example, from?SCMP ?and?Container eXchange .

CRE offers many advantages over shipping. It is safer with more consistent delivery schedules. There are five trains that follow a fixed?timetable. It avoids piracy related security issues. It takes half the travel time of ships. CRE can also address the empty container issue which arises on eastbound trains as the trade is generally one-way. While this issue arises with sea-based trade too, in the case of CRE the problem is alleviated as the empty trains can pick up raw materials and agricultural products from central Asian countries and bring them to China.

However, CRE also has many challenges. First is the higher cost over sea freight. Second, due to the Russian invasion of Ukraine, Europe wants to stop the northern and middle routes and support the western route. Recently, Ukraine launched attacks on Transib to split Russia’s east and west. However, if Transib gets destroyed, then Russians can use CRE’s western route to connect their two parts, thereby undermining Ukrainian strategy. Moreover, while in the Armenia-Azerbaijan war, Europe is firmly behind Armenia, European support for the western route will strengthen Azerbaijan, an important cog in the western route of CRE. It also has the potential of making central Asian countries more dependent on China.

In sum, while the benefits of CRE to China are clear, it is not obvious if Europe should rally behind it. On top of the many geopolitical and conflict-ridden problems, the increased dependency on China that comes with CRE is not without controversy and risk.

The complexity of the logistics and supply chain backbone -the global trade roots- influence decisively how business is executed, and how supply is secured across the globe. Therefore, insights into these challenges are important at all levels, from business managers to policymakers.

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