‘One belt, one road’ and how China aims to lead trade between Asia and Europe

China Silk Road 02

Since the year 2012, 13 Chinese companies have gone public in the US, generating profits topping $31.5 billion in 2014, compared to the $151.5 million earned in 2012, according to data published by the official newspaper China Daily. The dizzying figures respond to the meteoric rise of Chinese tech giants, most of them privately owned, that belong to innovative sectors such as e-commerce, social networks and other Internet services. Alibaba Group earned 25 billion dollar in the New York Stock exchange as media and experts debated the role of private capital in the future development of the Chinese economy.

However, the Communist Party still looks inclined to continue to rely on the state as the main guarantor of growth and the projection of China abroad.

Late last year, Beijing announced the creation of a fund for the development of an unprecedented trade belt linking -by sea and by land- China with the old continent, aiming to recover the ancient trade route of the Silk Road. Beijing vowed to allocate an initial investment of $40 billion for the construction of vital infrastructure such as bridges, ports, and high-speed railways in Southeast Asia and Central Asia. A gesture that goes beyond the geostrategic ambitions of China as it places the world’s second largest economy as ventricular axis of any trade happening between the emerging Asian economies and Europe.

Currently there are three railway lines transporting merchandise between China and Europe. In December last year, a train with 40 carriages departed the Chinese province of Zhejiang loaded with 1,400 tons of products manufactured in China. It completed the longest train journey in the world with its arrival to the Spanish capital of Madrid. The convoy travelled 13,052 kilometres in 21 days. By sea, it would have taken twice the time to reach Spain.

Local powers licking their lips

Chinese provinces would also benefit largely from the ‘one belt, one road’ project. To reach first the countries of Southeast Asia and then Europe, China should also greatly invest in the development of its high-speed railway and the construction of infrastructure across the country. Especially in the least developed provinces in the Northwest and Southeast regions of China, such Qinghai and Xinjiang Autonomous Region; or Chongqing and Yunnan, respectively.

In 2014 the Commission for development and national reform modified rail tariffs for freight trains, allowing local governments for the first time to adjust the rates at their own discretion. The municipal government of Wuhan, in Hubei Province, has been a pioneer in introducing a subsidy policy on rail freight rates, according to China’s state television CCTV.

“It’s a ratio of one to 10 in economic stimulus. That means that if we put in RMB200 million in subsidies, it could help to promote an economic growth of at least RMB2 billion,” explained Xia Huanyun, Deputy Director of the Traffic Committee of Wuhan City, as being quoted by CCTV.

Recently, the Chinese economic newspaper Caixin published some macroeconomic data from some of China’s provinces to reveal the worrying economic slowdown suffered by local governments: at least two thirds of Chinese provinces and municipalities did not achieve its growth goals in 2014. Therefore most local governments are, indeed, very interested in taking part of this new transnational rail route. The same newspaper echoed the “constant battles” between different local governments, as they fight to attract the construction of new high-speed train stations.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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