China's One Belt, One Road

All aboard! China on track to global trade dominance

The first direct rail freight service from China to the UK highlights changes to global trade relationships and the geopolitical order. What are the opportunities?

The arrival of a diesel train at a station in east London is not something that usually catches my imagination. And it’s generally not something that excites me enough to write about. But, I am excited.

And, I do feel this event is indicative of a more general trend that is taking place in global trade.

In some ways, it seems almost quaint or old-fashioned to get excited about trains in logistics. In other blog posts, my colleagues are talking about autonomous vehicles, the Internet of Things, and business apps. So I want to talk about a train?!

But, this train – that arrived in Barking on January 18 – is worthy of note.

Direct rail freight service from China to the UK

It is the first direct rail freight service from China to the UK. The 7,500 mile (12,000 km) journey from the city of Yiwu in eastern China took 18 days and passed through seven countries: Kazakhstan, Russia, Belarus, Poland, Germany, Belgium, and France.

The cargo wasn’t particularly glamorous: 34 shipping containers loaded with textiles and consumer goods. But that doesn’t matter. It’s symbolic of more that is to come. And, it represents another milestone in a changing world economy and geopolitical environment.

“One Belt, One Road” strategy

The new freight train service to London is a small part of a broader strategic initiative launched by China’s President Xi Jinping in 2013. His vision is for a revival of the Silk Road – the vast trade network linking China with Central Asia, Europe, the Middle East, and Africa.

This ambitious policy – known as “One Belt, One Road” (OBOR) – is focused on connectivity and cooperation between a large number of countries. These will be connected via both land (the “Silk Road Economic Belt”) and sea (the “Maritime Silk Road”) routes.

China is investing billions of dollars into its signature foreign policy and trade initiative. More than sixty countries will be part of this huge trading zone, linking cities as far apart as Tehran, Moscow, Nairobi, Venice, Kolkata, Guangzhou, and Rotterdam.

Investment in Asia is already enormous. To name just a few of the hundreds of OBOR-related projects either underway or in planning:

  1. The Moscow-Kazan high-speed railway
  2. The 3,666 km Central Asia-China gas pipeline
  3. New highways in Uzbekistan and Tajikistan
  4. A huge hydropower plant in Pakistan
  5. A gas pipeline from the Bay of Bengal through Myanmar to southern China.

Chinese investment in Europe

Europe is also, of course, on the OBOR roadmap. Last year, for example, Chinese shipping company Cosco took a majority holding in Greece’s chief port, Piraeus. And it is planned that Chinese companies will build a high-speed rail network to link the port to Hungary and then eventually Germany.

And so back to the train arriving in Barking.

This is also part of the overall OBOR strategy. London is the 15th European city to become a destination for China’s rail cargo. Other European cities connected by rail to Chinese cities include Madrid, Duisburg, Warsaw, Rotterdam, and Hamburg.

The freight service very much makes sense. It provides a viable third option for transport between China and Europe: roughly half the price of air cargo and two weeks faster than by sea. So, ideal for companies with time-sensitive commodities such as special promotional clothing items, and capital-intensive goods, such as automotive parts and electronics. And, of course, a much greener option for companies than air transport.

Some 40,000 containers were transported from China to Europe by train during 2016. The volume is expected to increase to about 100,000 containers by 2020. This may worry some people. I welcome it.

China leading the way

There are strong political motives for OBOR. But, in my eyes, it is also a visionary and inspiring trade policy that ought to put Western leaders to shame.

The new Silk Road routes open up trade opportunities for the West, too. Given that China is the European Union’s second biggest export market, European companies looking to export to China could have much to gain. There is no reason why the infrastructure being put in place could not also be used for goods to travel from west to east.

For UK companies faced with Brexit and a very new trading environment, why not look eastwards and take the train?

OBOR matters

According to the Economist, “OBOR matters because it is a challenge to the United States and its traditional way of thinking about world trade. In that view, there are two main trading blocs, the trans-Atlantic one and the trans-Pacific one, with Europe in the first, Asia in the second and America the focal point of each. Two proposed regional trade deals, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, embody this approach. But OBOR treats Asia and Europe as a single space, and China, not the United States, is its focal point.”

Since that article appeared in the Economist, Britain has voted to leave the European Union and President Trump has signed an executive order withdrawing the US from the Trans-Pacific Partnership (TPP).

Embrace the change

President Trump’s protectionist trade policies will likely harm US interests and ultimately play into the hands of China. Europe is not in a very much better situation. Uncertainty over Brexit, political indecision, and continued economic woes in several European countries (Greece, Spain, Italy, etc.) put Europe in a weak position.

It feels that the West is in retreat. The US has withdrawn from TPP. President Trump is threatening to leave NAFTA. Prime Minister May is pursuing a ‘hard Brexit’ which will commit the UK to leaving the European single market.

China will certainly take advantage of the global trade and geopolitical vacuum.

I find there is much to admire in President Xi’s visionary and expansive trade policy when compared to the narrow-minded protectionist route we seem to be taking in the West.

Whether we like it or not, China will come (by air, sea, or train!) and is here to stay. We should embrace this change in the world economy and seize the new trading opportunities this new world order presents.

If you have any comments or remarks – just get in touch with me via LinkedIn. And sign up for our newsletter to stay on the pulse of developments.