The Belt and Road: Economic Corridors and Maritime Connectivity

_ Stephan Barisitz,  Senior Economist, Foreign Research Division, Austrian National Bank (OeNB); Alice Radzyner, International Relations Specialist, European Affairs and International Financial Organizations Division, Austrian National Bank (OeNB). Published in parts from their article “The New Silk Road, part I: a stocktaking and economic assessment” in the OeNB research journal “Focus on European Economic Integration” (Q3, 2017) with the kind permisson by the the authors. Vienna, 3 June 2018.

Economic corridors

China is aiming at jointly building so-called economic corridors with partner countries, taking advantage of existing international transportation routes, while also providing for new trajectories, linking major cities. In this context, the refurbishment or construction of roads, railroad lines, oil and gas pipelines, optic fiber networks as well as intermodal transport hubs may be of key importance.

The economic corridors mentioned above can be grouped into those of the Silk Road Economic Belt (SREB, predominantly overland) and those of the 21st Century Maritime Silk Road (MSR, predominantly seaborne).

The SREB envisages the following economic corridors (see also map 1):

  • New Eurasian Land Bridge Economic Corridor (Xinjiang-Kazakhstan-Russia): This corridor comprises (at least) two routes through Kazakhstan: either via Almaty or via Astana. Routes reunite in Moscow and continue via Belarus to the EU (Duisburg, Germany, or Rotterdam, Netherlands).
  • China-Mongolia-Russia Economic Corridor: This corridor also comprises at least two routes: either Beijing-Ulan Bator-Siberia or Dalian11-Harbin-Siberia. This corridor also fits with Mongolia’s planned Steppe Road trajectory.
  • China-Central Asia-West Asia Economic Corridor: This route is envisioned as an important gateway for oil and natural gas, running from the Arabian peninsula, Turkey and Iran to Xinjiang.
  • China-Pakistan Economic Corridor: This trajectory i.a. enables shipping oil from the Middle East (via the Persian Gulf and the Arabian Sea) to the deep-sea port of Gwadar in Pakistan (officially leased to China in 2015) and then carrying it by road, railroad or pipelines via Rawalpindi to Kashgar (province of Xinjiang).
  • Bangladesh-China-India-Myanmar Economic Corridor: This route is supposed to connect China with South Asia, running from Kunming (capital of Yunnan, China), Mandalay (Myanmar), Dhaka (the capital of Bangladesh) to Kolkata (capital of West Bengal, India).
  • China-Indochina Peninsula Economic Corridor: The central trajectory of this route links southern China with Bangkok and Singapore; new high-speed railroads and highways are planned to run from the Pearl River Delta (around Hong Kong and Guangzhou12) to Singapore via Bangkok (Thailand) and Kuala Lumpur (Malaysia).
  • India-Nepal-China Economic Corridor13: As a centerpiece of this passage, a new railroad line has been proposed which should link Tibet (Lhasa), Nepal and India, and could boost regional and trilateral trade.

The MSR envisages the following connections (map 1):

  • China-Myanmar-Indian Ocean-Middle East: This route (described in the reverse direction) runs from the Persian Gulf via the Indian Ocean to the deep-sea port of Kyaukpyu14 in the Bay of Bengal (Myanmar); from there, oil and gas pipelines cross Myanmar to Kunming.
  • China-South China Sea-Indian Ocean-Middle East or China-South China Sea-Indian Ocean-Red Sea-Europe: Both maritime routes (which bifurcate in the Indian Ocean) are traditional links running via the Strait of Malacca. The second route (via the Red Sea to Europe) has gained prominence recently due to substantial Chinese infrastructural investment activities at the route’s European head (Greek port of Piraeus, high-speed rail connection to Budapest, etc.) and due to stepped-up combatting of piracy near the Horn of Africa. Antipiracy patrols are supported by the recently established Chinese military base in Djibouti, China’s first overseas base in at least two centuries.
  • China-South China Sea-Indian Ocean-East Africa: This is, to a large degree, a resource supply route, starting with railroad links from the African interior to the coast (Mombasa, Kenya), followed by seaborne connections via the Strait of Malacca to China.

Maritime connectivity still outdoes overland connectivity, which however is gaining some ground

Over long distances, like across Eurasia, overland rail transportation tends to be somewhat less expensive than road transportation. Sending a container (of a standard length of 20 feet or about six meters) on rail from China to Europe costs about USD 6,000 to 10,000; however, transporting a container by ship comes to only USD 1,000, while air freight from one end of Eurasia to the other is four to five times higher than rail carriage. Accordingly, about 95% of EU trade with China and 80% of China’s total exports are carried out on the maritime route.15 On the route between Asia and Europe, only around 50,000 containers (less than 1% of the total number) reportedly transited through Central Asia in 2015, while almost 15 million containers were shipped by sea that year (Thorez, 2016, p. 39; Nemitz, 2017). This is also attributable to the still rudimentary state of some of the overland transportation links in Eurasia. Nevertheless, trans-Eurasian rail links have been upgraded in recent years, and the number of containers running through Central Asia more than doubled to around 105,000 in 2016 and is expected to more than double again to 230,000 in 2017 (about 1.5% of the total number of containers shipped between China and Europe). Since 2011, a train, the Trans-Eurasia-Express (see subsection 3.3), regularly conveys valuable merchandise, e.g. computers, other electronic equipment and garments from Chongqing (central China) to Duisburg. On their way back to China, these trains carry European car parts, wine, whiskey, chocolate, pharmaceuticals and other precious goods. Since February 2016, China and Iran have also been linked (via Kazakhstan and Turkmenistan) by freight trains. Railroads connecting China to Europe can reduce the number of days of shipment to an average of 12–15, compared to 30–35 days required by maritime transport.

For long-range transportation overland to be profitable, specialization on particular types of goods is needed (goods of high added value, like high-tech components or high-end fashion products, or time-sensitive or perishable luxury goods, like certain flowers, liquors or cheese).16 Progress seems to have been made in bringing down costs of overland rail conveyance in recent years to about twice the comparable cost of maritime transportation (Kalinina, 2017). Central Asian political and economic elites, particularly in Kazakhstan, hope that the modernization of infrastructure will contribute to further sharply increasing the small share of overland transport in total trade flows between Asia and Europe in the coming years.

Despite expected further improvements and upgrading of land routes, drawbacks remain in comparison to sea lanes: While the transcontinental trajectories, dominated by rail links, are faster, they feature (much) smaller transportation capacity than seaborne alternatives due to technical and physical constraints (including available rail shipping capacity of up to 300 containers per train versus a seaborne shipping capacity of up to 10,000 containers per cargo ship). The overland corridors also suffer from partly cumbersome border control regimes17 and from the need for trains to change between different rail gauges at certain borders (e.g. between China and Kazakhstan or between Belarus and Poland or between China and Myanmar or Vietnam and China), which slows down movement. Finally, even if rail carriage costs have declined in recent years (as mentioned above), they continue to be substantially undercut by the cheapness of maritime container transportation (Thorez, 2016, p. 41). This suggests that long distance (Eurasian) bulk trade should remain dominated by maritime (MSR) shipping, while a niche of high value-added or time-sensitive luxury goods should become profitable merchandise for modernized transcontinental (SREB) rail transportation (see also Shepard, 2016). Furthermore, (updated) overland links (SREB) will continue to prevail in trade with landlocked neighbors or trade of a regional character (where there is no or almost no maritime competition).

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