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Putin’s War Has Killed China’s Eurasian Railway Dreams
The iron silk road was a key part of the Belt and Road Initiative.
foreignpolicy.com
When he was welcomed to Beijing’s Great Hall of the People on Feb. 6 for the Olympics, Polish President Andrzej Duda talked to Chinese President Xi Jinping about the long-standing vision of transforming Poland into China’s “gateway to Europe.” Duda was the only European Union head of state, save for Luxembourg’s grand duke, who participated in Beijing’s opening ceremony of the 2022 Winter Olympic Games, widely scorned for concerns over China’s human rights abuses. Thus, his optimism was shared by Xi, who also hopes to transform Poland into a logistic hub along the China-European Union supply chain.
But Russian President Vladimir Putin has likely put an end to that dream. Poland is home to train routes connecting China to Europe along the New Eurasian Land Bridge. This railway corridor that crosses all of Eurasia—running through Kazakhstan, Russia, and Belarus—has become an important branch of the Belt and Road Initiative (BRI), dubbed the iron silk road. The image of Chinese trains crossing Eurasia and bringing Chinese goods to European consumers has been intensely promoted by Beijing and has become an important part of the BRI brand. But almost half of those routes pass through Russia—and could be massively impacted by European sanctions following Russia’s invasion of Ukraine.
In 2017, around 40 freight routes connected China to Europe. Today, the number has almost doubled to 78 lines, reaching 180 cities in 23 European countries. Not only has the number of routes and cities increased but also the number of trips. In 2016, there were only 1,900 trips; in 2021, that number reached almost 14,000 trips. As this number skyrocketed during the pandemic, so did the value of goods transported by these freight trains—from $8 billion in 2016 to $74.9 billion in 2021. The trend was ascendent even during the pandemic, rising by 50 percent in 2021 from around $50 billion in 2020. This was a big boost to the railway routes China has tried hard to support, promote, and make profitable.
It’s not clear if they actually hit profitability. There’s been a lot of boasting about how the trains, which once ran mostly empty on their way back home, are now full in both directions—but there’s also still substantial subsidies. Yet there’s signs that things were genuinely going well. As China-Europe freight trains became the BRI’s successful image, China boasted that the service provided “continental supply chain stability” over the past few years. Supported by lots of Chinese government subsidies during its first years of operation, China is now considering whether to end them in 2023, after reducing them from $3,000 to $5,000 per container to $1,000 per container.
With more than 50,000 trips now made (in 2021, a train was leaving every 30 minutes), half of them during the pandemic period, China-Europe freight trains also developed new hubs. Although Poland hopes to strengthen Lodz’s status as one of them, Russia’s St. Petersburg has already become an important commercial hub that mediates China-Germany trade flows, due to the time saved by offering fewer border transits or gauge changes.
But that was before the Russian army invaded Ukraine and the West decided to impose harsh sanctions on Russia. Companies like DHL, Volvo Cars, or Ligne Roset may no longer be allowed to or may choose to no longer ship goods via Russia, a sanctioned country.
Sanctions on Russia will reverberate over one of Russia’s few allies: China. Without a direct condemnation of the invasion and with its media largely amplifying Russian propaganda but without offering direct support for it, China remains in a gray zone with regard to Ukraine. Tacitly accepting Russian aggression, China also accepts that its exports to Europe may plummet, and with it, China’s economic growth may suffer too. All these developments will happen in an important year for Xi, a year that will host the Chinese Communist Party’s national congress—which must be perfect for Xi’s image as a great Chinese leader during his march to achieve the great rejuvenation of the Chinese nation.
As the COVID-19 pandemic and associated lockdowns affect spending in China, exports remain the other half of the dual circulation policy that may work to maintain China’s growth. In 2020, “net exports contributed the largest share of Chinese GDP growth since 1997,” according to Mattie Bekink, China director at the Economist Corporate Network, as quoted by CNBC. This is unlikely to change in the near future, as China’s exports grew by 29.9 percent in 2021 from the previous year. To achieve the status of the world’s largest economy by 2030, China needs to maintain a constant GDP growth around 6 percent. That’s been rendered even harder as both consumption and exports may be affected by the invasion of Ukraine and the economic impact of sanctions and counter-sanctions.
China exports have already been affected by maritime shipping problems, for which rail transport provided a viable and useful alternative. But sanctions and counter-sanctions may change China’s exports calculus and hinder its economic growth. The iron silk road already suffered such a fate after the 2014 Russian annexation of Crimea, when sanctions between the European Union and Russia hurt European rail exports to China. More specifically, the EU couldn’t export a variety of agricultural and food products to China because freights had to cross through Russia, where these goods were banned between 2014 and 2020.
This time, the same fate may await not just European exports to China but also Chinese exports to Europe. Considering that China exports almost $75 billion by cargo trains to Europe and that maritime shipping is affected by high costs, delays, and insufficient transport resources, the impact could be considerable.
And this is not all. Consider two other factors: the considerable worry Russia’s invasion generated in Europe, which could affect consumer confidence; and the fact that sanctions and counter-sanctions could considerably increase energy prices, thus diminishing consumers’ purchasing power when it comes to discretionary spending on goods imported from China.
This second factor could also impact consumers in other countries—especially in the United States, the other important Chinese export market—as well as Chinese consumers themselves, who will face higher energy bills. Decreased demand for Chinese exports because of higher energy prices and geopolitical anxieties combined with a ban on goods crossing Russia via the New Eurasian Land Bridge, a container crisis, supply chain issues, and maritime transport concerns could provide the final stroke for China’s annual growth target in its most politically important year.
This butterfly effect connecting Russia’s invasion of Ukraine and China could soon prove disastrous for China’s BRI railways and economy. Putin may not only kill, for the moment, Poland’s dream of becoming a commercial hub between China and Europe, but he may also destabilize what was once one of China’s most successful BRI projects: the New Eurasian Land Bridge, which is now passing near a war zone.
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