Signals Flashing Red on Xi’s Belt and Road
Russia’s Ukraine invasion upends China’s plans
By: Hamish McDonald
The highly symbolic investment by Chinese leader Xi Jinping to bind Europe closer to China with steel rails through his trillion-dollar Belt and Road Initiative has been put in jeopardy by Russian President Vladimir Putin’s rash invasion of Ukraine, endangering the “no limits” partnership declared with Putin at the Winter Olympics in Beijing this February.
Although more than 1,000 trains each month have recently been taking goods along the 12,000-km lines between China and Europe, that now has dropped to a trickle. Though this rail freight still forms only a minor part of total China-Europe trade – about 4 percent by value – it has been emblematic of Xi’s strategic policy, a none-too-disguised sidestep to US sea power.
The vast majority of China-Europe rail freight transits through Kazakhstan, Russia, and Belarus, skirting north of the Ukraine war zone. The latest European Union sanctions on Russia and Belarus this month only ban air traffic and road transport, not trains except for specific Russian-origin items like coal.
Anecdotally, as the usual weekly and monthly figures from China Railways seem suspended since the invasion started on February 24, the railway trade with China has plummeted. “The sanctions have led to several cancellations of freight trains. Businesses are afraid to remain caught up in the sanction regime, so some companies are simply canceling operations,” Francesca Ghiretti, a specialist on Europe-China relations at Germany’s Mercator Institute for China Studies, told Asia Sentinel.
Customers fearing risks from wider war, payment difficulties due to sanctions, or blow-back from customers about their goods riding Russian rail lines, have canceled rail freight plans. Rising insurance costs, and sometimes refusal of insurance, for trans-Eurasia rail freight are adding to the pressure to switch back to ocean transport, despite severe bottlenecks and high cargo rates lingering from the crew shortages and quarantine issues of Covid-19.
“In general, there is a chilling effect on the sector,” the European Commission’s director of land transport Kristian Schmidt told industry website Railfreight.com last week.
A few acknowledgments are starting to seep out through Chinese state media. The state-run Securities Times said that from the start of March, export volumes on trains to Europe from the northern city of Dalian had been “greatly reduced.”
So far, the Europeans aren’t sanctioning Chinese trains crossing Russia and Belarus. “The sanctions are intended to hurt Russia and balance the EU interests. We have to carefully assess whether it is in our interest or not to affect that business,” Schmidt said.
Mercator’s Ghiretti agrees the impact on Chinese rail traffic has been incidental, not deliberate. “Beyond warning China repetitively that it should not help Russia or breach the sanctions, EU countries have not applied any restrictions, overtly or tacitly, not that I am aware of.”
Nor is there any visible debate about it yet. “China does not respond well to that type of coercion, yet China is worried about the impact of the war and mostly of the sanctions on its own economy,” she said. “And of course, should China heavily breach the sanctions, considerably help Russia economically or worse, help it militarily (via providing armaments), then the EU would have to respond by imposing costs on China. And China was warned of this several times, lately, at the EU-China summit of April 1.”
The Europeans are certainly putting “a level of pressure on China,” said Xiaoli Guo, a scholar of the BRI and China’s relations with the Middle East at the Australian National University in Canberra. “However, it is hard to envision that the EU would be keen to cut off China, considering the current economic vulnerability of some EU member states, which have been struggling as a result of the EU sanctions against Russia that have led to the oil and natural gas prices skyrocketing. After all, China is currently the second-largest trading partner of the EU.”
Aside from the Ukraine war, hard economics may put a renewed squeeze on the Eurasian railways. The Covid pandemic’s disruption to sea transport saw ocean freight rates from China to Europe jump from around US$2,000 per container to over $15,000, making rail temporarily competitive in price as well as transit time (two weeks for rail over four to five weeks for shipping). That advantage will now diminish. Chinese authorities have signaled plans to drop their heavy subsidy of rail freight to Europe (up to US$5,000 a container at times, now US$1,000) at the end of this year. Indeed, subsidies may need to rise again sharply.
Alternatives to the rail route through Russia are still under-developed. A southern rail loop to Europe via Iran and Turkey is “not even remotely” able to replace it yet, says Mercator’s Ghiretti. A “middle corridor” involving Georgia, Azerbaijan, Turkey, and Kazakhstan – with crossings of both the Caspian and Black seas – is a newly-launched project still on paper.
Is reliance on Russia being acceptable to Europe a fundamental weakness of Xi’s Eurasia strategy? To some extent, says Ghiretti. “However, while connecting Eurasia is a nice slogan, the BRI has evolved from tangible connectivity alone and from Eurasia alone,” she said. “And connectivity elsewhere in Eurasia will continue even if transiting through or accessing Russia becomes increasingly difficult. China can still build infrastructure, say, in the Balkans, even if it cannot go through Russia. The model and China’s investments remain attractive.”
The ANU’s Guo says that despite the current disruption, it might not have long-term impact. China could invest more in the rail route south of Russia. “However, bolstering this railway line in the wake of the Russia-Ukraine conflict may not be necessary for China, given that China's maritime silk road routes to Europe are operational and potentially even more efficient and cost-effective than railway routes,” she said.
If so, that crimps Xi’s hopes to clinch a third five-year term at the CCP’s congress in November and the red signals on his pet Eurasian railway lines are an embarrassment.
“Symbolically, the Ukraine war has caused a great disruption,” Ghiretti said. “The China-Europe Railway is an important symbol of Xi’s BRI. The core of the original BRI concept was after all to connect Eurasia.”
Hamish McDonald is a former regional editor of the now-defunct Far Eastern Economic Review and former foreign editor of The Sydney Morning Herald.