Pulling at Silk Strings
Land routes running through the Eurasian Economic Union can take on up to 4 percent of the goods that are transported by sea between China and Europe. It sounds modest, but these are the highest margin goods, including electronics, automotive components, pharmaceutical products, cosmetics, and food.
To reach the transit volume of 2 million TEU (twenty-foot equivalent unit – a unit of cargo capacity – Editor’s note) would be realistic in 5-8 years. For this, the focus should be not on mega construction projects, but on addressing bottlenecks. The Eurasian Union countries, first of all Russia and Kazakhstan, are to solve this task mostly independently, possibly mobilising resources of development institutions.
Fr om the point of view of its strategic interests, Russia has two key tasks in this area. The first and the main one is to develop the logistics of those inland regions that do not have a direct access to sea routes. This is essential for the Urals and Siberia and, of course, for all the Central Asian countries. Theoretically, the transport corridors of the Silk Road Economic Belt (the Belt and Road Initiative) promoted by China can ‘sew’ the macroregion together, linking its resources, industries, and markets.
The second task is to encourage shifting part of transit flows from over-sea to over-land routes for goods flows directed from China to Europe to transit through the EAEU. It is a good business niche for logistics and railways. One can make money on this.
It is yet a long way to go to implement such ambitious ideas. The maritime transport still holds a dominant position in supporting trade between the EAEU and China. For example, it accounts for 77 percent of the cargo traffic between Russia and China, while overland transportation through China-Russia and Mongolia-Russia borders accounts for 21 percent and transit through Central Asia is only 2 percent.
Within the framework of the Belt and Road Initiative, the development of two routes – the Central (China - Kazakhstan - Russia - EU) and the Northern (Shanghai - Vladivostok - Trans-Siberian Railway - EU) Eurasian corridors – seems promising. They have several advantages as they: rely exclusively on railway transport; pass through a minimum number of border crossings; operate already, with the volume of container transportations in both directions growing rapidly; and, most importantly, are the most competitive price-wise.
Within the expert community, they may often be pessimistic about the prospects for overland transit. Such excessive pessimism is hardly justified. Currently, the flow of goods from China to Europe and back using the EAEU railway routes is very strong: it doubled in 2015, and then another doubling was recorded – up to 156,000 containers. In 2016, transportation through Dostyk (Kazakhstan) and Naushki (the route through Mongolia to the Trans-Siberian Railway) more than doubled, and that through Zabaikalsk (the route from the North-Eastern provinces of China to the Trans-Siberian Railway) grew by 42 percent. Container shipments through Khorgos (Kazakhstan) have been launched.
However, one should be put on his guard and avoid being excessively optimistic. Land routes save time, but this advantage is still to be realized. For this, trains must be straight-line – going as scheduled and, preferably, daily. Then new niches get active, for example, transportation of mail (parcels).
The flow of goods from China to Europe and back using the EAEU routes has doubled for two years in a row.
The real throughput capacity of all transit routes in Kazakhstan is estimated at 400,000-450,000 TEU in both directions. This shows that, with the growth rate of cargo flow unchanged, Kazakhstan's transit capacity upper lim it will be reached in three years. In Russia, it’s not all roses either: the situation with sorting container trains, forwarding, warehousing, and customs clearance leaves much to be desired. Due to its infrastructure constraints, the Trans-Siberian Railway is stretched to the lim it. It is critical not to build a second Trans-Siberian Railway, but to address the bottlenecks of the transport routes, building medium-sized logistics centres, upgrading certain railway sections, border crossings etc.
Who and at whose account should develop or upgrade the transport infrastructure? It seems unreasonable to rely on strong inflows of Chinese investments into the transport sector. The amount of investment into the Belt and Road Initiative is still small. The lion's share of Chinese direct investments in the EAEU countries (US $21 billion or 82%) is concentrated in Kazakhstan, mainly in the oil and gas production sector.
A vivid and, in many ways, unexpected fact is that in Russia, the stock of Chinese direct investments (US $3.4 billion) is 6 times smaller than in Kazakhstan. Currently, Chinese investors are interested in Russia’s fuel and chemical sectors. A significant part of large transactions, fixed in framework agreements, is still to be implementation. In addition, in the context of the weak economic environment, Chinese investors often wait for more favourable offers from Russian businesses. Chinese investors are likely to be engaged in the Moscow-Kazan High-Speed Rail project, but it will not generate real effects soon. It is necessary to develop the transport infrastructure right now.