China-Europe rail trade imbalance growing due coronavirus, demand for PPE

Sidney Leng
·5-min read

The coronavirus may have pushed China’s freight shipments to Europe via rail to record highs, but far fewer trains have returned with European products, according to data from China’s state railway operator and external analysts.

By early November, China Railway Express, a key rail project under China’s Belt and Road Initiative, had operated a record number of more than 11,000 trains across Eurasia compared to 8,225 in the whole of 2019.

In the first half of the year, it operated 5,122 trains, up 36 per cent from a year earlier, according to the state-owned China Railway.

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However, the booming rail service – propelled by rocketing sea freight fees and surging demand for personal protection products to combat the coronavirus – has proved mostly one-way from China to Europe, widening the gap between westbound and eastbound trains and increasing concerns over the service’s financial viability.

According to Jet Young, a counsellor for China Communications and Transportation Association, around 40 per cent of the total journeys in the first half of the year were between China and Russia, and among the rest, some 2,000 trains headed to the European Union, while only 900 trains returned to China.

China continued to run a large trade surplus with the European Union in the first 10 months of year, indicating that westward shipments remain much larger than eastbound trade.

In the past, many containers on returning trains remained empty, according to China Railway, although the government said the empty proportion decreased to around 10 per cent last year.

Last year, China operated more than 3,000 trains to the European Union and 2,700 on the way back, 1,118 trains to Russia and 988 in the opposite direction, as well as 297 trains to Belarus and one back to China, according to China Railway data cited by Young.

The imbalance between westbound and eastbound is getting aggravated this year because of the Covid-19

Jet Young

“The imbalance between westbound and eastbound is getting aggravated this year because of the Covid-19,” Young said, with Beijing rarely disclosing the breakdown of trains operating between China and Europe, particularly operations to and from Russia and the European Union.

Launched in 2011, China Railway Express is part of Xi Jinping’s vision to revitalise traditional Silk Road trade routes and tighten economic ties by increasing connections between Eurasia and China.

By the end of October, more than 70 Chinese cities had launched rail transports destined for 19 European countries. Other than Tibet and Hainan, each of China’s 31 provincial-level jurisdictions have launched or are operating its own rail service to Europe.

There, though, is little incentive for Chinese companies to bring empty containers back home because there would be no discounts or subsidies to offset the costs. Some are shipped to Russia to be filled with logs before heading home, according to Young.

And while rail service cuts the transport time from China to Europe by around two thirds compared to sea, it still only accounts for 2 per cent of trade between the European Union and China in terms of value of goods as more than 90 per cent of bilateral trade is still sent via sea.

The increasing imbalance of westbound and eastbound trains has created massive congestion at China’s borders, where trains loaded with Chinese goods are forced to switch tracks to continue their journey to Europe, with many delayed due to poor infrastructure.

In Malaszewicze, a village in Poland through which most trains have to pass, delays of several days are commonplace, according to Xu Yingming, a researcher from the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. In June, China Railway even started controlling the number of trains to ease the traffic at the border.

Young from the China Communications and Transportation Association said if the number of returning trains is less than outbound trains for an extended period, it would make shipping by rail even less cost-efficient.

In general, overseas rail companies charge between US$300 to US$500 more for every 40-foot container if a train only travels one-way.

On average, large Chinese rail companies send 10 to 20 trains bound for Europe every week, but only arrange for two to three to return, according to Young.

Beijing has also asked local governments to reduce subsidies for their China Railway Express trains by 10 per cent each year since 2018, according to a guideline from the Ministry of Finance.

In 2020, subsidies should not exceed 30 per cent of total freight fees, but some governments have replaced subsidies with other measures to support the service, and the coronavirus has put local officials under more pressure to help the economy recover by boosting exports.

“In order to help [local] manufacturing and logistics recover [from the economic damage down by the pandemic], local governments will take every possible measure, including subsidising the trains from their respective areas,” Young said.

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