China's 'Silk Road' Ambitions Reach London

Market News

China's 'Silk Road' Ambitions Reach London

The first-ever direct China-to-Britain freight train pulled into London in the last week of January - the latest milestone in China's ambitions to redevelop the old "Silk Road" trade routes from Asia to Europe. The Chinese government has spoken out strongly in favour of free trade and globalisation in the days following the inauguration of Donald Trump as US president, who claims Beijing's trade policies have damaged the American economy.

After 18 days and 28,000 kilometers, the freight train pulled into London on time. It passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, finally crossing under the English Channel. Inside the 68 containers were household items, clothes, fabrics, bags and suitcases. "This is twice as quick as sea, so it's got an important role there," said Philippa Edmunds from the British Campaign for Better Transport. "It's much, much cleaner and cheaper than air freight. I mean it's 20 times less pollution than air freight."

But there's more to the train than its cargo. Analysts say the historic journey also carried with it a political message - that China is forging new trade routes and new markets. Already, 15 European cities are served by freight trains from China as part of Beijing's "One Belt, One Road" initiative. Jie Yu of the London School of Economics' IDEAS analyst group says the rail expansion also is aimed at a domestic audience.

"The domestic market in China now seems to be very much stagnated," said Jie. "So the Chinese are desperately looking for new markets, and being able to absorb that excessive amount of production capacity. And obviously that freight train serves as a very good vehicle for the Chinese manufacturers, and restore the business confidence inside China."

As the train arrived in Europe, another historic trip was being made, as Xi Jinping became the first Chinese president to attend the World Economic Forum in Switzerland. Said Jie, "China has shown its willingness to shoulder more responsibility on the global stage and try to become a kind of responsible leadership." In Europe where popular opposition to globalisation is running high, Xi's words have been welcomed. So, could new US trade policies drive Europe and China close together? Analysts say the Trump administration likely heralds a new era in global trade relations - but the outcome of this realignment is difficult to predict.

Silk Road road project runs into rough weather in Hungary

Brussels is investigating the Chinese rail project that aims to extend Beijing's "One Belt, One Road" initiative into the heart of Europe, potentially putting the European Commission at loggerheads with China.

The commission's probe is into a planned 350 km high-speed railway between Serbia's capital, Belgrade, and Budapest in Hungary. The railway is billed as a hallmark scheme under "One Belt One Road", a US$ 900 billion project championed by Xi Jinping, China's president, to build infrastructure and win diplomatic friends in Europe, Asia and Africa.

European officials said that the investigation was assessing the financial viability of the US$ 2.89 billion railway and looking into whether it had violated European Union laws stipulating that public tenders must be offered for large transport projects.

"The commission services are assessing the compliance of the project with EU law. The dialogue with the national authorities is ongoing," said a European Commission spokeswoman. Any legal setback to China's first railway project in Europe would be a diplomatic embarrassment for Beijing, which made the railway its cornerstone offering to win support from central and eastern European nations during a summit attended by the countries in 2013. At issue for the commission are separate agreements signed by the Hungarian and Serbian authorities. But the main focus is on Hungary, an EU member state that is subject to the full rigour of European procurement law. As a prospective member of the bloc, Serbia is subject to looser rules.

Failure to comply with EU tender laws may be punished by fines and proceedings to reverse infringements. "If push comes to shove and if it turns out that the Hungarians have awarded a public works contract of a particular dimension without tender they will of course have infringed EU legislation," said a senior EU official. No contract for the US$1.8 billion Hungarian section of the railway appears to have been made public. However, a treaty between Hungary and China, dated last year stipulates that companies designated by each government should "co-operate for the development" of the project. It adds that two state-owned Chinese companies-the China Railway International Corporation and the Export-Import Bank of China-should act as contractor & financier for the project, which is due to be implemented by the Hungarian State Railways company. On Friday, the Hungarian government did not deny the commission's probe but said it had signed the agreements with China, including an annex explaining how it had complied with EU procurement law, following consultations with Brussels. Official Chinese media reports have said "a contract" for the high-speed railway between Belgrade and Budapest was signed during a meeting of the "16+1" - which unites China with central and eastern European countries - in Latvia in November.

Disruption to the rail project could sap the impetus behind the "One Belt, One Road" initiative, which Xi hopes will bind China, Europe, the Middle East and Africa more closely by building roads, railways, ports and other links to recreate the spirit of connectivity that prevailed along the ancient Silk Road. "This railway is a big part of the 'One Belt, One Road' project," said Tamas Matura, assistant professor at Corvinus University in Budapest. "The Hungarian section is supposed to serve as a masterpiece to show that the Chinese can build according to EU standards," he added. The Hungarian section is supposed to serve as a masterpiece to show that the Chinese can build according to EU standards Tamas Matura, Corvinus University in Budapest The planned railway, which is supposed to cut journey times from Belgrade to Budapest down to about three hours from the current eight, is also important to China in a practical sense.

It comprises a crucial section of a so-called "Land Sea Express Route", which China agreed in 2014 to build with Hungary, Serbia and Macedonia. This route is aimed to link up with Piraeus, a Chinese-owned Greek port on the Mediterranean. Without the Serbian-Hungarian rail link, China could struggle to realise its aim of being able to export products by rail to Piraeus and thereafter by sea to destinations in Europe, Africa and beyond, analysts said. The Brussels probe into Hungary's tender procedures is not unprecedented. Viktor Orban, the prime minister, attracted EU scrutiny in 2014 for awarding contracts to build a €12.5bn Moscow-funded nuclear project to Russian state-owned energy company Rosatom, also without holding a public tender.

The commission launched infringement proceedings against Budapest on suspicions that the project breached internal market rules. But it closed the probe last December, accepting Hungary's arguments that only the Russian operator could provide the specific technologies required.

The project is still subject to a separate state aid investigation.