Geopolitics cast shadow over New Silk Road

When, with three bangs on a gong, Xi Jinping welcomed a freight train to the Rhine river port of Duisburg in March, he issued a call for Germany to join China in developing a "New Silk Road" between their two economies.

With that, the Chinese president was asking Germany to take part in what has become a strategic pet project. Since taking office in 2013, Mr Xi has regularly deployed the idea of a New Silk Road between China and Europe during his travels. In Sri Lanka last month he touted a "21st-century maritime silk road" as he inaugurated a $1.5bn port project.

Mr Xi's ambitions are driven in part by a desire to improve inland and particularly western China's connections with Europe. Taken at face value, they amount to what could be the biggest shake up in global trade routes since China began its emergence as a big player in international trade two decades ago.

But the train to Duisburg also stands as a prime example of the way geopolitics are casting a shadow over globalisation. The "Yuxinou" train spends much of its 11,000km journey from the western city of Chongqing travelling through nearby Russia on a route controlled by Trans-Eurasia Logistics, a joint venture between Deutsche Bahn and Russian Railways. At a time of growing trade tensions between Russia and the EU because of the conflict in Ukraine, that makes it a vulnerable link in global supply chains.

The route has become increasingly popular with western technology companies such as Hewlett-Packard and German carmakers such as BMW and Mercedes-Benz as a more efficient way of shipping high-value goods between China and Europe than traditional sea routes. HP says it sends almost two-thirds of the products it makes near the western Chinese city of Chongqing to Europe via rail. In September, the first train carrying completed cars from Germany arrived in China.

The operators of the trains and companies that use them say they have yet to see any repercussions from the conflict in Ukraine.

"There have been no delays", insists DB Schenker, Deutsche Bahn's freight arm.

Yet, mindful that it is a route whose future depends as much on the goodwill of Vladimir Putin, Russia's president, as the mercantilist ambitions of Mr Xi, companies like HP are also dusting off contingency plans.

Ronald Kleijwegt, the man in charge of European logistics for HP, likens the possibility of an interruption in service to the closure of the Suez Canal due to turmoil in the Middle East. "There's always a risk nowadays," he says. "We always have a plan B."

The vast majority of the trade between China and the EU still moves by sea. Each of the four to five trains from China that arrive in Duisburg weekly carries 40-50 40-foot containers. Modern cargo ships carry thousands.

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The attraction of the route is simple: it offers what to some companies looks like a much more efficient version of globalisation. Door to door, the journey from China to Duisburg for HP's products takes an average 22 days by train, or half what it can by sea, and costs just 20-25 per cent more, Mr Kleijwegt says. HP has more direct control over the train route, which makes it more predictable than by sea where even big companies can be at the mercy of sometimes erratic shipping schedules.

HP's plans are, for now, to increase its use of the overland route. But that all depends on Russia's borders with Europe remaining open to trade and Mr Putin's own calculations, some of which may be long term.

For now, the Kremlin is eager to keep China on its side. However, China and Russia are fundamentally strategic rivals in central Asia, says Niklas Swanstrom, who heads up the Silk Road Studies Programme, a joint venture between Johns Hopkins University's School for Advanced International Studies and Sweden's Institute for Security and Development Policy.

Beijing and Moscow have rival rail plans for connecting China to Europe, he points out. In the long term Mr Xi's proposed Silk Road wends its way around Russia rather than through it. Russia, meanwhile, is promoting the existing trans-Siberian line as the main trunk route to China from Europe.

The risk Mr Swanstrom sees is that Russia could start using the rail connections much as it has its natural gas pipelines into Europe: as a strategic tool that it can shut on and off.

The saving grace for Europe may be that any such move could pose bigger long-term risks to Moscow than to European governments, or even China, he argues. "Russia has very little to offer China over time other than natural resources," Mr Swanstrom says, whereas the EU is China's biggest export market.

At Duisburg, the trains to China keep coming and going for the time being. But officials there are conscious that the geopolitical shadow could darken. "I would be surprised if this will continue as smoothly as it has in the future," says Julian Bocker, spokesman for the port. "We don't know where this is going."

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