China Railway Express to Europe: Implications to China-EU Economic Geography and Prospects
IMPLICATIONS TO CHINA-EU ECONOMIC GEOGRAPHY AND PROSPECTS
As an important project for closer infrastructure and trade connectivity between China and countries along the Belt and Road, the China Railway Express (CRE) has become a highlight of Belt and Road cooperation. Since its debut nine years ago, its number of destinations and services have grown rapidly. By the end of 2019, it had connected 62 Chinese cities with over 110 cities in Eurasia. Amid the coronavirus pandemic, it remained a reliable transportation channel as air freight and sea shipping have been severely affected, with high priority given to the shipment of anti-epidemic supplies. From January to April 2020, the CRE made 2,920 trips and carried 262,000 TEUs in cargo, up by 24% and 27% respectively year-on-year and 98% of the containers were loaded. While COVID-19 is raging across the world, the CRE has become a strategic route of international cooperation against the epidemic as it continues to ship medical supplies. Now that the CRE is operating on a regular basis and on a large scale, greater focus is placed on high-quality development rather than mere quantitative growth. To this end, measures are taken to narrow the distance, break economic segmentation and facilitate market integration, which can further optimize the trade system and industrial layout in China and Europe and reshape China-Europe economic geography.
CRE’s Profound Impact on China-Europe Economic Geography
Shorter distance, fewer barriers and higher economic density will go a long way in advancing opening up and cooperation, and reshaping the economic geography. The regular CRE services have narrowed the distance for trade between China and Europe, while supporting measures like trade facilitation and investment liberalization have contributed to greater market access, less economic segmentation and greater market integration. In addition, unimpeded trade has also brought relevant industries together. All of these are reshaping China-Europe trade and industrial landscape, and increasing the economic intensity of hub cities in the region and cities along the route.
First, better infrastructure connectivity has made trade easier. Despite the geographical distance between China and Europe, the destination of the ancient Silk Road, the two sides enjoy long-standing economic and trade relations, and are linked by the CRE services. The land-born trade route that the CRE runs through has shortened the distance for trade between China and Europe (see Table 1), offered a new transportation option for inland areas, and boosted industrial clusters in the region. Compared with sea freight, the CRE transportation is several thousand kilometers shorter and much faster. By through trains, it only takes 1/2 or even 1/3 of the time that the traditional railsea intermodal transport takes to reach most European destinations. Rail transport is also largely free from weather constraints. Compared with air freight, the CRE is much more cost-effective. For instance, it takes 13 days to complete the 11,179 km Chongqing-XinjiangEurope Railway, but the shipping cost is only 1/5 that of air transportation. The regular CRE services have not only facilitated trade between China and countries along the route, but have also become a platform for cultural exchanges and people-to-people bond.
Second, closer trade connection has reduced economic segmentation. The CRE has facilitated market integration
and reduced economic segmentation by breaking geographical boundaries, and spurring flows of goods, capital and information. Recent years have also witnessed closer strategic communication and policy coordination between China and relevant countries. Most of the CRE services enjoy the benefits of the rapid customs clearance mode defined by “one declaration, one inspection, and one release”. Facilitation policies of various kinds are also available to some CRE services. For instance, the bonded warehouse in Poland, the European transshipment center of ChengduEurope Express Rail, offers EU, Russian and CIS customers the convenience of tax payment on arrival or deferment up to 160 days. On 24 February 2020, China’s General Administration of Customs introduced ten measures, including mutual recognition of Authorized Economic Operator (AEO) with partner countries, facilitation of customs clearance, and the Partnership Program of Customs-Railway Operators for Promoting the Safety and Rapid Customs Clearance of China Railway Express. These measures can boost economic cooperation among relevant counties by better leveraging land ports of entry, making customs clearance more efficient, removing or reducing trade barriers, and accelerating the flow of goods and production factors. In 2019, China’s export and import with relevant countries reached $24.411 billion and $35.917 billion, a year-on-year increase of 22.29% and 13.69% respectively (see Figure 1). To be more specific, China’s trade with Russia, Germany, Poland, Netherland, France, and Belarus by rail transport in the same year was $13.949 billion, $7.587 billion, $3.749billion, $3.523 billion, $1.238 billion and $964 million, accounting for 38.84%, 21.12%, 10.44%, 9.81%, 3.45% and 2.68% of China’s total trade with all countries that the CRE runs through.
Third, more industrial clusters have increased the economic intensity. Shorter transportation routes have released the trade potential of relevant countries, turning some cities into distribution hubs, and facilitating the development of industrial clusters. For Chinese cities that have opened CRE services, they are better positioned to realize trade upgrading and overall development, as they transform from CRE stations, to logistics hubs and trade centers with mature industrial systems. Positive spillover effects are further enhanced thanks to initiatives to develop land ports, hub stations, cargo centers, load unitization under the supervision of customs authority, as well as domestic and international freight shipping services. A larger flow of goods, capital and information is expected as a result. For CRE terminals outside China, benefits brought by the CRE are also growing. As CRE destinations expand from cities in Central and Western Europe to Eastern, Southern and Southeastern Europe, we have seen better railway infrastructure, improved logistics systems and more warehouses in those cities and beyond. Major cities along the route like Hamburg, Duisburg, Warsaw, Lodz, Malaszewicze and Moscow are developing into key distribution hubs in Europe, attracting businesses in such industries like logistics, trade and services, and giving a strong boost to regional trade.
Challenges of CRE in Reshaping China-Europe Economic Geography
Despite the above-mentioned benefits of regular CRE services, the CRE is also faced with challenges on the ground like low efficiency, convergent routes and insufficient IT application.
Firstly, transportation efficiency remains to be improved. CRE trains seem to be running smoothly, but delays happen from time to time. (1) As countries along the route employ different gauge standards, two to three gauge changes are needed before a CRE train reaches its destination. Adding to that are constraints such as aging facilities at border crossings, inefficient customs clearance, and inadequate supporting services. During the peak season, CRE trains more often than not experience considerable delays at ports of entry, compromising CRE’s shipping efficiency. (2) Trains have to slow down when they travel through Central Asia and Eastern Europe due to the weak rail infrastructure and supporting facilities in these regions. (3) Some countries along
the route can hardly meet the surging needs of CRE services. As a result, trains often experience delays at change-ofgauge stations in Alataw Pass, Erenhot, among others, as they have to line up. (4) Rail transport regulations vary in different countries. Some countries in Eurasia practice the Convention Concerning International Carriage of Goods by Rail , while others follow the Agreement on International Railroad through Transport of Goods. Trains travelling from one country to another have to abide by different rules and regulations, and go through all the formalities and paper work. Sometimes the carriages and goods may even be detained for failing the document requirements. Some progress has been made in this regard, but a unified customs clearance and document system has yet to be established, thus increasing transportation cost and time.
Secondly, the rail network needs to be optimized to avoid excessive route convergence. Without an overall plan and network design, many trains run on similar routes. (1) Most CRE routes converge at a few focal points or lead to a small number of destinations. Specifically speaking, over 90% of the trains enter Europe through Brest or
Małaszewicze and stop at Germany or Poland. The freight is then shipped to western, central, southern and northern Europe by road transport. (2) CRE stations within China concentrate in some regions, and route convergence is quite high. (3) Due to a surge of trains, European terminals are almost operating at full capacity. Freight yards in Duisburg, Hamburg and other trade centers and logistics hubs are reaching their capacity limit.
Thirdly, operational efficiency is compromised because the electronic information system still lags behind. Recent years have seen the development of the intermodal transport information platform and more digital application in CRE, but insufficient IT application remains an impediment. (1) A unified system of electronic document exchange has yet to be established for the CRE. Traditional paper document exchange is still required for customs clearance, inspection and quarantine in some countries, making CRE services less efficient. (2) Breakthroughs in digitalization are urgently needed for CRE. Inefficient manual check is still the norm for document review when goods from China enter Russia, though China State Railway Group Co., Ltd. launched a digital shipping paper project in April 2018 and a unified document system is already in place between the two countries.
Practice Path of CRE to Further Reshape China-Europe Economic Geography
As the CRE moves towards higherquality development, more should be done in terms of strategic alignment, regulation compatibility, trade facilitation and digital application, so as to achieve common development in China and other countries that the CRE runs through.
Firstly, strategic alignment should be strengthened to further improve connectivity and narrow the economic distance. (1) We should seek complementary of development strategies of countries concerned to unleash the full potential of the CRE. For instance, future CRE development should take into account Europe’s Danube-OderElbe Canal project that links the Black Sea, the Baltic Sea and the North Sea. (2) China and central and eastern European countries should seek shared growth through discussion and collaboration by opening up new rail routes that enter Europe via Slovakia, Hungary and Romania, and linking the CRE with the China-Europe Land-Sea Express Line. In this way, central and eastern European countries can grow into new transport hubs. (3) We should seek complementarity between CRE routes and the New International Land-Sea Trade Corridor. International rail routes in Western and South China should be further leveraged and expanded. More CRE lines can be opened to facilitate China’s industrial transfers to Southeast Asian countries. Trade distance can be further cut if the CRE can link Southeast Asia, China, Eurasia and Europe.
Secondly, regulatory unification and trade facilitation should be ensured to reduce economic segmentation. (1) Countries concerned should work together to come up with a set of universally accepted transnational rail transport rules. Relevant countries
and international organizations should amend the UNCTAD / ICC Rules for Multimodal Transport Documents by adding rules and regulations about international rail transport. This will see smoother rail operation and lower trade cost, as trains follow the same set of international rules and standards. (2) More should be done in terms of credit profile-building and recognition to see that companies doing business with CRE countries are recognized as by the customs authority as Authorized Economic Operators (AEO). (3) Support should be given to businesses that plan to build overseas warehouses on their own or in collaboration with local partners in counties like Russia, Poland, Spain, Germany and Hungary. These warehouses can perform the function of logistics distribution and storage, and bring more goods on return trains. In addition, they can also play a role in facilitating customs clearance, goods return and exchanges, and data analysis.
Thirdly, information technology should be better used and industrial clusters should be built to enhance economic intensity. (1) Building on the CRE Customer Service Center set up by China Railway Transport Company, more should be done to promote digital document exchange and data sharing among rail, customs, inspection and quarantine authorities. (2) The international multimodal transportation information platform built by China Railway Company should be improved to see that international multimodal shipping documents and logistics tracking information are exchanged in digital forms between China and Eurasian countries. A rail-road-sea multimodal information sharing system should be established so that only one unified document is needed, which will make freight transport much cheaper and faster. (3)
Port infrastructure and other facilities should be improved. A digital service platform that offers multimodal transport services of various kinds should be established. This can bring relevant businesses and industries closer, facilitate the flow of goods, capital, information and personnel, and increase the economic intensity.
As the Belt and Road Initiative is moving forward with result-oriented implementation, the CRE, a key Belt and Road project, is also moving away from quantitative growth to quality development. More should be done to see that the CRE continues to shorten the trade distance between China and Europe, increase the economic intensity of the region, and reduce market segmentation through trade facilitation and investment liberalization measures, so that the CRE route can become a road of economic cooperation and a road towards common development.