Bei­jing eyes rail­way with North­ern Europe

The Baltic Times - - FRONT PAGE - An­drew Jo­hans­son, Aldis Bulis, Dirk Li­nowski

In Novem­ber 2016, a trial con­tainer train from Yiwu City in Zhe­jiang prov­ince in China ar­rived in Latvia af­ter com­plet­ing an 11,000 km jour­ney over 12 days through North­east­ern China and Siberia. It was a ma­jor lo­gis­ti­cal achieve­ment and sig­nalled China’s com­mit­ment to ex­tend its Belt and Road Ini­tia­tive west­ward, pos­si­bly to Latvia, too. The tim­ing of this China-eu ship­ment fits within China’s larger goals of in­creas­ing trade with Europe through the $4 tril­lion in­fra­struc­ture in­vest­ment pro­gram they launched in 2013, known as the Belt and Road Ini­tia­tive (BRI) or the One Belt, One Road (OBOR) Ini­tia­tive. With over 1 bil­lion Eu­ros in trade be­tween China and the EU ev­ery day, both con­ti­nents are heav­ily in­cen­tivised to im­prove the ef­fi­ciency of their trade routes. To pro­vide more an­swers for the bid, China now looks for­ward to the high-pro­file Belt and Road Fo­rum in May 2017 as the ground­break­ing for nu­mer­ous large-scale in­fra­struc­ture de­vel­op­ments ex­pected over the next sev­eral years with a “go” from the sides.

Europe’s Rail­way Lead­ers

China’s pre­lim­i­nary plans to re-es­tab­lish the old Silk Road routes through Cen­tral Asia would con­nect China with mid­dle lat­i­tude Euro­pean coun­tries such as the eco­nomic pow­er­houses of Ger­many, France, and the Nether­lands. It has de­vel­oped sep­a­rate plans for South­ern Europe that would uti­lize a com­bi­na­tion of rail and sea routes to ac­cess China through Greece and Italy via the Mediter­ranean Sea. Al­though there is cur­rently no clear leader for es­tab­lish­ing im­proved freight routes that con­nect China with North­ern Europe, Fin­land and Latvia are emerg­ing as the two favourites due to a com­bi­na­tion of geographic, eco­nomic, and lo­gis­ti­cal con­sid­er­a­tions.

Fin­land has a long track record of ini­ti­at­ing trans­porta­tion link­ages be­tween the EU and its east­ern neigh­bours. The Helsinki Airport’s mar­ket­ing ef­forts to po­si­tion Fin­land as the “gate­way to Europe” in­creased tourism to the re­gion from three Asian mar­kets, in­clud­ing China. 2016 was a record-set­ting year for tourism to Fin­nish La­p­land due to these mar­ket­ing ef­forts. Visa-free travel be­tween the ports of Helsinki and St. Peters­burg has also been a boom for tourism be­tween Fin­land and Rus­sia for sev­eral years. It is clear that Fin­land has no short­age of ideas re­lated to in­creas­ing ac­cess to Asian mar­kets. Now, Fin­nish aca­demics and busi­ness lead­ers have pro­posed an am­bi­tious arc­tic rail­way that would con­nect China to Swe­den via a rail­way that runs through North­ern Fin­land, which will be fur­ther dis­cussed dur­ing the up­com­ing Kou­vola Rail Fo­rum in Septem­ber 2017.

The other log­i­cal al­ter­na­tive for new rail­way link­ages be­tween China and North­ern Europe is Latvia. As the clos­est geographic point to China, Latvia is the most cost-ef­fec­tive al­ter­na­tive to be­come the pri­mary ship­ping hub be­tween the EU and China.

Dr. Maris Andžans, Re­search Fel­low at the Lat­vian In­sti­tute of In­ter­na­tional Af­fairs, states that Latvia has nu­mer­ous ad­van­tages in terms of trans­port and cargo ship­ping, in­clud­ing: “… geographic lo­ca­tion, ex­pe­ri­ence in East-west tran­sit, pro­fes­sional and multi-lin­gual per­son­nel, part of the EU sin­gle mar­ket, (and) en­hanced multi-modal­ity with Riga In­ter­na­tional Airport, with its cargo han­dling ca­pa­bil­i­ties and ex­pe­ri­ence, e.g. cargo trans­porta­tion to and from Afghanistan, com­pared to Es­to­nia or Lithua­nia.”

When asked whether there are any po­ten­tial chal­lenges that must be ad­dressed in Latvia prior to ac­tively pur­su­ing im­proved trans­port con­nec­tion be­tween Latvia and China, And ans re­sponded: “A bet­ter har­mo­niza­tion of Lat­vian trans­porta­tion routes that cover land, sea, air, prefer­ably syn­chro­nized with other tran­sit coun­tries on the route.” He went on to state that im­proved bor­der­cross­ing fa­cil­i­ta­tion across the trade routes are needed. “Oth­er­wise,” he stated, “due to ob­jec­tive fac­tors, it is dif­fi­cult to com­pete with al­ready ex­ist­ing rail lines con­nect­ing China and Europe, ex­cept some cargo des­tined for Scan­di­navia.”

An­dris Maldups, Di­rec­tor of the Tran­sit Pol­icy de­part­ment of the Min­istry of Trans­port, also makes the case for an in­creased role as a re­gional leader in rail freight. “Latvia pays great at­ten­tion to the de­vel­op­ment of co­op­er­a­tion with China in the trans­port and lo­gis­tics sec­tor in the frame­work of the Belt and Road Ini­tia­tive, since its ge­o­graph­i­cal lo­ca­tion in the cen­ter of the Baltic Sea re­gion, three large ice-free ports and highly de­vel­oped trans­port and lo­gis­tics in­fra­struc­ture (rail­ways, roads, avi­a­tion sec­tor, mar­itime con­nec­tions) makes the coun­try a nat­u­ral Silk Road lo­gis­tics hub be­tween Asia and North­ern Europe, pro­vid­ing a gate­way for Chi­nese goods to the Scan­di­na­vian mar­ket yet to be ex­plored.

New Rail­way In­fra­struc­ture Chal­lenges

De­spite its nu­mer­ous eco­nomic ad­van­tages, Latvia faces three ma­jor chal­lenges in its ef­forts to be­come North­ern Europe’s gate­way to China. First, Latvia would re­quire sub­stan­tial freight rail in­fra­struc­ture in­vest­ment to re­duce ship­ping times from China to un­der 12 days. Sec­ond, trade is cur­rently lop­sided be­tween the two re­gions. In order for the Latvia-rus­sia-china cor­ri­dor to be­come vi­able, it will need to at­tract ship­ments from North­ern Euro­pean man­u­fac­tur­ers and sup­pli­ers to Chi­nese buy­ers. Third, the cur­rent geopo­lit­i­cal un­cer­tain­ties re­lated to eco­nomic sanc­tions with Rus­sia and in­ter­na­tional mil­i­tary ma­noeu­ver­ing along its bor­ders may carry enough risk to in­hibit pri­vate in­vest­ment. If it can nav­i­gate these three chal­lenges, Latvia may suc­cess­fully evolve into a lo­gis­tics and sup­ply-chain hub for Europe with tens of thou­sands of lo­cally-grown jobs.

Ac­cord­ing to Mr. Maldups, fu­ture trains from China to Riga will ex­tend the route fur­ther to con­ti­nen­tal Europe by com­bin­ing rail-to-sea trans­port modes. He iden­ti­fied five large in­fra­struc­ture de­vel­op­ment projects that have been sub­mit­ted to the Na­tional De­vel­op­ment and Re­form Com­mis­sion that would im­prove the coun­try’s lo­gis­tics ca­pac­ity by co­or­di­nat­ing with China’s BRI: “The five most sig­nif­i­cant in­vest­ment projects have been iden­ti­fied and sub­mit­ted to the Na­tional De­vel­op­ment and Re­form Com­mis­sion’s con­sid­er­a­tion are: a lo­gis­tics cen­ter at the Freeport of Riga, a new har­bor in the Freeport of Ventspils, the Rail Baltica In­ter­modal Lo­gis­tics Centre near Salaspils, a lo­gis­tics cen­ter in Riga In­ter­na­tional Airport, and a strate­gic part­ner­ship with air­baltic. There are also sev­eral more pri­vate in­vest­ment projects in the trans­port and lo­gis­tics sec­tor (re­lated to) the 16+1 for­mat.”

How­ever, Mr. Maldups also men­tioned that the trade route needs to in­crease the vi­a­bil­ity of re­cip­ro­cal ship­ments from Europe into China, in order for it to be a truly ef­fec­tive cargo route. “We need to in­crease its pop­u­lar­ity and ad­ver­tise its ad­van­tages in China, at­tract Chi­nese in­vestors and lo­gis­tics com­pa­nies to the Lat­vian tran­sit cor­ri­dor, look for new cargo in China and work on cargo at­trac­tion for the way back­wards. Cur­rently, we are ac­tively work­ing on all these is­sues. Re­gard­ing the at­trac­tion of re­verse cargo, we see one of the po­ten­tial part­ners-the Swedish in­dus­try—im­porters and ex­porters in­ter­ested to use Eurasian tran­sit cor­ri­dors to trans­port goods to China, as well as other Scan­di­na­vian and West­ern Euro­pean coun­tries.”

No­tice­ably ab­sent in the afore­men­tioned list of largescale lo­gis­tics in­vest­ments is an East-west rail in­fra­struc­ture in­vest­ment to im­prove con­nec­tions be­tween China’s Belt and Road Ini­tia­tive and Latvia’s ice-free ports that could carry goods fur­ther to Scan­di­navia. Al­though Rail Baltica has been ac­tively pur­sued to con­struct a North­south high-speed rail cor­ri­dor through the Baltics, there have been no gov­ern­ment pro­pos­als or dis­cus­sions to im­prove East-west freight rail in­fra­struc­ture from Riga east­wards through Rus­sia. Ide­ally, these two rail in­fra­struc­ture projects could in­ter­sect in Riga, which would fur­ther bol­ster Latvia’s role as a ship­ping and lo­gis­tics hub and cre­ate the types of high-pay­ing, lo­cally-cre­ated jobs and busi­ness op­por­tu­ni­ties that would bring Lat­vian em­i­grants back to their home­land.

Con­tainer ship­ments be­tween China and Riga need to break the nearly two-week tran­sit bench­mark via im­proved han­dling times be­tween trains and re­duced bot­tle­necks in metropoli­tan ar­eas. But, this may only be pos­si­ble via sig­nif­i­cant rail in­fra­struc­ture in­vest­ment. The ac­com­pa­ny­ing map, which was pro­vided by the Min­istry of Trans­port of the Repub­lic of Latvia, il­lus­trates the de­gree to which the bot­tle­neck in Moscow de­lays ship­ments be­tween China and Latvia.

It takes ap­prox­i­mately 922 km per day to tra­verse the Riga-yiwu con­tainer route and up to 744 km per day on the Baltika-tran­sit con­tainer train, but con­tainer trains on the Riga-moscow route only move 482 km per day. An ob­jec­tive com­par­i­son of these three con­tainer trains on the Latvia-china cor­ri­dor sug­gests that in­vest­ment in an im­proved Riga-moscow con­nec­tion via a com­bi­na­tion of pub­lic and pri­vate funds from the EU, Latvia, Rus­sia, and China should be pri­ori­tised. Rail in­fra­struc­ture im­prove­ments be­tween Riga and Moscow, in­clud­ing new ded­i­cated freight lines or a new high­speed freight rail line, could shave a day or more off the av­er­age tran­sit time be­tween the two cities.

Lat­vian Freight Ex­pan­sion

The busi­ness case for im­prove­ments to the freight rail in­fra­struc­ture con­nect­ing Riga and Moscow are grow­ing by the day. Ac­cord­ing to Hel­muts Kols, the At­taché of the Min­istry of Trans­port at the Em­bassy of the Repub­lic of Latvia to the Peo­ple’s Repub­lic of China, “The num­ber of con­tain­ers trans­ported by rail­ways from Latvia dur­ing the last year in­creased by 108 per cent and the num­ber of con­tain­ers sent to Latvia in­creased by 93 per cent. Lat­vian ter­mi­nals man­aged to in­crease con­tainer turnover by 8 per cent in 2016 and reached a new record of 377,400 TEU (an­nual through­put) de­spite the con­tin­ued back­drop of Rus­sian sanc­tions.”

Latvia is emerg­ing as a

“De­spite its nu­mer­ous eco­nomic ad­van­tages, Latvia faces three ma­jor chal­lenges in its ef­forts to be­come North­ern Europe’s gate­way to China. First, Latvia would re­quire sub­stan­tial freight rail in­fra­struc­ture in­vest­ment to re­duce ship­ping times from China to un­der 12 days. Sec­ond, trade is cur­rently lop­sided be­tween the two re­gions. Third, the cur­rent geopo­lit­i­cal un­cer­tain­ties re­lated to eco­nomic sanc­tions with Rus­sia and in­ter­na­tional mil­i­tary ma­noeu­vring along its bor­ders may carry enough risk to in­hibit pri­vate in­vest­ment.”

It takes ap­prox­i­mately 922 km per day to tra­verse the Riga-yiwu con­tainer route and up to 744 km per day on the Baltika­tran­sit con­tainer train, but con­tainer trains on the Riga-moscow route only move 482 km per day.

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