The effects of the Ukraine war on China’s ‘new Silk Road’

The Middle Corridor

As we’ve mentioned before, China has been building a gigantic domestic rail network that will stretch out over more than 150,000 kilometres. But the country’s railway ambitions don’t stop there. In order to increase its exports to the EU, of which it’s been the biggest trade partner since 2021, Xi Jinping’s country has been pursuing a new Silk Road. Clearly referring to the mythical route that transcontinental salesmen used in centuries gone by, it is essentially a vast web of commercial rail and sea links that will allow the country to transport goods to Europe and Africa.

China has invested colossal amounts of money, signed several business deals and built (or had built) loads of new transport infrastructure. According to the website The Conversation, in 2021 a million standard containers were carried between China and Europe. Around 14,000 trains were involved in the transportation of all these goods. This amounted to around 38 convoys per day travelling through Kazakhstan, Russia, Belarus, Poland and Germany.

In short, everything was going well until the Russian invasion of Ukraine in February 2022. While they didn’t specifically target this railway route, the various European and American sanctions have discouraged several businesses from using it to carry their goods. And this was despite the fact that this wasn’t even really technically possible, as Xavier Wanderpepen, a specialist consultant in freight travel between China and Europe, told French newspaper Le Figaro: “In fact, we realised very quickly that businesses didn’t want to risk any of their products passing through Russia, and would aim to negotiate transport rates with Chinese or Kazakh rather brokers than directly with Russians.But the fear of a brutal change in sanctions or, perhaps worse, of being accused of collaborating with Russia has led many groups to look for new ways to transport goods across the two continents.

While some have turned to maritime transport, others have opted for a train alternative: the middle corridor, which winds through Kazakhstan, Azerbaijan and Georgia. This journey lasts more than ten days, and presents several difficulties. As well as passing through what HEC emeritus professor Jean-Paul Michel Larçon calls ‘countries with very different cultures and geopolitical orientations’, it also traverses the Caspian and Black seas – natural obstacles that can lead to unwelcome delays. The huge increase in transport along this route has been difficult to manage for the operators. The ports through which the containers are transported have neither the capacity nor the means to deal with so many goods. As for ships, there are simply not enough of them to deal with the supply either.

A second railway alternative has also emerged, passing through Turkey, as well as Azerbaijan, Georgia and Kazakhstan (following a deal signed in March 2022). But once again, the infrastructure can’t make up for the loss of the northern route through Russia.In fact, the European Bank for Reconstruction and Development (BERD) has announced the investment of 100 millions euros in Kazakhstan Railways, the national railway firm. Even more astonishingly, the transport difficulties are such that many businesses have opted to move their production facilities to different locations so they are not affected by these complications.

So while the war in Ukraine isn’t a victory for anyone, it has certainly forced big business to reconsider where its goods are produced. Because even if eastern Europe and Turkey are far from being able to rival Chinese prices, they still have the advantage of being near the European market than China. What’s more, and this is a crucial point,  they are linked up by reliable and efficient trains, passing through countries very unlikely to invade their neighbours. Which is pretty much priceless when you want to keep your business running through difficult times.

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