China Now Has a Rail Link Into the Heart of Europe

By Trefor Moss Features Dow Jones Newswires

ALASHANKOU, China -- The trains chugging along the ancient Silk Road through this gateway city to the West are growing in numbers and freighted with geopolitical significance.

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China's reboot of old trade routes -- President Xi Jinping's signature foreign-policy initiative, known as One Belt, One Road -- was designed to link Chinese companies with overseas markets. Four years on, it is emerging as the cornerstone of China's bid to be the guarantor of globalization at a time when protectionist winds are blowing abroad.

Mr. Xi is likely to tout that theme when he welcomes leaders from about 30 countries to a belt-and-road summit in Beijing that starts on Sunday. Chinese state media have described the project as a "wide and open avenue for all."

"There aren't many ambitious international visions on the world stage right now," said Jonathan Hillman of the Center for Strategic and International Studies, a U.S. think tank. "One Belt, One Road is one of them."

For all the hype, a relatively modest share of the major infrastructure investments pledged by China have become reality. China's slowing economy and mounting debt load risk interfering with Beijing's ability to finance its sweeping effort to cement trade routes with two-thirds of the world's population -- in Asia, the Middle East and Europe.

One solid example of Mr. Xi's globalist outreach, however, is China's use of existing Eurasian railways to transport high-value goods between China's remote northwest and Europe.

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After Mr. Xi launched his grand trade plan in 2013, China began consolidating a maze of railroads into three primary routes, coordinated regular timetabled service and simplified customs procedures. Beijing backed the project -- the "belt" as opposed to the ocean-shipping "road" portion -- with lavish cost-cutting subsidies.

Alashankou, a far-flung outpost in China's northwest, is the primary exit point for Europe-bound trains and the quintessential belt-and-road boomtown. Its population has tripled to 32,000 in five years and new public projects include a sports complex and an opera center, said Wang Yong, the local deputy Communist Party secretary.

In the vast emptiness of this desert region, long-distance trade is the main lifeline. Mr. Wang said 1,220 Europe-bound trains rumbled through here last year, a small but growing part of the town's rail traffic.

Trains carrying consumer electronics and auto parts toward European cities like Hamburg, Warsaw and Rotterdam return with sports cars, baby food and Scotch whisky. Authorities recently added routes including Xiamen to Moscow, Yiwu to Tehran, and Xi'an to Budapest. China Railway Corp. signed a deal in April to streamline service with rail operators in six European countries.

In recent years, China has sent about 3,700 trains to Europe, almost half in 2016, as the rate accelerates. It has set an annual target of 5,000 trains by 2020.

"There were doubts about the viability of doing this," said Michael White, international marketing manager at UPS. But now, he said, the momentum is undeniable.

There are still plenty of challenges, including whether the rail component of Mr. Xi's vision can thrive if Beijing curbs its subsidies. Another is persuading European companies; about three times as many goods-laden trains leave China as return to it.

"It's not easy to start a new service, even though it's all being supported by the [Chinese] government," said Oscar Lin of U.K.-based OneTwoThree Logistics. The company operated London-to-China train service in April in a publicity coup for Mr. Xi's globalization drive.

Rail freight will never supplant ocean transport: A container ship can handle 100 times the cargo of a train.

But for quick delivery of high-value goods -- such as products from consumer electronics makers HP Inc. and China's TLC -- shipping containers by rail is ideal, logistics companies say.

DHL says it would cost about $5,000 and take three weeks to send a 20-ton container by rail to Hamburg from Chengdu in southwestern China. By air, it costs $30,000 and takes a week; by ocean, $2,000 and seven weeks.

Logistics companies regard the trains as a breakthrough. Several had previously tried China-Europe rail freight but found time-consuming border checks and incompatible rail gauges to be prohibitive obstacles.

For inland Chinese manufacturing cities, the trains allow them to send goods directly west rather than east to coastal piers.

Thanks to China's subsidies, Chengdu-based car dealer Xiao Lin said he only pays $1,000 to send a container filled with Maserati and Mercedes-Benz cars from the Netherlands by rail via DHL in just three weeks. The 10-week ocean delivery time deterred impatient Chinese buyers, he said. "It's good for our business model."

U.S. sports-equipment maker Core Health & Fitness, which has a plant in Xiamen in southeastern China, said the ability to meet rush orders by train has enabled it to win contracts with European gyms.

"The One Belt, One Road initiative changed everything," said Steve Huang, chief executive for DHL Global Forwarding in China. He said customs checks are now minimal, and containers are quickly hoisted from one train to another where rail gauges are different.

Turloch Mooney, senior editor at IHS Markit said costs may fall as the market matures -- which would be vital to the trains' survival once Chinese subsidies end. Down the line, he said refrigerated containers could make rail attractive for pharmaceutical companies and food producers.

As container trains clanked through Alashankou this week, Mr. Wang, the deputy Communist Party secretary, was upbeat. "More trains will lead to more cargo, and the efficiency of the service will improve," he said.

--Junya Qian contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com

(END) Dow Jones Newswires

May 11, 2017 12:38 ET (16:38 GMT)