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Op-Ed: A Tale of Two Transport Policies

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On Feb. 22, a freight train arrived from Madrid in Yiwu, China, after a 16,000-mile round trip. It joins four other rail routes offered between China and Europe by consortia of European, Eurasian and Chinese companies — all claiming to be faster than ocean freight and cheaper than air on cost: on paper, just what apparel companies need in the fast-fashion era.

A week prior, the United States found it had no money to pay for Customs posts on a planned new bridge between Detroit and Windsor, Ontario — the busiest transit point for the world’s biggest two-country trading relationship.

Canada is already paying for the bridge, which it will get back through the bridge tolls, so on Feb. 18, it announced it would buy America its Customs post as well and just take a bit more out of the tolls. America hasn’t yet found the money to staff the post, but it has until about 2022 to sort that out.

Does this support the claim overheard from a Chinese associate noting that China forges ahead with ambitious and daring new projects, while the U.S. is suffering from “declinism?”

Well, I wouldn’t want to quote the Yiwu train as a good example of anything.

The round trip took three months, and for half of that the train sat in Madrid waiting for a return load. No one’s sure whether the wait was to find cargo or to prevent the wine it carried back from freezing on the land journey through the Russian midwinter.

The Madrid-Yiwu journey averaged 16 miles per hour — slower than the world’s first city-to-city train, 185 years earlier. It had to stop three times to move each of the 82 containers onto different bogeys (the track width changes at three borders), and for the 16 times the engines needed changing. The journey shaved just a few days off the ocean — and seems to have cost about five times today’s sea freight rates.

For all the effort going into finding a commercially viable land route, trains currently carry just 0.1% of the total China-Europe traffic each year.

The Madrid-Yiwu route looks unappealing commercially, and I suspect it’s unsuspecting Chinese taxpayers risking their money on it. But it is just one of an extraordinary number of proposed transport links with Chinese money behind it.

Chinese media reported in late 2014 a plan to spend $46 billion on a network of railways, highways and pipelines across the Karakoram Mountains, linking Beijing with Islamabad and deep-water Pakistani ports at Karachi and on the Gulf of Oman.

Israel still believes construction of a China-funded $2 billion railway line from Eilat on the Red Sea to the Mediterranean is a live possibility. The line (“Red-Med”), likely to take five years to build, will provide an alternative route from the Indian Ocean to Europe, bypassing the security problems of the Suez Canal, where jihadists based on the Sinai Peninsula have attacked ships in the past year.

Last August, the state-owned China Harbour Engineering Company visited Panama to explore building and financing a fourth set of canal locks, allowing the new generation (“Triple E”) of 18,000 twenty-foot equivalent unit (TEU) container ships to use it. Canal administrator Jorge Quijano said a decision on the fourth set of locks “could come within the next five years.” Most estimate the project would cost around $10 billion and take roughly 10 years.

In June 2013, Nicaragua’s president agreed to a 50-year concession with the Hong Kong Nicaragua Canal Development Investment Company (HKND) for an Atlantic-Pacific canal through Nicaragua. Fronted by Wang Jing, an almost unknown Chinese telecom entrepreneur with no recorded infrastructure construction experience, HKND say the $50 billion project (“World’s largest infrastructure project ever”) will be finished by 2019, allowing passage for ships of up to 400,000 tonnes — several times the size of Triple E ships. Construction began in December 2014.

In May 2014, Chinese media reported a plan promoted by the Chinese Academy of Engineering for a 10,000 mile high-speed line from Beijing, through Russia and a 130 mile tunnel under the Bering Strait to Alaska, and through Canada into California. At a potential cost of $300 billion, it’s hard to decide who would oppose it most: U.S. generals apoplectic at the idea of a land border with Russia, U.S. environmentalists, or just the general U.S. public.

But these proposals aren’t primarily a matter of commercial viability — or even engineering sanity, though I’d bet serious money no one is going to build a Bering Strait tunnel any time soon. There’s certainly some engineering machismo in all of them — and it’s easy to take bold financial risks when (as I suspect is true of them all ) the money you’re risking belongs to 1.3 billion other people.

What matters is that the proposals all demonstrate China’s belief that its prosperity (which means social stability) for most of this century will continue to depend on trade with the outside world, and — all bravado and posturing aside — Europe and North America in particular.

Whether an alternative (or two) to the Panama Canal can make commercial sense isn’t that important, it’s that China wants to make sure there are some – and that it can’t be frozen out of any. The same goes for westbound routes to Europe.

The contrast with the USA isn’t about who’s more financially bold, it’s that China’s rulers see foreign trade as central to their future. In the U.S., on the other hand, foreign trade is way down almost everyone’s list of priorities –except among readers of this journal.

I’m not making this observation to scold America for short-sightedness as far too many trade advocates do. I’m pointing it out as a fact of life, which trade advocates must try to overcome. On its own doorstep, it’s not just a bridge at Detroit America’s politicians think it can’t afford: it is widely claimed that there is a backlog of $6 billion on similar infrastructure along the Mexican border.

 

Mike Flanagan, CEO Clothesource. Clothesource offers consultancy on the world garment industry using the wide resources of The Clothesource Knowledge Base – the most comprehensive collection of information anywhere about sourcing for the apparel industry. He can be contacted at Flanagan@clothesource.net.

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