Ghost Trains to Europe
Empty container cars heading home on the China Railway Express have long symbolized for some the lack of reciprocality in trade with China, which exports more to Europe than it buys. But what does it mean when most of the trains coming from China are empty?
Just over two years ago, Andreea Brinza noted in an article for Foreign Policy magazine that China's "continent-spanning trains are running half empty." Brinza's article was a sobering dose of reality calling into question some of the fundamental assumptions about the economic vision behind China's Belt and Road Initiative (BRI), Xi Jinping's signature foreign policy project.
The train line from China to Europe had become (and arguably still is) the most symbolic image of China's sprawling global infrastructure ambitions under BRI in the pursuit of that magic word, "connectivity."
Empty trains lumbering back in the direction of China were a complicating symbol of both the inefficiency of the line, which could survive only with generous government subsidies, and of vexing trade imbalances – the fact that China would send more across the rails to Europe than Europe would ever send back. "[The] containers on the new routes come to Europe full of low-tech Chinese products," Brinza wrote, "but they leave empty, as there’s little worth transporting by rail that Chinese consumers want."
Full or empty, the narrative of the continent-spanning train remains a potent one. In a news story today, China's official Xinhua News Agency reports that the German city of Hamburg "has become the largest sea-rail combined port in Europe thanks to the Belt and Road Initiative." The report quotes Angela Titzrath, the CEO of Hamburger Hafen und Logistik AG, which operates three container terminals at the Port of Hamburg, as saying that "rail cargo volume between Hamburg and Chinese cities is expected to exceed 600,000 standard containers by 2025 thanks to the BRI."
An online news site reported late last month that container cars on the China Rail Express have been empty not only on return trips from Europe, but have very often been empty on trips to Europe.
This could be wishful reporting by Xinhua – and it is unclear from the overwhelmingly positive report why Titzrath, whose business is presumably shipping, is bullish about rail cargo between Germany and China. But we should regard numbers like this "600,000 containers" far more skeptically in light of more recent reporting in the Chinese press about the much-touted China Rail Express, the rail network now connecting 59 Chinese cities to Europe and Central Asia.
An online news site operated by the China Business Journal (中国经营报), a paper published under the Chinese Academy of Social Sciences, reported late last month that container cars on the China Rail Express have been empty not only on return trips from Europe, but have very often been empty on trips to Europe. The report by Depth Paper (等深线), which is based on interviews with sources within the transport industry as well as sources from official research agencies, and at least one source "close to" the provincial government in Shaanxi, is rare owing to the fact that critical reporting by Chinese media has become difficult in recent years, particularly over signature policy initiatives like BRI.
The Depth Paper offers one of the most vivid pictures yet of how the overwhelming political prerogative of the Belt and Road Initiative has driven a "bubble" of political point-scoring by local governments in China, which are all scrambling to dominate rail transport to Europe and Central Asia – not for economic of logistical reasons, but for the purpose of political advancement under a signature policy that the central leadership has made a great deal of noise about, both domestically and internationally.
To this end, cities and municipalities have engaged in what the article calls a "major war" of subsidy offering and price-cutting to attract exporters to transport goods through their local hubs. This has created huge inefficiencies and encouraged the waste of state resources. The report cites the example of how goods sourced in Xinjiang, which has its own exit port to Central Asia, were being trucked east to Xi'an before finally being again railed west to Europe, all because Xi'an was offering irresistible subsidies in a bid to top the national list of transport journeys under the the China Rail Express.
The same political pressures meant that many trains running to Europe to 2018 were partially, and in some cases almost totally, empty. This detail comes from a source within the China State Railway Group Company, who tells Depth Paper: “There was even one train with 41 container cars and just 1 container with goods. Forty of the containers were empty.”
The report is a cautionary tale about the need for robust skepticism when it comes to official Chinese reporting on initiatives like BRI, and the need to avoid repeating such narratives and facts without context. One of the most crucial points of context emerging from the report is the need to understand how deeply the internal political imperatives of the Chinese Communist Party can impact economic and other decisions.
A partial translation of the Chinese-language report is below.
Bursting the China Rail Express "Bubble"
July 26, 2019
Reporter Sun Lichao (孙丽朝), from Urumqi, Xi’an, Chongqing and Beijing
In 139 BC, the second year of the founding of the Western Han Dynasty, Zhang Wei (张骞), [an imperial envoy], went out into the western regions and took the first step along the ancient Chinese Silk Road. More than 2,000 years later, China Railway Express (中欧班列) trains referred to metaphorically as “steel camels” depart from 59 Chinese cities to make the journey to Central Asia and countries in Europe along the old Silk Road. Aside from goods, these trains carry hopes and expectations.
Since the China Railway Express began operating in 2011, the number of journeys has increased substantially every year, from 17 in 2011 to 6,300 in 2018. The number of journeys in 2018 was, respectively, 370.6 times greater than that in 2011, 78.8 times greater than in 2013, and 7.7 times greater than in 2015. [NOTE: The numbers are presented in a confusing manner here, but the upshot is that the most dramatic increase happened around 2014–2015, as Xi Jinping’s Belt and Road Initiative took off.]
Behind this exponential growth lies a substantial supply of financial subsidies offered every year by local governments — so that another aspect of this subsidy mechanism is that local and regional [political] interests are involved in the process of information sharing and capacity allocation for these trains leaving from different locales.
As local governments chase after political dividends, rail cars that were originally intended as a means of promoting trade and raising logistics flows for cities that were previously land-locked, gradually become part of a chess game in which local governments compete to offer subsidies and grab cargo flow, even if it means transporting empty containers.
The Great War for Subsidies Under Administrative Fragmentation
“Right now there are many lines under the China Railway Express, and competition is fierce,” says Xu Yingming (许英明), director of the International Market Division of the Chinese Academy of International Trade and Economic Cooperation. “Regional cities compete to open more lines, more starting points, more hubs. Aside from Tibet, Hainan, Hong Kong and Macau, all the major provincial capitals across the country have opened or are preparing to open China Railway Express lines, and in some provinces multiple cities have opened China Railway Express lines. In an atmosphere of severe competition, there have been price wars between various cities in the pursuit of subsidies, and we’ve even seen the back flow of cargo (货物倒流) [to domestic locations not on a direct transport line out of the country], resulting in wastage of resources and drops in efficiency.”
According to statistics released by the precursor of the China State Railway Group Company [which was restructured in June this year], there were an estimated 13,000 journeys made by the China Railway Express to the end of 2018, involving 59 Chinese cities and 65 transport lines. Departing from the west, east and central passage via the exit ports of Alashankou, Erenhot and Manzhouli, the lines reach 15 countries and 49 cities on the Eurasian continent, a transportation network covering all principal regions. There were 6,300 train journeys in 2018, 78.8 times as many as in 2013.
Numerous sources in the China Railway Express system told the Depth Paper reporter that one major problem at present with the China Railway Express is that various parties, for the sake of politics, split the goods [traveling along the lines] and compete for supplies.
Sources in the China Railway Express system said that trains recently traveling back from Germany to Chongqing and Chengdu should be considering combining train journeys in cases in which neither train is full, separating the cargo once the train has reach China. But the local governments hope instead to increase their number of train journeys, and they have no incentive to combine the two trains. “Chengdu, Chongqing, Xi’an and a number of cities that are top-ranked in terms of number of journeys all want to compete to become national firsts,” said the source.
Statistics for local China Railway Express hubs reveal that Chongqing and Chengdu have consistently led the league table for China Railway Express journeys, always in close competition. From 2013 to 2015, Chongqing led for three years in a row, with cities in the number-two position being Chengdu, Zhengzhou and Wuhan. In 2016, Chengdu surpassed Chongqing with 460 journeys for the year to Chongqing’s 420. In 2017, the rankings were unchanged. But in 2018, the competition between Chongqing and Chengdu heated up, with Chengdu just edging out Chongqing for the top spot.
Aside from Chengdu and Chongqing, Xi’an suddenly emerged as a competitor in 2018. On November 28, 2013, Xi’an began operating its “Chang’an” (长安号) China Railway Express service, but from 2013 to 2017, the number of annual journeys never surpassed 200. But in 2018, Xi’an began putting more energy into its China Railway Express service, and the total number of journeys that year reached 1,235, a 536 percent increase from 2017. Xi’an rose to the number three spot, right behind Chengdu and Chongqing.
A source close to the Shaanxi provincial government revealed to the Depth Paper reporter that the chief reason for the increase in train journeys for Xi’an in 2018 was that both the city and provincial governments gave this great priority, increasing their subsidies [for transport]. “Xi’an was the ancient starting point for the Silk Road, and it should play the leading role for the China Railway Express,” said the source [explaining the local government's thinking]. “Xi’an’s goal for 2019 is to become number one.”
A transport agent for the China Railway Express told Depth Paper that for more than a year now Xi’an’s price bids for China Railway Express services had been much lower than that offered by neighboring cities, and therefore it had attracted a great deal of goods from outside the region. Ideally, transport should be arranged on the basis of proximity [and convenience], so that goods are transported from the city closest to where they originate. But owing to the subsidies war being waged, the market is now such that there is a mass flow of goods toward wherever the prices are the lowest. “Over the past year, goods from Shandong, Yiwu [in Zhejiang province] and such places [on the coast] are first making the transport journey all the way to Xi’an, and then from Xi’an being transported across the border. In some cases, even goods from Xinjiang, which has an exit port of its own, are opting to make a detour through Xi’an,” said the source.
He offered an example, saying that goods in Xinjiang bound for Central Asia could go directly west from Xinjiang and reach Central Asia, but because the subsidies offered by Xi’an were high, and the prices low, many exporters chose to transport their goods back from Xinjiang to Xi’an by truck, before then transporting them on to Central Asia from Xi’an. “These subsidies that don’t accord with market principles,” said the source, “ultimately result in wastage of highway and railway resources.”
. . . .
Empty Containers to Europe
A source with the China State Railway Group Company revealed to Depth Paper that beginning in 2017 the company noticed that trains on the line [to Europe] were transporting empty containers on a large scale.
According to requirements by China’s Ministry of Railways for the China Railway Express, trains must pull from 40 to 50 container cars, as anything less than 40 is considered a waste of the engine’s resources — and anything exceeding that puts too much stress on the train’s journey. Frequently, [China Railway Express] trains from different hubs will pull 41 container cars, 40 to meet the minimum requirements, and one additional car serving as a backup.
The source with the China State Railway Group Company says that in order to increase the number of journeys made on the line, many local governments in 2018 sent trains along the line to Europe and Central Asia that had largely empty containers. Only certain containers contained goods. “There was even one train with 41 container cars and just 1 container with goods,” said the source. “Forty of the containers were empty.”
Perceptions of China are often driven by frames, or myths, that hinder our understanding of the facts. Where do these myths come from? And what assumptions are we making when we employ them?