China’s Belt & Road Initiative – Blog #6

, , , ,
(Image credit: srilankabrief.org)

This is the sixth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (40 pg, 193 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #6 – New Eurasia Land Bridge Economic Corridor

The avowed aim of coordinating development policies with partner countries has not always been obvious in Chinese actions. Project contracts sometimes look to be geared more to the advantage of Chinese companies than to the development needs of the supposed target countries.

A case in point:  The recent Chinese foray into the European e-commerce market through a major new logistics hub to be built on the Polish border with Germany.  The plan ties to the concept of Economic Corridors.  The location of the hub in Poland is described as being in “the primary land conduit between China and the mega-markets of Europe, particularly Germany’s 81-million strong consumer base.”[1]  An announcement of the project by HKTDC (Hong Kong Trade and Development Council) calls it  a “major new AliExpress logistics centre, serving its host country as well as online shoppers in neighbouring Germany and the Czech Republic.”[2]

The logistics center is a tri-partite venture involving AliExpress, (an e-marketplace like Amazon), Worldwide Logistics Group (based in Shanghai), and ATC Cargo (a Polish multi-modal freight delivery company).[3]  The beneficiary is AliExpress (owned by the Chinese mega-business, Alibaba), at the potential expense of the existing Polish e-commerce marketplace site, Allegro, and Amazon, which is in the process of building its own logistics hub in the Polish city of Szczecin, also close to the German border.

Poland already has robust rail and road networks, though the road network in the eastern part of the country has a lower density and level of service than the western portion.  China anticipates that the “Belt and Road Initiative” will substantially increase the volume of trade passing through Poland.[4]  The EU has and is financing major upgrades and additions to the Polish transportation infrastructure–the EU recently made a loan of 650 million euros to upgrade Poland’s rail network and more will be forthcoming.[5] But, if China is correct in assuming the new logistics hub will attract much heavier traffic, will the EU-financed infrastructure improvements be sufficient?  If not, who will pay? The impact of much heavier volumes on existing infrastructure is likely to cause disruptions in other supply chains in or passing through Poland.

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

In Belarus, China’s investments have been more in the form of direct investments in manufacturing businesses—notably electronics, electrical equipment and home appliances—than in transportation infrastructure, in spite of Belarus’s key geographic location between Russia and Poland on two heavily-traveled pan-European corridors (Berlin-Moscow and Helsinki-Greece) and eight rail container routes passing between China and Western Europe.  An exception to this trend is the planned China Gansu International Corporation for Economic and Technical Co-operation (CGICOP) transport and logistics complex in the Grodno region, close to a major cargo and passenger border crossing point, on the western border with Poland.[6] Rail transshipment facilities are imperative because of the need to accommodate the transition between broad gauge and standard gauge tracks. Additionally, transshipment hubs are needed for repackaging, sorting, and transshipping Chinese goods arriving in Belarus in large shipments into smaller, market-targeted shipments.

Manufacture of Chinese goods within more developed countries, including Eastern European ones such as Belarus, is becoming more common.  Production in Belarus allows China to access highly-trained tech labor at lower prices than in Western Europe and closer proximity to the ultimate Western European markets for these goods.  China has also taken advantage of Free Economic Zones that offer “preferential arrangements on corporate income, real estate and land taxes” and Industrial Parks (e.g., the Free Economic Zone Minsk) and industrial parks that offer agglomeration opportunities, such as the China-

Belarus Industrial Park (also known as the Great Stone Industrial Park), co-founded by the Hong Kong-based China Merchants Group.[7]  Tenants in this industrial park include ZTE, Huawei, Zoomlion, YTO Group Corporation, Xinzhu Corporation, Lotusland Renewable Energy and CGICOP.[8]

Chinese investments in some EU countries are not so much directed to projects to build infrastructure or business facilities as they are to purchasing control of existing firms in EU countries and improving China’s competitive position in the global economy. This is true for investments by SOEs (state-owned enterprises) but also for Chinese private investors, such as Anbang Insurance Group, which are dependent upon government approval and support—Anbang received a $10 billion bailout to keep it from collapsing and was then taken over by the government.[9]

In Belgium, which has received modest Chinese investment to date, two noteworthy acquisitions included the Belgian division of Delta Lloyd Bank by Anbang, a large Chinese insurance group, and Punch Powertrain, a high-tech producer of vehicular powertrains.[10]  The bank acquisition is thought to be a ‘trojan horse’ for Chinese investments in other EU countries, using the bank’s established connections. The Powertrain purchase possibly complements other Chinese vehicle-related acquisitions, such as Saab and Volvo.  One investment in Belgium clearly relevant to China’s OBOR/BRI plans is the 2017 acquisition by COSCO of the entire container terminal at Zeebrugge.[11]  This facility can accommodate the largest container ships, is directly across the English Channel from England, and is near the main shipping routes in northwestern Europe.  The Port of Zeebrugge  also includes the Fluxys terminal, the largest LNG terminal complex in Europe.[12]  Fluxys provides China with a link in Western Europe for LNG brought in by ice-class tankers from the Yamal gas fields in the Siberian Arctic, in which China has a major financial stake.[13]  The Yamal LNG will then be trans-shipped to destinations in Asia as well as in Europe.

COSCO also owns 25% of the Port of Antwerp’s container terminal facilities, purchased in 2004.  Antwerp’s port facilities are second in size only to Rotterdam’s in neighboring Netherlands.  Between container shipping capacity in Zeebrugge and that in Antwerp, China has acquired a large share of container shipping capacity in Belgium.  China’s investments in Antwerp appear to favor that port over Rotterdam for shipping, but Rotterdam is still the Western European endpoint for surface transportation using the Silk Road belt’s rail lines from China.

In the Czech Republic, China, through its state-owned enterprise, CRRC—the largest rolling stock manufacturer in the world–is seeking to take over Skoda Transportation, the largest train and locomotive producer in Central and Eastern Europe and license holder for the EU market. This would allow CRRC into the EU rail transportation space.[14]   Also on China’s shopping list in the Czech Republic are the largest Czech telecom firm—O2 CR—and TSS Cargo—the largest railway transporter in the Czech Republic.  The latter, would, of course, complement the acquisition of Skoda[15] and strengthen the rail links between China and Europe.  Again, these are acquisitions of existing assets, not the creation of new ones.

The recent in-depth study of the “Belt and Road Initiative” financial and investment relationships by the European Think-tank Network on China (ETNC), concluded that Chinese investments within the EU are driven by aspirations to gain:

  • Technology, to include established high-tech assets, emerging technologies and know-how
  • Access to the European market, for Chinese goods and services
  • Access to third markets via European corporate networks, especially Latin America and Africa
  • Brand names to improve marketability of Chinese products both abroad and the Chinese market
  • Integrated and global value chains in production, knowledge and transport
  • A stable legal, regulatory and political environment, particularly in context of global disruption and political uncertainty
  • Political/diplomatic influence in a region that in aggregate terms remains the second largest economy after the US.[16]

The EU-China relationship is not entirely one-sided.  From the perspective of the EU countries, “Chinese investment serves to create and/or maintain jobs, to provide capital for research, development and innovation, generate wealth and tax revenue for cash-strapped governments, create new market opportunities for European firms both in China and in third markets, build and improve infrastructure and even introduce technology and innovative business models into Europe”,[17] but, these positive expectations are tempered by general concerns about:

  • The role of the Chinese state in the economy
  • A lack of reciprocity and fair competition
  • National competitiveness and technological leadership
  • Uncertainty about security-related critical infrastructure and sensitive technologies
  • Investments as a source of political and geopolitical influence, and divisions within Europe
  • Broader regulatory concerns
  • A growing “promise fatigue[18]”

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

China-Mongolia-Russia Economic Corridors

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Dowgiallo, Anna. Poland Designated as Home to New BRI East European Logistics Hub.” Belt and Road.  HKTDC.  16 April 2018.  http://beltandroad.hktdc.com/en/insights/poland-designated-home-new-bri-east-european-logistics-hub

[2] Ibid.  http://beltandroad.hktdc.com/en/insights/poland-designated-home-new-bri-east-european-logistics-hub

[3] Ibid.  http://beltandroad.hktdc.com/en/insights/poland-designated-home-new-bri-east-european-logistics-hub

[4]  Encyclopedia of the Nations. “Poland:  Infrastructure, Power and Communications.” http://www.nationsencyclopedia.com/economies/Europe/Poland-INFRASTRUCTURE-POWER-AND-COMMUNICATIONS.html.   Accessed 28 July 2018.

[5] Railway Pro.  “Eur 650 million for Polish railway infrastructure.”  20 November 2017.  https:// www.railwaypro.com/wp/eur-650-million-polish-railway-infrastructure/

[6] Hong Kong Trade and Development Council (HKTDC)   “Belt and Road Initiative:  The Role of Belarus.”  20 April 2018.  http://beltandroad.hktdc.com/en/insights/belt-and-road-initiative-role-belarus/

[7] Ibid.  http://beltandroad.hktdc.com/en/insights/belt-and-road-initiative-role-belarus/

[8] Ibid.  http://beltandroad.hktdc.com/en/insights/belt-and-road-initiative-role-belarus/

[9] He, Laura.  Anbang Insurance gets US$10 billion rescue bailout from Beijing after ex-chair Wu Xiaohui admits fraud.”  South China Morning Post  4 April 2018. http://www.scmp.com/business/companies/article/2140250/china-rescues-anbang-insurance-us10-billion-bailout-after-ex

[10] Renard, Thomas.  “Business vs Security:  The Conundrum of Chinese Investments in Belgium.” ETNC,  Chinese Investment in Europe .  A Country-Level Approach.  A Report by the European Think-tank Network on China. Eds.:   John Seaman, Mikko Huotari, Miguel Otero-Iglesias. p. 10.  December 2017 p. 34.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[11]Ibid. p. 35.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[12] Wikipedia.  “Zeebrugge.”   https://en.wikipedia.org/wiki/Zeebrugge .  Accessed 28 July 2018.

[13] Port of Zeebrugge.  “Zeebrugge receives first LNG load from Yamal.”  9 April 2018.  https://www.portofzeebrugge.be/en/news-events/zeebrugge-receives-first-lng-load-yamal

[14] Furst, Rudolph.  “The Czech Republic:  Receiving the First Relevant Chinese Investments.”   Op.cit. ETNC, pp. 43-44.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[15] Ibid.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[16] ETNC, “Introduction:  Sizing Up Chinese Investments in Europe, “p. 10.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[17] ETNC, op.cit. “Introduction,”p. 11. https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[18] ETNC,  “Introduction,”p. 12  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

 

————————————————————————————————-

© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.