Article posted by UKTI Digital, for UK Trade & Investment
6 June 2013

Yuxinou Railway: The New Silk Road?

British Consulate General Chongqing

May 2013

Summary

China celebrates the Chongqing-Xinjiang-Europe railway, the first railway to connect inland China with Europe, as the ‘New Silk Road’, slashing journey times and promoting Chongqing’s role as a ‘growth pole’ driving growth in Western China as the East slows. However, although the route has attracted multinational companies to set up manufacturing bases in Chongqing, Chongqing’s under-developed internal connectivity and Chengdu’s plans to run a similar rail line to Europe may dilute its impact.

Detail

The ‘New Silk Road’ – a single railway line from Chongqing to Duisburg

The Chongqing-Xinjiang-Europe (Yuxinou in Chinese) railway, widely known as the New Silk Road, is the first railway connecting inland China with Europe. It connects existing railways across the Eurasia landmass, starting from Chongqing in southwest China, via Alashankou into Kazakhastan, Russia, Belarus and Poland, to Duisburg in Germany(see map below). The 11,179 kilometre Yuxinou line has reduced transportation time from inland China to Europe from 40 days (by sea) to 16 days. This allows goods to be transported quicker to Europe from inland China without going through the country’s east coast. 

The railway has helped attract IT giants to Chongqing

Yuxinou’s contribution to Chongqing’s foreign direct investment and export is substantial. For example, the Yuxinou railway has successfully attracted IT giants, most notably HP, to set up manufacturing base in Chongqing. This fits in well with Chongqing’s ambition to become the largest laptop manufacturing base in Asia. It is estimated that by 2015, the annual output of the IT industry in Chongqing will reach US$ 100 million, and 20% of the products will be exported to Europe via Yuxinou railway. 

Furthermore, the railway also supports Chongqing to become an international logistics centre that integrates water, air and land transportation. Although at the moment only 4% of Chongqing’s import and export are transported by rail, vis-a-vis 93% by sea and 3% by air, it is already a dramatic increase compared to that of 0.6% in 2010 before the Yuxinou railway was built.

The railway mainly transports Chongqing’s exports

However, Yuxinou railway’s impact on inland China’s development has not been transformational yet. Thus far only 60 trains used this route since its operation in 2011, shipping goods worth of US$2.5 billion from Chongqing to Europe. Most goods transported via this route are from multinational IT companies in Chongqing. Only 20% of goods are from neighbouring regions of China, mainly due to the poor logistics linkage between Chongqing and the rest of China. So, although the railway is helping Chongqing, its impact on neighbouring regions like Guizhou and Yunnan is so far limited.

Lack of westbound traffic increases costs

Chongqing’s lack of onward connections to the rest of China and low demand for European imports suppresses volume of eastward goods traffic. Despite the 3 train/week regular services of the westward journey starting from this year, it was only in April 2013 that the Yuxinou had its first return train from Duisburg to Chongqing, bringing back imported auto parts for Changan Ford’s joint venture in Chongqing. 

The lack of goods for the return trip to Chongqing significantly drives up the operation costs of the Yuxinou railway. As a result, local government has been subsidising the route to make it economically viable for companies to use it.  To change this situation, Chongqing and the Chinese central government have been actively promoting the Yuxinou Railway in Europe to encourage the use of its return journey. It is estimated that the current USD $8900 USD/TEU (twenty-foot equivalent unit standard container) logistic cost could be cut down to US$ 6000/TEU target price if there was more regular traffic in both directions.

Neighbouring Chengdu is also getting in on the act

7.    However, this will be a difficult target to achieve, especially because of the competition from similar railway lines. Chongqing’s rival city Chengdu, 340 Kilometres away from Chongqing, started to run railway connection between Chengdu and Poland in April 2013. The Chengdu-Poland line, which shares the same route with Yuxinou from Xinjiang in west China to Poland, takes 14 days for the goods from Chengdu to arrive in Poland at a lower cost (8000 USD/TEU at the moment). Although currently the Chengdu-Poland railway is mainly used to export Dell’s products from Chengdu to Europe on a weekly basis, the line has prospects to attract goods from wider regions because of Chengdu’s logistics connection within China. Competition on price and for return goods between the two lines will be intensive.   

Implications for the UK

According to local officials, it would be possible to extend the route from Duisburg to Liverpool if there was sufficient demand. This may be ambitious but in due course, with increased frequency of return journeys and Chongqing’s enhanced logistics links within China, companies in the UK may start to take advantage of this route to export products, especially luxury products and fast moving consumer goods to China.

The main message here is good news: Chongqing’s economy is booming (albeit somewhat reliant on government investment) and its neighbouring provinces, such as Yunnan and Guizhou, are experiencing the highest year-on-year GDP growth rate (12.6%) in China.

Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.


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Article posted by UKTI Digital, for UK Trade & Investment
6 June 2013