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Paw Tracker newsletter (Week of Apr 4)

The China-Europe Railway Express (CRE) was a rare success story of the Belt and Road Initiative in the pandemic years of 2020-2021, when the difficulties of sea shipping sent businesses flocking to cross-continental freight trains for their relative reliability. With the war in Ukraine, this once competitive option is rapidly becoming unattractive given Russia’s central place in almost all China-Europe rail routes. Chinese businesses and provinces once again have to adapt their logistics to the new reality. 

In another railway related development, China will conduct a feasibility study for the cross-border railway to Nepal, an outcome of Wang Yi’s latest visit to the country. But the materialization of the project is anything but certain given Nepal’s reservations for expensive loans for BRI projects. Meanwhile, Energy China recently signed a series of major deals in Central Asia.

The Paw Tracker newsletter, developed by Panda Paw Dragon Claw, provides up-to-date and granular project-level information on the Belt and Road Initiative. Drawing from Chinese sources of information that are often disjointed and difficult to access, the newsletter also aims to become a convening space for watchers of the BRI to share and cross-check information about projects and their impacts on the ground. 

Talk of the Town

Media is beginning to take note of the war’s impact on one of the BRI’s flagship projects, the China-Europe Railway Express (CRE), an extensive network of cross-continental railways that transports Chinese exports to Europe and carries back imports, including everything from agricultural products to car parts. The network is now experiencing major disruptions to train routes and financial uncertainties in connection with freight settlements.

A CRE service provider based in Chongqing recently told Singapore’s Chinese-language newspaper Zaobao that freight transportation to Europe had declined by as much as 50% since the war began. Another source told the paper that major logistics providers such as DHL had all but stopped offering CRE services as “you just don’t know what will happen along the 20-day train trip, especially when West Ukraine is being bombed.”

Russia (and to an extent Belarus) is an indispensable part of all three major routes of the CRE - Eastern, Central and Western - that connect a number of Chinese provinces with European destinations such as Warsaw, Budapest and Duisburg. A small number of trains go through Ukraine on their way to Hungary.

Compared with direct, physical disruptions to transportation, which is so far relatively limited, the sanctions on Russia are a bigger concern for traders. This is reflected in the amount of goods transported to Russia through CRE, which has witnessed a “90% drop” as one Chinese interviewee told Zaobao. South China Morning Post also highlighted the possible impact on freight settlements for the Russian section of the routes, as US and Europe moved to exclude Russian banks from the SWIFT system. This is echoed by Chinese state media Economic Daily’s interview with traders in Hebei, who struggled to settle payments in US dollars. 

In light of the new situation, CRE operators are also making adjustments to retain hard-won business over the past two years. The involvement of insurance companies is one way to address market anxieties. The lowering fares and faster turnaround as a result of reduced demand may, in themselves, serve as a self-balancing mechanism, as the economics of train freight improves vis a vis other means of transportation. 

For China’s landlocked manufacturing centers such as Chongqing, it is also a moment to test the dependability of new transportation routes such as the New Western Land-Sea Pathway (西部陆海新通道), a 2017 initiative aiming to better channeling goods from China’s western provinces by land to Guangxi province’s Beibu Bay port facing the South China Sea. Yao Shujie, an economics professor at Chongqing University, believes that this new option will help the provinces reduce the impact brought about by the disruptions to CRE services.

As Panda Paw Dragon Claw has written before, the CRE’s turnaround in the pandemic years is testimony to the BRI’s resilience. It seems that the cross-continental railway network will once again become a touchstone for the BRI’s ability to adapt to the increasingly challenging global political and economic environment.

This week's highlight project

Nepal: China to support feasibility study of cross-border railway

A key outcome of Foreign Minister Wang Yi’s recent visit to Nepal was an agreement to move forward with a feasibility study for the China-Nepal railway project. The feasibility study will be carried out by the Chinese side as technical assistance to Nepal. It was among the 9 outcomes achieved by Wang’s visit in the last week of March.

According to Chinese media, the main section of the railway (over 400 kilometers) will be in the Tibet Autonomous Region, from Xigaze to the border town Gyirong. It will then extend a further 70km or so toward Kathmandu. The idea was born out of the 2017 foreign ministers’ meeting between the two countries, consolidated by Xi’s visit to Nepal in 2019, but derailed by the pandemic for more than 2 years. A pre-feasibility assessment has put a high price tag on the project (USD 29 million per km) due to the challenging geological conditions. 98.5% of the route will be bridges or tunnels. The estimated timeframe for completing the feasibility study is 42 months.

The bigger picture: Wang Yi’s Nepal visit was part of his South Asia tour amid heightened uncertainties in the region. It also followed Nepal’s recent ratification of the MCC grant agreement from the US, despite Beijing’s qualms. The exchanges during Wang’s visit may set the tone for future China-Nepal cooperation, as the Nepali side reassured Wang that it would not accept US aid with political conditions while at the same time stressed its preference for grants and concessional finance (rather than high-interest loans) from China for BRI projects.

Other project & corporate updates

Kyrgyzstan: Energy China and Gezhouba Team Up in Gas 

On 31 March 2022, Energy China and Gezhouba Group sealed an EPC contract to build a natural gas pipeline in southwestern Kyrgyzstan. It is the companies’ first oil or gas contract in the country.  

The pipeline will run 150 kilometers from the North Karakum oil field on the Kyrgyzstan-Tajikistan border to the regional capital of Batken, where it will connect with the Kyrgyzstan National Gas Pipeline.

The bigger picture: China is a major player in Central Asian oil and gas, having built two major pipelines – the Kazakhstan–China oil pipeline and the Central Asia–China gas pipeline – in the mid 2000s. The Kyrgyzstan signing comes amid a greater Chinese push in the region. 

Uzbekistan: Energy China sign four non-energy deals

At the end of March, Energy China signed four major deals in Uzbekistan. The four contracts include: A cement factory with production capacity of 1.2 million tons per year; a 4000 tons per year textiles factory and research center; an agricultural logistics hub, including a 40,000 tons refrigerated storage facility; and a number of EPC contracts for infrastructure projects in the “Tashkent Automobile City”. 

The projects are framed as enabling economic and social development across the country, including “industrial upgrade” and “building bridges between farmers and the market”.

The deal signing preceded a 31 March meeting between Wang Yi and Uzbek deputy prime minister and minister of investment and foreign trade at a gathering of Afghanistan’s neighboring countries in Tunxi, Anhui province. Wang Yi and deputy prime minister, Sardor Umurzakov, agreed to strengthen the two countries’ relationship in trade, investment and energy. The Energy China deals also demonstrate, however, a diversification of the SOE’s overseas investments, with none of them being power sector projects.

If you have further details of any of the above mentioned projects that you would like to share with the community, please reach out to us through
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