Dr. Steven Harrod is Associate Professor in the Department of Management Engineering at Technical University of Denmark.
China is the world’s manufacturing heartbeat, and its“ One Belt, One Road” seeks to maintain that dominant position. China has 1.4 billion people (vs. 327 million in the U.S.) and 9.38 million square kilometers of land (larger than the U.S., and twice as large as the EU). In spite of recent U.S. import tariffs against China, many manufacturers have not “reshored” production because some processed materials and components are simply not available anywhere else in the world.
The Chinese Belt and Road Initiative (BRI) was launched in 2013, and is a comprehensive plan to, by 2049, expand and strengthen international land and maritime transportation connections. The program is criticized by some for its investments in ports and transport infrastructure in other countries, especially if those countries are financially weak.
A significant component of BRI is to expand the use of railways to trade with Europe. Already today, BMW ships one full trainload of car parts to China daily for final assembly. This is a game-changer, because since the opening of China in the 1970s, China trade was synonymous with ocean shipping. A famous HBS case, Sport Obermeyer, demonstrates the supply chain problems that follow from a 30-day transportation link. Rail service today is able to deliver freight containers to Europe in half that time, and forecasts are that traffic in the EU-Asia corridor will quadruple by 2027.
In addition to the faster speed, rail service between China and Asia offers a potentially more sustainable transport service. Even though ocean ships are very fuel efficient, they still run on fossil fuels.. Railways on the other hand can easily be 100% electric. Such a large increase in traffic from China would have a dramatic effect on the EU’s railway network, which is already operating with very heavy traffic. In response, the EU also has an infrastructure development policy for freight, called TEN-T. Together, these two economic powers, China and the EU are taking steps to bring their manufacturing and consumer bases closer, and to grow their mutual trade.