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China Railway to Europe

China’s Rail Freight Trips to Europe Mushroom, But Must Uncouple Subsidies

Li Xiuzhong
/SOURCE : yicai
China’s Rail Freight Trips to Europe Mushroom, But Must Uncouple Subsidies

(Yicai Global) Jan. 21 — The number of runs of the China Railway Express freight trains to Europe, which started in 2011, has risen rapidly with trade between China and Europe burgeoning.

Beijing-based China Railway Express ran 6,300 cargo trips to its western continental neighbor last year, an increase of 72 percent, official data show. However, the line must now become more market-oriented and less reliant on government handouts, insiders said.

The express ran 6,300 trips to Europe last year, almost equal to the total number of those from 2011 to 2017, with 2,690 returning trips in an over twofold rise from the previous year, per data from China Railway Group

Chengdu, Chongqing, Xi’an, Zhengzhou and Wuhan ran a total of 5,437 trips last year, making up more 80 percent of the nation’s total, while the number of trains in the western cities of Chengdu, Chongqing and Xi’an all topped 1,000.

The China Railway Express has made 12,000 freight trips thus far from 56 Chinese cities to 49 cities in 15 European countries.

Train trips to Europe ballooned last year with the Belt and Road Initiative and a fillip from local governments. The frequency of freight train runs is expected to grow by geometric progression in next three to five years, Li Muyuan, executive vice president and secretary general of the Intermodal Branch of China Communications and Transportation Association told Yicai Global.

Balancing Act

The national ratio of departing and returning trips last year was 3:2, whereas the ratio in Chongqing, Zhengzhou and Wuhan was more balanced.

Though 6,300 trips ran last year, the total transit scale was only equivalent to 600,000 twenty-foot equivalent units, which is insignificant compared with the 246 million TEU of China-Europe sea transport last year, Li added. Thus, the cross-continent express trains have much room for improvement.

Huge capital investments from local governments underpins the swift growth of express trains. It is common for governments to invest to build transit channels and logistics networks via infrastructure construction subsidies, but local subsidies now usually go to defray operating costs, Li told Yicai Global.

Several city governments are committed to attracting goods and expanding the transport scale of trains to Europe. Some have cut train cargo costs to make them lower than sea freight to gain price advantages. The risk of this can be very great, however.

It has led to subsidy dependence for the major domestic and international operators of the China Railway Express, Li told Yicai Global, adding operations will be unsustainable once subsidies fall by the way.

The government should clearly manage subsidies and evaluate their effects, she said.

China Railway Express would not survive without subsidies, which help operators to do business until attaining business efficiency of a certain scale, Wang Guowen, director of the Logistics and Supply Chain Management Institute of the China Development Institute, told Yicai Global. China Railway Express is now developing in a balanced manner.

Weaning Off Handouts

Government subsidies need not be completely eliminated but can be reduced in the future like other subsidies with gradual adjustments and reductions, Wang believes.

The success of China-Europe express depends on whether it promotes regional economic industrial clusters, Wang said, adding that competition between cities is not about the number of trains. If so, this would only be a difference in financial resources, which are ultimately limited.

The key is to form a market-oriented model for China Railway Express’ operation as soon as possible to lead the next stage of the development process and the local industry transformation and upgrading, Wang added.

Editor: Ben Armour

https://yicaiglobal.com/news/china-rail-freight-trips-to-europe-mushroom-but-must-uncouple-subsidies