New Silk Road & Europe: opportunity for European companies?
With the construction of the New Silk Road, China shows its influence as the world's largest trading power—also towards Europe. In addition to Africa and Asia, the Silk Road passes through European countries and is intended to create new trade routes. Is it therefore an opportunity, a risk or even a danger for European companies?
Silk Road creates new trade routes for Europe
“One Belt, One Road” (OBOR) is the name of the initiative to build the New Silk Road. The Chinese government is thus planning to further expand trade flows between Asia, Europe and Africa. New trade routes by road, rail and sea shall be created. Many European companies are skeptical about China's plans. At the same time, however, new sales markets are opening up—and thus new opportunities for Europe?
Investment in Europe—at what price?
With the construction of the Silk Road, China is not shying away from investments:
- Between 2014 and 2017, Chinese companies have already invested more than 55 billion US dollars in countries along the Silk Road, as confirmed by Germany Trade & Invest (GTAI).
- In order to realize the projects, China has formed a fund of 40 billion US dollars.
- Additionally, the Asian Infrastructure Investment Bank (AIIB) was created with a seed capital of 100 billion US dollars.
China is thus also investing in the trade routes of European countries along the Silk Road. The projects include, for example, the construction of a high-speed rail link from Moscow to Kazan. In the future, the expansion of the transport and energy infrastructure is to be driven forward even further. Moreover, dozens of bilateral intergovernmental agreements have been concluded.
China's investments in European trade routes will have to be repaid by the countries involved. Can Europe's economy and the logistics sector benefit from it anyway?
No chance for Europe? Majority of projects go to Chinese companies
The OBOR initiative explicitly invites foreign companies to participate in tenders for Silk Road construction projects, as they shall be preferred in contracting. In reality, the majority of construction projects are nevertheless carried out by Chinese companies. The figures from studies show poor prospects for Europe:
- A study by the University of Applied Sciences St. Gallen assumes that 80 percent of major projects are awarded to Chinese companies.
- According to the US Center for Strategic and International Studies, only 3.4 percent of the orders go to non-Chinese companies.
Andreas Breinbauer, Rector of the University of Applied Sciences of the Vocational Training Institute (BFI) in Vienna and Head of the Logistics and Transport Management Department also points out:
“The financing of Silk Road projects is only partly carried out by multilateral banks such as the AIIB, namely about 10 percent of the projects. There is a good diversification of investments in these projects. Only one third of the project partners are Chinese companies. Approximately 90 percent of the main lenders are Chinese state-owned or state-related banks, which preferably support Chinese companies, especially those close to the state.”
The chance of European companies to get construction projects is therefore very small. This contradicts the Chinese intentions of the new Silk Road to create networking and financial integrity. Are there still economic benefits for Europe?
Opportunities for Europe in the expansion of transport and trade routes
Many companies in Europe also see opportunities in the New Silk Road, despite the weak participation in construction projects. Confidence is particularly high in Austria. According to a study of the University of Applied Sciences of the BFI Vienna (Logistics and Transport Management Department), 90 percent of the Austrian companies surveyed believe that the initiative will have a positive impact on Austria in the next ten years. A survey conducted by the Chamber of Foreign Trade in China showed that 35 percent of the China-based German companies assess the effects as positive.
Greater proximity to strong trading partner China
The reason for the positive reactions: China is one of the most important trading partners for many European countries, not least because of the growing online trade. Many European companies would thus benefit economically from an expansion of the transport possibilities.
The construction of the New Silk Road offers the following advantages and opportunities for Europe:
- Shorter transport times: thanks to the new land corridors used to transport goods by rail, in the future, goods will reach their destination in twelve to twenty days.
- Lower transport costs: freight can be transported by train both faster and cheaper than by sea or plane.
- New sales markets: the development of the infrastructure and the resulting economic developments in the countries along the route can open up new sales markets for European companies in the future or facilitate business activities.
Hamburg also benefits from the New Silk Road
As Europe's largest railway port, the Port of Hamburg also sees opportunities in the “One Belt, One Road” initiative: “The New Silk Road strengthens the good connections between Hamburg and its trading partner China,” says Axel Mattern, CEO of Hafen Hamburg Marketing e.V.
His organization manages several EU research projects in rail hinterland traffic. “There are already 235 weekly train connections between Hamburg and China from numerous providers, which can be expanded further.”
Further information on the Silk Road can be found in this press release.
The OBOR initiative also plays an important role in our conference program.