New Silk Road & Europe: opportunity for European companies?
By constructing the New Silk Road, China is demonstrating its influence as the world's largest trading power. In addition to Africa and Asia, the Silk Road also runs through European countries and is intended to create new trade routes. Will it be an opportunity, a risk or a threat for European companies?
What is the New Silk Road?
The New Silk Road is a long-term project to develop the infrastructure for trade flows between Asia, Europe and Africa. Plans include railroad lines, bridges, ports, pipelines, dams, power plants—basically everything that belongs to infrastructure. The initiator is the Chinese government.
The aim of the Silk Road is to create new trade routes for Europe
The New Silk Road project is also known as “One Belt, One Road” (OBOR) or “Belt and Road Initiative” (BRI). In 2013, the People's Republic of China began building the New Silk Road with over 100 countries. The goal: stable trade and access to resources. The idea is to establish a resilient network of transportation, communication and energy infrastructure between Asia, Africa and Europe. This is China's way of ensuring political stability along the New Silk Road and strengthening its position compared to the U.S.
Routes of the New Silk Road follow the old model
The term “New Silk Road” refers to the history of the old caravan routes of the first century. They connected the West with East Asia by land via Central Asia. Today, the New Silk Road covers the land routes in the north as the “Silk Road Economic Belt” and the sea routes in the south as the “Maritime Silk Road”.
From various places in China, the overland route leads through countries in South, West and Central Asia via Iran, Turkey, Pakistan and Western Russia to Europe. The Maritime Silk Road stretches from the Chinese coast via Southeast Asia, India and East Africa through the Suez Canal to the Mediterranean and Trieste, connecting to the European rail network. Following Russia's aggression against Ukraine, the focus has shifted to the central corridor, the “Central Trans-Caspian Network” (CTCN).
Investment along the Silk Road—alternatives to China?
Since 2013, China has already made major investments in the trade routes of European countries located along the Silk Road. Many European companies were skeptical from the outset. In light of the latest geopolitical developments, alternative infrastructure projects such as the EU-Asia Connectivity Strategy and the Transport Corridor Europe-Caucasus-Asia (TRACECA) are moving into focus. Basically, the New Silk Road opens up sales markets—but what opportunities does Europe have?
The People's Republic mainly uses the overland route via Central Asia and Russia on its way to Europe. By sea, the Silk Road runs across the Indian Ocean and through the Suez Canal to Europe. The rail link already connects Duisburg, Europe's largest inland port, with China, and a freight train route runs from Yiwu near Shanghai to Madrid. By choosing Piraeus as the final destination on the sea route via the Suez Canal, China has secured logistical access to the EU market.
China has made substantial investments in the BRI
To finance this, the People's Republic set up the “Silk Road Fund” in 2014. The Asian Infrastructure Investment Bank (AIIB) and the New Development Bank of the BRICS countries have been financing projects since 2016.
According to research by Germany Trade and Invest (GTAI), Chinese investment along the Silk Road peaked in 2017 at over 55 billion US dollars. Then, the economic development agency observed a withdrawal of Chinese banks, as partner countries and organizations are unable to pay back their debts.
However, according to GTAI research, for 2023 there are 1,214 new project contracts, extensions, expansions and declarations of intent worldwide as part of the BRI, around 21 percent more than in the previous year. 251 of them in the transportation and traffic sector.
In 2023, the Statista Research Department predicted that total BRI investments would exceed the one trillion US dollar mark. More and more private investors and international development banks such as the World Bank are financing new projects. Most new BRI projects are being established in China's neighboring regions of Central and Southeast Asia (ASEAN).
China's investments in European trade routes will have to be repaid by the countries involved. Is it still possible for Europe's economy and logistics sector to benefit?
China first—the beneficiaries of the New Silk Road's construction
Already in 2019, 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 Studies pointed out: “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.”
In its study “Megatrends in global trade: the New Silk Road”, the IFO Institute warns against insolvent partner countries because China could then influence the use of the infrastructure or take ownership of it.
This prediction has come true. The majority of construction projects go to Chinese companies. The authors of a study by the Kiel Institute for the World Economy (IfW) conclude that the total amount of bailout loans until the end of 2021 will be 240 billion US dollars. This represents almost a quarter of all BRI project costs since 2013. Are there still economic benefits for Europe?
Potential business and opportunities thanks to the New Silk Road
Many companies in Europe see opportunities in the New Silk Road, albeit rather indirectly, despite the low level of participation in construction projects. The geostrategic trust in the project partner China is fading. The German government is not investing in the BRI, but rather sees the approach in the EU-Asia Connectivity Strategy, which is being transferred to the Global Gateway Initiative. In December 2023, Italy announced that it was not extending its participation in China's Belt and Road Initiative (BRI). At the same time, the Kiel Institute for the World Economy publishes a new analysis titled “What if? The Effects of a Hard Decoupling from China on the German Economy.”
Although business with the New Silk Road has not materialized as hoped, Europe's companies still see opportunities.
Trading partner China: advantages and risks of the New Silk Road
China continues to be one of the most important trading partners for many European countries, not least due to growing online trade. Hence, many European companies would benefit economically from a further expansion of transportation options.
The New Silk Road offers the following advantages and opportunities for Europe
- Shorter transport times: in the future, goods will reach their destination in twelve to twenty days. This is enabled by the new land corridors, along which goods are primarily transported by rail.
- Lower transport costs: goods can be transported faster and more cost-effectively by freight train than by sea or air.
- New sales markets: the expansion 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 their business activities.
Hamburg also benefits from the New Silk Road
In 2022, roughly 22 million tons of sea freight are handled between Hamburg and China. As Europe's largest railway port, the Port of Hamburg also sees opportunities in the “One Belt, One Road” initiative: “Being the Port of Hamburg's largest trading partner, China will continue to play a key role for global trade and therefore for us. A few more countries could be added. According to many experts' estimates, the coming five to ten years will see diversification on the world markets,” writes Axel Mattern, Chairman of Port of Hamburg Marketing e.V., in Port of Hamburg Magazine 2/23.
As a symbol of international trade routes, the Silk Road remains relevant and will also play an important role in the conference program of transport logistic 2025.
FAQ
What is the New Silk Road?
The New Silk Road is a long-term project with which China is expanding the infrastructure along the trade routes between Asia, Europe and Africa.
What is being built along the Silk Road?
The Silk Road includes railroad lines, bridges, ports, pipelines, dams, power plants—basically everything that belongs to infrastructure.
What routes are there on the New Silk Road?
There is the “Silk Road Economic Belt”, which runs overland via South, West and Central Asia, and then there is the “Maritime Silk Road”, which takes the sea route via India and East Africa through the Suez Canal to Europe.
Which countries are involved in the New Silk Road?
A total of around 100 countries are participating in the New Silk Road. Projects focus on Africa, Europe and Asia.
How long has the Silk Road been in existence?
The routes refer back to caravan routes from the first century. In 2013, China introduced the New Silk Road project under the name “One Belt—One Route”, or OBOR for short.
What impact does the war in Ukraine have on the Silk Road?
Since Russia's war of aggression against Ukraine, the central corridor, the Central Trans-Caspian Network (CTCN), has become the focus of European attention.
What advantages does the New Silk Road offer for logistics?
The New Silk Road opens up new sales and procurement markets for the economy. Transport times become shorter and transport costs are reduced.