Why China sent empty cargo containers to Europe?

Widespread waste and fraud associated with China’s Belt and Road Initiative has been revealed after the country’s state railway group admitted that a significant amount of cargo containers shuttling between China and Europe were empty.
The admission by the state-run China Railway, the sole operator of the lines, followed an investigation by the Chinese Business Journal, which found that in one extreme case only one of 41 containers on a particular train actually carried goods.

The belt and road plan, masterminded by President Xi Jinping, is the central government’s initiative to link economies into a China-centred trading network to grow global trade.
This led to many local governments rushing to open train services through the vast central Asian territory between China and Europe to show their support for Beijing’s geopolitical strategy.
But many exporters actually transported empty containers in order to receive government subsidies.
China Railway admitted the existence of the problem in an interview with the state-run Global Times last week, but insisted it had largely been eradicated in 2018 after new rules were introduced limiting the number of empty containers allowed to just 10% per train.
The company said that of all containers heading to Europe in 2018, only 6% were empty, compared to 29% for eastbound trains.
In the first half of 2019, they said, the ratios had fallen to 2% and 18%, respectively.
Jonathan Hillman, a senior fellow at the Center for Strategic and International Studies, a Washington-based think tank, said the problem of empty containers “is consistent with the belt and road’s emphasis on short-term political gains at the expense of longer-term economic fundamentals.”
“These routes are an effective advertising device for selling the belt and road’s overland dimensions – which, despite the hype, will not challenge the dominance of maritime trade,” he said.
In 2018, China’s Ministry of Finance offered subsidies of up to 50% for cost of shipment by rail between China and Europe. They were reduced to 40% this year.
After a cut to 30% in 2020, they will be completely abolished in 2022, although the lower subsidies are already having an effect.
In Heilongjiang, China’s rust-belt province on the border of Russia, the two westbound rail services from the provincial capital of Harbin to Moscow and Hamburg, Germany, did not operate last year due to the lack of subsidies, according to Zhao Quanshang from the freight department of the China Railway Harbin Group.
In addition, local governments also contributed their own generous incentives, with the central city of Xian offering up to $3,000 for every container destined for Europe in 2018, according to government notices.
The first express rail service between China and Europe began in 2011 from Chongqing, on the upper reaches of the Yangtze River, to Duisburg, Germany.
As many as 59 mainland cities from Harbin in the northeast to Shenzhen in the south have since commenced direct rail services between China and Europe after President Xi unveiled the belt and road plan as a national strategy.
But not all the services make economic sense, with one freight forwarder surnamed Zhu from the eastern city of Hangzhou often recommending to clients that they ship their goods to Europe by sea due to cost savings, even though the journey takes longer.
Last year, rail only carried 1.3% of trade between China and the European Union by volume and 2.6% by value despite being usually cheaper than air and faster than sea transport, according to the European Commission.
Sea transport that offered more competitive prices dominated 90% of overall trade by volume and 60% by value,
This story originally appeared on Inkstone, a daily multimedia digest of China-focused news and features.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.


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