Opinions vary as to whether China’s “One Belt, One Road” initiative will succeed. However, looking at it from the perspective of commercial distribution and political risk, one can confidently say that the “Silk Road Economic Belt,” with its emphasis on land transport, will fail.
The key factors in goods distribution are transport costs and time. Air cargo is the most expensive, followed by land transport, while sea freight is the cheapest. Land transport along the “belt” covers very long distances and is much more expensive than sea freight. Furthermore, as many parts of the “belt” cross mountainous terrain, transport and railway maintenance costs will be high.
Many of the countries through which the “belt” passes are politically unstable, with high political risks and poor law and order. This, too, will push up the cost of maintaining a free flow of goods.
More than a century ago, Russia built the Chinese Eastern Railway, which the Chinese Nationalist Party (KMT) calls the Chinese Changchun Railway. However, following the Russo-Japanese War, the southern branch of the railway fell into Japanese hands. To meet the requirements of the “belt,” China is investing tens of billions of US dollars in infrastructure in the China-Pakistan Economic Corridor. Beijing needs to watch Pakistan’s political situation, because a new government might decide not to honor old debts.
In the 1970s, Latin American countries borrowed huge amounts of money from the US, but were unable to service their debts, turning the loans into junk bonds.
Moreover, as this economic corridor develops, Pakistan will be able to use its abundant supply of cheap labor to become an industrial manufacturing base for the Middle East, making it a competitor with China.
The Indian economy is also going from strength to strength, and will vie for the same market.
Further thought should be given to the countries through with the “belt” passes. Its southern route passes through Pakistan and onward to the Middle East. These regions are traditional spheres of influence of the US, the UK and other Western powers. As for the northern route, it passes through the Muslim countries of Central Asia, which are Russia’s traditional sphere of influence, and through Russia itself.
These countries will not allow China to come and go as it pleases. If a disaster occurs, transport will be paralyzed. Surely China will not send troops to other countries to sort things out.
The next thing to consider is the time it takes to transport goods and how the supply chain works. Most businesses do their manufacturing, assembly and restocking on a global scale. Long before orders are placed, the goods have already been transported to logistics centers.
For example, if someone in Taiwan orders goods from a German supplier today, the supplier will not necessarily send them all the way from Germany, but rather deliver them from a logistics center in Taiwan.
Therefore it is a short time from the moment the goods are ordered to when they are received. The fact that land transport is quicker than sea freight might not matter.
The only person in the product supply chain who cares about the time it takes to receive the goods is the customer. What businesses care about is the cost, so if cheap sea freight is available, why would anyone send things by land?
So, if anyone is thinking of investing their money in the “belt” or getting involved in running it, they are certain to end up making a loss.
Lin Shiou-jeng is an associate professor in the Department of Marketing and Logistics Management at Chung Chou University of Science and Technology.
Translated by Julian Clegg
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