The Eurasian railway corridor, dubbed the Iron Silk Road, has become an essential branch of the Belt and Road Initiative (BRI). It passes through Kazakhstan, Russia, and Belarus and has become an important branch of China’s “One Belt, One Road” initiative, known as the “Iron Silk Road.” Chinese trains cross the Eurasian continent and sell Chinese goods to Europe.
Beijing has vigorously promoted it and has become an essential part of the “Belt and Road” business. However, almost half of those routes pass through Russia, and European sanctions could massively impact them following Russia’s invasion of Ukraine.
Andreea Brinza, deputy director of the Romanian Asia-Pacific Institute, wrote an article on March 1 that “Russian President Vladimir Putin has likely put an end to that dream.”
The China Railway Express has also developed a new hub. Time is saved by reducing border crossings or changing the gauge. St. Petersburg, Russia, has become an important commercial center for mediating Chinese-German trade flows. However, despite increasing freight routes and transports, Chinese goods may be difficult to transport to Europe under sanctions.
Brinza said that after the EU decided to impose tough sanctions on Russia, companies such as DHL, Volvo Cars, or Ligne Roset may no longer be allowed or choose not to ship goods through Russia, the sanctioned country.
Brinza said China’s exports were already affected by seaborne problems, and rail transport offered a viable and valuable alternative. Nonetheless, sanctions and counter-sanctions triggered by the Russian-Ukrainian war could alter China’s exports and hamper its economic growth, affecting exporting Europe to China, which will affect China’s exports to Europe. The impact could be considerable considering that China exports $74.9 billion to Europe by freight train, while ocean shipping suffers from high costs, delays, and insufficient transport resources.
Brinza added that two other factors would affect foreign demand for Chinese goods. The first factor is that Russia’s invasion of Europe has caused considerable concern, affecting consumer confidence. Sanctions and counter-sanctions could significantly increase energy prices, thus weakening consumer purchasing power for goods imported from China.
According to NPR, global benchmark oil prices surged above $115 a barrel on Wednesday, March 2, hitting new multi-year highs amid fears that the growing economic isolation following Russia’s invasion of Ukraine will disrupt global energy supplies. In addition, the price of natural gas has also surged to record prices.
The second factor is that the invasion could also affect consumers in other countries, notably the United States, another crucial Chinese export market, and Chinese consumers themselves, who will face higher energy bills.
Falling demand for Chinese exports due to rising energy prices and geopolitical anxiety, coupled with a ban on goods crossing Russia via the new Eurasian land bridge, the container crisis, supply chain issues, and shipping problems, may be the most politically significant for China. The final blow to achieving the annual growth target in a year.
Furthermore, a Russian attack could destabilize the New Eurasian Land Bridge and disastrously impact China’s Belt and Road railway and economy. The New Eurasia Bridge is now passing near a war zone.
Ukraine is also an important hub for the Chinese Belt and Road Initiative. As reported in Reuters Factbox, according to Ukraine’s embassy in China, direct investments by Chinese companies in Ukraine totaled $150 million by the end of 2019 and $75.7 million in the first three quarters of 2020.
China Pacific Construction Group signed an agreement to build a subway line in the capital Kyiv in 2017, while Huawei, which helps Ukraine develop its mobile network, won a bid to install a 4G network in the Kyiv subway in 2019.
Consequently, aside from foreign demand for Chinese goods, China’s investments and interests in Ukraine, which overcame Russia to become Ukraine’s biggest trading partner in 2019, could be affected.
Analysts believe that if the war continues, the construction of the Kyiv subway will stop, and the opportunity for Huawei to invest in telecommunications will also stop.