In Battle With U.S. for Global Sway, China Showers Money on Europe’s Neglected Areas

DUISBURG, Germany—The struggle between the U.S. and China for global influence has come to Europe’s gritty industrial backwaters, where China is steadily co-opting local economies starting with their railroads.

China overtook the U.S. as the European Union’s biggest trading partner for goods last year, a historic turning point driven in part by Europeans’ hunger for Chinese medical equipment and electronics during the Covid-19 pandemic.

Increasingly, those goods are arriving in Europe through a new trade corridor consisting of railroads, airport hubs and ports built with Chinese support, often as part of China’s Belt and Road Initiative, the giant global infrastructure effort aimed at binding China more closely to the rest of the world.

By greasing the wheels of China-Europe trade, those investments have lifted long-neglected, rust-belt cities in places like Duisburg, Germany, and Liege, Belgium.

Western officials, including in the U.S., have accused China of using the Belt and Road to trap poor countries in debt. The Chinese government has denied those accusations.

While the pandemic has clouded the outlook for Belt and Road, Beijing isn’t likely to abandon it now that the Chinese economy is recovering.

In Europe, China has adapted its approach, sometimes operating below the radar with local authorities and companies. China subsidizes the trains and tracks while big companies such as Alibaba Group Holding Ltd. provide direction and demand.

That might help Beijing tie rich countries even more closely to China. Europe’s trade links with China have already made it reluctant to accede to Washington’s attempts to turn it against the Asian giant.

The number of freight trains running between China and Europe topped 12,400 last year, 50% higher than in 2019 and seven times that of 2016, according to Chinese authorities. Demand for trains has been so high that freight companies have introduced a lottery system to allocate space, according to Chinese state media.

The World Bank estimates that Belt and Road transport infrastructure can boost trade by up to 10% for countries along the route.

Liege and Duisburg are both part of the Belt and Road initiative, although Germany and Belgium haven’t formally signed up to it, according to Chinese state media and local port officials.

“In gray, unglamorous areas like infrastructure and supply chains, there’s a lot less media and political attention, and more understanding that economic integration is necessary,” said Bruno Maçães, a former Portuguese minister who wrote a book on the Belt and Road project.

Europe’s political relationship with China has soured in recent months, notwithstanding a sweeping investment deal they loosely agreed to in December. While many European manufacturers rely heavily on Chinese appetite for autos, luxury products and other goods, they are increasingly alarmed to see China take market share in areas such as advanced manufacturing and engineering.

In infrastructure, however, Europe is much more welcoming of China’s presence and know-how, Mr. Maçães said.

Chinese shipping groups own terminals or share ownership in around a dozen European ports including Antwerp, Rotterdam, Valencia and Marseille.

U.S. officials have warned their European counterparts against excessive dependence on China. The U.S. launched a more limited global infrastructure project in 2019 alongside Japan and Australia.

In Duisburg, a west German steel town that handles more than a third of Europe-China rail freight traffic, trade with China rose 70% last year. A new rail terminal there part-built by China’s Cosco Shipping Holdings Co. will help expand China trade a further 40% to 100 trains a week, according to local officials.

“For Duisburg, it’s manna from heaven,” said Markus Taube, professor of East Asian economics at the University of Duisburg-Essen.

The rail line’s speed compared with the sea route offers a valuable alternative for producers of perishable or time-sensitive, high-value goods like electronics. Chinese internet giant JD.com Inc. is working with the port to export European industrial and consumer goods to China, according to the port’s chief executive, Erich Staake.

“We are currently transporting as much as possible—as much as our tracks allow,” said a spokesman for German rail company Deutsche Bahn AG, which operates trains between 17 European countries and China via Poland, Belarus and Kazakhstan. Some studies suggest that several hundred thousand trains a year could be plying the Europe-China rail route by the 2030s, he said.

The rail route was recently boosted further by the blockage of the Suez Canal.

Chinese investments support 23,000 jobs in the German state of North Rhine Westphalia, home to Duisburg and the Ruhr industrial heartland, while more than 1,000 local companies have invested in China, according to Andreas Pinkwart, the state’s economy minister.

In Liege, a Belgian city that has suffered the downturn in steel partly due to low-cost competitors in China, airfreight volumes are up 50% in the two years since Chinese e-commerce giant Alibaba picked the city as its European hub, said Steven Verhasselt, who runs the airport’s commercial department.

“Every month in 2020 was a record and now in 2021 we are growing 20% year on year,” he said.

With support from Belgian officials, the airport has combined with a sleepy rail station to create a single customs zone. Six trains a week now travel between Liege and China, making it the first dedicated service for e-commerce between the Yangtze River Delta region of China, Central Asia and Europe.

That is all before Alibaba has even completed construction on the new hub. With other Chinese companies also looking at using it, Mr. Verhasselt expects freight volumes to double over the next four years to two million metric tons annually, potentially putting the airport on par with Paris Charles de Gaulle and Frankfurt International.

The airport’s expansion has created around 1,000 jobs over the past two years in a region with high unemployment. Belgium’s postal service and other non-Chinese businesses have become heavy users of the new rail line. And aircraft and trains back to China are filling up with European goods, including milk powder, leather products, salmon and cheeses. Planes that used to return empty are now 80% full.

The rail link to China was one of the requirements that Alibaba had when selecting its European hub, said Mr. Verhasselt. “The Belt and Road is a success story in Liege because of Alibaba,” he said.

An Alibaba spokesperson said the company is investing 100 million euros, equivalent to $119 million, to build a logistics hub at Liege Airport that should be operational this year, as part of an agreement with the Belgian region of Wallonia.

The fast rail link has provided a critical edge for Chinese manufacturers competing in Europe, said Alexander Alban, managing partner at German mechanical parts manufacturer Walter Schimmel GmbH. Italian business executives say they are being squeezed out of Germany’s industrial supply chain by the Chinese, who can now transport heavy industrial goods quickly and cheaply into the heart of Europe.

Chinese exports to the EU jumped 63% in January and February year-over-year, while imports from Europe rose 33%.

However, tensions exist. U.S. officials recently cautioned German officials about China’s plans to expand its activities in Duisburg, according to a person familiar with the matter. In Portugal, where Chinese companies are considering building a container port terminal, the U.S. ambassador warned recently that Portugal must choose between America and China.

Chinese investment in Piraeus, near Athens, has helped transform Greece’s primary port over the past decade from an economic backwater into Europe’s fourth-busiest.

Cosco, which controls the port, has proposed building a fourth container terminal that could allow trade volumes to double again, potentially putting Piraeus on a par with giant European ports such as Hamburg.

Ten trains a week ply a new rail route that connects Piraeus’s port with Eastern European markets including the Czech Republic, transporting around 100,000 containers a year, said Nektarios Demenopoulos, a spokesman for the Piraeus Port Authority.

Greece hasn’t yet approved Cosco’s expansion plans. Greek officials have complained the Chinese company has received most of the benefits. But after Cosco said last month that it would build a children’s playground for local residents, the mayor of Piraeus, Ioannis Moralis, expressed confidence the port would soon be better integrated with the city.

Photo: A China-Europe freight train setting out from Tuanjie Village Station in southwest China's Chongqing Municipality. TANG YI/ZUMA PRESS

Link: https://www.wsj.com/articles/in-battle-with-u-s-for-global-sway-china-showers-money-on-europes-neglected-areas-11618310350