OBOR and the railway infrastructure market
The One Belt, One Road (OBOR) is the Chinese government global initiative to connect China with rest of the world through roads, railways, ports and gas pipelines. With the enormous potential investment of $900 billion, the project was initiated in 2013 by the Chinese President Xi Jinping, and is considered the most massive overseas investment of such kind by any country in the world. One of the key objectives is to strengthen trade ties with Asia, Africa and Europe. It will undoubtedly boost the Chinese exports by getting easy access to new markets.
China is currently facing an overcapacity issue and slowdown in growth in various industries. The OBOR initiative to an some extent can resolve the issue of overcapacity issue revive the growth by increasing exports and channelising capital to the partners’ countries. Among others, the railway sector will also see a considerable boost from the OBOR initiative across the regions, where some projects have already been announced.
Infrastructure market is really poor in most of developing Asia which is also restraining their economic growth. China-Pakistan Economic Corridor (CPEC) is one of the projects under OBOR to connect the Southeastern region of China to Pakistan. Initially, $46 billion of investment was planned for CPEC, which is now reached to $60 billion, out of which 36% will be invested in infrastructure projects. Railways are considered as the efficient and cheap mode of freight and passenger transportation in developed countries. However, in most developing countries they are almost neglected and considered, inefficient, costly and uncomfortable. For instance, Pakistan Railways, a state-owned railway company of Pakistan, annual expenditure was almost twice of its earning in 2016.
Under the OBOR intuitive, some railway infrastructure projects are undergoing at various stages in Pakistan which is expected to strengthen its railway infrastructure. We have identified a number of railway infrastructure projects across the country such as Karachi Circular Railway, Greater Peshawar Region Mass Transit, Quetta Mass Transit, Orange Line and Up-gradation of ML1 (first phase). These projects will not only help to improve the freight and passengers transportation system but also increase demand for railways materials such as rail tracks, rail steel sleepers etc. Given that Pakistan has no capability of rails, we believe they would be imported from China.
A number of other railways infrastructure projects are going on in other countries under the OBOR initiative. China and Malaysia started work on 688km long East Coast Rail Link (ECRL) in 2017. This project is estimated to be operational at a cost of $13 billion. This link will connect the South China Sea and Strait of Malacca in the west.
In Thailand, the first phase of a high-speed rail which links Bangkok to Nakhon Ratchasima with a 253 km railway track with an estimated cost of $6 billion will be completed by 2022. The 40 % of the funds will be provided by the Thai government while 60 % will be borrowed from China. In the next phase, this will further to be extended to Nong Khai on Laos Border with a 600 km railway line. The aim is to build a high-speed rail network connecting the southern city of Kunming with Laos, Thailand, Malaysia and Singapore. The work on Kuala Lumpur and Singapore 360 km line is expected to start in 2026. Bangladesh also started working on a railway link between Chittagong and Cox’s Bazar. This 102 km long rail link will further connect to Myanmar and some other Southeast Asian countries. China and Nepal also planned to start cross-border railway project.
Outside Asia, China constructed a 753 km railway link between Addis Ababa and Djibouti with the cost of $4 billion. It became operational in October 2016 and reduce the journey time from one week to just 10 hours. Kenya borrowed $3.5 billion from China under the OBOR initiative to further extend Standard Gauge Railway (SGR). This line was recently constructed with a cost of $3.6 billion connecting Mombasa to Nairobi.
Egypt plans to rebuild its railway system by adding latest technologies with the help of China. The rebuilding of Egypt’s railway system will connect Europe, Africa and Asia. In August 2017, China signed a contract of $1.24 billion with Egypt to build a 66 km railway network around Cairo.
We have also identified a number of projects in Europe and elsewhere under the OBOR initiative. A new freight rail service has also been launched by China connecting China and London under OBOR initiative. The service started on 1st January 2017 linking Russia, Poland, Kazakhstan, France, Belarus and UK.
Examining the trade statistics, China for the first became the largest exporter of rails in 2015, though lost its position to Japan in 2016. We expect, among other benefits, to see more demand for rail products over the next ten years in major partners countries under the OBOR initiative.
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