Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 1/23 THE NEW SILK ROAD – ANALYSIS OF THE POTENTIAL OF NEW EURASIAN TRANSPORT CORRIDORS prof. Joanicjusz Nazarko, dr Katarzyna Anna Kuźmicz, dr Katarzyna Czerewacz-Filipowicz Bialystok University of Technology, Faculty of Management Vilnius, 12th May th International Scientific Conference “Business and Management 2016”

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 2/23 Presentation plan 1.The New Silk Road concept 2.The variants of the route 3.The global dimension of the NSR 4.Potential benefits from participation in NSR 5.The NSR as a logistic corridor =tbn:ANd9GcS6UHT8m_q_H2a27Yi13B- KtUVxiBx3amKWw5iYRt230Vzz5Hr6

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 3/23 The NSR as Beijing’s signature foreign policy The New Silk Road concept was presented in 2013 by the President of China Xi Jinping. It refers to the ancient trade route linking China with Europe and the Near East. Source: Financial Times

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 4/23 The OBOR concept Silk Road Economic Belt 21st Century Maritime Silk Road OBO R OBOR (One Belt One Road)

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 5/23 The OBOR concept has three pillars (Lo 2015): 1. Spreading economic development around the world through infrastructure investment and new trade routes; 2. Creating interdependance between China and other countries and regions via global partnership networks; 3. Focusing on Asia as a part of a new “neighbourhood diplomacy”. Important aspect is also to increase renminbi internationalisation by encouraging its usage in financial transactions. The OBOR concept

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 6/23 Significance of the New Silk Road The New Silk Road will influence: 65 countries, 4.4 billion people, 63% of global population

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 7/23 Significance of the New Silk Road The Financial Times compares the NSR to the US-led Marshall Plan after WWII: If the sum total of China’s commitments are taken at face value, the new Silk Road is set to become the largest programme of economic diplomacy since the US-led Marshall Plan for postwar reconstruction in Europe, covering dozens of countries with a total population of over 3bn people.

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 8/23 The alternatives of the route There are three main alternative corridors along the NSR (Sahbaz 2014): 1.The Northern Corridor: using the Russian Trans-Siberian Railway line, passing through the Russian mainland reaches Belarus and Poland as a gate to Europe. This corridor is currently operational. It also crosses through the least number of countries, hence involves least number of border crossings, amongst the three alternatives. Source: Turkey Sea News International Shipping Magazine 2014

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 9/23 The alternatives of the route 2.The Southern Corridor: It starts from Kazakhstan, passes through Turkmenistan or Kyrgyzstan and Tajikistan to Iran. Then it reaches Turkey and then finally connects with Europe. The main disadvantages of this corridor are the high number of border crossings and political instability in the region. 3. The Middle Corridor: It crosses Kazakhstan to reach the Kazakh Caspian port of Aktau. By sea connection, it reaches the newly built Azeri port of Alat. The corridor then passes through the South Caucasus and reaches Europe via Turkey. The Middle Corridor is a politically viable alternative with the countries en route having relatively Western-friendly regimes. The main disadvantages are intermodality at the Caspian crossing and the frozen conflicts in the Caucasus region.

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 10/23 Poland – China railway connection Transport costs USD/TEU Transport in days In 2015 PKP CARGO and Zhengzhou International Hub signed an agreement. The logistic centre in Małaszewicze is planned to be developed to be able to load the increased number of containers from and to China and offer additional logistic services eg. warehausing, packaging and customizing. Małaszewicze logistic centre has a chance to become a main hub for railway containers transported between China and Europe. There are regular freight trains connections from Łódź to Chengdo.

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 11/23 Operating trains Lithuania-China The container train "Sun Train" (Saulė) connects Europe and China and is unique in that cargo arrive to Europe from China in 10 days (by sea – in 40 days). From China through Kazakhstan, Russia, Belarus, Poland, Germany, the Netherlands to Belgium within 18 days.

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 12/23 Eurasian trade flows Emerson and Vinokurov stress that the four major economies of the EU, Russia, China and India are highly interested in developing trade flows between each other (Emerson, Vinokurov 2009). All the initiatives supporting the transport needs of EU, Russia, China and India and all the stakeholders participating in these markets receive great attention. Fig. Schematic map of Eurasian transport corridors (Source: Emerson, Vinokurov 2009)

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 13/23 Economic implications 1. EU is a key market for China because among others it is a receiver of highly processed products, technologically advanced. 2. China aims at reducing the share of the export comprising products competing mainly by price and increase the share of the products of high quality, attractive to well developed countries of the EU. 3. The most important trade partners of China are countries from Western Europe. Countries of Central and Eastern Europe are mainly consumers of Chinese goods. 4. Each European country should be interested in NSR initiative because of the possible spill-over effects. Countries not participating in varied relations created by NSR will loose in terms of international division of labour.

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 14/23 Benefits from participation in NSR Furthermore in the framework of 16+1 China is concentrated on increasing import of food from Central and Eastern Europe. Benefits for road transportation companies which will provide links with logistic centres near rail nodes with places of production and industry processing on one side and with recipients of imported goods from the other side. In particular European producers of dairy products and especially popular in China whey or milk for babies can expect easier transportation of their goods. NSR has a chance to become a tool of multilateral cooperation. For this reason access not only to Chinese market should be taken into account but also to markets of ASEAN, Central Asia and other Asian countries. Indies are also considering participation in this initiative.

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 15/23 NSR as a logistic corridor It is important to treat the NSR initiative as a logistic corridor being created, which means integration of different means of transport ensuring seamless continuity of load transport. − connecting the lacking elements of the corridor through infrastructural investments, − coordination of different transport services and actions aiming at levelling slowdowns resulting from bottle necks – such as border inspection. − building logistic centres, dry ports, airports, which will ensure customs clearance and storage services, − creating economic zones, tax incentives, − encouraging investments along the corridor. It involves: chain-management

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 16/23 Influence of a NSR on global supply chains It can be anticipated that the New Silk Road will significantly affect global supply chains through making the time of the transport of goods on the route China- Europe shorter and through expansion of the economic, infrastructural and IT solutions. According to the report of the Standard Chartered Bank (Jha et al. 2015) one of the three main trends influencing the development of the global supply chains will be strengthening the position of China as megatrader as a result of expansion of supply chain through programmes such as NSR. tbn2.gstatic.com/images?q=tbn:ANd9GcR1o6oS4tk7ZgLw- sSI_Wl5umdkb-8f-XCnBM8uNPUO4UjZxyaF

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 17/23 Challenges of a NSR as a logistic corridor NJR, as a transport corridor linking many different countries will face a challenge to become a smoothly operated and profitable corridor. In particular: 1.Coordination of transport on stretches of the route with different infrastructure (e.g. three different railway systems Chinese, post-Soviet and European) 2. Solving problems with different standards of technical parameters for transportation 3. Harmonisation of varied legal regulations 4. Fulfilling the whole variety of conditions connected among others with interoperability, border clearance procedures, etc. logistics-industry/

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 18/23 The complexity of the harmonisation of different aspects in the corridor Problems areas which NSR in particular will have to face, such as: 1)interconnection, 2)interoperability, 3)route capacity, 4)liabilities, 5)border crossing procedures. Source: created by the author

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 19/23 NSR as a logistic corridor The critical issues which may hamper traffic flows along the corridor in the short, medium and longer term include (European Commission 2015): the lack of cross-border connections; missing links or bottlenecks on other parts of the corridor; absence or insufficient quality of intermodal connections; infrastructure gaps in urban nodes; discontinuous standards preventing seamless services. goods-by-rail-now-possible/

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 20/23 Challenges of the New Silk Road as a transport corridor Source: elaborated by authors on the basis of Arnold 2005

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 21/23 Conclusions 2. Many countries are interested to take part in this endeavour and it is up to their governments how will they use the opportunities. Important factors of competitive advantage are: good infrastructure, infrastructural investments and well-thought promotion of European goods. 2. If logistic problems connected with rail part of NSR will not be solved, then it will be used for specific products only for which it is not economically reasonable to send them by plane, and for which sea transportation is too long. 1. The rail part of the NSR is the most important for Poland and most controversial. One of the pivotal barriers for its implementation are border clearance procedures and differentiation of railway systems, which makes transport longer.

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 22/23 Conclusions 5. The overland part of the NSR thread is still a great unknown both in terms of routes and individual logistics solutions. Considering the fact that the major trading partners of China in Europe are Germany, the Netherlands and the United Kingdom, the route should lead from China through Kazakhstan, Russia, Belarus, Poland and further to Germany and other countries of the EU. 4. In order to become an effective and profitable corridor NSR has to face many challenges connected with harmonisation of legal, infrastructural and cultural differences. 3. A significant role should play food products since faster and cheaper transport provides more possibilities in terms of their export.

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 23/23 Thank you for your attention!

Nazarko, Kuźmicz, Czerewacz, The New Silk Road…. 24/23 THE NEW SILK ROAD – ANALYSIS OF THE POTENTIAL OF NEW EURASIAN TRANSPORT CORRIDORS prof. Joanicjusz Nazarko, dr Katarzyna Anna Kuźmicz, dr Katarzyna Czerewacz-Filipowicz Bialystok University of Technology, Faculty of Management Vilnius, 12th May th International Scientific Conference “Business and Management 2016”