Cheung
\nWaiman<\/a>, Senior Lecturer and Professor, respectively, at The
\nChinese University of Hong Kong (CUHK) Business School’s Department of Decision
\nSciences and Managerial Economics, in collaboration with Prof. Laingo
\nRandrianarisoa at the Kedge Business School, Prof. Zhang Anming at the
\nUniversity of British Columbia and Prof. Yang Hangjun at the University of
\nInternational Business and Economics.<\/p>\n\u00a0<\/p>\n
“In the past, people have tended to think of the land and
\nsea routes under Belt and Road as being separate and independent economically,
\nwhereas in realty they are pretty much anything but,” says Dr. Yuen, adding
\nthat, for example, improvements to the main rail line connecting China to a
\nnumber of Eurasia countries, known as the New Eurasian Land Bridge, has hit the
\nbottom lines of shipping companies such as China’s COSCO in recent years.<\/p>\n
\u00a0<\/p>\n
“As China continues the rapid development of its high-speed
\nrail network, there’s every possibility that companies will increasingly look
\nto moving their goods by land, rather than by air or across the seas,” he adds.
\nIn turn, this prompted the researchers to closely examine the short and
\nmedium-term impact of the development of rail links under Belt and Road on the
\nmaritime market.<\/p>\n
\u00a0<\/p>\n
Rail
\nSubsidies <\/b><\/p>\n
\u00a0<\/p>\n
To do so, they developed an analytical model to capture how
\nthe two components of Belt and Road interacted with each other. They first
\nturned their attention to the thorny issue of subsidies granted by the Chinese
\ngovernment to encourage the use of rail links.<\/p>\n
\u00a0<\/p>\n
Despite the rapid improvement in rail links brought about by
\ninfrastructure spending under Belt and Road, the sea remains the predominant
\nway that Chinese companies transport their goods across countries within the
\ninitiative.<\/p>\n
\u00a0<\/p>\n
To stimulate demand, the Chinese government typically
\nprovides significant subsidies to encourage the use of rail links. Back in
\n2018, China’s Ministry of Finance subsidised as much as up to 50 percent of the
\ncost of shipping rail freight between China and Europe, although this has
\ngradually been cut back in recent years and is expected to be completely
\nabolished in 2022.<\/p>\n
\u00a0<\/p>\n
Using the model they developed, the researchers demonstrated
\nthat the high level of subsidy that the Chinese government has been offering to
\nrail operators in the early years of Belt and Road may at least be partially
\nexplained by the slump in the shipping sector (caused by successive global
\neconomic crises as well as structural overcapacity within the maritime
\nindustry) depressing freight rates, which amounted to just around US$3,000 per
\nFEU (forty-foot equivalent unit, the size of a standard shipping container) in
\nthe pre-pandemic era, but has since risen dramatically as supply chains around
\nthe world restarted as COVID lockdowns eased.<\/p>\n
\u00a0<\/p>\n
Specifically, it found that subsidies paid by governments to
\nstimulate rail usage often depends on demand for the transportation of goods in
\nthe shipping sector as well as the shipping freight rate. It also depends on
\nthe costs that the rail operator incurs as the volume of goods being
\ntransported rises, regional road tolls to and from the rail station, as well as
\nthe degree to which companies having their goods transported are sensitive to
\nprice and speed of delivery.<\/p>\n
\u00a0<\/p>\n
Fully
\nCompetitive Market<\/b><\/p>\n
\u00a0<\/p>\n
On the other hand, the researchers also looked at what would
\nhappen if rail subsidies were abolished altogether and the two modes of freight
\nwere to compete on an equal footing.<\/p>\n
\u00a0<\/p>\n
The study showed that firms which make use of the
\ninfrastructure links under Belt and Road are only likely to continue to favour
\ntransporting goods by sea (which is typically the cheaper option) if shipping
\nprices at ports remain low. However, demand for rail (which is faster) will
\ndepend on the nature of goods that are to be transported, with companies
\nfavouring rail for high-value and time-sensitive products such as laptop
\ncomputers, mobile phones, auto parts, household electronic appliances, and some
\nperishable goods.<\/p>\n
\u00a0<\/p>\n
Companies are also more likely to choose to use rail to
\ntransport these products because in China they are typically manufactured in
\ninland cities like Chongqing and Chengdu. Not only is it cheaper for companies
\nto set up shop in these regions, but by making use of comparatively faster rail
\ntransport links, companies can maintain a lower inventory. This allows them to
\noffset the higher rail freight charges.<\/p>\n
\u00a0<\/p>\n
For the region hosting the Belt and Road infrastructure, the
\nstudy found that when rail links are added or improved, they provide benefits
\nby improving the quality of rail services, reduce the costs associated with
\ndelayed freight, and reduce the cost of ground transportation to and from
\nfactories as result of competition. <\/p>\n
\u00a0<\/p>\n
The extent of this benefit largely depends on the size of
\ninvestment that has been made into improving rail or port links, as well as the
\nrelative proportion of freight users that ship time-sensitive goods, the study
\nfound.<\/p>\n
\u00a0<\/p>\n
“In the long term, we find that if the rail operator in a
\ngiven region is able to compete with their maritime counterparts on a level
\nplaying field, this system would generate positive benefits for a given region
\nwhere this infrastructure is set up,” says Prof. Cheung. “This is especially so
\nfor companies using these shipping services, since competition would lower the
\nprice of freight, and the introduction of new rail infrastructure also would
\nhelp to lower ground transportation costs for companies situated close to the
\nrail station.”<\/p>\n
\u00a0<\/p>\n
Facility
\nManagement<\/b><\/p>\n
\u00a0<\/p>\n
Lastly, the study looked at the effect of whether the rail
\nand port facilities were managed by the same or separate entities. When the two
\ntypes of facilities are managed separately, the study found that the facility
\nfees charged tended to be lower because the rail and port authorities would
\nbehave as competitors, shifting the demand to faster rail services. On the
\nother hand, when they are managed by the same entity, it would yield a greater
\nbenefit for companies shipping goods overall, provided that there is a
\nsufficient proportion of them which produce time-sensitive goods.<\/p>\n
\u00a0<\/p>\n
The researchers say the findings hold deep implications for
\npolicymakers in managing subsidies and infrastructure financing. If external
\neconomic conditions are poor, the government should set rail subsidies at a
\nminimum level until conditions in both the rail and maritime markets improve.
\nBecause a high level of subsidy is unsustainable over the long term, government
\nshould also stimulate competition between the terminal operators of the two
\nmodes of transport to generate a positive benefit from the Belt and Road
\nInitiative.<\/p>\n
\u00a0<\/p>\n
Given that rail subsidies are linked to the external
\neconomic environment, the Central or local government may also look to
\nimproving the market conditions in other sectors of the economy to reduce rail
\ncompanies’ dependence on financial aid. It is also important for policy makers
\nto identify the share of freight users who are time or price sensitive and to
\nplan accordingly when developing rail or port links to avoid overcapacity or
\nexcessive subsidies in one or the other form of freight.<\/p>\n
\u00a0<\/p>\n
Finally, because the joint management of rail and port
\nfacilities tend to yield higher benefits for freight users, the researchers
\nrecommend that local and central government authorities cooperate more closely
\nto ensure that the two modes of transport operate in a way that is
\ncomplementary to each other.<\/p>\n
\u00a0<\/p>\n
Reference:<\/b><\/p>\n
Randrianarisoa, Laingo M., Zhang,
\nAnming, Yang, Hangju, Yuen, Andrew Yuen and Cheung, Waiman, How ‘Belt’ and
\n‘Road’ are related economically: modelling and policy implications (July 21, 2020).
\nhttps:\/\/doi.org\/10.1080\/03088839.2020.1791993<\/a><\/p>\n\u00a0<\/p>\n
This
\narticle was first published in the China Business Knowledge (CBK) website by
\nCUHK Business School: https:\/\/bit.ly\/3356AQa<\/a><\/p>\n<\/p><\/div>\n\n
Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"HONG KONG SAR – Media OutReach – 13 January 2022 – The Belt and Road Initiative, announced in 2013, represents China’s most ambitious effort yet to strengthen its physical connectivity to the world. As a programme of vast infrastructure building throughout the country’s neighbours, it comprises of two major components: A land trade route known …<\/p>\n","protected":false},"author":1,"featured_media":19918,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[60],"tags":[],"_links":{"self":[{"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/posts\/19917"}],"collection":[{"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/comments?post=19917"}],"version-history":[{"count":0,"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/posts\/19917\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/media\/19918"}],"wp:attachment":[{"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/media?parent=19917"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/categories?post=19917"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/eodishasamachar.com\/en\/wp-json\/wp\/v2\/tags?post=19917"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
![](\"https:\/\/images.media-outreach.com\/Thumb\/500x0\/213174\/CUHK-Image.jpg#image-213174\")