China to scale down subsidies for trains

CHINA will start reducing subsidies on Europe-bound freight trains to improve the efficiency and commercial viability of such services that have boomed in recent years, reports Finland's GBTimes.

The Ministry of Finance requires that government subsidies for the China-Europe freight trains should not exceed 50 per cent of domestic railway costs, and that subsidies should be reduced 10 per cent a year compared to the 50 per cent level in 2018, said the report, said to be from an undeclared Chinese state media source.

The requirements are part of a new evaluation system being developed by the ministry and the National Development and Reform Commission (NDRC), according to a report by China Daily.

"While fruitful results have been achieved with much policy support from the Belt and Road Initiative, more efforts are needed to improve the efficiency of operation, prevent the blind expansion of railway routes and lower operating costs," NRDC deputy head Ning Jizhe told a meeting in Beijing.

Since 2011, China has sent a total of 11,000 freight trains to Europe and back as part of its Belt and Road initiative, which seeks to boost China's trade links with more than 80 countries in Asia, Europe and Africa.

Driven by subsidies offered under the initiative, a total of 65 freight rail routes have now been opened between Chinese cities and 44 cities in 15 European countries, compared to practically none ten years ago.

But while subsidies have made trains a compelling middle option that is cheaper than air cargo and faster than shipping by sea, they have also led to competition between Chinese cities in launching new routes and concerns about the sustainability and efficiency of the business in the long run.

While subsidies vary between Chinese regions and operators, it estimated that the actual cost of transporting an FEU from China to Europe stand at EUR8,000 (US$9,200), with average subsidies per container going up to EUR5,000, according to IHS Media.

The relocation of Chinese factories from coastal regions to inland provinces has encouraged companies like Hewlett-Packard to use rail transport, which only takes 10-14 days to reach Europe compared to up to 40 days by sea.

Despite the rapid growth in routes and volume, trains carried only 2.1 per cent of total China-Europe trade by value in 2016, compared to 64 per cent by sea, 28 per cent by air and six per cent by road, according to a study published earlier this year by the Washington-based Centre for Strategic and International Studies (CSIS).