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Economy

Silk Road's sagging rail freight signals economic turning point for China

A freight train departing Chongqing, China, on a long journey to Germany

CHONGQING -- The trans-Eurasian railway route linking the bustling industrial metropolis of Chongqing, southwest China, with Duisburg, Germany, has been operating as a key infrastructure component of China's "New Silk Road" trade expansion strategy.

But the modern incarnation of the legendary Silk Road trading route is now providing additional evidence of China's increasing economic woes.

The number of trains has increased since the beginning of this year. Currently, one freight train per day carries products like laptops, printers and auto parts via a series of transnational railway tracks stretching over 11,000km across six countries including also Russia, Kazakhstan, Belarus and Poland.

But growth of freight volume transported through the rail network, which opened in 2011, is losing steam, in tandem with economic slowdowns in both China and Europe.

The volume of Europe-bound freight during the first three months of this year actually sagged from the previous year, mainly due to declining shipments of laptops destined for European markets.

The dip in freight on the route, which has been promoted as a main driver of Chinese President Xi Jinping's "One Belt, One Road" initiative, reflects China's struggle to upgrade its industrial structure amid the weakening of its once red-hot economic growth.

Currently, a train takes 13-14 days to travel the entire route from Chongqing to Duisburg. But Liu Wei, deputy general director at the Chongqing branch of China United International Rail Containers, said a bypass to be completed in 2017 will shorten the journey to 12 days.

In 2015, a total of 156 runs to Russia or Europe and 89 to Chongqing were operated. The number is expected to increase to 350-360 return trips in 2016, effectively a daily service, according to the city of Chongqing.

About half of the freight bound for Europe is laptop computers and printers manufactured in Chongqing and exported by such companies as Hewlett-Packard and Pegatron, a major Taiwanese contract electronics manufacturer.

Chongqing has attracted a bevy of electronics makers because of its relatively lower wages. The city now accounts for 40% of global production of laptops and printers, according to one estimate.

Looking inland

In recent years, manufacturers in coastal areas have been heading into China's vast interior in pursuit of lower production costs, powering the expansion of cities like Chongqing. The trend has been expected to make rail freight an even more appealing freight-transport option.

But Chongqing's growth seems to be hitting the wall. While Europe has been stuck in prolonged economic doldrums, the global laptop market has been shrinking since it peaked in 2011.

The total volume of freight handled at the Chongqing rail container terminal amounted to 384,600 TEUs (20-foot equivalent units), little changed from 384,000 standard TEUs in 2014.

Europe-bound freight posted an on-year decline in the first quarter, according to China United International Rail Containers.

Another factor behind the fall is weaker exports of auto parts and other products to China amid the country's economic slowdown.

Unlike shipping, rail transport is vulnerable to changes in economic conditions in areas along the route because it is much more difficult to change rail routes.

If it wants to continue growing briskly, Chongqing needs to become a manufacturing hub of products with higher value added or nurture new industries with greater growth potential, such as biotech industries.

With assembly workers' average monthly wage now being 3,000-4,000 yuan ($460-613), Chongqing is finding it increasingly hard to attract business.

Faltering growth of freight transported on the trans-Eurasian railway system symbolizes China's uphill battle in its efforts to accelerate its economic evolution.

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