By Martin De Angelis
A recently signed tri-lateral agreement between China, Peru and Brazil set hopes for a bi-oceanic railway corridor. If feasible, the project would significantly reduce trade costs and shipping times to China.
On May 23rd, China’s Prime Minister Li Keqiang met with Peruvian President Ollanta Humala to sign the implementation of feasibility studies on a bi-oceanic railway corridor through the Amazonian forest, connecting Brazil with Peruvian ports.
A few days beforehand, Li Keqiang met with Brazil’s President, Dilma Rousseff, and a similar feasibility study plan, also arranging for investments of over $17 billion on major transport infrastructure projects to boost the nation’s trading capabilities. But it was the contract for the construction of a ~1000 kilometer rail-track to connect existing railroads and advance through the Amazonia that was most significant.
The project would entail over $10 billion in investments and would take nearly 6 years to be completed. The tri-lateral deal includes the Chinese consortium composed of China Railway Corporation and China Railway Engineering Eryuan Group Co., Planificación Corporativa y Logística S.A. in Brazil, and managed by the state company Dirección General de Carreteras y Ferrocarriles in Peru.
China is expected to realize the studies on the traffic volume loads, track alignments and equipment requirements, while Brazil and Peru will evaluate the environmental and social impact of the railways.
The existing commercial logic will remain fundamentally unchanged, preserving the extraction-for-imports type of trade between China and Brazil and Peru, a total of over $80 billion and $15 billion, respectively, but at a lower price. A bi-oceanic railway corridor has a dual purpose: trains rolling westwards will freight raw materials, such as minerals and agricultural goods, from Brazil to Peruvian ports to then be shipped to China. Meanwhile, trains moving eastwards will be transporting manufacturing goods from China to Brazil.
The railway corridor would have an extension of 2500-3000 km across the Amazon and the Andes mountains, connecting Brazil’s Atlantic ports of Santos or Acu with the Pacific Peruvian harbors of Callao or Ilo. There are essentially three commodities that are expected to fill most of the carriages heading to Peruvian deep-water ports: hydrocarbons, iron ore, and soybeans.
The railway might have one of its Atlantic terminals at the Brazilian port of Açu, north of Rio de Janeiro, a new port that lies near to various Petrobras oil fields and will start shipping hydrocarbons beginning this coming November.
Most of the Brazilian railways extend from south to north, connecting agricultural and mining poles to shipping harbors of the Atlantic and industrial nodes such as Sao Paulo or other major cities, but they rarely extend into the mainland. Yet, this project, by freighting goods towards the west instead of the Atlantic, would allow for decongestion of the overloaded sea ports and thus reduce the burden on Brazilian infrastructure.
Tracks will connect to the river docks of Porto Belho, a key harbor where copious amounts of Soy from Mato Grosso are shipped through waterways. Much of this cargo is expected to be re-loaded into railway carriages and rolled to Peru.
The first results of the feasibility project are expected by March 2016, but unlike previous attempts over the last decades, Chinese funding would make the project closer to a concrete reality. We should expect Beijing to renew its efforts to rescue Latin-American economies, invest in extractive industries, and transport infrastructure and energy.
China aims to wedge into the region, with long term investments that will slowly create a financial dependency, granting the Asian mammoth with a privileged political and commercial positioning vis-à-vis each of its lenders.
To make this more explicit, in January 2015 Chinese President Xi Jinping pledged to invest over $250 billion over the next decade in Latin America, looking to replace the long influence of the United States over the region.