economic impact and geopolitical implications of china´s proposal to build a bi-oceanic railroad linking the altantic and pacific ocean

1. The Chinese proposal to build a Peru-
Brazil bi-oceanic railroad: The
economic and geopolitical
implications
VI World Forum on China Studies, Shanghai, November 21,
2015
Carlos Aquino Rodriguez
Professor, San Marcos National University, Peru
E-mail: carloskobe2005@yahoo.com

2. Index
• I. Introduction
• II. The importance of infrastructure in Peru
• III. Economic impact of the project for Peru
• IV. Geopolitical aspect of this mammoth project
• V. Conclusions

3. I. Introduction
• During the visit by Premier Li Keqiang to Brazil and Peru last May he
again reiterated the proposal to build a bi-oceanic railway to link the
Atlantic Ocean in Brazil to the Pacific Ocean in Peru and this was
accepted by both Brazil and Peru governments.
• A feasibility study for this should be presented by March 2016. This is
a big project that could benefit China, Brazil and Peru.
• It will allow that goods could go from Brazil to China through the
Amazon region and Peru bypassing the Panama Channel saving time
and money.

4. Source: https://www.google.com/search?q=map+of+the+america+continent&tbm=isch&imgil=1tAVxYNLTfkMpM%253A%253BkA-
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5. II. The importance of infrastructure in Peru
• Peru has a dire lack of physical infrastructure. According to the World
Economic Foum latest Global Competitiveness Index 2015-2016,
while Peru in the overall index is in the 65 place (of a total of 140
economies) (Table 1), regarding Infrastructure Peru is in the 89 place
(while in one hand in Macroeconomic environment is in the 23 place,
and in the other hand in Institutions is in 116 place). (Table 2).
• Among the most problematic factors for doing business in Peru, the
inadequate supply of infrastructure is cited as the fourth more
important problem (Table 3).

6. Table 1:
World Economic Forum: “The Global Competitiveness Report 2015-2016” http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-
2016.pdf (accesed on october 27h, 2015) Table 3, page XV.

7. Table 2:
World Economic Forum: “The Global Competitiveness Report 2015-2016” http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-
2016.pdf (accesed on october 27h, 2015) Table 3, page 11.

8. Table 3:
World Economic Forum: “The Global Competitiveness Report 2015-2016” http://www3.weforum.org/docs/gcr/2015-
2016/Global_Competitiveness_Report_2015-2016.pdf (accesed on october 27h, 2015) Country Profile, Peru, page 294.

9. • Looking at more detail in the index of infrastructure, in quality of overall
infrastructure Peru is ranked in 112 place, and regarding quality of railroad
infrastructure, the value is 1.9, and this put Peru in the place 94. In this
indicator (quality of railroad infrastructure) the value varies between 1 and
7, 1 meaning extremely underdeveloped, among the worst in the world,
and 7 means extensive and efficient, among the best in the world. (Table
4).
• According to recent estimates, the deficit in infrastructure in Peru for the
period 2016-2025 is around 160 billion dollars, of which in the transport
sector it is of around 57.5 billion dollars, or 36% of the total (see table 5).
Peru needs more highways, ports, railroads, etc.
• As a reference Peru’s GDP in 2014 was 203 billion dollars and its territory
size is of around 1.285 million square kilometers

10. Table 4:
World Economic Forum: “The Global Competitiveness Report 2015-2016” http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-
2016.pdf (accesed on october 27h, 2015) Country Profile, Peru, page 295.

11. Table 5: Deficit in infrastructure in Peru, years 2016-2025
“El Comercio” newspaper, November 4th 2015, page B6

12. • But Peru used to have until around one century and a half ago a more
decent railroad infrastructure thanks to an extensive program of railroad
construction that began from the 1860s. But the war with Chile between
1879 and 1883 destroyed most of that infrastructure.
• The first railway built in Peru (and in South America) was the one between
Lima and Callao, which began its operation in 1851. It had an extension of
14 km and was used to transport passengers. It disappeared at the end of
the 1930´s.
• One of the oldest, longest and that still exist is the Central Railway that is
535 km long. It connects the port of Callao, in Lima capital of Peru, to the
Huancayo city crossing the Andean Highlands. It began to be built in 1870
and its main aim was to transport the minerals of the several mines that
exists in the central Andean highlands, especially in the city of la Oroya. It
was considered until some years ago the highest railroad in the world,
crossing the Andean mountain by a tunnel at 4,783 mts above sea level.

13. III. Economic impact of the project for Peru
• First, the benefits could be immense, as it will allow to have products
(mineral and agricultural goods) sent from Brazil to China (and Asia in
general) through Peru, cutting the time and distance (and the costs) that
now take to send them first to the north in the Atlantic Ocean and then
cross the Panama Channel (also, the other way around, goods from China
should arrive faster and cheaper to South American markets).
• Second, Peru could benefit because the railway will go through its territory
by cities that now are not connected among themselves and to the
Coastline, and this would help the development of these cities. The lack of
infrastructure of transport and communications is one of the great
challenges of Peru, Brazil, and in general of Latin American countries. In
this sense the building of this railway could help in solving this problem

14. Possible Railroad route
El Comercio. 2015. Blog Vía China “La ruta de la seda se extiende a Sudamérica”. El Comercio. Lima, 17 de mayo. Consulta: 24 de
junio de 2015. <http://elcomercio.pe/blog/viachina/2015/05/la-ruta-de-la-seda-se-extiende-a-sudamerica>

15. • Due to the complicated geography of Peru, where the Andes mountains divide
the country in an Amazon region and one Coastal area, communication by road is
difficult and takes a long time.
• Third, the construction of the railroad would create thousands of jobs, and will
connect cities along the route and could help develop them.
• Also the need for rolling stock, tracks, could develop the metalworking industry,
transport industry and others more. The total cost of the railroad could be of 10
billion dollars or more (with China funding most of it).
• But some critics of the project point the fact that perhaps this is not necessary
because there is already a transport connection to Brazil through the interoceanic
highways and these are not fully used
• Another critic is that this railroad could perpetuate the asymmetric trade
relationship of China with Peru and Brazil (China mostly buy raw materials from
them and sell manufactured goods to them).

16. Interoceanic highways connecting Peru and Brazil
Source: : http://www.wsj.com/articles/SB10001424127887324183204578567824292440706

17. IV. Geopolitical aspect of this mammoth project
• The presence of China in Latin America is increasing. China has
become the second trade partner of the region and is becoming a big
investor (for some of them it is already the first).
• Construction of the railroad will strengthen the relationship. It will
increase Chinese presence not only in the field of trade but also in the
investment in infrastructure projects (in a region considered the
backyard of the US).
• The bi-oceanic railroad could compete with the route of the Panama
channel, and also there is the option of building a channel through
Nicaragua

20. Source: CEPAL: Latin America and the Caribean and China: Tpwards a new era in economic cooperation
http://repositorio.cepal.org/bitstream/handle/11362/38197/S1500388_en.pdf?sequence=1

21. Exports from Peru to main partners in Asia members of APEC (in million dollars) (FOB)
Source: Source: Peru’s Customs Office:
http://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122011.htm
For 2014 http://www.mincetur.gob.pe/newweb/Portals/0/documentos/comercio/RM_Expo_Diciembre_2014.pdf
Pag. 4
Country/Economy 1993 1997 2003 2006 2008 2010 2011 2014
World Total 3,344.40 6,741.75 8,939.82 23,431.43 31,162.75 35,073.25 45,636.0 38,161.70
Australia 14.99 16.31 53.12 38.25 79.81 117.5 115.3 127.0
South Korea 59.36 91.50 176.34 545.27 551.69 894.9 1,694.9 1,207.80
China 140.84 490.06 676.96 2,267.27 3,737.24 5,425.9 6,961.4 6,968.00
Hong Kong 28.60 68.82 30.31 42.14 54.21 78.5 92.5 155.30
Japan 299.04 473.57 391.16 1,229.76 1,853.18 1,790.4 2,174.8 1,580.20
New Zealand 1.50 - 3.72 7.59 12.60 13.5 18.4 30.3
Russia 9.90 9.48 14.18 25.61 21.74 57.9 79.5 137.8
Taiwan 118.78 159.11 147.28 415.03 596.11 293.0 368.8 316.00

22. Peru imports from main partners in Asia members of APEC (on million dollars) (CIF)
Source: Peru’s Customs Office:
http://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122011.htm
For 2014 http://www.mincetur.gob.pe/newweb/Portals/0/documentos/comercio/RM_Impo_Diciembre_2014.pdf
1993 1997 2003 2004 2007 2010 2011 2014
World Total 4,024.5 7,716.9 8,428.5 10,111.4 20,464.2 29,879.5 37,699.0 42,196.8
Australia 17.3 33.0 28.1 46.8 67.5 75.0 110.6 132.2
South
Korea
99.4 230.2 277.7 296.5 522.3 1,044.2 1,490.6 1,382.4
China 90.4 195.9 646.5 767.9 2,474.2 5,115.3 6,321.5 8,913.7
Hong Kong 12.2 17.0 15.1 21.9 16.5 22.8 15.7 16.7
Japan 303.6 417.9 367.4 358.8 790.3 1,366.9 1,307.1 1,106.1
New
Zealand
45.9 - 16.2 23.3 22.4 56.4 67.8 129.0
Russia 15.2 21.9 56.3 44.7 136.3 183.4 513.2 318.0
Taiwan 60.1 112.0 133.5 151.1 258.4 327.8 439.7 423.9

23. GRAPH 1: PERU: ESTIMATED PORTFOLIO OF MINING PROJECTS BY MAIN INVESTOR, JUNE 2015

24. V. Conclusions
• The difficulties and challenges to complete the project are big.
• It would go through the Amazonas region, where there is a dense forest
and heavy rain, and then have to pass the Andes Mountains at high
altitude, without causing a disruption or minimizing it, of the wildlife and
local native communities.
• The other challenge is to have a big port in the Coastal city in Peru where
the train will reach its final destination, and this port should be able to
handle the cargo for transport to (and from) China.
• Peru has to develop industries to take advantage of the railroad, so as not
be just the route for raw materials and goods being transported from Brazil
to China.
• A Chinese wish to extend the 21st century Silk Road (Maritime Silk Road)
to South America? (the one road, one belt initiative)

25. Macau and its position in Portuguese and Spanish global trade
routes (16th century Maritime Silk Road)
http://www.aaapoe.net/1china1-002aag.html