China is developing an alternative domestic route to cut industrial costs

Whilst the Middle East is in turmoil and seeking alternative routes, the opening of the Pinglu Canal, 134.2 kilometres between the Xijiang system and the Beibu Gulf off the coast of Vietnam, risks being a logistical game-changer. Not so much because it shortens the distance between China and Europe, but because it alters the Dragon’s production costs. By cutting out over 560 kilometres from the domestic routes previously channelled towards Guangzhou, Beijing is introducing a new element of efficiency into an industrial system which, in 2025, exported goods worth 559.4 billion euros to the European Union, whilst trade between China-ASEAN trade exceeded one trillion dollars. For Brussels, Berlin, Rome, Paris and London, the problem is therefore not the canal itself, but what it represents: a further reduction in upstream costs for a manufacturing sector that competes directly with Europe in machinery, electronics, the automotive industry, chemicals and strategic materials. In 2025, the European Union imported goods from China worth €559.4 billion, accounting for 22.3 per cent of all non-EU imports, compared with European exports to the Chinese market totalling €199.6 billion. The trade deficit stood at 359.8 billion euros.

In the second quarter of 2026, Chinese imports were still worth 153.6 billion, accounting for 21.9 per cent of non-EU purchases, whilst the quarterly deficit had risen to around 103 billion. These figures explain why a seemingly regional infrastructure can take on a European dimension. A manufacturer in south-west China that reduces domestic transport, handling, storage times and tied-up capital can use the savings in four ways: to reduce the export price, increase the margin, support higher marketing expenditure, or better absorb tariffs and regulatory costs. In 2025, the EU purchased from China €164.9 billion worth of machinery and electrical equipment, €106.5 billion worth of mechanical machinery, €34.1 billion worth of organic chemicals and €29.9 billion worth of vehicles. The first two categories alone are worth around €271.4 billion. Pinglu is therefore at the heart of European industrial competition.

The second factor is even more significant. In 2025, trade in goods between China and ASEAN reached 7.546 billion yuan, exceeding 1.050 billion dollars. Between January and July 2026, this figure reached 744.41 billion dollars, representing a 24.7 per cent increase, and accounting for 21.8 per cent of China’s total foreign trade. In the first eight months of 2026, Chinese imports from ASEAN rose by 20.3 per cent. This means that South-East Asia is no longer merely an end market for Chinese products. It is part of the production process. Components, machinery, minerals, chemicals, battery materials and semi-finished goods may pass through the region several times before the final product reaches the European consumer. Whilst Chinese exports to the United States fell by 20 per cent, amounting to approximately $105 billion, those to Vietnam rose by 22 per cent, to Thailand by 20 per cent, to Indonesia by 11 per cent and to Cambodia by 28 per cent. At EU level, imports from Vietnam rose by 7.8 billion between January–November 2024 and the same period in 2025.

The port of Beibu had already exceeded 10.06 million TEUs in 2025, compared with 2.28 million in 2017, with over one hundred container services and connections to more than two hundred ports in over one hundred countries and territories. In 2025 alone, twenty new routes were added. Pinglu is therefore not building a port from scratch. It is connecting a new industrial hinterland to a maritime system that is already large enough to support an expansion in traffic. For Europe, the outcome will depend on what the shipping lines do. If Beibu Gulf manages to attract sufficient volumes, it may gradually play a more significant role in rotations to Europe or alter Asian transhipment networks. If, on the other hand, cargo continues to be transferred to large regional hubs prior to the intercontinental crossing, the impact on European ports will remain indirect.

The most sensitive issue concerns strategic materials. In 2025, China supplied 92 per cent of Europe’s magnesium imports, 77 per cent of its gallium imports and 68 per cent of iron-tungsten. As for rare earths, China’s share accounted for 46.8 per cent of the total imported by the EU. These figures must be viewed in the context of the Critical Raw Materials Act, which sets a target for 2030 of not relying on any single third country for more than 65 per cent at any significant stage of the processing of a strategic material, alongside targets of 10 per cent for European extraction, 40 per cent for processing and 25 per cent for recycling. The problem is that diversifying the source of extraction does not necessarily mean diversifying the processing. A mineral may come from Indonesia or another ASEAN country and still rely on Chinese refining, conversion or processing. Pinglu could reinforce this very structure, making the flow of raw materials from South-East Asia to China – and their subsequent return to the sea in the form of processed products – more efficient. Gallium illustrates just how much logistics can be dictated by trade policy. Between 2022 and 2025, European imports fell by 56 per cent following Chinese export restrictions, but China continued to supply 77 per cent of the total. In the case of ferrotungsten, China’s share stood at 68 per cent, Vietnam’s share was 21 per cent and Kazakhstan’s 8 per cent, whilst the average import price had risen from 21.3 euros per kilogramme in 2019 to 33.8 euros in 2025.