China goes on the rails to rival Panama canal

China is proposing to build a rail link to rival the almost century-old Panama canal, the Colombian president has said.

The 220km rail connection would connect Cartagena, on the northern Atlantic coast of Colombia, with its Pacific coast – making it easier for China to export its goods through the Americas and import raw materials such as coal.

"It's a real proposal … and it is quite advanced," Juan Manuel Santos told the Financial Times (subscription).

Although the link would be almost three times the length of the canal that cuts through neighbouring Panama, the president added: "The studies [the Chinese] have made on the costs of transporting per tonne, the cost of investment, they all work out.

"I don't want to create exaggerated expectations, but it makes a lot of sense … Asia is the new motor of the world economy."

The success of the planned connection would depend on costs as well as speed. Sceptics point out the canal is undergoing a $5.25bn (£3.3bn) expansion to double its capacity.

Panama also has a rail route, built almost 60 years before the canal, which is more expensive than the waterway for shippers but faster.

Rodolfo Sabonge, the Panama Canal Authority's vice-president for research, told the FT he was more concerned about competition from US rail freight services, which allow Asian exports to reach the east coast from west coast ports.

A shipping executive told the newspaper that moving containers on to and off the link at either end would probably cost $200 each in addition to $100 fees for the rail transport. In comparison, fees for the canal are around $100 a container.

But the plan also includes a proposal to build a new city south of Cartagena to assemble Chinese exports.

Gao Zhengyue, China's ambassador to Colombia, told the FT: "Colombia has a very important strategic position, and we view the country as a port to the rest of Latin America."

The ministry of foreign affairs in Beijing confirmed the proposal.

The project is reportedly one of several Chinese proposals to improve transport links with Asia. The most advanced is a $7.6bn plan to build a 791km railway and expand the port of Buenaventura, on Colombia's Pacific coast. It would allow up to 40m tonnes of freight a year to be carried from Colombia to its ports and promote the export of coal to China, where demand is rising fast.

Colombia's existing rail network already links Bogotá with the Caribbean coast and the east of the country, but it has suffered from decades of underinvestment.

The proposed route crosses three mountain chains and passes through remote areas dominated by leftist rebels and heavily armed drug-trafficking militias. Companies working on major infrastructure projects have often been the targets of sabotage and extortion by the country's warring factions.

But China's own ambitious railway expansion programme has given it experience of building at speed, and of tackling complex technical problems – notably in constructing the line linking Tibet to the rest of China, which crosses 550km of continuous permafrost and must endure extreme temperatures.

In addition to its massive domestic investment and its expansion of links to neighbours, China has also sought to export its expertise – rebuilding Angola's rail network and signing deals with countries including Algeria and South Africa. Earlier this month, Iran's Press TV reported that the two countries had signed a $13bn contract for China Railways to build 5,000km of track in Iran.

Xu Shicheng, a researcher with the Institute of Latin-American Studies at the Chinese Academy of Social Sciences, pointed out that China has already started building a railway in Venezuela and recently signed a deal with Argentina to construct another.

"In the 70s and 80s, China was also helping to expand ports in Colombia. So I don't think it is surprising that China is building a railway there," he said.

"China has a large foreign exchange reserve and it makes sense to invest in such projects. It is doing a lot of things in Latin America, such as building power stations in Ecuador and exploring iron and oil in Brazil."

He added: "For countries like Brazil, Argentina and Chile, China buys more stuff from them than they buy from China. But China buys less from Colombia than [vice-versa], so Colombia has always wanted to export more to China."

Latin American exports to China leapt nine times between 2000 and 2009 in real terms, to $41.3bn. That was a far higher rate of increase than for exports overall, although from a low base; by 2009 China accounted for just under 7% of all exports from the region.

China is Colombia's second largest trade partner after the US, with bilateral trade rising from $10m in 1980 to more than $5bn in 2010.

But the FT suggested Bogotá also hoped the rail proposals would encourage Washington to push for ratification of a free-trade agreement signed by both governments four years ago, but yet to be approved by Congress.

Additional research by Lin Yi