BEIJING has opened a new $10.8bn trade artery to Southeast Asia, bringing the long-awaited Pinglu Canal into service as China accelerates efforts to deepen regional supply chains and reduce its reliance on traditional export routes.

The 134.2 km waterway entered operation on Wednesday following four years of construction, creating a direct river-to-sea connection between China’s southwestern manufacturing base and the Gulf of Tonkin. By linking the inland county of Hengzhou in Guangxi with Beibu Gulf ports, the canal shortens cargo journeys to Asean markets by over 560 km and reinforces a trading relationship that has become increasingly important as Beijing seeks to diversify trade beyond the US.

Chinese authorities estimate the Yuan72.7bn ($10.8bn) project will cut logistics costs by more than $770m annually. Thirty general cargoships used the canal on its opening day, with inaugural sailings from Guangxi’s Nanning and Qinzhou ports, Chinese state broadcaster CCTV News reported. The cargoes included containers and dry bulk commodities such as construction materials, coal, minerals, steel and fertiliser.

The canal, one of the most significant inland waterways built under China’s Belt-and-Road Initiative, comes as Beijing continues to strengthen commercial ties with Southeast Asia to cushion the impact of an increasingly fragmented global trading environment and unresolved tensions with Washington.

Chinese President Xi Jinping is expected to extend an existing trade truce when he visits Washington later this month, but a comprehensive deal that could fundamentally reset the bilateral relationship remains unlikely.

China and Asean have been each other’s largest trading partner for six consecutive years, with bilateral trade rising 18.2% year on year to Yuan4.34trn in the first half of 2026, according to Chinese customs data.

Chinese Premier Li Qiang said last October that Beijing was willing to stand together with Asean in the face of rising protectionism and “unreasonably high” tariffs.

“The graver the situation, the more firmly we must unite to safeguard our legitimate rights and interests through mutual reliance,” he said at the 28th China-Asean Summit in 2025.

Industrial belt takes shape

The new route is already reshaping industrial planning and investment along its length.

Sichuan has begun running river-rail-sea services to Asean via Guangxi, giving the province’s battery, solar and machinery makers a shorter path to Southeast Asian markets, according to CCTV News.

Nanning’s canal economic belt signed 133 projects worth at least Yuan50m each in the first half of this year, including new energy and battery plants, with combined investment of Yuan56.6bn, state news agency Xinhua reported. Qinzhou and other cities along the route are also building out port-side manufacturing.

Going forward, the cargo base will predominately come from the southwestern provinces of Yunnan, Guizhou, Sichuan and Chongqing, as well as Guangxi itself, covering non-ferrous metals, construction materials, minerals and agricultural and forestry products, said Li Hengchang, deputy general manager of Pinglu Canal Group.

Li added that the operator will also try to draw Asean containers and foreign trade cargo through the canal to Beibu Gulf ports, expanding both domestic and export flows.

Authorities said the canal will allow river vessels to sail to sea and seagoing ships to enter inland waterways, closing what they called the “last mile” of river-sea intermodal transport.

Lower transport costs, but limited scale

The canal will mainly benefit Guangxi and neighbouring provinces such as Guizhou by cutting transport costs for export-oriented industries that have long relied on road and rail, said Tianchen Xu, senior economist at the Economist Intelligence Unit.

China’s southwestern region has attracted relocated manufacturing in recent years, but many of the factories lie far inland, leaving cargo to travel long distances to reach a port, Xu told Lloyd’s List.

“If goods can head straight south through the canal to Beibu Gulf, the logistic savings should be fairly obvious,” he said.

But lower transport costs could also place manufacturers in southwestern China in more direct competition with producers in southeast Asia, particularly in lower-value industries, Xu said.

Despite the expected logistics savings, the canal’s restriction to 5,000-tonne vessels raises questions over whether traffic revenue alone can justify its construction cost.

A man-made canal of such scale is “fairly small” in international shipping, said Jayendu Krishna, maritime advisory practice of Drewry.

Typically, an intra-Asia vessel carries between roughly 20,000 and 50,000 tonnes of cargo, Krishna said. “Here we’re talking about 5,000 tonnes per vessel. The economies of scale are obviously not as great.”

The canal reflects a strategic priority rather than a purely commercial case, Krishna said, citing trade with Southeast Asia that has “grown quite significantly” since US-China tensions escalated in 2018.

“I’m not sure what the payback period is going to be,” he said. “It’s probably going to be a really long time for a $10bn investment.”