China is continuing to expand its reach and influence in port facilities beyond its borders. And given the growing divide between China and the United States in their trade relationship, the pace at which Chinese companies look to acquire port terminals in Europe, Asia and even South America could accelerate despite the current lull in activity, analysts say.
Chinese acquisitions in recent years have largely been done by two state-owned corporations: China Ocean Shipping (Group) Co. (COSCO) and China Merchants Port Holdings Co. Ltd. The former not only controls one of the world’s largest fleets of cargo ships, but also now owns a 51% majority stake in Greece’s Piraeus Port Authority after a purchase in 2016. The latter, meanwhile, bought up to 90% of TCP Participacoes SA, Brazil’s most profitable port terminal, in 2017.
China has also bought terminals in the Netherlands, Belgium, Italy, Israel, Sri Lanka and Pakistan. But while China’s pace of acquisitions trailed off toward the end of 2018, especially in Europe, Neil Davidson says the slowdown doesn’t reflect any overall cooling in China’s desire to expand further.
“This is not necessarily because they have lost their appetite; rather it is because opportunities to acquire suitable port and terminal assets in Europe are rare,” says the senior ports and terminals analyst with U.K.-based consultancy Drewry.
Davidson adds that Chinese investment remains very attractive to many European countries.
“The attraction is generally because the buyers bring investment in enhancing the facilities, and in the case of COSCO, they bring a connection with one of the world’s major container shipping lines.”
Ronald Linden, political science professor at the University of Pittsburgh, says Chinese appetite for European ports is especially strong because it fits Beijing’s One Belt, One Road economic initiative to link the Asian and European markets in a recreation of the ancient Silk Road.
Linden notes that Chinese foreign direct investment has been higher in Europe than in the United States for three of the last five years.
“Now you have some physical roads and trains cutting across Central Asia, but no roads can match what a port can do – with massive supertankers that can take 20,000 TEUs [20-foot-equivalent units] each. One of these ships can bring in six months’ worth of goods at a time … and the Chinese don’t have to deal with one agency that controls everything with port entry as they would face in North America, because Europe hasn’t created a single port agency yet.”
Frans-Paul van der Putten, senior research fellow of Clingendael (the Netherlands Institute of International Relations), says the attraction for some European countries is natural – especially for smaller players beyond the typical European Union (EU) giants in Germany and France.
“If you are a large domestic economy, ports are less important in the overall picture. But for weaker economies, Chinese investment in upgrading the port can make you more attractive for foreign investment, and that may make those economies more open to Chinese influence. Now, it doesn’t mean that, when Chinese investment happens, a country then automatically becomes a puppet of Chinese foreign policy. But it’s something that China can at some point leverage for political purposes, depending on how urgent those purposes are.”
Some observers have expressed concerns over China’s marine port expansion, given that it coincides with the launch of the country’s operations at its first overseas naval base in Djibouti on the Horn of Africa in 2017.
The potential for Beijing to repurpose Chinese-owned port facilities when geopolitical needs arise has also raised concerns. For example, China took over Sri Lanka’s Hambantota Port after the Sri Lankan government was unable to pay nearly US$13 billion in debt.
But Drewry’s Davidson notes that Europe is different.
“It is important to remember that in most cases, Chinese investors have bought terminals in ports, not entire ports. The port authorities – or landlords – remain owned by the governments of the countries involved, the only exception to this being COSCO in Piraeus. The majority of container terminal capacity in Europe remains owned by non-Chinese interests, as do virtually all of the port authorities.”
Linden adds that Europe is starting to institute safeguards. The EU recently created a framework agreement that allows other EU members to request “clarification” from an EU member approving foreign investments in port facilities. While not comprehensive, Linden says it is the first step in creating a more rigorous oversight system that’s needed and illustrates that Europeans are aware of the risks.
“In theory, China can decide how to expand its ports and terminals,” Linden says. “They have a plan to build a gigantic tourist facility in Greece. But the local Greek government has opposed that and has just blocked it. At the same time, Greek workers are finding out that – when a Chinese company takes over the port – it doesn’t help the local labour situation as much as they have hoped, because the company brings in a lot of their workers.
“Almost everybody I talked to when I was in Europe doing research on this knew about Sri Lanka. So I think there’s at least potential for pushback, because countries in Europe have alternatives.”
Regardless of more scrutiny, however, Linden and van der Putten both note that China will continue to harbour significant port acquisition aspirations – as much for the country’s own economic survival as for its international ambitions.
“If you look at Chinese growth rates, they have flattened out,” Linden says. “They need to keep selling, they need to keep manufacturing, and they need to get the best technology. And they now have a huge middle class that’s not going to be satisfied with a better chair or a basic car. That middle class now wants Italian and French goods; people want to travel to those countries themselves. The economy has to keep growing for the regime to keep people happy, so I would say the push factor is very strong.”
Van der Putten adds that, with the trade war erecting tariff barriers between North America and China, acquiring ports in countries that still have good access to both markets will be the new name of the game, because Chinese port acquisitions are often accompanied by additional infrastructure and industrial investments clustered around port facilities.
“One thing that has been a constant – and has accelerated because of the trade war – is the relocation of industry,” van der Putten says.
“Previously, there has been a very strong concentration of industry within China, and now there’s relocation from China to other countries … where export to North American markets is still not affected by the trade war. In this regard, this makes the shipping dimension more important.”