Wednesday, September 6, 2017

China's Seaport Shopping Spree: What China Is Winning By Buying Up The World's Ports

https://www.forbes.com/sites/wadeshepard/2017/09/06/chinas-seaport-shopping-spree-whats-happening-as-the-worlds-ports-keep-going-to-china/#4cc22d084e9d


SEP 6, 2017 @ 09:44 PM211 

Wade Shepard ,  

 CONTRIBUTOR

 

Container ship Cosco Development. /RODRIGO ARANGUA/AFP/Getty Images

In a bid to bolster its position as a maritime powerhouse, secure key supply chains, enhance its international trade capacities, and build up geo-economic leverage, China has been buying up the development and operational rights to a chain of ports that stretch from the southern realms of Asia to the Middle East, Africa, Europe, and even South America.

While big Chinese state-owned firms began acquiring ports around the world rather quietly roughly a decade or so ago, now, under the strategic framework of what has been dubbed the 21st Century Maritime Silk Road (MSR) — the watery part of the broader Belt and Road Initiative (BRI) — these acquisitions have taken on a booming significance as this inter-continental network begins to take shape.

It seems as if it is now almost daily news to hear about how a Chinese state-owned shipping firm has purchased a seaport or won the rights to develop a new ocean or land terminal in another country. On Monday, we found out that China Merchants Port Holdings just bought a 90% share of the Brazilian port operator TCP Participações for nearly a billion dollars. Before that, it was announced that Jiangsu province paid $300 million to build a free trade zone around Khalifa Port in Abu Dhabi -- a seaport which saw a new terminal go to China's COSCO at the end of last year. In July, China Merchants took control of Sri Lanka's Hambantota deep sea port for $1.12 billion. Next, we may hear about how Lithuania finally opens the doors and lets China Merchants move in and do their thing at Klaipeda port. In the past year alone, China has invested over $20 billion into seaports on foreign terrain, doubling the amount they spent in the previous year, according to estimates by the Financial Times.

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These new acquisitions add to China's growing portfolio of international port holdings, which now span the world with terminals in Greece, Myanmar, Israel, Djibouti, Morocco, Spain, Italy, Belgium, Côte d’Ivoire, Egypt, and around a dozen or so other countries.

The Maritime Silk Road

The 21st Century Maritime Silk Road was first announced by Xi Jinping in Jakarta a month after the initial revelation of the Belt and Road Initiative (then called One Belt, One Road) in Astana in 2013. The vision was for China to construct an array of three enhanced sea routes from China to Europe and Africa, and filling them with new ports, manufacturing zones, and even entirely new cities. While this initiative was initially often met with skepticism and even abject mockery by the international community, China has been cobbling it together piece by piece — port by port — and is now something that is extremely difficult to marginalize or ignore.

Over the past few years, China has created a fully state-owned and operated global shipping empire. Giant SOEs like China Merchants and COSCO Shipping are now running 29 ports in 15 countries and 47 terminals in 13 countries, respectively. On top of this, other, relatively smaller state-owned entities like Shanghai International Port Group, Ningbo Zhoushan Port, and the Port of Lianyungang are also jumping into the fray, gobbling up the world's sea and land ports.

What does all of this mean?

Ocean shipping is, almost by definition, an international affair, and we need to ask if China’s recent maritime expansion is really anything out of the ordinary. Are we putting an undue emphasis on the port acquisitions of China without proper contextualization?

We live in a world where port operators from one country own and operate terminals in other countries. PSA (Port of Singapore Authority) operates terminals in 15 countries, Denmark's Maersk Line has 57 terminals in 36 countries, Switzerland's Mediterranean Shipping Co (MSC) has 35 terminals in 22 countries, while Dubai's DP World runs 77 ports in 40 countries. So if we just look at the raw numbers it would seem as if China's maritime movements are in step with the rest of the world.

However, there are often some key differences between how China's maritime companies operate internationally and what their projects look and feel like.

“COSCO and China Merchants Holdings -- unlike PSA and DP World-- do not function according to a fully commercial logic, but also have to align to state policies, such as the Belt and Road Initiative,” Olaf Merk of the International Transport Forum at the OECD explained. “Hence their willingness to pay higher prices for some terminals than any other operator would do.”

A case in point: COSCO shipping was given no less than $26.1 billion by the China Development Bank to throw into Belt and Road projects earlier this year.

While China’s new array of port holdings are fundamentally economically motivated projects there is a glaring political dimension as well.

While China's international port acquisitions may at first seem to be offensive maneuvers, their nature is inherent defensive. By owning and operating a complex network of key logistical nodes across Asia, Europe, and Africa, China can essentially control a huge portion of its inbound supply chain for essential commodities -- like energy resources from the Middle East -- and outbound trade routes for its exports. They provide China with a higher degree of self-reliance and decreases the amount of political and economic leverage that other countries can apply.

China’s International port holdings also tend to be very strategically positioned, not only connecting together like a dot-to-dot across the map of Eurasia but also linking in with the overland Silk Road at key junctions, providing China with a new array of options for getting commodities and goods in and out of the country -- a series of backdoors, if you will. Theoretically, if one shipping trade lane goes down China can bypass it by increasing the flow through another.

Example: The $10 billion Kyauk Phyu Special Economic Zone in Myanmar isn’t only becoming a Chinese shipping / manufacturing epicenter on the cusp of Southeast and South Asia, but is one of the points where China's maritime and overland Silk Roads connect, with a corridor that shoots north to Kunming in southwestern China that is already being provisioned with gas and oil pipelines. This provides China with a direct route to the sea for energy shipments coming from the Middle East that completely bypasses the heavily US-influenced Strait of Malacca, which could theoretically be flipped off like a switch in a time of crisis, cutting China off from most of its west-bound maritime trade routes.

These new port holdings also further enmeshes China into the political and economic fabric of the world. While seemingly irrational, inflated amounts of money are being passed over the table today, what China is receiving are strong footholds in the international arena that they will be able to stand upon for decades, creating a new geo-economic paradigm in the process. While national leaders put on smily faces and talk about “win-win” partnerships, international infrastructure projects like China's maritime developments are drawing up the new front lines of the 21st century, where economic leverage is the weapon of choice.

“The large investments also give China geopolitical clout in different world regions, such as South Asia, Africa, and the Mediterranean, with recipient countries less prone to counter Chinese interests or positions,” Merk added.  ​

"Chinese involvement in foreign ports contributes to the emergence of China as a global power," concurred Frans-Paul van der Putten, the editor of the Clingendael Institute's popular New Silk Road newsletter. "In various countries in Asia, Africa, Europe, and Latin America, Chinese state-owned companies and the Chinese government are acquiring a long-term economic influence as financiers, builders, operators, owners, and major customers of ports and port-related assets. Given the key role that ports often play in national economies, such influence may result in a certain degree of political leverage."

Another key area where China’s port acquisitions diverge from those of other countries is the fact that they are often not only developing mere seaports but complete transport-centric economic zones, which generally include manufacturing areas, business centers, power plants, and, occasionally, residential housing projects. With China, emerging markets can get an entire slate of development in one fell swoop.

“Chinese overseas port investment typically involves a whole range of Chinese state-owned enterprises: a Chinese bank or development bank, a Chinese port construction company, and a Chinese operator,” Merk explained. “A new port needs to be financed, designed, constructed, operated, dredged, and serviced; all business activities that Chinese firms are eager to provide.”

A good example of these "all-inclusive" port projects is Hambantota, in Southern Sri Lanka. Hambantota is not only meant to be the locale of a deep sea port, but a completely new economic ecosystem, replete with a massive industrial zone, a liquified natural gas plant, a conference center, stadiums, a tourism area built on reclaimed land, and an airport (which is currently happens to be one of the most underutilized international airports on the planet).

What's in it for us?

The benefit flow of China's international port projects doesn’t only go one way, as they often have a direct and immediate positive impact on the local and regional economies that they are being developed in. As Merk points out, “Chinese investment in the Greek port of Piraeus has transformed it into one of the main Mediterranean hub ports, showing spectacular growth rates. Investment by China’s COSCO means that the port will be more likely to attract Chinese cargo.”

What China offers is the FDI that emerging markets, diversifying economies, and some of the stagnant countries of Europe are hungry for on a silver platter, provisioning countries with large-scale infrastructure projects they couldn’t otherwise afford and then providing the cargo, companies, and other investors to make them a success. Basically, China agrees takes care of both sides of the supply-demand dynamic — they become both the buyer and the seller of the goods and services these new port-centered economic zones create — and allow the host countries to benefit from the economic shockwave which subsequently resonates.

While these international Chinese port acquisitions may appear to be another example of China-nomics, where demand is initially artificially created to absorb supply until more sentient market forces kick in, but China has proven that this form of long-term, multifaceted development can be made to work. Most of China’s so-called ghost cities that were built in the mass urbanization phase between 2003 to 2012 have now become vibrant economic hubs.

What is being laid down via China’s Belt and Road isn’t something for today, but for tomorrow, next year, 50 years from now when China has a complete network of ports and trade routes that cover the globe and their hands on a powerful set of levers that give them full control of their supply chain and the geo-economic leverage to do what they please.

I'm the author of Ghost Cities of China. Traveling since '99. Currently on the New Silk Road. Read my other articles on Forbes here.

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