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A new Chinese port in Peru

19 December
2024
China's gain is America's loss as the deal ends half a century of control of a key Latin American port.
 China should be extremely grateful to the government of Peru, Dina Boluarte. China's state-owned shipping giant Cosco has ended exclusive use of Peru's new Chancay deep-sea megaport for up to 60 years, thanks to its Congress rewriting foreign ownership rules to make it happen after a long dispute with the country's Ports Authority.
The agreement provides many other benefits. For a relatively small investment of about $1.6 billion -- a fraction of the total cost of $3.6 billion -- Cosco has a 60 percent stake. China is also getting an important new connection between China and Latin America in the form of two new container shipping routes.
At the same time, the logistics costs of Chinese exports to the region will fall significantly, and the revenues of the Cosco Ports operator will increase. There will also be additional opportunities for Chinese connections in the region, as President Xi Jinping noted when he officially opened the port in mid-November.
Once again, China's One Belt One Road strategy has defeated the United States. Located 80 kilometers from the capital Lima, the port symbolizes the long and expensive neglect of Latin America. It says a lot that Peru, a country of 38 million people, already has significantly more trade with China ($36 billion) than with the United States ($21 billion), although of course the reverse should be the case.
American neglect
Former President Joe Biden's state visits to Peru and Brazil in November were only his second visit to South America while in office. As the Atlantic Council notes: "In both cases, he will try to restore US momentum, but will offer nothing after last week's Democratic defeat." Donald Trump made only one visit to this region out of 33 countries during his last term, and that was to Argentina.
At the same time, the port is a classic One Belt, One Road operation that takes more than it gives. Although it promises to boost Peru's exports to the Pacific, generate $4.5 billion a year in revenue and create 8,000 jobs, its construction has been mired in controversy. The Peruvian news agency Ojo Público notes that Cosco and Volcan, a local mining group that jointly built, were able to seize a large marine area that was supposed to be designated for defense, start work without any environmental studies (slides during construction 1.8- kilometer tunnel covered with houses), and bought up state land for less than a dollar per square meter. Compensation demands by local protest groups "were met with indifference and harassment."
Senior US military officials are also concerned. Last year, Gen. Laura Richardson of the US Southern Command warned that China was "on the 20-yard line from our homeland," suggesting that Changkai could be a dual-use facility that could host warships. If that happened, Cosco Ports would be caught in the middle.
"Should a conflict break out, for example, in Taiwan or the South China Sea, this global network of 38 ports operated by Cosco could become a major logistical challenge for foreign militaries looking to ferry ships or cargo to the Indo-Pacific region." . , warns the Atlantic Council.
And now it is 39 ports. In October, Cosco bought a significant stake in Thailand's largest container port, Laem Chabang, for US$110 million, according to its website. Extremely profitable, according to recent reports, Cosco says it gets 28 percent of its profits from fast-growing revenues, about a quarter from its overseas ports. As of the end of 2024, Cosco was building and/or operating ports on strategic waterways from the Aegean Sea to the Panama Canal.
The Atlantic Council believes that it is long past time for Western countries to step in with their own capital projects to "counter the harmful Chinese (and Russian) influence in Latin America and the Caribbean." These should be "attractive and affordable alternatives for regional economic development" that will be based on investment in projects that will be an alternative to initiatives supported by Beijing. The problem may be that Western-style capitalism cannot compete with the Chinese state version. For example, no American firm applied for a major expansion of Colombia's Bogotá subway, while three Chinese firms did.
Meanwhile, according to the Lowy Institute's latest Pacific Aid Map, China is advancing its Belt and Road strategy in the Pacific through a "resurgence of new project commitments [signaling] Beijing's renewed engagement with the region." Specifically, China targets specific countries with large grants rather than loans, while handing out “often smaller grants throughabout embassies". For example, the Solomon Islands Voter Development Fund has received a "large direct budget transfer" from Beijing, while the Kiribati Social Stability Fund is the recipient of a significant transfer, also courtesy of Beijing. As the Institute explains, each of these loans is "characterized by weak accountability mechanisms." (The official government websites of both countries do not link to these grants.)
Death bell
Peru's new port could spell the death of another epic project, a giant 125-kilometer canal through Nicaragua that would rival the Panama Canal. Originally mooted more than a century ago, it was revived in 2013 by a shadowy Chinese company called HKND, which pledged to build the canal by 2020. "World trade today is so developed that it needs a new channel," said its initiator, Mr. Wang. Jing. Progress went as far as a 50-year right issued by the Nicaraguan government with an option to extend for another 50 years, but little has been heard since then.
Meanwhile, Peru's new port extends China's economic influence inland and beyond. Designed for the future, it can handle one million containers, six million tons of bulk cargo and, in a major boost to China's automotive sector, 160,000 vehicles. The 1.8 kilometer long tunnel leads directly to the Pan American Highway. Next will be a regional distribution center that will essentially store Chinese-made goods destined for South America.
In short, China's economic foothold in Latin America at the expense of the United States.