Pity the Peruvian negotiators who, five years ago, signed an agreement with the Chinese giant Cosco Shipping Ports. The agreement was about the Port of Chancay, located near Lima, which was to become a megaport and “the gateway from South America to Asia,” as one Cosco manager told The Associated Press. But now, as the massive port nears completion, an “administrative error” by unnamed officials in Peru has given Cosco Shipping Ports exclusivity over operations at the Port of Chancay, the Peruvian port authority (APN) announced in March. Other infrastructure operators still hoping for large Chinese investments should pay heed.
Pity the Peruvian negotiators who, five years ago, signed an agreement with the Chinese giant Cosco Shipping Ports. The agreement was about the Port of Chancay, located near Lima, which was to become a megaport and “the gateway from South America to Asia,” as one Cosco manager told The Associated Press. But now, as the massive port nears completion, an “administrative error” by unnamed officials in Peru has given Cosco Shipping Ports exclusivity over operations at the Port of Chancay, the Peruvian port authority (APN) announced in March. Other infrastructure operators still hoping for large Chinese investments should pay heed.
That’s bad news, because the two-terminal construction is be completed later this year, and Peru has great expectations. Cosco acquired 60 percent ownership over the port when the deal was announced in 2019, and together with Peruvian mining company Volcan, it has invested a staggering $3.5 billion in the project, which intends to turn the natural deep-water port into a cargo megaport. The Peruvian government, though, assumed that the Chinese shipping giant would merely be using the port that it will majority-own, not have exclusive rights to it. But during the negotiations, Cosco somehow gained precisely these rights. Now APN is trying to rescind the exclusivity, saying it made a mistake.
Oh, to be a fly on the wall at APN headquarters or the office of new Peruvian new Economy Minister José Arista, who has to help sort this mess out. A mere five years ago, Cosco’s investment in Chancay, which is located a mere 40 miles to the north of the capital city of Lima, seemed to be unmitigatedly good news.
Chancay will indeed gain two massive terminals. There will be a new container terminal with 11 berths and new a four-berth terminal for bulk cargo, general cargo, and rolling cargo, World Cargo News reported. How many countries just happen to have a natural deep-water port in a strategic location and then manage to attract Chinese money to massively expand it?
In what seemed to be even better news for Peru, sailing from Chancay will dramatically cut the travel time for vessels headed to China from the region. That, of course, means increased revenues and regional power for Peru. So exciting was Chancay’s future that in March, Arista took Brazilian Planning Minister Simone Tebet to the port to discuss prospective Brazilian exports from it. Brazil—a major food-exporting nation—is interested in shipping soybeans and corn from Chancay, which would cut the transit time to Asia by some two weeks compared to the Panama Canal route, Reuters reported. (China is Brazil’s top buyer of soybeans.)
The joy was, alas, abruptly halted last month, when Cosco sent Arista’s Economy Ministry a letter disputing the contents of a message that it had received from APN. In its letter, the port authority had explained its “administrative error” and pointed out that it doesn’t have the authority to grant exclusive port access. The Chinese firm, though, is standing its ground, even implyingthat it could pull out if it doesn’t get exclusive access.
The Peruvian government may—like countless other governments in countries ranging from Italy to Sri Lanka that, until recently, enthusiastically courted Chinese infrastructure investments—simply have gotten cold feet about Cosco in Chancay, especially since Cosco is ultimately owned by the Chinese state through its mainland-based parent company, Cosco Shipping. Or APN may in fact have been outfoxed in the negotiations. Last year, the U.S. government told Lima that it was concerned about Chinese infrastructure control in Peru.
Either way, the Peruvian government is now in a massive bind, with the port scheduled to be completed and start operations at the end of this year.
That raises the question of how many other governments have enthusiastically negotiated agreements with Chinese infrastructure investors without understanding all the fine print.
According to research by the Council on Foreign Relations, Chinese firms have invested in 92 active ports outside China, including Hamburg, Rotterdam, and seven other EU ports as well as three in Australia. And 13 of those 92 ports, including two container terminals in Spain and Greece’s Port of Piraeus, have majority-Chinese ownership. In 10 ports with Chinese investments, the Council on Foreign Relations identified “physical potential for naval use.”
In the United States, meanwhile, security services have discovered secretly installed communications equipment in Chinese-built cargo cranes operating at U.S. ports. How many port projects that are not yet complete have unwittingly granted Chinese firms exclusive access? We likely have no way of knowing until they’re operational. But we may see more Chancays.
There are plenty of strategic reasons for these Chinese investments. At the Doraleh Container Terminal in Djibouti, the Chinese operator China Merchants Port Holdings (whose ultimate owner is also the Chinese state) is trying to dislodge the Emirati firm DP World from a long-standing contract granting the latter exclusive access. In 2017, the Chinese military opened its first overseas military base—also in Djibouti.
Many countries’ enthusiasm for China has waned. Last year, a Pew Research Center poll covering 24 countries across all inhabited continents found that a median of 67 percent of people viewed China unfavorably, compared to only 28 percent who viewed it favorably. That’s a dramatic increase from a median unfavorability rating of 41 percent that Pew found less than five years ago.
Such sentiments, though, are unlikely to discourage Chinese firms from trying to gain a stake in overseas infrastructure. In the Arctic Norwegian port town of Kirkenes (population: 3,404 people), located just 13 kilometers (8 miles) or so from the Russian border and home to the closest NATO port to Russia, no fewer than six Chinese companies are seeking to establish operations. The prospective investors include a textile manufacturer, an automotive manufacturer, a technology firm, an investment fund, a construction firm, and a shipping company.
Chinese firms are also interested in building and financing the Kirkenes Port, Norwegian National Radio reported. Kirkenes is, of course, also conveniently located near the Northern Sea Route, which goes along Russia’s Arctic coast and would slash the travel time for ships traveling from northern Europe to the Chinese East Coast or vice versa. The investment would be a big boost, but also raises security concerns for a town already on high alert. In February this year, a Russian citizen was arrested photographing military installations in Kirkenes.
Are Norwegian port representatives and other officials up to negotiating a complex deal with a Chinese company such as Cosco without giving away the store, should the suitors present a strong offer?
As attractive as Chinese money can be, let’s hope that strategic sense might sometimes prevail.
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