China’s Growing Dominance in Shipping – The Diplomat
Last month, US President Joe Biden announced plans for 24/7 operations at the Port of Los Angeles after similar measures were implemented at the Port of Long Beach. Together, the two ports account for nearly 40% of containers entering the United States. As the holiday season approaches, expanded port operations aim to address disruptions in the global supply chain and help reduce the growing backlog of shipping containers stretching from the coast to San Diego. The congestion of cargo in US ports has not only contributed to fears of rising inflation, but has also brought renewed attention to the critical role of the shipping industry in the global economy.
With 90 percent of the world’s goods crossing the ocean to reach their destination, the importance of the shipping industry cannot be understated. Historically, control of the world’s sea lanes has been a central focus of the art of economic and military governance. Since the Age of Discovery, maintaining reliable access to the world’s waterways has been viewed as a key source of national energy.
In 1616, the English statesman Sir Walter Raleigh proclaimed: “Whoever commands the sea commands trade; whoever commands the commerce of the world commands the wealth of the world, and therefore the world itself. Centuries later, one of the most distinguished American naval strategists of the 19th century, Alfred Thayer Mahan, would echo this idea. In his 1890 magnum opus, “The Influence of Maritime Power on History, 1660-1783,” Mahan argued that national greatness is directly linked to control of the world’s oceans, for peacetime commercial advantages. and strategic advantages in wartime. In particular, Mahan stressed the importance of strategic locations such as choke points, refueling stations, canals and seaports.
With this in mind, the growth of Chinese investment in the shipping industry, both domestically and abroad, should be of major concern to geopolitical rivals such as the United States. In addition to its growing accumulation of shipping ports, China is the leading manufacturer of shipping equipment, producing 96% of the world’s shipping containers, 80% of dock cranes, and receiving 48% of global shipbuilding orders. in 2020. China has the second largest merchant ship fleet in the world and, according to the United States Office of Naval Intelligence, has now overtaken the United States as the world’s largest navy in terms of numbers total warships.
All of this is testament to China’s increasingly assertive and expansionist stance. Centered inwardly for much of the 20th century, China’s economic interests continue to expand increasingly beyond its borders. China’s ascendancy in the maritime trade space over the past decade has been nothing short of prolific. For Chinese officials, however, this development is not simply the result of fortuitous circumstances, but rather the result of careful and strategic planning.
A new economic strategy
In a 2013 speech at Nazarbayev University in Kazakhstan, Chinese head of state and secretary general of the Communist Party Xi Jinping first announced plans for the Belt and Road Initiative (BRI). This multibillion-dollar investment strategy, which spans three continents and nearly 60 countries, is designed to strengthen regional connectivity and cooperation while positioning China as a focal point among regional trade routes. It has been promoted by members of the Chinese government, including Xi, as the “New Silk Road”. Some researchers have suggested that it followed an approach similar to that of the United States’ Marshall Plan, which spurred the economic reconstruction of Western Europe after World War II, in addition to deepening economic ties and bringing together the Europe of the American sphere of interest.
There are two main components of the BIS. The first element is a land economic belt, intended to facilitate the flow of goods into and out of mainland China through the construction of highways, rail networks, gas pipelines, oil refineries, power plants, mines and industrial parks throughout the central landlocked region. Asia. The second element is the Sea Route, which represents a chain of ports and ocean corridors that direct trade to and from China via the waterways. In pursuit of the sea route strategy, China has shown increasing interest in the ownership of sea ports. However, this interest was not limited to the Indo-Pacific region but extends globally.
China’s global investment in seaports
China is currently home to more seaports than any other country, including seven of the world’s 10 busiest ports. In addition to its massive accumulation of domestic maritime infrastructure, China also has more than 100 ports in around 63 countries. Over 80% of China’s overseas port terminals are owned by the “big three” terminal operators: China Ocean Shipping Company (COSCO), China Merchants Group (CMG) and CK Hutchison Holdings. The first two are state-owned companies, while CK Hutchison is a private company based in Hong Kong with close ties to mainland China. According to the Center for Strategic and International Studies, combined state support to the shipping industry totaled $ 132 billion between 2010 and 2018.
In the Indo-Pacific, prime examples of Chinese port expansion include a 99-year lease at the Port of Hambantota in Sri Lanka, a 40-year lease at the Port of Gwadar in Pakistan, and a $ 350 million investment in the port of Djibouti. Djibouti is also the site of China’s first overseas military base, located near a key strategic choke point between the Gulf of Aden and the Red Sea.
In 2018, the Chinese Harbor Engineering Company began construction of a port terminal in the port of Sokhna in Egypt, near another major trade bottleneck, the Suez Canal. Political analysts have described these developments as part of the “String of Pearls strategy”.
In Europe and the Mediterranean, it is estimated that China now controls nearly a tenth of port capacity. Examples include Le Havre and Dunkirk in France, Antwerp and Bruges in Belgium, the Spanish port of Noatum, the Italian port of Vado, the Turkish port of Kumport and the Greek port of Piraeus. A 25-year lease at the Israeli port of Haifa, signed with the Chinese group Shanghai International Port Group, has raised concerns in the United States about potential espionage, given that the port of Haifa is located less than a kilometer from the mooring port for American warships.
In South America, China also extends its influence through the possession of ports. In 2015, China Communications Construction Company loaned Cuba $ 120 million to help it modernize its second largest port, Santiago de Cuba. In 2017, the Chinese company CMG bought 90% of the shares of the largest port in Brazil, TCP Participaccoes SA. In 2019, COSCO signed a $ 225 million deal with Volcan at the Peruvian port of Chancay for a 60% stake in the terminal. In El Salvador, it is alleged that the government will privatize the port of La Unión in 2022, presumably to be reserved for Chinese management. Other reports point to Chinese participation in port projects in the Bahamas, Trinidad and Tobago, Panama, Argentina, Chile and Uruguay.
Implications for the United States
Interestingly, the United States has also been a site of Chinese port investment. Two Chinese companies have stakes in five US ports. However, neither of the companies owns an effective controlling interest, nor does it fully operate these US terminals. Two of these ports involve the purchase by CMG of minority stakes in the terminals of a French company at Houston Terminal Link Texas and South Florida Container Terminal in Miami. The three remaining ports – Seattle, Los Angeles and Long Beach – were partly owned by COSCO. However, the Trump administration has asked China to divest its stake in the port of Long Beach in 2019.
Beyond its direct investments in American ports, which remain inconsequential, China’s growing dominance over the shipping industry is sounding the alarm in Washington as Sino-American relations continue to decline. At the recent virtual summit between Biden and Xi, the deterioration between the United States and China was particularly evident, given the two countries’ failure to produce a joint statement after the meeting. In previous decades, such declarations were considered only formalities. Additionally, despite the campaign to reverse President Trump’s trade war with China, Biden left many aspects of Trump-era trade policy with China intact.
With an increasingly turbulent relationship, China’s growing dominance over the shipping industry may be a source of vulnerability for the United States and other geopolitical rivals in the future. Just as OPEC used oil as a form of leverage during the oil crisis of the 1970s, Chinese control over the shipping industry has the potential to expose vulnerabilities in access to essential goods. The recent backlog of containers in US ports is a stark reminder of America’s dependence on global supply chains. Fortunately, as the holiday season approaches this year, it may be just the speedy delivery of gifts on the line. Looking to the future, however, the consequences can be more serious.