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China's Overseas Ports Acquisition Program

editorial China port strategy
Khalifa Port

Published Apr 7, 2023 12:44 PM by Australian Institute of International Affairs

[By Genevieve Donnellon-May]
 
China is a powerhouse in global trade. Its rapid growth has been significantly fuelled by decades of rising exports, bringing new emphasis to the role ports play in trade and strategic relations.

As the main arteries of global trade, economic entry points, and nodes of geostrategic power projection, ports are key to global and regional economies, connecting land and sea. In recent years, increasing Chinese investments in foreign ports have attracted media attention. The concentration of these highly strategic investments has lent legitimacy to fears that the means of global trade, once decentralised, have been slowly accumulating in a handful of Chinese state-owned enterprises (SOEs).

According to researchers from the United States Naval War College and Indiana University, Chinese and Hong Kong-based companies own or operate (in terminal leases or concessions) more than 90 ports in 53 countries. Other estimates suggest that China has investments or similar arrangements in over 100 ports with at least one in every continent except Antarctica.

China’s overseas investments in ports

Most of the port investments are along the National Development and Reform Commission’s three “blue economic passages.” The first passage links China to the Indian Ocean, Africa, and the Mediterranean; the second passage links China to Australia and the Southern Pacific; and the third passage links China to Europe via the Arctic Ocean.

The main Chinese investors in overseas ports and terminals are SOEs – prized national conglomerates with direct links to and controls within the Communist Party apparatus. One of the largest Chinese SOE investors in foreign ports is China Shipping Corporation (COSCO), the world’s largest terminal operator. Most of its port investments can be found in developed countries and along major global shipping routes. China Merchants Group (CMG), China’s other major port investor, by contrast has invested in emerging markets.

According to a 2020 Nikkei Asia report, between 2010 and 2019, Chinese companies, like COSCO and CMG, invested in 25 port projects in 18 countries, spending almost US$11 billion overseas.

Security concerns

These investments have raised concerns over Beijing’s potential to dominate international shipping and its concomitant ability to influence, and even control, important sea lanes and energy supply routes. This is alongside China’s overseas acquisitions of resources (such as water), technology, and infrastructure.

The Nikkei report noted that investments in foreign ports by Chinese SOEs have allowed China to gain access to strategic maritime hubs as part of the Belt and Road Initiative’s 21st century Maritime Silk Road, an “aggressive investment campaign that has raised concerns about Beijing’s growing clout across the world.”

Recently, the expansion of Beijing’s footprint at Khalifa Port (UAE), ownership stake in a fuels storage terminal at the Port of Fujairah (UAE), and investments in the Duqm Port in Oman have further stoked fears of what this centralisation of Chinese power and presence in the Middle East means, particularly near the Strait of Hormuz, an importat global chokepoint.

In response, various governments have sought to block Chinese companies from gaining ownership or majority stakes in terminals and ports. This includes the US, but also Bangladesh, which cancelled a contract with China to build a deep-sea port at Sonadia in 2016, believed to be due to pressure from the US and India. Meanwhile, Canberra has said it would review the 2015 grant of a 99-year lease of the Port of Darwin to the local unit of a Chinese SOE.

Concerns in the West

There are three main concerns in the West regarding investments in foreign ports by Chinese SOEs. The first is that these investments could give Beijing access to sensitive or classified information through surveillance (such as tracking the movements of communications and ships), spying, and data gathering capabilities.

Recently, in Israel, the management of a new private seaport at Haifa by Shanghai International Port Group was raised in the U.S. The Haifa naval base regularly hosts American warships, and the U.S. is concerned that the port operator could easily monitor U.S. ship movements, have access to equipment moving to/from repair sites, as well as supply chain vulnerabilities.

The second concern is the obvious influence Beijing can now exert through its many port investments. In Greece, for instance, COSCO has increased its stake in the enormous trans-shipment port of Piraeus to 67 percent. COSCO has also developed rail infrastructure reaching countries like Germany, strengthening China’s growing dominance in commercial maritime and land routes across the eastern Mediterranean. Chinese SOEs already preside over the trans-Mediterranean, commercial maritime artery linking Egyptian ports to the European mainland in Piraeus.

The third fear is the potential establishment of logistics centres and even military bases next to the foreign ports its SOEs have acquired. New basing arrangements would make it easier for Beijing to service and sustain a growing blue-water navy. Beijing’s agreement to maintain a military base in Djibouti, near the commercial multi-purpose Chinese-operated Port of Doraleh, and close to the U.S. Navy’s Camp Lemonnier, exacerbates these fears.

Challenges and implications

China’s interest in foreign ports is driven by national security concerns. The Port of Gwadar in Pakistan offers a good example. Operated by China Overseas Ports, the port’s geostrategic location (and control) helps China avoid the strategic chokepoint of the Malacca Straight, also referred to China’s “Malacca dilemma.” Given China’s continued reliance on imported energy sources, this remains a geopolitical and geographic concern for Beijing. As around 80 percent of this imported oil and 40 percent of global shipping travels through the Strait. Any disruption to shipments would harm Beijing’s credibility and economic interests.

It is worth noting that China does not have a network of bases overseas. Also, ports have not been militarised, and doing so would certainly violate legal norms around territorial sovereignty. As navy vessels are considered offensive state military vessels, they are usually neither welcome nor allowed without state permission to dock in sovereign territory. Furthermore, as far as is publicly known, Chinese SOE investment in overseas port facilities has not come with additional agreements that give certain rights to the Chinese military.

Others additionally point out that Beijing’s decision to deploy its military overseas and establish corresponding military bases is to protect its interests, including Chinese companies and nationals, rather than establishing a Chinese sphere of influence beyond Asia.

Given China’s continued large-scale commercial infrastructure investments in conflict-prone regions like Africa and the Middle East, it is not unreasonable to suggest that Beijing will seek to establish more overseas bases in future years, including near foreign ports that China’s SOEs have acquired, such as in Equatorial Guinea.

For the moment, host countries can prevent or block acquisitions of ports to particular states or companies, however the economic costs of doing so may be too difficult to deny.

Looking ahead

Overseas port investments and potentially military base access, particularly in countries of global and geostrategic importance near maritime chokepoints, could give China greater influence over key supply chain networks, and even reshape global and regional seascapes to its advantage.

Amid systemic U.S.-China tensions, concerns over the ease of surveillance, spying, and data gathering by Chinese SOEs in foreign ports will become increasingly more important.

 

Genevieve Donnellon-May is a master’s candidate in Water Science, Policy and Management at the University of Oxford. She previously worked as a research assistant at the Institute of Water Policy, Lee Kuan Yew School of Public Policy, National University of Singapore and at the Asan Institute for Policy Studies.

 

This article is published under a Creative Commons License courtesy of the Australian Institute of International Affairs. The article in its original form can be found here.
 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.