China’s Port Diplomacy Has Not Been Plain Sailing
Beijing sets up its first overseas military base in Djibouti. (Photo: VCG)
By Anita Inder Singh

China’s Port Diplomacy Has Not Been Plain Sailing

Jun. 10, 2019  |     |  0 comments

As the world’s largest trading country, China is keenly interested in gaining access to ports worldwide. Furthermore, most of its exports are delivered by sea. By building port terminals and logistics centers, China can simultaneously increase its control over the supply line of its exports and use several international seaways for trade. Economic and strategic reasons explain China’s interest in developing its Maritime Silk Road. Trade makes a significant contribution to China’s economic progress. Moreover, China is also the world’s largest oil importer. More than 40 percent of its oil imports come from the Middle East and are carried by sea. That is why access to ports, and the acquisition of a stake in them, is also a security interest.

More generally, sea power is one of the determinants of 21st century world power. Unsurprisingly, China is building a blue-water navy to protect and advance its strategic interests. China claims that it operates 42 ports in 34 countries along the Belt and Road. This is a reminder that historically, all infrastructure and connectivity projects have altered the prevailing geo-economic, geopolitical balance. Among the great connectivity ventures of the 19th century were the Suez Canal and the Trans-Siberian Railway. The Suez Canal linked the Mediterranean to the Red Sea and protected the vital sea routes of the French and British empires. The Trans-Siberian Railway consolidated the European and Asian parts of Imperial Russia. In the 20th century, those three empires passed into history. But in their different ways, the Suez Canal and the Trans-Siberian Railway continue to facilitate the expansion of regional and world trade in the 21st century. Currently there is much international debate on how and why China’s connectivity projects along its Belt and Road Initiative (BRI) may alter the international balance of power.

China’s own history reveals its efforts to build ports across continents even before the launch of the BRI in 2013. As China’s economic reform got under way during the 1980s, port building projects were among Beijing’s top priorities. Between 1980 and 2000, more than 184 new ports were built to advance China’s progress. Special economic zones and industrial parks developed around most of the ports, from where manufacturers could easily export their goods. Like many other countries, China opened the door to joint ventures with foreign firms which could provide cash to build ports that could operate efficiently. They included British, Danish, American companies and the Port of Singapore Authority.

Looking abroad, Chinese shipping corporations have become “global” by teaming up with foreign firms. These include the China Merchants Port Holdings (CMPort). Sometimes in collaboration with foreign companies, Chinese firms are now building ports and container terminals overseas, as far as the US (Los Angeles) and as near as Taiwan.

Ports have the potential to be used for commercial and/or military purposes. China’s focus is on ports in Asia, Africa, Europe and the Americas, and in rich as well as developing countries. China’s investment activities in Djibouti, Sri Lanka and Pakistan have been followed by Chinese naval deployments.

In 2015, Beijing set up its first overseas military base in the small African country of Djibouti. China joins six other countries, including France and the US, which have military facilities in Djibouti. Located on the eastern edge of Africa (the Horn of Africa) and the western shore of the Indian Ocean, Djibouti has taken advantage of its strategic location to attract military renters. Bordered by Eritrea, the Red Sea, the Gulf of Aden, and Ethiopia, Djibouti is the outlet to the sea for land-locked Ethiopia.

China clearly gains economic and military influence through its port diplomacy. But fears of Chinese strategic threats and the debt trap persist.

Aspiring to become the Singapore of Africa as well as an international financial and banking center like Hong Kong, Djibouti has welcomed China’s lending and investment in its port and zone projects. For instance, Chinese companies, financed by Chinese banks, completed the Ethiopian-Djiboutian electric railway in 2017. This USD 4 billion railway project is the first of its kind in Africa. Furthermore, the Export-Import Bank of China funded a USD 300 million-plus water pipeline system that will transport drinking water from Ethiopia to Djibouti. In 2018, Chinese companies launched an industrial and free trade zone, focusing on trade, export processing, and duty-free goods. This USD 3.5 billion project has established China as Djibouti’s largest creditor. But the IMF has warned that Djibouti could be one of the eight most problematic countries that could become indebted to China.

Sri Lanka’s decision to sell a majority stake in the new Hambantota Port has some parallels with the Greek privatization of Piraeus. Both countries had borrowed heavily from a number of lenders and were in desperate need of foreign exchange. Inefficient state-owned companies ran both ports, until Chinese companies started developing them. But amid controversy that China’s development of Hambantota had landed Sri Lanka in a debt trap, Sri Lanka’s President did not attend the Second Belt and Road Forum in April 2019.

Further across the Indian Ocean, China has made a huge investment in building a deep-water port in Kyaukpyu, at the western tip of Myanmar. The initial price tag — USD 7.3 billion — was  reduced to USD 1.3 billion at Myanmar’s request. Strategically important Kyaukpu is the terminus of oil and natural gas pipelines running to Kunming in China’s Yunnan Province. To China, which is dependent on oil imports from the Middle East, Kyaukpu gives it an outlet to the sea. It also opens a route that avoids the crowded strategic choke point of the Malacca Strait.

As for Europe, recent attention has focused on Italy and Greece, which joined the BRI in the spring of 2019. But prior to that China was already developing ports in European Union (EU) countries that are not on the BRI. They include France, Spain and Germany. China has a stake in more than a dozen European ports, but in most of them Chinese investors have minority positions in joint ventures with European and other firms. The exceptions are the Piraeus Container Terminal in Greece, the Zeebrugge Terminal in Belgium and the Noatum Terminal in Valenicia, Spain.

Thanks to Chinese investment, the German inland port of Duisburg has become Europe’s main logistics hub — and Germany’s “China city”. Duisburg is the first European stop of some 80 percent of trains running from China to Europe. Most use the northern Silk Road route via Khorgos on the China-Kazakhstan border and Russia’s capital, Moscow. The problem, however,  is that Duisburg  handles “more import volume from China than export value to China.” There has been a decline in port revenues.

China has gained strategic ground by developing and gaining a stake in European ports. The European Commissioner for Budget and Human Resources, Germany’s Günther Oettinger advocates the EU having the right to exercise a veto over Chinese infrastructure investments in all power and railway projects. Europe’s harbors, he says, are no longer in European but in Chinese hands. EU countries do not always pay enough attention to national and European interests. “The expansion of transport links between Europe and Asia is in itself a good thing — as long as the autonomy and sovereignty of Europe is not endangered.” In April 2019, the EU agreed on a new framework to review foreign direct investment. But EU governments decide on foreign investment in their own countries.

Meanwhile, under US pressure, Israel, an American ally, has reviewed the impact of Chinese investments on security interests in its Mediterranean port of Haifa. For the moment, Israel has discounted American fears that Chinese investment in Haifa could threaten US security interests.

China clearly gains economic and military influence through its port diplomacy. But fears of Chinese strategic threats and the debt trap persist. Two questions arise: how will the countries concerned handle any perceived threats from China’s port building activities? And what will China do to assuage their fears and assure them that its port diplomacy is intended to advance global connectivity for peaceful purposes?

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