Investment in ports is the most visible incarnation in Europe of China’s new maritime Silk Road. In the coming years, China’s footprint in the Mediterranean Sea will continue to expand but will be subject to greater scrutiny and possibly resistance. The adoption of the EU-wide investment screening system in 2019 will help Europe evaluate future investment projects from the perspective of their potential security implications. This does not mean that deals will be blocked, but at the minimum it means that Europeans are building new tools to impose conditions, remedies and possibly penalties regulating investment in critical infrastructure.
China’s growing presence in Mediterranean ports
The success story of Piraeus explains why many Mediterranean port authorities are considering Chinese capital as a way to unlock growth and change scale. Container traffic at the Greek port is experiencing steady growth, and COSCO executives have made their ambition clear that Piraeus should become the largest container port in the Mediterranean Sea, from its third position today behind Valencia and Algeciras. This goal could be reached by the end of 2019. Piraeus will continue to benefit of its hub position on six of the twelve regular shipping routes managed by Ocean Alliance (CMA-CGM, COSCO, Evergreen and OOCL). COSCO is also investing to further develop the cruise activities of Piraeus, and the maintenance and repair of ships.
China’s two State-owned giants, COSCO Shipping Ports and China Merchants Port Holdings have stakes in seven Mediterranean ports. COSCO has minority stakes in Bilbao, Genoa, Istanbul and Valencia, China Merchant Ports in Istanbul, Marseille and Marsaxlokk in Malta. The two Chinese conglomerates are also present in the two entry points to the Mediterranean Sea, COSCO in Port Said at the exit of the Suez Canal and China Merchant Group at Tangier-Med, at the entry of the Gibraltar Strait, through Terminal Link. Many more ports are the subject of advanced discussions or rumors, from Bizerte and Ploce to Taranto and Trieste.
And other state-owned Chinese companies are active in port construction in the Mediterranean. Shanghai International Port Group has signed an agreement with Israel to develop and manage the port of Haifa, a deal currently under review given the potential security implications for the United States, whose navy uses the port. China State Construction Corporation and China Harbor Engineering Company are involved in the construction of Cherchell port in Algeria, another project currently under review. China Harbor Engineering Company has won the Israeli tender to build a new port at Ashdod.
From a shipping company perspective, the rationale for investing in port management is purely economic. The Chinese interest to own stakes in Mediterranean ports is encapsulated in the remark by COSCO Shipping Chairman and Party Secretary Xu Lirong that running port terminals means more stable profit than shipping because of “a fixed rate of return on investment, which can be between 8 and 10 percent, even up to 10 percent”.
Long term strategic implications
The enthusiasm of port authorities to attract Chinese capital speaks for itself. European ports are likely to continue benefiting from the growth of trade with China and will compete to attract container traffic. Eurasian trains may arouse the imagination but the supremacy of maritime trade for EU-China relations is not going to be threatened any time soon: around 65% of EU-China trade in goods is transported by sea, against 2% by rail.
Nevertheless, Chinese investment in Mediterranean ports raises issues with regards to European competitiveness, and how to deal with China’s naval power.
At the level of companies, the European rise of COSCO and China Merchant Group raise two important questions for Europe’s maritime economic actors: to what extent the two Chinese companies will be able to dictate the terms of business to their European partners, and the lack of a reciprocal treatment in China.
But one level up from the strategic perspective in Beijing on China’s national interests, port investment is part of the wider goal of developing the country’s blue economy to a global leadership position. The State Oceanic Administration calculates China’s “blue GDP” at 10% of the country’s total GDP – the equivalent of the Mexican economy. The notion includes fisheries, shipbuilding, offshore oil and gas exploitation, maritime engineering, maritime biology pharmacy, renewable energies, the services industry with coastal and sea tourism and public transportation, but also maritime finance. The big picture surrounding investment in ports is captured in the Five-year plan for China’s blue economy issued by the SOA and the National Development and Reform Commission. It is thus important for Europeans to also think port management and control in terms of the long-term competitiveness of Europe’s maritime actors vis-à-vis China.
On the security side, the long-term question is whether China will have an interest to develop a naval presence in the Mediterranean, where the Chinese navy has conducted joint exercises with a number of partners in recent years, including Russia. Both Chinese foreign and defense policies include doctrines to defend the country’s “overseas interests”, a concept that justifies the ongoing construction of the PLA Navy’s first outpost in Djibouti. That the number of such facilities will grow is not vague speculation fueled by a China threat theory, but a well-articulated policy promoted by Xi Jinping.
However, future bases will not be built unless there is a need to have a military presence to defend Chinese assets or nationals, and taking into consideration image costs. The main lesson from Djibouti so far is that China will only act when it can promote a narrative of responsible support for cooperative security approaches. China building a naval base to compete on the seas with the United States may happen at a later stage, but today the global dimension of China’s naval presence (away from territorial disputes in East Asia) is still centered on offering protection to Chinese companies and individuals – something states on the shores of the Mediterranean Sea need to be able to guarantee.