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China’s Strategy on Overseas Port Ownership and Management

1. Executive Summary

  • Ports are both strategically and operationally important components of the global economy through being the facilitators of the flow of goods in and out of countries.
  • Chinese development, ownership and management of overseas ports is highlighted as a key objective under the Maritime part of the Belt and Road Initiative. 
  • China employs two tools to acquire pors overseas; the purchase of stakes, and  long-term leasing. Full control only happens when a majority of the stakes have been acquired through the purchase of stakes method, while leasing allow for 100% control over area and facilities over a set period of time once leasing agreement is signed. 
  • Chinese overseas port ownership and management is in most instances facilitated by either COSCO Shipping Ports or China Merchants Port Holdings - both of which are Chinese State Owned Enterprises (SOEs).
  • Chinese operators currently operate around 40 ports around the world, 13 of which are located in Europe
  • European governments should examine all implications Chinese port ownership may have - stretching from national security implications to workers rights and environmental protection.

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2. Who are the main actors influencing strategy decisions in respect to Chinese overseas port ownership and management?

The Chinese Government

The Chinese government is the largest influencer on the strategy of overseas port ownership and management. The government delivers political will, focus, and available financing on the strategy through both its Go-Out Strategy and its Belt and Road Initiative. The building and operation of ports as part of the Maritime BRI is clearly stated in the Vision for Maritime Cooperation under the Belt and Road Initiative. This communique was released by the Chinese government in 2017, and highlights under point 4.2, Ocean-based prosperity, that: Chinese enterprises will be guided to participate in the construction and operation of ports”.[1]

For investment and availability of finance into overseas ports, the Chinese government utilizes the two state owned banks Chinese Development Bank and China Exim Bank. For acquisition and management of overseas ports, the country utilizes its two largest state owned port operators, namely COSCO Shipping Ports and China Merchants Port Holdings.[2] 

 

Port Operators 

Port operators worldwide also hold a certain influence on China’s strategy on overseas port ownership and management, by deciding on whether or not they want to accept Chinese acquisition through the sales of shares and existing equipment. Apart from the two Chinese port operators mentioned earlier, there are currently four global companies dominating port management and operations. The table below lists these four companies, with the inclusion of one of the largest operators in Europe (EUROGATE):

Company name Country registered Ownership type (state owned/ private/public) Number of ports (terminals) operated

Hutchison Port Holdings

Hong Kong S.A.R, China public 29
PSA International Singapore private 29
DP World UAE public 78
APM Terminals Netherlands private 74
EUROGATE   Germany private 12 (only operates in Europe)

3. What are the goals and sub-goals of the main actors in respect to the topic? // What do they wish to achieve?

The Chinese Government

Increased Trade

China has shown an impressive ability in operating, developing and effectivizing their own ports on the Chinese mainland. By increasing capacity, renewing equipment and utilizing lessons-learned from their own operations in China abroad, China induces trade amounts on the ports they operate.[3] Although not officially confirmed, China also seems to funnel Chinese goods and ships to ports and terminals that are operated by Chinese companies. An example of this is the Port of Piraeus in Greece, where transshipments of goods have more than tripled and profits doubled since China took over operations.[4]

Increased Competition

By competing with existing global port operators, China could foster a higher level of competition on prices and service quality abroad. A higher level of competition would be beneficial for exporters, importers, and shipping companies who would see lower prices, better service through for example new technological solutions. This could in return support lower prices offered to the end consumer of goods by effectivizing the port and handling segment of the global supply chain of goods. 

Power over pricing 

By being involved in every segment of the global supply chain of goods, China would have more power on pricing along the supply chain - possibly being able to dictate port handling charges as well as docking fees etc.  

Governments in countries along the Maritime BRI

Although not entirely certain in terms of their intentions, countries along the Maritime Belt and Road Initiative most likely target economic development and increased regional and global political and economic relevance when allowing China to invest in, develop and effectivize their ports. Better ports make the countries more integrated into the global value chain, which could translate into hidden economic gains through increased business.

4. How do the main actors plan to reach their goals - what are their strategies?

The Chinese Government

The Chinese government mainly employs two different tools to acquire port ownership and management overseas; purchases of stakes, and leasing. 5]

1. Purchases of stakes

China’s main tool to acquire ownership and management over overseas ports is to buy stakes in the respective ports. Although not fully exhausted, the table below lists ports in which Chinese companies currently own stakes through their two main state owned port management companies[6]:

Port Name Country Chinese company % ownership # of beths Handling capacity (in mill TEU)
Port Said Egypt COSCO Shipping Ports 20 8 5,1
Kumport, Istanbul Turkey COSCO Shipping Ports 26 6 2,1
Piraeus Greece  COSCO Shipping Ports 100 7 5,5 
Masaxlokk Malta China Merchants (TL) N/A N/A N/A
Genoa Italy COSCO Shipping Ports 40 3 0,9
Trieste Italy COSCO Shipping Ports N/A N/A N/A
Marseille France China Merchants (TL) N/A N/A N/A
Nantes France China Merchants (TL) N/A N/A N/A
Le Havre France China Merchants (through TL) N/A N/A N/A
Dunkirk France China Merchants (TL) N/A N/A N/A
Valencia Spain COSCO Shipping Ports 51 6 3,5
Bilbao Spain COSCO Shipping Ports 39,78 3 1
Tangier Morocco China Merchants (TL) N/A N/A N/A
Casablanca Morocco China Merchants (TL) N/A N/A N/A
Bruges Belgium COSCO Shipping Ports 85 3 1
Antwerp Belgium COSCO Shipping Ports 20 4 2
Euromax, Rotterdam Netherlands COSCO Shipping Ports 85 3 1
  Israel N/A N/A N/A N/A
Gwadar Pakistan N/A N/A N/A N/A
Busan South Korea COSCO Shipping Ports 4.89 6 3,3
Chancay Peru COSCO Shipping Ports 60 2 1
Seattle USA COSCO Shipping Ports 13.33 2 0,9
PSA, Singapore Singapore COSCO Shipping Ports 49 5 5
CSP Abu Dhabi UAE COSCO Shipping Ports 90 3 2,4
2. Long-term leasing

China’s second tool in this strategy is to lease the port for a set time period, in which  Chinese companies are entitled to operate and manage the facilities. This tool has not yet been employed in Europe, but it has been employed in ports with strategic importance along the Maritime BRI. The table below lists where China is currently leasing ports overseas:

Port Name Country Length of Lease  # of beths Handling capacity (in mill TEU)
Gwadar Port Pakistan 40 years from 2015 N/A N/A
Kyaukpyu Port  Burma 50 years from 2015 N/A N/A
Port of Djibouti Djibouti 10 years from 2015 5 1,95
Feydhoo Finolhu Port  Maldives 50 years from 2017 N/A N/A
Hambantota Colombo Sri Lanka 99 years from 2018 10 N/A

5. What are the opportunities and threats of the Chinese strategies? What are the implications of these strategy on the other main actors?

Port Operators 

A higher level of competition is both a threat and and an opportunity for non-Chinese port operators. On one hand, competition may put pressure on the profit margins and market share of these companies. On the other hand, however, competitions may push the operators to review their business model and force them to focus on innovation and service quality to maintain position in the market. There is also a possible threat of Chinese port operators having a larger leverage in terms of attracting goods and ships from China - especially those involving other Chinese State Owned Enterprises. This may create an uneven playing field between Chinese operators and non-Chinese ones, leaving possible revenues hidden and unattainable for non-chinese operators. 

Governments in countries along the Maritime BRI

As an entry and exit point of global trade, ports facilitate for a large share of the economic activity in all countries with a coast line. This makes ports important strategic infrastructure of these economies. 

6. Forecast of possible future developments and outcomes

  • China will continue pursuing ownership and management of new ports in both Europe and along the Maritime BRI
  • European Ports, both in the Mediterranean and in the North Sea will be focus of Chinese investments. Ports in northern Europe will particularly support China’s ambitions on the Polar Silk Road. 
  • Labourers on European ports will be the first actors to complain about Chinese port ownership on the continent, and will spark a political discussion on the implications of letting China invest in European ports
  • Ports owned, operated or managed by Chinese companies will receive a growth of goods and port calls that is much higher than ports operated by non-chinese companies.

7. Possible strategy options for local/EU companies and decision-makers.

EU Port Owners and Operators

  • Make a proper SWOT analysis on the business case of partnering up with a Chinese port operator either as a Joint Venture, through sale of existing stocks or through lease contracts.
  • Assess the implications Chinese ownership and control can have on the company culture, on its operations, and on company values. Chinese share owners may be voting differently from what current share owners are doing, and could have opinions differing from the current values of the company. One example of this having happened is when Amnesty International was denied lease of office space in an office building owned by COSCO Shipping in New York in May 2019.[7] 

EU Governments

  • Assess the security implications of Chinese owned strategic ports on the continent. 
  • Collect and monitor data on number of port calls and throughput of goods before and after Chinese takeover to examine whether trade has increased or not. 
  • Ensure and protect workers’ rights at Chinese-owned ports and port terminals. Port workers at the Chinese owned Piraeus port in Greece have complained about inhumane working conditions and issues of forming unions after China took over the port.[8]
  • In ports with several operators, ensure that no subsidies are employed by certain operators, and that pricing is realistic according to costs of operating in the country, such as cost of labor, cost of equipment, VAT levels, etc,. This is to ensure that all operators compete on an even playing field. 
Footnotes [1] Meng, Jie. “Full Text: Vision for Maritime Cooperation under the Belt and Road Initiative.” Xinhua Net. June 20, 2017. Accessed May 21, 2019. http://www.xinhuanet.com//english/2017-06/20/c_136380414.htm [2] Shepard, Wade. “China’s Seaport Shopping Spree: What China Is Winning By Buying Up The World’s Ports.” Forbes. September 07, 2017. Accessed May 29, 2019. https://www.forbes.com/sites/wadeshepard/2017/09/06/chinas-seaport-shopping-spree-whats-happening-as-the-worlds-ports-keep-going-to-china/#7ae72c174e9d. [3] Lee, John. “Chinas Trojan Ports.” The American Interest. February 07, 2019. Accessed May 29, 2019. https://www.the-american-interest.com/2018/11/29/chinas-trojan-ports/. [4] “Newsroom.” Investopress. May 10, 2018. Accessed May 28, 2019. https://investopress.com/piraeus-fastest-growing-port-in-the-world-with-china-as-partner. [5] Kynge, James, Chris Campbell, Amy Kazmin, and Farhan Bokhari. “How China Rules the Waves.” FT.com. January 12, 2017. Accessed May 29, 2019. https://ig.ft.com/sites/china-ports/. [6] COSCO Shipping Ports Limited, https://ports.coscoshipping.com/en/Businesses/Portfolio/#OverseasTerminals [7] Forsythe, Michael, and Matthew Haag. “Amnesty International Is Denied Lease at New York Tower Owned by China, Group Says.” The New York Times. May 13, 2019. Accessed May 24, 2019. https://www.nytimes.com/2019/05/13/nyregion/amnesty-international-lease-china.html. [8] Fang, Frank. “Chinese Investments in European Ports Come Under Scrutiny.” Www.theepochtimes.com. October 13, 2018. Accessed May 29, 2019. https://www.theepochtimes.com/chinese-investments-in-european-ports-come-under-scrutiny_2687145.html. Rate this Situational Analysis  [yasr_visitor_multiset setid=0] Strategy Development Section To participate in the debate, please:
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