1. Executive Summary
- The main actors influencing the Chinese maritime strategy (Maritime Silk Road - MSR) are Chinese governmental actors, namely the Ministry of Transport and local port administration governing ports and traffic in the ports, as well as the biggest players in shipping industry.
- MRS is a key strategy that underpins Chinese uninterrupted access over the most important sea trade routes and shipping of raw materials
- Shipping to Europe is mainly using the route via the Suez Canal and Mediterranean, in which China uses either Piraeus port or North-Adriatic Sea ports. This strategy means shorter routes for entering Western Europe and is influencing the shipping time of those ships as well. In addition, this might bring to China increased political clout in Europe.
- Increased presence in the Suez Canal, is one of the strategies of China to avert the risks of its dependence on the Malacca Strait, however, the Chinese investments into port infrastructure in the Mediterranean is almost necessary with this goal in mind, as very few European ports can handle Ultra large Suez-class ships. Increasing the ability of the ports in eastern and southern Europe to be able to handle bigger ships would reduce shipping costs
- There are several opportunities connected with the MSR: less costs in terms of port infrastructure for Europe, increased maritime trade between China and EU, however, these come with risks especially connected with the competition among the Chinese and European shipping companies, political clout gaining, lack of reciprocity in trade.
- There is a set of possible strategy recommendations for the EU players: focusing on establishing better connections with shipping agents and other business partners to bring more cargo into European inland, evaluating current transportation needs and shipping times and costs, as well as security issues connected with the Chinese MRS to Europe.
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2. Who are the main actors (e.g. EU/local/Chinese companies, chambers of commerce/ministries, media, governments) influencing strategy decisions in respect of the topic?
a) Governmental actors: Ministry of Transport, local port administrations (Local governmental bureaus)
Ministry of Transport, a member of the State Council, is the governmental body responsible for the water transportation, hence shipping industry in China. It was established in 2008, in the context of institutional reforms and integrated also the previous Ministry of Railways and its management of land transport. Its current Executive Minister is Li Xiaopeng (who assumed office in September 2016).
The port authority, however, lies under the command of local governments, which are responsible for the regulation of port transit in their respective municipalities. Coastal shipping is divided into two principal navigation zones, the northern and southern marine districts. The northern district extends north from Xiamen to the North Korean border, with Shanghai as its administrative centre. The southern district extends south from Xiamen to the Vietnamese border, with Guangzhou as the administrative centre. There are currently 4 major ports in China, while the most important ones (and in which MSR is starting) are:
|Top 10 ports in China (2018)|
|By cargo||By container throughput|
However, since MSR is an integral part of BRI, the responsibility for its evolvement lies on all levels of Government: from the central parts (State Council) to the individual provinces, regions and cities. The reporting on the advancement of MSR is carried out within the Leading Group for Advancing the Development of One Belt One Road, which reports directly into the State Council and it is composed of political heavyweights, evidencing the importance of the program to the government.
b) Biggest Chinese players in shipping (state-supported companies)
In 2016, there were 5 206 maritime vessels (165.4 million tonnes of dead-weight tonnage) registered in China, of which the majority were bulk carriers. China has the world’s second largest container ship fleet after Germany, with 9.3 % of total world capacity. Chinese shipyards accounted for 33 % of global ship deliveries in 2016, outpaced only by South Korea (whose market share in the same year was 38 %). The biggest companies – important actors when it comes to carrying out the Chinese maritime strategy towards Europe are:
- COSCO Shipping Co Ltd China group: China Ocean Shipping (Group) Company; China COSCO; COSCO Pacific; COSCO (Hong Kong) Group; COSCO International Holdings
- China International Marine Containers
- China Shipping Container Lines
- China Shipping Development
- China Shipping Group
- China Merchants Energy Shipping
- China Merchants Holdings (International)
- Sinotrans (Sinotrans Shipping)
- The China Navigation Company
- Orient Overseas Container Line
- Nan Fung Group
- Parakou Shipping
Interestingly, Chinese shipping companies have focused also on doing business out of their main activity- shipping – by focusing also on the areas surrounding shipping, like port management, investing in port infrastructure or other logistical components of maritime trade, which increases their profit more than focusing on lowering their shipping costs.
3. What are the goals and sub-goals of the main actors in respect to the topic? What do they wish to archive?
Maritime Silk Road (MSR) is a network of Chinese-funded infrastructure projects along global shipping routes. Further development of transport routes are part of the goals in a key report delivered at the 19th National Congress in October 2017, which puts it high on the government agenda.
To advance connectivity, China’s geostrategic goal underpinning MSR is to enable China’s uninterrupted access over the most important sea trade routes and uninterrupted import of raw materials.
In terms of the maritime strategy towards Europe, MSR's primary strategy of reaching it is via the Suez Canal and Mediterranean. The destination of the MSR in Europe is in the port of Piraeus in Greece, as well as in NAPA ports (north-Adriatic sea ports of Venice, Ravenna, Koper and Rijeka).
In Piraeus, the second terminal is handled by COSCO Pacific Limited, subsidiary of the COSCO Group based in Hong Kong, which represents the fifth largest container operator at a global level. This port enables China to access Western Europe and through Piraeus China can succeed in reaching the goal of accessing new markets rapidly as well as increase circulation of the imported goods.
The position of some is that North-Adriatic Sea ports are benefiting from their position of being so close to Central Europe and their own position at the north of Mediterranean, which for China means shorter routes for entering Western Europe, connected to lower transportation costs. For example, the route from Shanghai to Koper or Venice port is 2000 miles shorter than the route to Hamburg, as well as energy less consuming. However, road transportation is still much more expensive than transportation by ship. As an example, a container from Hong Kong to Hamburg costs around 500-1000USD all in, while transport from Hamburg to Cologne can costs more than a 1000USD for the same container. Therefore some scientists position themselves differently towards the interconnection between sea ports and the EU road network: they believe that China’s intent is saving time and building political leverage in the area.
4. How do the main actors plan to reach their goals - what are their strategies?
Malacca Straits and Singapore are of strategic importance for reaching all the mentioned trade routes. However, due to the influence of the city state Singapore, Chinese influence may be considered minimal there. Hence one of the key goals of the Chinese government is to decrease its dependence on the Malacca Strait, which currently carries almost 90% of China’s sea borne trade and energy supplies. One of the main strategies of Chinese government to avert these risks is in building ports in the Indian Ocean Region, witnessed by the recent construction of the port facilities in Myanmar (Sittwe and upcoming Kyaukphyu deep-sea port), Pakistan (Gwadar), Sri Lanka (Hambatota) and Bangladesh (Chittagong).
There are several ways through which China could further proceed in averting the “Malacca Dilemma” and the general risks connected to the increased maritime trade:
- Through connecting Thai Gulf and the Andaman Sea with a canal
- Through developing the mainland BRI economic belt of the China-Pakistan Economic Corridor and establishing a road network, which would mean an important link with the MSR and provide an alternative crossing to the trade routes in Southeast Asia
- Through increasing its presence in Africa: Chinese are interested in upgrading the port of Port Said and hence increase the capacity of the Suez Canal.
- China is also investing in Senegal, Tanzania, Djibouti, Gabon, Mozambique and Ghana in terms of the developments of ports, roads and railways
Increasing the capacity of the Suez Canal would have to come with further investments into port infrastructure, as at the time of writing, very few European ports can handle Ultra large Suez-class ships (mainly Hamburg, Rotterdam, and Le Havre). Increasing the ability of the ports in eastern and southern Europe to be able to handle bigger ships would reduce shipping costs due to economies of scale in larger ships for China.
5. What are the opportunities and threats of the Chinese strategies? What are the implications of these strategy on the other main actors?
Currently, most cargo in China-Europe trade is sent by sea. The enormous capacity of sea transport, together with the increasing size of ships provide a huge opportunity for increasing this mode of transport between China and the EU. This mode is also cost-efficient and has a short delivery time for the trading partners, although not as short as the rail transport. Therefore the increased Chinese presence on the maritime trading routes means the chance to increase maritime trade between the two entities. Chinese investments into port infrastructure would develop important strategic channels for the EU-China trade and create better conditions for its continuous growth, as increasing the capacity and capabilities of European ports would optimise also shipping costs, as mentioned above – the infrastructure would be built with the Chinese funds hence with little costs for the European companies.
In terms of threats, Chinese port investments are not without its risks especially in terms of the foreign policy making of these countries and accepting the potential Chinese political influence that could arrive together with the large-scale infrastructure. This was especially emphasised in the case of the Chinese investment into the port of Piraeus. The Shipping industry is one of the few global industries where we see close to perfect competition – meaning companies have to sell their services on prices rather than differencing services (basically, all providers have the same basic service: moving cargo from A to B). Therefore it is plausible that Chinese port investments is part of a three strategy of gaining political clout in Europe, as well as capitalizing on a larger range of services related to the shipping industry (shipping management, handling charges on both ends, services etc.).
Another threat is also the lack of possibilities into foreign investments into the Chinese ports in return, due to the specific regulations on foreign investments in China. MRS nevertheless removed some of these obstacles, but the lack of reciprocity between the EU and China on accessing public procurement still exists in blue economy.
In terms of price setting, there is a risk of the Chinese companies taking over larger parts of the world’s shipping industry, however, this is not an immediate concern, as the two largest shipping companies in the world still remain European (Maersk and MSC). Nevertheless, in the cases when the port infrastructure is in the hands of other players, like the Chinese, this offers the players a chance of selecting future business partners for these ports.
6. Possible strategy options for local/EU companies and decision-makers.
- If a Chinese focus on increasing port capacities in South and South East Europe is true, EU companies should establish agents and business partners that are capable and cost effective on bringing cargo from these ports into the European inland (read: customs clearance agents, transportation providers, warehousing providers etc.).
- Moreover, EU companies should evaluate their current transportation needs and validate whether or not they can capitalize on a future where shipping times and costs would decrease due to an increased Chinese focus on South and South-East Europe (if this focus is true)
- Decision makers in Europe should evaluate the political aspects of a greater Chinese presence in infrastructure investments and ownership across the continent. This should especially pertain security issues and how these investments fall in line with strategic infrastructure in respective European countries. On a practical level, EU decision makers should think of the possible practical opportunities and threats that arrive with Chinese maritime strategies into Europe. Will there be more ships? More containers? How will this affect existing affiliated infrastructure (rail and road) as well as existing ship traffic in the Mediterranean? What will be done with empty containers once they are offloaded on the European mainland, etc.
- select an appropriate research question for each hypothesis, strategy option or forecast that you are contributing to the debate
- if possible, state the source of your knowledge
- write in the format of bullet points