How China built a global port network

Mint

a day ago

Chinese shipping giant Cosco has majority ownership of Spain's Port of Valencia.
When a Hong Kong conglomerate set plans this year to sell its global network of shipping ports to an American-led investment group, two facilities in Panama got most of the attention. But the real action is in Europe, where Chinese business interests have spent decades accumulating port holdings.
Hong Kong-based CK Hutchison agreed in March to sell more than 40 ports in 23 nations to an investor group led by American financial firm BlackRock, and the parties had aimed to reach a definitive agreement on the $23 billion deal at month-end. Now, Beijing is trying to muscle into the deal and carve out a stake for its giant shipping group Cosco, The Wall Street Journal reported Thursday.
Politics have hung over Hutchison's container-handling facilities at either end of the Panama Canal since it first began operating them in the 1990s. The sales plan came together after President Trump's vow to bring the canal under U.S. control.
The most substantial impact on China's ambitions from the port deal might be in Europe, a continent crucial to Beijing's trade and diplomatic ambitions. Nearly half of the facilities on the block are in Europe or North Africa. Trump's trade tariffs, meanwhile, have Europe bracing for a deluge of Chinese goods that have been rerouted away from the U.S.
Shipping volumes of items including electric vehicles are already up in places such as Spain.
If the Hutchison deal goes through, the American-led investors would gain significant market share in a continent where the Chinese presence has grown large in recent years. Under the announced plan, BlackRock's Global Infrastructure Partners unit is buying the Hutchison ports with an investment partner, Italy's Aponte family, which runs giant MSC Mediterranean Shipping Company and its Terminal Investment Ltd. unit.
Whether the deal goes through as planned or with Cosco's participation, China's port foothold in Europe would be concentrated under government-run companies similar to Cosco, which U.S. authorities consider a military-aligned enterprise. Exiting the region would be Hutchison, a private company controlled by the family of the 96-year-old Hong Kong billionaire capitalist Li Ka-shing, who hasn't always seen eye-to-eye with Beijing.
China accelerated port investments after outlining the Belt and Road Initiative to modernize land and sea trade routes and reprise the Silk Road, which for centuries linked China with Europe through cities such as Valencia, Spain.
The change in control of a port can alter trade routes and indicate economic power, not least of all because fewer than 10 shipping groups including Cosco, Swiss-based MSC, France's CMA CGM Group and Denmark's A.P. Moller-Maersk move nearly all of the world's containers.
Ports with Chinese investment now dot the globe, according to a database produced by Zongyuan Zoe Liu at the Council on Foreign Relations in New York.
Spain illustrates how Chinese business interests expanded port holdings in Europe, and what happens now.
The southern European country was booming in 2006, when the government awarded Hutchison a contract to build and operate a new container terminal for the Port of Barcelona.
Hutchison—which traces its origins to Hong Kong's own docks from the first days of 19th-century British colonialism—began investing in European ports in the 1990s. Its European holdings span the U.K., the Netherlands, Sweden, Belgium, Germany and Poland, plus Spain.
The British managing director of Hutchison ports, John Meredith, called Barcelona 'our key port in southern Europe."
The story was different with Spain's Port of Valencia in 2017, when a Chinese group took control. Cosco got 51% as a result of a Spanish debt crisis and U.S. private-equity investors looking for a profit.
China's port expansion strategy in Europe has primarily featured opportunistic acquisitions—a possible reason the Hutchison sale looks inviting to Cosco.
'The European ports are the best in terms of asset and infrastructure, of international importance for trade," said Liu of the Council on Foreign Relations, making them appealing investments.
Government-run China Merchants took one of the boldest steps in 2013, buying 49% of a port business called Terminal Link from CMA CGM for 400 million euros. The deal gave China Merchants a minority share in a range of facilities, especially in Europe, and slivers in Miami and Houston.
In developing countries throughout Africa and Asia, and more recently in South American nations such as Peru and Brazil, China's government-run companies have established wholly new shipping ports. Some of the construction deals have saddled host countries with large amounts of debt and were designed as gateways to haul away mineral commodities.
Liu said China has adopted a build-it-and-they-will-come strategy in many developing nations based on its domestic infrastructure model of integrating new ports into new networks of expressways and railroads.
Cosco first entered Europe as a ports investor in 2004.Cosco bought a concession to run operations in Piraeus, Greece, and turned it into a world-class facility.
Cosco itself first entered Europe as a ports investor in 2004 with a minority stake in a container facility in Antwerp, Belgium. Cosco then made inroads starting in 2008 buying a concession to run facilities south of the Greek capital Athens at Piraeus, which it transformed into a world-class port.
Pertinent to today's situation, Valencia in the 1980s was quick to adopt containerized shipping, which has been crucial to spurring world trade—and helped make China the world's top exporter for 16 years.
Beijing gained control of the Port of Valencia in a European financial crisis. Wall Street's 2008-09 financial crisis had sparked major debt problems for corporate Europe, including for Spanish construction giant ACS Group.
In 2010, ACS sold its interests in the Spanish ports of Valencia and Bilbao, plus various logistics operations, to a group led by J.P. Morgan Asset Management for 720 million euros, around $950 million at the time. As a private-equity investor with little interest in owning ports over the long-term, J.P. Morgan approached Cosco about buying, in part because of Cosco's success in Greece, a former executive involved said.
Cosco agreed in 2017 to pay 200 million euros for 51% of the Valencia and Bilbao ports venture. Cosco called Valencia the natural port for Madrid and a 'perfect strategic fit" for its plans at 'developing a global terminals portfolio."
A spokeswoman for J.P. Morgan declined to comment.
As if to underscore Beijing's designs on Spain, a year after the deal Xi Jinping flew to Madrid to meet Spain's King Felipe VI and Prime Minister Pedro Sánchez, the first visit to the country for a Chinese leader in 13 years. He discussed the Mediterranean's role in his Belt and Road Initiative and pledged China would import goods worth $70 billion over the next five years. In fact, China's imports were closer to $45 billion in that period, nearly as much as it exports per year to Spain.
Today, Valencia sits in the middle of a European network of Cosco ports that includes some of the region's biggest, including Greece's Piraeus, Italy's Genoa, Rotterdam in the Netherlands, Belgium's Zeebrugge and Germany's Hamburg.
As Cosco's own ships began calling at Valencia, the port emerged as a busier container facility than its vaunted Piraeus operation, last year handling 5.47 million TEUs, or shipping container equivalents, versus the Greek port's 4.22 million. Also huge on the Mediterranean are Spain's Algeciras and Morocco's Tanger Med ports, though they are still smaller than northern European ports.
Valencia now also ranks as the most connected port in the Mediterranean, based on its integration with container lines, according to a United Nations index.
'China is the largest trading economy in the world," said Liu of the Council on Foreign Relations and, 'if you want to export more, you need the infrastructure."
Write to James T. Areddy at [e-mail], Daniel Kiss at [e-mail] and Ming Li at [e-mail]