\u201cDue to its potential size and volume of operations, Peru\u2019s Chancay mega-port is destined to become a nerve centre of international trade.\u201d And it will be exclusively controlled by Cosco.\u00a0<\/p>\n
Peru appears to be on the verge of becoming a major global shipping hub, and all thanks to a largely Chinese financed infrastructure project. Over the past five years, the Chinese giant Cosco Shipping Ports has, together with Peruvian mining company Volcan, invested $3.6 billion in transforming a natural deep-water port in Chancay, just 45 miles north of Lima, into a cargo mega-port. The project, now in its final phase, is slated for inauguration in November when Chinese leader Xi Jinping is scheduled to attend the APEC summit in Peru.<\/p>\n
Once the work is finished, Chancay will automatically become South America\u2019s largest deep sea port, boasting two massive terminals. There will be a new container terminal with 11 berths as well as a new four-berth terminal for bulk cargo, general cargo, and rolling cargo, World Cargo News reported.<\/p>\n
\u201cWe are very focused on the operation,\u201d said Alonso Guinand, commercial manager of Cosco Shipping, in a recent interview with a local Lima television station. \u201cThe plan is to inaugurate in November and begin receiving vessels between January, February March next year.\u201d<\/p>\n
The first five fully automated ARMG yard cranes have arrived in Chancay as the port development reaches 83% completion #Peru #cranes #ARMGs #WorldCargoNews pic.twitter.com\/yVIcu0T1QM<\/p>\n
\u2014 WorldCargo News (@WorldCargoNews) June 21, 2024<\/p>\n
From Chancay to Shanghai<\/p>\n
Initially commissioned in 2019, the Chancay megaport is seen as the first of its kind in Latin America: a large-scale Pacific-coast logistics centre serving Asia that saves valuable shipping time by reducing the need to transit either the Panama Canal or Cape Horn. It will also be the first port on South America\u2019s Pacific coast that is able to receive mega ships because of its nearly 60-foot depth. The potential impact for trade between South America and East Asia cannot be overstated, reported BBC Mundo in 2023 (translation my own):<\/p>\n
The megaport will be one of the main departure points for the raw materials that the region exports to China, such as copper and other minerals that Peru produces in abundance. Due to its size and volume of operations, it is destined to become a nerve centre of international trade.<\/p>\n
\u201cThe dimensions are so significant that it appears that Chancay is going to become a critical point for shipments to China and all of Asia,\u201d Margaret Myers, an expert on Asia and Latin America at The Dialogue, a think tank, told BBC Mundo.<\/p>\n
Through the enormous investment \u2014 US$3.6 billion according to official projections \u2014 and complex engineering work\u2026 the Peruvian government hopes to attract around\u00a050%\u00a0of the nearly US$580 billion in trade that moves annually between China and South America.<\/p>\n<\/div>\n
Chancay port is expected to become a major shipping outlet for critical commodities like lithium, soybeans, corn, oil, copper and iron \u2014 not only from Peru but neighbouring countries like Ecuador, which recently signed an FTA with Beijing; Chile, which has an FTA with China; Colombia; Bolivia and perhaps even Brazil. Much will depend on how quickly the road links between Peru and Brazil \u2014 particularly the Andean sections \u2014 can be improved.\u00a0The port will also function as a gateway to South America for imported Chinese manufactured goods, including mobile phones, computers and electric cars.<\/p>\n
Not everyone is excited at this prospect. The European Council on Foreign Relations warns that both the US and the EU risk falling behind China in Latin America as they struggle to compete with China\u2019s vertical investment strategy in the region. The US, in time-honoured fashion, is exerting political pressure behind the scenes. According to one report, Washington\u2019s soft-power arm USAID is playing a part in the US\u2019 counter-offensive against China in Peru by investigating \u201cforeign agents\u201d in the country, with a particular focus on \u201cunethical\u201d practices by \u201cAsian\u201d (read: Chinese) multinationals.<\/p>\n
China is already Peru\u2019s largest trade partner on both the exports and imports side. A whopping 35% of Peru\u2019s exports go to China, compared with 19% to the US. Peru is the second largest destination for Chinese investment in Latin America, behind only Brazil. It is also one of just five countries in the region, along with Chile, Costa Rica, Nicaragua and Ecuador, that have free trade agreements (FTAs) with China, though another five, including Colombia, Panama and Uruguay, are in the process of negotiating FTAs with the Asian giant.<\/p>\n
As noted in previous pieces (including most recently\u00a0here), China has made huge incursions into the US\u2019 so-called \u201cback yard\u201d over the past two decades, as both a trading partner and investor. It is already South America\u2019s largest trade partner, having increased its volume of trade with the region more than 25-fold between 2000 and 2020. The US continues to hold sway over Central America and, pound for pound, is still Latin America and the Caribbean\u2019s largest trading partner. But that is predominantly due to its huge trade flows with Mexico, which account for well over half of all US-LatAm trade.<\/p>\n
Chancay will allow Beijing to further strengthen its grip over South America\u2019s resources, warns the Wall Street Journal. There are also concerns that the port could be converted for military use as well as over how data passing through the massive operation could be used by the Chinese Communist Party.<\/p>\n
\u201cWhy are the Chinese so focused on critical infrastructure in this hemisphere?\u201d asked General Laura Jane Richardson, commander of United States Southern Command.<\/p>\n
Speaking at the Ninth Annual Hemispheric Security Conference (HSC) at Florida International University\u00a0(FIU), Richardson warned that Chancay will only \u201cmake it easier for the Chinese to extract all these resources from the region\u201d \u2014 resources that the US government and corporations also covet. Those resources include rare earth elements, lithium, gold, silver, oil, natural gas, light sweet crude (huge deposits of which have been found off the coast of Guyana), copper, abundant food crops, and fresh water.<\/p>\n
Richardson also bemoaned Beijing\u2019s use of the Belt and Road initiative to enrich itself at the expense of local interests. It will appear that she has not read Major General Smedley D. Butler\u2019s timeless classic, \u201cWar is a Racket\u201d.<\/p>\n
Exclusive Control<\/p>\n
The Chancay project almost began unravelling earlier this year following a legal dispute over the extent of Chinese control over the privately owned port. The initial contract granted Cosco Shipping Ports exclusive operating rights at the Port of Chancay. When this information was leaked in March, Peru\u2019s Ministry of Transportation and Communications (MTC), at the request of the Peruvian port authority (APN), which had originally signed the contract giving Cosco exclusive rights, demanded that Cosco\u2019s exclusive rights Cosco be annulled.<\/p>\n
In its May 13 article, \u201cPeru Learns to Read the Fine Print in China Deals\u201d, Foreign Policy magazine could barely contain its glee:<\/p>\n
Oh, to be a fly on the wall at APN headquarters or the office of new Peruvian new Economy Minister Jos\u00e9 Arista, who has to help sort this mess out. A mere five years ago, Cosco\u2019s investment in Chancay, which is located a mere 40 miles to the north of the capital city of Lima, seemed to be unmitigatedly good news\u2026<\/p>\n
The Peruvian government may\u2014like countless other governments in countries ranging from Italy to Sri Lanka that, until recently, enthusiastically courted Chinese infrastructure investments\u2014simply have gotten cold feet about Cosco in Chancay, especially since Cosco is ultimately owned by the Chinese state through its mainland-based parent company, Cosco Shipping.<\/p>\n
That does not appear to be the case. After Cosco warned that the removal of its exclusivity would impinge on the security and legal stability of its investments in Peru, implying that it could pull out of Chancay if it does not get what it wants, Peru\u2019s deeply divided Congress rapidly approved the following text:<\/p>\n
[T]he owner of a private port for public use that has a port authorisation can provide port services exclusively. Once the port authorisation has been granted, the competent Port Authority grants exclusivity in the provision of essential port services requested by the owner of the private port together with the port license.\u00a0<\/p>\n
\u201cA Tug of War for Peru\u2019s Soul\u201d<\/p>\n
A couple of years ago, the Mexican geopolitical analyst Alfredo Jalife-Rahme warned in one of his video conferences that the world\u2019s two superpowers, the United States and China, are \u201cin a tug of war for Peru\u2019s soul\u201d. As we noted at the time, said war is rather one-sided war given that China does not tend to meddle in internal politics in the region, or at least hasn\u2019t until now. The US, by contrast, has meddled in the region more than any other country in history \u2014 with the possible exception of Spain.<\/p>\n
Since then, Peru has hosted two extensive US-led military exercises on its soil: Resolute Sentinel 2023 (in May\/June 2023) and Resolute Sentinel 2024 (in May\/June 2024). This year\u2019s edition included the participation of the armed forces of Peru, the United States, France, Ecuador, Brazil, Chile and Colombia. Just days after it finished, the \u201cSouthern Seas 2024\u201d mission began, featuring combined exercises and operations of the US navy with the naval forces of several South American countries including Brazil, Argentina and Chile.<\/p>\n
Almost exactly a year ago, the weekly Peruvian newspaper Hildebrandt en sus\u00a0 trece\u201c published an in-depth report titled \u201cJuegos de Guerra\u201d (War Games). In that report, the authors wagered that the main reason for the US troops\u2019 mobilisation in Peru (and elsewhere) was as a show of force to Washington\u2019s main strategic rivals, Russia and China, which are \u201ceroding\u201d US influence in the region. From our article on the topic:<\/p>\n
\u201cThere is a global political confrontation between the United States and China and Russia. Peru is key because we are located at a strategic point in the Pacific basin, a gateway for China and access point to Brazil\u2019s huge market on the Atlantic seaboard. We are a hinge\u201d, Wilson Barrantes, former director of Peru\u2019s National Intelligence Directorate (DINI), told the weekly newspaper\u2026<\/p>\n
In May 2019 Admiral Craig Faller, then head of Southern Command, presented an internal document called \u201cEnduring Promise for the Americas.\u201d It was about a plan for winning allies in Latin America and the Caribbean up to 2027 with the goal of \u201cimproving security, protecting the US homeland and our national interests,\u201d says the report.<\/p>\n
In the document SOUTHCOM singles out two threats in the US\u2019 \u201cbackyard\u201d: Chinese influence and the growth of organised crime. On the spectre of Xi Jinping, Faller paints a bleak picture:<\/p>\n
\u201cIn many areas around the world, including this hemisphere, our competitive advantage is eroding (\u2026) China has expanded its \u2018One Belt, One Road\u2019 initiative in Latin America and the Caribbean at a pace that could one day eclipse its expansion in South East Asia and Africa. Its trade and investments are increasing rapidly and it is now the biggest creditor to the region. Chinese control of deep water ports and infrastructure connected to the Panama Canal bolsters its operational position. Its investments in telecommunications and access to space tracking facilities put at risk military operations, intellectual property and data privacy, says the report.<\/p>\n
Faller proposes three lines of action to counter US rivals. The first strategy consists of \u201cincreasing\u201d US presence in the region by strengthening its alliances. \u201cWe will take advantage of our bilateral security assistance programs to enhance regional cooperation.\u201d<\/p>\n
As if to confirm this, the documents presented to the Peruvian Congress requesting authorisation for the entry of US troops and military equipment argue that (emphasis my own) \u201ctraining alongside US forces will help to improve the capabilities and strengthen the operational performance of [Peruvian] Special Forces,\u00a0boosting their interoperability with NATO systems and doctrine.\u201d<\/p>\n
Since as far back as 2019 the Peruvian Army \u2014 one of the last remaining institutional backbones in Peru, according to Jalife \u2014\u00a0has made no bones\u00a0about its aspirations to join the North Atlantic Treaty Association at some point in the future, despite Peru\u2019s geographic position perched on South America\u2019s Pacific coastline.<\/p>\n
Peru, like its Andean neighbour Ecuador, has recently entered into \u00a0\u201cPlan Colombia\u201d-style initiatives with the US, with the ostensible aim of combating drug cartels. The agreements include authorisation for the US coastguard to patrol both countries\u2019 coastlines.<\/p>\n
A Dangerous Balancing Act<\/p>\n
At the same time, Lima is looking to strengthen its commercial ties with China, the US\u2019 arch rival in the region. Peru\u2019s deeply unpopular President Dina Boluarte is scheduled to visit Beijing this week to meet with Xi Jinping. She is also scheduled to meet with executives from Cosco Shipping Ports, Chinese telecoms giant Huawei, electric carmaker BYD, the infrastructure giant China Railway Construction Corporation (CRCC) and Jinzhao Mining, to whom her government recently awarded a contract to build another port in the south of Peru.<\/p>\n
At the same time, the Boluarte government is seeking similar investments from the US. Worried about China\u2019s Chancay move, Washington has allegedly set its sights on the Corio megaport development in the southern region of Arequipa. The project is projected to surpass Chancay in size and is being promoted by the Peruvian government among US investors,\u00a0 reports the Chilean newspaper La Tercera:<\/p>\n
[T]he Peruvian ambassador to the United States, Alfredo Ferrero, told Bloomberg that Peru is working to strengthen its relationship with the United States through this Corio project, aimed at balancing the presence of both powers on the Peruvian coasts. According to Ferrero, this project seeks to counteract China\u2019s growing impact on Peruvian maritime trade and guarantee a balance of strategic influence.<\/p>\n
In other words, Peru\u2019s government is trying to use each side to its advantage, much as Erdogan has balanced Turkey\u2019s relations with NATO and Russia. A couple of problems immediately spring to mind. First, the US government these days does not generally invest in non-military infrastructure, whether at home or abroad. Second, the Boluarte government is not nearly as canny nor as strong as Erdogan\u2019s. In fact, Boluarte is arguably the most unpopular leader in the so-called \u201cdemocratic West\u201d right now.<\/p>\n
After seizing power in a December 2022 US-supported internal coup, she has faced a string of scandals, including one called Rolexgate, as well as accusations of crimes against humanity for which she will soon have to face trial. Today, after just 18 months in charge, she has an approval rating of 5% and her government wants to make it illegal to accuse political parties of corruption. In the South, where most of the protesters were killed by security forces, just 3% of the population approve of her government.<\/p>\n
In other words, Boluarte will be easily toppled, if push comes to shove \u2014 just as she helped topple her former boss, Perdo Castillo, who is currently languishing in a Peruvian jail. Peru\u2019s Congress is almost equally reviled.<\/p>\n
Yet despite years of political scandals and instability, Peru\u2019s economy continues to provide some degree of stability. The upcoming inauguration of the Chancay mega-port will be proof of that. It will also be proof of the fact that while the US may be strengthening its military alliances in the region, it still can\u2019t compete with the Chinese for economic influence, despite still high rates of US investment and trade with the region. Additional proof of that, if needed, will be provided by the likely upcoming visit to Beijing by Argentina\u2019s fervently anti-communist President, Javier Milei, whose cash-strapped government desperately needs continued financial support from China.<\/p>\n
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