The Belt and Road plan is starting to have an impact on maritime trade, according to Parash Jain, Head of Transport, Asia-Pacific at HSBC.
The stocks that Jain covers include container terminal operators like Cosco Shipping Ports (until recently Cosco Pacific) and China Merchants Ports (formerly China Merchants International).
One of the challenges in monitoring how these firms are responding to the plan is that almost anything that they do is talked about in terms of the policy. Some of these investments would have happened anyway, Jain believes, and a number of the headline deals were first announced before Belt and Road became such a hot topic.
China Merchant’s interest in Djibouti in fact pre-dates the formal launch of the Belt and Road policy agenda and the situation is similar in Sri Lanka, where it has opened a $500 million terminal in Colombo and is part of a consortium backing another new port at Hambantota.
However, Jain recognises that Xi Jinping’s championing of Belt and Road has encouraged port operators like China Merchants to broaden their horizons. He acknowledges too that the plan is sometimes portrayed as more of a geostrategic blueprint than a commercially driven effort. Some of that debate has drawn on the rivalry with India, where none of China’s port firms have an active presence, although they have been investing in the wider region, including Sri Lanka and Gwadar in Pakistan.
Belt and Road’s backers argue that this is much-needed activity in a part of the world that is severely short of maritime infrastructure.
The critics counter that the Chinese are pursuing political objectives in the Indian Ocean and the Arabian Sea, and not just profits.
Jain says simply that investments of this type can serve a variety of goals, even if opinions differ on the commercial attractiveness of some of the new port projects.
“Putting money into infrastructure projects makes sense, even if the percentage returns are low single digit,” he says. “But what makes sense to state shareholders may not be quite as convincing for minority investors. The state-backed capital can take a view over 50 years, but the other investors have more of a focus on the next quarter. These minorities might prefer to get a dividend than see another new investment that could yield 2% or 3% over the longer term.”
At least the new ventures offer their operators the chance to diversify their portfolios and become a little less reliant on their ports in China. But while the additions might help with incremental growth, they aren’t going to move the dial dramatically in revenue terms. “The world isn’t going to build any more Shanghai’s or Shenzhen’s,” Jain admits. “The new ports are much smaller in scope. Some of them are handling maybe a million containers a year, compared to 36.5 million in Shanghai.”
Piraeus is one of the leading examples of Cosco’s contribution to the Belt and Road programme and business at the port – which is close to Athens, the Greek capital – has surged since the Chinese arrived.
Jain agrees that Piraeus couldn’t have been as successful without Cosco, which has used its parent company’s shipping lines to build up the port’s trans-shipment flows.
“They turned the business around at the container terminal first,” he says. “But the fuller takeover is taking them into new areas like cruise terminals and bulk cargo handling, so they are now running a port, not just a container terminal. That’s probably why Cosco’s parent firm did the deal for Piraeus and it hasn’t injected the assets into the listed company.”
More spending is anticipated, not just on the port, but on roads, railway lines and logistics services that boost its connections to the hinterland. “From Beijing’s perspective this is an investment in the whole package,” Jain reports.
A pick-up in traffic for ports like Piraeus could result in a decline in business for major northern European hubs such as Rotterdam and Hamburg. But Jain thinks that outcome is more likely to happen at ports in the Middle East, especially those more reliant on trans-shipment business to Africa and parts of the Mediterranean.
“Infrastructural investment in Africa could be important as the bigger ships may start to go there directly and skip some of their trans-shipment costs,” he suggests. “With oil prices down, the single largest cost for the shipping lines is terminal handling charges. You will always have to pay these at origin and destination, but trans-shipment fees can be cut if the ships sail direct.”
The same trend is getting support from the alliances forged between the leading shipping firms, which allow for single vessels to be filled with cargo from six or seven contributing companies, helping the routes to become commercially viable.
Nonetheless, the land-based elements of Beijing’s strategy seem to get more media attention than the maritime components of the plan. One possibility is that Chinese officials are more excited about how the Belt’s railways, pipelines and power stations could absorb more of the country’s excess steel and cement. That’s less the case for their maritime equivalents, unless China’s state-owned firms take on a heavy load of investment in brand new ports and their supporting infrastructure.
In fact, the Road’s contribution looks like being a lot more influential in trade terms, simply because the freight volumes moved by sea are so much greater. The trains will be offering a tiny fraction of sea-going capacity and Jain says the railways won’t be able to beat the ocean routes on cost. Further, the shipping supply chain is more sophisticated, having been established over decades of investment. “It’s more than just the development of the ports,” he claims. “There are the locations of all the factories, the road and rail connectivity, and the ecosystems of freight forwarders, logistics companies and insurance providers. The amount of investment in the new railways would have to be mindboggling to match it.”
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.