Mixed fortunes for China’s port operators

Mixed fortunes for China’s port operators

The Belt and Road Initiative has prompted investments in ports around the world as the Chinese extend their maritime reach. One of the success stories is in the Mediterranean, while an investment in the Indian Ocean has been proving more problematic.

The project in Europe features Cosco Shipping Ports, which put money into the Greek port of Piraeus (pictured above) by buying the rights to operate two of the three piers at its container terminal. Spending on deepwater berths and cranes improved handling and introductions to new customers such as HP and Huawei brought in new business. The port’s fortunes were transformed: throughput has increased from 880,000 containers in 2010 to 3.74 million last year.

But the spillover benefits for the terminal that stayed under the control of the Piraeus Port Authority, a state-owned entity, failed to materialise. Hamstrung by antiquated working rules, the Greek terminal lost business to the Chinese operations and it soon looked destined for takeover. Local workers resisted, fearing changes to their working conditions, but Cosco’s response was withering, telling the union that its members needed to stop drinking beer and work harder.

Cosco took majority control of the port last year, overcoming last-gasp resistance in the Greek parliament.

“They turned the business around at the container terminal first,” says Parash Jain from HSBC. “But the fuller takeover is taking them into new areas like cruise terminals and bulk cargo handling, so they are now running the port, not just the container operations.”

Piraeus is now a flagship for the Belt and Road plan but it also puts Cosco into the spotlight for how it handles the relationship with the Greek government. Commitments for further investment at the port of at least €350 million ($408.5 million) should help to smooth relations and Chinese policymakers are holding out the wider prospect of turning Piraeus into the maritime gateway for a new network of roads and railways that reaches deep into southern Europe.

The maritime mood in Sri Lanka has been harder to navigate. There, the main operator is China Merchants Ports, one of Cosco’s rivals. It operates the largest of the container terminals in Colombo, where throughput increased almost a third last year to record highs of more than 2 million TEUs. Chinese firms have also pushed ahead with construction at a new trade zone around the deep-sea port of Hambantota, the hometown of former president Mahinda Rajapaksa. But the venture went sour when Rajapaksa lost office and new leader Maithripala Sirisena attacked the arrangements for the new zone, demanding that the Chinese take a debt-for-equity swap on some of the $8 billion in loans made to the Sri Lankan government.

Beijing played hardball as the negotiations dragged on and the Sri Lankans failed to find alternative sources of finance. Late last year China Merchants announced that it would be taking majority ownership of the port at Hambantota on a long-term lease and that an additional 15,000 acres would be made available for a new industrial zone. Violent protests against the agreement then forced the Sri Lankan government to go back to the Chinese again, asking that China Merchants get a shorter lease for the zone and a smaller share of its profits.

The row over control of the Hambantota zone is yet to be resolved. But Colombo has little room for renegotiation because Sri Lanka is in the middle of a balance of payments crisis and desperate to delay some of its debt repayments to the Chinese.

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