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All at sea

“Learn from the Germans! Work hard, never be lazy and always work seriously. Hard work, happy life.”

Last year’s message for Greece’s dockworkers from Fu Cheng Qiu, the boss of Cosco Shipping Port’s container terminal in Piraeus, was uncompromising.

Fu was talking to the German media so he was playing to a more appreciative crowd. But workers in Piraeus were wise to heed his warning, especially when Cosco took majority control of the port this summer.

As one of the highest-profile projects for Belt and Road in Europe, the port of Piraeus deserves attention because it touches on many of the issues surrounding China’s increasing investment in the West.

Cosco, the state-controlled shipping giant, first put money into Piraeus seven years ago, buying the rights to operate two piers at its container terminal. Discussions then began for an equity stake in the port and a deal was struck for a €370 million takeover last year.

Cosco’s impact had already been transformational, underpinning a surge in traffic that crowned Piraeus as the fastest growing container terminal in Europe. Volumes handled had grown more than four-fold to 3.3 million containers last year, much of it the trans-shipment of goods from Cosco’s own shipping fleet.

The Chinese brought much-needed investment in deepwater berths and cranes, and new deals with commercial customers such as Hewlett Packard and the Chinese telecom giant ZTE. But the spillover benefits for the container operation that stayed under the control of the Piraeus Port Authority, a state-owned entity, failed to materialise. Cash-strapped and hamstrung by antiquated working rules, the Greek-controlled dock always looked destined for the fuller takeover that finally came this year. The workers realised it too and launched industrial action, warning against a sale to the Chinese.

Fu’s response was withering, telling union members that they needed to work harder rather than lie on the beach and drink beer, and the dockworkers could do little as the privatisation plan passed through the Greek parliament.

Cosco’s chairman Xu Lirong then came to Greece for the signing of the deal, likening Piraeus to the ‘Argo’, the ship used by Jason and the Argonauts.

“Let the ship sail and bring the Golden Fleece,” he celebrated, adding that Cosco would invest further in the port and that new jobs would be created.

“This is not a concession, it’s a giveaway of property belonging to the Greek people,” Constantinos Tsourakis, an employee at the port, countered to Reuters at the time the takeover was confirmed. “Why should China be master of the game at Piraeus and not the Greek state?”

 

Navigating a new map

Much of the early investment in Belt and Road’s maritime network has focused on improving connectivity between China’s exporters and their European customers, says Frans-Paul van der Putten, a senior research fellow at the Clingendael Institute, a think tank and advisor to the Dutch foreign ministry.

Frans-Paul van der Putten from the Clingendael Institute

Frans-Paul van der Putten from the Clingendael Institute

Piraeus is a prime example, although van der Putten, who has been tracking the maritime investment under the plan, says that another focal point is East Africa, where Chinese firms have been modernising a series of port zones and connected infrastructure along the Indian Ocean.

In Kenya the state-owned China Road and Bridge Corporation is upgrading a railway line from the port of Mombasa to Nairobi, financed by China’s Export-Import Bank. To the south in Tanzania, China Merchants Port Holdings is a key participant in a plan for a new trade zone around Bagamoyo, to be linked to landlocked countries like Burundi and Rwanda by another new railway. Further north, China Merchants has bought into the Port de Djibouti on the Red Sea and a consortium led by China Railway has secured the rights to operate a railway linking Djibouti with Ethiopia. Chinese construction firms completed the $4 billion line this summer, according to Xinhua.

The newcomers in Africa could capture more of the trans-shipment traffic heading for other destinations in the region, much of which is currently routed through Europe. Belt and Road investment may have a redistributive impact inside Europe as well, with ports in Southern Europe grabbing more of China’s export flows as they arrive in the Mediterranean, just like Piraeus.

Cosco has also been investing in Europe’s more northernly hubs, however, adding a stake in a terminal in Rotterdam to its holdings in Antwerp and nearby Zeebrugge. These ports could make their own gains from Belt and Road as destinations for goods brought overland by the new railways and then re-exported to the east coast of the United States. But van der Putten says the opportunities to connect with land-based corridors are greater for some of the other maritime hubs in Belt and Road, especially ports in Iran and Pakistan, which could become ocean gateways for trade routes stretching from Western China through Central Asia and down to the Arabian Sea.

 

Controversy in Colombo

Cosco’s investment approach in the Mediterranean has been multipronged: taking a stake in Port Said in Egypt, co-investing in Kumport in Turkey, and now emerging as a frontrunner to build and operate another terminal at Algeciras in Spain.

The sense is that the Chinese are spreading their political risk and making sure that their shipping lines have a range of delivery destinations. Hence the Kumport deal came at a time when it wasn’t clear if the Greeks would allow the full takeover at Piraeus. “The government in Athens hasn’t been entirely predictable in its decisionmaking, so it’s important for the Chinese to show them that they have alternatives,” van der Putten explains.

That lesson holds true in Sri Lanka – another hot spot for Chinese investment in the Indian Ocean – where the relationship with the local authorities turned tempestuous this year.

During the former presidency of Mahinda Rajapaksa, Chinese firms led by China Harbour Engineering pushed ahead with a huge new zone of reclaimed land near the port district of Colombo. Xi Jinping even turned up for the launch ceremony. Work also began on a series of projects around a deep-sea port and industrial zone in Hambantota – Rajapaksa’s hometown – that were heavily reliant on Chinese lending.

$8 billion

China’s loans for Sri Lanka’s
Belt and Road projects

But the deals went sour when Rajapaksa lost office to Maithripala Sirisena last year. Alleging corrupt practice and punitive terms for the hosts, Sirisena threatened to cancel the contracts and he pushed Beijing to take a debt-for-equity swap on the Chinese loans.

His negotiating position was weak. Many of the projects were halfway to completion and dependent on Chinese contractors, who threatened to sue. The Sri Lankan state is heavily in debt, owing more than $8 billion to Chinese lenders, and Sirisena failed to find alternative finance, forcing his government to turn back to Beijing.

“The stance on China has completely changed,” cabinet spokesman Rajitha Senaratne told Reuters in February. “Who else is going to bring us money, given tight conditions in the West?”

Soon afterwards work restarted at Colombo Port City, where Chinese firms are getting long-term land rights in a zone with special trade and tax policies. In Hambantota the Chinese have requested a further 15,000 acres of land for the industrial zone and there are reports that Sirisena has granted several large-scale development projects to Chinese firms in his own hometown, Polonnaruwa.

 

Control, or collaborate?

Sri Lanka’s significance to Belt and Road is supercharged by its location close to one of the world’s busiest shipping lanes and its strategic position between East Asia, the Middle East and Africa.

Part of the pushback to Chinese investment on the island has come from New Delhi, where there are concerns about Beijing’s so-called “String of Pearls” strategy. The fear is that the Belt and Road investments in countries such as Sri Lanka, the Maldives and Pakistan are encroaching into India’s sphere of influence.

The same rivalry has been playing out in Bangladesh, where Chinese construction crews have upgraded the port at Chittagong and built new roads, bridges and railways.

However, the Bangladeshis dumped a Chinese proposal for another deep-sea port at Sonadia when the Japanese came forward with a better offer for another location nearby. Japan’s banks had agreed to lend most of the $4.6 billion in project costs at almost zero interest, the South China Morning Post reported at the time, although there were suggestions that Bangladesh had come under political pressure from Washington and New Delhi to reject the Chinese offer.

In fact Japan has a long history of concessional lending in Asia and its banks and construction firms are competing fiercely with the Chinese for heavy-duty infrastructure deals across the region.

But this shouldn’t be a winner-takes-all battle as far as Belt and Road is concerned. On national interest grounds, China gains from almost all the investment that lowers the cost to trade, simply because of its status as the world’s top trader. More importantly, the Belt and Road plan isn’t going to work as effectively unless other countries get involved. All the talk about it being inclusive isn’t just rhetoric – the Chinese need others to participate, both financially and politically.

“It can’t be built exclusively by Chinese companies or financed solely with Chinese money,” van der Putten agrees. “And the fact that Japanese companies want to participate in places such as Bangladesh only strengthens the long-term prospects of the plan.”

All the same, the steady flow of support from China’s state-owned banks and construction firms will leave the host countries more susceptible to Beijing’s influence. This is the essence of the Belt and Road balancing act, perhaps. If the Chinese are too heavy-handed in advancing their agenda, other countries will need more persuading to participate. Van der Putten is right that Belt and Road has a brighter (and less politicised) outlook if more non-Chinese companies and capital get involved.

After all, Belt and Road thrives from the network effect, in which a good or service becomes more valuable when more people use it. The Chinese are going to benefit from the same phenomenon as more investments are made in roads, ports and railways, expanding the network into something greater.

In this context the activity in places like Africa, Sri Lanka and the Mediterranean looks like the initial chapter in a more transformative plan. “Take Piraeus, where Cosco is now such an influential player,” van der Putten explains. “Something that started with the lease of a container terminal has grown into a more substantial plan. Chinese involvement there looks like the launch pad for something bigger, creating opportunities for investment in trade and industry much further into southern and central Europe.”


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