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How Belt and Road is set to bolster China’s maritime ambitions

Shipping’s contribution to the global economy is often overlooked, perhaps because so much of it is happening over the horizon, far from human habitation. In fact, the sector is crucial to our everyday lives with more than 90% of the world’s trade carried by sea. Without seaborne transportation supply chains would seize up, power would run out and supermarket shelves would empty.

China’s contribution to the maritime world has been mixed, however. Six hundred years ago its imperial fleet was unrivalled in size and sophistication, sailing vast distances in search of trade and commerce. Yet there were later periods in which China’s emperors turned inwards, outlawing ocean-going travel. One of the consequences of this isolation was the so-called Hundred Years of Humiliation from the mid-19th century, when the Qing were forced to cede sovereignty in the Treaty Ports, cowed by the gunboats of the European powers.

Much more recently, the Chinese have been rediscovering their maritime instincts, although the media coverage has mostly carried headlines about Beijing’s military aspirations, including the commissioning of its first homegrown aircraft carrier and the efforts to take control of disputed islands in the region’s seas.

China’s influence in the world of merchant shipping is less remarked upon, despite its emergence from a period in which its fleet was a rounding error to a position today in which it has become a key player.

This transformation – and its impact on the wider shipping world – is the topic of this Focus edition, the latest in WiC’s series of special publications.

 

China sets sail

On most of the maritime metrics, the Chinese are now a major force. China’s shipping lines carry the most cargo, with the largest share of the world’s agricultural and industrial commodities making its way to Chinese ports, and two-thirds of the world’s container traffic handled by Chinese-owned or invested terminals. The proportion of the global fleet under Chinese ownership has grown substantially over the last 20 years and the Chinese have the largest order book for new vessels, many of them from the country’s own shipbuilders.

None of this would have been imaginable 40 years ago when Deng Xiaoping’s reforms launched the Chinese economy in the modern era. This process of opening up to the wider world only picked up rapidly in pace – as far as the shipping industry was concerned – after China’s accession to the World Trade Organisation in 2001 (see section one for more on China’s growing significance to the shipping cycle). But the boom was followed by a devastating bust, brought about by a cavalcade of construction at China’s own shipyards (we look at some of the challenges facing China’s shipbuilders in section four).

 

The Belt and Road boost

Compared to the golden era a decade ago, shipping has spent the last few years in the doldrums, trying to survive much tougher trading conditions. Nonetheless, Chinese firms have strengthened their position in terms of vessel ownership (see section two) and by controlling some of the largest lines and newest ports (see section three).

Over the last six months there have been signs that prospects might be improving in shipping once again. Over the longer term the great hope is that China’s Belt and Road Initiative ­­­– a multi-year programme of billions of dollars of investment in trade and transport infrastructure along the ancient Silk Road to the Mediterranean and Africa ­– will serve as a catalyst for growth.

90%

The share of global trade carried by sea

WiC reviewed Belt and Road in more detail last year (the full edition is available to download here) and we won’t cover the same ground in this publication. But the maritime element of the plan is going to have the greatest impact, simply because the massive majority of goods are shipped by sea. For all the talk of new roads, railways and pipelines, they will never sideline seaborne traffic. As a single example: the Silk Road freight trains that are connecting cities in China with Europe carry just 1% of the cargo of the largest containerships.

In the shorter term, building the Belt and Road’s infrastructure will be more beneficial for the bulk shipping lines, with more cargoes of steel, cement and construction equipment. Steelmakers will want more iron ore, keeping the Capesize fleet busy transporting it from Australia and Brazil, and the new power stations in the plan will need greater supplies of coal, boosting bulk shipping again.

In the medium term, Belt and Road is promising to bolster the economies of the participating nations, which should prove a positive for the container lines, with more spending on cross-border goods. And the rollout of the plan will also have an impact on how some of that trade is transported. Container terminals in northern Europe have welcomed the lion’s share of Asian exports for decades but Chinese investment in the Mediterranean is already encouraging new activity along Europe’s southerly edge. Ports in Sri Lanka are offering new transshipment options in the Indian Ocean, while terminals along Africa’s eastern coast will open up markets too.

 

Are the Chinese taking charge?

One of the suspicions sometimes cited about Belt and Road is that it is designed to give the Chinese greater control over the world’s trade routes, making it easier for their companies to dominate foreign markets.

Chinese spending on ports and fleets has triggered similar fears of a takeover in merchant shipping and it’s certainly the case that parts of the industry have grown more dependent on the Chinese as customers and investors.

It’s also true that the Chinese government would like the country’s shipping firms to establish a more commanding position. This is a recurring theme in this Focus edition and we review the debate on maritime mastery in the final section.

What is undeniable is that China’s economy has been a mainstay for the shipping sector, chewing up imports of raw materials and churning out exports of finished goods. The container trade grew at a faster rate than global GDP for years, while China’s appetite for coal and iron ore has been fundamental to the fortunes of the bulk carriers. The Chinese are now trying to reduce some of their reliance on fixed investment and exports as engines of economic growth, turning more of their attention towards the services sector and a stronger role for domestic consumption. Both trends could dull some of the demand for shipping’s services but as far as the world of merchant shipping is concerned, China’s contribution is still going to be crucial.


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