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The Power of Ports: China’s Maritime March

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Trans-Pacific View

The Power of Ports: China’s Maritime March

Insights from Sam Beatson.

The Power of Ports: China’s Maritime March

Chinese construction in Sri Lanka’s Colombo harbor.

Credit: Flickr/Rehman Abubakr

Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into the U.S. Asia policy.  This conversation with Dr. Sam Beatson – teaching fellow at the Lau China Institute, King’s College London; chairman of the Smart Societies Institute; and founding leadership fellow of St George’s College, Windsor Castle – is the 82nd in “The Trans-Pacific View Insight Series”.

Explain China’s emergence as a maritime superpower and the challenge it poses to U.S. seapower supremacy. 

China is expanding as a maritime power in terms of port and shipping assets, naval power, and independence, not unlike the U.K. 200 years ago in its exporting to other areas of Empire. China has in a tentacular fashion invested billions of dollars in expanding its international port network in addition to Chinese naval hardware, including surface vessels, such as warships and aircraft carriers, and nuclear submarines, such as those stationed on Hainan Island province’s southerly coast. The largest shipping and container companies are strategic assets for the Chinese state and are economically and politically important. However, China’s experience of trade and military activities in international waters do not rival the United States’ at this juncture, even though the number of military vessels do, and indeed outweigh those of the U.K., Japan, and India. Therefore, the challenge China poses to U.S. seapower arguably depends on China’s behavior as an ocean-going military and economic concern.

I recently conversed with Admiral Sir James Burnell-Nugent, KCB [Knight Commander], CBE [Commander of the British Empire], former commander-in-chief fleet, about this matter. Sir James made his view clear: Navies are political instruments, in that they can be flipped into different roles, different forms of pressure, and different behaviors very easily, provided that a warship is in the right place geographically. A naval vessel keeping sea lanes open for trade can very easily be used to keep them shut at the signaling voice of one hierarchical command. It is much harder for UN vessels, for instance, to transform in such a way due to logistical, support, and weapons issues. In this sense, a Chinese naval vessel today keeping sea lanes open could thwart innocent flight of passage practically overnight.

Members of Trump’s new administration have voiced clear opposition to China’s activities in the South China Sea, following the ruling by The Hague in favor of the Philippines’ rights within the so-called nine-dash line area, [a ruling] which China has sought to undermine. The issue here is arguably that China is rather surrounded by U.S. overseas naval bases, and U.S. allies, whether by Taiwan and Japan to the east, or by Southeast Asian nation-states to the south. This perhaps renders militarization in the South China Sea rather an impotent exercise, regardless of bluster from any sides. It is fairly intuitive to assume that the U.S. seeks to sustain a naval capacity that is able to overpower that of China.

Identify key ports and their significance in China’s shipping networks.   

In terms of investments, a recent Financial Times article cited some work Jim Coke and I had done on infrastructure projects, mergers and acquisitions, and joint ventures by Chinese enterprises, often with strong links to the state, and thus the Chinese Communist Party, through either ownership or management. We worked out around $46.6 billion investments involving 40 port projects had been announced or completed, the largest five of those for which we found data being: Tanzania (Bagamoyo—$10 billion); Sri Lanka (Colombo and Habamtota—$3 billion); Burma [Myanmar] (Maday Island—$2.5 billion); Australia (Darwin, Newcastle, and Melbourne—$2.2 billion) and Israel (Ashdod and Haifa—$2.9 billion). Ownership level and scope of investments vary. Taken together, Chinese port operators China Merchants Port Holdings, Cosco Group, and China Shipping Terminal Development, all mainland companies, easily rival the top two companies in the world by container flow (PSA International of Singapore and Hutchison Ports Holdings of Hong Kong). The FT article shows that Chinese container shipping lines taken together dwarf other countries’ container flow.

Where the matter of Chinese ownership and container shipping flow becomes particularly interesting — and baffling — is in the case of China’s 2013 49 percent stake (favorable terms) in Terminal Link making the China Merchant Holdings—CMA CGM (France) group the third largest in the world. This came after CMH purchases in Taiwan and Africa, propelling it into the global league. This indirectly brings Miami and Houston ports in the United States under what is all but in nominal (‘49 percent’) terms a Chinese controlling stake. Dubai World Ports had failed to acquire ports of much lower annual container flow a couple of years earlier and the media was in uproar. The CMH CMA CGM deal went through almost under the radar. An intriguing case and one you would not have expected from the United States — allowing Houston Terminal Link Texas (Houston) and South Florida Container Terminal (Miami) to come under 49 percent Chinese ownership.

What are three salient trends propelling China’s investment in foreign ports?  

Chinese outward foreign direct investment (OFDI) has been bolstered by policies that have supported this increasingly over the last ten years, through incentives. Capital accumulation by large enterprises through a period of rapid economic growth, scarcity of energy resources in China, rising production costs, the importance of merchant shipping to serve China’s massive export market, [and] technology transfer requirements are further drivers of this sort of investment more broadly. What the enhanced OFDI (“Go Global”) policies have done in part is encourage buying up of assets in [regions] like central and south America, like Africa, in order seek out resources on land. This necessarily requires access to shipping and container terminals for transport.

China also has had to be increasingly mindful that other places have been emerging for U.S. manufacturing, such as Mexico and Southeast Asian countries, places that offer even cheaper labor than in China with people now having more money who are less willing to do the low-wage jobs. Looking to the future, China, having made money over the last 30 years, needs to think carefully about and guide its firms in investing abroad. As I’ve said above, Sri Lanka is a good example, also Vietnam or even in developed countries. This is about spreading money around, covering bets if you like, by investing in infrastructure projects around the world, in any region that has the potential for consumer demand in the future. People spending more will need infrastructure, e.g. for ports, shipping, and terminals.

It is also about China seeking to secure sea lanes for itself, and demonstrating its naval prowess, not only in the military power sense, but also in the cooperative sense — keeping open sea lanes, fighting piracy and protecting international waters. In this way, China is seeking to show its responsibility as a global actor.

Explain the correlation between China’s “One Belt, One Road” initiative and the importance of securing sea lanes.    

Securing shipping lanes are an important part of China’s ambitions in opening up the belt and road. Under the idea of rejuvenation of the original Silk Road trade routes, OBOR is a project instigated and promoted by Chinese Communist Party General Secretary Xi Jinping from September 2013. The project aims to link parts of China hitherto difficult to reach, like western and central regions, with rail links through northwestern province Xinjiang, for instance, to Eastern, Central, and even Western Europe. Concurrently, China has sought to develop a Maritime Silk Road for China, linking African and Middle Eastern countries through Asia, with a view to supporting regional economic development.

If China seeks to provide support in missions, for example, to counter piracy, then China’s naval forces are a welcome addition to international shipping lanes. The ports China has invested in do follow the sea route of the One Belt, One Road plan. There is plausibility in the argument that developing routes, naval support and securing assets, supply lines, and political and economic ties in the Middle East, Africa, and Indian Ocean littoral are a parallel objective for China strategically and defensively in the OBOR project, in addition to the grand and benign objectives promoted in the OBOR rhetoric.

Assess the strategic implications for the United States of China’s expanding naval presence.

China’s expanding naval presence does not only have strategic implications for the United States, it has implications for all countries using international sea lanes to conduct business. If China works with the rest of the coalition of countries who actively engage together in seeking to strategically keep the sea-lanes open and to keep those sea-lanes safe for use, then China can learn a lot about international cooperation in merchant shipping and the keeping open and protecting of sea lanes specifically for that purpose. If China seeks to provide support in missions, for example, to counter piracy, as China did after 2008 with Somalian pirates, then China’s naval forces are a welcome addition to international shipping lanes. Chinese vessels have supported aid and merchant ships with coordination with other forces, in spite of not belonging formally to international coalitions.

Strategically, we might think of Djibouti and the Gulf of Aden, whereby China is able to supply logistical support to peacekeeping forces and support UN humanitarian tasks. We might also think of naval deployment and exercises, in addition to asset seeking in the coastal regions of countries proximal to the Indian Ocean, especially given China’s dependence on Straits of Hormuz and Malacca for energy supply through the sea lanes, routes that need to traverse ocean to India’s south.

There is projection of power in the way China has built up and deployed port, merchant shipping, and naval assets, in addition to the economic logic of doing so. A recognition of the need to deal with Chinese vulnerability, particularly in respect of protecting the flow of commodity imports, especially energy, forms a part of the practical basis of the expansion. All sides need to be aware that while each hopes the other will abide by UN norms and legislation, there is a perceived risk that the other will not. There does appear to be fear of and defiance toward U.S. intervention, reflected by the defensive nature of responses to U.S. public statements, e.g. on China’s South China Sea activities, and The Hague ruling. However, the latter also provides political and operational evidence of China not behaving in the desired ways.

Nevertheless, there is a certain naturalness in a country seeking to defend and lay claim to those territories it deems as its own, no matter the seeming defiance of the norms and rules defined outside of its boundaries. 50 percent of the surface of the spherical planet on which we live is made up of international seas, yet countries compete for the resources contained in that seas-space — mineral deposits; food in the form of fish and other resources. China wants as much of that economic space as it can to obtain resources, whether hydrocarbon, mineral, or protein in nature. China wants to assert its claims, whether exclusive or not, over rights to zones in which it can act in or beyond its territorial waters for these resources and sea-lane protection. China is under much scrutiny and thus caution and the exercise of restraint is much advised and practiced by China — and the United States so far — but China seeks to robustly defend its position in the diplomatic discourse when threatened in the direct manner.

Certainly, the solution lies in diplomacy rather than the firing gunboat cannons in the 21st century, which would be a disastrous development. But it also lies in upholding responsibly a common objective of keeping sea-lanes open, promoting economic development in poorer regions, as China is doing, and combating piracy. If such cooperation can continue, then risks of conflict are reduced.

The Vivekananda International Foundation published a piece on strategic implications of OBOR last year which is worth reading for further information.