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HomeMarketChina's Port Investments Are Raising Security Fears. How to Deal With Them.

China’s Port Investments Are Raising Security Fears. How to Deal With Them.

A crane loads a container at Nanjing port in China’s Jiangsu province. Chinese companies own or operate terminals in 96 ports in 53 countries.

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AFP via Getty Images

About the authors: Leonard D. Lane is a senior lecturer, Strategy at the UC Irvine Paul Merage School of Business. Christopher S. Tang is a university distinguished professor and Edward W. Carter chair in business administration at the UCLA Anderson School of Management.

China’s growing influence over the world’s seaports is a geopolitical risk hidden in plain sight. 

Chinese companies own or operate terminals in 96 ports in 53 countries according to research by Isaac B. Kardon and Wendy Leutert. This economic influence gives China significant political power. But there are steps the Biden administration can take to reduce the security concerns. 

French shipping company CMA CGM announced in December its decision to purchase container terminals at the Port of New York and New Jersey. But as the Hudson Institute’s Christopher O’Dea writes, “CMA CGM has significant financial and operational links with Chinese state-owned companies.” It sold a minority stake of its terminal business to China Merchants Holdings (International) and has received financing from the Export-Import Bank of China.  

Across the Atlantic, the German government approved Chinese state shipping company COSCO to own 24.9% of the port of Hamburg late October. Partial ownership of a port can be mutually beneficial from a global trade perspective. However, when 7 of the world’s 10 busiest ports are already in China, the extensive investment in foreign ports should raise concerns about China’s dominance of international shipping. Former President Trump forced COSCO to relinquish its ownership of the Port of Long Beach in 2019 over security concerns. 

In a free-market world at peace, port ownership and logistic dominance wouldn’t be an issue. But historically seaports have played an important role in developing economic and military power. China’s consolidation of its economic influence needs to be considered in the context of its growing naval ambitions. 

In Africa, 46 nations have signed into China’s Belt and Road Initiative, which aims to stimulate economic development with Chinese investments. Since 2017, China has maintained a naval base in Djibouti—its first overseas—next to the Doraleh Multi-Purpose Port situated at the entrance to the Red Sea and the Suez Canal. The U.S. has said it is concerned about surveillance because the Chinese facility is located next to the U.S. Navy’s Camp Lemonnier.  

On the other side of the continent, the U.S. expressed concerns in December 2021 about China’s intention to build a naval base in Equatorial Guinea on the Atlantic Ocean coastline across from Brazil. 

In Asia, a China-funded upgrade of Cambodia’s Ream Naval Base broke ground in June amid Western concern about China’s military presence in the Gulf of Thailand. Last month, the Biden administration pressured Cambodia to clarify whether the Chinese Navy now has exclusive access to the base.

China’s military intentions are murky. But President Xi Jinping has made it abundantly clear he intends China to “take center stage in the world.”  

As British philosopher Bertrand Russell wrote decades ago after a 1920 visit to China, “As soon as China has proved strong enough for successful defense, it is apt to turn to foreign aggression.”

But Chinese development into a global naval threat isn’t a foregone conclusion. We see three strategies the U.S. could deploy to limit the risk. 

The first strategy is to leverage the power of the Indo-Pacific Economic Framework for Prosperity launched in May to bring Cambodia and other strategic countries in Asia into the fold. The 12 initial partners include India, Japan, and South Korea, representing 40% of the world’s gross domestic product. In exchange for stronger trade relationships, the U.S. could negotiate with Cambodia to ensure its Ream Naval Base provides equal access to other countries. 

The second strategy is to develop countermeasures against China’s Belt and Road Initiative. It is already facing setbacks, funding shortfalls, and political pushback that has stalled certain projects. There is public concern in some countries over issues like excess debt after the default of Sri Lanka in April and over China’s political influence. In June, President Biden and other G-7 leaders announced a $600 billion infrastructure plan in Africa over the next 5 years to compete with China. Given many Africans prefer the U.S. development model to China’s, the U.S. and G-7 can use this investment to negotiate for military presence in certain strategic locations within the Africa continent. 

The third strategy is to develop a concrete plan based on the Americas Partnership for Economic Prosperity Biden announced in June. This partnership aims to mobilize new investments in the region, but the U.S. can negotiate deals that can pre-empt China’s infrastructure investments in the future. 

A smart deployment of U.S. economic influence now would reduce the risk of military confrontation going forward. 

Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com.

Credit: marketwatch.com

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