“Due to its potential size and volume of operations, Peru’s Chancay mega-port is destined to become a nerve centre of international trade.” And it will be exclusively controlled by Cosco.
Peru appears to be on the verge of becoming a major global shipping hub, and all thanks to a largely Chinese financed infrastructure project. Over the past five years, the Chinese giant Cosco Shipping Ports has, together with Peruvian mining company Volcan, invested $3.6 billion in transforming a natural deep-water port in Chancay, just 45 miles north of Lima, into a cargo mega-port. The first part of the project, now in its final phase, is slated for inauguration in November when Chinese leader Xi Jinping is scheduled to attend the APEC summit in Peru.
Once the work is finished, Chancay will become South America’s largest deep sea port, boasting two massive terminals. There will be a new container terminal with 11 berths as well as a new four-berth terminal for bulk cargo, general cargo, and rolling cargo, World Cargo News reported.
“We are very focused on the operation,” said Alonso Guinand, commercial manager of Cosco Shipping, in a recent interview with a local Lima television station. “The plan is to inaugurate in November and begin receiving vessels between January, February March next year.”
The first five fully automated ARMG yard cranes have arrived in Chancay as the port development reaches 83% completion https://t.co/T8Oc7mClFW #Peru #cranes #ARMGs #WorldCargoNews pic.twitter.com/yVIcu0T1QM
— WorldCargo News (@WorldCargoNews) June 21, 2024
From Chancay to Shanghai
Commissioned in 2019 (though preliminary work began in 2016), the Chancay megaport is seen as the first of its kind in Latin America: a large-scale Pacific-coast logistics centre serving Asia that could save valuable shipping time by reducing the need to transit either the Panama Canal or Cape Horn. But that is likely to be a long time coming, if it ever transpires. It will also be the first port on South America’s Pacific coast that is able to receive ultra-large vessels – which can transport more than 18,000 containers — because of its nearly 60-foot depth.
The potential impact for trade between South America and East Asia is likely to be significant, reported BBC Mundo in 2023 (translation my own):
The megaport will be one of the main departure points for the raw materials that the region exports to China, such as copper and other minerals that Peru produces in abundance. Due to its size and volume of operations, it is destined to become a nerve centre of international trade.
“The dimensions are so significant that it appears that Chancay is going to become a critical point for shipments to China and all of Asia,” Margaret Myers, an expert on Asia and Latin America at The Dialogue, a think tank, told BBC Mundo.
Through the enormous investment — US$3.6 billion according to official projections — and complex engineering work… the Peruvian government hopes to attract around 50% of the nearly US$580 billion in trade that moves annually between China and South America.
Given the projected shorter shipping times, Chancay is of particular interest to local producurs of agricultural and fishing perishables. According to the Foreign Trade Research and Development Institute of Lima’s Chamber of Commerce, or Idexcam, most of the export value (63%) shipped from Chancay will consist of perishable fishing products (traditional and non-traditional) and non-traditional agricultural products. The port, it says, will not export or import minerals, but will instead transport mainly goods in containers, such as agro-industrial products, toys, packaged products, automobiles, equipment and machinery, among others.
Hopes are high, however, that Chancay will be used to export products from neighbouring countries like Ecuador, which recently signed an FTA with Beijing; Chile, which also has an FTA with China; Colombia, and perhaps even Brazil. Much will depend on whether the road links between Peru and Brazil — particularly the Andean sections — can be improved. Brazilian companies and government ministers are certainly showing an interest in the project. The port will also function as a gateway to South America for imported Chinese manufactured goods, including mobile phones, computers and electric cars.
Not everyone is excited at this prospect. The European Council on Foreign Relations warns that both the US and the EU risk falling behind China in Latin America as they struggle to compete with China’s vertical investment strategy in the region. The US, in time-honoured fashion, is exerting political pressure behind the scenes. According to one report, Washington’s soft-power arm USAID is playing a part in the US’ counter-offensive against China in Peru by investigating “foreign agents” in the country, with a particular focus on “unethical” practices by “Asian” (read: Chinese) multinationals.
China is already Peru’s largest trade partner on both the exports and imports side. A whopping 35% of Peru’s exports go to China, compared with 19% to the US. Peru is the second largest destination for Chinese investment in Latin America, behind only Brazil. It is also one of just five countries in the region, along with Chile, Costa Rica, Nicaragua and Ecuador, that have free trade agreements (FTAs) with China, though another five, including Colombia, Panama and Uruguay, are in the process of negotiating FTAs with the Asian giant.
As noted in previous pieces (including most recently here), China has made huge incursions into the US’ so-called “back yard” over the past two decades, as both a trading partner and investor. It is already South America’s largest trade partner, having increased its volume of trade with the region more than 25-fold between 2000 and 2020. The US continues to hold sway over Central America and, pound for pound, is still Latin America and the Caribbean’s largest trading partner. But that is predominantly due to its huge trade flows with Mexico, which account for well over half of all US-LatAm trade.
Chancay will allow Beijing to further strengthen its grip over South America’s resources, warns the Wall Street Journal. There are also concerns that the port could be converted for military use as well as over how data passing through the massive operation could be used by the Chinese Communist Party.
“Why are the Chinese so focused on critical infrastructure in this hemisphere?” asked General Laura Jane Richardson, commander of United States Southern Command.
Speaking at the Ninth Annual Hemispheric Security Conference (HSC) at Florida International University (FIU), Richardson warned that Chancay will only “make it easier for the Chinese to extract all these resources from the region” — resources that the US government and corporations also covet. Those resources include rare earth elements, lithium, gold, silver, oil, natural gas, light sweet crude (huge deposits of which have been found off the coast of Guyana), copper, abundant food crops, and fresh water.
Richardson also bemoaned Beijing’s use of the Belt and Road initiative to enrich itself at the expense of local interests. It will appear that she has not read Major General Smedley D. Butler’s timeless classic, “War is a Racket”.
Exclusive Control
The Chancay project almost began unravelling earlier this year following a legal dispute over the extent of Chinese control over the privately owned port. The initial contract granted Cosco Shipping Ports exclusive operating rights at the Port of Chancay. When this information was leaked in March, Peru’s Ministry of Transportation and Communications (MTC), at the request of the Peruvian port authority (APN), which had originally signed the contract giving Cosco exclusive rights, demanded that Cosco’s exclusive rights Cosco be annulled.
In its May 13 article, “Peru Learns to Read the Fine Print in China Deals”, Foreign Policy magazine could barely contain its glee:
Oh, to be a fly on the wall at APN headquarters or the office of new Peruvian new Economy Minister José Arista, who has to help sort this mess out. A mere five years ago, Cosco’s investment in Chancay, which is located a mere 40 miles to the north of the capital city of Lima, seemed to be unmitigatedly good news…
The Peruvian government may—like countless other governments in countries ranging from Italy to Sri Lanka that, until recently, enthusiastically courted Chinese infrastructure investments—simply have gotten cold feet about Cosco in Chancay, especially since Cosco is ultimately owned by the Chinese state through its mainland-based parent company, Cosco Shipping.
That does not appear to be the case. After Cosco warned that the removal of its exclusivity would impinge on the security and legal stability of its investments in Peru, implying that it could pull out of Chancay if it does not get what it wants, Peru’s deeply divided Congress rapidly approved the following text:
[T]he owner of a private port for public use that has a port authorisation can provide port services exclusively. Once the port authorisation has been granted, the competent Port Authority grants exclusivity in the provision of essential port services requested by the owner of the private port together with the port license.
“A Tug of War for Peru’s Soul”
A couple of years ago, the Mexican geopolitical analyst Alfredo Jalife-Rahme warned in one of his video conferences that the world’s two superpowers, the United States and China, are “in a tug of war for Peru’s soul”. As we noted at the time, said war is rather one-sided war given that China does not tend to meddle in internal politics in the region, or at least hasn’t until now. The US, by contrast, has meddled in the region more than any other country in history — with the possible exception of Spain.
Since then, Peru has hosted two extensive US-led military exercises on its soil: Resolute Sentinel 2023 (in May/June 2023) and Resolute Sentinel 2024 (in May/June 2024). This year’s edition included the participation of the armed forces of Peru, the United States, France, Ecuador, Brazil, Chile and Colombia. Just days after it finished, the “Southern Seas 2024” mission began, featuring combined exercises and operations of the US navy with the naval forces of several South American countries including Brazil, Argentina and Chile.
Almost exactly a year ago, the weekly Peruvian newspaper Hildebrandt en sus trece“ published an in-depth report titled “Juegos de Guerra” (War Games). In that report, the authors wagered that the main reason for the US troops’ mobilisation in Peru (and elsewhere) was as a show of force to Washington’s main strategic rivals, Russia and China, which are “eroding” US influence in the region. From our article on the topic:
“There is a global political confrontation between the United States and China and Russia. Peru is key because we are located at a strategic point in the Pacific basin, a gateway for China and access point to Brazil’s huge market on the Atlantic seaboard. We are a hinge”, Wilson Barrantes, former director of Peru’s National Intelligence Directorate (DINI), told the weekly newspaper…
In May 2019 Admiral Craig Faller, then head of Southern Command, presented an internal document called “Enduring Promise for the Americas.” It was about a plan for winning allies in Latin America and the Caribbean up to 2027 with the goal of “improving security, protecting the US homeland and our national interests,” says the report.
In the document SOUTHCOM singles out two threats in the US’ “backyard”: Chinese influence and the growth of organised crime. On the spectre of Xi Jinping, Faller paints a bleak picture:
“In many areas around the world, including this hemisphere, our competitive advantage is eroding (…) China has expanded its ‘One Belt, One Road’ initiative in Latin America and the Caribbean at a pace that could one day eclipse its expansion in South East Asia and Africa. Its trade and investments are increasing rapidly and it is now the biggest creditor to the region. Chinese control of deep water ports and infrastructure connected to the Panama Canal bolsters its operational position. Its investments in telecommunications and access to space tracking facilities put at risk military operations, intellectual property and data privacy, says the report.
Faller proposes three lines of action to counter US rivals. The first strategy consists of “increasing” US presence in the region by strengthening its alliances. “We will take advantage of our bilateral security assistance programs to enhance regional cooperation.”
As if to confirm this, the documents presented to the Peruvian Congress requesting authorisation for the entry of US troops and military equipment argue that (emphasis my own) “training alongside US forces will help to improve the capabilities and strengthen the operational performance of [Peruvian] Special Forces, boosting their interoperability with NATO systems and doctrine.”
Since as far back as 2019 the Peruvian Army — one of the last remaining institutional backbones in Peru, according to Jalife — has made no bones about its aspirations to join the North Atlantic Treaty Association at some point in the future, despite Peru’s geographic position perched on South America’s Pacific coastline.
Peru, like its Andean neighbour Ecuador, has recently entered into “Plan Colombia”-style initiatives with the US, with the ostensible aim of combating drug cartels. The agreements include authorisation for the US coastguard to patrol both countries’ coastlines.
A Dangerous Balancing Act
At the same time, Lima is looking to strengthen its commercial ties with China, the US’ arch rival in the region. Peru’s deeply unpopular President Dina Boluarte is scheduled to visit Beijing this week to meet with Xi Jinping. She is also scheduled to meet with executives from Cosco Shipping Ports, Chinese telecoms giant Huawei, electric carmaker BYD, the infrastructure giant China Railway Construction Corporation (CRCC) and Jinzhao Mining, to whom her government recently awarded a contract to build another port in the south of Peru.
At the same time, the Boluarte government is seeking similar investments from the US. Worried about China’s Chancay move, Washington has allegedly set its sights on the Corio megaport development in the southern region of Arequipa. The project is projected to surpass Chancay in size and is being promoted by the Peruvian government among US investors, reports the Chilean newspaper La Tercera:
[T]he Peruvian ambassador to the United States, Alfredo Ferrero, told Bloomberg that Peru is working to strengthen its relationship with the United States through this Corio project, aimed at balancing the presence of both powers on the Peruvian coasts. According to Ferrero, this project seeks to counteract China’s growing impact on Peruvian maritime trade and guarantee a balance of strategic influence.
In other words, Peru’s government is trying to use each side to its advantage, much as Erdogan has balanced Turkey’s relations with NATO and Russia. A couple of problems immediately spring to mind. First, the US government these days does not generally invest in non-military infrastructure, whether at home or abroad. Second, the Boluarte government is not nearly as canny nor as strong as Erdogan’s. In fact, Boluarte is arguably the most unpopular leader in the so-called “democratic West” right now.
After seizing power in a December 2022 US-supported internal coup, she has faced a string of scandals, including one called Rolexgate, as well as accusations of crimes against humanity for which she will soon have to face trial. Today, after just 18 months in charge, she has an approval rating of 5% and her government wants to make it illegal to accuse political parties of corruption. In the South, where most of the protesters were killed by security forces, just 3% of the population approve of her government.
In other words, Boluarte will be easily toppled, if push comes to shove — just as she helped topple her former boss, Perdo Castillo, who is currently languishing in a Peruvian jail. Peru’s Congress is almost equally reviled.
Yet despite years of political scandals and instability, Peru’s economy continues to provide some degree of stability. The upcoming inauguration of the Chancay mega-port will be proof of that. It will also be proof of the fact that while the US may be strengthening its military alliances in the region, it still can’t compete with the Chinese for economic influence, despite still high rates of US investment and trade with the region. Additional proof of that, if needed, will be provided by the likely upcoming visit to Beijing by Argentina’s fervently anti-communist President, Javier Milei, whose cash-strapped government desperately needs continued financial support from China.
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To think all those hundreds of billions going to wars in Ukraine and Israel could have have gone towards building instead of destroying foreign infrastructure. Or America’s.
“The US, in time-honoured fashion, is exerting political pressure behind the scenes.”…to wit:
“Washington’s soft-power arm USAID is playing a part in the US’ counter-offensive against China in Peru by investigating “foreign agents” in the country, with a particular focus on “unethical” practices by “Asian” (read: Chinese) multinationals.”
Does it really need to be said? Is Washington slipping? Just Nord Stream the darn port the Chinese are building in Peru and say the Russians did it. A Russian test of a hypersonic missile gone astray or something. Paging Elizabeth “it’s done” Truss.
Problem solved.
Will the U.S. compete with China by building more COSTCO stores in Taiwan?
A Peruvian spook is quoted in the article as saying that in the future his country will serve as “access point to Brazil’s huge market on the Atlantic seaboard.” Really? No matter “how quickly the road links between Peru and Brazil — particularly the Andean sections — can be improved,” it is difficult to believe that the costs of shipping consumer goods by road or rail over the Andes will undercut shipping via sea.
Brazilian exports of agricultural goods (mostly soybeans) towards China come primarily from it’s central highlands. They need to move inland anyways, towards Santos in the south east. Often by truck rather than rail. Hence the projects of international rail connecting Brazil to Perú’s coast: you start shipping from the Pacific ocean rather than the south Atlantic, you bypass the aging Panama canal in some routes (allowing the use of bigger ships) and you improve the freight situation internally as well. This is all happening within a context of renewed rail investment in Brazil, so you also have to account for interest in local infrastructure development as well. Mineral exports from Brazil’s north (mostly iron ore) also play into the equation due to the Panama bypass issue.
The Chancay project has very little strategic logic for Peru It has poor road links with anywhere except Lima and no rail connection. It makes no sense for connecting with Bolivia or Ecuador as the existing main highway and rail systems go through Lima, which already has a very good deep water harbour, albeit not one for the very largest modern ships (it has a separate port for tankers to use the main refinery). It could only meaningfully help Peru if it had very substantial infrastructure upgrades, which would no doubt fall on the Peruvian taxpayer to fund.
The Corio Seaport makes much more strategic sense. It has at least a direct connection to La Paz and the lithium riches of Bolivia, and is close to the less utilized northern copper reserves of Chile, which are partly shared with Peru. But it would be expensive, as right now its just a straight stretch of coast which would require massive investment to turn into a safe modern harbour.
Very few seaports of any scale make money from port fees to justify the initial capital input. They are either government funded or they are catalysts for land grabs – i.e. the capital costs are partially off-set by associated land reclamation for commercial or other uses. This seems to be part of the justification for Chancay, although its hard to see what sort of useful development Chancay could attract.
While for an underdeveloped economy like Peru almost any kind of infrastructural investment is good, ports can often be a double edged sword. They can open up the countries natural resources to foreigners, while simultaneously opening up their underdeveloped industrial sector to competition from more advanced economies for which there is generally only one winner. This is one (of several) reasons why Argentina probably never developed a ‘deep’ economy despite its resource richness. Ports generally only benefit regional development when they have deep links with an interior via interlinked transport corridors, whether road, river or rail.
So while in the short term it may make sense for Peru to at least try to play China and the US against each other to leverage as much cash as they can, it will most likely just result in a lot of waste unless its part of a comprehensive economic development policy.
The road along the coast isn’t nearly the problem of going over the Andes. Many years ago I took that road through Cerro de Pasco (14,210 ft though the road peaks a thousand feet above that, IIRC). It will be an environmental catastrophe to expand it, but that hasn’t stopped humans before. So…
Thanks, this is exactly the question that came to my mind when reading the article. Maybe there is a plan to develop a ship to ship transloading facility so the big ships don’t get stuck waiting at Panama, but otherwise hard to see how this capacity gets used.
PK:
China seems to take the long (50+ years) view on these sort of projects. Peru has a lot of minerals, and those minerals can pay for infrastructure, and can be the basis of value-add mfg’g in Peru to serve other S. American customers, in addn to sending the minerals back to China.
If China does railway projects in Peru to connect the coast line with Peru’s eastern plains (over the Andes), that opens not just Peru’s high-rainfall, likely fertile soil to the Western ports, as well as potentially the western side of Brazil. Of course they will do a lot of railway work on the coastal plain as well; start with what’s easy and work outward as the economics and political stability permit.
Peru could ultimately offer China a lot of construction contracts, steel, machinery, services, refinery and petrochem gear, etc. South America needs just a complete industrial kitting out, and that’s what China does, and will do more of in the future. This is going to be good for the std of living in S. America generally. China can make money … building the infrastructure … to create markets for its products. That’s BRI 101.
So while the markets, and road, power, railway etc. infrastructure isn’t in place now, the minerals are, and that revenue stream can bootstrap the rest.
The big issue is the political stability, and it may turn out that China exerts a stabilizing influence; in fact, the Chinese administration system may be the most economically and politically stable aspect of Peruvian society in some parts of the country.
And the point about “canny politicians” that can play the Chinese as Erdogan did in Turkey … well, that’ll be a while, but it might actually happen sooner with the Chinese than with the Americans. The Chinese currently have more incentive to look like the good guys.
I do like the balancing act, tho. That will help them, and they need the leverage .vs. the Chinese.
That makes perfect sense if the port was in the right place. It doesn’t help Peru if it simply replicates an existing port (which it does), in a location which will require another layer of infrastructure Peru can’t afford to provide (which it does). As I said, the Corio Port, which has long been identified as a strategic need for Peru, its far better located for the long term benefit of the country and the wider region.
I’ve no idea what is behind the Chancay project, but I see nothing to indicate that it is anything other than an opportunistic business deal with some vague geopolitical justification to back it up. My guess is that like so many other similar proposals (Asia is littered with them), the whole thing is motivated by creating a huge amount of seafront development land that can be flogged off for a quick profit to the highest bidder.
I can’t help but compare the “enormous investment” of $3.6B with the tens of billions that is currently lavished on failed/failing/doomed projects in eastern Europe, the Middle East and southeast Asia.
>>> In fact, Boluarte is arguably the most unpopular leader in the so-called “democratic West” right now.
wowsers, someone more unpopular than Sunak, Scholz, Yoon (Korea)?
quite the accomplishment.
$3.6bn would last how long in Ukraine? One month? before Zelensky’s crowd takes their 10%
Waiting for the infrastructure attacks on this port from the Popular People’s Front of Peru and the Peruvian People’s Front in 3, 2, 1…
Strange that in the 200 years since the Monroe Doctrine, that the US never built a super port in South America. Probably because whenever a South American country asks the US to build one, they reply ‘Did you say that you guys want a US Navy base? Shucks, we can get that done real quick.’ causing the South Americans to tell them to forget it.
Hah! With the lead time before vessel intake in Nov, my first thought was the countdown was on for the U.S. false flag attack in the name of whichever redistributionist movement is active in Peru these days.
Valparaíso was used as the primary US Navy port on the west coast in the 19th c.
What caught my eye is that a port commissioned in 2019 is nearing completion just five years later – a period, the majority of which is covered my the COVID pandemic.
If the US had commissioned something like this in 2019, where would we be now?
The port got the go-ahead in 2015 and works started in 2016. The first element was largely land reclamation. What is completed now is the second phase, but the entire port is nowhere near fully operational.
This indicates some input from the USA: “…her government wants to make it illegal to accuse political parties of corruption.”