CDR Salamander - The Battle of the Ports is Afoot

Neither rust nor the People’s Republic of China (PRC) sleep. They are determined, persistent, and keep the long-term view—especially when it comes to their neo-mercantilist drive to dominate global trade and the ports.

Remember when early on in the Trump Administration it seemed that BlackRock was going to buy back some of the critical port infrastructure that the PRC grabbed hold of while the world was distracted and pockets got itchy? Well, don’t think all is taken care of.

Via James T. Areddy, Daniel Kiss & Ming Li in last Saturday’s WSJ:

When a Hong Kong conglomerate set plans this year to sell its global network of shipping ports to an American-led investment group, two facilities in Panama got most of the attention. But the real action is in Europe, where Chinese business interests have spent decades accumulating port holdings.

Hong Kong-based CK Hutchison agreed in March to sell more than 40 ports in 23 nations to an investor group led by American financial firm BlackRock, and the parties had aimed to reach a definitive agreement on the $23 billion deal at month-end. Now, Beijing is trying to muscle into the deal and carve out a stake for its giant shipping group Cosco, The Wall Street Journal reported Thursday.

…

The most substantial impact on China’s ambitions from the port deal might be in Europe, a continent crucial to Beijing’s trade and diplomatic ambitions. Nearly half of the facilities on the block are in Europe or North Africa. Trump’s trade tariffs, meanwhile, have Europe bracing for a deluge of Chinese goods that have been rerouted away from the U.S.

Shipping volumes of items including electric vehicles are already up in places such as Spain.

There are always second-order effects.

Whether the deal goes through as planned or with Cosco’s participation, China’s port foothold in Europe would be concentrated under government-run companies similar to Cosco, which U.S. authorities consider a military-aligned enterprise. Exiting the region would be Hutchison, a private company controlled by the family of the 96-year-old Hong Kong billionaire capitalist Li Ka-shing, who hasn’t always seen eye-to-eye with Beijing.

Do you feel like the PRC is playing everyone? Also, where are the European leaders? Every one of those ports is in a NATO nation. Does anyone have full confidence that should a general war break out in the Pacific with the PRC that those ports in NATO nations will just continue to function as normal?

If you do, can I invite you to poker night?

China’s port expansion strategy in Europe has primarily featured opportunistic acquisitions—a possible reason the Hutchison sale looks inviting to Cosco.

“The European ports are the best in terms of asset and infrastructure, of international importance for trade,” said Liu of the Council on Foreign Relations, making them appealing investments.

Government-run China Merchants took one of the boldest steps in 2013, buying 49% of a port business called Terminal Link from CMA CGM for 400 million euros. The deal gave China Merchants a minority share in a range of facilities, especially in Europe, and slivers in Miami and Houston.

…

Cosco itself first entered Europe as a ports investor in 2004 with a minority stake in a container facility in Antwerp, Belgium. Cosco then made inroads starting in 2008 buying a concession to run facilities south of the Greek capital Athens at Piraeus, which it transformed into a world-class port.

Pertinent to today’s situation, Valencia in the 1980s was quick to adopt containerized shipping, which has been crucial to spurring world trade—and helped make China the world’s top exporter for 16 years.

Beijing gained control of the Port of Valencia in a European financial crisis. Wall Street’s 2008-09 financial crisis had sparked major debt problems for corporate Europe, including for Spanish construction giant ACS Group.

Insert cliché about selling the rope to hang you with.

Who benefits…and who is willing to stand up for their nation with the same enthusiasm the PRC is showing to take from it?

You have to respect the PRC’s consistency and success.

h/t Gordon

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