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China’s shipping ambitions will not easily be contained

With global shipping in the midst of a protracted downturn and Beijing trying to curb debt-driven overseas acquisitions, you might think that now is a bad time for Chinese companies to be taking over international ports and shipping lines. But you would be wrong.

State-owned shipping giant Cosco has just agreed to buy Hong Kong’s Orient Overseas Container Line in a $6.3bn deal that will make it the world’s third-biggest container shipping group. The acquisition puts Cosco in a strong position to challenge European rivals Maersk and Mediterranean Shipping Company for the number one slot. 

It comes after Chinese companies, including Cosco, spent $20bn buying up overseas ports in the year to June, double the amount they spent in the same period a year earlier. 

This is not just another case of over-ambitious Chinese companies defying the authorities and working around the rules. Cosco’s acquisition of Orient Overseas is being financed by the Bank of China, a large state lender. 

Rather, China’s shipping investments are driven by a long-term push for control of strategic assets, which trumps the desire for near-term economic efficiency and reduced debt burdens. 

China overtook Germany as the world’s biggest exporter in 2009 and the US as the biggest trading nation in 2013. 

Now it wants to match this dominance in trade by breaking the European hold on the container shipping industry and deepening its ownership of ports from Australia to the US. 

From Beijing’s perspective, it is partly a defensive strategy. China’s economy is currently reliant on foreign shipping companies to export the iPhones, furniture and shoes it produces and to supply it with the raw materials and finished goods required by its vast domestic market. 

Expanding Cosco, which was formed from the merger last year of two state-owned predecessors, will help to correct this perceived imbalance. 

The spending splurge on shipping is also in line with President Xi Jinping’s “Belt and Road” strategy to deepen infrastructure and trade links with Asia and Europe — a point dutifully noted by Cosco in its statement to the stock market explaining the rationale for the Orient Overseas deal. 

“It’s pretty clear that China wants to be number one,” says one European shipping executive. “For Cosco, it’s more about geopolitics than profits as they are willing to pay more for shipping liners and ports than their commercial rivals.” 

From a geopolitical standpoint, China’s increasing control over shipping and ports provides it protection and projection. 

Control of commercial shipping lanes will help China in times of conflict and dispute. Ownership of overseas ports will make it easier for China’s navy to fulfil its ambitions to sail regularly in waters far from home. 

By investing in important ports in countries that desperately need cash or technological expertise, China is also acquiring valuable friends, at a time when its attempts at soft power promotion have fallen flat. 

Last month, Greece vetoed an attempt by the EU to condemn China’s human rights record at the UN, a decision many analysts connected to the Greek government’s reliance on Chinese investment. Last year, Cosco acquired majority control of Piraeus port, as part of a bigger Chinese plan to enhance Greece’s role as a shipping connector between Europe and Asia. 

There is a growing divergence between China’s control of foreign ports and international involvement in China’s ports. Chinese companies control three times as much capacity at European ports as European companies do in China, according to Olaf Merk of the International Transport Forum, a think-tank. Not a single Chinese port is majority-owned by a European company, while an increasing number of European ports are falling into Chinese hands. 

Many foreign investors in China have grown frustrated with the lack of reciprocity shown by President Xi’s government, despite his claim at Davos to be the world’s new cheerleader for globalisation. 

When it comes to shipping and ports, the disparity has much bigger implications. But with many countries still eager for Chinese cash, hard-pressed shipping companies in need of investment and Beijing willing to open its wallet to keep Cosco and its counterparts expanding, China’s shipping ambitions will not be easily contained.

Twitter: @benjaminbland

ben.bland@ft.com


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