Geopolitics

China's Future Gateway To Latin America Is A Mega-Port In Peru

Despite local opposition, Chinese investors are pumping billions into the Chancay project, a massive port complex north of Lima that will boost trade between China and Latin America as a whole.

Plans for the Chancay port, hailed as an important stop on a New Silk Route
Plans for the Chancay port, hailed as an important stop on a New Silk Route
Gonzalo Torrico*

-Analysis-

LIMA — China's most important trading terminal with South America is being built 75 kilometers to the north of Lima, the Peruvian capital. Known as the Chancay port complex, it has an initial investment of $1.3 billion and will turn this fishing and farming town into a regional hub that could redefine shipping lines in the entire southern Pacific.

The port can count on the use of 800 hectares of adjacent land where the operating consortium will develop a logistical and industrial complex, with total investment costs expected to rise to $3 billion. Since 2019, the project's main stakeholder is the Chinese state firm Cosco Shipping Ports (60%), with Volcan, a mining subsidiary of Glencore of Switzerland, holding a 40% stake.

Cosco is a partner in 52 port projects worldwide. But in the Americas, Chancay is the first being built with Chinese capital. The complex is expected to be fully functional by 2024, helping consolidate China's influence in South America, and in Peru especially.

Is another commodities "supercycle" on the horizon?

In the last decade, this country has become the regional crux of China's economic and geopolitical interests. So far, Chinese firms have invested more than $30 billion in Peru, a figure exceeded only by money spent in Brazil. The principal sector is mining, which has absorbed more than half all these investments and has proven to be an excellent source for the mineral materials China needs to keep its industrial sector humming.

One of those materials is copper, which Peru produces in great supply. It is the world's second leading exporter of the metal, and exports two thirds of its total production to China, which controls two of Peru's main copper fields: Las Bambas (through MMG) and Toromocho (with Chinalco).

The two countries signed a Free Trade Treaty in 2010, which has reshaped Peru's trade balance. Since 2014, China has been its main trading partner, followed by the United States. In the past five years, Peru sent $58 billion worth of exports to China, compared to $33 billion to the United States. And in the coming years, given China's decisive mining interests, the gap could grow even more assuming, as some observers anticipate, that another commodities "supercycle" is on the horizon.

China is also pursuing a global integration strategy here through its Belt and Road Initiative, which promotes global infrastructures that favor its trade. Amid rivalries with the United States, it has signed agreements with 138 countries in spite of warnings from Washington that states risk becoming becoming over-indebted to China.

For its location, Peru is an important point on this New Silk Route. With its long swatch of Pacific coastline, it lies directly across from Asia, and can also become a link to Brazil and the Atlantic. In April 2019, the two states signed a memorandum of understanding for more investments within the Belt and Road Initiative.

Chancay is undoubtedly of great importance to China's global strategy to win itself markets. Indeed, Cosco Shipping Ports entered the port consortium two weeks after the said memorandum, paying $225 million to Volcan.

Other Belt and Road projects in Peru include the Amazonian Waterway, given to the Chinese state firm Sinohydro, which halted the project before numerous environmental objections, and the Transcontinental Railway, which would link Brazil's Santos port with Bayóvar in northern Peru.

All that glitters ...

Chancay's proximity to the port of Callao, which handles 71% of the country's shipped imports, would both reduce congestion there and develop economic activity outside Lima. Cosco estimates its initial investment would create 1,500 direct and 7,500 indirect jobs, and generate 300 new businesses locally.

In the first phase, the port would ship 6 million tons a year, though in response to local concerns, Volcan says Chancay would not ship out minerals — despite the fact that it's mining subsidiary and that China is the world's main copper buyer. The firm says it will instead redistribute goods arriving from Asia, and make Peru more competitive against Pacific rivals like Colombia and Chile.

Protest in Las Bambas, a mining zone in Peru — Photo: GDA/ZUMA

Nevertheless, people in and around Chancay are concerned by its impact on the local economy, which depends on far more than mining along. There is also farming and fishing, and civil society groups have questioned the project's construction standards and possible, environmental and social impact.

They say the complex will be inside the city of Chancay, and that explosions to reshape the bay have already damaged numerous residential buildings. The project is also expected to affect a local wetland, while dredging of the bay to allow the entry of the biggest container ships will ultimately impact fishing and marine life.

Peru owes a large part of its economic growth to China's enormous demand for natural resources.

The consortium made 89 environmental observations in its last diagnostic report on the project's environmental effects, though checking that document, non-governmental organizations observed omissions and mistaken methodologies to measure its effects. Still, Peru's environmental certification agency, SENACE, approved the project last December, overriding objections by civil society groups.

Peru owes a large part of its economic growth to China's enormous demand for natural resources. And yet, the latter's investments are leaving an indelible mark for many of the communities affected. These include social conflicts in mining zones like Morococha and Las Bambas, or native communities affected by the Amazonian Hydroway.

China is committed to more investments in Peru and its Belt and Road plans will intensify its activities. But the Peruvian state must insist on higher environmental standards, starting with the inclusion of an environmental chapter in current renegotiations of its Free Trade Treaty with China.

The two countries should commit to more than just economic interest. The also need to consider long-term sustainability and look to improve and protect the lives of people, especially with regards to the impact their projects have on local communities and the environment.



*Gonzalo Torrico, a law graduate from the University of Lima, is a journalist specializing in mining and the environment.

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Geopolitics

Erdogan And Boris Johnson: A New Global Power Duo?

As Turkey fears the EU closing ranks over defense, Turkish President Erdogan is looking to Boris Johnson as a post-Brexit ally, especially as Angela Merkel steps aside. This could undermine the deal where Ankara limits refugee entry into Europe, and other dossiers too.

Johnson and Erdogan in NYC on Sept. 20

Carolina Drüten and Gregor Schwung

-Analysis-

BERLIN — According to the Elysée Palace, the French presidency "can't understand" why Turkey would overreact, since the defense pact that France recently signed in Paris with Greece is not aimed at Ankara. The agreement covers billions of euros' worth of military equipment, and the two countries have committed to come to each other's aid if they are attacked.

Although Paris denies this, it is difficult to see the agreement as anything other than a message, perhaps even a provocation, targeted at Turkey.

Officially, the Turkish government is unruffled, saying the pact doesn't represent a military threat. But the symbolism is clear: with the U.S., UK and Australia recently announcing the Aukus security pact, Ankara fears the EU may be closing ranks when it comes to all military issues.

What will Aukus mean for NATO?

Turkey has long felt left out in the cold, at odds with the European Union over a number of issues. Yet now President Recep Tayyip Erdogan is setting his sights on another country, which also wants to become more independent from Europe: the UK.

Europe's approach to security and defense is changing dramatically. Over the past few months, while the U.S. was negotiating the Aukus pact with Britain and Australia behind the EU's back, a submarine deal between Australia and France, which would have been worth billions, was scrapped.

The EU is happy to keep Erdogan waiting

Officially, Turkey is keeping its cards close to its chest. Addressing foreign journalists in Istanbul, Erdogan's chief advisor Ibrahim Kalin said the country was not involved in Aukus, but they hope it doesn't have a negative impact on NATO. However, the agreement will have a significant effect on Turkey.

"Before Aukus, the Turks thought that the U.S. would prevent the EU from adopting a defense policy that was independent of NATO," says Sinan Ülgen, an expert on Turkey at the Brussels think tank Carnegie Europe. "Now they are afraid that Washington may make concessions for France, which could change things."

Macron sees post-Merkel power vacuum

Turkey's concerns may well prove to be justified. Outgoing German Chancellor Angela Merkel always argued for closer collaboration with Turkey, partly because it is an important trading partner and partly because it has a direct influence on the influx of migrants from Asia and the Middle East to Europe.

Merkel consistently thwarted France's plans for a stricter approach from Brussels towards Turkey, and she never supported Emmanuel Macron's ideas about greater strategic autonomy for countries within the EU.

But now she that she's leaving office, Macron is keen to make the most of the power vacuum Merkel will leave behind. The prospect of France's growing influence is "not especially good news for Turkey," says Ian Lesser, vice president of the think tank German Marshall Fund.

Ankara fears the defense pact between France and Greece could be a sign of what is to come. According to a statement from the Turkish Foreign Ministry, the agreement is aimed "at NATO member Turkey" and is damaging to the alliance. Observers also assume the agreement means that France is supporting Greece's claims to certain territories in the Mediterranean which remain disputed under international law, with Turkey's own sovereignty claims.

Paris is a close ally of Athens. In the summer of 2020, Greece and Turkey were poised on the threshold of a military conflict in the eastern Mediterranean. Since then, Athens has ordered 24 Rafale fighter jets from France, and the new pact includes a deal for France to supply them with three frigates.

Photo of French President Emmanuel Macron and Greek Prime Minister Kyriakos Mitsotakis on September 27 in Paris

French President Emmanuel Macron and Greek Prime Minister Kyriakos Mitsotakis on September 27 in Paris

Sadak Souici/Le Pictorium Agency/ZUMA

Erdogan’s EU wish list

It's not the first time that Ankara has felt snubbed by the EU. Since Donald Trump left the White House, Turkey has been making a considerable effort to improve relations with Brussels. "The situation in the eastern Mediterranean is peaceful and the migrant problem is under control," says Kalin. Now it is "high time" that Europe does something for Turkey.

Erdogan's wish list is extensive: making it easier for Turks to get EU visas, renegotiating the refugee deal, making more funds available to Turkey as it continues the process of joining the EU, and moderniszing the customs union. But there is no movement on any of these issues in Brussels. They're happy to keep Erdogan waiting.

Britain consistently supported Turkey's ambition to join the EU

Now he is starting to look elsewhere. At the UN summit in September, Erdogan had a meeting with British Prime Minister Boris Johnson at the recently opened Turkish House in New York. Kalin says it was a "very good meeting" and that the two countries are "closely allied strategic partners." He says they plan to work together more closely on trade, but with a particular focus on defense.

 Turkey's second largest export market

The groundwork for collaboration was already in place. Britain consistently supported Turkey's ambition to join the EU, and gave an ultimate proof of friendship after the failed coup in 2016. Unlike other European capitals, London reacted quickly, calling the coup an "attack on Turkish democracy," and its government has generally held back in its criticism of Turkey.

At the end of last year, Johnson and Erdogan signed a new free trade agreement, which will govern commerce between the two countries post-Brexit. Erdogan has called it "the most important treaty for Turkey since the customs agreement with the EU in 1995."

After Germany, Britain is Turkey's second largest export market. "Turkey now has the opportunity to build a new partnership with the United Kingdom and it must make the most of it," says economist Ali Kücükcolak from the Istanbul Commerce University.

Erdogan is well aware of this, as Turkey is in desperate need of an economic boost. Inflation currently stands at 19%, and the currency's value is consistently falling. Turks are feeling the impact on their daily lives: food and rent are becoming increasingly expensive, while salaries remain unchanged.

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