-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.