China’s Growing Dominance in Maritime Shipping

In November, U.S. President Joe Biden announced plans for 24/7, round-the-clock operations at the Port of Los Angeles after similar measures had been implemented at the Port of Long Beach. Together, the two ports account for nearly 40 percent of the containers entering the United States. With the holiday season approaching, extended port operations are intended to address disruptions in the global supply chain and help alleviate a growing backlog of shipping containers that has stretched the coast as far as San Diego. The logjam of goods at U.S. ports has not only contributed to fears over rising inflation but has also brought renewed attention to the critical role of the maritime shipping industry in the global economy.

Given that 90 percent of the world’s goods travel across the ocean to reach their destination, the importance of the maritime shipping industry cannot be understated. Historically, command over global shipping lanes has been a central goal of economic and military statecraft. Since the Age of Discovery, maintaining reliable access to the world’s waterways has been understood as a key source of national power.

In 1616, English statesman Sir Walter Raleigh proclaimed, “Whosoever commands the sea commands the trade; whosoever commands the trade of the world commands the riches of the world, and consequently the world itself.” Centuries later, one of the most distinguished American naval strategists of the 19th century, Alfred Thayer Mahan, would echo this idea. In his 1890 magnum opus, “The Influence of Sea Power Upon History, 1660-1783,” Mahan argued that national greatness is directly tied to control over the world’s oceans, for commercial advantages in peacetime and strategic advantages in times of war. In particular, Mahan stressed the importance of strategic locations such as chokepoints, refueling stations, canals, and seaports.

In this light, growing Chinese investment in the maritime shipping industry, both domestically and abroad, should be a major source of concern for geopolitical rivals such as the United States. In addition to its growing accumulation of shipping ports, China is the leading manufacturer of shipping equipment, producing 96 percent of the world’s shipping containers, 80 percent of the world’s ship-to-shore cranes, and receiving 48 percent of the world’s shipbuilding orders in 2020. China boasts the world’s second largest fleet of commercial shipping vessels and, according to the U.S. Office of Naval Intelligence, has now surpassed the United States as the world’s largest navy in terms of total battle force ships.

All of this serves as an indication of China’s increasingly assertive and expansionary posture. Focused inward for much of the 20th century, China’s economic interests continue to expand farther and farther beyond its borders. The ascendancy of China in the commercial maritime space over the past decade has been nothing short of prolific. For Chinese officials, however, this development is not merely the result of fortuitous circumstances, rather it is the consequence of careful and strategic planning.

A New Economic Strategy

In a 2013 speech at Nazarbayev University in Kazakhstan, Chinese head of state and General Secretary of the Communist Party Xi Jinping first announced plans for the Belt and Road Initiative (BRI). This multi-trillion dollar investment strategy, which spans three continents and nearly 60 countries, is designed to strengthen regional connectivity and cooperation while positioning China as a focal point among regional trade routes. It has been promoted by members of the Chinese government, including Xi, as the “New Silk Road.” Some scholars have suggested that it follows a similar approach as the United States’ Marshall Plan, which stimulated the economic reconstruction of Western Europe following World War II, in addition to deepening economic ties and bringing Europe closer to the U.S. sphere of interest.

There are two main components of the BRI. The first component is a land-based economic belt, meant to facilitate the flow of goods in and out of mainland China through the construction of highways, railway networks, gas pipelines, oil refineries, power plants, mines, and industrial parks throughout landlocked Central Asia. The second component is the maritime road, which represents a string of ports and ocean corridors that direct trade to and from China via the waterways. In pursuit of the maritime road strategy, China has demonstrated a growing interest in shipping port ownership. However, this interest has not been limited to the Indo-Pacific region but extends globally.

China’s Global Investment in Shipping Ports

At present, China is home to more shipping ports than any other country, including seven of the 10 busiest ports in the world. In addition to its massive accumulation of domestic shipping infrastructure, China also owns over 100 ports in approximately 63 countries. Over 80 percent of China’s overseas port terminals are owned by the “big three” terminal operators: China Ocean Shipping Company (COSCO), China Merchants Group (CMG), and CK Hutchison Holdings. The first two are state-owned enterprises, while CK Hutchison is a private company based in Hong Kong with close ties to mainland China. According to the Center for Strategic and International Studies, combined state support for the shipping industry totaled $132 billion between 2010 and 2018.

In the Indo-Pacific, major examples of Chinese port expansion include a 99-year lease at the Hambantota port in Sri Lanka, a 40-year lease at the Gwadar port in Pakistan, and a $350 million investment in the port of Djibouti. Djibouti is also the site of China’s first overseas military base, located near a key strategic chokepoint between the Gulf of Aden and the Red Sea.

In 2018, Chinese Harbor Engineering Company started construction on a port terminal at the Sokhna Port in Egypt near another major trade chokepoint, the Suez Canal. Policy analysts have described these developments as being part of the “String of Pearls strategy.”

In Europe and the Mediterranean, it is estimated that China now controls almost one-tenth of port capacity. Examples of this include France’s Le Havre and Dunkirk, Belgium’s Antwerp and Bruges, Spain’s Noatum port, Italy’s Vado port, Turkey’s Kumport port, and Greece’s Piraeus port. A 25-year lease at Israel’s port of Haifa, signed with China’s Shanghai International Port Group, has raised concerns in the United States about potential espionage, given that Haifa port is located less than 1 kilometer away from the docking port for U.S. warships.

In South America, China is also expanding its influence via port ownership. In 2015, China Communications Construction Company loaned $120 million to Cuba to assist in the modernization of its second largest port, Santiago de Cuba. In 2017, China’s CMG purchased 90 percent of shares for Brazil’s largest port, TCP Participaccoes SA. In 2019, COSCO signed a $225 million deal with Volcan at Peru’s Port of Chancay for a 60 percent stake in the terminal. In El Salvador, it is alleged that the government will privatize the La Unión Port in 2022, presumably to be set aside for Chinese management. There are additional reports of Chinese involvement in port projects in the Bahamas, Trinidad and Tobago, Panama, Argentina, Chile, and Uruguay.

Implications for the United States

Interestingly, the United States has also been a site of Chinese port investment. Two Chinese enterprises have held equity ownership stakes in five U.S. ports. However, neither firm owns an effective majority stake, nor fully operates these American terminals. Two of these ports involve CMG purchasing minority stakes of a French firm’s terminals at Houston Terminal Link Texas and South Florida Container Terminal in Miami. The three remaining ports – in Seattle, Los Angeles, and Long Beach – were partially owned by COSCO. However, the Trump administration required China to divest its ownership stake in the port of Long Beach in 2019.

Beyond its direct investment in American ports, which remains inconsequential, China’s increasing dominance of the maritime shipping industry is raising alarm bells in Washington as Sino-American relations continue to trend in a downward direction. At the recent virtual summit between Biden and Xi, the deterioration between the United States and China was particularly evident, given the failure of the two countries to produce a joint statement after the meeting. In previous decades, such declarations were considered little more than formalities. Moreover, despite campaigning on overturning President Trump’s trade war with China, Biden has left intact many aspects of the Trump era trade policy with China.

With an increasingly turbulent relationship, China’s growing dominance over the maritime shipping industry may be a source of vulnerability for the United States and other geopolitical rivals moving forward. Just as OPEC used oil as a form of leverage during the oil crisis of the 1970s, Chinese control over the shipping industry has the potential to expose vulnerabilities in access to critical goods. The recent backlog of containers at U.S. ports serves as a stark reminder of the United States’ dependence on global supply chains. This year, it may only be the timely delivery of holiday gifts at stake. Looking toward the future, however, the consequences may be more serious.