The development of deep-sea ports by China further binds Peru and its economy to the Communist nation, with hidden risks.
In recent months, two port projects have thrust Peru-China relations into the business spotlight. The first is the port of Chancay, a $3.6 billion port 60 percent owned by Chinese state-owned enterprise Cosco. The second is a $405 million port of San Juan de Marcona, for which the Peruvian government has awarded the construction contract to Chinese company Jinzhao.
Although Peruvian and Chinese authorities have hailed the projects as a boon for both countries, they also bring potential economic and security risks to Peru and its neighbors, including the U.S. However, Peru can take concrete steps to mitigate those risks as it continues to deepen its partnership with China. Already, Peru’s port authority has announced it is trying to revoke Cosco’s exclusive use of the port of Chancay.
Minerals have been the linchpin that binds Peru and China, especially copper. Since Chinese President Xi Jinping rolled out the Belt and Road Initiative in 2013, Peru has been either the second or third largest recipient of Chinese foreign direct investment in Latin America, due to Chinese acquisitions of Peru’s five copper mines. By 2014, China had already outstripped the U.S. as Peru’s largest trading partner.
But the Peru-China relationship extends beyond just copper. They have a Free Trade Agreement that includes agricultural and other products; China Three Gorges holds stakes in Peru’s Chaglla and San Gaban III dams; and China’s Southern Power Grid International is closing in on a deal that would give it a virtual monopoly over Peru’s electricity sector.
Meanwhile, the Chancay mega port, just north of Lima, will massively boost trade to China. It currently takes 35 days for Peruvian product-filled containers to make it to China, since they stop to transfer cargo to larger vessels at Mexico’s Manzanillo port or California’s Long Beach port. The Chancay port will be able to ship products – mostly copper – directly to China, shaving more than 10 days off the transit. The smaller $405 million port at San Juan de Marcona – scheduled for completion by end of 2025 – is just south of Lima and will ship iron directly to China from the nearby Pampa de Pongo mine.
These projects serve Peru’s interest in boosting Pacific trade, especially as it hosts this year’s Asia-Pacific Economic Cooperation forum. China’s President Xi is expected to attend APEC in Peru this year and may inaugurate the Chancay port project while there. Exporters from neighboring South American countries like Argentina, Brazil, and Ecuador will also have another place to ship their goods. The ports also allow China to bypass California’s port of Long Beach, further reducing its reliance on U.S.-based ports for its natural resources, opening up a key South Pacific trading route.
Despite their economic benefits, the Chancay and San Juan de Marcona ports could pose serious threats to Peruvian and regional security interests. The explosions needed to build the port and an access tunnel have damaged local housing, even collapsing a street in 2022. Activists from the town of Chancay have protested against potential damage to the area’s fragile environment. The coastal area around Chancay, a small coastal shelf met with high cliffs immediately following, will certainly be damaged by the extensive infrastructure development needed to create roads and utilities to serve the port.
RISKS WITH CHINESE INVOLVEMENT
Both Peruvian and U.S. policymakers should be concerned that the Chancay project is 60 percent owned by Chinese state-owned enterprise Cosco. The Chinese Communist Party appoints Cosco’s board chairman, party secretary, and general manager. This means the CCP can shape Cosco’s business decisions to support its own national interests. Of great concern is how certain Chinese SOE ports, which were initially created for commercial purposes, are allegedly being altered to serve Chinese military purposes. Examples in Africa, the Middle East, and Southeast Asia suggest Chinese entities could one day do the same in Peru. Such future military use may not even be nefarious by nature; historically, large countries’ navies expand their reach to protect their maritime trade, and China may simply do the same as cross-Pacific trade increases with Peru and others.
Researchers like Isaac Kardon have explained that nearly 60 percent of China’s overseas port projects are located near major maritime chokepoints like the Strait of Hormuz and the Strait of Malacca. The Chinese navy and intelligence services could surveil and potentially deny U.S. naval and commercial ships transiting major bodies of water. The Chancay port could become one more global node for the PLA Navy to monitor adversary ship movements.
The megaports may also exacerbate Chinese illegal, unregulated, and unreported fishing in the region. Every year, nearly 600 Chinese fishing vessels fish illegally in and around Peru, Ecuador and Argentina. The town of Chancay is a key fishing village, and massive Chinese fishing trawlers may be able to dock directly at the port and deprive local fishermen of their livelihoods.
The Peru-China trade relationship will inevitably deepen in the following years, but there are steps the Peruvian government could take to ensure that the allure of foreign investment today doesn’t threaten the country’s national security in the future.
First, the Peruvian government should consider setting up an investment screening mechanism similar to the Committee on Foreign Investment in the U.S., or Cfius. Government agencies should also conduct due diligence on potential Chinese companies doing business in Peru, and limit those with a track record of directly serving Chinese Communist Party strategic objectives. For instance, the Biden administration recently announced an initiative to protect U.S. ports from alleged cyber espionage by Chinese-built cranes; Peru should consider doing the same.
When selecting Chinese companies to build key infrastructure projects, Peruvian authorities must also check their history of corruption, environmental damage, labor violations, and undue delays elsewhere in the region and around the world.
Ultimately, Peruvian policymakers and citizens must ask themselves: to what extent should our key infrastructure be owned or operated by foreign state-owned enterprises? Whether it be Cosco’s majority stake in the Chancay megaport, or a potential deal granting another Chinese SOE virtual monopoly of Peru’s power grid, Peru is further increasing its economic dependency on China and making itself vulnerable to potential Chinese economic coercion in the future.
