Chinese dictator Xi Jinping began a week-long tour of South America on Thursday in Peru, where he joined President Dina Boularte to inaugurate a new deep-water port in Chancay that was financed with a $1.3 billion investment from China.
Xi described the Chancay port as an important point on the “21st Century Maritime Silk Road.” China’s international infrastructure program, officially known as the Belt and Road Initiative (BRI), is styled after the ancient Silk Road trading route that ran through Asia until the 15th Century.
“China is willing to work with the Peruvian side to take the Chancay project as a starting point to forge a new maritime-land corridor between China and Latin America and connect the Great Inca Trail,” Xi said.
The Great Inca Trail, known as Qhapaq Nan (“Way of the King”) to the Incas, was a vast road network that ran through their mountainous empire. The famous ruins of Machu Picchu lie within this network. Many modern South American roads were built atop ancient roads that were part of the Great Inca Trail.
Xi wrote an op-ed for Peru’s state newspaper in which he predicted the Chancay port would create 8,000 jobs, generate $4.5 billion in annual revenue, and reduce shipping costs from Peru to China by 20% by cutting transit time down to 23 days from the current average of 35.
Only the first phase of the port has been completed, but it is already large enough to handle six million metric tons of cargo per year, which is large by Latin American standards, but much less than the major ports in North America and Europe can handle.
The total cost of the facility is estimated to be $3.6 billion dollars, with more Chinese investment expected. Future phases will include the construction of a large industrial park around the port, where Chinese electric vehicle (EV) giant BYD is planning to build an assembly plant.
China’s Cosco Shipping will own 60 percent of the port’s equity, while the remainder will be held by a Peru-based mining company called Volcan, which is owned by Swiss commodities titan Glencore.
China is particularly interested in Peru’s copper exports. The largest copper mine in Peru, Las Bambas – which supplies about two percent of the world’s copper – is owned by a Chinese firm called MMG Ltd.
Cosco described Chancay as its “first green and smart port investment” in a statement on Thursday.
“Chancay Port has integrated intelligent loading and unloading equipment, with pure electric container trucks alone contributing to a decrease in energy consumption of over 25%,” the company said.
“Looking ahead, COSCO SHIPPING Chancay Port aspires to become a hub port in Latin America, distinguished by its operational efficiency and dedication to green, low-carbon growth. Through effective operation, the port aims to transform the shipping routes between Chancay and Shanghai into a thriving path for the mutual prosperity and development of China and Latin America,” the statement concluded.
Chinese Foreign Ministry spokesman Lin Jian said on Friday that the Chinese government will “ensure the success of Chancay Port from construction through management and operation.”
Lin said the port would consolidate China’s role in the “overall development and integration of Latin America and the Caribbean.”
The Financial Times (FT) on Friday quoted Western analysts and officials who feared the Chancay port project could cede Peruvian sovereignty to Chinese control, as is often the case with BRI projects, and could eventually offer berths to Chinese warships.
“The risks to Peru are at multiple levels. Risk number one is the country not reaping the benefits of its abundant resources and geographic position, but rather the Chinese getting those benefits,” cautioned Evan Ellis, a professor of Latin American studies at the U.S. Army War College.
Ellis said the May vote by Peruvian lawmakers to give China’s Cosco exclusive rights to operator the Chancay port was “previously unthinkable, and against the very essence of Peru’s assertion of sovereignty over its own ports, which are its window to the world.”
The May vote also implemented a “cabotage law,” giving China and its business partners the freedom to transport cargo across Peru. This will allow smaller ships to dock at other Peruvian ports, then transport their cargo to Chancay, where it can be loaded onto huge ships bound for China. The cabotage law will also make it easier for neighboring Brazil to trade with China through Chancay.
The Peruvian legislature balked only at handing Chancay some massive tax breaks desired by its planners, in part because such a favorable tax environment would have given Chancay overwhelming advantages over competing ports owned by the Peruvian government.
Peruvian trade minister Ursula Leon told FT the United States is “missing opportunities” to invest in Peru, leaving everything on the table for China to pick up. The U.S. and China both have free trade agreements with Peru, but China exported $23 billion in goods to Peru last year, versus only about $9 billion from the United States.
One major question hanging over China’s big move into Peru is what President-elect Donald Trump will think of it. Peruvian politicians are nervous about getting dragged into a new trade war between Trump and Xi.
Xi’s itinerary in South America includes a stop in Brazil’s Rio de Janeiro for the G20 summit from November 17 to 21. Brazil has been contemplating an invitation to join China’s BRI initiative.
Xi will also participate in the Asia-Pacific Economic Cooperation (APEC) summit in Lima, Peru on November 15 and 16. Outgoing U.S. President Joe Biden will also attend the APEC summit, making his first and last trip to South America as president.
China’s state-run Global Times on Monday sneered at U.S. concerns about the Chancay port project, denouncing American “bias” and “smears” such as warnings about “military use of the port,” “economic coercion,” and “ecological damage.”
The Global Times insisted the Peruvian port project was a “bridge for practical cooperation between China and Latin America and is by no means a tool for geopolitical competition.”
“Latin American countries, as independent and sovereign states, are fully capable and wise in choosing partners in their own interests. A more stable and prosperous Latin America is undoubtedly a blessing for China, the U.S., the Asia-Pacific and the world,” the Chinese Communist paper lectured.