Professors of The Johns Hopkins University: Misdiagnosing the Chinese Infrastructure Push

2019-11-25, by Deborah Brautigam, Bernard L. Schwartz, the Professor of International Political Economy and Director of the International Development Program (IDEV), and the China Africa Research Initiative (CARI) a,

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Over the past five years, China’s newest packaging of its global economic expansion—the Belt and Road Initiative (BRI)—has fostered alarm and eagerness in nearly equal measures. China’s interest in overseas ports is central to many of these concerns. However, exemplified with Hambantota and Djibouti, this paper points out that China’s port and infrastructure investment is actually commercial and slots neatly into low-income countries’ development aspiration. It does not pose a military, strategic, or debt-trap threat to the West. The West can help shape the BRI by being more closely involved. 

1.     Ports and Economic Growth

Why is China so interested in building and buying ports? China’s own history provides insight here. 

Between 1980 and 2000, China built more than 184 new ports to support its rapidly expanding economy. Most of these came to have industrial parks and special economic zones nearby, where manufacturers could cluster and easily export. Because new ports are usually capital-intensive and have low rates of return due to their lengthy start-up periods, China gave preference to joint ventures with foreign firms expected to bring in capital and operating efficiencies. 

Since then, Chinese ports have hosted numerous foreign investors. As early as 2001, the year that China joined the WTO, 25 container terminals in China were jointly owned, managed, or operated by transnational corporations.

Over the past several decades, ports in many nations have been privatized and globalized, so Chinese port business is not remotely an outlier in the present international environment. Even in the United States foreign companies operate most container terminals. Global shipping is increasingly concentrated. 

As growth slows in their home ports, Chinese shipping and port management corporations are looking abroad. One of the largest, China Merchants Port Holdings (CMPort), became a global company in 2012 through a joint venture—Terminal Link—with French firm CMA CGM, the world’s third largest container shipping company. Through its shares in Terminal Link, CMPort now has port investments in 15 countries. “Our growth engine will and must come from overseas,” CMPort observed in 2015.

Just as China needed to learn from foreign firms, other countries are now eager for Chinese capital and operational know-how. It “makes good business sense for Chinese players to acquire overseas port assets,” Neil Davidson, a senior analyst at Drewry, a London-based maritime research consulting firm, told a reporter. “I don’t think European countries feel threatened because in almost all cases the landlord function remains in the hands of the local countries.”

2. Debt-Trap Diplomacy? The Sri Lanka Case

According to China’s Ministry of Transport, Chinese firms have been involved in the construction or operation of at least 42 ports in 34 countries along the Belt and Road. The idea that Chinese banks and companies are luring countries to borrow for unprofitable projects so that China can leverage these debts to extract concessions is now deeply embedded in discussions of China’s BRI program. Critics invariably point to a single case—the Chinese takeover of Sri Lanka’s Hambantota Port—as proof of this strategy. Yet the evidence for this project being part of a Chinese master plan is thin.

Located in an underdeveloped part of the island nation, a major port in Hambantota has been part of Sri Lanka’s official development plans for several decades. After the country’s long civil war ended in 2005, Sri Lanka’s plans to transform the country into an Indian Ocean hub for trade, investment, and services took off. The country’s only major port—Colombo—was cramped and stuffed with containers. For Sri Lanka, building a major new port was a leap of faith. 

In 2007, the China Eximbank agreed to finance Phase I of the port with a $307 million commercial buyer’s credit. China Harbor Engineering Company (CHEC) got the contract. In 2010, the Sri Lanka launched a second phase, with a China Eximbank concessional loan package at a fixed interest rate of 2 percent. Port traffic rose from 32 ships in 2012 to 335 in 2014, and the port handled over 100,000 vehicles that year. 

3. Djibouti: Singapore of Africa? 

Indian concerns about Hambantota have spilled over into U.S. government concerns about China’s port investments in the small African country of Djibouti. In 2015, after nearly seven years of supporting anti-piracy operations along the trade routes off the coast of Somalia, China located its first overseas military installation in Djibouti, joining half a dozen other countries with military outposts in the strategically located nation.

While Djibouti has capitalized on its location to attract military tenants, China is the only country that also sees Djibouti (which is the outlet to the sea for land-locked Ethiopia) as a significant economic partner. As in Hambantota, Djibouti’s own aspirations to take advantage of its location to become “the Singapore of Africa” are at the heart of China’s lending and investment in Djibouti’s port and zone projects. 

Meanwhile, China Merchants Port Holdings (CMPort) invested in the Port of Djibouti in 2013, and helped Djibouti access a loan from China to build the Doraleh Multipurpose Port, connected to the Djibouti-Ethiopia railway terminal. In 2018, Chinese companies launched the 240-hectare pilot phase of what they hope will become an 18-square-mile industrial and free trade zone with a focus on trade and logistics, export processing, and duty-free retail.

China does present a challenge in its port and infrastructure investments. As IMF chief Lagarde noted, investments in major new infrastructure always need to be carefully managed. The West can help shape the BRI by being more closely involved.


Source: The American Interest