China’s big maritime asset push more about geopolitics than profit?

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The aggressive takeover of ports and shipping lines by China when the maritime industry is facing risks and challenges may seem illogical, but it may actually be a smart move propelled more by a geopolitical agenda than profits, according to a new blog post by Xeneta.

“Chinese companies are looking for assets; taking over international ports and shipping lines alike. While it seems to go against the grain of conventional thinking, they might actually be onto something,” said the analysis.

Cosco, a state-owned shipping company, has just agreed to buy OOCL in a US$6.3 billion deal, which would make Cosco the third largest container line in the world. This move alone puts Cosco in a position to potentially overtake Maersk for the world’s largest container line, said Xeneta, a global sea freight market information provider.

However, this wasn’t the only power move made by Chinese companies, Cosco included, as they’ve spent upwards of $20 billion to buy up overseas ports, doubling the amount they’ve spent in the year prior.

While this might seem like an ambitious grab for power, it actually has some pretty sound logic behind it, said the article.

For one, China’s shipping investments appear driven by a long-term push for control of strategic assets, which trumps the desire for near-term economic efficiency and reduced debt burdens.

In 2009, China overtook Germany and the United States as the world’s largest exporter and trading nation, respectively. Now, the goal is to match its new-found trade dominance by overtaking the European hold on the container shipping industry while increasing its ownership of ports from Australia to the U.S.

From Beijing’s perspective, it is partly a defensive strategy. China’s economy is currently reliant on foreign shipping companies to export the iPhones, furniture, and shoes it produces and to supply it with the raw materials and finished goods required by its vast domestic market, said the report.

The recent surge in spending also falls in line with China’s President Xi Jinping’s “One Belt; One Road” infrastructure strategy to strengthen trade between Asia and Europe.

It’s clear that China wants to be number one. For Cosco, it’s more about geopolitics than profits as they are willing to pay more for shipping liners and ports than their commercial rivals, said Xeneta.

On the political side, China’s sudden increase in control over both shipping and ports provides both projections as well as protection. Having control over commercial shipping lanes can help China during more troubling times, such as conflict and dispute. While having a larger stake in ownership of overseas ports confers certain advantages to China’s navy, allowing it to sail further from home.

Xeneta likewise noted that the expansion also plays a role in China’s geopolitical standing. As China continues to invest in ports and in countries in desperate need of cash or technology, China is making valuable allies, while simultaneously growing its container industry.

However, not everyone is exactly thrilled by the thought of this rather aggressive Chinese expansion into the container freight market, especially Germany, said the analysis.

China recently won a bid to build a new terminal as well as a brand-new logistics center in Freihafen in Germany, igniting the ire of handling companies HHLA and Eurogate, which are based in Hamburg. The companies fear that the Chinese could take away significant quantities of cargo from the port.

There is a growing concern about the one-sided nature of these new China deals, noted the report. As it stands, Chinese companies have three times the capacity at European ports than European companies do at Chinese ports. In fact, there isn’t a port in China that is majority owned by a European country, although the same cannot be said for European ports falling under Chinese control.

“The total implications of China’s new found ambition for growth has yet to be seen. However, none can deny the logic behind the rapid growth and expansion is beginning to pay off,” concluded Xeneta.

Photo: Peter Morgan from Beijing, China