With Peru port project, China gains a foothold in America’s backyard

A new port being built by China in Peru could serve as a gateway for Brazil to the Pacific, holding the potential to significantly boost national exports.

Through this new connection axis, materials highly employed in energy transition processes, such as lithium, as well as agricultural products and industrial goods, are expected to be shipped toward Asia.

Simultaneously, this billion-dollar mega-project aims to reduce by one-third the average time it takes for Brazilian production to reach the Far East.

Analysts suggest that the Chinese-led initiative has sparked interest among Brazilian entrepreneurs due to its potential for new trade opportunities. However, realizing these benefits would require Brazil to invest in improving its infrastructure.

Set to be inaugurated next year, the port represents a one-of-its-kind Chinese investment in Latin America. It is a key initiative under Beijing’s ambitious investment plan known as One Belt, One Road, or the “New Silk Road,” designed to reshape global economic geography, according to experts.

The construction of the deep-water port, creating a new connection dubbed “Shanghai-Chancay,” has raised concerns for the United States. There is apprehension that this could further enhance China’s influence, strengthening commercial and official ties with South American countries and allowing China to control the supply of critical materials in the region.

Connection to Asia

Located approximately 60 kilometers from the Peruvian capital, Lima, Chancay is the first port in Latin America with a majority of Chinese capital. The investment stands at around $3.6 billion (R$ 17.8 billion), with the Chinese company COSCO Shipping holding a 60% stake, and Volcan do Peru, 40%.

The goal is for this port to become a new hub connecting the region to Asia, providing advantages for several South American countries. Chancay could facilitate the export of critical materials for industries like electric vehicles, requiring metals such as copper and lithium, in which South America leads in reserves.

The project also signals the consolidation of China’s investments in Peru. In recent years, approximately $15 billion (R$ 74.5 billion) from China has been allocated to mining in the South American country, according to the Peruvian government.

Peruvian President Dina Boluarte met with Chinese leader Xi Jinping during the annual Asia-Pacific Economic Cooperation (APEC) meeting held in San Francisco in mid-November. Boluarte extended an invitation for him to participate in next year’s summit in Lima, coinciding with the expected inauguration of the project’s first phase.

“The leaders discussed the Chinese infrastructure initiative, something in which Boluarte expressed interest in Peru’s participation,” stated the Peruvian government in a communication about the meeting.

Omar Narrea, a researcher at the Center for China and Asia-Pacific Studies at the University of the Pacific in Lima, sees Chancay as part of China’s “New Maritime Silk Road,” aiming to reach a greater number of continents. “There is a transformation in global economic geography,” he asserts to BBC News Brazil.

Narrea believes the project will serve as an alternative route, especially in a scenario where other maritime corridors face various risks. For instance, recent weeks saw a drought affecting the Panama Canal, hindering the passage of hundreds of ships and making freight longer and more expensive.

“In this scenario, Chancay emerges as an interesting and resilient option to climate change,” he evaluates. Chancay could also benefit the exports of neighboring countries, including Brazil, Ecuador, Colombia, Bolivia, and Chile.

The latter two, along with Argentina, form the so-called “Lithium Triangle” and hold the world’s largest reserves of this metal. As Bolivia lacks access to the sea and much of Chile’s lithium exploration is in the north, a considerable distance from major ports, experts point to Chancay as a potential exit for this raw material.

Simultaneously, Peru aims to consolidate itself as a regional maritime hub, as foreign investments of $6 billion (R$ 29.8 billion) have been made in the country’s ports in recent years, involving various partners, according to Narrea.

A New Gateway for Brazil to the Pacific

Experts, entrepreneurs, and those involved in the construction agree that the Chancay port represents an opportunity for Brazil to get closer to Asian markets, especially for Brazilian states far from the Atlantic.

With this new route, there is an expectation that the average delivery time for some shipments may be reduced by a third, reaching their destination 15 days faster than usual.

“Currently, trips to China take an average of 45 days. This reduction means a cost decrease and an increase in competitiveness,” says Sueme Mori, Director of International Relations at the Brazilian Confederation of Agriculture and Livestock.

Over the past months, numerous meetings have been held with over a hundred Brazilian entrepreneurs and governors to familiarize them with the port and explore Chancay as a strategic route to Asia, says Mario De Las Casas Vizquerra, Public Affairs Manager of COSCO Shipping.

According to him, interest comes particularly from Acre, Rondônia, and Mato Grosso. “Brazilian entrepreneurs see Chancay as an attractive center of interest focused on seeking advantages from the reduction in logistics costs,” he states.

Vizquerra estimates that over the years, Brazilian exports through the port could reach up to $30 billion (R$ 148.9 billion).

In 2022, Brazil exported $335 billion (R$ 1.66 trillion) in products, with $91.3 billion (R$ 453.1 billion) to China, leading the buyer rankings, according to the Brazilian government.

Among the products that could be boosted by the new port are traditional shipments to Asia, such as soybeans and meal, beef, cellulose, and corn.

Sueme Mori believes that some exports with a reduced shelf life, such as fruits, could also gain market share with shorter travel times. “We know there is demand in Asia, but there is the issue of the reduced ‘shelf life,'” she says.

Vizquerra emphasizes India as a potential important partner and believes that the port’s opening could pave the way to deepen Brazil’s trade relationship with the country.

But it’s not only Brazilian agriculture that can benefit from a new route to the Pacific.

The project is also seen as a potential channel for higher value-added businesses, such as products manufactured in the Manaus Free Trade Zone.

While China is the largest supplier of inputs to the industrial hub, according to the government of Amazonas, the port can be used to export manufactured products from Brazil. “Trade is a two-way street. China should send inputs and take finished products and commodities,” said the government of Amazonas in a statement to BBC News Brazil.

Narrea evaluates that Chancay is “perfect” for exporting production from the Manaus Free Trade Zone. “Brazil has the know-how for many productions, and with the port, it will be easier because it will help with logistics, increasing competitiveness.”

Vizquerra also highlights the rise of the technological industry in South Korea and the ongoing development of its shipbuilding industry, creating opportunities to diversify the countries to which Brazil exports.

In 2022, Brazil’s shipments to this Asian partner totaled $5.02 billion (R$ 24.9 billion), with a focus on commodity exports.

Brazil Needs to Invest in Infrastructure

However, there is also a consensus among experts that Brazil needs to invest in infrastructure to transport the country’s products to the coast of Peru.

Jorge Luis Castillo Hurtado, a professor at the National University of the Amazon Madre de Dios, researches the integration between Brazil and Peru and recalls that there was initially a project to create three interoceanic axes between Brazil and Peru, to the north, center, and south of Brazilian territory.

“But the only one that was completed was the south, in 2010,” says Hurtado.

“At that time, the works were part of a South American integration initiative promoted by the Brazilian government. One of the intentions was to help connect states like Mato Grosso and Acre to the Pacific ports.”

Currently, there is tourist traffic along the routes to Peru, but the infrastructure is not fully prepared for commercial exchanges, says Hurtado. “To be more functional, current conditions would have to be improved, perhaps requiring a railway line,” he assesses.

Vizquerra emphasizes that the most optimistic estimates depend “substantially on the implementation of efforts in bimodal internal transport and the construction of a railway connecting Peruvian ports to the productive regions of Brazil.”

In addition to more technical aspects, including the Andes’ terrain, these works also face challenges of possible environmental impacts and a delicate recent history in investments involving the two countries.

Hurtado also evaluates that there are difficulties in approving certain projects in this area due to potential harm to biodiversity and indigenous peoples. “These infrastructures are always under observation, but I believe that part of the necessary projects has already been developed, which probably would not cause major damage,” he says.

Narrea emphasizes that agreements between Brazil and China aim to avoid products that promote deforestation. “Currently, there is great concern about environmental issues. The idea is to make supply chains sustainable and not just extract raw materials,” he says.

Additionally, Peru faces a serious problem of distrust generated by corruption allegations involving major projects in the country, according to the Peruvian Public Prosecutor’s Office.

Among those implicated, according to the allegations, were the Brazilian construction company Novonor, formerly Odebrecht, and former Peruvian President Alejandro Toledo.

The former president has always denied the accusations, while the company accepted a collaboration process with the Peruvian justice system due to its activities in the country.

“It is possible that the history of corruption, including not only Odebrecht but also Peruvian companies, creates barriers to new works,” says Castillo Hurtado. “For the projects to be approved, all guarantees would be necessary due to the discomfort that these cases caused in the Peruvian population.”

In other words, old barriers may still be blocking Brazilian access to the Pacific.

Port Symbolizes China’s Advance in South America

Another relevant factor in this context is China’s advance in South America, symbolized by the construction of the Chancay port, which worries the United States.

The Biden administration has signaled concerns about China dominating the supply of critical materials, including minerals, in South America.

In October, the White House sent a supplementary budget request to Congress that includes funds to “provide alternatives to China’s coercive financing in developing countries.”

The document speaks of “greater support for allies and partners in strategic competition with China.”

In turn, so far, the Peruvian government has avoided taking sides in the disputes.

In the same APEC meeting where Boluarte met with Xi, she also spoke with Biden, whom she had visited a few weeks earlier.

According to Narrea, the Peruvian government basically said, “Yes, there is a lot of Chinese investment, but let the Americans come too. The doors are still open to them.”

The researcher points out that the country has a series of investments in Peru, especially in copper mines, which is also the case for other allies of Washington, such as the United Kingdom.

American military leaders have expressed deep concern about the increase in Chinese-owned ports in Latin America that “could benefit their Armed Forces,” according to a report from the U.S.-China Economic and Security Review Commission (USCC).

“Why does China need to build naval bases around the world?” said Senator Marco Rubio, Republican from Florida, a member of the Senate Intelligence Committee, according

“They will have visitation rights to essentially nationalize and operationalize any port they control worldwide in times of conflict, if necessary, and there will be nothing we can do about it.”

In turn, Narrea rejects the idea and emphasizes the commercial purposes of the investment, reminding of its private nature. “It’s a business model; there are not only political aims since there is a strong investment.”

Source: BBC

Click here to access the original text in Portuguese: https://www.bbc.com/portuguese/articles/cyj243xzvnwo

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