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Sailing into Dire Straits

COSCO is one of the largest Chinese state-owned shipping lines (Source: Alf van Beem)

Paranoia has swept across Europe. Skyrocketing energy prices and uncertainty in the future economic outlook have made Europeans far more wary of their nations’ reliance on other nations, particularly those potentially as malicious as Russia. In a frenzy, pundits have underscored any possible dependencies, ranging from cheaply manufactured goods from South Asia to the Taiwanese chip production, which, if lost, threatens to handicap Europe’s most crucial industries.

In light of this renewed awareness of leverage that foreign powers may possess over the European trade bloc, the sale of a 24.9% stake in Hamburg’s Container Terminal Tollerort (CCT) to the state-owned Chinese Ocean Shipping Company (COSCO) was met with a wave of protest. Down from the original proposal of a 35% stake, and including newly added provisions that bar the Chinese shipping giant from influencing managerial decisions, the deal nevertheless split the political landscape.

Furthermore, Chancellor Olaf Scholz’s rigour in pursuing the sale revealed clear fissions in Western governments on their dependence on other – perhaps rivalrous – states. Indeed, not only did several ministries and coalition partners in Germany lament the agreement, but Germany’s strategic partners, including France and the United States, expressed disapproval. The overarching fear is that Germany is once again rushing into a vulnerable position, thereby repeating the mistakes it made through its years-long dependence on Russian energy imports.

Yet, proponents of the deal are plenty; including COSCO and the Chinese state that owns it, elements of the German government, as well as the Hamburger Hafen und Logistik AG (HHLA), which operates three of the four container terminals at Hamburg’s port. These parties stress that the sale is simply the victim of gratuitous scepticism and fear mongering. Indeed, the purchase of such port facilities is neither new nor limited to Europe. COSCO, and the China Merchant Group (CMG) – which is also state-owned – possess stakes and operate a myriad of berths worldwide, From Europe to the US. European firms such as Maersk, have also prominently invested in harbour facilities worldwide in an effort to expedite cargo handling and save costs.

Supporters of COSCO’s purchase underscore a promised boost to the German economy as a major advantage to the seller. The investment of these firms in the port terminals, and the consequential increased volume of Chinese trade passing through these port facilities, are expected to provide further growth opportunities for the local economy. In the view of many, this move is also necessary. As put by a spokesman of the HHLA, Hans-Jorg Heims, a lack of foreign investment would see Hamburg’s harbour fall behind competitors. After all, other major European ports, such as those in Rotterdam, Antwerp, and Le Havre, have all seen significant investments by either CMG or COSCO.

The Reach of Chinese Shipping Companies expands (Source: Financial Times)

The expanding reach of Chinese shipping giants is a phenomenon not only limited to the European continent. The port systems across Southern Asia and the coasts of Africa, as well as the Americas have seen greater Chinese investment in the past years. This accumulation in port ownership parallels China’s dominance in maritime trade. Being the world’s largest exporter, China’s shipping lines have grown in unison with its exports. Concurrently, China has vied to further increase its influence over ports around the world.

This undertaking was formalised under the Maritime Silk Road (MSR) project, which itself falls under the famed Belt and Road Initiative (BRI). The BRI, an infrastructure and trade development program meant to stimulate trade from China to large consumer markets worldwide, is seen by most to be the centrepiece tool of China’s modern foreign policy. Especially along the South Asian and East African coastline, there have been massive infrastructure project aimed at rapidly expanding and renewing port facilities to match growing global trade volumes. While initially being received with doubt from the international community, the BRI has played an instrumental role in China’s widening global reach. This influence is seen materialising both in developing nations, where large-scale investment and modernising projects funded by China are aplenty, and in Western nations, which see China in a dual sense as an increasingly crucial trade partner as well as an increasingly threatening systemic rival.

China’s ‘big break’ into the European port system came with COSCO’s acquisition of a majority stake in the Greek port of Piraeus. The sale occurred gradually over the last decades: starting with the purchase of harbour operating rights in 2008, slowly marching towards a 51% stake in 2016 and reaching the current ownership of 67% just five years later. Perhaps supporting the argument of those who celebrate COSCO’s investment in Hamburg, the Mediterranean gateway to the Suez Canal seems to benefit both buyer and seller. The shipping giant’s massive investment in the port came to the aid of a floundering Greek economy, whilst COSCO gained a foothold in the lucrative European market. Both the Chinese and Greek governments have praised the project and the cooperation between both nations, as demonstrated by a friendly visit of the People’s Liberation Army Navy in 2017. Yet, along with reports of abysmal working conditions, the increasingly fraught relations between the EU and China threaten to crack the façade of harmony so diligently publicised by Beijing.

While ultimately China claims its initiative, including COSCO’s purchases in Hamburg, are in the interest of expanding trade and common prosperity, many would attribute malicious intentions to the growing dominance. While it is unlikely that China would be able to feasibly turn its terminals into military bases to project naval power in Europe’s backyard, recent expansions of Chinese military influence in Djibouti does plenty to unsettle the most sceptical. The intensifying tensions between Brussels, Washington and Beijing also do not assure those arguing to block further Chinese influence over key European infrastructure. The ongoing frictions vis-à-vis the status of Taiwan and the greater South China Sea, the support (or rather lack of condemnation) of certain international actors, as well as the suppression of ethnic minorities and activists in China, being just some of the points of contention. In light of these deteriorated relationships, granting shipping lines that operate within parameters of China’s government leverage over Europe becomes more and more daunting. How much influence should a regime hold over our key infrastructure in the context of all this discord?

Contrarily, China’s positioning could be interpreted as defensive in nature, after all, for all the dependence the EU and the West exhibit towards imports from China, so does the latter require the constant functioning of their exports to Western markets. In essence, Beijing may deny any nation the chance to exert leverage through sanctions of Chinese imports. From this standpoint, the continued acquisition of stakes in port infrastructure worldwide allows the state’s shipping lines to ensure a constant flow of exports, as they diversify in terms of their trade routes and guarantee the safety of their own supply lines.

Regardless of the true nature of China’s posturing, an overly optimistic approach by the EU and the West would be ill-advised. European nations have a troubled history when it comes to assessing how dependent they are on the continued benevolence of their suppliers. Continuing this pattern of rosy overconfidence may prove disastrous. A patent example comes to mind when considering the German delegation’s reaction to warnings at the 2018 UN General Assembly of their nation’s reliance on Russian energy imports. When warned by the then US President Donald Trump of the potentially hostage-like position this may lead Germany into, the German delegation was pictured laughing and portraying the claim as absurd. Considering the gas shortages and severe consequences the country is facing now that Russian Gas imports have dried up, the German’s haughty attitude seems to have aged about as well as spoiled milk.

While the sale of stakes of the CTT to a Chinese state-owned shipping line is unlikely to threaten Germany, as the damage potential to limiting imports into Europe is relatively low, such discussion might be limited. Focusing on cases in isolation ignores the systematic risk of leverage China might have on the EU through their diversified holdings in port infrastructure, among other industries. Should China take drastic steps to handicap the EU’s import abilities to function, this would have far greater implications if it were applied to several of Europe’s key ports. In turn, a macroanalysis must be applied when assessing risk exposures.

In the context the EU currently finds itself in, with a resurgence of both interstate conflicts and great power rivalries providing an unclear security outlook, a scrupulous examination of Europe’s dependence is vital. Wishful optimism may simply not be enough to avoid future crises. After all, the adage “hope for the best, plan for the worst” is not without merits. Yet Olaf Scholz’s determination to go ahead with the partial purchase of the Tollerort Terminal, although diluted, shows cracks in the West’s united front against reliance on foreign – sometimes even unfriendly- powers. The extent to which such dependencies are deemed acceptable within the EU thus remains ambiguous. As such, the question arises: with the bear’s claw clamping Europe’s oil imports, how much further is Europe willing to venture into the jaw of the dragon, hoping it does not snap shut?


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