A new Chinese megaport in South America is rattling the US

Dragline excavators stand at the construction site of a new Chinese mega port, in Chancay, Peru. (File Photo: Reuters)
Dragline excavators stand at the construction site of a new Chinese mega port, in Chancay, Peru. (File Photo: Reuters)

Summary

The Peru project could speed trade with Asia and plant Beijing’s flag in Washington’s neighborhood.

CHANCAY, Peru—In this serene town on South America’s Pacific coast, China is building a megaport that could challenge U.S. influence in a resource-rich region that Washington has long considered its backyard.

The Chancay deep-water port, rising here among pelicans and fishermen in small wooden boats, is important enough to Beijing that Chinese leader Xi Jinping is expected to inaugurate it at the end of the year in his first trip to the continent since the pandemic.

Majority-owned by the giant China Ocean Shipping group, known as Cosco, Chancay promises to speed trade between Asia and South America, eventually benefiting customers as far away as Brazil with shorter sailing times across the Pacific for everything from blueberries to copper.

As nations around the world shudder at a new flood of cheap Chinese manufactured goods, the port could open new markets for its electric vehicles and other exports. China is already the top trade partner for most of South America.

The U.S. worries that China’s control over what could become South America’s first true global commercial hub will allow Beijing to further strengthen its grip over the region’s resources, deepen its influence among America’s closest neighbors and eventually plant its military nearby.

“This will further make it easier for the Chinese to extract all of these resources from the region, so that should be concerning," Army Gen. Laura Richardson, who heads the U.S. Southern Command, said last month at a Florida International University security conference.

Former American officials say the project highlights a diplomatic void that the U.S. has left in Latin America as it has concentrated resources elsewhere, most recently in Ukraine and the Middle East.

“This changes the game," said Eric Farnsworth, a former high-ranking State Department diplomat who now leads the Washington office of the Council of the Americas think tank. “It really platforms China in a major new way in South America as the gateway to global markets. It is not just a commercial issue at that point, it is a strategic issue."

Located 50 miles north of Peru’s capital, Lima, the $3.5 billion port—funded by Chinese bank loans—will be the first on South America’s Pacific coast able to receive megaships because of its nearly 60 feet of depth, though other ports in the region have large container-handling capacity. That will allow companies to send cargo on those vessels directly between Peru and China rather than on smaller ships that must go first to Mexico or California.

Cosco says Chancay is purely intended to boost commerce.

“This is a commercial project to promote development," said Gonzalo Rios, Cosco’s deputy general manager in Peru. “There is nothing to hide here."

Soon after the port was agreed to in 2019, Chinese state media gushed with predictions of Peru’s future as a hub in Chinese-South American trade and suggestions it could help Beijing with other priorities, such as a submarine cable link.

“Peru could be the anchor for such a corridor not only because of its geographical location, but also because of its relations with China," said an English-language commentary published in China Daily.

Peru has brushed aside U.S. concerns. Congress in Peru, a country of 33 million that is far from any potential global conflicts, has to approve the arrival of foreign military, not a port operator.

Peru’s Foreign Minister Javier González-Olaechea said that if the U.S. is concerned about China’s growing presence in Peru, then it should step up its own investments, adding that “everyone is welcome" to invest.

“The United States is present almost everywhere in the world with a lot of initiatives, but not so much in Latin America," González-Olaechea said in an interview. “It’s like a very important friend who spends little time with us."

Chancay is an echo of a Cosco port in Greece in 2016 that gave China a foothold in southern Europe. Today, Chinese companies control or operate terminals at roughly 100 foreign seaports. According to AidData, a research lab at the Virginia university William & Mary, they have financed almost $30 billion of work in at least 46 countries between 2000 and 2021.

Port investments have provided China diplomatic leverage with investment-hungry nations. Chinese navy ships have called at over a third of the ports its companies own or operate around the world.

But the ports haven’t emerged as stealth Chinese military bases, instead playing host to ceremonial naval port calls. And the commercial cost-benefit analysis of China’s port building push won’t be known for some time, since it will take years to establish trading hubs in new markets. More immediate concerns about its ports, from debt loads in Mozambique to signs of environmental damage in Kenya, are already in evidence, along with signs in Europe that the local interests are secondary to China’s.

The U.S. has discussed concerns with Peruvian officials about China’s control over vital infrastructure, including Chancay, said a former U.S. official and ex-Peruvian official with knowledge of the talks. What worries Washington is the interplay between China’s commercial companies and the government—specifically the military. Ports, and the equipment in them, can have both commercial and military uses.

China’s domestic law requires its companies to consider national defense needs in their operations, which could mean providing preferential access to military vessels at port terminals, sharing potentially valuable information and otherwise supporting defense and mobilization, said Isaac Kardon, a senior fellow at the Carnegie Endowment for International Peace.

“The Americans have been somewhat asleep," said John Youle, a prominent businessman in Peru and former U.S. diplomat. “Suddenly they’ve woken up."

That shift could be on display in mid-November when Xi is expected to be in Peru for an Asia-Pacific summit. Whether or not President Biden attends the summit—scheduled shortly after November’s election—the Chinese leader is likely to steal the show with a project designed to strengthen Beijing’s influence in the Western Hemisphere.

The port has put Peru squarely in the middle of the rivalry between the two superpowers in South America.

Brazil, Latin America’s biggest economy, wants to develop semiconductors with China after rebuffing U.S. requests to exclude Huawei Technologies from 5G networks. Chinese companies are building a metro in Colombia’s capital, Bogotá. Honduras cut ties with Taiwan, hoping to receive a flood of Chinese investments. And in Argentina, China is buying up lithium mines, an essential component in EVs.

Peru has welcomed Chinese investments in everything from ports to copper mining and electricity, which will give China firms control over virtually all of Lima’s power distribution.

“Peru is further increasing its economic dependency on China and making itself vulnerable to potential Chinese economic coercion," said Leland Lazarus, an expert on China-Latin America relations at Florida International University.

Peru is ranked fifth among the most China-influenced nations in the world, according to an indicator produced by two organizations critical of Beijing, Doublethink Lab and China in the World Network. Chinese-made vehicles are ubiquitous in the country. In the capital’s leafy Miraflores neighborhood, not far from a park named after John F. Kennedy, local authorities inaugurated a so-called China Park overlooking the Pacific, with a pergola and lion statues brought from China to celebrate the deepening ties.

At the port, where there are signs in Spanish and Chinese, a mile-long tunnel will give cargo trucks access without going through the town. Automated cranes and driverless vehicles will move cargo onto some of the world’s biggest shipping vessels, ships as long as the Empire State Building is high.

The construction of Chancay brought so much noise and shaking to a once sleepy fishing community that locals blamed it for cracks in the walls of their homes, the collapse of a road and the decline of the area’s fisheries. Cosco says it has repaired homes and the road and worked to mitigate the impact on fishermen.

“Fishing isn’t what it was before," said Hugo Pasache, a Chancay fisherman. “In a year, I’ll sell everything and do something else."

Daniel Bustamante expects the port will open new Asian markets for the blueberries and avocados he grows on Peru’s coast and that he now mostly ships to Europe and the U.S. The current shipping routes between Peru and China—about 35 days—take too long for most perishable foods to reach markets. Chancay will help cut that time by a third, reducing business costs.

“This will be a window into Asia," said Bustamante. “Our expectation is to be able to grow a lot in that market."

Particularly tantalizing for China is getting Brazil to use the port. Since China overtook the U.S. to become Brazil’s biggest trading partner in 2009, one major obstacle remains: Brazil faces the wrong ocean.

Shipping exports to China, which now buys some two-thirds of Brazil’s iron ore and soybeans, involves either going east via the Atlantic or north to access the Pacific via the Panama Canal.

With Chancay, Brazilian exporters as far away as the jungle city of Manaus could cut their shipping time to China by half, says Omar Narrea, an economist at Peru’s University of the Pacific.

But reaching a port on the other side of the Amazon rainforest and Andean mountains remains a major challenge. Peru has one highway in its far south connecting to Brazil and says new highways and railways connecting to Chancay are on the drawing board.

“This is the kind of project where everyone wins," Brazilian Transport Minister Renan Filho said. “But some parts are extremely complex."

Samantha Pearson in São Paulo contributed to this article.

Write to Ryan Dubé at ryan.dube@wsj.com and James T. Areddy at James.Areddy@wsj.com

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