China widens South America trade highway with Silk Road mega port
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[January 18, 2024] By
Marco Aquino and Adam Jourdan
CHANCAY, Peru (Reuters) - In September, a group of Brazilian farmers and
officials arrived in the Peruvian fishing town of Chancay. The draw: a
new Chinese mega port rising on the Pacific coast, promising to turbo
charge South America's trade ties with China.
The $3.5 billion deep water port, set to start operations late this
year, will provide China with a direct gateway to the resource-rich
region. Over the last ten years, Beijing has unseated the United States
as the largest trade partner for South America, devouring its soy, corn
and copper.
The port, majority-owned by Chinese state-owned firm Cosco Shipping,
will be the first controlled by China in South America. It will able to
accommodate the largest cargo ships, which can head directly to Asia,
cutting the journey time by two weeks for some exporters.
Beijing and Lima hope Chancay will become a regional hub, both for
copper exports from the Andean nation as well as soy from western
Brazil, which currently travels through the Panama Canal or skirts the
Atlantic before steaming to China.
"The Chancay mega port aims to turn Peru into a strategic commercial and
port hub between South America and Asia," Peru's trade minister Juan
Mathews Salazar told Reuters.
Part of China's decade-old 'Belt and Road' drive, the new port embodies
the challenge facing the United States and Europe as they look to
counter Beijing's rising influence in Latin America. China's trade
muscle has helped it win allies and gain leverage in political forums,
finance and technology.
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Full construction started in 2018 at Chancay, some 80 kilometers (50
miles) north of Lima. Workers are now laying thousands of piles and
breakwaters; work signs are written in white-on-red Chinese characters.
The first phase of Chancay is set be completed in November 2024. Chinese
President Xi Jinping, expected in Peru for an Asia-Pacific Economic
Cooperation (APEC) summit that month, could inaugurate the port, a
diplomatic source in Lima said.
China's embassy in Lima did not respond to Reuters queries.
"It's part of China's new Silk Road," said Mario de las Casas, corporate
affairs manager for Cosco Shipping, which holds a 60% stake in the port.
The remainder is controlled by local miner Volcan, in which Glencore
owns a stake.
Jose Adriano da Silva, a farming entrepreneur from Brazil's western Acre
state who visited the port, said the project would accelerate regional
development. He said talks between Peruvian and Brazilian officials were
underway to resolve overland transport challenges.
Peru's government is planning an exclusive economic zone near the port
and Cosco wants to build an industrial hub near Chancay to process raw
materials that could include grains and meat from Brazil before shipping
them to Asia.
Brazil's ambassador in Peru, Clemente Baena Soares, said there were
plans for meetings between officials early this year to seek to resolve
logistical, sanitary and bureaucratic hurdles at the border so Brazilian
trucks can more easily reach the port.
"It's an opportunity for grain and meat production - especially from
Rondonia, Acre, Mato Grosso and Amazonas - to go to Asia through the
port of Chancay," said Soares, who also visited Chancay in September,
naming four states in western Brazil.
"(Brazilian businesses) are delighted with the possibility of not using
the Panama Canal to take their goods to Asia."
He added there would need to be investment in an existing road known as
the Interoceanic Highway - which runs from further south in Peru across
the Andes to Brazil - to improve transport routes. A long-discussed rail
link remained in the study phase, he said.
STARK TRANSFORMATION
China overtook the United States on trade in South and Central America
under former President Donald Trump, despite his administration warning
the region about the dangers of getting too close to Beijing. Under
President Joe Biden the gap has widened despite attempts to reverse it.
U.S. officials are now taking a different tack, arguing that the United
States offers the region other things beyond trade, including investment
in high-tech industries.
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"I think using the metric of trade to evaluate the influence of China is
not an accurate way," Juan Gonzalez, a White House adviser and the
National Security Council's Western Hemisphere senior director, told
Reuters in Buenos Aires.
"We're confident in our ability to compete with China," he added, urging
regional governments to ensure there were no "political strings
attached" to trade with Beijing.
Beijing says its trade and investment in Latin America is a win-win for
both sides. Some 150 countries have signed on to the Belt and Road with
China, including 22 in Latin America.
The change over ten years is stark.
A decade ago, Peru, the world's no. 2 copper producer, traded slightly
more with the United States than China. Now, China has a more than $10
billion lead in bilateral trade, the latest annual data show.
That trend is playing out around the region.
Reuters interviewed two dozen officials, business leaders and trade
experts, along with an analysis of ten years of trade data, revealing
how China's infrastructure spending is cementing its role as the key
trade and investment partner for South America, defying an economic
slowdown at home and U.S. warnings about debt trap diplomacy.
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![](../images/011824PIX/busine82.jpg)
Dragline excavators stand at the construction site of a new Chinese
mega port, in Chancay, Peru August 22, 2023. REUTERS/Angela Ponce
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Part of the shift is pragmatic. Fast-growing China needs the copper
and lithium from South America's Andes, along with the corn and soy
from the plains of Argentina and Brazil.
But its widening trade lead - some $100 billion around South America
in the most recent annual data - brings extra clout.
Beijing has in the last year upgraded ties with Uruguay and Colombia
to "strategic partnerships" - the latter a U.S. ally.
Argentina's President Javier Milei, once highly critical of China,
has softened his stance since taking office last month, reflecting
Beijing's importance to the crisis-hit economy.
It is the top buyer of Argentina's soy and beef and has an $18
billion currency swap line with the country - which Argentina's
cash-strapped government has tapped to pay its debt, including with
the International Monetary Fund (IMF).
"The last thing our dear Argentine friends need in these challenging
times is to lose the support of an important partner like China,"
the Chinese ambassador in Colombia wrote on social media platform X
following Milei's inauguration.
'POINT OF LEVERAGE'
Peru's trade with China doubled in the last decade to $33 billion in
2022, driven by rising copper exports, even as its commerce
flatlined with the United States. China has invested some $24
billion in Peruvian mines, the power grid, transportation and
hydro-electric power generation over the same period.
Exports to China grew 9.3% in the first eleven months of last year,
government data show, faster than the 5.3% growth of exports to the
United States. Peru has a $9.4 billion trade surplus with China and
a $1.3 billion deficit the United States.
Peru's President Dina Boluarte met China's Xi in November at the
Asia-Pacific Economic Cooperation (APEC) forum in San Francisco.
They discussed the Chancay port, which Boluarte said was a
"significant boost to free trade and new Chinese investments."
That came after an awkward on-the-move parlay in Washington with
Biden, which was not given full bilateral meeting status.
"China is taking advantage of our absence and that's a real
problem," said Eric Farnsworth, a former White House adviser and
State Department official, who is now a Latin America expert at the
Council of the Americas and Americas Society.
He said the port bolstered China's powerful position in Peru and
created a "point of leverage" in the region.
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Two regional diplomats said it also reflected a more muscular and
ambitious China, often backed by deep pockets: a far cry from a wave
of Chinese immigration to Peru two centuries ago when migrants came
as cotton workers or to set up 'chifas' - Chinese food outlets.
"Now business executives or bankers come, with big projects tucked
under their belts," said Juan Carlos Capuñay, Peru's former
ambassador to China.
'NEW BATTLE GROUND FOR MINERALS'
China hasn't had things all its own way. Its Belt and Road has faced
pushback in Asia and Europe - Italy recently pulled out of the
initiative - while bad debts owed to China have ballooned. In Latin
America, projects from Argentina to Venezuela have faced hold-ups.
Diplomats and trade experts also cautioned that the Chancay port
would only be successful if regional infrastructure including roads
and railways improved to enable goods to get there, including grains
from Brazil.
Currently, the Interocean Highway - a little-used road corridor of
some 2,600 kilometers (1,616 miles) in five sections, built more
than a decade ago - links the Pacific Coast in the south of Peru to
Brazil's state of Acre.
"The issue today is a lack of regional connections, which is very
complex for the success of the project," said Fernando Reyes Matta,
former Chilean ambassador to China.
Nonetheless, several of the people said China's rise in South
America was solidifying despite these headwinds, with the region
desperate for financing and foreign currency.
A senior European diplomat based in South America said the big gap
in infrastructure funding in the region made it hard for the United
States to "strong arm" local governments to turn down Chinese money.
Meanwhile, global interest had grown in South America's resources
such as lithium, copper and grains.
"Latin America has become a new battle ground for those minerals
between the United States, Europe and China," he said.
(Reporting by Marco Aquino and Adam Jourdan; Additional reporting by
Lucinda Elliott in Montevideo, Matt Spetalnick in Washington,
Adriana Barrera in México, Natalia Ramos in Santiago, Vivian Sequera
and Mayela Armas in Caracas, Candelaria Grimberg in Buenos Aires,
Luis Jaime Acosta in Bogota, Gustavo Palencia in Tegucigalpa, Alvaro
Murillo in San Jose, Nelson Rentería in San Salvador and Ana Mano in
Sao Paulo; Editing by Daniel Flynn)
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