Insight: China widens South America trade highway with Silk Road mega port

COSCO SHIPPING Ports

18/01/2024 11:00

By Marco Aquino and Adam Jourdan
       CHANCAY, Peru, Jan 18 (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  1199.HK , 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.
    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  GLEN.L  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.
    "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.
  
    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.
    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.
  

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Peru: USA vs China (Interactive)    https://tmsnrt.rs/49blX6S
China-Latam Investment Hotspots (Interactive)    https://tmsnrt.rs/47FBviN
China-Latam Investment Hotspots    https://tmsnrt.rs/45oZuB4
US v China: trading places     https://tmsnrt.rs/3mcIlpo
US v China: trading places (Interactive)    https://tmsnrt.rs/3xaSVn8
China rises in Latin America (Interactive)    https://tmsnrt.rs/3QU7u90
China rises in Latin America    https://tmsnrt.rs/3PaaiNH
Peru: USA vs China    https://tmsnrt.rs/45LhW6q
South America: USA trade hole (Interactive)    https://tmsnrt.rs/475CWFR
South America: USA trade hole    https://tmsnrt.rs/4069A8l
South America: China export boost    https://tmsnrt.rs/3QsoQJq
South America: China export boost (Interactive)    https://tmsnrt.rs/3Ma6Kte
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (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)
 ((adam.jourdan@thomsonreuters.com; +54 1155446882; Reuters
Messaging: adam.jourdan.thomsonreuters.com@reuters.net))