Explainer: Houthi attacks expose China's commercial stakes in Red Sea

United Energy

15/01/2024 12:10

By Joe Cash
       BEIJING, Jan 15 (Reuters) - China has called for an end
to attacks on civilian vessels in the Red Sea that have
dramatically widened the Hamas-Israel conflict and placed
Beijing's commercial interests along the Suez Canal at risk.
    The Iran-backed Houthi militia from Yemen that seeks "Death
to Israel" is challenging the ability of the world's biggest
trading nation to defend billions in strategic investments in
Egypt. 
    Since President Abdel-Fattah el-Sisi came to power in 2014,
China has stepped up its investment and commercial activities
along Egypt's Suez Canal, through which a significant amount of
the Asian giant's West-bound goods flow.
    
    INVESTMENT AND TRADE
    Beijing has encouraged state-owned companies to invest tens
of billions in Egypt's logistics, transport and energy sectors,
data from the American Enterprise Institute (AEI) think tank
shows, and has extended $3.1 billion in loans, according to the
World Bank.
    And in the months leading up to Hamas' Oct. 7 attack on
Israel alone, firms from China and Hong Kong pledged at least
$20 billion in various projects along Egypt's arterial waterway.
    Attacks deterring commercial shipping from the Red Sea and
Suez Canal could frustrate Chinese investors who have committed
huge sums to the waterway's development to profit from their
safe passage.
    State-owned shipping giant COSCO  COSCO.UL , which on Jan. 7
joined Maersk  MAERSKb.CO , Hapag-Lloyd  HLAG.DE , Evergreen
 EVGR.O , and other major shipping lines in suspending services
to Israel, last March invested $1 billion in Egypt's port
infrastructure, according to the AEI. 
    COSCO was joined by CK Hutchison Holdings  0001.HK , a
prominent Hong Kong-based congolomerate, which in March
announced plans to put up a further $700 million to develop a
new container terminal in the Red Sea port of Ain Sokhna and in
B100, a new container terminal in the Mediterranean port of
Alexandria.
    That same month, demonstrating China's broader commercial
interests in Egypt as a link between Asia and Mediterranean and
European markets, Xinxing Ductile Iron Pipes  000778.SZ  made
known plans to invest $2 billion in iron and steel plants, also
in Ain Sokhna. 
    And in October, Egypt's Suez Canal Economic Zone struck a
$6.75 billion deal with state-owned China Energy to develop
green ammonia and green hydrogen projects in the Sokhna
Industrial Zone, as well as a $8 billion agreement with Hong
Kong-listed United Energy Group  0467.HK  to establish a
potassium chloride production site.
    Equally at stake is President Xi Jinping's flagship Belt and
Road Initiative, of which Egypt, Yemen and Iran are all members.
    China consistently maintains it will not interfere in the
domestic affairs of other sovereign states, leading analysts to
question how it should respond when problems emerge among BRI
members. 
    The dilemma arises in particular when the issue
fundamentally undermines the BRI's stated purpose, which is to
connect Asia with Europe through the creation of a series of
continent-spanning investment and trade corridors.
    
    REPUTATION ON THE LINE
    More than money is at stake. 
    Beijing is under pressure to prove that its involvement in
an unexpected detente between regional rivals Saudi Arabia and
Iran in 2023 went further than dotting the "i"s and crossing the
"t"s.
    Following that agreement, China's top diplomat, Wang Yi,
currently in Egypt as part of a tour of four African countries,
said Beijing wants to play a constructive role in handling
global "hotspot issues." 
    U.S. officials believe China to be instrumental in reining
in Iran, and have reportedly pressed Beijing to use its
influence over Tehran to help prevent the conflict between Hamas
- which is also backed by Iran - and Israel from spreading.
    When COSCO was still visiting Israeli ports despite its
competitors having already re-routed Asia-to-Europe voyages via
South Africa's Cape of Good Hope, some analysts questioned
whether Chinese influence over Iran was playing a part.  
Iranian oil makes up some 10% of China's crude imports.
    Bloomberg reported on Thursday at least five vessels
transiting the Red Sea were signalling "all Chinese crew" or
words to that effect in a space on a communications network that
would normally contain the ship's destination to try and avoid
attack.
    China's Wang Yi in Cairo on Sunday told his Egyptian
counterpart that Beijing backed a larger, more authoritative
Israeli-Palestinian peace conference and a timetable to
implementing a two-state solution.
    So far, China appears restrained in its diplomacy because of
its position of non-interference in other sovereign states'
internal affairs. Yet at the same time it aspires to raise what
Wang has referred to as China's "international influence, appeal
and power" to shape events through diplomacy.

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Vessels re-route around the Cape of Good Hope    https://tmsnrt.rs/3NVTcCz
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 (Reporting by Joe Cash, Editing by William Maclean)
 ((Joe.Cash@thomsonreuters.com;))