From Chancay To Shanghai: China Undercuts The US In Peru – Analysis

By Hari Seshasayee

The Chinese-built Chancay port in Peru should be seen by many as a harbinger of a new era in Latin America, one where Beijing holds as much sway as Washington in Latin America. This is the culmination of years of geopolitical maneuvering by China to court countries that were previously in the United States’ sphere of influence.

The timing is crucial: China’s coaxing of Latin America is juxtaposed with the US distancing itself from the region by threatening to impose tariffs and clamp down on illegal immigration, which leaves little room for new economic engagement. It is thus natural that China’s willingness to expand its stake in Latin America and build much-needed infrastructure projects is seen by governments in the region as a welcome opportunity. Whether newly elected president Donald Trump will be willing to set aside the irritants in the US-Latin America relationship and instead make economic overtures to the region remains to be seen.

The Chancay port forms part of China’s Belt and Road Initiative (BRI), joining a long list of BRI projects in the region, including “roads through the jungles of Costa Rica; railways in Bolivia and Argentina; industrial parks and a container port in Trinidad and Tobago; the biggest hydroelectric plant in Ecuador; and the first transoceanic fiber-optic cable directly connecting Asia to South America, stretching from China to Chile, among other projects.” Currently, 22 countries from Latin America and the Caribbean have signed on to BRI, and Colombia may soon be added to that list. Chancay may be one of the more successful BRI projects that China has executed, but it should not overshadow other BRI projects that have been left languishingdue to political corruption, labor violations, environmental issues or public protests. Yet, credit should be given where it is due.

China has already been South America’s largest trading partner for over a decade; Chancay may well catapult South America-China trade to even higher levels. The saying ‘Chancay to Shanghai’ has become ubiquitous in Peru, a nod bridging the massive distance between Latin America’s Pacific coast to China’s economic hubs.

At face value, the Chancay port is impressive: a sleepy fishing village 80kms from Lima has been transformed into one of South America’s largest ports, thanks to a $1.3 billion investment by China’s Cosco Shipping in the project’s first phase. The port is expected to generate $4.5 billion in annual revenue and will create more than 8,000 jobs, all while reducing trade costs between Peru and China by 20%.

The first ship from Chancay, Peru to China is set to sail this week carrying fruits from the Andean country. Moreover, Chancay is a modern port, built to withstand earthquakes of upto 8.5 magnitude, and is nearly fully-automated with unmanned electric vehicles used to move containers, automated cranes to load and unload merchandise, facial recognition systems to ensure security, radio frequency systems to track goods and 5G internet throughout the port. Much of the port’s systems and infrastructure have been brought in by the Chinese, with BYD pick-up trucks and Huawei 5G towers. The port is controlled by China’s Cosco Shipping, which has a 60% stake in the project, and a Peruvian mining company, Volcan, which holds the remaining 40% stake.

Although Chancay and Peru seems to be the cynosure of all eyes, China’s ambitions with this project reach beyond Peru. Chancay’s primary motive is to serve as a springboard to Asia from Latin America’s Pacific coast, reducing the voyage from Peru to China from 35 to 23 days, but it also has two important consequences with regards to global maritime trade. The first is short-term.

Previously, vessels from South America’s Pacific coast would make the journey to Asia via Mexico’s Manzanilla port or California’s Long Beach – both those ports will now see less traffic emanating from South America. The second consequence is long-term and yet unknown. It is linked to another large infrastructure project that aims to connect Peru with neighboring countries in order to give them easy access to Asia via the Pacific. 

According to the director of Peru’s Chancay Chamber of Commerce, “China’s main motivation for developing the megaport was access to neighboring Brazil, where a new railway line is planned to carry Brazilian exports such as soybeans and iron ore to the port.” The newly planned railway line between Brazil and Peru could cost up to $3.5 billion, but is far from becoming a reality.

On a similar vein, Peruvian Transport Minister Raul Perez Reyes notes that his country’s goal “is to become the Singapore of Latin America, so that port cargo passes through here when going to Asia. When someone from Brazil, Venezuela, Bolivia, Paraguay and Argentina wants to go to Asia, they should think of Peru as a point of departure.”

It is likely that certain goods may now traverse from other Latin American ports in the Pacific to Chancay and then head to Asia via this new trade route. Yet, the loftier plans to connect Peru’s coast by road with Brazil and other neighboring countries, dubbed the ‘Bi-Oceanic Railway,’ traversing from Brazil’s Southeastern cost in the Atlantic to Peru’s Chancay, may still be a pipedream.

• About the author: Hari Seshasayee is a Visiting Fellow at the Observer Research Foundation and is a co-founder of Consilium Group.
• Source: This article was published by the Observer Research Foundation