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Dialogo Americas: "China gains foothold in Peru with critical infrastructure"

The growing control that China exerts over Peru’s critical infrastructure has become a matter of increasing concern


China's growing influence over Peru's critical infrastructure and strategic location raises concerns about the long-term implications for the Andean country's economic, political and social development, Dialogo Americas argues.


Experts say China already controls key sectors such as energy supply, mining and the port of Chancay.

“Chinese investments and projects abroad, such as in Peru, are used as a lever and tool of control in China’s foreign policy, to strengthen its position globally and secure key resources for its development,” Euclides Tapia, a senior lecturer in International Relations at the University of Panama, told Diálogo on March 10.


Map of Peru. GettyImages

According to the Financial Times, the Peruvian government fell short on fully evaluating the benefits and risks of greater dependence on China in key sectors for its national development. This lack of analysis could leave Peru exposed to long-term geopolitical and economic vulnerabilities.


As for daily El Peruano, the upcoming visit of Chinese President Xi Jinping to Lima for the inauguration of the Chancay Multipurpose Port Terminal, during the Asia-Pacific Economic Cooperation Summit in November 2024, highlights Beijing’s interest in Peru’s strategic resources.


Future of the port

The $3.5 billion Port of Chancay, financed primarily by China, and located near one of Peru’s largest lithium reserves, serves as an example of the alliance between China and Peru, El Peruano reported.


In 2019, Chinese state-owned COSCO Shipping acquired 60 percent of the Chancay project. In 2021, it signed agreements with China Harbour Engineering Company and China Communications Construction Company for its construction, independent journalism platform Diálogo Chino reported. The project is part of China’s Belt and Road Initiative.

The project, however, has faced a series of hurdles and strong criticism, due, among other things, to the partial landslide at one of the tunnel construction sites, which led the collapse of several houses in the nearby community. In addition, some 50 omissions and inconsistencies have been identified in the Environmental Impact Study, with accusations of manipulation of information, Argentine news site Infobae reported.


The Chancay Port will not only expand COSCO’s influence in the port industry — COSCO has investments in more than 100 global ports — but could also serve as a dual-use facility in Peruvian waters for the Chinese Navy, Newsweek magazine reported. Experts point to Sri Lanka, which unable to repay its debt, gave China a controlling equity stake and a 99-year lease for the Hambantota Port, as an example of the debt trap and risk of erosion of sovereignty.


“Every infrastructure built by the Chinese regime abroad has a dual purpose, as stated in its constitutional mandate,” Tapia said. “According to its Constitution, every Chinese port built outside its borders must be earmarked for the use of the Chinese Navy.”


This policy implies that such facilities can be adapted for military purposes, which presents an elevated risk for the region. “The duality of purpose of these constructions increases concerns about stability and security in the area, creating a highly dangerous scenario,” Tapia added.


Electricity market

China’s increasing control over Peru’s electric sector also raises concerns.


In 2020, China Three Gorges Corporation acquired Peruvian power Luz del Sur, which supplies energy to half of Lima. In early February 2024, China Southern Power Grid International got the green light to purchase Peru’s leading power generation company Enel, which the National Society of Industries (SNI) warned would give 100 percent of the power distribution market of the capital to China, Peruvian daily Gestión reported.


Beijing is also seeking to acquire local suppliers to control the solar value chain in Latin America, raising significant concerns, as in the Peruvian case. If China captures the entire solar value chain, the region could lose the benefits of a transition to a greener economy, think tank Atlantic Council warned.

In addition, there is concern that China will use its dominance in electricity markets to gain geopolitical concessions in Peru and the region, Atlantic Council indicated. “Lima has not considered the long-term impact this dominance will have, nor has it reflected on how it compromises the country’s sovereignty,” Tapia said.


Industrial and technological metals

China prioritizes its industrial and technological metals supply chain security as part of its economic strategy. Critical minerals such as copper and lithium play a key role in energy technologies such as electric vehicles and solar panels. Peru has vast copper reserves essential to these technologies, the Atlantic Council indicated.


Of the 47 mining initiatives in the Andean country, seven are under the control of Chinese companies, representing almost 20 percent of the projected investment. Of note is the expansion, scheduled for completion in 2024, of the Toromocho Mining Unit, one of the main copper reserves in Peru and the world, Peruvian hydrocarbons magazine El Gas reported.

Among the concerns with China state-owned companies is their ability to evade restrictions Western investors comply with, such as environmental and labor issues, Infobae reported.

Some 35 percent of Chinese projects worldwide face environmental, labor, and corruption issues. “Chinese corporations in Latin America are involved in bribery cases, benefiting local officials in exchange for contracts and access,” Infobae added.


Repercussions

In addition, Chinese companies have deployed 5G mobile networks and space surveillance stations in Latin American territory. “China seeks to exert control over countries in the region through close economic ties, to influence countries’ foreign policy and then subjugate them,” Tapia said.


“If Peru is being influenced in this way, this is likely to be reflected in its performance internationally. If preventative measures are not taken, Latin America could go the way of Africa, facing the negative repercussions of growing Chinese influence,” Tapia concluded.

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