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Will Peru be Beijing's next client state?

China is Peru's main trading partner. Last year more than a third of Peru's $65 billion in exports went to China

Peruvian President Dina Boluarte will travel to China later this month and visit Huawei, BYD and other Chinese companies, seeking to introduce more Chinese investment into the Latin American country.

Peruvian President Dina Boluarte

On June 17, Peru's Prime Minister Gustavo Adrianzén said the Peruvian government does not think this initiative will arouse "resentment" from the United States.

At a press conference the same day, Adrianzén said that Boluarte hopes to promote Peru to China during his visit and to negotiate with Chinese companies in the areas of science and technology, minerals, agriculture, and industry in order to attract investment from Chinese companies.

Peru's Prime Minister Gustavo Adrianzén

But in recent years, the growth of Chinese investment in Peru has caused "concern" in the United States and other Western countries. In response, Adrianzén said, "We don't think our friends, countries like the United States that have long friendship and historical ties, resent bringing Chinese investment."

The Peruvian government, however, has extended the invitation to Western investment as well, including U.S. investment: "We accept investment from any country, we have investment from the United States, Canada, Spain, the United Kingdom, and other Asian investors."

Peru's national news agency reported that Peru's Minister of Economy and Finance José Arista told Peruvian media on the 17th that the delegation led by Boluarte will include Peru's Minister of Agriculture and Irrigation Ángel Manero and officials from the National Institute of Agriculture and Health, and that they plan to explore the possibility of exporting meat and agricultural products to the Chinese market.

Arista said, "What advantages can we offer this great country (China)? One of the advantages is our regulatory stability. We have a free trade agreement with them that not only allows us to export or import at zero tariffs, but also provides stability and security for investment."

China is Peru's main trading partner. Last year more than a third of Peru's $65 billion in exports went to China.

Currently, the terminal project at the Port of Chancay in Peru, built by a Chinese holding company, is in full swing and is expected to be completed in November 2024, becoming a major logistics hub in Latin America. According to the plan, the Port of Chancay will transform into a major hub port and Pacific Gateway Port in Latin America, which will promote local economic development and become a new connection point and communication bridge for economic and trade exchanges between China and Peru.

The Port of Chancay is located about 80 kilometers north of Lima, the capital of Peru, and is a natural deep-water port. The Chancay Port project is one of the port projects of Chinese companies in Latin America, which is expected to cost US$3.6 billion and aims to promote bilateral trade. In January 2019, COSCO Shipping Ports Co Ltd, a subsidiary of COSCO Shipping Group, acquired a 60 percent stake in Chancay Terminal. In May of the same year, the project was officially handed over.

This follows a legal dispute over the exclusivity of the Port of Chancay. Earlier this year, the National Port Authority of Peru (ANP) said it would seek judicial annulment of the exclusivity granted to COSCO Shipping for the port of Chancay in 2021 in order to "correct an administrative error." Peru's National Port Authority says it does not have the authority to grant such rights under Peru's competition law.

However, on June 5, local time, Peruvian President Boluarte signed an amendment to the National Port System Law giving the Peruvian National Port Authority the right to grant exclusive rights to private companies, paving the way for the Chinese company to regain exclusive rights to operate the Peruvian port of Chancay, which is under construction.

US officials tried to block it, highlighting the “Chinese threat” and “military security”, but were ignored by the Peruvian side

Eduardo Salhuana, chairman of the Transport and Communications Commission of the Peruvian Congress, said the amendment closes a legal loophole and eliminates the risk of legal disputes over the exclusivity of port services. He said the lawsuit against COSCO Shipping Group over exclusive rights to operate the port of Qiankai has been withdrawn and that the Peruvian Congress supports a stable legal environment for foreign companies investing in Peru's ports.

However, Peru's cooperation with China has raised "concern" in the U.S. government, with U.S. military officials claiming that Beijing could use the port for "military purposes."

Laura Richardson, commander of the U.S. Southern Command, said at a conference in May that China's construction of ports in Latin America poses a "significant risk" to U.S. interests.

Richardson urged U.S. companies to compete and also called on Latin American countries to adopt "safer trade alternatives."

But U.S. officials made no dent in Peru's willingness to cooperate with China. Ali Anderson said on the 17th that Peru also wants to build a railroad from Peru through Bolivia to Brazil in order to promote exports from the port of Chancay. He stressed that this "two-ocean railroad" may not be realized in the short term, but could become a reality with the construction of large ports.

For his part, Arista noted that the port of Chancay is strategically located and should become a hub for Latin American exports to Asia, which would give Peru access to the vast markets of China and Asia.

"Brazil exports a lot of grains, soybeans, corn and beef to China, as do Argentina and Uruguay. Where can they start from? They could go through the port of Chancay. So we need to outline the logistic routes from all parts of the country to the port of Qiangai." Arista added, "In fact, a delegation has arrived from Brazil to consider how to align with the Chancay port project."

Last month, Peru's Congress passed a resolution with 108 votes in favor and none against declaring Feb. 1 each year as "Peru-China Friendship Day."

In response, Chinese Foreign Ministry spokesman Mao Ning said June 3 that "China and Peru are good friends with sincere mutual trust and good partners in common development. The Peruvian Congress almost unanimously passed a resolution to designate Feb. 1 each year as 'China-Peru Friendship Day, which fully reflects the importance the Peruvian side attaches to China-Peru relations, shows that China-Peru friendship is deeply rooted in the hearts of the people, and demonstrates that China-Peru relations have a solid public opinion base for their further development, with enormous potential and bright prospects. China is willing to make joint efforts with Peru to promote the comprehensive strategic partnership between the two countries so that it will bear greater fruit for the betterment of the two peoples."

Not everything that glitters is gold

Recent problems at China's mega-port in Chancay have, however, renewed concerns about the poor quality of Chinese businesses, as well as China's true motivations behind its strong stake in what is considered an important trading hub in the region.

In mid-May, following a landslide at one of the construction sites of the port tunnel, which caused the collapse of several houses and roads in the nearby city of Peralvillo and forced the company to suspend construction, the Peruvian Prosecutor's Office launched an investigation into Chinese state-owned companies China Cosco Shipping Ports Ltd. The company was also ordered to report on its work, Mercopress reported.

As part of the project, Cosco is building a 1.8 kilometer tunnel under the Peralvillo locality in the city of Chancay to connect the port with a highway. The project, which will be the largest in the region, with an investment of 3.5 billion dollars, will include 15 terminals to mobilize more than 5 million containers per year. It will also receive the largest merchant ships in the world. This is not the only problem the project faced. In October 2022, the construction of the tunnel led to the partial collapse of a road in the same town, causing residents to fear for their safety.

The risks to national security

There are concerns about China's growing position in the region and the potential dual use of the port.

“China's port construction is linked to its economic interests to exploit, maximize and control global logistics routes, as part of the Belt and Road, to preserve its food and energy security,” Sergio M. Cesarín, coordinator of the Center for Asia-Pacific and Indian Studies at Tres de Febrero University in Argentina, he told Diálogo Americas on July 19.

The new terminal will become a major port of departure for products the region exports to China, including copper and other minerals. It will also connect Chile, Colombia and Ecuador, Peruvian newspaper La República reported on July 13.

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.

“We are giving up sovereignty at sea and on land. Why should China control this strategic place and not the Peruvian government?” Miriam Arce, secretary of the Frente de Defensa de Chancay organization, which follows the progress of the port more closely, told Todo Noticias.

Information gathering

Several Chinese companies operate port terminals globally (such as Cosco), some of which are favored by the Chinese People's Liberation Army Navy (PLAN).

While their primary objective is commercial, these facilities also allow the PLAN to conduct various peacetime operations far from its shores.

China's port networks serve as a platform for intelligence gathering. Port operators obtain detailed information on ships, routes, cargoes and other information that could be useful for military intelligence, especially when naval vessels visit commercial ports.

China has a military base in Djibouti, in the Horn of Africa, and plans to establish another in the Ream naval base in Cambodia, on the Gulf of Thailand, to control interoceanic passages in this tense part of Asia, as the Straits of Malacca and Makassar.

The commercial port activities of Chinese companies are an essential part of the puzzle for PLAN planners, who must meet their government's demands to project power abroad.

Financial dependence

China also exercises “soft power” through financing and building ports in countries desperate for development.

The growing trade dependence on China represents a significant challenge for Latin American economies and any retaliatory measures or actions taken by Beijing will have a direct impact on exports and sales.

Dependence and economic coercion are a magic weapon that China has used with all countries.

Latin America is heavily involved in China's port infrastructure expansion plans. Of the world's 100 largest ports, 57 are controlled by Chinese companies.

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