Construction of New Chinese Megaport in Peru Raises U.S. Concerns

Department of Research, Strategic Studies and International Relations 29-08-2024

In recent months, an enormous port now under construction on the Pacific coast of Peru has put a spotlight on Latin America’s business relations with China. The port of Chancay, a $3.5 billion project 60 percent owned by the China Ocean Shipping Group (Cosco), will become a key hub connecting Latin America and Asia.

Peruvian President Dina Boluarte visited Beijing at the end of June to discuss the project and other bilateral issues as well. The port will begin operations in November ahead of Chinese President Xi Jinping’s visit to Peru during the Asia Pacific Economic Cooperation forum. 

Chancay is one of many Chinese-funded port projects across Latin America and the Caribbean that would ease trade with China. In the process, however, these ports stand to harm American economic and national security interests within the region, and the United States has been moving too slowly to address the threat. 

From the Chancay port, 50 miles north of Lima, China plans to ship the Peruvian copper it needs to build electrice vehicles and data centers, and further monopolize the world supplies of this metal. (China is also bidding against the United States and other countries for copper supplies from Zambia )

In return, Chinese companies are exporting green technologies to latin America through Chancay and other ports they have helped build. There is a danger that China could flood the region with cheap electric vehicles, lithium-ion batteries and solar panels – what China calls the « new three types »– undercutting potential American and European competitors. 

Increased trade is not the only threat. It seems plausible that the Chinese navy and intelligence services could also use the ports to spy on U.S. naval and commercial ships, and even potentially keep them from using ports and waterways. Additionally, in Chancay and other Latin American and Caribbean ports, Chinese state-owned enterprises like Nuctech and ZPMC could potentially use port scanner equipment and cargo cranes to gather proprietary commercial data from friends and adversaries.

U.S. officials have previously expressed such concerns about Chinese-built ports in Africa, the Middle East and Southeast Asia. 

In the Western Hemisphere, Chinese state-owned companies have built, financed or currently operate several ports and related infrastructure – situated on strategic waterways like the Panama Canal or the Caribbean Sea.

A Chinese company has also tried to persuade Argentina to help develop a naval base near the Strait of Magellan and Antarctica. (In April, Argentine President Javier Milei agreed to instead partner with the United States to build a new naval base.)     

These operations could pose problems for the U.S. military. If, for instance, a conflict were to erupt in the Taiwan Strait or the South China Sea, leading the Navy to need to rapidly move ships from the Atlantic to the Pacific Ocean through the Panama Canal or the Strait of Magellan, Chinese companies would have the ability to delay them if they so desired.

All of China’s major shipping and port management companies, including Cosco, are inevitably influenced by the Chinese Communist Party. Several general managers and board chairmen are CCP party members, and China’s 2017 National Security Law requires Chinese companies to support China’s national security interests. This means the CCP can shape Chinese port management and shipping companies’ actions to serve the state. 

To counter China’s port projects, the United States has been offering Latin American and Caribbean countries viable alternatives. In May 2023, the U.S. International Development Finance Corporation provided a $150 million loan to Ecuador to expand and modernize a port, and, with the Inter-American Development Bank, it will co-finance $3 billion worth of high quality critical infrastructure projects throughout Latin America and the Caribbean.

The DFC also plans to jointly fund projects in Latin America with the U.S. Agency of International Development and Taiwan s development agency. And the IDB has rolled out a new « BID for the Americas » initiative to encourage more U.S. firms to invest in the Western Hemisphere. But it will take months or even years for these projects to be finished. 

In the meantime, the United States should increase its support to  regional allies in scrutinizing and regulating foreign investments that pose security risks.

Helping countries establish whole-of-government investment screening mechanisms similar to the Committee on Foreign Investment in the U.S. would be a great starting point. 

The United States can also help partners bolster port cybersecurity. In February, the Biden administration announced an initiative to protect American ports from alleged cyber espionage by Chinese-built cranes.

The initiative requires U.S. port operators  to segment their crane and other port systems to reduce Chinese cyber access, increase tracking of crane data being shared with untrusted third-party networks, and partner with academia and government on cybersecurity hygiene, exercises, and information sharing. The U.S. government should help other countries replicate this initiative. 

Journalists and private sector experts have also outlined common sense port security recommendations, such as training personnel on cybersecurity, establishing anonymous reporting to reduce corruption in port management, and improving cooperation and information sharing between ports throughout the region. 

U.S. intelligence agencies should share more information with Latin American and Caribbean authorities about the Chinese state owned enterprises operating in their countries, highlighting those companies’ history of corruption, environmental damage or labor violations elsewhere in the region and around the world.

 Tools like Florida International University’s open-source dashboard tracking Chinese problematic projects in the Western Hemisphere could assist regional governments and private companies as they determine which Chinese companies would be eligible to work on ports and other critical infrastructure in their countries. 

Ultimately, the Chancay port project in Peru illustrates the potential risks to security and economic interests, including those of the United States, posed by China’s control of key ports.

Washington should increase collaboration with its neighbors to ensure their infrastructure remains secure and free from undue influence.