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Peru’s maritime trade has expanded considerably in recent history, in part due to a supportive legislation allowing the country to attract foreign investments. From this, the development of key infrastructure finds itself in the eye of the storm. Multi-billion dollars investments by Chinese state-owned Cosco Shipping Ports funded the construction of a colossal port near Lima, the first under Chinese control in South America. And in March this year, another Chinese firm called Jinzhao obtained an additional port construction contract.
Such fruitful relations between Peru and China are the byproduct of strong diplomatic and trade ties. In Chinese rhetoric, infrastructure investments within the Chinese Belt and Road Initiative, aimed at expanding global influence, offer win-win solutions. They directly respond to modernisation needs and improve internal trade routes.
On the other hand, the investments serve China’s interest in ensuring its access to key raw materials and agricultural markets. Nevertheless, such win-win solutions bring along diverse challenges and risks, which could, under different perspectives, undermine a country’s national security, especially when it comes to strategic infrastructures such as ports.
Peru’s Port System and the Case of Chancay
In South America, Peru stands out as a key player in maritime trade. The country saw a steady growth in the last decade with 57% in 2020 compared to 2010. Peru’s current legislation establishes that port ownership can be public or private, and by 2020, there were 29 public ports and 58 private ones. The former are normally multi-purpose, whereas the latter tend to be more specialised regarding the type of operations they perform.
The port of Chancay is an example of a private multi-purpose port 70km away from Lima. Chancay should be inaugurated by November this year during the Asia-Pacific Economic Cooperation (APEC) forum. Chinese state-owned Cosco Shipping Ports is the main beneficiary of the contract signed for its construction. The urgency to decongest other ports and ensure an efficient performance by the maritime trade sector in Peru are undoubtedly some of the reasons behind this project.
Chancay is expected to become a crucial maritime hub for Asia-Pacific trade exchanges, reducing shipping time and, more generally, the time-to-market indicator for the goods exchanged. Until now, most transportations from South America to China had to first stop in North or Central America and before entering the Pacific. Being one of the few deep water ports in Peru, Chancay will host some of the largest existing cargoes. This has resulted in interest from other South American countries, especially Brazil, whose Planning Minister visited the infrastructure in March 2024 to sound the possibility of integrating trade routes.
Brazil is the one of the main exporters of soy and corn to China, but it faces long shipping time due to the forced passage through the Panama Canal. Nevertheless, there are doubts around the comparative advantages that Brazil and other states such as Ecuador and Chile would have in using Chancay compared to usual routes. The new route could result in longer distances or using underdeveloped infrastructures, which would mean higher transport prices.
The Peruvian government has presented Chancay as an highly strategic piece of infrastructure for the country, which will have the power to change the regional trade routes, turning Peru into a trade hub. Among expected benefits, there is a considerable stimulus for industrialisation, the improvement of other inland trade routes and a growing demand for high-skilled jobs. The significant reduction of 15 days of the shipping time from South America to China and South-East Asia countries should also help boost Peruvian agricultural exports, providing the conditions for a better preservation of such goods during transportation.
Yet, not all that glitters is gold. Between March and April 2024, there was a serious impasse between Peru’s National Port Authority and Cosco Shipping. The contract signed in 2021 included an exclusivity clause, which establishes that Cosco, as constructor and administrator of the port, would also be the exclusive operator in the delivery of port services. As such, Cosco Shipping holds a monopoly over the port.
In March, Peru’s National Port Authority filed for annulment of the contract signed in 2021, because it apparently didn’t have the authority to provide Cosco with the exclusivity clause. This provoked a backlash from Cosco, which drew attention to potential consequences on the finalisation of the port. The solution came not only from the juridical system, but also from politics.
On the one hand, the judge rejected the National Port Authority demand for annulment due to non-fulfilment of admission requirements and to the ongoing amendments within the national legislation. But congress amended the national legislation to clarify the provisions regarding private ports. The amendment establishes that in the case of the issuance of port permits, the National Port Authority must immediately grant permit holders the exclusivity over the delivery of essential port services.
China-Peru Relations: a Regional Opportunity or a Threat to National Security?
Chinese investments in the port of Chancay reflect a wider and longer cooperation framework between Peru and China, which was sealed in the form of a Free Trade Agreement in 2008. The port is one of the largest Chinese investments in Latin America under the Belt and Road Initiative. Under this and other projects, China intends to gain access to raw materials and agricultural commodities markets, expand its diplomatic and political ties, and expand influence in the region. In doing so, it has offered concrete responses to Peruvian domestic development strategies, in a complex context of modest economic recovery and rising poverty rates.
The Peruvian government’s capacity to comply with its commitment to investing in secondary infrastructures connecting the port to other cities and facilities in the mid- to long-term will be the main variable for the port’s success and performance in the future. The government is working to make Chancay Port a Special Economic Zone (SEZ), but investments to improve the hinterland and the railways and roads leading to it will be essential to fully exploit Chancay’s benefits.
Preoccupations around a Chinese port and its related security threats have been spreading in the United States. A US high officer commented that the Peruvian government has failed to put the country’s national security in the foreground for Chancay and other instances. Chinese state-owned firms have purchased majority stakes in power distribution in Lima and mining industries throughout the country. In addition, the US sees the Chancay port as a potentially strategic infrastructure which would serve China’s military purposes.
The Peruvian government has defended its own decisions to bring forward cooperation with China on diverse fronts, and the recent visit of Peruvian President Dina Boluarte in China is a testimony of this intention. Notwithstanding the enthusiasm and expectations that megaprojects such as Chancay may produce, the transparency of the process and the economic and socio-environmental sustainability of such projects remain the main hurdles to overcome and to make such projects successful on all sides. In the meantime, Peru has awarded the construction of a new port in the Southern region of Ica. A subsidiary of Chinese firm Jinzhao won the tender and received a 30-year concession for its construction and operation. The port’s activities will focus on raw materials, especially copper and iron concentrate, considering its proximity to local mining sites.
- What was the reaction of the local population in Chancay to the construction of the megaport?
- Will the Port of Chancay succeed in offering a truly competitive alternative to traditional trade routes in the region?
- Will the Peruvian government manage to bring forward the construction and development of adequate and modern infrastructures ensuring the connectivity of the port?
Suggested readings
Chinese investment in Peru Set to Reshuffle Maritime Trade in South America, RUSI, 15 November 2022.
China’s Stake in Peru’s Ports, Increased Cause for Concern, Dialogo Américas, 3 May 2024.
Los otros retos del puerto de Chancay, Comexperu, 16 February 2024.
