China’s future gateway to Latin America is a mega-port in Peru

-Analysis-

LIMA — China’s most important trade terminal with South America is under construction 75 kilometers north of Lima, the Peruvian capital. Known as the Port Complex of Chancay, it has an initial investment of $1.3 billion and will transform this fishing and farming town into a regional hub that could redefine shipping lines across the South Pacific.

The port can count on the use of 800 hectares of adjacent land where the operating consortium will develop a logistics and industrial complex, the total investment costs of which are expected to amount to 3 billion dollars. Since 2019, the main player in the project has been the Chinese state company Cosco Shipping Ports (60%), Volcan, a mining subsidiary of Glencore of Switzerland, holding a 40% stake.

Cosco is a partner in 52 port projects around the world. But in the Americas, Chancay is the first to be built with Chinese capital. The complex should be fully functional by 2024, helping to consolidate China’s influence in South America, and in Peru in particular.

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Over the past decade, this country has become the regional hub of China’s economic and geopolitical interests. So far, Chinese companies have invested more than $30 billion in Peru, a figure surpassed only by the money spent in Brazil. The main sector is the mining sector, which has absorbed more than half of all these investments and has proven to be an excellent source of mineral materials that China needs to keep its industrial sector running.

One of these materials is copper, which Peru produces in large quantities. It is the world’s second-largest metal exporter and exports two-thirds of its total production to China, which controls two of Peru’s main copper deposits: Las Bambas (via MMG) and Toromocho (with Chinalco).

The two countries signed a free trade agreement in 2010, which reshaped Peru’s trade balance. Since 2014, China has been its main trading partner, followed by the United States. Over the past five years, Peru sent $58 billion in exports to China, compared to $33 billion to the United States. And in the years to come, given China’s decisive mining interests, the gap could widen further assuming, as some observers anticipate, that another commodity “supercycle” looms on the horizon. .

China is also pursuing a global integration strategy here through its Belt and Road Initiative, which promotes global infrastructure that supports its trade. Amid rivalries with the United States, it has signed deals with 138 countries despite warnings from Washington that states risk becoming over-indebted to China.

Due to its geographical location, Peru is an important point on this New Silk Road. With its long strip of peaceful coastline, it sits directly across from Asia and can also become a link to Brazil and the Atlantic. In April 2019, the two states signed a memorandum of understanding for more investment under the Belt and Road Initiative.

Chancay is undoubtedly of great importance to China’s overall strategy to conquer markets. Indeed, Cosco Shipping Ports entered the port consortium two weeks after said memorandum, paying 225 million dollars to Volcan.

Other Belt and Road projects in Peru include the Amazon waterway, contracted to Chinese state-owned Sinohydro, which halted the project over numerous environmental objections, and the transcontinental railway, which would link the Brazilian port from Santos to Bayóvar, in northern Peru.

Everything that shines…

Chancay’s proximity to the port of Callao, which handles 71% of the country’s maritime imports, would both reduce congestion there and expand economic activity outside of Lima. Cosco estimates that its initial investment would create 1,500 direct jobs and 7,500 indirect jobs, and generate 300 new businesses locally.

In the first phase, the port will ship 6 million tonnes a year, although in response to local concerns, Volcan says Chancay would not ship minerals – despite being a mining subsidiary and that China is the world’s largest buyer of copper. The company says it will instead redistribute goods from Asia and make Peru more competitive against Pacific rivals like Colombia and Chile.

Demonstration in Las Bambas, a mining area in Peru — Photo: GDA/Zuma

Nonetheless, residents of Chancay and surrounding areas are concerned about its impact on the local economy, which depends on much more than mining. There is also agriculture and fishing, and civil society groups have questioned the construction standards of the project and its possible environmental and social impact.

They say the complex will be inside the town of Chancay, and the blasts to reshape the bay have already damaged many residential buildings. The project is also expected to affect a local wetland, while the dredging of the bay to allow entry for larger container ships will ultimately impact fishing and marine life.

Peru owes much of its economic growth to China’s huge demand for natural resources.

The consortium made 89 environmental observations in its latest diagnostic report on the environmental effects of the project, although in checking this document, the non-governmental organizations observed omissions and faulty methodologies for measuring its effects. Yet Peru’s environmental certification agency, SENACE, approved the project last December, overriding objections from civil society groups.

Peru owes much of its economic growth to China’s huge demand for natural resources. Yet their investments leave an indelible mark on many of the affected communities. These include social conflicts in mining areas like Morococha and Las Bambas, or indigenous communities affected by the Amazon highway.

China has pledged to invest more in Peru and its Belt and Road plans will step up its activities. But the Peruvian state must insist on higher environmental standards, starting with the inclusion of an environmental chapter in the ongoing renegotiations of its free trade treaty with China.

Both countries should commit to more than just economic interests. They must also consider long-term sustainability and seek to improve and protect people’s lives, particularly with regard to the impact of their projects on local communities and the environment.

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