China continues investment in overseas port assets, but hasn’t reached high tides yet

By Chu Daye Source:Global Times Published: 2017/7/25 17:28:39

Shipping container cranes at the Piraeus cargo port,Greece Photo: CFP

Chinese companies have been ramping up their efforts in acquiring port assets around the world. Experts say, while not totally trouble-free, investment in port assets could turn out to be a good bargain. Such efforts have also been intensifying the economic relations between China and the countries of the purchased ports.

Experts have forecast a rising trend in Chinese global port assets shopping for the coming decade, as China emerges as a maritime power.

As the world's shipping and harbor industry undergoes a fundamental restructuring process, countries from around the world want a slice of it, which has caused a recent spending binge, said Luo Hu, deputy director at the research and consulting center of China COSCO SHIPPING Corp.

For China, its investment in the world's ports has doubled over the past year after announcing plans to buy or invest in nine overseas port projects from June 2016 to June 2017, the Financial Times (FT) reported on July 16, citing a study conducted by London-based investment bank Grisons Peak.

These projects valued at a total of $20.1 billion, doubling the $9.97 billion figures Chinese overseas port projects valued in the year-ago period, the FT report said.

"Entering into the post financial crisis era, the world's merchant fleets started making themselves bigger and bigger to reverse slack business, and shipping companies forged alliances. In the meantime, the world's shipping vessels grew tremendously in size," Luo told the Global Times on Monday.

The demand for the development of the Arctic shipping route as well as the expansion of Egypt's Suez Canal and the Panama Canal caused a worldwide systematic overhaul of the world's ports to make them wider and deeper yet smarter and greener, Luo noted.

"Keeping the bigger picture in mind, the volume of investment mentioned in the FT report is not so impressive. Perhaps what makes China a 'media darling' in shipping news is its status as an emerging player and that it has switched its gears up recently," Luo said.

Spending binge

Many shipping-related investments are made by China Merchants Port Holdings and China COSCO SHIPPING Corp.

China Merchants Port Holdings Co Ltd said that through banking on the China-proposed "Belt and Road" (B&R) initiative, it is actively looking for investment opportunities at overseas ports, logistics facilities and related infrastructures to optimize its global port network.

The company's invested-in venues include Djibouti and Turkey's Kumport.

In 2016, container throughput at overseas ports owned by the China Merchants Port Holdings Co Ltd accounted for 17.7 percent of the company's total container volume, with overseas ventures becoming increasingly important vehicles for growth drive, the company said in a statement sent to the Global Times on Friday.

As of the end of 2016, the company owned 28 ports in 15 countries and regions.

Currently, the company is looking at Southeast Asia, South Asia, Central and Eastern Europe, the east and west coasts of Africa and Latin America as possible investment destinations, according to the statement.

Zheng Ping, chief analyst of Beijing-based industry news site, told the Global Times Sunday that China's merchant fleets are already the No.3 or the No.4 in the world, with its domestic port assets pertaining to world class standards, but China's overseas port assets still fall short.

"While merchant fleets are floating on the ocean, overseas port assets are like catapults launching the local economy into steady growth and further strengthening economic relations between China and the country where the port sits. Port assets are also often bundled with development strategies involving industries and urban areas that surround the ports," Zheng said.

"The investment in ports serves as a mechanism for China to export its capital, management expertise, equipment and even development models," Zheng noted.

China Communications Construction Co (CCCC) has completed 95 deep-sea berths in B&R regions and provided 754 quay cranes, according to a statement the company sent to the Global Times. ZPMC, a container quay crane maker under CCCC, owns about 80 percent of global market shares.

Rising Chinese investment

 "It is not just about obtaining a stake in a port, but also about buying a port, sending or attracting ships loaded with goods and having a plan ready in hand for future development. It is the actions taken after the acquisition that really characterizes Chinese companies' abilities," Luo said.

The invested ports became important links for the B&R initiative. For instance, the throughput of the Port of Piraeus in Greece has been improving greatly after obtaining investment from COSCO and the port has now become a pivotal transport artery stretching across Central Europe, Luo said.

However, some of these commercial projects are met with challenges. For example, they are being doubted by some in the West over potential military use, and the operation of overseas projects has to withstand pressure from foreign law, media and unions, said Zheng.

"But those that can withstand the initial pressure have turned out to be sound," he opined.

China Merchants Port Holdings Co Ltd said it plans to build its overseas port assets into the trading posts of the B&R and to explore the development model of its port with regard to the integration of industrial parks and urban development. Such a model is based on the development of Shekou in Shenzhen, South China's Guangdong Province. Ports acquired by the company have also seen a rise in throughput in recent years.

In the first half of 2017, throughput at China Merchants Port's two green-field projects - Colombo International Container Terminals Ltd (CICT) in Sri Lanka and Lome Container Terminal (LCT) in Togo, West Africa - increased 21.2 percent and 42.2 percent from that of last year, respectively.

In 2016, terminals operated by the CICT handled more than 2 million twenty-foot equivalent units (TEUs) for the first time in history. The figure was up 28 percent year-on-year.

The FT report said nearly two-thirds of the world's top 50 ports had some degree of Chinese investment in 2015, up from about one-fifth in 2010. This, and the fact that six of the world's top 10 container ports are in China, have made Chinese port operators the world leaders, the FT report said.

However, Chinese investment is heavily concentrated in the emerging markets. Also, there are less significant investments or shareholdings in the world's shipping hubs because this is where old money lies, which is off limits to Chinese investment, Luo noted.  

Good investment target

"Putting the accuracy of the FT data aside, such a level of investment could extend well until the current circle expires, which could last for another decade," Luo said.

The world's investors are distressed by an acute shortage of bankable projects. Financial investors are willing to invest in ports, which, if successful, can generate long-term stable returns over several decades, compared with some traditional cyclic businesses, Luo said.

Zheng predicted that overseas asset ownership and enhanced economic relations between China and its maritime trading partners "will provide a great breeding ground - including insurance, consultation, and the compilation of key industrial indexes - for China to develop its services industry for maritime trading."

Newspaper headline: Port shopping

Posted in: INSIGHT

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