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From Singapore to Port Said: China's Influence Over the World's Waterways

[Startfor.com; China: Global Intelligence Update. May 10, 2000.]

10 May 2000


Summary:

As the U.S. House of Representatives debates the normalization of trade relations with China, Beijing is using trade to establish a strategic presence in the world's major waterways. On May 7, the Chinese government finalized an agreement with Egypt, allowing ships of the China Ocean Shipping Company (COSCO) to use port facilities along the Suez Canal. The deal may be pure business, but COSCO's connections to the Chinese military are difficult to ignore.

Analysis:

The Chinese merchant ship Empress Phoenix called at Port Said, Egypt on May 8, one day after Egyptian and Chinese officials inked an agreement to allow Chinese vessels to operate at the port. Two details make this event noteworthy. Port Said is the gateway to the Suez Canal. And the vessel is owned by a company, China Ocean Shipping Company (COSCO), with strong links to the People's Liberation Army (PLA).

The business aspects of this affair are straightforward. The official Xinhua news agency reported that the agreement will allow additional Chinese vessels to load and unload cargo at the port. Until now, these ships have had to dock at the Israeli port of Haifa on the Mediterranean Sea. But in a larger sense, the developments in the Suez Canal are part of an emerging pattern in which companies under the influence of Beijing's military are developing an important presence in the world's major waterways.

The Empress Phoenix is owned by China Ocean Shipping Company (COSCO), the second-largest shipping company in the world. While it has an independent board of directors, it is a state-owned enterprise whose leadership reportedly has ties to the People's Liberation Army (PLA), which helps fund itself through business ventures. The exact operational level of the PLA's involvement in COSCO is unclear and some dismiss it altogether. Others are more strident. Retired Adm. Thomas Moorer, former chairman of the Joint Chiefs of Staff, told the Senate Armed Services Committee last fall that the company is "the merchant marine arm of the PLA." In 1996, the Empress Phoenix was found smuggling 2,000 Chinese AK-47s into Oakland, California.

The shipping deal is the first solid deal to emerge from Chinese President Jiang Zemin's trip to Egypt last month. Jiang met with Egyptian President Hosni Mubarak and the two pledged to broaden bilateral cooperation between the two countries, especially in the economic realm. On an immediate and practical level, COSCO's new access to Said is pure business. Shipping companies need ports, and Egypt needs growth. Indeed, the captain of the Empress Phoenix reportedly said that COSCO vessels will arrive at the port on a weekly basis.

However, the deal also has strategic meaning. Not only will COSCO vessels have a place to dock in one of the world's busiest waterways; 16,000 vessels transit the Suez Canal each year, carrying 12 million containers. COSCO's new presence increases the overall level of Chinese participation at the Egyptian Port. Hong Kong-based Hutchison Whampoa, another firm with reported ties to the PLA, is part owner of a 30-year concession to develop the eastern portion of Port Said.

In the event of an international crisis, Beijing could exploit these facilities. Port Said sits along one of the important transit routes for aircraft carriers of the U.S. Navy, which regularly travel the length of the canal as they transit from the Mediterranean Sea to the Red Sea and the Persian Gulf. If these vessels were unable to use the canal they would have to travel thousands of extra miles, around the Cape of Good Hope in South Africa, adding about three weeks to their journey. Intelligence on the movement of all kinds of naval forces can also be collected with greater ease.

The use of Port Said completes a triad of business arrangements at the world's major waterways. Hutchison Whampoa's business interests near the Panama Canal have been widely publicized, though by itself the canal holds little strategic importance. Five percent of world trade travels through the canal's locks, but U.S. carriers have been unable to squeeze through for decades. COSCO has a large presence in Singapore, which guards the southern entrance to the Strait of Malacca, as well as Port Klang, a Malaysian facility at the northern end of these strategically important straits.

The shipping companies associated with the PLA are taking advantage both of their immense size and the need for investment in the aging ports of the developing world. In a peacetime context, China is clearly attempting to embrace global trade - the very issue Washington is debating right now. But the PLA itself is using peacetime to improve its ability to operate at sea. In addition to the on-again, off-again threats to Taiwan, the navy is expanding and outposts on the Spratly Islands have recently been reinforced.

And advancing strategic interests under the banner of legitimate business interests is an excellent tactic.


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