NRPLUS MEMBER ARTICLE B y quietly acquiring a global network of commercial ports from countries and investors unable or unwilling to maintain their critical economic infrastructure, China has reverse-engineered the logic of conquest: Chinese state-owned companies now control a base network of the sort that previous global hegemons obtained through military victory. Expect China to use the coronavirus crisis to accelerate its efforts to use that economic leverage to pull host countries deeper into Beijing’s political orbit.
It’s too early to say that the coronavirus crisis spells the end of globalization, but as the pandemic unfolds, the outlines of a new international trade and political order are emerging in the Mediterranean region. Call it “globalization with Chinese characteristics.”
As the death toll in Italy soared, China flew in a team of medical experts and nearly 30 tons of medical equipment. On a phone call a week later with Italian prime minister Giuseppe Conte, Chinese president Xi Jinping pledged additional supplies and medical personnel. China also shipped medical equipment to Spain, Austria, and the Czech Republic, and millions of protective masks to France, the Netherlands, Greece, and other nations. But the aid was too late. By late March the death toll in Italy had surpassed the total that China was officially reporting, and even the news that the number of cases had dropped for the first time was accompanied by photos of Italian-army trucks carrying the dead on their final journey.
That was not the visual backdrop Italian leaders were seeking less than a year ago when they signed a memorandum of understanding with China, committing Italy to Xi Jinping’s Belt and Road Initiative. Italy also signed nearly 20 related agreements to build new port and road infrastructure, initiate scientific cooperation in space science and satellite technology, boost exports of frozen pork and citrus fruit to China, and tap Chinese investment funds to pay for many of the projects. Despite the wide-ranging commitments agreed to in Rome in March, China apparently did not believe it had any responsibility to tell its new partner that a dangerous virus had been on the loose in Wuhan in December, and that many of the Chinese arriving in Northern Italy during the winter might be carriers. The decimation of Italy’s elderly highlights how China handles partner nations, and it’s a dark future.
Receiving less attention are papers and articles in the last few days in which leading Chinese academics and industrial leaders present the virus crisis as an opportunity to make epidemic control a major Chinese export. From surveillance drones, disinfection robots, and AI-powered epidemic-forecasting systems to no-contact technology for online education and new factories to make fabric for protective masks, the virus is a boon for Chinese business. In the People’s Daily, the former head of China’s state cement company, Song Zhiping, wrote that “these areas are bound to become the focus of attention of the entire society and have great potential for development”— as if deaths in Turin were market research for China’s new industry.
Song described China’s plan to dominate production of medical supplies, using N95 mask fabric as an example. Song said China, already the world’s largest manufacturer and exporter of masks, produced 5 billion pieces in 2019, including 2.7 billion capable of protecting against viruses, about half the world supply. Demand is highest for the meltblown nonwoven fabric used for medical-grade N95 masks, but only 1 percent of the three million tons of nonwoven fabric made annually in China fits the bill. To help fill the gap, Song said, Chinese state oil company Sinopec built a new meltblown-fabric plant that began operation in early March, capable of producing material for 1.2 million N95 masks each day. Such production, Song said, shows the “Chinese power” in the global anti-pandemic effort. “We need to increase the export” of medical and health supplies and pharmaceutical ingredients to “relevant countries,” he said.
Song knows his subject. He previously led the consolidation of the Chinese cement industry into a single colossus, China National Building Material, and claims to be responsible for building more than 300 cement production lines around the world between 2007 and 2017, when he became the first official from a Chinese organization to be appointed head of the World Cement Association. In 2011, Harvard Business School professors wrote a case study pondering whether Song’s effort could succeed. In his first keynote address to the WCA in 2017, Song answered, citing the market power of CNBM, which now controls about 60 percent of Chinese cement production, as an example for the industry to follow.
Such plans illustrate the true nature of Chinese investment. Provision of seemingly humanitarian aid to Italy and other Mediterranean nations is actually a practical move by China to protect some of its largest and most strategically valuable overseas investments and carry out its drive for geopolitical power. In fact, China is taking advantage of the virus crisis to accelerate its use of the economic leverage derived from the global network of ports and logistics infrastructure now under the long-term control of Chinese state-owned enterprises (SOEs). Chinese SOEs have acted in plain sight to assemble this network of commercial maritime power, which includes ports, ships, and landside logistics facilities. Carefully targeting economically weak nations, the Chinese companies bought contracts that grant them the rights to rebuild and manage ports, container-handling facilities, roads, and railways for decades to come. The sellers have been Western governments, pension funds, and port authorities that were no longer willing or able to afford the outlays required to maintain their own critical economic infrastructure.
Make no mistake — ports are hard-power assets, the foundation stones of global empires. Chinese SOEs or Chinese-allied companies now control a commercial network that connects the factories of the Pearl River Delta and Hubei province to the major consumer markets through ports in Canada, Latin America, Africa, both Northern and Mediterranean Europe, and, as of last August, the East Coast of the United States. China’s commercial maritime network is far more dangerous than any collection of Belt and Road projects; it’s up and running right now, giving China’s logistics SOEs a say in the economic-development, financial, and trade decisions of major developed countries. The contracts to operate ports and logistics sites run for decades, and China is only now starting to use the influence it has acquired.
Today the main container ports at Valencia in Spain, Vado Ligure in Italy, and Piraeus in Greece — economic lifelines in the globalized world — are controlled by COSCO, the most prominent actor in China’s commercial maritime expansion. Vado was an aging facility until COSCO bought a major stake in the port; the standard package of Chinese cement, cargo cranes, and automation was installed, and in December the revived facility began operations — including the largest refrigerated terminal in the EU, which will help increase exports of pork and citrus. Under these arrangements, China is the arbiter of trade flows for those countries, and COSCO’s mega-vessels are not mere commercial container carriers, but ships of state, carrying Chinese national power to every shore where they dock. That power reduces the ability of countries to object to Chinese policy, to criticize China for covering up the coronavirus that is now decimating the Italian population and claiming hundreds of lives in Spain and France, or to negotiate the terms of China’s medical assistance.
Those terms will be presented after the crisis abates, while the world is distracted by recovery and mourning. Expect China to expand its control over critical economic infrastructure in countries such as Italy. The crisis may also serve as a pretext for gaining control over Italy’s virus-impaired national finances, and perhaps for extending Chinese influence to the financing and development of health-care infrastructure with a heavy dose of Chinese surveillance technologies. The EU opened the door to Chinese influence by unwisely refusing Italy’s early pleas for financial and medical help; Germany has since indicated willingness to consider financial aid for Italy, but news reports suggest that Germany favors limited methods such as a line of credit.
For a glimpse into the future, look to the memorandum of understanding (MOU) that Italy signed in March 2019 to formalize its commitment to China’s Belt and Road Initiative. A government is in large measure a series of commitments by leaders to deliver a range of essential infrastructure services in exchange for citizens’ giving them power over budgets, security, trade, and public health. The Sino–Italian MOU is a blueprint for taking control of a country by gaining influence over the entire set of essential services that a government provides. The MOU includes terms calling on Italy to accept financing from the Asia Infrastructure Investment Bank (AIIB), which China set up a few years ago, to establish a strategic partnership between the Bank of China and one of Italy’s main investment banks in Turin, and for the two nations’ ministries of finance to collaborate on “financial and structural reforms.”
Ports are seats of power, and China’s maritime commercial network poses a long-term security threat to the U.S. and Western allies. Uniquely among infrastructure assets, multi-decade port contracts give the operator an integral role in many financial and political decisions of host governments. Ports also confer military advantages — direct intelligence gathering, access denial due to the risk of cybersurveillance, and the extension of supply lines required to support global naval operations. Shipping sources suggest that vessels large enough to carry 14,000 to 24,000 containers are easily convertible to flight decks, and virtually unsinkable. Closed containers can transport weapons, electronics, and communications equipment, and, as the world is learning the hard way, essential medical and pharmaceutical supplies not currently available from sources outside of China. Unloaded at ports under Chinese control, containers carrying cargo of strategic value to China are unlikely to be delayed.
China has allies in its effort. COSCO is the dominant member of the Ocean Alliance, one of three vessel-sharing consortiums that manage global shipping capacity. COSCO’s primary partner is French shipping line CMA CGM, which in 2015 received about $1 billion in Chinese state financial support. The main port operator of Singapore, PSA International Pte. Ltd., relies heavily on COSCO for container volume that flows from a network of land and sea links to China’s industrial heartland to terminals in Singapore, where PSA operates in concert with COSCO’s port subsidiary to consolidate cargo onto the mega-vessels that sail to the EU and U.S. The COSCO–PSA alliance was forged in 2003, when PSA allowed a COSCO predecessor company to take a 49 percent equity stake in a terminal PSA owned, the first time a foreign firm was allowed to invest in the Singapore port’s berths. The JV opened two new mega-vessel berths a year ago, and has already increased volume by more than 55 percent.
Through an investment company called Temasek Holdings Pte., the government of Singapore is the sole owner of PSA, which operates the port of Antwerp, and in August 2019 bought the contract to operate the port of Halifax, in Nova Scotia, and at Penn Terminals in Philadelphia. A CMA CGM mega-vessel last week became the first such large ship to call at Halterm, which has been renamed PSA Halifax.
As calls increase for U.S. companies to move production of critical medical supplies out of China, some Chinese business schools believe large international companies may delay such supply-chain adjustments. In a paper this month, the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University argues that the driving force of globalization is the profitability of capital, and risk-averse large companies may decide to leave substantial portions of their production capacity in China. It’s easier to promote the idea of globalization to large investors, the paper contends, while anti-globalization trends involve political factors that are more difficult to confront.
The paper also recognizes the potential for Italy’s debt problems to worsen. Italy’s vulnerability to Chinese power raises concerns about the security of U.S. and NATO bases in Naples. During an interview in Athens last October, Secretary of State Mike Pompeo indicated that those facilities were secure. But the situation bears careful monitoring. The EU is a major target for China’s global ambitions. The EU is home to extensive scientific and biotech expertise, but the main rationale for dominating the EU is that the Mediterranean is the source of the values underlying Western civilization, such as religious liberty, representative government, and respect for individuals. China wants to replace those values. The EU sits at the far peninsula of Eurasia, which some Chinese military theorists see as a “world island” that must be captured in order to mount the final campaign against the United States and the Westphalian order.
Articles in Chinese state media typically claim that China seeks to build “a community of shared future for all humanity.” But the version of “globalization with Chinese characteristics” that is unfolding in Italy is a dark future that no country wants to share.