China’s recent 8th Silk Road Maritime International Cooperation Forum kept the spotlight on Chinese overseas ports, a subject of continuing attention in the news, among think tanks, and in scholarly circles. Although the bulk of commentary emphasizes a geopolitical angle, others devote attention to the economic value of China’s overseas ports presence, especially in countries that have welcomed Chinese investors, contractors, and terminal operators. Among other gains, they expect greater connectivity, employment growth, and shifts to higher value-added activities. For its part, China touts economic returns from its ports such as higher transport volumes, increased exports, and workforce development in places like Egypt.
The actual economic impact flowing from China’s port participation is not just a domestic or international economic issue. It is a domestic and international political issue and thus needs thoughtful consideration. Discussing this impact is the purpose of this piece, the third in a four-part series on China’s footprint in overseas ports. The first part examined China and Chinese companies’ sundry motives, their footprint, and storms about their presence. The second delved at length into the hopes and fears of host countries, third-parties like the United States, and others with respect to “Chinese” ports’ speculated positive and negative outcomes.
At the most basic level, host countries envision that their ports will improve due to the new berths, expanded terminals, better cranes, deeper ports, enhanced port infrastructure, and modernized IT systems flowing from Chinese involvement. Such changes have featured in Latin America and the Caribbean (LAC) and European ports ranging from Balboa and Cristobal (Panama) to Zeebrugge (Belgium) as well as Southeast and South Asian ports such as Kyaukphyu Made Island (Myanmar) and Mongla (Bangladesh). Port improvements, in turn, will enable them to handle bigger ships, larger cargo volumes, and different vessel types. All of this will boost port earnings, tax revenues, and local port business activities. Furthermore, there will be job creation.
Aside from this, linked infrastructure improvements should spur local economic activity and amplify the benefits of proximate special economic zones (SEZs). SEZs are a regular feature of China’s ports’ footprint and, in fact, may be their most prominent one as seen in Middle Eastern countries such as the United Arab Emirates. Beyond the above, host countries anticipate export growth, greater inward foreign direct investment (FDI) flows, and richer integration with global networks.
Dredging through the data, an analysis of China’s footprint in 20 ports in Europe and the LAC determined Chinese investment indeed led to, among other things, new, bigger, or modernized quays, terminals, and intermodal transportation links. This, in turn, boosted capacity, turnaround times, and efficiency. More than two-thirds of ports where data was available showed improved port performance. Likewise, more than two-thirds of ports, witnessed increased connectivity. On top of this, the analysis uncovered that Chinese ports directly created or preserved hundreds and even thousands of jobs. Some ports became notable revenue and tax generators.
A later study of China’s participation in numerous ports in Southeast and South Asia identified similar, positive outcomes. Ports improvements in countries like Bangladesh, Myanmar, and the Philippines were commonplace and these fueled increased capacity, improved turnaround times, higher rankings, local development, and more. Job creation also followed, though specifics were lacking. Unlike the European and LAC cases, this study did not uncover major revenue or tax boosts. There was almost no evidence of technology transfer, blossoming SEZs, or dramatically positive trade pattern changes in the four regions.
Not highlighted above, but well covered in the aforementioned analyses, is the diversity of China’s participation in overseas ports, which entails investing, contracting, terminal operations, sales, and services. In addition, there are notable variations in Chinese project types ranging from dredging to terminal modernization to deep-water port construction. Further muddying the waters is the fact that many projects, once underway, do not reflect their original designs. For instance, in Southeast and South Asia, for instance, this was true in 47 percent of studied cases. Reasons include local port defects, domestic politics, host country financial limits, the capabilities of the Chinese investor/contractor, and opposition by third parties like Japan. Whatever the cause, the disconnect between vision and reality means that many port projects are not yielding benefits nor changing port features and outputs in transformative ways.
It is important to mention that China’s ports presence may be associated with negative outcomes, too. These may include the crowding out of local maritime firms, the loss of jobs at ports, accelerated deindustrialization, greater trade imbalances, and dependence on Chinese shipping networks.
The preceding highlights three key points. First, Chinese port involvement does not always come to fruition and, even if does, deliverables may not match desires. Second, China’s ports participation frequently yields benefits at the level of ports, but not necessarily at the local, regional, or national levels. Third, negative economic externalities may coexist with positive ones.
Given these points, commentators need to anchor their conclusions with a serious assessment of the net benefit of China’s ports footprint, a point I have made regarding Chinese FDI more generally. Contrary to expectations, the net return actually may lead to anti-port sentiments in host countries that impede project initiation, development, and results, limit closer relations between host countries and China, or prevent adverse third-party foreign policy effects. Presuming predetermined outcomes is inadvisable.
The next part in this series will ponder the political and military risks associated with China’s involvement in overseas ports.