The port of Chancay (80 km north of Lima) is currently Beijing’s most ambitious project in Latin America; it will consolidate China’s position in the region and integrate Latin American countries into trade and economic relations with the Asia-Pacific region.
The construction of a deep-water (16m) port capable of receiving large E-class container ships (18 thousand containers) is jointly being carried out by the Chinese port infrastructure construction company COSCO Shipping Ports Limited (COSCO) and the Peruvian Volcan Compañia Minera. This port, which is worth $ 3.5 billion, will reduce the time for the supply of goods from Peru and Latin America to China to 25-28 days instead of 40 days, reduce the cost of cargo transportation by 30% and create a total of 9 thousand jobs.
Legal contradictions
The Prosecutor General’s Office of the Ministry of Transport and Communications of Peru (MTC) filed a lawsuit in March 2024 with the Supreme Court of the Republic of Peru demanding the annulment of Article No. 2 of the Resolution of the National Port Authority of Peru (APN) of 2021, which granted COSCO “the exclusive right to use basic services in the port infrastructure”. This has sparked further discussion about the construction of the port.
It has been reported that the previous APN management allegedly made a ‘mistake’ in an administrative act that needs to be corrected. The COSCO consortium, in turn, noted that the agreement was concluded in accordance with the legal framework and the lawsuit against its provisions affects “the security and legal stability of investments”. In addition, the Chinese company notified the country’s Ministry of Economy and Finance of a possible arbitration regarding the agreement and asked for negotiations to begin for a peaceful resolution of the dispute.
After the disagreements that arose, US media and think tanks began to actively fuel the conflict between COSCO and the Peruvian authorities. In this context, they reported that the agreement was unfair to Peru (allegedly, COSCO initially promised only to build a port and the Peruvian authorities were to be responsible for its operation) and that China is attempting to establish control over the Latin American country. They also wrote about the harm of construction work on the environment and the life of nearby settlements, as well as how a new port would appeal to local criminal groups.
China vs USA
The US Southern Command (SOUTHCOM) is closely monitoring the implementation of Chinese infrastructure projects in the region. As construction work is completed, the issue of Chancay becomes more and more important for Washington. Earlier in March, 2024, the head of SOUTHCOM, General Laura Richardson, presented a report on the increasing challenges for the United States in Latin America before the 118th Congress of the House of Representatives Committee on Armed Forces. Richardson placed special emphasis on the increasing Chinese trade and economic influence in the region: from 2002 to 2022 the trade turnover between China and Latin American countries increased from $18 billion to $450 billion, and by 2035 this figure will amount to $ 700 billion (in particular, exports from Peru to China in 2023 amounted to $ 23 billion, an increase of 300% from $ 5 billion in 2010).
It was also noted that Beijing is looking at long-term propspects in this region and one of its main goals is to establish control over key transport and logistics hubs and facilities, including the Panama Canal, the Strait of Magellan, the Drake Strait and Antarctica. In this case, the deep-water port of Chancay should become a ‘gateway’ for China to South America.
Nevertheless, despite pressure from Washington and the pro-US oligarchy, the Peruvian court eventually declared the MTC lawsuit against COSCO inadmissible in April, 2024. Additionally, the Congress of the Republic of Peru also approved an amendment to the Law on the National Port System, which legitimises the ‘exclusive right’ of a Chinese company to manage the port of Chancay. The amendment to the law also provides for an extension of the term of port management, allowing for the transfer of port infrastructure to the private sector for up to 30 years with the possibility of an extension. The leadership of APN – that opposed COSCO – resigned.
Apparently, the Peruvian authorities consider Chancay a strategically significant project and that risking confrontation with the Chinese side would not be beneficial, even despite the concerns of the US.
The role of the new port
Chancay is expected to have an important impact on the development of Peru’s port infrastructure. According to the Lima Chamber of Commerce (CL), the Chancay port will account for 30-40% of marine exports (1.7-23 million tonnes) to Southeast Asia. The main regional exports will be agricultural and fishing products, which account for 63% of total Peruvian exports. The supply of all Latin American agricultural products from the port will increase to $50 billion. In this case, Brazil, as one of the largest suppliers of agricultural goods to China, has already expressed its interest in exporting soybeans, corn and meat through Chancay. At the moment, the main obstacle to the proper functioning of the port is the lack of auxiliary infrastructure.
Chancay is located 70 km from the port of Huacho, from where the Interoceanic Highway (710 km) begins, reaching the border with Brazil. If additional public/private investments are secured, it would be possible to extend the highway deeper into Brazilian territory. Additionally, Peru, China and Brazil are already considering the possibility of building a railway directly from Chancay to Brazil. The preliminary cost of this project ranges from 7.5 to 15 billion dollars.
Peruvian authorities expect to turn Chancay into a special economic zone. It is reported that the private sector of neighbouring countries has already started actively acquiring land surrounding the future port, confident in its future commercial success. According to various estimates, the port will rake in about $4.5 billion annually. Additionally, Peruvian authorities expect Chancay to attract foreign investment into other projects, as well as modernising existing infrastructure, i.e. primarily the ports of Callao and San Juan de Marcona.
In addition, the new port will significantly reduce the burden on other national ports: Callao (represents 86.4% of the country’s total port activity); Ilo; Salaverry; Paita and Pisco. At the same time there are concerns from neighbouring countries that the operation of Chancay will lead to a decrease in the profitability of other major ports in the region, namely Guayaquil (Ecuador), Buenaventura (Colombia), Antofagasta, Iquique, San Antonio (Chile).
The construction of the Chancay port has currently been completed by 76%. Its opening is expected in November, 2024, during the Asia-Pacific Economic Cooperation summit, which will be held in Lima and will be attended by Chinese leader Xi Jinping.
Thus, the Chinese port of Chancay aims to become the main transport and logistics hub of Latin America, which should help Beijing finally consolidate its position in the region against the background of the intensifying confrontation with Washington.
Mikhail Ilevich, junior research fellow at the Centre for Scientific and Analytical Information at the Institute of Oriental Studies of the Russian Academy of Sciences, exclusively for the internet magazine “New Eastern Outlook”