Jakson China’s Massive Port Network – Why the U.S. Should Be Concerned täydellinen litterointi

focus is on sort of three priority areas: US-China competition, which we'll probably be talking about at length today, as well as organized crime and public safety in the Americas, which often, you know, actually overlaps a little bit more than you would expect, as I'm sure we'll get in, uh, as I'm sure we'll get into on this podcast. 00:02:32.719 --> 00:02:35.520 And then I also cover critical minerals with the Americas program. 00:02:35.840 --> 00:02:44.639 So happy to delve into all of those things because really they all come together at the at the port, which is kind of this nexus for all these various issues. 00:02:45.280 --> 00:02:45.680 Perfect. 00:02:45.840 --> 00:02:47.599 Yeah, uh, so let's let's get started. 00:02:47.680 --> 00:02:54.080 I mean, I think the first uh topic that we wanted to get into was the the framing of the network effect that you talked about in your testimony. 00:02:54.240 --> 00:03:01.520 So maybe if you could start there, walk us through the network effect framing and why do these investments that China's making have to be read as a portfolio? 00:03:01.599 --> 00:03:05.199 And what does Washington miss by treating them as one-off deals? 00:03:05.680 --> 00:03:07.280 Yeah, that's a great place to start. 00:03:07.360 --> 00:03:13.680 You know, I I think it was Sir Walter Raleigh uh who said, whosoever controls the seas controls the trade. 00:03:13.840 --> 00:03:18.879 Whosoever controls the trade controls the riches of the world, and then consequently the world itself. 00:03:19.199 --> 00:03:24.639 My sense of China's maritime strategy is that they're kind of playing around with that order. 00:03:24.800 --> 00:03:30.560 They're trying to control the trade and then through that kind of gain a backdoor to controlling the seas. 00:03:30.719 --> 00:03:41.439 And they're doing that through this network uh effect, uh networked offensive, where they're not just seeking to invest in ports, but they're also dominating global shipbuilding, global shipping lines. 00:03:41.599 --> 00:03:49.280 You see uh agencies like Costco, for instance, that are you know a shipping company, but now getting into the ports business with with uh Chiang Kai. 00:03:49.680 --> 00:04:09.840 And then, of course, controlling not only the physical infrastructure that that that you you know think about when you think about ports, the cranes, the scanners, but also the digital infrastructure, the logistics management software, um, and all the all the various you know technical details that go into ports as a means of you know expanding their maritime influence. 00:04:10.000 --> 00:04:15.039 And this is quite difficult, actually, uh, you know, you know, when you think about it to measure. 00:04:15.199 --> 00:04:23.920 So me and my team at CSIS, we set out to try and map uh and to provide the most comprehensive map of China's port influence in Latin America and the Caribbean. 00:04:24.079 --> 00:04:34.000 We ended up, uh, as you noted in the intro, finding 37 different active uh or or in some cases canceled or inactive port projects uh throughout the Western Hemisphere. 00:04:34.160 --> 00:04:38.240 This is, you know, about twice as many as any previous study had identified. 00:04:38.399 --> 00:04:46.639 Uh, and and then we did, you know, we tried to go a layer deeper, which is we tried to assess the risk of any given one of these port projects. 00:04:46.720 --> 00:05:01.519 Uh so we we looked at 11 different sub-indicators grouped across sort of two pillars, looking at both how much does the United States rely on a particular port project for trade, uh, as well as you know, for potential security or military contingencies. 00:05:01.680 --> 00:05:04.399 And then how much influence does China have over that port? 00:05:04.560 --> 00:05:09.759 Is China just building the port or are they, you know, actually embedded in the operating system? 00:05:09.920 --> 00:05:13.439 Are they a minority stakeholder, majority stakeholder? 00:05:13.600 --> 00:05:17.120 Uh, you know, what what level of control does China really exercise? 00:05:17.279 --> 00:05:26.639 And so that allowed us to actually assign a score, a numerical score, uh from zero to a hundred for every port in our database and see, you know, where should we really be focused on? 00:05:26.879 --> 00:05:43.040 But I'll even, you know, I'll say even that effort uh fails sometimes to capture this network effect that we're talking about, which is the fact that, you know, there they're the utility of a port grows dramatically the more ports and the more shipping, you know, you control. 00:05:43.199 --> 00:05:49.519 If you think about it, like uh in the case of the Panama Canal, for instance, most of these ports are transshipment ports. 00:05:49.680 --> 00:06:05.759 It means that, you know, it's not actually, they're not actually servicing always the ships that are that are that are going through the canal, but rather ships come, they dock, they offload, and then those same, you know, those containers that they off that one ship offloads are loaded onto another ship that ultimately transits through the canal. 00:06:06.000 --> 00:06:18.480 If you control other kind of nodes in that supply chain, you can know who's sending what from where to where, uh, and really unlock a lot of efficiencies and competitive advantages. 00:06:18.560 --> 00:06:26.879 Uh, and in in, in my opinion, in the case of China, strategic advantages when you have that kind of vertically integrated supply chain. 00:06:28.160 --> 00:06:32.800 And I think that Shang Kei is one of the best examples of this phenomenon that you're talking about. 00:06:32.959 --> 00:06:35.839 And it's not just that China acquired this port in Peru. 00:06:36.000 --> 00:06:42.720 They built it from scratch, from the small town, and it's also all the infrastructure that goes alongside this port as well. 00:06:42.879 --> 00:06:54.560 And I wanted you to talk a little bit about what sort of influence this

unlocks over a lot of these countries, because they're not only investing all this money in the port, but they're investing the operations, they're investing in the infrastructure behind it. 00:06:54.639 --> 00:07:02.079 And what kind of leverage does that unlock over these countries and how much of a gateway is it into Chinese control in the region? 00:07:03.040 --> 00:07:11.360 Yeah, so so you know, I think for the longest time, um, when people talked about China's port investments, they talked about the port of Hambantota in Singapore. 00:07:11.600 --> 00:07:12.319 Uh, excuse me. 00:07:12.399 --> 00:07:24.639 They talked about the port of Hambantota in Sri Lanka, um, where of course, you know, was this archetypical example of debt trap diplomacy where Sri Lanka's inability to pay back the loan led to China actually seizing the physical port. 00:07:24.879 --> 00:07:26.879 Today, I don't think that's the model. 00:07:27.040 --> 00:07:28.959 Instead, I think it looks a lot more like Chiang Kai. 00:07:29.199 --> 00:07:35.600 And let me just kind of walk a little bit through the story of how this port came to be and some of the controversy around it. 00:07:35.759 --> 00:07:39.519 So, you know, Peru, China's Peru's number one trading partner. 00:07:39.680 --> 00:07:45.519 They buy tons of copper and and other goods, uh raw materials typically from Peru. 00:07:45.759 --> 00:07:48.959 Peru's been looking to modernize its port infrastructure for a long time. 00:07:49.040 --> 00:07:55.199 They've been looking to expand out um from Kayao, which is in Lima, which is sort of hemmed in by geography. 00:07:55.360 --> 00:08:01.920 And so, of course, you know, the opportunity to build this brand new megaport a little bit north of Lima uh was a great opportunity. 00:08:02.079 --> 00:08:06.639 They signed an MOU uh with Costco in 2021 and construction begins. 00:08:06.800 --> 00:08:11.040 China moves quite quickly into, you know, as we all know, China does. 00:08:11.120 --> 00:08:36.799 Uh, but then in 2024, in the spring of 2020, the year that it's set to be inaugurated, um, yeah, as you mentioned, when Xi Jinping is scheduled to come in November and open the port, just you know, a few months before, Peru cites an administrative error and says that, you know, actually the contract that they signed with Costco in 2021 violates Peruvian law because it gives Costco exclusive control over that port uh to operate. 00:08:36.879 --> 00:08:38.799 And that's that's that's illegal in Peru. 00:08:38.960 --> 00:08:44.399 You need to have a Peruvian partner uh that has some stake in that port. 00:08:44.720 --> 00:08:58.879 And what China decides to do in you know in response is first of all, they they threaten arbitration, but second of all, they threaten to simply pull out of the port and leave, you know, Peru with a half-built port and its sort of dreams of a gate, a new gateway to Asia deferred. 00:08:59.120 --> 00:09:02.320 Uh and and and what what does Peru decide to do in in response? 00:09:02.480 --> 00:09:03.679 They change their law. 00:09:03.840 --> 00:09:14.399 They they allow a private company to have sort of a 30-year uh lease of a period of exclusivity in order for Chiang Kai basically to set up and finish operations. 00:09:14.639 --> 00:09:25.440 And now, you know, we we uh if you look at kind of uh just about a year or a couple of years onwards, um, we see that influence hasn't even diminished. 00:09:25.600 --> 00:09:39.200 Uh so in February, a Peruvian court ruled that Ocitran, uh Peru's sort of state transit regulator, does can't actually oversee uh operations at Changhai because it's a private port but with private capital. 00:09:39.360 --> 00:09:44.320 Uh so there's actually, you know, even less transparency into the port today. 00:09:44.480 --> 00:09:53.840 And then I'll, you know, I'll finally note that we talk about Changhai as a megaport, um, but it just concluded its its first year of operations, of formal operations as a port. 00:09:53.919 --> 00:10:00.559 And it reported about 500,000 20-foot equivalent units, the sort of standard measure of containerized shipping. 00:10:00.799 --> 00:10:06.799 That's about a fifth of what Balboa in Panama moved last year, maybe a sixth. 00:10:06.960 --> 00:10:14.559 Um by no means is it this the this you know colossus of uh of shipping that people often make it out to be. 00:10:14.720 --> 00:10:17.919 It of course has potential, and and you know, we should definitely wait. 00:10:18.000 --> 00:10:25.840 Uh, but the current kind of capacity at Shanghai hovers between 1 million and 1.5 million 20-foot equivalent units of throughput. 00:10:26.080 --> 00:10:37.919 There are plans to expand that out to a potential you know future amount of 3 million, which would genuinely be a megaport at that stage, but that's contingent on China continuing to invest in this port. 00:10:38.080 --> 00:10:42.159 So Costco has actually bought really durable influence in Peru, if you think about it. 00:10:42.320 --> 00:10:46.879 You know, not it's not just that they open the port and all of a sudden this this issue goes away. 00:10:47.120 --> 00:10:55.600 Peru still needs uh you know a continued influx of capital and investment if it really wants to kind of realize the the dream of Chang Tai. 00:10:56.799 --> 00:11:02.960 And just to take a step back here for a second, can you explain a little bit what Costco is and why it is so important? 00:11:03.120 --> 00:11:05.360 Because I'm sure most Americans haven't heard of it. 00:11:05.440 --> 00:11:08.960 And when they do hear it, they think of, of course, like a superstore in America. 00:11:09.120 --> 00:11:11.759 So what exactly is Costco and why are they so important? 00:11:11.919 --> 00:11:17.039 Because now they're not only just the shipping company, they're directly involved in the running of a lot of these ports. 00:11:17.600 --> 00:11:18.080 Sure, yeah. 00:11:18.159 --> 00:11:21.840 So so Costco, often referred as the China

Ocean Shipping Company. 00:11:21.919 --> 00:11:29.840 Uh I I swear, you know, I've had to explain to my parents a number of times that no, no, it's not the big box store that's building a port in Peru. 00:11:30.000 --> 00:11:34.159 Um uh is a Chinese state-owned shipping company. 00:11:34.320 --> 00:11:43.200 Um they're notable for being one of the one of the largest shipping companies in the world, leveraging China's uh, you know, dominance in ship building, right? 00:11:43.360 --> 00:11:48.559 China builds the vast majority of container, uh, you know, of global container ships. 00:11:48.639 --> 00:11:57.200 Um, and so, you know, kind of building off of these network effects, honestly, or synergies, they've been able to dominate global shipping and now they're moving into ports. 00:11:57.279 --> 00:12:15.840 And so Changkai, uh, as you rightly point out, is sort of the first instance of a kind of tip-to-tail integrated process where where Costco not only helps to build the port alongside some other Chinese SOEs, uh state-owned enterprises, some of which have ties to the People's Liberation Army and the Chinese military as well. 00:12:16.000 --> 00:12:19.600 Um, so they help to build it, but now they're operating it exclusively. 00:12:19.759 --> 00:12:27.600 And I'll note, uh, and I'm sure we'll get into this a little bit later in the podcast, this is definitely not Costco's last project. 00:12:27.759 --> 00:12:44.720 They are actively looking to expand their footprint in regional ports, including uh with with um the sale of some of 43 CK Hutcheson uh ports that that was initially meant to go to BlackRock and an Italian con a Swiss Italian conglomerate, the Mediterranean shipping company. 00:12:44.960 --> 00:12:47.440 Costco's trying to get a stake there. 00:12:47.600 --> 00:12:52.399 They're also trying to expand their operations in Brazil with the upcoming concession at the port of Santos. 00:12:52.559 --> 00:12:58.320 So Costco is definitely kind of making a full court press uh to break into the port space. 00:12:59.519 --> 00:13:08.879 So so real quick before we pivot over to the second segment, I wanted to ask a follow-up just because you know, for folks listening at home, they maybe this becomes a little abstract. 00:13:08.960 --> 00:13:13.679 And so some some folks might even say, oh, like what's the big deal if you know China's investing in ports? 00:13:13.759 --> 00:13:14.399 Like, so what? 00:13:14.480 --> 00:13:17.360 You know, they're maybe just shipping their their cargo here and there. 00:13:17.440 --> 00:13:28.080 But you know, you touched a little bit on the like the military-civil fusion and the whole like you know, nexus between, you know, these aren't just commercial, they don't necessarily serve commercial purposes, they could also serve a military advantage. 00:13:28.240 --> 00:13:35.919 Maybe if you could speak just a little bit about that and like why folks should should take note of this issue, why it's something that to be like to be thinking about. 00:13:36.399 --> 00:13:38.080 Yeah, that's a great question. 00:13:38.480 --> 00:13:39.039 Yeah, yeah. 00:13:39.279 --> 00:13:49.679 Um I'll kind of talk broadly because because this is something that we dwelt on a lot as we were building this risk index is you know, what really what is really risk um when it comes down to the port space? 00:13:49.840 --> 00:14:00.080 And I think a lot of people um sort of a lot of the common analyses focus on Chinese overseas ports as sort of this a military, uh, a precursor to military bases. 00:14:00.159 --> 00:14:02.720 And in Latin America and the Caribbean, I don't think that's the case. 00:14:02.799 --> 00:14:07.600 You know, I don't think that we're gonna see Changkai be converted into a Chinese overseas naval base. 00:14:07.679 --> 00:14:09.360 That's not really the risk I'm looking at. 00:14:09.519 --> 00:14:14.480 Maybe, and in which case that will be alarm bells blaring in my head. 00:14:14.639 --> 00:14:24.320 Um, but I'm even more kind of interested in what we were talking about about you know the complexity of global supply chains, um, you know, the and and the network effect and that control that that gives you. 00:14:24.399 --> 00:14:30.080 So we saw during the COVID-19 pandemic how you know global supply chains are fragile. 00:14:30.320 --> 00:14:36.960 And, you know, even a momentary delay in certain critical inputs can result in in significant downstream effects. 00:14:37.120 --> 00:14:41.919 So one of the key risk factors we looked at was US reliance on a particular port. 00:14:42.080 --> 00:14:49.759 And if you think about, you know, why uh in our in our database, a lot of Mexican ports actually scored higher, it's because they're trading a tremendous amount with the United States. 00:14:49.919 --> 00:15:10.080 So if you think about, let's say, in the event of a future crisis or a conflict scenario where the United States is trying to get critical inputs, you know, magnets, machine tools, uh, critical minerals shipped in to bolster its, you know, domestic defense industrial base or to respond, you know, get get personal protective equipment to respond to a crisis at home. 00:15:10.240 --> 00:15:23.840 And all of a sudden, those shipments get delayed, or they get stopped at the port, or there's an accident with one of the shipped to shore cranes that, by the way, China controls 70 to 80% of the market for, all of a sudden you can start to see some cascading effects. 00:15:24.000 --> 00:15:32.000 And those effects are magnified when you think about this network of uh of 37 ports or this network of ports and shipping companies. 00:15:32.159 --> 00:15:46.639 So, you know, look at you think about like the one little inconvenience in your in your day-to-day life that that's downstream of a supply chain, and just magnify that uh uh by by the sheer volume of of control over the maritime shipping sector that that China has. 00:15:46.799 --> 00:15:49.519 And I think

that's to me, that's what's really concerning. 00:15:49.679 --> 00:16:03.120 Another just kind of brief thing I'll I'll point or highlight uh is is you know, we we saw how sophisticated kind of sabotage and and and um threats, you know, I think to the homeland are becoming. 00:16:03.279 --> 00:16:11.919 We've seen in Ukraine from operations like Operation Spider's Web that that disabled a significant portion of Russian command and control aircraft with a drone attack. 00:16:12.159 --> 00:16:27.759 Well, ports are really convenient places to kind of secret away the you know potential military equipment for, you know, even attacks on the homeland or attacks on US naval vessels that are docking in ports to conduct resupply missions. 00:16:28.000 --> 00:16:31.279 So that's something I'm that that that does keep me up at night. 00:16:31.440 --> 00:16:38.639 I think it's a more, you know, I think it's more remote than some of the doom and gloom uh uh prognostications make it out to be. 00:16:38.720 --> 00:16:43.519 Uh, but I do think it's it's it's always worth worth highlighting that there is real sabotage risk. 00:16:43.600 --> 00:16:48.000 There is real, you know, military and operational security risks that go along with um with ports. 00:16:48.320 --> 00:16:57.600 And again, they they're multiplied many times over the more ports and the more uh you know nodes of this logistical chain you give the PRC control over. 00:16:58.399 --> 00:16:59.600 Yeah, that's really helpful. 00:16:59.679 --> 00:17:03.679 And and I guess so to pivot over to the the second topic, I think so. 00:17:03.759 --> 00:17:27.119 We've we've talked about the ports uh uh strategy, the network effect therein, but you actually go a little deeper in your testimony and you talk about the infrastructure as well, because it's not just about securing access to the ports and ownership of the ports, it's also they're supplying the cranes and the scanners, there's energy transmission, like all you know, all of these uh infrastructure components, but then there's a cybersecurity layer that runs through all of that. 00:17:27.359 --> 00:17:34.960 So um, you know, they can they can uh I can collect in commercial or collect intelligence through commercial infrastructure and things like that. 00:17:35.039 --> 00:17:40.960 So maybe why don't you talk us through what that looks like and and what what might be the the worst case scenario in a crisis? 00:17:41.119 --> 00:17:44.240 I think you touched a little bit on about that, but if you could expound on that. 00:17:44.799 --> 00:17:45.200 Yeah. 00:17:45.359 --> 00:17:53.759 Um so so you know, we focused in our database on sort of two types of uh potentially dangerous or disruptive technology. 00:17:53.839 --> 00:17:57.440 And those were ZPMC cranes and NookTech scanners. 00:17:57.599 --> 00:18:02.640 And so ZPMC uh is is is a Chinese uh ship-to-shore crane manufacturer. 00:18:02.799 --> 00:18:09.599 They supply, as I mentioned, you know, the their market share is about 70 to 80 percent of all ship-to-shore cranes in the world. 00:18:09.759 --> 00:18:16.640 They're prevalent, uh, you know, and I've been to ports, they're everywhere at these ports, um, and and including in US ports. 00:18:16.720 --> 00:18:37.839 And so so part of our rationale for including this was a report by by the US Select Committee on uh on the CCP, which found that in US ports, ZPMC or or a party contracted with them had installed cellular modems onto ship-to-shore cranes in US ports, and it repeatedly requested remote access to its ship-to-shore cranes in US ports. 00:18:38.079 --> 00:18:45.119 Uh so right, you know, these are these are risks that that were are well documented kind of in the homeland here here in the United States. 00:18:45.279 --> 00:19:03.519 Um but I you better believe that in the Americas, these risks are are also present and may even be more potent because in a country that may not have kind of the robust uh critical infrastructure kind of protection mentality the US has, that might just be like, oh, of course, they're at they're requesting access. 00:19:03.680 --> 00:19:05.759 We'll try, we'll, you know, we'll we'll give you access. 00:19:05.839 --> 00:19:09.359 Um there's no sort of step two or follow-up there. 00:19:09.519 --> 00:19:18.559 Uh so ZPMC cranes are particularly concerning because of how prevalent they are, um, because of the documented cybersecurity and infrastructure risks. 00:19:18.720 --> 00:19:31.039 Nooktech scanners, uh, NookTech is a uh you know a growing supplier of uh of scanners, both for like, you know, you're the thing you walk through at the airport, the X-ray machine you put your luggage through, but also cargo scanners. 00:19:31.119 --> 00:19:39.759 And and and this is a real you know priority in Latin America, where of course we're confronting a burgeoning drug trade, uh, much of it which goes through the ports. 00:19:39.839 --> 00:19:50.079 So so countries are looking to shore up their port security by purchasing scanners, and China has has kind of leveraged that to make a play to sell its own scanner technology. 00:19:50.319 --> 00:20:00.160 Now, the risk you run with this is oftentimes, you know, the very things that are appealing to a port operator from a security perspective are a risk from kind of a national security perspective. 00:20:00.240 --> 00:20:03.920 So from a, I guess from a civil security perspective versus a national security perspective. 00:20:04.079 --> 00:20:15.440 And one example I'd give is I was speaking to someone down in Panama who said that NookTech kind of one of their selling points is they say our system can integrate with local law enforcement databases. 00:20:15.680 --> 00:20:35.279 So, you know, you've got a driver who's going to pick up a container at the port, and there's a scanner that reads the driver's biometrics, makes sure that they're associated with the truck that they're driving, you know, cross-references that with

the port authority, but also then goes and cross-references it with local law enforcement databases to see, you know, have they been arrested for a drunk driving incident? 00:20:35.440 --> 00:20:38.240 Do they have any, you know, criminal convictions on their record? 00:20:38.319 --> 00:20:40.160 Is their license, you know, working? 00:20:40.400 --> 00:20:41.599 Well, you know, that's good. 00:20:41.680 --> 00:20:46.079 And I think it's it's it's it's worthwhile if you're a port operator, you want to know that information. 00:20:46.240 --> 00:20:51.680 But it also means that all of a sudden you're giving a Chinese company access into your law enforcement system. 00:20:51.759 --> 00:21:03.680 Uh and the PRC, by the way, has a national security law that requires even private companies to collaborate and share information uh with the CCP when it has a national, you know, kind of a nebulous national security nexus. 00:21:03.839 --> 00:21:17.759 So there, like, you know, you see kind of how there's a tension at play, I would say, between China providing these services that port operators might want um at a low cost, but also opening that up to greater cyber vulnerabilities. 00:21:17.920 --> 00:21:26.079 And the last thing I'll touch on, which was not in the database, because it's really actually hard to find good data on, but is port management services. 00:21:26.160 --> 00:21:49.440 And there's been a lot of you know coverage of what you know China calls login, which is their integrated kind of port data management that allows you to see, you know, all the records of where shipments are coming from, where they're going to, final destinations, uh that that that you know China's piloted in their own ports and is reportedly trying to push in the ports where it has influence. 00:21:49.599 --> 00:21:59.759 And that's again super concerning to me from a national defense security perspective, because the more data you have access to, the more data you, in this case China, has access to. 00:22:00.400 --> 00:22:12.720 The easier they can find, you know, what are those critical nodes that if something went wrong here, it would have a cascading effect downstream on supply chain security and US economic security. 00:22:12.880 --> 00:22:22.079 And by, you know, pushing out logging to various port operators, it just gives them so much more visibility into the kind of the lifeblood of global commerce. 00:22:22.960 --> 00:22:28.319 Yeah, and I wanted to expand on that as well, just to really show how deep this Chinese influence really goes. 00:22:28.480 --> 00:22:38.960 And beyond all the issues you just talked about, we also have seen how Chinese state-owned firms control 100% of the electrical transmission into Lima, more than half the distribution in Chile, 12% in Brazil. 00:22:39.039 --> 00:22:49.920 And then on the commodity side, they also have significant stakes in Brazilian oil terminals, in grain terminals in Brazil, and then they're even building a new port to export copper from Peru. 00:22:50.079 --> 00:22:54.559 And so, where does this really put China as far as leverage and influence-wise? 00:22:54.640 --> 00:23:03.759 I think you've compared this to the power that US financial sanctions have, which has really been the gold standard of being able to project this economic influence around the world. 00:23:03.920 --> 00:23:25.839 And so, where does China currently stand with that influence, not only over a lot of these Latin American countries, but especially when we're looking at these critical commodities, how does that also get leverage over the US, especially for the critical minerals that they've had so many restrictions on, being able to take a lot of those from South America and hold that over the US and these Latin American countries as well? 00:23:26.640 --> 00:23:41.440 Yeah, thank you for asking that because this is sort of a theory that I've been um playing around with, which is is is China sees the US financial sanctions um uh sort of sort of architecture that's been incredibly successful. 00:23:41.519 --> 00:23:47.680 They see you know how we've also added tariffs um to that architecture to achieve kind of geoeconomic ends. 00:23:47.839 --> 00:23:51.119 And China knows that they can't quite replicate that, right? 00:23:51.200 --> 00:23:57.039 They're trying to supplant the the the you know the dollar in in global financial markets, but that's slow going. 00:23:57.119 --> 00:24:20.319 Um and and instead, what I you know, what I think China is trying to drive at, places like Latin America and the Caribbean, is is what I call kind of a physical sanctions network, where they control sufficient, you know, physical infrastructure in these countries that it gives them leverage tantamount to or equivalent to potentially, you know, what a US financial, you know, full court press economic sanctions effort might be. 00:24:20.480 --> 00:24:47.039 Um and and and and you know, what I I think in particular, uh what's what's caused me to start thinking about this, start worrying about this more, is we've seen the US undergo a historic pivot to the Americas, uh, where for decades, kind of I I like to say there was a formula for writing a story about China and Latin America, which was you said, China's doing something, the United States is is is absent, um, and the United States should care more. 00:24:47.119 --> 00:24:49.039 And you kind of were shouting from the rooftops. 00:24:49.200 --> 00:24:49.920 That's changed. 00:24:50.079 --> 00:25:09.200 Now the US is actually going on the offensive in places like Panama, where China's lost control, in places like Chile, where the United States put a lot of pressure on the incoming cost government uh to scuttle a proposed subsea cable project, you know, in places like Peru, where we're still also applying pressure um, you know, over the port of Chang Kai and broader Chinese influence. 00:25:09.359 --> 00:25:23.200 And so, you know, when I sit back and I

think, okay, if the US is finally rolling up its sleeves um and and and and starting to pressure Chinese projects in the Americas, what does China have to fall back on? 00:25:23.359 --> 00:25:26.079 And what they really have to fall back on in most cases is infrastructure. 00:25:26.160 --> 00:25:36.319 It's the fact that 100%, like you said, of Lima's power generation, a city of 11 million people, roughly a third of Peru's population, is dependent on two Chinese electrical utilities. 00:25:36.480 --> 00:25:42.799 It's the fact that, you know, in many of these countries, their telecommunications networks were built by and maintained and are maintained by Huawei. 00:25:42.880 --> 00:25:54.480 Um, it's the fact that uh, you know, again, if you look at places like Peru, they're still dependent on further, you know, subsequent Chinese investment to realize the economic gains that have been that have been promised. 00:25:54.640 --> 00:26:12.880 Or in places like Ecuador, which recently just signed an agreement with Power China to maintain the Coca-Coto Sinclair Dam, a dam that, by the way, has been, you know, a massive boondoggle from an infrastructure standpoint, but sort of China is the only one who can maintain it and who can keep it running and and and keep it from you know maybe potential catastrophic collapse. 00:26:13.119 --> 00:26:22.319 So this the physical um infrastructure investments, physical and digital, I guess I would say, give China real durable influence in the Western hemisphere. 00:26:22.400 --> 00:26:27.200 And it's something that I, you know, I think from a US perspective is going to be really hard to extirpate. 00:26:28.640 --> 00:26:37.440 Yeah, so I I think I think we can probably turn to the third segment at this point where I guess we'll call it tactical victory and strategic defeat. 00:26:37.680 --> 00:26:40.000 So there's a test case playing out right now. 00:26:40.079 --> 00:26:49.599 Um so last year CK Hutchinson uh Hutchinson um agreed to sell its 43 overseas ports, including the ports flanking the Panama Canal, to um BlackRock-led U.S. 00:26:49.759 --> 00:26:50.480 consortium. 00:26:50.559 --> 00:26:53.440 And then Beijing pushed back and Costco entered the picture. 00:26:53.599 --> 00:26:59.599 And you framed what's happened since as a possible tactical victory and yet a strategic defeat for the U.S. 00:26:59.759 --> 00:27:04.960 And so if you could talk us through a little bit about like what's still at risk, why do you frame it that way? 00:27:05.200 --> 00:27:12.720 Um, and um and you know, i i if if that's a strategic defeat or you know, rather than the clean win that the administration is calling it. 00:27:13.359 --> 00:27:14.880 Yeah, um, no, of course. 00:27:15.039 --> 00:27:36.640 So, so right, I think the you know, it around March of 2025, uh there was right this announcement that that uh CK Hutchison was selling 43, all for all of its overseas ports, all of its ports not in Hong Kong or China, uh to a consortium helmed by BlackRock, uh, and and then the Swiss-Italian conglomerate, Mediterranean Shipping Company. 00:27:36.799 --> 00:27:41.440 Uh, and I I think, you know, quite frankly, that this was a coup for the United States. 00:27:41.519 --> 00:27:48.240 Uh, it was a model as well that I'll I'll maybe get into a little bit later when we're talking about future solutions options. 00:27:48.400 --> 00:28:13.039 But it was a model of using kind of high-level political pressure, whether you agreed with that or not on Panama, uh, to create the conditions and then leveraging US kind of capital markets, the best in the world, along with a trusted partner uh from you know, from a from a like-minded democratic country in context, to in one fell swoop, drastically reduce China's influence in overseas ports. 00:28:13.200 --> 00:28:17.359 Um, in the aftermath of that, I think China kind of tipped its hand, right? 00:28:17.440 --> 00:28:26.640 You know, you you could either these ports were purely commercial assets with China had had no strategic interest in whatsoever, in which case you let the deal go through, right? 00:28:26.720 --> 00:28:28.319 You don't care about, or they're not. 00:28:28.480 --> 00:28:36.319 Um, and China kind of showed that it was the latter because they said that, you know, we will not allow this deal to move forward if it prejudices China's strategic interests, right? 00:28:36.480 --> 00:28:47.200 They they they put out, you know, several op-eds attacking Li Kashing, the chairman of CK Hutchison, for failing to be patriotic uh and for basically selling out the national interest for a quick buck. 00:28:47.279 --> 00:28:53.200 Um so so China tipped its hand, that it it cared a lot more about these ports uh than it maybe wanted to let on. 00:28:53.359 --> 00:28:58.000 Um and and then it and then it succeeded honestly in scuttling the initial deal. 00:28:58.160 --> 00:29:06.240 The period of exclusivity for BlackRocket MSc to negotiate with Hutchison lapsed in July, after which new parties could enter the deal. 00:29:06.400 --> 00:29:21.279 We saw that Costco, um, right, the the the like very same, not the big box store, but the but the Changkai port operator, trying to enter that with some, you know, Bloomberg reported who was asking for basically veto rights, which were were left somewhat nebulous. 00:29:21.359 --> 00:29:31.279 Um, but broadly I think would would would be, you know, if if I'm China, I'm thinking, you know, no selling this, uh bare minimum, no, no selling this to anyone without our say-so, uh, any anyone new. 00:29:31.440 --> 00:29:34.160 Um, so so so Costco tries to enter the deal. 00:29:34.400 --> 00:29:49.279 At the same time, Panama, you know, kind of announces this lawsuit about uh, you know, the port concessions, the the the two port concessions uh along the Canal Balboa and Cristobal, and that begins to move through as this deal is being negotiated. 00:29:49.359 --> 00:29:54.960 And then in January, we see

the Panamanian Supreme Court announce its decision that the concessions were unconstitutional. 00:29:55.119 --> 00:30:03.359 And I'll do kind of a slight tangent here just to note that while we talk about this kind of from a geopolitical standpoint, from a US-China competition standpoint. 00:30:03.680 --> 00:30:08.720 In Panama, right, the the story is of corruption and of you know sovereignty, right? 00:30:08.799 --> 00:30:14.799 The Panamanian Supreme Court didn't s rule that the United States was good and China was bad, right? 00:30:14.960 --> 00:30:29.519 They ruled that the concessions were unconstitutional because they violated principles of you know benefit for the public, um, of equitable treatment and profit sharing uh and revenue sharing from you know the port operators and they gave them too much control over these facilities. 00:30:29.599 --> 00:30:50.319 So like I do want to kind of raise that as as maybe the narrative I think, you know, uh that often gets forgotten um in these conversations where we're talking about US-China competition, that there is, you know, there's an angle there and there's a perspective there from the local population or from from you know impacted countries that we should also be be paying attention to. 00:30:50.640 --> 00:30:54.559 But that decision comes along and I I think everyone kind of declares victory. 00:30:54.880 --> 00:30:59.279 But we should remember, again, that it's there's 43 ports on the table. 00:30:59.440 --> 00:31:01.440 So so so take subtract two. 00:31:01.599 --> 00:31:15.839 There's still 41 ports uh that Hutcheson operates that are up for grabs, including five in Latin America and the Caribbean, including four in Mexico, uh, and and and two of which are in our top three riskiest ports from a US perspective. 00:31:16.000 --> 00:31:17.839 Um, one that's also in the Bahamas. 00:31:18.079 --> 00:31:27.200 And and let me tell you, you know, if you care about threats to the US homeland, the Bahamas is basically our third border from a maritime perspective, certainly. 00:31:27.359 --> 00:31:32.000 Uh and and it seems like, you know, that's that issue is not going anywhere. 00:31:32.079 --> 00:31:42.319 The last reporting I saw from April said that not only was Costco kind of interested in it, but China Merchants Port, another Chinese state-owned port company, is also trying to get in on this deal. 00:31:42.480 --> 00:31:49.920 Meanwhile, Hutchison has announced in you know major investments last November in its port of Laserocardanas in Mexico. 00:31:50.079 --> 00:31:53.599 That's not something you would do if you're trying to kind of offload these facilities. 00:31:53.759 --> 00:32:05.440 So it seems like we're at a real risk of, I guess, in you know, base case scenario, the deal just falls through and Hutchison retains its, its, its investment and influence, in which case our risk scores are unchanged. 00:32:05.680 --> 00:32:11.440 These ports are still very risky, some of the riskiest actually in the Western Hemisphere from a US perspective. 00:32:11.680 --> 00:32:15.200 Or worst case scenario, a Chinese SOE gains a stake. 00:32:15.279 --> 00:32:20.559 And by the way, we re-ran the risk calculations with even a minority stake for Costco. 00:32:20.720 --> 00:32:24.319 Um, and and this they would be probably the same for China merchants. 00:32:24.480 --> 00:32:41.440 Um, and the risk scores for all Hutchison ports go up with that, even even in a minority kind of shareholding uh pattern where there's there's another stakeholder that has a majority stake, um, but China still exercises, excuse me, these kind of veto rights um from its position. 00:32:42.480 --> 00:32:56.000 And just as a quick follow-up to that point, because I think you made a really interesting point about uh Panama and why their decision wasn't really picking the US over China in any sort of just US's better sense, but it's it was a corruption issue and they they valued that. 00:32:56.240 --> 00:33:01.039 But more often than not, as we've seen, these Latin American countries are choosing China. 00:33:01.119 --> 00:33:02.559 They are allowing a lot of this investment. 00:33:02.640 --> 00:33:07.599 And so I wonder if you could just quickly summarize why China has been basically winning this battle. 00:33:07.759 --> 00:33:13.359 Why is this Chinese investment been such an enticing offer for a lot of these Latin American countries? 00:33:13.519 --> 00:33:25.279 Because we've talked a lot about the control that China can influence over them, how with 100% of the electrical transmission in Lima, how this has all this potentially sanctions-level control, but why are the Latin American countries allowing this to happen in the first place? 00:33:25.359 --> 00:33:31.839 What is the big carrot that China's offering that a lot of the US uh policies have not been as enticing for? 00:33:33.039 --> 00:33:33.839 Sure, right? 00:33:33.920 --> 00:33:39.519 You know, I and I think the it basically comes down to speed and need, right? 00:33:39.759 --> 00:33:42.960 China can build things quickly and they can build the things these countries need. 00:33:43.039 --> 00:34:01.680 And in a base case scenario, right, like like like we saw in Shanghai, Peru would rather have a port that, you know, even one that China extra has influence, uh, you know, undue influence over, even one that's driven up, you know, crime and extortion in the neighboring town, they'd rather have that port than not have that port, right? 00:34:01.759 --> 00:34:07.119 And what China can offer is they is is they can fill that need that these countries have and they can fill it quickly. 00:34:07.279 --> 00:34:18.239 And and you know, one thing we should also, you know, note that I have talked to many people in in the region about is that, you know, Chinese infrastructure projects are not, you know, they're risky. 00:34:18.400 --> 00:34:22.000 There are definitely horror stories, um, but they're not shoddy.

00:34:22.320 --> 00:34:31.280 Uh and these days, China is, you know, there's a reason that China dominates uh kind of global shipbuilding, or they dominate ship-to-shore cranes, or they dominate it in 5G. 00:34:31.360 --> 00:34:34.639 It's because they are providing a genuinely competitive service. 00:34:34.719 --> 00:34:46.960 Um, and they're providing it at a cost, you know, uh kind of finicky or gray zone financing aside, they're providing it at a cost that that for many Latin American leaders, you know, they can afford. 00:34:47.039 --> 00:34:54.239 Uh, and then the last thing I'll note is, of course, right, the Americas, one of our great strengths is that we are a region of democracies. 00:34:54.320 --> 00:35:02.480 We are a region, you know, that that that actually under American Democratic Charter says that democracy is the only form of government acceptable to the people of the Americas. 00:35:02.719 --> 00:35:08.880 That also means that we're subject to to the same, you know, election cycles uh that we know and love here in the United States. 00:35:08.960 --> 00:35:15.039 And there's a pressure on on leaders who are up for re-election or are trying to expand their power base uh to show results quickly. 00:35:15.119 --> 00:35:31.519 And so if China comes along and says, look, we can build you a dam, we can build you a port, we can build you a road, you know, interconnection within your term, countries are going to go with that rather than you know the the a more transparent, potentially financing process that takes time and is slower. 00:35:32.320 --> 00:35:43.599 Um and to wrap things up, I wanted to shift a little bit to the supply side and really kind of highlight a potential area where a lot of the diagnosis that you have could run into a potential problem. 00:35:43.679 --> 00:35:57.199 For example, your main policy recommendations for DFC port buybacks, US Navy avoiding PRC influenced ports, Army Corps of Engineers building, LAC port infrastructure, CIFIA style screening, all of these, no, I I agree with you. 00:35:57.360 --> 00:36:04.960 I think that these are all really great solutions, but the one big worry that I have is really on the US capacity side for shipbuilding. 00:36:05.119 --> 00:36:12.880 Because in the past uh in the past couple decades, China went from about 5% of global shipbuilding in the year 2000 to more than 50% today. 00:36:12.960 --> 00:36:16.960 And meanwhile, US yards are producing fewer than five ocean-going vessels per year. 00:36:17.119 --> 00:36:19.440 Meanwhile, China has about 1,700. 00:36:19.599 --> 00:36:30.719 And so if the US really wants to have this credible alternative to China in the region, especially with ports, especially with a lot of this maritime infrastructure, where do we have to begin to really rebuild this shipbuilding capacity in the US? 00:36:30.800 --> 00:36:34.400 And how important is that as part of the policy solution? 00:36:35.199 --> 00:36:39.360 Yeah, you know, I I think there's no way around the need to reindustrialize. 00:36:39.519 --> 00:36:45.119 Um the the fact of the matter is, right, China can can build these things because they have the capacity. 00:36:45.199 --> 00:36:51.199 And if we don't have that capacity, there's no world in which we're we're gonna be able to out you know outcompete. 00:36:51.280 --> 00:36:56.800 I will note that, you know, I think that there are real sources of strength still in the United States. 00:36:57.039 --> 00:36:59.519 We do have globally competitive infrastructure companies. 00:36:59.679 --> 00:37:10.000 We have companies like Bechtel that can, you know, that that can build impressive projects and have bid and in some cases lost out to Chinese uh uh infrastructure investments in Latin America. 00:37:10.159 --> 00:37:15.679 So we do have that muscle memory and and that backbone, but we need to rebuild it. 00:37:15.760 --> 00:37:21.840 Uh and I think you know that that is gonna take some time and it's gonna take kind of a hard look at our our domestic economy. 00:37:21.920 --> 00:37:24.960 That's not really what I focus on here at CSIS. 00:37:25.039 --> 00:37:31.840 Um, but what I often say is the other thing we need to be doing is we need to be looking around for allies and partners. 00:37:32.000 --> 00:37:51.599 Um and so I mentioned before uh the the the BlackRock deal, this the Hutchson BlackRock deal as being kind of this archetypical investment where you know you have uh you know a high, a top-down US political signal, you bring in US capital markets, uh, which are you know pretty good at allocating resources, right? 00:37:51.840 --> 00:37:53.280 Pretty good at allocating capital. 00:37:53.440 --> 00:38:02.480 Uh, and then you partner with a uh a like-minded ally or a country a company with a like-minded ally, of which there's actually a lot in the port and maritime space, right? 00:38:02.559 --> 00:38:09.360 We've we've got we've got Mersk, we've got MSc, we've got Port Singapore Authority, we've got Evergreen in in Taiwan. 00:38:09.599 --> 00:38:16.480 We have friends who have expertise in in maritime shipping port management issues, and we bring them in. 00:38:16.559 --> 00:38:28.559 Um and and sort of that's where I would say uh you know the US should look to to start, um, right, in in in the in the interest of kind of like staunching the bleeding, maybe, or or or starting to compete better. 00:38:28.800 --> 00:38:34.719 But long term, right, there there's no way out of uh of reindustrialization, in my opinion. 00:38:36.000 --> 00:38:44.960 Yeah, so I think I think selfishly, Andrew and I, we could probably carry this conversation on uh even longer uh than we have, but I know we want to be respectful of your time. 00:38:45.119 --> 00:38:54.800 Um so I guess before before we let you go, Henry, like what what's the one thing maybe you'd like our listeners to take away from either the work you've done or our podcast today? 00:38:55.599 --> 00:38:56.000 Yeah. 00:38:56.239 --> 00:38:57.039 Oh boy. 00:38:57.280 --> 00:39:01.679 Um all of a sudden I've got I'm at a loss for words. 00:39:01.760 --> 00:39:11.519 But um I I I think I think you know, the one thing I'll I always return to is just, you know, 80% of global trade moves by sea. 00:39:12.000 --> 00:39:15.599 Ports are, but but people don't live in the ocean, right? 00:39:15.840 --> 00:39:20.800 Uh ports are the interface through which so much of the global economy flows. 00:39:20.880 --> 00:39:28.320 Uh and and when they're run well and they're run effectively, they're a boon to to to both the communities, you know, the local communities and for the world. 00:39:28.480 --> 00:39:32.079 Um and and I think that that that's why I care so much. 00:39:32.159 --> 00:39:54.079 I would I guess I would leave it just saying uh ports matter, um, paying attention to ports and and and and not just that you know a strategic level, but the nitty-gritty of, you know, how are we modernizing, how are we digitizing, how are we implementing AI and automation into these facilities, and how are we doing that securely in a way that you know ensures that that we're resilient and hardened against threats is is incredibly important. 00:39:54.159 --> 00:39:55.360 It's only growing more important. 00:39:55.440 --> 00:40:02.320 So I'm grateful to see, you know, more interest in in what I think a few years ago was probably a pretty wonky subject. 00:40:02.480 --> 00:40:08.559 Um and and I'm excited to keep it for it to keep going uh and hopefully keep evolving in a positive direction. 00:40:09.280 --> 00:40:09.679 Great. 00:40:09.760 --> 00:40:17.599 And and for the for the folks at home, I uh did not tell Henry I was gonna be asking that question, so he was very quick on his feet and gave us a fantastic answer. 00:40:17.760 --> 00:40:18.400 Thank you so much. 00:40:18.639 --> 00:40:22.960 Henry Henry uh Zeb of CSIS, thank you so much for joining the big three. 00:40:23.039 --> 00:40:31.440 Uh China's port strategy in Latin America covers a portfolio of infrastructure that moves the physical economy, the ports, the cranes, the scanners, the rail corridors, etc. 00:40:31.840 --> 00:40:32.159 The U.S. 00:40:32.320 --> 00:40:37.760 response has to be physical too, financing shipbuilding equipment and affirmative offer to partner countries. 00:40:37.920 --> 00:40:40.559 Otherwise, the the warnings fall on deaf ears. 00:40:40.800 --> 00:40:53.119 Um learn more about our work at the ProsperousAmerica.org and uh be sure to find us on YouTube uh and you can check us out, check out the big three on Apple, Spotify, Google, or wherever you get your podcast. 00:40:53.360 --> 00:40:54.400 Thank you again, Henry. 00:40:55.119 --> 00:40:56.320 Thanks for having me on.