To the surprise of many, on July 29, for the first time in Peru’s history, members of China’s People’s Liberation Army (PLA) marched in the traditional Grand Military Parade, as part of the Andean country’s yearly Independence Day celebrations.
The parade, which aims to pay tribute to the Peruvian Armed Forces and National Police by highlighting their role in the defense and security of the nation, has historically been accompanied by invited delegations from the region, but never before had a country so distant in geography and history, and which has nothing to do with Peru’s independence, participated. “We are facing a sample of the influence that China exercises in Peru today,” Paolo Benza, Peruvian political analyst and economic journalist, told Diálogo.
According to the China Index, a platform of the Doublethink Lab think tank, which studies the influence of China in the world, Peru is the fifth country with the greatest Chinese influence worldwide and the first in Latin America. Countries such as Venezuela and Bolivia, which have a closer relationship with the Asian country, ranked 25th and 60th respectively, out of 82 countries that were analyzed.
That influence became evident just a few months ago when the Peruvian Congress approved in record time a law granting exclusive maritime services in the Chancay Port to Chinese state-owned company Cosco Ocean Shipping Company (COSCO). “They made a tailor-made suit for China to avoid economic reprisals from Beijing,” Agustín Barletti, an Argentine writer and journalist who specializes in ports, maritime transport, and logistics, told Diálogo.
Since 2009, China has been a leading actor in the Peruvian economy, when both countries signed a free trade agreement. According to data from ComexPeru, a business association that groups the main exporting and importing companies in the country, trade between Peru and China reached $37 billion in 2023, seven times more than a decade ago, being today the third Latin American country that sells the most to Beijing. In addition, Peru is the second largest recipient of Chinese investment in Latin America, surpassed only by Brazil.
But the macroeconomic aspect is only the tip of the iceberg of China’s penetration in Peru. In mid 2024, Chinese company Southern Power Grid International formalized the purchase of Peru’s main electricity generation company, Enel Distribución S.A.A., which according to Peru’s National Society of Industries (SIN), will allow China to control 100 percent of the electricity distribution market in Lima, with a population of 10 million inhabitants. “China wants to be Latin America’s switch, and Peru has become the paradigm of that effort,” Benza said, adding that Peru has underestimated what it means to relinquish control of the energy sector to a country like China.
Experts and analysts have raised the alarm about China’s advances and say that there is a lack of open and critical debate about this relationship. “The Peruvian elites seem determined not to question the actions of China, exposing the country to geopolitical and economic vulnerabilities that today are of great concern,” Juan Pablo Cardenal, former Spanish media correspondent in China and author of the recent report China in Peru: The Hidden Side of an Asymmetrical Relationship, told Diálogo.
Chancay: Chinese port in Peruvian territory?
Five years ago, a project was born in Peru that promised to be the most important strategic infrastructure project in the recent history of the Andean country: the Chancay Multipurpose Port Terminal. The mega project, with a $3.6 billion investment, would give Chinese state-owned company COSCO a 60 percent majority investment, and the remaining 40 percent to Peruvian mining company Volcán.
The ambitious project seeks to reduce by up to 10 days ships travel times between South America and Asia, which currently take more than 45 days. It will also be the first South American port with a depth of more than 20 meters, allowing the entry of ships carrying up to 18,000 containers, the largest in the world.
Undoubtedly, the size and strategic location of the port promised to turn Chancay into an international trade hub, an initiative that would bring Peru important economic gains, but above all, regional power.
And this was what the Peruvian government highlighted under the slogan “a transformation, a great opportunity, a port for the whole world,” as it announced the partnership agreement between the Peruvian and Chinese companies on January 23, 2019, in Davos, Switzerland, during the World Economic Forum.
“They are joining efforts to develop a port terminal in Chancay […]; the approach of this agreement is to create a hub for the entire Pacific, and aiming to work with Callao to make the best port infrastructure offer of all South America on the Pacific side,” were the words of then Peru’s President Martin Vizcarra Cornejo, adding that the Chinese company’s stake in this port was “an act of confidence in the present and future of the country.”
But what Peru did not realize at the time was that Beijing had other plans. Liang Yu, China’s ambassador to Peru, was not wrong when he said in mid-2022 that Chancay could become the Shanghai of South America, Peruvian newspaper La República reported.
They made a tailor-made suit for China to avoid economic reprisals from Beijing.
– Agustín Barletti
A few months before the mid-2024 scheduled inauguration of the first phase of the port, reports that COSCO had acquired exclusive rights to run all services of the Chancay maritime terminal, through a clause in the contract until then unknown to the public and the government, came to light. This agreement was against the antitrust clause of the National Port System, Peruvian newspaper El Comercio reported.
Peru’s National Port Authority (APN) announced that it was an administrative error and asked for the exclusivity agreement to be annulled. “Due to the fact that the APN does not have the legal authority to grant exclusivity of services, the nullity of Article 2 of the Board of Directors’ Agreement Resolution No. 008-2021-APN-DIR was requested, seeking to correct an error in an administrative act,” the March 22, 2024 statement said.
An error that COSCO denied and rejected, threatening instead to withdraw from the project and take the State to arbitration if the 30-year exclusivity was annulled, Carlos Tejada, deputy general manager of the COSCO Shipping Ports Chancay Peru consortium said. “It is clear that China never thought of building a port for Peru, but rather a Chinese port in Peruvian territory,” Barletti said.
Faced with COSCO’s threats, Peru ceded its most ambitious strategic infrastructure project to China. In record time, the Peruvian Congress passed a law ratifying the exclusivity of essential services for the Chinese shipping company. The legislative change determined that “the owner of a port for public use that has port authorization may provide port services on an exclusive basis.”
For the English newspaper The Economist, Chancay typifies the footprint that China is leaving in the region, warning that Latin American leaders are not taking into account the risks of a growing dependence on the Asian country. “We are facing a clear example of China’s economic coercion, which takes advantage of the economic dependence it has generated in countries like Peru to pressure and penalize if a country tries to change the rules of the game,” Barletti said.
And behind all this is nothing more than the Chinese government, highlighting the complex geopolitical and economic dynamics that surround negotiations with companies from the Asian country. “COSCO is managed by the State-owned Assets Supervision and Administration Commission, which in turn reports directly to the Chinese State Council, so it is under the control of the Communist Party. The economic and political backing that this state-owned company has is not found in any other company in the world capable of threatening to withdraw from a project in which it has already invested close to $1.5 billion,” Barletti added.
How many other governments have enthusiastically negotiated agreements with Chinese investors without understanding all the fine print? Foreign Policy magazine asked, suggesting that Peru, like many other governments ranging from Italy to Sri Lanka, which until recently excitedly courted Chinese investments, backed down in the face of the Asian country’s threats.
Dual tactics and strategy: commercial and military
The effusiveness surrounding the contract between Volcan and COSCO has not only been overshadowed by the administrative error that forced the Peruvian government to surrender to China’s request, but also by the geopolitical implications of this strategic infrastructure in Beijing’s hands.
“Every Chinese infrastructure built abroad has a dual use,” Joseph Humire, an expert on global security and transnational threats and director of the Center for a Secure Free Society, told Diálogo. As Humire explains, Chinese security law states that in an eventual military mobilization all Chinese assets abroad will be at the PLA’s disposal; so, should Beijing require it, the Chancay Port could be used for military purposes. “In the event of a global conflict, China will exert pressure on Chancay for its naval forces to rest and refuel, or even restrict access to sea lanes valuable to the U.S. and its allies,” Humire said.
That hypothetical case has already materialized in other Chinese ports around the world. The most obvious example is Djibouti, located at the entrance to the Red Sea and the Suez Canal, where a seaport became China’s first overseas military base. But it isn’t the only one. Recent satellite images have confirmed the presence of two PLA warships docked for five months at the Ream Naval Base in Cambodia, whose pier has been built with Chinese funding. A worrying situation to which are added other Chinese port terminals already serving PLA Navy warships, such as the port of Singapore, the port of Dar es Salem in Tanzania, or Piero in Greece, Foreign Affairs reported.
That dual commercial and military strategy, says Humire, is evident due to the geographical location of Chinese port investments in the region. “China has already invested in about 40 ports, and most of them are concentrated in the Pacific. What Beijing is looking for is a direct commercial transport link to open channels through which the military can pass. It’s a strategic straight line that they are building,” Humire said.
But that’s not all, the fact that this strategic infrastructure is at the disposal of the Chinese government also brings espionage risks. “China has access to information on movements of other commercial or naval vessels which can help Beijing understand where to successfully restrict sea lanes in a potential military conflict,” Humire added.
Risks that threaten the security and sovereignty of the Peruvian people but that is absent from any debate in the Andean country. “Peru’s economic and political elites seem unconcerned about the geopolitical risks posed by Chancay, perhaps because they do not fully understand the nature of COSCO’s relationship with the Chinese state,” Cardenal said. “COSCO, like other Chinese business giants with a strategic profile, will comply with any kind of request from the Chinese Communist Party to include the military and that is not being taken into account by Peru.”
Irreversible socio-environmental impact
Another aspect that tarnishes the economic benefits that Peru hopes to gain with the Chancay Port is the negative socioeconomic and environmental impact this project has had.
According to Miriam Arce, director of the Association in Defense of Housing and Environment of the Chancay Port (ADEVIMAP), the Modification of the Detailed Environmental Impact Study (MEIAD), which replaced the previous study following COSCO’s announcement to expand the project area, did not take into account some 114 observations presented by government entities and social and environmental organizations on the risks to biodiversity and the health of the inhabitants as a result of the project.
“We were forced to file an appeal before the National Environmental Certification Service for Sustainable Investments (SENACE) — the public agency in charge of reviewing and approving the project’s environmental impact study — requesting its nullity for being a serious risk to the population and the environment. But it is as if we were invisible, nothing happened, and now we are suffering the consequences,” Arce told Diálogo.
China wants to be Latin America’s light switch, and Peru has become the paradigm of that effort.
– Paolo Benza
Thousands of homes have been impacted due to the vibrations caused by the explosions and the underground excavations necessary for the construction of the port and of a tunnel to connect the maritime terminal with the Pan-American Highway.
As Cardenal’s investigation highlighted, COSCO had refused to acknowledge that the cracks appearing in the houses were a consequence of its work. The environmental impact study had made it clear that the work would not affect the houses. However, in mid-2023 a landslide in the area severely affected hundreds of homes and roads, forcing COSCO to acknowledge the impact and take responsibility. “This is a project that has been completely unaware that the population was going to be so affected,” Arce said.
In addition to the impact on housing, there has been the loss of artisanal fishing, the destruction of beaches, and the disappearance of tourism. “They are the main economic means with which the city of Chancay develops, now we have nothing left. We have lost the beaches, people no longer visit us, and the dredging of the seabed is killing the fish and forcing the thousands of fishermen of Chancay to move to other areas because here they no longer find sustenance,” Arce added.
And as if that were not enough, says the ADEVIMAP president, the Santa Rosa wetland 180 meters away is threatened. “It is a sanctuary that is home to about 70 species of birds and 40 species of plants, many of which are unique to this area.”
The wetland is protected by the Cascajo hill, however, according to an investigation carried out by Dialogue Earth, the COSCO Shipping consortium plans to reduce the height of the hill from 80 to 4 meters; in other words: to wipe it out, says the study.
The inhabitants’ protests regarding all the socio-environmental damage have not subsided, despite of the constant threats they face. “COSCO has reported about 25 people for protesting the project. Their modus operandi is to intimidate so that we do not report [its crimes], that is how this company works,” said Arce.
The inhabitants of Chancay complain that they feel invisible before the State, says Arce, even liars. A neglect that goes a step further than the government as it also comes from the media. “It’s part of the influence that China has in Peru,” Peruvian journalist Paolo Benza told Diálogo. “Beyond the penetration in investments and the commercial relationship, the interference in the media is where there has been a tendency to highlight only the positive aspects of China,” Benza says.
A real phenomenon that today could jeopardize Peru’s development and security. “We’ve lost any kind of defense tool and there is concern that our country is mortgaged to China,” Benza adds.
Part Two
The Port of Chancay is China’s most recent development in Peru, yet far from the only one. In early 2024, China consolidated its absolute control over energy distribution in Lima, which has generated concern, especially for its growing acquisitions, such as hydroelectric power plants. “With control of distribution and generation, China would have a dominant position over Peru,” Benza said.
This situation adds to China’s control over Peru’s mining sector, where criticism focuses on the socio-environmental impact and the economic imbalance derived from the 2009 Free Trade Agreement, which has created an asymmetrical relationship between both countries. According to experts, this dependence poses risks of economic coercion, which threatens the Andean country’s sovereignty and security. These issues, along with China’s other strategic advances in the country, will be addressed in the second part of this report.
