China is keeping up with its overseas ports acquisition program through its state-owned enterprises (SOEs), particularly seeking to increase its influence in South America, as part of its scheme to gain access to strategic maritime hubs, control key sea lanes and energy supply routes, ultimately building a stronger global maritime presence to be able to exert pressure, which raises national security concerns.
In Brazil, China Merchants Port Holdings (CMPort) is proceeding with its purchase of Vast Infraestrutura, the South American country’s only privately operated Very Large Crude Carrier (VLCC) terminal in the Port of Açu, in Rio de Janeiro.
In late February, CMPort announced it had signed a share purchase agreement with Brazil’s Prumo Logística and its subsidiary Açu Petróleo Investimentos to acquire a 70 percent stake in the crude oil terminal, subject to the completion of closing conditions, including obtaining approvals from relevant government authorities and regulatory bodies. This acquisition will expand CMPort’s business footprint in Brazil, following its acquisition in 2018 of the Paranaguá Container Terminal, a major container terminal in Paraná state and the largest container port terminal in South America.
The Vast Infraestrutura terminal handles approximately 30 percent of Brazil’s crude oil exports, operating at an average of 560,000 barrels per day. It currently has a licensed capacity of 1.2 million barrels per day.
The move drew criticism from experts who closely watch the CMPort and its parent company China Merchants Group’s (CMG) global investments as tools to enhance China’s geopolitical influence and access to critical infrastructure. CMG, a key SOE directly administered by the Chinese Communist Party (CCP), has long been accused of using debt-trap diplomacy and accessing sensitive information for potential espionage on behalf of the CCP.
“This Chinese strategy seems quite explicit to me, as the cases of Chancay [a recently inaugurated Chinese megaport in Peru], Paranaguá, and Açu are just a few examples of Chinese companies’ penetration into port areas and other commodity handling structures in South America,” Marcos Pedlowski, associate professor at the Darcy Ribeiro State University of Northern Rio de Janeiro, who writes about China’s presence in South American projects, told Diálogo. “We must remember that in Brazil, China has also acquired an important terminal in the Port of Santos and is involved in the construction of another port in Maranhão.”
Controversies
Among the many issues tied to CMG and its subsidiaries is that of the debt trap diplomacy. Perhaps the Hambantota Port in Sri Lanka better exemplifies China’s financing schemes. Seeking to transform a small fishing town into a shipping hub, Sri Lanka relied on Chinese financing yet found itself unable to repay its loans. In 2017, CMG sent $1.5 billion to a debt-stricken Sri Lanka in return for an 80 percent stake in the Hambantota Port and a 99-year lease for operating it.
For experts, China’s infrastructure investments are creating dependencies and are then exploited for strategic purposes. Although the port is not to be used for military purposes, China showed its military might by docking a military survey ship for a week in 2022. CMG’s investments in overseas ports have also sparked concerns about monitoring of ship movements, access to sensitive information about equipment, and supply chain vulnerabilities.
For Pedlowski, China’s SOEs control of strategic areas in another country, create a series of difficulties in relation to national sovereignty and the exercise of national authority in the area acquired, something he said could also happen with other foreign companies.
“In the case of port acquisitions, this becomes even more relevant, as there is always the risk of reinforcing the enclave perspective and the difficulty of monitoring the transit of goods through the host country,” says Pedlowski. “In the case of Vast Infraestrutura, I would say that the potential for conflicts of interest, in terms of national sovereignty, increases to the extent that China Merchants Port Holding is a state-owned company, which in China’s case establishes a direct relationship with the strategic designs of the Chinese government.”
The Port of Açu, Pedlowski pointed out, is controlled by an international private equity fund and Brazilian authorities have already had difficulty accessing the project to monitor potential violations of labor and maritime safety laws.
“With China’s eventual control, I don’t see why this situation would be minimized. In fact, the trend is for control to become even stricter,” Pedlowski said. “I would not be surprised if the acquisition of Vast is only the first step toward a kind of ‘Sinicization’ of that port facility. And I don’t think this process will stop at the northern coast of Rio de Janeiro.”
