Chinese Port in Peru Seen Ramping up Trade With South America

Officials in China and several South American nations are hoping that a deepwater port in Peru will become a gateway that ties the region to the world’s second biggest economy.

China will get a direct gateway to the resource-rich region via a $3.5 billion deepwater port at Chancay, which is set to start operations late this year.

In September, a group of Brazilian farmers and officials arrived in the Peruvian fishing town to inspect the a new Chinese mega port rising on the Pacific coast, promising to turbo charge South America’s trade ties with China.

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Over the last ten years, Beijing has unseated the United States as the largest trade partner for South America, devouring its soy, corn and copper.

The port, majority-owned by Chinese state-owned firm Cosco Shipping, will be the first controlled by China in South America. It will able to accommodate the largest cargo ships, which can head directly to Asia, cutting the journey time by two weeks for some exporters.

Possible hub for copper, soy exports

Beijing and Lima hope Chancay will become a regional hub, both for copper exports from the Andean nation as well as soy from western Brazil, which currently travels through the Panama Canal or skirts the Atlantic before steaming to China.

“The Chancay mega port aims to turn Peru into a strategic commercial and port hub between South America and Asia,” Peru’s trade minister Juan Mathews Salazar said.

Part of China’s decade-old ‘Belt and Road’ drive, the new port embodies the challenge facing the United States and Europe as they look to counter Beijing’s rising influence in Latin America. China’s trade muscle has helped it win allies and gain leverage in political forums, finance and technology.

Full construction started in 2018 at Chancay, some 80 kilometers (50 miles) north of Lima. Workers are now laying thousands of piles and breakwaters; work signs are written in white-on-red Chinese characters.

The first phase of Chancay is set be completed in November 2024. Chinese President Xi Jinping, expected in Peru for an Asia-Pacific Economic Cooperation (APEC) summit that month, could inaugurate the port, a diplomatic source in Lima said.

China’s embassy in Lima did not respond to Reuters’ queries.

“It’s part of China’s new Silk Road,” said Mario de las Casas, corporate affairs manager for Cosco Shipping, which holds a 60% stake in the port. The remainder is controlled by local miner Volcan, in which Glencore owns a stake.

Jose Adriano da Silva, a farming entrepreneur from Brazil’s western Acre state who visited the port, said the project would accelerate regional development. He said talks between Peruvian and Brazilian officials were underway to resolve overland transport challenges.

Economic zone planned near port

Peru’s government is planning an exclusive economic zone near the port and Cosco wants to build an industrial hub near Chancay to process raw materials that could include grains and meat from Brazil before shipping them to Asia.

Brazil’s ambassador in Peru, Clemente Baena Soares, said there were plans for meetings between officials early this year to seek to resolve logistical, sanitary and bureaucratic hurdles at the border so Brazilian trucks can more easily reach the port.

“It’s an opportunity for grain and meat production – especially from Rondonia, Acre, Mato Grosso and Amazonas – to go to Asia through the port of Chancay,” said Soares, who also visited Chancay in September, naming four states in western Brazil.

“(Brazilian businesses) are delighted with the possibility of not using the Panama Canal to take their goods to Asia.”

He added there would need to be investment in an existing road known as the Interoceanic Highway – which runs from further south in Peru across the Andes to Brazil – to improve transport routes. A long-discussed rail link remained in the study phase, he said.

China now a key regional partner

China overtook the United States on trade in South and Central America under former President Donald Trump, despite his administration warning the region about the dangers of getting too close to Beijing. Under President Joe Biden the gap has widened despite attempts to reverse it.

US officials are now taking a different tack, arguing that the United States offers the region other things beyond trade, including investment in high-tech industries.

“I think using the metric of trade to evaluate the influence of China is not an accurate way,” Juan Gonzalez, a White House adviser and the National Security Council’s Western Hemisphere senior director, told Reuters in Buenos Aires.

“We’re confident in our ability to compete with China,” he added, urging regional governments to ensure there were no “political strings attached” to trade with Beijing.

Beijing says its trade and investment in Latin America is a win-win for both sides. Some 150 countries have signed on to the Belt and Road with China, including 22 in Latin America.

The change over 10 years is stark.

A decade ago, Peru, the world’s no-2 copper producer, traded slightly more with the United States than China. Now, China has a more than $10 billion lead in bilateral trade, the latest annual data show.

That trend is playing out around the region.

Reuters interviewed two dozen officials, business leaders and trade experts, along with an analysis of 10 years of trade data, revealing how China’s infrastructure spending is cementing its role as the key trade and investment partner for South America, defying an economic slowdown at home and US warnings about “debt-trap” diplomacy.

Part of the shift is pragmatic. Fast-growing China needs the copper and lithium from South America’s Andes, along with the corn and soy from the plains of Argentina and Brazil.

But its widening trade lead – some $100 billion around South America in the most recent annual data – brings extra clout.

Beijing has in the last year upgraded ties with Uruguay and Colombia to “strategic partnerships” – the latter a US ally.

Argentina’s President Javier Milei, once highly critical of China, has softened his stance since taking office last month, reflecting Beijing’s importance to the crisis-hit economy.

It is the top buyer of Argentina’s soy and beef and has an $18-billion currency swap line with the country – which Argentina’s cash-strapped government has tapped to pay its debt, including with the International Monetary Fund (IMF).

“The last thing our dear Argentine friends need in these challenging times is to lose the support of an important partner like China,” the Chinese ambassador in Colombia wrote on social media platform X following Milei’s inauguration.

China-Peru trade doubled over last decade

Peru’s trade with China doubled in the last decade to $33 billion in 2022, driven by rising copper exports, even as its commerce flatlined with the United States. China has invested some $24 billion in Peruvian mines, the power grid, transportation and hydro-electric power generation over the same period.

Exports to China grew 9.3% in the first eleven months of last year, government data show, faster than the 5.3% growth of exports to the US. Peru has a $9.4 billion trade surplus with China and a $1.3 billion deficit with the United States.

Peru’s President Dina Boluarte met China’s Xi in November at the Asia-Pacific Economic Cooperation (APEC) forum in San Francisco. They discussed the Chancay port, which Boluarte said was a “significant boost to free trade and new Chinese investments.”

That came after an awkward on-the-move parlay in Washington with Biden, which was not given full bilateral meeting status.

“China is taking advantage of our absence and that’s a real problem,” said Eric Farnsworth, a former White House adviser and State Department official, who is now a Latin America expert at the Council of the Americas and Americas Society.

He said the port bolstered China’s powerful position in Peru and created a “point of leverage” in the region.

Two regional diplomats said it also reflected a more muscular and ambitious China, often backed by deep pockets: a far cry from a wave of Chinese immigration to Peru two centuries ago when migrants came as cotton workers or to set up ‘chifas’ – Chinese food outlets.

“Now business executives or bankers come, with big projects tucked under their belts,” said Juan Carlos Capuñay, Peru’s former ambassador to China.

‘Desperate for financing’

China hasn’t had things all its own way. Its Belt and Road has faced pushback in Asia and Europe – Italy recently pulled out of the initiative – while bad debts owed to China have ballooned. In Latin America, projects from Argentina to Venezuela have faced hold-ups.

Diplomats and trade experts also cautioned that the Chancay port would only be successful if regional infrastructure including roads and railways improved to enable goods to get there, including grains from Brazil.

Currently, the Interocean Highway – a little-used road corridor of some 2,600 kilometers (1,616 miles) in five sections, built more than a decade ago – links the Pacific Coast in the south of Peru to Brazil’s state of Acre.

“The issue today is a lack of regional connections, which is very complex for the success of the project,” Fernando Reyes Matta, former Chilean ambassador to China, said.

Nonetheless, several of the people said China’s rise in South America was solidifying despite these headwinds, with the region desperate for financing and foreign currency.

A senior European diplomat based in South America said the big gap in infrastructure funding in the region made it hard for the United States to “strong arm” local governments to turn down Chinese money.

Meanwhile, global interest had grown in South America’s resources such as lithium, copper and grains.

“Latin America has become a new battleground for those minerals between the United States, Europe and China,” he said.