China Takes Over Strategic Port in Pakistan

Chinese Overseas Port Holdings Limited took over management of the Pakistani port of Gwadar on Monday, amid suspicion of China’s growing presence in the Indian Ocean. From Reuters:

China financed more than 80 percent of the $248 million development cost of the port on the Arabian Sea, as part of a plan to open up an energy and trade corridor from the Gulf, across Pakistan to western China.

When complete, the port could be used by the Chinese Navy, analysts say, and Indian Defence Minister A.K. Antony told reporters on February 6 that Chinese control of the port was “a matter of concern.”

Indian policy-makers are wary of a string of strategically located ports being built by Chinese companies in its neighborhood, as India beefs up its military clout to compete.

China has also funded ports in Hambantota, Sri Lanka, and Chittagong in Bangladesh, both India’s neighbors.

China has repeatedly denied harboring any military intentions, however. A Global Times editorial, ‘Gwadar move renews ‘China Threat’ cliché‘, argued on Monday that such fears were simply the latest expressions of a more general insecurity.

Gwadar port is located in Pakistan’s Balochistan Province. As it’s close to the Strait of Hormuz and Pakistan’s border with Iran, it is considered strategically important. The West believes that the port is the starting point of an energy corridor that will connect China to the Arabian Sea and the Strait of Hormuz and also a strategic branch for China to influence the situation in the Persian Gulf. Some even see it is part of a Chinese “string of pearls” strategy aimed at encircling India.

Behind these analyses are worries and reservations over China’s rise. Energy security plays a fundamental role in this rise. The West is alert to any overseas move by China related to energy.

Any port has potential military value. There are growing suspicions that China will station fleets of warships in the Indian Ocean or other waters and establish naval bases worldwide. However, few Chinese support this. There are no benefits for China in encircling India, and strategists in both countries don’t want to play such a game.

[…] Enclosing and colonizing land overseas and expanding powers are all strange concepts to Chinese. Chinese merchant ships can be seen all over the world nowadays, but we have no interest in “pirate civilization.” China alone cannot convince the outside world, but regional prosperity promoted by China’s operations at Gwadar port in the future will be strong evidence of this.

Some outside China are also skeptical of the encirclement theory. From Daniel W. Drezner at Foreign Policy early this month:

For the past few years, a low level theme that occasionally pops into my news feed is the idea of greater Sino-Pakistani cooperation. Now this has a certain amount of realpolitik sense to it. The United States and Pakistan are not exactly on the best of terms, China is a rising power, they share a comon interest in containing India, yadda, yadda yadda. As a result, there has been the occasional press story about closer ties, which begets the inevitable U.S.-based blog posts about China expanding its “string of pearls” strategy of more deepwater ports in the Asia/Pacific region.

There’s just one thing. The more closely one reads these stories, the less clear it is that China wants a string of pearls. Most of these stories talk about great Pakistani enthusiasm for more Chinese involvement. That enthusiasm is not really reciprocated by China, however. […]

[… T]o sum up: despite Pakistan prostrating itself before China, Beijing has been extremely leery of getting too enmeshed in that country. It has rejected repeated requests for military basing, and only now has a commercial Chinese company agreed to manage a port that appears to be the Pakistani exemplar of “white elephant.”

So please, no “strong of pearls” posts from the national security blogosphere […]. These pearls are about as fake as you can get.

Another strategic explanation for the Gwadar takeover is the prospect of a ‘Chinese California': a borrowed west coast on the Indian Ocean, linked to China by a railway and oil pipeline to Xinjiang. This might lessen China’s reliance on oil imports carried through the potentially vulnerable Strait of Malacca, from the Indian Ocean into the South China Sea. Similar plans have been mooted in the past for Myanmar, and though plans for the Gwadar railway predate Yangon’s drift away from Beijing, that development may increase the appeal of the Pakistani route. But Gwadar’s utility in energy security terms has also been disputed. From Xu Tianran at Global Times:

The operation of the strategic port is also widely regarded as a key move by China to seek an alternative to the Strait of Malacca, through which over 80 percent of the country’s imported oil passes.

[…] Under its 12th Five-Year Plan, China has vowed to accelerate the construction of railways and highways linking Gwadar Port and Kashi in Northwest China’s Xinjiang Uyghur Autonomous Region.

[…] Zhou Dadi, former director-general of the Energy Research Institute under the National Development and Reform Commission, told the Global Times that the port’s role in securing China’s energy supply is being overstated, adding that the costs for building an oil pipeline and transporting oil via railways would be high.

“The idea of using the route from Pakistan to China as an alternative energy line can be seen as a last resort at most,” he said, adding that a situation in which the Strait of Malacca is blocked would result in a worldwide conflict, which is highly unlikely.

The deal may be less about Gwadar’s location than part of a broader pattern of Chinese port investments around the globe, as growth in China slows and struggling operators elsewhere sell cheaply. From Joanne Chiu at The Wall Street Journal:

China Merchants, a unit of the China Merchants Group conglomerate, last month agreed to pay €400 million ($543 million) to buy a 49% stake in port operator Terminal Link SAS from French container-shipping company CMA CGM, which was reducing debt.

Weeks earlier, China Merchants, the country’s biggest port operator by container shipping volume, acquired a 23.5% stake in the Port of Djibouti. China Merchants in 2011 took control of a container port development in Colombo, Sri Lanka, and raised its stake to 85% last year.

[…] For China Merchants, the CMA CGM deal gives access to a diversified port portfolio of 15 terminals in eight countries, including Morocco, Belgium and the U.S. The deal also strengthens the Chinese company’s relationship with the French shipping line. The companies signed a 12-year agreement in which CMA CGM’s container ships will increase calls at China Merchants’ ports.

[…] Growth in emerging markets is partly the result of a shift of some factory activity away from China. “Many manufacturers that produce low-end products, such as shoes and clothes, have been relocating their production bases from [China] to places like Cambodia, because of cheaper labor costs.…The trend is irreversible,” says Lawrence Li, a regional shipping and ports analyst at brokerage firm UOB KayHian.

Although featured on the back of Pakistan’s five rupee note, Gwadar has not been a commercial success so far. From Declan Walsh at The New York Times:

Commissioned by General Musharraf, the Gwadar port project initially set off a flurry of excited property speculation in what was once a quiet fishing village. Developers presented flashy plans for luxury apartment blocks amid talk the port could rival Dubai.

[…] But Pakistan has failed to build the port or transportation infrastructure needed to develop the port, the property bubble has burst and, according to the port management Web site, the last ship to dock there arrived in November. “The government never built the infrastructure that the port needed — roads, rail or storage depots,” said Khurram Husain, a freelance business journalist. “Why would any shipping company come to the port if it has no service to offer?”

According to reports in the Pakistani news media, the Port of Singapore Authority sought to withdraw from the management contract after the Pakistani government failed to hand over land needed to develop the facility.