Port Diplomacy: China’s Pursuit of Global Trade Dominance

The growing effects of globalization and trade openness have increased the importance of seaports in global supply chains. Therefore, the notion of “port diplomacy” has surfaced, denoting the strategic utilization of seaports by coastal countries to promote their national interests and strengthen their standing within the international system. Ports are widely recognized as the primary hubs in the global transportation system due to their pivotal role as gateways to international trade and economic advancement. Additionally, they play a fundamental role in facilitating the movement of goods and establishing connections between countries across different continents.

China has gained significant recognition as a leading country in the field of maritime shipping networks and ports. It is home to the most expansive and connected container ports globally, and its substantial investments in the port infrastructure of both developed and developing countries hold critical importance for the global economy. This has endowed it with geo-economic sway over global maritime routes.

Within this context, this paper aims to examine the significance of ports in global trade, highlighted by the Red Sea crisis, while also examining the various manifestations of Chinese dominance over the global port network.

Pivotal Role

Ports play an important role not only in economics but also in geopolitics and defense, given that they are strategically important for maintaining national security and defense, safeguarding national interests, and gaining political clout. Ports also help to facilitate the movement of goods across international borders, draw foreign direct investment, and develop industrial zones and logistics complexes in their vicinity. This contributes to the generation of new employment opportunities and revenue streams in dollars. Ports are therefore integral components of the economic development strategies of numerous developing nations and critical nodes in global supply chains.

The significance of ports is underscored by the fact that maritime shipping dominates approximately 90% of worldwide trade, and the magnitude of maritime trade is projected to triple by 2050. Additionally, the ten largest ports globally have an impact of 9.3% on the global economy, with Shanghai Port contributing approximately 1.7% of global output. In light of this, ports also hold considerable significance for some industries, like mining and quarrying, which rely on maritime shipping for 82% of their raw material transportation.

The persistent unrest in the Red Sea has brought attention to the critical role that ports play in global trade, given that vessels typically steer clear of traffic in turbulent lanes. As such, the turmoil in the Red Sea has led to the rerouting of hundreds of ships, including container ships, around the Cape of Good Hope in South Africa, which increased the delay costs for exporters, importers, and end-users, as well as increased the cost of global shipping, ship insurance, fuel consumption, and operation by an additional 7 to 20 days. It is anticipated that ship rerouting between Asia and northern Europe could result in additional fuel costs of up to $1 million per round trip. Ships delaying their arrival date and altering their course would cause a significant disruption to global trade.

The most recent data on the Kiel Trade Index for December 2023, published by the German Kiel Institute, revealed that recent changes in the shipping industry reduced the volume of containers transported in the Red Sea by approximately 70%, or more than half, and that global trade decreased by 1.3% between November 2023 and December 2023. 

Furthermore, in addition to the disruptions observed in the Red Sea, ports face numerous challenges within the global trade arena due to the increasing demand for container shipping, which places stress on infrastructure and mandates ongoing facility modernization to accommodate larger vessels. The implementation of environmentally sustainable practices in ports poses a significant challenge in terms of compliance with regulations, reduction of carbon emissions, and mitigation of the ecological consequences associated with marine activities. Furthermore, in order to boost supply chains and increase operational efficiency, ports must stay up to date with digitization and emerging technologies such as the Internet of Things and artificial intelligence.

Chinese Leadership

China’s ascent to the status of the world’s second largest economy and largest trading country was not coincidental; rather, it was the result of methodical planning and the formulation of precise strategies designed to foster manufacturing-driven economic growth and international exports. The Chinese leadership recognized the necessity of establishing a robust presence in international markets and the importance of constructing a trade network with all countries worldwide.  As a result, the Chinese government initiated the provision of financial assistance and incentives to firms operating in the ports and maritime transport industries, ultimately ensuring that sea lanes facilitated 95% of its trade. The expeditious proliferation of port openings along China’s coastlines and its substantial investments in foreign ports can be attributed to the country’s strategic and economic goals. Manifestations of China’s outsized influence on the global port system are as follows:

Global Preeminence: According to the Global Liner Shipping Connectivity Index for the second quarter of 2023, Chinese container ports are positioned among the most connected ports worldwide and have seven of the ten largest ports globally in terms of total cargo tonnage. Figure 1 depicts the significance of Chinese ports in the context of global maritime trade:

Figure 1: Volume of container loading and unloading operations at the busiest ports

Source: World Shipping Council, Top 50 Container Ports.

The above figure makes it evident that the Port of Shanghai is the world’s largest port and that, since surpassing the Port of Singapore in 2010, it has grown to be the busiest container port globally.  Furthermore, among the top ten ports, only three were not located in China: the Port of Singapore secured the second position, the Port of Busan in South Korea ranked seventh, and the Port of Rotterdam in the Netherlands claimed the tenth spot.

The significance of Chinese ports in global trade is attributed not only to their large scale but also to their superior efficiency in comparison to other ports. The latest data from UNCTAD indicates that container ships spent an average of 0.62 days in Chinese ports in 2020, compared to approximately 0.8 days in Singapore ports and 1.03 days in United States ports. Figure 2 illustrates the daily waiting period in ports:

Figure 2: Ships’ wait time in ports (days) 

Source: UNCTAD, key performance indicators for ports and the shipping fleet

While Japan and Taiwan have shorter waiting times for ships compared to China, Chinese ports are considered more efficient due to their ability to handle larger vessels. The size of the ship directly impacts the time needed for loading and unloading containers.

Furthermore, China is the second-largest shipowner country after Greece, followed by Japan in third place, Singapore in fourth place, and Hong Kong in fifth place. The Chinese government’s investment of approximately CNY 1 trillion (equivalent to $153 billion) between 2012 and 2019 has enabled China to establish a dominant position in the field of ports by constructing new port facilities and upgrading existing port infrastructure. Furthermore, China depends on investing in cutting-edge methods and technology like cloud computing, artificial intelligence, and the Internet of Things to improve port efficiency—especially in view of the slowdown in international trade.

Giant Institutions: China’s ownership of a number of enormous shipping companies has granted it sway over the international maritime shipping industry. In 2016, Beijing established a large-scale national corporation by merging China Ocean Shipping and China Shipping Group. This resulted in the formation of COSCO Shipping, which encompasses a shipping line, a port operating company, and various other commercial activities within the shipping industry. In addition to COSCO, China possesses China Merchants Port and China Shipping Terminal Development companies, over which the Chinese government exerts influence through interference in employee appointment policies and the Chinese Communist Party strategically selects their senior executives to exercise authority over the company. Chinese maritime companies possess a fundamental edge over their rivals, as they have convenient access to low-interest loans offered by government banks as well as ongoing government assistance to strengthen their presence in the worldwide shipbuilding and maritime shipping industry.

Consolidating Power across Continents: China, apart from being home to the largest ports and leading shipping companies worldwide, also possesses and manages a substantial number of port terminals across nearly a hundred commercial ports spanning over 50 countries, or all continents, with the exception of Antarctica, as shown in Table 1.

Table 1:  Volume of Chinese investments in ports worldwide ($billion)

Source: Council on Foreign Relations, Tracking China’s Control of Overseas Ports

China has also acquired shares in seaports located in Belgium, France, Greece, Italy, the Netherlands, and Germany over the last decade, thereby establishing its dominance over the supply routes of the continent and granting it control over twenty European ports.

Furthermore, China Merchants Port has acquired terminals located in Sri Lanka, Myanmar, Pakistan, Djibouti, and Brazil. Additionally, the company has established an investment portfolio encompassing a minimum of 40 ports across various regions, including North and South America, Africa, the Middle East, Eastern Europe, Central Asia, Southeast Asia, Australia, and the Pacific.

It should be noted that China frequently engages in the development of entire economic zones centered around transportation activity, encompassing not only sea ports but also commercial centers and power generation stations, as well as residential projects from time to time.

Control of Data: In an effort to make tracking shipments and managing logistics data easier, China launched the LOGINK platform in 2007. The platform subsequently attained success in 2014 through the integration of data pertaining to approximately 11 Chinese ports, 5 Japanese ports, and 3 South Korean ports. From 2014 to 2022, approximately 24 ports worldwide used LOGINK, including 12 in Asia, 9 in Europe, and 3 in the Middle East.

To promote the platform’s adoption, the Chinese government has offered ports and shipping companies the opportunity to use the platform at no cost. This enables Beijing to gain comprehensive access to logistical data, encompassing transportation, management, and pricing of goods worldwide.

In an effort to address the potential hazards associated with the use of this platform, the United States has barred the Pentagon from using any port that employs the LOGINK system. Additionally, it has urged its allies to ban its use within their sea borders.

In short, China’s control over the primary points of contact in supply chains and ownership of the largest and most connected container ports globally have enabled it to dominate maritime trade. China’s strategic investments in global ports, commonly known as port diplomacy, are a crucial component of its comprehensive strategy to achieve great power status.