China’s port investments and risks to national security

Independent Polish media report that a U.S. ship that was supposed to pick up military equipment was refused access to the Polish port of Gdynia last month.

Allegedly — I haven’t been able to confirm the story in other media or elsewhere — the ship later agreed to pay a “prohibitive” fee to Hutchinson Port Holdings, a Chinese company that manages the facility, and was then allowed to dock.

If true, this is the first evidence of a problem long anticipated: Aggressive efforts by Beijing to build and develop infrastructure in foreign countries that allows the companies operating those facilities to advance Chinese government interests rather than those of the host nations. While considerable attention has focused on the dangers associated with a Chinese role in national telecommunications grids, equally worrisome is a presence in conventional infrastructure, such as transportation hubs like ports.

For over two decades, China has made a concerted effort to send its commercial enterprises out of the country, to invest in foreign markets generally and infrastructure more specifically; this is the core of the Belt and Road Initiative. Ports have attracted particular interest. At the beginning of this year, Isaac Kardon, an expert at the U.S. Naval War College, counted 96 ocean ports owned and/or operated by PRC firms in foreign jurisdictions; at 29 of these ports, China is the sole operator. Chinese firms are directly involved in operations at 83% of the 96 ports. Thirty-six of the 96 are among the world’s top 100 measured by container throughput. Throw in another 25 that are on the Chinese mainland and there is “a PRC nexus” for 61% of the world’s leading container ports.

Chinese companies have investments in 31 container seaport terminals in Europe and the Mediterranean as of the end of August, from Greece and Malta in the south to Germany and Sweden in the north. They include some of the continent’s biggest and most active ports, such as Rotterdam, Hamburg and Valencia. Chinese companies have full or large majority control in only two: Piraeus in Greece and Zeebrugge in Belgium.

(For comparison, a 2022 analysis by Sinolytics, a European consulting company, identified 34 port terminals in China with one or more foreign investors. Only four, however, had more than 50% of the terminal operator, leading the Sinolytics team to conclude that there is “a de facto barrier to acquire larger shares for foreign investors and may hint at some informal investment barriers.”)

In almost all cases, three big Chinese companies — COSCO Shipping Ports (the world’s largest shipping company and the largest port terminal operator), Hutchison Port Holdings (the world’s second largest port terminal operator) and China Merchants Ports (CMP, the sixth largest port terminal operator globally) — manage the facilities.

These investments pose considerable risks to a host country’s national security. A 2017 People's Republic of China law requires Chinese companies and overseas subsidiaries in the international transportation sector to provide supplies and support ships, aircraft, vehicles and personnel for the country's military operations; it draws no lines between domestic and foreign jurisdictions or private and state-owned enterprises. In other words, the Chinese government can intervene in their operations and tell them what to do.

Kardon and Wendy Leutert of the Indiana University Hamilton Lugar School of Global and International Studies identified in their study of Chinese port ownership “multiple organizational and legal mechanisms by which China may coordinate or coerce its firms to serve state directives.” Fear of being exposed as a state proxy is no deterrent. The German Marshall Fund concluded in a 2021 analysis that “when there is a choice in Beijing between political control and the international credibility of some of China’s leading firms, the decision is no longer even in doubt.”

In the darkest and most feverish speculations, Chinese port managers would lock out a country’s ally, as allegedly occurred (temporarily) in Gdynia. That seems unlikely as it is awfully blatant and other stakeholders could provide berths. (Still, it only has to happen once in a crisis to have the desired effect — if the stakes are high enough, it could be a Rubicon worth crossing.)

Another ugly possibility is hiding missiles in shipping containers, which can be launched from a cargo ship, port, truck or train. Russia’s Rosoboronexport markets the “Klub-K missile,” which packs four ground- or sea-launched cruise missiles into a standard 40-foot shipping container. According to its website, they can be hidden among the thousands stored in a port — waiting to be used in a crisis.

More likely is the use of port oversight and control to collect intelligence. Even though ports are usually divided into civilian and military sectors, they often neighbor each other, providing ample opportunities to put eyes on activities in adjacent facilities, noting not only shipments but construction and other activities.

Military shipyards in Gdynia are building Poland’s newest missile frigates and other facilities host a naval special operations unit that trains in the area as well as a transshipment terminal supplying strategic fuels to local warehouses. Kardon and Leutert argue that “the PLA (People's Liberation Army) almost certainly collects intelligence and conducts surveillance from overseas commercial ports.”

Once again, perhaps the most important feature is the access to all the data and information generated as part of a port’s daily operation. Those ships, cranes, containers and trucks are pieces of a huge network that monitors by the minute global trade.

Take that information from dozens of ports across the globe, as COSCO, the world’s largest port operator can, and you have penetrating insight into what is being shipped, when and to whom. Kardon and Leutert call this “a distinctive kind of centrality” across the key maritime shipping routes.

China has also created the LOGINK — officially, the National Transportation and Logistics Public Information Platform — system as a one-stop shop for logistics data management, shipment tracking and information exchange among businesses and from business to government. Subsidized by China’s ministry of transport and offered free to all participants in the supply chain, the cloud-based software platform is growing in popularity. As of a year ago, 24 international ports had signed agreements to use LOGINK, a list that includes Tokyo/Yokohama, Kawasaki, Osaka, Kobe and Niigata.

Combine that information with control of those facilities and there is the power to delay, degrade or disrupt trade in ways that can frustrate or pressure governments and influence geopolitical conflicts. Gdynia isn’t on the front lines of the Ukraine invasion but it plays a crucial role in transporting military and civilian equipment to that beleaguered country. Rerouting equipment is possible but it takes time and many alternative ports are also run by Chinese entities. If publicity is an issue, problems can always be the product of a buggy software update rather than an overt act.

Longer-term, there is fear that these investments could shape the development of port infrastructure and connections to domestic transport networks in ways that benefit China. NATO’s Strategic Concept, published in 2022, noted that China “seeks to control critical infrastructure” and that “it uses its economic leverage to create strategic dependencies and enhance its influence.”

Finally, those investments yield political influence in recipient governments. China’s stake in Piraeus allegedly encouraged the Greek government to soften its stand on port sanctions against ships supplying Russia. And, writes Kardon in an analysis of Chinese port investment in Africa, these deals are “the beachhead for wider Chinese engagement in Africa, providing a politically visible and commercially practical point of further access for PRC firms and official actors.”

China has long insisted that overseas military bases are examples of imperialism and hegemonism, a position that makes a virtue of its lack of such facilities (although Beijing opened its first overseas base in Djibouti in 2017). Kardon and Leuter argue that the use of China’s commercial port network to collect intelligence and support military logistics when its navy travels abroad provide many of the benefits of power projection cheaply and without the “geopolitical consequences that dedicated overseas bases would trigger.”

This presence has accelerated implementation of investment review mechanisms in Europe. National security reviews will come to nothing, however, if political authorities decide that good relations with China prevail over other considerations, as the German chancellor concluded this spring after reviewing COSCO’s planned purchase of a minority share in the port of Hamburg. Recent events in Gdynia might be grounds for a reassessment.