-Analysis-

LIMA – China’s most important commercial terminal with South America is under construction 75 kilometers north of Lima, the Peruvian capital. Known as the Chancay Port Complex, it has an initial investment of $ 1.3 billion and will transform this fishing and farming town into a regional hub that could redefine shipping lines across the South Pacific. .

The port can count on the use of 800 hectares of adjacent land where the operating consortium will develop a logistics and industrial complex, with total investment costs expected to amount to $ 3 billion. Since 2019, the main stakeholder in the project has been the Chinese state-owned company Cosco Shipping Ports (60%), with Volcan, a mining subsidiary of Glencore of Switzerland, holding a 40% stake.

Cosco is a partner of 52 port projects around the world. But in the Americas, Chancay is the first to be built with Chinese capital. The complex is expected to be fully functional by 2024, helping to consolidate China’s influence in South America, and Peru in particular.

Is another commodity “supercycle” looming on the horizon?

Over the past decade, this country has become the regional hub of China’s economic and geopolitical interests. So far, Chinese companies have invested more than $ 30 billion in Peru, a figure surpassed only by the money spent in Brazil. The main sector is mining, which has absorbed more than half of all these investments and has proven to be an excellent source of the minerals that China needs to keep its industrial sector buzzing.

One of these materials is copper, which Peru produces in large quantities. It is the world’s second-largest exporter of metal and exports two-thirds of its total production to China, which controls two of Peru’s main copper deposits: Las Bambas (via MMG) and Toromocho (with Chinalco).

The two countries signed a free trade treaty in 2010, which reshaped Peru’s trade balance. Since 2014, China has been its main trading partner, followed by the United States. In the past five years, Peru exported $ 58 billion in exports to China, compared to $ 33 billion to the United States. And in the years to come, given China’s decisive mining interests, the gap could widen further assuming, as some observers anticipate, that another commodities ‘supercycle’ is looming. horizon.

China is also pursuing a strategy of global integration here through its Belt and Road Initiative, which promotes global infrastructure that promotes its trade. Amid rivalries with the United States, he has signed deals with 138 countries despite warnings from Washington that states risk becoming over-indebted to China.

Due to its location, Peru is an important point of this New Silk Road. With its long Pacific coastal strip, it lies directly across from Asia and can also become a link to Brazil and the Atlantic. In April 2019, the two states signed a Memorandum of Understanding for further investments under the Belt and Road Initiative.

Chancay is undoubtedly of great importance to China’s overall strategy for conquering markets. Indeed, Cosco Shipping Ports entered the port consortium two weeks after the said protocol, paying $ 225 million to Volcan.

Other Belt and Road projects in Peru include the Amazon Waterway, entrusted to Chinese state-owned Sinohydro, which stopped the project amid numerous environmental objections, and the transcontinental railway, which would link the Brazilian port of Santos in Bayóvar, in northern Peru.

Everything that shines…

Chancay’s proximity to the port of Callao, which handles 71% of imports shipped from the country, would both reduce congestion there and develop economic activity outside Lima. Cosco estimates that its initial investment would create 1,500 direct jobs and 7,500 indirect jobs, and generate 300 new businesses locally.

In the first phase, the port would ship 6 million tonnes per year, but in response to local concerns, Volcan said Chancay would not ship minerals – despite being a mining subsidiary and China is the main buyer of copper in the world. The company says it will instead redistribute goods from Asia and make Peru more competitive against Pacific rivals like Colombia and Chile.

Protest in Las Bambas, a mining area in Peru – Image: GDA / Zuma

Nonetheless, residents of Chancay and the surrounding area are concerned about its impact on the local economy, which depends on more than just mining. There is also agriculture and fishing, and civil society groups have questioned the construction standards of the project and its possible environmental and social impact.

They say the complex will be inside the town of Chancay, and the blasts to reshape the bay have already damaged many residential buildings. The project is also expected to affect a local wetland, while the dredging of the bay to allow entry for the larger container ships will have a final impact on fishing and marine life.

Peru owes much of its economic growth to China’s enormous demand for natural resources.

The consortium made 89 environmental observations in its last diagnostic report on the environmental effects of the project, although in verifying this document, non-governmental organizations observed omissions and flawed methodologies to measure its effects. Still, the Peruvian environmental certification agency, SENACE, approved the project last December, overcoming objections from civil society groups.

Peru owes much of its economic growth to China’s enormous demand for natural resources. And yet, the latter’s investments are leaving an indelible mark on many affected communities. These include social conflicts in mining areas like Morococha and Las Bambas, or indigenous communities affected by the Amazon Hydroway.

China has pledged to invest more in Peru and its Belt and Road plans will intensify its activities. But the Peruvian state must insist on higher environmental standards, starting with the inclusion of an environmental chapter in the current renegotiations of its free trade agreement with China.

The two countries must commit not to limit themselves to a simple economic interest. Long-term sustainability must also be considered and sought to improve and protect people’s lives, especially with regard to the impact of their projects on local communities and the environment.


* Gonzalo Torrico, law graduate from the University of Lima, is a journalist specializing in mining and the environment.


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