China’s Maritime Expansion Raises Security Concerns

State-backed holding companies have been aggressively investing around the world, and the political leverage they afford Beijing should worry American policymakers.
By CHRISTOPHER R. O'DEA
Li Keqiang visits the port of Piraeus, Greece, in 2014. 

While the world’s attention was focused on the People’s Republic of China’s construction of artificial islands in the South China Sea, another Chinese building project went largely unnoticed.
Supported by state capital, enabled by state regulators, and motivated by a historical desire to secure critical sea lanes, China’s state-owned shipping and port-management companies have ventured far beyond the South China Sea to build a global network of ports and logistics terminals in strategic locations across the E.U., Latin America, Africa, and the Indian Ocean.
China’s commercial maritime strategy complements a naval expansion by the People’s Liberation Army Navy (PLAN) that has been under way since at least the 1980s. 

China’s navy is expected to defend major sea lines of communication against disruption at critical chokepoints, a mission that requires the ability to sustain a maritime presence in distant locations, under hostile conditions, for extended periods. 

By the mid 2000s, the focus of Chinese naval policy shifted to what China calls the “far seas” — that is, the waters beyond the “first island chain” that bounds the South China Sea. 

Recognizing that port facilities are the foundation of sea-lane security, China set out to establish a port network under its control, either by building or leasing facilities.
Key trends in global shipping and logistics have given rise to conditions suitable for China’s acquisition campaign.

The logistics industry is becoming an integrated global system in which automated, land-based terminals play an increasingly important role in the rapid transfer of goods between ships and the rail and road networks that feed retail distribution networks. 

Excess capacity in container shipping and increasing competition among ports for business from ever-larger container ships mean that companies must control both vessels on key routes and terminals at suitably located ports. 

Much of China’s maritime buildout has been undertaken through private-market acquisitions of ports and related critical logistics assets from pension funds, shipping and terminal companies, and governments, many of which have been unable or unwilling to make the investments required for ports and terminals to remain competitive.
In the past year, the result of all this Chinese maritime buildup has become clear: a 21st-century version of the Dutch East India Company, a notionally commercial enterprise operating globally with the full financial and military backing of its home state. 

In this approach, massive investments in ports and related logistics, land transport, energy, and telecommunications infrastructure are the centerpiece of China’s strategy for achieving global maritime power and commensurate political influence while avoiding, or at least mitigating the risk of, a direct confrontation with the U.S. or other nations with global maritime interests.
The vessels that connect Chinese-controlled ports into an integrated network of commercial power are in effect “ships of state.” 

While sailing as commercial carriers of manufactured goods and commodities for a wide range of customers, the containerships of Chinese and Chinese-allied shipping firms now function as instruments of Chinese national strategy.
China COSCO Shipping Corporation Limited has been at the forefront of state-backed efforts to radically expand the country’s outbound investments in overseas infrastructure. 

Countless photos of COSCO’s mammoth ships stacked with freight containers have made the company a generic symbol of seaborne commerce. 

But it was China’s state-owned Assets Supervision and Administration Commission (SASAC) that created COSCO in 2016 by merging two state-owned Chinese shipping companies into an integrated shipping, logistics, and port company with the scale to compete globally, in effect commissioning a state entity to carry out China’s maritime expansion. 

While shares of COSCO operating units are listed on public stock exchanges, the holding company that controls COSCO units is solely owned by SASAC.
COSCO’s commercial expansion has created leverage for Beijing — leverage that has already resulted in countries that host COSCO ports adopting China’s position on key international issues. 

The crown jewel of COSCO’s expansion — and a template for China’s broader maritime-expansion strategy — is the port of Piraeus in Greece. 

News coverage of COSCO’s acquisition of a majority stake in the port last summer obscured the sustained, deliberate, and comprehensive effort China has undertaken in Greece since 2008, when COSCO first obtained the right to operate two piers at Piraeus, at the time a backwater port struggling with labor issues.
In 2016, COSCO acquired control of the Piraeus Port Authority S.A., the publicly listed company created by the Greek state to oversee the port, winning a bid to operate and develop the port for 40 years in exchange for an annual fee of 2 percent of the port’s gross revenue and more than $550 million in new investments in port facilities. 

Under severe financial stress, Greece opted for a broad form of privatization typically used in developing nations, which enables the private investor — in this case COSCO — to act as owner, regulator, operator, and developer of the entire port, in effect transferring governmental powers granted by an EU nation to an entity now under the supervision of the Communist Party of China.
COSCO did not hesitate to exert its control. 

At the first annual meeting of the Port Authority board since it became Piraeus’s majority owner last summer, COSCO proposed allowing board meetings to be held in China as well as Greece; when the Greek State objected that the proposal would amount to changing the domicile of the port company to China, COSCO adjourned the meeting for a few days to allow Greece to present its legal argument, then re-convened the meeting and adopted the proposal. 

For its part, China reaped diplomatic support last June when Greece blocked an EU statement at the United Nations Human Rights Council that was critical of China’s human-rights record, calling it “unconstructive criticism of China.”
China’s naval presence has bolstered Sino–Greek diplomatic alignment. 

A PLAN task force made a four-day “goodwill” visit to Piraeus last July that included joint exercises in the Mediterranean, and returned to the port last October after a cruise to Saudi Arabia. 

China has used commercial operations as a rationale for developing the military capabilities of its maritime network since 2008, when the Chinese navy first took part in multilateral anti-piracy operations to protect commercial shipping in the Gulf of Aden and along Somalia’s Indian Ocean coast. 

To secure a site on the Gulf that the Chinese navy could use for replenishment, China Merchants Port Holdings — another company controlled by SASAC — acquired 23.5 percent of the port of Djibouti in 2013. 

In 2015, China began to build a naval support base there.
Government officials claimed that the Djibouti operation was purely logistical — until Chinese troops were deployed troops to the site last July. 

The military aspect of Chinese maritime expansion now overshadows the development of Djibouti’s commercial port. 

The top American military commander in Africa told a House Armed Services Committee hearing in March that the U.S. would face “significant consequences” if the Chinese restricted the use of the Djibouti port, which provides access to Camp Lemonnier, the only American base in Africa. Concerns about access increased early this year after Djibouti’s president terminated the contract of DP World, a company based in the United Arab Emirates, to manage a container terminal it had built at the Djibouti port in 2006. 

The abrupt move sparked reports that Djibouti intended to turn over the terminal to Chinese operators and bring in other port companies to build new terminals.
China’s maritime frontier has reached South America as well: China Merchants Port Holdings has acquired a key terminal in Brazil’s second-largest port, another Chinese SOE is building a new port in Brazil’s northeast, and Brazilian carrier pilots have helped train Chinese pilots in carrier aviation.
Resistance to China’s maritime expansion has been scant. 

In April, the EU and Italy alleged that Chinese criminal gangs are committing tax fraud by not reporting imports through Piraeus. 

In July, a German business newspaper reported that EU diplomats in Beijing had prepared a briefing for an EU–China summit that sharply criticized Chinese investments in ports and other strategic assets for seeking to further Chinese interests and aid Chinese companies. 

But China has rebuffed previous EU efforts to level the playing field and increase transparency, and despite the tax-fraud allegations, COSCO is ramping up major new investments in Piraeus, including a ship-repair dock and a telecommunications system from Huawei.
There are, however, signs that the U.S. is beginning to recognize the strategic implications of China’s maritime expansion. 

In late April, the Committee on Foreign Investment in the U.S. (CFIUS) raised national-security concerns about COSCO’s taking control of a heavily automated container terminal in Long Beach, Calif., the largest port in the U.S. 

The terminal is part of COSCO’s pending purchase of Orient Overseas International Ltd., another member of COSCO’s shipping alliance, which now operates the facility.
While it’s likely that COSCO will have to agree to divest the terminal to win U.S. approval of the purchase, CFIUS has an opportunity to raise the bar by making such approval contingent upon COSCO’s selling the Long Beach terminal to a company that is not financed by Chinese sources, or one allied with any Chinese shipping or port SOEs through the opaque holding-company structures that China has used to build its commercial maritime network.
But in the long term, most of China’s port and shipping acquisitions won’t be subject to CFIUS reviews. 

From 2007 to 2017, China’s annual seaborne imports soared by more than 160 percent, accounting for 49 percent of the growth in world trade, and global shipping lanes are likely to become increasingly contested as China works to secure its supply lines. 

By creating a global port network, China will project power through increased physical presence and use the oceans that have historically protected the U.S. from foreign threats to challenge U.S. maritime supremacy. 

Economic challenges and backlash from disgruntled host countries could slow China’s port-buying spree. 

But the U.S. can no longer assume that its maritime supremacy will remain unquestioned forever.

Chinese Peril

Australia Positioning to Help US Check China’s Maritime Expansion
By Ralph Jennings

U.S. Navy Adm. Harry Harris, left, commander of the U.S. Pacific Command and Australian Navy Vice Adm. David Johnston take part in a ceremony marking the start of Talisman Saber 2017, a biennial joint military exercise between the United States and Australia.

TAIPEI, TAIWAN — Australia, concerned about its vast regional trade network, is joining Japan, India and the United States in countering Chinese expansion in Asia’s biggest maritime dispute.
Six Australian warships were moving toward the South China Sea this week, with no publicized destination, for military exercises. 

Australian media has called the mission their country’s largest in 30 years.
“There is certainly a view in some quarters in Australia that one of Australia’s contributions to diplomacy and international affairs in Asia is as a security player,” said Jeffrey Wilson, a fellow with the Asia Research Centre at Murdoch University in Perth. 

“We have a very small defense force, but very high tech, high capacity.”
Australia’s leaders want their electorate, as well as its Asian neighbors, to see Canberra as a defender of rule of law in the South China Sea, consistent with its role since the Cold War, analysts say.
The Australian Department of Defense says that by 2021 it will raise the military budget to 2 percent of GDP, one of the fastest-growing in the Asia Pacific. 

The budget is $27.4 billion for 2017-2018.
Chinese vessels are pictured in disputed South China Sea, April 21, 2017.

​Filling a void
That may effectively help the United States contain China in the sea, where Beijing claims about 90 percent of maritime territory, overlapping the exclusive economic zones of four economically and militarily weaker Southeast Asian states.
U.S. President Donald Trump is more focused on North Korea’s missile buildup than on China’s 7-year-old maritime expansion, a priority of Trump’s predecessor, Barack Obama.
“Australia has been trying to fill that void when necessary,” said Collin Koh, maritime security research fellow at Nanyang Technological University in Singapore.
“So the current times, when it’s quite uncertain what the Trump administration will do for the South China Sea, I think give a lot of currency for Australia to step in, at least fill the void for now,” he said. “I don’t think it’s as ambitious as to fill the entire void, but they want to be seen as playing a part,” Koh said.

Allied with India, Japan, U.S.
India and Japan are picking up some slack by offering aid to some of China’s rival maritime claimants, including the Philippines and Vietnam. 

That pair, also staunch Western allies skeptical of China’s expansion, confirmed at meetings this month they would focus on Asian maritime security.
India, Japan and the United States hold the annual Malabar exercises, Asian maritime drills that took shape since 1992. 

Australia has joined, including in 2007 when participants sent 25 vessels to the Bay of Bengal.
From here on, Australia will probably make Southeast Asian port calls and hold naval exercises to remind China it considers the sea an open one, Koh predicts. 

The navy regularly makes ports of call in the region and in 2015 sent ships to China for joint exercises.
“You might naturally think Australia is in a lucky position in this whole thing because we have no direct participation in any of the disputes,” Wilson said. 

“We have no skin in the game whatsoever.”
South China Sea Territorial Claims

Australia concerned about China
But China has made Canberra nervous by declaring seasonal fishing moratoriums and installing military infrastructure on the South China Sea’s larger islets, moves that analysts mark as evolving de facto Chinese control over the whole resource-rich body of water that stretches from Taiwan to Singapore.
Beijing rejected a July 2016 world arbitration court ruling against the Chinese claim to the 3.5 million-square-kilometer sea. 

Australia urged it to follow the ruling, drawing a harsh response from China. 

The Chinese state-run Global Times news website to call the country a “paper cat.”
Australia trades heavily with China and the rest of Asia, and its shipping depends on an open South China Sea, which sees about a third of the world’s marine traffic, valued at an annual $5.3 trillion.
Australian navy chief Tim Barrett said in a speech last month the country’s $1.2 trillion economy depends on “shipping being able to freely navigate the oceans” from the Middle East across the Indian Ocean through the South China Sea and to North America via Japan.
“I would not define Australia as a U.S. proxy,” said Fabrizio Bozzato, a Taiwan Strategy Research Association fellow who is visiting scholars in Australia this month.
“Australia has strategic interests and imperatives of its own,” he said. 

“It is certainly in Australia’s interests to uphold the current rules-based international order in the Asia Pacific, especially in crucial areas like the South China Sea.”
“I predict that in the future Australia will only become more reliant on the oceans, especially those in our region, not only as the highways of the globalized world economy, but also for both food and other natural resources,” Barrett said.

Reactions will vary
China will take note of Australia’s determination to patrol the South China Sea this month, scholars say, while Southeast Asian countries will welcome it. 

Brunei, Malaysia, the Philippines and Vietnam contest some of China’s claims.
“Littoral states (those on the South China Sea) would welcome Australia playing a generally positive role in enhancing peace and security in the South China Sea,” said Oh Ei Sun, international studies instructor at Singapore Nanyang University.

Chinese Peril

How China’s Growing Naval Fleet Is Shaping Global Politics

By David Tweed and Adrian Leung

Ship by ship, port by port, China has over the past two decades been assembling one of the essential engines of global power: a modern navy capable of projecting force far from home.
China’s “blue water” navy -- and how to respond to it -- will be on the minds of Australian Prime Minister Malcolm Turnbull, U.S. Defense Secretary James Mattis and others gathering in Singapore this weekend for Asia’s most high-profile security conference, the Shangri-La Dialogue. 

From the East China Sea to the Horn of Africa, the growing presence of Chinese warships is already shaping world affairs, a trend that will only accelerate.
“By 2030, the existence of a global Chinese navy will be an important, influential and fundamental fact of international politics,” said Patrick Cronin, director of the Center for a New American Security’s Asia-Pacific security program. 

The U.S. and its allies “need to begin preparing for a ‘risen China,’ rather than a rising China.”

By one measure, the People’s Liberation Army has already caught up with the U.S. -- Asia’s preeminent sea power since World War II. 

China had 183 cruisers, destroyers, small surface ships and submarines last year, compared with 188 for the U.S. 

That’s according to a CNAS analysis of data supplied by the International Institute for Strategic Studies, which organizes the Shangri-La meeting.
CNAS projected in a March report that the PLA Navy will deploy 260 such ships by the end of the next decade, surpassing an estimated 199 for the U.S. 

That growth has helped fuel calls for a U.S. shipbuilding surge, with the Navy’s operations chief, Admiral John Richardson, saying earlier this month in Singapore that America needed to build more warships -- and fast.
While Donald Trump has called for increasing the U.S. fleet by more than 25 percent, his first budget proposal released last week included funds for only two small Littoral Combat Ships.

To be sure, projecting naval power across oceans often means aircraft carriers. 

And deploying carrier strike groups around the world -- like the 10 the U.S. now operates -- requires a network of overseas bases. 

China lacks both. 

Frigates and other small vessels are expected to comprise the bulk of the country’s future fleet.
Xi Jinping is nonetheless making preparations to be able to project force into the Indian and Pacific oceans, which surround the country’s growing economic interests in Africa, the Middle East and Southeast Asia. 

China launched its first domestically built aircraft carrier in April, the second of as many as six such vessels.
The country is also developing its first overseas base -- Chinese officials call it a “support facility” -- in the East African country of Djibouti, where the French and U.S. also have military installations. Such opportunities are expected to grow as China helps develop ports around the world under Xi’s 21st Century Maritime Silk Road trade-and-infrastructure program.

How to respond to China’s growing naval power has preoccupied many of the admirals, ministers and defense contractors who are expected to begin assembling Friday at the Shangri-La Hotel in Singapore. 

Chinese defense spending is on track to exceed the rest of East Asia, South Asia, Southeast Asia and Oceania combined this year, according to estimates from the Stockholm International Peace Research Institute.
China’s neighbors are now expanding their own fleets. 

This year alone, India, Singapore, Taiwan and Thailand have announced plans to build or acquire submarines. 

India aims to add 60 warships over the next decade to amassing a 200-vessel fleet. 

The proliferation of submarines prompted Singapore’s naval chief, Rear Admiral Lai Chung Han, to call for a code of conduct earlier this month to reduce the risk of accidents.

As Trump Assesses China, Start With Facts Not Theory

China’s maritime expansion is real, pragmatic and consequential. 

By Gary Roughead

On December 23, 2016 Chinese J-15 fighter jets sit on the deck of the Liaoning aircraft carrier during military drills in the Yellow Sea, off China's east coast.

The Trump administration has yet to set forth its foreign policy agenda, and it may be some time before sufficient detail emerges to discern a coherent strategy. 

As Russia dominated the news on the eve of the inauguration and many on the Trump national security team with a pedigree singularly focused on terrorism, it’s likely we will see early pronouncements on those two fronts, but it will be Asia that will steal the time and attention in the early days. 

China hedging for a possible shift in the One China policy prompted by President Trump's phone call with the president of Taiwan, conjecture of more nuclear and missile advancements by North Korea, the proximate political turmoil in our ally the Republic of Korea, Japan’s interest in the new administration’s approach to its alliance and extraordinarily important security relationship with the U.S., and a Philippine leader who is dramatically distancing his nation from a lengthy alliance relationship with the U.S., its most stalwart security guarantor. 

These are but a few Asian challenges in the queue on day one, and each will test the new team early on. 

China is a consequential factor in each.
With past as prologue, China will play the hand; we’ll play the individual card. 

In China’s hand will be the cards of the South and East China Seas. 

With freedom of navigation a legitimate litmus test of our resolve in the region, China can press its interests in those vital sea lanes while highlighting its growing naval prowess. 

Its recent grab of the U.S. underwater drone in the South China Sea is indicative of a testing gambit and the range of potential moves Beijing is willing and likely to employ as it tests the new administration. 

Similar moves and countermoves matter in setting a course for our relationship with China, and they matter greatly to our allies, partners and friends in the Indo-Pacific region. 

The President’s tweeted willingness to forego the return of the drone has raised questions about possible maritime security policies and resolve.
China hands, policy experts and pundits will question and criticize and offer opinions, pro and con, on policy options. 

Again, with past as prologue, those discussions will be theoretical—that is, what is possible or the ideals of a topic. 

The new administration must deal more with fact and less with theory. 

For too long the changes in Chinese military capacity, the numbers of ships and aircraft, have not been part of the public discussion. 

Now is the time to do some real studying and dig into the facts, especially those that underpin China’s maritime ambition.
China’s maritime expansion is real, pragmatic and consequential.

It is not just about the PLA Navy. 

Its expansion is also manifested in its Coast Guard, Maritime Militia, fishing and commercial fleets. 

History shows rising maritime powers are characterized by a vibrant shipbuilding industry. 

To understand that, and not just opine, the best reference on China’s maritime march is the recent “Chinese Naval Shipbuilding,” the work of the U.S. Naval War College’s impressive China Maritime Studies Institute and published by the Naval Institute Press. 

The expert contributors address the entirety of the shipbuilding process from research through design to the significant infrastructure that is in place to fulfill China’s maritime ambition. 

What comes through are China’s national focus and concerted efforts that have enabled its shipbuilding industry to grow faster than any other in modern history. 

A national enterprise that will produce the world’s second largest Navy by 2020 and which, by expert estimates, will be on par with the U.S. Navy by 2030. 

The authors acknowledge that such an undertaking is not without troubled areas, and some aspects of the industry lag, but it's apparent China too is aware of those shortcomings. 

Recognition of the problem is an attribute, and remedies are sure to follow. 

It is also apparent the U.S. and our more capable Asian allies, especially Japan, enjoy a qualitative advantage, but that edge is shrinking and 2030 is not that far away.

A Chinese magazine with a front page story naming Donald Trump as their Person of the Year at a news stand in Beijing on December 29, 2016.

President Trump and his national security team are no strangers to the importance of building things, the complexities and importance of industrial policy and the need for numbers, not just high-end capability, in dealing with the many security challenges to be faced early on in Asia. 

In assessing China, it is also wise to be mindful of the warrior-strategist Sun Tzu’s factors in the art of warfare: "calculation, quantities and logistics." 

Facts not theory – it’s the right place to start.