German Chancellor Olaf Scholz has greenlit a deal for Chinese shipping giant COSCO to buy a stake in the port of Hamburg, Germany’s largest, despite objections from six federal ministries and protests from several western capitals.

Following Germany’s misplaced bets on Russian energy, a chorus of critics believe it would be foolish to deepen the country’s dependence on China, which Berlin has deemed a “systemic rival.”

But proponents of the deal say Berlin cannot afford to cut COSCO out. Blocking an investment by the world’s third largest shipper and second largest ports operator, they argue, would send its business to Hamburg’s competitors. 

COSCO Shipping looms large over the global maritime industry. Since 2015, the company’s rapid expansion — aided several mega deals and generous development loans — has made waves — and sparked alarm.

This week, The Wire takes a look at COSCO Shipping, the state-owned maritime giant: how it came to be, its influence over the maritime industry, and why its reach has elicited concern. 

EVER BIGGER

There is seemingly no ceiling to how large today’s container ships can grow. The largest vessels now span 400 meters, nearly as long as New York’s World Trade Center is tall. The depth of key passages like the Panama and Suez Canals impose some limits, but their constant dredging and widening create ever more opportunities to grow.

The same is true of the size of ship owners. Sector consolidation has brought most maritime shipping into the hands of a few giant firms, including Switzerland’s MSC, France’s CMA CGM, Denmark’s Maersk, and COSCO.

It isn’t easy to make sense of COSCO’s size and structure. The conglomerate encompasses at least half a dozen publicly listed companies, with separate subsidiaries involved in practically every part of the maritime industry, from container shipping to energy and bulk transport, specialized vessels, leasing and financing, shipbuilding, logistics and more. 

The China Ocean Shipping Company was founded in 1961 as the People’s Republic’s first international ocean shipping company. Its maiden departure was a passenger liner bound for Indonesia, a fourth-hand vessel built in Britain before the Second World War. During China’s reform era, the state-owned enterprise quickly expanded its shipping network; COSCO Group was formed in the 1990s with a diversified business encompassing shipping, shipbuilding and logistics. 

By the late 2000s, COSCO’s ambitions were expanding outwards. Amid the global recession in 2008, the company secured the rights to operate its first port in Europe with a 35-year lease on the Port of Piraeus in Athens, Greece. It would later gain a controlling stake in the Piraeus Port Authority in 2016.

That same year, COSCO was restructured into its current form, following a $9 billion merger between COSCO Group and China Shipping Container Lines (CSCL), another state-owned shipping conglomerate — at the time, the most complicated deal in the history of China’s capital markets, involving dozens of transactions. 

“The huge growth in COSCO in the last several years was paralleled by the same pattern of growth in the major Western players,” says Bruce Jones, a senior fellow at the Brookings Institution, a think tank, and author of To Rule the Waves: How Control of the World’s Oceans Shapes the Fate of the Superpowers. “With port acquisitions, ships and logistics, the [top shipping companies] are really becoming tip to tail logistics mechanisms. COSCO isn’t an outlier in that regard.” 

The merged company, China COSCO Shipping Corporation, vaulted into position as the world’s fourth largest carrier. A $6.3 billion deal the following year for Orient Overseas Container Line, the storied Hong Kong shipper owned by the family of Tung Chee-Hwa, Hong Kong’s first chief executive, brought OOCL’s managerial expertise into the state-owned enterprise and lifted COSCO into third.

COSCO’s core business of container shipping falls under COSCO Shipping Lines Co., a subsidiary of Hong Kong and Shanghai dual-listed COSCO Shipping Holdings. The container shipping business generated $51 billion in revenue last year, accounting for 98 percent of COSCO Shipping Holdings’ turnover.

GLOBAL PORTS INVESTMENTS

Relative to its impact on the conglomerate’s bottom line, COSCO’s terminals business has generated more than its share of controversy: COSCO Shipping Ports Ltd. generated just $1.2 billion in revenue last year. 

The subsidiary’s spending spree kicked off in 2017 following a wave of financing made available via Beijing’s Belt and Road Initiative. The conglomerate secured a $26 billion loan from China Development Bank in January 2017 — acquisitions of stakes in terminals and ports from the UAE to the Netherlands and Spain quickly followed. 

Today, COSCO Shipping Ports has stakes in 16 ports overseas, concentrated in Europe and the Mediterranean. (Another Chinese conglomerate, China Merchants Port Holdings, has seven port holdings in Europe, but COSCO is the only one with controlling interests in European terminals). 

Within Europe, the Piraeus port has the largest capacity, at 6.2 million twenty-foot equivalent units (TEU), having grown significantly under COSCO’s leadership to become the busiest port in the Mediterranean and the fourth busiest in Europe, up from 17th just prior to its acquisition. 

COSCO initially proposed to take a 35 percent stake in Hamburg’s Container Terminal Tollerort (CTT) for $116 million. CTT is the smallest of Hamburg port’s three terminals, which had a combined throughput of 6.8 million TEU last year. A compromise proposal from Berlin would allow COSCO to take a 24.9 percent stake, just shy of enough equity to give the company a say over strategy. 

“COSCO’s growth is first and foremost about China securing its position in global trade, which of course gives it a huge amount of influence,” says Brookings’ Jones. But he adds that a stake in Hamburg’s port probably isn’t as great of a concern as China’s investments in ports elsewhere. 

“Having a commercial stake in a port of a NATO ally isn’t going to fundamentally change the picture of what [China’s navy] can do. That’s very different if we’re looking at Sri Lanka, or Djibouti, or Pakistan.”

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