WSJ: China Tries To Muscle In On Panama Ports Sale

Did anyone expect Xi Jinping to go down without a fight? Especially when it comes to control of shipping ports in strategic areas?

One of Donald Trump’s first goals after taking office aimed at pushing China out of the Panama Canal. Beijing controlled both ends of the strategic passage through the Hong Kong-based firm CK Hutshinson and its subsidiary Hutchison Ports, along with a number of other ports around the world. Trump pressured Panama and Hutchison to sell their stakes in such ports outside of China to a consortium led by Black Rock four months ago, giving Trump a big boost in his competitive strategic positioning against Xi. 

Xi tried to scuttle the deal shortly afterward by ‘investigating’ CK Hutchinson, to no avail. Now Beijing is demanding a piece of the action in the consortium, or it threatens to block the sale:

China’s government is threatening to block a deal that would transfer ownership of dozens of seaports to Western investors if Cosco, China’s largest shipping company, doesn’t get a stake.

The proposed sale includes two ports at the Panama Canal and more than 40 others around the world, all owned by Hong Kong-based CK Hutchison.

China is pushing for state-owned Cosco to be an equal partner and shareholder of the ports with BlackRock and Mediterranean Shipping Co., a containership operator, according to people familiar with the deal talks. BlackRock and MSC in March reached a preliminary agreement to buy the ports in a deal valued at nearly $23 billion.

Now, BlackRock, MSC and Hutchison all are open to Cosco’s taking a stake, the people familiar with the talks said.

Just how much trouble will this create for Trump? It depends on the terms of the “stake” Xi demands, and the conditions that come with it. Trump is less interested in whether Hutchison or Cosco draws a profit than whether China can use ports to exclude US ships in a heightened trade war. And not just US cargo ships either, but also US Navy vessels that may need quick access across the isthmus to address potential military threats.

Assuming that the stake is non-controlling and that Black Rock will continue to make all of the important control decisions at these ports, this may not be a big problem with the White House. In fact, it looks like a face-saving demand for Xi, who got caught unaware on this effort and whose prestige is on the line at a difficult moment in China, where devastating floods are making an economic malaise even worse. It may also be Xi’s way of punishing CK Hutchison for caving to Trump by transferring its interests to Cosco. The WSJ notes Xi’s anger at the current ports owner:

Hutchison’s initial plan to sell the ports angered Beijing, according to people familiar with the talks. Chinese authorities have told Chinese state-owned companies to freeze any coming deals with Hutchison or other businesses linked to its controlling shareholder, the family of the Hong Kong billionaire Li Ka-shing, these people said.

Thus, the issue really depends on the definition of “equal” partner with the other main firms in the Black Rock consortium. If Xi wants to use that as a way to continue his control of these ports, the deal may not go through, but CK Hutchison’s control over Panama Canal ports almost certainly won’t survive either. Trump will lean on Panama to tear up their contract with the Chinese operator and force new management. Trump made that very clear to Panama’s government earlier this year, and Panama can’t afford to get into a diplomatic and trade standoff with the US. 

CK Hutchison cut this deal to get something out of the inevitable. Black Rock and its partners understand the inevitability too, and are willing to cut Cosco a stake for the sake of a smooth transition. But Black Rock isn’t going to buy into a deal where the CCP calls the shots either, and Xi is making it very clear about the nature of both Cosco and CK Hutchison.