RUTHFULLY YOURS

Germany’s Chancellor Olaf Scholz has apparently learned nothing from Germany’s fatal mistake of becoming dependent on Russian gas.

On October 26, Germany’s government decided to let the Chinese state-owned enterprise COSCO Shipping Ports, which has links to China’s People’s Liberation Army, buy a stake in the Port of Hamburg. COSCO is the world’s third-largest container carrier measured by capacity, and the fifth-largest port terminal operator in terms of the amount of cargo and vessels that it handles, according to German think-tank Merics. The Port of Hamburg is Germany’s largest port and the second-largest port in Europe, making it part of Europe’s most critical infrastructure.

The deal will let COSCO have a 24.9% stake in the port and is a compromise following a dispute within the government between Germany’s Chancellor Olaf Scholz and six of his government ministers. The original plan was to give COSCO a 35% stake in the port, in addition to taking over shares in the port operator Hamburger Hafen und Logistik (HHLA).

Scholz wanted to forge ahead despite opposition to the deal from all six ministries that have been involved in reviewing the deal and have rejected it because the deal concerns critical infrastructure. Instead, Scholz was looking for a “compromise” so the deal could still go ahead, which Scholz has now managed to accomplish.

The original deal was made back in September 2021, but subject to regulatory approval. Prior to the deal, the European Commission reportedly warned Germany not to approve COSCO taking the 35% stake in Hamburg’s port, saying that sensitive information could reach China if it did.

“We have learned that dependencies from countries which then might use their own interests in order to blackmail us are no longer just an abstract phenomenon,” German Economy Minister Robert Habeck, who opposed the deal, said. “We shouldn’t repeat these mistakes.”

Germany’s Foreign Ministry had also reportedly warned that an investment by COSCO “disproportionately expands China’s strategic influence on German and European transport infrastructure as well as Germany’s dependence on China… considerable risks… arise when elements of European transport infrastructure are influenced and controlled by China — while China itself does not allow Germany to participate in Chinese ports. In this respect, the acquisition of the container terminal does not only have an economic, but especially a geopolitical aspect.”

The Foreign Ministry clearly fears that in a time of crisis between the countries, China’s investment in the port would allow it “to possibly instrumentalize part of Germany’s – and therefore Europe’s – critical infrastructure.”

Marcel Fratzscher, the head of the German Institute for Economic Research denounced the compromise:

“The German government is repeating the mistake of many previous federal governments by prioritizing short-term economic interests over long-term prosperity and prosperity and stability.”

According to Politico:

“The acquisition is part of a broader strategic gambit by Beijing to gain control over infrastructure critical to its globe-spanning Belt and Road trade initiative, a network of transport connections intended to link China’s factories with rich Western markets.

“Cosco already owns stakes in Europe’s two largest ports at Rotterdam and Antwerp, while it also controls the port of Piraeus in Athens and is behind a scheme to expand an inland rail terminal at Duisburg where the Ruhr and the Rhine rivers meet and which is a focal point for overland freight arriving from China’s industrial hubs.”

In China, COSCO is designated as one of 53 “important backbone state-owned enterprises,” according to a February 2021 report by the Australian Strategic Policy Institute. The report states:

“COSCO’s status as an important backbone SOE [state-owned enterprise] means that it’s uniquely beholden to the CCP in a way that other SOEs aren’t… COSCO’s organisational structure includes paramilitary capabilities that can be mobilised by the Chinese regime to defeat threats to the CCP’s interests. One such capability is the company’s in-house militia…”

Furthermore, COSCO has been described as the People Liberation Army Navy’s (PLAN’s) “leading supplier, providing Beijing with built-in shore-based support for the PLAN through a commercial enterprise structured to align with Chinese naval strategy, to an extent that leads some naval analysts to refer to COSCO as the fifth arm of the PLAN.”

Several members of Germany’s government coalition, which consists of the Green Party, the Free Democrat Party (FDP), and Scholz’s Social Democrat Party (SPD) had denounced the proposed deal with COSCO.

Green Party Co-Chair Ricarda Lang said that Germany “should learn from mistakes and not create new dependencies” and that she has “no understanding” of why Scholz would move ahead with the deal when relevant government ministries have criticized it.

“The Chinese Communist Party must not have access to our country’s critical infrastructure,” FDP General Secretary Bijan Djir-Sarai said. “That would be mistake and a risk.”

The opposition also criticized the deal.

“Against the advice of his ministers, the chancellor apparently wants to increase dependence on China,” Jens Spahn of the center-right Christian Democratic Union party said. “This sell-out of German infrastructure would be a mistake. German ports do not belong in Chinese hands, especially since Europeans can’t take a stake in ports in China.”

China declared as its ambition in 2012 that it wishes to become a global “maritime power” and China’s investments in and ownership of ports worldwide should be seen as part of achieving this ambition by expanding its global maritime reach. As of July 2020, Chinese firms reportedly “(partly) owned or operated some ninety-five ports across the globe.”

Out of the 95 ports, 22 are in Europe, 20 in the Middle East and North Africa, 18 in the Americas, 18 in South and Southeast Asia, and nine in sub-Saharan Africa. Just three Chinese companies, among them COSCO Shipping Ports, account for the operations of 81% of those ports.

According to an April 2022 report from Clingendael, a Dutch think-tank:

“Chinese state-owned companies such as COSCO and China Merchants, as well the Hong Kong based private firm Hutchison, have invested in most of Europe’s largest ports.”

In Greece, COSCO has completely taken over Piraeus, Greece’s largest port.

“In many instances these investments are in container terminals. The exception is Piraeus, Greece’s largest port. In this case, COSCO took a majority stake not only in a container terminal, but also in the port authority that operates the whole port, including activities such as cruise and ferry shipping.”

China’s investments in various European ports can also be used to play the ports against each other. Hans-Jörg Heims, a spokesman for HHLA, which COSCO is supposed to take shares in according to the deal, had argued that unless the deal was allowed to go through, Hamburg would be disadvantaged compared to the ports of Rotterdam and Antwerp, competitors with the port of Hamburg that are already partly owned by COSCO.

“Our competitors Rotterdam and Antwerp will be very pleased if this deal falls through,” Heims told Politico.

China’s port investments create obvious leverage for the country and increase international dependence on China. Scholz, regardless of the hard lessons that Germany has had to learn with regard to German dependence on Russian gas, has a state visit to China coming up in early November with a German business delegation; letting the COSCO deal fall through would not look good when trying to attract lucrative business deals. China is an key trading partner for Germany: In 2021, it was Germany’s top trading partner for the sixth consecutive year.

Some EU leaders, who say that Scholz should not be making separate deals with China and that the EU should speak with a “single voice” to China, have criticized Scholz’s upcoming trip.

“It is in their interest that we are divided. It’s in our interest that we are united,” Estonian Prime Minister Kaja Kallas said. Latvia’s Prime Minister said the EU must take a “united approach to China.”

Even French President Emmanuel Macron appeared to be criticizing Scholz, who will be the first Western leader to visit China since the start of the Covid pandemic.

“We have made strategic errors in the past with the sale of infrastructures to China,” Macron said. “We’ve been naive because we considered that there was a public-finance issue to fix — and that Europe was an open supermarket.” The EU, Macron concluded, needs to establish a framework on what it considers “sensitive points.”

Judith Bergman, a columnist, lawyer and political analyst, is a Distinguished Senior Fellow at Gatestone Institute.