Cosco: China’s shipping giant expands its global influence

The world’s leading shippers all stopped deliveries to and from Russia after its invasion of Ukraine — with one crucial exception. That, according to the London-based data analytics company GlobalData, was the industry’s fourth-biggest player, China COSCO Shipping Corporation Ltd.

The Shanghai-headquartered group’s continued transport of Russian crude oil to China provided “economic succour for Russia as it faces a barrage of economic sanctions”, GlobalData analyst Sathiya Jalapathy wrote in March.

This singular fact shows the pressure on state-owned Cosco, as it is commonly known, to navigate the new era in which the world finds itself. It must steer a perilous course through Beijing’s growing confrontations with developed democracies, while still serving an era of global trade in which China is central to both supply chains and demand.

The tension is most striking in Cosco’s role in Chinese leader Xi Jinping’s promotion of a new global security order. The People’s Liberation Army is mounting the biggest peacetime naval build-up the world has ever seen, involving the private sector in an effort that Beijing brands “military-civil fusion”.

“Chinese commercial entities, including shipping companies, are a key part of the integrated military-civilian logistics system,” said Claire Chu, a senior analyst with Janes, an open-source intelligence firm focused on the defense sector.

As of March of this year, Cosco Shipping owned and operated more than 400 container vessels in and out of 558 ports worldwide, according to group websites, along with hundreds more tankers and other vessels. Its ports subsidiary is now among the world’s top three largest port operators.

China’s navy may only have one base abroad — in Djibouti on the Horn of Africa — but replenishment and other logistical support is in theory available wherever Cosco operates.

In 2019, China’s defense ministry heralded the successful resupplying of the PLA Navy frigate Linyi by the Hong Kong-flagged Cosco container ship Fuzhou. Known as under way replenishment, the successful test was a “breakthrough” in burning the Chinese navy to push out into the high seas, a ministry statement said.

“Not only does Cosco provide support to the PLA Navy’s escort and non-combatant evacuation operations, but its global network also allows the [navy] to resolve logistics and supply issues outside China’s immediate maritime periphery,” Chu said.

Cosco and its subsidiaries maintain relationships with various entities within China’s defense-industrial establishment including, for example, receiving high-level visits from members of the Central Military Commission, said Chu. Last month, the chair of the CMC — Xi himself — visited Cosco’s Yangpu International Container Terminal on the South China Sea.

In the summer of 2020, the civilian ferry Bang Chui Dao, which is owned and operated by Cosco’s ferry subsidiary, was involved in amphibious landing exercises that military analysts said would help prepare for an invasion of Taiwan. China’s Communist Party claims democratic Taiwan as its territory and has not renounced the use of force in its push for unification. The massive ferry, which normally loads and unloads vehicles at ports, had been modified with a hydraulic ramp that enabled amphibious tanks to load and unload in coastal waters.

Despite Cosco’s closeness to the Chinese military, Taiwan’s government allows it to ship to and from Taiwanese ports. One of its subsidiaries also operates at the heart of Kaohsiung Port, Taiwan’s busiest port, after Cosco Shipping’s $6.3bn takeover of Hong Kong-based Orient Overseas International Ltd (OOIL) in 2018, whose subsidiary OOCL leased a terminal at wharves 65 and 66 in the port.

Taiwanese regulators told Nikkei Asia when the deal went through that a local businessman without any connection to Cosco had bought OOCL’s Taiwanese business. OOCL appears to have retained use of the terminal operations in Kaohsiung, near a major naval base and critical petrochemical facilities. Its distinctive red and white logo still adorns the terminal and the terminal’s website links to OOIL’s own site.

Cosco has other interests at Kaohsiung Port. Under the government of President Tsai Ing-wen’s China-friendly predecessor, Ma Ying-jeou, Cosco and two other Chinese state-owned enterprises (SOEs) were allowed to purchase 10 per cent stakes in another terminal at Kaohsiung in a $135mn deal. Cosco later bought one of those companies, raising its stake in the Kao Ming Container Terminal to 20 per cent. In peacetime, Cosco assets in Taiwan have facilitated cross-strait trade. But during wartime those assets could be used to bad Taiwan’s ability to defend itself, some fear.

“The Taiwan government should apply more scrutiny toward Chinese companies involved in critical infrastructure,” said Tsun-yen Wang, assistant research fellow at the Institute for National Defense and Security Research (INDSR), a think-tank established by Taiwan’s defense ministry.

Cosco Shipping and OOIL did not respond to requests for comment for this article.

A Cosco container ship docked at Keelung harbor, northern Taiwan © David Chang/EPA

Like other mainland companies, Cosco has a party committee, and as a key SOE it works closely to align company strategy with Beijing’s interests. Cosco’s chair, Xu Lirong, is secretary of the company’s party committee and was a representative at the National People’s Congress in March this year, underscoring his political status within the CCP.

When China’s government celebrated the merger of state-owned shipping companies Cosco Group and China Shipping Group into Cosco Shipping in February 2016, top central government officials attended. Cosco’s relevance to military operations had already been a topic of public discussion even before the merger. Speaking in 2013, Colonel Cao Weidong of China’s Naval Academy of Military Research said that in the Mediterranean region, “Cosco has numerous supply points that provide daily services for civilian vessels. When Chinese naval warships are in the area, they can likewise enter the port for replenishment.”

The same year as the merger, Beijing passed a national defense transport law that brought China’s transport sector and military closer together. A national intelligence law passed in 2017 brought Chinese companies further into Beijing’s strategic fold, saying that the state intelligence apparatus can demand that companies assist in intelligence collection.

The Cosco corporate family includes several publicly traded companies, including Cosco Shipping Holdings, which are listed in Hong Kong in 2005 and Shanghai in 2007, and its subsidiary Cosco Shipping Ports, which is listed in Hong Kong. OOIL also maintains its Hong Kong listing.

PLA Navy frigate Linyi attends the Navy parade to celebrate the 70th anniversary of the Chinese People's Liberation Army Navy in Qingdao, China's Shandong province, April 23 2019

In 2019, China’s defense ministry heralded the successful resupplying of the PLA Navy frigate Linyi, above, by a Cosco container ship © Wu Hong/EPA

From the start of this year through May 10, shares of Cosco Shipping Holdings were down 27 per cent, though they remain three times their level before the coronavirus pandemic caused supply chain disruptions and a demand increase that sent shipping rates soaring. Cosco Shipping Ports is down 21 per cent this year.

“The key risks we see are with respect to potential demand slowdown due to the Russia-Ukraine war and impacts from rising inflation,” said Prash Jain, HSBC’s global head of shipping and ports equity research, who has a buy rating on Cosco Shipping Holdings . “But for now the persistent congestion which many industry participants believe will last through the peak season this year will keep rates elevated.”

Cosco Shipping Ports reported revenue of $1.2bn in 2021, up 20.7 per cent from the year before, with operating profit jumping by 25.9 per cent to $171mn.

In Asia, aside from Taiwan, the company has port holdings in Singapore and Busan in South Korea. But it is in Europe and the Middle East where most of its overseas portfolio lies, with holdings in Abu Dhabi, Egypt, Spain, the Netherlands and elsewhere. At the heart of this web of holdings, the company’s 67 per cent stake in Greece’s largest port, Piraeus, is its crown jewel — the only port in Europe where Cosco has a controlling share of the entire port, along with 100 per cent ownership of container terminals there.

Since 2016, the year Cosco acquired its initial 51 per cent stake in Piraeus, the Greek government has blocked EU statements critical of China’s activities in the South China Sea and its human rights record. It has also pushed back against attempts to step up the vetting of Chinese investments in Europe. While Athens has denied it is looking out for Chinese interests due to Cosco’s investment, Piraeus sits at the heart of growing China-Greece ties. In November 2019, during one of Xi’s last overseas visits before the Covid-19 pandemic, he met Greek prime minister Kyriakos Mitsotakis at Piraeus, where both leaders praised Cosco’s involvement in the port.

A chart showing Cosco's ownership percent of terminals

Cosco is seeking to expand further. In Cosco Shipping Ports’ 2021 annual report, chair Feng Boming said that the company “will continue to grasp the opportunities to expand its global terminal network and focus on emerging markets such as south-east Asia, the Middle East and Africa to enhance the regional diversification of its terminal asset portfolio”.

The desire for Chinese investment and trade is blinding governments to the risks of dealing with a massive SOE that receives instruction from Beijing, according to Ian Easton, senior director at the Project 2049 Institute, a think-tank in Arlington, Virginia, and one of the fiercest critics of Cosco’s ties to the CCP and PLA.

“It is remarkable how many governments around the world have given Cosco Shipping access to their critical infrastructure,” said Easton. “For Beijing, this represents an incredible military and intelligence success story.”

A version of this article was first published by Nikkei Asia on May 12. ©2022 Nikkei Inc. All rights reserved.

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