THE US has a history of targeting foreign port ownership, but Europe has traditionally been more accommodating of overseas investment, including from China.

These investments have not only benefited China, serving its global ambitions, but have also provided Europe with much-needed capital and expertise to aid in the development of port infrastructure.

The landscape, however, is changing. Amid heightened geopolitical tensions, the EU is taking a more vigilant stance over China’s port interests on the continent, viewing Beijing’s influence over critical infrastructure with increasing political scrutiny.

Under particular examination is the often blurred lines between the commercial, political and military interests of China’s party-led political system. Also under the microscope is how China’s state-owned private companies’ international activities can be leveraged as instruments by the Chinese Communist Party to serve its own global interests to the detriment of geopolitical rivals.

China’s state-owned port operators, Cosco and China Merchants Port Holdings, once able to expand largely unchecked, now find themselves in the EU’s crosshairs as the bloc looks to safeguard economic independence and tighten security.

Canal clash: Trump’s China claims

Concerns over Chinese port ownership have recently been thrust into the spotlight after US President Donald Trump declared he could “take back” the Panama Canal from China, as he continued to up the ante of his trade war rhetoric on Beijing.

Trump claimed that China controls the canal through two ‘Chinese-linked’ facilities operated by Panama Ports Co, a subsidiary of Hong Kong-based Hutchison Port Holdings. Trump argued that despite being a privately run business of conglomerate CK Hutchison Holdings, Hutchison operates under Chinese directive.

He claimed that two terminals, situated at either entrance of the canal, are being used by Beijing for military gain by restricting access to US ships. Both China and the Panama Canal Authority refuted these claims. However, the political pressure from Washington has led Panama to reconsider Hutchison’s terminal concessions, despite their renewal in 2021 for another 25 years.

This, of course, is not the first time that the US has targeted overseas port ownership to serve domestic interests.

In 2006, there was national outcry at the prospect of an Arab company, DP World, taking ownership of six facilities at major US ports operated by P&O. The political pressure placed by Washington led to DP World pulling the plug on the deal before the terminals changed hands to Ports America.

More recently, in 2019, China’s state-owned shipping conglomerate Cosco was forced to divest Orient Overseas Container Line’s (OOCL) interest in Long Beach Container Terminal as a requirement instilled by US authorities as part of its acquisition of parent company Orient Overseas (International) Ltd. The US had raised concerns over China gaining direct control at one of the California port complexes’ flagship facilities and a vital hub for transpacific trade.

From Felixstowe to Piraeus: China’s European port investments

In stark contrast to the US, where only a few port facilities are operated or part-owned by non-domestic interests, Europe had largely adopted an agnostic approach to foreign port ownership. This inclusive stance has allowed major international operators, including Chinese state-owned companies, to invest and expand their presence across Europe’s key container hubs.

Indeed, Europe was also home to the first foreign foray of today’s established international terminal operators, following Hutchison’s takeover of the UK port of Felixstowe in the early 1990s.

Initially, however, China’s state-owned operators, namely Cosco and China Merchants Port Holdings, were largely absent from the initial influx of foreign operators at Europe’s ports in the late 1990s and early 2000s. Instead this was led by companies such as DP World, via its acquisition of P&O Ports, Singapore’s PSA International and Hutchison.

These early port pioneers, which also included the affiliated operators of European carriers such as APM Terminals (Maersk) and Terminal Investment Ltd (Mediterranean Shipping Co) all took advantage of a wave of privatisation opportunities at existing facilities and greenfield projects across the continent.

China’s state-owned entities Cosco, through its terminal arm now known as Cosco Shipping Ports, and China Merchants Port Holdings joined the party a little later.

CS Ports and CM Ports rose to prominence on the international stage in the early 2010s, as China’s ‘Belt and Road Initiative’ gathered pace. Under President Xi Jinping’s directive a presence in Europe’s ports was seen as a core component of its global infrastructure development strategy to support China’s export trade.

Having missed the boat on the initial investment boom at the start of the century, both Cosco and CM Ports have seen European growth stymied by a lack of terminal opportunities. Much of their success internationally has been rapid expansion in the emerging markets.

Despite this, the pair have steadily advanced their respective European port portfolio’s. Today, they boast a presence at all of the continent’s major container hubs, including Rotterdam, Hamburg and Antwerp in the northern range and Valencia, Marseille and Piraeus in the Mediterranean.

China’s terminal interests, including Hutchison, now total nearly 30 across the European Union, including as many as 20 in its 15 largest ports. Hutchison, in addition to its Felixstowe concession, also has two further UK interests.

As a forerunner in the global port operator market and one of the first to expand into Europe, Hutchison has positioned itself as a core regional player.

In northern Europe, Hutchison had the largest share in 2023 of annual container volumes on an equity adjusted basis, according to Drewry’s Global Container Terminal Operators Annual Review and Forecast 2024/25.

China’s state-owned operators meanwhile are still relatively small players in the regional market. In most cases they hold only minor, non-controlling stakes in container terminals.

Drewry ranked CS Ports as the ninth largest operator in Northern Europe in 2023, with adjusted volumes of 2.1m teu. This represented just 3.2% of the total market.

In the Mediterranean, the operator has a much larger presence, ranking third among its peers with a market share of 11.5% or 7.5m teu in throughput terms. The main bulk of volumes are attributed to CS Ports’ operations in Greece’s largest port Piraeus, where the group holds its largest and only controlling stake at a European port.

CM Ports, for its part and of important note, only has an indirect presence in Europe via its stake in its joint venture with CMA CGM, Terminal Link, in which the Chinese operator has a non-controlling 49% stake. Terminal Link is headquartered in Marseille and although CM Ports has a position on its board, its operations are “primarily French”, according to Drewry senior ports and terminals analyst Eleanor Hadland.

CM Ports is only ranked by Drewry through its Terminal Link stake under CMA CGM, which also includes the throughput tally of the French company’s standalone port venture, CMA Terminals. Either way, CM Ports equity contribution in both northern European and the Mediterranean is lower even than its Chinese counterpart CS Ports.

Piraeus is one of the most controversial but successful investments by China’s state-owned operators. Since CS Ports took a controlling stake in the Piraeus Port Authority in 2016, in one of China’s landmark BRI investments, volumes have tripled.

“Piraeus is now a far more modern, far better equipped, far well invested port than it would have been if it had stayed under state ownership,” said Hadland.

“The Greek economy gets far better international connectivity than it otherwise would have done had a shipping line not invested in its port. And that shipping line just happens to be Chinese,” said Hadland.

Additionally, while profits are outsourced, employment remains with EU nationals as required by EU regulations, helping boost the local economy, she noted.

Growing vigilance over China’s port influence: the EU response

A resolution adopted by the European Parliament last year on the security and defence implications of China’s influence on critical EU infrastructure pulled no punches in highlighting the inherent risk posed.

Ports were singled out for being of certain interest. Of particular note, was the concerns raised by EU members over the political pressure asserted on the German government, which led to the ultimate approval of Cosco’s equity stake in the port of Hamburg’s Container Terminal Tollerort in 2023, even if the Chinese group had to settle for a share (24.9%) less than initially hoped. The decision, the Parliament said, came “contrary to the advice of competent institutions”.

As part of the EU’s response to what the parliament coined ‘China’s military-civil fusion strategy’, was a need to reduce the risk of espionage and sabotage of critical infrastructure, particularly those with a military function. Again, ports were highlighted and more specifically those used by or of strategic importance to Nato.

Parallel concerns were highlighted when Lithuania pulled the plug on CM Ports’ plans to build a new deepwater in Klaipeda in 2021. The Lithuanian government cautioned of an explicit threat to both national security and Nato as the tender would effectively grant China, a Russian ally, a foothold in the Baltic Sea.

Speaking to the Washington Examiner ahead of the decision, Lithuania’s then-defence minister Raimundas Karoblis warned that Beijing could “create obstacles for the arrival of military cargoes, military equipment, reinforcements” in times of crisis.

CM Ports failure to expand its European presence was significant. It represented the first time that a Chinese operator had come under considerable scrutiny, following a period of relatively unbridled growth.

Similarly, the resistance to Cosco’s stake in Hamburg’s CTT was a further sign of China’s state-owned port operators finding it an increasing challenge to further their European terminal foothold.

Since Cosco’s German venture, Chinese investment in European ports has gone quiet. This represented the most recent acquisition.

But as Drewry’s Hadland argued, the commercial reality is that concession opportunities in Europe are few and far between.

“It is not like there is a queue of Chinese investors trying to get into ports at this point,” she said.

“This is a question of how to mitigate the risk of security concerns within the existing infrastructure and accept that, for the moment, you’re probably not going to see much more Chinese direct investment in EU ports.”

As the EU looks to further mitigate the security risk, Parliament’s recent resolution also called on the Commission to design a “rapid response mechanism” if China is deemed to be using EU infrastructure under its ownership or concession for non-commercial means. This, it said, could be used to terminate the rights of a concession.

There have been instances where state actors or public bodies have stepped in and compulsory acquired or expropriated ports and terminals in the past. One of the more recent examples being the premature truncation of DP World’s concession at hands of the Djiboutian government in 2018, a case that the Dubai-based terminal operator is still disputing through international arbitration to this day.

Matthew Gore, partner at London-based law firm HFW, said it is highly unlikely that such a scenario could occur in the EU, given its more stable operating environment.

“I can’t see that any of the EU countries will ever tear up a concession, and take a terminal back and put it out to tender again,” he said.

Instead, he expects a higher degree of scrutiny of Chinese interests when terminal concessions come up for tender, are extended, or renewed.

“It’s at those junctures where I would imagine that any change in the EU’s screening of foreign direct investments would take effect,” said Gore.

The Foreign Direct Investment Screening regulation has been highlighted by the Commission as increasingly relevant in the face of heightened geopolitical tensions and growing awareness of issues linked to economic security.

Effective since October 2020, FDI screening allows EU member states to review foreign investments on security and public order grounds. The final decision and conditions of an FDI lie entirely with the member state.

The regulation covers all sectors, including critical infrastructures and Trans-European Transport Network projects like port infrastructure.

The regulation is pending review after a number of shortcomings were identified since its introduction. The proposal, currently in the hands of the European Council and Parliament, aims to make FDI screening mandatory for all member states and harmonise national screening laws across the EU.

European Sea Ports Organisation secretary-general Isabelle Ryckbost said that while the industry welcomed an advanced FDI screening process, it was essential that the EU found a middle ground that stimulated trade and investment in ports without compromising security.

“We should avoid burdensome procedures that would close the door for the many good investors we have in European ports,” she told Lloyd’s List.

“But it is important that in case of conflict or [political] tension, concession agreements are under strict conditions so, if these conditions are not being respected, you can take action.”

Economic gains versus security concerns

China’s port expansion exploits in Europe have been extremely beneficial for both parties in a commercial sense. It has served China’s BRI objectives, and for Europe it has helped fund hinterland development and terminal modernisation across the continent, while generating employment and helping strengthen ties with the bloc’s largest trading partner.

Striking a balance between the economic gains of China’s port presence with security concerns will prove an increasing challenge for Europe in an increasingly complex geopolitical landscape. As the EU refines its FDI screening processes and adopts strategic measures, the future of Chinese port investment in Europe will be shaped by these very decisions.

However, with scant new terminal opportunities and existing Chinese concessions under long term tenders, the impact of EU directives may be limited, at least in the near term. Concessional renewals will face greater scrutiny, but it will take time to reach this point.

Additionally, the political backlash from recent investments in Hamburg and Klaipeda raises the question of whether China will retreat from European expansion and shift its focus elsewhere.