grapsas

China’s OBOR & the Piraeus Port Privatization by COSCO

Posted on Posted in Analyses, Balkans & East Med, BRICS

By Evangelos Grapsas, Analyst KEDISA

The history of the Chinese Ming Dynasty revolves around a leader who actually defined its maritime strategy, Zheng He. This strategy has been revived under the leadership of China’s President Xi Jinping whose vision entails He’s legacy, the ‘One Belt One Road initiative’ (OBOR), also known as the ‘21st Century Maritime Silk Road’[i]. Within this framework, a vast array of investment in infrastructure has been developed resulting to numerous privatizations.
OBOR

The importance of the Piraeus Port privatization (EU-Greece & China level)

The investment of the state-owned Chinese Ocean Shipping Company (COSCO) in the privatization of Piraeus Port in Greece is a significant development for the EU member state but for the EU as a whole too[ii]. There are two main factors that underline that prominence. First of all, the privatization has a huge impact on the Greek economy which has been in a severe recession for the past 7 years and has struggled to attract investors. The investment of COSCO amounts to a total US$ 4.3 billion plus an additional US$ 700 million (to be invested by the next decade) and underlines the trust of China towards the recovery of the state as an attractive destination for investments[iii]. In addition, the undertakings of the newly established Piraeus Containers Terminal (PCT) which is a beneficiary of COSCO, have significantly improved the conditions under which Piraeus could become a central transportation hub and magnetize more sponsors. In that respect, China has become an important contributor to the fiscal revenue of the Greek government while further degrading any doubts that investors may have regarding to rising opportunities. It is notable that this privatization is about to contribute to the reduction of the fiscal debt of the country by 2,5% of GDP, which turns into an enormous strategic venture, ought to be facilitated by any means[iv].

China’s interests lay on the facts that Greece could be a proper gateway for the establishment of a logistic hub that firms based in China, such as SAMSUNG and HP, can also benefit from[v]. Greece is depicted as the first entry of Chinese goods to the EU markets as the country is located between two continents’ coast lines. In addition, China-owned Chinese Ocean Shipping Company’s (COSCO) involvement in the privatization ‘feeds’ the stimulus for a booming trading connection between Asian and EU markets. This is the reason why the Chinese Ambassador to Athens had characterized the project as the ‘Dragon Head’ in an attempt to show the significance that it bared for China[vi]. Furthermore, China’s plans towards the EU has also a political aspect. Given the political tensions between its leadership and the US administration, there is need to allocate resources and energy into paths that will expand and continue China’s influence and access to the old continent, that is Europe.

 

Sustainable Trade Development

Although Greece possesses the largest merchant fleet worldwide, attributing for the transit of almost 60% of total Chinese exports, Piraeus Port has not experienced a booming growth in the last years[vii]. Especially, according to the Hellenic Republic Asset Development Fund (Taiped), COSCO’s deal is also important for the port as the China-owned company plans to invest US$ 500 million to upgrade the capabilities of the existing facilities[viii]. Additionally, the reports of COSCO have already underlined a traffic growth related to 14,2% and translated to the shipment of 2 million containers compared to last year’s 1,76 million containers traffic[ix]. These figures imply a great importance that this project has attained and any obstacles would likely jeopardize its potential.

 

Proposals

Although the project had been characterized as vital and its conclusion was crucial for EU-China relations as well as for Greece’s economy and growth, the 2015 coalition-government of SYRIZA-ANEL had been quite skeptical of the privatization plan of Piraeus Port. Especially the Minister of Shipping, Theodoros Dritsas who was accountable for seaports had been a strong advocate against the privatization[x]. However, the requirements, as set by a new Memorandum of Understanding between Greece and its financial creditors, include provisions on the encouragement and importance that the state has to underline in regards to its privatization domains. As a result, the Prime Minister Alexis Tsipras has referred to the investment agreement as a principal message to the world’s business community[xi]. Within this context, a new Minister of Shipping and Island Policy has been appointed, Panagiotis Kouroumblis, whose task requires an approach that will underline a full-hearted advocacy for COSCO’s aims in Piraeus. Nonetheless, there is an absolute need for the draft of a coherent and clear-cut OBOR strategy that Greece is ought to define to facilitate the denationalization.

 

Moreover, the European Parliament’s rejection of the Commission’s EU ‘Port Services’ Directive in 2003 and 2006 had a negative impact towards Greek port reforms aiming to privatization[xii]. Although the Directive came into power in January 2007, the first defeat of the Commission had shown the way for port union in Piraeus that were strongly opposed to any privatization agreement and port reforms that would pose threats to the established labor regime. Port Unions in Piraeus were already powerful enough to lobby against such projects delaying any reforms and maintaining an ineffectively overstaffed sector. The ongoing procedures and the completion of several steps however allowed COSCO to apply market rules in an attempt to overturn the legal framework that was been exploited all this period. It must be noted, though, that COSCO’s involvement did not result to uncountable personnel sacking. On the contrary, in a report of the National Bank of Greece it has been underlined that 125,000 new positions could be achieved by 2018[xiii]. This is a substantial element of the deal as the country has peaked unemployment rates in the Eurozone area.

 

The next obstacle that has been noted during the privatization process relates to the inadequate railway network that we at COSCO have often expressed our worries about. The lack of a coherent strategy, combined with political instability, has also stalled any investment in the Greek National Railway Corporation (OSE) which could result to the establishment of a hub connecting Piraeus to Central and Eastern European markets[xiv]. In particular, we have documented low competitiveness rates in concern to Greece and its broader neighborhood being used as gateways for container traffic through the road and rail networks. For instance, while Greek seaports have an extreme comparative advantage over the rest of the regional ports, only 45,000 TEUs (twenty-foot equivalent) out of the 2,5 million TEUs of the market in Central and Eastern Europe is actually being transported from Greece[xv] (similar to 1,5% of the total transit traffic of the region).

 

  • Clear Greek OBOR Strategy (EU member state level, Minister of Aegean Mr. Kouroumblis)

    As a global player in investing energy and time on brokering deals between the public and the business sector, it is strongly advisable to believe in social constructivism[xvi]. Thus, an intensification of the frequency of official visits of government agents and policy-makers to Beijing is deemed necessary. In this context there can be a constructive communication of the strategy of the two leaderships whereas government officials can be accompanied by business groups that will socially interact with each other and express their policies.

 

  • Relations with the Port Unions (EU member state level, Shipping Minister Mr. Kouroumblis)

    The next step that the Greek administration has to consider following is about a cohesive communication of the benefits of the privatization to the port unions, in regards to the wages and employment regimes. The port unions have been rather distrustful to their relations with COSCO because of the lack of information concerning their future employability and waging status. As discussed, COSCO’s plans have already shifted the tide of unemployment in the maritime sector combined with a securitization of wages according to the specific market’s standards. The construction and operational upgrade of the facilities already generated more than 31,000 new positions in total which has not been set to the Unions, due to the nature of the political debate against the privatization[xvii].

 

  • European Union Funds for Transport (EU Commissioner for Transport Ms. Bulc)

    Moreover, there is an imperative need for the proper implementation and supervision, by the DG Transport’s mechanism, of the Regulation (EU) No 1316/2013 of the European Parliament and the Council, establishing the Connecting Europe Facility[xviii]. The particular Regulation will ensure the proper connection with the hinterland and the port terminal which is of crucial importance for container transportation. In return, several investors in the port will have the opportunity to transport their products via rail, circumventing busy maritime routes and ensuring efficiency, a position also supported by the European Coordinator for the Mediterranean, Laurens Jan Brinkhorst, in December 2016[xix]. The quintessence for COSCO’s privatization and partnerships with international firms, is the plan of transforming Piraeus Port to a product-transportation hub, a goal that can only be attained through an improved network of transportation providing access to EU markets.

 

  • European Ports Infrastructure Policy (EU Commissioner for Maritime Affairs Mr. Vella)

    Finally, recommendations for a re-orientation of the priorities for sea transport projects should be included into the budget of Structural and Cohesion Funds combined with the Trans-European Transport Network (TEN-T) project. Although the current policies aim to a new infrastructure scheme, we would like to see increased involvement regarding the inclusivity of Corridors such as the Orient/East-Med Corridor within the TEN-T strategy[xx]. This can be done through efficient investment on optimizing Ports facilities. Although COSCO has already invested in the Piraeus Port, it is suggested that the EU Commission pushes forward plans to facilitate the integration of the China-state owned company, which also serves a higher diplomatic purpose within the OBOR framework.

 

To conclude, COSCO’s investment in the Piraeus Port as part of a grand Chinese Strategy (OBOR) to access EU markets has already highlighted the great significance and benefits it bears, however its full potential has not been deployed yet. Hence, we propose a series of measures varying from official visits to Beijing to EU Directives and Port Infrastructure Policies.

 

 

[i] Grieger, Gisela. 2016. One Belt, One Road (OBOR): China’s regional integration initiative. Briefing, European Parliament, European Parliament

[ii]  Brînză, Andreea. 2016. How a Greek Port Became a Chinese ‘Dragon Head’. 04 25. Accessed 03 18, 2017. http://thediplomat.com/2016/04/how-a-greek-port-became-a-chinese-dragon-head/.

[iii] Putten, Frans-Paul van der. 2014. Chinese Investment in the Port of Piraeus, Greece: The     Relevance for the EU and the Netherlands. Report, Clingendael: Netherlands Institute for International Relations, Clingendael.

[iv] Gratsos, George A. 2014. “GREEK SHIPPING AND THE MARITIME ECONOMY.” E.U. CCMI Seminar on Maritime Industrial Sectors, Hellenic Chamber of Shipping, Athens.

[v] Roge, Thierry. 2010. HP picks Cosco’s Greek pier as regional transport hub. 01 12. Accessed 2017. http://www.reuters.com/article/us-hewlettpackard-greece-port-idUSBRE8AD1MG20121114.

[vi] Johnson, Keith. 2016. In Odyssey for Chinese, Greece Sells Its Fabled Port of Piraeus. 04 08. Accessed 03 18, 2017. http://foreignpolicy.com/2016/04/08/in-odyssey-for-chinese-greece-sells-its-fabled-port-of-piraeus/.

[vii] Frans-Paul van der Putten, John Seaman, Mikko Huotari, Alice Ekman, Miguel Otero-Iglesias. 2016. Europe and China’s New Silk Roads. ETNC Report, European Think-tank Network on China (ETNC) , Netherlands Institute of International Relations ‘Clingendael’, Elcano Royal Institute, Mercator Institute for China Studies, French Institute of International Relations (Ifri).

[viii] Hope, Kerin. 2016. Greece picks China’s Cosco in port deal. 01 26. Accessed 03 18, 2017. https://www.ft.com/content/d65aa7c4-bfb1-11e5-846f-79b0e3d20eaf.

[ix] ROUSSANOGLOU, NIKOS. 2016. Cosco posts leap in profit. 80 26. Accessed 03 18, 2017. http://www.ekathimerini.com/211492/article/ekathimerini/business/cosco-posts-leap-in-profit.

[x] Otero-Iglesias, Frans-Paul van der Putten John Seaman Mikko Huotari Alice Ekman Miguel. 2016. Europe and China’s New Silk Roads. ETNC Report, European Think-tank Network on China (ETNC), European Think-tank Network on China (ETNC).

[xi] Kennedy, Eleni Chrepa & Simon. 2016. Tsipras Says Greece to Positively Surprise World Economy in 2016. 01 20. Accessed 03 18, 2017. https://www.bloomberg.com/news/articles/2016-01-20/tsipras-says-greece-to-positively-surprise-world-economy-in-2016.

[xii] Pallis, Harilaos N. Psaraftis & Athanasios A. 2012. “Concession of the Piraeus container terminal: turbulent times and the quest for competitiveness.” Maritime Policy & Management: The flagship journal of international shipping and port research (Routledge) 39:1, 27-43.

[xiii] Mylonas, Paul. 2013. Container Ports: An Engine of Growth. SECTORAL REPORT, Chief Economist NBG Group, NATIONAL BANK OF GREECE, NATIONAL BANK OF GREECE.

[xiv] Staff, TNH. n.d. China’s Cosco Won’t Bid for Athens Rail Freight Hub . https://www.thenationalherald.com/132217/chinas-cosco-wont-bid-for-athens-rail-freight-hub/.

[xv] Limited, China COSCO Holdings Company. 2013. ANNOUNCEMENT OF 2013 INTERIM RESULTS. INTERIM RESULTS Report, China COSCO Holdings Company Limited.

[xvi] LIU, Qianqian. n.d. China’s Rise and Regional Strategy: Power, Interdependence and Identity . PhD candidate , Department of Politics and International Studies,, University of Cambridge, UK , University of Cambridge, UK .

[xvii] S. Danchev, E. Demian, E. Korra and N. Zonzilos. 2016. The economic impact of the privatisation of the Piraeus Port Authority. Research , FOUNDATION FOR ECONOMIC & INDUSTRIAL RESEARCH, FOUNDATION FOR ECONOMIC & INDUSTRIAL RESEARCH.

[xviii] EUROPEAN PARLIAMENT AND THE COUNCIL. 2013. “REGULATION (EU) No 1316/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL.” Official Journal of the European Union .

[xix] Brinkhorst, Laurens Jan. 2016. “Mediterranean Second Work Plan of the European Coordinator Laurens Jan Brinkhorst.” EU Commission: Mobility and Transport.

[xx] Grosch, Mathieu. 2016. “Orient East Med: Second Work Plan of the European Coordinator Mathieu Grosch.” EU Commission: Mobility and Transport (EU Commission).