A US-China fight over this port

We’re thinking of a spot: it’s got a 4.2/5 star rating on Google with over 3,300 reviews. One fan by the name of ‘Capt.Tanveer Chougle’ called it his “favourite place in Brazil”. 

Is it the iconic Iguaçu Falls? The best cachaça bar in Rio? That TGI Fridays in Moema?

Nope. Captain Tanveer is referring to South America’s largest container port: Santos. A five-hour drive (let’s be honest: seven) southwest of Rio, this vast port is emerging as the latest flashpoint in our century’s US-China tug-of-war. Why?

At a big maritime sector event earlier this month, between a sea bass canape and a sip of bubbly (idk we weren’t there), the local US consul-general cautioned that an upcoming tender to operate a massive new Santos terminal shouldn’t fall into “unwanted hands”.

And once those spicy words rippled out into the media, his consulate team spelled it out in writing, flagging “concerns regarding the participation of Chinese companies in the auction, related to sovereignty, security, competition, and strategic leverage”.

Now. It all raises some big questions, like…

• First… why all the fuss about Santos?

It’s not your ordinary port: with 58 terminals connecting to 600 ports around the world, it already handles three quarters of Brazil’s coffee exports and most of its beef.

And its planned new terminal is… not your ordinary planned new terminal: the $1.2B Tecon 10 expansion has been on the drawing board for a decade, aiming to double the port’s container capacity via four new berths across a new 621,000sq m terminal: that’s bigger than Vatican City.

So all that to say, the stakes and steaks are high. Then…

• Second… what’s China’s interest here? 

The big picture is that Latin America has emerged as a reliable supplier of the commodities fuelling China’s growth, while building economic leverage across the Western Hemisphere also really helps when you’re trying to eject the US out of East Asia.

The medium picture is that building offshore ports not only a) helps absorb China’s vast excess construction capacity back home, and b) generates more earnings (LatAm is China’s third-largest engineering market), but also c) gives China control over its critical import/export logistical chains, and even d) opens up dual-use possibilities.

On that last dual-use point, you don’t have to take our word for it: shortly after taking office, President Xi’s big 2015 military white paper spelled out a strategy of military-civil fusion to better harness China’s civilian strengths for its military capabilities. And his follow-up white paper in 2019 openly emphasises, say, “overseas logistical facilities”.

In practice? The fear is this kind of commercial infrastructure will help facilitate naval resupply, pre-positioning, and intelligence gathering (eg, per the Djibouti experience).

Either way, a new report has crunched the numbers and found China has committed ~$24B to 168 ports across 90+ countries since 2000! So it’s not phoning this in.

Then finally, the really zoomed-in, pixelated picture is that Santos specifically handles $50B+ in annual trade with China, more than 2.5x the US footprint. And the port’s broader rail, road, and pipeline links make it an attractive hub for the whole continent.

So… there’s nothing surprising about China inevitably making a play for Santos, and it seems Mr Consul-General now wants to get ahead of the game.