The COSCO Danger Looms Large For The Global Supply Chain

COSCO sounds benign, but the term should never be confused with COSTCO, your local friendly retailer. If you hear the term COSCO, you should be asking yourself the question on the larger impact of the risk of your port being Shanghai’ d.

The Chinese government is systematically taking control of global port infrastructure through investments by the China Ocean Shipping Company, Limited, formerly China Ocean Shipping Company, commonly known as the abbreviated name COSCO Group, or simply, COSCO. The Company is a former Chinese Government owned shipping and logistics services supplier company. It is one of the major holding company for China COSCO Shipping.

Recently, after months of debate, the German government approved a 24.9 percent ownership investment at the Tollerort Terminal in the Port of Hamburg. This is one of a succession of agreements to allow China’s state-owned COSCO to exploit market advantages to capture market share in the European Union. The decision comes with unique context — not only has Beijing changed, but so have its ties with the world.

Consider Sri Lanka. China foreclosed their investment in port investment in 2017 on a 99-year lease seizing terminal ownership. The Hambantota port is a classic example the Chinese debt trap. With Sri Lanka bankrupt and politically unstable, it is a good example of how China can use a COSCO port investment for military exploitation. In August, 2022, a Chinese survey ship docked at Hambantota. While Sri Lanka and China termed it a scientific research vessel, staying for a couple of weeks to to track satellites and missiles, the presence of the ship raised questions of, “Was this a ship of state?” And, could other COSCO owned ports harbor Ships of State?

Long-term Focus. Looming Problems?

China is using two programs, the Belt and Road Initiative and the New Silk Road to expand influence globally in critical port infrastructure. China is the world’s biggest exporter with a 15 percent market share. The next biggest is the United States with eight percent, so you might ask isn’t it a natural fit for China to vertically integrate this facet of its economy?

Then, think again and ask, “Could China use these investments as a means to strangle the world in a looming wartime play?” Consider the facts. A third of the ports where China made economic investments have hosted and resupplied military vessels of the People’s Liberation Army Navy. COSCO has 1,000 Chinese Communist Party commissars, cycling from ship to shore. Ten thousand crewmembers are members of the Chinese Communist Party, and there are 150 “special cadres,” who are, more or less, higher-level bureaucratic watchkeepers.

Currently, China has 34 container ports in-country within China and 25 of these are regarded as significant international ports. COSCO investments in over 100 + global ports is growing, with at least one in every continent. Chinese state-owned enterprises currently hold ownership stakes in terminals at five U.S. ports including joint ventures at Long Beach, Los Angeles, and Seattle, and CMPort holds a minority stake in a French firm’s terminals at Miami and Houston. Hamburg will be the last of the major seaports in the Nordic Range, which stretches from Normandy in France to Hamburg at the Elbe River, from the Atlantic Ocean to the Baltic Sea, in which China will have taken an ownership interest. These ports are vital to Northern Europe’s economy, and the world’s operation of global supply chains.

While the US government deploys a hands-off policy on port infrastructure with little oversight of terminal ownership. The Chinese government has a very different perspective. In an era of peaceful coexistence between China and the rest of the world, this might seem unremarkable. Today, China is less than shy about intentions to annex Taiwan. The Chinese sit on the sidelines lending non-military aid and comfort to Russia as it invades Ukraine, and is in conflict with India, Japan and Vietnam. Could China may make use of foreign ports it owns – or has major stakes in – without asking permission, seeing as it controls the shares of those ports and could dictate cooperation. I think the answer is, “Yes!”

While non-Chinese competitors are beholden to shareholders and quarterly results, COSCO can make bold, uninhibited moves that entail significant financial risk and lay debt traps for unstable governments around the world. What other free market competitor can draw on a $26 billion line of credit? All it took for COSCO is an item in China’s Thirteenth Five-Year Plan, and the China Development Bank mobilized that money at request.

Wrap-up

China is an important global market. In 2026, China is estimated to have 1.46 billion consumers. In contrast, in the United States in 2026, the market will be 342 Million. Global supply chain leaders need to pursue China as an important market for growth while mitigating the risks of Chinese sourcing strategies. The focus needs to be manufacturing and sourcing in region.

In parallel, at a governmental level, all countries should protect port infrastructure by saying “No” to COSCO investments.