Peru’s ‘Active Neutrality’ Between China and the West

Logistics and Infrastructure

Despite the longstanding Chinese presence in Peru’s mining and other sectors, the most visible and controversial symbol of Chinese activities in the country is the new port of Chancay, exclusively operated by China-based logistics giant COSCO.

The deepwater port of Chancay is anticipated to eventually move 3 million TEU of cargo per year, theoretically boosting Peru’s GDP by up to 2 percent. The combination of its geographical position, increased efficiency from its automated cargo handling, and its ability to accommodate larger ships (up to 18,000 TEU), is anticipated to decrease shipping costs by 20 percent or more compared to other Latin American Pacific Coast ports.

The story of Chancay, like elsewhere, highlights how China uses the lure of its market, coupled with loans and investments by its companies, to secure contracts and conditions that disproportionately secure the benefits and value added of projects for itself. Swayed by $3.5 billion in hoped-for investment in the port (of which COSCO has only spent $1.4 billion, with no concrete commitments yet for more), Peru’s port regulator, APN, gave the Chinese logistics giant exclusive operation, a concession that exceeded APN’s authority.

APN’s error came to light in early 2024 as President Dina Boluarte prepared for an important trip to China, with multiple other Chinese projects under discussion. Peru’s Congress chose to change the law to legitimize what APN had done, to avoid a fight that might jeopardize the other projects and the successful hosting of APEC in November 2024 in Lima, with Xi Jinping as guest of honor.

Since then, China has continued to use hoped-for benefits from the port to secure more concessions. In the name of jobs for Peruvians that many presume would be generated by the port, COSCO is lobbying for exemption from taxes, and to be given a special economic zone, which would give it even greater autonomy. It is also pushing back against other Peruvian government attempts at supervision and threatening legal action against modest attempts by Peruvian authorities to regulate the rates it charges.

China and its companies have also shown interest in a bi-oceanic rail corridor from Chancay to the Atlantic coast of Brazil, with the cost of the Peruvian portion, $10 billion or more, borne by the Peruvian government. Skeptics of the project, which is not currently advancing, argue the benefits would principally accrue to COSCO as the port operator, and to the Chinese companies using it to access the Brazilian market, with little value for Peru.

In the transportation sector, Chinese projects include work on a 269 kilometer stretch of road in the south of Peru near Tacna by China Rail No. 10 Engineering Group, as well as multiple railway projects under consideration, such as a rail connection from San Juan de Marcona to Andahuaylas. Contemplated Chinese rail projects also include possible construction of a fast passenger train connection from Lima to Ica, and another train from Barranca to Trujillo.

More worrisome, such work, which could possibly cost as much as $15 billion, may be done through government-to-government agreements, facilitated by the previously noted government-to-government coordination mechanism, rather than competitively bid through transparent public processes on a level legal playing field.