Power plays?

First up, is there really a case for Hutchison Port Holdings to be barred from investing in India on security grounds? From all we know about Hutchison, a company headquartered in Hong Kong and spawned in its entrepreneurial environment, it hardly seems to make any sense. India’s need for port expertise is manifest and Hutchison is the world’s number one global port operator in volume terms. No brainer?

Does the same contention apply to other China port companies such as China Merchants (Holdings) International, China Overseas Port Holdings Authority (COPHA) or the ports’ arm of China Ocean Shipping Company? Is it just business these companies are interested in or are there really other factors at work that make it relevant to exclude port companies originating from particular countries?

Years on from 9/11, would DP World now be welcome as an investor in the US? Or would hype similar to that which existed in the post 9/11 era – which basically made it divest its P&O terminal acquisitions in the US – act as an effective bar on investment? DPW has talked about a return to investing in the US but it has not happened so far.

As can be seen, it is both emerging and developing nations that are capable of setting up what amount to investment exclusion zones that have little business logic associated with them.

Strong links

Conversely, it can also be seen that the underlying political tension that excludes an investor from one country can lead it to gain a strong foothold in a neighbouring one. Pakistan is such a country where China is concerned.

The strength of the China-Pakistan relationship is such that this has recently been extended into port management, a reality that India has expressed some concerns about. Management of Gwadar Port, located around 600km from Karachi and close to Pakistan’s border with Iran, was handed over to the state-run Chinese Overseas Port Holdings in early February after previously being managed by Singapore’s PSA International.

“It is a matter of concern to us, “Indian Defence Minister A.K. Antony told reporters when asked about Chinese control of the port.

“It will enable China to deploy military capability in the region,” stated Jay Ranade, Centre for Air Power Studies and a former additional secretary of the government of India. “Having control of Gwadar, China is basically getting an entry into the Arabian Sea and The Gulf.”

As might be expected, such suggestions have been rebuffed by Pakistan with officials underlining that it is simply an issue of one port operator being replaced by another.

For its part China has said that: “China will actively support any programme that benefits China-Pakistan relations and the prosperity of Pakistan.”

The development of a trade corridor linking Xinjiang to the Middle East through Gwadar port will enhance trade between the two countries and in the region. In this general context, it is nevertheless clear that Gwadar also has strategic importance for China: around 60% of its crude oil comes from Gulf countries that are close to Gwadar.

The port is expected to progressively take on an energy mantle in the years ahead with a gas pipeline under construction from Iran, and Iran just announcing a plan to set up a $4bn oil refinery in Gwadar with a capacity of about 400,000 barrels per day.

China has a long association with port projects in Pakistan mostly in terms of delivering the know-how and technology to establish modern port facilities. In the case of Gwadar it had been actively involved in its funding and construction. The step into port management and operation, however, marks a new dimension.

It is a deal that perhaps more than most has strong geo-political aspects to it.