Prior to Chancellor Olaf Scholz’s visit to Beijing at the beginning of November, the German federal government allowed COSCO Shipping Ports Limited, one of the world’s leading port and terminal operators owned by the Chinese state, to purchase a 24.9 percent stake in a container terminal at Hamburg, Germany’s largest port. The Container Terminal Tollerot (CTT) is the smallest of the three HHLA owned container terminals in Hamburg. HHLA is a German logistics and transportation company that owns three out of the four total container terminals at Hamburg port. The port’s geographical advantage and extensive distribution facilities will help to secure COSCO’s position in one of the most important European-Chinese trading hubs.
The approved investment has generated criticism both within Germany and among other EU member states due to security concerns over China’s increased global influence, especially since the launch of the Belt and Road Initiative (BRI). The Hamburg deal was pushed through by German Chancellor Olaf Scholz and his Social Democrats Party but opposed by his coalition partners (the Free Democrats and the Greens) and the ministries they lead, notably the foreign ministry and economy ministry. Scholz’s visit to Beijing immediately following the deal further fueled domestic and international concerns over potential German overdependence on China. Understandably, European officials have heightened sensitivity to perceived overdependence on states that challenge traditional Western hegemony as Europe continues to struggle with the fallout of dependence on Russian gas in light of the Russian invasion of Ukraine earlier this year. However, a closer examination of the Hamburg port deal structure suggests that European leaders may have overreacted to COSCO's minority ownership given the size of the stake and the FDI screening measures in place.
The sea route portion of the BRI, also known as the Maritime Silk Road, includes over one hundred investments made by the Chinese government and private Chinese companies in port projects worldwide, with at least nine of these port investments located in EU countries. Hamburg’s status as the largest port in Germany and the third largest in the EU (in terms of the volume of containers handled) has critics worried that this deal could allow China to gain dominance over a critical piece of German and EU infrastructure. But upon closer examination of the deal, it becomes apparent that this is unlikely to actually happen. The original proposal for a 35 percent stake in the CTT (which still would have been a minority stake!) was reduced in negotiations to 24.9 percent. This is just under the 25 percent threshold that would grant COSCO blocking rights, reducing the investment to a purely financial holding. It is important to note that no part of the Port of Hamburg itself has been sold to China or Chinese-owned companies, but rather a minority stake in a single container terminal owned by an independent German company that still lists the City of Hamburg as its most important shareholder.
Considering the ambiguous intentions of COSCO’s bid for the stake and the widespread backlash over the acquisition, why did Scholz and his party push so hard to approve the deal? They may have been motivated by the success stories of other European ports that accepted Chinese investment. In Greece, COSCO took over the ill-performing, previously state-owned port of Piraeus and turned it into the fourth-busiest port in Europe. Even France, the most vocal foreign critic of the Hamburg deal, granted stakes in three of its ports to China Merchants Port (CMP), another major, partly state-owned Chinese company also heavily involved in the BRI. Each of CMP’s stakes in the French ports are equal to or greater than the stake granted to COSCO in Hamburg. Proponents of the Hamburg deal claimed that if they rejected COSCO’s offer, it would weaken Hamburg’s competitive position among other EU ports that have already accepted Chinese investment and handle large cargo flows from Asia. Given the expected recession of the German economy next year due to the energy crisis, inflation, and supply bottlenecks, the ruling party may be eager to secure Hamburg as the preferred European hub for Chinese and Asian shipping traffic. Accepting the investment from COSCO Shipping Ports, one of the world’s top three port operators whose parent company operates out of 558 ports worldwide, could strengthen supply chains and ease one of the contributing factors to the recession.
Even if COSCO did pursue this deal with the intention of buying additional shares in the future to gain control over the CTT, they are prohibited from doing so without undergoing another approval process by the government, and such approval would likely not be granted given the current political environment. An alternative option for COSCO to gain additional control over the CTT would be to create shadow investment vehicles to secretly buy the additional shares. Germany’s current FDI screening process stipulates that the proposed acquisition of 10 percent or more of the voting rights of a target company that operates critical infrastructure (including ports) are subject to governmental screening. If COSCO’s goal was to gain a majority share in the CTT, they would have to create at least three shadow vehicles in order to achieve this – even more if they wanted to stay under the 10 percent threshold to avoid government review. Such a network of shadow investments is complicated, and its success would depend on the rigor of Germany’s screening process. It may also be undesirable for COSCO to follow through with such investments because if they are found out, it could increase scrutiny of even the smallest future Chinese international investments.
Ultimately, the controversy surrounding COSCO’s purchase of a stake in CTT reflects broader concerns about China’s growing influence over critical infrastructure around the world, especially in Western nations. It is true that China is buying shares in an increasing number of European ports; if China were to successfully accumulate controlling shares in major European ports, it does increase the risk of the Chinese government weaponizing its control of these ports in times of geopolitical tensions. However, the EU has already launched its FDI Screening Regulation to protect against such threats. The framework aims to better coordinate FDI screening on security and public order grounds among member states and defend the EU’s strategic interests against hostile foreign takeovers. Additionally, member states such as Germany are still responsible for adopting their own rigorous FDI vetting procedures to protect essential security interests.
Since the Russian invasion of Ukraine, there have been growing concerns over regime similarity between Xi’s China and Putin’s Russia. While such concerns have their merits, there are many reasons why the two are not the same. The most fundamental difference between China and Russia is that China seeks to influence the world via its economic and financial power whereas Russia seeks to completely disrupt the existing global system. Given this difference, western foreign policy approaches towards China should be differentiated from policies towards Putin’s Russia. As it is, overuse of sanctions by the United States and its European allies have spurred China to build alternative financial systems via BRICS and the Shanghai Cooperation Organization, which only makes them more resilient to sanctions and barriers to trade often favored by the West. Rejecting this deal would further isolate China from the global system, creating even less incentive for the country to cooperate with the EU and its allies in the future. Scholz rightfully chose not to shun China completely, but rather to accept the Hamburg deal with provisions and extend a tentative olive branch in the form of his visit to Beijing. By accepting this potential vulnerability now, Germany gains more leverage in its relationship and dealings with China in the future.
Nadia Clark is a research associate for international political economy at the Council on Foreign Relations.