The port operators behind China’s naval expansion

The Chinese Communist Party’s first leader, Mao Zedong, once said that ‘political power grows out of the barrel of a gun’. Mao’s words echo a fundamental truth of China’s system of government—that the ruling party has its own military wing, the People’s Liberation Army. Soldiers in the PLA swear an oath to defend the CCP, not the Chinese nation, meaning that their primary task is to safeguard the interests of the party. The CCP’s ultimate goal is to ensure that its influence over the nation becomes so totalising that the interests of the two are indistinguishable. In this respect, the PLA ends up serving the dual role of safeguarding the CCP and defending the Chinese nation.

Just as the CCP has its own armed wing, it has its own commercial wings embedded in all of China’s powerful state-owned enterprises. These SOEs operate in a hybrid fashion, seeking out business ventures that generate profits while carrying out the interests of the Chinese state. China’s SOEs are legally required to have a party branch at the highest levels of the company hierarchy, and senior members of the board such as the managing director concurrently serve on the SOE’s party committee. This organisational structure makes sure that any business ventures undertaken by the SOE serve the interests of the company, the state and, most importantly, the CCP.

Xi Jinping has accelerated the party’s dominance over the state, military, nation and business. Chinese companies are expected to do the party’s work even if that means collaborating with its armed wing in the PLA or working with its political warfare agencies like the United Front Work Department. Under Xi Jinping’s leadership, the CCP is seeking to apply its internal disciplinary code to Chinese SOEs strictly and extra-territorially.

Our new ASPI report, Leaping across the ocean: The port operators behind China’s naval expansion, explores the links that two major Chinese maritime SOEs have with the CCP’s organs of political influence, its disciplinary apparatus and its militarised branch, the PLA.

COSCO and China Merchants, two companies that have taken a commanding position in overseas port operations and international maritime logistics, are subject to stringent control by the CCP and are increasingly willing to protect party interests overseas. A third of COSCO’s employees are members of the CCP, and a member of its party committee was a party disciplinarian in China’s Ministry of Public Security and the CCP’s United Front Work Department. China Merchants also has deep links with the CCP. One member of China Merchants’ party committee is a former deputy head of discipline inspection at the CCP General Office, and likely had a close working relationship with two current members of the Politburo Standing Committee.

Xi’s bid for total control over China’s SOEs has profound implications for countries that are open to foreign investment. Before Xi, the national security risks posed by the CCP’s integration into China’s SOEs could be ameliorated by requiring investigation, transparency and disclosure during a country’s foreign investment review process. These measures are no longer sufficient now that Xi has begun to strengthen his grip on the CCP and wield the coercive elements China’s national power.

Chinese companies are required by the country’s domestic law to assist with intelligence collection and national defence mobilisation. We should expect China’s SOEs to comply with any legitimate request by the CCP to assist with either mission in peace, war or the grey zone in between.

Indeed, there’s good evidence that such support is already being provided. For instance, COSCO operates its own militia, which is likely capable of conducting paramilitary activities such as maritime surveillance, counter-piracy missions and search-and-rescue operations. One of COSCO’s joint ventures has also been involved in taking Chinese tourists near illegally built PLA facilities in disputed areas of the South China Sea. The company’s involvement in the Greek port of Piraeus has also been supported by active-measures campaigns conducted by the United Front Work Department. COSCO appears to be developing the capability needed to comply with CCP requests to assist with intelligence operations, national defence mobilisation or grey-zone activities.

Australia and its like-minded partners, including the US and Japan, can no longer take a reactive approach to the expansion of China’s overseas port operations. Together, COSCO and China Merchants operate 36 ports around the world. If Chinese SOEs assume control of any more ports, Beijing will have secure access to some of the world’s most crucial shipping nodes and logistics hubs. In wartime, that could significantly undermine the freedom of action that Australia or its allies would need to defend their maritime interests and sea lines of communication.

More urgent, however, is the priority to build the resilience of countries that may be vulnerable to handing over critical infrastructure such as ports to Chinese SOEs. Coercion need not come from the PLA engaging in denial operations to secure access to a port shortly before a war breaks out or from an offensive cyberattack on a port’s digital infrastructure. Under Xi, the CCP has proven all too willing to rely on organs such as the United Front Work Department to orchestrate active-measures campaigns designed to compromise a country’s sovereign decision-making. Chinese SOEs may not be drivers behind such activities, but they offer the vehicles for them.

Australia, Japan and the US have some of the tools needed to help build countries’ resilience to coercion from the Chinese regime. They could begin by developing an international ports strategy through the ‘blue-dot network’, which was established in 2019 as a way of setting standards for high-quality infrastructure projects. Canberra, Tokyo and Washington should use the network to create a ‘Michelin guide’ for international port operations and investments. They could then post diplomatic personnel with expertise in critical infrastructure to agreed strategic locations around the world to promote blue-dot alternatives to investments backed by Chinese SOEs as well as advise on how to counter foreign interference.

Australia and its partners don’t have the power to change the nature of the CCP—and competing with Beijing dollar-for-dollar is a non-starter. But what we can do is create a world that is more resilient to the coercive measures Xi has developed a habit of using. A diplomatic strategy geared towards achieving that goal would make it much harder for the CCP to continue finding the logistical hubs needed to increase the PLA’s overseas presence and secure its success in wartime or grey-zone operations.