In September 2021, the German “Hamburg Haven and Logistics AG” (HHLA) publicly announced for the first time that they were negotiating with the Chinese ports operator “Cosco Shipping Ports Limited” (CSPL), regarding the acquisition of a stake in the Container Terminal Tollerort (CTT) of the Hamburg harbour. A few months later, HHLA published another announcement declaring that negotiations with CSPL about a strategic investment between the two parties had been successfully concluded. CSPL was to acquire a minority share of 35% in CTT.
Fast forward to 2023, the initial deal negotiated between the HHLA and CSPL is off the table after a wave of public- and political backlash followed the investment deal. Concerns about Germany’s strategic autonomy vis-à-vis China caused the German federal government to limit the available stake for acquisition to below 25%. Thus, in June 2023 HHLA and CSPL signed an agreement for CSPL’s minority shareholding of 24.99% in the CTT. While the case study of the Hamburg harbour has been widely discussed in various media outlets, confusion and ambiguity around the deal itself and its respective parties remain. Since China has been Germany’s biggest trading partner in 2022 for the seventh year in a row, Chinese FDI in Germany is likely to further increase in the future. Thus, it is highly relevant to take a closer look at the Hamburg harbour case study as it can set a precedent for how future Chinese FDI in German and European infrastructure could be handled. This op-ed will provide insight into the actors involved in the case, shine light on the German federal government’s decision to limit the stake available for acquisition to 24.99%, trace the origins of the public and political backlash, and explain the rationale behind the investment.
Mapping the Actors – the HHLA and CSPL
The Hamburg harbour is Germany’s largest container port, managed by the Hamburg Port Authority (HPA), who leases terminal areas and infrastructure of the port. Container handling is the dominant segment at the port of Hamburg, accounting for almost 99% of general cargo handling. This abundance of container handling is spread across four high performance container terminals that are operated by two container terminal operators, namely HHLA and Eurogate. As a container terminal operator, HHLA invests in the construction, operation, and handling facilities of a terminal. The contracts for leasing of the terminal areas are made with the HPA. The HHLA has a leasing agreement with the HPA, for the lease of land and quay walls of three out of the four container terminals in the Hamburg harbour. Namely, the Container Terminal Altenwerder, the Container Terminal Burchardkai, and the Container Terminal Tollerort (CTT). The fourth and last one is called the Eurogate Container Terminal Hamburg and managed by Eurogate.
The CTT occupies the smallest area of all container terminals in the Hamburg harbour, but is recognized for its high performance. According to the managing director of CSPL Zhang Dayu, the CTT is a keystone of logistics in Europe with promising future development prospects which motivated the acquisition. Similarly, the HHLA stands to benefit from the investment as the CTT will become the preferred hub in Europe for Cosco cargo flows, and a certain trade volume is safeguarded.
Despite the apparent economic rationality behind the investment, reactions to the HHLA announcement were sceptical at best. This scepticism appeared to be largely related to CSPL being part of the larger Chinese company Cosco, listed by several media sources as a Chinese “state-owned enterprise” (SOE). SOEs can be defined as business entities established by central or local governments which are wholly state-funded. By classifying CSPL as such, people were quick to negate any economic rationality behind the investment and suggested that the deal was almost entirely motivated by strategic interests of the Chinese Communist Party (CCP).
However, before diving deeper into the origins of German public and political backlash, it is important to take a closer look at CSPL’s corporate structure. CSPL is an indirect subsidiary of “Cosco Shipping Holdings co. Limited” (CSHL), which is in turn a subsidiary of “China Cosco Shipping Corporation Limited” (Cosco Shipping). Cosco shipping resulted from one of the world’s largest mergers, namely that of the “China Ocean Shipping Group” and the “China Shipping Group Company”. While Cosco shipping is an SOE headquartered in Shanghai, its core subsidiaries and their respective subsidiaries are to varying degrees state-owned. CSPL was first registered in Bermuda as Cosco Pacific and does not seem to be fully government funded.
According to the Hong Kong stock exchange where the company is listed to date, its two substantial shareholders are divided between CSHL (58.36% shares) and the London based investment management company “Silchester International Investors LLP” (10% shares). Thus, while it cannot be negated that CSPL is to significant parts owned by the Chinese SOE Cosco Shipping, its corporate structure reveals that the terms “Cosco” and “CSPL” cannot be used interchangeably per se, nor can CSPL be classified as a straight-forward SOE. Claiming that the CCP is using CSPL’s investment in the CTT of the Hamburg harbour for political purposes only might overlook that CSPL also has commercial interests to attend, which can explain the investment decision.
From 35% to 24.99%
However, the partial prohibition of the deal between CSPL and HHLA seemingly gives credit to the scepticism that surrounded the investment. More so, it further fuelled the political and public debate on whether to allow CSPL to purchase any stake in the first place. The partial prohibition of the deal by the German Ministry for Economics and Climate Protection (BMWK), followed a mandatory investment review by the German government. Such investment reviews are required for the acquisition of shares by companies from non-EU countries, since the EU adopted new rules for better screening of FDI in 2019.
On 26 October 2022 the BMWK announced their decision for a partial prohibition of the deal, on the basis that the deal would pose a threat to German public order and safety. While the BMWK could not completely prohibit the deal as that requires the consent of the federal government, they imposed a number of conditions apart from the percentage reduction. CSPL is forbidden from having any contractual veto rights in strategic business, or personnel decisions, nor are they allowed to appoint members of the management board. Any acquisition attempts by CSPL exceeding the 25% mark would result in another investment review process. According to the BMWK, these measures prevent CSPL from acquiring a strategic stake, and reduce the acquisition to a purely financial matter.
However, information released by the HHLA suggests that a reduction of the stake from 35% to below 25% hardly makes a change. A 35% stake already is a minority stake, and as such a non-controlling one (less than 50%). Thus, it would have anyways excluded CSPL from having any exclusive rights at the terminal, and would not have allowed CSPL access to the IT or sales data of the terminal. Furthermore, the HHLA only allows for the purchase of class A shares, not class S shares. Class A shares refer to a classification of common stock that is accompanied by voting rights, enabling the shareholder to vote at annual meetings where board members are elected. The class S shares refer to the HHLA’s real estate subgroup whose shares are not available on the stock market. As a result, CSPL’s 35% stake would not have included ownership of the land where the CTT is built on, but only in the port logistics subgroup. Thus, the main consequence of the percentage reduction appears to be that CSPL’s right to vote at annual meetings was removed.
Following the BMWK’s decision, CSPL and HHLA revised their previous agreement, but agreed to not disclose the contents of their final agreement. On 10 May 2023 the German government decided to allow CSPL the purchase of a 24.9% minority stake. Following this decision, the HHLA announced on 19 June 2023 that they had signed the agreement for CSPL’s minority shareholding, and that the CTT would become the preferred handling location for Cosco.
Tracing the Origins of the Public and Political Backlash
The origins of the public and political backlash that followed HHLA’s announcement of CSPL’s investment in the harbour appear to be four-fold. First, the public backlash seemed to be largely triggered by the leakage of a risk analysis report that was disclosed by the German tabloid “Bild”. In the risk analysis lawyers of the BWK were cited warning against CSPL’s investment. They stated as potential risks that the deal would cause China to have an increased strategic influence on the German and European transport infrastructure, as well as the ability to influence the resilience of supply chains and supply security. Furthermore, worries were voiced that China could use the transport infrastructure to further their political goals. It could threaten German sovereignty as elements of the European transport infrastructure owned by China may no longer be fully available in the case of a conflict. The risk analysis report finished by advocating that a prohibition of the investment could prevent that an alternative transport network in line with Chinese ideals would develop in Europe. The claims and worries stated in this risk analysis report reached a large audience, given that “Bild” has a reach of 7.82 million people per issue in Germany.
However, the tabloid has repeatedly received criticism for making hasty convictions of suspects, disregarding personal rights, and as such violating the press code of the German press council. This may prompt consideration regarding the reliability of the leaked risk analysis report. Especially since the official position of the BMWK did not fully align with the risks stated above. Nevertheless its content circulated widely through German public society.
Second, the German government coalition itself was divided over CSPL’s investment in the harbour, which further fuelled debate and insecurity about the investment. The current German coalition is formed by three parties; the Green party, the FDP, and the SPD. While German chancellor Olaf Scholz’s SPD was largely in favour of the deal, the FDP and Green party, as well as their ministers in charge of their respective ministries, took a critical stance. The Green party-led BMWK partially prohibited the deal, and the FDP-led ministry of Finance followed the protocol declaration of the Green-led foreign ministry. In that declaration the asymmetry in Sino-German trade was highlighted, framing Chinese influence in European infrastructure as a risk. Only the SPD-led ministries appeared to be in support of the decision to allow Cosco to purchase a 35% stake. While a compromise was reached in the end at 24.9%, the division among the German government further powered public insecurity and criticism regarding CSPL’s investment in the harbour.
Third, CSPL’s investment in the CTT was embedded in the larger context of the Belt and Road initiative (BRI), fuelling public and political concerns about Chinese strategic interests in Europe. The BRI is a Chinese-led infrastructure project that aims to link Asia and Europe through the silk road economic belt and maritime silk road. While the Hamburg harbour refers to itself as the “Gateway to the New Silk Road” on its official website, Germany is not officially part of the BRI. Furthermore, while CSPL’s investment in the CTT is mentioned on the official Belt and Road portal as a news entry, the investment is not noted on the official Silk Road Investment Fund website. However, it has to be kept in mind that in the context of the BRI all Chinese actors, including private companies, are expected to contribute their share to it. Thus, it is ambiguous whether CSPL’s investment can officially be claimed to be part of the BRI or not. Reducing this ambiguity and becoming more transparent about which investments are part of the BRI and which are not, could help to mitigate European anxiety regarding Chinese FDI.
Fourth, the debate surrounding CSPL’s investment in the CTT was embedded in the larger context of German strategic autonomy and its reliance on Russian gas. According to the oil company BP approximately 55% of German gas imports came from Russia back in April 2022, creating a large dependency as well as a threat to German supply needs. As of 2023 Germany is no longer importing any Russian gas, but anxiety over strategic dependencies remains. Similarly, in 2021 China was Germany’s strongest trading partner with approximately 80% of trade with China conducted by sea. This trend is evident in the Hamburg harbour as well, where China accounts for 29.4% of the Hamburg harbour’s total container throughput. Thus, as Germany is grappling with concerns about its strategic autonomy and aims to reduce its dependencies, CSPL’s investment appears to have emerged at the wrong time, drawing major attention to the deal and increasing tensions due to its Chinese origin. Germany’s concerns about one-sided dependencies is reflected in the federal government’s new China-strategy as well, where China is classified as partner, competitor, and strategic rival. What this new strategy will mean for future Chinese FDI remains to be seen. However, it is clear that as Germany navigates its multifaceted relationship with China, its new strategy will likely aim to strike a balance between economic engagement and safeguarding German interests and values.
The Investment’s Rationale
While it is one thing to theorise about the potential risks that CSPL’s involvement could have on a hypothetical basis, the investment in the CTT has a clear economic rationale for both actors involved. Thus, outlining these economic incentives can debunk some of the worries associated with CSPL’s investment. In itself the purchase of a stake, or even an entire terminal by shipping corporations is a rather common practice in the maritime trade industry. The participation of shipping corporations in terminals is used to increase organisational logistic efficiency, safeguard cargo, and create a lasting relation between corporation and harbours. This logic holds true for any shipping corporation, including CSPL. Furthermore, CSPL explained their choice for purchasing a stake as follows: “Hamburg Port’s CTT is well positioned geographically, in close proximity to major industrial hubs in Germany, and trade volume to and from China already makes up 30% of total trade volume at Hamburg Port, making it an important hub for trade between the two countries”. Taking a glance on the map below makes the Hamburg harbour’s strategic position evident.
https://www.hafen-hamburg.de/site/assets/files/576488/logistikdrehscheibe-hamburg.png
As can be seen above, the Hamburg harbour appears as a logistic hub for hinterland transports and transhipment traffic. Goods traded with China are transshipped to their final destination in Hamburg, or continue on to China from their points of origin via Hamburg. The purchase of a stake in the Hamburg harbour by CSPL safeguards an efficient transshipment of goods on their way to or from the European hinterland with the Hamburg harbour as their preferred hub. From an economic perspective, a reduced minority stake of 24.9% still meets CSLP’s economic needs even if it does not include any say in strategic decision making of the harbour.
Moreover, Cosco Shipping’s partnership in “The Ocean Alliance”, an international shipping alliance group, demonstrates a separation of economic interests towards political considerations, in relation to SOEs. A shipping alliance is a cooperative agreement between major ocean carriers that covers a number of trade routes among its members on a global scale. Such shipping alliances commit to vessel sharing creating economic benefits for its members. The Ocean Alliance is a shipping alliance between the corporations Cosco Shipping, Orient Overseas Container Line (OOCL), Compagnie Maritime d’Affrètement et Compagnie Générale Maritime (CMA CGM), and Evergreen. Cosco Shipping and OOCL, a Hong Kong based company, belong now to the same holding group, while CMA CGM is a large French shipping corporation and Evergreen is a major Taiwanese shipping line. These existing economic cooperations are quite remarkable in a global alliance, especially considering the partnership between a Taiwanese- and a Chinese shipping corporation.
The benefits of the deal for the HHLA and Hamburg harbour are straightforward. Cosco shipping, as well as other large shipping corporations have previously bought terminal holdings in other European ports such as Antwerp and Rotterdam. There has traditionally been strong competition between the ports of Rotterdam, Antwerp, and Hamburg as they are all located along the le Havre – Hamburg range. Thus, to ensure its international competitiveness the acquisition of terminal holdings in the Hamburg harbour seems economically rational. In order to ensure the smooth functioning of ports and safeguard investments, it is necessary to establish a secure plan for port utilisation and planning. This is accomplished through shipping companies acquiring ownership interests in terminals. The minority stake guarantees that CSPL has no access, nor influence, on the harbour’s infrastructure. In a case of conflict between Germany and China, Cosco shipping would not have any additional pressure points apart from already existing ones, namely a withdrawal of Chinese goods from the port.
A Final Examination of the Case
The Hamburg harbour case study involving the HHLA and CSPL sheds light on the complexities of international investments and the intricacies of geopolitical concerns and the parties involved. CSPL’s ownership links to a state-owned enterprise but involves private shareholders, highlighting economic priorities over political influence on investment choices. Tracing the deal’s evolution from inception to agreement reveals the diverse factors behind the public backlash. The controversy rests on four pillars: a leaked risk analysis, German government division, the general BRI context, and fears of declining strategic autonomy. They led to capping CSPL’s stake at 24.99%, in line with Germany’s China strategy,balancing economic ties with national interests. Economic motivations further clarify CSPL’s investment rationale.
Despite holding a reduced stake devoid of strategic decision-making authority, CSPL’s purchase is largely economically driven and viable. Its decision to proceed underscores the pragmatic economic benefits that such an investment brings, enabling efficient trade flow without necessitating influence over the port’s strategic direction. Political motivations alone would likely not have driven CSPL to pursue a mere minority stake of 35% or even a diminished 24.9% stake. While the overarching goal of the German government to reduce one-sided dependencies with China seems legitimate, the 10% reduction of the minority stake appears to be a case of “Symbol Politik” (political measures that do not go beyond being symbolic). In itself it does not sufficiently address German strategic autonomy, but it has nevertheless contributed to an increased perception of adversarial Chinese FDI.
Lastly, the implications of this case resonate at the EU level. The German government’s deliberations on CSPL’s stake in Hamburg’s port mirror a dilemma faced by many EU countries. How to balance economic gains from Chinese investments with potential geopolitical risks? The cautious stance taken by Germany is emblematic of wider European concerns regarding maintaining its strategic autonomy and preventing over-dependence on China and other external partners. However, this case also reveals that unilateral actions by individual member states might not be sufficient to achieve these goals, given the interconnectedness of the European economy and its Single Market. Without a united approach, EU member states will be more susceptible to accept Chinese FDI as they strive to remain competitive in the global economy. Therefore, the Hamburg case underscores the urgency for the EU to forge a more cohesive alignment and strategy in its engagement with China, one that safeguards its interests and supply chains while promoting economic cooperation in an increasingly interconnected world.
Author: Maria Kienzle, EIAS Junior Researcher
Photo Credit: Pexels