China and the future of economic warfare: the views expressed in this article are those of the author and do not reflect the official policy or the position of the U.S. Army, Department of National Defense or the U.S. government.

Introduction

The future of warfare may not include missiles, armor, or aircraft, but may actually shift to economic weapons such as commercial shipping and the management of the ports that handle goods around the world. The world economy is completely dependent on shipping and the loading and unloading of goods to and from everywhere on the planet. What if the ships never made it to port? What if the companies running the ports around the world stopped loading and unloading merchandise, just for a few days? What impact would this have on the U.S. economy, let alone the world economy? The U.S. is becoming more and more dependent on goods from China. What if China decided it could utilize its goods to influence a political need? How much power could China have over U.S. policies and interests just by slowing the delivery of goods or the threat of a slow down?

The Panama Canal

On August 15, 1914, the SS Ancon became the first ship to transit the Panama Canal. Little did the crew know how important that crossing and the Panama Canal would become to the world's economy. A ship can now expect to cross from one ocean to another within 8 to 10 hours. This is a time saver compared to the two weeks it took a ship to go around the southern tip of South America before the Canal was built. Since that day ninety-one years ago, over 880,000 ships have transited the waterway. Upwards of 14,000 ships go through the Canal each year and shipping through the canal has increased 6.7 percent from 2004. The Panama Canal/Universal Measurement System (PC/ UMS) tonnage was 266,916,576 and for the first time revenue from the canal operation exceeded one billion dollars. Today around 9,000 people are employed by the Panama Canal Authority. The Canal has paid for itself over the decades. Original construction costs reached approximately $375 million. This amount includes the $10 million paid to Panama and $40 million paid to the French company for the rights to the Canal.

In 1977, the Panama Canal Treaty and the Treaty Concerning the Permanent Neutrality and Operations of the Panama Canal were signed by U.S. President Carter and Panamanian Chief of Government Torrijos, relinquishing U.S. control over the Canal (to include its military bases) by 2000 and guaranteeing the Canal's neutrality. Since 2000 the transition has gone well. The Panama Canal Authority (ACP) has done a superb job of running the canal. Shipping transits have increased as have much needed revenues. The ACP and the Panama Ports Company (PPC) have invested heavily in the modernization of the Canal and its waterways. The PPC is a subsidiary of the Hutchinson Port Holdings Company (HPH) which is owned by the Hong Kong based multi-national Hutchison Whampoa Limited (HWL).

Many Americans cried foul over the Panama Canal Treaty, but the envisioned scenarios of foreign control of the canal and all shipping operations have not come true, yet. Much of the fear was based on the contract signed by the HWL subsidiary PPC. The PPC won the 25 plus year contract through what many saw as a rigged bidding process. In the end, PPC paid ten times what the previous contractor paid for the rights to operate the stevedoring (loading and unloading of cargo) portion of the Canal operations.

HWL's PPC had come in only fourth in the bidding, after the Japanese firm Kawasaki/ITS, the U.S. firm Bechtel, and the Panamanian-American company, MIT. For exclusive control of the two ports, Balboa and Cristobal, PPC agreed to pay $22.5 million a year and Panama's Law Number 5 was passed on January 16, 1997 to confirm the deal. (1) Law Number 5 violates Article V of the Panama Canal Neutrality Treaty which stipulates that only Panama "shall operate the Canal and maintain military forces, defense sites, and military installations within its national territory." By giving PPC "priority" for its business operations, Article 2.11d of Law Number 5 also violates the treaty's Article VI, which guarantees "expedited" and "head of line" passage for U.S. warships. Article 2.10c gives the PPC the "right" to operate piloting services, tugs and work boats, which translates into control of all the canal's pilots. Article 2.10e grants the "right" to control the roads to strategic areas of the Canal, and Article 2.12a grants priority to all piers, including private piers. Article 2.8 gives the PPC the right "to transfer contract rights" to any third party "registered" in Panama. Those rights could be transferred to China, Cuba, Iran, or North Korea.

The PPC operates the ports of Balboa and Cristobal located at each end of the Canal. PPC is committed to transforming the two ports into major hubs to serve the Pacific and Atlantic trade routes. The PPC has invested $200 USD million into the Port of Balboa located on the Pacific side of the Canal. The port of Cristobal, on the Atlantic side, is a multi-purpose port equipped with 2,855 meters of quay for self-sustained operations of containerized cargo, general cargo, bulk and vehicles. A container freight station provides a range of supporting services to shipping line customers. Also a major cruise ship destination, PPC officially opened the Cristobal Cruise Terminal-Pier 6 in 2000.

The ACP controls the Panama Canal; however, Hutchison Whampoa Limited's PPC can greatly affect the transitions of ships passing through the Panama Canal. Recent reporting indicates that the Panamanian government has decided not to charge PPC the $25 million dollars a year fee to operate the ports of Cristobal and Balboa. This would eliminate over a billion dollars in revenue to the Panamanian government over the 25 to 50 year contract. Panamanian government officials claim that because PPC and HPD have invested so heavily in the canal region they felt it was fair to stop charging the annual dues and additional fees generated by the contract. A report by Credit Suisse-First Boston estimated the losses to government coffers at several billion dollars, mainly because the contract modification represents a loss to the national treasury at a time when government revenues are "collapsing" and the public payroll is expanding, which in turn is likely to lower Panama's bond rating and thus increase the interest rates on money that the nation government borrows.

Along with control of the Canal ports, PPC has options on all former U.S. military installations located in Panama. PPC is also ten percent owned by China Resources Enterprise with is the commercial arm of China Ministry of Trade and Economic Cooperation. In testimony given during the 1997 Special Investigation in Connection with the 1996 Federal Election Campaign China Resources Enterprise was named as an "agent of espionage: economic, military, and political for China." (2)

HPH Worldwide Operations and COSCO 

Many Americans, to include several politicians, have voiced their concerns over what they consider the Chinese influence over Canal operations. Can PPC halt or delay shipping through the canal? The answer is yes. But the real danger is not within the Panama Canal operations and with a limited halt to operations, but with a worldwide halt to shipping and container operations which is heavily controlled by HWL's HPH Company and the worldwide operations of the China Ocean Shipping (Group) Company (COSCO). The worldwide operations and aspirations of HWL, COSCO, and these two corporation's direct and indirect connections to the Chinese government are the true threat to the world economy, but most importantly to the U.S. economy.

The Panama Canal operations are just one piece in the puzzle when it come to deciphering possible intentions of HWL, HPH, COSCO, and the intentions and influence of the Chinese government over the world economy. A direct military attack on the U.S. from China would be met with a swift retaliation which could cause the collapse of Communist control over China. It is no secret that the government of China and Chinese military officials consider the U.S. an opponent on the world stage. Many reports state Chinese military officials expect future conflict with the U.S. However, China must find a way to eliminate the worldwide power of the U.S without itself being destroyed. This is where economic warfare comes into play.

The best tool the Chinese have at their hands is the control of merchandise not only from China, but through worldwide transportation of goods to the U.S., Europe, Middle East, Africa, Asia, and the Americas. This is where HWL, her subsidiaries, and COSCO come into play.

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HPH owns and operates ports and services to include 214 berths at 36 ports in 19 countries. This includes two ports at the Panama Canal; four in Mexico; two in South Korea; nine in China; four in Hong Kong; three in the United Kingdom; and two in the Netherlands; as well as ports in Freeport, Grand Bahamas; Buenos Aires, Argentina; Damman, Saudi Arabia; Thilawa, Myanmar; Willebroek, Belgium; Duisburg, Germany; Gdynia, Poland; Jakarta, Indonesia; KMT West Port, Malaysia; and Laen Chabang, Thailand. All of these ports are at major choke points for shipping. HPH failed in its bid to purchase the old Long Beach Naval Shipyard from the U.S. government. This would have given HPH unlimited access to the U.S.

The world of HPH covers a broad spectrum of port operations and related service companies spanning the entire globe. With operations and services ranging from container ports, mid-stream operations and river trade to cruise terminals, warehousing, haulage and e-commerce companies, HPH has become a key provider of comprehensive logistics services for the global supply chain. In the Bahamas, HPH and their partner, the Grand Bahamas Development Company (DEVCO), are co-owners of the Grand Bahamas International Airport. The airport has a 15,000 foot runway and can handle the largest aircraft in the world. DEVCO is also 50 percent owned by HPH. HPH subsidiaries and partners are heavily invested in the Grand Bahamas port facilities to include a resort hotel and extensive land holdings.

On April 27, 1961, COSCO was founded in Beijing, China. COSCO vessels service all ports owned and operated by HPH and carry cargo and containers from all over the world into the U.S. COSCO is a seventeen billion dollar a year company operating a fleet of some 600 vessels with an annual traffic volume of more that 270 million tons. As a global company with shipping and modern logistics as the core business, COSCO has hundreds of member unit and service networks, both at home and abroad. In China, COSCO's wholly-owned subsidiaries in Guangzhou, Shanghai; Tianjin, Qingdao, Dalian, Xiamen, and Hong Kong own and operate various types of ocean shipping fleets for the shipment of containers, bulk carrier, oil tanker as well as specialized carriers. Abroad, with North America, Europe, Japan, South Korea, Singapore, Australia, South Africa, and West Asia as lucrative markets linked by shipping routes, COSCO has formed a transnational operation network capable of reaching all major areas of the world. Ships and containers with the conspicuous "COSCO" logo are shuttling cargo among 1,300 ports in more that 160 countries and regions around the world. COSCO and HWL are partners in several ventures to include the COCSO-HIT (Hong Kong International Terminal) at Kwai Chung.

In 1995, a COSCO vessel, the Empress Phoenix, was boarded by U.S. Customs agents at the U.S. Port of Oakland. The agents seized a cargo of 2,000 AK-47 assault rifles destined for California street gangs. COSCO ships have long served as a vehicle for the transportation of strategic material to allies of Communist China in support of programs such as the development of ballistic missiles, nuclear, chemical, and biological weapons. British authorities once discovered 10 tons of ammonium perclorate, a key component of ballistic missile fuel, on its way from Xian, China to Karachi, Pakistan on a COSCO ship. Other COSCO shipments include heavy artillery and ammunition from North Korea to Syria, as well as weapons and spare parts from North Korea and China to both Iran, and previously to Saddam's Iraq. COSCO is also the Merchant Marine arm of the People's Liberation Army (PLA). HWL's Chief Executive Officer (CEO) Li Ka-Shing is also heavily invested in COSCO. Make no mistake: HWL and COSCO are partners linked at the hip.

Li Ka-Shing

All of the information provided on HWL and HPH is courtesy of the HWL website, but what the website does not reveal is the involvement with AsiaSat, a company partly owned by the Commission on Science, Technology, and Industry for National Defense (COSTIND). COSTIND is reportedly part owned by the Chinese Army. Li Ka-Shing, HWL's CEO, assisted in raising funds for the purchase of a Hughes Satellite for AsiaSat along with the China International Trust and Investment Corporation (CITIC). Li Ka-Shing reportedly owns one-third of AsiaSat.

A Rand corporation report (3) on CITIC noted that the Beijing based investment firm has acted as a front for Poly Technologies Inc., an arms manufacturer owned directly by the Chinese army. "CITIC does enter into business partnerships with and provides logistical assistance to the PLA and defense-industrial companies like Poly," noted the 1997 report. "Poly Technologies, Ltd. was founded in 1984, ostensibly as a subsidiary of CITIC, although it was later exposed to be the primary commercial arm of the PLA General Staff Department's Equipment Sub-Department," the report continues.

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Many believe the 72 year old Shing will make a deal with anyone as long as he can profit. Some believe that he is partnered with the Communist government of China. The business world views him as one of the top managers in the world, and reportedly he has not failed in any business since starting HWL. All of this would fit well into any conspiracy theorists mind, but there is no direct evidence that Li Ka-Shing is anything but a great businessman. Most analysts would look at the situation this way--HWL is a publicly traded company, COSCO is a publicly traded company, and it is very doubtful that the stockholders would want the ships to stop mid-ocean or the ports to halt the stevedoring at the Panama Canal or any other port owned by HPH. In other words there is too much money being made all over the world for Li Ka-Shing or his companies to want to shut it down for the political needs of one government. So why all the fuss over this businessman and his association with the Chinese government?

Pieces of the Puzzle

HWL, COSCO, CITIC, COSTIND--All these are pieces in a puzzle. All of these pieces could come together if the Chinese government's economic and political plans are derailed in any way. China's economy is like a runaway freight train. If not controlled properly, it could overheat and crash. This could lead to the collapse of the Communist government. The key to this freight train is oil. Vast amounts of energy are needed to keep the Chinese economy moving forward. The oil needs of the Chinese economy are sapping reserves from the rest of the world. Oil prices are not up just because the oil companies want more profits.

It is basic supply and demand. China's needs are driving prices up. The Washington Times reports that "China is so concerned about future energy needs that it is building up military forces and setting up bases along sea lanes from the Middle East to project its power oversea and protect its oil shipments. China is building strategic relationships along the sea lanes from the Middle East to the South China Sea in ways that suggest defensive and offensive positioning to protect China' energy interests, but also to serve broad security objectives." Reportedly, the Washington Times obtained a copy of a report titled "Energy Futures in Asia." (4) The internal report stated that China is adopting a "string of pearls" strategy of bases and diplomatic ties stretching from the Middle East to southern China."

Conclusion

China must protect the oil shipments at all costs and this is where economic warfare comes into play. If the U.S. puts up a naval blockade to stop oil shipments from reaching China because of conflict between China and Taiwan or for any other military reason, then China could watch its economy collapse and along with it, control over the country. If China strikes militarily, then we have a world war which would most likely lead to a collapse of the Chinese economy. China's best weapon is economic warfare; it has influence over a vast majority of the goods that criss-cross the oceans. If the COSCO ships stopped mid-ocean, if the Panama Canal was blocked, and all the ports world wide stopped loading and unloading containers, then the U.S. and the world economy would surely collapse. The end game is that the world could be held hostage by two companies who are very friendly with the Chinese government.

Endnotes

(1.) The two treaties can be read at http://www.country-data.com/frd/cs/panama/pa_appnb.html.

(2.) Excerpts of the testimony are at http://www.pbs.org/newshour/campaign/july97/hearing_7-15.html.

(3.) John C. Mulvenon, Chinese Military Commerce and U.S. National Security, (Santa Monica: RAND Center for Asia Pacific Policy, 1997).

(4.) Billl Gertz, "China Builds up Strategic Sea Lanes," Washington Times, January 18, 2005.

CW2 James D. Higday has served in support of Operations NOBLE EAGLE, ENDURING FREEDOM, and IRAQI FREEDOM. CW2 Higday has also served with the former Third U.S. Army Counter Terrorism Crisis Action Team, the former Sixth U.S. Army counter Drug Task Force, and with Naval Special Warfare. He holds a BA in Business and can be reached at [e-mail].