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China’s Dual Strategy in the Red Sea: Balancing Economic Expansion and Military Presence

In 2022, seaborne trade, responsible for over 80 percent of global merchandise shipment, weathered disruptions from pandemic-induced lockdowns, Russia’s war on Ukraine, and escalating inflation. This resilience underscores its vital role in international goods and commodities trade. Notably, the global economy’s reliance on the maritime commercial connectivity infrastructure, including shipping lanes and coastal facilities, intensifies near maritime chokepoints. These chokepoints, either natural or artificial, funnel maritime traffic into narrow water channels due to the absence of alternate routes or the prohibitive increase in shipping time and associated costs.

A country has two main strategies to establish a strategic presence near these congested maritime pathways and ensure the smooth flow of seaborne trade through cross-regional transit corridors. The first is a complex security approach, which involves building military installations like naval and air facilities for traditional military power projection. The second strategy is a softer, non-threatening approach that uses non-military means to establish and exert influence. This often involves acquiring stakes in existing or new trade and logistics infrastructures, such as seaports and multi-modal connectivity hubs, which are crucial for gaining an advantage in regional commerce. Among the countries aiming to secure a foothold in the Red Sea and the Gulf of Aden basin, China stands out for its unparalleled ability to combine these two strategies skillfully.

The Belt and Road Initiative in the Red Sea

While the Red Sea and the Gulf of Aden are crucial to the global energy supply chain, China’s rapidly growing demand for energy products is only one factor drawing Beijing’s attention to the region. Most of China’s fossil fuel imports sail through the Strait of Hormuz, over 1,500 nautical miles northeast of the Gulf of Aden. Saudi Arabia and Iran are among China’s top three oil suppliers.

However, the Red Sea holds significant geostrategic and geoeconomic importance for China. As a critical trade route linking the Mediterranean Sea and the Indian Ocean, this maritime channel is pivotal for ensuring the continuous flow of China’s seaborne trade to markets in Europe, Africa, and the Middle East. Moreover, it serves as a springboard for Beijing’s efforts to tap into African and Middle Eastern countries’ untapped economic and industrial potential.

The Belt and Road Initiative (BRI) guides China’s increasing regional presence. Launched by Chinese President Xi Jinping in 2013, the BRI is an extensive infrastructure project to connect China with global markets and resource-rich areas through a tightly knit network of transport nodes. The BRI’s two main components are the Land Silk Road, featuring high-speed railways and modern highways, and the Maritime Silk Road, encompassing all aspects of maritime freight transport, from shipping lines to seaport operations and intermodal re-export hubs. Given the importance of direct access to coastal logistics hubs for Beijing’s economic expansion in the Red Sea region, China has aimed to establish a densely connected network of trade footholds along the shores of this crucial maritime junction between the Mediterranean Sea and the Indian Ocean.

While economic factors are a significant driver of China’s increased engagement in the Red Sea region, they aren’t the only motivators. Given China’s history of converting deep economic penetration into substantial political influence and using commercial facilities for low-grade military activities (primarily intelligence gathering), Beijing’s economic advances in the Red Sea region also have significant implications from a security perspective. Therefore, China’s growing geoeconomic presence along the Red Sea shores should be examined in the context of escalating economic competition and intensifying rivalries among significant powers.

Chinese Maritime Investments in Egypt, Djibouti, and Saudi Arabia

As China’s geoeconomic interests in the Red Sea have grown, Beijing has aimed to secure access to multiple coastal facilities while presenting its expanding regional presence as non-threatening. It has placed Chinese state-owned enterprises (SOEs) at the forefront of its regional push to achieve this. China’s state-led shipping and logistics service providers have become instrumental in financing, developing, upgrading, and operating new and existing maritime infrastructures in the Red Sea waterway.

Critical contributors to China’s economic penetration in the Red Sea’s port business include the Shanghai-based marine transportation services company China COSCO Shipping Corporation Limited (COSCO Shipping), the maritime conglomerate China Merchants Group (CMG) based in Hong Kong and Shenzhen, and the Hong Kong-based port operator Hutchison Ports. Beijing’s efforts to develop a large-scale commercial connectivity network of state-owned ports and terminals extending from the Suez Canal to the Bab-El-Mandeb Strait have focused on three Red Sea littoral states: Egypt, Djibouti, and Saudi Arabia.

Egypt

Egypt, home to the Red Sea’s northern gateway and a crucial transit node for seaborne trade on east-west and north-south shipping lanes was an early target in China’s strategy to expand its regional commercial port presence. In 2007, COSCO Shipping Ports (CSPL), a subsidiary of COSCO, signed a $150 million deal to acquire a 20% equity stake in the Suez Canal Container Terminal (SCCT) at East Port Said. In 2017, SCCT shareholders completed a significant dredging project that deepened the terminal’s draft to 17.5-18.5 meters, extended its quay length to 2,400 meters, and installed six new Super-Post Panamax cranes. This upgrade significantly increased SCCT’s container-handling capacity, making it the only Egyptian transshipment hub capable of servicing Maersk Triple E-class ships, the world’s largest container vessels. SCCT’s maximum annual throughput capacity is about 5 million twenty-foot equivalent units (TEUs).

After consolidating its presence at the Suez Canal, Beijing shifted its attention to Ain Sokhna. Situated 120 kilometers east of Cairo and 55 kilometers south of Suez, the Egyptian city is one of the country’s largest ports on the Red Sea. The Tianjin Economic-Technological Development Area (TEDA) corporation—a Chinese state-owned entity specialized in developing free trade zones and industrial parks—signed several deals with the Egyptian government to develop a vast industrial area known as China-Egypt TEDA Suez Economic and Trade Cooperation Zone. Starting as a pilot project, the Sokhna industrial city today covers an area of over seven square kilometers and houses nearly 100 enterprises in a wide range of industries, from energy components manufacturing to building materials and home appliances. Despite a temporary slowdown imposed by pandemic-induced lockdowns and financial restraint, the China-Egypt TEDA continues to lure Chinese investments to the Suez Canal Economic Zone (SCZONE). In late March 2023, Egyptian authorities announced a $2 billion investment project by the Chinese company Xinxing Ductile Iron Pipes to build iron and steel mills at Ain Sokhna’s industrial zone. Nearly two months later, SCZONE secured another package of investments valued at $1 billion from Chinese enterprises to establish manufacturing plants in the chemical, textile, and energy sectors.

More recently, Beijing made significant strides in consolidating a strategic presence at Ain Sokhna’s strategic docks. In mid-August 2022, the Egyptian government and a consortium of world-leading Chinese port operator companies — which included Hutchison Ports and CSPL — signed a concession agreement to run Ain Sokhna’s container terminal. On March 15, 2023, the parties finalized an investment deal to construct a new container terminal at Ain Sokhna. With a $375 million purchase deal, CSPL bought a 25 percent stake in the container logistics project. Under the 30-year operating concession, the Chinese consortium aims to bring the container terminal’s annual capacity to some 1.7 million TEUs when fully completed.

Djibouti

In parallel with its economic penetration in the Suez Canal region, Beijing has also sought to assert its trade presence at the Red Sea’s southern gateway. Since Eritrea and Yemen continue to face domestic unrest, China opted to focus on the more stable country of  Djibouti.

In 2013, CMG finalized a $185 million deal to purchase a 23.5 percent ownership stake in Djibouti’s state-owned port authority, the Djibouti Ports and Free Zones Authority (DPFZA). A year later, Beijing secured another key contract, specifically, the Doraleh Multi-purpose Port (DMP) realization. In May 2017, the DMP opened its five berths up for business to vessels transporting oil, bulk cargo, containers, and livestock. Although CMG only owns a 23.5 percent stake in the port facility and most of the DMP’s shares remain de jure in the hands of Djiboutian stakeholders, Chinese fingerprints are de facto all over the logistics hub’s infrastructure development initiative, from the main investor covering the bulk of construction costs to the enterprises involved in its building and the entity running the port. Indeed, the Export-Import Bank of China (China Eximbank) financed the $580 million project with a $344 million concessional loan. The port’s construction work was contracted to China State Construction Engineering Corporation (CSCEC) and China Civil Engineering Construction Corporation (CCECC). At the same time, Shanghai Zhenhua Heavy Industries provided most of the container-handling equipment, heavy machinery, and storage facilities. Finally, CMG runs the port based on a 10-year lease, which automatically renews at maturity for a second 10-year term.

Shortly after the DMP inaugurated its deep-water moorings, construction work took off at the nearby Djibouti International Free Trade Zone (DIFTZ), a $3.5 billion project that aims to enhance Djibouti’s status as a trade and logistics hub by upgrading its port facilities and offering favorable taxation to companies housed in the free zone. The DIFTZ’s pilot phase came online in mid-2018, while the three remaining zones are expected to start operating by 2028. For the free trade zone’s construction, DPFZA partnered with a cluster of three Chinese enterprises – CMG, Dalian Port Company Limited (a port operator of which CMG owns a 21 percent minority stake), and IZP Group, a tech company specialized in constructing internet media and e-commerce platforms. China also had a crucial role in financing the DIFTZ, with China Development Bank extending a $250 million commercial loan for the $370 million pilot phase. Spanning an area of more than 48 square kilometers, the DIFTZ is set to become one of Africa’s largest free trade zones and is expected to partially alleviate Djibouti’s large-scale unemployment by generating over 350,000 jobs.

In 2020, China finally made new strides in its push to deepen its economic penetration in the small maritime city-state when CMG and Great Horn Investment Holding, a DPFZA subsidiary, inked a $350 million investment deal for a massive urban redevelopment plan to revamp Djibouti’s more than 100-year-old port and downtown area. The multimillion-dollar project aims to turn the decayed complex into a first-class waterfront development serviced by luxury and financial facilities.

While most of the Chinese infrastructure investments in Djibouti since the early 2010s have revolved around gaining access to and ownership of the country’s coastal facilities, Beijing’s inroads in Djibouti’s maritime logistics sector are just a fragment of a finely designed strategy aimed at deepening China’s effect on Djibouti’s connectivity. Indeed, from the 759-kilometer Addis Ababa-Djibouti railway to the PEACE (Pakistan and East Africa Connecting Europe) submarine fiber-optic cable system and the Ethiopia-Djibouti water pipeline, China stands out as the main financier and builder. By securing the upper hand in Djibouti’s key connectivity nodes, Beijing is in a favorable position to exert almost 360-degree control over the flow of goods and digital telecommunications transiting the country.

Saudi Arabia

With a Red Sea coast stretching for about 2,000 kilometers, a burgeoning maritime transport infrastructure, and a fast-expanding and investment-hungry industrial fabric, Saudi Arabia has rapidly come to the center stage of China’s maritime logistics ambitions.

In January 2021, COSCO Shipping Ports inked a $140 million deal to purchase a 20 percent stake in the Red Sea Gateway Terminal (RSGT), a privately-owned international terminal operator that runs the North Container Terminal at the Jeddah Islamic Port (JIP). With 62 berths, four terminals, and an annual container-handling capacity of 7.5 million TEUs, the JIP stands out as the top Saudi export-import port and positions itself as the Red Sea’s first re-export zone. Between the JIP’s two container terminals, the RSGT leads the way with an annual container throughput capacity of 5.2 million TEUs. To retain its massive preeminence in the Red Sea’s maritime logistics, the RSGT has developed a $1.7 billion infrastructure investment program to increase the terminal’s annual throughput capacity to 8.8 million TEUs by 2050.

In mid-February 2021, Hutchison Ports and the Jubail and Yanbu Industrial Services Company signed an investment and operation agreement for a multipurpose port at the Jazan City for Primary and Downstream Industries (JCPDI). The JCPDI is a $23.4 billion project to realize a mega industrial park in the Jazan region. In its efforts to mobilize foreign investments to support the Saudi push to become a globally competitive industrial power, the JCPDI has already delivered some positive outcomes, such as the launch of the Saudi Silk Road Company and a construction deal for a $1 billion aluminum refinery with the Chinese company Hangzhou Jinjiang. The JCPDI port consists of a container terminal, a general cargo and dry-bulk terminal, and a liquid terminal for Saudi Aramco’s oil tankers. On September 7, 2022, Saudi authorities and Hutchison Ports managers took part in the JCPDI port’s inauguration ceremony. With a design capacity of 1 million TEUs per year and a 16.5-meter berth depth, the JCPDI port can service fifth-generation container ships, and it is expected to significantly boost the Saudi push to turn the country into a world-class logistics hub.

Chinese Military Presence in the Red Sea

As Chinese economic ambitions and commercial engagement have increasingly become entrenched in the Red Sea region, having a naval presence allowing China to uphold its overseas national interests and project military might has become a strategic necessity for Beijing.

Against the backdrop of attacks by Somali pirates on commercial ships transiting across the Northwest Indian Ocean in the late 2000s, China began to take concrete steps to safeguard its regional maritime interests by setting up an independent naval escort taskforce (NETF). Under the NETF’s umbrella, warships of the People’s Liberation Army Navy (PLAN) have been regularly dispatched to police and patrol the Gulf of Aden’s waters since 2008. Although the Somali piracy threat has consistently faded since the mid-2010s and China’s NETF seems to have run its course in deterring at-sea harassment episodes, Beijing has kept its counter-piracy efforts and regional naval presence in high gear. In mid-January 2023, the PLAN launched the 43rd NETF iteration. The last counter-piracy flotilla comprises three PLAN warships: the new-generation Type-052D guided-missile destroyer Nanning (162), the Type-054A guided-missile frigate Sanya (574), and the Type-903 large-scale integrated supply ship Weishanhu (887). According to a China-based news website close to the Chinese Armed Forces, Beijing has sent 131 warships and more than 32,000 troops across 42 rotational deployments to the Gulf of Aden.

While the rationale underpinning the deployments of PLAN warships continues to formally revolve around a counter-piracy core, the prolonged presence of PLAN naval assets in regional waters has allowed Beijing to conduct a vast array of auxiliary tasks. Indeed, since the NEFT’s onset, the PLAN role in the Red Sea and Gulf of Aden basin has evolved well beyond its initial deterrent posture to include more multifaceted nuances typical of an aspiring blue-water naval power, such as conducting joint naval drills with friendly countries (Russia-Iran, Saudi Arabia, and Pakistan), making port calls to regional partners (Oman, Sudan), and sharpening its naval skills.

In August 2017, China made a quantum leap forward in its quest for maritime relevance in the Red Sea and Gulf of Aden basin by opening a logistics support base in Djibouti. The facility represents China’s first and only overseas military and naval installation. Located near the DMP in Djibouti City’s western edge, the logistics support base features several fuel, weapons, and equipment storage facilities and a small heliport. With a runway/airstrip of only 400 meters, however, the heliport’s take-off and landing distance is designed primarily for rotary wing aircraft and does not meet the minimum requirements to service most Chinese combat or military transport aircraft. While it is estimated that the military installation can house up to 2,000 troops, as of today, three PLAN Marine Corps mechanized infantry companies are reportedly operating the base.

In May 2018, China embarked on a pier extension project to add a 330-meter-long dual-side berth to its logistics support base. According to satellite images, construction work to upgrade the military facility’s docking capacity was completed in early 2020. With a berthing area totaling around 660 meters long and a water depth of over 15 meters, the brand-new multi-use pier is capable of accommodating and resupplying most PLAN naval assets, including the new-generation Type-003 aircraft carriers, large surface combatants, and nuclear-powered attack submarines.

Although the naval facility stands out among other seaports in the Red Sea region for its capacity of berthing high-displacement tonnage warships, the base’s overall docking potential is not free from constraints. Indeed, by relying only on one pier, the number of naval assets the Chinese installation can accommodate simultaneously decreases as the size of the warships grows, implying direct limits on China’s ability to project naval might in the region. It is estimated that the Djibouti base can accommodate three to six naval assets, depending on their size. Besides, although the naval facility can technically accommodate an aircraft carrier, the berth’s current length prevents the PLAN from assembling a carrier battle group, a tactical fleet formation comprising an aircraft carrier and at least four support naval assets escorting the capital ship. Still, the naval facility retains significant strategic potential for the PLAN’s overseas force posture as it allows Beijing to support expeditionary operations. According to satellite images, Beijing is taking steps to increase the base’s docking capacity by building a second pier.

Although conducting non-combat operations (counter-piracy, humanitarian help, and disaster relief) and non-kinetic military actions (fueling, replenishment, and shore leave for military personnel) remains the installation’s prime activity, the fact that Beijing has periodically dispatched to the Red Sea waters several naval assets (amphibious landing ship, attack submarine, and integrated supply ship) rarely featured in anti-piracy missions underscores China’s resolve to resort to its Djiboutian strategic foothold as a testing ground to sharpen its far seas quasi-combat capabilities.

As the Red Sea and the Gulf of Aden waters are projected to be one of the main geostrategic and geoeconomic flashpoints of the competition among great powers, China is expected to further bolster its profile as a commercial and military heavyweight in this critical saltwater artery connecting the Mediterranean Sea and the Indian Ocean. Considering China’s inclination for risk-averse strategic posturing, Beijing will continue presenting its regional inroads and cultivating influence on the region’s littoral countries through economic leverage and soft military might. This means having Chinese SOEs embark on more acquisitions of shares in dual-use maritime transport infrastructure projects and the PLAN keeping up with NEFT iterations. However, as mounting pressures for global power recognition and economic growth could induce Beijing to pursue increased commercial presence and deeper strategic engagement in the Red Sea region, China will likely face growing difficulties in balancing its traditional opaque conduct with its fast-expanding national interests.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.

Issue: Defense & Security, Geopolitics
Country: KSA

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Leonardo Jacopo Maria Mazzucco is a researcher who focuses on the security affairs of the Gulf region. He is also an analyst at Gulf State Analytics (GSA), a Washington-based geopolitical risk consultancy. He tweets at: @mazz_Leonardo.


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