The Chancay Multipurpose Port Terminal, located 80 kilometers from the Peruvian capital Lima, is about to be inaugurated in November during the 2024 Asia-Pacific Economic Cooperation (APEC) summit. Its official opening marks a potential shift in global trade routes and could position what was once a small fishing port on the Peruvian coast as Asia’s primary commercial hub in the South Pacific. However, the launch is met with skepticism within Peru, where political instability and a weakening democracy raise questions about who will truly benefit from the project. As the country anticipates this new chapter, it must remain vigilant in advocating for local interests and addressing the potential risks associated with increased foreign investment.
Peru’s ambitious Chancay Megaport is touted as a gateway for expanded trade with Asia and a potential game-changer for the national economy. But, as the China-backed project nears completion, concerns grow over its environmental and social implications. While the Peruvian government regards the port as a catalyst for economic growth, many are voicing their fears about the possible downsides—from loss of green spaces to disrupted ecosystems— which they argue have been largely ignored.
Amid escalating crime rates and political turmoil, some Peruvians also fear the port’s development is overshadowed by internal challenges, while geopolitical tensions add further complexity. Positioned in a strategic location, Chancay finds itself at the crossroads of Chinese and American interests, raising questions about Peru’s capacity to manage both local discontent and international pressure.
Reshaping relations
Peru and China’s initial encounter took place under vastly different circumstances. In the 19th century, Peru faced a significant demand for cheap labor to support its agricultural sector, the extraction of guano, and the construction of an emerging national railway network. The abolition of slavery in 1854, which had predominantly affected Afro-Peruvian and Indigenous populations, created a labor vacuum in rural areas that was partially filled by Chinese workers.
According to historians Carlos Contreras and Marcos Cueto, approximately 100,000 Chinese laborers—derisively referred to as “coolies“—arrived in Peru by 1874, constituting around 3-4% of the national population. Their working conditions were often akin to slavery. This influx of labor was abruptly halted by the War of the Pacific (1879), during which Peru, Chile, and Bolivia clashed over nitrate-rich territories in their border regions.
Today, more than a century and a half has passed, and the geopolitical scenario has changed radically. China now plays a dominant role in the Peruvian economy and exerts substantial influence throughout Latin America. In a recent interview, the Chinese Ambassador to Peru, Song Yang, states: “China has become [Peru’s] main trading partner, and we have been in this position for 10 consecutive years”.
According to official information from The Peruvian Foreign Trade Society (COMEX), Peru’s exports to China reached a value of USD 20.8 million in 2022, compared to 4 million in 2009. In 2009, Peru imported Chinese products with a value of 3.1 million USD, by 2022 this increased to 15.7 million USD.
Song Yang refers to the Free Trading Agreement (FTA) with Peru, which has been in force since 2010. This agreement significantly expanded commercial exchange between the Andean nation and China. According to data from Peru’s Tax Administration SUNAT, Peruvian exports to China have surged, quadrupling from 2010 to 2023 and achieving an impressive annual growth rate of 13.2%.
As of 2024, China will own what is commonly referred to as “the Chancay Megaport”, which Peru’s National Center for Strategic Planning (CEPLAN) describes as “the main logistics center of the South American Pacific”. In anticipation of Chancay’s impending inauguration, Peru and China have updated their 2010 Free Trade Agreement to include new clauses that match current international trade requirements, such as customs procedures and trade facilitation, investment, trade in services, e-commerce, and intellectual property.
But what makes this port so special for Peru? The country is poised to become a crucial hub for global commerce, where a large share of global transactions will flow through its borders. This unique opportunity is expected to attract a massive influx of capital. However, such large-scale investments pose significant risks to the relatively small Peruvian economy.
“When you integrate into the world economy, you inevitably expose yourself to its fluctuations. That’s how it is. It’s like saying that you want to fall in love but want to avoid suffering – it doesn’t work that way. You become dependent on your partner. In the same way, participating in global trade is like being in a relationship,” explains Carlos Contreras, a historian from the Pontifical Catholic University of Peru (PUCP).
A Pacific commercial key
Chancay megaport is a $3.6 billion deep-water port with gigantic dimensions. According to CEPLAN, the largest container ports in Latin America are the ports of Colon (Panama), Santos (Brazil), and Manzanillo (Mexico), with capacities that exceeded 3 million TEU per year in 2021. TEU stands for twenty-foot equivalent unit, based on the volume of a standard six-meter-long shipping container. Chancay will be able to mobilize cargo volumes between 1.4 and 1.6 million TEUs. Only in its first phase. The projected capacity will be five million TEUs, which will make Chancay the biggest port in Latin America. This large capacity in cargo transportation is explained by the depth of the mega-port, more than 16 meters of natural draft.
“Peru will be the world’s toll station in the Pacific”, explains Carlos Aquino, professor at the Faculty of Economics and director of the Center for Asian Studies of the Universidad Nacional Mayor de San Marcos.
In addition to generating millions of dollars in revenues from the export and import of products, Peruvians are being promised that key cities will be restructured into “special economic zones”, designed to optimize logistics and provide a range of services to support the growing commercial hub of Chancay.
Economist Carlos Aquino highlights that the idea of special economic zones is inspired by the development of modern Chinese cities. “In the 1980s, Shenzhen was even smaller than Chancay, with only 40,000 inhabitants. Its economy at that time was comparable to that of Chancay. Today, it has transformed into a mega-metropolis, referred to as the Silicon Valley of China,” he notes.
Special development economic zones, such as Shenzhen, are areas where governments provide specific incentives, such as exemption from income taxes, access to utilities like electricity and water, and favorable labor regulations to simplify hiring processes. “The idea is companies can import components and machinery, employ local labor, assemble products, and then export them,” Aquino explains.
Charting a new economic course for Peru
Why is the Chancay Megaport so significant that it has drawn the attention of the world’s major economy to the Peruvian coast?
“The Chancay Megaport is expected to become a major commercial gateway. It is important because it promises to lower operating costs by making loading and unloading cheaper and faster. But that is just a promise! Since the port will be privately owned, the owner could set high fees, which might negate the expected benefits for Peruvians” explains Carlos Contreras.
As we know, 60 % of the Chancay Multipurpose Port Terminal belongs to the Chinese state company Cosco Shipping Ports Limited, while 40% belongs to the Peruvian mining company Volcan. “This is where the government needs to skillfully intervene to ensure that the majority owner – in this case, Cosco Shipping – does not abuse its dominant position,” says Contreras.
In response to this situation, Peru must act because “this infrastructure will primarily serve as an entry-point for Asian businesses looking to send their products, not necessarily to Peru – since it is a small market – but to Brazil, Argentina and beyond. It will also act as an exit route for Latin American exporters aiming to reach China,” asserts economist Carlos Aquino.
According to information from the Peruvian Ministry of Foreign Trade and Tourism, the Chancay megaport will reduce export times to China by up to 12 days. The project has captured the attention of other Latin American economies, especially in South America. For instance, Brazil’s typical shipping routes pass through the Panama Canal or around Cape Horn. However, the new Chancay port opens a more direct route. “Currently, it takes shipments from Brazil 45 days to reach Asia. [With the new Chancay port] that journey could be cut to 30 days, saving 15 days”, said Cosco Shipping Corporate Affairs Manager, Mario de las Casas, in an interview with Chinese media in August 2023.
Worries and expectations
While the Chancay megaport presents potential economic growth opportunities for Peru, the local population feels disconnected from these benefits. Miriam Arce, board member of the Defense of Dignity and Freedom of Chancay, emphasizes that the reduction of green spaces due to extensive infrastructure development is a significant concern. “Our fight is not against the port; our demands have been longstanding, long before the involvement of Chinese investors. Chancay is not a suitable location for this project, primarily due to its impact on the nearby Santa Rosa Wetland, a fragile ecosystem”. According to CEPLAN, this wetland is home to an average of 100 species of birds.
Arce furthermore notes that the construction of the megaport’s breakwaters disrupted the natural sea currents, causing the disappearance of a beach. “The beach, known as Chorrillos, was located north of the project. The residents of Chancay have never received any compensation for the adverse effects on our community because the environmental impact study failed to consider it. The only group who has received compensation for the project are the fishermen, as they are mentioned as affected in the study. Everyone else, despite living in the area of direct influence, is overlooked.”
Historian Carlos Contreras emphasizes that the Government must implement robust public policies for the oversight and regulation of the Chancay Megaport. He notes that the central Government, particularly the Ministry of Transport and the Ministry of Housing, need to be actively involved in discussions. The influx of large trucks carrying industrial loads will exacerbate the already congested Peruvian road network.
However, there appears to be little attention paid in Peru to the opening of Chancay Megaport. Rising crime rates and a dramatic rise in extortions have added to existing political unrest and has come to dominate Peruvian media narratives and public perception. Over the past decade (2013-2023), gun-related crimes have more than doubled, according to a report by the Central Reserve Bank of Peru on the economic impact of citizen insecurity. Peru is enveloped in a protracted political crisis which has caused deep mistrust among the population of government institutions, as exemplified by the 4% approval rating of the Peruvian congress, and Peru’s president Dina Boluarte declared as “the most hated president in Latin America” with an abysmal 92% of the population disapproving of her administration.
A geopolitical factor
The Chancay Megaport places Peru in a complex geopolitical landscape, caught in the midst of a trade war between the United States and China. A CEPLAN report highlights that “[t]he strategic location of the Chancay port as an important base for China, could escalate tensions in the competition for commercial control of the Pacific Ocean”.
“You’re flirting with several parties, which is beneficial because it gives you multiple options to choose from. If one doesn’t treat you well, you can easily turn to another, right? If one knows how to manage this, it can be advantageous. In the grand scheme, Peru is a small player compared to the United States or China and lacks significant negotiating power. However, if you can navigate these relationships skillfully, it can work to your advantage. Peru’s strategic geographic location in the middle of South America is one of its key assets.”, the historian Carlos Contreras emphasizes.
Ultimately, the success of the Chancay Megaport will not only reshape Peru’s economic landscape but also serve as a litmus test for the country’s ability to navigate the complexities of global trade in the 21st century.
