The Frontier Europe Initiative of the Middle East Institute, a think-tank in Washington D.C., has published a new report titled “A Sea Change?: China’s Role in the Black Sea“, where I have contributed an essay on China’s Maritime Silk Road and Turkey’s ports. Here is the official introduction of the report:
Through its Belt and Road Initiative, China seeks to play a larger role in the Black Sea region. China has been wooing littoral states in hopes of securing new markets for its goods and investing in infrastructure projects. But some worry that there is more to Chinese actions in the region than meets the eye. The worry is that China will increase its political and diplomatic clout in a region that is considered vital for Russian interests and create tension between Moscow and Washington.
Despite the uneasiness in the West about China’s increasing presence in the Black Sea, there is not enough focus on the issue in the scholarly debates in Western capitals. The MEI’s Frontier Europe Initiative aims to contribute to the debate on the role of China in the Black Sea. We hope the articles in this report will help to address several important unaddressed questions.
Full contents of the report are as follows:
1. INTRODUCTION Gönül Tol
2. CHINA, CRIMEA, RUSSIA, AND THE BLACK SEA REGION Michael O’Hanlon
3. CHINA AND RUSSIA IN THE BLACK SEA: BETWEEN GLOBAL CONVERGENCE AND REGIONAL DIVERGENCE
Ivan Safranchuk and Igor Denisov
4. CHINA AND GEORGIA: THE ECONOMIC TIES THAT COULD ONE DAY BIND Vakhtang Charaia and Mariam Lashkhi
5. KEEPING CURRENT ON THE BRI IN THE BLACK SEA: SMALL RIPPLES, BUT NO BIG WAVES Jean-Marc Blanchard
6. CHINA AND THE BLACK SEA: THE (LIMITED) ENERGY NEXUS Michal Meidan
7. TURKISH PORTS AND CHINA’S MARITIME SILK ROAD: BENEFITS AND EXPECTATIONS Altay Atlı
The full report can be downloaded on MEI’s web site here. The full text of my essay in this collection is available below:
Turkish Ports and China’s Maritime Silk Road: Expectations and Benefits
Located on Istanbul’s southern shores, Kumport is a busy container port around 20 nautical miles to the west of the entrance to the Bosphorus. Kumport is essential for Turkey’s economy because it connects shipping routes in the eastern Mediterranean with the country’s economic heartland and its direct connections with the motorways linking Turkey and Europe make trade more efficient. With a capacity to process 2.1 million twenty-foot equivalent units (TEU) of containers annually, it currently ranks as the fifth largest commercial port in Turkey.
Kumport matters for Turkey as one of its major transit hubs, but that is not the only reason why it stands out: It is also a poignant example of how Chinese direct investment is reshaping the Turkish economy. When Kumport began operations in 1994, it was completely owned by Turkish companies and only processed bulk cargo. In 2002, it transformed into a fully-fledged container port. The main turning point in the port’s history, however, came in 2015 when a consortium of Chinese companies, including Cosco Pacific, China Merchants Port Holdings, and China Investment Corporation, purchased a 65 percent stake worth $940 million from the Turkish owners. As a result, the port became entirely foreign-owned, since the other 35 percent had already been sold to the State General Reserve Fund, the sovereign wealth fund of Oman, four years earlier.
Foreign participation in Turkish ports has been an ongoing process for at least the last two decades and several international corporations have taken part in privatization tenders, purchasing stakes as high as 100 percent. Today, of the 27 major container ports in Turkey, 2 are owned by the Turkish state, 15 by Turkish companies, 7 by consortia of Turkish and foreign companies, and 3 by foreign companies exclusively. What is new, however, is the growing prominence of Chinese investors, who have shown a remarkable commitment to their projects.
After the Chinese takeover of Kumport, the new owners continued to upgrade the facilities. The first phase of investments concluded in 2017, and the second phase started the following year, with $100 million earmarked for the next five years. These investments have borne fruit. Kumport increased its cargo and container processing capacity so that it can now host up to 20,000-TEU “mega ships.” It now boasts the highest export and import volumes of any port in the Sea of Marmara. In addition to traditional improvements, new ownership has also taken significant steps to reduce the port’s carbon footprint, and it became the first container port in Turkey to implement a zero-waste project.
Kumport is a success story of Chinese investment in Turkey, and it has led to a shared willingness to further expand bilateral economic cooperation. China’s Belt and Road Initiative (BRI) is widely regarded in Turkey as an opportunity in this respect. Through the BRI, China has been plowing funds into infrastructure projects throughout Eurasia in order to create a network of trade routes and hubs that will facilitate the westward transport of Chinese goods. By attracting BRI-related Chinese capital, Turkey hopes to establish a certain degree of balance in bilateral economic relations with China and compensate for a merchandise trade deficit of $16.4 billion ($19.1 billion in imports vs. $2.7 billion in exports) in 2019.
Financial cooperation between the two countries is helping to lay the groundwork for BRI investments in Turkey. Following a number of commercial loans opened by Chinese banks for Turkish institutions and a twice-renewed bilateral currency swap line between the central banks, an agreement between the Turkish Wealth Fund and China Export and Credit Insurance Corporation (Sinosure) will promote bilateral economic, trade, and investment cooperation, including insurance support of up to $5 billion provided by Sinosure.
Chinese direct investment in Turkey currently stands at $2.8 billion, only a fraction of the total investment made by Turkey’s Western partners. The Turkish Central Bank estimates that the Chinese share in the total stock of foreign direct investment in Turkey as of 2019 was just 0.8 percent, compared to a cumulative 58.6 percent for the European Union (EU). While China cannot match the EU as an economic partner for Turkey, the BRI is bound to catalyze significant growth in Chinese investment into Turkey.
The focus of the BRI on infrastructure development overlaps neatly with Turkey’s priorities. During his keynote speech at the Belt and Road Forum for International Cooperation in Beijing in May 2017, Turkish President Recep Tayyip Erdogan emphasized, “The New Silk Road initiative is a very important project covering over 60 countries and almost 4.5 billion people in the world. It is of great importance that this initiative, which will benefit from bilateral, multilateral and regional cooperation, is put into practice in an understanding of win-win.”1 Erdogan went on to express his hopes that the the BRI will synergize, rather than compete, with Turkey’s own “Middle Corridor Initiative,” as both projects seek to promote Eurasian trade integration through infrastructural development in a wide array of countries. Turkey and China have taken initial steps toward ensuring fruitful collaboration on this front. In 2015, the two countries signed a memorandum of understanding (MOU) entitled “Harmonization of the Silk Road Economic Belt, 21st Century Maritime Silk Road and the Middle Corridor Initiative.” The MOU proposes collaboration on multiple levels, including policy coordination, bilateral trade liberalization, financial integration, and cultural exchanges. Perhaps the most critical objective laid out by the MOU is to improve cooperation in “infrastructure projects in Turkey, China and third countries in the areas of motorways, railways, civil aviation, seaports, as well as energy transit lines and telecommunication networks.”
As such statements show, investment is targeted at diverse modes of transport. Chinese companies have already undertaken construction on the Yavuz Sultan Selim Bridge over the Bosporus and its connected motorways as well as segments of the Istanbul-Ankara high-speed railway. For both sides, the top priority remains ports, particularly their renovation and expansion, as Chinese companies avoid starting projects from scratch (“greenfield projects”) in this sector. This priority is reflected in the MOU’s provisions for “improving capacities of and cooperation between ports in cargo transportation” and in Erdogan’s reference in his Beijing speech to “a maritime leg” of the Middle Corridor.
This emphasis on ports is logical. China wishes to incorporate Turkish ports into its growing logistics network in the eastern Mediterranean, which already includes several ports, such as Piraeus in Greece and Haifa in Israel. For Turkey, it is critical to procure investments for ports, which form the backbone of its maritime infrastructure and as such are of vital importance for the economy. According to figures released by the Turkish Association of Port Operators (TÜRKLİM), the port operating sector contributed TL96.3 billion to the national economy in 2018 (around $18.2 billion at the time) and created a total of 230,000 jobs directly and indirectly. As of March 2020, maritime routes carried 64.2 percent of Turkey’s exports by volume and 58.7 percent of its imports by value. By comparison, land routes carried 27.6 percent of exports (by volume) and 18.6 percent of imports (by value), air routes carried 6.9 percent of exports and 16.2 percent of imports, and railways carried 0.9 percent of exports and 1.0 percent of imports. A comparison of these figures with the same month of last year reveals an increase in maritime shipping combined with a sharp decline in land and air transport. From these statistics it is clear that the COVID-19 pandemic has only increased the importance of maritime shipping, a mode of transport that requires less interpersonal contact and remains unaffected by land border closures.
Hoping to repeat the success of Kumport, Turkey has been making a vigorous effort to draw foreign — and that increasingly means Chinese — capital investment into three specific ports that, in Erdogan’s words, constitute the “maritime leg” of the Middle Corridor: İzmir Candarli, Mersin, and Zonguldak Filyos. Upgrading these is the objective of a new initiative by the Ministry of Transportation and Infrastructure, the “Three Major Ports on Three Seas,” so named because the ports sit on the shores of the Aegean Sea, the Mediterranean Sea, and the Black Sea respectively.
All three ports already have some facilities in place and thus meet an important criterion for prospective Chinese investors. Although Chinese companies have not made concrete moves on these three projects, they are closely tracking opportunities, mostly through the liaison offices in Turkey, and less frequently, fact-finding visits at the ports themselves.
Map of Turkish ports targeted by Chinese investments with nearby cities
Source: Provided by the author
Candarli and Mersin
Of the three port projects, Candarli is most often associated by Turks with potential Chinese involvement. In May 2011, ground was broken on the Northern Aegean Candarli Port project. With an anticipated total capacity of 12 million TEU, it would be the largest container port in Turkey and one of the 10 largest ports in Europe. The project was due for completion by 2017, but bureaucratic obstacles and financial problems caused delays. So far, only a jetty is in place. Candarli is a build-operate-transfer project with an expected overall cost of around $1 billion. Attracting foreign capital is seen as a way to cover major expenses and overcome current impasses. When the port is completed, it will be integrated with Izmir, Turkey’s third largest city and a major industrial center, through railroad and land connections. Strategically situated, it will become a major transit hub in the Aegean.
Potential Chinese involvement in the Candarli project has deepened relations between the city of Izmir and China. In 2015, China opened a consulate general in Izmir. Consul General Su Gaochao expressed his hope that the diplomatic mission would “promote Izmir to Chinese entrepreneurs and industrialists, and to create an investment environment in the city.”2 Although the consulate was closed in 2019 for reasons of “operational efficiency,” mutual interest between Izmir and China has continued to increase,with China chosen as the guest of honor at the 88th edition of the annual Izmir International Fair in 2019.
Izmir’s local policymakers envisage a key position for the city along the BRI, as evidenced by the words of the city’s mayor, Tunc Soyer: “Our aim is to continue to be the East’s gateway into the West on the BRI. … The BRI is very much compatible with the current conjuncture, and we want to assume a new role by bringing the initiative together with Izmir. We want to become a milepost along the Middle Corridor and open up the West to China’s values, products, and trade through Izmir.”3 Some also believe that the Candarli Port will be useful for China because it will complement the major Chinese-owned port on the other side of the Aegean, the Port of Piraeus near Athens. Candarli can take up some of the slack from Piraeus, which is unable to handle its workload and cannot be expanded due to natural limits. According to Yusuf Ozturk, chairman of the Izmir chapter of Turkey’s Chamber of Maritime Commerce, Piraeus’ limitations turn Candarli into a “golden opportunity” for the Chinese. “A high-capacity port is needed here for the BRI,” he said, “Candarli will be an intercontinental container transit hub. The Chinese have to create an opening in the eastern Mediterranean for the future. They already know about this alternative, and all we need to do is to keep the issue on the agenda.”4
Turkey’s port infrastructure development projects carry geopolitical considerations as well, and nowhere is this more evident than in the discussions around the Candarli project. One important figure who weighed in on the geopolitical stakes is Admiral (ret.) Cem Gurdeniz, the architect of the “Blue Homeland” doctrine that aims for Turkey to consolidate its influence on the three seas surrounding the country. In his view, the Candarli project is vital to ensuring that the Port of Piraeus does not make gains at the expense of Turkish interests: “If Pireaus is chosen by the China as the European hub on the Maritime Silk Road, this could force China to take sides in a possible Turkish-Greek confrontation in the Aegean in the future. … History has shown that there are risks involved when Eurasia enters into strategic relations with the Atlantic system. Turkey should explain these risks, as well as the sensitivity of the Aegean Sea and the advantages offered by Çandarlı to the Chinese, and insist on Çandarlı’s inclusion in the Maritime Silk Road project. This would serve both China’s interests and the Turkish-Greek equilibrium in the Aegean.”5
Another facet of the “Three Major Ports on Three Seas” initiative will be a new container port in the province of Mersin. This province hosts Turkey’s largest container port, Mersin International Port (MIP), itself an example of foreign partnership (Singaporean company PSA International Pte Ltd holds as 90 percent stake). The new project will complement the port to better serve the economic hinterland of the Cukurova region and broader Middle Eastern markets. Tasucu, a district of Mersin that is home to two smaller ports that help transport ferries and cargo ships departing to the Turkish Republic of Northern Cyprus, is planned as the site of the new container port to be brought to life by privatizing and upgrading the existing facilities.
Members of Mersin’s local business community argue that Chinese companies were in fact interested in building the new port, but due to long planning and tendering processes, investors got involved in the privatization of the Greek Cypriot port of Limassol instead. However, Chinese actors might regain interest in Mersin, among other reasons because it could serve as a possible logistics hub for China’s involvement in the post-conflict reconstruction of Syria.
When it comes to Chinese involvement in Turkish port development, perhaps the most interesting story to follow will be the Port of Filyos in Zonguldak on the southeast coast of the Black Sea. As of this writing, 98 percent of infrastructure is completed, and the port is expected to enter into service by 2023, once the corresponding superstructure is completed as well. The superstructure includes an attached industrial zone that will generate development for the provinces of Karabuk, Bartin, and Zonguldak. The Port of Filyos will also play a crucial role in reducing “the threat faced by the Turkish Straits due to increasing maritime traffic.”
If the “Three Major Ports on Three Seas” initiative ultimately connects with the major land routes and railways of the country, a connection between Filyos and Candarli can open up a new overland transit route between the Black Sea and the Mediterranean. Turkey’s minister of transportation and infrastructure, Adil Karaismailoglu, conveyed his belief that the strategic value of Filyos goes well beyond its offering an alternative for the Turkish Straits. “With the Port of Filyos, we are opening one more gateway to the Blue Homeland,” he wrote. “During these historical days when our sovereignty over the seas is receiving world-wide recognition we faithfully continue to preserve the Blue Homeland with this project that will turn our country into a region of trade and industry.”6
The Blue Homeland doctrine is currently being put into practice, especially in the eastern Mediterranean, where Turkey is shoring up its maritime borders and adopting an increasingly assertive stance through offshore gas drilling projects and declarations of exclusive economic zones. Turkey does not have maritime disputes with the littoral countries of the Black Sea like it does with Greece in the eastern Mediterranean. However, the Black Sea will become increasingly important for Turkey, given the discovery of large gas reserves off Turkey’s north-western shores in late August this year. Filyos, in this sense, is not only an economic development project, but also a key strategic asset for Turkey.
Although Filyos is nearing completion, Chinese companies could definitely become involved in future upgrading projects or in the industrial zone attached to the port. They can also choose to invest in other Turkish Black Sea ports. In any case, investments would add significant weight to China’s presence in the Black Sea by helping to form a logistics network that also includes other ports with Chinese participation, such as the Anaklia Black Sea Deep Water Port in Georgia and the Port of Chornomorsk in Ukraine.
As Turkey seeks to collaborate on the 21st Century Maritime Silk Road, Chinese investments can reinvigorate efforts to improve Turkish port infrastructure and connectivity with neighboring regions. At its core, this partnership is about mutual benefits: Turkey stands to gain from Chinese experience, technology, and finance, and China can add to its growing logistics network in the eastern Mediterranean. However, Turkey still needs to do its homework, communicate effectively with the Chinese side, and offer a favorable business environment. As the Turkish Industry and Business Association (TÜSİAD) proposed after a workshop on the prospects for Turkish-Chinese cooperation in the logistics sector, “Port development projects in Turkey should be presented to the Chinese in a convincing way. Promotion should highlight the ports’ importance in a regional context and address aspects such as the geopolitical position of Turkey, the new economic geography taking shape in the eastern Mediterranean, and the potential for construction in a post-war Middle East.”7
Despite clear enthusiasm, Turkish-Chinese cooperation in port development and Turkish participation in the BRI are still at an early stage. For Turkey, the BRI currently is more about expectations than real, on- the-ground projects. Whether these expectations can be turned into results will depend on several factors beyond the intentions of both sides, such as regional geopolitics, the state of the global economy in the post-pandemic period, and the repercussions of the new Cold War-like form of great power competition between the United States and China.
- “New Era will be Heralded in Our Region Based on Stability and Prosperity,” Presidency of the Republic of Turkey, May 14, 2017, https://www.tccb.gov.tr/en/news/542/75199/a-new-era-will-be-heralded-in-our-region- based-on-stability-and-prosperity.
- “İzmir’de ilk Çin Başkonsolosluğu,” Hurriyet, July 25, 2014, https://www.hurriyet.com.tr/ege/izmirde-ilk-cin- baskonsoloslugu-26872347.
- “Türkiye-Çin Ilişkilerinde İzmir Dönemi,” Municipality of Izmir, September 6, 2019,https://www.izmir.bel.tr/tr/Haberler/turkiye-cin-iliskilerinde-izmir-donemi/40850/156.
- “Pire Limanı Konteyner Terminalinde Sona Gelinmesi Çandarlı Için Fırsat Olabilir,” Dünya, November 6, 2019,https://www.dunya.com/sektorler/pire-limani-konteyner-terminalinde-sona-gelinmesi-candarli-icin-firsat- olabilir-haberi-456452.
- “Çin’in Deniz İpek Yolunda Türk Limanı Da Olmalıdır,” Aydınlık, September 11, 2017, https://www.aydinlik.com.tr/cinin-deniz-ipek-yolunda-turk-limani-da-olmalidir.
- Karaismailoğlu, Adil (@akaraismailoglu), Twitter, September 27, 2020,https://twitter.com/akaraismailoglu/status/1310215266543042560.
- “Türkiye – Çin Ekonomik İlişkileri – Sektörel Yuvarlak Masa Toplantıları – Ulaştırma/Lojistik, Turizm, Bilgi ve İletişim Teknolojileri,” tusiad.org, accessed November 2, 2020, https://www.tusiad.org/tr/yayinlar/raporlar/item/10511-turkiye-cin-ekonomik-i-liskileri- sektorel-yuvarlak-masa-toplantilari.