A Chinese-funded megaport project in Chancay, Peru that will be inaugurated today is expected to upend current shipping patterns and transform global trade for years to come. Coinciding with the Asia-Pacific Economic Cooperation (APEC) summit held in Lima, Chinese President Xi Jinping has traveled to Peru to attend via video the inauguration ceremony of the port. Once operational, Chancay will become the largest deepwater port on the western coast of South America, capable of docking container ships that cannot go elsewhere in South America and cutting shipping times from China in half, by up to 20 days.

This project, which Chinese banks financed with a loan worth nearly $1 billion, has provoked concern among policymakers in Washington and other Western capitals. China and Peru have grand visions for Chancay, with China’s ambassador to Peru describing its potential to be the “Shanghai of South America” and Peru’s transport minister stating that the goal is for Chancay “to become the Singapore of Latin America.” In preparation for the next major update to our Global Chinese Development Finance Dataset (in late 2025), AidData has carefully documented the ways in which the project has been designed, financed, and implemented. Our research indicates that Chancay follows Beijing’s broader playbook for the 2.0 version of the Belt and Road Initiative (BRI 2.0)—and that China’s portfolio in Peru stretches far beyond the port.

Chancay under BRI 2.0

The construction of Chancay port followed an agreement signed in 2019 between Volcan Compañia Minera S.A.A., a publicly-held mining company in Peru, and COSCO SHIPPING Ports Ltd. COSCO, a state-owned Chinese company that is the second-largest operator of container ports in the world, agreed to purchase a 60% equity stake in the project. A joint venture between COSCO and Volcan called “CSP Chancay” was subsequently established. In March 2023, CSP Chancay received a $975 million syndicated loan from five Chinese banks to complete the project. The loan carries an all-in interest rate of approximately 6.5% and a 15-year repayment period. It is collateralized against nearly all of the project’s liquid and illiquid assets (including, among other things, COSCO and Volcan’s equity stakes in CSP Chancay, an all-assets pledge, an accounts pledge, and a land and concession mortgage).

The syndicated loan that CSP Chancay secured from a group of Chinese banks—including Bank of China and Shanghai Rural Commercial Bank, among others—highlights several important changes in Beijing’s overseas lending strategy.

Beijing claims that the BRI is now focused on “small but beautiful” projects. However, as AidData previously documented in the Belt and Road Reboot report, China has not abandoned large-scale infrastructure projects during the BRI 2.0 era. It has instead changed the way in which it bankrolls such projects.

Chancay demonstrates that Beijing is pivoting from full-recourse sovereign debt transactions to limited-recourse project finance transactions. To finance the construction of the port, an independent legal entity (also known as a special purpose vehicle or SPV) was established as the borrowing institution of record. It is responsible for repaying the $975 million loan with the revenues generated by the port. The SPV (in this case, CSP Chancay) is majority-owned by a Chinese state-owned enterprise (COSCO) and minority-owned by an entity in the host country (Volcan)—a common ownership arrangement in the BRI 2.0 era.

During the first phase of the BRI, China’s policy banks (China Eximbank and China Development Bank) were responsible for most of the country’s overseas lending activities. Now, during the BRI 2.0 era, Beijing has ratcheted down its use of bilateral loans from the policy banks and scaled up its use of syndicated loans from commercial banks. It has done so to minimize repayment risks and subject infrastructure projects to more stringent environmental, social, and governance safeguards (for more, see Chapter 3 of Belt and Road Reboot).

Beijing’s effort to keep the BRI going—without increasing public debt burdens in host countries—calls attention to another important shift in strategy. In the BRI 2.0 era, Chinese banks are increasingly embracing the limited recourse project finance model, in which SPV borrowers pledge all or nearly all of a project’s liquid and illiquid assets as sources of collateral. The design of CSP Chancay’s syndicated loan agreement is consistent with this strategy. As South America increasingly grows closer to China, Chancay is indicative of a broader effort by Beijing to strengthen its ties with the region through this new set of development finance arrangements.

China in Peru: Mining production to transportation

China has built an extensive development finance portfolio in Peru beyond Chancay, with over 140 loan- and grant-financed projects and activities recorded between 2000 and 2021 in AidData’s global dataset. China and Peru signed their first Free Trade Agreement (FTA) in 2009, leading the way to nearly $18 billion in exports from Peru to China in 2021.

China is particularly active in the country’s mining sector. Peru has some of the largest mineral reserves in the world, including copper, silver, and zinc deposits. Since 2010, Beijing has provided loans worth $16 billion to acquire, develop, and export these mineral resources. Chancay Port is another example of Beijing’s coordinated strategy to pair transport and access to natural resources in a way that ensures its own strategic growth. In 2014, a consortium of Chinese companies acquired and developed Minera Las Bambas, a copper mine in Peru’s Apurímac region. This now fully Chinese-owned mine, financed with Chinese bank loans worth almost $9 billion, produces 2% of the global copper supply, despite only beginning production in 2016. Other Chinese bank-financed mining projects in Peru include the development of the Toromocho copper mine in the Junin region and the expansion of the Marcona iron mine in the country’s south.

Chancay port not only allows Chinese companies to cement their control over the global mineral supply chain, but also enables these resources to be shipped to Chinese buyers on an expedited timeline. This comes at a time where such minerals have become critical inputs for the development of advanced technologies.

Washington is now seeking to challenge Beijing’s strong foothold in the Peruvian mining sector, with a recent Memorandum of Understanding signed between the U.S. and Peruvian governments to enhance their cooperation in this field. Yet the U.S. may be showing up “a day late and a dollar short,” given that its principal geopolitical rival has been heavily engaged in Peru’s mining sector for the last decades.

Chancay port and the Las Bambas, Toromocho, and Marcona mines also highlight another important feature of the China-Peru partnership. In these cases, the host government granted Chinese companies majority ownership or exclusive use rights over strategically important physical assets (mines and a seaport). Under the original agreement that COSCO, Volcan and Peru’s National Port Authority (APN) signed in 2021, COSCO was authorized to operate the port exclusively. APN later reversed course and filed a lawsuit to annul the exclusivity clause, stating that it never had the authority to grant exclusive access. The borrower’s Chinese lenders quickly intervened, warning that the multi-operator model proposed by Peruvian authorities could reduce the revenues of CSP Chancay, thereby impacting the project’s financial viability and the return on investment for CSP Chancay’s majority and minority shareholders (COSCO and Vulcan). Eventually, the Peruvian authorities acquiesced and dismissed the lawsuit, passing a legislative amendment that gave APN the authority to grant exclusivity rights, but restricting the period of exclusivity to 30 years.

More than meets the eye: China’s port stakes in Latin America

The opening of this megaport has made headlines around the world. But China’s development finance investments in seaports across the globe are not isolated to one region. An AidData report published last year, Harboring Global Ambitions, tracked 123 projects financed by Chinese state-owned entities that involved the construction or expansion of 78 deepwater ports in 46 countries from 2000 to 2021.

In Latin America during that time frame, AidData documented one port project each in Ecuador, Venezuela, Colombia, and Mexico—as well as three each in Cuba and in Brazil. These ten port-related activities alone accounted for $791 million of China’s development finance in the region during the period. Chancay is set to double this number, bringing China’s financial commitments to over $1.7 billion in the region.

And the number of China’s port investments in Latin America—and the broader Global South—is on the rise. In March 2024, Peru announced that Jinzhao Peru, the subsidiary of a Chinese company, won the tender to construct Peru’s third-largest port in San Juan de Marcona. Conveniently, Jinzhao Peru is also responsible for developing the nearby Pompo de Panga iron mine. In August 2022, Shaanxi Chemical Group signed a Memorandum of Understanding to construct a port in Argentina’s Rio Grande, although neither a funding agreement nor a construction contract has been finalized at this time. Earlier this month, China Merchant Ports (CMP) also reportedly signed a letter of intent with Portos do Paraná in Brazil for “future concessions” at Paranaguá (the second-largest container terminal in Brazil).

Due to the sheer scale of its investment and operations, Chancay port will have considerable implications for boosting China’s trade ties and development finance portfolio with Peru. Its inauguration will reinforce Beijing’s reputation in the Global South as the go-to banker and builder of big-ticket infrastructure. But it will also help cement China’s position as a leading producer, transporter, and refiner of critical minerals.

‍The data in this article are drawn from the 3.0 version of AidData’s Global Chinese Development Finance dataset, which can be accessed via china.aiddata.org. Additional insights are from the AidData reports Harboring Global Ambitions and Belt and Road Reboot, as well as a forthcoming AidData report on critical minerals. Additional external sources are hyperlinked.

‍This blog was drafted with assistance from Brooke Escobar, Interim Director of AidData’s Chinese Development Finance Program; Alex Wooley, Director of Partnerships and Communications; Sarina Patterson, Communications Manager; Rory Federochko, Program Manager; and Katherine Walsh, Senior Program Manager.