Tuesday, November 20, 2001

FREEPORT, Bahamas Hutchison Whampoa Ltd., the Hong Kong-based shipping giant with ties to Beijing that has alarmed conservatives with its ports at both ends of the Panama Canal, is now fully operational with a $2.6 billion facility in the Bahamas.

The company, owned by Hong Kong tycoon Li Ka-shing, who has personal ties to China’s People’s Liberation Army (PLA), now controls some 15 percent of world shipping a figure that is expected to grow despite the economic slowdown.

And one of Hutchison Whampoa’s most important hubs is located here, on Grand Bahama Island, just 55 miles from Palm Beach, Fla.

While American security experts argue over the seriousness of the China threat connected to Hutchison Whampoa which operates facilities in 29 ports with 162 berths in 16 countries American shipping officials are concerned about their ability to compete with the $2.6 billion Bahamas transshipment facility.

Fully operational since 1997, the Freeport Container Port occupies 88 acres of the 530-square mile Grand Bahama Island. With 3,400 feet of berthing, seven gigantic Post Panamex cranes, 22 yard cranes and a projected annual capacity of 1 million 20-foot equivalent units (TEU) a standard measure for cargo containers commonly used interchangeably on ships, trucks and trains Freeport is one of the most modern and efficient container ports in the world.

A dropping-off point

The port is promoted by operators as the location “where East-West meets North-South.” Vessels traveling between Europe and Asia through the Panama Canal can drop off goods at Freeport for transfer to ships moving between North and South America.

“Its not hard to imagine what will follow when one massive company controls a network of port facilities stretching from Asia through the Panama Canal, up to the Bahamas and then across the Atlantic to Europe where it also has ports,” one Florida port operator warned.

“When all of their cards are in place, they’ll be able to offer a price package that’s going to knock everybody but the very biggest players out of the game.”

Hutchison Whampoa is presided over by Mr. Li, 72, who is reputed to control a fortune estimated at as much as $50 billion. His role in controversial Hong Kong developments has earned him the nickname “Superman.”

Mr. Li, an unquestionably successful capitalist controlling a globe-spanning conglomerate involving real estate and communications as well as shipping, sets off alarm bells among security circles because of his personal friendships with several top Chinese officials including senior figures in the PLA.

Mr. Li is also a member of the honorary board of the China International Trust and Investment Corp. (CITIC), which has helped to acquire technology for China’s military, and is a business partner of the China Ocean Shipping Co. (Cosco, which, in addition to commercial transport, acts as the merchant marine for the Chinese military.

But, Hutchison officials point out, the CITIC honorary board also includes former Secretary of State George Shultz and U.S. insurance executive Maurice Greenberg. Mr. Li is personal friends with British Prime Minister Tony Blair as well as Chinese leaders, they say.

They also say that, in the Bahamas as in Panama, the Hutchinson facilities are managed and staffed almost entirely by British nationals or local employees. One of the top managers in Panama is an American.

Nevertheless, the influential Far Eastern Economic Review magazine reported late last year that even Beijing is growing concerned that Mr. Li’s port business is growing too strong for China, and that officials had been instructed to limit Hutchison’s role in several Chinese cities.

While both Beijing and Hutchison denied the claims, the move was interpreted as a belated attempt to give more projects to foreigners, who missed out during the early 1990s, when the Chinese port industry was first opened to private investment.

Port concessions

When the Panama government granted concessions to Hutchison for port operations at both ends of the canal in 1999, many officials in Washington took notice. There was concern, especially among prominent conservatives, that the Chinese might be gaining undue influence over the canal.

Among the congressional leaders who spoke out to protest Hutchison Whampoa’s move into Panama were Republican Sens. Trent Lott of Mississippi and Jesse Helms of North Carolina. In the House, the issue was taken up by Reps. Porter J. Goss of Florida, Duncan Hunter and Dana Rohrabacher of California, and William M. “Mac” Thornberry of Texas, all Republicans.

Some U.S. security experts say the Panama Canal is the most strategically significant installation in the region. Others insist that Grand Bahama Island, with its close proximity to the American coast, should be the biggest concern. Many experts agree that the on-again-off-again character of U.S.-Chinese relations and uncertainty over the need for China to choose new senior leaders over the next two years is a persistent source of concern.

“Developments in [Grand Bahama Island] deserve careful attention for several reasons,” said Dan Fisk, deputy director for foreign policy research at the Heritage Foundation.

“There is considerable concern about the relationship between [Hutchison Whampoa] and the People’s Liberation Army in [China]. In addition, the giant company’s role in extending Beijing’s influence in the Western Hemisphere deserves to be watched closely.”

Recalling the commotion over the Panama concessions to Hutchison Whampoa in 1999, Mr. Fisk said the newest move by the company into the Bahamas will create concerns in certain quarters again because of the traditional influence that the United States has exercised in the Caribbean.

“That’s why it has been called ‘our soft underbelly,’” Mr. Fisk said.

Mr. Fisk also expressed concern over the ongoing contest between China and Taiwan for influence in Latin America and the Caribbean.

“Taiwan has diplomatic relations with only some two dozen countries, most of them in Central America and the Caribbean,” Mr. Fisk said. “[Chinas] aim is to displace Taiwan in the region, and this comes at a time of [Chinas] aggressive reach across the Pacific and into the Caribbean, marked by this massive investment and development less than 100 miles off the coast of Florida.”

The Bahamas was one of the countries that had diplomatic relations with Taiwan but switched to Beijing in 1997.

A number of China watchers suggest the massive Hutchinson investments in Grand Bahama Island was a payoff for that diplomatic action.

Michael Sandpearl, the Freeport Container Port’s general manager who defected from a Hutchinson competitor based in Hong Kong, recently visited the Grand Bahama Island site. During his first week, Mr. Sandpearl received the leaders of the Caribbean Community (Caricom), and welcomed the foreign minister of the People’s Republic of China (PRC).

Pleased with his new assignment, Mr. Sandpearl is convinced that what is contributing to the Bahama site’s success is “Location, location, location.”

“It stands on its own feet, is quite viable and fits in nicely with the worldwide Hutchinson network,” Mr. Sandpearl said. “It’s an excellent facility in close proximity to the U.S. East Coast, has good depth and can and will relieve the difficulty with chronic congestion in some U.S. ports.”

Mr. Sandpearl conceded that the Bahamas site has not yet reached its target capacity for the year, but he expected that “we’ll be close to it.”

What is receiving a lot of attention in the shipping industry is Freeport’s highly efficient manner of handling containers.

“We’re handling an average in the upper 20s for container moves per hour and at times it reaches into the mid 30s,” Mr. Sandpearl said. “It all depends on the size of the vessel and the containers. Our aim is 36 moves per hour.”

Florida’s perspective

Florida port representatives have mixed reactions to the prospect of Freeport’s dominance in the region’s transport shipping industry.

“We see Freeport as a natural partner for some Florida ports like Jacksonville, Miami, Port Canaveral, Port Everglades and West Palm Beach,” said Nancy Liekauf, executive vice president of the Florida Ports Council, a body that represents the state’s 14 deep-water ports.

“Bear in mind that the South Florida market increasingly is receiving a wide variety of consumer goods from all over the world through Freeport, where it is offloaded and efficiently transshipped to various other ports. A similar function is performed for north Florida by Jacksonville.”

Individual South Florida port representatives, however, are closely watching to see if Freeport’s operation diverts more container traffic away from Miami and Port Everglades. Some are also concerned about Hutchison’s worldwide network and its growing control over global shipping.

“We’ll probably be out of the loop as far as transshipment is concerned,” said a Port Everglades operator.

“We’re here to join the party, not spoil it,” said a Hutchison manager in rebuttal.

Some Florida shipping interests became even more nervous at the recent announcements that Hutchison is negotiating to acquire Europe Combined Terminals BV, which controls the majority of the container operations in the port of Rotterdam in the Netherlands.

Reports of resistance developing in Europe to Hutchison’s moves there could mean it will have tougher times ahead.

In conversations with people connected with shipping in South Florida, the matter of economic security repeatedly comes up.

For example, the Mediterranean Shipping Co. had used Miami as a container distribution and consolidation point before the opening of Freeport. It reportedly quietly moved its operations to Freeport after the Hutchinson facility became operational.

Years in the making

The integrated Freeport project has been developing over the last 46 years and represents the involvement of Americans, British and now Chinese as well as Bahamians.

Freeport was born in 1955 under the terms of the Hawksbill Creek Agreement. The midwife of record was the Grand Bahama Port Authority Ltd. (GBPA), founded by a visionary American investor, Wallace Groves of Virginia.

Under the agreement, the Bahamas government gave Mr. Groves the exclusive right to develop and manage 150,000 acres of land. In exchange for some big chunks of undeveloped land, shipping magnate D.K. Ludwig spent $5.6 million in 1956 to dredge a 30-foot-deep harbor with a 600-foot turning basin and a 200-foot-wide channel to the sea.

The port took off largely due to the original agreement that guaranteed investors freedom from personal and corporate taxes and also from customs and excise duties until 1990. These were later extended to 2015 and 2054, respectively.

In 1995, Hutchison bought a 50 percent share of Freeport Harbor and a 50 percent share in the airport as well as three hotels and land on what is known as the “Lucayan Strip.”

It has now grown into the 1,350-room Our Lucayan Beach & Golf Resort. It is managed by Hutchison’s hotel subsidiary in Hong Kong and now joins its inventory of 10 properties with 6,000 rooms, all in China.

The resort, the second-largest in the Bahamas, attracts mostly Americans.

Recently, it got some unfavorable publicity when a New Yorker sustained a shark attack there and lost a leg.

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