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China now largest trading partner of some Latam countries

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China and Peru strengthen existing free trade agreement

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Port to generate $4.5 billion annually, create 8,000 jobs

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Concerns in U.S. over potential military use of Chancay

port

By Eduardo Baptista, Marco Aquino, Lucinda Elliott

LIMA, Nov 14 (Reuters) - Chinese President Xi Jinping

launched a week-long diplomatic blitz of South America on

Thursday by inaugurating a massive deep-water port in Peru, a

$1.3 billion investment by Beijing as it seeks to expand trade

and influence on the continent.

With China's demand for agricultural goods and metals from

Latin America growing, Xi will participate in the Asia-Pacific

Economic Cooperation summit in Lima then head to the Group of

20 summit in Rio de Janeiro next week, where he will also make a

state visit to Brazil.

Xi and Peruvian President Dina Boluarte participated on Thursday

by video link in the opening of the Chancay port, about 80

kilometres (48 miles) north of Lima on the Pacific Ocean, and

signed a deal to widen an existing free trade agreement.

Xi said that Chancay, a 15-berth, deep-water port, was the

successful start of a "21st century maritime Silk Road" and part

of China's Belt and Road Initiative, its modern revival of the

ancient Silk Road trading route.

"China is willing to work with the Peruvian side to take

the Chancay project as a starting point to forge a new

maritime-land corridor between China and Latin America and

connect the Great Inca Trail," Xi said, referring to a 15th

century mountain network that joined the Inca empire.

In an opinion article in the El Peruano state newspaper, Xi

said the Chancay project would generate $4.5 billion in annual

revenues, create more than 8,000 direct jobs and reduce the

logistics costs of the Peru-China route by 20%.

The China-controlled megaport was built by Cosco Shipping

Ports ( CSPKF ) and received $1.3 billion in Chinese investment

for its first phase. China is expected to spend billions more as

Beijing and Lima work to position it as a major shipping hub

between Asia and South America.

The first ship was due to set sail from Chancay next week,

transporting Peruvian fruit to China, Mario Ocharan, Peruvian

director of the Chancay Chamber of Commerce, said.

China's main motivation for developing the megaport,

according to Ocharan, was access to neighboring Brazil, where a

new railway line is planned to carry Brazilian exports such as

soybeans and iron ore to the port.

The rail project is estimated to cost $3.5 billion,

according to Mario de las Casas, corporate affairs manager at

Cosco Shipping Chancay Peru.

Building that link is "crucial" to improve transportation of

soybeans as Brazil is the top seller of the commodity to China,

he said.

GEOPOLITICAL AND ECONOMIC HEADWINDS

The inauguration of the port comes as Beijing is looking to

further tap into resource-rich Latin America, amid trade

tensions with Europe and concerns about future U.S. tariffs on

Chinese exports from the incoming Trump administration.

Hundreds of Chinese business executives have accompanied Xi

on this trip including heads of companies heavily invested in

Peru such as Chinalco, which owns the Toromocho copper mine.

Robert Evan Ellis, Latin America research professor at the U.S.

Army War College, said that Chancay will make shipping between

Latin America and China more efficient.

Because the port can handle the biggest ships, it will

reduce the need for shippers to consolidate cargo containers at

intermediary points, reducing costs and handling times.

"Chancay illustrates how China seeks secure access to resources

and markets and its ever more successful fight to corner global

value added," Ellis said.

China's major investment in Chancay has raised alarm bells in

Washington. General Laura Richardson, former U.S. Southern

Command chief, warned earlier this month that Chancay could be

used by the Chinese navy and for intelligence-gathering.

U.S. anxieties about Chancay reflect a broader, decades-long

shift in a region Washington long saw as its backyard. China has

overtaken the United States to become the largest trading

partner of countries like Peru.

China's state-backed Global Times wrote in an editorial on

Monday that the port was "by no means a tool for geopolitical

competition", calling U.S. accusations of the port's potential

military use "smears".