Chinese trade hurt by Houthi attacks on ships attempting Red Sea passage

FORUM Staff

Though not targets of Houthi rebels, Chinese traders are significantly affected by the militants’ attacks on cargo vessels traversing the Bab el-Mandeb Strait and fear the crisis on one of the world’s busiest shipping routes could have lasting effects.

One Chinese businessman said the cost of shipping a container to Europe spiked from about $3,000 in December 2023 to $7,000 in January 2024 as the Iran-aligned Houthis assaulted ships in the strategic passage between the Red and Arabian seas, Reuters reported. The Yemen-based rebels claim they will attack only vessels from nations that support Israel’s war against Hamas — which does not include the People’s Republic of China (PRC) — but Chinese exporters and manufacturers face soaring shipping prices and insurance rates to transport freight through or around the narrow and increasingly dangerous strait.

The shipping bottleneck comes as the PRC, the world’s biggest trading nation, contends with thin profit margins and continuing fallout from COVID-19 restrictions. Hostilities in the strait and southern Red Sea also deprive Chinese companies of safe access to investments along and near the Suez Canal at the sea’s north end. Meanwhile, the PRC faces a real estate meltdown, weak consumer demand, a shrinking population and sluggish global growth, Reuters reported in January 2024.

Global shipping is similarly affected by the attacks. Many container vessels, bulk carriers and tankers that normally transit the Red Sea — the shortest maritime route between Asia and Europe —now are detouring about 6,000 kilometers around Southern Africa, which can take two weeks. The United Kingdom and United States are leading a multinational initiative to counter the assaults by targeting Houthi weaponry in Yemen, using Tomahawk missiles and fighter jets to destroy the rebels’ missile storage sites, drones and launchers, The Associated Press reported. The U.S. also called on Beijing to persuade the regime in Tehran to rein in the militants.

The PRC has called on “all relevant parties” to “ensure the safety of navigation in the Red Sea,” the Financial Times newspaper reported in January. But Beijing did not commit to any side.

Analysts say the PRC is worried that European traders will establish relationships in nations closer to home, largely to reduce conveyance risks. “Some [companies] may also consider moving more production to India, which is one week closer to Europe,” Marco Castelli, founder of IC Trade, which exports Chinese mechanical components to Europe, told Reuters. “Companies need to reevaluate everything.”

The rerouting recalls the temporary halting of seaborne traffic and costly detours after the Ever Given, a massive container ship, ran aground and blocked the Suez Canal, at the top of the Red Sea in Egypt, for six days in March 2021. Some shipping companies designed new supply chains to withstand such interruptions, Forbes magazine reported in January 2024. The PRC and European nations partly compensated for the blockage by moving goods by rail.

Egypt, Iran and Yemen participate in Chinese Communist Party General Secretary Xi Jinping’s One Belt, One Road (OBOR) infrastructure scheme. But the PRC has not intervened to stop the Houthi attacks, which obfuscates OBOR’s purported goal of connecting member nations through investments and trade routes, Reuters reported.

Yin Gang, a Chinese expert on the Middle East, said the disruption of trade routes has caused huge losses. “The Red Sea shipping route is of great importance to Chinese merchant ships,” Yin told the Financial Times. “Although shipments from countries like China might be safe, the freight costs have increased. … It’s a very bad thing for China.”