After the major headline hogging BRICS summit, the next news event that has been watched closely is the Chinese President Xi Jinping’s visit to Latin America.
The visit was marked by an ambitious outlook as China intends to boost trade to $500 billion dollars in the next ten years and announced a $20 billion Chinese fund to finance infrastructure projects in Latin America and the Caribbean (LAC).
Other significant announcements included an additional credit line of $10 billion for the Community of Latin American and Caribbean States (CELAC) from Bank of China and Sino-Brazilian collaboration to start working on a railway project across South America linking the Brazilian Atlantic coast with the Peruvian Pacific coast.
Certainly the implications of this visit are more profound than just another bilateral excursion. The trade partnership shot up from a mere $12 billion in 2000 to $261 billion in 2013. This further corroborated the UN forecastof China - with 14 percent trade share – fast outpacing the European Union (with 13% share) as Latin America’s second largest trading partner after the US, prompting many to ask would the gap between the two in Latin America get narrower.
There is a clear tendency in that direction, although it may take a while feels Fabiano Mielniczuk, former Research Coordinator at the BRICS Policy Center and current Director of Audiplo.
Both the US and EU have been stalled in financial crisis, snarled political situations at home and expensive foreign policies as a result of involvement in the war ridden Middle East, Iraq and Afghanistan.
As Kevin P Gallagher, Associate Professor of International Relations at Boston University & co-author of The Dragon in the Room: China and the Future of Latin American Industrialization points out, “China has been much more strategic. The West has been mired in financial crisis and political gridlock on the home front, and the Middle East in foreign policy.
China’s economy has been strong, and they have built a number of supporting institutions to help their firms move abroad. China has done in 15 years what it took decades for the West to do in the region.”
The diversity of trade between the US and Latin America currently is way too big for China to still match feels Gallagher. “Right now close to 75 percent of all Latin American exports to China are just in petroleum, iron ore, soybeans. Latin American exports all sorts of things to the US.”
But there is a clear tendency in the region to break away from the West and find an independent foot in the global stage. Countries like Brazil have been leaning towards developing countries like China and India.
There is also an ideological point where China and Latin America intersect. Left inclined Latin American states hold antithetical views clearly demonstrated by leaders like Venezuela’s late Hugo Chavez and Cuba’s Fidel Castro towards a capitalistic US foreign policy.
As Mielniczuk points out, “Americans and Europeans took for granted their influence in the region because they were used to exercising unconstrained leverage over native political elites in the recent past. During the 1970’s, the US backed anti-communist dictatorships in return for military material and training facilitated the promotion of private (Western) interests in their economies. In the 1980’s, when the US increased its interest rates unilaterally, the debt crisis created the conditions for the IMF and other financial institutions to exert even more leverage over the region.
In the last two decades, however, the region passed through an important political transformation. Leftist leaders like Chavez in Venezuela, Lula da Silva in Brazil, Correa in Ecuador and Morales in Bolivia, were elected promising to free their countries from this external control. This is the point where Latin American interests and Chinese necessities intersect.”
Under Chavez multinational oil companies like Texas-based Exxon Mobil have had a major showdown in Venezuela over the nationalization of its heavy oil. Royal Dutch Shell Group had to call off its hiked gasoline price after an Argentinean boycott of the company. Even recently the company was at loggerheads with Argentina due to hiking of fuel price.
For China Latin America – with 40 percent of the world’s known copper reserves, apart from an important share of iron, silver, and tin and 13.3 percent of the world’s oil reserve of which only 6 percent is exploited – is a viable import option for commodities to feed its growth.
China accounts for more than 22 percent of world copper demand and is a major consumer of tin and iron ore. By 2030 China is predicted to import 75 percent of its oil and huge amount of agricultural products like soy.
Typical strategy of China is to scope gaps of each of these economies into investment opportunities.
As is the case with Brazil whose economic projections are leaden this year with a growth less than 1 percent. Inadequate investment in logistics and transportation infrastructure has been cited as the reason.
In 2012 the Brazilian government launched a $250 billion program to develop
roads, ports, railway lines airports and energy sector. Brazil’s
investments, mainly carried out by the state-owned banks, are
under pressure to create savings.
So China sees this as an opportunity to invest in infrastructure to not just ease transportation cost for commodities it imports, but also get a share in the development of the vast energy resources.
A well-known tactic of China, Brazil’s largest trading partner at US $83.3 billion volume, is to offer loans that could be paid back in oil. Brazil produces 831.1 million barrels with a total reserve of 12.2 billion barrels, received a $10 billion loan from the China Development Bank in 2009 for its oil giant Petróleo Brasileiro SA in return for the long-term supply of oil.
It also, along with other international players, acquired the rights to develop the huge Libra oilfield.
Recently China’s CNR Corporation Ltd is said to have played a huge role in Rio de Janeiro’s push to improve its railway networks prior to the 2014 World Cup.
During this visit The Export-Import Bank of China committed to extend a $5 billion loan over the next three years to Brazilian mining company Vale so that it can purchase or rent vessels to ship iron ore to China.
Similar deals have been signed including last year’s $28 billion with Venezuela – with enormous petroleum reserve – which boasts over $19 billion bilateral trade with China, its second largest trading partner. China invests mainly in oil production and infrastructure in return for oil supplied from Venezuela.
Debt-ridden Argentina finds China all the more relevant today after the US Supreme Court ordered Argentina to pay $1.3 billion to US bondholders as debt repayments. Beijing is most likely to salvage Argentina from the debt.
While China is a major importer of Argentinean goods mainly soy and soybean oil, the primary interest is in its shale gas reserves. The China National Offshore Oil Corporation (CNOOC) and Argentinean Bridas in 2010 signed a corporate partnership mainly to exploit its shale formation in Patagonia.
In this visit the China Development Bank reportedlyagreed a $4.7 billion loan to build two hydroelectric dams in Patagonia. Apart from a $2.1 billion loan to build a railroad for more efficient transport of grains from Argentina's agricultural plains to its ports, a three-year $11 billion deal was signed where Argentina could pay for Chinese imports in Yuan.
However there’s a lot of mending to be done before China outpaces others. 75 percent of the exports of Chile, Peru, and Venezuela still consist of commodities while China’s export to Latin America is primarily manufactured goods.
Last year Brazil exported commodities like iron ore and soybeans worth $21.8 billion. It along with Argentina has been vocal about exporting higher-valued products to China. Both have raised anti-dumping complaints against Chinese manufactured goods flooding its domestic market.
As Mielniczuk points out, “Historically, Latin America was incorporated in the global capitalist system as an exporter of raw material and agricultural goods, and as a consumer of manufactured products. The region’s exports were first destined to Europe during colonialism, and after to the USA as well since the nineteenth century. By the 1990’s, due to Chinese economic development, the trade flux started moving to China, but the trade structure inherited from the colonial period remains the same.”
So, Mielniczuk explains that the major concern is the same economic dependency developed with America and Europe could be reproduced with China. Chinese firms have been criticized for labor exploitation and environmental hazards created due to their operations.
Gallagher refers to the Andean region where Chinese firms are moving into areas that are “endemic to environmental degradation and civil strife – such as oil in the Ecuadoran Amazon where China struggles with local communities and global environmental activists.”
So while Latin America has received China’s bilateral advances with considerable gusto, China might well be sensitive to the region’s concerns if it really wants to stand by its announced intent of an all-inclusive development for both the regions. It calls for a lot of confidence building effort around socio-economic commitment for China to gain a larger share of business and outpace others in the region.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.