dissabte, 22 setembre 2018

Beijing moves into Latin America

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While the US is showing disinterest in Latin America, the Asian dragon is slowly but surely increasing its presence in the region through bilateral trade, foreign direct investment (FDI), mergers and acquisitions, and economic financing of the countries’ infrastructures. On one hand, the Chinese economy needs to be fed, and China is looking for the best deal. On the other hand, Latin America has a seemingly endless variety of commodities to offer Chinese consumers: soy, corn, grains, sugar, fruits, meat, wine, oil, gas, copper, coal, metals, granite, paper, logs, and coffee. The question is what does China have to offer Latin American countries in exchange, and how is the Asian dragon settling in a region that is traditionally considered to be Washington’s backyard?

As the world’s biggest saver and one of the top lending countries, China has already lent more than $140 billion to Latin American countries in the past decade. The Asian power is integrating the region’s economies in three ways: bilateral trade, investments and loans.

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Bilateral trade

China’s foreign trade is worth $4 trillion, which makes it the world’s most important trading country. After the US, China is the most important trading partner of several Latin American countries, including Argentina, Brazil, Chile, Peru and Uruguay. Trade between Latin America and China now goes beyond fossil energy and includes the food and beverage industry, automobiles, technology, renewable energy, telecommunications, national electricity providers, etc.

With 18% of imported goods into the subcontinent coming from China, Beijing has surpassed Washington and become the new main exporter to the region.

Last year Latin American exports to China increased by about 30%, a boom in trade explained by the price increase on some commodities including oil. China is now the region’s third buyer after the US and the EU which it is set to surpass according to Focus Economics.

Investments

The subcontinent is the second destination for Chinese foreign investments as stated by Chinese Foreign Minister Wang Yi in the Washington Post, and China is the second largest investor in Latin America, just after the US. By the end of last year, Chinese investments amounted to 15% of all FDI in the region.

Chinese investments (FDI and M&A) remain strongly linked to the energy supply market. Chinese state-owned companies CNOOC, Sinopec and CNPC have heavily invested in Latin America’s fossil energy reserves and their exploration. In October 2013, CNOOC and CNPC won the bidding for the exploration of Brazil’s Libra offshore oil field. The two firms entered a 35 year Production Sharing Contract and hold a 20% stake in the consortium headed by Petrobras.

The Asian dragon’s interest in Latin America’s natural resources goes hand in hand with the need for infrastructures to transport them which the region desperately lacks. Chinese construction companies such as China Communications Construction Company (CCCC) and CRRC are building and renovating ports and railways in Brazil and Argentina. In 2017 alone, Chinese state-run companies invested $21 billion in Brazil to buy, among others, several power plants and ports and the country’s largest electricity distributor.

Chinese investments in the region increased almost tenfold, from $25 billion in 2005 to $225 billion in 2017. The biggest and probably most surprising change is their increasing diversification. Ten years ago, mining, oil and natural gas projects represented 70% of Chinese investments, last year they only gathered 22%, whereas in the same timeframe investments in telecommunications and renewable energy went from almost nothing to over 25%.

Chinese start-ups have started to pin down a huge potential market for the next technology gold rush. Latin America’s growing population of over 650 million consumers represents a real windfall for developers like Tang Xin whose app ranked first in Google Play’s Mexico store last year. Once merely copying from overseas, Chinese people now find it more profitable to “replicate business models that have taken off” and export them where competition is less fierce than at home, explains Tang. In short, Chinese have become very efficient at setting up profitable businesses, but there are just too many of them in homeland China, so they are looking elsewhere which is increasingly Latin America.

Loans

As a creditor to Latin America, China really sells itself, especially when getting loans from US-led international lending institutions such as the IMF or the World Bank which automatically goes hand in hand with strict governance conditions, fiscal austerity and transparency. In comparison, China’s policy of non-interference in its partners’ domestic affairs, on top of its striving for a multipolar world and its fight against climate change, looks incredibly attractive to many Latin American governments.

The most efficient and safest tool the Chinese government has found to lend money to Latin America’s volatile economies is the loan for oil system. This system allows countries to repay their loans with oil shipments to China. Free oil is exactly what China needs and Latin America has more oil than money.

Around 50% of all loans granted to Latin America by Chinese state banks are made under this agreement. In total, China has already lent over $100 billion to Venezuela, Brazil, Argentina and Ecuador through the loan for oil system. This system has even saved Venezuela from defaulting on its foreign debt several times.

Critics argue that China’s non-interference policy allows Latin American governments to use these loans to build infrastructure linking mines and oil fields to ports and refineries, and not to invest in public infrastructure for the populations. Venezuela shows the contrary.

At a time when US president Donald Trump has threatened to blow up NAFTA if Mexico does not comply with his requests, repeatedly insulted his direct Southern neighbour and qualified Haiti and El Salvador as “s***holes”, China’s soft power and “read[iness] to share development dividends with all countries,” as stated by Wang Yi last January, are more than welcomed by Latin American governments.

The Asian power is showing there is another way besides Washington’s to establish partnerships with developing countries. It wants to show there is a way aound the North American superpower, through South-South cooperation. That is precisely what Chinese Foreign Minister Wang Yi did last January during the second CELAC-China summit when he invited the 33 Latin American countries to join China’s Belt and Road Initiative.

Diane Pallardy studied an MA in Politics and International Relations at the University of Kent, and MA in World Politics and Fossil Energy at the Higher School of Economics, in Moscow.

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