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Published on Nov 1, 2013 in News, Newsletter

China’s Relationship with Latin America

Latin America has become increasingly important to China. That might seem incongruous on the face of it, given the geographic separation and differences in political philosophies between the two. However, Latin American resources, such as petroleum, coal, iron, uranium, and agricultural products are important to sustaining China’s future economic growth.1

China’s relationship with Latin America not only involves trade, but it also involves billions of dollars in investments and loans. China has loaned Latin American countries more than $100 billion, greater than the World Bank’s contribution for the past two years. Venezuela, for example, has received $28 billion, Argentina $10.2 billion, and Brazil $10 billion. In addition, China’s direct investment in Latin America has increased from $621 million in 2001 to $44 billion in 2010, according to the United Nations Conference on Trade and Development. 5

What does China get out of this? Simply put, it gets and increasing amount of resources to fuel its growing economic engine. Latin America’s resources are important to sustaining China’s growth. However, many Latin American countries lack the financial ability to put in place the infrastructure necessary to exploit their resources. 1 As a result, China has made investments which facilitated the development of this infrastructure. Moreover, Chinese investments have been made primarily in the area of transportation, so as to increase the efficient delivery of resources. For example, China is partnering with Brazil to improve the country’s railroads and establish a rail link to the pacific, cutting transportation costs of iron ore and soybeans. China is also proposing the construction of a 220 kilometer line connecting the Colombian cities of Cartagena, on the northern Atlantic coast, with the Pacific coast of the country to expedite the import of raw materials. In Venezuela China has taken a 40 percent stake in a rail project connecting oil-producing regions in Venezuela to the capital. 7

In addition, as China’s economy continues to grow, China wants to diversify its reliance on the importation of its commodities from Africa and Asia, to also include Latin America. 5

China is appealing to many Latin American countries because of the financing it’s been able to offer, as funding generally comes with little, if any, notion of conditionality. In addition, China generally presents itself as a benevolent partner which doesn’t want to meddle in domestic affairs. Its presence is unencumbered by ideology as it tends to approach opportunities almost exclusively on commercial terms. In other words, the Chinese are solely concerned with the economics of a relationship or transaction.  3 In contrast, the United States has been prone to lecture, dictate, and attach conditions to their funding transactions. As a result, the manner in which China has conducted its funding in Latin America has increased Chinese influence, but it surprisingly hasn’t decreased US imports or exports into the region. According to Shlomo Ben-Ami, vice president of the Toledo International Center for Peace, US exports to Latin America rose by 94 percent over the last six years. Imports increased by 87 percent during the same period. The United States is Latin America’s largest trading partner and annually exchanges goods and services with a value of more than $800 billion, more than three times the regions commerce with China. 2The United States also continues to be Latin America’s biggest foreign investor. 3

However, with the United States now focused on Iraq, Afghanistan, and the Middle East in general, the US has placed Latin America lower and lower on its priority list. China is, by default, filling that void. Between 2000 and 2009 China has increased its two-way trade with Latin America, according to the International Business Times, from $13 billion to more than $120 billion, still far below the $800 billion in trade conducted with the US. But as China’s economy continues to grow, and its thirst for resources increases, this trade gap will continue to narrow. What makes this a particularly opportunistic time for China is that Latin America is now experiencing substantial economic growth after decades of economic crises. According to the United Nations, this year’s gross domestic product (GDP) for Latin American countries will be 3.7 percent, double the average for the rest of the world. 2

In addition, China has initiated a policy of becoming less competitive with Latin American countries, and trying to form partnerships whenever possible. Mexico is a case in point. In the past, Beijing was in competition with Mexico in supplying manufactured goods to the United States. But now China is investing in Mexico’s infrastructure, oil, and energy 3 so as to enhance its trade opportunities within Latin America and the United States.

In trying to further its influence in the region, China has opened up 32 Confucius Institutes throughout Latin America. These institutes are non-profit organizations which promote Chinese language and culture, support local Chinese teaching, and facilitate cultural exchanges.4 China is also a member of the Inter-American Development Bank and has been granted permanent observer status at the Organization of American States. 5

One of the major projects that China is undertaking in Latin America is the proposed construction of the Nicaragua Canal, connecting both the Caribbean Sea and the Atlantic Ocean with the Pacific Ocean. In June 2013 Nicaragua’s National Assembly approved a bill to grant a 50 year concession to a newly formed Hong Kong company, the Hong Kong Nicaragua Canal Development Investment Co. This concession can be extended for another 50 years once the canal is operational. 6

However, trade and financial assistance with China comes at a price. Many in Brazil, for example, are concerned that the concentration on commodities in Brazil’s exports with China may direct capital and labor towards the agriculture/natural resource sector at the expense of manufacturing. There is also a feeling that failure to diversify Latin American exports with China to include more value-added goods, manufactured products, and modern services could result in serious economic consequences. 7

Politically, countries receiving aid from China cannot recognize Taiwan, and may have to support China in other political endeavors, such as supporting their claim to the Senkaku Islands. Moreover, Chinese involvement sometimes brings with it faulty corporate governance practices and environmental concerns. In addition, China’s under-valuing of its currency makes it difficult for many Latin American companies to compete. Another important issue in Latin America’s increasing economic ties with China is that any slow-down in China’s economy will also effect Latin America’s economic growth.

In many respects, and contrary to many popular beliefs, Latin America doesn’t represent a directly competitive environment between the United States and China. China’s presence in Latin America is all about access to commodities. The United States, on the other hand, already a substantial economic partner with Latin America, is more concerned about domestic security, political influence, and the continued hegemony of the US in the region.

Endnotes:

  1. http://www.rightsidenews.com/2013090633158/world/geopolitical/chinas-pivot-to-latin-america.html
  2. http://www.ibtimes.com/latin-america-increases-relations-china-what-does-mean-us-1317981
  3. http://blogs.reuters.com/great-debate/2013/06/12/the-looming-u-s-china-rivalry-over-latin-america/
  4. http://en.wikipedia.org/wiki/Confucius_Institute
  5. http://www.dw.de/chinas-influence-in-latin-america-is-increasing/a-17156409
  6. http://en.wikipedia.org/wiki/Nicaragua_Canal
  7. http://www.chinacenter.net/chinas-growing-presence-in-latin-america-implications-for-u-s-and-chinese-presence-in-the-region/

 

 

 

Alan Refkin               David Dodge

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