Latin America — an opportunity China does not want to miss

Around 500 Chinese entrepreneurs and 800 businesspeople from various countries met last month in Costa Rica to discuss the creation of business opportunities between China, Latin American and Caribbean countries (LAC).

The small Central American country has become the Chinese diplomatic base in the region since both countries established diplomatic relations in 2007. The summit was sponsored by a Chinese council on investments and the Ministry of Foreign Trade of Costa Rica.

China signed 50 bilateral cooperation agreements, including with Chile, Colombia, Mexico and Peru. The latter decided to join efforts into a new organization, the China-Pacific Alliance Multi-Chamber Union, to promote logistic services and capital flow within the region.

China sees many more far-reaching perspectives in Latin America.

“The potential of our countries remains in an increasing aperture,” said Wang Quinmin, the Chairman of China Federation of Industry and Commerce, during the summit. According to Quinmin, China and Latin American countries could build together “the maritime road of the 21st century.”

The summit highlighted the growing interdependence between the Asian country and Latin America, after ten years of increasingly close relations.

A Decade of Growing Presence

Trade between China and LAC countries increased by 21 times between 2000 and 2012. The growth mainly includes imports of primary products, such as soy and other grains, mining activities and oil. Announced three weeks ago during the Third Plenary Session of 18th Communist Party of China’s Central Committee, China’s new trade policy based on more liberalization should favor the impetus.

Already in June, Chinese investors and LAC countries organized the first China-LAC Agricultural Ministers Forum, which established a food reserve and a $50 million fund for eight research and development centers in the region.

“In Latin America, China’s food-related engagement is still focused predominantly on trade, especially in soy, and to a lesser extent in other grains, fruits and certain luxury food items (coffee and wine, for example),” wrote Margaret Myers, the director of the China and Latin America program at the Inter-American Dialogue, on Chinaandlatinamerica.com.

In order to remain self-sufficient in food and other needs, China’s increasing presence in the region takes two traditional forms: free-trade agreements, and foreign investments, either direct, such as the construction of a factory or a canal project, or indirect, such as loans. The Asian country invests in infrastructures, and also imports oil.

According to the Inter-American dialogue, China has provided approximately $87 billion in loan commitments to Latin American countries since 2005.

In 2010, China offered more loans to Latin America than the World Bank, the Inter-American Development Bank and the Export-Import Bank of the United States combined, according to the Global Development and Environment Institute of Tufts University. The loans are mainly granted by oil privileges for the years to come.

China is especially interested in Venezuela because of its oil reserves. Between 2007 and 2012, Beijing gave more than US$44 billion in loans to Caracas.

After a peak in 2010, when China invested US$37 billion in the region, the process of growing investments slowed down. China invested $17.5 billion in 2011 and $6.8 billion in 2012.

“A lack of regional expertise in Beijing coupled with China's preference for closed-door negotiations has potentially exposed China to a higher degree of risk than intended,” Myers wrote in Chinaandlatinamerica.com.

Unequal Diplomatic Relations Contrast with Trade and Investments

Diplomatic differences also exist between the countries.

Angélica Guerra Barón, a professor of international relations at the Universidad Javeriana of Bogota, pointed out in an interview with Global Journalist that national histories and inter-regional diplomacy have also influenced the presence of China in Latin America.

Barón said China’s presence is largely dependent on ideological issues. Members of the Bolivarian Alliance for the Americas (ALBA), such as Nicaragua or Venezuela, tend to see the United States foreign policy as imperialist. Those countries are more willing to increase the relationship with China, and so China does.

On the other hand, countries that are closer ideologically to the United States, such the Pacific Alliance’s members, might develop fewer partnerships.

“It is just with Dos Santos [the current President of Colombia] since 2010 that the country wants to diversify its international relations,” said Barón. “China has traditionally be seen as a country which is far away, and that it is not a priority for Colombia.”

Those countries are facing an American withdrawal in the region, which highlights the contrast between the crisis in the U.S. and the increasing importance of China as a global actor. While U.S. President Barack Obama set the “Pivot to Asia,” which plans to focus on East Asia in terms of American economic and strategic interests, China can invest in Latin America without facing any challenging competitors.

But Barón described China’s increasing presence in her country as a “fear.”

“Chinese investments go after raw material (…) and the conflict that lasts in Colombia for over 50 years is highly related to access to land and to the mining sector,” said Barón, referring the armed conflict against the FARC, in which peace talks increased this year.

The Chinese interests would be in conflict with existing tensions within the country if China invested more in Colombia.

The dependence of Chinese presence on histories of the region affects other LAC countries. Nicaragua for example does not have any diplomatic relationships with China, which leads Barón to think that the canal project is not related to the Chinese public authorities.

“The main reason to have closer relationships between Nicaragua and China is trade and investments,” she said.

Lack of Multiple Sources of Investments Threatens Long-Term Developments

If China’s investments in Latin America are good for the region’s growth, it also prevents LAC countries from developing interregional trade. MERCOSUR, the economic and political organization with Brazil, Argentina, Uruguay, Paraguay and Venezuela, is seen to have partially failed in developing trade between the developing Latin American economies.

China’s presence in other regions is also outcompeting Latin American economies in the rest of the world. Kevin P. Gallagher, a senior researcher at the Global Development and Environment Institute at Boston University, explained in his book “The Dragon in the room, China & the Future of Latin American Industrialization” that if the LAC countries also take advantage of the national Chinese market, China invests largely more than the LAC countries do.

"China’s presence might be seen as a dragon in the room," which could minimize Latin American countries’ influence by being too competitive and lead to an uncontrolled industrialization. To Gallagher, “the challenge is really at the Latin American doorstep.”

A few weeks earlier, in September, Venezuela’s President Nicolas Maduro visited China. Officials signed a $14 billion Chinese investment in developing an oil field, and China provided to the Latin American country a low-interest $500 million loan. A sign that China is still willing to implement its presence in the region.

But so far, big, long-term and unilateral investments seem to be the unique way of investments China and LAC countries have found in economic terms.

China is also increasing its cultural impact: over the last years, China has even opened more than 30 new Confucius institutes all over Latin America, a Chinese foreign ministry deputy announced. Even hotels are getting prepared for an increasing number of Chinese tourists — the menus are available in Mandarin now.

China’s presence in the region could be a windfall for several Latin America’s impoverished countries and a challenge for the United States.

By Elian Peltier.