China pushes 'new Silk Road' to Latin America

'China's very much in the region to stay'

When Chinese President Xi Jinping unveiled what became known as the Belt and Road Initiative in 2013, the massive infrastructure project was quickly dubbed the "New Silk Road." That's because many of the proposed Chinese-financed transport, power and infrastructure projects were designed to connect China with the Middle East and Europe through central and southwest Asia – along roughly the same ancient trade route traveled by Marco Polo in the 13th century. 

Yet since last year China has looked to expand the initiative to a part of the world the famed Italian explorer didn't even know existed: Latin America. At a meeting with leaders from Latin America and the Caribbean, China's foreign minister invited countries from the region to join the Belt and Road Initiative and begin receiving billions in financing for new projects, from oil pipelines to dams. 

The move is a direct challenge to U.S. influence in the region. And for China's new partners the expansion of the Belt and Road Initiative holds the same risks and opportunities as earlier projects in Asia and Africa.  In Uzbekistan, the 12-mile (19 km) Chinese- built Qamchiq train tunnel has dramatically cut travel times between Tashkent and the eastern city of Fergana.

But other projects have not gone as well for host nations. In Sri Lanka, the government had to turn over a Chinese built port and 15,000 surrounding acres of land to the Chinese government after

Margaret Myers of the Inter-American Dialogue

struggling to make payments on $8 billion in debt to Chinese state firms. In Malaysia, anti-corruption investigators are probing allegations that China agreed to bail out a failing state development fund in return for winning infrastructure contracts at inflated costs. 

For more on how China's initiative could transform Latin America and the Caribbean, Global Journalist's Molly Jackson spoke with Margaret Myers, the director of the China and Latin America program at the Inter-American Dialogue in Washington, D.C. Below, an  edited version of their conversation:

Global Journalist: What kind of projects is China investing in?

Margaret Myers: There's a lot of energy infrastructure investment in places like Venezuela, Ecuador and in cooperation with Brazil's National Oil Company. In other case we see transportation infrastructure development. That's a major focus of the Belt and Road Initiative as it aims to promote this notion of connectivity. 

There's an extensive focus on actual infrastructure construction in Argentina and we also see some roads and rails being developed in Bolivia and a couple of projects in Peru.

But this is not a new thing. The Belt and Road may have arrived now in Latin America, but there's been an interest in the infrastructure development for a very long time. What we might see though now is a slight increase in actual project development and maybe even some trans-regional infrastructure efforts.

Sri Lanka's Chinese-financed Hambantota port was given back to China after the country struggled to repay Chinese loans. (Wikimedia Commons)

GJ: The U.S. and most of the European Union are hesitant about China's rising global presence. Do many countries in Latin America feel the same way?

Myers: I don't know. Probably the strongest U.S. allies in the region, Colombia and Mexico, have not signed [on]. Maybe that's an indication of their own concern about engaging more extensively with China and the implications for their relations with the U.S. 

At least in some cases there have been efforts on part of the U.S. government to try to dissuade certain governments from participation in specific projects. But Chile, for example, is conducting its relations with China very much on its own terms and really valuing that relationship considerably...without tremendous regard for what the U.S. is saying.

GJ: Are Latin American nations worried about getting into debt to China? 

Myers: Yes. A lot of countries have loans to China and some of these are 30 year loans. If they are able to pay it back, it might not be a bad thing, especially if it's a standard commercial interest rate or at a concessional rate. But this debt is...problematic when a country is unable to pay it back. There are major consequences for that country and also for the Chinese investors. 

There are plenty of Latin American officials who are very aware of some of the cautionary tales elsewhere in the world as it concerns Chinese financing for major infrastructure projects. Many have looked to Sri Lanka and they've looked at Malaysia and they are aware that these projects can go wrong and have implications for a country's sovereignty.

GJ: Roughly 70 percent of the workers building infrastructure in these foreign countries are Chinese. Is that the same for every country?

Myers: The number of workers is negotiated in the contracts. You have different outcomes, some where they are not allowing any Chinese laborers and some where they are allowing a lot of them. The issue there is that some countries [don’t have a lot of leverage in] negotiations with China, [while others do] based on their economic strength. Brazil has quite a bit more leverage in negotiations with China than the Bahamas. 

Ecuador's Coca Codo Sinclair dam, built by China's Sinohyrdro Corp., has been controversial because of performance, labor safety and environmental concerns (Photo credit: CELEC-EP)

GJ: In your view, what kinds of Chinese-financed infrastructure projects have been successful versus those that have not?

Myers: There are a handful that are operational [in Latin America] and we can look at and try to understand the economic effects as well as other effects, like environmental or social. 

Even the successful projects, there are drawbacks, as tends to be the case with any major infrastructure project. The Coca Codo Sinclair dam project in Ecuador, it is producing – I think – half of the energy it was intended to, but it has significantly increased Ecuador's energy capacity and in a pseudo-sustainable way. There's been a lot of controversy surrounding that project, in particular about labor safety and environmental impact. It was one that Ecuador had proposed to the Inter-American Development Bank, but they didn't want it...and China financed it.

None of these projects are going to be purely positive and none are going to be necessarily purely negative. There are a few that have failed all together...Quite a few have fallen through because of local corruption in the Latin American countries themselves.

GJ: Do you foresee a lot more Chinese-backed projects in the future?

Myers: That's a really good question. There's just a broad sense at the moment that this is on a rapid upward trajectory and that we're going to see a continued boom in Chinese engagement across sectors in Latin America. We'll continue to see expansion of trade in particular, especially as new opportunities arise as a result of the U.S.-China trade war.

On the investment side, it's hard to say. There's a lot of demand in Latin America for hard infrastructure, especially transport infrastructure. But there are a number of factors domestically in China that could limit the amount of overseas investment that China is able to do. 

For example: [Chinese] controls on the use of foreign currency reserves.  if there are limited opportunities to finance overseas projects, in all likelihood, Chinese companies are going to go a little closer to home, where they know the region better, and they have stronger networks than Latin America. But I think, China's very much in the region to stay, without a doubt.