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China’s engagement in Latin America

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Author

Joachim Wahl,

[Translate to en:] Panama-Kanal, 3. Dezember 2018: Chinas Präsident Xi Jinping und seine Frau werden von Panamas Präsident Juan Carlos Varela und seiner Frau empfangen.
Panama Canal, 3 December 2018: Chinese president Xi Jinping and his wife are officially welcomed by Panamanian president Juan Carlos Varela and his wife. China sees the Panama Canal as an inter-oceanic “link” on the New Silk Road. picture alliance / REUTERS | CARLOS JASSO

By the beginning of the twenty-first century, China had established itself as the world’s second-largest economic power behind the United States. Its growing demand for raw materials, foodstuffs, and energy led to the development of economic and commercial relationships, including within Latin America. These were based on pre-existing long-standing diplomatic relationships between China and the majority of Latin American countries.

Joachim Wahl is an expert in Latin America Studies. From 2002 to 2004, he was the first director of the Rosa-Luxemburg-Stiftung’s Office in Brazil.Translated by Ryan Eyers and Sonja Hornung for Gegensatz Translation Collective.

The first visit to South and Central America by a Chinese president took place in 1991. Ten years later, in April 2001, President Jiang Zemin travelled to Argentina, Uruguay, Brazil, and Cuba. President Hu Jintao later visited the continent in 2004, concluding the trip by signing off 39 bilateral agreements comprising a cumulative value of over 100 billion US dollars, and loans with a repayment period of 10 years. In the accompanying memoranda, China was acknowledged as a “market economy”. In the years to follow, China would sign free-trade agreements with Chile (2005), Peru (2008), Costa Rica (2011), and Colombia (2012).

China’s import of raw materials increased significantly, showing that the aforementioned agreements had been structured definitively to the benefit of China. Long-term contracts guaranteeing oil supply soon followed. Chinese companies increasingly invested in the oil and natural commodity sectors. The loans were not tied to any political conditions and could be repaid via the delivery of commodities. Latin American countries demanded greater attention be paid to their interests in the form of an equitable exchange of goods.

Between 2000 and 2013, a substantial increase in China’s external trade and direct capital investment took place. In 2012, 69 percent of Latin America’s raw material exports and 24 percent of its industrial product exports were to China. In 2013, the cumulative exchange of commodities reached a value of 278 million US dollars. In comparison to 2012, the total sum of credit granted rose by 70 percent. From 2005 to 2014, China granted Latin American countries loans totalling 119 billion dollars.

China cemented strategic partnerships with Brazil (1993), Venezuela (2001), Mexico (2003), and Argentina (2004). Bilateral commissions were created to co-ordinate communications between the respective governments and develop long-term action plans. 90 percent of China’s loans to the continent were concentrated in the countries of Brazil, Argentina, Venezuela, and Ecuador. As the growing economic crisis took hold, China successfully positioned itself as the top moneylender to the continent, ahead of the banks of Western Europe and the United States.

Of the investments made between 2010 and 2014, 90 percent were in the natural commodities sector, continuing even in the face of declines in commodity prices. Over time, there was an increase in investments focused on the solar energy sector (including a solar installation in the Atacama Desert in Chile) to the value of 900 million dollars, as well as in hydroelectric power stations.

In 2008, China published “China’s Policy Paper on Latin America and the Caribbean”, in which it laid out its goal of developing its relationships with and investment in Latin American countries “on the basis of equality and mutual benefit”. According to this paper, Chinese investment is less interested in short-term profit than in long-term projects. Pre-existing ventures in possession of registered licenses and with regional experience are to be overtaken. Contracts are officially not made dependent on specific legal and political conditions (e.g., the recognition of the “One-China policy”).

Left-leaning governments in Latin America in particular were to profit from this development: between 2002 and 2014, the poverty rate in Latin America was reduced from 44 percent to 28 percent. During this period, China was an important factor for the political support of centre-left governments. Official state visits became more frequent. Further agreements promoting scientific and technological co-operation and cultural exchange were signed. The founding of Confucius Institutes (16 in total, with 30 additional representative offices) provided a platform for the propagation of Chinese modes of thinking. Roughly 150,000 Latin Americans study in China.

China presents itself as a land of the Global South and the “Third World”. It seeks to distance itself from traditional notions of hegemony, and to be seen as a pragmatic partner and an “equal among equals”. The aforementioned policy paper emphasized that “China doesn‘t want to initiate political change and isn’t looking for partners in its competition with the United States”. China’s positioning was also met with criticism in Latin America, given that it did not result in a reduction in the export of raw materials, which critics say are obtained through extractivism. This held true for all Latin American countries, regardless of their government’s political affiliation, even as centre-left governments understood their relationships with China as a renunciation of neoliberalism. China’s policies are based on the “Beijing Consensus”, a model seen as offering an alternative to the “Washington Consensus”.

The New Silk Road and China’s Cooperation with CELAC

The so-called “New Silk Road” constitutes an enormous infrastructure project that intends to connect Eurasia with Africa and Latin America via land and water. With the expansion of the purview of the Belt and Road Initiative (BRI) to include Latin America, it is set to be extended by means of a maritime “silk road” and new transport routes for goods and energy provision.

The first meeting between China and the Community of Latin American and Caribbean States (CELAC) took place in July 2014 in the Brazilian capital of Brasília. Chinese president Xi Jinping presented a co-operation plan that incorporated “three engines” (trade, investment, and financial aid) and six fields of cooperation (energy, natural resources, infrastructure, agriculture, industry, and scientific and technological innovation).

This meeting was followed by the first forum between the 33 CELAC members and China in Beijing in January 2015, which was titled “New Platform, New Starting Point, New Opportunity—Joint Efforts to Promote China-Latin America and the Caribbean Partnership”. The outcome of the forum was a “Cooperation Plan 2015–2019”. This stipulated that China would invest 250 billion US dollars in South and Central America as well as the Caribbean during this time period, allowing cumulative trade volume to double, increasing by 500 billion dollars. In the future, China would grant more credit to the region than the World Bank and the Inter-American Development Bank combined. Finally, the Cooperation Plan would change the current trade structure so that China would import fewer natural resources and a greater volume of manufactured products.

During the second CELAC-China Forum in January 2018, held in Santiago de Chile with 25 foreign ministers and delegations from 31 countries in attendance, Chinese foreign minister Wang Yi invited Latin American countries to become involved in the New Silk Road project. At the CELAC-China Forum held in Nanjing in September 2018, Head of the Department of Latin American and Caribbean Affairs at the Chinese Foreign Ministry Zhao Bentang stated that Latin America had become the second-largest destination for Chinese investment, exceeding 200 billion US dollars. Over 2,000 Chinese businesses are active in Latin America and are responsible for the creation of 1.8 million jobs. In 2018, commercial transactions between China and the continent reached 145.3 billion dollars, with exports to China increasing by 28 percent.

Political changes in Latin America, however, have resulted in some countries adjusting their position with respect to CELAC. One such example is Brazil, whose current right-wing populist president Jair Bolsonaro rejects CELAC as a centre-left project and has withdrawn Brazilian participation. Despite such developments, China is seen by the Economic Commission for Latin America and the Caribbean (CEPAL) as the continent’s second-most important economic partner after the US. In addition, China participates as an observer in numerous organizations, such as the Agency for the Prohibition of Nuclear Weapons in Latin America and the Caribbean (OPANAL), the Rio Group, and the Organization of American States (OAS). China is a member of the Inter-American Development Bank (BID), the Latin American Development Bank (CAF) and the BRICS-initiated New Development Bank. With the founding of the Asian Infrastructure Investment Bank (AIIB) in June 2015, which has since grown to include over 60 members, Latin American countries saw a possible alternative to economic institutions dominated by Western interests.

Panama: A Hub for the New Silk Road

In June 2017, Panamanian president Juan Carlos Varela (2014­–2019) announced the opening of diplomatic relations with the People’s Republic of China and the cessation of diplomatic relations with Taiwan. The “Memorandum of Understanding on Cooperation within the Framework of the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative” emphasizes that “Panama adheres to the Chinese Silk Road Initiative, enhancing its role as ‘the great connection’ with the Panama Canal”. China sees the Panama Canal as an inter-oceanic “link” on the New Silk Road.

This strengthened strategic partnership resulted in the upgrading of container transhipment ports in Cristóbal and Balboa and investment in the energy, logistics, and communications sectors. President Xi Jinping visited Panama in December 2018. A joint statement released by both governments stated that Panama would “provide China with port capacity to develop a logistical hub that will promote trade with Asia”. In addition, China would be able to construct a logistics base in the free-trade zone of Colon and would invest 20 million US dollars in the expansion of the Panama Canal.

Alongside the US, Singapore, and Japan, China is one of the key users of the canal. Panama’s current president Laurentino Cortizo, elected in 2019, initially sought to out-manoeuvre intense pressure applied by the US, which acted quickly to hinder further strengthening of ties with China. Ultimately the US was able to force Panama to cancel a number of projects and discontinue negotiations with China regarding a free-trade agreement. According to statements by the US, they were “Panama’s most important strategic partner”, and reserved the right to determine what “the country negotiates with China”. China remained unbothered.

Brazil, China, and the BRICS

Recent decades in Brazil have been characterized by extreme social and political antagonisms. Following a “golden period” of centre-left governance, these culminated in the extreme-right presidential takeover of Jair Bolsonaro in 2019. Upon taking office, Bolsonaro set about re-aligning the country with the United States. By subordinating itself to the US, Brazil has—for now at least—also turned away from its potential role as a “global player”.

China perceived Brazil to be a suitable partner and worked continuously on strengthening their bilateral relationship, for which Brazil’s role in CELAC and the BRICS states (Brazil, Russia, India, China, and South Africa) was of crucial importance. Of interest to China was Brazil’s potential: its natural commodity and water reserves, its geographic position with respect to the expansion of renewable energies, and its status as a major producer of foodstuffs. According to Brazilian data, 45.3 percent of its energy comes from hydroelectric power plants, biomass, and ethanol, making it the world leader in this regard. The country benefits from a diversified industry structure. For Brazilian companies, China is seen as being advanced in the areas of environmental and biotechnologies, precision technology, and artificial intelligence.

China’s foreign policy is distinguished by its pragmatism, and it seeks to forge international cooperation regardless of a government’s political leanings. This is evident in its dealings with Brazil following the impeachment of President Dilma Rousseff. During President Lula da Silva’s first visit to the People’s Republic, a “Joint Action Plan 2010–2014” and a “Ten-Year Cooperation Plan 2012–2021” were agreed upon.

China has invested over 25 billion US dollars in Brazil in the last 15 years, primarily in oil and gas production. The State Grid Corporation of China (SGCC) acquired six electricity companies for 1.7 billion dollars. Another focal point of Chinese investment has been the mining sector. In 2009, 56.4 percent of Brazil’s iron ore production was exported to China, while the country additionally played an active role in the development of Brazil’s heavy industry sector. In short, China has since become Brazil’s largest trading partner, accounting for almost a quarter of all Brazilian exports.

One major project is the construction of an 800-kilovolt direct-current transmission line from Altamira (in the federal state of Pará state) to São Paolo. Construction of the line is being led by SGCC in cooperation with Brazilian utility company Eletrobras. Up to 55 percent of the project’s financing comes from Brazil’s state-run investment bank BNDES, with up to 10 percent (25 billion US dollars) coming from SGCC. According to the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA), which licensed the project and set the start date for construction in August 2017, the transmission line is 2,534 kilometres long and traverses five federal states. 4,600 pylons will be built to support the line in total. Because it is a direct-current transmission line, it will not require any substations. Up to 60 percent of the materials and equipment required for the line’s construction are (to be) provided by national Brazilian companies.

This project is in line with China’s pursuit of a concrete strategy in the frame of its comprehensive “Global Energy Internet” concept, which aims to create a global energy network based on HVDC technology (High-Voltage Direct Current). This technology enables electricity generated from renewable sources to be transmitted over large distances. Deep-sea HVDC cables are capable of delivering electricity to any given point on the planet without experiencing losses. This system represents a new dimension for the New Silk Road. The handover of documents pertaining to the “completion of and transfer of operations for the high-voltage transmission line project” took place during President Bolsonaro’s visit to China in 2019.

Cooperation between the two countries also took place within the framework of the BRICS Initiative, although the importance of this initiative has diminished increasingly in recent years. Based on observer estimations, however, China remains one of Brazil’s most important economic partners despite reduced activity within the BRICS bloc. With bilateral relations already an accomplished fact, even Brazil’s current right-wing populist government must continue pursuing a close relationship with China.

The Global Perspective

Concerning China’s role in Latin America, Rio de Janeiro State University professor Elias Marcos Khalil Jabbour writes that “China is an economic power expanding its relationship to Latin America by means of the New Silk Road in a number of ways. China does not export wars, nor destructive economic concepts such as neoliberalism as the USA does, nor does it export hunger. China’s developmental activities stand in stark contrast to those of the USA. To describe China as imperialist is to draw a line of equivalence between China and the USA.”

China continues to develop its economic and political relationships with Cuba and Venezuela. An ambitious China poses a challenge to the US in its traditional “backyard”. Consequently, what is at stake for the US is the preservation of control over the region as a whole, the continued isolation of insubordinate governments such as those of Cuba and Venezuela, and the control of natural resources. In Venezuela this manifests itself in attempts to force regime change and dislodge Chinese influence. China appears to be willing—short of a military conflict—to respond to this challenge in kind.