Chinese dragon in Latin America: China is forcing the US out of the region

In Latin America, China is conducting the policy it has successfully tested in Africa: using soft power - multibillion loans and investments – for expanding into new regions.

The last hope

Recently, the population of the Uruguayan resort of Punta del Este almost redoubled: as many as 2,500 businessmen from dozens of countries arrived there on Nov 30-Dec 2 in order to attend the 11th China-Latin America-the Caribbean Business Summit.

Just to compare, over 600 Chinese businessmen attended the Punta del Este summit against just 150 businessmen during the previous summit in Guadalajara.

Until recently, when in trouble, Latin America has appealed mostly to the United States through the World Bank and the Inter-American Development Bank. But after Trump’s victory, things got worse as the new U.S. President does not yet have a clear stance on Latin America.

The Latin Americans cannot wait for three years just to see if the Americans will elect a more tolerant president or not. So, they are looking for alternatives. And China with its huge financial and human resources is the best option.

For the Chinese, Latin America is not only the region where they can get raw materials and food. They have a much bigger goal in view: to force the United States out of the region and to establish their influence there just like they did in Africa.

At least sympathy if not love

The Chinese like Trump if not love him even though he keeps threatening them with a trade war and is reluctant to recognize China as a market economy. This is not something new to them: Trump’s predecessors were no better. What makes Trump better is his isolationism - focus on domestic policy and reluctance to take part in unprofitable economic projects.

This is good for the Chinese, who are there to fill the gaps. And one of the gaps is Latin America, where the Americans are losing ground.

In contrast, the Chinese are very active there: their President Xi Jinping has visited the region three times over the last five years.

As a result, since 2000, China’s trade with Latin American has grown by 22 times, while U.S.-Latin American trade has just redoubled. The United States is still the biggest trade partner of Latin America, but now that Trump has promised to withdraw from NAFTA and to build a wall on the border with Mexico, things may change – especially as China is already the key trade partner for Brazil, Chile and Peru.

Its trump is its money. In 2005, the Chinese invested $231mn in Latin America, in 2015, a much as $30bn. And the advantage of Chinese investments is that China does not ask anything (political concessions) in exchange. Its motives are commercial rather than political.

According to Gustavo Arnavat from the Center for Strategic and International Studies, sooner or later, China will force the United States out of the region.

Jinping has promised that by 2025, China will enlarge its trade with Latin America by a quarter of trillion USD. A few days after Trump’s victory, the Chinese published a book calling Latin America “a land of energy and hope.”

Today, Chia’s SDB and EIBC are investing in Latin America more than the WB, IADB and CAF, taken together.

The Chinese have also invested $35bn in multilevel financial platforms in Latin America. In 2015, they established new credit organizations: China-LAC Industrial Cooperation Investment Fund and China-Latin America Infrastructure Fund with respective assets of $20bn and $10bn and transferred $5bn to China-Latin America Cooperation, a fund established in 2014.

According to Margaret Myers, the director of the Latin America and the World Program at the Inter-American Dialogue, Trump’s unclear policy on Latin America will make it easier for China and some other countries to enlarge their presence in that region.

Right after Trump’s decision to withdraw from NAFTA, Mexico and China signed a car deal: JAC Motors of China has invested $212mn in the project to build a car factory in the Mexican state of Hidalgo. Its partner under the project is Giant Motors of Mexico. The factory is supposed to employ 5,500 people and to produce off road vehicles for the Latin American market.

“We don’t depend on NAFTA at all, not for exports or for supplies,” said Elías Massri, Giant Motors chief executive. “For us, this is where the opportunity lies.”

In Jamaica, the Chinese have built the so-called Beijing Highway, a road worth $730mn.

Chance to get rid of the United States’ influence

Experts from the London School of Economics point out four things that attract China to Latin America: resources, political and economic support at regional and international forums, recognition of China rather than Taiwan as the legitimate representative of the Chinese nation and new markets for Chinese goods. And one more attractive thing is that unlike Europe and the United States, Latin America does not have tough anti-corruption laws.

China is keen to promote its One China principle in the world. After his defeat in the Chinese Civil War, Chiang Kai-shek fled to Taiwan and proclaimed second China there. Ever since, China and Taiwan have been fighting for the right to be the only representative of the Chinese nation in the world. There are few countries that have diplomatic relations with both Chinas. Economic and financial power helps China in its policy to isolate Taiwan. As a result, the Republic of China (Taiwan) has diplomatic relations with just 20 countries, including Vatican. Most of them are from Latin America and this makes that region especially important for China.

Here it faces a number of barriers: local businessmen and politicians are worried to see that the Chinese deals are not absolutely transparent. And one more concern is that too heavy dependence on China may result in economic shocks: according to WB experts, a 1% fall in economic growth in China will lead to a 0.6% fall in economic growth in Latin America.

But the Latin Americans have no alternative. In spring, a delegation of Mexican mayors and governors visited China in search for investors. They may with ministers in Beijing and businessmen in Shanghai and Chengdu.

Graco Ramirez, Chairman of Mexico National Governors Conference, said that it was a good chance to get rid of the United States’ influence.

In different baskets

The Chinese do not put all of their eggs in one basket and are building a number of footholds in Latin America.

In Central America, they are the strongest in Nicaragua, where they are going to build a 300-km-long canal from the Pacific to Atlantic oceans. The contractor of this $50bn project is HKND, Hong Kong-based company controlled by Chinese billionaire Wang Jing.

The Nicaraguan canal is supposed to become a rival to the Panama Canal, to boost global trade and economic growth in China. The geopolitical aspect of this project is that Nicaragua is close to the United States.

Cuba is even closer and therefore is much more important for the Chinese. When Venezuela faced a crisis and was no longer able to support Cuba, China came in to become its biggest creditor.

In 2015, Cuba imported from China goods worth $1.9bn. Yutong buses, Sinotruk trucks, YTO tractors, Geely cars, Haier domestic appliances and many other Chinese products are gradually forcing American goods out of the Cuban market. In early 2017, the Chinese commissioned Haier factory, which is supposed to produce 120,000 laptops and tablets. In Jan 2017, China and Cuba agreed to jointly develop renewables and to cooperate in some other sectors. China has already promised to lend Cuba $120mn for new projects.

One more partner is Ecuador – the fourth biggest borrower of Chinese loans ($7.5bn, according to the Inter-American Dialogue). There the Chinese are interested in energy and oil. Their Sinopec is very active there and gets have of the Ecuadoran oil in exchange for its money.

In the south, China is active in Argentina, who has gone through two crises over the last 15 years and will readily accept money from China. Over the last years, the sides have signed 35 agreements and contracts in very different fields.

Brazil is also facing hard times and here too China is active. Chinese Prime Minister Li Keqiang visited Latin America in May 2015 and promised the Brazilians $50bn in credits and investments. The Chinese are interested in Brazilian good and mineral resources. Their Sinopec owns big stakes in a number of local oil companies.

The biggest borrower of Chinese loans in Latin America is Venezuela: over the last decade, it has borrowed $65bn, according to the Inter-American Dialogue, or almost half of all credits given to Latin America. The last loan was provided in Aug 2015. In exchange, the Chinese get 700,000-1,000,000 barrels of cheap oil a day. Under Chavez, the Chinese-Venezuelan trade grew by 100 times from $183mn in late XX to $20bn at present.

The best things about Venezuela for China is that it is the world’s oil richest nation (its crude reserves are estimated at $15 trillion) and is the United States’ enemy.

Over the last two decades, China and Venezuela have concluded almost 500 contracts and agreements, with the Chinese getting almost all the cream in this partnership.

On Nov 27, Sinopec’s Venezuela-based subsidiary, Bariven, asked the court of Houston to oblige its Venezuelan partner, PDVSA, to redeem losses worth $23.7mn. The Chinese say that they have received just half of what they were supposed to receive for the 45,000 tons of steel supplied under a contract signed in 2012. The suit was filed exactly at the time when Venezuela faced a new cut in its currency reserves and wants its debts to be restructured.

They be able to come to terms

Russia has also gained strength in Latin America over the last 15 years. The Russians supply the Latin Americans with arms. Since 2000, they have sold them weaponry worth $15bn.

They have replaced Venezuela as Cuba’s key oil supplier and have written off Cuba’s $32bn debt. They are building a satellite tracking station in Nicaragua and are going to restore Cuba’s parliament building.

According to Evan Ellis from the Center for Strategic and International Studies, both China and Russia are active in Latin America, simply, China is using soft force while Russia is acting more toughly.

Their interests may intercross but both nations are wise enough to be able to solve such problems.

Sergey Manukov