A Trojan horse?: China in Latin America

The Chinese presence in Latin America has blossomed since the 1990s, from iron mining in Peru to multi-million dollar oil deals with Argentina. The long-term considerations of the region’s best interests, as China acquires ever more of its natural wealth, is an urgent question.

Jessica Sequeira
4 August 2014
Xi Jinping

Xi Jinping. Demotix/Gregor Fischer. All rights reserved.

Chinese president Xi Jinping’s recent tour of Latin America saw him pose for hundreds of selfies with Venezuela’s president, accept a personalised sky-blue football jersey from Argentina’s vice president (apparently in high spirits despite being on trial for corruption charges), and make carefully calibrated comments when asked about debt restructuring and political philosophy.

In the meantime, he pushed through a US$11 billion currency swap with Argentina and a US$4 billion oil deal with Venezuela, in addition to solidifying policies confirming his country as the primary consumer of Brazilian soy. Since the 1990s, the Chinese presence in the region has been growing. Initial forays into iron mining in Peru, forest clearing in Chile, and fishing in the South Atlantic have expanded to multi-million dollar deals with oil companies in Argentina and Brazil.

The local perception is that China is an unstoppable giant disinterestedly working for its own economic growth, acquiring along the way ever more of Latin America’s natural wealth. The protocol repeats itself in country after country: China arrives with a smile on its face and money in hand, and is welcomed with open arms. But long-term considerations of how to ensure that these countries' best interests remain respected as they supply raw materials to China remain pressing.

The self-interest of altruism

China’s increased investment in Latin America has much to do with its own turbulent history. After Mao Zedong's death, Deng Xiaoping led the country from 1978 to 1992, implementing reforms that smoothed the transition from communism to a more open ‘market socialism’ (or, as this was referred to officially, “socialism with Chinese characteristics”). A middle class emerged, interested in stability and a better economic future for itself and its children. Yet Deng continued to emphasise the importance of national self-reliance in industry, and state-controlled companies continued to operate under government control.

Faced with an ever growing population which increasingly concentrated itself in urban areas, along with a shortage in production, policies began to change under the successive leaderships of Jiang Zemin, Hu Jintao, and Xi Jinping. In the 1990s under Jiang, China’s founding ideology shifted from one emphasizing protection of the peasant worker, to one working on behalf of the ‘vast majority’, involving a rethinking of state-owned enterprises.

Under Hu’s leadership, the 2000s were another decade of economic growth, now with a marked technocratic style. Domestic development intensified, and cities in the south of China became test sites for economic reform. At the same time, the outlook began to grow more international. Chinese state agencies actively searched for investment opportunities abroad, organising themselves much like private companies.

Xi, who assumed the presidency in 2013, coined the "Chinese Dream" slogan to encourage individual aspiration and self-improvement, and retained the focus on international investment as a key to economic development. China may currently have a centralized, nominally communist government, but it has come a long way since the 1970s. This is all deeply reflected in its increasing interest in doing business with Latin America.

A helping hand

The countries with which Xi is conducting business are hardly in an ideal position to negotiate. On 14 July, Xi attended a summit of BRICS countries (Brazil, Russia, India, China, and South Africa) in Fortaleza and signed 56 cooperative accords with Brazilian president Dilma Rousseff. Brazil could use the help. Despite serving as World Cup host, the Brazilian economy is entering a recession. Growth has slowed, industrial output fallen, and inflation risen since Rousseff took office in 2011.

Meanwhile, Argentina continues to battle its ‘vultures’, the speculative US hedge funds that bought up the country’s bonds for rock-bottom prices after its 2001 default, in the expectation of receiving future profits from inevitable litigation following a rejection of debt restructuring. In the current atmosphere of “all that is solid melts into air”, in which terms like inflation and default are subject to semantic debate, the concreteness of the 20 bilateral commercial agreements between the Kirchner and Xi governments comes as a relief. The money will be used to build infrastructure: US$4.7 billon for two hydroelectric dams in Santa Cruz, US$2.5 billion in credit for new tracks, engines, and wagons on the Belgrano train line (a political trigger point, as the tragic crash at Once train station two years ago remains sensitive in the national memory), and a three year US$11 billon credit swap to reinforce Central Bank reserves.

A few months ago, Venezuela saw hundreds of thousands of people take to the streets to protest rising inflation and crime. Opposition leader Leopoldo López is being held in jail until his trial starts next month. But this week President Nicolás Maduro signed a dozen agreements with China that affect energy, satellite technology, infrastructure, hydrocarbons, mining, transport, agriculture, and finance. Venezuela is China's biggest creditor in the region, and will pay back its more than US$30 billion in loans from China with petroleum products through state-owned company Petróleos de Venezuela (PDVSA).

Cuba was the last stop on the Chinese president’s tour. Because of the US commercial embargo and lack of access to international financial organizations, Chinese help is especially important. Cuba has largely replaced aid from the former Soviet Union with aid from Venezuela, but it has grown increasingly dependent on China. Xi was shown investment opportunities around the country, including in the zone of Mariel, 45 kilometers west of La Habana, built to attract foreign companies.

From his retirement, the 87-year-old Fidel Castro opined that the recent tours of the region by Chinese and Russian delegations were “one of the greatest achievements in human history.” Castro is a known supporter of the Chinese approach, and his 2008 economic reforms were supposedly inspired by their Asian counterpart. His successor Raúl Castro has pushed international trade relationships, inaugurating Mariel in January and in June passing a law encouraging foreign investment. Cuban communism is a different beast entirely from Chinese communism, of course, but that did not seem to matter during Xi's visit, when 29 new agreements were signed.

Future dependence

What does China expect in return for all this largesse? In his 1925 analysis of social networks in Polynesian societies, The Gift, the French ethnologist Marcel Mauss put forward his famous thesis regarding gift economies. Giving a gift can be a mixed blessing, for not only does it build up the positive reputation of the giver and serve as a display of power, it also creates an obligation on the part of the recipient to return the gift with something of equal or greater value. “Pure gift? Nonsense!”, Mauss declared.

A gift economy underlies the international trade agreements between China and Latin America. Easy credit and relatively relaxed demands for long-term loan repayment may seem like a godsend, but in truth they simply point to China’s confidence about its position in the region. Concerns have been raised regarding the relationship. Venezuelan opposition candidate Henrique Capriles has complained about the way funding from China is allocated, for instance, criticising President Maduro for increasing debt to China for what appear like unnecessary projects.

Politicians, academics, and members of the public have expressed a broader unease over dependence on China, particularly regarding the environmental impact of supplying raw materials. Non-conventional methods of gas and petroleum extraction such as fracking in Argentina's Vaca Muerta shale oil reserve in Neuquén province have become a political flash point. But few viable alternative funding sources are being proposed.

China is not the only country outside the US and Europe with which Latin American countries are conducting deals. The tiny country of Singapore, which imports almost all its raw materials, has expressed an interest in investing in Argentina, especially in its unconventional petroleum products. And Putin paid a visit last week to Cuba, Nicaragua, Argentina, and Brazil, where he signed a number of commercial agreements and attended the BRICS conference.

It is China, however, that enjoy’s the tiger’s share of influence. Currently it is the largest commercial partner of Brazil, Chile, and Peru, and second largest in Mexico and Argentina. Its spending power means that it is able to act with the benevolence of a kindly uncle, an image the widely disseminated image of a smiling Xi beside a series of South American presidents has reinforced. But there are no blood ties here. The Chinese government comes bearing gifts, and in stark contrast with creditors in New York and Europe, they impose hardly any pressure and for the moment ask little in return - so little, in fact, that Latin American countries have every right to be wary.

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