Written by David Denoon.
Recent Chinese government activities in Latin America reflect part of a new and broader “Going Out” policy to have China engaged in trade, investment, diplomatic, and military actions to further its interests in a wide variety of countries on all continents.
In 2007 and 2008, China began to present itself on the international scene as an alternative “model” for growth and development as the housing and financial crisis deepened in the West. It was in this period that China began to increase its trade and investment with Latin America.
If Beijing can keep its economy on the current track and can avoid a military conflict with any of its main competitors, then, clearly, military and strategic issues will be a larger part of China’s foreign policy than at present.
The surge in Chinese attention on Latin America and the Caribbean has been remarkable. Prior to 2005, Chinese economic activity in Latin America was minimal. Since then, Chinese banks have lent over $140 billion in the region and Chinese companies have invested more than $110 billion in Latin projects.
What explains this? And what is the strategy behind these commitments?
There are three principal reasons for this surge in Chinese economic activity: (a) China has over $3 trillion in foreign exchange reserves – so it has the ability to broaden its international profile, (b) China has been looking world-wide for oil, gas, and minerals, and (c) the leadership in Beijing has concluded that the United States is no longer capable of maintaining global dominance and sees this as a good time to undercut U.S. influence wherever feasible.
What patterns do we see in Chinese behaviour and what can this tell us about Beijing’s strategy?
In addition to the dynamism of the Chinese economy, the transition from Hu Jintao to Xi Jinping has made a significant difference in China’s foreign policy. President Xi has a much more expansive and assertive view of China’s role in the world. Not only has Xi stressed the need for a broad vision to inspire Beijing’s actions through his “China Dream” references, but he now specifically advocates that China become a leading “global power” by the year 2050. If Beijing can keep its economy on the current track and can avoid a military conflict with any of its main competitors, then, clearly, military and strategic issues will be a larger part of China’s foreign policy than at present.
Right now military issues are a key component of China’s investments in infrastructure under the Belt & Road Initiative in Central and South Asia. These issues may eventually become important for China’s Latin projects as well. In the meantime, China is laying the basis for a higher economic profile in Latin America and the Caribbean.
Not surprisingly, China’s largest long-term Latin commitments are in Brazil where it has invested over $60 billion between 2003 and 2016. This is more than half of China’s overall FDI in Latin America. Peru is the second largest recipient of Chinese investment. Projects in Brazil and Peru fit the basic pattern of Chinese Latin FDI: concentrating on oil, gas, and minerals and the infrastructure to extract those resources.
Interestingly, Chinese investment in Mexico has been quite limited, only $6 billion in the 2009 – 2016 period. Chinese FDI in all the other Latin and Caribbean countries combined is less than $25 billion.
China has preferred lending to FDI in much of Latin America and has large scale lending programs in Venezuela, Brazil, Argentina, and Bolivia. Publicly acknowledged lending to Cuba has also been small, with a container port at Santiago de Cuba and golf course near Havana as the most visible examples.
Thus, China has focused on extracting energy and minerals from Latin America and carefully laying the basis for longer-term, high-visibility projects. Yet, manufacturing investment has been rare and this has led to complaints from Latin governments that China is just re-creating a dependent, resource-based economy. In 2012, Chinese Premier Wen Jiabao spoke at the Economic Commission for Latin America and the Caribbean and promised more Chinese funding for non-primary sectors but there has not been a major change in the patterns of Chinese capital flows since then. There has been some increase in Chinese merger and acquisition activity but that is still small in comparison with Chinese direct lending. It remains to be seen if Latin disappointment with the patterns in Chinese economic ventures will lead to any political counter-measures by the Latin states.
So what generalisations can we make about China’s strategy in Latin America?
First, China is pragmatic and invests more than half its funds in Latin America in energy and mineral extraction. Second, China’s Latin investments in infrastructure are in roads, ports and bridges that facilitate the extraction of desired raw materials. Third, investments in digital infrastructure are designed to put Chinese firms in a favourable position to supply internet and telecommunications equipment for decades to come. Fourth, there is definitely a political component to China’s loans and investments, but it is under-stated and comes when we see that the biggest recipients (Venezuela and Brazil) have foreign policy positions that Beijing likes. Fifth, China is now supplying small amounts of military equipment to build up its ties with Latin military establishments. However, at present, the type and quantity of equipment is not sufficient to change military balances within the region.
In sum, China sees Latin America as a source of raw materials and a location where long-term infrastructure projects are likely to yield both economic and foreign policy benefits. Because Latin America is not in China’s “Near-Abroad,” it will not receive the type of high-priority attention that China’s closest neighbours do. Nevertheless, if China can further its economic interests while, at the same time, reducing U.S. influence, Beijing sees its Latin ventures as worthwhile.
David Denoon is Professor of Politics & Economics at New York University and Director of NYU’s Center on U.S.-China Relations. He is the Editor of and a Contributor to a trilogy on U.S-China relations. The third volume in that series, China, the United States, and the Future of Latin America, was published by NYU Press in 2017. Image Credit: CC by Michael Temer/Flickr.