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The Financial Express

China moves into Latin America in a big way

| Updated: October 24, 2017 08:40:13


Guo You (2nd, L), chairman of China Construction Bank's board of supervisors and Eduardo Frei (2nd-R) Chile's extraordinary and plenipotentiary ambassador to the Asia-Pacific, participate in the inauguration of China Construction Bank's Chilean branch, Ch Guo You (2nd, L), chairman of China Construction Bank's board of supervisors and Eduardo Frei (2nd-R) Chile's extraordinary and plenipotentiary ambassador to the Asia-Pacific, participate in the inauguration of China Construction Bank's Chilean branch, Ch

Latin America is not included in China's One Belt, One Road initiative, but Beijing seems to have surprised many observers by moving closer to the region to develop industrialisation and job creation for a win-win situation for all. It is not something new for Beijing's foreign policy initiatives.  The move to pursue improved ties with Latin America accelerated after President Xi Jinping came to power in 2013.
Before Xi became president, top Chinese leaders visited Latin America five times between 2001 and 2012. After Xi took over, they visited the region every year. President Xi himself visited Latin America in 2013, 2014 and again in November this year. This reflects his deep personal interest in the region.
Late last month, while addressing the Peruvian Congress, President Xi proposed: "China and Latin America and the Caribbean hold high the banner of peaceful development and cooperation, seek synergy between their development, speed up cooperation to realise their respective dreams and bring benefits to both peoples."
China has made its presence felt in that region even before it was allowed to become a member of the United Nations. Chile was the first Latin American country to recognise China in 1970 when Salvader Allende was elected president. He broke ties with Taiwan and upheld Chile's 'One China' policy.  In October 1971, Ecuador voted for restoring the lawful seat of the People's Republic of China in the United Nations even before establishing diplomatic ties. It established formal diplomatic ties with China soon after.
Xi began to earnestly promote relations with the Latin American region from the beginning. According to Li Yincai, a fellow at the Shanghai Academy of Social Sciences, Xi first proposed to build a "hand-in-hand community of common destiny" with Latin American countries in 2014. In the same year, the Forum of China-Community of Latin American and Caribbean States was officially launched and this helped upgrade bilateral cooperation into overall cooperation between China and 33 countries in the region as a whole. To handle this vast task, Chinese government created a post of Special Representative on Latin American Affairs.
CHINA'S INVESTMENT IN LATIN AMERICA: Official statistics suggest China's investment in Latin American countries reached a total of $106.1 billion by 2014. This is three times larger than that of Africa. A Hong Kong and Shanghai Banking Corporation (HSBC) report says, of the total Chinese investment, about $84 billion was absorbed by 13 countries in the region and four of the major recipients - Argentina, Brazil, Ecuador and Venezuela - received 76 per cent of it.
Chile is not among the four major recipients of Chinese investment, but it occupies a special place in Beijing's scheme of things. Chile has signed a number of free trade agreements with many South American countries and can become a gateway for Chinese businesses to access the regional market. It is an open economy and can ensure benefits for local and foreign companies. Chile's bilateral trade with China exceeds $30 billion and this is now expected to further boost bilateral investment.
Perhaps to make use of this advantage, China Construction Bank (CCB) has opened the first renminbi clearing bank in South America to speed up the process. On Chile's part, it has established a bilateral investment and trade promotion committee with many Chinese speaking employees to enhance cooperation and speedy communication.
International Director of Federation of Chilean Industry (FCI) Pedro Reus in an article referring to Chile's closer ties with China wrote that China and Chile have a lot to learn from each other and share experiences…. The two countries can realise such cooperation through exchanges among research institutions and communications in new technologies. "In future," Reus concluded, "Chile will support China's leading role in building Free Trade Area of the Asia-Pacific (FTAAP), maximise the complementary advantages of both sides and build China-Chile cooperation into a model of China-Latin America collaboration."
XI JINPING'S LATEST VISIT TO LATIN AMERICA: Xi's latest visit to Ecuador, Peru and Chile was basically to bolster China's ties with the Latin American countries. Xi was the first Chinese president to pay a state visit to Ecuador since they established diplomatic ties in early 1970s. 
China upgraded its ties to comprehensive strategic partnerships with Brazil, Peru, Mexico, Argentina and Venezuela and strategic partnerships with Chile, Ecuador, and Costa Rica between 2012 and 2015. This indicates that Beijing wants to improve existing ties and promote relations with a larger number of other countries in the region through cooperation in the fields of energy, infrastructure, agriculture, manufacturing and technological innovation for mutual benefits.
The Latin American countries suffered substantial de-industrialisation in the 1980s and now they need to develop manufacturing for exigencies including job creation and increasing exports; here China is coming handy. Li Yincai, a esearcher at the Institute of International Relations (of Shanghai Academy of Social Sciences), says that China now has "accumulated funds and capacity". China's Ministry of Commerce has predicted that China's investment may exceed $500 billion in the next five years, growing by 10 per cent annually.
This is of course not a one-sided game. As Li says, frequent top-level visits and economic diplomacy exploring emerging markets in Asia, Africa and Latin America serve to tackle China's inadequate demand and excess liquidity. Analysts point out that in the process it helped speed up domestic economic restructuring while promoting global economic growth. Increased Chinese investments created capacity to produce exportable goods and jobs in the recipient countries and boosted consumption. Similarly, it also increased markets for Chinese manufactured goods. So, both the giver and the recipients benefited. 
ARE RISKS IN SOUTH AMERICA WORTHWHILE? Commentators across the globe time and again questioned whether China's policies of investing abroad and linking global growth with the restructuring of its own economy and growth are worth the impending risks in the Latin American region. While such questions largely go unanswered by the Chinese authorities, researcher Li Yincai attempted to suggest that in the past three years, China and Latin America have been exploring new cooperative projects. This will strengthen economic cooperation and make room for more cooperation between the two sides. It will also alleviate the pressure put on China by the US-led Trans-Pacific Partnership (TPP).
While countering US-led TPP could be worthwhile for taking some calculated risks, it does not quite answer the question. Besides, with uncertainties mounting with the US President-elect Donald Trump's taking over next month, TTP's future is already in doubt. Media reports say during last year, China's investment in the Latin American region surged to $21.46 billion which was much higher compared to other regions.
Meanwhile, the Venezuelan economy is posing a serious problem for China. Reports say that it has contracted by 5.7 per cent in 2015 and inflation ballooned to 180 per cent. Besides, the government has become unstable. In addition, the construction of the China-funded $7.5 billion Tinaco-Anaco Railway project has been suspended because of debt problems. Other loans from China, estimated to be about $47 billion, are also in risk. 
This is the state of affairs only in one country in the region though details of the fate of such investment in other countries are lacking. However, if Chinese investment anywhere abroad is facing serious risks, the critical western media would have smelled it out. So, as they say, no news is good news, at least, for now.
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