Bloomberg Línea — “A new era” is how China’s President Xi Jinping described the relations between Beijing and Latin America during his participation in the Community of Latin American and Caribbean States (CELAC) meeting last September in Mexico City. Wearing a red tie, a dark blue suit and a giant picture of the Great Wall of China as a backdrop, Xi used his video speech to describe the relations between the two sides as a renewed friendship of “mutual benefit”.
His words illustrated once again China’s growing interest in Latin America, which has manifested itself over the last decade and has made the Asian giant the main export destination for at least four of the region’s major economies: Brazil, Peru, Chile and Uruguay.
But that growth is not taking place in a vacuum, as China seeks to overtake the United States as the leading global economy and forge economic ties with several nations through trade, investment and even loans from state-owned Chinese banks.
After years of watching Beijing’s growing presence in the region, Washington has taken note, to the point that President Joe Biden launched, during the Summit of the Americas in June, a strategy to counter Chinese investments that have multiplied across the continent.
However, in the long term, the outcome of the bidding war is not clear, to the point that, in 2035, there could be a series of scenarios in which both countries compete very closely to be the region’s main trading partner, according to analysis by the Atlantic Council, a US think tank.
China’s rise
While the US currently dominates as Latin America’s export destination, the possibility of China taking the lead is feasible, judging by the trend of recent years. China’s share as a destination for Latin American exports has doubled since 2010, according to research by Bloomberg Línea based on data compiled by the International Trade Centre (ITC), an agency that operates under the auspices of the United Nations and the World Trade Organization.
At the beginning of 2010, China accounted for only 7.7% of Latin America’s total exports. Last year that share had jumped to 14.2%. However, the trade relationship with the United States is still much larger, closing 2021 with a 41.7% share, up slightly from 36.6% in 2010.
Latin American countries went from exporting a total $68 billion a decade ago to sending the equivalent of $170 billion in goods to China, according to the ITC. Meanwhile, exports to the United States grew from around $323 billion in 2010 to around $498 billion last year.
China has also narrowed the gap on the import side. While shipments purchased from the United States have remained at close to a 30% share, those from China have gone from a 14% share of total Latin American purchases in 2010 to 20.8%, according to ITC estimates.
“Latin America and the Caribbean have benefited and can continue to benefit from trade and investment ties with China,” according to Pepe Zhang, associate director and fellow at the Atlantic Council. “Geopolitically and economically, the bottom line for the region is that the cost of not integrating with China while everyone else in the world did, including the US, would have been enormous, while and China’s growing presence offers an opportunity for diversification.”
But the trade relationship is not the only factor illustrating China’s rise in the region.
As of March 2022, 20 Latin American and Caribbean economies were part of the Belt and Road Initiative, a strategy at the center of Xi Jinping’s foreign policy that was launched in 2013 with a project to unite the Eurasia region through infrastructure projects, but which has expanded to other sectors and regions.
According to the Atlantic Council, in 2017 Beijing had already formalized Latin America and the Caribbean “as a natural extension” of this initiative. The CELAC-China Cooperation Plan, signed two years earlier, already spoke of investing $250 billion in the region over the next decade.
China’s influence in the region is also evidenced by the loans and financing granted by the Asian giant’s commercial and state banks. Argentina, Brazil and Peru are the main economies in the region that are the largest recipients of commercial loans, according to a tracker by think tank The Dialogue.
Loans are concentrated in the energy and infrastructure sectors, with Chinese banks ICBC, Bank of China and China Construction Bank as the main lenders.
If we analyze the so-called ‘policy banks’ created by China’s State Council in 1994, Venezuela, Brazil and Ecuador are among the three main borrowers. The country governed by Nicolás Maduro is the beneficiary of 17 loans from Chinese banks, totaling $62.5 billion, according to The Dialogue’s compilation.
Once again, the energy and infrastructure sectors are the main recipients of the funds.
But not everyone looks favorably on these figures.
For Shannon O’Neil, vice president and deputy director of research at the Council on Foreign Relations, Chinese financing can often be opaque and the terms onerous if debtors delay.
“Chinese investment is first and foremost commercial, focused on expanding the reach and revenues of its companies, banks and manufacturers in search of new consumers and markets. There is a geopolitical angle in some areas, though largely in securing access to raw materials and other goods,” she says.
The doors opened by Covid-19
The pandemic also helped reshape relations between the region and China and the United States. According to consulting firm Bridge Beijing, as of July 11, Latin America has received the second largest amount of Chinese vaccines, with the donation of 12 million doses and the sale of 396 million doses.
In addition, Chinese vaccine developer Sinovac has sold 230 million doses to eight Latin American countries out of the 848 million vaccines it has marketed worldwide. The company has also announced the construction of plants in countries such as Chile, Colombia and Ecuador.
A study by the Atlantic Council concludes that the pandemic opened doors to more opportunities, both for China and the US, in their aims at deepening trade relations with the region.
“US and Chinese Covid-19 vaccine assistance and diplomacy are part of a broader trend in the triangular relationship,” the study states. “The proximity of Latin America and the Caribbean means that the United States will always have an interest in the health of the hemisphere. China’s growing global reach means it will not ignore an entire region that possesses considerable resources.”
The United States, for its part, has donated more than 565 million vaccine doses worldwide. Of these, as of July 18, nearly 60 million have gone to Latin America and the Caribbean.
The US reaction
But the vaccine donation has not been the only US reaction to China’s growing interest in the region.
The loans and investments of the Belt and Road Initiative have caught the attention of a country that in 2020 was close to becoming the main source of foreign direct investment (FDI) in Latin American countries.
According to figures from the Economic Commission for Latin America and the Caribbean (ECLAC), European companies were the main investors in the region during the last decade, to the point that, before the outbreak of the pandemic, they accounted for more than half of FDI inflows into the region. By 2020, that proportion fell to 38%, very close to the 37% of the United States, after growing 10 percentage points over the decade.
Investment announcements for that year, according to ECLAC, were dominated by US companies. That country is also the main origin of FDI coming into Brazil, the largest economy in the region. US investment in Brazil grew by 35% and accounted for 32% of the total FDI in the country during the period analyzed.
Something similar happens with Mexico, which has the second largest GDP in the region, as in the first year of the pandemic, investment from US companies reached 37.1% of total FDI received.
The United States intends to boost these numbers with the Partnership for Economic Prosperity in the Americas, a roadmap unveiled by President Joe Biden at the Summit of the Americas in June.
Although the plan did not specify an amount of investment, its aim is to rebuild “economies from the bottom up”, while seeking to revitalize regional economic institutions, improve supply chains, create jobs with investments in clean energy, and ensure sustainable and inclusive trade.
“It is definitely a fact that China has been trying to invest direct resources to try to get more control of the political and economic systems of countries in South America and Central America. But what we saw at the Summit, which is really something that is important for citizens throughout the region in the hemisphere to understand, is that the heads of state of the countries in the Caribbean, in Central America, in South America, want to have a stronger alliance with the United States,” according to Debbie Mucarsel-Powell, a White House advisor.
For O’Neil, China’s investments and trade with the region have a double edge, because although they have been mutually beneficial, as they have given resources to Latin American governments, in the commercial exchange, “China returns imports of manufactured products that undermine Latin American industries and their potential for higher value-added production and long-term growth”.
Mucarsel-Powell added that China is always asking for “something in return” while “the United States does not do that”.
To back up her argument, she pointed to announcements such as the Development Finance Corporation to support development projects with $10 billion, and the Regional Migration Agreement to stabilize migrant flows in the region.
During the Summit of the Americas in June, Vice President Kamala Harris announced investment commitments of $1.9 billion for northern Central America, adding to the $1.2 billion announced in December 2021 in private sector commitments from companies such as PepsiCo, Nespresso, MasterCard and Microsoft.
However, Zhang told Bloomberg Línea that most countries in the region do not want or need to choose between the US and China, but rather intend to work with both in areas that advance their own national interests.
The analyst aded in an article, co-authored with Chilean former finance minister Felipe Larrain, that the region should have a “forward-looking approach” so that it can work with both powers in areas of shared interests and more so in the context of the post-pandemic recovery when “all available external sources of growth and support” will be needed.
Translated from the Spanish by Adam Critchley
