It is no secret that Latin America is a priority for China. After a decade in which state visits have occurred continuously on both sides of the Pacific and bilateral trade has soared, the Asian giant now wants to strengthen its presence in the subcontinent and become a key player in its development, not only economic but also political.
The next step in the process of approximation to the region is the ministerial forum between China and the Community of Latin American and Caribbean States (CELAC), to be held in Beijing on Thursday and Friday.
This new multilateral platform was hatched last July during the last visit of the President Xi Jinping to the region and China is a channel for dialogue with 33 countries without the US presence.
“The forum strengthens and expands our dialogue with China as a global power and second world economy. We have a shared desire to promote initiatives in areas such as political dialogue, attracting investment and promoting trade and tourism for the benefit of the region as a whole,” says Julian Ventura, Mexico’s ambassador to China.
The meeting will plan cooperation between China and the CELAC for the period 2015-2019, for which China will provide up to 35,000 million dollars through several funds to finance infrastructure and development projects in the region.
The conditions for granting these loans and their fate will also be one of the major issues to be discussed at the meeting: “We want that investment is not directed only to the exploitation of natural resources, but also oriented towards areas such as industrial development or knowledge,” says Juan Miguel Miranda, head of Chancery of the Embassy of Peru in China.
While bilateral trade between China and members of the CELAC was almost 10-fold in a decade – Beijing is the second largest trading partner in the region behind the United States with a volume of 260.000 million –, the pattern continues still the same: Latin America sells raw materials and energy resources and the Asian giant sends manufactures. China aims to double this figure to 500,000 million in the next decade.
“We have to make many efforts to achieve this goal, since trade is not growing as much as in previous years due to the economic crisis,” notes Xu Shicheng, a researcher at the Latin American Institute of the Chinese Academy of Social Sciences (CASS) .
Ecuador, Venezuela, Chile and Peru are among the countries with a strong trade dependence on China, which has been evidenced after the slowdown in the second economy, the falling prices of commodities, especially oil.
Despite the trade imbalance, China boasts maintain relations with the region “based on equality, mutual benefit and inclusion“, explained at a press conference Qingqiao Zhu, director general of the Department of the Ministry of Chinese Foreign Affairs for Latin America and the Caribbean.
He also encouraged the countries of the CELAC to “actively use the 35,000 million dollars that China will provide, including Central American nations that have not officially established diplomatic relations with Beijing, but with Taipei: “All members of the CELAC can use of these funds,” he said.
Xi Jinping will be asked to deliver the keynote address at the conference, led by Chinese Foreign Minister Wang Yi, Commerce, Gao Hucheng, and the President of the National Development and Reform Commission, Xu Shaoshi.
The presidents of Costa Rica, Luis Guillermo Solis, and Ecuador, Rafael Correa, will be accompanied by a dozen foreign ministers from across the region. All of them announced their presence at last minute. Another participant at the meeting is Venezuelan leader Nicolas Maduro, whose arrival in Beijing is interpreted as an attempt to get another line of credit to help Chinese revive an economy suffering from plummeting prices crude.
Chinese monetary diplomacy
The list of countries who have come to China for financial support in recent months is long and growing. Argentina, Venezuela, Russia, Ecuador …
All seek in Beijing the funds denied in capital markets and opt for sealing a strategic and political alliance with China rather than ask for a help from International Monetary Fund (IMF).
“China is determined to take advantage of the gap that is leaving the Fund to weave a strategy of long-term partnerships based on their own interests,” says Miguel Otero-Iglesias, a researcher of International Political Economy at the Elcano Royal Institute.
According to data compiled by Bloomberg, China has led 2,3 billion in loans to Argentina since last October, has signed a currency swap program of 24 billion with Russia, has provided 47 billion to Venezuela since 2007 and just offered 5,3 billion in loans to Ecuador.
The objective of this aid is not the commercial profitability, Otero-Iglesias says, but to create a system of long-term partnerships, using the full potential offered by its economy tactics.
This is what Yang Jiang, professor of Copenhagen School of Economics, has called China’s monetary diplomacy, a possible strategy strengthened by nearly four billion dollars in international reserves controlled by the People’s Bank of China and that constitute the world’s largest pile of cash.
According to Jiang, the countries of the Security Council of the United Nations that have larger reserves in yuans in their central banks vote in the same direction as China during official consultations.
The granting of aid is not correlated with trade relations, as demonstrated by the case of Latin America, remembered Alicia García-Herrero and Carlos Casanova from BBVA Research.
Venezuela accounted for just 8% of trade between China and Latin America between 2005 and 2013, however, garnered 50% of its lending to the region. The opposite happens with Mexico, second trading partner of China in Latin America and only received 2,4 bilion.
“China has learned the lessons of the past. It is the same strategy that used in 1971 to enlist the support of African nations and secure access to the Security Council of the United Nations” they explain.
From there to threaten the status of the IMF is a stretch. “China’s tactic never goes to checkmate the king,” said Otero-Iglesias, author of The Euro, the dollar and overall the financial crisis.
“The Fund has made everyone back their loans in order to have preferred creditor status. Nobody has defaulted to the IMF, not even Argentina. We’ll see if China achieves the same, by holding international financial sources.
China also favors the use of its currency, the renminbi, which already has become the seventh most used currency in global payments.
To date it has signed exchange agreements with thirty countries, including the UK and Australia, and aims to achieve inclusion of the yuan in the basket of currencies that make up the Special Drawing Rights.
The Fund reviews yearly the composition of the basket, which now includes the dollar, euro, yen and pound. But judging by most experts, China will have to wait.
Beijing rescues Venezuela with 17 billion euros
Venezuelan President Nicolas Maduro, arrived in China in order to get fresh money to weather the enormous difficulties facing the Venezuelan economy.
After the first two days of work in China, where he met many businessmen and President Xi Jinping, Maduro announced that it has closed investments worth more than 20 billion dollars, including money for an energy project, industry and development in Venezuela.
This time, however, the traditional ceremony of signing of agreements between the two presidents was held. It was also unclear if among these 20 billion China has granted a new credit line that feeds some of the mechanisms of bilateral financing or if it is just about trade agreements.
Since 2007, China has become the largest lender in the country, with contributions worth more than 47 billion dollars only in the form of loans. The cash impacted infrastructure projects in areas such as energy, housing, transport and telecommunications. Venezuela pays these loans by sending 524,000 barrels of oil, an amount that is expected to increase significantly in the coming years.
The trip taken by Maduro was interpreted as an attempt to unlock a new loan from China, which seems to have taken place.
While at the meeting, China advocated to “strengthen financial cooperation” with the Latin American country, he also gave a warning to Maduro: “I hope Venezuela makes good use of these funding mechanisms that are channeled to invest in energy projects, mining, agriculture and industry,” Xi said, quoted by the official news agency Xinhua.
Referring to the agreements, Maduro said that the Chinese capital “will continue to expand its stake in the Venezuelan oil business” and that new joint projects in the Orinoco Oil Belt will be held. He also claimed to have closed investments for the construction of public housing.
The Venezuelan president and his entourage spared no effort to try to convince local businessmen that the economy is sound and is in the midst of a process of adaptation that should allow it to be less dependent on oil exports.
Through Twitter, ministers who accompanied the president praised the “excellent results” of meetings and ensured that the Chinese investors hold “full confidence” in Venezuela. Maduro went further and said that “there is an international conspiracy to try to show Venezuela as a broken country.”
The Venezuelan leader attend today the opening ceremony of the first ministerial forum between the foreign ministers of China and the Community of Latin American and Caribbean States (CELAC) next to Hu, Xi, and the presidents of Costa Rica and Ecuador, Luis Guillermo Solis and Rafael Correa.
The latter also met with Xi yesterday, with whom he signed several bilateral agreements. In addition, China granted loans to Ecuador that amount to nearly 5,3 billion as well as the elimination of tourist visas between citizens of both countries.
In the year of the 35th anniversary of the establishment of diplomatic relations, Xi said bilateral ties “are currently in their best historical record” while Correa defined it as a fraternal relationship: “We are among brothers.”
Fast-paced investment in Latin America
In the past 15 years, the relationship between China and Latin America has been nurtured mainly by trade.
Both sides have found the perfect client on the other side of the Pacific -one for raw materials and energy resources, and another for its manufactures
Investments, however, have not experienced the same growth rate, something that China has proposed to change as part of the new strategy that will define relations with the region over the next ten years and that the Chinese leadership began to articulate Thursday.
Chinese President Xi Jinping, set the tone for this new approach to the Latin American market. In his opening speech of the first ministerial forum between China and the 33 countries of the Community of Latin American and Caribbean States (CELAC), he announced a new investment spree in the region amounting to 250 billion dollars in the next decade.
This would, on average, provide about 25 billion annually, a figure well above the 10 billion that Asian giant companies have paid each year since 2010 in these countries, according to figures from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).
Currently only 4.1% of direct foreign investment of Chinese enterprises lie in the region.
“In the next five years, China will continue to maintain a pace of medium-high growth, which will bring more opportunities for other countries, including Latin American and Caribbean,” Xi said. He also who predicted that the evolution of the relationship between both parties “will have a major impact on the promotion of cooperation and global prosperity“.
Xi also urged delegations to work towards doubling the bilateral trade volume to 500 billion dollars over the next ten years.
Of the two-day meeting that started Thursday representatives will plan cooperation agreements between China and CELAC until 2019. A document is expected to be created that will describe concrete bilateral financing funds projects in the region.
China has already announced in July last year that it would provide 35 billion dollars to be invested in six priority areas: energy and natural resources, infrastructure construction, agriculture, manufacturing, innovation and information technologies and communication.
“This is a relatively peaceful and stable region and has extensive natural resources and energy. No wonder China bet in this direction, especially taking into account that some countries need investment and loans,” says Xu Shicheng, researcher at the Latin American Institute of the Chinese Academy of Social Sciences (CASS), .
Indeed, China is already the second largest trading partner in the region after the United States and a key to the economies of many nations.
Perhaps, China’s involvement in Latin America is already more significant than what the United States is doing. In addition to Venezuela signing deals worth 20 billion with several local companies, Ecuador obtained a credit line of nearly 5,3 billion dollars from a Chinese institutional bank.
On Thursday, the Latin American heads of state present at the meeting -Maduro, Rafael Correa and Luis Guillermo Solis rated the multilateral meeting as “historic” and advocated for a growing integration with Beijing.
“China has established itself as the emerging great power and is demonstrating that it is possible to be so without imperial and hegemonic pretensions. This is a unique opportunity and must be evaluated,” Maduro said in his speech.
Correa, for his part, said that China “has proven its economic and political capacity to assume the role of investment partner in Latin America” and urged the representatives of the participating countries to making early “concrete, measurable goals and budgets committed to realistic deadlines.“