China’s Fall 2016 Latin America Charm Offensive

China’s Fall 2016 Latin America Charm Offensive

October 19, 2016 | Dr. R. Evan Ellis

In recent months, the People’s Republic of China has successfully faced and largely overcome a significant crisis in its relationships with Latin America, even while the United States, as it approaches the upcoming presidential election, plunges into a new phase of uncertainty in its own relationship with the continent.

Although it has not been widely recognized in the U.S., the number of bilateral and multilateral diplomatic activities since August, through which the PRC has addressed challenges and pursued opportunities in its relationships with Latin America, is striking.

On September 4, Chinese President Xi Jinping hosted a broad array of world leaders in Hangzhou, China for the summit of G-20 nations.  Although coverage of the event in the U.S. focused on perceived slights to President Barack Obama, such as not providing the standard staircase for him to exit Air Force One, the event also provided important first opportunities for Argentine President Mauricio Macri, Brazilian President Michael Temer, and Mexican President Enrique Pena Nieto to meet with President Xi.

On September 13, Peruvian President Pedro Pablo Kuczynski traveled to the PRC seeking Chinese investment, and preparing the way for the anticipated trip by President Xi in November.

On September 24, 2016, Chinese Premier Li Keqiang visited Cuba en route to the United Nations General Assembly session in New York, signing some 20 agreements with the Cubans.

From October 3-9, 2016, Chinese Foreign Minister Wang Yi traveled to Latin America, visiting Ecuador, Bolivia, Chile and Peru.

On October 15, China, Brazil, Russia, India, and South Africa met at the 8th BRICS summit in Goa, India, further putting to test the degree to which the pro-Western Brazilian President Michel Temer will continue his nation’s cooperation with China and Russia in a forum born as a political and economic contraposition to Western institutions.

Finally, China’s Fall 2016 Latin America “charm offensive” will culminate with a trip by President Xi Jinping himself to the region; it is believed he will make stops in Ecuador and Chile, and possibly Bolivia and Peru, where he will attend the Asia-Pacific Economic Cooperation (APEC) leaders summit.

Significant Challenges in the Relationship

To understand the significance of China’s relationship with Latin America, it is important to review a breadth of concerns faced by the PRC in that relationship over the past year.

In July 2016, I had the opportunity to speak with a number of Chinese colleagues while on a two-week trip to that country and was struck by the degree to which China’s key relationships across the region all seemed to be unraveling at once.

  • In Venezuela, where the Chinese had loaned more than $65 billion during the previous ten years, the pro-PRC regime of Nicholas Maduro seemed to be at the point of implosion.
  • In Cuba, the Castro regime had unexpectedly launched a course of diplomatic rapprochement with the United States in 2015 that could possibly lead to the dropping of the U.S. economic embargo against the island and a dramatic change of its position in the Caribbean.
  • In Guyana, a change in leadership had put in jeopardy more than a billion dollars of project work that Chinese companies had landed with the previous government.
  • In Mexico, although the government of Enrique Peña Nieto had initially seemed more disposed to pursue business with the Chinese than his predecessor Felipe Calderon, within the span of a few months, the Mexican government cancelled a $3.75 billion high-speed railroad project earmarked for a Chinese company, not once but twice.  The government also blocked a major China-oriented wholesale-retail complex, “Dragon Mart,” on environmental grounds.
  • In Peru, the June national runoff election was won by Pedro Pablo Kuczynski, a U.S.-trained, free-market oriented economist.
  • In Ecuador, President Rafael Correa, to whose government the Chinese had extended approximately $11 billion in loans since 2009, announced that he would not run again for office when his term expired in 2017.
  • In Bolivia, pro-Chinese President Evo Morales lost a referendum in February aimed at changing the constitution to allow him to run again for re-election when his own term expires in 2020.
  • In Brazil, the pro-China government of Dilma Rousseff was facing almost certain impeachment.  It was not clear whether Brazil would be consumed in social chaos in the wake of the impeachment and if not, whether Acting President Michel Temer would continue Brazil’s special relationship with China.
  • In Argentina, Mauricio Macri had been elected president in October 2015 and had put tens of billions of dollars of projects with China “on hold” while the government reviewed them.  Those projects included fighter aircraft, ships and armored vehicles; a space radar facility in Neuquén; two nuclear reactors; two large hydroelectric facilities on the Santa Cruz river; and the modernization of Argentina’s most significant train infrastructure, the Belgrano-Cargas line.  The March 2016 sinking of a Chinese boat illegally fishing in Argentine waters further created uncertainty within the PRC regarding the message that the new Argentine government was sending to China.

In short, from the north of the Latin America to the south, China’s business and political relationships with the continent seemed to be coming apart.

What a difference a couple of months make.

Working Through the Challenge

As three major governments in Latin America turn back toward the “center right,” each has, in the past months, affirmed their desire to work with the PRC, albeit in a less statist – and probably more reliable – fashion.

  • Argentina has reaffirmed its strategic partnership with China, as well as its commitment to virtually all of the major projects agreed to by the prior government of Cristina Fernandez de Kirchner, except for the arms purchases, including the hydroelectric projects on the Santa Cruz River, the construction of two nuclear reactors in Argentina’s Atucha complex, and the space radar facility in Neuquén.
  • For Brazil, the G20 summit in Hangzhou provided an opportunity for President Temer to express his willingness to continue its special business relationship with China in areas such as petroleum, iron, and soya exports. The dissipation of protests by supporters of Temer’s impeached predecessor Dilma Rousseff is a positive sign for China that, so long as ongoing corruption investigations into the new leadership do not destabilize the government, the country will move beyond the political crisis and continue as a stable business partner for the PRC.  Nonetheless, the legacy of the broad “Car Wash” corruption scandal and associated ongoing investigations will make it politically difficult for the Brazilian government to move forward on a major public procurement project with Chinese companies in the coming year.
  • Peruvian President Kuczynski, during his trip to China, affirmed his government’s interest in continuing to expand Peru’s trade and investment relationship with the PRC, even while suggesting that the flagship project of a train connecting the Atlantic and Pacific coasts of the continent, from Peru to Brazil, might be financially unviable.
  • Even Mexican President Peña Nieto, whose country’s relationship with the PRC soured considerably following two consecutive cancellations of Chinese participation in the Mexico City-Queretaro high-speed rail project, re-launched Mexico’s relationship with the PRC on a positive footing in Hangzhou, with the important but little noticed formal establishment of a $1.2 billion China-Mexico fund and its first acquisition of the energy company Citla for $140 million.
  • In Cuba, where the PRC was arguably taken by surprise by that nation’s diplomatic rapprochement with the U.S., the Chinese succeeded in expanding their commercial projects in the country to include construction of four thermoelectric plants and construction work to improve the Port of Santiago.  During last month’s visit to Cuba by Chinese Primer Li Keqiang, the two countries signed some 20 cooperative agreements, further reinforcing both the PRC economic and political relationships with the country.
  • In  Venezuela, the Chinese wisely deferred the Maduro regime’s requests for more loans and the re-negotiation of existing ones, while hedging their bets by expanding their dialogue with key opposition figures.  At the same time, Chinese officials also continued to coordinate with the Maduro government, holding a meeting of the high-level mixed committee in August.  The Chinese wait-and-see strategy seemed to be paying off, with the PRC having maintained its positive relationship with the Venezuelan government and its dominant position in the Venezuelan oil sector, without deepening their debt exposure or accepting postponed repayment.  With PdVSA’s restructuring of bond payments coming due in November, and the Maduro government’s delay of the recall referendum until after January 2017, the country seemed on track to make it through the end of the year – barely – without collapse.  If Venezuela replaces Maduro with his pragmatic vice-President Aristóbulo Istúriz, there is the promise of more rational economic policies and an environment where the Chinese could continue to do business.
  • In Ecuador, where the anti-U.S. government of Rafael Correa has arguably used Chinese funds in a relatively effective, rational fashion to construct hydroelectric facilities, build roads, and maintain oil production, the PRC provided $2 billion in new financing, showcasing the importance of  the small country’s  good relations with the PRC. Chinese oil companies have benefitted substantially from the Ecuadoran government’s opening of the once protected Yasuni national park to oil drilling with significant subcontracts to the Chinese oil company Sinopec.  Nonetheless, the other major oil sector project of interest to China, the Refinery of the Pacific, remains effectively stuck despite a significant initial investment to prepare the site.
  • In Bolivia, which was visited recently by Chinese Foreign Minister Wang Yi, the Chinese have performed over $606 million in loan backed construction work.  They also delivered 31 armored combat vehicles to the Bolivian armed forces in July, complimenting previous contracts for and donations of military helicopters and aircraft, trucks, small arms, and other equipment.  In September 2016, the company Hydrochina was awarded $1 billion in new work for the construction of the long delayed Rositas hydroelectric facility, and in October 2016, Chinese banks committed to an additional $4.86 billion in credits, somewhat lower than the $7.4 billion line-of-credit initially extended to Bolivia in October 2015.

With the high-profile U.S. presidential election on November 8th, it is likely the APEC leaders’ summit in Lima on November 19-20, and President Xi’s associated trip to Ecuador, Peru, and Chile, will receive only minimal attention in the U.S.  Yet in contrast to the grim prospects for China’s relationship with the region just a few months ago, President Xi is poised for a highly successful trip that continues China’s expanding relationship with Latin America.

By contrast, President Obama will attend the APEC summit as a lame duck, in what will probably be the last foreign trip of his presidency, overshadowed by election results that will cast grave doubts on the future of the U.S. position in Latin America and the world, whoever wins.

The scenario is not a happy one for U.S. decision makers, but despite the many other demands on their attention in the Middle East, Asia, and elsewhere, it is one that they must not ignore.

The views expressed above are those of the author alone.  They are the results of his participation in a seminar in Rio de Janeiro, Brazil, on China and India’s relationship with Latin America and the Caribbean hosted by the Pontifical Catholic University of Rio de Janeiro (PUC-Rio) and the German Institute of Global Affairs (GIGA).


Source: The Cipher Brief

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