More than two decades have passed since China’s landing in Latin America. This span provides a field of vision that makes one thing evident: the socio-environmental impact and other pernicious effects have overshadowed the benefits of Chinese presence in the region. Contrary to the elite’s optimistic discourse, Latin America risks falling into economic dependence and political subordination to China.
The new world that emerged from the pandemic brought nothing less than the end of globalization as we knew it and the rise of two ideologically and geopolitically opposing blocs, namely the United States and the free world versus the world autocracies led by China. A third bloc, which includes most Latin American countries, has shown discomfort at the prospect of being forced to choose sides. Still, the geopolitical realignment seems unstoppable and occurs in an era of economic fallback, questionable leadership, and future uncertainty. It is a dangerous mix.
In this turbulent context, the ongoing question of how far to take relations with China resurfaces in Latin America. A logical response is to analyze how beneficial this partnership is for Latin America and whether it is a win-win relationship, as Beijing’s rhetoric claims. Due to its complexity and nuances, it is not easy to delve into this phenomenon. But in 2023, we can count on a factor that we did not have until recently to support an accurate analysis: more than two decades of field of vision in the region. Today, the imprint of the Asian giant is altogether discernible.
The kick-off for Chinese internationalization took place at the turn of the century. Since the 1980s, China offered various incentives for foreign investment, including an endless supply of cheap labor. In 2001, when the country accessed the World Trade Organization (wto), prompting a tariff reduction, many companies relocated their production to China. Becoming the factory of the world and urbanizing the country – two enterprises highly dependent on raw materials – became the driving forces of the Chinese economy. That was when Beijing decided to “head outside” to ensure supply.
China used all the ammunition of its state capitalism to serve this strategic need. Large state-owned companies led the economic offensive in Latin America and other regions with abundant resources – as they do today. Moreover, the two leading Chinese development banks opened the sluices of easy and cheap money. And so the show began: million-dollar investments to exploit deposits throughout the continent; on-demand loans, most of them confidential; ‘turnkey’ infrastructure projects, unbeatable in terms of financing, speed, and price; and a growing Chinese demand that skyrocketed trade, exports, and royalties. It was a winning bid.
Honeymoon and dependencies
It was also a very seductive bid for Latin American governments and elites. Everything went smoothly for the first decade: there was a financial open bar, commodity prices went through the roof, and Chinese demand pulled robustly on the gdp of many countries. Politics reached where economics could not. Estranged from the United States, the Kirchners, Chávez, Correa, and the like threw themselves into the arms of the new messiah. It was not evident then, but during that honeymoon, Argentina, Venezuela, Ecuador, and other countries shaped their current financial and commercial dependence on the Asian giant.
The figures resulting from the Chinese presence in Latin America – even if fragmented and not fully transparent – speak for themselves. Bilateral trade went from usd 14.6 billion in 2001 to usd 450 billion twenty years later. During that period, China invested usd 172 billion in the region, built some 200 infrastructure projects, and granted loans worth usd 209 billion (including those by commercial banks), a quarter of the total credit granted globally by Chinese financial entities. Such power, seasoned with the myth of the “Chinese miracle,” planted the idea in the social imaginary that China’s contribution to the development and prosperity of Latin America was decisive.
However, reality is much more confusing. It is plain that a landing of such magnitude brings benefits and opportunities to the region: infrastructure that would otherwise not exist, employment (albeit of low quality), and tax revenues linked to exports. But China is not all that decisive in all countries. In Mexico, the Caribbean, and Central America – excluding Panama – Chinese presence is relatively modest. Then again, in South America, where it is transversal, not everyone profits. Some countries benefit, others gain less revenue than they declare, and others have small gains.
Furthermore, China has typically allocated most of its investments and loans in Latin America to extractive and infrastructure projects. These two sectors are not only problematic by nature – combined with the modus operandi of the Chinese development model, they form an explosive cocktail so far-reaching in terms of environmental, social, or labor impact that everything else China can offer remains largely overshadowed. Evidence of this impact lies in a report by various Latin American civil organizations. In 2023, they denounced the “serious human rights abuses” and the environmental impact of 14 large-scale Chinese projects in Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, and Venezuela (ishr, 2022).
Low standards and malpractice
Labor abuse, dispossession, and the destruction of nature have terrible effects on local populations. In these rights violations, one may distinguish the hallmark of China’s internationalization – corporate low standards and malpractice. After 20 years of Chinese activity in Latin America, one can conclude that these are not unusual or exceptional but rather repeated and transversal. The decline of institutions in some countries contributes to the perpetuation of this scheme. The best example illustrating this situation is Peru, where China is the leading actor in mining, but conflict and violence are recurrent in its projects.
The absence of checks and balances fuels excess. China does not oversee its companies’ operations overseas nor subject them to public scrutiny. Since Chinese investors do not receive social, economic, or legal punishment for their abusive behavior, they have no incentives to introduce responsible guidelines that minimize the impact of their projects. Western corporations, by comparison, even with their own history of wreckage, are much more closely monitored nowadays and theoretically cannot ignore good practices without paying a price.
The above is not the only harmful outcome of this relationship based on natural resources. Another consequence is the reinforcement of Latin America’s position as a mere supplier of raw materials, which is not necessarily a bad business but does not generate wealth in the long term. With 61% of the world’s lithium reserves in Argentina, Chile, and Bolivia, a new opportunity arises – maybe in electric car production – for Latin American governments to demand from China just what this Asian country has required from its investors for the last 35 years: to invest in value-added industries. A demand of this nature is not something alien to Beijing.
More than 80% of South American exports are natural resources and commodities whose primary buyer is China, with 37% of the total acquisitions, more than the combined sum of the United States and the European Union (eu). China is also the principal seller of finished goods and high-tech manufactures in the Latin American region, which positively points to a classic neocolonialist pattern. Even though China is the first or second trading partner of most South American countries, for most of them, the expectation of diversifying the export basket and adding value to their economy has been largely frustrated.
Trade without added value
Such is the case of Costa Rica and Peru, two of the three countries on the continent having free trade agreements (fta) in force with Beijing. A decade after enforcing its fta, San José recognizes that “it has not been commercially successful.” After losing this opportunity with China, disenchantment reigns in the Central American country, which broke diplomatic relations with Taiwan in 2007. Regarding Peru, 96% of its exports to China are mining and fishing products, a trade that hardly adds any value. Conversely, 48% of its sales to the us and 43% to the eu are value-added products.
Furthermore, it is unclear whether the drop in tariffs produced by ftas will pass on to consumers. “In highly concentrated markets, such as monopolies and oligopolies, tariff reduction does not necessarily translate into lower prices for consumers, since intermediaries have no incentive to lower them. And Latin America is plagued by monopolies and oligopolies,” says Julio Guzmán, economist and former Peruvian presidential candidate. The fact that an fta with China does not per se guarantee a healthier commercial relationship should serve as a navigation warning for Ecuador and Nicaragua, whose treaties are signed and pending entry into force. It should also raise red flags for Honduras, El Salvador, Panama, and Colombia, who have begun negotiations or shown interest in doing so.
Amid this scene, dependencies are generated that tie Latin America to China. Of the usd 90 billion that Brazil exported to the Chinese market, 56% were agro-foods, mainly meat and soy. This pattern echoes that of Argentina, where one should add a worrying financial dependence. Ecuador – forced to restructure its debt with Beijing a few months ago – and Venezuela share the same scheme: financing and discounts in hydrocarbons. The position of Chile and Peru is not very different since more than 80% of their sales to China are mining resources. In these two countries, the giant has acquired assets in the strategic electricity sector.
No matter how vital Latin America is for China’s supply of strategic natural resources and food security, it may not be the best idea to have so much exposure to a country whose macroeconomic situation is deteriorating and does not hesitate to retaliate against its trade partners for political reasons. There are indeed more reliable alternatives. Data dismantles the notion that the us and Europe have abandoned the region or are retreating: their volume of trade with Latin America doubles that of China and, in terms of investment, the Asian country represents only 3.5% of the total stock of the three blocs in the continent.
The responsibility of the elites
Latin American elites bear responsibility in this entire picture. Until the pandemic, their view of China was optimistic. A mixture of myth and ignorance about the Asian country, economic necessity, and wishful thinking led to the general belief that the Asian giant had a fundamental role in the development and prosperity of the subcontinent. One can sense that Chinese efforts to spread a friendly story about their country and its intentions in Latin America contributed to this idea. To succeed in this enterprise, China invested enormous financial and human resources in sharp power, the authoritarian version of soft power. This commitment prevails today.
Rooted in this strategy, all sorts of Chinese entities have signed agreements with the academic world and the media to influence those who should independently review Chinese activities in the region. To get close to decision-makers, the Chinese Communist Party (ccp) has deployed its silent diplomacy with Latin American parties of all ideologies. And a local elite recruitment program has attracted a network of influential allies. China has seduced journalists, academics, political representatives, and former diplomats with paid trips to the country. No matter how much they disguise these trips as training, their goal is to expose all these people to the regime’s propaganda.
The intent is clear: to monopolize a discourse highlighting the benefits of cooperation with China and silencing its most controversial aspects. This strategy may account for the absence of critical analysis by some governments about the course the relationship with the Asian power should take. Honduras is the latest example. A few months after breaking relations with Taiwan, it seems to have succumbed to Beijing’s mermaid song – an fta is under negotiation, Huawei is willing to enter the telecommunications sector, and several infrastructures are on the table, including a Chinese-financed interoceanic railway corridor. How the critical situation of 20 countries in debt with China will impact the Honduran Executive remains a mystery.
The Silk Road: The debt and the noose
Global debt to China is impressive: it is nearly a trillion dollars and dates back to the beginning of its internationalization. Beijing is not the only creditor, of course, but it is the most noteworthy. And it bears responsibility because, in securing its access to markets and resources, it offered a financial open bar to low-income countries whose solvency would sooner or later be compromised. This snowball, combined with a teetering domestic economy and an unfavorable geopolitical context for Beijing, have compromised Xi Jinping’s diplomatic star project: the Belt and Road Initiative (bri) – a project that Joe Biden calls “the debt and the noose.”
Now what? Beyond any reasonable doubt, Latin America will continue to be a strategic territory for China to furnish itself with food and raw materials. However, after the end of the credit euphoria, it is foreseeable that Beijing will be much more selective in its participation in infrastructure projects, especially those of great magnitude. Such is the case of the deep-water mega-port of Chancay, in Peru. Currently under construction, this port facility – paramount in the South Pacific – will be managed by its owner, the shipping company cosco, a staunch associate of the Chinese regime. But unless they serve Chinese geopolitical interests, projects like this will be the exception and not the rule.
Ten years after Xi unveiled bri, its economic aspect seems to have lost steam, which may be a setback for regions – such as Latin America – yearning for investment to alleviate their infrastructure deficit. Coincidence or not, amid economic uncertainty, Latin American governments of all ideological stripes, and very notably those of the radical left, except for Cuba, Venezuela, and Nicaragua, have opted for pragmatism, avoiding taking sides in the arm-wrestling dispute that Washington and Beijing are settling. At the crossroads of choosing a partner for 5G networks, only Costa Rica has officially refused to become allies with Chinese operators.
All in all, for Beijing and Xi Jinping, bri continues to be a most valuable diplomatic tool, especially in the current context of geopolitical and ideological rivalry with the United States and the rest of the Western world. This initiative always projected the idea of an implicit exchange with the accessing countries, especially those in the developing world: the promise of economic opportunities in exchange for political and diplomatic loyalty to Beijing. However, the Belt and Road Initiative has now acquired special relevance as one of the global initiatives that Beijing promotes to attract the so-called Global South into its orbit.
Undermining Western democracies
To fulfill its objective, China seduces Latin America with the lure of its economic power and perfectly calculated slogans that sponsor “a shared future for humanity.” Because it is anti-Western, this narrative will always be well-received in some Latin American circles. Yet, it seeks to undermine liberal democracies and the whole system of alliances that, with the United States at its epicenter, cemented the world order that emerged after World War II. From its conception, bri created two financial institutions akin to those of Bretton Woods, intent on laying the institutional foundations of a new international order dominated by Beijing.
Other global initiatives promoted by China, along with its highly malleable diplomacy in existing global and regional international organizations (from the un and the wto to the Shanghai Cooperation Organization) and its interest in expanding the brics club (with Argentina and, eventually, Venezuela joining in) share the same goal: to influence the rules that govern the world. Beijing seeks to spread the superiority of the Chinese development model and political system, which it considers more effective and superior in values to those of the West. But in the Global South, the magic word to expand its sphere of authority and influence global governance is “multilateralism.”
Xi Jinping aspires to change the current international order, which, in his view, grants hegemony to the us and excludes China. But this change does not necessarily seek to make the world more fair, as official propaganda broadcasts, but to make it safer for Chinese interests. This approach involves a perverse consequence of which Latin America must be aware: an international order of this nature, based on a unity of nations economically dependent and, therefore, subordinate to China, is probably not the best path to prosperity and freedom in the region.
References
International Service For Human Rights (ishr) (2022). Las obligaciones extraterritoriales en derechos humanos de la República Popular de China con relación a actividades empresariales en América Latina. Informe para la adopción de la Lista de Cuestiones para el examen de la República Popular de China, durante la 69ª sesión del Comité de Derechos Económicos, Sociales y Culturales.Malamud C, Ruiz JJ, & Talvi E (Eds.) (2023). ¿Por qué importa América Latina?, Informe Elcano, 32. Madrid: Real Instituto Elcano.
