28-03-06
The Chinese are coming. In no part of the world is this more evident than
Latin America, where a series of trade agreements, infrastructural investments
and bilateral visits over the past two years has begun to reshape the economic
landscape.
But economics is also politics. China seeks to present its new relationship with
Latin America as part of its much-vaunted "peaceful rise", but how is it seen in
Latin America itself -- and in the United States?
The more radical of Latin America's new generation of leftwing leaders have
few doubts. Hugo Chavez was in typically ebullient mood as he visited Beijing in
December 2004. After signing a series of bilateral agreements (Venezuela's
president has put his pen to at least twenty-five with China since coming to
office in 1998) he speculated that Chairman Mao and Simon Bolivar, the Latin
American revolutionary, would have been "great friends" if they'd ever had a
chance to meet.
He said both countries had "been victims of international aggressions, of a
storm made in America". But each had managed to surprise the United States by
"standing up on its own feet" and "building its own paths".
Chavez’s rhetoric might have concerned Chinese officials who are keen for
their country to keep a low profile in its international ventures -- no more so
in what the US still considers its "own backyard". In the wake of Chinese oil
firm CNOOC's doomed $ 18.5 bn attempt to buy US-based Unocal in 2005, China's
commerce ministry recommended its companies adopt a "softly-softly" approach
when buying abroad, lest they stir up "anti-Chinese feeling" and have to pay a
"a China premium".
For its part, Venezuela continues to rely heavily on US oil revenues -- 60 % of
its crude goes to the US, through its "downstream" subsidiary Citgo. Despite
Chavez’s escalating anti-Americanism, he needs the US to fund the country's
extensive welfare programmes -- not to mention his wider ambitions on the
continent.
Still, cooperation between Venezuela and China is increasingly apace. CNPC,
China's largest oil company, has licences to explore Venezuela's Orinoco oil
belt -- a potentially vast, untapped source of crude. Chinese companies are able
to exploit the Caracoles and Intercampo Norte oilfields, and have options on
others. And China is building a plant to process Orimulsion, a heavy tar fuel
used in its factories.
The oil shipments started in recent months, at around 120,000 bpd, with plans to
ramp up production to 1.6 mm bpd in 2007. What does intrigue observers, however,
is not so much the volumes, but the price. According to one well-versed source
in the Venezuelan oil industry, China is paying only $ 3-$ 4 a barrel, a small
fraction of the world market price charged to other foreign consumers.
Beyond oil, Venezuela bought a Chinese communications satellite in 2005 (to
be named "Simon Bolivar", and launched in 2008). It has also purchased Chinese
radar equipment to monitor its borders, and it is interested in working with the
Chinese to upgrade its ageing air force (the purchase of Spanish military
aircraft was blocked by the United States in January 2006 on the grounds of a
1976 act permitting it to prevent the transfer of US-sourced technology).
The two countries are even cooperating on the internet. The oil-industry source
says members of Venezuela's state oil company (PdVSA) recently travelled to
Beijing to learn techniques for eavesdropping on internet traffic. Despite his
romantic revolutionary image, Chavez -- who apparently uses PdVSA for all kinds
of non-oil activities -- is not above the sort of humdrum authoritarianism
normally associated with his Chinese friends.
South-South ambitions
China's Venezuelan policy is part of what some analysts call its "south-south"
strategy -- a plan to build a coalition of cooperating countries across Latin
America and Africa.
In Africa, China has been expending huge amounts of soft credit, arms and other
aid as it tries to cement ties with different regimes (including those in Sudan
and Zimbabwe that other governments have shunned). Backed by Beijing, Chinese
companies have been prospecting for oil and other raw materials, and building a
wide array of infrastructure -- including telecoms networks, sports stadiums,
dams and railways -- often at prices well below what western firms can afford.
In Latin America, China's ambitions are less well advanced. But its strategy
has been given impetus by the elections of various left-leaning leaders -- such
as Evo Morales, president of Bolivia, and Nestor Kirchner, of Argentina -- who
may not exactly be Sinophiles, but are avowedly anti-American, and share some of
Chavez’s tendencies. Morales followed his January 2006 inauguration by
reiterating his intention to renationalise Bolivia's gas industry, and pointedly
included China (and excluded the United States) from his first round of foreign
trips.
In another camp, leaders such as Brazil's Luis Inacio Lula da Silva, of Brazil,
Chile's newly-elected Michelle Bachelet, and Tabare Vazquez of Uruguay, are seen
as more pragmatic, but no less receptive to Chinese investment.
On a visit to Argentina, Brazil and Chile in November 2004, China's President
Hu Jintao announced plans to invest $ 100 bn in Latin America over a decade. As
a start, he signed a $ 10 bn energy deal with Brazil for investments in its
energy and transport infrastructure over two years (Chinese oil company Sinopec
already has a $ 1.3 bn deal with Brazil's Petrobras to build a 2,000 km natural
gas pipeline). Chinese oil companies have also bought oilfields in Columbia,
Ecuador and Peru, and have sunk $ 5 bn in offshore projects in Argentina.
As well as buying energy assets, the Chinese have also invested in transport
networks to help take its purchases home: Chinese companies are, for instance,
rebuilding Argentina's railways, and resurfacing Venezuela's roads.
China has also expressed interest in constructing and financing various
projects to modernise the Panama Canal. A Hong Kong company already operates
ports at either end, raising worries among some Republicans in Washington -- and
lately, Hillary Clinton -- about China's effective influence over the waterway.
Riordan Roett, director of the western hemisphere program at Johns Hopkins
University, in Washington DC, says the Chinese are serious about building
lasting relations with the region: "There is clearly a long-term plan. They are
really trying to understand the region." China has been sending some its best
young diplomats to the region, Roett says, and it is also setting up local
"Confucius Centres" that are designed to deepen understanding of Chinese
culture.
The diplomats are also hard at work on another matter of central importance
to China: Taiwan. Of the twenty-four countries with official diplomatic
relations with Taiwan, eleven are in Latin America. Taiwan has been competing
with China in delivering and aid investment to the countries that are still on
its side.
But China has managed to peel off three countries -- Grenada, Dominica, and
Paraguay -- since 2004. China has also given substantial support, including
peacekeeping assistance, to Haiti, leading to speculation that it will soon join
the list of switchers.
United States reactions
At the official level, United States reaction to China's Latin campaign has been
muted, and critics of the administration say it has taken its eye off the ball
while it has been engaged in the Middle East.
The January-February 2006 edition of the venerable journal Foreign Affairs asks
whether the US is "losing" Latin America, while a June 2005 War College report
argued that China represents a serious long-term security threat to US interests
in the region.
The US has, however, blocked China's application for "donor status" at the
Inter-American Development Bank (IDB) -- on the grounds that China itself is
recipient of loans from the World Bank. The US argues that China should not be
allowed to borrow from one multilateral bank to pay another.
An IDB spokesperson says negotiations between China and the IDB are continuing,
however, and most observers think it will soon join Japan and South Korea as
members. Donor status would give Chinese companies opportunities to bid for
IDB-funded infrastructure projects, as well as access to high-level Latin
American officials.
What would really raise US hackles would be if Venezuela decided to sell
China its US subsidiary Citgo. Such a move would allow Chinese oil companies to
ship Venezuelan crude to refineries on the US's western seaboard, and from there
on to ships across the Pacific. Observers say Chavez has discussed a potential
deal with the Chinese, but he shares with China a desire not to make relations
with the US any more complicated than they are already.
One major obstacle to increased energy cooperation between China and the region
is the sheer distances involved, and the lack of straightforward shipping
routes. As well working on the Panama Canal, China is also interested in funding
a pipeline through Columbia, which would takeVenezuelan crude to the Pacific.
Promises, promises
If America's response has been quiet so far, over time it may be able to argue
that China has not delivered on its promises to be a force for development and
progress in Latin America.
In many cases, development experts say, Chinese financing is unlikely to be
direct investment, but "tied loans" offered at low interest rates on the proviso
that contracts are given to China's state-run companies. China has used such
loans widely in Africa, leading to fears that investment will in fact fail to
deliver jobs, and benefit local businesses.
Celia Szusterman, a Latin American lecturer at London's University of
Westminster, says the lack of hard cash has already caused disappointment in
Argentina, and some recriminations for the government in the press. There are
also questions about Chinese environmental practices, with concerns being raised
that CNPC's exploration activities threaten various Amazonian habitats.
According to the NGO Amazon Watch, its concessions in Peru threaten the
Amarakaeri indigenous people.
A Brazilian dam, constructed by a Chinese company, has also provoked concern
among campaigners. The Belo Monte project, in the eastern Amazon, is being built
to provide electricity for various Chinese-run mines in the region, raising
protests that it will benefit Chinese, rather than local, interests.
On trade, there is a fevered debate among academics over whether Chinese
commerce will help or hinder the region. Only Chile -- which has benefited
handsomely from copper trade with China -- has so far signed a free-trade pact
with China. Others are still trying to analyse the net impacts, says Lucio
Castro, senior economist at consultants Maxwell Stamp.
Industrial groups in Brazil and Mexico have warned their government off the idea
of liberalising trade further, in case Chinese goods simply swamp their markets.
Already some of the sheen that surrounded President Hu Jintao's trip to Latin
America in November 2004 has worn away, with many questioning whether investment
will really materialise, and, if so, in what form.
Despite the promise that China's billions will deliver benefits for ordinary
people, the long-term consequences of China's Latin push are still open to
question.
Source: Global Envision