Chinese products that are being universally sold, Chinese students going abroad for studies, Chinese companies investing in foreign locations, and Chinatowns mushrooming everywhere are all snapshots of the 21st century – often termed the “Chinese Century.” An integral part of Chinese policy in recent years has been its expansionism, or the “going out” policy. While its activities in Africa have constantly been under the radar, Chinese interest in Latin America has, in comparison, relatively failed to capture the limelight. China’s presence in Latin America is nonetheless of a multifaceted nature. Intriguingly – and in reference to the commonly used metaphors for China – both the aggressive dragon and the benevolent panda could be used to describe the Asian giant in this region.
Why Latin America?
The reason for the Chinese pivot to Latin America is fourfold. Asia and Africa are simply not enough to feed China’s ever growing appetite for natural resources such as oil, minerals, metals and food (especially soy beans).
Secondly, Latin America is not only an attractive source of these imports but also an attractive alternative to the other suppliers. Apart from being a consumer, China is a major exporter of manufactured goods to the region due to its need to tap new export markets after the EU and US slowdown.
Thirdly, China plays the role of an investor; it is the second largest investor in the region – only surpassed by the United States. Having nearly $3.8 trillion in reserves, most of which is currently invested in American treasury securities, it is definitely in the Chinese interest to find other sources of investment, particularly given the fragile state of the American economy. Its loans and significant investments in countries like Venezuela, Argentina and Ecuador have been boons for these cash-strapped economies.
Lastly, Latin America is an essential pivot in the Chinese quest for global dominance and in addition may be seen as a reaction to American actions in the Chinese neighborhood. China has opened up 32 Confucius Institutes in Latin America as tools of “soft power" and its proposal to build the ambitious Nicaragua Canal is definitely a means to demonstrate its naval power.
Furthermore, its offer of military expertise and exchanges with Colombia, Chile, Mexico and Brazil might be viewed as a retaliatory measure to the US’s strengthened military ties with Japan, South Korea and Vietnam.
The perils of short-sightedness
While this influx of money has undeniably generated employment and development in Latin America, the countries should fight the temptation of short-sightedness and instead assess the long-term implications of Chinese involvement.
Firstly, from an economic point of view, exporting mainly primary products like resources will inadvertently make Latin america a victim of the “resource curse” and the Dutch Disease, curbing their export competitiveness and eventually growth rates.
Furthermore, the region should be aiming for sustainable development, which might not be a top priority for China. For example: the proposed Nicaragua Canal is an important environmental threat, as it impedes the protection of certain areas and may pollute Lake Nicaragua – a major drinking water source for the country and its neighbors.
Also, Chinese projects are plagued with several problems such as corruption and poor quality products. Latin America is the second largest hydropower market, providing enormous opportunities for the Chinese dam builders. However, these projects are infested with the aforementioned drawbacks.
One of the reasons these countries welcomed China was to shrug off over-reliance on the United States and the European Union as trading partners. They should thus be equally wary of the replication of this dependence, which could defeat the original purpose of diversifying trade partners.
Moreover, Chinese presence can trigger future rifts in the region, since it benefits only a handful of the twenty-one countries and actually hurts the interests of countries like Mexico by snatching away the market for Mexican manufactured goods.
The way forward
It is extremely difficult, and even erroneous, to suggest future strategies for the region as a whole, since Latin America consists of a diverse set of countries at different stages of development, which must then deal with different aspects of Chinese presence. Countries in which Chinese resource imports are primarily concentrated, such as Brazil, Argentina, Chile and Peru, should attempt to capitalize on Chinese imports by channeling the proceeds of commodity-led growth into fruitful development through investments in economic diversification.
Diversification of trading partners is also recommended where actors like India, Russia, Africa could be useful. Finally, efforts to unify the region, especially the Northern Triangle countries and South America, and indulging in more intra-region trade could prove to be beneficial and lead to more equal returns of trade for all countries.