Increasing tensions within Chinese and Latin American relations?
The Republic of China (PRC) was founded in 1949 but its first contacts with Latin-American countries began earlier with the trade exchanges in 1560, when the traditional "silk route" was established between the Chinese coast and Mexico, Acapulco.
Back to the past, the beginning of China's interaction with Latin American (LATAM) countries dates back to the 1950s and 1960s, when the Asian country endeavored to have a diplomatic relationship of openness towards the region, considering its position, its potential of growth and its importance for the future
In fact, Cuba was the first country to become China's ally, and it opened the way for other countries.
The relationship continued growing in 1960 when the China-Latin America Friendship Association (Aacal) was created with the idea of reaching out to other “Third world” countries and building a strong partnership.
Hence, the Chinese government has launched a commercial and financial plan to be a relevant partner for LATAM by working hard with active diplomacy and promoting alliances with different LATAM countries.
Therefore, president Deng Xiaoping (1904-1997) realised that China needed to integrate into the world economy by maintaining relations not only with developed countries but also with the Third World countries under the Three World Theory.
As a consequence, more countries joined in establishing diplomatic ties with China such as: Chile, Peru, México, Argentina, Venezuela, Brazil.
From then on, the path of the Republic of China became clearer. As a result, President Hu Jintao (2003-2013) established three main objectives for the relationship with LATAM:
1. To be supportive on the political level.
2. To be complementarity and cooperative on the economic sphere.
3. To strengthen exchanges on the cultural level.
To achieve these objectives, China became a member of the Organisation of American States (OAS) as a permanent observer in 2004 and joined the Inter-American Development Bank (BID) in 2009, making significant financial contributions.
Similarly, China has expanded its presence in LATAM over the last 20 years, both in trade and investment, mainly in the deployment of 5G technology by keeping the doors open to Huawei's operations, an area that is a highly competitive area with the United States.
All this expansion was reinforced when in 2014 the Chinese government promoted the creation of the China-CELAC Cooperation Forum within the framework of the Community of Latin American and Caribbean states (CELAC), created in 2011 as a regional integration mechanism.
It became the main platform of promoting cooperation between China and LATAM, and the Caribbean. Currently, nineteen (19) CELAC member countries have signed Memoranda of Understanding with China and the latest reports of the Economic Commission for Latin America and the Caribbean (ECLAC) highlight China's role as an engine of growth for the region.
Furthermore, in terms of treaties, the Republic of China has signed free trade agreements with: i) Chile (2005), Peru (2009), Costa Rica (2010) and recently successfully concluded negotiations with Ecuador.
At the same time, China became an important investment partner for the countries of the region, providing capital in the form of loans and financial services, as well as initiating a growing diplomatic presence and developing a series of "soft power" strategies aimed at boosting a positive perception of its presence in the China Association for Global Cooperation (CAFTA).
Despite the above, there have been a number of issues that have generated ups and downs in the relationship between the two regions and have raised questions about the future of the relationship.
1. HIGH TRADE VOLUME - TRADE DEFENSE MEASURES
The main driver of China's participation in LATAM has been economic. China is now Latin America's second largest trading partner.
Indeed, China's economic expansion, modernisation and transformation into a high-tech manufacturing economy have had important effects on LATAM, as it was highlighted in the first White Paper on Latin America, issued in 2008.
Subsequently, trade rebounded with China's entry into the World Trade Organisation in 2011. This generated an opening up of international trade that has benefited many LATAM countries.
From there, the Chinese government has worked on the implementation of its opening-up policy. In 2014, the Second White Paper about Latin America was issued, setting out all the strategies to build cooperation in all fields such as political, economic, social and cultural.
On the one hand, the boom in trade has had a very positive impact, mainly due to the growing Chinese demand for raw materials, which has allowed a "reprimarisation" of the region's export sector".
Exports from Latin America to China (1995-2008)
Source: Comisión Económica para America Latina y el Caribe (CEPAL).
On the other hand, it is about Latin America imports from China that have strongly increased, mainly technology and manufacturing products. Those who trade most often with China include Brazil, Mexico, and Peru.
Chinese transactions by country of destination (2001-2016)
Source: Monitor de la OFDI de China en ALC (2017)
China's share of Latin American and Caribbean trade will continue to increase and by 2035 will reach between 15 and 24 % of the regional total, according to a report by the Atlantic Council in Washington.
Most recently, it has supported LATAM countries in the fight against COVID-19, supplying the region with medical equipment and hundreds of doses of vaccine..
Despite the above, the ideological policy in the Republic of China has always been a major drawback, mainly due to its nationalistic and closed trade policies that have repeatedly disfigured what can be considered a "market economy" by WTO rules.
In fact, there have been many cases where the foreign trade authorities have identified the distortion of products traded from China, sold at a negligibly low price and distorting the market and affecting domestic production. They have had to adopt various trade defense measures (anti-dumping, safeguard and subsidies) to deal with large-scale trade from the Republic of China.
Most affected in this competition of large-scale production and low prices are sectors such as manufacturing, which have very low profit margins due to strong competition from imported products from China or the iron and steel industry.
Indeed, domestic production is demanding aid to curb the invasive entry of Asian products at low prices that jeopardize its operation.
2. U.S. INTERFERENCE IN CHINA'S RELATIONSHIP WITH LATIN AMERICA
Over the years, the United States has held a dominant position in LATAM, not only because of its proximity but also because of its strong commercial and financial influence.
Despite strong US interventionism in the region, in the last presidential term led by Donald Trump there were strong disagreements that have led to the country's loss of leadership in the region. Indeed, announcements such as its withdrawal from the Trans-Pacific Partnership (TPP) with LATAM and Asian countries, and the announced renegotiation of the Nafta free trade agreement with Mexico and Canada have tensed the relationship. In addition to the hostile American behavior towards the regimes in Cuba, Nicaragua and Venezuela.
By contrast, in the last decades, China has increased its presence in Latin America regardless of physical and cultural barriers, focusing on trying to keep trade and diplomatic relations on the best terms. As seen in the most important LATAM countries:
Top five recipient countries of Chinese exports in Latin America (2004)
Source: Ministry of commerce of the People's Republic of China (MOFCOM) and the UN
China's rapprochement with LATAM has been seen by the US as a threat to its historical dominance. It poses a great risk to the Americans, mainly because the US government does not share China's economic and foreign trade policies, let alone its labor and human rights standards.
It is also seen as a threat to democratic institutions and free market policies in the region. As a result, it was stated by Admiral Craig S. Faller, former head of U.S. Southern Command, in 2021:
In this sense, the purpose of the United States is clear, to reconquer alliances with its neighboring countries while competing with Chinese influence and its intentions to show aid to LATAM countries.
3. 'ONE CHINA' POLICY
1949 was the end of a civil war in China. China, representing the Communist power, defeated the Republicans, led by the Taiwanese government.
Taiwan is an island that has belonged to China since ancient times, even before World War II. However, it has declared itself as an independent country and as a representative of the Chinese people.
For this reason, China regards Taiwan as a rebel province but an inalienable part of its territory and fights any position that supports Taiwan's intentions.
This discussion has played an important role in China's relationship with LATAM.
In general, Latin America supports the 'one China' policy and thus the reunification of China. Indeed, some countries have even reached agreements with China not to maintain official ties with Taiwan, since under international law, a sovereign state cannot be represented by more than one central government.
On the contrary, there are some countries that have decided to recognise the Taiwanese government such as Honduras, Guatemala, Paraguay, Haiti. This has generated several encounters with governments in the region.
For instance, in 2007 Costa Rica switched the recognition from Taiwan to China with the strong belief that the latter country would be a better ally for its economic and commercial objectives.
Mainly, this has become an attack argument of the U.S. government who has decided to support Taiwan in case of invasion by China.
For Beijing, Washington's plans "are a serious interference in its internal affairs that undermine China's sovereignty and security interests," as stated by the Asian country's Foreign Ministry spokesman Geng Shuang.
However, the LATAM vision has been more positive and in favor of the Chinese government, which has been a favorable point for relations with China.
Currently, the balance is 25 LATAM countries supporting the “One China” policy and only 8 countries continue to recognize Taiwan as an independent country.
This shows the strength that the Asian giant has acquired in the region and the influence it can exert over it.
4. EXTERNAL DEBT
In recent decades, China has become a major lender to other countries around the world. The Chinese government has focused on granting thousands of direct loans and commercial credits through its public entities and has become the banker of LATAM.
During the 2000s and early 2010s, many loans were granted to countries such as Brazil, Venezuela, Argentina and Ecuador, which were very receptive to Chinese investments and loans, in part because they were center-left governments more aligned with Asian political currents.
In 2005, China lent over 150.000 million dollars to LATAM and in 2006 also made a donation of 350 million dollars to the BID.
These loans are aimed at specific sectors of the economy such as energy, infrastructure, mining, among others.
In 2015, president Xi Jinping reaffirmed his commitment to the LATAM progress by announcing an investment of 250.000 million dollars over the next 10 years.
More and more countries have seen the Asian government's assistance as a financial and investment solution, headed by Venezuela.
Latin American countries with the highest public debt to China.
Source: Centro de Estudios Diálogo Interamericano.
As a result, China has proven to be a financial supporter of LATAM and a great commercial ally in terms of South-South cooperation.
In addition, in 2013 China has also prioritized foreign direct investment through its global Belt & Road Initiative and LATAM is included in this huge plan. Currently, around 19 across the region (33 in total) have joined the initiative including Ecuador, Bolivia, Chile, Uruguay, Peru, among others.
Despite the above, some experts qualify this development as the “Debt Trap” agreeing that official loans always have a strategic element behind them and help China gain political leverage.
Total amount of Chinese loans to LATAM countries by year.
Source: Centro de Estudios Diálogo Interamericano.
It also causes one of the biggest problems for LATAM countries: Debt sustainability. Thus, it may entail potential long-term economic losses, not only because of difficulties in repayment, but also because of the financial dependence of a particular country or sector.
On the other hand, there are specialists who highlight the advantages of having China as an investor arguing that the focus of its strategies in the region is geared towards promoting its economic and strategic interests rather than imposing an ideological model or openly confronting the US.
However, the scenario seems to be changing. In 2020, for the first time since 2006, China did not offer new financial commitments to Latin American and Caribbean governments through its China Development Bank (CDB) and the China Export-Import Bank of China (CHEXIM).
Still, there may be many reasons for that such as the internal crisis in some LATAM countries such as Venezuela or Ecuador or the Chinese government's interest in enrolling more in public-private partnerships than in state loans.
Despite the above, in the last Summit of CELAC taking place in Buenos Aires, president Xi Jinping stated that:
China always supports regional integration in Latin America and the Caribbean (LAC), attaches high importance to the development of relations with CELAC and regards it as an important partner in consolidating unity among developing countries and promoting South-South cooperation.
Indeed, there is a willingness of cooperation on the part of the Chinese government.
All in all, LATAM is more open to the policies and ideas of the Asian government than in previous years, mainly due to the immediate positive effects brought about by the alliances with China, despite the issues that are still under discussion, such as those mentioned above, and very much against the position of the United States.
Likewise, a more friendly environment for the Asian giant is perceived due to the so-called "pink tide", consisting of the wave of leftist governments currently prevailing in Latin America, who are more aligned with the ideologies of the Chinese government.
*photo taken from CBN News