On Wednesday, Venezuelan President Nicolás Maduro said he had secured more than US$20 billion in investment from China, while Ecuador said it obtained a total of US$7.53 billion in credit lines and loans from China.

Friday, January 9, 2015

China vows to invest US$250B in LatAm

PRC President Xi Jinping speaking at the first CELAC-China Ministerial meeting in Beijing

President Xi looks for greater cooperation, trade in region as bilateral relations spark debate

BEIJING — Chinese President Xi Jinping pledged yesterday US$250 billion in investment in Latin America over the next five years as part of a drive to boost resource-hungry China’s influence in the region.

The pledge — made during the first ministerial meeting of the Community of Latin American and Caribbean States, or CELAC, and China — comes amid increasing cooperation in the continent with China in the region, the upgrading of diplomatic ties between Buenos Aires and Beijing last year and the incipient ratification of three investment and cooperation pacts signed during Chinese President Xi Jinping’s visit in July 2014.

“Argentina understands that in our relationship with China, investments in infrastructure that prioritize energy, transport and communications that allow for greater capacity and competitiveness of our economies to reach out to the Chinese and global markets will be fundamental,” Foreign Minister Héctor Timerman said in Beijing.

The foreign minister also added that cooperation in science, technology education and training are also vital for the development of both countries.

“This meeting will... give the world a positive signal about deepening cooperation between China and Latin America and have an important and far-reaching impact on promoting South-South cooperation and prosperity for the world,” Xi said. China and Latin America are cooperating on energy, infrastructure construction, agriculture, manufacturing and technological innovation, according to the Chinese president, who also said that two-way trade between China and Latin America was expected to rise to US$500 billion in 10 years.

Details for the documents specifying the framework for cooperation between Latin America and China in the coming years are due to be hammered out today.

‘Strategic’ ties

Argentina and China entered a new phase of their relationship in July last year after upgrading it to a “comprehensive strategic association” and signing a battery of agreements, which include a US$4.7-billion investment in hydroelectric dams, US$2.09 billion in the renovation of the Belgrano Cargas freight rail system and a US$11-billion currency swap.

Since then, the currency swap has brought relief to Argentina’s reserves to the tune of US$2.3 billion in three disbursements. The terms of the swap state that the Central Bank is entitled to ask for the total or partial disbursement of 70 billion yuan (US$11 billion), in a loan which has to be paid back in 12 months with an interest rate of between six and seven percent. In exchange, China is also loaned Argentine pesos, which can be used in bilateral foreign trade or exchanged for other currencies.

The investment and infrastructure pacts signed in July received Senate approval in the final session of 2014, with some observers questioning the terms of the agreements. Uproar caused by a clause in the the framework agreement would have granted China the authority to use its own labour force for infrastructure contracts won by Chinese companies obliged the ruling Victory Front (FpV) to include an amendment that specifies that Argentine workers will be hired. As the Senate can only accept or reject deals between Argentina and another sovereign nation, the fate of that ratification has yet to be determined.

The terms of the deal also specify that contracts involving Chinese companies and Chinese financing will be awarded directly, without due call for tenders. The Lower House is expected to begin its review once Congress reopens on March 1.

Buenos Aires and Beijing will now enter a new “comprehensive strategic association” ten years after the launch of a “strategic association” that has been a boon to trade and investment. The upgraded diplomatic relations — previously restricted only to Brazil within the region — open the door to a further deepening of the existing ties.

“This is a foundational day for the relationship between our two countries,” said President Cristina Fernández de Kirchner at Government House in July 2014.

Her counterpart, Chinese President Xi Jinping said that he viewed Argentina as “partner for development” and that a “broad consensus” had been established on political and economic matters during yesterday’s talks. The upgrade in relations comes only a week after Russian President Vladimir Putin’s visit to Buenos Aires and was accompanied once again by comments from the president regarding the “multipolar nature” of global politics.

Beijing and Washington

Chiming in was the Economic Commission for Latin American and the Caribbean (ECLAC), which hailed that the “keen interest shown by the Chinese authorities in strengthening ties with Latin America and the Caribbean provides the region with a historic opportunity to address the challenges of infrastructure, innovation and human resources, spur productivity and competitiveness and diversify exports.” The ECLAC, a regional United Nations body focusing on promoting economic growth in the region, also made it clear that the CELAC was the most appropriate forum to guide a regional response to the Chinese interest in Latin America, and that as such the meeting in Beijing “is a milestone.”

The ECLAC statement is significant in that the CELAC does not include the United States nor Canada and Washington and Beijing are engaged in a process of cooperation and competition around the globe.

“Obviously, China has the intention to compete with the US for a greater sphere of influence in the region,” said Deng Yuwen, a Beijing-based political analyst. “But whether this strategy will weaken US influence now is hard to judge.”

Beijing’s approach to the region will also have to contend with the incipient rapprochement between the United States and Cuba, which was warmly received by the region’s capitals. Although the restoration of diplomatic ties between the United States and Cuba is still incomplete, it significantly alters the landscape going forward.

“The Cuba deal changes everything in terms of how the United States can set a positive agenda in the region,” Matt Ferchen, resident scholar at the Carnegie-Tsinghua Centre for Global Policy.

Beijing and Latin America

According to the ECLAC, “between 2000 and 2013, China went from being a minor partner of Latin America and the Caribbean to a key player. The mutual trade in goods increased 22 fold from just over 12.0 billion dollars to almost 275.0 billion dollars. By way of comparison, the region’s trade with the world only tripled during that time.”

China, the world’s second-largest economy, is buying oil from Venezuela, copper from Peru and Chile, and soybean from Argentina and Brazil. China is Argentina’s second largest export destination and the second-largest source of imports, combining for approximately US$ 16 billion in trade in 2013.

According to the ECLAC the top three Argentine exports to Beijing are soybeans (whole or broken), crude petroleum oils, soybean oils and derivatives. These three categories account for 81 percent of total exports, pointing to a lack of diversity in the products being sold to China.

Furthermore, according to figures published by the China Observatory that sits within the CERA exporters chamber, imports (US$ 11.31 billion) in 2013 more than doubled exports (US$ 5.51 billion), leading to a US$5.8-billion deficit.

In return, China has invested billions of dollars in the region, pouring money in oil and gas extraction in Argentina, the Bolivarian Republic of Venezuela, Brazil, Colombia, Ecuador and Peru. The ECLAC reports that foreign direct investment (FDI) from China to Argentina peaked in 2010 at US$3.1 billion, US$ 2.45 billion in 2011 and dropping to US$ 600 million and US$120 million in 2012 and 2013. However, FDI from publicly-held Chinese business is notoriously difficult to track as it is often directed through third countries and thus figures should be taken with a grain of salt.

On Wednesday, Venezuelan President Nicolás Maduro said he had secured more than US$20 billion in investment from China, while Ecuador said it obtained a total of US$7.53 billion in credit lines and loans from China.

“To repeat what (former) president Hugo Chávez said, China is demonstrating to the world that a country does not necessarily seek hegemony as it grows stronger,” Maduro said.

Venezuela is struggling with one of the world’s highest inflation rates, a recession and a cash crunch worsened by a steep fall in the price of oil. It has so far unsuccessfully urged OPEC nations to work together to drive up oil prices, which have fallen by half in six months. Venezuela depends on oil for 95 percent of its export income.

Herald staff with AP