Economy

China's Latin American Empire

China is set to supplant the US as Latin America's preeminent outside economic power: it remains to be seen if that is a good thing.

Chinese President Xi Jinping, accompanied by Mexican President Enrique Pena Nieto, visits Chichen Itza, an archaeological site of the Maya civilization in the Mexican state of Yucatan in June 2013
Chinese President Xi Jinping, accompanied by Mexican President Enrique Pena Nieto, visits Chichen Itza, an archaeological site of the Maya civilization in the Mexican state of Yucatan in June 2013
América Economía Editorial Board

-Analysis-

SANTIAGO – The recent tour of four Latin American states by China"s Foreign Minister Wang Yi was hailed as a success in each place he visited: Cuba, Venezuela, Brazil and Argentina. Back in Beijing, it was largely seen as a rehearsal for a planned visit by the Chinese President Xi Jinping, who is expected to watch the World Cup final in July in the legendary Maracaná stadium, as a guest of Brazil's President Dilma Rousseff.

That will be the Chinese President's second trip to the region since he took office a little over a year ago, after a 2013 visit to Mexico, Costa Rica and Trinidad, where he met with half a dozen Caribbean leaders. After the World Cup, the Chinese President will attend a meeting of BRICS countries in Fortaleza in Brazil and next January, China's first summit with CELAC, the grouping of all regional states bar the United States and Canada.

Xi is showing more interest in the region than Barack Obama or European heads of state. And for good reason. China buys, invests and loans a lot of money to the region. It was China's demand for Latin American raw materials that largely spared the region from the 2008-2009 global financial crisis.

Chinese growth may have slowed, but crude prices are continuing to rise because it is buying more oil than ever. China is becoming the premier oil buyer from Venezuela and Ecuador, the greatest purchaser of copper from Chile, of soya from Argentina and of Brazilian iron and corn. It is already the biggest trading partner of Brazil, Chile and Peru and Mexico's second commercial partner.

Trade is healthy right now: China exported $131 billion and imported $125 billion worth of goods and services from Latin America last year. It has also become a key regional investor. During Foreign Minister Wan Yi's visit to Argentina, it was reported that the government in Buenos Aires was expecting Chinese investments worth $4.7 billion in a new hydroelectric project and $2.4 billion in railways. Energy and infrastructure have increasingly become the focus of China's investments in Latin America, worth $80 billion in 2013.

To the trade and investment tsunami, add China's shower of loans. These come mainly as advance payments for future purchases of oil or raw materials — from Venezuela, Brazil and Ecuador — but also as direct loans through the China Development Bank.

Between 2005 and 2013, China lent $100 billion to the region, mostly to countries with restricted access to international capital markets. More than half this sum went to Venezuela. In recent years, Chinese loans have exceeded all the loans of the International Development Bank, the World Bank and CAF, another regional bank. Last year, China lent the region $15 billion, three times the sum lent by the World Bank and a little less than the $17 billion lent by all the region’s commercial banks.

Influence and imbalance

Of course, China's rising influence is good or bad depending on where you sit. By paying for raw materials, it has helped make Latin American economies dependent on commodities. There are complaints in Mexico and Brazil that global exports of Chinese manufactures are impeding their own manufacturing exports.

Mexico has good reason to complain: while China may have a more or less equitable trade balance with the region, that is not the case with Mexico. Last year, Mexico bought around $57 billion's worth of products from China and sold less than $6 billion - a trade deficit of $51 billion. Brazil also fears Chinese imports will shrink its industries.

While 85% of Chinese loans since 2005 have financed mining, infrastructure and energy projects, it has paid scant attention to the environment. Its loans lack the strict environmental impact conditions that characterize loans by international bodies.

Chinese money, Chinese investment and Chinese demand may have become addictive. Latin America already cannot live without China, which is taking regional positions abandoned by the West. Certainly, needs are basic and opportunities cannot be lost, but it is fair to say that we must think before making ourselves dependent on a country about to become the first superpower without democracy or press freedom.

Latin America wedded itself to the United States 100 years ago, and the region has remained faithful to its North American matrimony despite the occasional American mistreatment, and now its neglect. Today it is flirting with a much more attentive candidate, though one that may not be the right match. The region could end up with a far worse match than the one it knows, and the US, wishing it had paid more attention to a faithful partner of so many years.

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Future

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.


But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

commons.wikimedia.org

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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