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.
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.