Pummeled by the pandemic, the fragile economies of Latin America are desperate to recover. But is turning to China for loans and as a market for raw materials the best long-term solution?
QUITO — The coronavirus pandemic has impacted humanity and all its forms of economic, social and political organization. This is not just a global health crisis, but the worst economic crisis since the Great Depression of the 1930s. And it's happening, furthermore, in one of the hottest years on record.
A year into the pandemic, Latin American countries are not just seeing more poverty, unemployment, insecurity, economic slowdowns and public spending gaps, but also some dire effects of climate change such as floods, droughts and deforestation, among others.
China is an important agent of this aggravated pollution, as its rapid growth over three decades has fueled demand for goods and services to meet its energy demands, provide food security and keep its industrial activity humming.
China's presence in Latin America has hastened environmental degradation.
China only has 7% of all arable lands and 6% of the world's water resources (ECLAC, 2017). Latin America, in contrast, has 24% of all forests and arable land, more than 30% of the world's water resources and extensive oil and mining resources (Isabel Studer, 2019).
Little wonder that China has had an increasingly marked presence in Latin America and the Caribbean, especially in the last decade. That presence has come about through four channels tied to the extraction of raw materials and related industries: trade (based on exchanging raw materials for manufactures), investments (concentrated on extractive sectors like oil, mining, coal and big farming), financing (mostly conditional on payment with oil or use of Chinese firms), and construction of mega-infrastructures (often in environmentally fragile and socially vulnerable territories).
All these activities have hastened environmental degradation through increased pollution and overuse of water resources, deforestation and expansion of farming lands, exhaustion of non-renewable resources, threats to the survival of local communities, and the renewed dependence of Latin American economies on primary or raw materials.
A part of Peru's Amazonian forest devastated by illegal gold mining — Photo : Olivier Donnars
In 2020, measures taken by world governments to curb the spread of COVID-19 gave the planet a breather as fuel use, movement and industrial activity, and their emissions, slowed down. The lull was temporary, however, as large economies like China's are now focused on recovering their pre-pandemic production levels.
Meanwhile, vulnerable Latin American economies trying to revive their economies and meet public spending needs are turning to China for loans, or to renegotiate existing ones. That has meant shelving criticism of environmental problems that have emerged in the pandemic. Examples include the balsa wood frenzy in Amazonian lands, fed by growing Chinese demand (Águilar, 2021), and the presence of Chinese fishing fleets with dragnets in the territorial waters of Chile, Peru, Ecuador and Argentina (GFW, 2020).
But this scenario is also an opportunity to consider the possibility of structural reforms so as to move on from the extractive and unsustainable model that governs Sino-Latin American relations. China's recovery and the renewed impulse given to the Belt and Road initiative will bring new financing packages, infrastructure projects and investments in coming years.
Regional countries are thus at a crossroads in their relations with China. They can keep extracting resources for China, which is the model that marks all aspects of their relations (trade, investment, loans and infracture) and incidentally curtails efforts to build inclusive and sustainable societies. Or they can revise the big economic and financial models that sustain their links and strive to reduce their climate footprints. At this juncture, when entire nations have clearly shown vulnerability to natural events, the second option seems more viable.
Protecting the environment means reflecting on areas like access to drinking water, electricity and food security.
The pandemic has also brought some big steps to defend the environment. In China's case, it made changes last year to its investment strategy with the publication of several, environmentally-minded financing and development guidelines. These include obligating all its banks to use classification mechanisms and filters for projects within the Belt and Road initiative. The aim is to make environmental sustainability a decision-taking criterion in financing projects, both in China and abroad (Sálazar, 2021).
We may add to these the rise of several civic and environmental groups in China that have opened a dialogue with banks and firms.
In Latin America, the Escazú Accord, which regulates people's right to access environmental information and seek environmental justice, recently entered into force as a long-awaited pact to fortify regional environmental governance. It is also an important framework for the development of ties with China.
There are also innovative proposals like debt exchange for natural habitats (biodiversity finance), which China, as one of the world's main creditors, can consider with Latin American states. They can provide it with attractive opportunities to assert itself in the fields of climate and environment, while relieving part of the debt burden weighing on regional states.
Protecting the environment has become essential, and it means reflecting on areas like access to drinking water, electricity and food security. These and other areas are key to assuring a sustainable economic recovery from the pandemic, in a world where more than half of all GDP depends on nature. (F4B, 2020).
*Diana Castro Salgado is a lecturer at Ecuador's Andina Simón Bolivar university.