BEIJING — China's Prime Minister, Li Keqiang, completed a tour last week of four South American countries — Brazil, Colombia, Peru and Chile — that marks a turning point between the Asian power and the Latin American region.
With his arrival in Brazil on the second day, May 19, Li unveiled a major achievement: a Chinese-Brazilian agreement that includes 35 separate projects amounting to a total of $53 billion. The deals include building infrastructure, finance, aviation, agriculture, renewable energy, telecommunication, and other high-tech sectors, among which are the much talked about "Two-Oceans railway" and the "Belo Monte hydroelectric dam." It is in such deals that we see a shift in China's way of working in Latin America.
Linking the Atlantic Ocean on the Brazilian coast to the Pacific Ocean on Peru's coast, the Two-Ocean Railway will be 5,000 kilometers long, with a total investment of over $10 billion and five years of construction time. Unlike previous Chinese companies' foreign cooperation programs, this project not only involves engineering contracting, but also the post-construction operation.
The two countries' joint statement stressed the crucial importance of the railway project for South America's goal of creating an integrated infrastructure network across the continent.
Peruvian newspaper El Comercio called the railway linking the two oceans "the new Silk Road to Latin America." Peru's Ambassador to China, Juan Carlos Capuñay, pointed out this railway's importance to the country for helping to facilitate trade between Peru's coastal region and inland areas, as well as promoting trade with the Asia-Pacific region.
As for China, once the railway is built, it will no longer need to send ships through the Panama Canal to import bulk commodities such as soybeans and iron ore from Brazil and Argentina.
Ultra high voltage
Currently under construction, the Belo Monte hydroelectric dam will be Brazil's second largest hydroelectric dam complex, and marks the first time that China exports an ultra-high-voltage transmission project. In February 2014, China's State Grid Corp and Brazil's Eletrobras formed a 51% to 49% consortium and successfully won a bid to build and operate a 30-year franchise on a transmission line running from the Belo Monte Amazon dam in northern Brazil to the southeast of the country. This is the first ultra-high-voltage transmission line on the American continent; and the 2,084-kilometer transmission line is estimated to be ready in 2017.
As Renato Baumann, a Brazilian international affairs expert, put it, Brazil would have preferred developing its own large projects, unfortunately it has been "out of breath" in recent years, and funding from China is essential.
Currently in preparation for the 2016 Olympics, Brazil's economy is predicted to shrink one percent this year. Not only will the $50 plus billion of investments promised by Prime Minister Li provide immediate support to the country's shrinking economy, but it will also upgrade China's investment in Latin America.
Compared with China's so-called "first-generation investment," which mainly involved trading raw materials, China is now focusing on heavy industries and deals to build infrastructure.
Such a transition is prompted in part by the decline in commodity prices in the past two years. Latin America was once one of China's raw materials bases. In addition, taking on project contracting and operations help China achieve its goal of expanding globally. Investing farther along on the industrial chain not only reduces risks and increases profits, but it can also upgrade China's industry back at home.
The four countries on Prime Minister Li's tour makes up 57% of the continent's trade volume with China. Meanwhile China has a growing interest in increasing its direct investments in the region and, in particular, in construction projects such as roads, bridges and railways.
As Chinese government data shows, at the end of 2014, China's direct investment in Latin America totaled around $99 billion.
For the first time, in January this year, leaders from Latin America and the Caribbean gathered in Beijing to attend the first Latin America Forum. Chinese President Xi Jinping announced that in the next 10 years China will invest $250 billion in Latin America.