Sources

Trade Wars Revisited: Will Latin America Bet On China?

Rising tariffs between the U.S. and China may boost trade between China and Latin American states, but ultimately this could harm their economies if all China wants is energy and commodities.

The maritime container port of Qingdao, eastern China
The maritime container port of Qingdao, eastern China
Fabricio Rodríguez

-Analysis-

SANTIAGO The trade war between the United States and China is not slowing down. As one economy raises a new barrier, the other repays it in kind.

In Latin America, this faraway fight for economic power could have an invigorating though in some ways ambivalent effect. China has positioned itself as a key trading and investing partner for our region. Data from the China Global Investment Tracker indicates that, in the period 2005-2017, Chinese investment flows toward the region reached in total $172 billion (or 10% of Chinese investments worldwide), just exceeding the total value of its investments in the United States in those years.

Thus in that time, Latin America and the Caribbean have become important destinations for Chinese capital heading across the Pacific.

And while Latin American relations with Beijing are primarily bilateral, triangular relations are becoming relevant and the United States is signaling its hemispheric concerns. The last U.S. Secretary of State Rex Tillerson took the opportunity of his visits in early 2018 to Mexico, Argentina, Peru, Colombia and Jamaica to warn about what he characterized as China's bid to use its economic clout to "pull the region into its orbit."

There are profound concerns over a possible return to the "commodified" model.

Seeking to revive ties between Washington and its Latin American and Caribbean partners, Tillerson stressed Washington's long-term commitment to the region, though his declarations did little to create a positive impression of the administration he represented. Meanwhile, President Trump was raising a wall, in part imaginary and built of disdain, to pander to his political sympathizers who wanted the U.S. shielded from various Latin American peoples and economies.

Trump apparently sees Latin America as a region that essentially exports migrant groups linked to crime, drug trafficking and disloyal trading practices. The region's political and economic value is emerging precisely in this context, with President Xi's China clearly in an advantageous position compared to the Trump administration. And yet, the economic diplomacy in which China promises mutual respect and benefits, and which has been received so well in the region, is not without problems and challenges. In fact, in several South American countries, there are profound concerns over a possible return to the "commodified" model — with the economy depending on exports of raw materials — due to asymmetrical trading.

At the China & Latin America and the Caribbean Business Summit in Beijing on May 4 — Photo: Li Xin/Xinhua via ZUMA

While China is a vast market, most Latin American exports are restricted to particular sectors and products. Economic competition between China and the United States could make Latin American and Chinese relations more dynamic, but this could also have adverse effects. For example, if China stops importing soy from the United States, this could expand agro-industrial, single-crop farming in the Southern Cone, contributing to more greenhouse gas emissions and further reducing biodiversity. So the new requirements of the Chinese market may become less than encouraging in terms of environmental protection.

This gives Latin America a big responsibility. The challenge is how these countries might strategically approach the spaces opened up by economic conflict between China and the United States.

The vast network of small and mid-sized businesses, civil society and universities need to engage more actively in various aspects of this debate. The data cited for example shows that more than 75% of Chinese investments go to the energy sector. This being of special relevance to national sovereignty and security, these capital flows tend to be negotiated bilaterally, which negatively affects the institutional functionality of several regional cooperation spaces.

This gives Latin America a big responsibility.

In comparative terms, Mercosur won 5% of China's global investments in 2005-17, and the Pacific Alliance, 2%. Yet neither regional block has an explicit strategy to orchestrate these capital flows within a wider policy of renewing its energy grid with Chinese help. This is clearly an outstanding task for regional cooperation.

In conclusion, in contrast with President Trump's rather insignificant policy toward Latin America, contemporary China is offering it a future based on negotiation and cooperation. Recognizing Latin America's weight as a recipient of Chinese investments is an important step toward defining new vectors in this economic relationship. The New Silk Road initiative must create an economic corridor to empower the region's productive and ecological balance, and the energy axis is key here. And if words are indeed echoed in deeds, Washington's Western Hemisphere policy will have to be gauged in comparative terms with the actual practice of mutual respect between China and Latin America.

For Latin America and the Caribbean, this means regional cooperation that values differences in strategic thinking and promotes territorial economies, from the bottom up.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
Economy

Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.


Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
THE LATEST
FOCUS
TRENDING TOPICS
MOST READ