Guest Column

China’s Burgeoning Role in Latin America—a Threat to the U.S.?

24 February 2005

By Xuan-Trang Ho, a COHA Research Associate.

• Until recently, Washington has all but ignored that China is making important inroads in the region—China and a number of western hemispheric countries have deepened their cooperation, especially in the areas of trade and development.

• As the world’s second largest and fastest growing major economy, China possesses an insatiable appetite for Latin American natural resources and agricultural products, and is now beginning to realize its full potential as a world power, challenging and, perhaps overshadowing, the United States in a number of economic sectors—China’s quest could rival the U.S.’ need for the same products.

• With $50 billion worth of trade and investments in Latin America, China is promoting its “peaceful rise” policy, while pledging to help Latin American developing countries achieve their own potential.

• U.S. risks losing trade revenue as well as sought-after products to Sino-Latin American cooperation

At its own economic and political peril, Washington can no longer deny that its present chaotic Latin American policy and its strategy of malign neglect toward the region are doing great damage to its hemispheric policy. At the same time, China is making great strides in bolstering its position as a world power. Specifically, Beijing aims to expand trade ties with Latin America in order to sate its growing energy demands. However, China’s ventures into the region may inadvertently signal an assault on Washington’s long term political and economic interests in the hemisphere. The U.S. has far too often treated Latin America as its own “backyard” and will soon feel the repercussions of its policies of abandonment and rhetorical thunder if it does not pay closer attention to the region, which now seems very anxious to look elsewhere for economic benefits and sustainability. With the Free Trade of the Americas agreement on the point of collapse, the Bush administration would do well to sweep clean its present stable of misguided and ill-prepared Latin American policy makers, particularly if it hopes to blunt Beijing’s economic and political offensive.

China Wants Oil, Oil, and More Oil
As China becomes economically more powerful and consumes increasingly larger amounts of energy that befits a burgeoning consumer society, the country’s limited oil reserves will force it to look outside the border for the additional petroleum supplies necessary to run its many industries. Officials estimate that by 2007, China will need to import 50 percent of the oil it will consume.

According to some sources, within one year China will become one of the largest importers of petroleum in the world, second only to the United States. Venezuela, which possesses the largest proven oil reserves in the Western Hemisphere, already is beginning to accommodate China’s access to these holdings. President Hugo Chávez announced during his December 2004 visit to China that his hosts would invest heavily in Venezuela’s oil sector, a move that could ultimately affect the U.S., which is currently the biggest consumer of Venezuelan oil, importing 15 percent of its annual crude oil supplies. Chávez also added that bilateral trade with China is expected to reach $3 billion in 2005, more than double the 2004 figure. In addition, one of the most important deals between China and its socialist ally, Cuba, involves oil. SINOPEC, a Chinese oil company—one of the largest in the world—has announced it will begin searching for potential oil fields off the Cuban coast.

Analysts have estimated that the demand and availability of the world’s petroleum supply will remain tight in 2006 and that fluctuations in crude oil prices will depend to a large extent on the robustness of the Chinese economy and the stability of global geopolitics, particularly in the Middle East. As a result, the rivalry between the U.S. and China for primacy in gaining access to the Western Hemisphere’s energy supplies will prove to be a major challenge for President Bush.

Chinese Investments: The “Peaceful Rise”
As of 2003, China was the world’s second largest economy—only surpassed by the U.S.—and had the highest growth rate of any major country. However, per capita economic indicators also register the country’s extensive poverty. With its entrance into the World Trade Organization that same year, China has since asserted itself as a major power in the international economic arena, in spite of its disabilities at home.

Following recent diplomatic exchanges and in accordance with Chinese President Hu Jintao’s “peaceful rise” policy, good neighborliness and global responsibility with enhanced investment and trade, China committed itself to new investments in Latin America and the Caribbean, totaling more than $50 billion. In the region, Brazil, Mexico, Chile, Argentina and Panama are China’s top five trading partners, while China stands as Brazil’s third-largest overall trading customer and Argentina’s fourth-largest. To Brazil, South America’s most populous country as well as its economic and political powerhouse, Hu offered a deal worth approximately $7 billion in port and railway investments. The Chinese president also pledged wider access for Brazilian goods to China’s market and expressed his hope that trade between the two nations would increase two-fold within three years. In Argentina, still recovering from the massive debt default crisis of 2001, Hu signed deals worth nearly $20 billion over the next decade on investments in railways, oil and gas exploration and construction projects. During his visit to Chile, Hu and President Ricardo Lagos negotiated a deal to send large quantities of Chilean copper to China and secured Chinese financing for new copper mining ventures in his country. Also in December 2004, President Chávez announced a series of oil agreements between China and Venezuela.

In addition to state visits, Sino-Latin American political and economic cooperation has improved contact among regional organizations, such as the China-Latin America forum, China-South American Common Market dialogue, and China-Andean Community consultation. With increasingly close ties and soaring trade worth billions of U.S. dollars, some experts believe that China-Latin American ties have entered their “best period in history.” In 1975, total trade between China and the region was a mere $200 million, slowly reaching $2.8 billion by 1988. From 1993 to 2003, China-Latin American trade expanded by 600% and doubled from 2000 to 2003 when total trade between the two reached $26.8 billion, of which $14.92 billion were Latin American exports to China. From January to November of 2004, trade soared to $36.4 billion.

Despite the fact that some analysts are still dubious about what will happen with the course to be taken in the Latin American-Chinese relationship, one cannot ignore important investments and negotiations that are currently taking place. Washington would be wise to view Chinese engagement with this hemisphere as a matter of importance and worthy of attention. The White House must consider the implications that these actions could have upon future U.S.-Latin American relations. As a commodity-hungry nation anxious to assert its prominence across the globe, China must prove to its new partners in this hemisphere—a continent itself in search of new friends and allies—that its interests in the region will be mutually beneficial, legitimate and long-term in nature.

Mutual Admiration
Chinese Premier Deng Xiaoping’s consolidation of power in 1977-1978 marked a significant turning point in Sino-Latin American relations. After nearly 30 years of Maoist rule, the People’s Republic of China (PRC) embarked on a more pragmatic and outward-looking program of economic development that focused primarily on exports, foreign investment, technology and closer ties with the West. Starting in the same decade, Latin America commenced a shift away from its semi-autarchic economic model towards more open trade policies, which included diversifying and strengthening its international ties. In the 21st century, China and Latin America continue striving to realize their collective economic potential, with interaction among the nations involved increasing markedly in recent years. Both sides have taken bold steps to deepen their political, cultural, and most importantly, economic cooperation.

High-Level Exchanges
In November 2004, President Hu made his first trip to Latin America, visiting Brazil, Argentina, Chile and Cuba in an effort to improve their ties with his country. On this trip, 39 accords were signed outlining agreements on trade, investment, space exploration, tourism and education. Moreover, the PRC agreed to establish new partnerships and deepen existing relations with these countries. Emphasizing China’s traditional friendship and ideological alliance with Cuba as a foundation of Beijing’s policy toward the region, Hu proclaimed enhanced cooperation with all Latin America as a hallmark of the new relationship.

During his 16 day trip to the region, the Chinese president also attended the 12th Asia-Pacific Economic Cooperation (APEC) meeting in Santiago, Chile. In his proposals for regional collaboration and development, Hu emphasized increased investment and technological advancements as his country’s main priorities in this hemisphere and as the necessary precursors for achieving mutually beneficial economic growth. During the two-day APEC summit, Hu also held separate bilateral talks with leaders of the 13 APEC members, including Mexican President Vicente Fox and Peruvian President Alejandro Toledo Manrique.

Continuing its cooperative efforts in 2005, Beijing sent another high-powered team of diplomats to Latin America and the Caribbean. From late January to early February, Chinese Vice President Zeng Qinghong traveled to Mexico, Peru, Venezuela, Jamaica and Trinidad and Tobago to negotiate trade and investment agreements. The collaborative tone of Hu’s and Zeng’s trips had first been initiated by former PRC President Jiang Zemin’s during his visit to Chile, Argentina, Uruguay, Cuba, Venezuela and Brazil in 2001.

Almost all Latin American leaders now have led high-level missions to China to express their interest in broadening cultural and economic ties with Beijing. In December 2004, Chávez became the third Latin American head of state to visit China that year. Preceding Chávez, Argentine President Nestor Kirchner and Brazilian President Luis Inácio Lula da Silva traveled to Beijing, each attended by a group of business leaders.

Third World Solidarity
Chinese leaders have often claimed that all developing countries share common ground and that China “would forever stay on the side of developing countries,” because of their “Third World entities.” The Chinese leadership clearly realizes that domestic development and sound trade expansion rely on stable international economic conditions and some analysts contend that the country’s recent trade offensive signals a stepped-up effort to penetrate South America seeking economic benefits and new trade opportunities. Recognizing this fact, the Chicago Tribune’s Gary Marx wrote on December 20, 2004, that China is “nurturing alliances with many developing countries to solidify its position in the World Trade Organization, flex its muscles on the world stage and act as a counterbalance to U.S. power.” On the same note, David Jessop, director of the Caribbean Council, expressed in the February 6 issue of the Week In Europe that “the range of issues covered and the policy and economic understandings reached by China with Brazil suggest the emergence of a global order in which the countries of the South begin to forge new alliances based on a very different perception of the world.” As China deliberately engages in Latin America, this North-South tension involving the U.S. is becoming palpable.

Jiang Shixue, deputy director of the Institute of Latin American Studies of the Chinese Academy of Social Sciences commented that “China’s robust economic growth has contributed to the economic recovery in Latin America.” Latin American leaders understand that China may help the area to emerge from a regional recession and to finance costly infrastructure improvements, such as those arising from the shortage of potable water. Inviting such a relationship, Brazil, Argentina, Chile, Peru and Venezuela have recognized China’s uniquely appealing market. For its part, China has categorized many of these nations as “tourist destinations,” a status which allows Chinese tour groups to travel to these countries without travel restrictions, thus promoting further bilateral interaction.

A Threat to America’s Backyard?
China is intent on advancing its goal of becoming the strongest economy in the world. Many diplomatic analysts suggest that the blossoming trans-Pacific partnership between China and Latin America, with 400 agreements and business deals already signed in the last several years, could be the most direct challenge to the now multilateralized Monroe Doctrine, issued with the brazen statement that Mezzo and South America lie within Washington’s sphere of influence. While the Bush administration has given priority to The War on Terrorism, stability in Iraq, reconstruction efforts in Afghanistan, and improved relations with its former allies in Europe, China systematically is tapping into resources in Latin America, a region often with weak economies and open to diversifying its present ties to the United States. Dr. Riordan Roett, director of the Western Hemisphere Studies program at Johns Hopkins University’s School of Advanced International Studies, was quoted in Marx’s article articulating a similar sentiment: “There are a lot of things happening in the region that the U.S. is not involved in and doesn’t really seem to care. China is a marvelous fit.”

Latin America offers China many highly valued resources such as a spectrum of raw materials, marketing and investment opportunities and diplomatic alliances, all of which may greatly assist China’s economic development. Some experts believe that Beijing’s oil deals with Venezuela could end up dipping into the country’s crude exports to the U.S., especially after oil prices in the U.S. began to increase in late 2002 and early 2003 due to a politically-motivated oil strike in Venezuela. One such important figure worried about this possibility is Richard Lugar, Indiana Republican chairman of the Senate Foreign Relations Committee, who called for a full report from the U.S. Government Accountability Office about the potential impact of Venezuela’s actions regarding China. Lugar also would like to see various contingency plans drawn so that the U.S. can be adequately prepared in the event that Venezuela will not send “one more drop” to U.S. markets, as Chávez has warned if Washington ever tries to oust him by any non-legal means.

In addition to a potential threat on Chávez’s part, China’s “brotherly” relationship with Cuba is likely to upset the lethally anti-Castro Bush administration. China already has promised to invest in a Cuban nickel operation, which will bring millions of dollars into the country in taxes and royalties. This will boost production in one of Cuba’s most important industries, thereby pumping badly needed funds into a very stressed economy. Along with Cuba’s recent reconciliation with the European Union, enhanced relations with China will go a long way to undermine U.S. efforts to ostracize the Castro government.

The recent developments in the Sino-Latin American relationship illustrate the extent to which Beijing can take advantage of the now skidding links between the U.S. and Latin America, as well as establish major economic and diplomatic footprints in what was normally considered as Washington’s “backyard.” However, not all experts agree with this interpretation of Chinese intentions. In a phone interview with COHA, Dr. Roett responded that it is not necessary for the U.S. to be particularly concerned with China’s ever-increasing role in the region. According to him, the U.S. should do “nothing at all” in regards to improving relations with Latin America in the short term because we are in a “wait and see” process. More importantly, Roett believes that Chávez’s actions are more “anti-American” and “anti-imperialist” in nature, rather than reflecting a particular desire to form an alliance with China. According to him, Beijing’s response stems from a sophisticated group of fourth generation Chinese leaders who are looking to expand their nation’s international presence.

While Dr. Roett believes in the Bush administration’s wait-and-see policy, Washington’s negligence could lead to a serious depletion in its trade revenues and access to vital natural resources from their “backyard” neighbors. As a result, U.S. policy makers would be wise to anticipate the impact of China’s aspirations in this hemisphere and prepare to adjust to a new reality before it is too late.

This analysis was prepared by Xuan-Trang Ho, a COHA Research Associate.

February 24, 2005

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