Chinese influence to snowball in Latin America

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Washington hegemony is declining and Chinese investments have become irresistible for Latin American countries. Writes Uriel Araujo

Julio Armando Guzmán, Peruvian former presidential candidate and a Reagan-Fascell Democracy Fellow at the National Endowment for Democracy, has recently argued that China is soon to become the largest holder of debt in Latin America  and that the US should try to “combat Beijing’s influence in the region by investing in the local human capital, by providing more scholarships for Latin Americans, and so on. One could argue however that, even from a US perspective, the situation is much more complex.

So much is talked today about American-Chinese competition in the Pacific, which, by the way, goes way beyond the Taiwan issue – for example, in April last year there was much of a turmoil after the Solomon Islands signed a security agreement with Beijing. The US worries about it opening the door to a Chinese naval presence in the South Pacific. Washington in fact has been losing its naval supremacy as a multipolar sea seems to be emerging.

However, Milton Ezrati, an investment strategy consultant and a Center for the Study of Human Capital and Economic Growth affiliate, at the University at Buffalo (SUNY), argues that American hegemony in his Latin American zone of influence is declining in such a way that Washington actually faces in the continent the same challenge today it does in the Western Pacific – namely, China.

About two years ago I wrote about the increasing Chinese naval presence in the Caribbean. In that region, similarly to what happens with the Pacific Island nations, Beijing’s aid policy focuses on granting infra-structure related loans, often accompanied by a more aggressive public diplomacy campaign. Such diplomatic endeavors are also part of a larger geopolitical strategy which aims to further strengthen Chinese-Caribbean ties in other fields beyond trade, including security and maritime cooperation. This is exemplified by the fact that, for the last couple of years, Iranian oil tankers have often been crossing the Caribbean Sea to enter Venezuela’s water largely undisturbed by any US intervention – mostly due to Beijing’s backing.

Yet another development which has contributed to intensify US-China competition in the continent is the large 2020 oil discoveries in Suriname and in Guyana.

Beyond the aforementioned Caribbean region, overall Latin American-Chinese trade has, Ezrati highlights, increased at a remarkable 31% annual rate on average, to the equivalent of about $450 billion a year, thus making the Asian superpower South America’s largest trader, while in the larger Latin America region it is second only to the US itself. Of the 33 nations in the Caribbean plus Latin America, 20 have already joined the Chinese Belt and Road Initiative – and Brazil is considering the matter. Currently, China has free trade agreements with Peru, Costa Rica and Chile, and negotiations with Ecuador have begun. Beijing has also been courting Brasilia and, with Lula’s return to presidency, Chinese-Brazilian cooperation is expected to increase.

Besides direct loans to local governments, most Chinese investment in this part of the world focuses on energy generation, petroleum refining, and development. Such investments have resulted in ports, dams, railroads, and much more. Chinese investments have also grown in strategic sectors such as energy generation and mining. The US does not seem to have much to offer as an alternative.

Beijing seems in any case to be mostly interested in Latin American raw materials, including petroleum, copper, soybeans, lithium for batteries, and so on. Amid today’s food and energy security crises, China is seeking both items, and Latin America plays a very important role in that regard.

As mentioned, the Pacific superpower’s presence in Latin America today goes way beyond trade, though, encompassing cultural, investment, diplomatic, and security ties. Ezrati stresses that China has been also offering military training and defense equipment to Latin American states (albeit it has no confirmed military presence per se so far): it sold such equipment as air defense radars, aircraft etc for about $165 million to Venezuela, Ecuador and Bolivia. There have been unconfirmed signs of Chinese military presence in Cuba in the context of an increased Cuban-Chinese cooperation. The island country has been going through economic and migration crises for over a year and welcomes Beijing’s investments.

China traditionally has been able to turn its financial and economic presence into diplomatic influence. For example, today only eight Latin American countries recognize Taiwan’s sovereignty claims, as opposed to all of them twenty years ago.

This superpower is, according to Margaret Myers, an Inter-American Dialogue director (for the Asia and Latin America program), entering a new phase regarding its global engagement, diversifying its partnerships in the context of a changing international architecture. China already consumes 16% of the planet’s oil, and half of its copper. With its post-COVID “reopening”, Chinese economy is expected to grow by 5.7% in 2023, Morgan Stanley bank estimates – this is of course very good news for Latin American commodities exporters.

Unlike Beijing, due to the different political-economic systems, Washington cannot align its foreign policy goals with the policies of its private banks and companies so smoothly and moreover, the US now has no “overarching strategy” or concept to tie together its disparate policy challenges in the Caribbean, according to Scott B. MacDonald, who is a Global Americans Research Fellow.

Thus, “countering” its Asian rival will be difficult. One could argue that pretty much the same applies, to some degree, to the whole of Latin America. The US still retains its hegemonic position in the continent, but it is visibly declining and one should thus expect an increasingly larger economic, diplomatic (and perhaps even military) Chinese presence there.

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