By tippinsights Editorial Board, TIPP Insights
Over the past two decades, America’s “strategic competitor” has been creeping into the nation’s backyard and cementing its position as a trade and development partner. But, the Middle Kingdom’s overtures of aid and partnerships are never without strings and concerns.
The Monroe Doctrine urged Europe to leave South America well alone and to Washington’s influence. But, America’s role in various coups and regional disputes fostered a climate of distrust and resentment among the peoples of the continent by the 1980s. As the West’s focus shifted to the Middle East, China had no qualms about making deep inroads into the trade, infrastructure, industry, and financing sectors of Latin and South America.
Beijing’s footprints across the continent have grown exponentially over the past couple of decades. The rise of communism, often referred to as the ‘pink tide,’ also paved the way for shared political ideology and economic cooperation. The political wave that brought Left-wing parties to power across South America, in Argentina, Mexico, Bolivia, Chile, Columbia, Peru, and Venezuela, strengthened bilateral cooperation.
Beijing’s pragmatism has a lot to do with the inroads it has made in the short period. President Xi’s administration does not shy away from doing business with authoritarian regimes, corrupt officials, or volatile markets. It often turns a blind eye to human rights violations as long as it serves its interests. For instance, despite Argentina defaulting on bonds in 2020, Beijing continues to pour money into its economy.
Today, China is South America’s top trading partner. Trade between China and Latin American countries grew a whopping 40 percent in 2020-21, touching $450 billion. Brazil, Chile, and Peru list China as their single biggest trader.
Raw materials vital to the latest tech, like copper, lithium, and zinc, are abundant in South America. More than half of the world’s lithium is found in the Lithium Triangle countries of Argentina, Bolivia, and Chile. Like in Africa, Chinese companies, both private and those back by Beijing, have set up mines throughout the length and breadth of the land. The country’s investment is estimated to be around $73 billion in Latin America’s mines, refineries, and processing plants. Coal, copper, uranium, oil, and natural gas are other resources inviting Chinese interests.
Lacking modern infrastructure and the latest industries, many South American countries look to China to turn their fortunes around. Though not initially a part of President Xi’s much-touted Belt and Road Initiative (BRI), launched in 2014, countries like Argentina, Brazil, Colombia, and Mexico are now beneficiaries of copious investments from Chinese firms for infrastructure development. With the blessings from Beijing, private and state-owned firms are building dams, ports, and railways. For instance, Argentina is expecting a $24 billion investment in infrastructure projects in the coming years.
In the past ten years, President Xi has visited the continent eleven times. Adopting a novel strategy, Beijing often deals directly with local officials, even for mega-projects like solar power plants and refineries.
Latin America has become China’s second-largest overseas investment target. According to China’s Ministry of Commerce, the country’s investment at the end of 2021 stood at $450 billion, making up 19 percent of total Chinese overseas direct investment. Chinese firms often offer dirt cheap loans and credit, making it nearly impossible for other players to compete. Reports state that China’s state-owned import-export bank offered a rate as low as 3%.
Under the guise of aid and assistance, Beijing is furthering its agenda. China was accused of perpetuating ‘vaccine diplomacy’ at the height of the Covid-19 pandemic. It has also been reported that in return for development projects, Beijing is demanding that countries cut diplomatic relations with Taiwan.
As has been proven time and again, doing business with Beijing could cost these developing countries dear. The collapse of Sri Lanka is fresh in everyone’s minds. Ecuador borrowed $3.5 billion from the U.S. to escape Chinese debt. Defaulting on debt to Beijing would mean signing away strategic ports or other mega-facilities. Without firing a shot, China would acquire possession of critical assets, employing what is known as the ‘salami technique.’
The skewed dependence on a country with a track record like Beijing’s raises many red flags. Chinese firms are developing mega energy projects, artificial intelligence, 5G infrastructure, and space technologies. Such projects with a powerful and ruthless partner could become potential security risks.
But, as many point out, security concerns and future debt burdens are ‘first world concerns’ for economies trying to mitigate poverty, bridge the income divide and attain prosperity. President Trump’s tough stance toward many of these developing countries had further pushed them into Beijing’s gambit.
President Biden’s “Build Back Better World” to counter President Xi’s Belt and Road Initiative is likely to offer the Latin American developing countries an alternative. The Russo-Ukraine war has forced the EU and the U.S. to turn to oil exporters like Venezuela. China’s ‘zero-Covid’ policy would also offer opportunities to establish new and more expanded trade relations with these developing countries in the South. Such engagement could foster better relations between partners, gradually weaning them from Beijing’s influence. With competitive terms and transparency offered by other democracies, South American countries could develop necessary amenities without risking their economies and sovereignty.
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