Argentina’s president Alberto Fernández (“Fernández”) announced last month that Buenos Aires had signed up to China’s signature infrastructure development project, the Belt and Road Initiative (“BRI”). The signing, to much regional fanfare, has focused attention on what new opportunities this could bring to Latin America. Argentina now becomes the 20th country in the region to join the initiative.
Fernández’s administration has fostered closer ties with Beijing and the government will be hoping that BRI participation will help galvanise much needed foreign investment as opportunities open up in a broad range of sectors from energy to transport where the region is sorely let down by infrastructure deficits. The agreement also reflects China’s continuing efforts to leverage the BRI to advance its geopolitical and economic interests across Latin America. In February, Beijing backed Argentina’s claims over the Falklands islands – such diplomatic and bilateral support from a major power is attractive to a region with more limited diplomatic clout.
“Argentina’s participation in the BRI is significant. The country will now be the largest economy in Latin America to become part of the initiative,” explained an Argentina-based professor of international relations. A former Bolivian diplomat weighed in on the importance of the agreement, “Argentina joining the BRI is highly symbolic and it consolidates China’s rising profile in the region. Since 2000, trade with China has grown exponentially and in less than a decade, Beijing has become not only a major trading partner but also a major provider of foreign direct investment, second only to the US which has a much more established commercial presence in the region.”
For a fiscally constrained Argentina soon to implement IMF austerity measures as part of its debt repayment plan, the prospect of increased Chinese investment via the BRI cannot come fast enough. Indeed, investment is already significant – in December a raft of agreements was signed in areas including space, nuclear and defence technologies. Alejandra Conconi, executive director of the Chinese-Argentine Chamber of Production, Industry and Commerce remarked that “… an estimated USD 36 billion” had been invested in Argentina through Chinese companies since 2010.
Buenos Aires however is unlikely to be one of the BRI’s more reliable contractual partners. Argentina has a startling track record of non-payment – especially when it comes to large infrastructure projects – and financial volatility is unlikely to dissipate anytime soon.
For China, geopolitical objectives are being advanced in tandem with commercial interests. Beijing is leveraging the BRI to challenge the commercial dominance of Washington across the continent. Fernández said that he expects the agreement to provide Argentina with up to USD 24 billion in investments in the “coming years” at a time when American foreign investment is dwindling. His administration expects Beijing to facilitate both direct investment and offer new lines of credit. Projects worth USD 10 billion in energy, transport and housing are being touted.
More broadly, China has become the most important trading partner for several countries throughout the region and is now the primary import and export partner for Brazil, Argentina, Chile, Peru and Uruguay. It is not just trade but credit that has been a hallmark of recently intensifying relations. “Chinese loans have provided several Latin American governments with billions of dollars, notably these are one of the few credit lines available to the region outside of the current IMF-World Bank framework. These loans have provided funds to countries such as Venezuela, Ecuador and Argentina; administrations which needed foreign exchange the most at a time when it was virtually impossible to source credit from elsewhere,” the former diplomat added.
Certainly, Chinese companies have taken a much more active investment role in the region. Chinese entities have invested primarily in energy and transport infrastructure, some USD 12.8 million was invested in 2019, up from 16.5% in 2018. Touting the potential investment returns that the BRI can bring its members has reaped political rewards for Beijing too.
In the past four years, the Dominican Republic, El Salvador and Panama have each switched diplomatic recognition from Taiwan to China. Establishing new bilateral alliances in the region enables Beijing to count on broader support at multilateral institutions including the UN.
Positive diplomatic relations make fertile ground for China’s companies to compete in tender processes; Huawei, ZTE, Dahua and Hikvision among others, all of which have been sanctioned by the US, have embedded themselves into regional tech infrastructure, allowing Beijing to dictate the rules of commerce for a generation. Port infrastructure is critical – China’s Cosco Shipping is building a new USD 3 billion port at Chancay in Peru, while there are ambitious proposals for a transcontinental railway linking South America’s Atlantic and Pacific coasts from Brazil to Chile.
Argentina’s substantial lithium reserves are attractive for China too and a critical component in Chinese electronics-focused supply chains; in February China’s Zijn Mining announced a USD 380 million investment in a lithium mining plant in the north-western province of Catamarca.
China’s cooperation framework for Latin America
China’s remarkable double-digit growth rates has enabled the country to position itself as a major donor. However, its rise has posed a serious challenge to the current international cooperation framework. China makes little effort to disguise the fact that it seeks to break away from the Western Official Development Assistance (“ODA”) framework and instead position itself as an alternative through a different type of relations. Under the name “South-South Cooperation”, China is proposing a different framework, based on lofty principles like peaceful coexistence and non-intervention in the domestic affairs of foreign states.
An academic based in Argentina explained that the logic that drives China’s outreach cooperation is better understand in the context of a “… dual, conflicted identity. And this is the base to understand the country’s approach towards Latin America. In the region, it is challenging historic US hegemony and is now the top trading partner of the continent’s largest economies.”
On the other hand, it is reticent to abandon its position as leader of the “global south”, articulated in several white papers that outline Beijing’s foreign policy objectives. What then are the mutual benefits of the BRI for both Argentina and China?
China’s trade and investment strategy for Argentina and Latin America more broadly is guided by particular interests and the country has historically taken a pragmatic approach to bilateral relations with the region. During Mao’s and Deng’s leadership, China had economic and political relations with several Latin American governments, irrespective of whether they were democratically elected or military dictatorships. It was during the 1990s, due to the then administration’s ‘openness and reform’ policies, that China began to increase its political engagement with Latin America. In 1993, relations began to strengthen considerably. That same year, Brazil was the first Latin American country to receive the status of strategic partner, followed by Venezuela (2001), Mexico (2003), Argentina (2004), Peru (2008), Chile (2012), Ecuador (2015), Uruguay (2016) and Bolivia (2018).
Strategic partners are those countries with which China has significant trading relationships. These are: Argentina, Brazil, Chile, Ecuador, Peru and Venezuela.
“One milestone for China-Latin America relations can be found in businessman Cheng Wei’s 2005 speech at the OAS in which he remarked that China expected to have diplomatic relations with all Latin American countries, but built on one pillar, the one-China principle. Besides this overarching general condition, China’s interest in Latin America is centred on securing the natural resources and food it needs to sustain both the world largest manufacturing industry and population. Despite the large resources of oil and minerals that China has at home, it still needs to import a large share every month,” explains a US defence and politics adviser.
China is highly dependent on oil imports along with minerals critical for manufacturing supply chains. Thus, China’s relationships with Latin America are best understood within the context of resource dependence. The defence political adviser explained, “Securing natural resources is the true importance that the region has within China’s foreign policy, it is a pragmatic relationship. There is little interest in ideological alignment or aiding Beijing’s geostrategic aims in counterbalancing US power in the Asia-Pacific. This is a relationship dominated by commerce.”
Chinese leadership maintains particularly close relationships with Brazil’s president Jair Bolsonaro and Chile’s former conservative president Sebastian Pieñera, who left office last month. Chinese trade policy has emphasised positioning domestic companies in key Latin American markets and in ensuring that these markets remain open to its products. Indeed, a Chinese white paper published in 2016 reinforced the idea that its diplomacy in the region is mostly interested in economic relations. It was launched one year after the creation of the China-LAC Cooperation Fund during the China-CELAC Forum (2015), when cooperation with Latin America was pointed out as a priority.
“The bilateral relationship dynamics are now characterised by a hierarchical cooperation in which the rich country gives the poor country assistance to develop it capabilities and even money to palliate structural limitations. In the case of China, different kinds of assistance can be expected but in return for the access to natural resources and markets. This is what they call structural complementarity” argues a Chilean scholar.
The inclusion of Latin America
In the nascent stages of the BRI’s physical and digital infrastructure expansion, Latin America was not considered a priority area. Rather, it was China’s increased global projection that extended its vision and lead its government to expand BRI ‘sobre la marcha’.
At a summit of the Community of Latin American and Caribbean states in China in 2017, Beijing formally invited the region to join the BRI. Today, there are 20 Latin American states that are formally part of the initiative including Bolivia, Venezuela, Cuba, Costa Rica, Chile and Uruguay.
Argentina’s ascension to the BRI is significant because the size of its economy dwarfs that of other regional members. Indeed, some 70% of the region’s GDP was not until now participating in the initiative. Now Argentina, by joining becomes the largest Latin American economy in BRI.
The Bolivian diplomat explained, “With the accession of Argentina to BRI, this has shone the spotlight on regional involvement with the initiative. For a long time, BRI was little known or talked about in the region, due in large part because there were no significant infrastructure projects to generate buzz in contrast to the initiative’s more visible footprint in Asia.”
Washington’s counter infrastructure initiative, known as Build Back Better for the World (“B3W”), has its origin in the G7 meeting early in the year. The G7 members estimate that there are more than USD 40 trillion in infrastructure needs worldwide through to 2035. However, the US has not defined the exact figure that it expects to invest for specific projects in Latin America. As a marker, in 2019, Chinese companies invested USD 12.8 billion in the region, mainly concentrated into regional infrastructure such as ports, roads, dams and railways.
Rhetoric vs reality
Amidst the glossy brochures and investment events that bring together politicians and business figures for photo shoots, it is not always easy to understand the longer-term aims of the BRI nor how exactly they will be achieved. According to the Argentinian academic, “There are essentially three lenses through which BRI can be analysed. A realist perspective says it is a Chinese instrument to consolidate geopolitical influence. The second lens is that the BRI is a ‘public good’ providing credit and infrastructure to a Latin America struggling to access credit from international financial institutions such as the World Bank and the IMF. Finally, a more metaphorical lens – that China is using the BRI to challenge traditional western models of infrastructure cooperation.”
Despite its growth, China’s influence in the region appears to be slowing down. During the pandemic, and for the first time in 15 years, Chinese development banks did not make any new loans to Latin American countries amid the Covid pandemic. If Washington spearheads the necessary foreign investment to fill the void, it can help the region to recover pre-pandemic economic activity while addressing democratic issues and fighting corruption. Furthermore, Chinese investments have often neglected ESG concerns, which has given potential investors the jitters.
“BRI in Latin America today is more about narrative than actual physical projects – to some extent, this is understandable given China’s concerns over the poor fiscal positions of regional governments. As economic conditions improve, this dynamic may change. But today, this is what we have,” remarked the Bolivian diplomat.
A Chilean academic explained how BRI works in practice, “The idea is simple, China provides one part of the funding for infrastructure projects and the recipient nation has to agree to provide the other part. However, the design is Chinese.”
Through the BRI, China is offering the region an opportunity to partake in a significant trade route. Regional administrations have been attracted to the ease with which they can join the initiative – no months long bureaucracy, just the signing of a Memorandum of Understanding (“MOU”) and they are members. For the Bolivian diplomat, “China’s interest that Latin American nations sign the MOU is mostly symbolic.”
The BRI’s status in the region currently is more about geopolitical influence than projects on the ground which “… has helped president Xi Xinping to expand the influence of his administration across the region. At the moment, China doesn’t need to assign billions of dollars to an extension of the BRI to Latin America because 20 nations have expressed its support. That is a geopolitical gain,” explained the Bolivian diplomat.
“But, in order to remain realistic”, the diplomat cautions, “… it has to be acknowledged that Latin America as a region has more limited geopolitical relevance for China. Their interest is primarily commodities based. Even Brazil is regarded as having lost much of its former diplomatic clout. Our leverage with Beijing is considerably more limited in comparison to regions such as Asia and Europe.”
Indeed, in economic terms the Latin American and Caribbean region never surpassed 15% of trade flows or FDI China. The majority of Chinese FDI outflows go to Asia, then the West, then Africa, then Latin America. In fact, purchases of minerals and oil from several regional nations have helped China reduce its dependence from other nations.
One of China’s primary commodity interests in the region is copper. Unsurprising then that relations with Chile and Peru – two of the world’s largest producers – have intensified under the BRI framework in recent years.
How can the region’s BRI members use the initiative to more assertively insert themselves into global supply chains, especially as geopolitical developments in Eurasia have given impetus to supply chain reorientations? The Argentinian scholar explains, “My view is that the region should design specific plans for using BRI projects and press China for funds. At the same time, use the membership in BRI to press the US leveraging their newfound utility to Washington as the Biden administration seeks to reorient supply chains to the western hemisphere.”
Exploiting supply chain gaps and inefficiencies will be key to countries across the region exploiting the BRI for themselves rather than being positioned as useful geopolitical pawns for Beijing. The US-China trade war has already developed into a tech war, again opening up supply chain opportunities.
The scholar continues, “… both nations have decided to pursue technological supremacy so all the areas related to high-tech goods will be conflictive. Currently, we already have seen this in 5G and the pressure to implement one technology over the other. The worst thing that Latin American governments could do is take one side.”
Strategic non-alignment is a topic that is gaining relevance. Colombia, Paraguay and Brazil are the only three South American nations that are not part of BRI. Paraguay because it still recognises Taiwan and Brazil because of the global leadership aspirations it has. So, the only nation that has not signed a MOU for BRI, because of its partnership with the US, is Colombia. This should be an example. Colombia is not receiving compensation for its position. So, other governments should be strategically minded enough to pursue an increase in cooperation with both. There is no need to choose one over the other.