China reorganizes Latin America’s economic map
Changes in the regional scenario are proceeding at a surprising velocity. At the opening of the first China CELAC forum in Beijing on January 8th, President Xi Jinping of China announced plans to double bilateral trade, to US$500 billion in 2025. He also stated that in the next decade China will invest US$250 billion in the region, not only for the extraction of raw materials as has been the case until now, but also for infrastructure, technology projects, and research and development. In his recent trip to Brazil, Prime Minister Li Keqiang signed — with President Dilma Rousseff – a comprehensive US$53 billion investment
package (equivalent to the combined GDP of Bolivia and Paraguay). Li then went to Colombia, Peru, and Chile, the three countries that comprise the Pacific Alliance and have a close relationship with the United States. There he revealed commercial initiatives aimed at changing the existing pattern, centred on commodity exports.
One day before Li’s tour began, Vice-Minister of Commerce Daichi Tong stated that China “is committed to diversifying trade with Latin American countries and importing products of higher added value” (El País, May 18, 2015). For countries of this region – sparsely industrialized, or in the process of deindustrialization like Brazil – the Chinese offer is tempting.
The four countries visited by the Prime Minister exhibit very similar schemes of foreign trade with China. Brazil exported US$40 billion to China in 2014, three quarters of which were iron and soy. The rest was oil, cellulose, and sugar. 95% of exports from Colombia to the dragon were minerals, oil, and coffee. Copper, iron, and lead accounted for 63% of Peru’s exports to China, and 70% of Chilean exports were copper (El País, May 19, 2015).
The promise of diversification and infrastructural investment is therefore quite attractive for a region that had not, until now, managed to transcend the rigid international division of labor that places it, with partial exceptions like Brazil and Argentina, as an exporter of raw materials. According to Cepal, primary resources accounted for 73% of exports from the region to China in 2013.
A long-winded shift
In Brazil, Dilma Rousseff and Li signed 35 agreements on trade and investments in financial, automotive, telecommunications, energy, steel, food processing, mining, and oil and gas sectors. They agreed to resume meat exports from Brazil to China and to begin studies for the construction of a transoceanic railway linking the Atlantic and the Pacific, in addition to the sale of 22 Brazilian aircraft company Embraer to Tianjin Airlines. The construction of the transoceanic railway is the most ambitious project, connecting Porto do Açu (Rio de Janeiro state) with a Peruvian port, passing through Minas Gerais and Mato Grosso to Porto Velho and then on through the Andes. Some 5,000 kilometers and an estimated budget of up to US$12 billion. It is the most important piece of infrastructure with Chinese financing, but not the only one. Additionally, they signed a memorandum for the purchase of 24 ships for transporting iron ore from Brazil to China; provided US$7 billion of funding for Petrobras projects; agreed on the joint development of satellites and the installation of a steel complex in Maranhão (state in the Northeast); and arrived at an agreement between Eletrobrás and China Three Gorges Corporation for the mega hydroelectric power station Tapajós, among other infrastructural projects. The Prime Minister put forward the creation of a US$20 billion “productive cooperation” bilateral fund, which will support projects in steel, cement and glass sectors (Valor, May 19, 2015). These are investments that go well beyond infrastructural works, with priority for both countries in the field of trade. Li Keqiang was clear in stating his country not only aims to continue importing raw materials, but also to “set up factories and production lines, guaranteeing more employment for local citizens” (Valor, May 20, 2015). In this regard, he mentioned Chinese interest in investing in the manufacturing and maintenance of subway cars, and the Chery automovile company announced a US$700 million investment in a plant in Jacarei (São Paulo). This came after having opened another factory nine months ago, for which US$500 million was allocated. But the star project certainly is the railway to the Pacific. On that pathway Brazil will export soy and iron ore, but also industrial products that will cross the mountains both east and west, lowering costs as it shortens the number of days needed for transport. “We would like to cooperate to reduce infrastructural costs in Brazil,” Li said (Valor, May 20, 2015).Reorganizing trade
Since its launch in 2000, the IIRSA (Initiative for Infrastructure in the South American Region) has been the major offensive to redesign commercial infrastructure in the region. But now it’s China who takes the lead. Regional infrastructure faces innumerable problems, but the principal one – especially for Brazil – is the outlet to the Pacific that involves crossing the Andes. The two major projects, the Atlántico-Pacífico and the Canal Nicaragua railroads, have China as their protagonist. These are projects that benefit the largest producers and multinational companies. But behind this fact, it is evident that “the Chinese are reorganizing trade and infrastructure in the region” (Carta Maior, May 19, 2015). According to economist Theotonio dos Santos, China’s policy is to “use the colossal economic surplus it has to create a global economy
that addresses not only Chinese necessities, but also serves for a planetary development, in order for us to get out of the subordinate position we have in the global economy. That is in the interest of China, and in our interest” (Carta Maior, May 19, 2015).
This is one of the great attractions of China’s position. As University of Boston professor Kevin Gallagher (author of studies on the China-Latin American relations) states, “if building a high-speed train to facilitate trade with Latin America is successful, [and it is done] inclusively and without harming the environment, China will have everything in order to become Latin America’s new ‘lover’”(BBC Brazil, May 19, 2015).
Observed from Asia, the agreements have a slightly different color. The official organ People’s Daily emphasized the creation of the fund for “productive capacity and manufacturing equipment” and, unlike the Brazilian media, estimated it at US$30 billion. Prime Minister Li stressed that “in order to meet the needs of China and Latin American countries,” China defends “the joint construction of three corridors for logistics, energy, and information, so that the interconnection of the South American continent is achieved “(Xinghua, May 19, 2015).
He assured that Chinese companies are willing to partner with the South American companies in the construction of the three corridors, “through the strengthening of cooperation in railway construction, high voltage power transmission, smart grid electricity, as well as in internet technology and next-generation mobile telecommunications.”
Chinese media insisted on highlighting an aspect that, curiously, was almost absent in Brazilian media coverage. For them, it is not only a matter of injecting money – of which they have much – but to create a favorable environment for the Asian nation. For that, they need to show they are different than Western imperialisms, which have served for centuries on the basis of an unequal international division of labor.
China, regional integration, and industrialization
It is likely that a substantial part of the announcements made during the Prime Minister’s tour are never realised. However, something very important is changing. The change in the economic cycle in China (focused less on exports and oriented more toward its domestic market and high quality products) will have worldwide impacts, on the same scale as the massive commodity imports from the 1990s onward. South America has serious problems in infrastructure and physical interconnection between its twelve countries. In that sense, Oliver Stuenkel, professor of International Relations at the Getúlio Vargas Foundation in São Paulo, reckons “Chinese money is the only chance to physically integrate Latin America” (El País, May 19, 2015). The statement may seem an exaggeration, but if you review the integration projects of recent decades that did not materialize due to lack of funds (starting with the Gasoductor del Sur), it makes sense. Moreover, some analysts argue China is interested in promoting the region’s industrialization. Elias Khalil Jabbour, a researcher on the Asian development model and professor at the Universidade Estatal do Rio de Janeiro, asserts China, in investing in Latin America, aims to
“face its strategic enemy, which is the United States.” Jabbour emphasizes that China acts differently from other global actors like the IMF or the World Bank, which “meddle in the internal politics of countries receiving loans” (Opera Mundi, May 20, 2015). In his opinion, under Brazil’s leadership, “a transfer of China’s production process to the region, that is, a transfer of production units to Latin America” should happen.
For his part, Rafael Gonçalves Lima, who has a degree in international relations from the University of Campinas and a Master’s in International Relations from the University of Jilin in China, argues that Prime Minister Li’s proposals “fit into China’s grand strategy,” which considers Latin America “a vital area for the long-term interests of China, either for its attractive domestic market or for its richness in energy, minerals, food, and other resources essential for the success of China’s development” (People’s Daily, May 22, 2015).
But not everything is economics. The pursuit of multipolarity is one of China’s diplomatic flags that, in fact, converges with the strategy of several Latin American countries. In that sense, director of the Observatory of Chinese Politics Xulio Ríos reckons that “the combination of demand for infrastructure in the region with Chinese funding opportunities and its commitment to the internationalization of its companies, offers the ideal framework for effecting a change in the patterns of relation, making it so Latin America advances substantially as China progresses “(Rebelión, May 22, 2015).
It is as a relationship outside the logic of the market that puts China-Latin American relations in a very different place from the one followed by the West for five centuries. If China employs in its international relations a break from neoliberalism, it “can find a key ally for urging a new global governance in Latin America” said Ríos. That happens by overcoming asymmetries, respecting the environment and peoples’ rights to their territories, and putting politics – not economics – at the helm of relations between the countries.