Home Topics Economy, trade & employment Venezuela's love affair with China

Venezuela’s love affair with China

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By Erika Rodríguez, for LAB

venezuela_chinaPresident Hugo Chávez with a Chinese delegation in November 2011Since the beginning of the 21st century so-called “China fever” has gripped nearly all of Latin America. There is, however, one country that has done more than the others to promote business with China: Venezuela. After many official trips to China, Venezuela has signed at least 300 bilateral agreements and Chinese-Venezuelan relations have been growing at a relatively fast pace. Trade between Venezuela and China increased from less than US$500 million in 1999, when Chavez took office, to an estimated US$7.15 billion in 2009. Today Chávez feels confident enough to declare Venezuela’s oil production to be at “the disposal of the great Chinese Fatherland”. At the same time, US-Venezuelan relations are deteriorating just as fast, constantly affected by Washington’s disapproval of the way Hugo Chávez is developing pro-leftist and pro-socialist policies.

According to the CIA world fact book, Venezuela currently possesses the second largest proven reserves of oil in world (211,200,000,000 bbl.). Taking into account that China is the second largest oil consumer in the world and that national production is very small compared with its needs, it is not difficult to see why, out of all the Latin American countries, Venezuela is one of China’s most important strategic partners, possibly the most important. There is, of course, a rhetoric of ‘solidarity’ and ‘progress’ that accompanies this South to South relationship, but reality is much more complex than this. Behind the words lies, on the one hand, China’s interest in securing Venezuela’s oil resources and, on the other, the wish of leftist and populist President Hugo Chávez, driven by a strong anti-Americanism, to reduce his country’s dependence on the USA by increasing exports to China. These efforts have been based on the idea of saving Venezuela from being “the backyard of any empire”.

Through the strengthening of Venezuela’s economic ties with China, Hugo Chávez believes he has found the perfect tool for challenging the USA. In his view, both Venezuela and China have been the target of US aggression and both countries have managed to surprise Washington by standing on their own feet and by building their own paths. However, China tells the story differently; it claims that its presence in the region is strictly commercial, and it is not trying to take sides in any confrontation between the US and China.

In 2007 Hugo Chavez stated that he was willing to cut off the supply of oil to the USA, even if it had severe repercussions for the country. “The Yankee Empire has no limits to its manipulation”, he said. “We will cut US oil, even if we have to eat rocks as a result. We will respond to imperialist pretensions and we do not approve of them being the world’s policeman as it leads to them trampling on the sovereignty of the people, abusing our poor nations and taking advantage of our precious oil. “

In reality, much of this grand-standing was just empty rhetoric. The US remains the most important market for Venezuela’s oil and it is likely to remain so, as it is currently the only country that has the refineries needed to process Venezuela’s heavy oil. Only last year, Venezuela exported an average of 979,000 barrels of oil per day to the US, much more than to any other country. However, China, is catching up: while it was not buying any oil from Venezuela at the end of the 20th century, it now imports close to 400,000 barrels per day.

Indeed, the figures seem to support what some Venezuelan politicians and oil experts are claiming, which is that Venezuela is not seeking to replace dependence in the USA with dependence on China but to diversify Venezuela’s oil market. At the same time, there is clearly an ideological element in President Chávez’s wish to foster closer relations with China. He seems to believe believes that China’s foreign policy is based on the same principles that guide his Bolivarian Revolution, namely mutual respect for sovereignty and territorial integrity, equality and mutual benefit, multipolarity in the world, peaceful coexistence and non-interference in internal affairs. Venezuela and China enjoy such prosperous relationships today, he says, because they both oppose Imperialism, Hegemonism and Colonialism.

The development of China-Venezuelan oil relations has led to a strengthening of relations in other economic areas, with the negotiation of more than 80 large projects, involving US$28 billion in loans and US$16 billion in invest commitments. In 2011 Venezuela benefited from a US$5 billion credit line from China and the two nations moved forward on deals in agriculture, civil aviation, and the steel industry. PDVSA, Venezuela’s oil company, also recently formed a joint venture with the Chinese state-owned company Heilongjiang Xinliang to promote agricultural development in the Orinoco Oil Belt, a zone in southeastern Venezuela that contains a vast oil reserve. PDVSA will own a 70% controlling share in the venture. One of the other major deals that came out of the agreements signed last April relates to Venezuela’s state-owned mining holding company, CVG. Through this deal, Venezuela will supply WISCO, China’s third largest steel and iron company, with 40 million tons of iron over the next seven years, earning $20 less per metric ton than South American competitors, such as Brazil, receive.

It is easy to understand why the Chinese are interested in Venezuela. They believe that they can use this relationship to further three broad global interests in the region. First, they can secure access to primary products. Second, they can expand the sale of Chinese manufactured goods in the Venezuelan market. And third they can use the relationship with Venezuela to open up strategic political and economic areas of Latin America in which they can operate. One of these areas concerns the vexed question of Taiwan. Currently, 11 of the 23 countries that still recognize Taiwan are located in Latin America and the Caribbean. Some of these nations depend on Venezuela for oil, as they receive large amounts of it under favourable payment terms through a scheme known as PetroCaribe. By forging closer relations with Venezuela, China might be able to use Venezuela’s economic leverage to persuade these nations to stop recognising Taiwan.

venezuela_china_logoChávez has his own, very different reasons for wanting a close relationship with China. They are based much more on ideology than on pragmatism or practicality. He believes that China will directly help Venezuela, as he puts it, “to preserve its economic and political viability as it pursues a strategy in the region that defies the US and western economic institutions”. For him, China is important not only for supplying short-term funds for the economy but also, and more importantly, for assisting Venezuela in the extraction of its own commodities. Furthermore, Venezuela also hopes to benefit by being able to diversify its export markets through having China as a preferred partner.

The Chinese have also brought new technological resources to the South American country, including the construction of advanced drilling platforms, oil rigs and railroads, and Chávez is hoping to create a strategic partnership which merges China’s socio-economic experiment with Latin American socialism. One of the most popular technological innovations in Venezuela, made possible by a partnership between Venezuela’s government and Chinese manufacturer ZTE, is the appearance of “El vergatario”, an inexpensive cell phone, locally produced, which is now known as “the cell phone of the socialism of the 21st century”.

All this is worrying Washington yet currently the USA seems not to have developed a counterstrategy for dealing with China’s increasing presence not only in Venezuela but also in Latin America as a whole. The USA seems to have taken a step back, looking and listening closely but not acting. Some experts have suggested that the USA should take a leaf out of Chávez ‘s book and reduce trade with Venezuela, but Javier Corrales, a political science professor at Amherst College and an expert in Latin American politics, believes that, if the US were to do this, it would only politically strengthen Chavez, who is already a master at confronting the US.

However, Chávez has not had it all his own way. China is still reluctant to commit itself a 100% to Venezuela, fearing that Chavez’s strong rhetoric and anti-Americanism could potentially lead to problems in its relations with the USA. In 2005 the Chinese Ambassador to Venezuela, Ju Yijie, stated that China’s interests in Venezuela were strictly commercial. He also stated very significantly that China is fully aware that in the long run the US represents a bigger and more important strategic partner than Venezuela. It is clear that what he meant was that the Chinese would not allow Hugo Chávez to make China his ally in battles against Washington.

In reality, Chávez may be pursuing a dangerous strategy. China can be very tough in defending its policies. It is possible that Chávez ‘s belief that he can use his country’s closer relationship with China as a weapon in the war with Washington could backfire. He could find that he has replaced “the ugly Americans” with “the ugly Chinese”.