Chinese Investments in Latin America
As of 2016, China has directly invested, on average, $4.5 billion USD annually within the Latin American and the Caribbean (LAC) region. For China, this likely accounts for 5 to 10% of China’s foreign direct investments (FDI), making the LAC region one of the largest recipients of Chinese FDI.
Beijing’s interest within the region has developed significantly over the past two decades but peaked especially in recent years, highlighting lucrative investments within the region, as well as the productive expansion of Chinese foreign policy since the 1980s. Although Latin American and Caribbean nations have been relatively receptive to Chinese financing, there has been a notable rise in apprehension, catching the sight of regional and global actors.
- Global competition and displacement of power and leverage
- Adverse implication of Chinese LAC investments
Rising Sino-Latin relations have questioned the strength of established Western relations, namely with the U.S. and Europe. The U.S. and Europe have commanded LAC production and yield for most of the 20th century, often in collaboration with each other. However, Chinese involvement has proven successful and desirable by LAC nations, which ultimately tests the existing order within the region. However, that is not to say that LAC nations have not contested growing relations, as Chinese investment has generated leading concerns regarding China’s agenda and intentions within the region.
Since joining the World Trade Organization (WTO) in 2001, China’s diplomatic and economic engagement with Latin America and the Caribbean (LAC) has grown significantly. With the motive to expand its operations abroad, China was looking to invest significantly in foreign energy sources, as China’s energy demand far outweighed domestic production.
This need for natural resources and energy engendered economic and political ties with the LAC. Therefore, during the early 2000s, China announced the “South-South Cooperation Plan,” a “mutually beneficial” development framework focused on aid, investment, and trade between China and LAC. In the 2000s, the PRC signed many bilateral agreements primarily focused on the natural resource sector, particularly in Brazil, Venezuela, and Argentina.
Due to the LAC's competitive oil and gas prices, China has prioritized engagement with oil and gas-producing countries through a multi-pronged approach using “investments, lending, opening up of new trade lines, and creating political agreements to expand its oil and gas frontiers.” As such, it is common for Chinese state-owned companies to form partnerships with Latin state-owned corporations, who were in need of capital and welcomed the new investments, establishing a solid economic and political partnership between the two regions.
Notably, the China National Petroleum Corporation (CNPC) signed a million-dollar deal with Venezuela’s state-owned oil company, PDVSA, in 2004 and in 2010. Since then, the China National Petroleum Corporation (CNPC) has invested in oil fields in Brazil, Venezuela, Ecuador, and Argentina, as well as other LAC countries
As Sino-Latin partnerships continued, the focus on investments shifted over time. With roughly USD 17.7 billion in investment from 2010‒13, Brazil was the preferred Chinese oil and gas investment destination. In second place came Argentina with USD 6.5 billion, followed by Venezuela with USD 2.85 billion and Peru with USD 2.6 billion (estimates differ based on source).
China has also invested heavily in Latin America’s mining sector. China has acquired numerous of the largest mines in Latin America over the past 20 years, such as the Las Bambas copper mine, Toromocho copper mine, and Marcona iron ore mine, all of which are in Peru, as well as prominent mines in Argentina and Chile.
Beijing’s goal in these investments is to become more entrenched in the region both economically and politically, specifically through natural resource extraction, but also through recent infrastructure projects. Between 2018 and 2020, China invested $16 billion in overseas mining, especially focusing on the “lithium triangle” of Argentina, Bolivia, and Chile (and parts of Mexico).
These countries hold about 56% of the world’s lithium. China has also significantly invested in the train infrastructure of the southern continent, establishing projects in Mexico, Brazil, and Argentina. The China Communications Construction Company has established projects in at least 19 Latin American countries. An example of a project controlled by the Chinese is the Bogota subway system.
The reason for these investments has been the large-scale adoption of the Belt and Road Initiative across the continent. The Belt and Road Initiative, originally adopted in 2013, is a wide-scale infrastructure project initiated by the Chinese government, where China offers either loans to foreign countries or builds infrastructure projects in foreign countries. The original goal of the Belt and Road Initiative was to recreate the Silk Road, a widespread trade network from East to West that existed for thousands of years. The Silk Road greatly enriched ancient China and is viewed historically in a positive light for the Chinese state.
Therefore, central Asia was the first area targeted for the recreation of the road, as Central Asia was an integral part of the original trade route. However, China set its sights further than just Central Asia, and first engaged in South America with Argentina, as President Mauricio Macri attended the Belt and Road Forum in May 2017. Currently, 21 countries in Latin America and the Caribbean are members of the Belt and Road Initiative.
Relations also grew significantly during Covid-19 Pandemic, in which China engaged in what is referred to as “Covid Diplomacy.” Specifically, China donated vaccines, masks, and other equipment to Latin America at a time when the U.S. did not. China also provided a $1 billion loan to the Caribbean and Latin America for access to the Chinese Covid-19 vaccine. As of April 2021, China has sold more than 325 million vaccine doses to Latin American countries.
China’s investments in Latin America via the Belt Road Initiative and Covid Diplomacy have impressively boosted the foreign policy profile of the country in the region.
Recent Sino-Latin relations have been a cause of concern for Washington, especially due to the geographical proximity of Latin America and the Caribbean. The Biden Administration has highlighted China as a competitor within the region and aims to utilize its Build Back Better Initiative, a counter-influence to China’s BRI, to strengthen U.S.-Latin ties. Additionally, Congress has proposed numerous bills focused on competition with China, such as the United States Innovation and Competition Act and the America COMPETES Act of 2022.
Both policies aim to contest China’s dominance in the LAC technology and science sector by increasing investment in R&D. The rise in interest within the LAC region comes after prior U.S. negligence within the region. For the past two decades, the U.S. has placed more importance on conflict and geopolitical interests in the Middle East and overlooked improving relations in Latin America and the Caribbean.
Chinese economic dominance within the region could yield damaging results for the U.S. by altering trade priorities and access to critical natural resources, namely rare earth minerals; this comes during a critical shortage of semiconductors. Thus, Beijing's attempts to solidify its influence within the region could pose a risk to the U.S. and its allies in technological competition.
Furthermore, greater Chinese influence within the region has been tied to the advancement of key Chinese geopolitical goals, namely the isolation of Taiwan. Since Beijing refuses diplomatic relations with countries that recognize Taiwan, Latin America’s support for Taiwan has declined in recent years. For instance, the Dominican Republic and Nicaragua recently reversed their positions after being offered financial incentives by China.
As of right now, only eight countries in the region still recognize Taiwan. Therefore, Chinese leverage in Latin America and the Caribbean could “serve to tip the balance far farther towards isolation,” which would be harmful to the U.S. global policy agenda in the long term.
Similar to the U.S., the EU has also recognized growing Chinese influence within the region. The EU and the U.S. have headed relations within the region for most of the 20th century and before; however, China has presented itself as a clear competitor. China has displaced Europe as the second-most important trade partner of Latin America behind the United States.
While China has been able to take advantage of the United States' disregard of Latin America, the European Union has not lived up to expectations with various incomplete negotiations and dissolved deals. However, Europe has made a notable effort to strengthen ties with the region, with a Joint Communication in 2019, and plans to create a “Digital Alliance” with the region. The EU is already planning to spend €3.4 billion for Latin America and the Caribbean to create digital infrastructure to better connect the two regions, as well as combat the growth of Chinese and Russian influences.
While China has helped advance the economic development of Latin America and the Caribbean (LAC), Chinese influence has also come at a cost. For one, Chinese projects in LAC have a track record of environmental destruction and degradation, as well as numerous human rights violations. In a report examining the largest China-backed LAC projects by the Collective on Chinese Financing and Investments, Human Rights and the Environment (CICDHA), they found that those projects damaged local watersheds by polluting toxic waste and interfering with river flows, causing more flooding and droughts.
Looking at 26 of the projects in Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, and Venezuela, CICDHA reported that at least 24 of such are in areas of “great ecological importance”, leaving long-term consequences for biodiversity and ecosystem health.
Furthermore, nearly half of all projects in the study proceeded without consulting local indigenous populations. CICDHA also reveals at least 6 projects continued construction amid the heightening COVID-19 pandemic, yet failed to implement health measures to prevent disease spread.
China-backed projects have also displaced residents (often from places with “ancestral importance” for indigenous communities), with a $1.4 billion Mirador mining project in Ecuador resulting in “the displacement of local populations, land seizures, and environmental damage”. In response to the ongoing environmental destruction, worker abuse, and disregard of local communities, local and indigenous groups have opposed Chinese-funded projects and called for better transparency, regulations, and protocols.
Furthermore, China’s investment within the region has also been criticized for possibly perpetuating “Debt Trap Diplomacy”, where China lends to countries who are unable to pay back loans to hold influence or leverage within those countries. Since 2005, Chinese policy banks have lent more than $141 billion to Latin America—exceeding the combined lending from the World Bank, the Inter-American Development Bank, and the CAF Development Bank of Latin America.
For Venezuela, a country that has borrowed $62.5 billion from China since 2005, critics believe that their debt allows China to ensure economic dependency and oil supplies by allowing repayment to happen via sales of oil to China. Nevertheless, due to drops in oil prices, poor monetary and fiscal decisions, and sanctions, Venezuela has struggled to pay back its loans. Moreover, critics believe that China may take control of strategic assets such as oil fields or ports from countries like Ecuador and Argentina, which have struggled with repayment as well.
On the other hand, experts have also claimed that the debt trap is a myth to fuel tensions with China. For instance, in regards to China’s contentious acquisition of Sri Lanka’s port, Harvard Business professor Meg Rithmire and Johns Hopkins International Studies Professor Deborah Brautigam argue that Sri Lanka’s debt to China only played a small role in China’s acquisition, and the port is strategic “only from a business perspective” rather than a military base. Regardless of whether “Debt Trap Diplomacy” is actively being deployed by China, China’s economic influence in Latin America certainly allows China to gain leverage and bargaining power in the future.
Washington has an undeniable strategic interest in subverting attempts by the Chinese government to expand its reach vis-a-vis comprehensive infrastructure investments. Nevertheless, attempts to undermine Beijing’s growing influence must be done with a careful hand. Latin American countries aren’t joining these projects because their finance ministries haven’t conducted enough research on malicious Chinese intent.
With few alternatives to fund building vital infrastructure, the Chinese option is a very attractive — if not the only — opportunity for LAC countries to pursue advancement. While harsh diplomacy or sanctions for engaging with the Chinese might yield marginal short-term results, a heavy-handed approach will grow the gap between Washington and Latin America — a gap Beijing will only seek to exploit further. With that in mind, however, the U.S. has a series of potential policy prescriptions.
The first, most obvious, and likely most effective, is to ramp up U.S. investment in the region. Washington has a number of mechanisms by which it can do so. Direct investment from the Development Finance Corporation could work alongside regional banks and private sector initiatives. The Biden administration has been taking steps on this front, meeting with 11 Latin American nations to enhance regional economic cooperation.
Nevertheless, formal talks have yet to begin and substantial absences from the initial talks — Brazil and Argentina — could stand as obstacles. Washington’s efforts are in the right direction but must be given adequate material and political resources to come to fruition. Finally, Washington should play to its advantages, leveraging its powerful private sector to spur America-based investment in the region. The line between private business and the party in China’s system is blurry, allowing U.S. companies to present themselves as neutral vehicles of investment.
The second, slower in process, but perhaps more enduring, is to advance U.S. interests in the region through climate diplomacy. The BRI primarily deals in fossil fuels, and its expansion has severely undercut global climate and emissions goals. By leveraging shared interests between climate-vulnerable Latin American nations and the U.S., investments in green technology specifically can offer a more attractive alternative to Latin American leaders.
Through earmarked USAID funds or the State Department's SURE program, Washington can pull Latin American countries out of the Chinese orbit by supporting shared green initiatives. In trade negotiations with Latin American countries, including emissions requirements or programs would force (through careful, consensual diplomacy) Latin American countries away from BRI projects.
Above all, Washington must resist the pull of interventionist policies. Infrastructure investments, especially when used to counter China’s BRI, are primarily political tools. Forceful displacing of existing Chinese investment without attractive, useful alternatives will only push Latin American countries further in Beijing’s growing sphere of influence. Washington must exercise caution and humility. In doing so, it can successfully reassert its position in Latin America through benevolent, productive investment.
The Institute for Youth in Policy wishes to acknowledge Brady Zeng, Ahad Khan, Harry Tong, and other contributors for developing and maintaining the Policy Department within the Institute.
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