In Latin America Tour, China’s Xi Shows Maturing Approach to Region.
By Margaret Myers, July 15, 2014
On July 14, Xi Jinping began his second official visit to Latin America as president of China. The trip touches off with Xi’s participation in the sixth BRICS summit in Fortaleza, Brazil, which begins today. After this meeting of emerging market leaders, Xi will attend a Community of Latin American and Caribbean States (CELAC) meeting in Brasilia, followed by visits to Argentina and Venezuela, where China maintains substantial energy-related interests. Xi’s Latin America tour will conclude on July 23 after a stop in Cuba.
Xi’s trip is largely consistent with China’s previous state visits to Latin America. Brazil, Argentina, Venezuela and Cuba are all top destinations for Chinese leaders. Chinese presidents visited Argentina and Venezuela on five occasions since 2006. Brazil and Cuba entertained China’s supreme leader four times over the same period.
Xi’s agenda in each country, moreover, is unlikely to deviate much from previous high-level visits. Xi is yet again expected to affirm his country’s commitment to bilateral and regional partnerships and to offer promises of additional investment and cooperation. Hydrocarbons will be a top focus in Argentina and Venezuela, in particular.
The meeting of CELAC country officials isn’t a departure from China’s established pattern of engagement in Latin America, either. The meeting is expected to result in the establishment of a China-CELAC foreign ministers forum, which some observers have interpreted as an intentional challenge to U.S. influence in the region. But China’s affiliation with CELAC, of which the U.S. is not a member, is indicative of Beijing’s persistent efforts to address the region as a whole. China is looking, in particular, to duplicate the effectiveness and efficiency of its Forum on China-Africa Cooperation (FOCAC). Through FOCAC ministerial meetings, China is able to communicate with 50 African nations at once. It hopes that CELAC will be a similarly effective platform.
More notable than Xi’s itinerary, perhaps, is the context in which his trip is taking place. This visit, in many ways, corresponds with a new phase in China-Latin America relations. It is one that is still largely based on China’s interests in the region’s raw materials and markets, and in which Beijing retains the upper hand. But as China expands its global presence, its relationships have also matured considerably.
China has learned from successes and setbacks overseas; discussions about new approaches to the region are now taking place across institutions, at various levels of government and at the firm level. China’s mining firms in Peru, for instance, have learned valuable lessons about effective community engagement and environmental management. The kinds of deals that often characterized China’s initial approach to Latin America—seemingly risk-prone and uninformed efforts to control 100 percent of an overseas asset, for example—are no longer the norm. Chinese firms are more readily engaging in mergers and acquisitions to take advantage of the networks and expertise of acquired firms. Chinese companies are also effectively taking part in investment consortia and integrating themselves into established resource supply chains.
Three of Xi’s destinations this time around in particular—Argentina, Venezuela and Brazil—taught China some of its toughest lessons about investment and foreign policy in Latin America. By contrast, Cuba has had less of a clear impact on the evolution of China’s foreign policy and economic activity in the region, and China’s alliance with the island country is in many ways a relic of pre-reform-era foreign policy.
Argentina has been an attractive destination for China because of its numerous natural resources, relatively large domestic market and perceived preference for state-to-state deal-making. But Argentina is as difficult to navigate for Chinese firms as it is for other multinationals. Chinese state-owned oil giant Sinopec’s profit margins are shrinking as it grapples with unexpected tax and wage increases. Argentina’s strict control over foreign trade and exchange are also troubling to Chinese firms.
Nevertheless, a foot in the door is more valuable at this point than large profit margins. Xi’s talks in Buenos Aires will likely focus, therefore, on improving the trade relationship and additional bilateral cooperation in oil and natural gas industries. The Argentine government also expects China to boost investment in infrastructure development, wind power and railway construction.
China and Venezuela, meanwhile, have both promoted the friendship that exists between the two countries. China is a lender of last resort for Venezuela, having issued the South American nation almost $50 billion in loans—many of them backed by oil—since 2005. But the friendship isn’t what it used to be. After extensive misuse of funds under former President Hugo Chavez, China is keeping an increasingly close eye on Venezuela. In 2011, Beijing reportedly dispatched inspectors to Venezuelan ministries and national facilities to study how Chinese money was being spent. In his meeting this week with Xi, President Nicolas Maduro will no doubt be held accountable for his country’s recent use of Chinese loans.
Brazil, for its part, is more outspoken about bilateral trade imbalances and China’s general lack of foreign direct investment (FDI) in strategic sectors. For over a decade now, South American exports to China have consisted nearly exclusively of primary commodities. China exports mainly manufactured products and, increasingly, high-tech goods and services to Latin America. FDI is similarly focused on natural resources and related infrastructure development.
In response to Brazilian criticism, China has promised to address the region’s trade-related concerns and requests for value-added investment on a number of occasions, most notably during former Premier Wen Jiabao’s CELAC visit in 2012. Xi is very likely to do the same during his trip.
While not groundbreaking, Xi’s country visits are suggestive of China’s continued commitment to political and economic engagement throughout Latin America and the Caribbean. Xi’s trip and BRICS-related efforts are also further indication of China’s expanding global presence. China is already a top trade partner and financier for many countries in Latin America and other regions. If plans for a BRICS bank are any indication, China isn’t stopping there.
Margaret Myers is director of the China and Latin America Program at the Inter-American Dialogue.