The new litter of Left-wing governments in the region are eager for further growth, excited that China can provide a viable economic development path.which offers the added attraction of eluding its old nemesis, the United States.
“What Brazil wants to propose to China is that we have to build a hundred things,” declared President Luiz Inácio Lula da Silva upon his arrival in China about two weeks ago.
In the words of the Brazilian Finance Minister, Fernando Haddad, the goal is to “reindustrialize Brazil in partnership with Chinese capital.” Chinese activity in the region is changing.
(Read here: How would a conflict between Taiwan and China affect Colombia and the world?)
The narrow focus on gaining access to South America’s vast natural resources, which guided his investments for the first decade and a half of the century, has extended to a portfolio that includes companies in renewable energy generation, telecommunications, electricity distribution and even ride-sharing. .
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Nervousness inside the United States?
The US national security apparatus is definitely getting nervous.
In the words of Army General Laura Richardson, head of the US Southern Command, in an appearance before Congress last month, the Chinese incursions represent “a strategic risk that we cannot accept or ignore.”
However, the pattern of Chinese activity in Latin America suggests that both scenarios are a bit overstated. Xi Jinping It has no reason to reindustrialize Brazil. And China’s myriad investments in Latin America remain relatively small.and too spread out, to justify fears that a hostile giant is on top of the United States from across the southern border.
In the words of David Dollar, a former China expert at the World Bank and US Treasury now at the Brookings Institution, “it is a misconception that there is a China Inc. driving investment decisions.”
What does China want in exchange for its money in Latin America?
Enrique Dussel Peters, coordinator of the Chinese investment database compiled by the Latin American and Caribbean Academic Network on China, highlights a clear change in the geographical and sectoral composition.
The percentage of investment in raw materials has been declining steadily, from close to 95 percent in the five years from 2005 to 2009, to just over 41 percent in the last three.
China remains interested in energy, but it is no longer focused solely on fossil fuels, but is increasingly putting more money into solar and wind generation.
Investments in local services -from the electricity grid in Lima to Club Med in Santo Domingo- have gone from just over 1% of total investment in the period 2005-2009 to just under 35% in 2020-2022.
With the change in industrial focus, the regional presence of Chinese capital has also changed.
In the first five years of the century, Brazil attracted around 77% of all Chinese direct investment in Latin America and the Caribbean. Last year it only attracted 47.5 percent. Mexico, for its part, increased from 11% to 21%, while Argentina went from almost nothing to 26%.
China invests more than the United States towards the global energy transition
“The global energy transition is underway and Latin America is a deposit of many strategic minerals.”
It’s natural for Chinese money to create excitement, especially when you consider that American companies like Ford left Brazil and Sempra Energy, Peru.
China’s net direct investment in Latin America has surpassed that of the US in recent years. It has become, by far, the largest export market in South America.
According to Cynthia Sanborn, from the Center for Studies on China and Asia-Pacific at the University of the Pacific in Peru, we are in another era of potential boom.
“The global energy transition is underway and Latin America is a deposit of many strategic minerals,” he highlights.
In March, Honduras broke with Taiwan to establish diplomatic relations with mainland China. In Paraguay, the last South American country that maintains an embassy in Taipei, last Sunday’s elections, where Santiago Peña won, could also change the landscape.
Last year, Argentina’s President Alberto Fernández signed an agreement to incorporate his country into China’s Belt and Road Initiative, joining 20 other Latin American countries in exchange for $23.7 billion in projects and investments planned by China.
However, the story fits neither with the dreams of Brasilia nor with the fears of Washington.
“Direct investment from China does not necessarily seek to industrialize Latin America, it seeks access to raw materials,” said Dussel Peters. “But the transactions of the last few years show a growing orientation towards internal markets.”
In search of new less developed markets
The old logic of Chinese investment – buying mines for the minerals, and ports and railways to ship them – now works alongside another motivation: finding new, less-developed markets in which to grow.
This applies to both Didi’s entry into Mexico, Colombia and Brazil as well as the purchase by China Yangtze Power Co. of a large part of the Lima electricity network from Sempra.
Mexico has benefited somewhat from investment by Chinese manufacturers trying to circumvent new US tariff barriers against Chinese goods. But other than that, there is very little evidence: less than 20% of Chinese investment in the region in the last three years has gone into manufacturing.
There is no doubt that the world’s largest producer of lithium-ion batteries will be very interested in exploiting the vast lithium deposits in Latin America. However, there is some distance between this and the aspiration for an industrial renaissance at the expense of Chinese money.
Earlier this year, Alberto Fernández told Chinese television that “every time I speak with a Chinese investor I insist that if we are going to exploit lithium, we transform lithium into batteries and export the batteries and not the raw lithium.” .
However, while Chinese investors have poured billions into lithium mining projects in Argentina since 2018, so far there are no investments in lithium-ion batteries.
Fernández’s dream does not fit with the strategy “Made in China 2025” from Beijing to boost its advanced manufacturing.
Both he and Lula might remember the heady days of the early part of this century, when China’s appetite for raw materials helped fuel a good decade of rapid economic growth across South America.
Even before China slowed and South American economies plunged, fears were widespread that the embrace of the Asian manufacturing powerhouse was deindustrializing their economies, undermining their industrial base while stoking demand for their raw materials.
US to reassess the Chinese move?
Washington, meanwhile, may want to reassess how fearfully it reacts to every Chinese move.
Evan Ellis, Professor of Latin American Studies at the US Army War College’s Institute for Strategic Studies, suggests that Over the past 20 years, China has pursued one goal in Latin America: the ability to promote its own prosperity.
This would encompass everything from ensuring access to food for its people and to natural resources for its industrial development, to finding markets in which to capture added value for Chinese companies, and perhaps even buying goodwill and shaping China’s political systems. the region to ensure that no one stands in the way of China towards its goals.
It is true that public companies represent about 70 percent of Chinese direct investment in Latin America. A story about the advance of the Chinese state in the region could be justified.
But the diversity of sectors and individual players – Huawei, but also private transportation giant Didi – suggests that the argument that China is building a strategic investment arsenal south of the border is somewhat overstated.
“There is a lot of competition between the various Chinese bureaucracies and public companies,” says Dollar. “I don’t think there is a master plan.”
EDWARD PORTER
Bloomberg
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