06 nov China’s Economic and Political Influence in Latin America
By: Victorino Bernal & Yamir Hickey
Over the last two decades, the People’s Republic of China has increased its foothold in Latin America via a strategic expansion of economic, cultural, and diplomatic ties. During this time, trade between China and Latin America increased by approximately US $471 billion, while the United States and the European Union largely failed to thwart the PRC’s expansion efforts. As many countries in Latin America move to strengthen their economic relationships with the PRC as a growth strategy, the region has become fertile ground for an economic and geopolitical battle between China and the US.
Trade by Design – China’s Foreign Policy Deployed
The PRC has used trade and investment as its primary incentive to establish stronger ties with Latin America. Over the past two decades, Chinese and Latin American trade rose from US $12 billion in 2000 to US $483 billion in 2022. The PRC has strategically focused on deploying capital in the region’s infrastructure, mining, and energy industries. Since 2005, the China Development Bank and the Export-Import Bank of China have distributed 117 loans throughout the region totaling US $138 billion, the majority of which has been earmarked for Ecuador, Venezuela, and Brazil. As of August 2023, the PRC’s Belt and Road Initiative, its cornerstone project aimed at physically connecting East Asia with the rest of the world through infrastructure investments, has reportedly created 400,000 jobs and relies upon the participation of Venezuela, Ecuador, Peru, Bolivia, Chile, Argentina, and Uruguay.
In exchange for favorable loan and investment terms, the PRC has gained favorable access to natural resources in the region. As of October 2022, China represents the largest investor in Peru’s mining sector, controlling seven of Peru’s largest mines, 100% of Peru’s iron production, and 25% of its copper output. In the mining sector, as the EV car industry’s demand for lithium has risen, the PRC has promptly secured investments in South America’s Lithium triangle of Argentina, Bolivia, and Chile. Lastly, within the energy sector, PowerChina has marketing and management operations in 35 countries across Latin America, and 330 active projects in 21 countries in the region. It currently holds projects in execution phases within Argentina, Bolivia, Costa Rica, Cuba, Ecuador, Honduras, Mexico, Trinidad and Tobago, and Venezuela.
Further expanding the PRC’s influence in the region, countries such as Brazil, Argentina, and Bolivia have begun using the yuan for Chinese imports, replacing the US dollar. Moreover, several nations are actively pursuing bilateral free trade agreements with and investments from the PRC, to bolster their local supply and value chains.
In recent years, China’s relationship with Latin America has increased in importance geopolitically. The PRC operates a space station in Argentina’s Patagonia region, which can be used for satellite surveillance and has assisted China’s moon missions, with no physical oversight by the Argentinian government. Between 2009 and 2019 the party sold more than US $615 million worth of arms to Venezuela, as well as funded the Maduro regime’s Fatherland Card – a technological platform and database used to control access to food and build a system to supervise individual’s social, political, and economic behavior. Finally, in June of this year there were reports that Cuba had allowed China to setup an electronic-spying facility on island. In recent months, General Laura Richardson of the US Southern Command has underscored the adaptability of many of the PRC’s economic initiatives, suggesting their potential to support military objectives.
Broadly, trade dynamics between China and the US, the world’s two largest economies, have undergone significant transformations due to escalating tensions. Trade data from January shows a slowdown in trade between the two nations and despite reaching record high in July 2018, the growth rate of trade between China and the US has now consistently lagged their respective trade with other global partners. Broader still, there are worrisome indications of a what analysts globally are calling a reorientation of trade aligned with geopolitical considerations, a phenomenon called “friend-shoring”. Following the outbreak of the Ukraine conflict, international trade has already exhibited greater sensitivity to geopolitical factors. Following events in Israel and Gaza, we may see further increases in conflict worldwide, resulting in increases of trade efforts used as proxies for geopolitical decisions.
Need for US Participation – A Reprioritized Strategy
Latin America and the United States share a rich history, culture, and deep economic interdependence spanning over two centuries. Partnerships focused on addressing issues like narcotics and regional stability remain robust, with countries like Colombia and Brazil playing pivotal roles in these collaborations. Nevertheless, over the past 15 years, the US has exhibited a degree of ambiguity towards the region and withdrawn from the multilateral order. Notably, there is currently no official strategy document outlining measures to counter the growing influence of the PRC in Latin America. On the contrary, the US’s imposition of sanctions on several countries and reduced funding for regional organizations inadvertently pushed some nations closer to the PRC. Legislative proposals aimed at encouraging reshoring from the East to the Western Hemisphere exist, such as the Western Hemisphere Nearshoring Act (HR 722). However, they have yet to be implemented or ratified. Closer cultural and historical ties between the US and Latin America may force a coalition of countries converging on a consensus around democracy, human rights, fair trade, and more sustainable development, but policy initiatives must be executed to this effect.
During the 9th Summit of the Americas, hosted by the US in California in June 2022, US President Joe Biden set out to identify how US engagement in the region could be enhanced in the near term. While in attendance, he announced the Americas Partnership for Economic Prosperity (APEP). The initiative’s stated objectives included reinvigorating regional economic institutions and mobilizing investment; making more resilient supply chains; creating clean energy jobs and advancing decarbonization and biodiversity; and, ensuring sustainable and inclusive trade, among others. What this will yield in practice remains to be seen, but if both the US and the PRC focus on valuing the region accordingly, Latin America seems to be poised for an increase in geopolitical and economic relevance.