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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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China Is Aggressively Expanding Its Influence In Latin America

  • China’s increasingly aggressive attempts to expand its influence in Latin America are setting off alarms in Washington.
  • China is building relationships with resource-rich nations in the region, with a particular focus on both Ecuador and Colombia of late.
  • While China’s relationship with Venezuela cooled in 2017 due to corruption, the two countries are in talks once again to restructure loans.
China

Washington views China’s attempts to aggressively expand its influence in Latin America with increasing alarm. Beijing is using its considerable economic clout as the world’s second-biggest economy to ramp up relationships with Latin America’s resource-rich nations at Washington’s expense, as the rivalry between the two global powers intensifies. An area to emerge in recent years as being of particular interest to Beijing is the resource-rich countries situated in the northern Andes of South America. After more than a decade of China’s state-controlled enterprises investing in mining, oil, and infrastructure projects in that region, Beijing is moving to formalize those relationships in the form of various treaties. These developments have sparked considerable consternation in the U.S. which for over a century has been the traditional hegemonic power in Latin America.

 

In the latest concerning development, the impoverished Andean country of Ecuador, Latin America’s sixth-largest oil producer, announced the signing of a free trade agreement with China. This occurred much to Washington’s chagrin with the U.S., especially since the pandemic, seeking to blunt Beijing’s rising influence in Latin America. This is a surprising event because Ecuador’s rightwing President Guillermo Lasso has frequently made it known that he is pro-U.S. and sought closer financial and trade ties with Washington. But a lack of attention from the White House forced a fiscally strained and heavily indebted Quito to seek support elsewhere. It is China which readily filled the role with Beijing having provided Ecuador with crucial financial support and developed critical infrastructure, as well as energy projects in the country over the last decade.

The deal, which has yet to be sanctioned by Ecuador’s National Assembly, will deepen trade ties by giving preferential access to China for nearly all of Ecuador’s agro-industrial exports such as shrimp, coffee, and bananas. Quito expects the trade agreement to boost non-oil exports by up to $4 billion over the next decade thereby improving a flagging balance of payments and bolstering government coffers. The deal will strengthen ties between Ecuador and China at a crucial time with Quito struggling to boost export income and faltering fiscally crucial oil production

It was during the tenure of leftist President Rafael Correa, in office from 2007 to 2017 when Beijing’s relationship with Ecuador became particularly important. Over that period China became a key trading partner and Beijing backed important infrastructure projects, including the controversial Coca Codo Sinclair Hydroelectric project, while providing billions of dollars in oil-backed loans. It is believed that Ecuador owes China around $5 billion, giving Beijing considerable leverage with Quito. Much of that debt is backed by Ecuador’s petroleum production, forcing the Andean country to allocate a proportion of its declining oil output to meet those financial commitments. 

China isn’t only seeking to strengthen ties with Ecuador. Much to Washington’s exasperation Beijing, over the last decade, has been courting the governments of many resource-rich countries across Latin America with Venezuela and Colombia of particular interest. Elevated U.S. pressure on Venezuela after Hugo Chavez assumed the presidency in 1999 and kicked off his socialist Bolivarian revolution with its anti-American sentiment piqued Beijing’s interest. As Washington applied ever greater pressure to an authoritarian Caracas, particularly after President Barack Obama declared Venezuela to be a national security threat in 2015, Beijing provided crucial economic support to President Hugo Chavez from 2007 and then President Nicola Maduro. By 2020, Caracas had received nearly half of all loans made by China in Latin America, with it estimated at the end of 2022 that the outstanding debt could be as much as $12 billion. 

Even as that relationship rapidly cooled from 2017 onwards because of endemic corruption impacting Beijing-sponsored projects, China remained a key buyer of Venezuelan oil even after President Trump ratcheted-up sanctions to cut Caracas off from global financial and energy markets. There are signs that the relationship between Beijing and Caracas is thawing with renewed talks between the two nations over restructuring Venezuela’s loans. China National Petroleum Corp., once a major investor in the OPEC member’s oil industry restarted operations in 2021 in an effort to ramp up output from the Sinovensa oil project which recently saw production reach 90,000 barrels per day, roughly double what it had been two years earlier. If discussions between Beijing and Caracas are successful it is likely that there will be greater investment from China’s state-controlled energy companies in Venezuela.

China is investing considerable effort to build closer ties with Colombia the closest U.S. ally in Latin America. During a 2016 visit to Colombia, China’s foreign minister stated the country wanted to start talks on the feasibility of a free trade agreement between the two countries, although no deal has been inked to date. That announcement came on the back of firmer trade relations between Colombia and China that had been deepening since 2011 during the administration of then-President Juan Manuel Santos. China is now Colombia’s second-largest trade partner after the U.S., to establish a bilateral free trade agreement, although no deal has been agreed upon to date. Beijing is focused on leveraging the importance of its trade with Colombia, with China during 2022 the source for nearly a fifth of all imports into the Andean country and the destination for 4% of all exports.

In July 2019, the then hard-right President Ivan Duque made an official visit to China to promote investment in Colombia and boost demand for the Andean country’s exports. During that visit, he even committed to China’s multibillion-dollar Belt and Road Initiative, although Colombia never became a signatory. This came on the back of various state-controlled Chinese enterprises including Sinochem, Sinopec, and Zijin mining acquiring Colombian commodity assets over the last decade while others are involved in developing vital infrastructure. In 2019, then rightwing Bogota Mayor Enrique Peñalosa awarded the $12 billion contract to construct the city’s metropolitan rail system to two Beijing-controlled companies China Harbour Engineering Company Limited and Xi'an Metro Company Limited.

Ever-closer ties between Colombia and China concerned Washington so much that the Biden White House reputedly sent a diplomatic mission to Bogota in 2021 in an effort to head off further agreements between the two countries. That, however, may have been too little too late. Current leftist President Gustavo Petro has made no secret of his desire to forge a more independent path from long-time key ally the U.S., which aside from building closer ties with regional neighbors could see him seek to bolster ties with Beijing. Indeed, in a recent missive (Spanish) Petro’s administration recognized China and not Taiwan as a legitimate state.

China continues to consolidate its position in Latin America where it is focused on strengthening ties, at the expense of the U.S., with the region. This includes forging closer ties with countries like Colombia and Ecuador where Beijing does not wield significant influence, while repairing the cracks that emerged with Venezuela as corruption and debt fractured what was a solid relationship. This forms part of China’s strategy to expand its influence and challenge U.S. hegemony in Latin America while gaining access to vital natural resources such as oil, coal, and metals. For a region where anti-U.S. sentiment runs deep after decades of Washington’s interference, Beijing with its tremendous economic clout and apparently inexhaustible government coffers appears as an attractive partner.

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By Matthew Smith for Oilprice.com

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  • DoRight Deikins on May 15 2023 said:
    China has been very active in Central America also, especially with energy infrastructure (hydroelectric, among others). The great majority of cattle products is shipped from the deforested hills and valleys of C.A. across the Pacific to China. After all, who would want Honduran beef in the US? Yet, it is a larger export than coffee.

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