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Oxford Business Group

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China Expands Influence In Latin America Through Belt And Road Initiative

  • China’s trade with Latin America and the Caribbean reached a record $495bn in 2022.
  • Infrastructure commitments undergird rising levels of foreign direct investment.
  • Free trade agreements to augment China’s economic standing in the region.
  • Investment flows are increasingly directed to ICT and green energy.

As part of efforts to build more resilient global supply chains, Chinese investment in Latin America and the Caribbean under the decade-old Belt and Road Initiative (BRI) is continuing to drive major infrastructure projects and fuel trade.

Since its inception in 2013 the BRI has played an important role in powering global economic growth, with emerging markets exporting raw materials to the country and importing refined products in return.  

However, the country’s transition from a manufacturing-driven economy to a services-oriented one is reshaping China’s trade patterns with many emerging markets in South-east Asia. At the same time, competition with the West caused Chinese investment in Europe to fall by 22% last year as European countries blocked 10 of 16 deals in technology and infrastructure.

Against this backdrop, China’s continued investment in Latin America and the Caribbean reveals continuity in its BRI strategy in the region, as well as a growing determination to compete.

Infrastructure and supply chains

Low interest rates and a booming Chinese economy enabled nearly $1trn in BRI investment in emerging markets around the world between 2013 and 2022; however, annual investment has slowed from a peak of $125bn in 2015 to $67.8bn in 2022, according to the Green Finance and Development Centre.

This has opened up space that other nations are seeking to capitalise on. Last June G7 leaders pledged to raise $600bn over five years to finance infrastructure in developing countries and counterbalance the influence of the BRI. 

However, with South America remaining a centre of global supply chain competition for lithium, food and other commodities, China has continued to expand its footprint in the region.

In 2021 Latin America and the Caribbean received between $7bn and $10bn in combined investment from China, with Brazil accounting for $5.9bn of foreign direct investment (FDI) − up from $1.9bn in 2020 − and Argentina, Chile and Peru also receiving sizeable inflows.

Nicaragua and Argentina joined the BRI in 2022, injecting fresh impetus into Sino-Latin American economic cooperation and bringing the number of countries in the region that have signed BRI cooperation documents to 21; Brazil, Mexico and Colombia are the only major holdouts.

Argentina is currently negotiating a series of unspecified construction projects with China to deepen cooperation. In January it completed a $7.2bn currency swap with China, and in April the two countries agreed to drop the use of the US dollar in their bilateral trade.

In Peru, last May China’s state-owned COSCO Shipping Ports announced a $3.6bn commitment to build the Chancay deepwater mega-port, after purchasing 60% of Peruvian mining group and Glencore subsidiary Volcan Compañía Minera in 2019. The project is expected to start operations in the fourth quarter of 2024.

Since joining the BRI in 2018, Chile has benefitted from a series of projects, including nearly $8bn in investment in 2021, according to government agency InvestChile.

However, in April the Chilean government announced that it planned to transfer control of its lithium industry from the private industry giants SQM and Albemarle to public-private partnerships with state control. This could complicate China’s supply chains for this vital mineral used in electric vehicle batteries, as well as Chinese manufacturing conglomerate BYD’s plans to build a $290m factory to produce lithium iron phosphate cathodes in the country.

Investing in ICT

Globally, China allocated 52% of BRI funding to construction and 48% to investment last year, compared to 71% and 29%, respectively, in 2021, suggesting a shift towards more investment-led development.

In Latin America and the Caribbean, however, China appears to be maintaining its traditional BRI strategy of financing infrastructure projects focused on raw materials.

In 2022 South America attracted 17.4% of total BRI funding for construction, far outpacing the previous high of 6.9% in 2017, whereas it attracted 8.1% of the BRI total for investment, down from 19.1% in 2020.

While foreign investment in the region has long centred on raw materials, governments in many countries in Latin America and the Caribbean are eager to develop other sectors, including transport mega-projects that improve regional and international connectivity and trade and ICT. Telecommunications and data centres accounted for $142bn of the region’s FDI in 2021, up 41% from 2020 and equivalent to 18% of the total.

Investment in Brazil’s ICT sector rose by 155% in 2021, and is attracting interest from Chinese companies eager to invest in Brazil’s burgeoning digital banking and financial technology industries. President Luiz Inácio Lula da Silva’s landmark visit to China in April, which covered a range of economic and geopolitical topics, resulted in the signing of 15 agreements, including cooperation on semiconductors, cybersecurity and 5G mobile communications.

The EU is also keen to play a role in the helping the region adopt new digital technologies. In March it established the EU-Latin America and the Caribbean Digital Alliance to expand connectivity through investment, bolster cybersecurity and strengthen digital rights, in an attempt to revitalise its relationship with the region and compete with China.

The alliance is part of the EU’s Global Gateway initiative to bolster connections in the digital, energy and transport sectors, and strengthen health, education and research systems across the world.

Free trade agreements

Already the top trading partner for South America and the second largest for Latin America behind the US, China’s trade with the region has grown from $12bn in 2000 to $495bn in 2022 and is expected to exceed $700bn by 2035.

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It was the largest trading partner for Argentina, Bolivia, Brazil, Chile, Cuba, Paraguay, Peru, Uruguay and Venezuela last year, according to statistics from China’s General Administration of Customs.

However, China’s expanding trade with the region conceals significant discrepancies. For instance, Brazil, Chile and Peru could see more than 40% of their exports destined for China by 2035, but China’s trade with Mexico is projected to reach just 15% of the latter’s total trade flows. Mexico became the US’ top trading partner in the first quarter of 2023.

These discrepancies are reflected in the list of countries that have signed on to the BRI and reached free trade agreements with China. 

In May China and BRI-signatory Ecuador signed a free trade agreement that would boost Ecuador’s non-oil exports overs the next 10 years by $3bn-4bn, according to the Ecuador’s Ministry of Trade. China is already Ecuador’s largest non-oil trade partner, and bilateral trade reached a record high of $13bn in 2022, up nearly 20%.

China also has free trade agreements in place with Chile, Costa Rica and Peru, and is currently in negotiations with Uruguay, although this could upset its key trading partners Argentina and Brazil and create legal challenges within Mercosur, the Argentina-Brazil-Paraguay-Uruguay free trade bloc. By comparison, the US has a patchwork of six existing free trade agreements covering 12 countries in Latin America and the Caribbean, and the EU has spent 20 years negotiating a free trade agreement with Mercosur that has yet to be ratified.

By Oxford Business Group

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Leave a comment
  • Mamdouh Salameh on June 19 2023 said:
    The old Silk Road was a great and highly successful landmark in the history of trade, culture and the development of civilization to what it is now.

    It is hard to overstate the importance of the Silk Road on history. Religion and ideas spread along the Silk Road just as fluidly as goods. Towns along the route grew into multicultural cities. The exchange of information gave rise to new technologies and innovations that would change the world. The horses introduced to China contributed to the might of the Mongol Empire, while gunpowder from China changed the very nature of war in Europe and beyond.

    China’s modern version of the old Silk Road known as the Belt and Road Initiative (BRI) already promises to be as momentous. By offering soft loans to poor and developing countries to build and/or modernize their infrastructure and create wealth, it is expanding global trade and in so doing enabling China to integrate its economy deeper into the global trade system and also benefit from the new expanded economies. Moreover, BRI is also part and parcel of the new emerging multipolar World Order and the global financial system.

    That is why China’s influence is growing in countries involved with the BRI from the Asia-Pacific region to the Middle East and from Africa to Latin America.

    Between 2013 when the BRI was launched and 2022 China invested and offered loans of nearly $1trn in emerging markets around the world. By contrast, the West talks but never delivers.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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