The hidden risks of China’s dramatic expansion in Latin America

The hidden risks of China’s dramatic expansion in Latin America
The hidden risks of China’s dramatic expansion in Latin America

(Alberto Miranda-The Economist)

Its main breakwater is visible from an airplane at 6,000 meters high, a hook that juts into the Pacific from the coastal desert of Peru. In November, if all goes according to plan, the President of China, Xi Jinpingwill inaugurate the new and vast port of Chancay70 km north of Lima, in which Cosco, a Chinese company, and its local partner have so far invested $1.3 billion.

Chancay typifies the mark that China has left on Latin America in this century. Bilateral trade has grown from $18 billion in 2002 to $450 billion in 2022. Although the United States remains the largest trading partner in the region as a whole, China is now the largest in South America, along with Brazil, Chile and Peru, among others. The Asian giant’s presence is not only economic. Its ambassadors know Latin America well and speak Spanish and Portuguese fluently. Its diplomatic staff has been expanding. The United States, by contrast, often leaves ambassadorial posts vacant due to political deadlock in Washington. Local officials, journalists and academics are offered jobs. free trips to China. During the pandemic, China shipped vaccines to Latin America much faster than the United States or Europe.

This expansion alarms people like Marco Rubio, a Republican senator who sits on the Foreign Relations Committee. He says the United States “cannot allow the Chinese Communist Party to expand its influence and absorb Latin America and the Caribbean into its private political-economic bloc.” China is “on the 20-yard line of our homeland,” General Laura Richardson, head of the U.S. Southern Command, declared earlier this year.

A tunnel in the monumental port of Chancay that China is building in Peru REUTERS/Angela Ponce/File Photo

Latin America’s response has generally been a shrug. Its officials argue that by acting as a buyer, investor and financier of needed infrastructure, China has stepped into the vacuum left by the West. Although the United States has free trade agreements with 11 Latin American countries, it shows no interest in signing more. Uruguay’s center-right government is negotiating a deal with China after its requests for a deal with the United States were rejected. France and other countries are blocking ratification of a trade pact between the European Union (EU) and Mercosur (a five-country bloc that includes Brazil and Argentina) that has taken more than 20 years to negotiate.

The United States and Europe remain the largest foreign investors in Latin America. The United States still dominates trade with Mexico, Central America and most Caribbean countries. But as China’s role as a trading partner and investor grows, especially in South America, governments do not want to be forced to choose between the two major world powers. “Our policy is one of hedging, to try to maintain a balance,” says one foreign minister.

Some want to turn the cover into a more assertive foreign policy doctrine of “active nonalignment,” a term coined by Jorge Heine, a former Chilean ambassador who published an influential book propagating the idea in 2023. This doctrine dates back to the Non-Aligned Movement founded during the Cold War by Third World (as it was then called) leaders such as India’s Jawaharlal Nehru and Indonesia’s Sukarno. Heine argues that the protectionism adopted by the United States under Donald Trump (and continued under Joe Biden) and the rise of the BRICS group, which includes Brazil and China, mark an irreversible change in the world order. Active nonalignment, he argues, “allows nations to be closer to one of the great powers on some issues and to another on a different set of issues.”

This is particularly appealing to Latin America’s left, which has long complained about what it sees as US imperialism in the region (although since the 1980s US policy has largely focused on supporting democracy). It certainly smacks of hypocrisy when Washington officials call for Latin America to ban Huawei over the risk of Chinese espionage, for which they have provided no evidence. It was the US National Security Agency itself that revealed in 2013 that it had been carrying out a surveillance programme across Latin America. It had intercepted the communications of Brazil’s then-president Dilma Rousseff and Petrobras, the state-controlled oil company. “Latin America appreciates that China doesn’t have a preachy foreign policy,” says Matias Spektor of Fundação Getulio Vargas, a Brazilian university.

But while caution may make sense for Latin America, in practice its leaders have often seemed oblivious to the potential political consequences of economic decisions. “Latin America is not thinking about China’s dominance in either short-term or long-term policymaking,” says Margaret Myers of the Inter-American Dialogue, a Washington think tank. This certainly applies to Peru, which, in addition to the port of Chancay, has allowed Chinese state-owned companies to acquire the monopoly on electricity supply to the capital, Lima. The competition regulator imposed lesser conditions on the purchase of electricity from partner generators. But no government entity took into account the geopolitical implications. The threat is not so much that China can turn off the light, but that it has acquired a tool to exert more subtle pressure.China is trying to create a situation in which it shapes Latin America’s external environment according to its interests.“Myers says.

This, of course, is what the US has long been trying to do. But there is much more awareness of it in Latin America, and more independent thinking about how to respond. “No one is thinking in an organised way about Chinese investment,” says the foreign minister. There is no strategic scrutiny of foreign investment, as there is in Europe or the US. A Chinese state-owned company has a distinctly different relationship with its home government than, say, a European private company. There is a shortage of China experts in the region, and China funds the work of several of the few foreign policy think tanks that exist.

Both the EU and the US are talking more about investing in Latin America. At a summit last year, the EU pledged to invest more than €45 billion ($48 billion) in the region by 2027, focusing on green energy, digitalisation and critical minerals. Shortly after, Biden hosted ten Latin American and Caribbean countries at the first summit of an “Americas Partnership for Prosperity,” backed largely by funds from the Inter-American Development Bank. Latin American diplomats say both initiatives are largely a rehash of existing programmes and lack substance. More traction could be gained by the Americas Act, a bill sent to Congress in March with bipartisan support. This act would offer trade benefits, infrastructure funding and investment subsidies for offshoring to Latin America and the Caribbean.

If approved, it could at least mean that China faces a bit more competition in the region. As for Latin America, to make the most of its various suitors while minimising the risk of dependency, it needs a much sharper eye.

© 2024, The Economist Newspaper Limited. All rights reserved.

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