China's Unprecedented Investment Offensive in Latin America

While President Obama spars with Democratic critics over fast-track authority to promote free trade in China’s Pacific rim, the Chinese have unleashed an unprecedented investment offensive in South America, Uncle Sam’s erstwhile backyard. The Chinese Communist leaders say they are not seeking to influence political affairs in the region, but the investments they promise are on a scale that will shape the future global relations of Latin America. When China is on the move, big things happen without delays.

The Chinese courtship of the region has been developing for several years, during which President Xi Jinping has received official visits from many South American leaders, including President Dilma Rousseff of Brazil, and last year he traveled to Mexico and Colombia accompanied by hundreds of Chinese business executives. China has loaned Venezuela and Argentina billions of dollars as prepayments for oil and grains that China imports. But the full extent of where China is prepared to go in establishing a strategic relationship with Latin America only unfolded this week with a tour of Brazil, Colombia, Peru, and Chile by Li Keqiang, China’s premier and primary economic authority.

In Brazil, the first stop on his tour, Li and Brazilian officials signed 35 bilateral agreements involving total investments $53 billion over the next decade in a wide range of commercial and investment issues. These included a $7 billion Chinese loan to Petrobras, the beleaguered state-run Brazilian oil company, which is undergoing a deep financial crisis that has disrupted its ambitious oil and gas production. The Chinese also lifted a sanitary ban on Brazilian beef exports, gratifying cattle ranchers, and bought 14 executive jets produced by Embraer, Brazil’s aviation giant. The Chinese are already building the electric transmission system for the huge Belo Monte hydroelectric plant in the Amazon region and they agreed to finance new projects in non-polluting solar energy using Chinese technology.

But the most ambitious agreement of all was a joint venture in which the Chinese offered to finance completion of a transcontinental railroad from Brazil’s Atlantic seaboard to a new port on the Pacific coast of Peru. The estimated cost of this railroad, on a route covering more than 4,700 kilometers through Brazil’s booming central agricultural frontier and Brazil’s best iron mines, is $50 billion. Some portions have already been built, but critics say this railroad is a pipe dream because of the cost. Others hope that Chinese financing, modern railroad equipment, and construction expertise will produce an engineering miracle that could provide a railroad from the Amazon to the Andes with cargo coming from an enormously productive inland region producing grains and oil seeds, cellulose and animal proteins that have China as a major market. “China and Brazil are fully complementary and have no historical conflicts,” said Li in a statement, reflecting the friendly strategic view of the Chinese toward Latin America.

A modern railroad for central Brazil has a symbolic importance that fires the Brazilian imagination, which has always hoped to have railroad access to the Pacific. For Peru and other Pacific coast countries, like Chile, this railroad over the Andes to Brazil would be a major step toward regional integration, a collective dream that has escaped South America since its 19th-century independence. The Chinese, with more than $3 trillion in accumulated financial resources, are in a position to make that dream a reality. In Colombia, Peru, and Chile, Li expects to nail down new mining, infrastructure, and energy projects that will increase the supply to China of mining products, such as copper, which has already established China as the main foreign market for these countries. It is noteworthy that Peru and Chile are members of the 12-nation Trans-Pacific Partnership (TPP) that includes Japan, Australia, Mexico and Vietnam.

Photo Credit: Folha de S. Paulo

Obama has asked the US Congress for fast-track authorization to conclude Pacific trade promotion as a way of countering China’s advances into the South Pacific, an area believed to be rich in natural resources. The final TPP deal has been under negotiation since 2005 and could bog down if the United States and its partners fail to overcome obstacles created by US labor unions opposed to free trade, environmental radicals, and human rights advocates who are demanding clauses in a trade treaty that protect their interests.

In addition to these domestic objections to free trade, there are also those who question a US policy in the Pacific that claims to provide a counterweight to Chinese expansion. Among these are Henry M. Paulson, former US secretary of the Treasury under President George W. Bush, whose expertise on China developed during his seven years as president of Goldman Sachs, the financial giant, who played a major role in opening up China to world commerce and financial markets. In his recent memoir on China, Dealing with China, Paulson argues that the US should encourage the economic success of China because that serves US interests. Furthermore, Paulson says “the world’s greatest challenges, from climate change to nuclear proliferation, global financial stability and global food security, will be easier to tackle if the United States and China work in complementary fashion—and much more difficult if the two countries are at cross purposes.”

With the Chinese now moving into Latin America in a big way, this is a region where the United States and China should explore constructive ways to cooperate in developing the potential of a region that has 600 million people whose main political goal is economic and social improvement. The Latin Americans are very pleased to have the opportunity to export commodities that China demands, but they also want to continue to receive the technology, education, health services, and cultural opportunities provided by the United States, the main destination of Latin tourists. The human relationships built up over years of Pan-American cooperation are strong, with millions of residents in the US being migrants of Latin American origin. China is not going to replace these regional bonds, but it is a strong candidate for partnership with the Americas in pursuit of the goal of a better life.

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