World

What will China's investment do for Latin America?

  • 7 July 2015
  • From the section World
Li Keqiang speaks during a meeting with Brazil's president in Brasilia in May 2015 Image copyright Reuters
Image caption Chinese Prime Minister Li Keqiang visited Brasilia in May

As I write, a Chinese billionaire is building a new canal in Nicaragua; China is buying up Brazilian soybean fields as well as planning to build a transcontinental railway that will transport all these raw materials to Peru's Pacific Coast and on to China.

The Asian giant's influence here is growing fast - it has pledged to invest $250bn (£161bn) in Latin America in the next decade. But what will this money do for Latin America?

Land of plenty

The Inter-American Development Bank says Latin America is the next global bread basket. With a third of the world's fresh water resources and more than a quarter of its good quality farmland, this region has everything China needs.

China's growth in the past decade and its insatiable appetite for commodities has seen resource-rich countries like Brazil prosper.

Latin America's largest economy is now the world's biggest exporter of foodstuffs like sugar cane, orange juice and soybean. Much of it is destined for Asia.

Image copyright Thinkstock
Image caption These fields in Brazil provide soybean for many uses

Diversity struggles

It sounds good but superlatives can be deceiving.

"Away from raw materials, Latin America doesn't know what to export to China," says Enrique Dussel Peters who heads the China-Mexico Studies Centre at Mexico's National Autonomous University.

"There's no strategic relationship, no programme in the short, medium or long term to overcome these problems."

While China buys commodities, it exports manufacturing and lots of it. In 2000, bilateral trade between China and Latin America was worth $12bn. In 2013, that figure had risen to $289bn.

Unequal relationship

"The imbalanced South American commodity-for-manufactures relationship with China has long caused some in the region to worry about a repeat of historical raw material 'dependency' relations," says Matt Ferchen who is a resident scholar at the Carnegie-Tsinghua Center for Global Policy.

While that leaves commodity-rich countries vulnerable when China's growth slows, countries further north have a slightly different relationship.

"In Mexico, the anxiety has been more focused on the trade imbalance and the challenge posed by China's manufacturing and export prowess to the American market," says Mr Ferchen.

In 2014, for every product Mexico exported to China, it imported 11 times that from the Asian giant.

"China has not only been a competitor, but an outright winner," says Prof Adrian Hearn, from the University of Melbourne. "China is able to out-price and outcompete Mexican businesses in just about every sector."

Political posturing

In late May, Li Keqiang, the Chinese prime minister, visited Brazil and announced $50bn of investments. Here in Mexico since 2013, promises have been made to invest in Mexico too. But the results have not been fruitful.

"There was political commitment by both presidents," says Mr Peters.

"But what happens is that the civil servants below them haven't known how to implement the strategies and policies of their respective presidents."

Image copyright AP
Image caption Enrique Pena Nieto cancelled construction of the train line, due to start running from 2017

In November 2014, President Enrique Pena Nieto cancelled a high-speed rail project shortly after it was awarded because of controversy in the bidding process. It was just a few days short of a state visit to China.

"That really hurt things," says Margaret Myers, the director of the China and Latin America Programme at the Inter-American Dialogue in Washington.

"There was a real momentum and that then kind of put the brakes on."

Cultural divide

There is still a great deal of caution over investments from Chinese companies.

"There's no doubt that China is held under a magnifying glass when operating in Latin America," says Ms Myers.

Despite significant Chinese immigrant communities in countries including Mexico, Cuba and Peru, culturally and geographically, China and Latin America have shown themselves to be worlds apart.

"The cultural divide seems deep with both simplistic and unhelpful stereotypes dominating on both sides," says Matt Ferchen. "In Latin America, as elsewhere, Chinese officials want badly for China's soft power to help leverage China's commercial and diplomatic ties to the region, but so far such efforts seem to have had a minimal effect or to have been completely offset by local stereotypes or outright bias."

Eastern promise

In a region where US influence has often been resented politically, although welcomed economically, the future could look very different with more Chinese investment.

"Until now, both Chinese and American officials deny that they are competing for influence in Latin America," says Antonio C Hsiang who is the director of the Centre for Latin American Economy and Trade Studies at Chihlee Institute of Technology in Taiwan.

"But that is what it looks like. Let us wait and see how much deeper China can dive into Latin America."

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