Magazine article Americas Quarterly

Memo to Washington: China's Growing Presence in Latin America

Magazine article Americas Quarterly

Memo to Washington: China's Growing Presence in Latin America

Article excerpt

China has increased import and export market share in Latin America and strengthened political and economic ties with countries like Venezuela and Ecuador. Should the U.S. government respond?

What is China doing in the Americas? It's a good question-and an increasingly important one for policymakers in Washington. According to one U.S. analyst, it's about "goodwill, good business and strategic position."1 Perhaps. But the jury is still out, mostly because China's interest in the Western Hemisphere is barely a decade old. For many years, beyond attempts to wean Latin American and Caribbean nations away from support for Taiwan and efforts to build Third World solidarity, China's footprint in the Americas was light.

That has now changed.

Since then-President Jiang Zemin's 13-day trip to Latin America in April 2001 and the subsequent visits of President Hu Jintao in 2004 and 2011, Chinese engagement with the region has exploded. Today, China is the top trade partner of Brazil and Chile, and the second trade partner of Argentina and Peru.

By late 2010, Chinese enterprises had invested almost $44 billion in the region, according to China's National Development and Reform Commission, almost a quarter of which was invested in 2010 alone. Top investment targets included Brazil, but also Argentina, Chile, Ecuador, Panama, Peru, and Venezuela. Innovative financing by Chinese entities was often behind the deals-and in some cases, such as Ecuador and Venezuela, investments took the form of loans secured by guaranteed future deliveries of oil. That is a marked change from 2003, the year before Hu's first visit, when China invested just $1 billion in all of Latin America.

By now the outlines of the story are well known. As part of the dash for economic growth that the Chinese Communist Party believes will help to maintain its legitimacy-an average annual rate of 9.8 percent from 1979 to 2009, including an 8.7 percent growth rate in 2009 when much of the rest of the world faced economic collapse-Beijing is on a global quest to lock in the natural resources that fuel its growth. From Southeast Asia to Africa to Latin America and beyond, China is scouring the globe to invest in primary commodities. By the end of 2011, more than $3 trillion in foreign exchange reserves provided an impressive war chest from which to purchase the global assets that China's leaders believe they need to support economic growth-and thus political stability- for the medium to longer term.

As China faces its own near-term leadership transition, efforts to purchase domestic political stability with foreign trade and investment are likely to intensify.

At the same time, Latin American nations that have been the primary trade and investment partners with China have also gained handsomely, at least in the short term, in the sectors that produce primary goods. Longer term questions abound regarding the balance and terms of trade, the nature of the investments that China is making, and the values that are being promoted or undermined by such investments.2 Additionally, nations that are not supplying significant amounts of commodities to China, including Mexico and Central America, view China more as an aggressive competitor than as an economic partner. The costs and benefits of trade with China are unequally distributed across the Americas.

SHOULD THE UNITED STATES REACT? CAN IT?

To the extent that simple commercial exchange dominates the China story in the Americas, the implications for the United States are minimal. A rational and appropriate response would simply be to promote a level, transparent playing field for U.S. business and investors to compete effectively with a new, well-financed competitor.

This is exactly the way Chinese leaders have presented their efforts: as benign economic actions that offer little challenge to U.S. interests. Indeed, the stock of U.S. investment in the region continues to dwarf Chinese investment, and regional trade with the United States continues to surpass trade with China by a factor of almost four to one. …

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