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Assessing China-Latin Ties

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The challenges for Latin American countries in the years ahead include investing the profits from China trade and FDI.

BY WILLIAM RATLIFF
Jamestown Foundation 

The explosive growth of China’s links to Latin America in recent years are but the latest developments in a history that reaches back to the Spanish colonial empire in the early-16th century. In some ways the perceived benefits and liabilities have not changed much over the centuries, though they are now on a far grander scale. A Spanish padre wrote in 1669 that “one cannot imagine any exquisite article for the equipment of a house which does not come from China.” At the same time, however, Spanish barbers in Mexico City petitioned the government to relocate Chinese barbers to the outskirts of the city because they worked too much and that constituted “unfair business practice." Only during the militant Maoist decade of the early-1960s to mid-1970s was China’s primary interest in Latin America, which was marginal, to overthrow existing governments.

REALISTIC ANALYSIS

Some in the United States and Latin America worry that this rapidly rising China poses or will pose a security threat to the United States and the region. Many also worry that the influx of Chinese, with their different culture and institutions, will reduce the prospects for Latin reforms that promote open markets, political democracy, and greater respect for human and civil rights, including the rule of law. Responses to these concerns depend on what the Chinese and Latin Americans want and get from their contacts and on a realistic analysis of Latin America and broader Sino-U.S. relations.

China’s interests in the region include the following: to buy raw materials and foodstuffs and to invest in the production and transportation of those products to China; to export manufactures and other products to the region; to promote stability there so that business contracts will be signed and honored by predictable governments; to support a subtle reduction of the “unipolar” position of the United States in the world; and to win political recognition from the cluster of Latin American countries that still recognize Taiwan as the “one China."

Latin American countries want to sell China raw materials and manufactures to guarantee their historically unstable economies a foundation of assured income; to receive foreign direct investment (FDI) in many fields, including infrastructure, without the “strings” that are attached to funds from Western sources; to reduce economic and political dependence on the United States; and perhaps to get some Chinese ideas on how to develop a national economy under effective elitist leadership.

CHILE-CHINA FTA

Drawing these interests together, Chinese Ambassador to Chile Liu Yuqin said in March that “Latin American countries and China … must make joint efforts to face the great challenge of the globalized world” (La Nacion [Santiago], March 2). Chilean President Michelle Bachelet, speaking for many Latin leaders, told President Hu Jintao during a visit to China in April that her country and people realize that the 21st century is in the hands of Asia, and especially China (China Daily, April 14). In 2006 Chile was the first country to sign a free trade agreement with China and in 2007 China replaced the United States as the major recipient of Chilean exports.

Relations between China and Latin America today have progressed beyond commerce, though trade and FDI are still primary objectives on both sides. According to statistics reported by Jiang Shixue, deputy director of the Institute of Latin American Studies (ILAS) at the Chinese Academy of Social Sciences (CASS), one of the most important think tanks advising the Chinese government on Latin American policies, Sino-Latin American trade grew from $1.9 million in 1950—just after the People’s Republic of China (PRC) was formed—to $343 million in 1965. Trade expanded to $475 million in 1975, $2.572 billion in 1985 and $6.114 billion in 1995 (Nueva Sociedad 203, May/June 2006). In November 2004, addressing the Brazilian Legislature, President Hu predicted that Sino-Latin American trade would rise to $100 billion by 2010, but in fact it rose to $102.6 billion in 2007 with a surge of 42 percent over 2006. There are important differences, however, in the spread of benefits in Sino-Latin American trade. Some 60 percent is with Brazil, Chile and Mexico, and the latter has a large deficit (Latin Business Chronicle, March 24). The countries exporting raw materials and foodstuffs, from oil and copper to soya, are the ones with positive balances, while others—including Mexico and some Caribbean Basin countries that rely more on manufactures—are being swamped by Chinese goods, limiting this lucrative relationship for some to a traditional focus on only a few export products.

CHINESE FDI

In April a high-level Chinese official reported that by the end of 2006 almost $22.7 billion of China’s FDI had gone to Latin America (China Daily, April 16). While it is true that billions in FDI has been promised to Brazil, Argentina, Ecuador, Peru, Venezuela, Mexico and other countries, for exploration for and transportation of raw materials and foods that China wants to buy, and other projects, information on actual FDI paid out is “somewhat murky,” as Robert Devlin, a regional adviser for the UN Economic Commission for Latin America and the Caribbean, puts it. A major portion of Chinese FDI in Latin America appears to be “round-tripping,” that is the funds are invested in tax havens in the Caribbean and then sent back to China to take advantage of preferences given to foreign firms.

The most debated issues with respect to China’s expansion into Latin America are (1) the security implications for the United States and the region, with sub-set questions on Cuba and Venezuela, and (2) China’s potential anti-democratic impact on Latin American governments and social systems.

NO IDEOLOGICAL COLOR

For starters, unlike the United States and Europe, China has no history of invading and colonizing other countries beyond its immediate border, what is today called Greater China. Also, China has publicly tried to avoid alarming the United States because of the critically important Sino-U.S. relations. The deputy director of the ILAS has written that “China understands well that Latin America is the backyard of the United States, so there is no need for China to challenge the American influence” there (Nueva Sociedad 2003, May/June 2006). After U.S. Assistant Secretary of State for Western Hemisphere Affairs Thomas Shannon talked with Chinese counterparts in Beijing in 2006, a top Latin Americanist at the CASS in Beijing, Xu Shicheng, said Chinese policy “has no ideological color nor is it directed against the interests of any other country” (Nueva Sociedad 203). As analyst Gonzalo Paz has noted, China’s activity in the region “hasn’t sparked strong U.S. reactions yet. Washington has either shown indifference or has considered such activity relatively inoffensive” (Asian Perspective, No. 4, 2006). Indeed, in March U.S. Deputy Assistant Secretary for East Asian and Pacific Affairs Thomas Christensen said, “We believe that China can make positive contributions to economic growth [in the region]… through increasing both direct investment and foreign assistance, and can serve as an exemplar of how pragmatic economic policy and trade openness can lead to increased literacy, managed urbanization and poverty reduction” (Testimony to U.S.-China Economic and Security Review Commission, March 19).

U.S. policy itself has sometimes thrown the door open to China’s still restrained entry into military contacts in the region, prompting National War College Professor Cynthia Watson to remark, “If Washington is not interested in having a sustained, deep and satisfying, mutually respectful relationship with Latin America, the latter will turn elsewhere” (Testimony to U.S.-China Economic and Security Review Commission, March 18). The security issue must of course be investigated constantly by intelligence agencies and other researchers, but conclusions must be drawn with balance and knowledge of broader issues of Chinese and Latin American history and politics.

CHINA AND CUBA

China has become deeply involved in Cuba as the island’s second most important trading partner after Venezuela, but also to some degree in intelligence gathering, at a level, however, that does not seem to greatly upset Washington. Without pushing, it also offers an adaptable model for carrying out productive post-Fidel economic reform while leaders retain their political power (China Brief, May 10, 2006). Yet in the words of Mao Xianglin, an ILAS Cuba specialist, “Socialist Cuba can catch up with and surpass others only by moving rapidly to break out of its intellectual straitjacket and intensifying its reforms” (Latin American Perspectives, November 2007). Venezuela’s Hugo Chavez has tried without success to get China to join an anti-American front. Though it is exploring oil and other matters, on balance China has more to lose than gain from Venezuela’s efforts to destabilize the region and promote economic ideas that will certainly only make countries poorer and more unstable (China Brief, March 15, 2006).

Does or will China undermine democracy in Latin America? This is a hard case to make because Latin Americans have had almost 200 years of independence to establish truly representative democratic governments and productive market economies if they wanted them, but they have only rarely and incompletely come close to doing so. Even though a slight majority of Latin Americans say democracy is the best system of government, a considerable majority say it does not work for them (Latinobarómetro, November 2007). Thus, much of Latin America today is again flirting with caudillo (strong-man) populism, exemplified by Chavez in Venezuela, but also by his acolytes in Bolivia, Ecuador and Nicaragua. When one recalls that Mexico and Peru also very nearly went “Chavista” in their last elections, and Argentina is semi-Chavista today, you see the strength of this Latin love affair with paternalism and Messiahs who promise to right the innumerable “wrongs” that have characterized Latin society since even before colonial times. China’s preference lies with governments that succeed, and thus their relations have developed most rapidly and smoothly with Chile, and secondarily with Brazil.

POLITICAL TIES

Word has seeped out of Washington that at the Shannon meetings in 2006 the Chinese promised not to meddle in Latin politics. Last year the author asked a top Chinese Communist Party (CCP) official working in international affairs if China wanted to get involved changing political systems in Latin America. He said “No. Why should we? We are perfectly happy with a system controlled by elites that keeps real popular involvement to a minimum, so long as they do not crash and continue to enforce the agreements made with us” (personal communication, April 10, 2007). If Latin leaders, however, ask the Chinese for ideas, Chinese leaders will certainly accommodate them. Indeed, the Chinese make it a point of developing party and legislative connections with leaders of all political inclinations in all countries, if possible. As Jiang Shixue has noted, Chinese and Latin political leaders “exchange views on strategies to improve governance, the management of party affairs, political modernization and socioeconomic development.”

The challenges for Latin American countries in the years ahead include investing the profits from China trade and FDI, and using the inspiration of the Chinese example, to lay a long-term foundation for national well-being, cultivating whatever traditional cultural and civic values do not prevent the development of broadly based economic progress. This will mean both rejecting the temptations of hopeless and disruptive Chavista populism and carrying out more than half-hearted reforms, both changes that would also benefit China and the United States. China needs to reduce logistical problems of long distances, perhaps in part by more joint Latin ventures for the United States and Latin markets, cultivate greater common cultural ground, not least by increasing cultural institutes, and the like. Assuming the continuation of something like China’s current development trajectory, and a lasting major U.S. role in the Western Hemisphere, the two large nations could work together to promote a more stable and prosperous region that would benefit themselves and Latin Americans as well.

Traditionally it has been easier to blame someone else for the region’s seemingly intractable and widespread poverty and inequalities and today many Latin Americans have made the Chinese their "favorite villain," as Korean analyst Won-ho Kim wrote in a Mexican paper in 2004 (Reforma, June 20, 2004). In the end, Latin America’s failure to develop more responsive political—and more productive economic—systems was not Britain’s or America’s fault in the past, and it is disingenuous at this stage to suggest that it will be China's fault in the future.

William Ratliff is Adjunct Fellow at the Independent Institute, Research Fellow at Stanford University's Hoover Institution. Published by the Jamestown Foundation, China Brief, and reprinted with permission.

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