China’s Growing Footprint in Latin America

A ChinaFile Conversation

Many Latin American countries experienced political change in 2018, with presidential elections in three of the largest countries—Brazil, Mexico, and Colombia—and transitions in Chile, Costa Rica, Cuba, El Salvador, and Paraguay. Meanwhile, several long-term China partners, such as Peru, Argentina, and especially Venezuela, have been entangled in political scandals. How are relations evolving between China and Latin America, and between China and individual countries in the region? And how do China’s interests and relations in the region differ from those of the United States? —Natalia Cote-Muñoz


There could not be a more striking contrast between the anti-China rhetoric prevalent in Washington and the enthusiasm for China that prevails among Latin American governments—virtually unbroken even after an eventful year of elections. For sure, several presidential candidates pilloried China as a competitor for low-cost labor and a neo-colonialist power creating new dependencies, but once elected most were happy to greet Beijing’s special envoys and quickly acknowledged that China is still their number one source of investment and loans, a leading trade partner, and their best bet to make real improvements to regional infrastructure. Mexico’s outgoing government worked to salvage “free trade” with its northern neighbor, but the incoming administration is hoping to improve its balance sheet with China—through cooperation rather than confrontation. Similarly, Chile is eager to maintain its position as a key transpacific link for China, and neither Colombia nor Peru want to be left behind. The big exception may be Brazil’s president-elect, whose election rhetoric was marked by a virulent anti-communist stance, but even he has made more conciliatory noises recently.

The reasons for such continuity are three-fold. For one, Latin American economies are highly dependent on the sale of renewable (agricultural) and non-renewable (extractive) commodities, and China is the principal buyer of both. This dependence is exacerbated by a comparatively lower growth rate of exports to the United States and Europe. Secondly, there is a growing recognition of the obvious fact that supply chains don’t work if the physical movement of goods is too cumbersome, and more broadly that the lack of connectivity is an impediment to sustainable development and to equal opportunities for income, education, and healthcare. Beijing has recognized this and is promising solutions through its Belt and Road Initiative: As of December 2018, at least 14 countries in the region have expressed their goodwill by subscribing to the initiative.

Thirdly, China is continually improving its positive messaging in the region, both directly and indirectly: it initiated a China-Latin America think tank forum in 2010, the China-CELAC Forum in 2014, and the World Political Parties Dialogue two years ago. Party summits continue a long-standing tradition of the Chinese Communist Party since the days of Chairman Mao Zedong to engage with representatives from developing countries irrespective of their position in government: it is a smart bet on uncertain democratic futures. Then there is the government’s support of Confucius Institutes in countries that have no prior or alternative tradition of studying Chinese history, culture, or language, as well as its funding of various observatories that offer sanitized news on Chinese and global politics. Beijing has become adept at the art of positive messaging by sponsoring local media such as a special issue on China by leading Colombian magazine Semana in October 2018.

For now, Latin America’s political elites like the look of this horse, and prefer not to look this gift horse in the mouth.

In some ways, the political and economic upheaval of 2018 has strengthened Latin America’s relationship with China. Chinese participation in Latin American infrastructure may benefit from local corruption scandals, and South American soy growers stand to gain from the trade dispute between China and the United States. However, it is too soon to say whether Chinese and Latin American actors will take advantage of these opportunities.

The lava jato scandal, surrounding allegations of corruption involving the Brazil-based contractor Odebrecht, has opened the Latin American infrastructure field for Chinese contractors. Already, Odebrecht has sold Peru’s Chaglla hydroelectric dam to China Three Gorges and sold its majority stake in the Rio de Janeiro airport to China’s HNA Group.

China is also becoming a more important partner in new infrastructure development. A recent Boston University study (which I co-authored) of infrastructure finance in the Andean-Amazonian countries of Ecuador, Peru, and Bolivia shows that Chinese policy banks are playing a greater role in new projects than they have previously. While these banks were minor players from 2000 through 2015, financing just five of the 64 projects, they are expected to finance nearly one-fourth of projects in development: 14 of 58.

While Brazil’s incoming president, Jair Bolsonaro, has expressed skepticism about his country’s relationship with China, Brazil may benefit from China’s ongoing trade dispute with the U.S. In 2017, China imported roughly one-third of its soybeans from the U.S., for U.S.$14 billion. In July 2018, China imposed a 25 percent tariff on these U.S. imports, potentially channeling this demand to other suppliers. The most likely candidate is Brazil, which already outpaces the U.S. in soybean sales to China: it sent U.S.$20 billion of them to China in 2017, filling just over half of all Chinese demand. Bolsonaro has ambitions to increase soy output, which could be directed toward this newly unmet Chinese demand.

Argentina’s President Mauricio Macri was also elected amid China-skeptic rhetoric, but the two nations have remained close. Before his election, he signed a letter to the Chinese ambassador signaling his intent to review bilateral agreements for possibly unconstitutional overreaches. In 2017, as president, he attempted to cancel the China-financed Néstor Kirchner dam project. However, China countered by threatening to invoke a cross-default provision in the dam agreement that would endanger other project such as the Belgrano railway. Not only did dam construction continue, but China has remained an important partner for Argentina. It was announced this year that the China-LAC Cooperation Fund would finance a U.S.$150 million wind farm in Buenos Aires.

Nonetheless, China does not appear to have been particularly active in extending new loans to Latin American countries recently. Direct, sovereign lending from Chinese policy banks to Latin American governments has declined for the last two years. It remains to be seen whether the new leaders in Latin America will act on their China-skeptic political rhetoric, or if they will engage with the new opportunities for greater trade, finance, and investment ties that China offers.

The last year has seen a number of changes in Chinese and Latin American politics. While domestic political changes in Latin America may affect China-Latin American bilateral relations, the two sides will likely continue a trend towards greater economic interdependence and connectivity. Leadership in Mexico, Brazil, and Venezuela has become more populist and less predictable, but this development is unlikely to drastically disrupt relations with China.

Pragmatism will likely drive China-Mexico relations. President Andrés Manuel López Obrador claimed that he hoped to boost national production of shoes and textiles—industries in which the country faces competition from China. However, new infrastructure projects such as a railway on the Yucatán peninsula and an oil refinery in the southeast part of the country are likely to jump-start Chinese investment and the Belt and Road Initiative in Mexico. Nonetheless, Mexico also must find a way to balance the new free trade agreement among the United States, Mexico, and Canada with opportunities involving China.

Brazil faces quite a different set of challenges. Despite China’s status as Brazil’s top trading partner and investor, President-elect Jair Bolsonaro’s rhetoric has been vehemently anti-China and pro-United States. However, no radical shifts will likely occur in the relationship, particularly in terms of trade. Most of Brazil’s exports to China come from the agricultural sector, which is a significant part of Bolsonaro’s base and has greatly benefited from U.S. tariffs on China. The biggest potential changes will be in Chinese investment in Brazil’s infrastructure. Bolsonaro has repeatedly claimed that China is buying up the electricity sector, but he has also called for the privatization of infrastructure. China, which is eager to invest in this sector, would benefit from privatization, but Brazil may impose limits on Chinese bids.

Lastly, the current crisis in Venezuela is likely to change Chinese presence in the region. Venezuela is the largest Latin American recipient of Chinese finance, with more than U.S.$60 billion in loans since 2007, but its unreliability has made Chinese citizens see China’s involvement in the country as increasingly risky and unpopular; China is likely to become less involved financially, and more involved politically. China has already begun to reduce its support for Venezuela due to the country’s inability to repay loans. Politically, China may mediate between Venezuela and Bolsonaro’s Brazil. A post-Nicolas Maduro Venezuela may also significantly change its relations to China, either considerably distancing itself as a reaction to China’s close ties to President Maduro, or at least diversifying the country’s trade so that Venezuela is less dependent on Chinese financing.

More broadly in the region, China will likely continue flipping Taiwanese allies. The majority of the 17 countries that recognize Taiwan are concentrated in Latin America and the Caribbean. Within the past couple of years, Panama, the Dominican Republic, and El Salvador have severed diplomatic relations with Taiwan in favor of recognizing China after increasing economic ties with China over the past two decades. Finally, countries are likely to use a China threat to seek U.S. cooperation, such as Mexico with the Central American migrant crisis.

China-Latin America relations are unlikely to change all that much in the coming years, despite some rather remarkable political shifts throughout the region—including in Brazil and Ecuador, where China maintains especially strong economic ties, and where new leaders have been critical of Chinese investment.

The fundamentals of the China-Latin America relationship remain largely intact, regardless of a turning of the Latin American political tide. China is a top trade partner for nearly every country in the region and a critical source of finance for many of its largest economies. Governments across the political spectrum rely on Chinese demand for the region’s raw materials and on Chinese interest in major public-works projects.

China’s relative value as an economic partner has prompted engagement from the political left and right in the region, even amidst criticisms of China from local industry, environmental and labor organizations, and even new governments themselves.

When Argentine President Mauricio Macri entered office in 2015, his administration called for an increasingly “mature” relationship with China and pledged to revise some of the Chinese construction contracts negotiated by his predecessor, Cristina Fernandez de Kirchner. Some relatively minor adjustments were indeed made to a few transport and energy projects, but all remained intact. And, despite Argentina’s current financial woes, China and Argentina are partnering on new projects such as the San Martin Railway modernization. The relationship is arguably as strong under Macri’s government as it was under his predecessor, despite diametrically opposed politics.

The consequences of political change could be felt more deeply in other cases. An opposition win in El Salvador’s presidential elections would likely result in a lengthy and in-depth review of China’s proposals for La Union port renovation and special economic zone construction in the country. Both were the result of a seemingly impromptu decision by the current government to cut ties with Taiwan and are regarded with suspicion by many in the country, including much of the Salvadoran elite.

Change could also be forthcoming in Brazil, where newly elected President Jair Bolsonaro has criticized the scale of Chinese state-owned enterprise engagement with Brazil, stating in October, “China isn’t buying in Brazil. China is buying Brazil.”

However, if history is any indication, the effects of political change on the China-Latin America relationship will mostly be limited to specific sectors and deals. Chinese state-owned enterprises like State Grid could face some restrictions on future investment in Brazil’s energy sector, for example, but trade and other complementarities will bind the two countries for the foreseeable future.

After two decades of extensive economic engagement with the region, China is arguably well positioned even in Venezuela. The prospect of Venezuelan default notwithstanding, China will have considerable economic leverage with an opposition or other leadership in the coming years.

Even though China has already established strong economic ties throughout Latin America, the country’s diplomatic apparatus is still hard at work crafting and delivering increasingly fine-tuned foreign policy messaging throughout the region. This, too, will facilitate relationship-building across the political spectrum.

Jair Bolsonaro’s rise is very significant to China-Latin America relations, since Brazil’s foreign policy is likely to undergo profound changes. The first effect of this reorientation is in regard to multilateral partnerships with both China and other Latin American countries. Bolsonaro’s government has already signaled it will no longer prioritize multilateral agreements like BRICS and Mercosur, but instead focus on bilateral ones. The regional organizations CELAC and Unasul are almost completely paralyzed; in Unasul, six members suspended participation this year, and the Colombian government elected in June announced several months later that it was quitting Unasul. With Brazil also turning its back on these multilateral arrangements, they might not last. Multilateralism and regionalism are being contested globally, and neighboring countries will also likely seek to undermine the deals that the then left wing governments in the region boosted over the past decade. Brazil will be less active on the international stage, particularly regarding climate change, and other countries in Latin American will have space to take over regional leadership.

It is difficult to determine which Latin American countries will benefit in the short term from this unstable political cycle—with the U.S.-China trade war in the background—but more hesitant Brazilian ties with China could help other South American countries’ commodities exports, energy policies, and infrastructure investments. Meanwhile, the political reshaping and the internal social and economic crises will compromise the ability of those countries to have advantageous deals like those negotiated though multilateral agreements, leaving them in a weaker position to balance both American and Chinese political and economic weight. The ongoing fading of regional integration could bring uncertainty, fragmentation, and deepening dependence on the world’s two biggest powers.

Under Bolsonaro, Brazil is part of an emerging axis of pro-U.S. leaders and a swing to the right in the region (except for Mexico), followed by rising concerns about democratic deterioration. It will lead to greater distance from China, but not a rupture in relations. Chinese influence and presence in the region will be maintained. The new government’s alignment with American foreign policy will set Brazil close to Chile, Paraguay, and Colombia; affect the relations with the governments of Cuba, Venezuela, and Nicaragua; and likely reinforce anti-China sentiment in the region.

China-Latin America ties have been growing stronger, and most of the newly elected governments are eager to continue this trend. The majority of Latin American countries are not yet officially part of China’s Belt and Road Initiative (BRI), but it is largely a matter of when, rather than whether, the entire region will be integrated into China’s “Marshall Plan of the 21st century.” Doing so would be largely symbolic—after all, when comparing the situation in Latin America to the rest of the developing world (many regions of which are well represented in the BRI), it becomes apparent that the BRI’s arrival in Latin America will merely institutionalize a practice that China had been engaged in for years.

In addition, the number of countries in Latin America that still maintain diplomatic ties to Taiwan has been shrinking. The Dominican Republic, Panama, and El Salvador decided to cut diplomatic ties to Taipei this year and recognize Beijing instead. We can expect several others, including Paraguay, to follow suit soon.

U.S. government officials’ near constant warnings to Latin American policymakers about China’s “predatory economics” (Mattis), “imperial” ambitions (Tillerson), or negative role in Venezuela (Pence) are unlikely to make much of a difference—too urgent is the need for trade and foreign investment to boost development in a region with the highest indices of inequality in the world, a lack of physical infrastructure that would facilitate global trade, and dismal growth rates over the past decade.

China Export-Import Bank and the China Development Bank have provided more than $150 billion in loans to Latin American and Caribbean companies and governments since 2005. According to the Chinese government, Latin America is, after Asia, the second-largest destination for Chinese overseas investment. Brazil, a BRICS member, has particularly strong ties to China, which became its most important trading partner in 2009.

Brazil’s recent political earthquake, which brought the far-right former military man Jair Bolsonaro to power, is the first real test for China’s diplomacy in Latin America. But despite his admiration for Trump and frequent anti-China rhetoric during the campaign, economic pragmatism is likely to prevail. Brazil’s economy has never been more dependent on China. Nearly half of Brazil’s commodity exports and more than one quarter of its total exports go to the Middle Kingdom, and China’s importance is expected to increase even further. The United States buys about half as much as China. China-Brazil ties have strengthened even further because of the U.S.-Chinese trade war. Advisors to Brazil’s new president privately acknowledge that Latin America needs China to overcome its massive infrastructure shortcomings—in the realms of transport, energy, and communication. Despite Bolsonaro’s triumph, Brazil’s most important diplomatic event in 2019 will remain Xi Jinping’s visit to Brasília in November, on the occasion of the 11th BRICS Summit, when the host is expected to invite most heads of state in the region as part of the BRICS’ outreach program.

Political alignment has been an important factor in China-Latin America relations, but perhaps not the most important one. Although the largest recipients of Chinese loans in the region have been Venezuela, Ecuador, Argentina, and Brazil (countries with leftist governments during the periods of massive loan acquisitions), China has also been looking for large investments in Colombia and Mexico, which leaned more center-right in political orientation during the last decade. In addition, China is the largest trading partner of Chile, Peru, and Brazil, countries governed during the last 10 years by a mixture of political parties.

Corruption scandals and poor economic performance have not deterred China from supporting projects and loans, as long as there is a lucrative deal on the table. Consider the recent U.S.$5 billion loan from China to Venezuela, even though Venezuela has been on the verge of defaulting on loan payments to Chinese banks. China was also not deterred by the high-profile scandal in Argentina regarding bribes paid to the Kirchner government by the Argentinian engineering company Electroingeniería to obtain an important dam contract. While they directly benefited from the unlawful acts of Electronigenería, the Chinese banks and developers behind the $4.7 billion project have not publicly expressed concerns.

What seems to be at the core of the China-Latin America government-to-government relationships are business opportunities, especially in infrastructure. Global infrastructure investment is expected to grow to an astounding U.S.$90 trillion by 2030. Chinese interest in this sector will be reinforced with the imminent incorporation of countries into the Belt and Road Initiative (BRI). The increase of joint projects to build roads, ports, dams, pipelines, waterways, railways, and other infrastructure will greatly facilitate a closer relationship between China and Latin America. In fact, in less than one year, 13 Latin American countries have signed MoUs with China on the BRI.

What may put these investments and deals at risk, due to the scale of work, the amounts to be invested, and the locations of projects, is public scrutiny. If the projects are not well considered and managed on environmental and social fronts, and/or countries are overwhelmed by debt, then social unrest is likely to put a break on relations with China. Because Latin America enjoys robust media, strong civil societies and social movements, and a high percentage of indigenous peoples and fragile environments, China will have to go beyond rhetoric to maintain a geopolitical environment open to its mega-loans and investments.

Regarding China-Latin American ties, two events were of importance in 2018. The first was the second forum between China and the 33 members of the Community of Latin American and Caribbean States (CELAC). In January 2018, representatives agreed to deepen China’s overall cooperation with the region, updating a previous cooperation plan. In addition, the second China-CELAC summit also issued a special declaration supporting the Belt and Road Initiative (BRI), in which Latin American countries expressed their willingness to join China’s flagship economic and diplomatic project.

The second event was President Xi Jinping’s visit to Panama and Argentina during his trip to attend the G20 Summit in Buenos Aires. In 2017, Panama switched its diplomatic recognition from Taiwan to mainland China, and this was the first state visit by a Chinese president in Panama’s history. Unsurprisingly, Panama and China signed 19 cooperative agreements regarding trade, infrastructure, banking, tourism, and other areas. In remarks, Panamanian President Juan Carlos Varela said that Panama is China’s “arm and gateway to Latin America.” China’s economic commitment to Panama may even create a domino effect in the region, where nine countries maintain diplomatic ties with Taiwan; the Dominican Republic and El Salvador severed diplomatic relations with Taiwan in favor of China in May and August, respectively. During Xi’s visit to Argentina, the two countries signed more than 30 agriculture and investment deals, including an expansion of a currency swap in a bid to stabilize Argentina’s ongoing financial instability and promote the internationalization of China’s currency. It was Xi’s fourth visit to Latin America since he took office in 2013, demonstrating China’s commitment to advancing relations with the region.

2018 also saw the BRI make enormous inroads in Latin America. About a dozen Latin American countries signed bilateral joint agreements to officially participate in the initiative. The most recent country is Ecuador, when President Lenín Moreno paid a visit to Beijing from December 11 to 13. What’s more, Argentina, Bolivia, Brazil, Chile, Ecuador, Peru, and Venezuela are all prospective members of the Asian Infrastructure Investment Bank (AIIB). The active participation of Latin American counties in BRI in 2018 attested to Xi’s remark that “Latin America is an important natural extension of the 21st Century Maritime Silk Road.”

In an era when the Trump administration insists “America First” and upholds trade protectionism, China’s embrace of globalization encourages Latin American elites to prioritize China in order to grow their economies and fill infrastructure gaps. As indicated by its second policy paper on Latin America, released in November 2016, China is committed to increasing its presence in Latin America in terms of trade, investment, and infrastructure cooperation. As Latin American countries are facing uncertainty prompted by U.S. policy, China’s reassurance of continuous engagement resonates with the region’s quest to attract investment and promote trade.