China's Latin American Motives

A growing Chinese presence in Latin America is causing a stir across the hemisphere. Top Chinese officials visit the area frequently.

In the last five years, overall trade between China and Latin America has increased 900%. In 2004, nearly half of China’s direct investment overseas, almost $20 billion, went to Latin America.

The response across the hemisphere has been mixed. Some Latin American countries view China’s presence as a threat, others see it as a panacea and a third group of countries believe Beijing is their ideological ally.

All three groups are wrong.

The United States, Mexico and the Central American republics are among the countries that feel threatened by China’s presence in Latin America. Brazil’s early enthusiasm has also cooled down.

Judging by the recent hearings in the U.S. Senate on China’s increasing involvement in the Western Hemisphere, the United States thinks China is challenging its geopolitical standing in the area.

Mexico and Central America fear that China will displace them from apparel markets. Brazil thinks China is unfairly undercutting its exports of car engines.

Argentina, Peru and, to some extent, Chile are among the countries that think China’s presence in the region will be their panacea. They see China as an insatiable buyer of commodities and therefore a guarantee of their economic development. Brazil — a seller of soybeans to China — likes that part, too.

Then, there are the ideologues. Cuba sees China, a country that has invested $500 million in a nickel plant in the island, as the friend who will help the Communist Party perpetuate its monopoly on power after Castro.

Hugo Chavez also believes China will invest astronomical amounts of money in Venezuela for political reasons.

Are U.S. fears that China wants to be a hegemonic power in Latin America justified? No, China is essentially seizing economic opportunities under a strategy that seeks to maintain current levels of growth. That strategy also explains why China spent $10 billion looking for oil in Africa in 2004.

Although Beijing has a few political goals — such as luring the twelve Latin American countries that support Taiwan towards the “one China” policy, the Chinese presence in the region is economically motivated.

Is China a danger to the Central American and Andean economies? Although Chinese textiles are competing with Latin American textiles, most Latin American economies are protected against these Chinese imports. Mexican trade barriers, for example, have probably cost China some $20 billion in the last 15 years.

All of this imposes costs on the citizens of the “protected” nations and props up privileges in those societies. Chinese competition can eventually help Latin Americans get rid of parasitical producers and their political allies.

Is China’s thirst for Latin American commodities a guarantee of prosperity, as countries like Argentina and Peru believe? No. Latin America has been selling raw materials and commodities to many countries, including Britain and the United States, for the past two centuries.

The result is always the same. In times of high prices, growth figures look good and everyone thinks prosperity will soon arrive — without realizing that prosperity requires a system conducive to systematic wealth creation. In times of low prices, everyone blames the “unjust terms of trade” for the region’s backwardness.

When Hu Jintao toured Latin America at the end of 2004, he discussed investing $100 billion in the region’s infrastructure. Latin Americans celebrated the fact that China’s supposed displacement of the United States in the area would produce roads, ports and oil rigs across the region.

In fact, China was trying to obtain official recognition as a “market economy” from countries like Brazil and Argentina in order to protect itself against anti-dumping measures at the World Trade Organization.

While Beijing does have an interest in improving the region’s appalling infrastructure to insure a steady supply of raw materials, China will only invest in countries where it can actually make a profit. However, because Latin America is still a place where investors expect smaller returns and greater insecurity than in other places, the $100 billion have not even started to materialize.

Finally, is China’s bureaucracy an ideological ally of Fidel Castro and Hugo Chavez, as both men think? For China, Castro is a temporary embarrassment, while Chavez is the President of a country that happens to be the world’s fifth-largest oil producer.

Since U.S. investors cannot, for the moment, invest in the island, the Chinese are filling the space. Hu Jintao would have done business with whoever replaced Chavez in Venezuela, if the coup attempt there in 2002 had been successful.

Ironically, the country that China trusts the most is Chile — Latin America’s number one capitalist country, which is why Beijing and Santiago have been busy negotiating a free trade agreement.

The last thing the Western Hemisphere needs is to adopt the Chinese model of political dictatorship and relative economic freedom or to see Beijing as some form of ideological ally.

But moving decisively toward the free flow of ideas, goods, services, capital and people across the Pacific is something that will benefit everyone — the United States, Latin America and China itself — immensely.

Adapted from the Independence Institute commentary “What is China Up to in the Western Hemisphere?” published on October 13, 2005. For the full-length report, click here.