China and Latin America: A Growing Relationship

Chinese economic development has been, since the late 1970s, an important phenomenon in the global economy and international commerce. China’s GDP has increased from 1% of the world economy to 15%. Meanwhile, its contribution to global trade has growth from less than 0.8% to more than 12% of total volume. As a result, China now presents itself as the second largest economy in the world.  

This new role has caused worry and skepticism in Western countries, especially in the United States. Washington perceives Beijing as a threat to American worldwide hegemony. For that reason, President Trump has protested about China's trading practices, and last year imposed tariffs on billions of dollars worth of Chinese products. Beijing replied in the same way, placing tariffs on US-made products. After months of hostilities, both countries started negotiations to ease tensions. However, the differences seem too big to generate peaceful coexistence. 

China’s economic strength has inspired Beijing’s totally new foreign policy, with the target of increasing its trade relationships on all continents. In 2013, the Chinese president, Xi Jinping, revealed the Belt and Road Initiative to connect the Eurasian continent from Shanghai to the North Sea to even Africa through a complex commercial, transportation and energy network. In addition, since the beginning of the 21st century, Beijing has strengthened its relationships and influence in Latin America. 

In the first decade of this century, Latin America’s politics experienced a left-wing  wave which saw the emergence of Socialist or Democratic Socialist governments. The purpose of these administrations was to reduce the influence of the United States in the region. Thus, they found in China an eager buyer of their commodity exports—the main livelihood of their economies—and a new commercial partner capable of supporting their development. Since 2005 China has lent US$140 billion to Latin America, positioning the Asian giant as the most important partner in the region.

The main investments of China in Latin America are focused on large construction projects so that transport costs are reduced and trade is facilitated. Chinese financial and banking entities have invested in more than 150 construction projects across multiple countries such as Brazil, Venezuela, Argentina, Mexico, Ecuador, Bolivia and Panama. 

However, in recent years this economic alliance has generated suspicion among new, more right-wing governments. Brazilian President Jair Bolsonaro criticized Chinese commercial practices at the beginning of the year, saying that he will seek to diminish relations with the Asian nation. Likewise, countries such as Ecuador and Argentina have had to renegotiate debts towards Chinese banks contracted as a consequence of the high interest rates. Furthermore, Chinese-led large-scale projects have been criticized for possible damage to the environment. Nonetheless, at this point the economies of Latin America and China are so closely interlinked, that it is nearly impossible to break relations off completely. 

On the other hand, Beijing is also a major creditor of Venezuela, which owes China around US$6 billion paid in oil. As a result of the economic crisis that the Caribbean country is going through and the risk of default, China has stopped financing Caracas. Without Chinese support, the Venezuelan government loses a crucial ally in the political struggle it faces.

This Chinese presence in Latin America presents a serious dilemma for Washington. In 2015 during a visit to Brazil, Chinese President Xi Jinping exclaimed that in 2025 bilateral trade with Latin America would reach US$500 billion. The economic model proposed by China comes into direct conflict with that of the United States. Although Beijing's immediate interests are economic, its investments in the region allow the Asian giant to increase its political capital and influence. Thus, the US will need to find a new strategy to stay competitive in its own “backyard.”