Since the Bandung Conference of 1955, China has consistently identified itself with the developing world, calling itself the “world’s largest developing country” and making constant reference to its shared historical experience of colonialism with the other states of Asia, Africa, and Latin America.1 Yet until recently, Latin America was a low priority for Beijing, which viewed the region as too geographically remote to be relevant to the international relationships that preoccupied it, especially those with the major powers and neighboring countries.
In 1960, Cuba became the first Latin American country to recognize Mao’s China, and until the early 1970s what few trade and cultural exchanges between it and Latin America existed were concentrated on Cuba. Even at that, contacts diminished after relations soured between China and Cuba, with Fidel Castro openly criticizing China in the 1960s and condemning its invasion of Vietnam at the 1979 Non-Aligned Movement assembly. From then to the mid-1980s, competition with Moscow was in fact a major factor in Beijing policy toward Latin America, leading it to shun Cuba.
From the Chinese perspective, Sino–Latin American ties have now entered their best period in history. Diplomatic and economic engagement with the region has seen a meteoric rise, inseparably linking China’s economic development with political considerations. Many Latin American presidents, including Brazil’s Lula da Silva, Argentina’s Néstor Kirchner, and Venezuela’s Hugo Chávez, have spent more time in Beijing than in Washington.2
No longer claiming to be a paradigm of socialist revolution, China has adopted a different role in its relations with developing countries, offering a “Beijing Consensus” as an alternative to the Washington Consensus.3 Through a mixture of development aid, trade ties, direct investment, and high-level political exchange, China has developed into a new but increasingly important player in Latin America.4 As Chinese leaders see it, their country can be both a partner and a model for the developing world—a model, that is, a of state-directed market economy without democracy.5
China’s trade with Latin America has dramatically increased, having grown fivefold between 2000 and 2006, reaching in 2006 an all-time high of $70 billion, after growing 40% over the previous year. Some predict it could reach $100 billion by 2010.
Whereas before, China’s development policy relied almost exclusively on a strategy called “welcome in” (yinjinlai), i.e., attracting foreign capital, technology, and managerial skills, today it also pursues a strategy of “going out” (zouchuqu). This has led China to become one of the most intrepid investors in the Western Hemisphere, with Chinese foreign direct investment (FDI) in Latin America and the Caribbean reaching $11.5 billion in 2005, a little more than half of the country’s total investments abroad that year.
Almost 95% of that FDI went to the Cayman Islands and the British Virgin Islands, both tax havens where Chinese firms channel their funds, only to move them back as FDI, sidestepping strict foreign-exchange controls and tax regulations. This practice, known as “round tripping,” is a prominent feature of Chinese investment in the region.
Excluding the tax havens, Chinese FDI in the southwestern hemisphere concentrated most heavily in Mexico ($141 million, 25.6%), followed by Brazil, Peru, Venezuela, and Panama.6 Of this, much of the investment has been in the energy sector. China is, after all, the world’s third-largest net importer of oil, and faces a huge and widening gap between its stagnant energy production and booming consumption. This has prompted Chinese leaders to identify Latin America, together with Russia/Central Asia and the Middle East/Africa, as a candidate to be a principal energy supplier.7
In 2006, China bought EnCana Corporation’s oil and pipeline assets in Ecuador for $1.42 billion, and in the same year teamed up with the Indian state oil firm to invest $800 million in a 50% stake in Omimex de Colombia.8 The Chinese have also discussed investing in the Panamanian government’s project to widen the canal to accommodate larger ships and attain higher shipping volumes. Additionally, China’s giant state oil company has acquired exploration and operation rights in Cuba, Colombia, Ecuador, Peru, and Venezuela. China is also participating in a natural gas pipeline project in Brazil.9
As Latin America’s largest country, Brazil has attracted special attention from China, having become its largest trade partner in the region, while China is Brazil’s third largest trading partner in the world. Technology cooperation between the countries has been on the rise since 1999, when they launched a jointly developed satellite for surveying the earth’s resources (another was launched in 2003 and two more are planned). Venezuela too signed a satellite deal with China; according to Chávez, the Chinese contract will include the transfer of technology, which may enable Venezuela to build and launch its own satellites in the future.
In 2004, when Chinese president Hu Jintao went on a Latin American tour—visiting Brazil, Argentina, Chile, and Cuba, and signing 39 commercial agreements—he announced that China would invest $100 billion in Latin America during the coming decade, boosting hopes for the region’s development. But large-scale Chinese FDI has yet to arrive, as many in South America had anticipated, leaving them disappointed.10 The glitter of Chinese investment initially cheered many, but with the significant exceptions of the Cayman Islands and the British Virgin Islands, it remains relatively small.
China has targeted Latin America not only as a new market for its goods but also as a rich source of the foodstuffs, raw materials, and energy resources it needs to continue its economic expansion. But its impressive trade relations with the region have not affected all countries in the same way. Those that produce raw materials and food—Argentina, Brazil, Chile, and Peru—have been favored with positive commercial balances and direct investment. These countries have become important suppliers of primary products to China, sending more than 60% of Chinese imports of soybean (chiefly from Brazil and Argentina), 80% of fishmeal (from Peru and Chile), close to 60% of edible poultry offals (from Argentina and Brazil), and 45% of wines and grapes (from Chile). Most of China’s exports to Latin America, on the other hand, consist of machinery and electrical products, especially those with high value added, like automobiles, tractors, motorcycles, televisions, computers, and so on.
Chile, the first non-Asian and only Latin American country to sign a free trade agreement with China, reached $8.8 billion worth of trade with China in 2006, comprising mostly copper exports to China (along with other raw materials), while Chinese textiles, clothes, and light engineering and electrical products arrived in Chile.11 Likewise, China’s imports from Brazil are mostly primary products like soybeans, iron ore, and petroleum.
On the other hand, Mexico and Central America have suffered from a growing trade deficit with China. China imports less than 1% of Mexico’s total exports but is the second supplier for Mexico’s imports. The imbalance is reflected in the fact that the 15 main imports by China from Mexico and Central America are manufactures, especially in the electronic sector, with the exception of copper and iron ore. The mix of products that Mexico and Central America export to the United States market is fairly similar to that of the products that China sends to that market. Unlike other oil-exporting countries in the region (like Argentina, Brazil, and Venezuela), Mexico, as a neighbor and member of NAFTA, is committed to selling oil to the United States, not to China.
Given these asymmetries, Chinese economic linkages with the Third World might seem not very different from those established by the European colonial powers: Latin American and African nations export raw materials to China while importing cheap Chinese products that compete with, and undercut, local industries.12 And it does appear that China may well end up completely assimilating to global capitalism. Nonetheless, the Beijing Consensus represents an attractive alternative to its Washington counterpart largely because Beijing respects the sovereignty of Latin American nations, not meddling in their affairs and certainly not dictating their policies, as in the famous structural adjustment of neoliberalism.
Chinese foreign aid and loan programs attach no conditions except that recipient countries must recognize the People’s Republic as the sole legitimate government of China. Thus, cooperation aside, reunifying Taiwan with the Chinese mainland is a key tenet of China’s Latin American strategy. Half of Taiwan’s 24 diplomatic allies are in the region, with all but one (Paraguay) located in Central America and the Caribbean. In the last several decades, both Taipei and Beijing have consistently provided financial assistance to countries that maintain official relations with them, and both have established mutual trade offices in the countries that they don’t have diplomatic relationships with, often the first step toward switching recognition.
Whatever Beijing’s geopolitical motives, however, what stands out to many Latin Americans is the flood of cheap manufactured products from China. Latin American manufacturers in countries that also rely on labor-intensive exports, particularly the Central American nations and Mexico, have been severely hurt by Chinese competition in the U.S. market, despite their greater proximity to it. Indeed, China has overtaken Mexico as the second-largest source of U.S. imports (after Canada).13 It’s no surprise, then, that Mexico became the first country in Latin America to levy a high anti-dumping tariff against China back in 1993, charging more than 1,100% against Chinese shoes and other products. Argentine and Brazilian manufacturers also face stiff competition from Chinese imports. From 1995 to 2000, Brazil initiated 15 anti-dumping investigations against China, and between 1995 and 2004, Argentina was responsible for a tenth of anti-dumping cases brought against China at the WTO.14
Meanwhile, China is replacing Brazil as a supplier to other countries in the Americas.15 And according to Rodrigo Maciel, executive secretary of the Brazil-China Business Council, most Chinese investment in Brazil has been in infrastructure that supports the commodity exports China desires, which does not necessarily match Brazil’s own economic interests.16
Many see China as the new “workshop of the world,” an unfair competitor whose export-oriented development strategy relies heavily on the country’s abundant low-cost workers and undervalued currency. In spite of these concerns, many Latin Americans view engagement with China as a welcome opportunity to promote economic growth and diversification—and to reduce their dependence on the United States.17
In 1988, the late chinese leader deng xiaoping said he believed the 21st century would not only be “the Pacific era,” as some had predicted, but also the “Latin American era.” He continued: “China’s policy is to develop and maintain good relations with Latin American countries, and make Sino–Latin American relations a model of South-South co-operation.”18 Following in that spirit, Chinese leaders now take greater interest in South-South cooperation within international organizations and forums.
Beijing prefers a multipolar world. It has eagerly promoted the strengthening of the role of the United Nations, while also identifying China with the Third World and suggesting that developing countries still have a long way to go to secure economic autonomy. China’s votes in the United Nations concur with 95% of those from other nations it defines as developing.19 China has increasingly sought African and Latin American votes at the United Nations and other world forums to shield itself from international criticism on its human rights records. In fact, the first trip by Chinese dignitaries after Tiananmen in 1989 was to Latin America.20
This interest in forming alliances was manifested most significantly at the September 2003 World Trade Organization meeting in Cancún, Mexico. There, China assumed an active role in the Group of 20 (G20), supporting the leadership of the IBSA bloc (India, Brazil, and South Africa) in fighting for the interests of developing countries. It has also consistently supported Pacific-rim countries in Latin America to join the Asia-Pacific Economic Cooperation forum, as well as the aspirations of Brazil and Venezuela to join the UN Security Council.
China’s new friends in Latin America, in addition to their willingness to form alliances, are increasingly attracted to the Chinese economic model, a model based on rapid growth achieved within an authoritarian political system pursuing mercantilist trade policies.21 Raúl Castro and many other Cuban leaders have expressed their admiration for China’s “market socialism,” and the Chinese model resonates far beyond Cuba.22 For example, despite his country’s competition with China in manufacturing, Brazil’s Lula shares with his Chinese counterparts a desire for an international insertion that, while not openly confronting the developed nations, is based on South-South cooperation.23 Lula has crafted an assertive foreign policy that in some ways parallels China’s, seeking to unify opposition among poor and undeveloped countries to the Washington Consensus and to push for better terms of trade for the Southern Hemisphere. Argentine president Néstor Kirchner has also praised China’s great achievements in economic development and said Argentina should learn from it.24 For others, the Chinese state-led development model offers little beyond the theoretical contribution made by Raúl Prebisch 50 years ago.
China is certainly different from many developing countries, in that it enjoys a huge domestic market, access to which it has used as a carrot to persuade Western countries to transfer their technology. Lacking this option, many small countries instead offer fiscal incentives like tax concessions and cash grants. And unlike neoliberal transformation, which often includes abandoning the domestic market as a source of growth, China has concentrated on boosting domestic demand, a method it used to keep its economic engine running in the wake of the 1997–98 Asian financial crisis.
As China’s economy and its soft power keep growing, and Washington continues to turn its back on Latin America while fixated on Iraq, more Latin American countries may turn to the Chinese way of development, which Beijing has encouraged by welcoming international delegations to come discuss, study, and see for themselves the benefits of the Chinese model.25
Although Beijing is excited about the new left and center-left governments in Latin America that have changed the political landscape of the region, it is cautious about creating deep alliances with them. Close ties with left governments like that of Chávez might strain China’s relations with the United States, its largest trading partner, critical to fueling its whirlwind economic growth.
China knows well that the United States has traditionally regarded Latin America as its “backyard” and that Washington is very sensitive about its activities in the region. In April 2006, just before President Hu came to the United States, U.S. Assistant Secretary for the Western Hemisphere Thomas Shannon paid an unexpected visit Beijing. Discussing the meeting, an official U.S. source told the BBC, “We want to make sure we don’t get our wires crossed.”26 Some U.S. Congress members view China as the most serious challenge to U.S. interests in the region since the Soviet Union. They fear that Washington is “losing” Latin America—that the huge financial resources China is promising to bring to Latin America, its growing military-to-military relations in the region, and its clear political ambitions there all pose potential threats to the long-standing pillar of the U.S. policy in the hemisphere, the Monroe Doctrine.27
Furthermore, some of the pink tide’s populist agendas, especially nationalizing foreign-invested companies, could hurt Chinese long-term economic interests in Latin America. Beijing nonetheless hopes the pink tide will help China win more allies in its diplomatic battle with Taiwan. (Despite Daniel Ortega’s presidential victory in late 2006, as of this writing, Beijing is still anxiously waiting for Managua to drop its diplomatic recognition of Taiwan and switch to China.) Beijing also recognizes that—despite Deng’s talk of a “Latin American era”—the region will unlikely become central to the burgeoning multipolar system anytime soon. For these reasons, Chinese leadership has been very cautious in its overtures to Latin America, and it will likely continue in that manner in the future.
For their part, Latin American countries will put increasing priority on their relations with the emerging superpower in Asia. And China will still seek the support it needs from Latin America on issues like human rights and Taiwan. Diplomatic closeness may even be aided by the huge distance between the two regions: Although it generates barriers in transportation and mutual understanding, it also means China and Latin American nations have neither serious ideological clashes nor territorial conflicts.
The potential for further development of trade, investment, and technology across the Pacific will provide a good foundation for closer Sino–Latin American relations in the years ahead. China is likely to boost its investment and technology cooperation, and more Chinese tourists are expected to visit Latin American and the Caribbean nations, a few of which the Chinese government has designated as official tourism destinations. These trends could reduce trade frictions associated with China’s economic expansion. Combined with China’s extraordinary economic growth and global outreach, China’s involvement in Latin America is likely to deepen and intensify.
He Li is professor of political science at Merrimack College, North Andover, Massachusetts. He is the author, most recently, of From Revolution to Reform: A Comparative Study of China and Mexico (University Press of America, 2004).
1. In Chinese literature, the term Latin America includes Mexico, Central America, the Caribbean, and South America.
2. Andrés Oppenheimer, “China’s Foray Into Latin America May Be Mixed Blessing for Region,” The Miami Herald, February 24, 2005.
3. The concept of the Beijing Consensus was first presented in Joshua Ramo Cooper, “The Beijing Consensus” (London: Foreign Policy Centre, 2004), fpc.org .uk/fsblob/244.pdf.
4. For detailed discussion on Chinese involvement in Latin America, see He Li, “China’s Growing Interest in Latin America and Its Implications,” Journal of Strategic Studies 30, no. 4 (August 2007): 833–61.
5. He Li, “China’s Path of Economic Reform and Its Implications,” Asian Affairs: An American Review 31, no. 4 (winter 2004): 195–211.
6. Ministry of Commerce, 2005 Statistical Bulletin of China’s Outward Foreign Direct Investment, http://hzs.mofcom.gov.cn/aarticle/date/200609/20060903095437.html.
7. Some view China’s approach to Latin America as similar to Japan’s “resources diplomacy” in the years after the Yom Kippur War in 1973, even calling it the “Japanization” of Chinese foreign policy. Joseph Y.S. Cheng, “Latin America in China’s Contemporary Foreign Policy,” Journal of Contemporary Asia 36, no. 4 (October 2006): 524.
8. Foreign Investment in Latin America and the Caribbean, United Nations Economic Commission for Latin America and the Caribbean, 2006, p. 37.
9. The Economist has aired its skepticism that Latin America will ever become a primary supplier to China, given the sheer distance between them and the vulnerability of supply routes in a hypothetical conflict. See “China Seeking New Energy Sources in Latin America,” www.uofaweb.ualberta.ca/chinainstitute/nav03.cfm?nav03=59954&nav02=58460....
10. Jiang Shixue, associate director of the Institute of Latin American Studies, Chinese Academy of Social Sciences, claimed that media misinterpreted Hu’s remarks.
11. Chinese Ministry of Commerce, China Customs Statistics.
12. Mohan Malik, “China’s Growing Involvement in Latin America,” www.pinr.com/report.php?ac=view_report&report_id=508&language_id=1.
14. Scott Kennedy, “China’s Porous Protectionism: The Changing Political Economy of Trade Policy,” Political Science Quarterly 120, no. 3 (fall 2005): 413. Derek Mitchell and Chietigj Bajpaee, “China and Latin America,” www.chinabalancesheet.org/Documents/Paper_Latin_America.PDF.
15. Comment by Rodrigo Maciel at the panel “Enter the Dragon? China’s Presence in Latin America,” Woodrow Wilson International Center for Scholars, Washington, D.C., February 21, 2007.
16. People’s Daily, October 8, 1995, p. 2
17. Gonzalo S. Paz, “Rising China’s ‘Offensive’ in Latin America and the U.S. Reaction,” Asian Perspective 30, no. 4 (2006): 111.
18. People’s Daily, October 8, 1995, p. 2.
19. Project Group on Latin American Studies, China Institute of Contemporary International Relations, “Report on China’s Latin American Policy,” Xiandai guoji guanxi (Contemporary International Relations), no. 4 (2004): 5.
20. For detailed analysis of the topic, see Ming Wan, Human Rights in Chinese Foreign Relations Defining and Defending National Interests (University of Pennsylvania Press, 2001).
21. “China Undermines U.S. in Latin America,” Latin Business Chronicle, June 4, 2007, available at www.latinbusinesschronicle.com/app/article .aspx?id=1297.
22. William Ratliff, “Raul, China, and Post-Fidel Cuba,” Latin Business Chronicle, August 28, 2006, www.latinbusinesschronicle.com/app/article.aspx?id=369.
23. Henrique Altemani de Oliveira, “China-Brasil: perspectivas de cooperación Sur-Sur,” Nueva sociedad, August 9, 2006, www.nuso.org/upload/articulos/3357_1.pdf.
24. Jiang Shixue,“A New Look at the Chinese Relations with Latin America,” Nueva sociedad, August 9, 2006, www.nuso.org/upload/articulos/3351_2.pdf.
25. Randall Peerenboom, China Modernizes: Threat to the West or Model for the Rest? (Oxford University Press, 2007), p. 9.
26. Humphrey Hawksley, “Chinese Influence in Brazil Worries US,” http://news.bbc.co.uk/1/hi/world/americas/4872522.stm.
27. Peter Hakim, “Is Washington Losing Latin America?” Foreign Affairs 85, no. 1 (January/February 2006): 45.