South America awake to risks of
China ties By Sebastian
Castaneda
In the wake of US President
Barack Obama's recent tour of Latin America, media
reports and commentators claimed that China has
been economically outmuscling the United States in
the region. The reality, however, is that
Beijing's economic presence has not come at the
expense of the United States. Although Washington
still maintains an overwhelming edge, its
influence is decreasing. This decline will be
exacerbated by Obama's focus on boosting US
exports to the region rather than importing more
of Latin America's manufactured goods.
True, China has become a key trading
partner in Latin America during the last decade.
Sino-Latin American trade has risen from
US$12 billion in 2000 to more
than $140 billion today (though the region's trade
deficit also rose from $950 million to $32 billion
in 2009).
Nevertheless, China's relations
with Latin America need qualifying. In 2008, 90%
of the region's exports to China originated in
four South American countries (Argentina, Brazil,
Chile, and Peru). The disparity of trade with
China explains to some extent the different growth
patterns within subregions in Latin America. In
2010, Central America's economy grew by 4.9% while
South America's expanded by 6.6%.
The
current trade dynamic between China and South
America is becoming a relationship of economic
dependence that benefits Beijing. China is the
largest export market for Brazil and Chile, and
comes in second with Argentina, Colombia, Peru,
and Venezuela. Most exports consist of commodities
such as iron ore, copper, copper ores and
concentrates, and soya derivatives. In turn, up to
92% of Latin America's manufactured exports
compete directly or indirectly with China's
products, which ultimately results in
deindustrialization for Latin America. In 2010,
Brazil lost approximately 70,000 jobs in the
manufacturing sector and $10 billion in income.
Chinese carrots However, Latin
America is in no position to reject Chinese "aid".
Such aid boils down to financing for a wide range
of projects that comes with strings attached, such
as a guarantee of access to certain natural
resources, or the condition that Chinese companies
undertake the projects. In 2009, China lent Brazil
$10 billion in exchange for future oil shipments.
In 2010, China advanced $20 billion to Venezuela
to pump oil from the Orinoco Belt block and lent
$10 billion to Argentina to renovate its aging
railway system. Smaller loans have gone to other
countries.
In order not to completely
undermine the Washington-designed and controlled
Inter-American Development Bank (IDB), the largest
source of development financing for the region,
China has become a donor member. In 2009, when it
joined the bank at the height of the financial
crisis, China committed $350 million. In late
March 2011, the IDB and the Export-Import Bank of
China signed a letter of intent to establish an
infrastructure investment mechanism to finance
public and private sector projects in Latin
America. The catch, however, is the use of the
yuan as one of the currencies to undertake these
investments.
Raising the yuan's profile in
international trade enhances China's leverage over
South America. Among the BRIC nations (Brazil,
Russia, India and China), Brazil and Russia
supported China's call in 2009 to replace the
dollar as a reserve currency with the
International Monetary Fund's unit of account SDR
(an international reserve asset created by the IMF
in 1969 that has the potential to act as a
super-sovereign reserve currency). The reality,
however, is that the initiative would take years
and is complicated by the inconvertibility of the
yuan.
In the meantime, China is promoting
its currency in bilateral trade. In 2009,
Argentina signed a 70 billion yuan ($10 billion)
currency-swap agreement. Brazil tentatively agreed
in 2009 to trade with China in yuan and reals. And
this year, Peru became the first Latin American
country where businesspeople can open
yuan-denominated bank accounts to settle trade
with China.
Fear of
China Despite the strides that China has
made in the region, countries remain apprehensive.
The WikiLeaks diplomatic cables highlighted the
level of suspicion. One Colombian trade
representative based in Beijing noted that his
country would not be "walked all over" by China
"like Africa". A Mexican official stated that "we
don't want to be China's next Africa". And the
Brazilian consul general in Shanghai argued that
"China's strategy is very clear: it is doing
everything possible to control the supply of
commodities."
China's negotiation tactics
in the region corroborate such apprehension. In
2010, after Argentina imposed anti-dumping
measures on Chinese footwear and textile products
when the government detected unfair competition,
Beijing halted imports of soya oil, Argentina's
main export, in retaliation. Despite Argentine
concessions, Beijing has not resumed imports.
In another example, last year, Ecuador
suspended negotiations with China's Eximbank for a
$1.7 billion loan after Quito found unacceptable a
demand to provide the central bank's assets as
collateral. Ecuador's president stated that
"negotiating with China is worse than the IMF".
The loan was eventually signed, but details are
unclear.
Beijing's actions to secure land
for agriculture are also raising concerns in the
region. China has 20% of the world's population
but only 11% of its territory is suitable for
agriculture. China's land acquisitions have been
more prominent in Africa, but in recent years
South America has received attention as well.
In 2010, a Chinese firm's lease of 320,000
hectares of Argentine land created considerable
opposition after the signed deal became public.
The implications for local food sovereignty are at
the forefront of worries. As a result, in February
2011, Cristina Kirchner, Argentina's president,
announced plans to restrict the acquisition of
land by foreigners. In Brazil, lawmakers are also
considering amending the law to make it harder for
foreigners to acquire land.
South
America's trade with the United States, meanwhile,
is more balanced. The approximately $200 billion
in annual bilateral trade between the United
States and South America relies more on
agricultural and manufactured products, rather
than on the raw materials that China has extracted
from the region. Moreover, the United States
remains the single most important source of aid to
the region. Throughout the last decade most
countries have received economic aid for various
health, educational, and environmental programs,
but primarily for security initiatives. And even
though the amount varies greatly among countries,
this economic aid is fundamental for some
government programs. Proposed cuts in the 2012
foreign aid budget could reduce such influence.
The $1.98 billion budget is the lowest amount
since 2007.
Soft-power
competition The dynamics of Washington's
engagement with Latin America, in spite of
historic grievances, renders the United States a
more popular power than China. According to a 2010
Gallup poll, 50% of Latin Americans approve the
job performance of the US leadership. In contrast,
28% of the region's respondents approve of China's
leadership. The leadership of both countries rates
a 20% of disapproval. There are no significant
differences in response between Central and South
America.
More telling, however, are the
results of a similar Gallup poll carried out in
2006. Five years ago, US approval ratings stood at
30% while disapproval reached 45%. Regarding
China, although 28% approved of its leadership,
22% disapproved. Comparing the 2006 with the 2010
results, it is clear that Washington has gained an
advantage in soft power over Beijing, especially
given China's repression of human rights
activists.
China's economic activities in
Latin America, especially South America, are not a
zero-sum game. Although China's engagement results
in more influence, Beijing's methods also decrease
its effectiveness.
Nevertheless, the
self-serving US strategy in the region may be
counterproductive. Secretary of State Hillary
Clinton articulated Washington's vision:
"Enhancing our competitiveness, accelerating
innovation, achieving energy security, and
expanding our exports - all of these require
robust engagement with Latin America."
Focusing on only increasing US exports to
the region while decreasing aid may push countries
to fully embrace China's type of economic
engagement. Washington would be wiser to encourage
imports of manufactured goods from Latin America
that compete directly with Chinese goods and
create good jobs in the region.
Sebastian Castaneda is a
graduate student at the University of Hong Kong
and a contributor to Foreign Policy in Focus.
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