Latin Analysis: China: the new biggest investor in Latin America
Natthapong Kromkrathog / EyeEm
Without a doubt, Latin America has been a region in which many countries have reached unprecedented economic growth throughout history. As such, the region has called for significant foreign direct investment (FDI) over time, as many Latino nations had promised a competitive return on investment. Thus, western European countries and the US had, historically, been big investors in Latin American initiatives.
However, the prospects for economic development have not always been so positive for the Latin Americans, as in recent years many nations have been either struggling with financial stagnation or with political and social instability which have then resulted in their economies becoming rather less attractive as investment destinations. Also, there have been other developing states (particularly East Asia) which have made their markets more attractive for the international public. Hence, in recent years, the countries which had previously invested in Latino markets started switching the destination of their funds to other countries.
Nevertheless, despite many investors withdrawing their capital from Latin American nations, there was one country that decided to invest in the region: China. Naturally, due to the rising economic and political power of the country, China’s significant new investment in south American nations and its political implications has become a much-talked-about topic within the international community.
China’s Investments
Business deals made among Chinese people and Latin Americans were not common until 10 years ago, as countries in the South America region and China decided to tackle trade and investment in a “south-south” collaborative approach. As a consequence, Chinese investors started to direct considerable amounts of capital into industries like oil, mining, and infrastructure, such that since 2010 China companies have invested around US$ 10 billion per year in Latin America. The nations which have received the highest foreign direct investment (FDI) are Brazil, Peru, and Chile. Simply put, the FDI from Chinese origin was so significant that it accounted for over 86% of the total received by the whole Latin America region in 2019.
source: RED ALC-CHINA
In addition, China has strongly bonded with the Latinos through trade by strengthening its relations with the Common Market of the South (MERCOSUR), which is a trading block formed by Brazil, Argentina, Paraguay, and Uruguay. In fact, these trading relations have become so strong, that in early 2020, members signed the biggest trading agreement in MERCOSUR history, such that China became the biggest trading partner of the block of South American states. Also, Latin American countries have been receiving funds through loans made by the China Development Bank. Some of the nations which have been benefited from these include The Dominica Republic, Suriname, and Trinidad y Tobago, as well as Venezuela, and Ecuador.
Also, as a consequence of this, other states and blocks of nations which used to be the biggest trading partners or foreign direct investors of the Latino nations – such as the EU – have voiced their concern of having been displaced by the Asian nation. Hence, heads of state of these states have affirmed to want to strengthen their trading and political relations with South Americans (particularly members of MERCOSUR). Yet, even though this has been economically beneficial for most Latin Americans, the EU and the US (among others) have pointed out that China’s interests in investment within the region are not purely economical, as the fact that a significant part of the capital is directed towards unpopular authoritarian economies like Venezuela and Bolivia. And thus, it is argued by countries of the Global North that the main Chinese motivations come down to be of political ideologies and increase of soft power. Yet, Latinos continue to welcome the FDI that comes from the Asian nation to foster their economic growth and boost the so-called south-south cooperation.
The implications in the Mexico-Brazil Rivalry
A salient matter regarding the new role of China as a major investor in Latin America is that of its rivalry with the US. This is the case, as many experts have suggested that the Asian-American rivalry also impacts the relationships among Latino nations such that these become a reflection of the tensions amidst the two biggest economies of the globe. Naturally, then, the most impacted nations that show this parallel rivalry between the Asians and Americans, are Mexico and Brazil.
Since its strong trading relationship with MERCOSUR started, China has become ever closer to Brazil, as these two nations also do intense bilateral trading. This is so much so, that China has been Brazil’s biggest trading partner during 2018 and 2019, displacing the US which had been Brazilians’ major partners in past years.
Contrarily, the US keeps being Mexico’s single biggest trading partner – as it has been for several years – as well as these two have kept strong ongoing trading relations through the North American Free Trade Agreement (NAFTA). This coalition, as experts have indicated, does not only benefit economically all three members (US, Canada, and Mexico) but it also solidified their political closeness. Yet, experts indicate that, since Mexico relies deeply on its political and trading interactions with the US, it has been experiencing pressure to keep its “loyalty” to the US by avoiding getting “too involved” with China. Indeed, particularly during Donald Trump’s presidency, trade analysts have argued that Mexico has received several ultimatums from the US government to limit its commerce with the Asian giant.
Consequently, then, scholars have stated that Chinese-American tensions are palpable in Latin America, as both of its biggest economies have used MERCOSUR or NAFTA to try to economically and diplomatically challenge one another and try to gain more political dominance in the region. Yet, despite these two nations receiving significant political pressure from the two biggest economies in the world, Mexico and Brazil have also been benefited from the trading war between the US and China. This is so, given that the US has significantly decreased its imports from China and has been replacing the needed goods with imports from Mexico, such that the US’s neighbor has been able to stabilize the balance of trade which had been suffering from a structural deficit in the past.
Nevertheless, the rest of the nations in the American continent have been openly welcoming of Chinese FDI and new trading relations, as Chinese investors have been directing capital towards the region as no other country in the world. It is thought that this perhaps might also foster further investment to be made on the Latino countries as other parties as the EU and US do not want to fall behind and maintain already-established strong political relations. It is yet to be seen if the south-south cooperation will continue to grow steadily as it has done for the last years and the implications this might have – not only for Latin America but for trading relations worldwide –, and despite the ongoing coronavirus crisis, it is almost certain that China will continue to work on strengthening its relations with Latinos and that these nations are willing to get on board with the Chinese initiative that strongly boosts their prospects for economic development.
