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If Wikileaks documents are any indication, Chinese investors might have a big surprise in store as they continue their push into Latin America. In their effort to extract raw resources, the Chinese have fared relatively well in such areas of the globe as Africa. However, recently disclosed U.S. cables hint that Latin America may not prove as pliable for the Chinese. Indeed, during private discussions with U.S. diplomats in Shanghai, Chinese experts candidly admitted they faced a “public relations challenge” in Latin America, and that local residents viewed Chinese businessmen as “locusts” intent on “extracting minerals and natural resources and leaving very little of lasting value behind.”
China is a relative newcomer in Latin America, yet the Asian powerhouse has made a big splash. In its drive to dominate Latin American markets, China is primarily motivated by economic and not political considerations. In recent years, the Chinese authorities have understood that native industry must be provided with adequate supplies of energy, minerals, and other basic raw materials if the Asian powerhouse is to sustain continued economic growth. In tandem with such desires, China has moved aggressively to become Latin America’s second largest commercial partner after the United States.
For their part, the Latin Americans have been content to export their raw materials to China, though many countries have uncomfortable memories of U.S. economic enclaves and may wonder whether the Asian powerhouse will encourage sustainable development and social equity. While China is willing to help construct ports and railroads, such infrastructure projects will be linked to the transport of raw materials and in this sense the Asian tiger is little different from the United States, which historically sought to promote the type of “development” which would merely facilitate the extraction of South America’s resources.
Latin America is Not Africa
In Africa, China found that it could import its own labor, ignore environmental standards and essentially adopt a colonialist approach toward local peoples and resources. Compliant political elites, who displayed scant regard for human rights, made life easy for Chinese investors. But Latin America, having recently witnessed a tectonic shift to the left, is less willing to embrace untrammeled economic development if this comes at a high social and environmental cost.
In contrast to Africa, Latin America has a much more dynamic political culture characterized by combative political parties, labor unions and non-governmental organizations. Though many within Latin American civil society may have looked upon China as the champion of “Third World-ism” at a certain point, some will be less than impressed by the Asian tiger’s shedding of any ideological pretensions in the name of promoting a more politically neutral “multi-polar” world.
WikiLeaks documents shed fascinating light on the many difficulties and contradictions in the incipient Chinese-Latin American relationship. Speaking with officials at the U.S. consulate in Shanghai, Chinese experts said their nation’s leaders were interested in paying more attention to large emerging countries like Brazil and Mexico “amid the changing global economic balance of power.” Chinese companies, however, had difficulty understanding the Latin business milieu, and complained about “strong labor unions and cultural conflicts.”
Fundamentally, experts noted, “Chinese investors think Latin America and Africa are the same…but it is easier for them to do business in Africa since Africa's institutions and regulatory environment are less well-developed than Latin America’s.” Chinese workers, meanwhile, had a “different work ethic” from their Latin American counterparts, and as a result many companies had chosen to import their own laborers which had in turn fed “local resentment.” Conscious of the need to improve its public image, China encouraged its companies to take on more local employees, and the Asian tiger had become a substantial donor to the Inter-American Development Bank.
Differing Views on China
Despite these many problems, it is also clear from WikiLeaks cables that Latin America’s view of China depends very much on the individual country. Indeed, while China is viewed as a friend in some nations, in others it is viewed as a threat. In recent years, China has signed free trade agreements with Peru and Chile, two countries which don’t have competitive industries to defend. China has failed to negotiate accords with some of the other larger countries, however, because certain Chinese exports are viewed as more direct threats.
One country which has been particularly wary of the Asian tiger is Mexico. In early 2009, U.S. diplomats at the American embassy in Mexico City wrote Washington that “Mexico’s trade deficit with China and concerns over China’s approach to investment continue to color Mexico’s perception of China as a true partner.” While Chinese Vice President Xi Jinping was well received in Mexico, officials were “reluctant to push too strongly for increased Chinese presence.” One top Mexican businessman confided to the Americans, “We don’t want to be China’s next Africa.”
The entrepreneur was referring to “the oft-cited criticism that China has pursued a strategy of seizing the continent’s huge natural resources while dumping cheap industrial manufactured products into Africa’s markets.” “We need to own our country’s development,” the businessman added. Judging from WikiLeaks documents, the Chinese are aware of Mexico’s skittishness. Speaking to U.S. officials in Shanghai, Chinese experts pointed to the “similar industrial structure” between China and Mexico, adding that the Asian powerhouse should “invest more in the Mexican oil industry to counter Mexican concerns about China's growing trade surplus with the country.”
Seeking a South American Gateway
Another nation with mixed feelings toward the Asian tiger is Colombia. In WikiLeaks cables, U.S. diplomats in Beijing remarked that Colombia was actively seeking new economic partners but was still “wary of Chinese motives.” Speaking to the U.S. Chargé d’Affaires in Beijing, Colombian businessmen expressed their concern that China might “walk all over” Colombia and its people much as the Asian powerhouse had done in Africa. In addition, the Colombians were wary of Chinese investment in mining and hydrocarbons given the Asian tiger’s awful track record on environmental and labor practices [such talk is rather ironic in light of Colombia’s own horrible standards on these counts].
Because Colombian exports compete with those from China, the Andean nation is mainly interested in investment as opposed to signing a free trade agreement with the Asian powerhouse. Originally, China had directed its companies to invest in neighboring Venezuela, but the firms had “dragged their feet.” Reportedly, Chinese businessmen regarded Colombia as more stable and economically open than Venezuela, and therefore a “better base for targeting the rest of Latin America.”
In the long-term China may find that Colombia, which has a much more repressive anti-labor climate than Venezuela, is a country more to its political and economic liking. Indeed, recent business deals suggest that China sees Colombia as its preferred South American gateway. Take for example a Chinese plan to build an auto assembly plant in Colombia. The factory will manufacture light vehicles for export to different regional markets. The Chinese chose Colombia over Chile, Brazil and Mexico and the factory will begin production in 2012.
Brazil: “We Don’t Want to Be Colonized Again”
While Colombia and Mexico are certainly economically important within the overall Chinese strategy, it is the South American powerhouse of Brazil which has become the most indispensable linchpin. China has already displaced the U.S. as Brazil’s chief trading partner and experts predict that between now and 2014 the Asian tiger could invest an average of about $40 billion a year in Brazil. As they establish their key beach head in South America, the Chinese will target specific economic sectors such as telecommunications, infrastructure, farming, oil, biofuels, natural gas, mining and steel.
The most visible sign of burgeoning Sino-Brazil ties is the Açu complex, a mega port which is being constructed near Rio de Janeiro. The vast $2.5 billion facility will open in 2012 and its piers will host fleets of cargo ships including the ChinaMax, a huge vessel capable of holding a whopping 400,000 tons of cargo. In the nearby city of São João da Barra, the local town hall is providing free Mandarin lessons to those who wish to work with an anticipated wave of Chinese guests.
Though the new economic relationship has proven beneficial to both China and Brazil, it is rather lopsided. Indeed, China’s needs have begun to alter the Brazilian economy in fundamental ways. Take, for example, the Brazilian footwear industry which has been decimated by Chinese imports. Caught by surprise by China’s economic rise and burgeoning manufacturing sector, Brazilians worry that they haven’t laid the ground work for a sufficiently balanced relationship, one which will result in sustainable growth and not just small enclaves of prosperity.
Información Selectiva, a Mexican company providing financial news from around the region, recently reported on an eye-opening business meeting which brought together Latin and Chinese executives. During the summit, which took place in Chengdu, Brazilian investor Nizan Guanaes remarked “We were already colonized once and we don’t want to be colonized again. We want to be partners.” It’s unclear whether the Chinese have the patience to put up with such insolent independence. Frustrated by everything from Brazilian bureaucracy to strong labor unions to a more vigilant media culture and stringent environmental laws, the Chinese have found that Brazil is no pushover.
To be sure, the Chinese relationship has brought tangible economic benefits for Brazil. Take for example the local soybean industry which has thrived amidst booming exports to China. For the Asian tiger, soya is a versatile product which is utilized from everything from soy flour to tofu to soy sauce. In my recently published book No Rain in the Amazon: How South America’s Climate Affects the Entire Planet (Palgrave-Macmillan, 2010) I discuss the rise of soy boom towns in Brazil and accompanying infrastructure such as highways which are designed to facilitate exports to China. Even here, however, local development has been a mixed bag: while the soybean industry has brought economic gains it has also led to severe environmental downsides and pressures on the Amazon. Meanwhile, paved roads linking Brazil to Pacific ports of call and onward to Asia have cut through the rainforest and exacted a high ecological toll.
Wikileaks cables underscore underlying tensions in the Sino-Brazilian relationship. Speaking with American officials at the U.S. Consulate in Shanghai, Brazilian diplomats expressed some concern about growing imbalances in bilateral trade. Although Brazil exported some small commercial aircraft to China, in general the South American nation was a mere provider of commodities to the Asian tiger and received higher value-added machinery in exchange. Meanwhile, Chinese investors failed to adequately understand the local Brazilian market and regulations.
As history has shown, the Latin American people do not take kindly to outside powers coming in to the region and reaping maximum economic advantage while failing to encourage equitable social development. For years, it was the United States which raised the political ire of many countries throughout the hemisphere as it set up economic enclaves and propped up compliant elites. So far, the Chinese interest in Latin America has been primarily economic though the Asian giant may be obliged to become more involved in local politics as its interests grow. If China expects, however, that it will get its way in Latin America as easily as it did in Africa then the Asian tiger may find that it has another thing coming.
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Cristina Fernández de Kirchner, Argentina’s new president, must have heaved a huge sigh of relief. Though politicians feared that protests could mar the arrival of the Olympic torch in Buenos Aires, the day passed uneventfully enough. Athletes ran the torch through the city streets as Chinese guards ran in formation alongside. The torch, which has toured the world ahead of the Olympic Games in Beijing in August, has been a magnet for protests over China policies. The Chinese leadership has fallen under international criticism for cracking down on unrest in Tibet and for propping up Sudan.
As the torch headed to Argentina on its ongoing tour, activists protesting against China’s rule of Tibet pledged to hold peaceful demonstrations. Jorge Carcavallo, a member of Argentina’s Free Tibet group, interrupted a press conference about the torch’s visit to warn of upcoming protests. When the torch arrived in Buenos Aires from San Francisco, authorities quickly hustled the torch off the plane and, in what was now rapidly becoming a comic odyssey, canceled a planned photo opportunity on the tarmac. The Olympic flame, in an ornately decorated lantern, was protected by Chinese guards who jumped onto a bus and rushed away to a secret location. The Chinese guard was escorted by wailing police cars and an ambulance. Local security officials wouldn’t disclose where the vehicle was headed. On the day of the torch’s tour through the streets of Buenos Aires local authorities braced for the worst, deploying some 1,200 police officers and 3,000 traffic cops. Though demonstrations were scattered, the police penned in protesters within fences along the 8_-mile relay route.
Behind the headlines and all the melodrama surrounding the torch, however, there’s a more significant story. For years, Argentina has been courting China diplomatically and has pointedly gone out of its way not to criticize the Asian Tiger in regard to its appalling human rights record. Kirchner is interested in maintaining important economic ties with the Asian Tiger, and in this sense the President could ill afford a public relations nightmare that might put the China relationship in danger.
On the other hand however, China ties could pose a thorny political problem for Kirchner and other South American leaders in the long term. Increasingly, Argentina is becoming entwined with Beijing and this has only served to intensify social tensions in the country.
Argentina Embarks on a New Trajectory
To understand why Argentina invested so much in its China relationship, you have to go back to 2001. In that year, the once prosperous South American nation faced economic ruin after confronting a catastrophic financial collapse. The Argentine political class had followed globalization’s dictates by dismantling protectionist trade and business regulations and embarking on an ambitious wave of privatizations. During the Asian economic crisis, a huge outflow of capital led to a depression and financial panic.
Although Argentina had experienced a number of economic crises over the years, this one was one was without precedent in severity and human consequences: overnight the currency lost two-thirds of its value and banks were closed so that ordinary Argentines could not access their funds. In December 2001, amidst bloody riots, President Fernando de la Rúa was forced to resign after hardly eighteen months in office. Parts of the majestic Congress building in downtown Buenos Aires were torched by angry protesters.
Over the last five years however, Argentina has undergone a remarkable economic recovery, partly due to a drastic devaluation of the currency by two-thirds. The currency devaluation suddenly made Argentina’s exports highly competitive on the world market.
The government’s move coincided with dramatic economic developments half a world away. In China, the government was facing a dilemma: the country’s farm output had reached its limit, and massive rural to urban migration was creating an insatiable demand for more soy. China simply did not have the necessary land or water to produce more of the crop.
Argentina to the Rescue!
As it turns out, Argentina, with its fertile soil and favorable climate, was well situated to produce soy. In conjunction with my new book, Revolution! South America and the Rise of the New Left (Palgrave-Macmillan, 2008), I interviewed Gonzalo Sánchez Paz, a lecturer in international affairs at George Washington University and an expert on South America’s ties to Asia. "You cannot understand the miraculous Argentine recovery after the financial crisis of December 2001 without considering the boom in soy exports to China," he told me.
In an effort to curb inflationary pressures, former President Néstor Kirchner placed export caps on beef, thus flooding the local market with meat. Argentines, who are passionate about their beef, consuming 154 pounds of meat per capita per year, and who hold Sunday barbecues with a religious fervor, embraced the new measures as prices were kepT low (incoming President Cristina Kirchner has pledged to maintain a high export tax that makes outbound beef too costly for many foreign buyers).
Simultaneously, many cattle ranchers were tempted to switch over to soy owing to increased market prices and the government’s export caps on meat. Argentina, which was the world’s biggest beef exporter until the 1950s, now went to fourth in U.S. Department of Agriculture rankings, behind Brazil, Australia and India.
Some experts say Argentine soybean farming is currently three times more profitable than cattle ranching. Indeed, the trend against ranching is so powerful that today, remarkably, half of all cultivated farmland in Argentina is dedicated to soy. The explosion in production has been aided by the fact that soybeans need just eight months to reach harvest, far less than the 2-3 years needed to raise a cattle herd.
Clearly, farmers aren’t complaining: they’re making a killing on their new soybean crop.
Soy Has Its Consequences
Argentina, a land of vast, fertile plains, has benefited hugely from high international prices for commodities. But the country is divided over how best to distribute windfall profits from soy. Though China trade has represented an economic boon, Argentina’s relationship to the Asian Tiger has exacerbated social tensions. The soy trade has encouraged the rise of an export elite in Argentina which has become an important political actor in its own right.
Determined to check the growing power of the farmers, and strapped for cash, the regime recently raised export taxes on soybeans from 35% to 45%. The move, Kirchner said, would help to control rising inflation on domestic food goods. What’s more, the policy would serve to redistribute wealth in a country where nearly a quarter of the population lives in poverty.
The soy farmers however went on strike, presenting Cristina with her first political crisis as Argentina’s new President. Blockading roads in protest of the tax increases, the farmers strangled the flow of farm goods to cities and caused acute shortages of meat, milk and fresh produce across the country.
At a political rally attended by 20,000 supporters including trade unionists, Kirchner railed against the soy farmers. "Is it good that highways are cut so that food cannot be transported to market?" she asked. "Don’t do more harm to the people, lift the roadblocks so Argentines can get food," the President said.
Though the farmers recently agreed to end the road blockades, they have stated that they will resume the strike if the government refuses to rescind the tax measures. The current peace between the parties seems tenuous, as both the farmers and government have failed to reach substantive agreement during negotiations.
Historically, the U.S. sponsored local economic elites and multinational business in South America in an effort to secure raw resources. Now that the U.S. has lost some of its former position, China has stepped in to fill this familiar role. In order to keep growing at high rates, China needs access not only to food but to iron, oil, copper, and gas. Usually China is willing to help with infrastructure projects such as ports or railroads but only if this helps to facilitate the transport of raw materials.
Across the region, countries strain to satisfy insatiable Chinese demand.
From Argentina, China imports soybeans, crude oil, leather and steel. In Bolivia, China will invest $1.5 billion in the onshore oil and gas sector. China is also interested in developing the country’s largest tin mine, Huanuni. Meanwhile China has imported millions of tons of oil and iron ore from Brazil and has signed a deal to help construct a major natural gas pipeline. In Chile, China will set up a joint venture with the state copper company, Codelco. In Ecuador, a Chinese-led consortium bought oil and pipeline assets for $1.4 billion. In Venezuela, China has invested millions in the oil sector.
As evidenced by the peaceful and largely uneventful passage of the torch in Buenos Aires, China is not perceived as a major exploitative presence.
This could change with time, however.
China’s economic and development vision for the region, designed to serve its own growing needs, has already exacerbated class tensions in Argentina and could give rise to social conflict in neighboring countries as well.