Taking Bait to the Fish: China in Latin America

People say that the world is a small place. It seems that in the last decade China has taken this notion very seriously. One cannot deny the presence of this nation, for China has created a storm. Not a storm that involves guns and soldiers but one that is way more strategic, and yields long lasting power. China doesn’t wait for the fish to come for the bait, it takes the bait directly to the fish. Perhaps this is why most in Europe and America are not really fond of China. More so now because China has moved past Asia and Africa to find opportunities in the backyard of the United States, i.e. Latin America. Latin America bowed to the US just a decade ago. But now it seems as if they have stood up to the bully by befriending another bully, thereby resulting in a significant loss of power for the United States.

Since January 2015, Chinese direct investments in Latin America have risen to the tune of $250 billion, with bilateral trade standing at $500 billion. This courting of Latin America was commenced by the present Chinese President, Xi Jinping, at the first ministerial meet at Beijing. In the years since, China has lived up to its vision.

Latin American countries, barring a few, have always had a problem with proper infrastructure, which has long affected different sectors such as education, services, IT and more. In addition, the traditional economies of Latin America have concentrated power and wealth in only a few people, which has hampered the livelihoods of many. This, combined with an unskilled labour force and a fall in the prices of mineral goods, has made Latin America unviable for most US-based companies. Sensing a fish in need of bait, China has come in strong. Since most companies now investing in Latin America are under the Chinese government, China has made government-to-government deals on various projects. These investments have been mainly focused on mineral extraction industries, just like China’s investments in Africa. The market of raw materials in Latin America makes it a worthy base for China to acquire a foothold and to further realise the added advantages of their own economy. Day by day, the base grows and China accelerates towards the finish line.

China is also interested in the grey areas. It has been making headlines for investing in countries with poor governance such as Venezuela. Venezuela has been plagued by instability and lawlessness, which has actively led to a decline in foreign investments. FDI in general is correlated to the resources and stability of a country. But Chinese investment in Venezuela bucks this trend, and it has invested in Ecuador and Argentina too, which again are not the most stable. However, it would be unwise to say that China is deliberately seeking out countries with poor governance only. It is still a major investor in better-governed countries like Brazil or Chile. The fact is China is taking risks, both big and small, with a very long term view. Earnings on these overseas investments can help China with its public pension system the day its population starts really ageing. Further, the global dominance China desires cannot come by playing it safe. Venezuela’s publishing of its oil prices in the Yuan (and not the US dollar) for the first time in 2017 is proof that these gambles may go on to give immense returns in terms of global influence. In fact, countries like El Salvador and Panama have broken economic relations with Taiwan, an ally of US and rival of China, in order to favour Chinese investment in their country. It seems that China is running a one-man show in which it is single-handedly defeating the US and its allies.

However, China’s financing in countries like Venezuela may not be the best for those countries. China obviously has an ulterior motive, given that the money pooled in is definitely going somewhere. This money could potentially be funding the corrupt political leaders of Latin America, which only adds to the instability of these countries and hurts Chinese interests. In fact, the losses incurred so far in Venezuela has had consequences, and China has opted to stop its investment in Venezuela in the near future. So, what the future holds is not quite apparent. Yet, one thing is certain, despite hiccups like this. China is playing at all the spots that the US has left vacant. Just as the US keeps on tearing apart one relationship after another, China sees the opportunity and builds on it. And its investments in Latin America are proof of how far China is willing to go to attain global dominance.


Atreyi Bhaumik

I am a student in Delhi University, pursuing bachelors in Economics. I also have a keen interest in Policy and probably will explore that field in the future.

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