Evolving South American-China Relations: Challenges and Opportunities for Washington
Trustee Chair in Chinese Business and Economics > Trustee China Hand
I was reminded of the importance of fieldwork and in-person meetings during a recent work trip to South America, where I was able to meet several experts and journalists from across the continent working on China-Latin America relations. My conversations there revealed a complex and multi-faceted relationship, which complicates further the relationship between the region and the United States. China’s commercial presence on the continent has expanded rapidly over the past two decades (see Figure 1). As result, China’s economic slowdown is likely to have huge repercussions for many South American economies, which governments there and elsewhere may not fully appreciate. Similarly, the concerns of South American governments and civil society may be important for Washington to consider if it wishes to improve its relationship with countries in the Global South.
Figure 1: Regional Distribution of Trade for South American Countries
Note: Venezuela, Peru, and Uruguay's 2021 trade data are unavailable, so the 2020 data were used instead.
Each country in the region has its history and distinct relationship with China. There is no unified “Latin American” view on China. For example, Colombia may seek to deepen its ties with China while maintaining stable, although perhaps less cozy, relations with Washington under its new left-wing president, Gustavo Petro. At the other end of the spectrum, Chile may wisely try to diversify its economy and exports, 40% of which go to China—mostly copper. Most countries, however, share a general belief that it is in their national interest to remain unaligned in a potential U.S.-China cold war. I repeatedly heard that efforts by Washington to push governments to pick sides without considering these countries’ strategic interests or offering significant economic opportunities would likely backfire. This is the case even though South America’s geographic and historical vicinity to the United States makes it less of a strategic political priority for China. Hence, Washington would do well to present a coordinated set of economic and political opportunities that go beyond a “democracies vs. autocracies” formulation.
Several takeaways from my conversations stood out:
- Few local experts believe that China poses an economic threat to countries in the region thanks to their “economic compatibility.” Chinese subsidies and industrial policy, which are highly controversial in East Asia, Europe, and North America, did not emerge as a serious concern in my conversations. Moreover, unlike in some other countries in the Global South, I sensed that many do not believe that industrialization or acquiring tech from China will offer a path towards upper-income status to South American countries. Some hope that extractive exports will pave the way for more higher-value-added exports like wine, coffee, and fruit rather than manufacturing.
- Brazil is the largest exception to the above point. The country does compete with China in some areas (such as commercial aircraft) and views China’s state capitalism as a potential threat due to long-held aspirations to expand the Brazilian industrial base. Brazil may resume more active industrial policy should current president Bolsonaro be replaced in the upcoming elections by former president Lula. This is especially likely given the resurgence of industrial policy in several leading economies globally. A Lula presidency may also be more open to cooperating with China compared to the Bolsonaro administration.
- Chinese infrastructure lending and construction projects are associated with corrupt local politics in several countries—Ecuador and Venezuela are the most notable cases. At a time when Beijing is scaling back the magnitude and scale of the Belt and Road Initiative, South America provides some of the most stunning examples of Chinese financial miscalculation. Overall, however, local experts are more likely to point their finger at their own countries’ weak institutions, understaffed environmental agencies, and corruption than at Beijing as the source of the problems. They point out that when allowed, Western companies have also operated in ways that are environmentally damaging, for example in the Amazon. Initiatives aimed at improving environmental and social standards across the board are likely to be welcomed as overall improvements in governance would address the demands of civil society. However, programs targeting Chinese investment specifically will be principally identified with U.S. geopolitical goals.
- Corruption notwithstanding, Chinese companies do offer sorely needed cheap infrastructure and low-cost products that U.S. companies are unlikely to be able to supply, ranging from subways to 5G networks. It is unrealistic to expect governments to give up these types of opportunities that would raise local standards of living. The most effective way of approaching the issue is by carefully identifying the areas where U.S. competitiveness and strategic interests are truly threatened by Chinese activities in the region, and where the U.S. can offer valid alternatives to Latin American partner governments. One area which could provide commercial opportunities is clean tech development and improving the standards for extractive industries.
- Most countries in the region are united by their reliance on commodity exports to China and, in many cases, minerals needed for producing clean-tech equipment, such as lithium. To countries such as Chile, Bolivia, and Argentina, the clean transition does not simply mean cheap and clean energy and encompasses opportunities of a far more extractive nature. Better global standards, traceable supply chains, and enabling certification are going to be crucial to ensuring that the clean transition does not create irreparable damage in the process. Civil society is already demanding more oversight and some countries have succeeded in maintaining higher standards than others—the variation largely lies in the host country’s enforcement capacity.
- Resources and knowledge are lagging in many Latin American countries when it comes to investigating Chinese deals and projects. The issues are both structural and particular to China. For one, several countries in the region are not particularly safe for journalists to operate in and newspapers are sometimes underfunded. Second, Chinese infrastructure projects often lack transparency and the lack of language skills or access to Chinese databases further hampers journalists’ ability to investigate them. U.S. training and resources for non-profits and support for independent journalism could help uncover corruption and environmentally and socially destructive projects. Rather than focusing on China itself, the training and funding should go more broadly to support investigative journalism—reporters with resources and training should be free to identify the most problematic projects in their country, whether they involve Chinese investment or not.
Overall, I sensed much hope and expectation that Chinese engagement with Latin America would continue to bring growth to the region. Unfortunately, China’s economic woes are likely to bring some disappointment. BRI investments have already slowed down and will likely be more concentrated in more stable and wealthier countries. China’s commodity demand is likely to fall somewhat as well as its economy slows further. Countries may also be disappointed to discover that intensive ties with China aren't any more of a sure path to development than those with the with United States. But this doesn’t mean that China will leave the region, far from it. The United States has so far failed to develop a credible or comprehensive response to China’s presence in the Global South. Washington would do well to clarify its strategic priorities and find ways of identifying how they might align with the national interests of countries in South America.
Ilaria Mazzocco is a fellow with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies (CSIS).
This blogpost is made possible by general support to CSIS.
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