Economy

A Han in Atahualpa’s Court

China seduces Latin America

Between 2000 and 2014, trade between China and Latin America grew by 2,200%. With the commodities boom now dead, China is boosting infrastructural ties to the continent.

Presidents Xi Jinping and Pedro Pablo Kuczynski meet in Lima

Only days after Trump was elected to the highest office in the land, President Xi Jinping set off for his third trip to Latin America since becoming president of the People’s Republic in 2013. In a voyage that brought him to Chile, Ecuador, and finally Peru for the Asia-Pacific Economic Cooperation summit, his diplomatic peregrination up and down the Pacific was meant to reassure China’s partners across the ocean that Beijing was standing by them, no matter what course Washington decided to pursue.

While the tables have yet to turn, they are certainly serving up a different brew. Between 2000 and 2014, trade between China and Latin America grew by 2,200%, to USD236.5 billion by 2015. Chump change, cynics may say, and less than half the annual tab the US does with Mexico alone. But that figure too is rapidly changing. Already in 2014, China overtook the European Union as Latin America’s second largest trading partner, and in 2015 Beijing signed a bundle of agreements with regional governments with the goal of more than doubling bilateral trade to USD500 billion.

If successful, which is far from unlikely, this would make the China-Latin American bilateral relationship the sixth most important in the world (after US-China, US-Canada, US-EU, China-EU, and US-Mexico). While much has been made of the budding commercial and infrastructural romance between China and Africa in the new millennium, the latter—valued at USD169 billion in 2015—already pales in comparison to China’s commercial presence south of the Rio Grande. What’s more, while African exports to China were down by 40% in 2015, those from Latin American were rising by an average of 27%.

That Chinese demand for mostly South American raw materials coincided with (and largely caused) the height of the global commodities boom should come as no surprise. And though long since over, the material ties that sustained it still bind. Sending mostly iron ore and soybeans, 40% of all Brazilian exports go to China, making Brazil its largest trading partner in the region and a more significant one than either Russia or India, with whom it shares 2,250- and 2,100-mile borders, respectively.

Meanwhile, Venezuela sends oil, Argentina soybeans, Chile copper, and Peru copper and fishmeal. China is now the single largest recipient of exports from Brazil, Chile, and Peru and the second largest from Argentina and Venezuela. With 20% of the world’s population but only 8% of its arable land, the Chinese appetite for South American raw materials will abate no time soon.

The Great Sinopening

Though the US still dominates the market for Latin American goods, its relative appetite is waning: in 2000, the US’ share of Latin American trade was 53%, compared to China’s 2%. By 2010, the US had only 39% compared to China’s 11%. Though not quite a revolution, the transformation that’s been wrought in merely a decade is enough to keep Secretary of State James Monroe awkwardly suspended six feet under.

But China’s turn to Latin America is not merely predicated upon survival. In step with Xi Jinping’s dream of ‘natural rejuvenation,’ the Chinese leader sees Latin America as an ideal continent on which to project his nation’s burgeoning soft power. And why not? Just as the US has its historical sphere of influence in East and Southeast Asia, China might as well strike out in a region with which it shares not only an ocean and growing commercial ties, but also an increasing weariness—not to mention aversion—to Washington’s withering will to power.

The most obvious hole that Beijing seeks to plug is the fallout from the collapse of the Trans-Pacific Partnership (TPP), dead in the water since Trump and Bannon came to power in November. Though obscure in detail and heavily criticized by seemingly all but Hillary Clinton—and at one point even by her—the deal would have given the US a critical edge over China in shaping trade policy in both East and Southeast Asia and Latin America for a generation or more to come. That Xi visited two founding members of the now-scrapped deal, Chile and Peru, that month is all the more testament to the Sinopening it hopes to make in the wake of a broader US retreat.

Old Dog, New Tricks

The seduction of South America is also in line with China’s ambitions to become a global maritime power. In many ways, this has already occurred: its shipping companies already carry more cargo than any other country in the world (five of the world’s ten largest container ports are in China whilst another is in Hong Kong), while it has the fastest-growing navy in the world, and the world’s largest maritime law enforcement fleet.

These figures are but the icing on a far more perfidious cake. China has also been employing a shrewd new mechanism of establishing, if not quite naval bases, then at least a militarized naval presence in various strategic hotspots around the world. Contra Commodore Perry, Beijing has flipped the maritime logic of the 19th (and 20th) centuries on its head: rather than open up markets at the point of a gun, they’ve found it’s far easier—both politically, economically, and militarily—to offer up cash and infrastructural financing to build new civilian cargo ports, to which the People’s Liberation Army only later pays strategic social calls.

This has already happened in Sri Lanka, Greece, and Djibouti in the Horn of Africa, and will soon be the case in the Chinese-built Pakistani port of Gwadar on the Indian Ocean. Whereas the PLA only made cursory port calls in Greece and Sri Lanka, its presence in Djibouti marks a significant shift in world history: the Middle Kingdom’s first-ever bona fide overseas military base. Though the state-owned China Merchants Group invested a USD9 billion stake in Djibouti’s container terminal in 2012, by 2016 Beijing acknowledged it was indeed investing in its first overseas military base. Ensuring Beijing’s military presence in the Horn through 2026, the base will have the capacity to accommodate no less than 10,000 personnel.

Where Angels Fear to Dredge

While Beijing also owns a governing stake in one of Europe’s largest ports, Piraeus (Greece), and Chinese firms are building both a port city in Sri Lankan Colombo and a massive modern container terminal in the south of the country, its most ambitious project of all is the canal that Chinese billionaire Wang Jing has the contract to dredge across 170 miles of jungle, lake, and rainforest in Nicaragua. The latest in a long line of dreamers and schemers including Henry Clay, Napoleon III, and Cornelius Vanderbilt, if the agreement reached between the leftist government of Daniel Ortega and the Hong Kong Nicaragua Canal Development Group goes forward, the project would entail the largest movement of earth in the world’s history.

Though it has stalled since ‘breaking ground’ in December 2014 and has roused considerable backlash from Nicaraguans, the project would be three times as long and twice as deep as the Panama canal and allow for the passage of ships the length of skyscrapers to mosey through it. And though the canal fits in well with a broader picture of Chinese maritime expansion, being one of the three most critical sea passages in the world (along with the Suez Canal and the Straights of Malaysia), it is still not clear whether it enjoys the backing of Beijing.

On the one hand, the state may be loath to heavily invest in one of the world’s oldest and most notorious infrastructural pipedreams, especially in the wake of the recently expanded Panama Canal, whose capacity was doubled in June 2016. On the other, the very peculiar combination of public-private one-twos concocted by Communist Party bureaucrats and Chinese businessman from Colombo to Costa Rica suggests that once the country’s prestige is on the line—as it was when Sri Lankan President Maithripala Sirisena tried to suspend a USD1.4 billion Chinese-financed port in 2015—Beijing is willing to take a forceful stand.

To Know Oneself, or Know Thy Enemy?

It is almost universally taken for granted that China will soon have a larger appetite than the US for Latin American raw materials such as copper, corn, timber, iron ore, oil, gas, and soybeans, to name a few.

But the end of the commodities boom in 2013-14, spurred largely by a fall in demand from China and India and acutely affecting export-driven South American economies, also reveals two other critical realities: first, South America, in particular Brazil, is far more reliant upon China than vice versa.

Second, China is eager to plug the ‘hole’ left by the plunge in commodities prices by making much deeper infrastructural commitments to Latin America to better weather, if not one day preclude, the ups and downs of wildly unpredictable market forces. This was the purpose of Xi Jinping and Premier Keqiang’s repeated visits to the region in 2014, 2015, and 2016, including the inaugural China-Community of Latin American and Caribbean States (CELAC) summit held in Beijing in 2015.

The looming question is what, if anything, the US intends to do about China’s growing role. In a bashful yet isolationist mood, Washington has little choice but to cede its ‘own’ backyard to China’s ascendant economic presence; in many ways it already has. As for the Middle Kingdom’s more forceful overtures—a canal across Nicaragua or a potential trade bloc to replace the now-defunct TPP—these will turn more heads. Whether they arouse anyone’s trigger finger is up in the air.

Should talk of Chinese-financed ports in Panama, Peru, or Valparaiso some day materialize, theoretical considerations may soon turn practical. Then again, as Francis Bacon said, “The arts which flourish in times while virtue is in growth, are military; and while virtue is in state, are liberal; and while virtue is in declination, are voluptuary.” 400 years on, this may still be the best gauge of whether, and over what, the world’s two most powerful countries come to blows.

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