Chinese loans to Latin America plunge as virus strains knot
MIAMI (AP) – It looked like a match made in financial heaven.
In 2010, China, its booming economy and state-owned enterprises seeking to expand globally, cast their eyes on Latin America, a region lacking in capital but rich in natural resources that the country lacked. Asian giant. The result: a record $ 35 billion in state-to-state loans that year.
Fast forward a decade and the once steamy relationship begins to mature in a way that suggests China may be wary of its once-right partner.
For the first time in 15 years, China’s two largest political banks – the China Development Bank (CDB) and the Export-Import Bank of China – have not made any new loans to the region in 2020, ending a crisis multiannual caused by Latin America. worsening of the economic slippage.
The data comes from a new report from the Inter-American Dialogue, a Washington think tank, and the Global Development Policy Center at Boston University, which have for years tracked Chinese yuan diplomacy in Washington’s backyard. .
China’s growing economic and diplomatic influence in the region has worried US policymakers, who have been unable to counter its rise to power. The task now falls to the Biden administration, which has warned that the Chinese footprint in the region poses a threat to national security. But with China having replaced the United States as the number one trading partner of several South American countries, catching up will not be an easy task.
Meanwhile, the United States may have fallen further behind during the pandemic, when China donated more than $ 215 million in supplies – from surgical gloves to thermal imaging technologies – to allies of the United States. the region, according to research. For comparison, the United States Agency for International Development and the Department of State provided $ 153 million. China has also conducted clinical trials or plans to manufacture vaccines in five countries: Argentina, Brazil, Chile, Mexico and Peru.
“Without a doubt, part of the region’s COVID response has a Chinese face,” said Rebecca Ray, a Boston University economist and one of the authors of the new report. “It’s a missed opportunity for the United States, but since the trough of American manufacturing in the 1990s, there’s really no way to compete. A lot of the same medical supplies that China ships to Latin America that we also buy from China. ”
But while the pandemic has opened the door to much-appreciated Chinese aid, it has also made it harder for governments to pay their bills in Beijing. A deep 7.4% recession in Latin America and the Caribbean last year wiped out nearly a decade of growth, according to data from the International Monetary Fund.
With borrowers in a hurry, China has taken a hit. Last year, Ecuador negotiated a one-year deferral of nearly $ 900 million in debt repayment for oil shipments. Venezuela – by far the region’s largest borrower – would have benefited from a similar grace period. At the same time,
“With the region facing unprecedented challenges, China is unlikely to lend more at this time,” said Margaret Myers, Asia-Latin America program manager at the Dialogue. “Instead, he needs to tackle his own problematic wallet.”
The slowdown in lending to Latin America reflects a broader overall setback, as China turns in on itself to step up its own recovery efforts amid the pandemic. The ruling Communist Party has loaned billions of dollars to build ports, railways and other infrastructure across Asia to Africa, Europe and Latin America to expand access from China to markets and resources.
But Beijing has become more cautious after some borrowers struggled to repay their loans. Officials say they will look at the projects and funding more carefully.
The Chinese Development Bank and the Foreign Ministry did not respond to questions about the reasons for the decline in Chinese lending to Latin America.
Even though loans have dried up, Chinese purchases of soybeans, iron ore and other Latin American commodities remained strong at around $ 136 billion. This is despite a sharp increase in China’s purchases of American agricultural products, a promise made with the Trump administration to end a debilitating trade war.
Chinese state-owned energy companies have also aggressively bought back energy assets from outgoing Western investors at incendiary selling prices. Overall, Chinese mergers and acquisitions reached $ 7 billion in 2020, nearly double the volume of activity in 2019, according to the study.
Among the deals: the sale of Peru’s largest electricity company by San Diego, California-based Sempra Energy to China Three Gorges Corp. Another $ 5 billion deal giving State Grid Corp. of China control of a major utility in Chile was announced last year but not included in the data as it has not been finalized.
For leaders in the region, it is difficult to resist Chinese loans for large-scale infrastructure projects. Interest rates are low, and unlike loans from the World Bank and IMF, there are fewer conditions and approval is faster, allowing leaders to tout achievements in time for the next election.
Even Colombia – Washington’s staunchest regional ally and a country that has not responded to China’s demands – has recently jumped on the bandwagon. Last year, a consortium including China Harbor Engineering Company launched the first metro in the capital Bogota, a $ 3.9 billion project. No American company has bid on the project, which has not directly benefited from any Chinese loans.
US officials have tried to back down, pointing out that US aid abroad is long standing and more transparent.
“Beijing’s assistance in the region is generally aimed at advancing the commercial or political interests of the People’s Republic of China,” the State Department’s Office of Western Hemisphere Affairs said in a statement.
In January, at the end of the Trump administration, the American International Development Finance Corporation signed an unprecedented deal with Ecuador to fund up to $ 2.8 billion in infrastructure projects, money that, according to her, could be used to “refinance predatory Chinese debt”.
But the DFC’s total funding – $ 60 billion – pales in comparison to the trillion dollars China has allocated to its Belt and Road initiative to expand its influence around the world.
The US loan program to Ecuador was important because it would also force the government to privatize oil assets and infrastructure and ban Chinese technology.
“It would certainly limit China’s influence,” Myers said. “But by adding debt to future generations and encouraging the use of fossil fuels, is this really helping Ecuador in the long run?” Otherwise, it could backfire on the United States. ”
Associated Press writer Joe McDonald in Beijing contributed to this report.
Joshua Goodman on Twitter: @APJoshGoodman