For China, the biggest and most immediate challenge for its approach to investment in Latin America is in Venezuela.

China Cautious Over Venezuelan Crisis

Phoenix Weekly: In the middle of January, Venezuelan President Nicolas Maduro showed up in Russia and talked about the oil crisis with Russian President Vladimir Putin. Just after that he visited China. To address Venezuela’s economic depression, Maduro hoped to seek international help from these two countries.

China has built a special relationship with Venezuela over the last decade. Going back to the presidency of Hugo Chavez, Venezuela’s leaders have explicitly emphasized the political and even ideological dimensions of the country’s growing ties with China. Each new high-profile loan deal, the creation of Venezuelan state-run oil firm PDVSA’s “Heavy China Fund" and the establishment of special leadership committees to facilitate state-to-state ties were all trumpeted as signs of a special Venezuela-China relationship that among other things helped Venezuela re-orient its foreign policy toward Asia and away from the United States. That China did not reciprocate with similar ideological language in its diplomatic pronouncements about such deals is maybe less important than the symbolic and real value of China’s state-to-state financing of loans-for-oil deals. Venezuela’s Chavista leaders will therefore continue to politicize the relationship with China even if China is uncomfortable with such politicization. 

However Venezuela’s economic and political problems have only deepened in the last year and the country now faces a serious crisis as the price of oil continues to drop. There are no easy solutions for China in its relations with Venezuela and it’s clear that there were miscalculations made about the risk China faced as it built up these loans and investments. The best hope for Venezuela and for China’s ties to the country is for Venezuela to adopt reforms to its domestic and international economic policies, including finding ways to put the country’s oil economy on a more stable road.

Matt Ferchen
Ferchen specializes in China’s political-economic relations with emerging economies. At the Carnegie–Tsinghua Center for Global Policy, he runs a program on China’s economic and political relations with the developing world, including Latin America.
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The results of Venezuelan President Nicolas Maduro’s recent visit to China this time are still quite unclear in terms of the deals themselves and of their long-term results. Maduro has publicly praised a new set of financing and investments from China worth US $20 billion, but to my knowledge there has been no official corresponding Chinese announcement. No Chinese official has refuted Maduro’s figures, so most likely the $20 billion figure is in some way an accurate representation of the size of the overall deals, but the details remain obscure. Also, the lack of a high-profile Chinese statement in support of the deal and of only very limited and carefully worded public statements about China’s positive relations with Venezuela reflect a cautious approach of the Chinese leadership in its ties with Venezuela.

Phoenix Weekly: Almost at the same time as Nicolas Maduro’s recent visit to China, Beijing held the first ministerial-level conference of the China-CELAC forum. According to China’s mainstream media reports, the conference signed three important regulations, including the China-CELAC Beijing Declaration, the Regulations on the China-CELAC forum, and a five year plan for cooperation in economics, security, and other key areas.

Obviously, the conference [CELAC-China Forum] that was held at this time was new, but it has been under discussion for the last three years or so. The real question with that forum is what, if anything, will come out of the discussions that will be new in terms of economic or political cooperation initiatives. Just having a high-profile meeting of leaders on both sides will not equate to new substance, although it could ultimately have that outcome. It’s simply too early to know. Also, Xi Jinping’s trips to Latin America the past two summers are really a continuation of a pattern of high-profile diplomatic visits to the region that began with Hu Jintao and Wen Jiabao during their time in the Chinese leadership. 

The take-off in China-Latin America relations really began about a decade ago when Latin America experienced a large increase in exports of raw materials to China. But today, in fact, their relations are not necessarily entirely positive—development in Latin America’s ties to China is related to the end of the commodity boom. The dramatic drop in commodity prices for Latin America’s iron ore, copper, soy, and oil is in part tied to a slowing and reforming Chinese economy. So there is actually a need for Latin America and China to work together to find new sources of cooperation both economically and diplomatically now that the commodity boom has passed its peak. The problem is that lower commodity prices are in China’s interest, but not necessarily in Latin America’s. Ultimately the idea of win-win, South-South relations must become more than mere rhetoric and this will require both sides to better understand each other’s strengths, weaknesses, and motivations. 

China’s Incomplete Latin-American Diplomacy 

Phoenix Weekly: Although some may argue that China’s strategy also has taken political elements into consideration, the idea that “China has broken into the backyard of the United States” has been very popular. 

In my view, China’s diplomatic strategy, and not just in Latin America, IS an economic strategy. 

China’s foreign policy white paper toward Latin America from 2008 reflects most of the principles in China’s core peaceful development foreign policy framework. Key are ideas like mutually beneficial, win-win, complementary, and South-South relations. These are all in some sense based on an economic logic, in fact a kind of classically liberal logic based on comparative advantage and its positive economic and political benefits. The logic is that the continuation of China’s unique economic development path requires engagement with the international economy, and in the particular case of Latin America, it requires engagement with resource-rich countries to help satisfy China’s resource demands and also to provide markets for China’s exports and overseas investment. All of this economic engagement in turn underpins positive, stable, and peaceful political and diplomatic ties, thus creating a positive circle.

This sort of liberal economic logic is certainly not unique to China, but in China’s relations with Latin America and elsewhere it is an incomplete and in some ways overly idealistic framework for engagement. First, even if some Chinese diplomats, academics, and business leaders may explicitly or implicitly believe or hope that such economic ties will translate into greater diplomatic or political leverage in America’s “backyard”, and certainly some do harbor such views or wishes, it is not at all clear that such economic complementarity has been, or will be, a solid basis for greater political leverage.

In fact, the dramatic drop in South American commodity prices in the last year underscores that complementarity is based on often volatile markets, and countries dependent on raw material exports to China, like Chile and copper or Brazil and iron ore, may in fact increasingly view such complementarity as a source of weakness. Moreover, countries like Mexico never experienced the benefits of complementarity but only the challenges of strong Chinese competition. 

And as discussed above, even countries like Venezuela that had a kind of special relationship with China, also built on a commodity like oil, have in some sense become a liability or source of weakness for China’s influence in the region precisely because of their commodity dependence. Thus China’s "strategy" that economic engagement may translate into political influence is maybe not so much of a strategy after all.  

The Impact of Normalized U.S.-Cuba Ties on China 

Phoenix Weekly: Some express a preference to associate China-Latin American cooperation in January with normalized U.S.-Cuba relations, a development that just happened last December. They believe that China and the United States are competing with each other to develop relationships in Latin-America.  

I think that the decision by the governments of the United States and Cuba to normalize relations should, in the long run, have beneficial results for the people of Cuba and overall for U.S. relations with Latin America as a whole. The decision by U.S. and Cuban leaders to make this historical change has little to nothing to do with China’s involvement in Latin America, but it may very well have an impact on China’s ability to set its own agenda in Latin America.

U.S.-Cuba relations have epitomized Cold War tensions between the United States and Latin America and in broader historical terms long represented a high-handed American involvement in Latin America. Therefore the decision to ease tensions and establish normal state-to-state relations between the United States and Cuba marks the beginning of the end of a dysfunctional relationship that often limited the possibility of a more positive role for the United States in Latin America and the Caribbean. Even during the Cold War, Cuba’s ties to the Soviet Union were far more important than ties to China, and after the Soviet Union ceased to exist, Venezuela became Cuba’s primary economic and ideological benefactor. China had established a functioning diplomatic and economic relationship with Cuba, but this has been limited because Cuba offers little in terms of trade and investment opportunities, and Cuba has had no intention of becoming an instrument of Chinese geopolitical maneuvers in the Americas.

Ultimately, the rapprochement between the US and Cuba will strengthen US-Cuba relations and America’s overall status in the Americas. It may open opportunities to create healthier ties to estranged regional powers like Brazil and overall will remove a serious cause of regional antipathy toward the US. China’s ties to Latin America, conversely, remain largely economic in nature. Cuba and Venezuela, in addition to left leaning governments in Ecuador and Bolivia, may have provided a superficial incentive for a kind of Chinese ideological friendship in the region, but those left-leaning governments have run into serious economic problems in recent years. Cuba, Venezuela, Ecuador and others may find that a more open, liberal, Pacific Alliance kind of integration and economic foreign policy is more viable going forward. China will likely therefore find countries like Colombia, Mexico, Peru and Chile more welcoming partners than Cuba.

This article was originally published in Chinese by Phoenix Weekly