New Report Shows Shifting Chinese Investment in Latin America

In a small twist to the Chinese foreign minister’s tradition of making their first diplomatic visit of the new year to Africa, two countries from Latin America and the Caribbean (LAC) were added to Wang Yi’s tour: Brazil and Jamaica. One motivation of these visits is for Wang to lay the groundwork for the ninth Forum of China-African Cooperation (FOCAC) summit and the fifth China-Latin American and Caribbean Forum (China-CELAC) summit, both scheduled to take place this year. “China is trying to deepen its engagement with Latin American countries in order to make up for its shortcomings in its engagement with the Global South,” given that this region “has been more integrated into the Western system,” explained Pan Deng, a special CGTN commentator and Executive Director of the Latin America and Caribbean Region Law Center of China University of Political Science and Law. In Western media, recent headlines have explicitly framed China’s LAC outreach as a part of its objective to “counter [the] U.S.-led order,” and commentators have analyzed how geopolitical competition between China and the U.S. will reshape LAC countries.

A new report by the Inter-American Dialogue sheds light on the economic and financial aspects of this issue. In “‘New Infrastructure’: Emerging Trends in Chinese Foreign Direct Investment in Latin America and the Caribbean,” authors Margaret Myers, Ángel Melguizo, and Yifang Wang highlight various trends during this moment of transition. Here are some of the report’s key findings: 

Data on Chinese FDI to the LAC region show a notable downward trend in project announcements over the past few years. This presents a tapering in the value of greenfield FDI projects over time, and a more pronounced drop in the value of Chinese mergers and acquisitions (M&A) in the region.

The recent drop in Chinese FDI in LAC is attributable to numerous factors, but is at least partially related to an ongoing recalibration of investment priorities on the part of China’s government and its companies. Chinese companies are in many cases pursuing more engagement with LAC, but through smaller deals on average—and in frontier sectors that are directly aligned with Beijing’s own economic growth objectives.

Indeed, our data show a clear shift in Chinese FDI toward specific industries in LAC. Many of these new, priority areas are described by China as “new infrastructure” (新基建), a term which encompasses industries— telecommunications, fintech, and energy transition, for instance—that are broadly innovation-related, but also a critical part of China’s own economic growth strategy. These sectors are among those that some G7 nations have themselves sought to prioritize in LAC and other parts of the Global South.

Whether in terms of value or number of deals, Chinese FDI in these industries is on the rise, accounting for 58 percent (around $3.7 billion) of total annual Chinese FDI in the region in 2022 and over 60 percent of the total number of FDI deals announced by Chinese companies that year. [Source]

Covering the report for The Financial Times, Michael Stott provided more detail on how China’s financial and economic relationship with various LAC nations has evolved over time:

The report found that Beijing had invested a total of $187.5bn in Latin America and the Caribbean between 2003 and 2022.

[…] Brazil won by far the biggest share of Chinese FDI in the region over the two decades to 2022, with $78.6bn or 42 per cent of the total. Peru was the second biggest recipient, followed by Mexico, Argentina and Chile.

[…] While investment has grown steadily, trade between China and Latin America has soared over the past two decades, growing from $14bn in 2000 to $495bn in 2022. Chinese exports to the region consist of increasingly high-tech goods and services, though Beijing’s imports from Latin America and the Caribbean still consist mostly of raw materials, just as they did over a decade ago. [Source]

China’s shifting approach to overseas investments in LAC to some extent mirrors the trends taking place in Africa, where China has backed away from financing risky, large infrastructure projects, as noted in a recent article by the China-Global South Project (CGSP). But “just because Chinese FDI patterns are changing and the deal sizes are shrinking, [that] doesn’t mean that the Chinese are retreating from these markets,” CGSP added. Just last week, Reuters reported on a new $3.5 billion deep water port in Peru that will begin operating this year, making it the first Chinese-controlled port in South America. At Bloomberg, columnist Juan Pablo Spinetto explained what to make of China’s recalibration in its engagement with Latin America:

First, they reflect a global change in strategy by China. With growing political tensions around the world, increasing competition with the US, a slowing domestic economy and other difficulties back home, China is understandably rethinking how it plays the global Great Game. At the same time, especially in Latin America, this shift reflects the troubled past of pledging huge infrastructure projects with ambiguous results. Some of the massive deals Latin American nations embarked on with China at the peak of the investment frenzy went nowhere — most notably in Venezuela, where major oil projects were announced only to be abandoned, with Venezuela struggling to pay back its Chinese loans.

China’s less-is-more approach is also, I suspect, a recognition of the need to move carefully in a region famous for volatile politics. Instead of embarking on big-ticket investments that may be put at risk when a friendly government exits and a new one with a rival ideology takes office, it is sensibly focusing on building ties with local authorities, from Jujuy province in northern Argentina to solar plants in Colombia. A lower profile also makes for less controversy around new projects. [Source]

Covering this topic earlier this month, The Wire: China interviewed economist Alicia García-Herrero, an adjunct professor at Hong Kong University of Science and Technology and a senior research fellow at Bruegel, who specializes in Chinese investments in Latin America. After explaining that Latin America’s trade and investment ties to China are nowhere near as strong as its ties to the West, she presents her argument for why China still maintains such disproportionately large amount of leverage in the region:

It’s because Western countries left. Take Venezuela, the largest recipient of loans from China. Western countries are nowhere to be found, because the West abandoned Venezuela under Hugo Chávez [Venezuela’s leader from 1999 to 2013]. Having had to visit Venezuela at that time every month, I understand why Western companies did so. But every time a non-democratic leader [like Chávez] has come to power in a Latin American country, we would just step out, imagining we could isolate these regimes. But then China would jump into that market and make it totally dependent on them. 

Venezuela has only survived thanks to China. The amount of lending that Venezuela will need to restructure is enormous, and that makes Venezuela amazingly dependent [on China]. Venezuelan imports from China are at a record high, around $1.4 billion, making up 15 percent of its total imports. 

[…] China also simply has a better narrative in the Global South. They look for our weaknesses. They look at every crack in the U.S.’s history of domination (and there are many) plus western colonialism, and they say, “I’m different”. They say they’ve never invaded a foreign country, which of course is not true. But do you think somebody in Bolivia knows that? Plus that narrative is so appealing to a country that is poor: China is a country from the Global South, it was poor like you, and with their help one day you could be like them. But frankly, I don’t think any Chinese official believes any other country in the Global South is ever going to be like them. [Source]

Also this month, Diálogo Chino outlined its predictions for how China’s relationship with Latin America would unfold in 2024

Agriculture, mining and energy will remain central to trade and investment relations between China and Latin America in 2024, while new avenues for cooperation around conservation may open up.

We will be watching to see how China’s stuttering domestic economy impacts state-linked overseas investment channels such as the Belt and Road Initiative. The industries dubbed its “new three” (solar cells, lithium batteries and electric vehicles) have proven resilient however, driving China’s exports in 2023. The new three will be key areas of cooperation in Latin America, particularly lithium investments: given the metal’s importance for global energy transitions, China and other international investors are likely to focus on lithium enterprise in Argentina, Bolivia and Chile. As for EVs, last year saw a wave of new investments by Chinese carmakers in Brazil and Mexico. This is likely to continue in 2024, with the countries seen as springboards into the regional and US markets.

At COP28 in Dubai during November and December, 19 Latin American and Caribbean countries joined the agreement to triple global renewable energy capacity by 2030. This year will begin to reveal how they will translate that into action – and China will no doubt have a role to play. China did not sign the pledge (even though analysts have described it as a “conservative” goal for the country), but as the world’s major supplier of renewable energy technologies, including 80% of global solar panel production, it will be an essential partner in Latin America’s efforts to accelerate – and possibly finance – its energy transition. [Source]


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