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Building Development Partnership: Engagement Between China And Latin America

Building Development Partnership: Engagement between China and Latin America

Post Series: 2020: Volume 19, Number 1
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The full-fledged economic ties between China, Latin America, and the Caribbean are important indicators of China’s role as a global player. In the ongoing and heightened debate about China’s rise, China’s impact on Latin America is being discussed by scholars and policy-makers worldwide. Though there are doubts about China’s intentions and impact on Latin America, China has developed a more substantial and meaningful policy framework to build development partnership with the region.

An Emerging Development Partnership

Latin America’s ties to China are characterized by their economic dimensions instead of the fully-fledged ties between the region and the United States. The economic agenda has taken a high profile in the Sino-Latin American relationship since the establishment of the China-Brazil strategic partnership in 1993. The most visible achievements of the strategic partnership are economic in nature. For example, China surpassed the United States as Brazil’s largest trade partner in 2009. Additionally, China and Brazil are founding members of the newly established multilateral investment banks such as the New Development Bank (NDB) and the Asian Infrastructure Investment Bank. China’s Free Trade Agreements (FTAs) with Chile, Peru, and Costa Rica clearly show the primacy of the economic agenda in the relationship. China’s economic growth strategy is to integrate itself into the world economy, and Latin America is an increasingly important partner for China, and vice versa.

This is not to say that political, cultural, and military exchanges between China and Latin America are not important, but other dimensions are overshadowed by this prominent economic linkage. In the context of this deepening economic relationship, both sides are engaging with each other on other dimensions such as culture, politics, and security. While the relationship is supported by economic ties, it needs to become more comprehensive and sustainable in order to continue to develop. To achieve this goal of a stronger relationship, China has strengthened its political will and increased the amount of economic resources in order to support its overall relationship with the region.

There are some new features of this prominent economic linkage. Firstly, the economic ties are going beyond the initial trade dimension. China is the largest trade partner for Brazil, Peru, and Chile. China is also an increasingly important creditor and investor for the region’s various economic sectors. Research by Inter-American Dialogue and Boston University found that Chinese state-to-state finance has exceeded the sovereign lending from the World Bank and the Inter-American Development Bank (IDB) since 2005.[1] Secondly, China is pursuing economic ties in a sustainable manner by paying more attention to infrastructure, innovation, and renewable energy, which is mainly achieved via China’s diversified investment in the region. Thirdly, the economic ties are used by both sides to build a kind of solid development partnership. Both China and regional countries are treating their economic ties from a perspective of not only commercial interests, but also development opportunities. An important indicator in this regard is the increasing number of countries from the region that are joining the Belt and Road Initiative, designed by the Chinese leadership as a platform for international cooperation.

All these new features are happening in the context of China’s gradual rise. In the past, China and Latin America were highly dependent on the advanced economies. In the long period after China initiated its reform and opening up process in the late 1970s, China’s main economic partners were developed economies who could offer China much-needed capital, technology, management, and export markets. Latin America also depended on advanced economies and was a low priority region for China in the last century because it didn’t have the capital, technology, or management skills China needed. Without China’s rise within the international economic system, it would have been impossible to build such a dynamic development partnership with a region that is geographically remote from China.

From a perspective of domestic and external nexus, China’s projection in Latin America is always influenced by the strategic environment of the international system. Historically, China’s interaction with Latin America was quite loose since China lacked the capacity and intention to project its presence into Latin America. The famous maritime silk road (1565-1865) between China and Mexico was mainly conducted by European traders, and trade relations between China and Mexico were connected via the European-controlled Philippines. In the 19th century, thousands of Chinese migrants were traded to Latin American countries by European colonists. These Chinese laborers contributed greatly to railway and canal construction. They also became the targets of racist attacks, prompting the Qing dynasty to deploy a warship to the region in 1911.[2]

After the establishment of the PRC in 1949, China’s major external relationship was concentrated on the Soviet Union group for a long period because of the blockade imposed by the Western countries. China’s interaction with Latin America during that period mainly happened in the cultural and economic sectors. China’s intentions in Latin America during that period were also questioned by some regional countries because of their domestic communist activities. The establishment of the China-Cuba diplomatic relationship in 1960 also fit the Soviet Union-U.S. bipolar power structure. The China-Cuba relationship suffered from the Moscow-Beijing rivalry through 1970s and 1980s until the normalization of the Soviet Union-China relationship in the late 1980s. China’s booming diplomatic relationship with Latin America came about in the 1970s in the context of the improved Sino-U.S .relationship and China’s return to the United Nations as a permanent member of the Security Council. From this geo-strategic perspective, some scholars argue that China’s foreign policy toward Latin America has been primarily driven by a one-dimensional concern: global geopolitics from a historical perspective.[3] In general, the bipolar world power structure constrained the potential of the China-Latin America relationship.

It is fair to say that a substantial relationship with Latin America became possible only when both China and Latin America could act as independent players on the global stage. Even when China implemented its famous opening up policy in 1978, it took at least two decades for China to have the capacity to engage substantially with remote developing regions such as Africa, the Middle East, and Latin America. China’s growing economic capacity and strategy to integrate itself into the world economy are what allowed China to build a substantial relationship with Latin America. Therefore, it was at the start of the 21st century that a substantial economic trade relationship began to emerge between China and Latin America as China integrated itself into the global value chains. During this time, Latin America mainly provided raw materials to China as China developed into a world-class manufacturing center. Later, China’s sizable emerging middle class’s growing domestic demands, accumulated capital, management and technology, and increasingly capable “going global” enterprises began to be new major drivers of China’s economic ties with Latin America. China’s social dynamism includes a significant population of 700 million that left poverty in recent years; its increasing demands for meat, dairy, cereal, and soy products were very attractive for the region’s agricultural sector.

In 2016, China became the second-largest source of outward Foreign Direct Investment (FDI) for the first time, and its FDI outflows were 36% more than the amount of its inflows. China remained the largest investor in the least developed countries (World Investment Report 2017). The importance of China for the developing world including Latin America and the Caribbean (LAC) was well recognized by international organizations.[4] In its 13th Five-Year Plan (2016-2020), China set some important goals regarding the developing world. They include the goal of reaching a volume of trade in services that accounts for at least 16% of total foreign trade, establishing overseas production centers and cooperation zones for major commodities, and encouraging international cooperation on production capacity and equipment manufacturing. China will promote opening up of capital markets and encourage Chinese financial institutions to increase their overseas presence. China’s transition from world factory to innovation center will also affect its economic relationship with the rest of the world. In the future, Chinese investments will focus on more advanced and value-added industries.

The rise of China is a new reality for Latin American countries when they think of the future. Since the beginning of this century, most Latin American countries turned their eyes to East Asia and especially to China for commerce and trade opportunities. They were trying to engage with China bilaterally and multilaterally. The agenda with China goes beyond economic areas to global issues such as climate change, fighting poverty, etc. China also treated Latin America as an important region in the global system. With this vision in mind, China built many types of strategic partnerships with individual countries from the region and coordinated with regional countries in international forums such as APEC, BRICS, and the United Nations. To facilitate cooperation with the whole region, China initiated the China-CELAC Forum. Latin American countries were also invited to join the Belt and Road Initiative, which is a flagship initiative of the Chinese government led by President Xi Jinping.

 

Challenges for the Future

In deepening cooperation with LAC countries, China needs to pay attention to several factors. First, in order to avoid investment risks, both sides need to do a better job of policy consultation and cooperate in a transparent and sustainable manner that is committed to long-term engagement. Second, considering the diversity of the LAC countries and different approaches to regional integration, China needs to continue to mix its bilateral and multilateral approaches to address this diversity. Third, in order to reach real development cooperation, China should encourage and support the potential partner’s domestic debate on issues and policies regarding cooperation with China. Finally, China’s engagements with Latin America should continue to build a comprehensive and sustainable development partnership. Both sides should work together to safeguard an open world economy in an era full of doubts about the benefits of globalization.

Aside from economic considerations, political interests are also playing an important role in China’s engagement with Latin America. China highly values Latin America’s overall importance in the international system. In 1988, Deng Xiaoping had the foresight to state that the 21st century should be the century of both the Pacific and Latin America. As a rising global power, China needs support from more countries to make China’s rise acceptable and legitimate to the rest of the world. As both China and Latin America are developing, China thinks there are more common interests between the two than with established powers. China doesn’t look for allies with Latin American countries to challenge the current international order. What China expects from Latin America is political understanding of its domestic development approach and its international profile. Exchanging ideas on domestic governance has been an important aspect of cooperation, and it helps Latin American people better understand China’s political system rather than exporting it to Latin America. China also needs Latin American countries to understand its domestic and international agenda.

China’s historical relationship with Latin America has been deeply affected by the international environment. Clearly, whether China has a geopolitical strategy towards Latin America or not, global geopolitical situations—especially major power relations—have a structural impact on the China-Latin American relationship. To understand China’s current dynamic presence in Latin America, we need to understand how China perceives the current international system and how the system’s factors affect China’s projection in Latin America. In the first 15 years of this century, economic globalization, the rise of the global south including the emerging economies, and a pro-globalization G20 constituted a benign international environment for the China-Latin America relationship to blossom.

Under the George W. Bush and Obama administrations, the United States held an officially objective and inclusive attitude towards the deepening relationship between China and Latin America, which was quite helpful for the relationship. Though the region has been largely overlooked since the U.S. has been primarily focusing on the anti-terrorism agenda in Central Asia, the U.S. generally thought of China’s presence in the region as a natural result of its economic expansion rather than a security threat. China participated in the OAS and Inter-American Development Bank with the support of the U.S. The U.S. also held regular dialogues with senior Chinese officials on Latin American affairs to exchange their concerns and interests. When the United States formally abandoned its 190-year-old Monroe Doctrine in 2013 and made adjustments to its policy to Cuba, both China and Latin America welcomed this new posture of the U.S. towards the region. China also expressed its open and supportive attitude of cooperation with third parties in Latin America.

In this favorable international context, China’s approach to Latin America was supportive of economic globalization and international cooperation. Therefore, China’s presence in Latin America was not perceived as a threat to the region’s peace and prosperity. China’s growing ties with Latin America were built in this relatively peaceful environment and were based on a mutually beneficial economic logic from the beginning of the 21st century. Different from East Asia’s competitive strategic environment, China’s economic engagement with Latin America was less affected by the geostrategic competition from the United States and its allies. Most Latin American countries were embracing globalization and building a diversified external relationship by looking for more international partners, including China. China also identified itself as a beneficiary of the current international system and followed a peaceful rise approach. Major international economic institutions also recognized that the robust growth in Latin America in the past decade was partially due to its connections to China.[5]

However, this optimistic atmosphere totally changed when the Trump administration adopted a new strategy towards both China and the LAC region. The “America First” doctrine distanced the U.S. from both China and Latin America by emphasizing trade protection and economic protective measures. Furthermore, the U.S. is holding an increasingly suspicious and unfriendly attitude towards China’s presence in Latin America by publicly criticizing China’s intention, practices and impacts in the region and persuading regional partners away from cooperation with China, especially on digital technologies. The U.S. rolled back many important and positive measures initiated by the Obama administration. It reversed the engagement with Cuba and reasserted the Monroe Doctrine, which caused a fundamental change to the geostrategic environment of the Western Hemisphere. This kind of strategic and policy-level change might affect the trilateral relationship among China, the U.S., and Latin America negatively in several aspects.

While there are many challenges with a shifted American approach, it is noteworthy that both China and Latin America share a goal of achieving autonomy in international affairs. It is in the interest of both Latin America and China to pursue autonomy by building diversified international partnerships. China has increasingly presented itself as a full-fledged global player, which is naturally reflected in the comprehensive agenda of the Sino-Latin American relationship. China’s presence in Latin America will definitely create some geopolitical implications for the region even if it might not be China’s original intention. A strong and sustainable China and Latin America relationship serves to create the strategic international space that enhances their domestic development.

A good, stable, and rule-based China-U.S. economic relationship will be important for Latin American economies. Though countries such as Brazil and Argentina might benefit from the trade disputes between the United States and China in the short term, the uncertainties and the possible trade deal’s impact are worrisome for the region’s policymakers and private sector. A trade deal between China and the U.S. might reduce China’s import of energy and agriculture products from Latin America. The deal’s impact on the role and rules of the WTO is still unclear. As the weaker and vulnerable part of the world economy, developing economies including China and Latin America are more dependent on WTO regulations and rulings.

To ensure a sustainable China-Latin America relationship, it is also important to avoid strategic rivalries between China and the United States in Latin America. From a geostrategic point of view, an accommodative United States will offer more space for China and Latin America countries to engage with each other. In a highly integrated world, most countries in Latin America prefer to have good relations with both major world economies rather than take sides between China and the United States. In a larger context, it is a game of managing balance-of-power shifts in the region considering the rising autonomy of the region and more capable external and internal players emerging in the region. Considering the issues in the U.S.-Latin American relationship, China’s economic engagement with the region could provide more favorable conditions to solve the issues of illegal immigration, drug trafficking and energy security. It takes time for all relevant stakeholders to build a mutually beneficial trilateral relationship among China, the U.S., and LAC.

China’s approach to Latin America will continue in its pragmatic way with its preference for national interests rather than ideology. Latin America is a region full of market economies and democracies that was highly influenced by Western culture and values. China respects these institutional and cultural choices of Latin America when it seeks to deepen its relationship with the region. China still holds a neutral approach to engage with Latin American countries regardless of their ideological differences. China’s strategic partnerships in Latin America are based on partners’ development potential, regional influence, and global capacity rather than their political types or anti-U.S. attitude. By respecting national interests, China’s relationship with those countries represents a huge shift in leadership. What China looks for in Latin America is international cooperation, mutual respect and common development. Thus, it is highly possible for China to keep a politically neutral attitude to regional affairs in Latin America.

 

Bibliography

De la Torre, etc., “Latin America and the Rising South: Changing World, Changing Priorities,” Overview booklet, World Bank, 2015.

Enrique Dussel Peters, “China’s Evolving Role in Latin America: Can It Be a Win-Win?” Atlantic Council Report, September 2015.

Evan Ellis, US National Security Implications of Chinese Involvement in Latin America, Army War college Strategic Studies Institute, 2005.

Jiang Shixue, “New Development of China-Latin America Relations,” China Quarterly of International Strategic Studies, Vol. 1, No. 1, 2015, pp. 149-153.

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[1] Margaret Myers and Kevin P. Gallagher, “Cautious Capital: Chinese Development Finance in LAC, 2018,” China-Latin America Report, February 2019. https://www.thedialogue.org/wp-content/uploads/2019/02/Chinese-Finance-in-LAC-2018-2.pdf.

[2] 百度百科词条:“托雷翁惨案”,https://baike.baidu.com/item/%E6%89%98%E9%9B%B7%E7%BF%81%E6%83%A8%E6%A1%88/9112881?fr=aladdin&ivk_sa=1022817p.

[3] XIANG, Lanxin, “An Alternative Chinese View”, in Riordan Roett and Guadalupe Paz, eds., China’s Expansion into the Western Hemisphere, Brookings Institution Press, 2008.

[4] OECD, UN, CAF, Latin American Economic Outlook 2016: Towards a New Partnership with China,2015. http://www.oecd.org/dev/Overview_%20LEO2016_Chinese.pdf.

[5]                 The World Bank (2011), Latin America and the Caribbean’s Long-Term Growth: Made in China? Washington, D.C.: The World Bank/LAC.

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