As per January 2014, Chinese foreign direct investment (FDI) in Latin America has averaged US$ 10 billion p. a. from 2010 on. This is a remarkable sum, considered that in the first decade of the new millennium China was a virtual stranger in the region (although some countries such as Chile have hosted veritable Chinese communities). As such, the often cited phrase ‘backyard of the U.S.’ could be taken literally.
A drumbeat was last years’ founding of the New Development Bank (NDB), though, which surely reflects wider evolutions within the international system of states. The NDB’s founding members include China, Russia, Brazil, South Africa, and India. Each member has endowed the bank with US $10 billion dollar, and a so-called Contingent Reserve Arrangement is to be set up and filled with US $100 billion, China providing the lion share of US $41 billion. The bank is not specifically focused on Latin America, rather it aims to support development projects on a global scale. Initially member states can be expected to have privileged access to funds, but the pledge is explicitly to also support non-members.
The founding of the NDB is in so far remarkable as it challenges the current virtual lending duopoly of the World Bank and the IMF, who attach strings to their loans many countries find unacceptable. Another institution, however, namely the inter-American Development Bank, is specifically focused on the Latin American region, too, but with 48 member countries and dominated by the U.S., non-compliant countries find it equally hard to receive funds. China, on the other hand, is known for not being too fussy about lending. The most well-known condition it attaches to loans is a ‘don’t criticise’ us policy. That means that the ideological make-up of a country, whether its government is left- or right-wing, capitalist or socialist, democratic or dictatorial, does not matter to Beijing so long as the leadership keeps quiet about Chinese policies in Tibet, for example. This way China buys acquiescence on the world stage. Furthermore, China is also notorious to import its own workers to put Beijing’s funds to work, as for example happened in Angola.
The NDB, with its Chinese dominance, is likely to insist borrowing countries take a favourable, or at least neutral, view on Chinese politics. The import of workers, however, is not likely, although looser visa restrictions between Latin American nations and China and other founding members are highly likely to be put in place.
The United States has still a bad reputation many countries of the region, the reasons of which are to be found in recent history and presumably started with the implementation of the Monroe Doctrine. Nonetheless, Washington maintains close relations with Panama, Chile, Colombia and others, on all levels, military, political, and economic. As close as these relations might be, these countries do not narrow their focus on Washington. Latin American countries have adopted a bold and very pragmatic approach to foreign policy.
Foreign capital influx to Latin America is certain to increase further over the next decade. Much of this capital will come from China directly, but the NDB will also prove a powerful mechanism to funnel funds into the region. In the process, established players like the World Bank or the inter-American Development Bank will have to come to terms with competition, as Latin American countries will have more of a choice when it comes to lending. As a result, Chinese presence in the region is bound to increase sharply. Countries where this presence will be most visible include Chile, Brazil, Venezuela (irrespective of how the current turmoil turns out), Ecuador, Bolivia, Peru. Funds will be directed mostly to mining and agricultural industries, but also those that deal in consumer goods.
With increased Chinese presence the U.S. will have to adjust to a shifting balance of power. Although its military boosts long established partnerships with Colombian or Chilean forces, these hard power alliances become increasingly meaningless in light of China’s ability to facilitate few-strings-attached lending and commerce. Tensions may arise when the Asian giant proposes to extend economic relations into political and military ones. Latin American countries might then uncomfortably sit between the chairs. A prime candidate for such an outcome is Chile. Nonetheless, it can be confidently predicted that military confrontation is unlikely. Latin America has been staunch in its rejection of armed conflict; indeed it may well be on the same path as Europe – economically and, to lesser extent, politically.
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