Memo to Washington: China's Growing Presence in Latin America
What is China doing in the Americas? It’s a good question—and an increasingly important one for policymakers in Washington. According to one U.S. analyst, it’s about “goodwill, good business and strategic position.”1 Perhaps. But the jury is still out, mostly because China’s interest in the Western Hemisphere is barely a decade old. For many years, beyond attempts to wean Latin American and Caribbean nations away from support for Taiwan and efforts to build Third World solidarity, China’s footprint in the Americas was light.
That has now changed.
Since then-President Jiang Zemin’s 13-day trip to Latin America in April 2001 and the subsequent visits of President Hu Jintao in 2004 and 2011, Chinese engagement with the region has exploded. Today, China is the top trade partner of Brazil and Chile, and the second trade partner of Argentina and Peru.
By late 2010, Chinese enterprises had invested almost $44 billion in the region, according to China’s National Development and Reform Commission, almost a quarter of which was invested in 2010 alone. Top investment targets included Brazil, but also Argentina, Chile, Ecuador, Panama, Peru, and Venezuela. Innovative financing by Chinese entities was often behind the deals—and in some cases, such as Ecuador and Venezuela, investments took the form of loans secured by guaranteed future deliveries of oil. That is a marked change from 2003, the year before Hu’s first visit, when China invested just $1 billion in all of Latin America.
By now the outlines of the story are well known. As part of the dash for economic growth that the Chinese Communist Party believes will help to maintain its legitimacy—an average annual rate of 9.8 percent from 1979 to 2009, including an 8.7 percent growth rate in 2009 when much of the rest of the world faced economic collapse—Beijing is on a global quest to lock in the natural resources that fuel its growth. From Southeast Asia to Africa to Latin America and beyond, China is scouring the globe to invest in primary commodities. By the end of 2011, more than $3 trillion in foreign exchange reserves provided an impressive war chest from which to purchase the global assets that China’s leaders believe they need to support economic growth—and thus political stability—for the medium to longer term.
As China faces its own near-term leadership transition, efforts to purchase domestic political stability with foreign trade and investment are likely to intensify.
At the same time, Latin American nations that have been the primary trade and investment partners with China have also gained handsomely, at least in the short term, in the sectors that produce primary goods. Longer term questions abound regarding the balance and terms of trade, the nature of the investments that China is making, and the values that are being promoted or undermined by such investments.2 Additionally, nations that are not supplying significant amounts of commodities to China, including Mexico and Central America, view China more as an aggressive competitor than as an economic partner. The costs and benefits of trade with China are unequally distributed across the Americas.
Should the United States React? Can It?
To the extent that simple commercial exchange dominates the China story in the Americas, the implications for the United States are minimal. A rational and appropriate response would simply be to promote a level, transparent playing field for U.S. business and investors to compete effectively with a new, well-financed competitor.
This is exactly the way Chinese leaders have presented their efforts: as benign economic actions that offer little challenge to U.S. interests. Indeed, the stock of U.S. investment in the region continues to dwarf Chinese investment, and regional trade with the United States continues to surpass trade with China by a factor of almost four to one. At this point, neither Chinese pronouncements nor concrete actions establish a reason to believe that China has strategic designs on Latin America from a military or security perspective, either to project power into the region or to challenge U.S. military predominance from a hemispheric platform.
Nonetheless, China’s entrance into the Americas does have strategic implications for the U.S., and from this perspective Washington has been overly complacent.
In part, this is because most Latin America specialists in the policy community are not well versed in international relations theory or practice, and therefore do not focus on geostrategic issues (Sabatini, March–April 2012, Foreign Affairs). They are development specialists, historians, human rights advocates, sociologists, Spanish (though generally not Portuguese) linguists, community activists, and the like. Some are uncomfortable with the idea that the U.S. has legitimate national interests to pursue or values to promote, viewing the region through a historical filter that highlights the U.S. as the primary threat to the region rather than as a critical if imperfect driver of democratic governance and economic growth and opportunity.
As a result, there may be a tendency to be suspicious of actions that promote U.S. economic and national security interests, including trade and investment expansion, counternarcotics programs, security assistance, and even democracy promotion in relation to Cuba and elsewhere. It is within this intellectual construct that they place the growing influence of extra-regional actors and also rising regional actors such as Brazil.
This overwhelming bias in the policy and academic communities—a bias that does not generally inform U.S. policy in other regions—continues to put U.S. policy in the region at a disadvantage. It focuses on things we cannot fully change while neglecting initiatives that would accrue to our benefit.
For example, the foundation of President Barack Obama’s policy in the Americas has consisted essentially of support for social inclusion and microeconomic development, institutional strengthening, clean energy development, and the promotion of equal partnership in hemispheric affairs.3 These are worthy goals. But they cannot be the sole basis for an effective foreign policy, if for no other reason than these goals require domestic actions to achieve and the tools that the U.S. has to affect others’ domestic decisions are limited. That is increasingly true in a period of limited and shrinking resources.
As well, such an approach does not take into account the reality that nations such as Argentina, Bolivia, Ecuador, and Venezuela do not particularly want to have a partnership with the U.S. at this juncture and that several are busily establishing hemispheric institutions that purposefully exclude the United States and Canada. Others, particularly in Central America and the Caribbean, have little capacity for a true partnership with Washington no matter how much they and we might want one. The disparities in size, wealth and power are just too great.
There is no other region of the world where the U.S. pursues a similar course, nor would any other regional policy and advocacy community accept it as the most appropriate foreign policy framework.4 So far, we have gotten away with it: in the absence of strategic challenges from the region, this policy approach has sufficed. But we may not have that luxury much longer. As the U.S. has continued to look beyond this hemisphere in pursuit of what are perceived to be more urgent foreign policy goals, China has entered the region aggressively and is changing the game.
The expansion of Chinese trade and investment with Latin America is a new economic and commercial challenge in a previously consolidated market. On the positive side, to the extent that it has contributed to regional growth and kept financial contagion from the global economic crisis at bay, China’s engagement with the region has been beneficial. An economically growing region means that the pie is expanding for everyone, including the United States. That is a global public good, which International Monetary Fund (IMF) Managing Director Christine Lagarde acknowledged during her late 2011 travel to the region. Nonetheless, for the U.S., individual investment opportunities and market share are being lost to China, whose share of Latin American trade grew from less than 2 percent in 2000 to 11 percent in 2010.
Over the same period, the U.S. went from 53 to 39 percent of Latin American trade. To paraphrase Obama, this is not ideology—it’s math. While the U.S. remains the top trading partner overall, the challenge is readily apparent. In a post–Cold War world, where global competition is as much economic as military, the inability or unwillingness to contend for markets abroad has strategic implications. Complacently watching as established markets are captured by others is inexplicable, particularly when some of those markets were originally developed by years of patient, taxpayer-financed efforts to reduce violence, build capacity and support democracy. Just when the U.S. should be reaping the reward, others are swooping in to gain the advantage.
From a foreign policy perspective, the story is even more compelling. The reality is this: China’s still-early but growing efforts in the Americas provide Latin American and Caribbean nations with additional trade and investment options that reduce U.S. leverage to promote open market, democratic values.
This is not about exporting revolution or communism or any such thing. In fact, China’s efforts in the Americas are not driven by whether the potential partner is communist, populist, autocratic, or democratic. Otherwise, the Chinese would have stronger economic and political relations with Cuba and the other Alianza Bolivariana para los Pueblos de Nuestra América—Tratado de Comercio de los Pueblos (Bolivarian Alternative of the Americas—ALBA) countries (primarily Bolivia, Ecuador, Nicaragua, and Venezuela) than with Brazil, Chile and Peru. But China goes where the natural resources and primary commodities are and, unlike the actions of the Soviet Union during the Cold War, cares little about the nature of the government that controls them.
The Chinese are not necessarily looking for a political relationship, nor do they have much sympathy for ideologically driven regional leaders, some of whom they regard as buffoons. Rather, they are looking for economic benefits based on the domestic political calculus of the leadership in Beijing.
Is China a Threat to the Normative Advances in the Hemisphere?
Since the end of the Cold War, however, the region has struggled to develop a regime of democratic behavior that is intended to prevail in the hemispheric community of nations. Democracy, including freedom of the press, is to be respected; labor and the environment protected; corruption and illegal activities inspected and prosecuted. It is difficult to implement such standards unless leverage exists to develop a broad consensus that promotes certain behaviors, and at least one nation or regional organization is willing and able to enforce the regime effectively.
For example, U.S. efforts to promote labor and environmental reforms through trade agreements are undermined when other nations have the ability to sign similar agreements with China that do not include similar provisions. Programs of multilateral lending agencies like the IMF, World Bank and Inter-American Development Bank that promote financial reforms and good governance become less relevant if borrowing nations can receive funds from China or elsewhere, including Venezuela, without conditions. To put it starkly, the oft-maligned IMF has no influence with nations such as Argentina that do not currently require IMF funding or access to global capital markets.5
In fact, China’s huge purchases of hemispheric commodities and the provision of credits on favorable terms have greatly assisted Latin American commodities exporters in the ongoing global economic crisis. In some cases this has allowed leaders the flexibility to postpone indefinitely the necessary economic and political reforms that would otherwise be consistent with open market, healthy democratic governance.
Ironically, this has allowed some democratically elected leaders to undermine democratic institutions, including freedom of the press, and return to the days of corporatist, rent-seeking economies. This model failed spectacularly during the twentieth century, but it is now enabled, if not promoted, by Chinese economic engagement.
At the microeconomic level, firms with government connections have profited handsomely from these arrangements, but such an economic model tends not to foster innovation, dynamism or sustainable, broad-based economic growth over time. It just makes the politically connected more wealthy—exaggerating what has traditionally been one of the fundamental problems of Latin America’s economic development.
Additionally, the behavior of Chinese firms has not always followed the Western model, which includes corporate social responsibility activities, payment of taxes, job creation in the local economy, environmental mitigation, anti-corruption policies, and the like.
This will be an increasingly important issue because China is laying the groundwork for a long-term relationship. Its toolkit goes beyond commercial engagement. It includes student exchanges and the export of Chinese language studies through the Confucius Institutes, which have spread like kudzu across Latin America since the first institute was opened in South Korea in 2004.
There is nothing inappropriate or frightening about student exchanges or language study. Indeed, U.S. and European officials understand that these initiatives are unrivaled instruments of soft power. They introduce students to another culture and, presumably, provide them at an early age with positive impressions of the host nation. As well, mastery of another language can lock in future patterns of trade and investment, travel and tourism, research and scientific exchanges, and eventually, government-to-government relationships.
For years the affinity of Latin America’s government and business elites toward the U.S. has been Washington’s ace in the hole compared with other nations. (Latin America’s academic elites are a different story; they tend to favor Europe or developing nations.)
But unlike Chinese language acquisition, the promotion of English in Latin America has largely been left to local schools and citizens themselves. Regional Voice of America broadcasts conducted in Spanish and Portuguese have decreased and U.S. Information Service (USIS) libraries and other resources have been shuttered. The battle for Latin American hearts and minds is often joined through language and study abroad; this is something that China’s leaders understand.
More broadly, China has also put great store in developing its political relations with Brazil, a relationship that has been super-charged in foreign policy terms with the artificial designation of the so-called BRIC nations of Brazil, Russia, India, and China. Meant as a descriptor of emerging economic weight, the BRIC designation has now been infused by its members with a manufactured foreign policy significance. To the extent this relationship is intended as a means to improve mutual cooperation and is not directed against anyone in particular (e.g., the U.S.) this should be of little concern. But the jury remains out.
Nonetheless, Brazil’s leaders have bent over backwards to accommodate China to build a common agenda, which they perceive as an important means to promote a globalist agenda. This has led to some questionable decisions by Brazil that have been exploited by China, not the least of which was Brazil’s designation of China as a market economy during Hu’s visit in 2004. It has led to stepped-up technology cooperation in sophisticated areas including missile launch technology, rocketry and satellites—technology that is potentially dual use. And the effort to develop a BRIC agenda separate from the United States and G7 nations has also emboldened Brazil to pursue a foreign policy within Latin America and abroad that has complicated efforts on nuclear security, trade and Middle East peace (e.g., Palestinian statehood). Ironically, China has taken advantage of Brazil’s desire for a broader relationship, but has not reciprocated. For example, China has refused to support Brazil’s desire for a permanent seat on the United Nations Security Council. China gets the best of both worlds; Brazil is proving to be a friend with benefits.
With creative diplomacy and a different mindset toward the region, the U.S. could use these realities to its advantage. Brazil is the largest democracy in Latin America, with ambitions that are legitimate but also paradigm shifting in terms of hemispheric affairs.
Washington and Brasilia will not always agree; at times, our interests may collide. At other times, our interests will coincide. For example, both Brazil and the U.S. are hurt by China’s undervalued currency. Both face the challenge of competition from China’s manufacturing sector. Both want Chinese investors to play by the same rules of the game. Both are global players on trade, both are globally competitive in agriculture and other products, and both are faced with the same realities of global climate change to which China’s race for growth is directly contributing.
The shared challenges faced by the U.S., Brazil and the rest of the Americas with respect to China represent a huge agenda that deserves similar attention and focus that Washington applies to other regions. But the only hope for achieving that agenda rests on whether the U.S. policymaking and academic community is willing to perceive the Western Hemisphere through the same geostrategic lens with which it views the rest of the world.
When all is said and done, if China’s entrance into the Americas leads policymakers to take a new look at the region, that, in and of itself, will be a very positive thing.
An Agenda for the Twenty-First Century
All of this lends itself to several policy options that require active consideration. For the first time in years, the U.S. faces a multifaceted rival in the region that requires a rethink of priorities, and the implementation of a true foreign policy (rather than development policy) agenda. The U.S. must now contend for Latin America, recapturing the initiative in a region that, with China’s engagement if not instigation, has begun to dismantle the previous U.S.-led consensus.
In the near term the U.S. should ramp up education and people-to-people exchanges, with private sector support. The administration should develop a common agenda with Brazil on issues like Chinese currency and global trade in agriculture that triangulates the developing Beijing–Brasilia relationship.
The U.S. should also intensify public efforts to support democratic ideals, working with hemispheric allies including Mexico, Canada, Colombia, and others to reinforce democracy consistent with the 10-year-old Inter-American Democratic Charter. Freedom of speech, freedom of the press and freedom of assembly are all increasingly at risk; open, universal access to the Internet could help support each of these, though more must be done to promote collective action in their defense.
The U.S. should also promote the Organization of American States and work toward fundamental reforms to make it a more effective instrument to promote the broader agenda, including human rights. Current efforts by Brasilia, Caracas and others to build a new hemispheric architecture, insofar as they seek to undermine democratic and human rights norms and protections and seek to exclude the U.S. and Canada, should be resisted and denounced, by civil society, member governments and the United States.
In this regard, the trade agenda remains one of the best tools that the U.S. has to promote a broader strategic agenda. By organizing existing free-trade partners into a more coherent group, and then working to build their economies through greater integration, for example, in the Asia-Pacific region, the U.S. would simultaneously be able to promote a trade and investment regime consistent with economic competitiveness while also building a broader hemispheric consensus around democratic ideals that would implicitly highlight differences between the U.S. and China.
Despite conventional wisdom, trade is not a dirty word in the hemisphere. In fact, recent scholarship has found that positive attitudes toward the U.S. are correlated with increased trade with the United States. One way for the U.S. to improve its regional standing would be to again promote the idea of a hemispheric trade area among willing partners. Given China’s growing regional footprint, now is the time to promote such an initiative.6
The contrast is real. The hemisphere has a choice. It’s time to acknowledge the stakes and get on with the important work of fighting for the soul of the hemisphere.
1. R. Evan Ellis, “China-Latin America Military Engagement: Good Will, Good Business, and Strategic Position,” Strategic Studies Institute, August 2011.
2. Eric Farnsworth, “The New Mercantilism: China in the Americas,” Current History, February 2011, 56-61.
3. See for example, Hillary Clinton, “Opportunity in the Americas,” Quito, Ecuador, June 8, 2010. See also, Christopher Sabatini, "Rethinking Latin America: Foreign Policy Is More Than Development," Foreign Affairs, March/April 2012. (Forthcoming)
4. Moises Naim, “Does the Obama Administration have a foreign policy for Latin America?” Americas Quarterly, Winter 2011.
5. See for example, Moises Naim, “Roque Aid,” Foreign Policy, March 1, 2007.
6. Christopher Sabatini, "Rethinking Latin America: Foreign Policy Is More Than Development," Foreign Affairs, March/April 2012. (Forthcoming)