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Transitioning from a Washington Consensus to a Beijing Consensus?

In Latin America, it is difficult for a pledge of $250 billion in direct investment to go unperceived, especially when the money is coming from China. At the China–Community of Latin American and Caribbean States (CELAC) forum in Beijing in January, Chinese President Xi Jinping signaled that his country will continue to literally build its way into the region with its investments in Latin American infrastructure projects.

Latin America is in no position to reject China’s capital flows: Chinese economic growth is expected to hover around 7 percent, in stark contrast to the OECD’s forecast of 2.5-3 percent growth for the Latin American region as a whole.  

In an effort to promote a more robust South-South cooperation and with the intent of competing with the United States as Latin America’s number one trading partner, Chinese investment in the region increased over 71 percent in the past year. More noteworthy is the fact that in 2010, total Chinese financing to Latin America exceeded that of the World Bank, International Monetary Fund and U.S. Export-Import Bank combined, as the Inter-American Dialogue’s Margaret Myers has noted. For quite some time now, the Chinese dragon has been flying high in Latin America, especially in the Venezuelan, Argentinean, Brazilian, and Ecuadorian skies.

Two questions come to mind: what are the underlying conditions for Chinese investments in the region, and, more specifically, how do these loans differ from those offered by Washington in the early 1990s?

Chinese ventures and investment in the region today are mostly tied to energy and infrastructure projects, as Kevin Gallagher and Margaret Myers’ China-Latin American Finance Database shows: out of the 76 loans granted in 2014, 21 were destined for the energy sector and 31 were for infrastructure, totaling $32.9 billion and $49.9 billion, respectfully. In Costa Rica, the Chinese built a $100 million stadium, and the controversial Nicaragua Canal—initially the United States’ preferred location—is now being constructed with Chinese capital.

Investing in infrastructure, in and of itself, is not something new. China’s financing of the construction of the Nicaragua Canal can be seen as a mirror image of the United States’ financing of past infrastructure projects, starting with the construction of the Panama Canal in the early twentieth century.

The main difference is that today, China’s projects come with “few strings attached” and are portrayed in the media as gifts. As Andrés Oppenheimer emphasizes, the relaxed standards that characterize Chinese loans pose "significant political and environmental risks," as can be seen in the case of the highly controversial Nicaragua Canal.

As Latin American countries revel in China’s seemingly never-ending money reserves, the region’s leaders must also keep in mind that China is known for “limiting democratic freedoms and Western-style human rights”—another point of difference between the once-upon-a-time aid of the United States and that of China today. The non-transparency of Chinese loans is a cause for concern: official documents or official information is difficult to find online.

However, there is evidence that China’s investment in the region may be waning. Venezuela, for example, has received more than $50 billion in credit since 2007, which it has been repaying in oil. This past January, Venezuelan President Nicolás Maduro asked Chinese President Xi Jinping for more than $20 billion to help offset the economic crisis that the drop in oil prices has only exacerbated. To date, Venezuela has only received $5 billion. This could perhaps be a preliminary sign that China will not be an “open bank” forever. 

China has especially invested in countries that have had a bad credit record and difficulty appealing to the United States and the international financial institutions for funds. The question is, what will happen when China starts asking for repayment? Keep in mind, Latin America, that there is no such thing as a free lunch.

*Nicolas Albertoni is an M.A. candidate at Georgetown University and professor at the Universidad Católica del Uruguay. He has authored two books: “Instrucciones para inventar la rueda. Qué tienen los países que progresan y cómo aplicarlo a Uruguay?” (Taurus, 2014) and “Entre el Barrio y el Mundo ¿Mercosur o el Modelo Chileno?” (Taurus, 2011).

*María Fernanda Pérez Arguello, originally from Costa Rica, is an intern at the Americas Society/Council of the Americas and a graduate student at Georgetown University's School of Foreign Service.

Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: China-Latin America, Asia-Latin America, CELAC, Xi Jinping

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