On Feb. 1, Harold Trinkunas, associate director of research and senior research scholar at Stanford’s Center for International Security and Cooperation (CISAC), gave a talk on China’s growing economic engagement in Latin America – its true scope and scale – and its implications.
Trinkunas endeavored to answer three questions: (1) What is China’s policy in Latin America?; (2) What is the actual scope of China’s trade, investments and lending in the region?; and, (3) Is the situation producing a “win-win” situation for both China and Latin America, or a “win-lose” situation?
According to Trinkunas, China’s own need for commodities in the early 2000s drew the country towards pursuing relations with countries in Latin America; and the cornerstone of China’s relationship with Latin America rests on trade, investments and loans. China’s engagement on all three dimensions have grown significantly. The region’s total trade with China, for example, grew from practically nothing in 1980 to 13 percent in 2014. China’s percentage of total stock of foreign direct investment (FDI) in the region has also grown substantially from practically zero to $109 billion in 2015. China’s policy banks have also scaled up their lending to the region, even outpacing aggregate lending by the World Bank and the Inter-American Development Bank combined, which have traditionally been the source of multilateral bank loans to Latin American and Caribbean countries.
Yet, despite such significant increases in economic activity in the region, Trinkunas clarified how, while China is an important trading partner for a concentrated group of countries (such as Argentina, Brazil, Chile, Cuba, Paraguay, Peru and Uruguay), the United States has remained the dominant trading partner in the region. The flow of China’s FDI has been concentrated in two countries – Ecuador and Venezuela – with limited investments in other countries. And almost all of its lending has also been concentrated in four countries: Venezuela, Ecuador, Argentina and Brazil, with Venezuela receiving, by far, the most loans. Thus, while China’s economic presence has grown exponentially since the early 2000s, it is still not a dominant economic partner except with respect to a handful of countries.
Trinkunas concluded that this growing economic relationship between China and Latin America has mostly led to a “win-win” situation for China and its partners in the region. China’s appetite for commodities provided the engine for growth in South America from the early 2000s to 2012, enabling its middle class population to double from 90 million to nearly 180 million people. Latin America has also benefited from China’s infrastructure investments and construction expertise, which it sorely needs, while China has been able to usefully redeploy its surplus capacity. In addition, China’s growing economic presence in the region affords Latin American countries greater latitude to pursue alternative sources of capital and trade apart from that of the United States and other OECD countries. In addition, despite fears to the contrary, Trinkunas finds that China’s economic inducements, while attractive to the countries in the region, do not necessarily translate into actual political or geopolitical influence. Latin American countries’ position on geopolitics, as reflected in their U.N. votes, for example, has not necessarily reflected increased support for China. And China’s own impact on the economic policymaking of its biggest Latin American loan recipient – Venezuela – has been nebulous at best. China’s influence is limited, furthermore, by the fact that most Latin American countries are not beholden to Chinese capital but can and do access other sources of finance.
Yet, there are legitimate concerns regarding China’s growing economic presence in the region, which Trinkunas also explained. China’s emphasis on extracting primary commodities, for example, represents an economic step backward for the region, which is pushing to further industrialize. China also comes under scrutiny for allegedly engaging in unfair competition in the manufacturing sector and for investing in countries with poor governance records. Trinkunas is skeptical, however, when it comes to viewing China’s influence over the region as overall negative.
In closing, Trinkunas noted that recent withdrawal of the United States from the Trans-Pacific Partnership (TPP) was an unfortunate turn of events that went against a policy recommendation he had put forth in his report. This is because the TPP could have served an important, dual purpose for the United States – to maintain its trade interests in the region and to negotiate regulatory requirements that could enhance good governance in Latin America. Nevertheless, both Trinkunas and Shorenstein Asia-Pacific Research Center Fellow Thomas Fingar, who provided commentary at the end, agreed that there has been nothing in China’s own policy deliberations or pronouncements that suggest that its intention has been to interfere with U.S. interests or to seek political influence in the region.