The Americas Program
Posted on: 12/04/2011
For four centuries before the 1898 Spanish-American war, Europe was practically the only destination of Latin America’s much-coveted raw materials, from gold and silver to sugar cane and spices. Then in the 20th century the United States took Europe’s place as main importer of these commodities.
Now in the 21st century, China is fast overtaking and displacing both the United States and Europe in Latin American trade. Latin American business elites and governments on the left and the right, hungry for foreign investment and exchange, welcome the opportunity to do business with the Chinese. But environmentalists and progressives in the region are concerned about China’s growing influence, decrying that much of its investment is going into environmentally unsustainable activities and is putting local and national sovereignty into question.
“China is a net commodity importer with vast foreign reserves looking to diversify its resource supply and to secure upstream and downstream ownership stakes where necessary”, according to the Emerging Markets website. “Moreover, many South American countries have abundant natural resources but lack investment capital, and are keen to cultivate new investment and trade partners, not least to break a long-standing dependence on the US.”[i]
“The implications of this sudden influx of Chinese capital are less obvious”, warns Emerging Markets. ”Although the inflows have served as a major short-term boost to regional economies, they could exacerbate long-term overreliance on commodity exports and hinder diversification. What’s more, growing Chinese trade and investment in the region is likely to shift the economic centre of gravity of the region further away from the U.S., and increasingly towards emerging Asia, and China in particular.”
The sheer scale of Chinese investment in Latin America in recent years is staggering. From January 2000 to January 2010, Latin American imports into China increased by 1,800%, while Chinese exports into the region increased 1,153% over the same period. In 2004 Chinese president Hu Jingtao predicted that his country’s trade with the region would reach $100 billion by 2010, but it reached that goal by 2007. China is today Brazil and Chile’s main trading partner and occupies the number-two spot in Peru and Argentina.
Just in the first ten months of 2010 China engaged in nine major business transactions in Latin America with a total value of $22.74 billion, according to a report of the Washington-based Interamerican Development Bank. These include the China National Offshore Oil Company (CNOOC) purchase of 50% of Argentina’s Bridas Holdings for $3.1 billion. CNOOC, founded in 1982 and headquartered in Hong Kong, is a state-controlled yet publicly traded company with oil operations in diverse locations, including Australia, Indonesia and Nigeria.
Bridas, founded by the influential Bulgheroni family in 1948, is one of Argentina’s major oil producers and has international operations as far away as Central Asia. Bridas in turn had a 40% stake in Pan American Energy (PAE), which owns oil and gas reserves in Argentina and Bolivia. By the end of the year, the CNOOC-controlled Bridas bought Pan American’s remaining 60% stake, which belonged to BP, for $7.06 billion.
Another of these major 2010 transactions is Sinopec’s $7.1 billion investment in the Brazilian subsidiary of the Spanish giant, Repsol. The resulting partnership is one of the largest energy companies in Latin America, with a $17.8 billion value. Sinopec, ranked at #9 in Fortune’s Global 500 list in 2009, is China’s largest oil company, with operations in over 20 countries.
Other major 2009 China-Latin America deals include Petrochina’s $1 billion oil-for-loan deal with Ecuador’s state-run Petroecuador oil company and a Chinese Development Bank $10 billion loan to Brazil’s Petrobras. In exchange, Petrobras will supply Sinopec with 200,000 barrels of oil a day for nine years.
Latin America is also becoming a major importer of finished goods from China. Chinese electric home appliance manufacturer Haier is selling telephones and air conditioners in Argentina, which will soon be assembled in factories in Cuba and Venezuela.
By all indications, Chinese investment in the Latin America sector will continue to grow and diversify. According to a 2010 article in Argentina’s daily La Nación:
“Among the investment opportunities in Argentina, PAE and Bridas president Alejandro Bulgheroni pointed to the wind energy sector. Fan Jixiang, director general of China’s leading hydro dam builder, SinoHydro, said he is pushing for projects in the country. China Radio’s International Executive Vicepresident Ma Bohui said they will soon install a broadcast station in Buenos Aires. Gao Xiching, president of the world’s fifth largest sovereign wealth fund in the world, the China Investment Corporation, pointed out opportunities in forestry, highways, airports, ports and bullet trains.[ii]
China and Venezuela
China and Venezuela have particularly close trade relations. In September 2010 both countries signed a deal whereby Venezuela gets a $20 billion line of credit in exchange for crude: 200,000 barrels daily in 2010, no less than 250,000 in 2011, and 300,000 daily by 2012. This means that Venezuela will soon be exporting more than a million barrels a day to China—roughly equivalent to exports to the United States.[iii]
“All the petroleum that China could need to consolidate itself as a great power is right here”, said Chavez on September 18 upon receiving the accord’s first $4 billion.
“China also made other investments in Venezuela linked to mining which include 50 projects for the exploitation of aluminum, bauxite, coal, iron and gold, and another agreement to enter the Orinoco oil basin for $16 billion which will permit PDVSA (Venezuela’s state oil company) to raise production by almost a million barrels daily”, writes analyst Raul Zibechi. There are also plans to be completed by 2030 for “the integral development of eight sectors: electricity, transport, mining, housing, finance, oil, gas and petrochemicals. (They) include the joint manufacture of oil drills, platforms, railways that will cross the Orinoco basin, and 20,000 housing units in Venezuela’s southeast.”
Land grab in Rio Negro
Concerns about China’s growing presence infringing on local sovereignty have reached their highest point in Argentina, where the government of the Rio Negro province signed a 2010 agreement with China’s Beidahaung Group to lease some 320,000 hectares of its finest farmland for the production of soy, wheat, canola and other products. The company, which is one of China’s largest rice millers and soy processors, will invest in this venture $1.45 billion over twenty years.
This deal, which was made public only after it was signed, has generated enormous local and national opposition. The Foro Permanente por una Vida Digna, a local community organization declared, “We oppose the agricultural export megaproject being carried out by the national and provincial governments, which jeopardizes 320,000 ha of land and nature in our province by handing it over to the Republic of China to do with it as it sees fit. This violates our sovereign laws, posits a future of farming without farmers, and contaminates us with pesticides. It is a project that does great harm to this generation and the ones to come.”
The international organization GRAIN criticized the agreement in a January 2011 report, asking, ” Why is the government paving the way for these deals, with all sorts of privileges promised to the Chinese investors, and not considering the implications for the region’s food sovereignty?“[iv]
According to Argentina’s Grupo de Reflexión Rural, “unconditional set-asides of land for China to produce Roundup Ready soy represent an immeasurably greater risk than the impacts of large-scale chemical agriculture itself. If this project goes ahead, an enclave would be formed in Patagonia on a scale similar to what China and several European countries are doing in Africa; namely, they are buying up and taking vast areas of land out of circulation to meet their own food and forage production demands.”[v]
The Rio Negro deal is part of a larger worldwide phenomenon documented in recent years by NGO’s such as GRAIN, La Via Campesina and the Oakland Institute, known as the ‘global land grab’. Farmland-poor, heavily populated states with emerging economies, such as China, India, South Korea and the Persian Gulf states, are buying or leasing farmlands in poorer countries, mainly in Africa and S0uth America, to insure their food security. These are joined by speculators and hedge funds that view farmland as a sure bet among volatile markets.
China is the leading player in this land grab. “China is ostensibly self-sufficient in food, but its population is gigantic, its farmland is disappearing under the encroachment of industry, its water supply is under intense pressure, and the Communist Party has a long-term future to think about”, says GRAIN. ”With 40% of the world’s farmers but only 9% of its farmland, China has understandably made food security one of the main points on its agenda. And with over $1.8 trillion in currency reserves, China has enough money to invest in its own food security overseas.”
Argentine economist Claudio Katz warns of a downside to Chinese investment, “When (China) comes to countries like Peru and Argentina it establishes terms of investment which are at least exactly the same as those established by any foreign investor, assuring itself of conditions for profitability, low taxes, subsidies.”[vi]
“It’s very aggressive in demanding conditions of free trade and placement guarantees for its manufactured products, and this is deadly for Latin American industry, which obviously cannot compete with a country like China that has extremely low wages.” Katz concludes that “If Latin America’s trade profile with China repeats the traditional profile we had with Europe in the 19th century and with the United States in the 20th, we’ll be providers of raw unprocessed materials and after a while we’ll be left with little mining, little water, few oil and food resources, and no degree of industrial development.”