The United States is Losing Latin America to China

August 15, 2019 Topic: Security Region: Americas Tags: ChinaLatin AmericaXi JinpingDemocracyGreat Power

The United States is Losing Latin America to China

In Latin America, hard power is of limited utility; soft power through economic and diplomatic influence will carry the day in the region.

Then there are issues with the construction of the dam itself. Chinese loans, while usually free of governance and environmental requirements, do come with certain conditions—namely that infrastructure projects must employ Chinese SOE construction firms and use Chinese equipment, barring other competitors from partaking in infrastructure development contracts. These sorts of conditions can exclude international, and more importantly, domestic firms from participation in the building process. Additionally, this limits the potential positive impact on the local economy—little to none of the construction work is sourced out to local workers, nor is there an increased local demand for food/products/services. Most importantly, the lack of transparency measures can result in lax standards for material acquisition and construction. In Coca Codo Sinclar’s case, over seven thousand cracks have developed due to the usage of substandard steel and an inadequate welding job by Chinese builders.

In short, for a $1.7 billion loan, Ecuador received a faulty, overly-large, crumbling dam that can only work at half capacity due to the country’s wet/dry seasons—and that is when everything is working well.

So how will Ecuador pay for this dam, and everything else, to the tune of $18.4 billion? That remains an unanswered question. In the meantime, it is paying back China with its most valuable export: oil. To be more specific, China gets to keep around 80 percent of the country’s oil (which makes up around 58 percent of Ecuador’s exports) at a discount due to the loan contracts, which stated that debt is to be repaid in oil instead of currency.

This pursuit of commodities also serves as another instance of how China’s economic behavior isn’t necessarily benefiting Latin American countries as some might think. On paper, there is a blossoming trade relationship between China and the region: a 2018 report from the un’s Economic Commission for Latin America and the Caribbean shows that the value of the trade of goods between China and Latin America has grown from a few billion in 2000 to around $266 billion in 2018. However, what matters is what’s being traded. As it turns out, in 2016, manufactured goods accounted for 91 percent of Latin America’s imports from China, compared to 68 percent from the rest of the world. Meanwhile, commodities (particularly, in order of importance, soybeans, copper ore, iron ore, refined copper and oil) accounted for 72 percent of Latin America’s exports to China, compared to 27 percent for the rest of the world.

Keeping Latin American economies concentrated in commodities and resource extraction does not benefit them. Aside from not adding much value to the lives of domestic consumers, these are highly cyclical industries that often go through periods of booms and busts. When a commodities cycle ends, as one did following the 2008 financial crisis, governments can suddenly experience a loss in income and political stability. Ideally, developing economies should aim to develop their domestic manufacturing sectors, which provide more jobs, reduce the dependence on manufactured imports and open the door for more domestic entrepreneurship.

Unfortunately, the growth in the import of Chinese manufactured goods has meant stiff competition for Latin American companies. A 2017 report from the International Labor Organization found that, between 1995 and 2011, employment in “computers, textiles and footwear, as well as trade – was reduced by 1 million jobs due to the Chinese imports” in Argentina, Brazil, Chile and Mexico alone. A separate analysis found that, “from 2008 to 2013, 75 [percent] of the region’s manufactured exports faced a threat from China,” though this is an improvement from the period between 2003 and 2008, when the figure stood at 83 percent. Additionally, this report finds that “it is unlikely that the reduced threat comes from better labor productivity in the [Latin American] manufacturing sector, because China’s productivity continues to outpace labor productivity in [Latin American] manufacturing.”

Overall, China’s economic expansion into Latin America has been extremely favorable for Beijing. Investments in infrastructure either enable greater economic activity that favor Chinese interests, and/or thrust Latin American countries into debt traps, effectively turning them into economic vassals. Either way, China benefits. Over the long term though, this is a dangerous proposition: local populations in these countries could grow disgruntled at what they see as a new imperialism originating from the East. This is not lost upon Chinese policymakers. With keen foresight, they supplement their economic statecraft with diplomatic initiatives and unconventional security measures. These, too, are visible in Latin America.

ON PAPER, when it comes to international diplomacy, China is focused on promoting “the construction of a new type of international relations with win-win cooperation at the core.” It seeks to achieve this through “exchanges and mutual learning, as well as carrying forward the [China-Latin America] friendship from generation to generation,” according to the 2016 policy paper on Latin America. In practice, this means that China uses its diplomatic heft to shape local agendas and viewpoints, all to create an environment where it can operate with minimal disruption.

An example of this is the Community of Latin American and Caribbean States (CELAC), a thirty-three-member regional bloc that notably excludes the United States and is seen as an alternative to the U.S.-led and headquartered Organization of American States (OAS). Beijing has engaged CELAC rather enthusiastically via the China-CELAC Forum and a cooperation plan for the years 2015 to 2019. This plan lays out how China and Latin American countries can more closely cooperate with one another on matters of economic development, fostering ties and so forth. It also provides China, in the words of Juan Pablo Cardenal, the author of a 2017 report from the National Endowment for Democracy (NED), “a convenient policy framework to introduce and promote its soft power agenda” in the region.

Some of this is plainly visible in the plan itself. China, for example, provided “CELAC countries with 6,000 governmental scholarships, 6,000 training opportunities and 400 opportunities for on-the-job master degree programs in China between 2015 and 2019.” The NED report adds that Beijing also provided more funding for international scholarships, with official figures estimating “377,000 foreigners studied in China in 2014, up from 84,000 a decade earlier. Furthermore, the Chinese government plans to raise that figure to 500,000 by 2020.” 

This spree of seemingly generously philanthropic funding actually helps serve China’s interests: it presents an opportunity to influence the views of current and future Latin Americans, giving them a rose-tinted view of Chinese society and achievements. Chinese state-sponsored media training, for example, probably does not cover the necessity of a free press, editorial independence and investigative reporting. In fact, the U.S.-China Economic and Security Review Commission found that many of these media training programs—managed by Xinhua, China’s official state-run news agency, and the People’s Daily, the official newspaper of China’s Communist Party—“are explicitly political and are intended to improve foreign perceptions of China and legitimize the ruling party.”

In Latin America, this sort of influence is already manifest. Since 2018, the nonprofit research group Global Americas has, for example, been reviewing articles aimed at Latin American audiences provided by Xinhua and the People’s Daily, and has found that they present an overly positive view of China’s economic ties with the region. Meanwhile, media partnerships help expand China’s influence even further: Brazil’s Agência Brasil, Cuba’s Granma, Venezuela’s TeleSUR and Chile’s La Tercera frequently republish material from Xinhua, People’s Daily and China Daily, another state-run publication. Similarly, China Daily has a “China Watch” supplement in the Argentinian newspapers Diario Uno, La Capital and Cronista.

Washington shouldn’t be too surprised at such overt influence campaign though, seeing as similar efforts are also underway at home. Look no further than the presence of Confucius Institutes within U.S. universities, the funding of think tanks by entities linked to the Chinese Communist Party, and of course, paid inserts in high-profile Western newspapers. Even The New York Times and The Washington Post, often regarded as the U.S. newspapers of record, run and have run (respectively) insert sections with content created and paid for by China Daily. This strategy, which Chinese officials call “borrowing foreign newspapers,” illustrates how Beijing can shape political discourse overseas at a relatively low cost.

CHINA’S MILITARY and security activities in Latin America are understandably subtler than their economic initiatives—anything too bold, like stationing military units in the region, would set off alarm bells in Washington and other capitals. Rather, Beijing has focused on importing something into Latin America that is far less provocative but is no less worrisome: its internal security model.

Ecuador, for example, has set up ECU-911: a 4,300-camera national video surveillance and emergency response system designed and built by Chinese companies Huawei and China National Electronics Import and Export Corporation (CEIEC). Meanwhile, Bolivia has a similar system also built by CEIEC called BOL-110, though it is currently operating at a far smaller scale (around six hundred or so cameras) than its Ecuadorian counterpart. Both are touted for bringing down crime and helping local police, firefighters and first aid responders do their jobs more effectively, and are now widely accepted in these countries. However, an investigation by The New York Times earlier this year found that, in Ecuador’s case, some surveillance footage “also goes to the country’s feared domestic intelligence agency, which under the previous president, Rafael Correa, had a lengthy track record of following, intimidating and attacking political opponents.” That they are being monitored does not seem to bother Ecuadorian citizens all that much. After all, privacy concerns and possible political implications take a backseat to the daily realities of drugs and gang violence in Latin America. Nonetheless, it is not hard to imagine a future where a Latin American ruler decides to use such a surveillance network for more sinister purposes, such as tracking or sanctioning political opponents, government dissidents/critics, protestors and so forth.