Friday, May 17, 2013

The East is rising, in Latin America

China is moving in next-door to the U.S.

China is rising in Latin America
Fernando Menendez
On 10 May 2013 07:32

When concerns about a rising China are broached they are usually focused around that nation’s increasing economic, financial and military power in Asia. Another region undergoing significant political and economic development, once considered the backyards of the United States, is less often cited. Latin America, however, is fast becoming a growing nub on China’s radar as a global power.
U.S. preoccupation with the Middle East has led arguably to a decline in American power in Latin America and elsewhere. Economically, as America’s influence wanes in the southern hemisphere China’s has grown. The shift can be seen in levels of loans, foreign direct investment and trade.
Fueling A Commodities Boom
In its quest to fuel its growing economy, China’s demand for commodities has generated a boom for the producer nations. Soybeans from Argentina, copper from Chile and Peru, tin from Bolivia, and oil and iron ore from Brazil have helped fuel these economies for the last decade, especially during the financial meltdown of 2008 when traditional markets were contracting and stagnating.
The China Development Bank (CDB) and Sinopec (China Petroleum Company), for example, signed a 2009 agreement with Petrobras, Brazil’s state-owned oil company, for $10 billion in return for 200,000 barrels a day of crude oil for ten years. With the discovery of one of the world’s largest offshore oilfields, Brazil will surely become a major oil supplier for China.
Today China owns stakes in oilfields in Ecuador and has major investments in copper projects in Peru. By some reports China accounts for over $11 billion of Peru’s $41 billion invested in energy and minerals.
China also loaned Venezuela a staggering $40 billion in exchange for oil deliveries to fuel its growing economy. In Michael Forsythe and Henry Sanderson’s new book, China’s Superbank, the authors describe how Chen Yuan, the chairman of the CDB, handed Hugo Chávez a 600-page book filled with recommendations for building, running, and managing roads, ports, and railroads.
Forsythe and Sanderson argue that China’s policy of paying generous amounts of cash for its raw materials and propping up local autocrats gives a whole new meaning to the term “too big to fail.” As the largest single overseas investor in Venezuela, China tied the money to contracts with Chinese firms.
China is also fast becoming an alternative source of development funding. Its ability to lend long-term and the large amounts involved makes it an important and different player.
In terms of infrastructure development, the China Development Bank has made substantive loans to develop roads, ports, railroads and other infrastructure that will secure it access to continuing flows of raw materials. According to research conducted by the Financial Times, the China Development Bank (CDB) has displaced the World Bank as the world’s largest development bank, lending billions around the world in pursuit of China’s interests.
Trade with China has also increased dramatically over the last decade. For example, China now accounts for 19 percent of Brazil’s total trade as compared with 2.8 percent in 2001. Similarly, China accounts for nearly 20 percent of Chile’s total trade in contrast to 5.6 percent a decade ago. China has also concluded free-trade agreements with both Chile and Peru opening up those markets to Chinese manufactured goods.
By 2014, China will overtake the European Union as Latin America’s second largest trading partner after the United States. While it still has some way to go in potentially overtaking the United States as the leading trade partner, it is, nevertheless, probable.
Most recently, Brazil and China signed an agreement to pay for $30 billion in trade per year using local currencies and thus dropping the dollar. There is also general speculation concerning a new renminbi-based currency, which, if it does not replace the dollar or the euro, may well become a significant alternative foreign currency backed by commodities and natural resources. Some even speak of a renminbi trading bloc.
All of these moves demonstrate the power of China’s purse, which the US is increasingly unable to match. The speed and extent of China’s growth in Latin America also raises concerns about its geopolitical and military policy objectives in the Americas. Many Chinese firms, especially in telecommunications, have longstanding ties to the People’s Liberation Army, and that should raise red flags.
Fernando Menéndez is an economist and principal of The Cordoba Group International LLC, a strategic consulting firm providing political and economic analysis to clients
Read more on: China, China's investment in Latin America, Brazil, Fernando Menendez, latin america, and Chile

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