Latin America: New Battleground in China/US Struggle for Economic Dominance

RIO DE JANEIRO, BRAZIL – The blue and white plane, with a golden stripe along the middle, which landed on Friday night at the El Dorado airport in Bogotá, carrying US Secretary of State Mike Pompeo, put an end to a long drought in terms of protocol welcomes. As observers noted, it was the first visit in over six months by a top foreign official to the country.

Nevertheless, masks and distancing confirmed that the new normality encompasses international relations, which now occur in other scenarios. Because of the pandemic that reduced personal contacts to their minimum, face-to-face diplomacy now requires at least two meters of distance, unless it is adapted to virtuality, as was the case with the United Nations, whose annual general assembly takes place in cyberspace.

This fact makes the presence of Donald Trump’s envoy more significant, as he wrapped up a tour in Bogota that took him to Surinam, Guyana and Brazil, stops where he delivered the same message several times. The most resounding was addressed to Nicolas Maduro, who again received an invitation to leave power. But the warning about China was also clear, which led Beijing to say that Donald Trump’s right-hand man is seeking to “sow discord” in the region.

While it has been commonplace for some time for the world’s two major powers to cross swords, it is clear that the tension is spreading to Latin America. Washington does not take kindly to having anyone in its backyard and even less so when the White House continues to feed the fire with actions and words directed at the country that is now its great adversary, across the Pacific Ocean.

Trade warfare, investment bans, consulate closures and air traffic limitation are among the weapons used in what promises to be a long-running confrontation. According to experts, at stake is nothing less than world supremacy in the 21st century.

While the battle will not necessarily be a military one, or one involving weapons or ideology, as was the case with the former Soviet Union, but rather one involving economics and technology, it will certainly be intense, and may leave a trail of collateral damage. The greatest risk is that the exchange of goods and capital will be hindered, limiting access to various markets and the possibilities of progress.

If it Rains Over There

Such a scenario may sound distant in Colombia, in which the immediate needs are of a different nature. However, figures confirm that the Asian nation is not only its second largest trading partner, but also that recently the country began to receive significant Chinese investment, which is reflected not only in a growing group of companies, but also in a number of large-scale projects.

The list is long and begins with the Bogotá subway, the most expensive infrastructure project in the country’s history. In the same category is the Regiotram of Cundinamarca and the Mar 2 highway, one of the fourth generation highway concessions, to which may be added that of the failed Solarte group.

Furthermore, there is a strong presence in telecommunications, through well-known names such as Huawei -cell phone and mobile network provider-, ZTE, Hytera, TP Link, Vivo or Xiaomi. In the energy sector, Hydro Global is developing a hydroelectric project in Chocó, while in mining, Zijin Mining paid US$1.4 billion for a company operating a deposit in Buriticá, Antioquia.

In the area of finance, CMIG International took over the assets of Old Mutual, Didi in the area of passenger transport, and vehicle brands such as BYD – a specialist in electric buses – as well as JAC, Chery, Haima, Changan and DFSK. The estimate is that the number of companies easily exceeds seventy.

It can be said with a high degree of certainty that there are close to US$10 billion involved in operations of various sorts. Not all that money has come, as some undertakings will take years to mature.

According to the Banco de la República, China’s accumulated direct investment flow in Colombia amounted to US$277 million between January 2000 and June 2020. As a share of the total, this figure represents only 0.14 percent, which is low. Those who know about the matter note that the explanation lies in the fact that records identify the country where the money comes from and not the place where the decision to transfer it is made, which is why in more than one case Panama or some tax haven appears, even if its sender is a company with capital from the People’s Republic of China.

According to Margaret Myers, director of the Asia and Latin America program at the Inter-American Dialogue in Washington, the events “reflect the work of certain Colombian institutions to establish connections and also an important learning process on the part of Chinese companies.”

After several years, an adaptation to more sophisticated mechanisms has taken place in this part of the world. This is evidenced by the fact that “we are increasingly taking part in public-private partnerships (PPPs), rather than relying on tied-up credit, which is what happens when we join up with international companies when it makes sense, as is the case with the Bogotá subway,” Myers adds.

For Lan Hu, the ambassador in Bogotá, “the growth of Chinese investment in Colombia is the result of the growing openness and attraction of a country that enjoys favorable conditions such as political stability, economic development and a solid legal system.” The envoy from Beijing assures that what his country’s companies do “is not a simple capital investment or contracting of works, but through PPPs and other projects they bring more advanced technology and administration, in order to cooperate with the Colombian people for greater development.”

Concurrently, there is a strengthening of commercial ties. “Economic exchange has become important in the past ten years, but in particular in the last four years Colombian exports to China have grown 300 percent,” notes Guillermo Puyana, president of the Colombo China Association.

Background Tensions

Such progress is a reflection of how the pendulum of economic power has swung towards the Asia-Pacific area. Several nations in that part of the world have been leading the growth indicators, but there is no doubt that because of its size China is in a separate category.

It generates 17 percent of global gross domestic product and is home to almost 1.4 billion consumers, whose quality of life has changed substantially in less than four decades. In addition to being the largest exporter of goods, it is also a major buyer of raw materials, with a great regional impact: it purchases 78 percent of Brazil’s soybean sales or 41 percent of Chile’s copper, to name just two.

As a result, it is one of the two main destinations of Latin American countries’ foreign sales, which are concentrated in food and minerals. This emergence occurred during the course of this century and has clearly been a two-way process.

The cumulative surplus and the very size of its companies explain why Chinese investment is becoming increasingly more relevant on the planet. In many cases, capital has been focused on ensuring the supply of a nation with a deficit in commodities. In others the aim is to promote transnationals in the most diverse sectors.

This evolution should be more accelerated now, because of the pandemic. As some 90 percent of economies on five continents enter recession, China is heading for positive figures in 2020, albeit below the average growth seen since the early 1980s.

This is compounded by the development of what some analysts call “mask diplomacy”. Just when the United States seems to be redeploying and taking a confrontational stance, even with its closest allies, Beijing has succeeded in overcoming the stigma of being identified with the Covid-19. To achieve this, it has increased its donations of protective equipment or medical ventilators, in addition to pledging to share the vaccines it is developing.

In reaction, Washington frowned and spoke harshly, but had little to show for it other than an initiative to promote investment in the Americas, described by some as rather hollow. Yet it is aware that tensions are causing major changes that could become opportunities for nations in this hemisphere.

On the one hand, the United States cut its purchases of Chinese products, but that decrease benefited Latin American exporters. On the other hand, China has also imposed barriers and that is leading it to look for other suppliers.

In addition, some industries may decide to relocate to these latitudes in order to reduce geopolitical risk and gain access to the US market. Lower labor costs and closeness are arguments that favor the region.

Thus, the message is that it is in Latin America’s interest to be neutral in this superpower confrontation. As Margaret Myers says, “I hope that the nations of the area do not have to choose between pleasing the United States or pleasing China.”

This means maintaining good relations with everyone, not engaging in power games, and championing the principles of open regionalism. Should Trump repeat his mandate and try to make good on his threats to disengage from his rival across the Pacific Ocean, he will need to remain cool-headed and use diplomacy.

Going back to Colombia, the right thing to do is to diversify markets and seek greater insertion in that part of the world, since its regional peers have advanced more rapidly. In this context, Minister of Trade José Manuel Restrepo emphasizes that “China, which ten years ago did not yet figure in Colombia’s top ten export destinations, now ranks second, significantly more dynamic than the rest of the world and less dependent on mining and energy goods.”

Coffee, avocado, banana, fruit pulp, dried fruit and chocolate are items showing a very positive dynamic. The challenge is to broaden this scope, hopefully with higher value-added items and in order to offset a trade balance that remains largely in deficit.

On the other hand, it is expected that investments will continue to come in and that eventually, once the pandemic is past, tourists will follow. None of this was as clear four decades ago, when Bogotá and Beijing established diplomatic relations.

Things have changed a great deal over the years, but the story has only just begun. And even if Uncle Sam is upset, everything points to the fact that the Chinese dragon will continue to flap its wings in this part of the Pacific basin.

Source: Portafolio