China Rising, Latin America Swooning
Professor Chris Alden (Director of LSE IDEAS) and Professor Alvaro Mendez (Director of the LSE Global South Unit) co-authored China and Latin America: Development, Agency and Geopolitics
The rising fortunes of Latin America and the Caribbean (LAC) over the last decades launched an economic and social transformation every bit as consequential as the onset of democratisation in the region two decades earlier. The position of Latin America as a low-growth, inward-looking area with limited innovation or outreach beyond its borders is being set aside as political and business leaders in Brazil, Mexico, Chile and Colombia break into new markets at home and abroad. And yet against this positive picture are lingering economic problems that continue to bedevil the region, from the middle-income trap to the infrastructure backlog, which, if not addressed, threaten LAC’s development prospects well into the 21st century.
Recent events from Venezuela to Argentina highlight the fragile nature of institutional commitments to democracy and free markets. Vast gaps in income render the recent development gains vulnerable to shocks that threaten social unrest at a time when some countries’ dependence on commodities for earnings is increasing. Into this dramatically evolving situation comes a new powerful actor, China, whose dynamism and competitiveness is rapidly transforming the international political economy. China is currently the second largest trading partner of the entire LAC region and the largest trading partner of South America. The combination of Beijing’s geo-strategic focus, seemingly bottomless financial reserves, and the aggressive pursuit of resource and market opportunities by state-owned and private firms is beginning to have a major impact on Latin America. Already reaching USD$489 billion in two-way trade in 2023, within touching distance of Beijing’s stated ambitions to increase trade to USD$500 billion and Foreign Direct Investment (FDI) to USD$250 billion, is a reflection of the economic importance the region is assuming in the Chinese calculus and the dependent relationship in the making.
Indeed, Chinese demand for Latin American resources is a key element in the region’s positive economic growth trajectory in the past decade. While Chinese demand is, for example, taking up 7% of Brazilian soya exports, the import of China’s competitively priced finished goods is challenging the market position of local industries as well as its established development gains in sectors as diverse as textiles and aviation production. Chinese state-owned enterprises are increasingly buying equity stakes in companies, investing in joint ventures within the resource sector, and providing large-scale loans to governments and their parastatals. This growing dependency on commodity exports to China is viewed by some analysts as a replication of past trade patterns that could erode developmental achievements and lead to “reprimarization“—a shift back to a primary commodity export economy. Others note the changing profile of Chinese FDI, which now includes telecommunications, electricity grids, e-batteries, and even the production of electric vehicles, such as the BYD manufacturing facility in Brazil set to be ready in 2025.
Behind the startling success of Chinese penetration of Latin American markets is its skilful employment of economic statecraft. Mobilising financial reserves of over USD$1 trillion, Beijing has been able to secure access to local resources through large-scale loans aimed at major infrastructure projects in Latin America. Often tied to these loans are provisions for the employment of Chinese firms, labourers and supplies, providing a much-needed source of capital for investment-starved developing countries in Latin America as well as a way for Beijing to underwrite the expansion of its own firms overseas. In aggregate, lending by Chinese policy banks overtook the total combined value of the loans provided by the World Bank and the Inter-American Development Bank (IDB) in 2010, with 87% of it aimed at financing infrastructure (a sector which traditional lenders had largely ignored).
Linked to this is an effort to put the economic relationship with Latin America on a more long-term and sustainable basis. The signing of five bilateral Free Trade Agreements (FTAs) with Chile (2006), Peru (2009), Costa Rica (2011), Nicaragua (2023) and Ecuador (2024) have paved the way for expanded trade and greater investment into these economies while concurrently opening up market access in China for Latin American products. A few more are being negotiated, including one with Uruguay, who in theory, as a Mercosur member, is not supposed to be signing bilateral FTAs. At a more pedestrian level, these agreements have enabled Chinese small and medium enterprises to start businesses in light manufacturing, services, agricultural production and the retail sector in these countries while their counterparts from Latin America have struggled to gain a foothold in China’s domestic market.
All of this is happening against the backdrop of significant reversals to the global trading system, coupled with the active pursuit led by the most developed economies (minus the US under Donald Trump) of a host of trans-regional trade and investment initiatives like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and of more localised initiatives like the Pacific Alliance. Western dominated multilateral institutions – and some of the norms that underpin them – are being challenged by China’s own initiatives, which have produced a set of ‘Sino-centric’ institutions like the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB). As well as through creating diplomatic forums like the China-CELAC Forum, a cooperation mechanism with the Community of Latin American and Caribbean States (CELAC), which has parallels in other developing regions like Southeast Asia and Africa. Almost unnoticed in this process is the impact that China is having on traditional hegemons in the region, producing a quiet marginalisation of the US, along with that of European economies. The story of China-Latin America commerce is increasingly understood as one reframed as geopolitics.
From Commerce to Geopolitics
Beyond the commercial content of China-Latin America relations is a growing assertiveness in diplomatic and military affairs. Analysts point to the surge in arms sales to Venezuela, closer military ties between China and Latin America, the proposed Chinese funded Nicaraguan canal (which would supplement if not displace the emblematic Panama Canal) and the inattentiveness of Washington. While Beijing has generally shown caution in its diplomatic engagement, the enthusiasm with which some Latin American governments have embraced China as a Southern partner alternative to the US has taken even the Chinese by surprise. So, too, has the volatility of the policy environment, with resource nationalism and the revival of populism introducing unexpected risks to Chinese investments. Local concern that Chinese engagement with Latin America replicates its approach to Africa resounds across the region.
While caution has informed China’s approach to US interests in the region, such sentiments are increasingly challenged by Beijing’s actions. Indeed, as far back as Xi Jinping’s lightening visit to Trinidad and Tobago in 2013, Beijing sought to communicate through potent symbolism its displeasure at US interference in the South China Sea, its ‘own backyard’. Its ‘vaccine diplomacy’ during Covid offered solidarity to a region that the US blatantly neglected. At the same time, the deepening exposure of Chinese firms and Chinese citizens to risks in Latin America implies a need to enhance the security of these interests.
Within the US, the soporific combination of historical dominance and neglect continues to play out in how different presidential administrations see Chinese involvement in Latin America. For a certain generation of American policy makers, the very idea that China might be challenging America’s pre-eminent position through its commercial expansion into Latin America was nonsensical. Scholars echoed these claims, suggesting that the fundamental economic content of Chinese engagement should be understood as fitting within the broader ambit of US-led globalization. Others have become less sanguine arguing that Chinese support for left-wing populism in Venezuela promoted local advocates with hostile intent towards US interests. The unexpected election of Donald Trump in November 2016, the launch of the ‘trade war’ and his administration’s formal designation of China as a ‘strategic competitor’ in the US National Security Strategy two years on were all portents that this period of ambiguity was coming to an end.
Today, the stage is set for heightened competition between China and the West over critical minerals like lithium and investment into infrastructure, the green economy and digital technologies in Latin America. The effectiveness of Chinese development finance is under severe scrutiny at a time when its domestic economic problems in Covid’s aftermath have brought a precipitous fall in Chinese lending to the region. Chinese FDI of USD$12 billion in 2023 is far short of its ambitious USD$250 billion target but compares favourably with the USD$6 billion provided by US sources during the same period. Coupled to China’s diplomatic squeeze on Taiwan in Central America and the Caribbean, is Beijing’s courting of regional support of Russia’s invasion of Ukraine aimed at weakening the global role of the US and the EU.
Under these conditions, exploiting great power competition to their advantage ought to be all the more possible for Latin American governments. But to navigate a path that secures real developmental gains, improved market access for its firms as well as retaining the hard-fought democratic values that define the region is the key challenge facing its leaders in the new era. Strengthening knowledge about China, its statecraft, the evidence of its firms’ conduct and assessing Latin America’s interests in a putative post-liberal international order, balanced against the historical conduct of the US and its firms will be part of any successful foreign policy.
The opinions expressed are those of the contributor, not of the RSAA.
Read more from Professors Alden and Mendez –
China and Latin America: Development, Agency and Geopolitics
Since the turn of the century bilateral trade between China and Latin America has increased by more than a factor of ten. Coupled with this commercial element of China-Latin America relations is a growing assertiveness in diplomatic and military affairs. What are we to make of these shifting dynamics? This detailed and up-to-the-minute investigation looks at the interests, strategies and practices of China’s incoming power. What can be learned by comparing Latin America with other developing regions in which China has had significant economic ties and how should we read the curious and uneven decline of both the US and Europe as actors in the region?