China-Latin America: New Geopolitics

Overview

• China's growth has shifted global geopolitics, significantly impacting the economy and trade.
• High demand for commodities is key to agrarian change.
• There are new partnerships to secure natural resources.
• The paper analyzes the growing economic and political ties between China and Latin America.
• It questions agrarian change and resource access patterns.
• It seeks to understand if a new consensus is forming against the Washington Consensus that promoted neoliberal policies from the 1970s.

Introduction

• Recent left-leaning governments in Latin America have seen a commodity boom, fueling their economies and social programs via a neo-extractivist model.
• China's demand for raw materials boosted international commodity prices in 2007-8.
• Chinese capital and diplomacy directly secured imports through the 'going out' (zou chuqu) policy, investing in infrastructure and providing credit.
• There was no direct interference with the receiving country's fiscal, trade, social welfare, labor, or environmental policies.
• Soybean is a key commodity in China-Latin American relations, with China importing 64% globally, almost 60% from Latin America.
• Most soybeans come from Brazil and Argentina.
• Demand for soybeans is a component of China's multi-billion-dollar (USD) grain-feed-meat complex.
• China is the largest pork producer and consumer, plus the second-largest poultry producer.
• China needs this commodity to increase domestic meat production.

China's Role in Latin America

• China is a vital market for Latin America's exports, which collectively produces more soybeans than any other region.
• Chinese direct investment and finance have grown in Latin America, specifically in construction and the oil/gas sector.
• Chinese public finance, via the China Development Bank (CBD) and China Export-Import Bank (Ex-Im Bank), is Latin America's largest creditor.
• Between 2005-2015, they loaned USD $125 billion to the region for infrastructure (29.5%), transportation (16.5%), hydropower (12.4%), and mining (11.5%).
• China finances strategic infrastructure and raw material extraction projects, taking payment in commodities.
• Recipients are often required to contract Chinese construction firms and equipment, dubbed as 'south-south' cooperation.
• These relations are due to China's need to secure market access for raw materials, control distribution, and ensure dependable transportation infrastructure.
• A soybean supply shortage could raise prices for Chinese meat producers, affecting Chinese consumers.
• Chinese demand gives Latin America opportunities to expand from US markets and facilitates the extractivist development model.
• Agriculture is becoming industrialized, crops are flexible, and economic sectors are being dynamically changed.

Trade

• Agro-industrial flex crop production has increased dramatically due to growing demand from China and India creating a secure market.
• Just four primary products (iron, copper, soybeans, crude petroleum) comprise almost 70% of Latin America's total exports to China.
• China exports more diversified products like telecommunications, data processing equipment, ships, optical instruments, and refined petroleum.
• Trade terms make Latin America dependent on primary commodities, subject to market volatility.
• Some Latin American governments are seeking new political and economic alliances with China to reduce reliance on international financial institutions (IFIs).
• Aims include addressing the dynamics of the agro-food system in terms of production, circulation, and consumption with the rise of BRICS countries (Brazil, Russia, India, and China).

China's Going Out Policy

• The 'going out' strategy was introduced in 2000 to encourage outbound investments to access international markets, foreign resources, and advanced technologies.
• The state simplifies procedures for foreign investments and loosens foreign exchange control.
• Subsidies, venture opportunities, tax reductions, and low-interest loans are offered to domestic investors, especially state-owned.
• The state maintains a stable investment environment for Chinese outbound investments through Bilateral Investment Treaties (BIT) and Free Trade Agreements (FTA).
• Macro-level factors for the strategy include the 1997 Asian financial crisis, China's foreign exchange reserves, and high demand for raw materials.
• "Reform and Opening-Up Policy" (gaige kaifang) in 1978 promoted 'bringing-in' (yin jinlai) which was changed when exports were vulnerable after the 1997 Asian financial crisis.
• In the early 21st Century, China had large domestic savings and foreign exchange reserves, leading to pressures like trade frictions and domestic market overheating.
• Increasing demand for raw materials in China is a major driving force of the policy.
• Imports grew faster than exports, showing the need for primary goods.
• Micro-level drivers for going abroad include improving international brand recognition, access to advanced technologies, and securing natural resources with flexible labor and environmental regulations.
• Chinese companies face rising costs of land and labor domestically.
• There are rising land rents and stricter environmental regulations.
• China seeks to relocate production to countries with excess cheaper labor and more flexible social and environmental regulations.

Impact of going out policy

• Foreign direct investment (FDI) from China has rapidly increased since the policy's introduction.
• China's international trade has significantly increased, but other Asian countries are still China's main trading partners.
• Latin America is rising in trade importance with %2.66% (USD $12.6 billion) in 2000 to %6.28% (USD $261.4 billion) in 2013.
• State-owned companies are the most active investors (53.6%), but non-state enterprises are rising from 19% (2006) from 46% (2014).
• Chinese enterprises choose investments based on resource-dependent industries developing countries in Africa and Latin America, technology-seeking industries preferring developed countries, and commodity industries choosing Eastern Europe, Africa, and Latin America.
• China has focused on Latin America for market expansion and raw material needs.
• Seventy-three percent of China's FDI to Latin America is in extraction/agro-food sectors, in the form of mergers and acquisitions (M&A) instead of greenfield investments.
• China's 'going out' strategy has increased its investment and trade presence in Latin America.
• Both public and private Chinese capital have penetrated the value chain instead of direct land investments to increase control and access.

China-Latin America Political and Economical Alliance

• China's economic and political influence is growing across Latin America, regardless of the governing regime (progressive or conservative).
• In 2015, Beijing hosted the Community of Latin American and Caribbean States Summit (excluding US, Canada).
• Chinese President Xi Jinping pledged to invest USD $250 billion over 10 years, with two-way trade expected to rise to USD $500 billion.
• China is securing access to natural resources and new markets in order to transfer both surpluses of capital and labor supply.
• Almost half which recognise Taiwan (ROC) are in Latin America, which still ignites "communist menace" of China from 1949.
• Economic ties have strengthened between China and progressive governments since the 21st century.
• Economic relations with Bolivia, Brazil, Argentina, and Nicaragua are growing, facilitated by its 'going out' policy.
• Countries such as Argentina or Brazil let go of "import substitution", and benefited from China.
• China has become a consistent source of demand for resources these Latin American countries specialize in.
• China reached USD $50 billion for giving loans for oil: Venezuela 36 billion; Brazil: $10 billion; Ecuador: 4 billion.
• China has also become a reliable and generous creditor, without the condition of US.
• Conservative central American governments have also strengthened relations since the turn of the century due to economic interests.
• Even national business elites in Peru and Colombia look past ideological differences to seek lucrative financial gains.
• Countries don't care "whether the cat is black or white, as long as it catches mice".

China and Latin America's Soy Complex

• Increased relations are their interdependencies on the soy complex.
• Latin America accounts for 56% global trade, as Brazil represents 40.3% and Argentina 7.3%.
• China imports 64% global trade with Brazil, the USA, and Argentina.
• Food consumption has shifted with increase in meat consumption, leading to dependency on product.
• Since China entered the WTO, import tariffs dropped to 3%, with focus on raw materials.

Production

• Control over the soy complex has become a mutual priority for economic and political elites, continues to be contested.
• In 2004-5, some 70% of soy enterprises collapsed.
• Crisis presented an opportunity for the ABCD (ADM, Bunge, Cargill, Louis Dreyfus) multinationals to dominate grain trade.
• The state supports companies in (re)gaining control over soybeans.
• Chinese enterprises receive up to 30 million yuan ($4.3 million) in fiscal and financial support with additional tax and insurance incentives.
• Actual Chinese land investments are vastly over-reported.
• Much attention is given to investment compared to other Global North companies.
• ‘Sinophobia’ effort to shift their investments away from own investments/suppress Chinese.
• Firms are most active in Argentina and Brazil, accounting for half total soy bean.
• Controlling processing stage is economic leverage.
• This has geopolitical implications that old hubs of global capital still have a stronghold on processing and trade in places like Argentina.
• In 2014, majority stakes were purchased from The Dutch.

Argentina

• Data from 2011 shows that 85% of the processing capacity in Argentina are 6 companies: AGD, Molinos Rio de la Plata and Vicentín , Bunge, Cargill (US) and Dreyfus.
• The state has also pushed to keep processing on Chinese soil, reshaping Argentina's export sector.
• Argentina agreed with China.
• ADM set up new facilities in South America/China, reducing its share in North America to less than 50%.
• China has used lending money for investment towards companies in exchange for construction projects.
• Framework agreements stated works will be directly awarded to Chinese due to the terms of financing.
• The government of Kirchner was an exchange for political alliances, or repositioning both regionally and domestically, and also capture revenue.
• President Macri will remove the ideology between China and Argentina, but will include more pragmatism.

Brazil

• Reported soy investments in Brazil similar to Argentina and not confirmed/stalled
• Confirmed Chinese investments include 700-ha and 16,000-ha soybean farmland investment by Fudi.
• China invested more than companies from Global North.
• China is the most important export partner.
• China played major role where Brazil's economy shifting from manufacture to agricultural commodity exports.
• Chinese FDI has increased.
• The share purchased by acronym “ABCD” was 37 percent,
• The share of total soybean crush increased 4 % in 1990 to 29% in 2014, which shows change for soy.
• The Cuiabá-Santarém Railway and Transcontinental Railway would stimulate soybean expansion with greater access to infrastructure and reduced costs.
• Brazil-China traits are characterized for trade, as Brazil has agricultural goods go into China, while China has industrial and value-goods.
• Direct involvedment infrastructure contributes to demand of soybeans and products.
• There is need to get a balance of equality and economic freedom.
• Interim president had removed barriers to trade to work on soy.
• Government made point growth would continue to expand in agricultural frontier.

Conclusion

• The relations continues similar relations of production and resource control.
• There is lack of fiscal and monetary, and monetary allowance is given with borrowing from China which allows countries retain sovereign.
• There is lack in social and environmental standards.
• Chinese do not have grievance methods and does not require regulation.
• Relations for trade can cause, reindustrialism, and extraction.
• Chinese imports discourage, can affect industries, and limit economy.
• A focus on crops is creating labor for large-controlled crops.
• It continues to benefit established classes.
• From Washington to South , among elites there has been consensus for resource control.