China ventures into US backyard, establishes itself in Latin America

The countries of South and Central America, collectively known as Latin America, have been traditionally considered to be a backyard of the United States.

However, China, which has emerged as the principal global rival of the world’s ‘sole superpower’, has made significant inroads into this resource-rich and often volatile region in recent times.

Since the turn of the century, China has been a significant player in Latin America, which has raised concerns about Beijing’s influence while also offering economic opportunities. China is now South America’s largest commercial partner, surpassing the United States, and its state-owned enterprises are significant investors in the energy, infrastructure, and space sectors.

China has increased its military, diplomatic, and cultural clout in the region. It most recently used its influence to help during the COVID-19 pandemic, sending hundreds of millions of vaccine doses, loans, and medical supplies to the countries of Latin America.

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However, the US and its allies worry that Beijing is leveraging these ties to promote its geopolitical objectives, which include further isolating Taiwan and supporting authoritarian governments like those in Cuba and Venezuela. Although some observers contend that the United States could be doing more, U.S. President Joe Biden has committed to increased economic cooperation with Latin America. Biden views China as a “strategic competitor” in the region.

China first established connections with the region in the sixteenth century, when the Manila Galleon trade route made it easier for China and Mexico to exchange porcelain, silk, and spices. Thousands of Chinese immigrants were being sent to Peru and Cuba as “coolies,” or indentured slaves, by the 1840s; they were frequently employed on sugar plantations or in silver mines. China’s relations with the area were mostly based on migration for the course of the following century, as Beijing continued to be focused with internal turmoil.

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Less than 2 percent of Latin America’s exports went to China in 2000, but the region’s subsequent commodities boom was fueled by China’s rapid growth and consequent demand. Trade increased at an average annual rate of 31% [PDF] for the following eight years, reaching a value of $180 billion in 2010. Trade reached a record $450 billion by 2021; this amount stayed relatively stable in 2022 as well, and some analysts estimate that by 2035, it may surpass $700 billion. China is currently the region’s most important trading partner for both South America and all of Latin America, after the United States.

Soybeans, copper, petroleum, oil, and other raw commodities necessary for China’s industrial development are the principal exports from Latin America to that nation. As a result, the region imports a majority of manufactured items with higher value added; some analysts argue that this trade has caused local sectors to be undercut by cheaper Chinese goods. By 2023, Beijing will have free trade agreements with Ecuador, Peru, Chile, Costa Rica, and Ecuador in place. Additionally, 21 Latin American nations have already ratified China’s Belt and Road Initiative (BRI). There is still discussion of a free trade deal with Uruguay.

Chinese loans and overseas foreign direct investment (OFDI) are significant contributors to the development of relations with the area. China’s foreign direct investment (FDI) in Latin America and the Caribbean in 2022 was around $12 billion, or almost 9% of all OFDI in the area. A total of $137 billion in loans to Latin American governments was made by the state-owned China Development Bank and the Export-Import Bank of China between 2005 and 2020; the loans were used to finance infrastructure and energy projects, frequently in exchange for oil. These banks are among the top lenders in the region. Loans came to $813 million [PDF] in 2022 alone. Venezuela is the largest borrower by far; at present, it has $60 billion in state loans from China, largely for infrastructure and energy projects.

That is almost twice as much as Brazil, the second-largest borrower. China also has voting memberships in the Caribbean Development Bank and the Inter-American Development Bank.

These connections have, however, sparked some worries, especially from regional governments. Even though Chinese loans frequently come with less restrictions, relying too much on them might force economically fragile nations like Venezuela into what some refer to as “debt traps,” which can lead to default. In fact, a number of nations in Latin America are attempting to renegotiate the conditions of their debt. In addition, detractors claim that Chinese businesses violate labor and environmental laws and raise concerns about national security due to China’s expanding influence over vital infrastructure, including ports and energy networks. Concerns have also been raised concerning a rise in economic dependency in nations like Chile, whose exports to China in 2021 amounted to over $36 billion, or about 38% of the total.

China wants to adopt a development framework called “South-South cooperation” [PDF], which emphasizes trade, investment, and aid, to broaden its sphere of influence. By emphasizing cultural and educational exchanges, Beijing has been able to cultivate political goodwill with local governments and position itself as a competitive partner to the US and Europe.

Numerous high-level political discussions have taken place since the historic thirteen-day tour of Latin America by former Chinese President Jiang Zemin in 2001. Since taking office in 2013, President Xi Jinping has made at least eleven trips to the area. China has signed comprehensive strategic partnerships—the highest designation it grants to its diplomatic allies—with Argentina, Brazil, Chile, Ecuador, Mexico, Peru, and Venezuela in addition to a number of bilateral agreements with other nations in the region.

The drive by China to isolate Taiwan is another significant element. Latin America’s support for Taiwan has decreased recently as a result of Beijing’s refusal to establish diplomatic ties with nations that acknowledge the island’s sovereignty; currently, only seven nations in the area do so. Honduras became the most recent nation to formally ally with Beijing in 2023 following Taipei’s denial of the nation’s request for billions of dollars in aid. Nicaragua and the Dominican Republic are two more recent swaps. Experts claim that pressure is mounting on the last holdouts, like Haiti.

The significance of security and defense cooperation has been emphasized in Chinese government policy for Latin America, as outlined in several documents, including its 2016 Defense Strategy White Paper. China is working with its Latin American peers to strengthen military ties through training programs, arms sales, and military exchanges.

Venezuela continues to be the region’s largest buyer of Chinese military hardware, despite the United States government’s 2006 ban on all commercial arms shipments to Venezuela. Beijing is said to have sent $629 million worth of weapons to Venezuela between 2006 and 2022. Additionally, China has supplied Argentina, Bolivia, Ecuador, and Peru with air defense radars, assault rifles, ground vehicles, and military planes worth millions of dollars [PDF]. Cuba has also made an effort to deepen its military ties with China by welcoming the People’s Liberation Army on many port trips. Concerns have also been expressed by U.S. intelligence authorities regarding evidence that China is stepping up its intelligence sharing with Cuba.

China also sent more than a hundred riot police to Haiti as part of its participation in the UN peacekeeping operation, which started in 2004. China left Haiti less than ten years later, but it continues to direct military drills around the area and supplies local police enforcement. For instance, China gave military vehicles and anti-riot gear to Bolivian police departments during the administration of Evo Morales Ayma; it also gave Guyana and Trinidad and Tobago’s police forces motorcycles and transportation equipment; and it gave Ecuador tens of thousands of automatic weapons.

China’s “COVID-19 diplomacy” in Latin America, according to many analysts, was an attempt to boost its standing and win over the governments in the area. This has included lending billions of dollars to nations so they may buy Chinese vaccinations; investing in domestic vaccine production facilities; and sending medical supplies including masks, ventilators, and diagnostic test kits.

By June 2022, China had supplied Latin America with over 400 million doses of vaccines. Furthermore, Beijing inked vaccination agreements with at least a dozen nations in the area, some of which included technology transfers and joint research with Sinovac, a Chinese vaccine manufacturer. Almost 70 percent of Chile’s COVID-19 vaccination coverage came from Chinese vaccinations, making it one of the top receivers. Tens of millions of doses were also purchased by Argentina, Brazil, Mexico, and Peru.

Beijing’s vaccination diplomacy, however, alarmed a few nations. For example, Honduras and Paraguay said they were pressured to give up their recognition of Taiwan in return for dosages. Certain observers had suspicions that China was also leveraging its vaccine power to encourage the growth of Huawei, the controversial Chinese telecom behemoth. A few weeks after China gave Brasília millions of vaccination doses, Brazilian regulators decided to change their previous ruling prohibiting Huawei from working on the nation’s 5G networks.

Vitality. China made $73 billion in raw material investments in Latin America between 2000 and 2018, including the construction of refineries and processing facilities in nations with substantial reserves of coal, copper, natural gas, oil, and uranium. In recent times, China has directed its investments towards the production of lithium in the countries collectively known as the Lithium Triangle: Argentina, Bolivia, and Chile. These three countries collectively have around 50% of the world’s known lithium reserves, a crucial metal required for battery manufacturing.

Chinese state-owned companies have a significant role in the development of energy; PowerAs of late 2022, China, for instance, had over fifty active projects across fifteen Latin American nations. However, the size and scope of these initiatives are exacerbating health and environmental concerns. China is also interested in the renewable energy industry in the area. Major solar and wind projects, including the largest solar plant in Latin America in Jujuy, Argentina, and the Punta Sierra wind farm in Coquimbo, Chile, have been supported by the China Development Bank.

Infrastructure. As members of the Asian Infrastructure Investment Bank, Argentina, Brazil, Chile, Ecuador, Peru, and Uruguay each have a certain amount of voting power. In addition, Beijing has provided funding for regional building initiatives, with an emphasis on railroads, ports, and airports. Nonetheless, the environment and nearby Indigenous communities have suffered as a result of over a dozen large-scale infrastructure projects led by China in the region, according to a 2023 report by the UN Committee on Economic, Social, and Cultural Rights.