The Logic of Capital and Premier Li’s Latin American Trip

China’s Premier Li Keqiang just finished his four-nation trip to Latin America during May 18-26, including visits to Brazil, Columbia, Peru and Chile. With a high-level ministerial delegation and more than one hundred business executives accompanying him, Li has secured multi-billion deals with the four countries—mostly in trade, FDI and credit—across various sectors such as banking, finance, agriculture, aircraft, mining, energy, and above all, infrastructure projects. During Li’s visit, China, Brazil and Peru agreed to complete a feasibility study of a transcontinental railroad by 2016, which would run through the Amazon Rainforest and the Andes Mountains, linking Brazil’s Atlantic coast and Peru’s Pacific coast. Premier Li also expressed China’s willingness to contribute to the construction of the inter-ocean tunnel under the Andes, connecting Chile and Argentina if the plan could be materialized.

Compared to its expanding activities in Africa, China’s growing presence in Latin America is much less discussed. However, comparisons are often made regarding the fact that China’s import and investment in both regions mainly concentrate on primary goods. In addition, China is often depicted as being resource-hungry and having little consideration for the environmental impact and social consequences of its economic activities. Furthermore, the whirlwind visit of Premier Li in Latin America was often viewed as a case of China using its economic power to lure friends and to compete with the US in the latter’s traditional “backyard.”[1]

Regarding the first observation, it seems that both China and Latin American countries have come to terms on the unsustainability of the existing trade and development pattern. Li’s visit to Latin America also coincides with the slowdown of China’s economic growth, waning demand for bulk commodities, and falling commodities prices which further hit Latin America’s economy. It is in the interests of both sides to look for alternative approaches to complement each other’s development. On the one hand, trade deals in more value added products such as passenger jets and ore carriers are included among the deliverables. On the other hand, “industrial cooperation” advocated by Premier Li has become the key word, as “China has cost-effective equipment and technology while Latin America needs infrastructure construction and industrial upgrading.”

As to the second criticism, the Economist is fair to point out that most Chinese companies “have a reasonable record of complying with environmental standards” in Latin America.[2] Yet it is true that China and relevant states need to balance economic development with environmental protection, labor rights and the wellbeing of indigenous people. Statistics show that “Chinese trade, investment, and finance are increasingly associated with significant social and environmental conflict” in Latin America, especially when quite a few projects are located in the well-known “indigenous and environmentally sensitive” areas.[3] However, the nature of capital is the pursuit of profit maximization. It is up to the state and social forces to balance against the capitalist logic, although social equity and environment protection are such complicated issues that barely no developing country has very successful experiences.

Finally, the hyped Chinese competition with the US in the latter’s backyard suggests an unfair bias. To begin with, at a broad level, compared with the US and the EU which have been investing and controlling the economic activities in Latin America for decades, China is only a newcomer. Chinese business entities still have a long way to go in learning and adapting to the various and distinct political, economic and cultural environments of Latin American countries. In addition, Chinese products on average are not as technologically advanced and high value-added as the imports from the US. Chinese businesses would need to climb up the “technology ladder” in order to truly pose a threat to their US competitors.[4] Moreover, surveys over the years by Pew Research Center show that Latin Americans view the US more favorably than they do China. In terms of the impact of China’s growing economy, while the majority of those surveyed in Chile and Peru see it in a positive way, views in Brazil are more divided. Surprisingly (or not), more people surveyed in Colombia sees China’s economic impact in a negative way. Regarding elements of soft power such as scientific and technological advances, cultural products, business culture and the influence of ideas and customs, the US is performing better than China in every dimension.[5]

In January 2015, President Xi Jinping pledged $250 billion of investment in Latin America in the coming decade, and set the goal that bilateral trade should reach 500 billion over the same period. China will continue to build on Xi’s vision and deepen political and economic ties with Latin America. While China’s excess capacity in manufacturing sectors as well as its massive foreign currency reserves need to find new market overseas, Latin American countries need technology, expertise and loan to upgrade their infrastructure and industry, both sides should be able to find plenty of cooperation opportunities. Yet, as China is liberalizing interest rates and the exchange rate of the Chinese Yuan, Chinese capital will be less protected and have to be more careful in overseas investment in order to ensure returns and profits. It seems that the logic of capital will continue to dictate China-Latin America cooperation, hopefully not to the detriment of other values.

[1] “China begins charm offensive in South America amid controversy over Amazonian railway”, The Telegraph, May 19, 2015, available at http://www.telegraph.co.uk/news/worldnews/asia/china/11614519/China-begins-charm-offensive-in-South-America-amid-controversy-over-Amazonian-railway.html, accessed on May 28, 2015;

[2] “The Chinese chequebook: Latin America needs to be more hard-headed with its big new partner”, May 23, 2015, available at http://www.economist.com/news/americas/21651889-latin-america-needs-be-more-hard-headed-its-big-new-partner-chinese-chequebook, accessed on May 28, 2015;

[3] “2015 China – Latin America Economic Bulletin”, Boston University Frederick S. Pardee School of Global Studies, available at http://www.bu.edu/pardeeschool/research/gegi/publications/china-latin-america-economic-bulletin/, accessed on May 28, 2015;

[4] Thomas Peter Narins, PhD Thesis “The Lure of Chinese State Capitalism in Latin America: Influence, investments and imports” University of California, Los Angeles, 2015. Available at http://gradworks.umi.com/36/85/3685817.html.

[5] Sources are from Pew Research Center, available at http://www.brookings.edu/events/2015/05/19-china-perceptions-africa-europe-lac, accessed on May 20, 2015