China’s Emerging Power in Latin America

In the past two decades, the economic ties between China and Latin America have reached record highs. Before the 1990’s, China had almost no trade relations with Latin America. However, when China’s economic power increased so did its interest in many Latin American economies. As a result, the total trade between the two grew rapidly to $12 billion by the year 2000. This rapid rise continued and the trade between China and Latin America was valued at $280 billion in the year 2017. This period also coincides with Chinese investment in many other nations. This makes it a matter of concern globally.

Is China investing in Latin American nations to help them develop or does it have more sinister intentions. In this article, we will have a closer look at this trade relationship.

  • Challenging American Hegemony: It is no secret that China wants to challenge the notion that the economic order of the world needs to be led by America.

    China wants to be seen as the most important economic entity in the world. It is therefore giving out loans on more favorable terms to Latin American nations.

    It is a win-win situation since China wants to increase its influence and is flush with cash thanks to its trade surplus with America. On the other hand, Latin American countries feel that United States and other western nations have been economically exploiting them.

    Beijing can afford to make less attractive loans. This is because these loans are made by the government who can afford to make less money in the short term.

    On the other hand, it is the private American investors that make loans to Latin America. They want to make a good return on their investment from day one. Over the years, China has increased its influence in Latin America. They have been able to do so because American policymakers have been preoccupied with Iraq, Iran, Afghanistan and the Middle East in general.

  • Yuan As The Reserve Currency: China is not happy about the exorbitant privilege that accrues to America since they have the right to issue the dollar which is used as an international reserve currency.

    China has already requested that a supra national currency be used in place of the dollar. However, it is said that they have plans to dethrone the dollar with their Yuan.

    China wants to ensure that important commodities such as oil and gold are priced in the Yuan. This will only happen when a sufficient number of countries will accept Yuan as payment for their exports.

    China is slowly trying to make this happen. Improving trade relations with Latin America is one of the steps in this direction.

    If more nations trade with China, they will need the Yuan to make payments. This will open the path for de-dollarization of the world.

  • Access to Oil: China is known to be very interested in Latin American oil. There are huge oil reserves in countries like Brazil, Venezuela and Mexico. China is known to have signed dozens of agreements with Venezuela.

    As per these agreements China can continue to buy oil from Venezuela at a discounted price if they continue to make investments in the faltering economy of the nation.

    Venezuelan oil exports to China have increased by a multiple of four in the past 15 years. Similarly China has also lent money to Brazil to secure long term supplies.

    China has a massive demand for energy. Hence it is dependent on nations in the Middle East.

    The United States has a lot of influence in these nations. Hence, China is trying to create its alternate supply chain by buying influence in other oil rich countries.

  • Access to Commodities: Latin America has a lot of minerals in its ground. More than 45% of the world’s tin, copper and iron ore is estimated to be in Latin America. At the same time, China is the number one market for these products. More than a quarter of the global demand for these minerals is from China alone! These minerals are important for the success of China’s massive manufacturing industry. Once again, China is trying to secure its supplies from countries like Chile.

  • Agricultural Investments: China is poised to face a food shortage in the future. It has about 8% of the cultivable land in the world. However, more than 20% of the world’s population resides within its borders.

    China is currently managing its food requirement with great difficulty. This situation is expected to become worse in the future.

    On the other hand, many countries in South America are agrarian in nature. China would like to maintain good relations with these countries to develop a close ally which will supply it with food grains

The Latin American nations are also more than happy in taking assistance from China.

Firstly, China has a more robust economy that faced fewer setbacks in the recession.

Also, it gives them freedom from United States dominance in the region. Until now Latin American nations had no option. They had to bow down to American will if they wanted to survive economically. However, that is not the case now.

There is also an increasing concern that the rapid inflow of funds from China on favorable terms will enable bad policy decisions to be taken by many Latin American governments.

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