China’s Interest in Venezuela

The current situation in Venezuela is horrific. Nicolas Maduro seems to have won the election. However, the entire world is afraid that the country may break into civil war at any given moment.

Maduro has been using military personnel as his cronies. Hence, even though most of Venezuela is in economic ruin, the politicians, as well as the military, seem to be doing well economically. Given the way the situation is progressing, military action may not really be far away.

Venezuela is making desperate attempts to ensure that the condition is stabilized without resorting to violence. It has tried to approach several nations for assistance. While most governments have rejected Venezuela’s offers, China seems to be showing keen interest. This could be partly because both China and Venezuela actually share the same socialist ideology.

The fall of Venezuela may leave China isolated and may also raise existential questions over the philosophy of socialism.

In this article, we will have a closer look at how China is trying to help Venezuela overcome this crisis.

Lender-Borrower Relationship

The financial situation of China and Venezuela is already intertwined. China is the biggest lender to Venezuela. Hence, Venezuela’s fall would mean a significant loss for the Chinese government.

It is for this reason that China has offered Venezuela with the option of restructuring its debt at extremely favorable interest rates. Although this is not enough to save the failing economy of Venezuela, it is seen by many as an indication that China does have an interest in the marketplace. Otherwise, why would China, which is famous for its predatory lending practices offer favorable terms of credit to Venezuela?

China also considers Venezuela to be it’s most significant and most strategically in Latin America. Also, Venezuela seems to be an essential part of the Belt and Road Initiative being undertaken by China. As a result, it is likely that China may come to Venezuela’s rescue in the event of a civil-war-like conflict.

Transition to the Yuan

China wants to increase the strength and acceptability of the Yuan. It is no secret that China wants to make Yuan the reserve country of the world. Displacing the dollar would mean that China would get a lot of privileges that currently accrue to America. For instance, China will be able to borrow money at rock-bottom interest rates. This would be beneficial to the Chinese economy which is advancing at breakneck speed since most of the developments are funded by debt. A lower cost of borrowing would mean much more economic growth.

Hence, it is likely that China will propose that Venezuela start accepting the Yuan in place of the Bolivar. The Bolivar has already been destroyed thanks to hyperinflation. Instead of adopting the United States dollar, China would want Venezuela to adopt the Yuan. This would increase the acceptability of Yuan in the Latin American region. This would be the first step in creating a global reserve currency. The Chinese government sees the Venezuelan crisis as an opportunity to widen its Latin American footprint.

Yuan as Payment

Another reason why China considers Venezuela to be a strategic ally is that it has one of the largest reserves of oil in the world. China imports oil in large quantities for its fledgling economy. Venezuela is willing to offer large quantities of oil at a discount to the global prices. This could help China save billions of dollars in fuel bills.

Also, China wants to negotiate with Venezuela to ensure that Venezuela accepts Yuan as payment for its oil. This would be a unique deal since at the present moment oil is only priced in dollars. This is one of the reasons why the dollar is the reserve currency of the world.

The Venezuela crisis would allow China to price commodities in terms of Yuan. The Venezuelan economy is more than 50% dependent on oil. Hence, if it starts accepting Yuan as payment, the Yuan will soon percolate to different strata of the Venezuelan society. Also, once the currency becomes established, it may spread to bordering currencies. This will be doubly beneficial to the Chinese government. Firstly, this move will reduce American clout and secondly it would increase the Chinese influence.

China’s Stability

The problem with China’s ambitious plans is its current financial situation. At the present moment, China is also facing the semblance of a financial crisis. The rising interest rates in the United States may lead to slow demand. This sluggish demand may be relayed to the Chinese economy which is mostly dependent on exporting goods to American consumers.

Also, the Chinese state has borrowed vast sums of money and invested them in infrastructure projects. As a result, it does not really have the wherewithal to lend money to support a failing state like Venezuela.

The fact of the matter is that Venezuela is an attractive proposition for China. This is because of the similar ideologies that they share. Both nations are socialists and believe in central five-year planning. This is the reason it is likely that China may try to undercut the United States and help Venezuela.

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