China sanguine about Latin America’s economic crisis

China promises continued economic backing for Latin American countries despite Venezuela's meltdown and recession in Brazil, Argentina, writes Pablo Wang 

For a country massively exposed to Latin America in terms of loans and investment, China’s state media has been remarkably sanguine about the economic meltdown in Venezuela and deep recessions in Brazil and Argentina.

“Venezuela will not drag on its debt” was the title of a recent editorial in the state-run People’s Daily. The paper also vaunts what it sees as a laudable attempt at wealth distribution by a socialist state backed by Chinese investment.

“Which country in this world would not want to ride on China’s express train to economic development?,” the People’s Daily asked.

This official editorial was in response to a wave of speculation about the solvency of the Venezuelan government against the backdrop of a failing economy.  Speculation has been growing that the crisis could topple the Chavista government which, for over a decade, has been friendly towards Beijing.

Venezuela’s debt woes are set against the backdrop of wider political changes in Latin America.

After over a decade of the predominance of left-leaning governments on the continent, more centre-right political parties are taking power as voters have responded to recession and economic crisis.

In Argentina, Mauricio Macri’s Cambiemos (let’s change) alliance ended over a decade of populist government led by Cristina Kirchner, which had defied the international financial order on debt repayments and attracted Chinese investment in the absence of US and European inward investment.

In Brazil, embattled president Dilma Rousseff of the Workers Party has been suspended in an impeachment process and replaced by liberal Michel Temer. In Venezuela, Hugo Chávez’s appointed successor Nicolás Maduro faces an unprecedented economic crisis and increasing pressure to step down after the opposition won an overwhelming majority in the National Assembly last year. And in Cuba, Raúl Castro’s government has re-established diplomatic ties with the US and ended decades of economic embargo.

The leftist governments that swept to power around the turn of the 21st century, led by Chavez and Lula in Brazil, rode a tide of sky-high commodity prices, buoyed by Chinese demand. Countries rich in resources prioritised their extraction and export, with little concern about a price crash or the environmental impacts. Pundits in the Western media have been quick to chastise the Latin American left’s management of resources and dependence on China.

Diplomatic pragmatism

Chinese foreign minister Wang Yi has acknowledged changes in Latin America’s political landscape, but stressed that “China’s policy of enhancing cooperation with Latin American countries remains unchanged”.

In an official press release after a meeting with Argentine counterpart Susana Malcorra in Beijing on May 19, Wang said that although the volume of China-Latin America commodities trade has “slightly dropped”, the difficulties facing Latin American countries are “temporary” and cooperation in investment, finance, production capacity and infrastructure will continue.

Malcorra, on behalf of Macri’s new administration, was in Beijing to ratify infrastructure agreements signed by the previous administration. Despite the wish to “revise” certain aspects of the agreements, the new government emphasised a strong desire to “ratify the strategic alliance with China”.

Venezuela woes

In June, the Financial Times reported that Chinese officials had met with Venezuelan opposition members to gain assurances that the country will honour its debts even in the event of a recall referendum that will cut short president Nicolás Maduro’s term. The Chinese government denied the report the next day. The Financial Times also reported that Venezuela had requested a moratorium on its debt equivalent to US$65 billion (435 billion yuan).

There is no official data on the exact amount or terms of the debt from the Chinese side, and media outlets — commercial or official — quote foreign news sources while denying their credibility at the same time. The People’s Daily editorial blamed “Western media” for playing up the issue, asserting that when financial and energy security are at stake, “it is common practice to keep details of the agreements secret”.

“The current crisis in Venezuela makes Beijing uneasy,” says Antonio Hsiang, director of the Centre for Latin American Economic and Trade Studies of the Chihlee University of Technology. Although South-South cooperation is not necessarily based on ideology, if a country of  like Venezuela’s strategic importance defaults, the failure of the “money for oil” model will deal a huge blow to Chinese diplomacy in Latin America, Hsiang tells Diálogo Chino.

He also believes that “leftist governments have a tendency towards anti-American rhetoric,” adding that the current political shift in Latin America implies a loss of ground for Beijing in the Western hemisphere: “They are losing comrades in the diplomatic arena,” he concludes.

Adapting to change

“In the next five to ten years, right-wing governments will play a leading role in Latin American politics,” a 2015 yearbook published by the Latin America Institute of the Chinese Academy of Social Sciences predicts. The yearbook (not available online) was published on June 1 and highlights two major trends: “great political changes in the making” and an “overall economic downturn”. 

In the face of these changes, the 2015 yearbook suggests China should carry out “policy readjustments” and “strategic redeployment” in Latin America. With a clear emphasis on pragmatism, the yearbook further suggests pushing for greater cooperation on infrastructure projects to expand bilateral trade and commercial ties.

Wu Baiyi, head of the Latin America Institute of the Academy of Social Sciences, takes a longer view of Latin America’s political changes and the region’s ‘inherently cyclical’ electoral processes. The region’s economic development, he says, is most important.

“If the right-wing governments cannot find a path out of the economic downturn… the Latin American left will very possibly rise again,” Wu says.

This is a version of an article first published on Diálogo Chino which can be found here