China Engages in Latin America: Tracing the Trajectory 9781626371293

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China Engages Latin America

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China Engages Latin America Tracing the Trajectory edited by

Adrian H. Hearn José Luis León-Manríquez

b o u l d e r l o n d o n

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Published in the United States of America in 2011 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 www.rienner.com and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 2011 by Lynne Rienner Publishers, Inc. All rights reserved

Library of Congress Cataloging-in-Publication Data China engages Latin America : tracing the trajectory / Adrian H. Hearn and Jose Luis Leon-Manriquez, editors. p. cm. Includes bibliographical references and index. ISBN 978-1-58826-767-2 (hardcover : alk. paper) 1. China—Foreign relations—Latin America. 2. Latin America—Foreign relations—China. 3. China—Foreign economic relations—Latin America. 4. Latin America—Foreign economic relations—China. 5. Latin America—Strategic aspects. 6. China—Strategic aspects. I. Hearn, Adrian H., 1975– II. Leon, Jose Luis. JZ1734.A53C47 2011 337.5108—dc22 2011011378

British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library.

Printed and bound in the United States of America The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1992. 5

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Contents

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Acknowledgments Foreword, David Shambaugh

1 China and Latin America: A New Era of an Old Exchange Adrian H. Hearn and José Luis León-Manríquez

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Part 1 Grand Strategies and Local Responses

2 The China–Latin America Relationship: Convergences and Divergences Ariel C. Armony

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3 Ten Key Questions Jiang Shixue

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4 Economic Fundamentals of the Relationship Javier Santiso and Rolando Avendano

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5 China’s Challenge to Latin American Development Enrique Dussel Peters

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6 The Obama Administration, Latin America, and the Middle Kingdom Cynthia A. Watson

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7 Conflicting US Perceptions of China’s Inroads in Latin America Daniel P. Erikson

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Part 2 Country Studies

8 China and Mexico: Trade, Migration, and Guanxi Adrian H. Hearn, Alan Smart, and Roberto Hernández Hernández

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9 China’s Relations with Mexico and Chile: Boom for Whom? José Luis León-Manríquez

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10 China and Cuba: Past, Present, and Future Mao Xianglin, Carlos Alzugaray Treto, Liu Weiguang, and Adrian H. Hearn

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11 China’s Relations with Central America and the Caribbean States: Reshaping the Region Francisco Haro Navejas

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12 China and Venezuela: Oil, Technology, and Socialism Gonzalo Sebastián Paz

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13 China and Brazil: Two Trajectories of a “Strategic Partnership” Rodrigo Tavares Maciel and Dani K. Nedal

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14 China and Argentina: Beyond the Quest for Natural Resources Jorge Eduardo Malena

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Part 3 Conclusion

15 China, Latin America, and the Trajectory of Change José Luis León-Manríquez and Adrian H. Hearn

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Bibliography The Contributors Index About the Book

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THIS BOOK WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE backing and confidence of the University of Sydney, the University of Technology Sydney, the Australian Research Council, and the University of San Francisco. We are grateful to Lynne Rienner, her team, and Sanford Thatcher for steering the book through the publication process. Beatriz Adriana García provided unparalleled translation services and research assistance, and Tony Souter contributed meticulous editorial support. We are indebted to Kevin P. Gallagher and Jorge I. Domínguez for their conceptual advice, and to the many researchers around the world with whom we have exchanged ideas and built new understandings over the course of this project. — Adrian H. Hearn and José Luis León-Manríquez

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Foreword David Shambaugh

IT IS AN HONOR AND A PLEASURE TO CONTRIBUTE THIS FOREWORD to China Engages Latin America: Tracing the Trajectory. Adrian H. Hearn and José Luis León-Manríquez have assembled a stellar cast of contributors, truly the world’s leading experts on the subject. This book is both comprehensive and up-to-date, adding an important new volume to the small but budding literature on the subject.1 As the editors note in Chapter 1, there is growing debate in Latin America and in the United States concerning the scope, depth, strategies, and tactics of the People’s Republic of China’s growing presence in the region. As they point out, some of these assessments are alarmist, while most are more sanguine. The judgments in this volume are both balanced and judicious, and the chapters that follow also provide a firm foundation for further analysis. Readers will be rewarded. In the remainder of this foreword, I seek to contextualize the growing China–Latin America relationship. China’s approach to the region must be seen as a part of Beijing’s broader global strategy and foreign policy. The PRC is emerging fully onto the world stage in a largely positive fashion. It now has both interests and presence in parts of the world completely new to China, such as Latin America, and it has substantially deepened its traditional ties with Africa, as well as transformed its regional diplomacy in Asia. While these developments have inevitably strained some aspects of China’s relations with the United States, Russia, and the European Union, Beijing has effectively managed its relations with the major world powers. China’s global engagement can be measured along at least four dimensions: diplomatic, cultural, security, and commercial. In Latin America and the Caribbean, diplomatic and commercial aims dominate. In Asia, military and security concerns are prominent, producing an emphasis on strategic ix

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diplomacy and efforts to develop culturally appropriate modes of “soft power.” In the Middle East, Central Asia, and Africa, China’s insatiable hunger for raw materials and energy supplies has pushed commercial exchange squarely into the foreground. In these regions China’s foreign policy is to a large extent a function of its economic needs, while multilateral diplomacy and soft power play secondary—though important—roles. In Europe and the United States, China’s presence is largely diplomatic and commercial, though in the latter context security also enters the equation. Thus, while China’s emergence as a global actor can be characterized along these four dimensions, the actual mix of diplomatic, commercial, cultural, and security concerns varies by region. Let us take a look at each of these elements in the Latin American case.

Diplomacy This category includes both China’s bilateral and multilateral regional diplomacy. It must be noted that Latin America and the Caribbean still represent an area of diplomatic competition with Taiwan. Twelve of the twenty-three nation-states in the world that maintain official recognition of Taiwan lie in the region. An unofficial “truce” between Beijing and Taipei has improved relations across the Taiwan Strait over the past couple of years, but diplomatic competition remains an essential element of Beijing’s regional strategy. Latin America also holds geopolitical relevance for Beijing. The region represents an opportunity for China to demonstrate its expressed solidarity with developing countries and to foster a more multipolar world. Brazil is a key actor for Beijing in both respects. Meanwhile, Latin American countries are increasingly trying to pursue “omnidirectional” foreign policies of their own, reaching out to Europe and Asia, as well as each other, while trying to reduce dependence on North America. China fits neatly into these strategies, advancing what both sides have called “South-South cooperation.” China has forged a variety of diplomatic “partnerships” (no fewer than eight different types) with the countries of the region, and this set of designations provides a framework to develop bilateral ties. While Brasilia’s ties with Beijing are very strong—perhaps the strongest in all of Latin America— China has managed to build sound relations with most other regional states. Bilateral cooperation is particularly strong with Argentina, Chile, Peru, Venezuela, Mexico, and Cuba. The rise to power of leftist governments in Argentina, Bolivia, Brazil, Chile, Ecuador, Paraguay, Nicaragua, and Venezuela in recent years has helped strengthen Beijing’s bilateral ties to the region, and China has come to command greater respect and attention in each nation’s foreign policy. High-level bilateral diplomacy is surprisingly active, if not always reported in the international media. In the decade 1997–2007,

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more than eighty Latin American heads of state and government leaders visited China, while China’s president visited the region four times, followed by a steady stream of politburo-level leaders. In addition to state-to-state diplomacy, the Chinese Communist Party’s (CCP) international department is also extremely—albeit quietly—active in exchanges with a wide range of political parties across Latin America and the Caribbean, including in countries that diplomatically recognize Taiwan. The CCP now has working relations with more than eighty political parties in almost all of the region’s thirty-three countries. This ties China not only to ruling parties, but perhaps more important to opposition parties and politicians in waiting, so that when they come to power Beijing is already familiar with them (and vice versa). Party-to-party exchanges also provide Beijing a good mechanism for collecting intelligence, an aim it pursues in a similar fashion, though to a lesser extent, through parliamentary interchanges with a number of Latin American countries. China is active in a range of multilateral organizations in Latin America. It is a full member of the Caribbean Development Bank (since 1997), has been a permanent observer since 2004 of the Organization of American States (OAS), and in 2008 became a full member of the Inter-American Development Bank. It has held seventeen rounds of dialogue with the Rio Group since 1990, has established a mechanism for interaction with Mercosur (Mercado Común del Sur) common market group, and has actively engaged with the Caribbean Community and Latin American Conference. China is a full member of the Asia-Pacific Economic Cooperation group (APEC), and Beijing has initiated a series of separate forums with the region, including the China–Latin America Forum, the China-Caribbean Economic and Trade Cooperation Forum, the China–Latin America Common Market Dialogue, the China– Andean Community Consultation Forum, and the China–Latin America Business Summit. These mechanisms have allowed China to become extensively linked to the region through multilateral channels. Thus, both bilaterally and multilaterally, China has built strong diplomatic and political ties throughout Latin America and the Caribbean. This is a good thing for all concerned. In my view, the United States need not fear China’s thrust into the region, as Latin America is in any case no longer an exclusive domain of US influence. As noted above, Latin America is diversifying its external linkages, and China’s move into the region is just one part of its ascension to the global stage.

Culture The cultural dimension of China’s presence in Latin America has become a subject of increasing interest around the world as “soft power” gains promi-

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nence in international relations and as China’s own soft power and normative appeal attracts attention. Public opinion polls show that China’s image is generally positive among Latin Americans. The 2010 BBC/Globescan survey of twenty-eight nations worldwide revealed that 57 percent of Central Americans viewed China positively, 55 percent of Chileans, 52 percent of Brazilians, but only 32 percent of Mexicans.2 The 2008 Pew Global Attitudes Poll found that the public of Chile, Venezuela, Peru, Brazil, Bolivia, Mexico, and Argentina had more favorable than unfavorable views of China.3 The highest ranking was Chile (61 percent) while the lowest were Mexico and Argentina (where the balance of opinion was even). In both the Argentine and Mexican cases, this reflects a sharp drop over the past two years, largely attributable to frictions in their economic relations with China. With group tourism accords signed between China and nineteen countries, Chinese tourists are beginning to flow into the region in large numbers. Immigration is also growing: there are now 30,000 ethnic Chinese living in Argentina, and large numbers in Peru. Furthermore, 100 pairs of sister province and city relationships between Chinese and Latin American localities have begun to produce a growing variety of transpacific exchanges. China’s attempts to increase cultural exchanges in the region have rapidly intensified. The Chinese Ministry of Education has established six “Confucius Institutes” across the region (out of 282 worldwide), and the ministry provides 100 university scholarships for Latin American students every year. Numerous government-to-government cultural exchange accords have been settled, and an increasing number and variety of universities are beginning to sign their own memorandums of understanding. While Latin American interest in studying the Chinese language is growing, my impression is that there is an extremely low level of understanding among the region’s people and governments about China. Only two comprehensive university programs (addressing not just language but all aspects of Chinese studies) exist in the region (National Autonomous University of Mexico and Salvador University in Buenos Aires). Compared to Beijing’s community of Latin America experts in think tanks, universities, and government, there is a pressing need for expertise on China in Latin America. There is a high-quality Chinese-language journal titled Latin American Studies, published by the Institute of Latin American Studies (ILAS) and the Latin American Studies Association of the Chinese Academy of Social Sciences (CASS), both of which have been in existence for almost fifty years. There is no similar institute, journal, or even a pan-regional association of Chinese studies in Latin America. Knowledge of Chinese is also lacking in the region. When Latin American leaders meet their Chinese counterparts, the Chinese government usually has to provide the interpreters, while China’s ambassadors and diplomats in

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the region are usually fluent in Spanish and Portuguese. One finds few Latin American diplomats in their Beijing embassies able to speak and read Chinese; indeed, only a handful of Latin American academic China specialists, including several of this book’s contributors, understand standard, contemporary Chinese. I was told on my visit to Itamarichy (Brazil’s Foreign Ministry) in 2008 that there is not a single fluent Chinese speaker or a cohort of China specialists in the entire Brazilian Foreign Service and that there is not even a China department in Itamarichy. Furthermore, Brazil’s intelligence services have no China division, there are only eight Brazilian diplomats working in the Brazilian Embassy in Beijing (only a couple of whom speak Chinese), no Brazilian university has a comprehensive Chinese studies program, and only one Brazilian newspaper (O Estado de São Paulo) has a bureau in China. Why is this important? Because if Latin American governments do not invest in building up a generation of people knowledgeable about China—not just speaking Chinese but knowing how China functions as a society, government, economy, and military—then Latin American societies, governments, intelligence services, law enforcement agencies, militaries, business communities, universities, and civil societies will be severely handicapped in dealing with China. Chinese waves have just begun to wash ashore in Latin America, but over the next decade or two they will become a tsunami. Latin America therefore needs to be prepared to understand China in all its dimensions. To achieve this requires the implementation of a ten-to-twenty-year plan to train Latin American students in Chinese studies, including through study in the United States, Europe, and China, who will then return to their native countries to take up professorial posts and initiate university programs to train subsequent generations of students with China expertise.

Military and Security Affairs China’s military-security presence in the Latin American region is not large, but it is growing. One reason it is not large is that Beijing is very careful not to antagonize the United States, especially in a sphere as sensitive as military expansion. Beijing is acutely aware that there are already concerns in Washington regarding China’s growing presence in the region and has therefore developed programs of military cooperation that conform to conventional protocols. One particularly active sphere of cooperation is the exchange of military professionals, in some cases at very high levels. Four members of China’s Central Military Commission have visited the region over the past two years alone—more than any other region of the world—while a steady stream of Latin American defense ministers and service chiefs visits Beijing annually. China trains Latin American officers in its staff academies, and recent reports

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indicate that Brazil has reached a joint agreement to train Chinese navy personnel on board the São Paulo, Brazil’s Clemenceau-class aircraft carrier. Chinese arms sales to, and imports from, the region are also growing. China’s relatively small sales of weaponry and military equipment to Latin America consist of approximately $150 million per year of helicopters, artillery, armored personnel carriers, vehicles, antiship missiles, and light assault weapons. In turn, China buys antitank and antiair missiles, as well as avionics from Brazil. Sino-Brazilian aerospace cooperation is especially active, and some of it is military related. With China under weapons embargos from the United States and European Union, and Russian military sales to China declining since 2007, Brazil may become a greater source of supply for the People’s Liberation Army. Among China’s less conventional military pursuits in the region are its contribution to the multinational UN peacekeeping forces in Haiti and its reported use of former Soviet military intelligence communications facilities in Cuba. There has been a lot of speculation about the latter, but details remain obscure. China’s military-security footprint in Latin America is therefore not large, but it is gradually growing.

Commerce Trade is the most important dimension of China’s presence in Latin America, and the chapters in this volume provide detailed and up-to-date analysis. Three factors stand out: the aggregate value, the growth rate, and the composition of commercial flows. According to Chinese customs statistics, total trade with the region grew from $50 billion in 2005 to $141.9 billion in 2008, and it is in balance (China imported $71.3 billion and exported $70.6 billion). This is a dramatic increase of more than eleven times since 2000, making China the top trading partner of several Latin American nations. What’s more, the growth rate seems to be accelerating, surging more than 40 percent from 2007 to 2008. Brazil dominates regional trade with China, accounting for almost 40 percent of the total. Brazil is China’s largest export market in Latin America, but it only ranks as China’s twentieth largest trading partner worldwide; indeed, while Sino–Latin American trade has grown dramatically in recent years, it still only accounts for about 4 percent of China’s total foreign trade. Although the aggregate value of Sino–Latin American trade is growing, its composition remains heavily concentrated and undiversified. It is dominated by Chinese purchases of raw materials and agricultural commodities; fully 70 percent of Brazil’s exports to China are in iron ore and soybeans. In 2008, China imported from Latin America $16.8 billion in iron ore; $7.4 billion in copper ore; $5.8 billion in refined copper; $9.4 billion in crude and refined oil; and lesser (but still significant) amounts of aluminum, nickel, lead

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ores, zinc, manganese, and molybdenum. China’s purchases of oil (refined and unrefined) from the region are also growing: Venezuelan president Hugo Chávez promised in Beijing in April 2009 to quintuple his country’s daily deliveries from 200,000 to 1 million barrels per day. Brazil’s deliveries had grown to 200,000 barrels per day by 2010. China’s voracious appetite for these raw materials has contributed to their high price on global markets, providing significant revenue for Argentina, Brazil, Chile, and Peru. Today China consumes about 40 percent of the world’s coal, 25 percent of nickel, 25 percent of iron ore, 20 percent of copper ore, and 14 percent of aluminum. It is the largest and second-largest importer of iron ore and copper in the world, respectively. Chinese buyers now also look across the Pacific for large quantities of agricultural products, fish, and wine. China’s 1.3 billion people consume some 40 percent of global soybean imports, and soybeans and soy oil are the second-largest category of China’s imports from Latin America ($15.3 billion in 2008). Brazil alone provides China with 45 percent of its soybean imports, while Argentina supplies about 30 percent. China takes 90 percent of Argentina’s global soy exports, as well as significant quantities of its meats and leather goods. About 80 percent of China’s imported fishmeal comes from Peru and Chile, while 80 percent of its sugar comes from Cuba. In return, Latin American countries purchase a range of electronics (largely cell phones and computers) and manufactured goods. Among the latter, Chinese textiles, footwear, and other low-end consumer products have hit Latin American economies hard, particularly Mexico and Argentina. There is also evidence that China is dumping these goods on Latin American markets, taking advantage of the “Market Economy Status” accords Beijing has managed to sign with fifteen Latin American countries. Many Latin American countries signed these accords unwittingly, informed by Chinese diplomats that they were a “normal” feature of bilateral economic relationships, though in reality they have given China an abnormal level of exemption from countervailing dumping duties. As a result, Mexico and Argentina have had to institute unilateral safeguards against the flood of Chinese goods. Fully 50 percent of all Argentine antidumping and countertrade measures were directed against China in 2007, a figure that rose to 90 percent in 2008. China is gradually beginning to move up the technological ladder in its regional trade, carving out niches in Latin American markets for autos, motorcycles, aircrafts, aircraft parts, electronics, information and communications equipment, and agro-, bio-, and nanotechnologies. With the exception of Mexico and Central America (and to an extent Argentina), Latin America’s economies are therefore complementary rather than directly competitive with China’s. China has nevertheless displaced much of Latin America’s traditional export market share in the United States, which declined on average 9.3 percent annually from 2001 to 2006. To facilitate trade, China has signed bilateral

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free trade agreements (FTAs) with Chile and Peru, and it is negotiating one with Costa Rica. Creative trade financing has also played a role: Beijing recently struck a $10 billion arrangement with Buenos Aires that permits Argentina reliable access to Chinese currency to pay for its imports from China. The deal resembles those previously struck by Beijing with South Korea, Indonesia, and Belarus. Chinese direct investment in the region is also increasing, although it is still less than $500 million per year, excluding financial deposits in Bermuda and the Grand Cayman Islands. Figures on Chinese foreign direct investment (FDI) are scarce, but its total stock in the region at the end of 2007 is estimated to have totaled just over $1 billion. The main recipient countries (accounting for about 75 percent) have been Argentina, Brazil, Mexico, Peru, and Venezuela. Chinese multinational companies such as Baosteel, Huawei, Lenovo, Haier, Sinopec, CNOOC, Minmetals, and Chinalco are now operating throughout the region. Huawei has done particularly well in Latin America, generating $1 billion of sales in the region in 2008. To facilitate exports to China, many of these companies and their Chinese subcontractors have built infrastructure such as roads, rail lines, refineries, and ports: aid that comes with “no strings attached.” Reliable data are not available, but direct aid projects are estimated to total about $600 million per year, although extended lines of credit bring the total considerably higher. China recently doubled its “development fund” with Venezuela to $12 billion, extended a $1 billion loan to Ecuador, and agreed to provide credit lines of $10 billion to Brazil’s Petrobas and $800 million to the Brazilian Development Bank. These figures indicate the amount of money Beijing is beginning to throw around Latin America. China’s economic footprint in the Latin American region is already large, and it is growing extremely rapidly. The future shape of this footprint will depend on the answers to several questions: • Will Sino–Latin American trade continue to be characterized by the same composition, or will it become more diversified? • Will the value of trade remain roughly in balance, or will China begin running up huge surpluses as it does everywhere else in the world? • Will there be a backlash in Latin American countries against China’s attempts to buy into strategic commodity sectors, as has recently occurred with the Rio Tinto–Chinalco deal in Australia, and to a lesser extent in Africa? • Will there be a popular backlash against Chinese manufacturing goods flooding Latin American markets, as has already occurred in Mexico and Argentina? • Will Latin American companies—other than those in raw materials— be able to penetrate the Chinese domestic market?

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Looking Ahead The above overview indicates the scale and depth of China’s rapidly expanding presence in Latin America. I will close by observing that, in my view, Latin America—at both national as well as multinational levels—lacks both an overall strategy and the domestic expertise to cope effectively with China’s growing influence. My own discussions with Latin American officials, scholars, and businesspeople between 2008 and 2010 indicate that the region is proceeding in a reactive and ad hoc way with China. In my conversations with Latin American foreign ministry officials, I have often asked, “What is your strategy for dealing with China?” In response I received looks of bewilderment. Strategy? What strategy? To be fair, President Lula da Silva’s official visit to China in May 2009 did begin to evince the rudiments of a strategy on Brazil’s part, and President Hu Jintao’s reciprocal visit to Brazil in April 2010 resulted in the promulgation of the “Action Plan 2020.” The establishment of a bilateral joint commission to draw up and implement this plan is a good beginning, but this development is very recent and is limited to Brazil and primarily the trade sector. By contrast, China certainly has a strategy for Latin America—operating at all four levels outlined above—and it is being implemented meticulously. Beijing has both regional and country-specific plans, and many ministries in Beijing and provincial governments have their own variations of these. What is Latin America’s strategy for managing relations with China? This needs to be thought through, and a strategic plan needs to be developed. A crucial part of any such strategy, indeed the beginning point, is to recognize the deficit in expertise on China in Latin American countries and to make a substantial and sustained investment into building up such capacity. This is the responsibility not only of governments, but also of companies and private sector nongovernmental organizations (NGOs). Industry and government will be direct beneficiaries of this capacity and should therefore consider endowing Chinese studies programs in universities and establishing centers in NGOs (like the Brazil-China Business Council) and think tanks like the Brazilian Center for International Relations (CEBRI) in Rio de Janeiro. It is an investment that will pay handsome dividends in the long term. Without a strategic plan for dealing with China, Latin American nations will neither be able to compete nor cooperate effectively with China. An integral part of any such plan is the establishment of national task forces comprised of government, academic, commercial, media, and nongovernmental actors. These task forces could research and write reports that might serve as the basis of tailored bilateral national action plans. These could then be discussed multilaterally among regional governments, perhaps stimulating other nations to develop their own and perhaps—just perhaps—developing a regionwide mechanism for building cooperation with China in the future.

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The prospects that China’s relations with Latin America and the Caribbean will continue to expand are evident. China’s footprint across the region is broadening and deepening. The question nevertheless remains: is Latin America adequately prepared to manage its expanding relationship with China?

Notes 1. See, for example, Ellis, China in Latin America; Roett and Paz, China’s Expansion into the Western Hemisphere; Devlin, Estevadeordal, and Rodríguez-Clare, The Emergence of China. 2. BBC World Service, “Global Views of United States Improve While Other Countries Decline,” April 18, 2010, http://news.bbc.co.uk/2/shared/bsp/hi/pdfs/160410bbc wspoll.pdf. 3. Andrew Kohut, “How the World Sees China,” Pew Global Attitudes Project, December 11, 2007.

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1 China and Latin America: A New Era of an Old Exchange Adrian H. Hearn and José Luis León-Manríquez

IN APRIL 2009, AHEAD OF THE G20 SUMMIT IN LONDON, Brazilian president Luiz Inácio Lula da Silva declared that the global financial crisis had been caused by “white, blue-eyed” bankers who “looked like they knew everything about economics,” but “have demonstrated they know nothing about economics.”1 Awkwardly standing next to him, Gordon Brown had already formulated a global recovery plan, with China as its centerpiece. If Chinese consumers were encouraged to spend more, he reasoned, then the world would become less vulnerable to economic instability in the United States. Lula and Brown expressed what is now universally accepted—that the existing system of international trade and investment is deeply flawed, and that China will figure prominently in its reformulation. Finding support in Beijing, Brown’s plan resonated with China’s longstanding quest for a more multipolar global order. In return for encouraging its citizens to spend, and for spending some of its own $2.1 trillion in foreign currency reserves, the Chinese government would be rewarded with greater influence in the International Monetary Fund (IMF). By the time the G20 convened again in November 2010, Brown’s plan had been conspicuously overshadowed by an emerging battle between China and the United States to hold down the value of their currencies. The same week, much less conspicuously, the Chinese government was spending lavishly in Latin America, granting Venezuela a $20 billion credit in return for increased oil exports, and acquiring the Brazilian operations of Spanish oil giant Repsol for $7.1 billion. These were not isolated investments. For over a decade, away from cameras and public commentary, China has been advancing its interests in the Western Hemisphere through trade, diplomacy, and South-South cooperation. A long-anticipated official statement on these ventures came in the form of the Chinese government’s 2008 Policy 1

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Paper on Latin America and the Caribbean, which describes them as the pursuit of a “harmonious world of durable peace and common prosperity.”2 It does not, however, describe the mechanisms through which Chinese trade, aid, and investment are managed and regulated, nor how these mechanisms may support or conflict with European and North American models. In search of effective strategies for engaging China, analysts have suggested that Latin American countries would do well to learn from China’s development trajectory and consider the benefits of a more “proactive” state.3 Present conditions favor this tactic. The global financial crisis has generated an environment in which governments in Latin America and beyond have taken unusually bold steps to get their economies back on track through stimulus packages, tighter regulatory controls, and, in some cases, more active industrial policies. Together these actions could leverage sustainable benefits from China’s long-term demand for resources if state intervention is carefully directed toward human capital advancement, economic diversification, and coordination with Chinese enterprises, whose overseas investments often dovetail with the infrastructure and development agendas of foreign governments. Large state-owned enterprises, primarily in the commodity sector, have spearheaded China’s Latin American operations, integrating commercial goals with infrastructure on an unprecedented scale. As in their African and Asian operations, these firms have drawn criticism for their allegedly secretive dealings with host-country governments and their lack of transparency in relation to environmental impact and labor conditions.4 Their attempts to open local markets to Chinese consumer goods, and efforts to control resource extraction operations through vertically integrated ownership of mining and logistical facilities, have led to comparisons with previous foreign colonial activities in the region.5 The role of the state in coordinating Sino–Latin American collaboration, particularly under the rubric of South-South cooperation, raises political and security questions that are at least as controversial as China’s economic projection into the region. Briefs from the American Foreign Policy Institute, the Jamestown Foundation, and the Center for Hemispheric Policy warn that China’s governmental relations with Venezuela and other left-leaning countries in the region are undermining the transparency and human rights agendas promoted by the United States.6 Going a step further, several US military publications focus on the need for conflict readiness: “The United States,” writes one strategist, “is at a defining crossroads in counterbalancing China’s inroads into Latin America.”7 Most observers perceive China’s inroads into Latin America in a less threatening, though equally ambitious light. Beyond its commercial agenda, Sino–Latin American South-South cooperation extends into state-operated programs in education, science, culture, media, and arts, together advancing what Joshua Kurlantzick calls China’s “charm offensive.”8 Francisco Haro Navejas

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(in this volume) describes this integration of overlapping pursuits in more neutral terms, noting that China has leveraged a combination trade, aid, and social connections with overseas Chinese communities to prosecute its diplomatic battle with Taiwan through a strategy of “multidimensional politics.” It is an undeniable fact that China has emerged as an essential actor in the international relations of Latin America, filling the vacuum left by the United States during the administration of George W. Bush (2000–2008) and (to a somewhat lesser extent) Barack Obama (2008–). Washington’s concern with the global “war against terrorism,” military actions in Afghanistan and Iraq, the nuclearization of North Korea and Iran, and the need to rebuild the strained Atlantic Alliance have together relegated Latin America to the status of low priority. While China’s growing presence in the region does not appear to follow a political strategy aimed at superseding or replacing the United States, it is clear that sooner or later Mao Zedong’s footsteps in James Monroe’s backyard will pose substantial challenges to US interests. The chapters that follow explore the multiple motivations driving the establishment of new Sino–Latin American linkages, the exchanges that constitute them, the local reactions they have generated, and US perceptions of their impact in its sphere of influence. The recent intensification of Sino–Latin American relations is the book’s main theme, but it also examines how these relations have developed over decades, with different rhythms, modalities, and motivations. Because China’s relations with Latin America have developed so rapidly over the past decade, those researching the topic—including the authors in this volume—face the challenge of establishing the parameters of an essentially new field of inquiry. The task of integrating existing analytic models with empirical data on historically unprecedented forms of economic, political, and social engagement has produced several noteworthy results. Laying a foundation for the study of contemporary Sino–Latin American interaction is a 2006 report published by the Inter-American Dialogue, China’s Relations with Latin America: Shared Gains, Asymmetrical Hopes, produced under the supervision of Jorge I. Domínguez.9 Among the report’s achievements is its juxtaposition of ideological and pragmatic considerations as foundations for consensus across the Pacific. The historical prevalence of the latter, argue the authors, is evident in China’s willingness to trade with Castro’s Cuba, Allende’s Chile, and Chávez’s Venezuela, but also the stridently antiCommunist military regimes of Brazil, Argentina, and Chile under Pinochet. The study finds further evidence that political and economic factors are relatively detached in Latin American voting coincidence with China in the UN General Assembly, which does not seem to be influenced by the health of bilateral trade ties. Building on the Inter-American Dialogue report is a 2007 analysis by the Woodrow Wilson International Center for Scholars, Enter the Dragon?, whose contributors map out three primary concerns: the significance of these relations

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for Latin America’s economic development, their capacity to advance China’s diplomatic isolation of Taiwan, and their security implications for the United States.10 To the editors’ credit, the sixty-nine-page report avoids definitive conclusions and focuses instead on raising questions that set the tone for future analysis. One of the report’s editors, Riordan Roett, has since collaborated with Guadalupe Paz of the Johns Hopkins School of Advanced International Studies (SAIS) to compile China’s Expansion into the Western Hemisphere, a volume that probes some of the more contentious findings of the initial Wilson Center project. One of the volume’s achievements is its inclusion of diverging views, illustrated in the tension between one contributor’s praise for the economic benefits that China represents for Latin America and another’s suggestion that this praise amounts to an “official Chinese government view.”11 Such disputes provide a useful basis for further investigation, as do the volume’s other unresolved conundrums, such as the need to identify appropriate forms of state support to Latin American industries, to discern the ways in which Chinese activities in the region compare to previous foreign colonial projects, and to evaluate the sincerity of Chinese promises to invest and create more favorable bilateral terms of trade. The first full-length monograph to appear on twenty-first-century Sino–Latin American relations is China in Latin America: The Whats and Wherefores, by R. Evan Ellis.12 With commendable precision, Ellis examines the interplay of economic and strategic factors underpinning China’s engagement with the countries of Central America and the Caribbean, the Andean region, and the Southern Cone. Hailing from the Center for Hemispheric Defense Studies, Ellis’s eye is trained on the security implications of Sino–Latin American relations for the United States and the shifting balance of geopolitical power intrinsic to China’s rise. While there is a considerable body of strategic studies literature on the significance of China’s growing international reach for prevailing security arrangements in the Western Hemisphere (some of it cited above), Ellis’s book is the first to apply this perspective in such depth. It presents one possible disciplinary orientation to China–Latin America relations, one that will surely continue to animate the work of intelligence consultants and policy advisers for years to come. If there is a “dominant” disciplinary perspective within the emerging field of China–Latin America relations, it is that of economics. In addition to the periodic reports of the Economic Commission for Latin America and the Caribbean (ECLAC), the Inter-American Development Bank (IDB), and the Organization for Economic Cooperation and Development (OECD), many of which are cited in the chapters that follow, three full-length books on the topic have been published since 2008. The World Bank’s China’s and India’s Challenge to Latin America explores the simultaneous opportunity and threat posed by the emerging giants to the region.13 To fuel their rapid development, both countries have substantially increased their demand for Latin American raw

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materials, creating opportunities for innovation in resource-sector management and enabling most of the region to confront the global financial crisis with relative confidence. The disadvantage, the book concludes, is that this trade is unbalanced: the higher comparative value of consumer goods bought in return from China has produced trade deficits across the region, displaced local manufacturers in domestic and foreign markets, and provoked a moderate rise in unemployment. The seven case studies that comprise Latin America Facing China, edited by Alex E. Fernández Jilberto and Barbara Hogenboom, reach similar conclusions. The book details how Sino–Latin American trade became unbalanced in the years leading up to the global financial crisis, so that the collapse of commodity prices in 2008 provoked deep anxiety from increasingly dependent regional exporters. The editors conclude that the flow of trade in the early twenty-first century has brought about more meticulous state management of economic affairs on both sides of the Pacific, in turn fomenting a “paradigmatic convergence between China and the leftist governments in Latin America.”14 As the global financial crisis progressed into 2010 and resource prices began to recover, economists identified a less obvious, but potentially more serious danger to Latin American economies. This is the concern of the aptly titled book The Dragon in the Room.15 Coauthors Kevin P. Gallagher and Roberto Porzecanski describe how the Chinese government since the 1980s has overseen an incremental strategy of industrialization to achieve increasingly sophisticated manufactured exports. Latin American development, by contrast, has followed the market principles of the Washington Consensus to prioritize quick revenues from resource exports. The veiled complication facing the region, argue the authors, is that its future ability to climb up the valueadded ladder will be frustrated both by China’s prior ascent and by economic pressure to climb back down and remain focused on producing raw materials. Taking stock of Latin America’s growing focus on primary exports, a second report published by the Woodrow Wilson Center for International Scholars examines the consequences of China’s “laser like focus on economic benefit.”16 Following up on Enter the Dragon? is the 2011 report entitled China, Latin America, and the United States: The New Triangle, which presents the reflections of nine participants in a 2010 Wilson Center conference. The contributors deal mainly with trade and investment issues, such as the need to attract Chinese finance to sectors other than commodities, and the outlook for Latin American oil exports to China. The contribution of Lima-based political scientist Cynthia Sanborn deviates somewhat from this focus through its discussion of several pressing but underresearched concerns, including environmental impact, corporate governance, and community relations.17 Each of the above publications has contributed to the early formation of China–Latin America relations as a field of study, and together they provide a strong foundation for the field’s evolution. The challenge they portend is to

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expand the conceptual boundaries of the emerging discipline to accommodate the knowledge and experience of a broader range of scholars, observers, and activists. To address this challenge we assembled a diverse team of contributors. From the book’s initial conceptualization in 2006 through its updating and conceptual revision in 2011, our goal as editors was to present a profile of Sino–Latin American relations that builds on previous studies while foregrounding fresh disciplinary approaches to the topic. Convoking specialists in anthropology, history, political science, economics, and international relations, we invited each author to focus on local knowledge. How, we asked, are cultural values, ideologies, domestic histories, and ethnic allegiances influencing the trajectory of broader political and economic developments? This line of inquiry has, we believe, produced unique contributions that furnish holistic, locally grounded analyses of China’s contemporary engagement with Latin America. While the book updates the economic data of previous studies to trace Latin America’s trajectory through the global financial crisis, we have endeavored to frame these developments in social and historical context.

The Early Trajectory of China’s Engagement with Latin America Relations between China and Latin America are anything but new. In the sixteenth century, the Manila Galleon, or Nao de China, established regular commercial ties with Asia for the Spanish Empire. By 1565, Spanish sailors had discovered ocean streams and favorable winds for trans-Pacific shipping, leading to the establishment of regular routes between the Philippines and the Viceroyalty of New Spain (Mexico). The journey from the Asian archipelago to the port of Acapulco took six months, but the Acapulco-Manila trip, with a stop in Guam, took only three. At first, the Spanish Crown allowed only one trip per year for one or two 300-ton-capacity galleons, but commencing in the seventeenth century two trips were authorized, with ships carrying up to a thousand tons each. Trade between China and New Spain was not direct, as the name Nao de China might suggest. Given its intrinsic magnitude and vision of itself as the center of the universe, or “Middle Kingdom” (Zhong Guo), the Chinese Empire did not put too much emphasis on foreign economic relations. Shrewd Chinese traders carried their goods in small boats to the Philippines, where they found their way onto the galleons bound for Acapulco. On the other side of the Pacific, the Spanish galleons consolidated shipments of silver from the Mexican highlands and other colonial ports, such as Callao (today Peru). This pattern of triangular trade between China, the Philippines, and the Americas persisted for some 250 years.

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From Asia, Spanish colonies in the Americas received silk, porcelain, medicines, and high-quality furniture. In return, much of the silver amassed in New Spain was sent to East Asia, where it was in high demand. As Oskar Spate has noted, “The extraordinary luck of the Spanish Philippines was to be at the point of contact between two monetary systems, a world of dear silver and a world of cheap silver.”18 South American silver also made its way to Europe, but up to 40 percent of this was reexported to East and Southeast Asia, chiefly the Chinese Empire.19 The silver peso therefore circulated not only in the Philippines and the enormous Chinese territory, but also throughout Asia, Europe, and the Americas, becoming the first global currency. For its intrinsic quality as a precious metal, but also for its political and economic relevance to the world’s superpower of the time, the silver coins from New Spain served as a functional equivalent of the US dollar today. After the independence of Latin American countries in the 1820s, their relations with China and East Asia lost relevance for three reasons. First, none of the new Latin American republics was strong enough fill the vacuum left by the Spanish Empire in the Pacific Rim. Second, Latin American countries were very concerned about securing their own viability and sovereignty, and became focused on European great-power politics. Third, the Qing Dynasty (1644–1911) was advancing the territorial expansion of China in East and Central Asia, hence its interest in Latin America and other regions outside Asia was marginal at best. In the second half of the nineteenth century, China underwent a protracted period of political and socioeconomic decomposition that would precipitate the demise of its millenary empire. Even as the expansionist project of the Qing Dynasty showed its structural limitations, the population kept on growing, skyrocketing between 1812 and 1850 from 361 to 430 million people. The combination of decreasing availability of arable lands, demographic saturation, and an economy under stress ultimately compromised China’s sociopolitical integrity.20 Foreign interventions and territorial concessions to European powers became the order of the day, especially after the First Opium War and the ensuing Treaty of Nanking, signed with Great Britain in 1842. A gloomy economic predicament forced the subjects of the Heaven Empire to look for survival elsewhere. By 1847, advanced migratory networks had begun transferring Chinese workers from Fujian and Shantou to the Peruvian mines and the Cuban sugar plantations. Chinese migration to the Americas reached new heights in the 1860s, largely because of demand for labor in the United States for the construction of the first transcontinental railway line and the expansion of gold mines in northern California. Diminishing returns from gold, though, bred discrimination against Chinese immigrants, prompting many to look for new opportunities in Latin America. These individuals and the communities they established went on to play a critical role in the

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economic development of the region, prompting the initiation of diplomatic relations between Beijing and Latin America. Between the 1870s and the 1900s, the decaying Qing Dynasty established official relationships with Brazil, Cuba, Mexico, Panama, and Peru, the Latin American countries with the highest contingents of Chinese migrant workers. China became interested in establishing diplomatic links outside its traditional East Asian sphere in part because of pressure from European powers. Its attempts at political modernization, however, did not bear fruit in comparison to those of Japan in the last third of the nineteenth century. By the beginning of the twentieth century, Japan had become a world power, while the Chinese Empire had veered ever closer to the brink of collapse. The last Chinese emperor, Pu-Yi, resigned in 1912, and Nationalist forces led by Sun Yat-sen immediately established a republican system. Political turmoil, social unrest, and further foreign intromission would become the hallmarks of Chinese history in the first half of the twentieth century. In the midst of this structural chaos, China underwent a protracted period of civil war between Nationalists and Communists, leaving scant room for new initiatives in the international arena.

China, Latin America, and the Cold War: From the Third World to Renewed Diplomacy After the expulsion of Japanese invaders from mainland China in 1945, the civil war continued. In 1949 Communist forces vanquished their Nationalist enemies, who despite being displaced to Taiwan, retained international recognition as China’s sole representative. Latin American countries were reluctant to recognize Beijing because, between the 1950s and 1970s, their governments were predominantly conservative, military, anti-Communist, and pro-Washington. The only exception was Cuba. After Fidel Castro’s guerrillas seized power in 1959, Havana developed close links with the socialist bloc, including China. Thus, Cuba became the first Latin American country to reset diplomatic relations with China, on September 28, 1960. Cooperation between Havana and Beijing was interrupted by the Sino-Soviet split in the 1960s, during which Cuba sided with the USSR. Ties with China were not formally broken, but bilateral engagement assumed a low profile. Even in the highly polarized atmosphere of the Cold War, and despite jealous US surveillance of international financial and trade transactions, Sino–Latin American relations did not completely cease. Mexico opened discrete channels to promote basic trade with mainland China, and left-wing groups inspired by Mao mushroomed all over the region. Beijing actively promoted the formation of Maoist factions in the Communist parties of Bolivia, Brazil, Colombia, Peru, and others.21 In the 1980s, the quest for a Chinese

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style peasant revolution and “people’s war” emerged as one of the discursive pillars of the Peruvian guerrilla movement Sendero Luminoso (Shining Path). The Sendero’s leader, Abimael Guzmán, had been the main promoter of the Maoist Red Faction, or Bandera Roja (Red Flag), within the Peruvian Communist Party in 1963. The Sendero’s hard-line political views soon superseded those of China, which by the 1980s was advancing steadily along the road of economic reform. China’s involvement in Latin American politics during the Cold War stemmed from its government’s aspiration to transform what it viewed as an unfair international system. Beijing’s foreign policy doctrine was based largely on the theory of the three worlds. This conceptualized the two superpowers, the United States and the Soviet Union, as members of the first world; the developed capitalist countries like Japan, Canada, and those in Europe as the second world; and the wide range of developing countries in Africa, Asia, and Latin America, as the third world. According to this view, China belonged to the third world, and its foreign policy should reflect sympathy toward fellow members. Notwithstanding Chinese support for Maoist movements in Latin America, none of these was able to undertake a successful revolution. In the early 1970s, US rapprochement with China breathed new life into Beijing’s regional ambitions. Although Washington did not establish relations with Beijing until 1979, the Nixon administration (1969–1974) undertook a discreet but protracted campaign of bilateral dialogue, providing Brazil, Chile, Mexico, and other Latin American countries with justification to open embassies in Beijing in the first half of the 1970s. Their initial focus was political and cultural rather than economic, and China responded by shelving its attempt to spread socialist revolution in Latin America in favor of developing new intergovernmental links. A priority for China was to build alliances for coordinated action in the United Nations on issues relevant to developing countries, which it managed to do with Chile under Salvador Allende and Mexico under Luis Echeverría. In August 1973, Beijing signed Protocol 2 of the Treaty of Tlatelolco, which bans the production, storage, and transportation of nuclear weapons in Latin America, and in the 1980s China supported Latin American attempts to achieve a negotiated settlement to the Central American conflict under the Contadora Group. In turn, Mexico and the bulk of South American countries supported Beijing’s “One China” policy.

Sino–Latin American Relations Today: Emerging Trends of a Diplomatic Great Leap Forward The 1990s witnessed radical changes in the international system. The end of the Cold War in 1989–1990 and the demise of the Soviet bloc fostered more

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pragmatic, less ideologically conditioned approaches to international relations. From the 1970s onward, most Latin American countries embraced neoliberalism, and from 1978, China began experimenting with marketization. Accordingly, by the 1990s, the emphasis of Sino–Latin American engagement had undergone quite a remarkable shift from political to economic affairs. Adapting itself to changes in the international system, China implemented a series of new policies of foreign trade that looked to maximize profits over the long term within the prevailing international system. On this basis, Beijing’s diplomatic strategy has come to emphasize three elements: the peaceful rise of China as a regional and world power, the concept of a multipolar world, and the vision of international organizations as a primary instrument of foreign policy. Since 1990, China has undertaken a serious effort to send its exports to markets beyond East Asia, and these exports are becoming increasingly sophisticated. Medium- and high-tech products, including electronics, automobiles, and ships, now represent 53 percent of Chinese exports to Latin America. This trend poses a formidable challenge to Latin American economies, which have experienced strong pressure to downgrade the sophistication of their exports as Chinese demand for raw materials grows. Public opinion across the region exhibits growing concern about both the wisdom of reliance on commodity exports as a basis for development and about the capacity of local businesses to compete with China. Energy resources, raw materials, and foodstuffs have become acute bottlenecks for the continuity of China’s economic growth in the twenty-first century. Owing to its huge territory, massive population, and current developmental predicament, China demands large quantities of commodities that are produced by South American countries. As León-Manríquez notes in Chapter 9, China has become the main consumer of raw materials worldwide, buying 40 percent of cement, 31 percent of coal, 30 percent of iron, 27 percent of steel, 25 percent of aluminum, and 20 percent of copper sold on world markets. China is the second-largest consumer of fossil fuels after the United States, and as long as 97 percent of its economy remains propelled by carbon and petroleum, China’s quest for oil will inevitably expand beyond the Middle East, Russia, Africa, and the Caspian Sea basin, into Latin America. The region’s trans-Pacific oil exports are currently modest, but China’s recent $20 billion loan to Venezuela and $7.1 billion investment in Brazil, noted above, indicate strong potential for expansion. The worldwide “commodity boom,” driven largely by Chinese demand starting in 2003, inflated the international price of oil, copper, pig iron, soy, fish flour, and many other commodities. Most South American countries were blessed by this trend: Argentina, Brazil, Uruguay, and Paraguay acquired considerable sums of hard currency by exporting soy complex (soy beans and soy oil); Chile and Peru benefited from higher copper prices; and Ecuador and

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Venezuela obtained fine returns from petroleum exports to China. These conditions created an atmosphere of high expectations for the future of economic relations, symbolized by China’s establishment of free trade agreements with Chile (2006) and Peru (2009). The global financial crisis that gripped the world in late 2008 precipitated a significant fall in international commodity prices, but China’s appetite for oil, raw materials, and food has nevertheless remained a central factor in South America’s foreign trade. During the first decade of the 2000s, bilateral trade grew so swiftly that China became either the second- or third-largest trading partner for most Latin American countries, and the region’s main Asian partner. Meanwhile, Latin America has become China’s fifth-largest trading partner after the European Union, the United States, Japan, and South Korea; and if current patterns persist, it will displace South Korea within two to three years. Although the value of trade has surged, as Table 1.1 shows, six out of ten selected Latin American countries (seven including Cuba, whose recent data remain undisclosed) reported trade deficits with China in 2009. Statistics reported by China (Table 1.2) indicate that these deficits were substantially more modest than reported by Latin America, and in two cases (Argentina and Venezuela) nonexistent. According to the Chinese government, Sino–Latin American trade skyrocketed from US$10 billion in 2000 to a precrisis peak of over $143 billion in 2008.22 As noted above, the trend underlying this trade is the exchange of Latin American raw materials for Chinese consumer goods, and consequent anxiety from manufacturers about their capacity to compete with Chinese imports. While commodity exports have earned Latin America fast cash, some economists argue that the neglect of more labor-intensive and value-adding sectors is pushing the region into a “raw materials corner.”23 As one prominent study puts it, China is “taking away the ladder” from underneath Latin American efforts to climb value-added manufacturing chains.24 More immediately, the slide in commodity prices brought on by the global financial crisis has exposed the danger of relying on resource exports to China as a stable basis for national growth, and the importance of building linkages between resource-exporting sectors and a broader base of economic and human capital development. More assertive leadership from Latin American governments through such initiatives as public–private alliances for industrial upgrading in manufacturing, tourism, and education would provide a basis for achieving these outcomes. Labor disputes in the Caribbean and Central America, despair among Latin American manufacturers, and anxieties about overdependence on natural resource exports reveal that there is nothing inherently harmonious about the region’s contemporary relations with China. These problems are systemic components of China’s rise, and therefore have no simple solutions. As the chapters in this volume illustrate, what is needed is a clearer understanding of how local disputes are both conditioned by, and capable of influencing, macroeconomic

China’s Imports, Exports, and Balance of Trade (millions of dollars) with Selected Latin American Countries as Reported by the Latter, 2000–2009 2000

2003

2004

2005

2006

2007

2008

2009

796.9 1,156.7 –359.8

1,122.6 1,066.3 56.3

1,092.4 330.2 762.1

2,478.4 720.8 1,757.7

2,630.4 1,401.0 1,229.5

3,154.3 1,528.6 1,625.7

3,475.9 3,121.7 354.1

5,166.6 5,093.0 73.7

6,355.0 7,103.9 –748.9

3,668.3 5,384.1 –1,715.8

5.5 57.8 –52.3

5.1 86.3 –81.2

7.7 85.3 –77.6

11.5 84.6 –73.0

23.5 107.5 –84.0

19.7 136.0 –116.3

35.5 192.0 –156.5

56.0 267.1 –211.2

129.4 415.4 –286.0

130.6 371.2 –240.6

1,085.1 1,222.1 –137.0

1,901.7 1,328.4 573.3

2,520.3 1,554.0 966.3

4,532.5 2,147.8 2,384.7

5,439.3 3,710.5 1,728.8

6,832.3 5,354.5 1,477.8

8,397.7 7,989.3 408.4

10,741.3 12,617.8 –1,876.5

16,395.8 20,039.9 –3,644.1

20,182.0 15,911.1 4,270.9

29.4 353.7 –324.3

19.9 473.7 –453.8

27.8 532.4 –504.6

82.2 683.0 –600.8

137.5 1,233.7 –1,096.2

236.7 1,590.9 –1,354.2

452.4 2,153.8 –1,701.4

784.7 3,254.3 –2,469.6

442.9 4,465.5 –4,022.6

949.6 3,657.8 –2,708.2

80.5 444.3 –363.8

70.8 610.1 –539.3

74.6 517.6 –442.9

77.3 504.7 –427.3

80.1 589.9 –509.7

113.0 926.1 –813.1

22.8 1,362.2 –1,339.4

No data No data No data

No data No data No data

No data No data No data

901.8 949.4 –47.7

1,064.7 1,013.0 51.8

1,224.5 1,101.3 123.2

1,895.2 1,211.7 683.5

3,278.0 1,745.7 1,532.3

4,780.1 2,424.1 2,356.1

5,140.0 3,357.8 1,782.2

10,202.8 4,746.3 5,456.5

9,275.1 6,648.0 2,627.1

12,486.2 4,996.7 7,489.5

310.1 2,755.3 –2,445.2

384.8 3,987.7 –3,602.9

653.6 6,176.8 –5,523.1

974.1 9,297.3 –8,323.2

473.5 14,002.5 –13,529.0

1,135.4 17,258.2 –16,122.8

1,687.8 23,880.6 –22,192.8

1,893.3 29,173.4 –27,280.1

2,042.7 34,007.6 –31,964.9

2,206.4 31,917.5 –29,711.1

442.7 288.8 153.9

426.3 353.6 72.7

597.6 463.4 134.2

677.0 640.0 37.0

1,244.7 768.1 476.6

1,860.9 1,057.9 802.9

2,268.7 1,583.7 685.0

3,034.7 466.7 2,568.0

3,735.0 4,069.1 –334.2

4,078.0 3,268.4 809.6

91.2 112.2 –21.0

102.8 121.5 –18.7

103.6 75.3 28.3

95.7 86.0 9.7

113.1 172.7 –59.6

119.6 242.3 –122.7

159.5 350.9 –191.4

163.4 540.2 –376.7

171.5 908.3 –736.8

234.0 819.1 –585.1

34.1 184.8 –150.8

101.5 335.7 –234.3

91.1 224.8 –133.7

165.3 176.0 –10.7

254.8 424.9 –170.2

215.6 808.4 –592.8

119.3 1,652.4 –1,533.1

No data 2,076.3 –2,076.3

270.3 4,514.9 –4,244.7

304.0 3,977.9 –3,673.9

Sources: WITS, United Nations Commodity Trade Statistics Database (Comtrade), 2010. Statistics compiled by Beatriz Adriana García and Alejandro Pérez. Note: China is partner in trade.

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Argentina Export Import Balance of Trade Bolivia Export Import Balance of Trade Brazil Export Import Balance of Trade Colombia Export Import Balance of Trade Cuba Export Import Balance of Trade Chile Export Import Balance of Trade Mexico Export Import Balance of Trade Peru Export Import Balance of Trade Uruguay Export Import Balance of Trade Venezuela Export Import Balance of Trade

12

Reporter Name

01_Hearn_Ch01.qxd:Hearn

Table 1.1

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Table 1.2

China’s Imports, Exports, and Balance of Trade (millions of dollars) with Selected Latin American Countries as Reported by China, 2000–2009

Partner Name

2002

2003

610.3 930.0 –319.7

573.6 1,281.0 –707.5

185.4 1,239.5 –1,054.1

446.9 2,729.1 –2,282.1

4.7 12.2 –7.5

7.6 9.5 –2.0

9.2 12.1 –2.9

1,223.5 1,621.4 –397.9

1,350.9 2,347.2 –996.3

156.0 32.2 123.8

2004

2006

2007

2008

2009

852.3 3,254.9 –2,402.6

1,324.4 3,799.2 –2,474.8

2,003.9 3,700.2 –1,696.3

3,581.1 6,334.2 –2,753.1

5,054.7 9,361.3 –4,306.7

3,482.8 4,306.0 –823.2

11.8 6.9 5.0

21.6 29.5 –8.0

50.5 31.1 19.5

57.4 46.5 10.9

96.5 56.4 40.2

178.5 150.6 27.9

129.7 125.5 4.2

1,466.4 3,003.0 –1,536.6

2,143.3 5,822.3 –3,679.0

3,674.0 8,658.7 –4,984.7

4,827.2 9,992.5 –5,165.3

7,380.0 12,909.5 –5,529.5

11,398.4 18,342.1 –6,943.7

18,806.3 29,863.4 –11,057.1

14,117.5 28,281.0 –14,163.5

205.3 26.9 178.3

287.3 29.1 258.1

398.2 60.5 337.7

629.0 175.5 453.5

930.1 205.2 724.9

1,495.2 263.8 1,231.4

2,270.6 1,095.8 1,174.8

2,987.8 1,125.4 1,862.4

2,391.6 974.8 1,416.8

232.7 81.1 151.6

331.4 114.0 217.4

296.2 115.7 180.5

236.3 120.5 115.8

327.5 194.9 132.5

635.7 237.0 398.8

1,262.0 528.3 733.7

1,170.4 1,115.5 54.9

1,353.9 903.1 450.8

972.2 574.4 397.7

783.5 1,338.5 –555.0

814.8 1,303.5 –488.7

998.1 1,567.1 –569.0

1,283.4 2,248.2 –964.7

1,688.4 3,666.4 –1,978.0

2,149.5 4,991.5 –2,842.1

3,108.6 5,735.9 –2,627.2

4,432.2 10,280.4 –5,848.2

6,186.8 11,172.8 –4,986.1

4,928.4 12,790.5 –7,862.1

1,335.2 488.3 847.0

1,789.7 761.3 1,028.4

2,863.1 1,115.0 1,748.2

3,267.0 1,676.7 1,590.3

4,972.8 2,139.8 2,832.9

5,536.0 2,225.2 3,310.7

8,822.8 2,607.1 6,215.7

11,717.6 3,265.3 8,452.3

13,866.4 3,690.3 10,176.1

12,298.7 3,881.9 8,416.8

143.4 560.3 –416.9

176.5 498.0 –321.5

246.6 731.6 –485.0

352.3 760.0 –407.7

418.4 1,522.9 –1,104.5

608.9 2,278.0 –1,669.1

1,007.2 2,907.8 –1,900.7

1,683.2 4,337.9 –2,654.7

2,774.4 4,492.1 –1,717.8

2,098.8 4,323.9 –2,225.1

243.0 101.3 141.7

188.9 95.5 93.4

95.0 78.1 16.9

127.4 75.7 51.7

209.6 110.3 99.2

282.3 173.3 109.0

402.4 270.0 132.4

626.0 341.8 284.2

1,027.7 624.0 403.7

819.6 733.8 85.8

256.5 94.8 161.7

442.6 145.8 296.8

332.7 145.0 187.7

199.2 542.2 –342.9

595.5 737.9 –142.4

907.8 1,234.1 –326.3

1,698.0 2,638.0 –940.0

2,792.4 3,052.9 –260.5

3,365.4 6,567.1 –3,201.6

2,809.7 4,340.9 –1,531.2

Sources: WITS, Comtrade, 2010. Statistics compiled by Beatriz Adriana García and Alejandro Pérez. Note: China is reporter of trade figures.

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Argentina Export Import Balance of Trade Bolivia Export Import Balance of Trade Brazil Export Import Balance of Trade Colombia Export Import Balance of Trade Cuba Export Import Balance of Trade Chile Export Import Balance of Trade Mexico Export Import Balance of Trade Peru Export Import Balance of Trade Uruguay Export Import Balance of Trade Venezuela Export Import Balance of Trade

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decisions. The volume explores China-Latin America engagement through case studies from across the region. Part 1, “Grand Strategies and Local Responses,” deals with issues of broad regional relevance, while Part 2, “Country Studies,” probes specific political, cultural, and economic issues stemming from China’s engagement with Mexico, Chile, Cuba, Central America and the Caribbean, Venezuela, Brazil, and Argentina. Below we present a brief overview of the chapters.

The Key Findings at a Glance Part 1 begins with Ariel Armony’s analysis of “convergences” and “divergences” between China and Latin America. The chapter examines how Sino–Latin American relations at the global, hemispheric, and domestic levels are influenced by distinct models of development, elite and nonelite attitudes, and domestic rules and institutions. Armony notes the appeal of a nascent “Beijing Consensus” to Latin American countries in search of a new dynamic both in the international system and in their own approaches to development. A key component of this search is to strengthen the capacities of domestic institutions, in part by preventing the spread of informal practices and corruption at the local level. Drawing on his earlier groundbreaking work on civic participation and democratization, Armony writes that one of the less auspicious convergences between China and Latin America is a preexisting tendency on both sides of the Pacific toward informal economic and political practices.25 There is a real danger that informal mechanisms that prioritize personalistic ties above systemic procedures could mutually reinforce each other as Sino–Latin American relations deepen, and thereby pose a serious challenge to the rule of law. To grasp the significance and likely outcomes of these developments, Armony proposes the concept of “GPS capital,” a form of acquired knowledge that enables individuals to navigate distinct but overlapping informal worlds. This conceptual innovation represents an important step in the development of a more nuanced, sociologically informed approach to the study of China–Latin American relations. In Chapter 3, Jiang Shixue identifies ten key areas of concern to the Chinese government. These span the impact of the global financial crisis to the persisting lack of understanding among Chinese and Latin American people about each other. As former deputy director of the Institute of Latin American Studies at the Chinese Academy of Social Sciences (CASS), Jiang presents valuable insights into the priorities and conceptual orientation of the Chinese leadership. Chinese officials are acutely conscious of Latin America’s colonial history and wish to develop modes of trans-Pacific exchange that distinguish themselves from earlier European and US extractive approaches. Pointing to the economic windfall produced for Latin America by its sales of natural

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resources to China, Jiang writes that China’s goals in the region have little in common with colonialism and rather reflect a dynamic process of South-South cooperation. While resource exports have provided an important source of revenue for Latin American economies, those countries that rely excessively on primary sectors run the risk of driving up exchange rates and inducing a long-term decline in the viability of value-adding industries. Javier Santiso and Rolando Avendano have followed this phenomenon closely for the Organization for Economic Cooperation and Development (OECD). In Chapter 4, they argue that the prospect of contracting “Dutch disease” should prompt serious efforts from Latin American countries to augment and diversify their exports to China in sectors such as agribusiness, processed food, and water. Case studies of Latin American companies that have either successfully grasped new opportunities generated by China or staked out and defended their commercial territory reveal several “common denominators of success,” including value chain integration, the identification of high value-adding niches, and specialization in sectors requiring quick turnaround and customization. Scrutinizing the potential “resource curse” afflicting Latin America, in Chapter 5 Enrique Dussel Peters analyzes the region’s current trajectory of trade with China, and argues that the private sector has so far been unable to articulate a unified position on the sustainability or desirability of this trajectory. While the quantity and value of Chinese manufactured exports could conceivably double in a relatively short time, the same is not true of Latin America’s natural resource exports. Any such attempt to increase commodity production would introduce deeply problematic ecological and social consequences. The private sector, Dussel argues, has been divided in its approach to China: on the one hand, importers and retailers have profited enormously from the growing availability of inexpensive Chinese consumer goods; on the other hand, manufacturers are being practically put out of business. This polarization of commercial interests has inhibited the formation of a coherent position from the private sector, with the result that bilateral working groups and committees remain overly governmental, official, and “diplomatic.” Genuinely sustainable solutions, he writes, will require more proactive and coordinated strategies from Latin American public and private sectors. Chinese and Latin American leaders are sensitive to the reactions that their deepening relationships may provoke from the United States. In Chapter 6, Cynthia A. Watson of the National War College in Washington, D.C., offers an assessment of the Obama administration’s goals in Latin America in the context of China’s growing influence and the domestic factors that will influence the president’s agenda. Noting that Washington has attempted to maintain Latin America as a continent of disparate states in the US sphere of influence for nearly two centuries, Watson suggests that economic initiatives such as the Free Trade Area of the Americas (FTAA) and the Central America Free Trade

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Agreement (CAFTA) constitute ongoing efforts to shore up US economic and political influence in the region. Skeptical of this agenda, Brazil, Venezuela, and China harbor a shared desire to steer the international economic system away from US dominance, though Brazil’s emphasis on technical and economic exchange as a means for doing so is clearly more appealing to China than Venezuela’s outright antagonism toward Washington. Watson argues that the US president’s capacity to cooperate with China on regional and global issues will be limited by factors such as the predominance of the Middle East in US foreign policy; the expansion of China’s civilian and military ties with Venezuela and Cuba; sensitivity in Congress about China’s record on religious freedoms, human rights, and trade unions; the Taiwan issue; and intensifying nationalism in both the United States and China in response to the global financial crisis. Media reports in the United States have often adopted an alarmist tone, particularly regarding China’s deepening cooperation with Venezuela and Cuba. Expanding on his recent testimony before the House Committee on Foreign Affairs, Daniel Erikson of the Inter-American Dialogue (now of the Department of State) argues, in Chapter 7, that US observers should be wary of falling into undue cynicism and should focus instead on emerging opportunities for cooperation with China. Collaboration in initiatives of mutual concern, such as the widening of the Panama Canal and the expansion of markets in Cuba, may create valuable opportunities for engaging China as a cooperative and responsible stakeholder in regional affairs. Chinese aid and investment in the region, however, does not follow conventional international standards of governance and transparency, posing a challenge to the Obama administration as it seeks to find common ground and articulate a coherent position. The country studies presented in Part 2 commence with an analysis of Chinese business connections in Mexico. In Chapter 8, anthropologists Adrian H. Hearn and Alan Smart team up with Roberto Hernández Hernández of the University of Guadalajara to explore how Chinese communities in Mexicali and Tijuana have attempted to establish commercial “bridges” to mainland China. Because these bridges have so far functioned primarily to facilitate the import of Chinese manufactured goods into Mexico, they have been strongly criticized in newspaper and Internet reports for amplifying competition for domestic manufacturers and contributing to Mexico’s enormous trade deficit with China. To the dismay of the Chinese consul general and local Chinese leaders, criticism is also expressed more explicitly through the vandalism and robbery of Chinese businesses. Chinese communities in Mexico are no strangers to racial discrimination; an anti-Chinese movement in the early twentieth century expelled thousands of Chinese immigrants from Mexico for allegedly unfair business practices. One hundred years later, Chinese immigrants and descendants have once again turned to ethnic associations for protection, though in many cases this has reinforced local perceptions of their

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“self-segregation.” Personal loyalties, or guanxi networks, play an important role in the maintenance of trans-Pacific business connections, as well as in the internal mutual aid functions of the Chinese associations of Mexicali and Tijuana. The authors argue that a pressing challenge now facing Chinese communities in Mexico is to expand these networks to attract much-needed Chinese investment and accommodate Mexican exports to China. Local responses to China vary across Latin America, reflecting not only the diversity of local cultures and priorities, but also how the region has pursued two diverging trajectories of development. Drawing on his work as a policy consultant for Asia-Pacific governments, José Luis León-Manríquez argues in Chapter 9 that a comparative assessment of economic policy and diplomacy in Chile and Mexico clarifies the nature of these trajectories. Trajectory A, typical of South America and epitomized by Chile, exhibits a tendency toward short-term macroeconomic growth based on the export of commodities. Trajectory B, characteristic of Mexico and Central America, is typified by intense competition with China in manufacturing sectors and the consequent growth of trade deficits. Particularly striking, argues León-Manríquez, is the evidence that “the competitive edge gained by South America through the export of commodities to China may be reaching its limits,” with the consequence that Trajectory A may in many cases be deteriorating into Trajectory B. Economic goals are rarely devoid of political purpose, much less in the case of Cuba. In Chapter 10, Mao Xianglin, a former envoy to Cuba for the Chinese Communist Party; Carlos Alzugaray Treto of the University of Havana; Liu Weiguang of the Chinese Academy of Social Sciences (CASS); and anthropologist Adrian H. Hearn examine the macro- and micro-level implications of Sino-Cuban collaboration. Considering the differences between the Cuban and Chinese economies, it is striking that officials from both countries emphasize the concept of socialism when describing themselves, each other, and the character of their relationship. The chapter examines recent initiatives in trade, science, education, and medicine that have developed in ways that would be unlikely through conventional market approaches. Technology transfer in the transport sector, long-term student exchange programs, and the coordination of state-led investment in Havana’s Chinatown suggest an attempt to define a viable model of socialism capable of integrating into global markets and generating concrete economic returns. To the extent that engagement with China develops Cuba’s oil sector and promotes economic liberalization, it may also create opportunities for trilateral cooperation with the United States. While diplomatic fraternity with China can be safely assumed in the Cuban case, the Caribbean and Central America represent an ongoing challenge for Beijing. Political scientist Francisco Haro Navejas describes, in Chapter 11, China’s attempt to isolate Taiwan in the subregion and simultaneously restructure its political and economic architecture. “Beijing,” writes

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Haro Navejas, “has set about achieving nothing less than the genesis of a new regional order, built on functioning institutions and rules,” with the ChinaCaribbean Joint Business Council as the cornerstone. Nowhere in the world is there a larger concentration of countries that recognize Taiwan, and the intense diplomatic battle is evident in massive aid packages from both countries, which have financed the construction of government buildings, sports stadiums, and public infrastructure. Resident Chinese communities, both historic and newly arrived, have augmented Beijing’s influence in the area through their political connections and knowledge of local markets. The massive infrastructure projects of recent years have brought a new wave of Chinese immigrants, whose tireless labor has produced both rapid results and local resentment as national workforces are displaced. Together with its ongoing diplomatic conflict with Taiwan, the implementation of more locally acceptable forms of collaboration constitutes a key challenge for China’s multidimensional agenda in the Caribbean and Central America. The consolidation of stronger bilateral diplomatic ties is an important policy objective for China in Latin America, but Venezuela presents Chinese officials with a unique test. President Hugo Chávez is the region’s most outspoken critic of Washington, and with his country’s abundance of oil, he can afford to be. In Chapter 12, Gonzalo Sebastián Paz of George Washington University describes the diverse cooperative programs currently under way between Venezuela and China. These include the construction of refineries in China to process Venezuela’s unusually dense oil; joint production of the “Simón Bolívar” satellite, in part to broadcast Telesur (Venezuela’s equivalent of CNN); and investments in Venezuela’s cellular phone market that have permitted Chinese companies to practically control the sector. Referring to the broad scope of these programs, Chávez has declared that Sino-Venezuelan cooperation extends “from under the ground to the stratosphere.” Nevertheless, the Chinese government is clearly reluctant to allow cooperation with Venezuela to compromise its relationship with the United States. This, writes Paz, is evident in Beijing’s silence on its sale of military jets to Venezuela, and in the fact that Hu Jintao has never conducted an official visit to Caracas. The commercial scale and continued potential of Chinese initiatives in most of Latin America are dwarfed by those under development with Brazil. In Chapter 13, economist Rodrigo Maciel and foreign affairs analyst Dani Nedal contend that despite the rapid growth of trade and investment between the two countries, their interactions have been fraught with tensions, unrealistic expectations, and disappointments. The authors suggest that Sino-Brazilian relations are best understood by disaggregating their multilateral and bilateral dimensions. Doing so reveals deep divides between the Brazilian Ministries of Finance and Foreign Affairs, evident in the prior’s criticism of China at the 2010 G20 summit and hostile local reactions to Chinese investment narrowly targeted at Brazilian resource sectors in 2009 and 2010. The supposed “strate-

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gic partnership” between the two countries, write Maciel and Nedal, has been “consumed almost without reflection,” a tendency their chapter confronts in sobering detail. The need to diversify beyond primary-product exports through the development of manufacturing sectors has become a topic of dispute across Latin America, but the dispute is particularly intense in Argentina, where soy products account for over 50 percent of exports to China. In Chapter 14, Argentine sinologist Jorge Eduardo Malena analyzes the local dynamics of this dispute in the context of Sino-Argentine economic, demographic, and military relations since 1970. Argentina has long supplied China with wheat, maize, and other raw materials, but the recent ascendance of soy exports has led the Sociedad Rural Argentina (Argentine Rural Society) to argue that the shortterm economic gains of large-scale soy cultivation are outweighed by irreversible soil degradation. On the other hand, the Confederaciones Rurales Argentinas (Argentine Rural Confederations), representing soy producers, asserts that the simple rotation of soy with cereal crops will avert environmental damage. Adding to the tension, manufacturers (like their counterparts throughout Latin America) argue that their government should give greater priority to value-adding sectors through economic assistance and more assertive protection against Chinese imports. While the aftereffects of the global financial crisis may bring manufacturers some respite, it is likely that Argentina will continue to rely on soy exports, for as Malena points out, “China’s huge population must still eat.” Illuminating its approach to broader global integration, China’s conduct in Latin America has intensified rather than diminished through the economic crisis, marked by more vigorous forms of state and nonstate cooperation both within and beyond commodity sectors. With greater capacity for coordinated, long-term planning than probably any other country, China’s global influence is set to deepen. As China becomes a more active and assertive global player, it is crucial that the international community develop ways to integrate Chinese business practices into multilateral regimes of governance and accountability and to simultaneously adapt these regimes to the changing geopolitical landscape. The emergence of China is a momentous development not simply because of its impact on the world, but because it challenges the world to engage China in constructive dialogue and elicit new forms of mutual respect, compromise, and cooperation. The chapters that follow aspire to build knowledge that will help meet this challenge.

Notes 1. Nicholas Watt, “‘Blue-Eyed Bankers to Blame for Crash, Lula Tells Brown,” The Guardian, March 26, 2009.

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2. Ministry of Foreign Affairs of the People’s Republic of China, China’s Policy Paper on Latin America and the Caribbean. 3. Devlin, “China’s Economic Rise,” 138. 4. Congressional Research Service, “China’s Foreign Policy and ‘Soft Power’ in South America, Asia, and Africa.” 5. For an analysis of this debate, see León-Manríquez, “China y América Latina,” 28–47. 6. China–Latin America Task Force, Findings and Recommendations of the China-Latin America Task Force, March-June 2006; Eisenman, “More Progress in Latin America”; Lam, “China’s Encroachment on America’s Backyard,” 3; Santoli, Scheidel, and Shanks, “Beijing Uses a ‘Weiqi’ Strategy in the Americas.” 7. Mrozinski et al., “Countering China’s Threat to the Western Hemisphere”; Kaplan, “How We Would Fight China.” 8. Kurlantzick, Charm Offensive. 9. Domínguez et al. China’s Relations with Latin America: Shared Gains, Asymmetric Hopes. 10. Arnson, Mohr, and Roett, Enter the Dragon? 11. See chapters 2 and 3 of Roett and Paz, China’s Expansion into the Western Hemisphere. 12. Ellis, China in Latin America. 13. Lederman, Olarreaga, and Perry, China’s and India’s Challenge to Latin America. 14. Fernández Jilberto and Hogenboom, Latin America Facing China, 191. 15. Gallagher and Porzecanski, Dragon in the Room. 16. Arnson and Davidow, China, Latin America, and the United States, 5. 17. In the same vein as Sanborn, which appears in ibid., a pioneering comparison of local reactions to Chinese extractive initatives in South America and Africa is presented by Ruben Gonzalez-Vicente, “China’s Engagement in South America and Africa’s Extractive Sectors.” 18. Spate, Spanish Lake, 161. 19. O’Brien, “The Economics of European Expansion Overseas,” 37. 20. Gernet, El mundo chino, 472. 21. C. Johnson, Communist China and Latin America, 1959–1967, chapters 6–8. 22. Calculations of the total bilateral trade value vary depending on the source, but all acknowledge a figure in excess of $100 billion. For Chinese vice president Xi Jingping’s estimate, see Consulate-General of the People’s Republic of China in New York, “Chinese VP Talks About Bilateral Ties, Cooperation, Common Development in Venezuela,” February 19, 2009, http://newyork.china-consulate.org. 23. Santiso, Visible Hand of China in Latin America; Devlin, Estevadeordal, and Rodríguez, Emergence of China. 24. Gallagher and Porzecanski, Dragon in the Room, 57. 25. Armony, Dubious Link.

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2 The China–Latin America Relationship: Convergences and Divergences Ariel C. Armony

THIS CHAPTER PRESENTS A FRAMEWORK FOR EXAMINING SINO– Latin American relations at global, hemispheric, and domestic levels. It looks at the realm of ideas, particularly the appeal of China’s model of development in Latin America (drawing comparisons with US influence in the region), Chinese and Latin American attitudes toward the United States, and shared patterns of informality in both regions. Ideas, attitudes, and social experiences can generate both convergences and divergences between China and Latin America. The chapter examines these in the context of recent developments in the international system, namely, deepening globalization, the downfall of the Washington Consensus, and the global financial crisis. A multilevel analysis shows that Sino–Latin American relations have attained a degree of relevance and dynamism unexpected only a few years ago.

A New Relationship The first thing that one sees upon entering the Foreign Experts Building at Nankai University in Tianjin is a large map of the world. The colorful map, which covers an entire wall of the lobby, includes electronic clocks displaying the real time in the major capitals of the planet. The message that the map intends to convey is obvious to the point of being naïve: it represents the “international” dimension of the building where “foreign experts” reside. While nearly three decades ago the map was a sign of the university’s commitment to extending its global reach, today it looks noticeably old. But this impression is not so much a result of the lobby’s passé architectural style or the map’s fading colors. More striking is what the map shows about China’s perception of the world in the early 1980s. Two regions, Africa and Latin 23

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America, are shown in a light gray that almost disappears into the background. They don’t display any clocks. They are “there but not there.” Indeed, in the 1980s they were largely irrelevant for China. The contrast with today’s reality cannot be more striking. Trade between China and these regions has grown exponentially over the last years. In the twenty-first century, growth figures have exceeded all expectations. Total trade with Africa increased from $10.5 billion in 2000 to a precrisis high of $106 billion in 2008, and Sino–Latin American trade grew from $12.6 billion in 2000 to $143 billion in 2008. This sustained growth rate has made Latin America China’s fastest-growing trade partner. Since the beginning of the century, bilateral trade has also incorporated a growing number of Latin American countries: in 2001, only five countries reached or surpassed the $1 billion threshold in trade value with China; within six years this figure had increased to eleven.1 The Chinese government has developed close relationships with countries across Latin America and Africa. Visits by high-ranking officials are now a standard fixture of China’s relationship with these regions; indeed, in February 2009, President Hu Jintao, Vice President Xi Jinping, and Vice Premier Hui Liangyu visited these areas at the same time. Hu toured Africa while Xi and Hui traveled to Latin America and the Caribbean. Between the three of them, they visited thirteen countries, ranging from small Jamaica and Mauritius to emerging global powers Mexico and Brazil, and from US foe Venezuela to close ally of the United States Colombia.2 China’s strategy of “going global” recognizes the significant role that the developing world plays in world politics, and especially the role it could play if the Western powers continue to lose their ability to dictate global norms. A key component of China’s strategy has been its expansion in the Western Hemisphere. Its presence in Latin America has increased significantly since 2000 as shown by trade, high-level diplomacy, and efforts at promoting Chinese culture and image in the region.3 Four Latin American countries (Brazil, Venezuela, Argentina, and Mexico) have been labeled “strategic partners” by the Chinese government, a status reserved only for truly important countries.4 China has signed numerous and diverse agreements with Latin American countries to develop trade, investment, energy production, technology, and so on.5 As Brazil’s foreign minister said about his country’s ties with China following an agreement to exchange oil for loans between Petrobras and the China Development Bank and Sinopec: “This is the most important South-South relationship.”6 China’s inroads in Latin America and the Caribbean have generated heated debates, a plethora of new scholarly studies, and, above all, significant media attention in China, Latin America, and the United States.7 China has been criticized for extending a policy of “new colonialism” (because of its thirst for natural products), meddling in a distant region of the world, and attempting to challenge US power by penetrating its “backyard.” Whether or not these charges carry any validity, China’s inroads in Latin America have not gone unnoticed in

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the eyes of the US government, which during the Bush administration established consultations between the US State Department and China’s Foreign Ministry on Latin American Affairs. As China’s ambassador to the United States, Zhou Wenzhong, said, “The two sides shared views and corresponding policies on the regional situation, and even had initial discussions on how China and the United States may cooperate in Latin America. Both sides regarded these consultations as effective and useful in enhancing mutual understanding and building common ground.”8 This dialogue reflected the US government’s view that China is a positive force in the Western Hemisphere, a “responsible international stakeholder.” Still, China’s expanding presence in Latin America has generated concerns among some circles of US policymakers. China’s expertise on Latin America has grown in recent years. While still small relative to other areas of the world, the number of graduate students interested in the region has increased along with the quality of their work. The Institute of Latin American Studies (ILAS) at the Chinese Academy of Social Sciences continues to be the premier research center on Latin American affairs and the leading think tank for the national government.9 The current director of the Latin American and Caribbean Department of the Foreign Ministry, Yang Wanmin, has a recent Ph.D. from the Institute of Latin American Studies. China is rapidly expanding the number of Confucius Institutes in Latin America (seventeen institutes in eight countries by late 2008), targeting key universities in the region, such as the University of Buenos Aires.10 In November 2008, the Chinese government issued a policy paper on Latin America and the Caribbean, the first public document to outline a broad agenda of potential involvement with the region.11 The paper was the result of an extensive process of consultation that involved over forty government departments. More than a concrete policy blueprint, the paper signals China’s interest in a long-standing relationship with Latin America. The document’s comprehensive nature aims to outline general guidelines for China’s foreign policy toward Latin America in the next decade. Beyond a call to deepen the economic relationship with Latin America, the paper looks at some general issues regarding political, security, and defense cooperation, including military exchanges and intelligence sharing. As noted by Jiang Shixue (Chapter 3), influential Chinese experts on Latin America opposed the publication of this paper at the time, arguing that it would unnecessarily raise concerns among US policymakers, but Beijing was eager to show publicly its commitment to deepen relations with Latin America.

Beyond Conventional Approaches The analysis of China’s growing international presence in Latin America and the Caribbean has been primarily shaped by three approaches. First, there is a

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general consensus that the most important driver of Sino–Latin American relations is trade. Even though it is still far from attaining the volume of US–Latin American trade, the growth of Sino–Latin American trade in recent years has been astounding. Thus, the assumption is that economic interests are at the core of this relationship. China is interested in expanding its exports in Latin American markets and needs natural resources to fuel its domestic growth; Latin America finds a loyal buyer in China for its commodities. Those who hold this view believe that political and geopolitical considerations are subordinate to economic and commercial interests.12 The questions that matter are, for instance, those concerning the impact of China’s growth on Latin America’s economic development and the future balance of trade between these two regions. A second approach follows the analytical framework that dominated studies of the Cold War in Latin America, that is, China is viewed as a case of expansionism by an external power in the Western Hemisphere. Thus, the emphasis is on the implications of this encroachment on US hegemony in the region.13 Those who hold this perspective debate whether China represents a threat to the United States in a region considered the US “backyard” and ponder the relative weight of Washington’s available responses to this situation. A strong group in the Bush administration (particularly in the Pentagon) considered China as a rising power with hegemonic aspirations.14 Following the doctrine of containment, they sought to introduce a component of strategic hedging in Washington’s policy toward China. If China’s presence in the Western Hemisphere is viewed from this perspective, then Latin America is simply a piece subordinated to the geopolitical competition between the world’s only superpower and the world’s rising power.15 Third, assessments of the future of Sino–Latin American relations stress the vast cultural gap between these regions. Linguistic, cultural, religious, and social differences are presented as too vast to allow for a deepening of noneconomic ties. Some authors refer to the case of Japan as a useful comparative example. In the 1980s, Japan and Latin America seemed to reach an unprecedented level of convergence. Expectations about Japan’s positive and expanding role in Latin America were high. However, the economic crisis in Japan and its decision to pursue closer integration with its Asian neighbors turned out to be more important than relations with Latin America, a faraway region in the US sphere of influence.16 In other words, according to this perspective, the current nature of Sino–Latin American relations represents simply a transitory “China moment.” The consensus is that there is virtually no common ground, other than trade or ephemeral coincidence of interests in a time of global crisis, to sustain the development of long-lasting ties. These approaches are reasonable and each of them contains a certain degree of truth. However, their contribution for our understanding of Sino–Latin American relations is limited. First, they do not provide an analyt-

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ical framework to examine different facets of the relationship between China and Latin America. Most of the emerging literature in this field is largely descriptive and, in general, makes little effort to contribute to conceptual development. Second, these approaches follow the logic employed in Cold War master narratives, which viewed Latin America as a secondary actor in the struggle between the superpowers. Recent work by historians and political scientists has shown the theoretical and empirical limitations of these narratives.17 Third, the literature on Sino–Latin American relations does not connect domestic and international levels, thus missing a key opportunity to understand how domestic features shape this relationship. I propose a study that attempts to overcome some of these limitations. It is organized according to three levels of analysis. First, at a global level, I focus on models. The crisis of the “Washington Consensus” has left an empty space for new models of economic development. Ideas are powerful, they can travel easily, and, therefore, they have the potential to create bridges between different societies. Does China offer a development model for Latin America? Is there an emerging “Beijing Consensus” that can attract Latin American countries to China? What is the appeal of this model? Second, at a hemispheric level (with global implications), I focus on attitudes. While ideas are vital, attitudes are also important because they create dispositions for particular types of behavior. Instead of focusing on US attitudes and responses, it is crucial to understand how attitudes toward the United States influence international relations. Specifically, I examine how critical stances regarding the United States shape the relationship between China and Latin America. In the context of the “post–Washington Consensus” and the global financial crisis, both ideas and attitudes defined in contrast to US hegemonic aspirations can play a crucial role in the evolving relationship between China and Latin America. Third, at a domestic level, I focus on rules and institutions in both regions, seeking to understand whether there are common patterns that help us find potential similarities. Recent studies suggest that an exclusive emphasis on formal rules is insufficient to understand political outcomes.18 We need to consider that informal rules and institutions (that is, those operating outside the officially sanctioned realm) shape social, economic, and political interactions. This is an area of special importance given the relative weight of informality in both China and Latin American countries. The accumulation of experience in this setting results in a particular type of knowledge—what I call “GPS capital”— that can serve as a bridge across different societies.19 I advance the hypothesis that, at each of these levels, there are key areas of convergence and divergence between China and Latin America.20 Figure 2.1 summarizes the argument, which will be explained in detail in the following sections. Potential areas of convergence between China and Latin America include shared paradigms of development based on nonstandard policies, forms

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Figure 2.1 Sino–Latin American Convergences and Divergences Global: Models (Beijing Consensus)

Hemispheric: Attitudes (Anti-Americanism)

Domestic: Rules (Informality)

Convergences

Heterodox policies

Same variety

GPS capital

Divergences

Income inequality

Political regime

Rule-of-law limits

of resistance to US hegemony, and similar kinds of informal knowledge to enable navigation of social and economic norms (GPS capital). Simultaneously, at the different levels, there are both actual and latent sources of divergence. They are centered on the cleavages resulting from different political systems; the deficits of China’s development model, specifically economic inequality; and the limits imposed by the (still weak) rule of law in Latin America, which coincides with a tendency toward informal rules and institutions. The analysis does not aim to predict whether one or the other trend will prevail. Rather, it seeks to offer a more nuanced and complete framework for examining Sino–Latin American relations and, in doing so, suggest new approaches to the study of this emerging field of global politics.

Global Level: Models of Development In the last decade, mounting criticism of neoliberal economic reforms in Latin America—the policies known collectively as the “Washington Consensus”— triggered an emphasis on the role of the state in the economy. A wave of “New Left” governments responded to widespread dissatisfaction with economic performance by launching policies that regulate markets and guarantee social welfare.21 The global crisis accentuated this environment, creating fertile ground for an alternative road to economic development. China’s own path of growth offers a set of policies that constitute an appealing model for Latin America. In contrast to the policies advocated by the International Monetary Fund (IMF), the World Bank, and the US Treasury, China’s model has been characterized by nonstandard policies. China, as well as other “star economic globalizers” (such as India and Vietnam), do not rank high in terms of economic freedom when their policies are assessed according to the principal components of the Washington Consensus (as measured by the Heritage Foundation, for instance). In contrast to other developing nations that followed the policies of the Washington Consensus, though, the economic performance of these globalizers was stellar. The growth rate in East Asia was 5.6 percent in the 1980s and 6.4 percent in the 1990s. For Latin American countries, which score

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high in the index of economic freedom, growth was –0.8 percent in the 1980s and 1 percent in the 1990s.22 Latin America has increasingly expressed interest in China’s model of economic development. As Alicia Bárcena, executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) put it, China’s model is diversified and its financial system is closely related to the “real economy.” China has saved wisely (though it was often criticized for doing so) and thus has reserves for periods of crisis. The expectation is that Latin America can learn from China’s ability to approach its economic development with a long-term strategy, and to exercise firm control over its financial resources.23 There are several specific lessons contained in the Chinese model that are attractive to Latin America. China’s economic reforms were not determined by policy objectives defined in advance but depended on “innovative policy instruments,” which took into account regional variation, encouraged a diversity of policy experiments, and applied several models simultaneously. A key dimension of the policy process was the role that local initiative had in the development of new policy instruments and in the modification of priorities coming from the central government. Therefore, “the productive combination of decentralized experimentation with ad hoc central interference, resulting in the selective integration of local experiences into national policy-making” endowed the policy process with a high degree of dynamism, yielding positive results. Latin American countries are interested in learning from this approach to see whether it can be adapted to their own reality.24 The Chinese experience shows a commitment to innovation, unorthodoxy, and permanent experimentation that was absent in Latin America’s process of economic reform.25 China’s model made extensive use of “experimental points” (pilot projects) in the generation of policy instruments and allowed for a broad degree of policy flexibility.26 China’s reform experience offers Latin America a model that is very different from the policy packages advocated by Washington, often designed without much concern for the local context, modeled on “rational” principles that precluded trial-and-error strategies, and characterized by disregard for pragmatism, sequential approaches, and heterodox policies. In China, pilot projects were important for experimentation purposes but they also worked “as an instrument for the political management of rapid change that did not destroy but rather utilized existing formal and informal rules of the policymaking game to introduce a strong innovative element into the bureaucratic polity.”27 The contrast between this approach and economic reform based on legislation inspired by “shock therapy” recipes is stark. In Latin America, neoliberal policies were dictated without a clear sense of their potential effects on economic actors. In fact, neoliberalism appealed to “economic truths” that required the isolation of technocratic policymaking.28 This

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isolation was predicated on the need to separate “market rationality” from politics, viewed as a realm often distorted by rent-seeking interests, clientelism, and other deficits.29 Throughout most of Latin America, economic legislation (whether enacted by congress or the executive) left no room for “decentralized experimentation.” The cognitive framework behind the “shock therapy” advocated by neoliberal theory rejected policy experimentation as a risk that had to be avoided.30 While the potential impact of the Chinese model of economic reform implies a one-way street of convergence with Latin America, there is another dimension of development that involves a two-way link. One of the most significant debates in Latin America in recent years has focused on citizenship rights. This debate expanded the traditional emphasis on political and civil rights to economic, social, and cultural rights.31 The assumption is that citizenship is multidimensional; therefore, it should include more than a political aspect.32 In most of Latin America, the expansion of political and civil rights since the 1980s has not been matched by a concurrent broadening of socioeconomic rights, a situation worsened by the deepening inequalities resulting from neoliberal reforms. On occasion, governments responded with legislative reforms to citizens’ demands for different rights (e.g., for women and indigenous groups), but often these rights hardly permeated existing socioeconomic stratifications.33 The capacity of the state to guarantee a bundle of rights for all in a context of serious inequalities and diverse forms of exclusion became a focus of increasing concern for scholars, practitioners, and policymakers throughout the region. In China, the role of the state is to guarantee the welfare of citizens, which implies the realization of socioeconomic rights for the population. Of course, there are serious deficits in terms of the effectiveness of these rights for all citizens, but their place in the government’s agenda is undoubtedly central. The discourse on socioeconomic and cultural rights is intertwined with the development model promoted by the state. For instance, the Chinese government issued a working plan on human rights in April 2009, committing to address significant deficiencies in the fulfillment of rights to employment, education, housing, and health care, among other areas.34 The approach to this issue emphasizes the need to strengthen access to a decent life for all citizens. The emphasis on socioeconomic rights presents a common ideological platform for convergence between China and Latin America. This is especially true given the relevance of social rights for the New Left governments in Latin America.35 Evidence suggests that there is significant space for the emergence of a consensus on a model that combines policy innovation, sustained experimentation, decentralized initiatives, and emphasis on the socioeconomic rights of citizens. However, there is a different side of the Chinese model of development that has very negative implications for Latin America. Since the implementation of the economic reforms in 1978, income inequality has soared in

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China—the Gini coefficient increased 67 percent as of 2003. If one compares changes in income distribution in China and Latin America, it is clear that China’s inequality gap is approaching that of Latin America, the most unequal region in the world. In 1990, China’s Gini coefficient was 0.331, increasing to 0.445 in 2003 (a 34 percent increase). From 1990 to 2007, Latin America’s inequality declined only 3 percent (from 0.532 to 0.515).36 These trends raise concerns about some of the implications of this model for Latin America and other developing regions. Still, despite its weaknesses, the Chinese model continues to have appeal. The allure of this model for Latin America is compounded by the fact that the United States does not have a persuasive discourse on development capable of reengaging its southern neighbors, following the failure of the Free Trade Area of the Americas (FTAA) negotiations during the Bush administration.37 Frequently, public comments by Latin American officials highlight that mutual understanding and cooperation are greatly facilitated by China’s status as a developing country. They argue that China has an understanding of other developing countries’ needs, which brings it closer to its southern partners.38 From a Chinese perspective, China is a unique case in the world because it is a rising global power while still a developing country. Chinese leaders claim that China is a member of the “third world” and it will continue to be such forever.39 There is a growing sense in the developing world that China represents a new paradigm, whose implications go beyond economic development. In 2008–2009, for the first time since World War II, the United States, Europe, and Japan experienced a recession, while China, India, and other “star globalizers” were expected to continue their growth paths, though at a reduced pace. Chinese media, pundits, and academics have argued that a changing balance of economic power from West to East should be followed by a readjustment of political power in the international system. This position matches China’s emphasis on multipolarism and multilateralism. This foreign policy approach involves resistance to US preferences, a push to restructure organizations such as the International Monetary Fund, and the creation of new strategic alliances based on South-South cooperation. Public perceptions of China’s influence in Latin America are not as positive as those held by Africans, but greater percentages of Latin Americans think that China’s influence on their countries is a good thing than those who can say the same about US influence. The difference between those who think that China’s influence is more positive and those who favor the United States is large for countries such as Argentina (16 percent), Venezuela (22 percent), Chile (27 percent), and Bolivia (28 percent).40 While these figures do not tell us about public support for a Beijing Consensus as a model for the region, they suggest a tendency to accept China as a newcomer in the hemisphere and probably a willingness to welcome deeper relations with the East Asian country.

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A recent survey (2006) among members of congress in thirteen Latin American countries shows that China lags behind the United States and the European Union (EU) as a preferred trade partner and as an investment partner. In some countries, however, legislators display a stronger preference for China than the regional average. This is the case of Chile, for example, where a quarter of congress members chose China as their preferred commercial partner. Regionally, there is a statistically significant, positive relationship between an inclination to select China as a trade and investment partner, and concern for the country’s foreign debt. This finding suggests that the financial crisis and animosity toward the IMF may trigger more support for a closer economic relationship with China among political elites in Latin America.41 China’s policy of supporting other developing countries by purchasing part of their foreign debt fits this trend well and, as discussed in the next section, is likely to strengthen Sino–Latin American relations. Whereas China may represent an attractive model for Latin America, the connection at the level of ideas is not a one-way street. The “Latin American model” has received increasing attention in China, particularly in terms of its deficits. Chinese experts are interested in Latin America’s difficult experiences balancing the protection of national industry and the opening of the economy, preventing and managing financial crises, adjusting the welfare system to levels of economic development, and narrowing the income gap. In addition, the delicate balance between democratic reforms and economic development is one of the areas in which the Latin American experience can be useful for China, as in, for example, the relationship between political decentralization, local-level democracy, and governance. Chinese scholars have examined the process of political reform in Mexico, seeking to draw useful lessons for China, and the policies of New Left governments in the region.42 Also, success stories in building institutional capacity can turn some Latin American countries into valuable examples for China, which needs to build such capacity. Current debates in Chinese newspapers and academic circles in the Pearl River Delta region have stressed the need to pursue institutional reform to deal with serious problems such as lack of governmental transparency and accountability. The Latin American experience—in terms of both successes and failures— can be relevant in this respect.43

Hemispheric Level: The Weight of Attitudes Although ideas are vital for understanding how paradigmatic changes occur, attitudes are also important because they create dispositions for specific types of behavior. Thus, they offer a window onto the ways in which actors construe their immediate reality and act according to this perception. At a hemispheric level, it is helpful to focus on the relationship between China and Latin Amer-

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ica through the lens of attitudes toward the United States. In particular, an emphasis on attitudes that embody challenge, criticism, and resistance to the United States—anti-Americanism—is especially useful for understanding how these attitudes shape national behavior and international relations. The use of “anti-Americanism” in this analysis needs to be explained. As employed here, this notion does not necessarily mean an aggressive or violent stance against the United States, nor a rejection of US society as a whole. I focus on the political dimension of anti-Americanism. When considering Sino–Latin American relations through the lens of anti-Americanism, what emerges is a reaction against a specific distribution of power in the global system. The political context shapes attitudes toward the United States, giving them different intensities and tonalities. Anti-Americanism refers to a set of attitudes with emotional and cognitive dimensions. Negative attitudes about the United States and its policies are not always “indicators of a systematic bias or prejudice against the United States”; instead, they can result from “a coherent worldview based on a reasonable interpretation of available facts.”44 It is important to pay attention to assessments of the United States by other countries because they can work as “identity markers” with the potential to bind nations together.45 Therefore, negative assessments of the United States can help define a common identity that serves as a source of connection between China and Latin America, narrowing their vast cultural differences. This perspective is conceptually helpful for clarifying vague notions of “South-South cooperation” because it emphasizes concrete research questions: How are problems “framed” in South-South schemes? Under what conditions does anti-Americanism become a relevant cognitive frame for political action? One study conducted in 2007 argues that it is only proper to talk about “anti-Americanisms” in world politics because there is a wide variation in negative attitudes toward the United States.46 The degree to which individuals identify with the United States serves as a basis to determine different types of anti-Americanism. These sets of attitudes are not homogeneous within a particular society; sometimes multiple varieties of anti-Americanism are at work, and they can even combine with positive views toward the United States. Therefore, the analytical task is to identify components of anti-Americanism in China and Latin America and study their impact on the relationship between these regions. A systematic examination of this dimension exceeds the scope of this paper, but there are three issues that deserve attention. First, in general, antiAmerican attitudes in China and Latin America place a strong emphasis on collective national identities and control over the terms of a nation-state’s global insertion. This form of anti-Americanism stresses sovereignty, nationalism, and aspirations to strengthen the position of the state as a power in the international arena (when this is a realistic goal). These elements are present in the attitudes of Chinese elites and public, expressed in a strong emphasis on

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national identity as a foundation for social cohesion and collective destiny, a high level of sensitivity to threats to sovereignty, and rivalry (which sometimes creates animosity) against dominant states that “obstruct” China’s rightful place in the global order (the United States in particular).47 Such attitudes concur with China’s concept of security, which involves three aspects, namely, national sovereignty, “comprehensive security” (i.e., its economic, social, and political system), and security in the world system (i.e., the terms of China’s global insertion).48 While there is broad variation throughout Latin America on this matter, negative attitudes toward the United States have been a long-standing feature of the region’s political culture. Indeed, perceptions of US domination and intervention have made sovereignty a very sensitive issue and a treasured good. A constant trend in US–Latin American relations since the nineteenth century has been a US mind-set that views Latin America as inherently inferior to the United States. This cultural orientation has played an important role in shaping US policy toward the region as a way to pursue security and economic development and respond to domestic politics.49 During the Cold War, Washington deployed “hard power” to support dictators, military regimes, and counterinsurgency movements in order to “defend democracy” against Communism in Latin America. For nearly four decades, the United States allied with the most reactionary forces in the region and played a central role in supporting political repression.50 Anti-Americanism has a distinct presence in Latin America and China, and it is important to consider shared negative attitudes toward US foreign policy. In Latin America, these attitudes have deep roots and have inspired a vast literature on the subject.51 The rise of left-wing governments in the region has led to more critical positions vis-à-vis the United States, though with significant variation across countries. The policies of the Bush administration contributed to the deterioration of the international image of the United States: positive views of the United States declined from a high of 73 percent showing a “good and very good opinion” in 2001 to 53 percent in 2008.52 Less than half of those surveyed in key countries such as Argentina and Brazil viewed the United States with favorable eyes in 2007. Nonelite perceptions clearly distinguish between US quality of living, science and technology, and popular culture (which they perceive favorably) and US methods of promoting national interests abroad (which they view in negative terms).53 Surveys and interviews in China reveal a tendency to perceive US foreign policy as hegemonic, characterized by containment (e’zhi) and double standards (shuang chong biao zhun). According to one study, Chinese leaders, intellectuals, and average citizens tend to view the United States through the prism of badao, which conveys the idea of “illegitimate behavior by the powerful, with no regard for the wellbeing of the less powerful.” According to this view, US foreign policy seeks to

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block China’s rise as a global power and employs double standards when dealing with China on issues such as democracy and human rights.54 While it is expected that attitudes toward US foreign interests will improve under the Obama administration in both Latin America and China, there is a shared “baseline suspicion of and hostility toward U.S. foreign policy” in both regions that responds to a relatively stable cognitive frame.55 Some argue that the strategy of the Chinese government is to use negative views of the United States to bolster its nationalist credentials while maintaining a firm grip on popular manifestations of anti-Americanism. Any expression or discourse that runs the risk of tarnishing China’s international image is carefully suppressed.56 In Latin America, resistance to Washington’s policies and to integration with the United States (free trade agreements) is dictated by economic, geographical, and subregional factors with only a minor influence of ideology. Hugo Chávez in Venezuela has pursued a more overt opposition to the United States (with a substantial degree of pragmatism) based on ideological affinity with Cuba, Bolivia, and to a lesser extent, Nicaragua and Ecuador. Other countries governed by the New Left pursue policies based on multilateralism and diversification of economic links.57 Second, under the current global situation, the desire to exercise control “over the terms by which polities are inserted in world politics” cannot be detached from policies aimed to counteract US hegemonic power.58 For instance, new ties with China have been helpful for Latin American governments in obtaining greater political and economic independence from the United States. Taking advantage of booming soybean exports to China, Argentina used its cash reserves to pay off its $9 billion debt to the International Monetary Fund in early 2006, a move to achieve freedom from the economic prescriptions dictated by the IMF and its principal shareholder, the United States. As an emerging power in the global arena, Brazil has sought to employ its strategic alliance with China (it is China’s largest trading partner in the region, and China is Brazil’s largest trading partner in the world) to balance the influence of the United States, seeking more leverage in hemispheric and international relations. An example of anti-American concurrence between China and Latin America is the desire to reform the IMF, especially Beijing’s decisive position to gain more clout at the center of IMF decisionmaking. China not only wants a restructuring of the voting system in the IMF (in which the United States and other Western countries hold a majority of the votes), but also more influence “over the process of scrutinizing, granting and distributing loans.”59 Both in Latin America and in East and Southeast Asia, the IMF has been seen as an instrument of Western (primarily US) hegemonic power, and its harsh impositions on borrowing countries have triggered a myriad of criticisms at the elite, media, and mass levels. While this is a question of economic interests, it also

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carries significant political weight as a necessary adjustment to a decline in US global hegemony.60 Third, China manages the triangular relationship with Latin America and the United States at different levels. China’s policy in the region is entirely pragmatic, economically driven, and not involved in ideological disputes. Evidence of Beijing’s pragmatic agenda is the fact that the “swing to the left” in Latin America created a set of unexpected problems for China. At a time when economic and political ties with the region were undergoing dramatic growth, the policies advanced by some New Left governments (such as nationalization of foreign companies and a hostile stance against the United States) forced China to walk a thin line to balance its relationship with the most radical governments in South America without alienating Washington.61 The relationship with the United States is a top priority for Beijing; therefore, relations with Latin America are subordinated to this premise. In fact, some Chinese experts reject the notion that anti-Americanism can be a source of convergence between China and Latin America. China, they argue, views Latin America as the US “backyard” and does not want to interfere in an area that belongs to the US sphere of influence. They stress that geographically, historically, and culturally Latin America belongs to the West, and thus, its links with the United States would always be preeminent. However, this view does not take into account the historical evidence in US–Latin American relations, a history characterized by more divergences than convergences.62 China’s policy of “going global” aims to diversify trade links, isolate Taiwan, and guarantee access to natural resources, especially energy. Beijing’s diplomacy employs a range of tools to attain these objectives. For example, China sometimes resorts to cash to expand its influence in Latin America and the Caribbean, a practice reflected in simple “checkbook diplomacy” to persuade Central American and Caribbean nations to switch recognition from Taiwan to the mainland.63 This can accurately be called a policy of “courtesy demands reciprocity” (li shang wang lai); it deepens Taiwan’s international isolation and provides economic benefits to Latin American countries. Beijing’s checkbook diplomacy also helps to challenge US hegemony, for instance, by aiding developing countries through the purchase of government debt. In late 2008, it was reported that China had pledged to deliver $130 million in aid to Costa Rica and to buy $300 million of Costa Rican bonds as part of an incentive package following Costa Rica’s decision to sever diplomatic ties with Taiwan. The most controversial aspect of the deal was China’s decision to use its foreign-currency holding to further Beijing’s political and diplomatic objectives, notwithstanding assurances that it would not do so.64 In April 2009, Beijing signed currency-swap agreements with Argentina, Indonesia, South Korea, Malaysia, Belarus, and Hong Kong. The intention to bypass the dollar as a vehicle of exchange was a symbolic step to counteract US economic power by seeking to give the yuan status as international cur-

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rency.65 China’s $10.24 billion currency swap agreement with Argentina merits attention. The South American nation has been deemed by US capital markets as unreliable, or as the Wall Street Journal put it, a country with a “record of misrepresentation, debt defaults and debt repudiation.”66 The goal of this agreement was to help finance exports at a time when importing countries were cash constrained. For Argentina, this agreement would ideally have generated short-term liquidity if needed to stabilize the domestic financial market. However, while other swap agreements (e.g., with Indonesia and South Korea) explicitly allowed for funds to be used for this purpose, the bilateral currency swap arrangement with Argentina was only for “enhancing financial conditions to promote economic and trade development.”67 While Beijing justified this arrangement as a part of its policy of South-South cooperation, the evidence suggests an ulterior political motive. This was the first agreement of this type with a country in Latin America: China was challenging the global primacy of the dollar, promoting broader international use of the yuan, and seeking to expand its political clout in the US sphere of influence.68 In this respect, China’s policy appears to follow what its first Latin American policy paper stated in November 2008, that is, a desire to “view its relations with Latin America and the Caribbean from a strategic plane.”69 As with the global level, there are areas of divergence between China and Latin America at the hemispheric level too. An important point of divergence between them is a source of convergence between Latin America and the United States: membership in a community of democracies. Undoubtedly the most relevant achievement of Latin American countries in the last two decades has been the return to democratic politics.70 For instance, the “democratic clause” in Mercosur is a major step that links economic and political reform. The protection of democracy in the region is a crucial component of economic integration in South America. It has been identified as a key element that can help Washington regain a leadership role in the region by committing the United States to protect democracy as part of its efforts to expand trade and contribute to economic growth. It is worrisome, though, that negative views of US democracy have increased significantly in the last few years in countries such as Argentina, Bolivia, Brazil, Chile, Mexico, Peru, and Venezuela, posing questions about the real opportunities for the United States to recover its role as champion of democracy in the hemisphere.71 Many observers concur that the Obama administration has yet to define a convincing message for Latin America. In the context of diminishing admiration for US democracy, whether or not China’s model of development, emphasis on socioeconomic rights, and leadership in a movement to restructure global power relations gain more followers in Latin America is a key question in the US–Sino–Latin American political dynamic.

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Domestic Level: Informal Rules and Institutions A close look at Chinese and Latin American societies reveals some common features that would go unnoticed in studies exclusively focused on the international level. In other words, domestic features of social and political life offer a window onto a realm that has received little attention in the study of Sino–Latin American relations: convergences and divergences based on social and institutional practices. We cannot understand economic or political behavior without attention to the networks, institutions, and social knowledge that shape interactions in daily life, the relationship between state and citizens, and the mechanisms of policymaking. A critical dimension is what is known as informality, that is, a set of practices and institutions shaped by extralegal rules and sanctions that constitute common knowledge in society. Informal institutions are “socially shared, usually unwritten, rules and procedures, that are created, communicated, and enforced outside officially sanctioned channels.” They coexist with formal institutions, and like them, structure the “rules of the game” in a polity.72 Informality is a feature of all societies, but its relative weight varies across nations. It is incorrect to think that informality has only negative effects on political, economic, and social interactions. Often informal rules and institutions offer dispute-solving mechanisms, sustain networks of trust and reciprocity, provide security and justice, and shape collective understandings that facilitate cooperation and consensus building.73 Where the state fails to protect the rights of citizens, informal institutions may do so by providing alternative mechanisms of social coordination (such as indigenous law or neighborhood watchdog groups). Therefore, even though informal institutions are extralegal, they may produce beneficial outcomes for communities.74 Attention to informal institutions is important because it allows us to identify the actual rules that structure the “game” in specific contexts.75 Actors know the rules, know that everyone else knows the same rules, and understand that there are sanctions for not following the rules (even though there is often no official, formal enforcer). There is a shared expectation that actors involved in certain interactions (in the informal economy, for example) will behave according to given rules. Responding to various incentives, individuals “strategically navigate formal and informal contexts.”76 For instance, street vendors respect extralegal rules that bind informal economic activities, and political elites reach informal agreements to solve disputes in elections when the institutional effectiveness of electoral courts is not trusted. Informal rules and institutions are not static: they are affected by changes in formal institutions, transformations in collective attitudes and experiences, and alterations in the distribution of power and resources.77 In both Latin America and China, economic and political actors move in a “deep sea” of informality.78 In Latin America, informal rules and institutions

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play a significant role in daily life, from economic transactions to policymaking to citizen security. This informality is manifested in myriad forms. For example, social ties can provide access to resources controlled by individuals in positions of power (e.g., loans from banks, official permits, and public contracts), and average citizens may establish institutions to provide security in their communities when the state lacks the capacity to do so. Informal institutions may allow individuals or groups to achieve outcomes that formal institutions were supposed to attain. Even though it is difficult to identify informal institutions (i.e., to discern their features, scope, and mechanisms of enforcement), they should not be ignored, because they illuminate how actors navigate “actually existing” institutional settings.79 In China, the concept of guanxi (social relationships) expresses the idea of unwritten rules that shape interactions among citizens and between them and the state.80 They provide mechanisms of coordination, enforcement, and dispute settlement. The rules of guanxi are common knowledge in China and thus guide behavior; social, economic, and political life cannot be explained without attention to guanxi because it penetrates most social spaces. A patient will give money to his surgeon to guarantee that he will perform the surgery to the best of his ability. A laid-off worker needs good guanxi (that is, connections with government or bank officials or political cadres) in order to get a loan if he does not have collateral.81 Investors rely on guanxi networks to put their capital into contexts with weak legal protections.82 Understanding actors’ expectations “about the informal rules of the game” is crucial because it allows us to explain “how the actors themselves understand the informal constraints they face.” This is important for understanding social regularities, because when individuals respond appropriately to a customary, unwritten rule (such as removing one’s shoes before entering a house in some countries), they are expressing their understanding of common expectations about collective behavior. Informal rules become known to actors by the “gradual accumulation of experiences.” Culture does matter when explaining the presence and weight of some informal institutions, but it is not the only meaningful variable. Therefore, societies with different values and attitudes may share similar experiences on informality.83 The knowledge resulting from the accrual of experiences is fundamental to the navigation of formal and informal contexts, and such knowledge is especially valuable in settings characterized by informality. In other words, this knowledge constitutes an asset, and is therefore a form of capital. This capital is endowed with “the same portability or fungibility that makes financial capital such a powerful motor of economic growth and transformation” because it is knowledge that individuals can employ for social navigation across different contexts.84 Earlier in this chapter, I referred to it as “GPS capital.”85 For instance, a good stock of GPS capital can help actors understand the informal constraints they encounter and thus make it easier for them to

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respond to such constraints. In this way, actors can navigate informal contexts even when their understanding of the broader cultural setting is thin. GPS capital eases communication and cooperation between China and Latin America, and helps overcome cultural differences. GPS capital facilitates economic transactions, helps entrepreneurs to penetrate new markets quickly, and can “lubricate” political relations, thereby easing convergence. GPS capital may help each side to gain competitive advantages in each other’s turf; it is knowledge that helps actors understand how the system works. In addition, Latin America’s stock of GPS capital can facilitate attempts to replicate some of the policy experimentation developed by China. As noted earlier, trial-and-error policies in China employed existing formal and informal rules to introduce innovative elements into the policymaking process. For instance, experimental programs at the local level were crucial in carrying out key reforms in such areas as bankruptcy, merger, and insolvency. Rather than working from the top down, local reformers took advantage of informal rules to avoid policy deadlock and to push change as needed. This eased the capacity of policymakers to manage rapid innovation and make necessary adjustments.86 Connections based on informality may also have negative results. The dark side of guanxi, hou men (“backdoor”), tends to institutionalize corrupt practices, which are endemic in both China and Latin America.87 That is, hou men may be seen as a source of convergence but with negative implications for the health of formal institutions (particularly those that sustain the rule of law) in both regions. China, for example, ranks high in Transparency International’s Bribe Payers Index, which positions countries according to the likelihood that their companies would bribe when doing business abroad. Out of twenty-two countries in the developed and developing world included in the survey, China is placed among the countries from which companies are most likely to bribe (along with India, Mexico, and Russia).88 The activities of the Chinese diaspora in Latin America illustrate another dimension of guanxi and hou men practices. As noted in Chapter 8 of this volume, ethnic Chinese association networks played a crucial role in the expansion of Chinese business activities in Mexico, Peru, Panama, and elsewhere. Chinese businesses (grocery stores, for example) became very successful thanks to a combination of networks, low prices, variety of products, long hours of operation, and creative tools for marketing.89 Like other immigrant groups, overseas Chinese established a variety of associations, mainly focused on trade issues. A guanxi-based network of family ties and associations evolved into an indispensable component of daily life in Chinese communities and especially in Chinatowns throughout Latin America. These networks helped immigrants, promoted mutual support, and regulated many aspects of social life, sometimes operating above local laws.90 Eventually, some of these networks turned into lucrative enterprises that provided “protection” to their

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compatriots and ran immigrant smuggling operations and other criminal activities. Today some Chinese organizations bring illegal immigrants to Bolivia, Peru, Argentina, and other countries, and from there to Canada and the United States.91 Historically, overseas Chinese maintained strong ties with the Chinese nation-state and remained culturally loyal to it. In recent years, the Chinese government has put significant efforts into strengthening ties with diaspora communities to gain a foothold in local markets and political circles. Beijing understands that the intangible capital held by the Chinese diaspora constitutes a valuable asset that China could use to its advantage. It is difficult to estimate the extent to which these government-social networks have encouraged the development of black markets and hou men practices in Latin America. As argued in Chapter 8, an expansion of guanxi beyond diaspora communities would probably connect with informal institutions characteristic of the local setting. Also, lax legal regulations in many Latin American countries “fit” Chinese companies’ corrupt practices. Of course, convergence based on hou men would not contribute to building institutional capacity in China and Latin America. It is important to underscore that actors learn and adjust to new expectations, shifting their strategies as contexts, both formal and informal, change.92 While Beijing’s strategy in other developing regions such as Africa is centered on informality (disregard for labor and other rights, the use of hou men as part of the bidding process, lack of transparency and accountability in the allocation of foreign aid, and so on), China’s behavior in some Latin American countries has adjusted to domestic constraints.93 Under more transparent rules, China has been forced to amend its strategy to play a different game in order to penetrate some Latin American economies. This is seen in the participation of Chinese companies in bidding processes in such countries as Chile.94 The need to adjust has also pushed China to change some aspects of its engagement with the United States. For example, the Chinese government has expressed willingness to work with the US government’s Agency for International Development (USAID) in joint development projects in Latin America—an option that China would not consider in the case of Africa.95

Conclusion This chapter has advanced a three-fold argument about Sino–Latin American relations, identifying issues at global, hemispheric, and domestic levels that shape the relationship between these regions. First, the “power of ideas” is important because they influence fundamental decisions about development models.96 In the age of the post–Washington Consensus, an emerging Beijing Consensus proposes an alternative set of policies to pursue economic growth,

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strengthen social and economic rights of citizens, and manage international relations. If ideas gain international legitimacy, then such legitimacy can become a political resource with an impact on international relations. It is thus important to consider potential convergences and divergences between China and Latin America based on this aspect of politics. China’s economic success represents an influential example for Latin America as realignments in economic and political power continue to transform the international system. That the Beijing Consensus has enjoyed some measure of influence in Latin America does not necessarily mean that the region’s countries have shaped their economic policies in particular ways because they believe that China shows best how to succeed. China’s successful model of state capitalism is relevant because it has played a critical role in legitimizing state capitalism itself, particularly in the aftermath of the global financial crisis. This is perhaps the most important effect of the Beijing Consensus. In contrast to the emphasis on privatization and deregulation advocated by the Washington Consensus, state capitalism has reemerged as an enticing strategy of development, capable of delivering economic growth and at the same time lifting millions of people out of poverty. While the private sector continues to play a central role in Latin American economies, large strategic sectors are controlled by the state, as is the case with the energy sectors in Brazil, Venezuela, Mexico, and elsewhere. The “Chinese success” gives credibility to a state-led development agenda that employs a variety of tools (national champion industries, state-owned investment funds, and so on) to promote economic growth.97 Some of the policies and management expertise that elicit the interest of other countries result from China’s own experience, but other components of the model have existed for a long time. For Latin America, China is not a model to be replicated, but one that provides a seal of approval for various forms of state-led capitalism. Second, attitudes are important because they shape actors’ behavior. Resistance to US power may create a “gravitational attraction” between China and Latin America. It is possible that China and the United States will deepen their collaboration on a number of issues involving global deficits and security challenges, but may ultimately be unable to avoid competition in such regions as Latin America. A statement by Secretary of State Hillary Clinton illustrates this point. On February 22, 2009, she said that “the global community is counting on China and the US to collaborate, to pursue security, peace and prosperity for all,” but less than a month later she stated that China and Iran have made “quite disturbing” inroads in Latin America and that their “very strong economic and political connections with a lot of [Latin American] leaders” are not in the interest of the United States.98 Even though China may seek to avoid competition with the United States over Latin America (this is a goal expressed publicly and repeatedly by the Chinese government), this may be difficult to achieve, especially as China expands its “resource diplomacy.”99 Latin America is always relevant for US national security interests;

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accordingly, the presence of any foreign power is generally perceived by Washington as a potential threat. By placing China in the same category as Iran (and Russia), Secretary Clinton’s comments set the terms of the triangular relationship as a zero-sum game, with little room for collaboration. In turn, China has adopted an aggressive stance in an effort to redistribute political power in the international system, following the onset of the global financial crisis. As noted, this stance involves a challenge to US hegemony. China has taken this agenda to Latin America in the form of financial agreements and investment in key energy sectors.100 Based on the political position of several New Left governments in the region, it is likely that Beijing’s agenda will continue to find a sympathetic reception in Latin America. By contrast, Secretary Clinton’s statement about Latin America rehashes a long-standing US tendency to pay attention to Latin America primarily when external actors become involved in the region. Given this scenario, whether some form of anti-Americanism may bring China and Latin America closer together is an important geopolitical question that merits attention. Third, domestic-level explanations are useful for understanding some aspects of international relations. There has been increasing attention in Europe and the United States to the role of “soft power” in China’s gains in Latin America and Africa and other regions, but this attention does not match concerns about other dimensions of social and institutional dynamics.101 Knowledge for social navigation is an important tool at the domestic level that can facilitate international connections, particularly when one moves between contexts characterized by a heavy presence of informal institutions. This GPS capital is fungible and may provide a sound basis for understanding and collaboration between China and Latin America. However, as noted, bridges built with GPS capital specialized in informality may lead to both auspicious and negative results. China and Latin America could end up exporting to one another their own domestic weaknesses. The outcome would be more integration but with broader deficits in such areas as the rule of law, a problem that illustrates the importance of understanding how domestic-level features shape the relationship between China and Latin America. Sino–Latin American ties deepened during the financial crash and the consequent recession that shook the world in late 2008 and 2009. In a context of falling commodity prices and sudden limitations on access to credit, China became a source of loans that helped Latin American countries face the prospects of weak economic growth. In turn, Latin America provided the natural resources that China needed to step up investment in infrastructure to counterbalance decreasing demand for Chinese exports. Rather than driving them apart, the global crisis drew Latin America and China even closer to each other. That China played a vital role in Latin America’s economic recovery is recognized internationally and appreciated particularly by the region’s leaders.

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China’s bold push to maintain a high rate of economic growth during the crisis was an important model for the developing world, in contrast to a much more timid reaction on the part of the United States. For Brazil, the combination of a shrinking US economy and a surge in Chinese demand for natural resources defined a new global scenario in which relations with China came to play a central role in domestic development. The new scenario is, at least for Brazil, anything but temporary: agreements signed with China during the crisis confirm that Brazilian oil will be exchanged for Chinese loans for ten years into the future. It has been argued that China was not the only force sustaining Latin American economies through the crisis. As several of the chapters in this volume note, deeper integration in international financial markets, tighter control of deficits and inflation, and general developments in macroeconomic policy also played a role. As these chapters also note, however, countries with strong ties to China fared better vis-à-vis the global crisis than those more dependent on the US economy.102 While the United States and Europe experienced a protracted economic recession, Latin American countries that took advantage of China’s demand for natural resources were able to navigate the global economic crisis with more ease and regain a growth trajectory. However, it is uncertain whether China, which faces serious challenges ranging from labor conflicts to leadership transition, will be able to sustain its own growth path— an uncertainty that places Latin America in a vulnerable position.103 Other issues that cast doubt on the long-term benefits of a close relationship with China include threats to the environment (particularly evident in the expansion of soybean cultivation) and economic distortions caused by excessive emphasis on the export of natural resources. Some analysts argue that the attraction of the Chinese model lies in the political equation it presents: “the power of the market plus the stability of authoritarian rule.”104 If this analysis is correct, then it is worth examining the extent to which the Chinese model of “authoritarian capitalism” becomes attractive throughout the developing world. For Latin America, where most countries have democratic governments, the question is whether the Chinese model represents an appealing and credible alternative to democracy.105 Such a question reaches beyond the scope of this chapter, but it is interesting to reflect briefly on its meaning. Recently, the Chilean polling agency Latinobarómetro started to ask respondents if they would support “economic development without democracy.”106 While the agency’s intention was to reveal perceptions about the decline of traditional authoritarian rule in the region, responses to the question may also illuminate levels of popular support for some form of Chinese-inspired “authoritarian capitalism.” Aggregate regional results show a majority expressing a preference for democracy, but a large sector of the public chose economic development over democracy. These results suggest that, if given a choice, many Latin Americans may be willing to recon-

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sider their commitment to democracy if it continues to prove ineffective in solving their daily problems. Whether the inclinations of this sizable minority will influence the orientation of political elites in the near future is impossible to determine, but Latinobarómetro’s finding poses a question that has not seriously been asked since the collapse of the Communist bloc: is a nondemocratic form of rule (however we define it) an alternative to existing democracies? The analysis presented in this chapter suggests that a more nuanced approach to Sino–Latin American relations can help us go beyond conventional approaches. The density of existing ties between China and Latin America is such that we should expect the relationship’s economic and geopolitical relevance to continue growing in the next decade. As other emerging powers (such as India) begin to pay more attention to Latin America, and as the United States searches for a new role in the Western Hemisphere, the relationship with China will become more complex and will demand more innovative approaches to understanding this novel field of study.

Notes 1. Figures from China Daily, October 19, 2008, April 8, 2009, May 11–17, 2009, http://www.china.org.cn; Wu Guoping, “Sino–Latin American Cooperation.” 2. President Hu had completed a three-nation Latin American tour only a few months earlier. 3. See Gallagher and Porzecanski, “China Matters”; Kurlantzick, Charm Offensive; Santiso, Visible Hand of China in Latin America; He Li, “China’s Growing Interest in Latin America.” China has wide-ranging links with political parties in Latin America through the International Department of the Communist Party of China (CPC). Military-to-military coordination is significant too and includes high-level exchanges, training, and arms sales. See David Shambaugh, “China’s New Foray into Latin America,” YaleGlobal, November 17, 2008, http://yaleglobal.yale.edu. 4. Domínguez et al., China’s Relations with Latin America. 5. See Sergio M. Cesarín, “La seducción combinada: China e India en América Latina y el Caribe,” Centro Argentino de Estudios Internacionales, Programa Asia Pacífico, 2009, http://econpapers.repec.org/paper/cisasia00/029.htm; Wu, “A New Era of Sino–Latin American Relations.” 6. Manuela Zoninsein, “China’s Shopping Sprees Head South: Forget ‘Howdy,’ Now It’s Ni Hao,” Newsweek, March 4, 2009. 7. See, for example, Roett and Paz, China’s Expansion into the Western Hemisphere; Arnson, Mohr, and Roett, Enter the Dragon?; Erikson, “The New Challenge: China and the Western Hemisphere”; see the essays in Nueva Sociedad’s special issue El desafío chino, Nueva Sociedad, no. 203 (May–June 2006); Díaz Vázquez, “El ‘desembarco’ de China en América Latina”; Jiang Shixue, Understanding China’s Relations with Latin America; Simon Romero and Alexei Barrionuevo, “Deals Help China Expand Sway in Latin America,” New York Times, April 16, 2009. CCTV9 ran several reports on Sino–Latin American relations in 2008 and 2009; for instance, “Latin America Seeks Closer Ties with China,” April 20, 2009. 8. Zhou, “China’s Relationship with Latin America.”

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9. The other leading center for the study of Latin America is at Nankai University in Tianjin. There are smaller units in other universities, such as at Peking University. On this topic, see Jiang, Latin American Studies in China; Cesarín, “La relación sino-latinoamericana, entre la práctica política y la investigación académica,” 48–61. For an example of Latin American Studies in China, see Chinese Academy of Social Sciences, “Yellow Book of Latin America and the Caribbean.” 10. The first Confucius Institute in Latin America was established in Mexico City in February 2006. 11. Ministry of Foreign Affairs of the People’s Republic of China, China’s Policy Paper on Latin America and the Caribbean, November 5, 2008. 12. See, for instance, Paz, “Rising China’s ‘Offensive’ in Latin America.” 13. Ibid. 14. See Chapter 9 in this volume by José Luis León-Manríquez; also see “China’s Growing Involvement in Latin America,” Power and Interest News Report, June 12, 2006, http://mexidata.info; David Shambaugh, “Prospects of a Strategic Sino-US Ties High,” China Daily, May 5, 2009; David Shambaugh, “Task Ahead for China, US: Maximum Cooperation,” China Daily, May 6, 2009. 15. Council on Foreign Relations, U.S.-China Relations. 16. See Stallings, “The U.S.–China–Latin America Triangle.” 17. See, for example, Joseph and Spenser, In from the Cold. 18. Helmke and Levitsky, Informal Institutions and Democracy. 19. GPS stands for “global positioning system.” 20. The chapter pays more attention to the Chinese role in the relationship with Latin America than vice versa. The analysis draws from numerous background interviews with Chinese and non-Chinese (e.g., US) government officials, academics, and business executives held in different cities throughout China from September 2008 to April 2009. It also draws from some interviews with Latin American government officials, academics, and businesspeople. 21. See Arnson, Armony, et al., La “nueva izquierda” en América Latina. 22. Rodrik, “One Economics, Many Recipes.” 23. As quoted in “Destaca CEPAL modelo económico de China,” Xinhua, April 4, 2009, http://www.spanish.xinhuanet.com. 24. Heilmann, “From Local Experiments to National Policy,” citation on p. 29; Kurlantzick, Charm Offensive, 134. 25. Examples of innovation and experimentation include township and village enterprises, special economic zones, and two-track pricing. 26. Heilmann, “Experimentation under Hierarchy.” 27. Ibid., 14. 28. Ibid. It is necessary to account for key differences in the political systems of China and Latin America. The Chinese approach of “experimentation during implementation” is different from the “legislation-centered policy process” in which “the potential impact of the policies under deliberation must be assessed ex ante, without being able to test new policies (or at least some key elements) in practice beforehand and thereby to obtain realistic information about the potential effects.” 29. See von Mettenheim and Malloy, introduction to Deepening Democracy in Latin America. 30. Vilas, “Neoliberalism in Central America”; Heilmann, “Experimentation under Hierarchy.” 31. See, for example, United Nations Development Programme, Democracy in Latin America; Tulchin and Ruthenburg, Citizenship in Latin America.

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32. Caldeira and Holston, “Democracy and Violence in Brazil”; Janoski and Gran, “Political Citizenship.” 33. Armony, “Fields of Citizenship.” 34. China has implemented a National Human Rights Action Plan of China (2009–2010); see “Human Rights: China Putting Its People First,” China Daily, April 14, 2009, 7–10. It is important to mention that there are other rights, such as those related to participation and freedom from arbitrary imprisonment, which are not properly addressed by the public discourse and policies of the Chinese government. 35. See Arnson, Armony, et al., La “nueva izquierda” en América Latina. 36. See Table 1 of Chen and Hou, “New Approach to Estimate the Chinese Gini Coefficients from 1978 to 2003”; Economic Commission for Latin America and the Caribbean (ECLAC), Social Panorama of Latin America, 2008, 21. 37. See LeoGrande, “A Poverty of Imagination: George W. Bush’s Policy in Latin America.” 38. See editorial comments by staff of the Chinese Academy of Social Sciences (CASS) in China Daily, April 8, 2009, 7. For a more academic Chinese perspective, see Wu, “A New Era of Sino–Latin American Relations.” One observes a similar trend among African political elites, particularly among the new generation of leaders. 39. Wang, “Chinese Defense Concept and Its Strategy Since 1979.” 40. Pew Global Attitudes Project, 47-Nation Pew Global Attitudes Survey. 41. Amezaga, “La nueva dinámica de las relaciones entre América Latina y la República Popular China.” 42. Cesarín, “La relación sino-latinoamericana, entre la práctica política y la investigación académica,” 48–61. 43. See Jiang, “Factors Affecting Latin America’s Development Prospects.” Latin America’s longer experience with capitalism shows some of the dark effects of the “development trap”: China’s worrisome inequality growth and deepening corruption have prompted some Chinese scholars to refer to the “latinoamericanization” (la mei hua) of China when considering these problems. 44. Katzenstein and Keohane, Anti-Americanisms in World Politics, 13. 45. Ibid. 46. Ibid. 47. Ibid. Countries such as Argentina have long-standing territorial claims (Malvinas Islands) that position them close to China’s experience in this regard (Taiwan). 48. Wang, “Chinese Defense Concept and Its Strategy Since 1979.” 49. Schoultz, Beneath the United States. 50. See, for example, LeoGrande, Our Own Backyard. 51. For a historical perspective on this topic, see Grandin, “Your Americanism and Mine.” 52. Data from Latinobarómetro, 2000–2008, http://www.latinobarometro.org/. 53. Pew Global Attitudes Project, 47-Nation Pew Global Attitudes Survey. 54. Johnston and Stockmann, “Chinese Attitudes toward the United States and Americans,” 160. 55. Ibid., 192. China and Latin America share a troubling experience with “imperial powers.” A sense of “humiliation” at the hands of foreign powers is present in the experiences of both regions. This is manifested in various ways, from official narratives to literature and popular culture. In 2008, angered at what they perceived as interference in domestic affairs, the governments of Venezuela and Bolivia expelled their respective US ambassadors. In China, the notion of hurt feelings (shang hai gan qing) is present in government statements that refer to matters of international disagreement,

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usually in connection to actions by foreign powers. The phrase may be interpreted as “the point at which no more negotiation is possible.” See James Fallows, “More on Hurt Feelings,” The Atlantic, December 10, 2008. 56. Johnston and Stockmann, “Chinese Attitudes toward the United States and Americans.”. 57. Russell, “Foreign Policy.” 58. Quotation from Katzenstein and Keohane, Anti-Americanisms in World Politics, 32. 59. “China, Saudi Arabia, and the IMF Quota and Voting System.” Stratfor Geopolitical Intelligence Report, March 31, 2009, http://www.stratfor.com. 60. As Sun Lijian, Dean of Fudan University’s Economics School, said: “A meaningful reform should not only increase the voting power of developing nations, but also remove America’s de facto veto power in the IMF. If the US continues to dominate IMF decisions, there will be little change in the international financial system.” As quoted in Wang Xu, “Nation May Have Bigger Say in Restructured IMF,” China Daily, May 14, 2009, 1. The United States holds 17 percent of the vote in the IMF, while China holds 3.7 percent. 61. See Guo and Sun, “Sino-U.S. Confrontation over Chávez Regime Imminent?” 62. This is an obvious point that sometimes seems to be forgotten by scholars. There is an extensive literature, both in English and Spanish, which examines the difficult relationship between the United States and Latin America. See, for example, Schoultz, Beneath the United States. 63. China does not push Latin American countries to change their voting behavior in international organizations. China and Latin America do not show a coordinated front in the United Nations; voting coincidence between China and key Latin American countries did not change with the explosive growth of Sino–Latin American trade from 1991–1992 to 2002–2003. See Domínguez et al., China’s Relations with Latin America. 64. Graham Bowley, “Cash Helped China Win Costa Rica’s Recognition,” New York Times, September 13, 2009. 65. Chowdhury, “China Takes a Small Step away from the Dollar”; China Daily, April 9, 2009, 1. China’s symbolic standing in Latin America may benefit indirectly from US domestic policies to deal with the financial crisis, given their bearing on the economic situation in Latin America. 66. Robert Shapiro and Nancy Soderberg, “Argentina Has a Bond It Wants to Sell You,” Wall Street Journal, February 27, 2009. 67. For a scan of the full text of the agreement, see Argentine Peso/Chinese Yuan Bilateral Currency Swap Arrangement between the Central Bank of Argentina and the People’s Bank of China, signed by Martín Redrado and Zhou Xiaochuan, La Nación, March 29, 2009, www.lanacion.com.ar. 68. The Argentine Industrial Union expressed its concern that the swap would help China to increase its exports to Argentina at a time in which Argentina had stiffened the rules for imports in an attempt to prop up its national industry. Carlos Pagni, “El texto del acuerdo con China justifica el temor de la UIA,” La Nación, April 11, 2009. 69. Ministry of Foreign Affairs of the People’s Republic of China, China’s Policy Paper on Latin America and the Caribbean. 70. Interestingly, China’s policy paper on Latin America stresses “political stability” as the most important achievement in the region. 71. Pew Global Attitudes Project, 47-Nation Pew Global Attitudes Survey; Lagos, “Role of Western World Powers in Promoting Democracy and Defending Peace.” 72. Helmke and Levitsky, Informal Institutions and Democracy, 1, 5.

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73. Hilgers, “Recentering Informality on the Research Agenda.” 74. Van Cott, “Dispensing Justice at the Margins of Formality.” 75. Helmke and Levitsky, Informal Institutions and Democracy, 2. 76. O’Donnell, “Informal Institutions, Once Again.” 77. Helmke and Levitsky, Informal Institutions and Democracy, 5. 78. O’Donnell, “Informal Institutions, Once Again.” 79. Helmke and Levitsky, Informal Institutions and Democracy. 80. See Gold, Guthrie, and Wank, Social Connections in China; Chen and Chen, “On the Intricacies of the Chinese Guangxi”; Hurst, “‘Comrade Can You Spare a Dime?’”; Hongying, “Informal Institutions and Foreign Investment in China”; Bell, “Guanxi: A Nesting of Groups.” 81. The following statement (from a city official in Harbin) offers a fine illustration: “We have a policy to issue interest-free loans to laid-off workers for the purpose of opening small businesses. Almost no workers under my jurisdiction have applied for these loans. It seems that many people think they need to have some sort of special abilities or relationships to apply.” As quoted in Hurst, “‘Comrade Can You Spare a Dime?’” 14. 82. Smart, “Gifts, Bribes, and Guanxi.” 83. Helmke and Levitsky, Informal Institutions and Democracy, 1, 5–7. 84. Clemens, “Securing Political Returns to Social Capital,” 247, 250. See my analysis in Armony, The Dubious Link. Interestingly, social capital does not have the same portability; therefore, it cannot be easily transferred from one setting to another. 85. GPS capital is knowledge that facilitates social navigation. 86. Heilmann, “Experimentation under Hierarchy.” 87. See Yan-Leung Cheung, Lihua Jing, P. Raghavendra Rau, and Aris Stouraitis, “Guanxi, Political Connections, and Expropriation: The Dark Side of State Ownership in Chinese-Listed Companies,” April 2005, http://www2.sa.unibo.it/seminari/Papers_ Bajo-Corrado/raghu.pdf; Bailey, “Corruption and Democratic Governability in Latin America.” 88. Transparency International, Bribe Payers Index, 2008 Report, http://www .transparency.org. The index measures the likelihood that companies would bribe highranking politicians and low-level public officials, and the use of personal or familiar relationships in public contracting. It is significant that China and the only two Latin American countries included in the survey (Brazil and Mexico) are ranked among the most likely to bribe. 89. Lock Reyna, “De la tiendita al supermercado.” 90. McKeown, “Chinese Diaspora.” 91. Kent, “A Diaspora of Chinese Settlement.” Off-the-record accounts speak about cooperation between these criminal rings and Latin American public officials, involving, for example, the “sale” of passports for Chinese immigrants. 92. O’Donnell, “Informal Institutions, Once Again.” 93. China’s successful strategy to break Western dominance on Africa’s resources and markets owes a great deal to GPS capital, which has oriented Beijing in the best use of symbolic diplomacy, for example. See Alden, “China’s New Engagement with Africa.” China’s foreign aid programs involve a high degree of informality, and the nonconditionality of China’s economic assistance has generated significant criticism in the United States and the European Union. See Lum, “Comparing Global Influence”; Huang, “A Comparative Study of China’s Foreign Aid”; Naím, “Rogue Aid.” Also see Campbell, “China in Africa.” 94. I owe this insight to Gonzalo S. Paz. 95. To my knowledge, this decision has not yet been made public.

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96. See Sikkink, Ideas and Institutions. 97. See Halper, The Beijing Consensus. 98. David Shambaugh, “Prospects of a Strategic Sino-US Ties High,” China Daily, May 5, 2009, 9; Paul Ritcher, “Clinton Sees China, Iran Inroads in Latin America,” Los Angeles Times, May 2, 2009; Charley Keyes, “Clinton Warns of Iranian, Chinese Gains in Latin America,” CNN Politics.com, May 1, 2009, http://edition.cnn.com. 99. See Zweig, “Resource Diplomacy under Hegemony.” 100. In May 2009, China and Brazil signed a major loan-oil deal. China’s US$10 billion loan to Petrobras represents the largest loan Brazil ever received from China. See Li Xiaokun and Zhang Haizhou, “$10b Loan-Oil Deal Lubricates Trade,” China Daily, May 20, 2009, 1. Also significant is China’s entry into the Inter-American Development Bank (IDB), not only because of Beijing’s financial contribution to economic and social programs but also because of its ideas about how to use these resources, for instance, emphasizing trust funds to help provincial and municipal governments as well as small and middle-size enterprises. Despite these investments, China nevertheless represents serious competition for Latin America, especially in the US market. See Jenkins, “China’s Global Growth and Latin American Exports.” 101. Kurlantzick, Charm Offensive, especially Chapter 4. 102. Also see Cox, “Latin America in 2009.” 103. Simon Romero, “Economies in Latin America Race Ahead,” New York Times, June 30, 2010. 104. Halper, The Beijing Consensus, 126. 105. See the concept of the “second law of political dynamics” in Schmitter, “Twenty-five Years, Fifteen Findings.” 106. Latinobarómetro, Informe 2009, 29.

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3 Ten Key Questions Jiang Shixue

IN RECENT YEARS, CHINA’S RELATIONS WITH LATIN AMERICA have developed rapidly, attracting attention from the United States and beyond.1 In this chapter, I clarify, point by point, the Chinese government’s approach to nine of the most pressing questions on the topic: (1) Why is Latin America important for China? (2) What are the most recent advances in the bilateral relationship? (3) What are the main problem areas? (4) What are the key areas of misunderstanding? (5) What is the significance of Sino–Latin American relations for the United States? (6) Will the current international financial crisis generate any new opportunities for cooperation? (7) How should we understand China’s first-ever policy paper toward the region? (8) What kind of role can overseas Chinese communities play in promoting the bilateral relations? (9) How does “the Taiwan issue” affect Latin America? I conclude with some reflections on an encompassing final question: (10) How does China’s attempt to build South-South cooperation differ from neocolonialism?

1. Why Is Latin America Important for China? For the past three decades, China’s economy has been growing at high speed, but the growth is based on the consumption of natural resources and raw materials. China is a large nation with abundant resources, but in per capita terms, access to raw materials and commodities is limited, in part because of inadequate infrastructure. In 2007, China’s oil reserves were about two billion tons (or 1.6 tons in per capita terms) and output was 190 million tons. According to current levels of production, the world’s known oil reserves will near depletion in approximately fifty years, but in China, reserves will last for only eleven years.2 Furthermore, by 2020, China will be self-sufficient in only five 51

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of the nineteen major metal minerals. China’s economy is resource intensive and relatively inefficient, and in order to protect employment and ease social tensions, Chinese enterprises will in all likelihood intensify their resource imports from abroad. Latin America is well endowed with natural resources; indeed, the availability of commodities is the region’s comparative advantage. It is also endowed with a large market of 560 million consumers and $4 trillion gross domestic product (GDP), and therefore offers Chinese manufacturers a destination for labor-intensive products. Taken together, these points suggest fertile ground for mutually beneficial cooperation between China and Latin America. China’s relations with Latin America also have political dimensions. For instance, the Chinese government is committed to promoting a harmonious world order, and regards cooperation and interdependence with Latin America and other developing regions as a mechanism for reaching this goal. Latin America is also diplomatically important for China in relation to Taiwan, because twelve of the twenty-three nations that maintain relations with the Chinese province of Taiwan, as discussed below, are located in the region. At the most encompassing level, China is interested in Latin America’s economic and political history because, as a member of the developing world, China can draw lessons and insights from the region’s multiple paths of development.

2. Recent Advances in Sino–Latin American Relations China’s relationship with Latin America has never been more intense and multifaceted than at present. In November 2004, Chinese president Hu Jintao visited Latin America, and just two months later Vice President Zeng Qinghong also visited. Similarly, President Hu Jintao went to Latin America in November 2008 and Vice President Xi Jinping followed in early 2009. No other country has ever sent top leaders to Latin America with such great frequency. Economic cooperation continues to bind China and Latin America closer together. Chinese vice president Xi Jinping has stated that bilateral trade increased tenfold since 2000 to reach a high of $143 billion in 2008, making China the region’s second-largest trading partner after the United States.3 During the 1990s, China’s trade deficit with Latin American countries shifted to become a small surplus, but between 2003 and 2005, the Sino–Latin American trade balance turned negative again for China. In 2006, China generated a surplus of more than $2 billion, but this surplus dwindled to $0.4 billion in 2007, and according to Chinese government figures, China was once again in deficit in 2008. In the late 1990s, the Chinese government implemented the “go global” strategy, encouraging national enterprises to make direct investments in developed and developing countries. Latin America is an attractive destination for Chinese investment, and by the end of 2007, China’s stock of direct investment

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in Latin America and the Caribbean had reached $25 billion, accounting for 21 percent of its $118 billion of worldwide foreign direct investment (FDI).4 This expansion of investment has been accompanied by the negotiation of free trade agreements (FTAs). In November 2005, China signed its first Latin American FTA with Chile; in November 2008, it concluded FTA negotiations with Peru, and in early 2009, China and Costa Rica officially initiated FTA talks.5 In October 2008, after fifteen years of efforts, China’s entrance into the Inter-American Development Bank (IDB) was approved by the other member countries.6 In early 2009, China formally joined the IDB as its forty-eighth member nation, contributing $350 million to its programs.7 China purchased 184 shares, or 0.004 percent of the IDB’s ordinary capital, which became available after the breakup of Yugoslavia. Membership allows China to bid for projects financed with IDB loans at a time when the institution’s prominence in Latin America is growing. It will also permit China and Latin America to exchange market information, harmonize approaches to development and governance, and generally build a better understanding of each other. China has also stepped up its engagement with other regional bodies, such as Mercosur, the Rio Group, and the Andean Community. In almost all of the thirty-three countries of the region, the Communist Party of China has built working relations with more than eighty political parties from the left, right, and center. More than one hundred pairs of Chinese and Latin American provinces and cities have established “sister city” or comparable relationships. This proactive approach has produced tangible results in scientific and technological cooperation. For instance, in 1999, 2003, and 2007, China and Brazil jointly launched three remote sensing satellites, demonstrating the sincerity with which both sides have pursued South-South cooperation. Building on these achievements, in October 2008, China successfully sent a Venezuelan telecommunication satellite into space. The satellite, produced by China Aerospace Science and Technology Corporation, with a longevity of fifteen years, is the first telecom satellite used by Venezuela for broadcasting educational and medical programming. In October 2004, a ninety-five-member unit of officers from China’s riot police force was sent to Haiti to join United Nations operations there, representing China’s first deployment in overseas peacekeeping duties. The unit’s task was to enhance the capacity of the local police to enforce laws, assist with mass public security emergencies, and serve as a guard on important public occasions. In January 2005, the Chinese peacekeepers were awarded a UN peace medal for their outstanding performance.

3. Problem Areas in China–Latin America Relations Despite the rapid advancement of Sino–Latin American relations, or perhaps because of it, some problems have emerged. Closer economic ties have

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produced trade frictions, related in some cases to a perceived “China threat” to the region. At its worst, this fear has been expressed in official statements such as those of Carlos Zúñiga, the Nicaraguan Central America Free Trade Agreement (CAFTA) negotiator, who argued that, “China is an awakening monster that can eat us.”8 In a similar vein, Roberto Giannetti da Fonseca, head of trade issues at the São Paulo state industrial group FIESP, suggested that China is “not a strategic partner,” and merely “wants to buy raw materials with no value added and to export consumer goods.”9 Although thirteen Latin American countries have granted market-economy status to China, trade frictions have become frequent. In 1993, Mexico became the first Latin American country to levy antidumping tariffs against Chinese products, as high as 1,105 percent in the case of Chinese shoes, and since then, most other countries in the region have also filed antidumping cases against China. Insofar as antidumping grievances are employed as an economic strategy by Latin America, China has been the primary target. Business groups have expressed concern that foreign investors seeking cheaper labor costs have diverted their capital away from Latin America to China. According to a report by the Inter-American Development Bank, however, the contraction of foreign direct investment inflows into Latin America cannot be attributed wholly to China’s rise, but rather in part to internal regional factors.10 Half a century ago, the renowned Argentine economist Raul Prebisch and others predicted that the terms of trade for Latin America and other developing countries would become increasingly worse. With the hindsight of China’s emergence, Prebisch would perhaps now revise this thesis. China’s imports of commodities and raw materials have favored resource-endowed countries by pushing up prices in the world market, while low labor costs have enabled China to export affordable manufactured goods to the developing world. Consequently, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) concludes that China has contributed to Latin America’s high growth rate in recent years.11 Similarly, a study by the Organization for Economic Cooperation and Development (OECD) asserts that “Chinese trade impact on Latin America is, in the short and medium run and in general terms, positive. . . . On average, and from the point of view of trade impact, Latin America will benefit from increased Chinese demand and growth.”12 It should, however, be pointed out that China’s impact across Latin America has been uneven. While South American countries benefited from the rise in commodity prices up until 2008, Mexico and its neighbors in Central America and the Caribbean rely on the export of labor-intensive manufactures and have therefore faced stiff competition from China both in their domestic markets and in the United States. The IDB calculates that between 2001 and 2003, Mexico’s exports to the United States, its largest foreign market, decreased by 5 percent, while China’s share grew by 35 percent.13 This is a highly charged

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topic for the countries concerned, and in good faith, China has accommodated a range of local measures to minimize negative results, for instance, by approving a four-year extension of Mexico’s tariff quotas on Chinese imports, which had been due to expire in 2007. In the age of globalization, competition is the norm, and Mexico, Central America, and the Caribbean are under competitive pressure not only from China but also from other emerging economies.

4. Areas of Misunderstanding Cultural and political differences, language barriers, and geographical distance complicate the future development of Sino–Latin American relations. A Miami Herald article entitled “China, Latin America: A Dance of Two Strangers” put it this way: “While China’s trade and diplomatic relations with Latin America are surging, average Chinese know little about the region. Most Chinese have difficulty naming any Latin personalities or leaders other than singer Ricky Martin and Ronaldo, the Brazilian soccer star.”14 Similarly, a survey conducted by the Institute of Latin American Studies at the Chinese Academy of Social Sciences from 2007 to 2008 revealed that 2,648 respondents from across mainland China knew very little about Latin America. However, many expressed a desire to learn more, and 76 percent indicated their hope that economic cooperation between the two sides will expand. According to the Miami Herald, Latin Americans do not know much about China either: “Chinese who venture to Latin America say they find people familiar with Japan, South Korea, and Taiwan—especially consumer products from those nations—but not China.”15 David Shambaugh, director of the China Policy Program at George Washington University, has expressed similar concerns. In an article subtitled “Economic Interaction Is Growing, but Not the Region’s Knowledge About China,” the China expert advises: Educational exchanges are needed, as Latin publics and governments remain woefully unknowledgeable about China. Only two bona fide university programs in Chinese studies exist in the region—Mexico City and Buenos Aires. Beijing’s community of Latin American experts in universities, think tanks, and government far outstrip their Latin counterparts, and the dearth of expertise means that Latin governments lack Chinese speakers and specialists to cope with Beijing’s blitz into the region.16

The lack of understanding has at times produced diplomatic complications. In February 2007, at a ceremony inaugurating the opening of a China-financed sports stadium in Grenada, the Grenadian band performed Taiwan’s so-called national anthem. According to a news report, both the Chinese ambassador and the Chinese workers who built the twenty-thousand-seat Queen’s Park Stadium were visibly uncomfortable. “The unfortunate error breaks my heart,” Grenada’s prime minister said.17

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Opinion polls conducted in November and December 2004 in Argentina, Brazil, Chile, and Mexico revealed a generally positive view of China’s influence in the world (see Table 3.1). Interestingly, perceptions of China in these countries were more benign than in the United States and Japan. Respondents in all six countries expressed a generally negative view of “China’s growing military power.” Perhaps the most publicized Sino–Latin American misunderstanding concerns Hu Jintao’s November 2004 speech to the Brazilian Congress, in which some observers perceived a promise that China would invest $100 billion in the region. In the following years, many Latin Americans expressed disappointment that there was “lots of smoke and little fire.” President Hu did mention the figure of $100 billion, but he was referring to the target value of China–Latin American trade by the year 2010, and not to investment. With regard to investment, President Hu hoped that both China and Latin America would make efforts to double the then-existing stock of Chinese investment to $4 billion.

5. The US Factor in Sino–Latin American Relations China’s engagement with Latin America has raised concerns in the United States. In April 2006, for the first time in history, a senior US official, Assistant Secretary of State for Western Hemisphere Affairs Thomas Shannon, visited Beijing to talk with his Chinese counterpart about China’s relations with Latin America. At the end of 2007, the head of the Latin America Department in the Chinese Ministry of Foreign Affairs went to Washington, D.C., for the same purpose, and in November 2008, Shannon came to Beijing again. At a hearing of the Western Hemisphere Subcommittee of the House International Relations Committee in April 2005, US Congressman Dan Burton said: Table 3.1

Latin American Opinions of China, 2004 China’s Influence in the World

Chile Brazil Argentina Mexico United States Japan

China’s Growing Economic Power

China’s Growing Military Power

Positive

Negative

Positive

Negative

Positive

Negative

56 53 44 33 39 22

15 32 26 28 46 25

48 48 30 54 46 35

23 35 41 18 45 23

21 31 14 33 19 3

53 50 58 37 75 78

Source: PIPA, “22-Nation Poll Shows China Viewed Positively by Most Countries Including Its East Asian Neighbors,” cited in Domínguez et al., China’s Relations with Latin America.

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I believe China’s rising economic, political, and military influence in the Western Hemisphere poses serious challenges to the United States in the years ahead. And if we are not careful, Beijing’s influence could easily unravel the region’s hard-won, U.S.-backed reforms to fight against corruption and human rights abuses, increase government transparency, and combat intellectual property violations, and the democracies that we see as fledgling democracies could be in real jeopardy. We must work in earnest to prevent this from happening.18

While the news media in the United States has enflamed this negative perception of China, there are other voices.19 One of these is Manuel Rocha, former US ambassador to Bolivia, who has stated that engagement with China has benefited Latin American economic performance. Similarly, Jorge I. Domínguez has written that “China’s engagement in Latin America is not yet a major concern for the United States, and there are few signs of any real frictions between the two countries on that score.”20 Daniel P. Erikson of the US Department of State (then working at the Inter-American Dialogue) confirmed this point in his 2008 testimony before the House Committee on Foreign Affairs: While China’s expansion into Latin America may imply a potential loss for some U.S. business sectors, it is important to note that trade is not a zero-sum game. To the extent that China’s involvement is sparking economic growth in Latin America, it may contribute to economic stability and well-being in a manner that suits the U.S. desire to see a prosperous and healthy neighborhood.21

The Chinese government understands that Latin America is perceived by Washington as the backyard of the United States, and does not endeavor to challenge that perception. That said, both China and Latin America are opening to the outside world and have much to gain from cooperating with each other. More integrated security arrangements are an important component of this cooperation, but have also raised concerns in Washington. To clarify its intentions, China’s first policy paper toward Latin America dedicates a section to military ties, stating that professional exchanges in military training and peacekeeping will deepen in the coming years, as will assistance with the development of Latin American and Caribbean militaries. China’s principles for military cooperation with foreign countries are (1) to gain better understandings of Latin American militaries, (2) to improve professional expertise through mutual training, (3) to avoid targeting any third party, and (4) to never upset regional and hemispheric stability. China has established military exchanges with eighteen Latin American countries in order to facilitate the exchange of high-level officers and to collaborate in computer networking, hydrometeorological integration, educational training, and conventional weapons sales. In the cultural sphere, China has sent a military band to the Caribbean on a performance tour, provided

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teachers to Caribbean countries to offer lessons in playing military music, and sent military professors to Chile and Argentina to lecture on Sun Zi’s Art of War. An enduring point of tension with the United States, as discussed below, is the Taiwan issue. When asked by the author about the twelve Latin American countries that maintain diplomatic relations with Taiwan, Thomas Shannon replied that the United States has never interfered with their foreign policies, and that concern about US reprisals has been cited by some Central American and Caribbean countries as an excuse to justify their continued recognition of Taiwan.22

6. The Economic Crisis and New Opportunities for Cooperation The current crisis provides a rare opportunity for the advancement of Sino–Latin American relations. Despite the downward pressure the crisis has brought to bear on demand for resources, three areas of cooperation will likely intensify. First, both sides should play an active role in the reformation of the international financial system. As Hu Jintao stated at the G20 summit in Washington, D.C., China would like to see a coordinated system of financial supervision and regulation in which developing countries exert more influence in major financial organizations. Similarly, he proposed a more diversified international monetary system capable of generating liquidity. Latin American countries hold similar positions on this issue. As President Lula said in his speech to the plenary meeting of the ministers of finance at the G20 meeting in São Paulo on November 8, 2008, “The crisis started in advanced economies. It is a result of the blind belief in the market’s self-regulation capacity and, by and large, of the lack of control of the activities of financial agents.”23 A similar viewpoint was expressed by Mexican president Felipe Calderón in his press statement at the G20 summit in Washington, D.C.: “Discussion forums must be more inclusive, because they are almost exclusively dominated by developed nations. . . . The invisible hand failed and it is now up to the visible hand of the state to correct inequalities and imbalances.”24 Second, in light of the contraction of developed country markets, China and Latin America can help each other to expand trade. In March 2009, China signed a 70-billion-yuan (US$10.25 billion) currency swap agreement with Argentina. Under such a framework, Argentine importers could use the Chinese currency—renminbi—instead of the US dollar, to settle deals with Chinese exporters. Other Latin American countries, including Brazil, have expressed interest in this mechanism, which China has already implemented with South Korea, Malaysia, Indonesia, and Belarus.

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Third, the global financial crisis could bring about more direct bilateral investments, facilitated by China’s recent success in gaining membership in the Inter-American Development Bank. With this in mind, Latin American countries could take important steps to improve their investment environment. Chinese investors often complain that trade unions in the region are too militant, that red tape and corruption are prevalent, and that the laws and regulations governing foreign investment are overly complicated. In some countries, rising crime and political uncertainty have also jeopardized the region’s attractiveness.

7. China’s First Policy Paper on Latin America: Loud Voice or Silent Action? November 5, 2008, was a milestone date for the development of China–Latin America relations; on that day, China issued its first policy paper on Latin America and the Caribbean. The paper was published shortly before President Hu Jintao’s trip to Peru for the Asia-Pacific Economic Cooperation (APEC) summit and then to Costa Rica and Cuba for official visits. The paper’s intention was to make China’s aspirations in Latin America more transparent and to harmonize its approach to the region with those described in policy papers on the European Union (2003) and Africa (2006). With peaceful coexistence and South-South cooperation as its underlying theme, the policy paper covers international affairs, judicial and police matters, science and technology, education, medicine, climate change, disaster relief, and exchanges between militaries, legislatures, local governments, political parties, and high-level officials. Of the paper’s five thousand Chinese characters, fourteen hundred are devoted to economic cooperation, including trade, investment, finance, agriculture, manufacturing, infrastructure, resources, energy, customs, quality inspection, tourism, debt reduction and cancellation, and economic and technical assistance. The paper recognizes that Latin America and the Caribbean are well endowed with natural resources and harbor great potential for development. It also acknowledges the region’s increasingly important role on the world stage, and for the first time describes the Sino–Latin American relationship as having strategic significance. On Taiwan, it notes that “China is ready to establish and develop state-to-state relations with all Latin American and Caribbean countries based on the one China principle,” and on military relations, that “the Chinese side will actively carry out military exchanges and defense dialogue and cooperation with Latin American and Caribbean countries.”25 In line with the teachings of Deng Xiaoping, some Chinese analysts argue that China should take silent actions and avoid speaking loudly, and that the publication of the policy paper contradicts this strategy. However, as Argentine

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president Cristina Fernandez de Kirchner—the first Latin American president to read the paper—has publicly recognized, China is playing an increasingly important role in international affairs and the paper’s open declaration of intentions will facilitate interregional cooperation.

8. Bridges to Latin America: The Overseas Chinese The first group of Chinese to set foot in the New World arrived in Mexico and Peru in the late sixteenth century. Traveling via Manila, these early migrants became known as “Manila Chinese.” In the mid-nineteenth century, Portuguese and British colonial traders shipped a larger wave of Chinese laborers to Latin America and the Caribbean.26 Most of these laborers, or “coolies,” worked in the plantations and mines and in the construction of railroads. The overseas Chinese pioneers made some important contributions to the development of Latin America, including the digging of the Panama Canal. Overseas Chinese fought in Cuba’s Ten Years’ War (1868–1878), and Chinese Cubans, including some Chinese-Americans from California, joined the Spanish-American War in 1898 to achieve Cuba’s independence from Spain. There is a monument in Havana engraved with the legendary words of the nineteenth-century Cuban general, Gonzalo de Quesada: “No hubo un chino cubano desertor, no hubo un chino cubano traidor” (There was not a single Chinese Cuban deserter, nor a single Chinese Cuban traitor). With the establishment of the People’s Republic of China in 1949, protecting the rights of the overseas Chinese became a foreign policy priority. As there were no diplomatic relations between China and Latin America in the 1950s, Chinese communities in the region had little contact with their homeland. The situation improved in the 1970s, when many Latin American countries normalized their relations with China. In 1978 Deng Xiaoping implemented the open-door policy, and overseas Chinese communities came to function as a “connecting bridge” between China and the world. Most counties and municipalities in China have a special governmental office responsible for dealing with affairs related to the overseas Chinese. There is no accurate calculation of the number of Chinese residing in Latin America, but it is safe to say that it amounts to several hundred thousand, with heavy concentrations in Brazil and Peru. As in other countries, the Chinese in Latin America have excelled in the business sector, and some have become involved in politics. One of the most notable figures was Arthur Chung, president of Guyana from 1970 to 1980. Born in the British colony of Guyana to immigrant parents from China, Chung was educated in the United Kingdom before returning home to work as a lawyer. During the 1960s, he served as a judge and later sat on the Supreme Court. In 1970, parliament appointed him Guyana’s first president after independence.

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Overseas Chinese in Latin America are generally pleased to see China’s rise on the world stage. Their support for China was evident in the unexpected level of financial aid they provided to the people of Sichuan Province when it was struck by an earthquake in May 2008, and in their strong opposition to Chen Shui-Bian’s efforts to gain independence for the Province of Taiwan. A joint communiqué issued in 2005 by nineteen Chinese associations based in Argentina stated, “We firmly support the anti-secession law and will try our best to cooperate with the Chinese mainland to actively promote the development of relations across the Taiwan Strait and the peaceful reunification of China.”27 Overseas Chinese communities in Latin America play an important role in promoting bilateral economic relations. As noted in many of this volume’s chapters, these communities have assisted Chinese trade and investment initiatives with their language skills, knowledge of the market, business networks, and long-established guanxi (network of informal social relationships) with the local governments. This support has been extremely useful for Chinese investors wishing to develop projects in Latin America.

9. The Taiwan Issue in Sino–Latin American Relations The government of the People’s Republic of China (PRC) is recognized by the United Nations and throughout the world as the sole legal government representing the Chinese people. Lying off China’s southeastern coast, Taiwan is the country’s largest island, and since ancient times has been integrally linked to the mainland. Its diplomatic status only became an issue in the aftermath of the civil war instigated by the Kuomintang Party, and since the founding of the People’s Republic, the Chinese government has persistently worked toward reunification under the principle of “one country, two systems.”28 All countries maintaining diplomatic relations with China have undertaken, in formal agreement with the Chinese government, not to establish any ties of an official nature with Taiwan. According to international law, a sovereign state can only be represented by a single central government, and Taiwan therefore has no right to independently establish diplomatic ties or enter into relations of an official nature with foreign countries.29 Taiwan has established ties with twelve Latin American countries, eleven of which are in Central America and the Caribbean (Belize, the Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Nicaragua, Panama, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines), and one of which is in South America (Paraguay). During his trip to Central America in September 2005, Chen Shui-Bian agreed to provide substantial sums of money to governments willing to recognize Taiwan, and to fund the construction of an airport in Guatemala. Sources report that the Guatemalan government would

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potentially have cut off its diplomatic ties with Taiwan had it not reached this agreement. Since 1993 Taiwan has actively encouraged the countries that recognize it, including those in Central America and the Caribbean, to raise the “question of Taiwan’s representation in the United Nations.” These attempts have now failed over ten times because, as China’s permanent representative to the United Nations, Wang Guangya, noted in 2004, the adoption of Resolution 2758 by the UN General Assembly solved the issue of China’s representation in 1971. On June 1, 2007, China made a historical breakthrough when Costa Rica became the first Central American country to establish diplomatic relations with the PRC. According to the resulting joint communiqué, “The Costa Rican government recognizes that there is only one China in the world and the government of the People’s Republic of China is the sole legitimate government representing the whole of China. Taiwan is an inalienable part of the Chinese territory.” In November 2008, Hu Jintao became the first Chinese leader to visit Costa Rica, and despite the economic, political, and geographic differences between the two countries, FTA negotiations were commenced. It is expected that the FTA will increase China’s exports to Costa Rica by 17.88 percent and Costa Rica’s exports to China by 15.87 percent.30 Costa Rica is already China’s second-largest Central American trading partner, and its comparative advantage in electronic products will facilitate its entry into the Chinese market.

10. Neocolonialism vs. South-South Cooperation The term neocolonialism refers to the continuing exploitation, typically by external business interests, of nations once colonized by foreign powers. China’s economic relations with Latin America have sometimes been characterized this way, but it is my contention that the preceding nine sections demonstrate a relationship more accurately described as “South-South cooperation.” Rapid economic growth in China has reduced the number of citizens living below the absolute poverty line, from 250 million in 1978 to 14.8 million in 2007 (from 30.7 percent of the population to 1.6 percent), but China is still a developing country. Those Chinese enterprises that have begun to invest in Latin America consider host-country poverty reduction a key objective; they are well aware of the continent’s colonial past, and have adopted corporate responsibility programs to maximize local benefit. One of the most significant of these companies is China National Petroleum Corporation (CNPC), which has provided $20,000 for a school for the Peruvian city of Talala, and every Christmas spends approximately $4,000 to keep the school equipped with educational materials.

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When Peru’s central coast was hit by a magnitude 7.5 earthquake on August 15, 2007, CNPC shipped three truckloads of food, 500 cartons of mineral water, 200 cartons of milk, 500 kilograms of rice, and 250 kilograms of sugar into the disaster area. Also in 2007, CNPC donated $662,000 to Petrosiven of Venezuela to improve power and water supply systems, to build livestock and dairy farms, and to develop tapioca processing plants. It also spent $114,700 to improve educational facilities in six local schools.31 CNPC has also demonstrated its concern for local ecosystems, for instance, by using three-dimensional seismic exploration technology to avoid damaging the rain forest of northeastern Ecuador. Furthermore, new wells were drilled in existing sites to minimize the operational land use and protect biodiversity. European and US environmental protection standards have provided useful guidelines for reducing waste discharges from power generation, oil refining, and water treatment. For its adoption of these measures, the CNPC Andes Petroleum division was granted the World Oil HSE/Sustainable Development Award. The terms of trade that most Latin American countries enjoy with China are completely distinct from colonial antecedents. Rather than suppressing commodity prices and maximizing the price of manufactured goods, as colonial systems did, engagement with China has generated the opposite results. Chinese demand has driven up community prices, while the products that China exports are affordable even for economically challenged sectors in Latin America. Furthermore, while colonial powers sought to monopolize markets by discouraging the development of industries in their colonies, China invests actively in technology transfer programs, which have assisted the development of local industries across the continent. The most encompassing characteristic of neocolonialism is its interference with the political destinies of sovereign states. Like all countries, China is attempting to define both its own place in the world and develop mutually beneficial relationships. It is inevitable that mistakes will sometimes be made, but Chinese leaders and analysts recognize the importance of learning from both their own errors and those of other countries. Ultimately, the creation of more harmonious and peaceful international systems will require this kind of genuine openness and mutual respect. In the case of Latin America, the strategy so far adopted by China for realizing this goal can best be described as “South-South cooperation.”

Notes 1. In the past several years the author has been interviewed by embassy officials and journalists from Europe, Asia, the Middle East, Oceania, and Latin America. I have also been invited to participate in more than ten international conferences, seminars,

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and workshops, speaking on China’s relations with Latin America. Even the World Economic Forum on Latin America has more than one panel on this topic. As one panelist from an international conference said, “Everybody is interested in China–Latin American relations.” 2. Chinese Academy of Social Sciences, “Zhongguo Shenhui Kexueyuan Bao.” 3. See Consulate-General of the People’s Republic of China in New York, “Chinese VP Talks about Bilateral Ties, Cooperation, Common Development in Venezuela,” February 19, 2009, http://newyork.china-consulate.org; also see Chinese Ministry of Commerce, “Comprehensive Department: Statistics,” 2009, http://zhs .mofcom.gov.cn. 4. Chinese Ministry of Commerce, 2007 Statistical Bulletin of China’s Outward Foreign Direct Investment, http://hzs2.mofcom.gov.cn. 5. In his report to the Seventeenth Party Congress, Hu Jintao, general secretary of the Central Committee of the Communist Party of China, noted that FTAs have become a key strategic tool for China. The purpose of this strategy is to reduce trade friction resulting from the rapid growth of China’s exports, particularly in the form antidumping cases brought before the World Trade Organization. To date, China has concluded seven FTAs and commenced negotiations on a further seven. 6. The twenty-six Latin American and Caribbean borrowing nations own 50.01 percent of the IDB, while the United States holds 30 percent of shares. 7. At the first China–U.S. Strategic Economic Dialogue in December 2006, the United States promised to support China in its bid to join the IDB. At the IDB’s annual meeting, held in March 2007, in Guatemala City, China’s Central Bank president Zhou Xiaochuan and the IDB president Luis Moreno signed a memorandum of understanding on China’s entry into the bank, laying down a framework for formal negotiations between the two sides for membership. 8. Quoted in Gallagher and Porzecanski, “China Matters,” 185. 9. “Brazil and China: Falling Out of Love,” The Economist, August 4, 2005. 10. Devlin, Estevadeordal, and Rodríguez, The Emergence of China, 163. 11. Economic Commission for Latin America and the Caribbean, Latin America and the Caribbean in the World Economy: 2004 Trends. 12. Blázquez, Rodríguez, and Santiso, “Angel or Devil? China’s Trade Impact on Latin American Emerging Markets.” 13. Devlin et al., The Emergence of China, 163. 14. Tim Johnson, “China, Latin America: A Dance Of Two Strangers,” Miami Herald, June 10, 2005. 15. Ibid. 16. David Shambaugh, “China’s New Foray into Latin America,” Yaleglobal, November 17, 2008, http://yaleglobal.yale.edu. 17. BBC, “Grenada Investigates Anthem Gaffe,” February 4, 2007, http://news .bbc.co.uk. 18. Dan Burton, opening statement, “China’s Influence in the Western Hemisphere,” 7. 19. Typifying the inflammatory rhetoric, see the article by Mary Anastasia O’Grady, “The Middle Kingdom in Latin America,” Wall Street Journal, September 3, 2004. 20. Domínguez et al., China’s Relations with Latin America, 2. 21. Erikson, “The New Challenge: China and the Western Hemisphere,” 3. 22. Author’s interview with Thomas Shannon at a reception in his honor in April 2006.

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23. Ministério da Fazenda de Brasil, speech of the president of the republic, Luiz Inácio Lula da Silva, during the Plenary Meeting of the Ministers of Finance at the G20 meeting in São Paulo, November 8, 2008, http://www.fazenda.gov.br/portugues/ releases. 24. Felipe Calderón, press statement by Mexican president Felipe Calderón, 2008, http://www.presidencia.gob.mx. 25. Ministry of Foreign Affairs of the People’s Republic of China, China’s Policy Paper on Latin America and the Caribbean. 26. Eager to import Chinese labor, Brazil offered to establish diplomatic relations with China in the late nineteenth century. In 1880, in the Chinese city of Tianjin, the two countries signed a treaty of friendship, instating diplomatic ties and guaranteeing the free movement of people and goods between them. 27. Quoted in “Roundup: Overseas Chinese Communities Back Anti-Secession Law,” People’s Daily, March 16, 2005. 28. Taiwan Affairs Office of the State Council and Information Office of the State Council, White Paper on the Taiwan Issue: The Taiwan Question and Reunification of China, Beijing, August 31, 1993, http://www.china-embassy.org/eng/zt/twwt/ White%20Papers/t36704.htm. 29. To support Taiwan’s economic and social development, the Chinese government has not objected to nongovernmental economic and cultural exchanges between Taiwan and foreign countries. 30. Chinese Ministry of Commerce, China–Costa Rica Free Trade Agreement Joint Feasibility Study, August 15, 2008, 79, http://fta.mofcom.gov.cn/costarica/ yanjiubaogao. 31. China National Petroleum Corporation, Corporate Social Responsibility Report, 2007, http://www.cnpc.com.cn.

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4 Economic Fundamentals of the Relationship Javier Santiso and Rolando Avendano

THE GLOBAL FINANCIAL CRISIS HAS SUPERIMPOSED A NEW dimension onto Latin America’s commercial and business relations with China. Latin America was not spared the impact of the global recession in 2008–2009, partly due to endogenous factors but also to exogenous ones. China’s resilience to the global slump has nevertheless been a blessing for Latin America, particularly for Brazil and Peru, for which China became a leading export destination and important driver of growth. Trade and investment flows between the two regions have increased considerably since the 1990s and boomed spectacularly during the last decade, as Latin America enjoyed sustained annual growth rates of around 5 percent, and China contributed over one-fourth of total global GDP growth. In 2008, the global meltdown originating in OECD (Organization for Economic Cooperation and Development) countries interrupted the boom enjoyed by the region. Having dried up international investment and damaged the real economy on both sides of the Pacific, it remains to be seen whether the financial crisis will have lasting effects on Sino–Latin American economic and business relations. Ten years ago this question would have been irrelevant, but the (re)emergence of China as a global economic power has changed the picture: what happens in the Far East now matters for Latin America. In 2009, for instance, China poured $585 billion of stimulus money into its domestic economy to maintain its high growth rate, thereby sustaining demand for commodities from Latin America and elsewhere. Trade is the dimension of China–Latin America relations that epitomizes the ascendant partnership. Commercial exchange between the two regions jumped fifteenfold between 1995 and 2009, from approximately $8 billion to more than $100 billion. According to Chinese authorities, trade with the region in 2008 soared to more than $140 billion, 40 percent up year-on-year, and 67

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remained high despite the crisis. China is already Latin America’s third-largest trade partner, a status that is likely to climb as Beijing negotiates free trade agreements (FTAs) throughout the region. In Chile, where an FTA has been in place since 2005, China is already the number one trading partner. The result could be similar in Peru, where a free trade agreement was established by Presidents Hu Jintao and Alan García in November 2008, and took effect in March 2010. A similar agreement was reached with Costa Rica in 2010, which only reestablished diplomatic relations with China in 2007, but where China is already the second-largest trading partner. China’s trade and investment accords with Cuba and Venezuela illustrate the changing economic climate, as does its 2009 emergence as the main trading partner of Brazil, Latin America’s largest economy. According to the Economic Commission for Latin America and the Caribbean (ECLAC), by 2015 China will surpass the European Union as a destination for the region’s exports, and edge ever closer to the leading position currently occupied by the United States. While the European Union is expected to continue buying approximately 14 percent of Latin America’s exports, by 2020 China’s share is expected to reach 19 percent, up from 7.6 percent in 2009. The rise of China as an export market will come at the cost of exports to the United States (from 38.6 percent in 2009 to around 28 percent in 2020, according to ECLAC projections). This chapter outlines recent macroeconomic trends in China–Latin America relations and then discusses three influential, but ultimately mythical, ideas: (1) that China’s low labor costs are the key to its economic ascendance, (2) that China has diverted foreign direct investment (FDI) from Latin America and other developing regions, and (3) that China’s emergence has benefited resource exporters while disproportionately harming Latin American manufacturers. Next we analyze the extent to which China’s economic competition with Latin America may grow, and conversely, the prospect of the Chinese market as a destination for the latter’s exports. We explore three effective strategies adopted by Latin American firms to deepen South-South cooperation in response to intensifying Chinese competition, and conclude with a discussion of the importance of infrastructure, regional integration, and innovation as factors enabling more successful partnerships.

Macroeconomic Trends Over the past decade, emerging markets have contributed increasingly to world economic growth, and the global crisis of 2008–2010 has reinforced the crucial role that a number of emerging countries were already playing. In a context of low or inexistent economic growth, China’s unusually high growth rates position it (alongside India and Brazil) as an important contributor of global economic dynamism.

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The year 2008 will be remembered as one of worldwide economic turmoil driven by unsustainable mortgages, instability in commodity markets, and a weakening dollar. The effects for emerging markets, now that the “decoupling hypothesis” has been dismissed, have been serious. Latin America in particular had to deal simultaneously with multiple pressures: lack of capital, declining external flows (i.e., foreign investment, remittances), declining exports, inflationary pressures, and general financial instability. Despite the magnitude of the economic tsunami, the continent’s resilience has been impressive, exemplified by Brazil, which entered only mild recession in 2009 (with a GDP growth rate of –0.2 percent) and returned strongly to positive territory in 2010. The region’s generally healthy performance through the crisis reflects the implementation of appropriately responsive policies, but also the blessing of consistently high commodity prices sustained by Chinese demand. Economists at the Inter-American Development Bank (IDB) believe that China’s increased weight in total trade for Latin America, the United States, and the euro area has halved the impact of a global GDP shock on Latin American economies between 1995–1997 and 2005–2007. China’s appetite for natural resources is reshaping trade relations in the developing world. Asian exports to China have soared in the 2000s, reaching more than 20 percent of total exports for Taiwan and Korea. The same trend is becoming clearly visible in Latin America. In 2009, more than 23 percent of Chile’s exports went to China, while its exports to the United States accounted for just 11 percent. Chile is now trading more with China than any other country in the world, including the entire European Union (22 percent in 2009). The same applies to Brazil, a country that exports 13 percent of its products to China (10 percent to the United States), and Argentina, which exports more than 7 percent of its products to China (ahead of the 6.7 percent exported to the United States in 2009). As Figure 4.1 shows, Latin America is China’s fastest growing provider of imports among emerging regions, which together accounted for 8 percent of China’s imports in 2000 and 14 percent in 2009. Figure 4.1

Chinese Imports from the Emerging World, 2000 and 2009 2000

2009

1%

2%

2%

3%

2%

Africa Emerging Europe Latin America

5% 4%

3%

South Asia

Source: Authors’ calculations based on data from WITS Comtrade, UN, 2010.

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Trade patterns across Asia have also transformed. China’s neighbors now play the role of suppliers in global value chains, particularly in those that pass through China. Trade agreements such as ASEAN+3 and ASEAN+6 have strengthened the positions of Vietnam, Cambodia, Laos, and others as key providers for Chinese exporters in sectors such as textiles and high-tech goods. Latin America’s prospects for regional integration, conversely, are less certain. While trade in goods has consolidated for some specific sectors, it still goes hand in hand with high specialization patterns (Figure 4.2). In response to these unfavorable conditions, many Latin American governments have embarked on programs of South-South cooperation. In the same spirit as the North American Free Trade Agreement (NAFTA), trade agreements have consolidated economic ties between Chile and China, Mexico and Japan, Peru and China, and Costa Rica and China, to name a few. These agreements largely aim to facilitate the entry of Latin American exports into global manufacturing production networks. At the domestic level, they carry the additional, sometimes problematic, prospect of reducing protectionist measures toward Asian imports. Brazil has shown relatively high resilience to the global crisis. Unlike other countries in the region, its industrial policy has cautiously avoided the risks of an overspecialized economy—its trade basket spans sugar to aeroFigure 4.2

Sino–Latin American Trade for Selected Industries, 2009

Machinery and transport Exports from China to Latin American Countries

Textiles

Exports from Latin American Countries to China

Ores and metals Manufactures Fuels Food Chemicals Agricultural materials –3

–2

–1

0

1

2

Trade Value (in billions of dollars)

Source: Authors’ calculations based on data from WITS Comtrade, UN, 2010.

3

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space equipment. A 3 percent annual increase in agricultural productivity has allowed Brazil to consolidate itself as a world leader in the agro-industrial sector. Moreover, it is likely that Brazil will become a net oil exporter in the next few years, and potentially a leader in renewable energies. Brazil is at the core of Latin America’s relations with China: it is China’s largest trading partner in the region, and China is Brazil’s largest Asian market. As indicated in Tables 1.1 and 1.2 (Chapter 1), China reported that its trade with Brazil in 2008, prior to the financial crisis, reached nearly $50 billion (Brazil reported $37 billion), more than one-third of the total trade between China and Latin America, and an enormous increase from less than $3 billion in 2000. Owing in part to the contraction of Brazil’s exports to the United States in 2009, China became Brazil’s largest trading partner that year, with $42 billion in bilateral trade (Brazil reported $36 billion). Business relations between the two giants go beyond raw materials and agricultural products. A good example is Brazilian aircraft manufacturer Embraer, which has a joint venture with Aviation Industries of China and a production line in that country. Both governments also operate three earthimaging satellites under the China-Brazil Earth Resources Satellite program (CBERS) and plan to launch two new ones in coming years. Furthermore, Chinese producers of electrical appliances and telecommunication devices like Huawei, ZTE, and Gree are succeeding in the Brazilian market. The March 2009 opening by the Bank of China of its first office in Brazil signals the increasing financial activity between the two countries.

Revisiting China’s Effect on Latin America: Three Myths From the beginning of the decade, China’s economic growth and increased share of world export markets have been met with apprehension in Latin America. There is indeed a competitive threat arising from increasingly global and sophisticated Asian competitors, but there is also misunderstanding, stemming from insufficient attention to the opportunities brought about by this new context. A closer look at three common perceptions of China’s impact on emerging markets can help clarify whether or not Latin American countries can benefit from the world’s shifting power equation. The first myth relates to the role of labor costs in propelling China’s growth; the second concerns China’s supposed negative impact on the allocation of foreign direct investment, particularly to Latin America; and the third is the idea that China’s growth has mostly benefited South America’s commodity-exporting countries and has been detrimental only to those economies that rely to a greater extent on manufacturing exports for growth.

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Myth 1: The Main Source of China’s Competitive Advantage Is Cheap Labor

China is widely perceived as a huge manufacturing hub whose main competitive advantage lies in low labor costs. Although this is partially true, labor markets are changing at a very rapid pace. Chinese wages continue to be lower than in most Latin American countries, but they are rising fast at an annual rate of close to 8 percent. The labor-cost gap with other emerging economies is therefore diminishing. On the other hand, Chinese investment rates continue to be very high, at around 40 percent, which favors an abundance of capital for investment. A high level of investment would normally indicate a future slowdown in the return to capital. Surprisingly, return to capital continues to be strong, and stable at around 20 percent since 1992, thanks to important productivity gains. Figure 4.3 shows that investment rates in China (as a share of GDP) between 1980 and 2006 almost doubled during this period. Whereas investment in fixed assets has increased dramatically, the return to capital (Figure 4.4) has remained relatively stable. This phenomenon, combined with high levels of consumer and corporate savings in China, indicates that at least in the short to medium term the abundance and availability of capital is sustainable.1 Thus the argument that China became a manufacturing hub only as a result of cheap labor needs reconsideration: to a large extent expanFigure 4.3

Investment in China, 1980–2008

60

Percent of GDP

50

Investment in fixed assets Gross fixed capital formation

40 30 20 10

200 8

200 6

200 4

200 2

200 0

199 8

199 6

199 4

199 2

199 0

198 8

198 6

198 4

198 2

198 0

0

Sources: Chong-en, Hsieh, and Qian, “The Return to Capital in China”; International Monetary Fund, International Financial Statistics Database.

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Figure 4.4

73

Return to Capital, Before and After Taxes Base case Excluding urban residential housing, including inventories, before taxes Excluding urban residential housing, including inventories, after taxes

30

Percent per year

25 20 15 10 5

0

2

4

6

8

0

2

4

6

8

0

2

4

6

8

198

198

198

198

198

199

199

199

199

199

200

200

200

200

200

0

Sources: Chong-en, Hsieh, and Qian, “The Return to Capital in China”; International Monetary Fund, International Financial Statistics Database.

sion has been due to high productivity growth and the wide availability of capital. Therefore, the idea that China’s main competitive advantage lies in low labor costs overlooks other critical factors. Myth 2: China Has Had a Negative Impact on FDI Flows to Other Emerging Markets

Another commonly held belief is that China’s receipt of FDI flows negatively affects other emerging and developing economies. This negative effect is the result of a supposed zero-sum game: the FDI that flows to China does not go to other emerging markets. Certainly, there is some evidence of this substitution effect on some East Asian economies, but the evidence is less conclusive regarding Latin America. Analysis of the period from 1995 to 2001 shows that China’s inward FDI partly hampered flows to Mexico and Colombia, but not to Argentina, Brazil, Chile, or Venezuela.2 Investments attracted by Asian countries in general would not necessarily have gone to Latin America in the absence of a booming economy.

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Asian countries are more affected by China’s competition as a recipient of foreign investment. One of the main factors behind the different nature of FDI inflows into China and Latin America is the spectacular growth of Chinese financial markets in size and scope during recent years, which has provided an important source of endogenous funding for Chinese companies. The rapid pace of financial asset creation indicates that FDI flowing into China is mostly the result of technology transfers rather than a need for financing, which could well be met by national investors. Latin America contrasts sharply, since it attracts financial investors to a greater extent by offering higher returns in an environment in which long-term capital is still relatively scarce. The nature of FDI therefore differs in China and Latin America: in China it is more oriented toward technology transfers whereas in Latin America it is motivated by higher returns. While this explains to a great degree the absence of a clear substitution effect, there is another reality behind China’s role in influencing FDI flows that is often ignored: capital accumulation is gradually turning China into a net exporter of investment (see Figure 4.5). Notwithstanding its role as a magnet for direct investments, China’s demographic structure, pension reforms, and high saving rates will likely make it one of the major exporters of capital in the next decades. Many Latin American countries are already benefiting from Chinese FDI, rendering the Figure 4.5

Inward and Outward Investment by Region, 1990–2008 (in millions of US$)

$160,000

$700,000

China Latin America Africa Developing countries (right axis)

$140,000 $120,000

$600,000 $500,000

$100,000 $400,000 $80,000 $300,000 $60,000 $200,000

$40,000

$100,000

$20,000

$0

$0 Avg. 1990s

2003

2004

2005

2006

2007

2008

Sources: Data from UNCTAD 2010 FDI Statistics. See also Santiso, The Emergence of Latin Multinationals.

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claim that China has negatively affected FDI flows to other emerging economies relative: developing countries compete for limited FDI from developed economies, but they are increasingly benefiting from South-South investments.3 Research to date suggests that in most cases Latin American economies are not significantly affected by China’s competition for FDI. On the contrary, growing Chinese (and other Asian) investments in Latin America are likely to offer opportunities for the region, as is being witnessed. China has already established an investment presence in key Latin American commodity sectors. In Peru, China Aluminum Corporation committed to invest up to $2.2 billion over the next thirty years for the rights to operate a mine at Toromocho. In February 2009, during an official visit to Brazil, Chinese vice president Xi Jinping signed an accord for a $10 billion loan to the Brazilian national oil company Petrobras, providing it with capital for developing new deepwater oil reserves, which could ultimately be exported to China. Considering Brazil’s recent discovery of vast offshore oil reserves, Chinese investment will carry benefits for both countries. China is also building roads, rail lines, refineries, and ports to facilitate exports to China—aid that comes with “no strings attached.” Data are not reliable, but indicate approximately $600 million per year of such investments, although various lines of credit could bring the level close to $1 billion. In terms of global FDI flows, the numbers are still relatively low: China’s regional investments totaled less than $2 billion in 2007, and according to a Chinese government source, it is largely related to infrastructure development. Science and technology agreements with thirteen Latin states have stimulated more than one hundred cooperative research projects in agro-, bio- and information technology. The most significant is an earth-resources satellite project with Brazil, with three satellites launched to date. Regarding direct investment, although China is not the main capital provider for Latin America, deals reached over 2009–2010 indicate that the picture is changing. China’s need for energy resources and natural endowments, and its desire to diversify its foreign investment stocks (about $230 billion) and reserves (about $2.5 trillion) make Latin America an attractive destination. Between 2009 and 2010, China signed agreements with Petrobras from Brazil for $10 billion, with Bridas from Argentina for $3.1 billion, and with the Peruvian Toromocho copper mine for $2.2 billion. China also invested in the expansion of the Tacna harbor in Peru for $8 billion. During President Hu Jintao’s April 2010 visit to Brazil for the BRICS Summit (comprising the original “Big Four” grouping of Brazil, Russia, India, and China, and, since 2010, South Africa), China’s Wuhan Iron and Steel announced that it would build a plant in a Rio de Janeiro port with Brazilian logistics firm LLX Logistica, controlled by billionaire Eike Batista. According to President Lula da Silva of Brazil, this will be China’s biggest investment ever in Latin America’s largest economy. Owing to China’s strong international investment

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position (see Table 4.1), other ventures in manufacturing and technology are likely, such as a planned telecommunications factory in Venezuela. China’s potential to become an important source of capital for Latin America is not limited to FDI; it also includes bilateral loans, portfolio investments, and sovereign wealth funds. Chinese sovereign wealth funds have recently been intensifying their participation in the region. Brazilian stock held by China Investment Corporation (CIC), China’s main sovereign fund, represents about 4 percent of its foreign investments. Furthermore, bilateral credit lines from China toward countries like Argentina, Brazil, and Venezuela totaled about $50 billion in the last three years. China’s State Administration of Foreign Exchange (SAFE) has been exploring the further expansion of channels to utilize the country’s foreign assets in direct overseas lending. Myth 3: China’s Rise Benefits Commodity-Exporting Countries and Disproportionately Harms Latin American Manufacturers

China has been seen as problematic for light-manufacturing exporters while benefiting raw-commodity producers. High commodity prices, partly motivated by China’s growing demand for oil, minerals, and raw materials, certainly benefit the trade balance of many Latin American countries, but the export bonanza in commodities is not risk free. An excessive focus on commodities could be shifting resources away from other sectors, particularly manufacturing. As pointed out in the OECD’s Latin American Economic Outlook 2008, Latin American economies should be wary of the risks of Dutch disease, defined as the excessive specialization and export concentration on commodi-

Table 4.1

China’s International Investment Position, 2006–2009 (billions of dollars) 2006

2007

2008

2009

Foreign assets Outward direct investment Portfolio investment Other investment Official reserve assets

1,691 91 265 254 1,081

2,416 116 285 468 1,547

2,957 186 253 552 1,966

3,461 230 243 537 2,451

Foreign liabilities Inward direct investment Portfolio investment Other investment

1,050 614 121 315

1,229 704 147 378

1,464 916 168 380

1,638 997 190 451

641

1,187

1,493

1,823

Net foreign assets

Source: JP Morgan, “Latin America’s Economic Fate Increasingly Tied to China.”

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ties, which might drive exchange rates up, inducing a long-term decline in noncommodity exports.4 China’s current blessing could, therefore, pose a longer-term problem for certain Latin American countries if the current boom in commodity prices is not managed with care. Although exports to China represent only 7.5 percent of the region’s total exports (or 11.5 percent, excluding Mexico, which sells over 80 percent of its exported products to the United States), commodity exports account for nearly 48 percent of the total. As a result, Latin American exports are very sensitive to Chinese demand, both via the volumes exported and via the influence of Chinese demand on worldwide commodity prices. For some Latin American countries, this is key: in the case of Venezuela, commodity exports reached nearly 99 percent to total exports in 2009, while for Peru and Chile the figures were 77 percent and 75 percent, respectively. Nearly one-third of world growth in 2007, before the global crisis, can be attributed to China. Chinese companies are flocking to Latin America and Africa, centering their interests on raw materials, and their commercial penetration has been accompanied by the extended financial presence of the China Development Bank.5 At the same time, Chinese exports have skyrocketed, but a quick look at their structure shows concentration in three key sectors: manufactured goods, machinery and transport equipment, and miscellaneous manufactured goods. The evolution of machinery and transport equipment is particularly noteworthy because this sector contains numerous products that require relatively high technological standards, and because export earnings from this sector have nearly doubled in the past few years. Another revealing development is the increasing similarity of China’s export and import structures, suggesting mounting intraindustry trade and indicating China’s new role as a regional production center. Debate about the threat that Chinese exports represent for Latin America in third markets is intense and unresolved. Evidence suggests the existence of substitutability between exports with only some countries, Mexico in particular.6 However, some analysts are less optimistic, especially regarding the fate of Central American countries that have specialized in labor-intensive exports.7 Further complicating the situation, the notion that Chinese exports are confined to manufacturing and low-technology products is being reevaluated. Competition with China is extending to more advanced sectors (e.g., electronics), affecting those countries where these industries are important, and suggesting that Chinese exports will influence more countries and more sectors than was previously thought. Jenkins et al. identify some sectors where Latin America is still able to compete with China: those where transport costs are high and proximity to the US markets is important.8 The extent to which domestic firms will suffer from increased Asian competition is a central issue for Latin American governments. The fiercest competitive battles are being waged in the United States, which alone received

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57 percent of Latin American exports in 2006, and where China has increased its market share beyond that of Latin America. Though it may be little comfort, the competitive effects of increased trade with China are much less severe for Latin America (with the notable exception of Mexico) than they are for Asia and Eastern Europe (Figure 4.6). Export competition in Figure 4.6 is measured by comparing the trade structure of each country with that of China. A high measure indicates similarity in export structures, as determined by specialization and conformity coefficients. If export structures are similar, as in Mexico’s case, competition is assumed to be high. For most of Latin America, there is little to support the perception of China as a threatening competitor. Not surprisingly, countries that export mainly commodities face lower competition, as China is a net importer of these products. Paraguay, Venezuela, Bolivia, and Chile therefore suffer the least from Chinese trade competition. A more sensitive understanding of China’s trade impact on Latin America can be achieved by examining the latter’s regional markets, in which low- and medium-technology manufactured goods predominate. Coefficients of specialization for Chinese and Brazilian exports to world markets, for instance, are a bit below 0.3, but the same coefficient calculated for each country’s exports to Argentina, Colombia, Ecuador, and Venezuela is close to 0.8. Moreover, the competition rose between 2000 and 2010, suggesting that it became fiercer in specific markets.

China as a Destination for Latin American Exports At first glance, Latin American countries do not appear to enjoy strong complementarities with China, while East Asian economies, such as Korea, Thailand, Japan, and the Philippines, are in a much stronger position. This outcome does not stem from a lack of trade opportunities, but rather from the fact that potential trade is concentrated in a relatively small basket of goods. Most Latin American countries do not export manufactured goods, but rather commodities, limiting potential complementarities to these sectors. Fortunately, however, China’s import growth is concentrated mainly in commodities, suggesting a positive impact on Latin America even if direct trade does not increase. Since commodities are homogenous goods, global prices will increase as China’s demand rises, providing export opportunities for Latin American producers. Many Latin American countries also harbor substantial capacities to develop intraindustry trade with China. Mexico, for instance, has considerable exports in telecommunications equipment and electric circuitry, sectors where China’s imports are also high but where little trade is currently taking place. For Brazil, beyond commodities, sectors such as aircraft, telecommunications

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Source: Authors’ calculations based on OECD Development Centre, WITS, and Comtrade data, 2010.

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Hu nga Tha ry ilan d Me xic Ko o re Un a, Re p. ited Sta t Ma es Cz ech laysi a Re pu Sin blic gap ore Tur key Ro ma Ind nia one s Bu ia lga ria Cro atia Ph ilip pin es Ind ia Po lan d Slo vak Japa n Re pub lic Pa kis tan Sp a Co sta in Ric a Bra zil Gu ate El S mala alv a Co dor lom bia Pe ru Ru ssi C an Fed hile era t Arg ion ent ina Pa nam Uru a gua y Pa rag uay Bo l Ho ivia ndu Ven ras ezu ela

High competition

Export Competition with China for Selected Countries, 2000–2009 (average coefficients of specialization and conformity)

0.8

0.7

04_Hearn_Ch04.qxd:Hearn

Low competition etition

Figure 4.6

0.5

0.1

0.0

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equipment, and motor-vehicle parts also have growth potential. Like Brazil, Colombia harbors considerable growth potential both in natural resources, including oil and coal, and in its manufacturing sectors. Argentina’s main export opportunities are in natural resources, yet there could be substantial future openings in the processed-food sector. Agriculture and agribusiness are among the most promising areas for Latin American trade with China, particularly for Argentina, Brazil, Chile, and Uruguay. As Chinese consumption patterns evolve, new opportunities will emerge for those agro-exporters that move up the value chain, diversify, brand, and innovate their export portfolios. Further opportunities will likely develop in water, a resource that is abundant in Latin America but lacking in China. While some sectors will inevitably face difficulties, prospects for complementarity in both basic and more sophisticated links in the value chain suggest that Latin America has little reason to feel threatened by the growth of China.

South-South Cooperation at the Firm Level Despite the signing of agreements between the Chinese and Latin American governments, there is a lag between official accords and the potential effects on exporting firms. A number of Latin American companies have successfully ridden the boom and rise of China, particularly in the basic and natural resources industries. Companies like CVRD (now Vale), Aracruz, Gerdau, Embraer, and Codelco have even gained a strong foothold in the Asian country.9 Vale’s iron ore sales to China, for example, account for around 40 percent of all Brazilian exports to the country. These companies have been among the main drivers of growth in Latin America in the past decade, achieving a rapid ascent into the ranks of global multinationals. As they consolidate their local supplier base, they have also created more and higher-paid jobs, and in some cases (such as Petrobras) built up an ecosystem of second-generation companies.10 Below we focus our analysis on sectors with no significant comparative advantage and with immediate or potential competition from Chinese firms. Findings are based on research and interviews with the leaders of several Latin American corporations that form part of the World Economic Forum’s network. Corporate strategies are evaluated along three dimensions: (1) product (or market) portfolio, (2) value chain presence, and (3) geographical presence. • Bematech, based in Curitiba, Brazil, is a manufacturer and solution provider for point-of-sale hardware and software, targeting the needs of the small to mid-sized retail and hospitality markets. Bematech has

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over twelve hundred employees in over twenty offices, with manufacturing facilities and warehouses located throughout the world. • Organización Corona is the leading Colombian producer and seller of home improvement and building products. It has long enjoyed a leading position in Colombia in ceramic floors and bathroom building products. The company has a presence in several Latin American countries, the United States, and Canada. Corona has 10,500 employees, 90 percent of whom are based in Colombia. • Nemak was founded in Nuevo León, Mexico, and is part of the larger Grupo ALFA. It is the world’s leading producer of aluminum cylinder heads, engine blocks, and other aluminum components for automotive applications. Nemak has close to fifteen thousand employees in thirteen different countries, including China. • Koramsa, in Guatemala, was estimated by some to be the biggest maquiladora (factory) in Latin America in 2009, with more than twenty thousand employees. Until 2006, it provided an “integrated” assembly package as contractor for fourteen North American labels, mostly for jeans and other denim products. Three key strategies emerge from this brief analysis of Latin American companies’ responses to increasing Chinese competition: (1) the need for upstream value integration, (2) a focus on a high value-added global niche, and (3) specialization in product segments with high volatility of demand and high need for customization. Below we treat each of these strategies in turn, specifying their implementation by each company. Upstream Value Chain Integration to Capture Greater Downstream Value

The case of Bematech illustrates that closer integration with China can reduce costs in the product development process while permitting the most valuable segments of the value chain to remain under tight control. Bematech’s specific strategy involved focusing on capturing more downstream value by utilizing China’s unique capacity to design and produce technology products. In order to do this, Bematech • outsourced some research-and-development activities and unique component manufacturing to Asia; • took advantage of the superior speed and innovation ecosystem and increased product portfolio and foreign markets; • capitalized on its faster product development speed over other suppliers by exploiting its greater customization capacity to win clients and expand first regionally and now globally.

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Bematech has also successfully used a strong understanding of regional cultural differences to outcompete larger Japanese and American rivals. In Latin America, it operates from Argentina and uses the surrounding region as a hub for innovation. Having adapted to local requirements, its position for further revenue streams for service and other sources has strengthened. Organización Corona has similarly used engagement with China to grow regionally, expand its workforce, and add value. It is the leading supplier of ceramic floors and bathroom building products in the Colombian market. Its evolution and internationalization show how a determination to compete globally has allowed it to take advantage of the rise of China to spur growth and strengthen its regional position. Corona’s guiding strategy capitalized on integrating China’s unbeatable low-cost base into its value chain and then focusing on innovation and scale in regional markets. Corona’s first step was to expand its value chain presence in the United States, until then by far its most important export market. In 2004, the company acquired the operations and brand of the US firm Mansfield, and then analyzed the feasibility of establishing a manufacturing plant in China to meet growing US demand. After extensive investigation, it decided against entering the Chinese market, but nevertheless created an office in the country with a Colombian supervisor and twelve engineers overseeing local suppliers and contractors. Its operations in China have so far been successful: its sales and product portfolio have grown, it has upgraded its technological capacities, and the number and quality of jobs within the company have increased. With a stronger base, Corona is rapidly expanding regionally to countries with traditionally very strong local players, such as Brazil and Mexico. A Focus on a High Value-Added Niche to Achieve Global Scale

It is difficult to find a better Latin American example of a successful global niche strategy than that of Nemak. The company is the world leader in the production of aluminum cylinder heads, engine blocks, and other aluminum components for automobiles, and has rapidly expanded across the globe to achieve economies of scale and solidify its technological edge. Its production facilities in China do not represent a large portion of its operations, but the presence is important for keeping the development of other potentially more sophisticated players at bay. Nemak specialized early on in segments in which it could realistically augment its technical prowess and differentiate itself. Its decision to take this course was prompted by the threat of commoditization and competitiveness in several other segments of the automotive industry. This niche strategy quickly paid off: the company opened its first factory outside Mexico in 2000 and has experienced quick expansion since. Another Latin American company that is widely known for succeeding as a global niche player is Embraco, a Brazilian compressor producer. Spe-

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cializing in cooling solutions, the company employs about nine thousand people worldwide. By internationalizing rapidly, Embraco achieved early access to the booming Chinese market and developed a scope of operations that accelerated its expansion into other parts of the globe, securing its position as the world’s leading producer of compressors. As with Nemak, key factors in Embraco’s success have been the company’s research-anddevelopment leadership in its specific sector of activity and the ability to integrate globally into the segment via joint ventures and close collaboration with final product manufacturers. Companies like Mexico’s Grupo Gruma (Maseca Tortillas) have pursued a similar strategy and successfully entered the Chinese market. A Focus on Product Segments with High Volatility of Demand and High Customization Needs

Finally, focusing on segments with high volatility of demand and need for customization has permitted the Guatemalan company Koramsa to exploit geographical advantage. A large maquiladora in the textile sector, Koramsa was hard hit (losing 70 percent of its workforce) by China’s accession to the World Trade Organization (WTO), which as of January 2006 allowed the entry of Chinese denim products into the United States, Koramsa’s main market by far. Less than a year later, the company was bleeding cash and had drastically reduced its workforce from twenty thousand to less than seven thousand. Since Chinese producers had access to much cheaper fabrics and a lower-cost labor force, Koramsa’s leadership swiftly decided to move into the manufacture of more elaborate products, with shorter cycles and greater customization.11 In addition, Koramsa expanded its number of stock-keeping units and began providing distribution and logistical services at the request of buyers. In order to manage the business’s added complexity, the company invested heavily in information technology (IT) and raised the level of much of its workforce (for instance, between 2005 and 2007, line supervisors who had only achieved a high school education were replaced by industrial engineers). Today the company has managed to stabilize its workforce at seven thousand employees, with a greater number of higher-paid workers and a more solid competitive position. In contrast to the previously cited cases, Koramsa’s story shows only moderate success and the company still faces a number of challenges. Change to a “higher valued-added” segment has not been trouble free; for instance, responsiveness to volatile levels of demand requires inherently difficult decisions about workforce expansion and contraction. Moreover, added complexity and the higher-paid and more sophisticated jobs that result must still translate into greater profitability. Another challenge to its long-term sustainability is whether it will eventually be able to move downstream with its own brand

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and fashion design (as has been the case with other successful companies in the region, such as Wrangler in Costa Rica). In some cases, niche strategies have brought advantages that go beyond those achieved by Koramsa. Jabil Circuits, a Mexican contract manufacturer of electronics products for the likes of Cisco and Nokia, is well known for its move up the value chain in sectors severely hit by Chinese competition. As orders were lost to Asian competitors between in 2001 and 2002, Jabil saw its workforce of 3,500 shrink by half. Instead of attempting to win back lost orders, the company learned to make more complex and customized products (computer routers and handheld credit-card machines, for example) that were traditionally made in the United States. Managers at one of the company’s Mexican plants studied the US market to ascertain the necessary performance levels and the areas in which lower-cost labor could create an advantage. The factory consequently retooled its inventory system and trained workers to undertake more than one task at a time, so the number of items it was able to produce rose from six hundred to more than six thousand. Orders flooded in, and employment by 2005 was 10 percent higher than it was at its peak in 2001. Revenues continued to grow through 2007 at over 30 percent a year, reaching almost $2 billion in the period. Other companies in Mexico, in particular in the Guadalajara IT cluster, have sought to make similar transitions. Interviews conducted by the authors with regional leaders, in line with the findings presented above, support the notion that there are several common denominators underlying successful adaptation to Chinese competition. Chief among these are progression along the value chain, geographic expansion, and the achievement of greater complexity and sophistication. These common denominators of success highlight the importance of proactive policy frameworks that foster the growth and development of promising companies. The chapter’s final section explores three areas in which policymakers might focus their efforts: developing domestic and regional infrastructure systems to facilitate trade, achieving a greater density of regional economic integration, and promoting innovation and workforce qualification through incentives for research and development and better synchronization with universities.

Three Policy Recommendations The Need for Infrastructure: Maximizing Geographical Advantage

Latin America’s geographic proximity to its most important market, the United States, is a significant but still largely unexploited advantage for the region. That better infrastructure would strengthen the region’s trade position is confirmed by the finding that transport costs pose higher barriers to Latin Amer-

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ica’s products entering the US market than tariffs.12 Infrastructure quality across Latin American countries is uneven, but with China’s logistical capacities outperforming those of the region as a whole, natural geographical advantages have clearly not been realized. Commodity-intensive economies such as Chile and Venezuela focus their infrastructure investments on the transport sector, whereas countries more reliant on manufacturing industries, like Mexico, concentrate their investments on energy-related resources. In general, though, neither commodity- nor manufacturing-based countries have dedicated adequate resources to improving their infrastructure linkages with foreign importers. In a recent investment climate survey, over 50 percent of Latin American businesses considered infrastructure to be a serious issue, while in East and South Asia, less than 20 percent and 30 percent, respectively, agreed with this assessment.13 Alongside the need to improve infrastructure efficiency, institutional variables impinge on the region’s trade competitiveness. Cargo handling restrictions and mandatory port services are considerable limitations to competitiveness, while export regulations are generally more costly than in other regions. Excessive regulation can have detrimental effects, as has been observed in Brazil.14 Low investment rates and flawed project implementation are among the main factors weakening Latin America’s infrastructure competitiveness. Considerably less is being spent on infrastructure than required: while the region devotes around 2 percent of GDP per year to that area, investment levels of between 4 and 6 percent would be necessary to catch up with Asia. In sum, poor and inappropriate infrastructure is a drawback for Latin American economies because inadequacies in port systems, railroad networks, and other logistical sectors hamper export potential. Increased investment in these areas would substantially enhance the region’s trade capacities. For Mexico and some Central American countries that are more highly exposed to competition from China, it is particularly important to build trade-oriented infrastructure in order to capitalize on the competitive advantage provided by proximity to the world’s largest economy. The Need for Regional Integration: Maximizing Exchange Flows

Related to the improvement of infrastructure is the need for deeper Latin American economic integration. Progress has been made, but the multiplication of bilateral and regional agreements brings confusion rather than clarity and leaves much room for improvement. The percentage of intraregional imports and exports as a share of total trade offers a moderate assessment: in 2005 Latin American countries imported roughly 20 percent of their goods and services from other Latin American economies, and exported around 16 percent. While

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growth in intraregional trade was spectacular in the early 1990s, it came to a halt in the following years and its share of total trade actually fell between 1998 and 2002, as various financial crises took their toll. A period of sustained annual growth above 4.5 percent from 2002 to 2007 saw intraregional trade grow, although at a moderate pace, and the indications are that a positive trajectory has resumed once more in the wake of the global financial crisis (see Figure 4.7). When compared with other regions, the level of Latin America’s trade integration is put into perspective. Although still far from the record levels of economic integration found in the European Union (around 65 percent of total EU imports and exports originate in or are destined for another member country), Eastern European economies clearly bypass Latin America’s in intraregional trade. Most importantly, East Asia and the Pacific are quickly catching up with Latin America in this area. Only Africa remains clearly below Latin America in terms of intraregional imports as a percentage of total imports. Deeper regional integration is a win-win strategy for Latin America’s economies and should be a priority in their response to China’s growing presence in the world economy. With the increasing number of regional trade agreements since the establishment of the WTO, and as capital and labor movement are liberalized across borders, it is important that Latin American

Figure 4.7

Current and Prospective Intraregional Exports in Latin America, 2009–2011 (millions of dollars)

$800,000 $700,000 2009

$600,000

2010 $500,000

2011

$400,000 $300,000 $200,000 $100,000 $0 Argentina

Brazil

Chile

Colombia

Latin America

Mexico

Peru

Venezuela

Source: Authors’ calculations based on OECD Development Centre, Comtrade, and Economist Intelligence Unit data.

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countries benefit from deeper integration by increasing their levels of intraregional trade at a much faster pace than at present. They would also do well to implement measures to increase the sophistication of integrated freight services and transport providers, to set and improve quality standards, and to harmonize cross-border policies. The Need for Innovation: Maximizing Resources

Since most Latin American economies have historically been dependent on raw material exports and have regarded technological innovation as a tool for appropriating commodity rents, developing a proper culture of innovation in the region seems difficult to achieve. The two main actors in the innovation process, business firms and research institutes, must work more closely to put into practice a successful innovation strategy that satisfies their respective needs. The Latin American business sector has traditionally been uncommitted to innovation strategies in their region, with a low propensity for funding innovation in most industries. Innovation-oriented human capital and funding have been scarce and poorly integrated in Latin America, unlike in hubs such as Boston and Bangalore. The level of interfirm learning from international best practices is also low, with most firms focusing on adapting foreign technologies rather than on creating or improving existing ones. The motivation to innovate differs across sectors, with some more keen on improving quality and others focused on working conditions or environmental needs. In addition, the large investments made by foreign multinationals implanted in the region have not made innovation a priority. Nonetheless, some examples show the scope for improving innovation practices, with Chilean approaches to industrial diversification prominent among them. The salmon cluster in Chile is a good example of the successful implementation of innovation in a nontraditional sector. Currently composed of three hundred subclusters, this sector employs around 45,000 people. Research and development is carried out in these firms with a view to generating competitive advantages. A second cluster, the wine industry, also demonstrates Chile’s policy outlook on innovation. Since the late 1970s, this industry has developed several of its different components, such as packaging, transport, the supply of equipment and inputs, tourism, and gastronomy. Initiatives in the wine sector have put Chile on par with other main producers of fine wine. Other sectors would do well to follow this example. Encouraging public research and fostering technological institutions are also essential for boosting innovation. Such institutions provide the skilled workforce that business needs to bring about a true knowledge economy based on technology diffusion, from basic research to market-led innovation.15 Although a number of institutions are involved in innovation networks, many

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Latin American countries base their research systems on universities, so that in some cases higher education accounts for 40 percent of total research-anddevelopment expenditure. However, overall research infrastructure in Latin America is weak: centers are underfunded, researchers and academics receive meager compensation, and postgraduate enrollment is scarce. Latin American universities and technological institutes should be more active not only in implementing new technologies, but also in allowing the current labor force to improve its skills through retraining programs and capacity building in new sectors. Given the rapid pace of technological change in some countries, it is crucial to provide a proper learning structure where both low- and high-skilled workers can acquire new knowledge and put it into practice through the innovation process. This should be examined particularly in sectors where unemployment is relatively high because of regional competition, as is the case of the maquiladoras in Mexico. The absence of sufficient interaction between the business and research communities is remarkable in Latin America. At the same time, technological institutes and universities have little incentive to collaborate with other research institutions, as competition prevails over collaboration. The negative effects of these phenomena prevent a much-needed culture of innovation from flourishing. The region needs to expend much greater effort if it is to meet the challenges posed by a more competitive global economy where quick adaptation and anticipation are, more than ever, the keys to success.

Conclusion The relationship between China and Latin America is starting to evolve beyond the commodity/manufacturer’s paradigm that prevailed during the first part of the decade. There is a clear political will to continue signing agreements, which are paving the way for more assertive bilateral investments in less traditional sectors. Fears of specialization in natural resources are still present in Latin America, but more often than not governments acknowledge the dynamic role that China is playing in their own economies and the importance of responding to this new reality. Brazilian and Mexican industries have both developed strategies for adapting to China’s impact in critical times. Brazil has taken advantage of its optimistic macroeconomic standing to build ties with China based on a more diversified export basket. Indeed, Brazilian firms have shown extraordinary flexibility and an ability to use the Chinese market to deliver new products (Bematech), develop partnerships in technology (Embraer), and explore new markets (Cacique). Mexico, on the other hand, has been more exposed to Chinese competition, but a response from the business sector has begun to take shape around the need to access the Chinese consumer market. With a clear vision of the Asian

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market, groups like Nemak, Gruma, and Bimbo share a strategic aim to enlarge their participation in the dynamic Chinese domestic market. Beyond classic complementarities between China and Latin America, new potentials for partnership are emerging. China’s expenditure on research and development is about 2 percent of GDP, and more than one hundred thousand patents are registered every year (with 75 percent belonging to Chinese firms and the rest to multinationals). By contrast, Latin America’s spending on research and development hardly reaches 0.6 percent of GDP and only 35,000 patents are registered annually in the continent (90 percent belonging to multinationals). There is clearly room for cooperation in the sphere of innovation, and both regions would do well to explore further the potential gains from this type of partnership. Latin American governments need to take into account the big challenges the region faces in terms of boosting its competitiveness, particularly the development of infrastructure, innovation, and integration. These are now well-acknowledged axes for the region’s development. Furthermore, Latin American firms need to explore the potential partnerships that could be built with Chinese counterparts for product development, innovation, distribution, and market expansion. Complementarities are perhaps not always obvious, but those that exist suggest that the room to maneuver is vast and will continue to be in the future.

Notes The authors are indebted to Angel Alonso, Jorge Barreda, Erik Bethel, Augusto de la Torre, Andrea Goldstein, Gøril Havro, Luis Oganes, Guillermo Perry, and Alexandre Schwartsman for helpful comments, discussions, and documents shared. The views expressed in this chapter do not necessarily reflect those of the OECD Development Centre or ESADE Business School. 1. Jahangir and Li, “Explaining China’s Low Consumption.” 2. García-Herrero and Santabárbera, “Does China Have an Impact on Foreign Direct Investment to Latin America?” On the increasing impact of China on Latin America due to trade ties, see the exercises done by IDB economist Ambrogio Cesa Bianchi et al., “On the Transmission of Global Shocks to Latin America Before and After China’s Emergence in the World Economy.” 3. As well as the Bank of China’s new office in Brazil, other Chinese financial institutions are likely to maintain a sustained interest in the region. 4. OECD, Latin American Economic Outlook 2008. On China’s economic relations with Latin America, see Bethel, “Sino-Latin Capital”; JP Morgan, “Latin America’s Economic Fate Increasingly Tied to China.” For a critical examination of increasing dependence on commodity exports derived from ties with China, see Gallagher and Porzecanski, The Dragon in the Room. On Brazil and China more specifically, see Barreda, China and Brazil in the Context of Pre-salt Discoveries. 5. Santiso, “¿Realismo Mágico?” Also see Andrea Goldstein et al., The Rise of China and India.

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6. Blázquez, Rodríguez, and Santiso, “Angel or Devil? China’s Trade Impact on Latin American Emerging Markets.” 7. Jenkins, Dussel Peters, and Mesquita Moreira, “The Impact of China on Latin America and the Caribbean”; Lederman, Olarreaga, and Perry, China’s and India’s Challenge to Latin America. 8. Jenkins et al., “The Impact of China on Latin America and the Caribbean.” 9. Casanova, Global Latinas; Santiso, The Emergence of Latin Multinationals. 10. Almir Barbassa, “América Latina frente al Crecimiento de India y China,” presentation by the chief financial officer of Petrobras at the VIII Foro Latibex, Madrid, November 2007, www.petrobras.com.br/ri/Download.aspx?id=11515. 11. CAFTA provisions do not allow Central American manufacturers to buy their fabrics outside Central America and the United States. 12. Clark, Dollar, and Micco, “Port Efficiency, Maritime Transport Costs, and Bilateral Trade.” 13. Fay and Morrison, Infrastructure in Latin America and the Caribbean. 14. Organization for Economic Cooperation and Development (OECD), Latin American Economic Outlook 2008. 15. One of the exemplary foundations devoted to this activity in Latin America is the Fundación Chile, the country’s largest private, nonprofit organization for the promotion of innovation. Its mission is to transfer state-of-the-art technology, management techniques, and human skills to natural resource–intensive sectors. To help it achieve its mission, the foundation has developed an original model for implementing joint ventures, carrying out research and development, and adapting foreign technology.

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5 China’s Challenge to Latin American Development Enrique Dussel Peters

CHINA AND LATIN AMERICA HAVE BOTH PURSUED EXPORToriented policies since the 1980s, but the manner in which each has integrated into the world market is different. This chapter examines several debates pertinent to trade relations between the two. First, I review the main analytic approaches that have shaped the current discourse on Sino–Latin American economic exchanges. Next, I analyze these exchanges in terms of sectoral and technological specialization. Finally, I consider the broader issues of “resource curse” and “Dutch disease” from a Latin American perspective.

The Debate So Far Until recently, analysis and knowledge of Sino–Latin American economic relations was scarce. The first comprehensive studies, published around 2005, can be divided into two streams. One of these, characterized by research undertaken by the Inter-American Development Bank, focused on the basic distinction between the “winners” and “losers” in the new trans-Pacific relationship.1 South American resource exporters clearly belonged to the prior, while the Mexican and Central American manufacturing economies belonged to the latter. These studies laid down the broad parameters of the strengthening trans-Pacific relationship, but they underestimated the scale to which China’s impact on Latin America would grow, mainly because they attributed this impact to China’s financial effects on the global economy, rather than its direct effects on the region. The other stream consisted of studies by the Economic Commission for Latin America and the Caribbean (ECLAC) and by the author, which looked beyond the general framework of Sino–Latin American relations to examine 91

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specific value-added sectors such as electronics and the yarn-textile-garment chain.2 This second stream concluded that China had already become a major economic partner for Latin America, and that it was massively displacing the region’s exports in domestic markets and in the United States. Contrary to a “winners-losers” dichotomy, Latin America was treated as a whole in order to develop proposals for the region’s long-term relationship with China. Analysts have since recognized that China’s expansion into world markets and direct economic relationships with Latin America are quickly transforming the region’s trade patterns and potentials for industrial upgrading. It is now broadly accepted that in terms of both integration into new segments of value-added chains and overall development, China will exert a critical impact on Latin America’s future. Several recent studies note that China’s massive demand for the region’s raw materials, particularly copper and iron ores, meat, soy, and energy resources, have created a new group of winning firms, sectors, and countries.3 Meanwhile, the region’s manufacturing sectors, which had been upgrading and developing since the 1990s (and in some countries, such as Brazil and Mexico, as a result of import substitution policies since the 1960s), have been losing presence in terms of gross domestic product (GDP), employment, and trade.4 As many of the chapters in this volume note, since the onset of the global financial crisis, China has continued to exert a positive impact on the region’s raw materials exports.5 Chinese competition has brought about an increasing displacement of Latin American products in domestic and third markets, though some researchers claim there is little evidence of China’s negative effects on the region’s exports.6 Others emphasize that proximity to the US market has become the main competitive advantage for most Latin American countries (particularly Mexico) vis-à-vis China.7 Several recent studies have focused on China’s impressive process of sectoral upgrading through increasing technological sophistication, markedly outpacing industrial developments in Latin America.8 Indeed, developments in China have seriously compromised Latin America’s capacity to achieve export-oriented growth through the upgrading of light and medium manufacturing.9 In several cases, such as Argentina, there has been an actual downgrading of production as a result of the strong emphasis on soy exports to China. Furthermore, while China has become one of the five most important trading partners for most Latin American countries, trade had concentrated on only a few firms and chapters of the Harmonized Tariff System. As a result, the size and dynamism of trade with China has reopened a debate on the relevance of industrialization processes, the costs and benefits of agricultural and agroindustrial specialization, as well as the long-term sustainability of these production and trade processes, particularly in Argentina, Brazil, and Chile (see Chapter 9). This debate has been intensified by a shortage (especially before

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the 2008 financial crisis) of Chinese investment in the region, which has limited the potential for effective socioeconomic integration.10 One of the main limitations of the debate so far has been a lack of policy proposals. Indeed, the rather abstract and inefficient discussion of “potentials and threats” has impeded the formation of more nuanced and productive approaches. Several attempts have nevertheless surfaced. The first ChinaMexico Forum, held in Mexico City in March 2006, sought to identify common ground between Mexican, Central American, Latin American, and Chinese perspectives.11 In November 2007, the first China–Latin America Business Summit, supported by the China Council for the Promotion of International Trade (CCPIT), took place in Chile, with subsequent annual meetings leading to a 2010 summit in Chengdu.12 Finally, the Chinese government’s 2008 Policy Paper on Latin America and the Caribbean highlights its priorities toward the region: the principle of One China, the Five Principles of Peaceful Coexistence, and a “spirit of equality and mutual benefit to expand and balance two-way trade.”13 Effective cooperation, from this perspective, should focus on finance, agriculture, industry, and infrastructure, as well as culture, education, sports, tourism, and climate management. This vision of “harmonious” integration, however well intentioned, has provoked concern from institutions such as the Heritage Foundation about China’s growing influence in Latin America and the need for more aggressive policies from Washington to “balance” it.14

Economic and Trade Performance: China and Latin America Compared China’s socioeconomic development since the 1980s has been spectacular, particularly if compared to that of Latin America’s main economies. Table 5.1 shows that China’s GDP per capita growth for 1980–2008 was seven times higher than Latin America’s, and, respectively, 7.4 and 7.2 times higher than Brazil’s and Mexico’s. The Dominican Republic presents one of the best results for the region, and still, China outperformed it by 3.2 times. In absolute terms, however, China’s GDP per capita still represents only 29.8 percent of Mexico’s, 19.8 percent of Argentina’s, and 41.2 percent of Latin America’s. Foreign trade has assumed a central developmental role for China and Latin America. Few of the latter’s countries (excepting the notable cases of Argentina and Brazil) showed a trade/GDP coefficient below 50 percent in 2008. As a whole, the coefficient has increased substantially since the mid1990s, effectively doubling in Mexico as the North American Free Trade Agreement (NAFTA) came into effect. Similarly, since 2005 China’s trade/GDP coefficient has increased from 35 percent to over 70 percent. China and Latin America are increasingly trading with each other. Table 5.2 shows

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Table 5.1

China’s Per Capita GDP in Comparative Perspective, 2008 Growth Since 1980 (base = 100)

Country Argentina Brazil Canada Chile China Dominican Republic Mexico Peru United States East Asia and the Pacific Latin America and the Caribbean

US dollars

131 125 156 247 1,053 248 129 130 169 644 131

9,915 4,448 26,143 6,229 1,963 3,667 6,591 2,923 38,206 1,759 9,915

Source: Author’s calculations based on World Bank Development Indicators.

that with few exceptions (essentially those countries that do not have diplomatic ties with Beijing), China has become a principal trading partner. Of the seventeen countries considered, only three had China among their top five export destinations in 2000 (Chile, Peru, and Uruguay), but this number Table 5.2

China’s Importance as a Trading Partner for Selected Countries, 2000 and 2009 Exports

Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela

Imports

2000

2009

6 18 12 5 36 26 120 44 44 52 25 123 27 13 4 4 37

3 8 1 1 5 2 6 32 28 13 7 28 14 14 2 2 3

2000 4 7 11 4 15 16 129 21 17 17 6 91 22 3 8 10 18

2009 3 6 2 2 3 4 4 6 3 6 2 6 2 1 2 3 4

Source: Author’s calculations based on the International Monetary Fund’s Direction of Trade Statistics.

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increased to eight countries in 2009. For imports, the number of countries increased from three to thirteen over the same period. Table 5.2 reveals that the most prominent transformation in Sino–Latin American trade is the massive growth of China’s exports, and that this transformation is relatively recent. Indeed, trade with China started to become significant less than fifteen years ago, growing from 1 percent of the region’s total trade in 1995 to 20.38 percent in 2009. At this pace, trade with China will become more important for Latin America than trade with the European Union before 2015. To the dismay of many Latin Americans, trade with China since 2000 has been characterized by substantial deficits. Until 2002–2003, the total deficit was below $10 billion, but since then it has increased substantially to a high of over $50 billion, subsiding somewhat in the wake of the global financial crisis. China is, in short, the source of Latin America’s main trade deficit, and if the past decade is anything to go by, the deficit will increase in step with the growth of bilateral trade following the global financial crisis. From China’s perspective, Latin America’s prominence has also grown, accounting for 4.81 percent of its total trade in 2009, behind only the European Union, the United States, Japan, and South Korea. Latin America has therefore become China’s fifth-largest trading partner, and if it sustains the trajectory it has traced over the past ten years, it will displace South Korea before 2015. China’s exports to Latin America are relatively diversified: in 2009, 52.7 percent of these occupied five chapters of the Harmonized Tariff System, indicating that the other 47.3 percent were spread across other chapters. The vast majority of these goods—led by electronic products, auto parts, optical instruments, automobiles, and ships and other floating structures—was manufactured. Conversely, imports from Latin America are highly concentrated: in 2009, 77.6 percent of these occupied five chapters. Chinese exports are increasingly destined for Latin America, with emphasis on specific products and chapters, such as optical instruments (7.7 percent of which went to Latin America), automobiles (8.7 percent), and ships and boats (8.5 percent). In return, Latin America has become one of the main sources of ores, slag, and ash, providing 29.5 percent of total Chinese imports of these resources in 2009, as well as 44.7 percent of oil seeds (mainly soy beans), and 29.7 percent of copper. As China’s overall trade increases, its composition is changing. If we define the sum of chapters 84–90 of the Harmonized Tariff System as “medium and high-tech” products, Table 5.3 illustrates the extent of the structural transformation.15 The share of medium and high-tech chapters in China’s exports to Latin America increased from 19 percent to 53 percent between 1995 and 2009. Over the same period, China’s total imports in these chapters oscillated between 42 percent and 52 percent of total imports, but less than 10 percent of these were sourced from Latin America. The technological composition of

China: Trade of Medium and High-Tech Chapters, 1995–2009 2002

2004

2005

148,777 34,197

263,095 88,943

266,661 100,906

348,461 133,871

593,647 285,274

813,474 427,292

2,067 393

5,709 1,424

6,364 1,747

8,244 1,924

14,866 4,749

20,338 8,310

28,809 11,629

132,127 55,656

225,175 98,911

243,567 116,154

303,376 154,645

560,811 292,997

660,222 341,143

791,821 417,129

2,246 51

3,963 442

4,947 665

6,389 852

15,431 1,229

18,954 1,359

28,820 1,664

45,356 4,835

71,139 5,395

63,696 5,623

Share over respective total (percentage) Exports Medium and high-tech 22.99 Latin America Medium and high-tech 19.04

33.81

37.84

38.42

48.05

52.53

50.06

50.43

50.74

53.00

24.95

27.45

23.34

31.95

40.86

40.37

46.95

47.74

52.87

42.12

43.93

47.69

50.97

52.25

51.67

52.68

50.87

46.21

47.74

2.28

11.14

13.44

13.33

7.96

7.17

5.77

10.66

7.58

8.83

Exports Total Medium and high-tech Latin America Total Medium and high-tech Imports Total Total high-tech Latin America Total Medium and high-tech

Imports Total high-tech Latin America Medium and high-tech

Source: Author’s elaboration based on 2010 Chinese customs statistics. Note: Medium and high-tech chapters of the Harmonized Tariff System are defined as chapters 84–90.

2006

2007

2008

2009

969,320 1,204,499 1,428,869 1,200,362 485,262 607,423 725,048 636,192 48,625 22,831

70,937 33,864

56,489 29,864

956,261 1,131,469 1,000,578 486,481 522,875 477,654

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Table 5.3

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trade between China and Latin America therefore reveals substantial developmental differences: while China’s exports to Latin America substantially upgraded during 1995–2009, Latin America’s exports to China exhibit a technologically low—and diminishing—level. Indeed, in 2001, 13.44 percent of Latin America’s exports to China were of medium- and high-tech level, but by 2009, the figure had fallen to 8.83 percent.

State and Market: The Need for Synthesis China’s socioeconomic strategy since the early 1980s could be described as a cautious and slow learning process that, in three decades, has gradually achieved integration into the world market. Two decades of preparation following Deng Xiaoping’s initial steps to open the economy culminated in entry into the World Trade Organization, a development that itself entailed further opening in key sectors such as agriculture and finance. In line with previous practice, this second major phase of opening was planned according to a longterm strategy for achieving integration into international trade structures, promoting export-led growth, and developing secondary economic sectors through incentives and linkages.16 China’s public sector, institutionalized at the municipal, city, provincial, and central levels, plays a critical role in policy design and implementation. In most respects, it exerts a strong degree of influence over the private sector through the management of labor, trade, foreign direct investment (FDI), capital flows, and sectoral development. In critical areas such as electronics, auto parts, automobiles, oil, agriculture, and services, the role of the public sector is not only to guide but to control production chains either directly through the administration of property or indirectly through incentives. Some scholars argue that the process of reform in China since the end of the 1970s has not necessarily weakened the public sector, but rather improved its efficiency and control, even in terms of property ownership.17 In cases such as electronics and auto parts–automobile chains, the public sector is today the most relevant actor. Its direct influence is due to the fact that cities and provinces are the most important owners of Chinese original equipment manufacturers (OEMs) and brands. Its indirect influence is exerted through a range of mechanisms, from laws governing the flow of foreign direct investments to the financing of private enterprises through public banks.18 Latin America’s approach to economic development has been markedly different, and it has become painfully evident since 2000 that several decades of privatization, especially in manufacturing sectors, have produced a model that is ill prepared to deal with China. There is broad interest in deepening trade relationships with Chinese firms, but efforts to do so are beset by the competitive anxieties of domestic producers. Mexico’s case is particularly

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acute. Although Mexican importers and retailers have not yet organized themselves into official business chambers, they have massively expanded their acquisitions of Chinese electrical machinery, auto parts, automobiles, textiles, and other increasingly sophisticated products. Their success in this regard underpins a deep division within Mexico’s private sector, with importers and retailers on one side of the chasm, and manufacturers of footwear, clothing, auto parts, and automobiles on the other.19 This basic split has impeded open debate and the formulation of short-, medium-, and long-term strategies for dealing with China’s growing impact. Mexican anxiety about China extends into the public sphere (see Chapter 8 for an analysis of recent anti-Chinese activities in the state of Baja California). In December 2007, businesspeople and workers from León in the state of Guanajuato protested explicitly against Chinese imports in a “march for unity and employment.” Such activities have further polarized Mexican opinions and perceptions of China, producing at least three institutional weaknesses and limitations: • A lack of private-sector participation in the Mexico-China Binational Commission, whose last meeting in July 2010 was consequently “diplomatic”; • An incapacitated High Level Group within the Binational Commission, unable to fulfill its duty to handle critical topics such as the bilateral balance of trade, smuggling, discrepancies in statistical reporting, investment, infrastructure, tourism, and migration. These issues have been discussed in a nonbinding manner for more than five years without any concrete results, and the group has not met since 2008; • The establishment of a China-Mexico Chamber of Commerce and Technology some ten years later than comparable institutions in Argentina, Chile, and Brazil. While Mexico’s difficulties in handling China’s economic impact are more extreme than those of other Latin American countries, similar concerns have emerged from manufacturers across the region. The private sector has in general been just as confused and indecisive as national governments. There is a pressing need for both sectors to jointly assess the seriousness of their strategies for building relations with China over the long term.

Conclusion: Back to the Future The current profile of Sino–Latin American trade has revived questions that were popular in the region in the 1950s and 1960s. Can the export of raw materials sustain short-, medium-, and long-term economic development? Is

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technological “upgrading” possible under such conditions? What is the role of the public sector in these socioeconomic activities? Are Latin American political and business elites prepared to tackle such profound questions? Are they ready for China? The list could go on. It is logical that such questions should arise at a time when Latin America finds itself concentrating on capital-intensive and low value-added products and processes in sectors such as agriculture, oil, and mining. After all, we are revisiting production and trade structures that we expected to leave behind in the first half of the twentieth century. The emerging pattern of trade with China is, to be sure, alluring: contrary to previous raw material booms, since the mid-1990s commodity prices have been high, driven up by China’s everincreasing demand. For the first time in three decades, countries such as Argentina, Bolivia, Brazil, Chile, and Venezuela have benefitted massively from these favorable terms of trade. The massive income generated by China’s demand for resources constitutes one side of the coin. The growing sophistication and value of Chinese exports and Latin America’s resulting trade deficit, of around $50 billion in 2008 and 2009, constitute the other. This situation is distinct from conventional notions of “Dutch disease,” a predicament that can eventuate when a country or region achieves a significant trade surplus, typically driven by raw materials exports, thereby driving up the exchange rate of its currency and damaging the competitiveness of its other products and services. From an aggregated perspective, there is no “Dutch disease” in Latin America, since the region as a whole presents a trade deficit with China in spite of massive commodity exports. Over the past decade, trade with China has produced growing deficits across Latin America, bringing us back to the question of whether the export of low value-added raw materials can sustain growth and development. Several decades of intense debate in Latin America stimulated by Raúl Prebisch (and by Friedrich Liszt in nineteenth-century Germany) resulted in a clear and resounding answer to this question—no. Raw materials cannot duplicate the price elasticity of manufactured goods, whose increasing sophistication and demand generate higher relative value over time. On the other hand, as HaJoon Chang notes, high commodity prices driven by Chinese demand have become the norm.20 Even if commodity prices remain high, questions about socioeconomic and ecological sustainability will persist. Chinese manufactured exports have proven themselves to be dynamic and responsive to local demand. Considering the pace at which Chinese electronics, auto parts, telecommunications, and other products are accruing technological sophistication, Latin American demand is likely to increase substantially in the next few years. But while China harbors the capacity to double its exports in a relatively short period of time, is it possible or desirable for Latin America to double meat and soy production, considering the social, economic, and ecological costs?

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The established pillars of the global economy have been wavering since 2008, but trade between China and Latin America has thrived. The obstacles capable of diverting the relationship from its present growth trajectory are not economic but political. Mexico clearly elucidates this case. Since 2003 China has been Mexico’s second-largest and most dynamic trade partner, but the massive bilateral deficit of fifteen to one sustained by the latter, and the displacement of Mexican exports at home and in the United States, have produced strong opposition—particularly in the business sector—to stronger ties with China. Across Latin America, it is the political sphere that exhibits the lowest capacity to deal with China’s impact. With the exception of the free trade agreements signed by Costa Rica, Chile, and Peru, the region’s institutions, business chambers, general publics, and academic institutions are ill prepared to engage in genuinely symbiotic partnerships with the emerging superpower. In 2008, China’s Policy Paper on Latin America and the Caribbean proposed a long-term relationship with the region and stronger bilateral ties with countries of strategic interest. Latin American countries have yet to respond to this proposition either individually or as a region with intersecting concerns.

Notes 1. Devlin, Estevadeordal, and Rodríguez-Clare, The Emergence of China; Eduardo Lora, “¿Debe América Latina temerle a la China?” 2. Dussel Peters, “The Implications of China’s Entry into the WTO for Mexico”; Economic Commission for Latin America and the Caribbean (ECLAC), Oportunidades y retos económicos de China para México y Centroamérica. 3. The World Bank explicitly encourages and supports “offensive strategies that facilitate the participation of LAC firms in global production networks. . . . governments should avoid protectionist temptations and should focus on facilitating the adjustment in affected sectors, as well as the emerging structural shifts towards more natural resource and scientific-knowledge-intensive sectors.” World Bank, Latin America and the Caribbean’s Response to the Growth of China and India, 1. 4. Gallagher and Porzecanski, “China Matters: China’s Economic Impact in Latin America”; Jenkins, Dussel Peters, and Moreira, “The Impact of China on Latin America and the Caribbean”; Sargent and Matthews, “Capital Intensity, Technology Intensity, and Skill Development in Post China/WTO Maquiladoras.” 5. Economic Commission for Latin America and the Caribbean (ECLAC), La República Popular China y América Latina y el Caribe. 6. Blázquez, Rodríguez, and Santiso, “Angel or Devil? China’s Trade Impact on Latin American Emerging Markets”; Lederman, Olarreaga and Soloaga, “The Growth of China and India in World Trade: Opportunity or Threat for Latin America and the Caribbean?” 7. Sargent and Matthews, “Capital Intensity, Technology Intensity, and Skill Development in Post China/WTO Maquiladoras.” 8. Dussel Peters, “Don’t Expect Apples from a Pear Tree: Foreign Direct Investment and Innovation in Mexico”; Dussel Peters, Oportunidades en la relación

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económica y comercial entre China y México; Dussel Peters, Economic Opportunities and Challenges Posed by China for Mexico and Central America; Organization for Economic Cooperation and Development (OECD), OECD Economic Surveys: China; Lall and Weiss, “China’s Competitive Threat to Latin America: An Analysis for 1990– 2002”; Shafaedding and Pizarro, “From Export Promotion to Import Substitution: Comparative Experience of China and Mexico.” 9. Jenkins and Dussel Peters, China and Latin America: Economic Relations in the Twenty-first Century. 10. Kawai and Zhai, “PRC–Latin America Economic Cooperation: Going beyond Resource and Manufacturing Complementarity.” 11. See Dussel Peters, Oportunidades en la relación económica y comercial entre China y México. 12. China Council for the Promotion of International Trade (CCPIT), Fourth China–Latin America Business Summit, Chengdu, www.clasummit.net/Contents/ Channel_3051/2010/0419/247155/content_247155.htm. 13. Ministry of Foreign Affairs of the People’s Republic of China, China’s Policy Paper on Latin America and the Caribbean. 14. S. Johnson, “Balancing China’s Growing Influence in Latin America.” 15. These chapters refer to 84 (auto parts), 85 (electronics), 86 (railway or locomotives), 87 (automobiles), 88 (aircraft and spacecraft), 89 (ships, boats, and floating structures), and 90 (optical apparatus). 16. Dussel Peters, “The Implications of China’s Entry into the WTO for Mexico”; Peter Nolan, China at the Crossroads; Organization for Economic Cooperation and Development (OECD), Reviews of Regional Innovation: Fifteen Mexican States. 17. Qian, “How Reform Worked in China”; Tejeda Canobbio, “Instituciones transicionales en China: El caso de la industria electrónica (1990–2008).” 18. Dussel Peters, “La cadena autopartes-automotriz en México y en China: ¿Potencial de cooperación?” 19. Zaga Kalach, “Oportunidades en la relación económica y commercial entre China y México y su contexto latinoamericano: La cadena fibra-textil-vestido.” 20. Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective.

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6 The Obama Administration, Latin America, and the Middle Kingdom Cynthia A. Watson

ONE OF THE STARTLING CONDITIONS THAT BARACK OBAMA found upon assuming the presidency in January 2009 was the decided increase in Chinese involvement with Latin America. US citizens and their presidents had believed they had a unique closeness to the region after the two centuries dating to the Monroe Doctrine of December 1823, when Secretary of State John Quincy Adams enunciated a warning that the United States would not stand for further European colonization efforts in Latin America. From its outset, the Obama administration has indicated that it will pursue foreign policy approaches strikingly different from those of its predecessor, and cooperation with China in Latin America may emerge as a key test of this goal. The euphoria that characterized the welcome the new president received around the world was as much a response to the previous administration’s departure as it was to Obama’s arrival. Many people in Latin America and elsewhere greeted the election with pent-up anticipation and joy, not least because of candidate Obama’s declaration of support for a US role in the world as opposed to over the world.1 At home and abroad, the public saw the election as the beginning of a new day, and by March 2009, hints from the administration that it might be willing to open discussions with moderate Taliban groups showed the differences between the approaches of Barack Obama and George W. Bush. The probability of similar willingness to work with China appears likely, at least in the near term, as the Obama government looks at Latin America. Herein, however, lie uncertainties in Washington’s approach to the issue, with a horizon full of contentious outcomes. Within weeks of inauguration, the administration confronted a set of new global and domestic events that made dramatic foreign policy changes far less likely. Domestic political constituencies and traditional views of national interest came into conflict with the administration’s campaign promises and 103

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desire to overturn its predecessor’s approach. This set in motion a more conservative orientation, whose consequence for the foreseeable future will be that opportunities for building cooperation with China in Latin America will almost certainly be subsumed by policies developed to deal with a more assertive Chinese engagement around the world. The domestic pressures limiting the administration’s capacity to engage China will come from Congress, the Defense Department, civil rights groups, and trade unions, which form a key constituency in the Democratic Party. Additionally, US reliance on Chinese purchases of debt instruments will muddy Washington’s ability to make clean foreign policy decisions. Finally, the president will not be able to focus attention extensively on China’s growing role in Latin America because of the multiplying foreign policy challenges he faces, for instance in relation to Iran, North Korea, Afghanistan, Iraq, and Russia. While improved ties with China would certainly be helpful in this environment, domestic concerns in the United States about China, driven in part by increased Chinese assertiveness around the world, will complicate attempts to build Sino-US collaboration. This chapter discusses US goals in Latin America, the expansion of China’s influence in the region, and the domestic constraints that will inhibit the president’s ability to effect dramatic changes in US policy. China’s relations with Brazil and Venezuela are afforded special attention, as these will be the most important to the formulation of US policy.

A Region in Flux: US Goals and Chinese Strategies The Monroe Doctrine, contrary to US views, has always been a unilateral document rather than universal in Latin American eyes. Regional leaders dating to Simón Bolívar have expressed misgivings about Latin America being overwhelmed by the United States with its greater economic and military prowess. Bolívar deliberately did not invite the United States (or Brazil) to the first inter-American meeting in 1826 because he envisioned it as a regional, Spanish-based forum. Latin Americans were already sensitive to the threat of dominance by outsiders. Subjected to interventions and financial manipulation by Europe and the United States, Latin Americans have long been attracted to the goal of developing more balanced political partnerships that employ international law as a means to mitigate pressures from external states. Historically, the nations of the region have been understandably preoccupied with the concept of sovereignty as a legal mechanism to protect themselves from pernicious and self-serving interventions that ignore the goals and preferences of newer, weaker states. Exploitative experiences with Spain, Portugal, Great Britain, and the United States have bred strong nationalist sentiment aimed at righting “past wrongs.”

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Washington, by contrast, has sought to maintain Latin America as a continent of disparate states in the US sphere of influence, though it has not always assigned top priority to this goal. Arguably, the region was as profoundly disappointed as any with the 9/11 attacks because the election of George W. Bush, and the initial months of his first administration, had been filled with hope that US–Latin America relations might develop in more mutually beneficial ways. As the Bush presidency drew on, however, Washington showed its intention to remain the dominant partner, monitoring and discouraging any involvement by other states in the region. US interests in Latin America revolve around the stability and continuity of the neoliberal order, a condition advanced by free trade and economic modernization generated by privatized economies, rather than by Latin America’s traditional state-oriented models. With the conclusion of the Cold War in 1989, Latin American economies seemed to adopt a path of market privatization in concert with democratic politics, leading many to assume that the US system of economics and governance had prevailed. When President George H. W. Bush’s 1990 proposal for a “Free Trade Zone Between Tierra del Fuego and Alaska” became untenable, priority was placed on opening regional trade through bilateral free trade agreements in a US-led hemisphere, with Latin America as a reliable and quiet partner. The Central America Free Trade Agreement (CAFTA), signed into law by George W. Bush in August 2005, was therefore both a political and economic initiative. China has not historically been engaged in Latin America, in part because of the geographic distance involved, and in part due to a lack of common interests. Latin America did not participate in the “Century of Humiliation” (1842–1949, when China felt exploited by outside powers violating its sovereignty), and there was little reason for the Middle Kingdom to challenge the Monroe Doctrine’s US-centric view. From 1949 to 1970, Latin American states officially recognized Taiwan as “China,” and only Castro’s Cuba offered diplomatic recognition to Beijing. China’s accession to the United Nations Security Council, on October 25, 1971, signaled the nation’s return to the international community, and thereafter Latin American states began shifting diplomatic recognition from Taiwan to the People’s Republic of China. By the mid-1980s, all but a handful of smaller states had developed diplomatic and nascent military connections with the People’s Republic and its armed forces. As of mid-2009, Paraguay, Panama, Nicaragua, El Salvador, Honduras, and Guatemala still recognize Taiwan as the government of the Chinese people, much to Beijing’s irritation (see Chapter 3). China’s traditional relations have been with East Asian neighbors, the United States, and Europe. Historically, Latin America did not figure prominently in China’s foreign interests, and China was not particularly important to Latin American states. However, as China modernized under Deng Xiaoping, Jiang Zemin, and Hu Jintao, its economic, military, political, and cultural

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power grew, allowing it to expand its presence around the world. Beijing’s foreign policy began to broaden, dedicating sincere attention to East Asia, the European Union, Africa, Latin America, the Middle East, and the United States, which, according to (then-candidate) Secretary of State Hillary R. Clinton, is “the most important bilateral relationship in the world in this century.”2 China’s rapid economic modernization has augmented its need for foreign commodities, particularly energy resources, prompting Chinese enterprises to seek access to guaranteed reserves. Latin America, with its vast deposits of iron ore, copper, and tin, has now become a logical target for China’s interests.

Venezuela and Brazil: The Geopolitics of the South Latin America is an important supplier of petroleum, and leading the region in this capacity is Venezuela. Throughout the presidency of Hugo Chávez Frías, beginning in late 1998, Latin American economies large and small (including Brazil) have developed strong trade ties with Caracas. Chávez is a stridently anti-US voice in the international community, and much to Washington’s irritation, China has become a highly appealing potential destination for Venezuelan oil exports as Chávez attempts to find alternatives to the United States whenever possible. In the meantime, the United States receives—and will for the near term—considerably more Venezuelan oil than does China. China depends less on Venezuela than vice versa, and is uncomfortable in relationships marked by unpredictability and political risk (see Chapter 12). The overwhelming majority of ink spilled on the topic of Sino–Latin American relations over the past decade has treated the Venezuelan case, primarily because of the Chávez administration’s declared anti-US policies and desires to undermine Washington’s role in the region. Chávez has cultivated ties not only with China, but also with a range of anti-US leaders around the world, including Fidel Castro, Saddam Hussein, Muhamed Ahmadinejad, and Evo Morales. He also sought to use the sale of petroleum to China as a method of irritating the Bush administration, though these efforts evoked only a passive response from Beijing. China’s pursuit of petroleum and other energy resources is predicated on the protection of national interests, a priority that limits its disposition to develop close ties with volatile regimes that might undercut its other security goals. Sino-Venezuelan collaboration could develop in the exploitation of orimulsion, a waxy petroleum substance derived from bitumen and used as boiler fuel in power plants worldwide. Beijing would like to solidify options to access Venezuelan bitumen deposits in the Orinoco Belt (the largest in the world) and collaborate to develop refining capabilities. Venezuela restricts access to orimulsion for all countries except China, and the gradual ascent of petroleum prices (evident in 2010 as demand from China and India resumed)

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could make the complicated refining process economically profitable for Chinese energy firms. Venezuela’s appeal to China as an energy supplier could one day be rivaled by Bolivia, Ecuador, Colombia, and Brazil, all of which have substantial petroleum deposits. China has intensified its engagement with Bolivia and Ecuador in particular, but has been more cautious with Colombia, which maintains strong ties with Washington based on a substantial flow of foreign assistance. Brazil has attracted China’s attention in part because of its path-breaking, deep-sea drilling technologies, but also because of its agricultural output and economic prominence in the region (see Chapter 13). China is currently engaged in a campaign to move millions of citizens from inefficient farms into new cities as part of the Four Modernizations process. To compensate for the resulting decline of domestic agricultural output, Brazilian products have come to play an important role, particularly soy, which complements the Chinese diet extremely well. The efficiency of Latin American farms appeals to the Chinese government as it seeks out stable sources of basic foods and support for its agricultural modernization programs. Brazil, with its vast geographic resources and increasingly important agricultural products, welcomes China’s interest and willingness to buy up exports with open arms and a ready checkbook. As the dominant member of the Mercosur (Southern Common Market) trade bloc, Brazil has long argued that the Western Hemisphere will not benefit from a regionwide trade pact that allows greater penetration by Washington, and that free market benefits should be limited to Latin American states. Brazil assumed leadership in crafting the linkages between Mercosur and the Andean Pact at the May 2008 founding meeting of the Unión de Naciones del Sur (Unasur, or Union of South American Nations), demonstrating its willingness to steer the region beyond its traditional reliance on Washington.3 Brazil shares with China a desire to reorient economic and political influence away from the United States in favor of a more multipolar international system, an agenda advanced by Sino-Brazilian cooperation. In line with this aim, Brazil has long sought to take a seat in the United Nations Security Council as the sole Latin American permanent representative, a quest many Brazilians believe resonates with China’s often-stated commitment to empowering the formerly nonaligned states of the “third world.” Whether or not such a development would suit China, Beijing can stand next to Brasilia in this quest with little cost, since the likelihood of the other four permanent members’ (the United States, France, the United Kingdom, and Russia) agreeing to the move is low. The same holds true for the predicament of India and Japan, which also desire a permanent Security Council seat. President Luiz Inácio Lula da Silva’s May 2009 official visit to China escalated the relevance of the bilateral relationship and illustrated that the Obama administration’s approach to Latin America is not without skeptics.

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Lula’s public statements, matching those of President Hu Jintao, demonstrated a shared desire to gain greater prominence in the international system, and conveyed a public message that the two nations no longer intend to take a back seat to Washington in global affairs.

The Obama Administration: New Opportunities or Rising Constraints? For all the optimism about new directions in US policy toward Latin America and China under President Obama, systemic constraints will likely outweigh the new administration’s ability to effect substantive change. US concerns about China’s involvement in Latin America will continue to be assessed as a component of broader Sino-US relations. Moreover, during its first three months in office, the Obama administration found that several of the same problems that confronted George W. Bush remain at the international forefront. Among these, a failing strategy in Afghanistan and Pakistan has threatened to monopolize the administration’s attention and resources. Other priority issues include North Korea, whose missile launch on April 4, 2009, powerfully demonstrated the need for diplomatic attention. Concerns also remain about a secretive Iranian nuclear enrichment program that Washington believes will result in weapons-level capability. Furthermore, increasing drug-induced violence along the long, porous US-Mexican border has led to concerns about the possibilities of a failing state to the south. Even if that worry is overstated, no president can ignore Mexico when violence is spilling into two of the more populous states in the southwestern United States. Each of these complex issues requires considerable skill and attention to detail to craft the best possible outcomes, using the full range of national security tools available to the United States, ideally with the assistance of partner states. These are more important concerns for the United States than China’s growing influence in Latin America, and will remain so for the foreseeable future. As such, they will dominate the president’s agenda and in all likelihood prompt efforts to develop partnerships with Beijing, particularly in relation to North Korea and Iran. A healthy US partnership with Beijing is also crucial for both sides in financial matters. Washington wishes to conserve China’s willingness to buy US Treasury bonds, while China seeks to retain its enormous US market for its export-led growth.4 Premier Wen Jiabao’s warnings to the US government that it is responsible for Chinese investments in US Treasury bonds was a clear indication that Beijing understands the increasing interdependence between the two states.5 That China, until recently a poor and seemingly “backward” developing state, could challenge the United States to be more responsible is an

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unprecedented development, all the more significant for its articulation at a time when global discomfort about the path of US economic policy is growing. While the financial crisis has deepened nationalistic attitudes in the United States, it has also deepened Chinese concerns about maintaining support for US profligacy. This action-reaction cycle is one that leaders on both sides of the Pacific need to monitor carefully to make certain it does not force unanticipated actions that undermine either country’s national interests. Economic and political nationalism in the United States and China will almost certainly curb the Obama administration’s options in foreign affairs, particularly in defining pathways toward collaboration with China in Latin America. Moreover, future competition between China and the United States for Latin American resources will affect each country’s economic health should commodity prices rise back to the prerecessionary levels of mid-2008. This may become a key source of tension in the bilateral relationship, and according to some analysts, represents an emerging challenge at the level of military strategy.6 China’s military ties to Latin America have historically been thin, but are playing increasingly into larger strategic considerations. The People’s Liberation Army (PLA) is less concerned about developing international partnerships than defending against territorial threats from the north and northwest, answering domestic needs as ordered by the Communist Party, and preparing to prevent Taiwan from declaring de jure independence. Until recently, a PLA with longterm ties to other, distant armed forces was not in the realm of possibility any more than it would be for Latin American militaries, with the notable exception of Cuba’s mil-to-mil ties with the Soviet military beginning in the early 1960s. The establishment of diplomatic ties with Beijing after 1970 provided a basis for the region’s current military relations with China. Opportunities for military exchange increased with the expansion of PLA activities, including the establishment of a National Defense University in Beijing in the mid1980s. Military engagement grew in step with the dynamics of US–Latin American relations, especially the suspension of military training and assistance. Vermont Democratic senator Patrick Leahy prohibited nations that allowed or encouraged their militaries to commit human rights abuses from attending professional military education programs in the United States. Beijing, with its long-standing policy of nonintervention, welcomed those nations’ officers to Chinese schools and simultaneously increased cultural relations with their home countries.7 China therefore became an obvious destination for Venezuelan military personnel after President Hugo Chávez Frías took power in December 1998. Latin American countries intensified military ties with China when Washington refused to adhere to the agreements of the International Criminal Court (the so-called Article 98 controversy), a position widely perceived in the region as inimical to the spirit of international law and unaccommodating of Latin American sovereignty.

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Ties between Chinese and Latin American militaries have expanded beyond the PLA National Defense University to exchange programs, official visits, and increasingly, the sale of Chinese arms to the region. These are measured but sustainable signs of increasingly warm ties, which would have created strong US responses during the Cold War. At present, however, Sino–Latin American military ties receive relatively little attention in the United States and are examined only by specialists of either China or Latin America, with only passing reference to concerns about declining US power in the world.8 Suspicions in the United States and China about each other’s military intentions have, however, become increasingly evident, for instance, in Washington’s reaction to the USNS Impeccable incident in late February 2009, and in Beijing’s anger about the Pentagon’s release of a congressionally mandated report on Chinese military power a month later.9 The episode illustrates the depth of sentiment growing in each country that the other seeks to curtail its national security options.

Domestic Constraints Facing the Obama Administration As the luster surrounding the inauguration of the United States’ first African American, post–Vietnam War president began to fade in mid-2009, it was replaced by a politically polarized atmosphere. The Illinois senator defeated his Arizona colleague by 7.2 percent of the national popular vote, and his victory in the Electoral College was even more dramatic. The transition period was characterized by virtual euphoria, leading many to anticipate a radically different foreign policy. While it is too early to discern whether this expectation will be met, the political compromises of governing versus campaigning for office have allowed those who supported a continuation of the prior foreign policy trajectory to reassert their influence. Differences on foreign policy in the United States characterize many debates, but none more so than on the bilateral relationship with China. Chinese ties with Latin America have economic, diplomatic, industrial, and military motivations, and are based less on ideological aspirations than pragmatism. This is evident in China’s relations with Colombia, a country that has received sustained political and military assistance from the United States over the entire first decade of the twenty-first century. Unlike the broad links that China has developed with Brazil and other nations of the region, its ties with Colombia have been measured. These have developed in the military, political, and trade realms, but not strongly in petroleum or other energy sectors, unlike in Brazil or Argentina during the same period. Were China seeking overtly to challenge US power in the region, it would have tried to secure Colombian petroleum contracts as part of its global efforts to lock up energy supplies.

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The Obama administration is uncomfortable with the notion of absolute US hegemony over Latin America and therefore welcomes multilateral involvement in the region. Unencumbered, the administration would likely seek to leverage such involvement to advocate shared responsibility for solving global problems. However, the prospects for realizing this goal are undermined by a persisting fear in Washington that the dangers of China’s engagement in Latin America outweigh the opportunities for the United States. For over twenty years, during the wave of privatization in the region, members of the European Union, particularly Spain, have established a much greater financial stake in Latin America. However, few proponents of US supremacy in the region based on the Monroe Doctrine have found European states as threatening over the past two centuries as they find China during the past two decades. China’s growing prowess and perceived willingness to exercise its power have many in the United States wondering how Beijing views its ultimate goals in the Western Hemisphere. George W. Bush’s deputy secretary of state and current president of the World Bank, Robert Zoellick, posed a question in September 2005 that many still use as a catchphrase for capturing the quandaries that they see in China’s global expansion: Does China wish to be a “responsible stakeholder”? The inference is that China could seek characteristically to change the rules of international behavior and impose new political and economic conditions around the world or in specific regions. Its perceived potential to undermine the existing “order” in the Middle East, Europe, and Latin America concerns many in the United States who fear that Beijing’s overall intention is either to decrease Washington’s influence around the world or to craft alliances that would threaten US interests. In the wake of sustained global economic downturn beginning in late 2007, the United States remains frustrated and only gradually cognizant of the growing international challenge to its political and economic model. Global dissatisfaction with this model was articulated explicitly by Brazilian president da Silva in his recent public chastisement of the policies of “blue-eyed people” hurting the poor around the world.10 Even though President Obama does not physically resemble a Caucasian, blue-eyed Anglo-Saxon, the charge reflected a convergence of attitudes between Latin Americans and Chinese.11 This attack is only the first on a long list of international criticisms of the United States, sparked to a great extent by the Bush administration’s decision to go to war in Iraq despite global objections, as well as by US responsibility for fostering a poor regulatory environment. Washington is unaccustomed to seeing another nation-state extensively interested in Latin America. Over half a century after the fear of Soviet infiltration in Guatemala led to the coup d’état against Jacobo Arbenz, China’s regional activities have raised concerns about threats to US interests. The domestic fears that constrain President Obama involve two constituencies: one

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that condemns Beijing’s determination to control religion and trade unions at home, and one that is profoundly uncomfortable with the extension of China’s military ties in the region. Religious concerns in the United States have long held sway in the Republican Party, posing a strategic challenge for the Obama administration as it seeks a position that appeals to faithful voters across the political spectrum. Retaining links to religious constituents may constrain the administration’s liberty to engage with China: it must publicly register concerns about religious freedom worldwide even though this could inflame growing nationalist sentiments and reactions in China against perceived US preaching. The stakes of this balancing act are elevated by attempts to woo China to buy US government bonds. Similarly, US advocacy of trade union activities, based on the firm support that union members (despite their diminishing numbers) provide to the Democratic Party, presents the administration with a stark trade-off at a point where it seeks options, not limits. As the Chinese become more involved in a region where trade unions have experienced mixed success in transforming economies, the union lobby in Washington may exert a surprising amount of pressure on the Obama presidency to pressure Beijing in turn to protect unions in Latin America. Congressional backing is crucial for President Obama, but regarding China’s expansion into the Western Hemisphere, Congress may limit his options. While it is not correct to say that Congress supports Taiwan and the president supports China, the pro-Taiwan and anti-Communist positions of many in Congress are still vibrant. As the arm of government with the closest ties to the public, Congress tends to have a greater range of proclaimed positions than the other institutions. Some congressional representatives, such as Republican Dana Rohrbacher of Southern California, have indicated their passionate concerns regarding China’s military modernization. Others worry that China’s ability to move into Latin America or Africa or any other “new” portion of the world threatens US interests in a “zero-sum” manner: Beijing’s gain must be Washington’s loss, and visa versa.12 Congressional apprehensions about Chinese military activities in Latin America are most prominent in relation to Caracas and Havana. Fears about China’s ties with the two anti-US regimes, along with its deepening relations with Bolivia and Ecuador, where nationalist proponents oppose traditional ties with Washington, allow Congress to take vocal positions without having to make the kind of difficult determinations required of the president. Congress can incite such fears to mandate military expenditures, such as procurement and development of new weapons systems along with possible options for foreign assistance. While few analysts claim that Beijing’s involvement in Latin America comes anywhere near that of the Soviet Union’s during the Cold War, the need to maintain conventional forces to counter an unlikely but possible

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national security threat from the PLA will continue to galvanize Congress and restrict the Obama administration’s flexibility. The 2008–2010 global economic crisis and the attendant contraction of resources available to Washington have raised US awareness about changes in the balance of power around the world and about budgeting problems at home. On the heels of disappointment and frustration in Iraq and Afghanistan, many in Washington are unsure what steps can be taken to return the international system to one that is open and favorable to US interests. While some view China’s growing interests in Latin America as complicating this goal, such concerns have not produced actions that would deter Beijing from continuing to strengthen ties with the region. If President Obama’s election and initial moves in office appeared to bring new prospects for cooperation between Washington and Beijing, the coincidence of the financial crisis with the eruption of several long-standing global conflicts has forced any such agenda into the background. Well beyond the shores of Latin America, the United States and China have had to wrestle with problems as intractable as North Korea’s unpredictable nuclear aspirations and the difficulties in limiting Iran’s capacities to develop a nuclear weapons program. Seemingly diverging US and Chinese positions on these issues, coupled with Washington’s desire to see China address domestic issues such as currency obstacles, have drawn Washington’s attention away from Latin American affairs. The notable exception is the violence in Mexico, which has nothing to do with China, but everything to do with domestic concerns about immigration, narcotics, and gun control. The much-heralded spirit of openness that characterized the initial weeks of the Obama administration has, in short, lost traction. As the United States struggles to allocate its near-, medium-, and long-term resources in a more fiscally constrained environment, it will butt up against a China feeling far fewer constraints. China’s domestic obstacles are profound and may impinge on Beijing’s ability to offer aid to Latin America, but its current growth trajectory will maintain a clear focus on access to the markets, resources, and foodstuffs that the region can provide. As the rhetoric from Washington illustrates, the US government is acutely aware of China’s inroads into the Western Hemisphere, but it is likely that Washington will be too absorbed elsewhere to counter them.

Conclusion While President Obama endeavors to confront a staggering array of challenges at home and abroad, the Chinese Communist Party faces a similarly vast range of obstacles within its own borders. If the leadership of each country has the

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political space to interpret its interests beyond the immediate need to satisfy nationalist tendencies, important opportunities for cooperation and creative interaction may emerge. Beijing and Washington should and likely will explore burden sharing in a number of ways that would have been unthinkable in prior periods, when the leadership in each country had less space to maneuver.13 Obama’s statements on the importance of improving global environmental conditions may signal one potential pathway toward cooperation with China in the region. China’s position on the environment resembles that of most Latin American states, particularly Brazil: improved economic conditions for citizens are a prerequisite for environmental action. The increasing role that the Middle Kingdom is playing as an importer of Latin American minerals and other commodities has profound environmental implications, as does any activity involving hundreds of millions of people. Therefore, any concrete environmental plans developed by the Obama administration that encompass Latin America will from their outset imply collaboration, or at the very least interaction, with China. Sino-US cooperation will be key to effective management of global environmental challenges. Bilateral dialogue has begun to frame the issue as a shared responsibility in the hemisphere and the world, thereby answering congressional concerns about China “getting away with environmental degradation.” In addition to appeasing Congress and taxpayers, engagement with China and Latin America on environmental issues through regional multilateral institutions would lay the foundation for broader discussions about shared nontraditional security concerns. Indeed, China’s desire to play a greater role in the international system coincides with many of the Obama administration’s goals, including piracy prevention and assistance in peacekeeping operations. Despite the expansion of potentially collaborative spheres of activity, significant domestic and international limits on the Obama administration’s capacity to develop cooperative actions with China remain. The United States in 2009 faced the most severe budgetary constraints of the past century, dramatically diminishing its options for proactive engagement with Latin America. This lack of engagement is nothing new, as the region has never proven as important an economic or political partner for the United States as geographic proximity would suggest. Indeed, Latin Americans have never perceived an ongoing, sustained level of commitment from Washington; rather, the latter’s attention to the region has historically resulted from idiosyncratic concerns that it was beginning to pose risks to US national interests. China’s growing involvement in Latin America has elicited considerable concern, but between 2001 and 2009 the Bush administration’s attention was drawn away from the Western Hemisphere as it sought to eradicate the Al-Qaida network responsible for the September 11 attacks. This ongoing quest, alongside

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anxieties about stability in Pakistan, potentially open-ended commitments for US forces in Afghanistan and Iraq, worrisome Iranian and North Korean nuclear aspirations, and a military already overstretched by repeated deployments, constitute an unenviable inheritance for the Obama administration. In both Beijing and Washington, skeptics will continue to challenge the propriety of better links between the two governments. Chief among the objections will be the charge from each side that the other will take any opportunity to limit its national security goals. In the United States, concerns about the ongoing modernization programs of the PLA have been growing since the late 1990s, underwritten by the PLA’s budget allocations, which have increased at publicly acknowledged double-digit rates.14 Similarly, criticisms in Beijing that Washington is trying to thwart China’s achievement of normal, global power status appear frequently in conversations and opinion pieces in the press. President Obama’s attempt to distance himself from his predecessor’s emphasis on US unilateralism and desire for primacy in the international system, coupled with several pressing international issues and a limited operating budget, may generate domestic perceptions of China that are less apprehensive than was the case in past generations. Brazil stands out as the most logical Latin American political and economic partner for China, but across the region, Beijing will continue to develop relationships that satisfy its national needs. In doing so, however, it will be careful to avoid eliciting comparisons with the past efforts of the United States to project influence over its “backyard.” The Obama administration will never openly acknowledge that it is less willing than was the prior US government to influence the development of the region; rather, the more cooperative orientation of its foreign policy aims to serve as a tactful segue for dismantling deep-seated US attitudes about predominance in the Americas. Lurking in the background of the geopolitical debate is the fact that China’s willingness to buy US Treasury bonds is an important aspect of the Obama administration’s economic recovery plan. While those anxious about China’s growing role in the international scene argue that its rise may lead to future conflict, much of the defense preparation and modernization they seek will require Beijing’s continued willingness to purchase US debt. This reality was reflected in Secretary Clinton’s February 2009 visit to Beijing, when to the disappointment of many of her supporters, she refrained from criticizing her Chinese hosts for their approach to human rights.15 The episode illustrated that a new set of constraints, opportunities, and trade-offs has begun to permeate Sino-US relations. In light of its historically troubled relationship with the United States and its quest for a new beginning with China, Latin America may well be the theater in which the most important geopolitical trade-offs of the twenty-first century are acted out.

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Notes The views expressed here are purely personal and should not be construed as representing official views of any portion of the US government. 1. This was an opinion frequently expressed in El Tiempo, a leading Colombian daily, and confirmed by the author’s observations in Bogotá, November 4–5, 2008. 2. Clinton, “Security and Opportunity for the Twenty-First Century.” 3. Joshua Goodman, “South American Presidents Agree to Form Unasur Bloc,” Bloomberg, May 23, 2008, http://www.bloomberg.com. 4. Bello, “Economías ‘encadenadas’: China y Estados Unidos.” 5. “Mr. Wen’s Debt Bomb,” Wall Street Journal Online, March 18, 2009, http://online.wsj.com. 6. Mrozinski et al., “Countering China’s Threat to the Western Hemisphere.” 7. During a lecture at the PLA National Defense University Foreign Officers’ course (segregated from the regular PLA curriculum) in December 1998, the author noted approximately a dozen Latin American officers in the audience, alongside counterparts from Africa and the Middle East. 8. Hearings by either House of Representatives or Senate committees or subcommittees rarely address the topic of arms sales within broader questions of Chinese interest in the region. The US-China Economic and Security Commission, a congressionally mandated (but not elected) group, holds regular meetings but does not typically include this issue in its more-general discussions of China’s emerging role in Latin America. 9. “China Condemns US Military Report as ‘Interference,’” The Guardian, March 26, 2009. 10. Nicholas Watt, “‘Blue-Eyed Bankers’ to Blame for Crash, Lula Tells Brown,” The Guardian, March 26, 2009. 11. See Chapter 2 by Ariel Armony for a discussion of emerging economic and political convergences and divergences between China and Latin America. 12. See, for instance, Congressional Research Service, “China’s Foreign Policy and ‘Soft Power’ in South America, Asia, and Africa.” 13. See Chapter 7 in this volume for Daniel P. Erikson’s analysis of potential areas of Sino-US cooperation. 14. The 2009 PLA budget was released in early March. Described as “modest” by the Chinese government, the budget was almost 15 percent larger than the previous year’s (BBC World Service radio broadcast, March 2, 2009). During the same week, the Dow Jones Industrial Average dropped precipitously on three of the five trading days, and together with the Obama administration’s bailout of the American International Group, dominated the news. The PLA budget increase generated little public discussion, even by policy pundits, though some have since alleged that it is larger than Beijing acknowledges. 15. Richard Sisk, “Secretary of State Hillary Clinton Says China Talks Can’t Be Tied to Human Rights Debates,” New York Daily News, February 20, 2009.

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7 Conflicting US Perceptions of China’s Inroads in Latin America Daniel P. Erikson

THE GROWING IMPORTANCE OF CHINA IN LATIN AMERICAN affairs has attracted the interest of several US institutions that focus on issues related to the Western Hemisphere. In this regard, the experience of the InterAmerican Dialogue, which is widely considered to be one of the foremost US think tanks to deal with Latin American issues, has been instructive.1 Founded in 1982, with the purpose of providing a nongovernmental forum for research, debate, and analysis of Western Hemisphere affairs, the Inter-American Dialogue has recently begun to examine China’s ties with Latin America and to reach out systematically to Chinese scholars and institutions. This line of inquiry commenced in earnest shortly after 2000, when China’s impressive growth rates and rising demand for commodities drove more intense outreach toward South America, while the level of diplomatic competition between China and Taiwan showed signs of intensifying in Central America and the Caribbean. Beginning in 2004, senior Dialogue staff began traveling to China to research the country’s emerging global role and impact on the Western Hemisphere. Two of these staff members began to research and write with greater frequency on China’s impact in Latin America—Claudio Loser, a senior fellow formerly with the International Monetary Fund, has focused on the economic relationship; while the author of this chapter has analyzed political and security implications.2 While the Dialogue’s project on China and Latin America has enhanced the quality of analysis available to US policymakers on this evolving phenomenon, three important gaps have been identified in defining the scope of the This essay was written in the author’s capacity as senior associate for US policy at the Inter-American Dialogue, before he accepted a position at the State Department’s Bureau of Western Hemisphere Affairs. It is based on independent analysis and does not reflect the views of the US government.

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China–Latin America relationship and the potential implications for the United States. First, Latin America as a whole and scholars of Latin America in the United States generally lack even basic Chinese language skills, let alone the advanced skills that would be needed for intensive research of Chinese domestic news sources. While a growing cadre of Chinese scholars has developed either English or Spanish language fluency, the absence of Chinese language skills in the Western Hemisphere poses a continuing barrier to expanding this field of study. Second, the presence of private Chinese companies in Latin American commodity markets and foreign direct investment, which represents a small but increasingly dynamic component of Chinese involvement in the region, remains largely closed to external research.3 While China and Latin American countries release aggregate trading figures, it remains difficult to compile a more nuanced and detailed firm-level analysis of existing transactions. Lastly, the scope of China’s military exchanges with Latin America remains veiled, making it difficult to predict how this apparently underdeveloped aspect of the relationship is likely to evolve. This chapter discusses US perceptions of China in Latin America with the aim of identifying sources of tension and possible avenues of cooperation. It begins by suggesting that the Obama administration has attempted to demonstrate greater attentiveness to Sino–Latin American ties than did its predecessor, but has not yet articulated a strategy for engaging China as a responsible stakeholder in the region. It outlines China’s macroeconomic impact on Latin America, in particular, how its undeterred economic growth in 2008 and 2009 provided a crucial market for the region’s mineral exports, and a much-needed alternative source of credit, through the global financial crisis. The chapter argues that China’s ties with Cuba, Venezuela, and Panama, despite media reports to the contrary, pose little threat to US interests. Taiwan, on the other hand, has become an awkward issue for Washington as those countries of Central America and the Caribbean that have not yet established formal relations with Beijing express increasing interest in doing so. Next, it examines how Chinese aid and investment in the region have not followed conventional international standards of governance and transparency, a worrying trend considering China’s domestic battle with corruption. Finally, the chapter suggests that although opportunities for Sino-US cooperation in Latin America are rather limited, prospective areas of engagement may widen if both the United States and China deal with Latin America in an open and transparent manner.

The Politics of Posturing In May 2009, the top US diplomat, Secretary of State Hillary Clinton, was speaking at a public forum in Washington, D.C., when she was asked about how the White House should manage the challenges posed by Hugo Chávez,

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the Venezuelan strongman who has positioned himself as the chief opponent of US power in Latin America. Secretary Clinton used the opportunity to rebut the George W. Bush administration’s record in dealing with leftist leaders in the hemisphere, saying that “the prior administration tried to isolate them. . . . It didn’t work.” She continued: I have to say that I don’t think in today’s world, where it’s a multipolar world, where we are competing for attention and relationships with at least the Russians, the Chinese, the Iranians, that it’s in our interest to turn our backs on countries in our own hemisphere. . . . And, in fact, if you look at the gains, particularly in Latin America, that Iran is making and China is making, it’s quite disturbing. I mean, they are building very strong economic and political connections with a lot of these leaders. I don’t think that’s in our interest.4

Secretary Clinton was not the first US public official to cast China’s growing presence in Latin America as a threat to US interests in the region, although few have done this so bluntly. During their first debate of the US presidential campaign, Barack Obama and the Republican candidate, John McCain, sparred over a number of foreign policy issues, but it was Obama who highlighted China’s role in Latin America as a potential challenge for the next president: “We’ve got challenges, for example, with China, where we are borrowing billions of dollars. They now hold a trillion dollars’ worth of our debt. And they are active . . . in regions like Latin America, and Asia, and Africa. The conspicuousness of their presence is only matched by our absence, because we’ve been focused on Iraq.”5 Both during and after the presidential campaign, China’s growing influence in Latin America has been portrayed as a symptom of the perceived neglect of the region by the Bush administration. Although this has rarely been expressed in an explicit manner, the implied story line is that President Bush neglected Latin America, which naturally belongs in the US sphere of influence, and allowed it to fall into the hands of the Chinese and other rival powers, which is bad for US interests. Therefore, the Obama administration will pursue a path of renewed engagement with Latin America that, in addition to whatever concrete benefits this may bring for the United States and its Latin American partners, will also limit China’s reach in the region, which is good for the US national interest. To be fair, the Obama administration has not gone to great lengths to portray China’s Latin American presence as a threat to US interests, and Secretary Clinton’s statements on the subject did not have any direct policy implications, although they surely raised eyebrows in Beijing and a number of Latin American capitols. Nevertheless, the Monroe Doctrine, based on the historic statement made by President James Monroe in 1823 that the United States will oppose the intervention of foreign powers in Latin America, remains an animating principle in US foreign policy discourse, despite the

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lack of practical mechanisms for applying it. In this light, Secretary Clinton’s remarks are illustrative: she accepts (even embraces) the notion of a multipolar world, but nevertheless indicates that one of the potential poles, Latin America, should remain off-limits to those powers of which the United States disapproves. In painting the China–Latin America connection as an issue of concern to the United States, officials from the new Democratic administration are tapping into arguments promoted previously by conservative foreign policy pundits, but largely ignored by the Bush administration. Clinton’s remarks underscore the degree to which the US foreign policy establishment lacks a consensus on whether and how US interests in Latin America are impacted by China’s evolving influence in the region. As a result, China’s role in Latin America is described on a continuum from “strategic threat” to “responsible stakeholder,” which has often left US policy confused and reactive as a result. There is little doubt that the People’s Republic of China has moved from the periphery to become a meaningful actor in Western Hemisphere affairs. This development has not occurred in a vacuum, but rather reflects a broader shift in Latin America’s global relations as the region seeks to complement its strong partnerships with the United States and the European Union with new ties to Asia, the Middle East, and Africa. Still, while many Latin American and Caribbean countries enjoy long-established political and economic ties with Beijing, the scope of change over the past decade has been striking. By almost every conceivable metric, including presidential visits and high-level diplomacy, the pace of trade and investment, and the level of cultural exchange, China’s relations with Latin America have never been so robust. Moreover, this deepening relationship has occurred against the backdrop of several interrelated trends. First, China’s robust rate of economic growth has driven its search for new markets as well as endowed it with greater resources to cultivate political alliances throughout the world, including Latin America. Second, Latin American and Caribbean economies are seeking to diversify their trade partners and take advantage of the economic opportunities presented by China. Third, Latin America remains an important battleground for diplomatic recognition between China and Taiwan as Beijing attempts to pry loose Taipei’s remaining allies in the region. As discussed in a number of the chapters in this volume, China’s relations with many Latin American nations reach back for decades. Cuba was the region’s first country to establish diplomatic ties with Beijing in 1960, followed by Chile in 1970, Mexico in 1972, and Venezuela and Brazil in 1974. Still, trade was sparse and presidential visits remained infrequent through the end of the 1990s. Chinese president Jiang Zemin initiated the present wave of outreach to Latin America by visiting Cuba in 1993, early in his presidency, and his visit in 2001 to Argentina, Brazil, Chile, Cuba, Uruguay, and Venezuela laid the foundation for much of the successful political and eco-

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nomic engagement that followed during the rest of the decade.6 But it was really President Hu Jintao’s highly publicized visit to Latin America in November 2004, during and after the Asia-Pacific Economic Cooperation (APEC) summit in Chile, which marked the moment when China’s expansion into the Western Hemisphere drew widespread notice in the United States. After the APEC summit, President Hu traveled to Argentina, Brazil, and Cuba, and the following year he visited Canada and Mexico. This spate of high-level diplomacy between China and the Western Hemisphere prompted a flurry of articles and policy reports from US-based institutions that sought to explain increased Chinese activity on America’s southern flank. Some observers fretted that the combination of an expanding China, the rise of the political left in Latin America, and the declining US image and influence in the region would create a potentially negative situation for US interests in the hemisphere. But the boom in bilateral commerce, to which I now turn, also created new opportunities for prosperity in some of the region’s top commodityproducing countries.

China’s Economic Relationship with Latin America China is a rising economic power with a growth rate (exceeding 10 percent for much of the past decade) that has been the envy of the developing world. While the global economic slowdown triggered by the 2008 recession in the United States and Europe cut deeply into China’s future growth prospects, it is still forecast to eke out growth rates exceeding 7 percent and is not expected to face a prolonged slump anytime soon. This is good news for Latin America, which has largely based its own recent growth on China’s global search for the commodities necessary to sustain its rapid economic expansion. The pace of trade between China and Latin America and the Caribbean skyrocketed from $10 billion in 2000 to $143 billion in 2008 according to Chinese authorities. This is an impressive figure, although still well below the $560 billion in US–Latin American annual trade, and less than half the $250 billion in trade between Europe and Latin America. Still, China is now Latin America’s thirdlargest trading partner after the United States and the European Union, and its clout is poised to grow. In 2004, following Hu Jintao’s speech to the Brazilian parliament, he was widely reported to have promised that China would make $100 billion in investments in Latin America over the next decade, that is, by 2014. Given that Chinese investment in the region at that time was only $6 billion, it appeared to be a boldly ambitious vow that galvanized expectations in the region. It certainly helped China to win coveted “market economy status” from many of the fifteen Latin American and Caribbean countries that have granted this recognition to Beijing. The Chinese government now claims that Hu was misquoted

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and that the $100 billion figure referred to trade, not investment. Nevertheless, they allowed the initial assertion to be repeated in the Latin American press for well over a year before Chinese officials decided to walk back this figure and clarify the intention of Hu’s remark. When China–Latin America trade exceeded $100 million for the first time in 2007, Beijing then claimed that President Hu’s pledge had been fulfilled ahead of schedule. However, the initial confusion over what precisely China was promising to Latin America indicates the degree to which cultural differences and China’s relative lack of experience with the region has at times undercut its diplomacy. Chinese foreign direct investment in Latin America lags far behind that of the European Union and the United States. In fact, it is the European Union that is the region’s largest investor, with an estimated $620 billion in investments, followed by US investments of $350 billion. By contrast, a top Chinese trade official recently estimated that about 25 percent of China’s total overseas investment of $90 billion went to Latin America, which would equal about $22 billion. However, official estimates of Chinese investment in Latin America often vary, and, in any case, the vast majority goes to offshore financial havens such as the Cayman Islands and the Virgin Islands, with only about $1.9 billion accounting for nonfinancial direct investment in the region. Conversely, Latin American companies have made sizable investments in China with $20 billion already paid in of the $34.6 billion contracts signed.7 According to the official Chinese trade figures for 2008 released by Xinhua Economic News Service (supported by Table 1.2 in Chapter 1), Brazil was China’s largest Latin American trading partner that year with two-way trade totaling $48 billion, followed by Mexico with $17.56 billion, Chile with $17.5 billion, and Argentina with $14.4 billion. Peru, Venezuela, Panama, and Colombia rounded out China’s top eight trading partners in the region.8 It is striking to note that Chile is on the verge of edging out Mexico to become China’s second-largest regional trading partner, reflecting the fact that Chile became the first-ever country to sign a free trade agreement with China in 2005. China has since signed a free trade agreement with Peru and has completed free trade negotiations with Costa Rica. However, China only joined the World Trade Organization in 2001, and its long-term trade strategy remains a work in progress. Given the fact that the United States views a stable and prosperous hemisphere as convergent with US interests, it is interesting to note that China’s growth has both positive and negative implications for Latin America and the Caribbean. It is true that the commodity-exporting countries of South America have profited handsomely from their relationship with China, but Mexico, Central America, and the Caribbean have felt the sting of Chinese competition in the manufacturing sector. Moreover, there remain important concerns about whether China will be willing to adhere to basic labor and environmental standards as it deepens its engagement in the region. China’s focus on basic com-

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modities, its reluctance to open some sectors of its economy to competition from Latin America, and the slow pace of value-added investment are all likely to emerge as points of future contention. While China’s expansion into Latin America may imply a potential loss for some US business sectors, it is important to note that trade is not a zerosum game. To the extent that China’s involvement is sparking economic growth in Latin America, it may contribute to economic stability and wellbeing in a manner that suits the US desire to see a prosperous and healthy neighborhood. In any case, it is up to the Latin American countries themselves to ensure that they are reaping the benefits of China’s growth and competing effectively in the global marketplace.

Crisis Management In the fall of 2008, the collapse of US financial and real estate markets triggered an extended economic crisis with deep repercussions for the rest of the world. Latin American countries that were tightly interwoven with the US economy feared that they would be especially hard hit, and that the modest growth experienced in most of the region since 2003 would be smothered. While growth in Latin America was stable but not exceptional (averaging 5 percent between 2003 and 2007 compared to near double-digit rates in China and India during the same period), fiscal and monetary stability combined with a spike in global commodity prices saw many Latin American nations benefit substantially and some 52 million people escape from poverty.9 Just as regional leaders were finding some cause for optimism, the US mortgage market crisis in 2008 and 2009 threatened to drag their economies down. Latin American economies have historically been adversely affected by crises emanating from the north. The 1981–1982 recession in the United States ushered in the “lost decade”—a period marked by high debt levels and negative per capita growth of gross domestic product (GDP) throughout Latin America. With financial markets in the United States and Europe verging on collapse in the summer of 2008, Latin Americans could be forgiven for fearing a repeat of the 1980s. Panic spread quickly from north to south, and the Brazilian market was among the hardest hit in late 2008, with the value of the São Paulo Stock Exchange (Bovespa) plunging by half between the end of May and mid-October. US trade with Latin America dropped by 20 percent in 2009, from $653 billion in 2008 to $517 billion in 2009, and the aftershocks continued as commodity prices fell, exports declined, and worker remittances and tourism from the US rapidly diminished.10 Although they briefly entered recession in 2009, most Latin American countries appeared to have weathered the worst of the crisis by early 2010. The World Bank estimates that regional GDP contracted by 2 percent in 2009,

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but recovered to just under 4 percent in 2010.11 While the drivers of economic performance vary by country, Latin America’s ability to weather the crisis was supported by sound fiscal management and the diversification of trading partners away from the US, including China. Countries with stronger trade ties to China were less dependent on their financial relationships with the US and Europe and fared markedly better than those that were reliant on Western demand for imports and income from remittances and tourism. Mexico and the nations of Central America and the Caribbean are highly dependent on the adjacent US economy in both regards and were consequently hit hard by double-digit declines in stay-over tourism and diminishing remittances. While geographic and economic distance from the United States proved an important variable in determining the depth of the recession’s consequences, relationships with extraregional actors, especially China, proved every bit as vital. New economic poles, particularly China, were a boon to many countries during a period when traditional trading relationships suffered. As a major economic partner of the United States, China was by no means unaffected by the crisis, but a rapid and strong fiscal stimulus of $586 billion in November 2008 helped to maintain the Chinese economy on an even keel over the medium term.12 The Economist Intelligence Unit forecast China’s economic growth at 9.7 percent in 2010, increasing from an already robust 8.7 percent growth rate in 2009. Combined with the stimulus plan, this growth sustained Chinese demand for commodities and ultimately benefited Latin American exporters, even as total Chinese trade with Latin America dropped from $143 billion in 2008 to approximately $120 billion in 2009. According to Chinese authorities, Latin America’s largest economy, Brazil, saw a 12.6 percent drop in bilateral trade with China to $42.4 billion in 2009, but that year China nevertheless temporarily surpassed the United States as Brazil’s largest trading partner for the first time since the 1930s.13 Not only did Chinese trade remain relatively steady during the financial crisis, but the Asian giant was also an important source of credit. With liquidity near zero, hard currency became less available to Latin American nations and China was among the few countries with significant cash on hand. In 2008, China began exchanging credit for key investments in energy and commodity markets, essentially cashing in on the high value of credit during the recession. Petrobras, Brazil’s state oil company, was granted a $10 billion loan in 2009 in return for over seven hundred million barrels of oil in the next ten years.14 China made similar, though smaller, investments in Ecuador and Venezuela and became a significant source of liquidity across the region, particularly for Brazil and Chile. In April 2010, President Hu Jintao visited both of these countries during his fourth trip to Latin America, but cancelled his first state visit to Venezuela, where China has become a major investor in the energy sector. Cooperation with China helped to sustain Latin American exports, but sound economic policies played an equally important role in minimizing the

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regional impact of the global economic crisis. Central bank independence and stable foreign exchange markets kept the crisis confined to the financial sector, limiting runaway inflation and capital flight. Some countries, including Brazil and Chile, experienced positive growth earlier in the decade and were able to implement countercyclical policies through fiscal stimulus to stave off a rise in unemployment and bolster domestic demand. By contrast, Venezuela chose to freely spend the gains of high commodity prices between 2002 and 2007, leading to a reemergence of debt and inflation problems following the crisis. In retrospect, China’s demand for commodities played a major role in allowing Latin America to weather the financial crisis that originated in the United States and had the potential to reverberate deeply in the region. This unexpected turn of events highlights the paramount importance that China has assumed in Latin America’s trading patterns and deepens the regional perception that diversifying trade relations away from the United States could yield concrete benefits.

Political and Security Concerns Even if one accepts the premise that China’s engagement with Latin America is principally driven by economic factors, this does not necessarily make it easier to resolve the potential security conundrum that this new dynamic poses to American policymakers. On the one hand, China clearly lacks the military might, and quite possibly the strategic rationale, to pose a conventional challenge to US security forces in Latin America. Indeed, referring to the region’s proximity to the United States, China’s scarce Latin America specialists toss around the phrase “backyard” quite freely in their analyses. Many US foreign policy analysts have already concluded that any potential threat posed by China in Latin America is not going to come in the form of military conflict, but rather because these ties represent one dimension of a broader global power shift that has filtered into the United States’ traditional sphere of influence. Thus, the question of whether China’s renewed economic presence in Latin America poses a short-term or long-term threat to US political and security interests in the Western Hemisphere defies an easy “yes” or “no” answer, which is precisely what has made it so befuddling to US policy planners. While China’s engagement with Latin America appears highly dynamic at a moment when the United States has experienced renewed tensions with a number of governments, there are few signs of any real frictions between the United States and China in the region. Indeed, China is sensitive to US perceptions of its involvement in Latin America and clearly places its highest priority on its relations with Washington. For its part, the United States supported China’s bid to become an observer of the Organization of American States in 2004 and a member of the Inter-American Development Bank in 2008. Washington has

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nevertheless expressed concerns about China’s activities in the hemisphere, principally related to Venezuela and Cuba, as well as questions about China’s role in managing the Panama Canal. Bilateral tensions could grow over time, although it is equally possible that the economic links with China can play a positive role in helping to build a more prosperous and globally minded Latin America. Given the rapid advancement of globalization, it is important to remember that China is just one of many nonhemispheric actors deepening ties with Latin America, including strong US allies like the European Union, Japan, India, and South Korea, as well as current or potential rivals such as Iran and Russia. Perhaps no single bilateral relationship between China and a Latin American country has generated as much speculation, debate, and alarm, as the one that exists between China and Venezuela. Much of this has been driven by Chávez’s obvious interest in developing China as an export market for petroleum products, but China has shown little enthusiasm for becoming entangled in Chávez’s larger goal of counterbalancing US influence in the hemisphere. China and Venezuela recently established the first-ever refinery in China for the purpose of processing Venezuelan oil. This may help to deepen ChinaVenezuela trade, which according to Chinese authorities reached $9.8 billion in 2008 (a more than sevenfold increase since 2004) and ranked Venezuela as China’s sixth-largest Latin American trading partner.15 Chávez currently sells China 380,000 barrels of oil per day and has pledged to increase this volume to 1 million barrels of oil per day by 2013, but the two countries have previously missed similarly ambitious targets. Chávez’s comments have sparked speculation and concern that the Venezuelan government may attempt to cut off oil supplies to the United States and sell to China instead, but the logistical difficulties and transportation costs of doing so remain daunting. Venezuela is currently heavily dependent on sales to the United States, and since oil is a fungible commodity on the global market, the United States could simply purchase oil from alternative sources. The existing relationship between China and Venezuela should not therefore be a cause for immediate alarm for the United States, though Chávez’s rhetoric will continue to rile American officials charged with safeguarding US energy security. The same basic rule applies to China’s energy investments elsewhere in the Andes, including Colombia, Ecuador, and Bolivia. China is an increasingly relevant factor in the intensifying global competition for Latin America’s energy supplies, and many nations are seeking to exercise greater control over their oil and gas reserves. China is currently Cuba’s second-largest trading partner. In 2007, trade between the two countries jumped by about 25 percent to $2.3 billion, though by 2009 this had fallen back to $1.55 billion. Cuba’s most valuable export to China is nickel, illustrating China’s need for foreign sources of the metal to fuel its production of steel. For its part, Havana buys a range of Chinese consumer goods, as well as buses and trains to help alleviate the island’s trans-

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portation crisis. Chinese officials stress that they want to maintain positive relations with Cuba and adhere to their policy of nonintervention in the affairs of other states. Still, their renewed economic engagement in Cuba has helped to revive the Cuban economy, even though Cuba shows few signs of adopting the “China model” of economic development. One suspects that China is disappointed by Cuba’s resistance to undertaking more robust economic reforms, while the hard-nosed approach of Chinese investors has chastened Cuban officials who seek “socialist solidarity” from a China that is primarily driven by capitalist motivations. The specific details of Sino-Cuban trade and economic agreements are kept private. Still, collaboration in transportation, tourism, minerals, sugar, and other sectors is conducted on financial terms that favor Havana and generate net gains for Cuba. The Cuban government prefers to engage in international cooperation through a state-to-state, barter-style system, rather than through private exchange. The Chinese government is obliging in this regard, making any comprehensive analysis of the statistical profile of Sino-Cuban trade impossible from North America. China’s role in Panama has been another area of US concern, driven mainly by the geostrategic importance of the Panama Canal. Indeed, when the United States formally handed over control of the Canal Zone to Panama on December 31, 1999, there was a swathe of commentary that the move would endanger US interests due to the fact that Hutchison-Whampoa, a Hong Kong company with ties to the Chinese military, had won a contract to manage two canal ports. Since that time, however, trade through the Panama Canal has proceeded uninterrupted. The United States and China now rank as the two top users of the canal, and companies from the two countries have joined with a Japanese firm in a consortium to bid for a role in the canal’s expansion. Given the record of smooth cooperation, and China’s own strong interest in maintaining an uninterrupted flow of trade through the canal, it appears unlikely that China’s role in Panama will disrupt US interests. China’s broader military relations with Latin America and the Caribbean remain underdeveloped and there are few signs that China is pursuing the goal of conventional power projection into the Western Hemisphere. The principal form of military-to-military contact between China and Latin America occurs in the form of exchanges of defense personnel for professional development and the placement of military attachés in their respective embassies. There is some satellite cooperation between China and several countries in Latin America, including Brazil, Argentina, and Venezuela, and the successful launch of several satellites has been hailed as major achievements in these countries. Since 2004, China has deployed about 125 riot police in Haiti as part of the 9,000-strong United Nations peacekeeping mission there. This is notable because it represents the first deployment of substantial Chinese security personnel in the Western Hemisphere, but China has been supportive of the mission’s goals overall and

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even authorized long-term extensions for the mission, even though Beijing is still rankled by Haiti’s strong ties to Taiwan.

The Taiwan Factor Latin America is half a world away from the decades-long conflict simmering in the Taiwan Strait, but as Francisco Haro Navejas explains in Chapter 11, the diplomatic tussle between Taiwan and China remains a red-hot issue in the Caribbean and Central America. Beijing rigorously promotes its “One China” policy, which means that not recognizing the Taiwanese government is a prerequisite for conducting formal diplomatic relations with the People’s Republic of China, in effect forcing local governments to choose between Beijing and Taipei. Although Latin American countries involved in this geopolitical chess match have little individual clout, together they make up the most significant group of states caught in the cross-strait tug-of-war, representing twelve of the twenty-three countries worldwide that recognize Taiwan. Today, Taiwan preserves relations with Guatemala, Belize, El Salvador, Honduras, Nicaragua, and Panama, as well as the Dominican Republic, Haiti, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Paraguay (the lone holdout in South America). After nearly a decade of fairly stable alliances, the battle between China and Taiwan in Latin America began to heat up in 2004, when Dominica defected to China. Grenada followed suit in 2005, but Taiwan struck back in 2007 by wooing the newly elected government of St. Lucia. Beijing notched a major victory later that year by winning over Costa Rica, the first Central American country to recognize China. For China, Costa Rica’s benign image in Washington presented a huge advantage by minimizing US concern about this decision. Its president, Oscar Arias, is a Nobel Prize winner who supports free trade and has tangled publicly with Cuba’s Fidel Castro. Few were surprised that promises of major Chinese largesse factored heavily into Costa Rica’s decision, and it later emerged that China promised to buy $300 million of Costa Rican bonds to help sweeten the deal.16 The defection of Costa Rica may mark the beginning of a domino effect that will lead all of Central America to forge ties with Beijing over the next decade. Given the change in government in Taipei, coupled with the conciliatory rhetoric of the new president, Ma Yingjeou, China hopes to seize the moment to peel off other Latin American nations—especially Guatemala, the most populous country to recognize Taiwan, and Panama, which is already a key trading partner. In addition, the recent election of left-leaning Fernando Lugo will likely put Paraguay in play and raise the risk that Taiwan will lose its last remaining ally in South America. China is also eyeing new alliances in the English-speaking Caribbean, where Chinese trade has reached about $4 billion. In 2007, China used the

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opportunity posed by the Cricket World Cup to seal a series of geostrategic alliances with the small island countries that hosted the event. Its principal method was to woo local support by building stadiums and financing infrastructure projects for the region’s first major international sporting event. Of the eight venues constructed or refurbished for the 2007 Cricket World Cup, China assisted in the construction of five, providing more than 1,000 workers and more than $140 million. Chinese aid has also paid for roads, schools, hospitals, and other infrastructure improvements, earning the allegiance of many nations in the process. China has consequently accrued significant political capital in the Caribbean and enhanced what had been weak or nonexistent relationships with many countries. Taiwan feels the pressure of the “One China” policy and has sought to give the tiny nations of the Caribbean good reason for bucking the world trend of recognizing China. In St. Kitts, Taiwan stemmed pressure to switch allegiance to Beijing by funding the construction of Warner Park Stadium, an $8 million “thank you” from Taipei. But the overall trajectory is clear: China has successfully used dollar diplomacy through a combination of aid projects and trade preferences to wean the Caribbean away from Taiwan. The diplomatic competition between China and Taiwan in Central America and the Caribbean is rife with unintended consequences that have proven to be a double-edged sword for many countries. In the case of the UN peacekeeping mission in Haiti, fears persist that China will seek to use its troop contribution and UN Security Council veto as an instrument to pry Haiti away from Taiwan’s grasp, although this has not yet come to pass. Taiwan’s financial gifts have been at the center of several major corruption scandals throughout Central America, and Communist China is hardly a force for greater transparency and good governance. Even countries that switch their allegiance to China often find that the diplomatic pressure remains intense. In Dominica, when opposition leaders flew Taiwanese flags at their political rallies, the Chinese government formally protested, raising concerns about freedom of speech. In February 2007, Grenada committed one of its most grievous errors in recent memory when officials accidentally played the Taiwanese national anthem at the inauguration of a new national stadium built by China at a cost of $40 million, much to the embarrassment of Prime Minister Keith Mitchell. Other Caribbean countries were both amused and troubled by the matter, which they viewed as a cautionary tale that reflects the region’s delicate balancing act. If the estimation of Chinese officials is correct, Taiwanese diplomats stationed throughout Central America and the Caribbean are fighting a losing battle. For every major economy of the region, it is largely a settled matter, with China by far the victor. The United States finds itself in an awkward position with respect to the cross-strait dispute. The official US position is, understandably, that other governments’ decisions to maintain or sever diplomatic relations with Taiwan are for those governments to make. Moreover, since Washington

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also officially recognizes the People’s Republic of China, it has little moral authority with which to lobby other governments on Taiwan’s behalf, and little apparent motivation to do so. The United States has publicly reacted with nonchalance toward the prospect that Taiwan’s hemispheric alliances will continue to unravel. This strategic ambiguity may suit the United States, but it often leaves officials in Beijing, Taipei, and the capitals of Central America and the Caribbean scratching their heads as they try to divine Washington’s true feelings. In the final analysis, the choice between China and Taiwan will remain a highly charged foreign policy decision for a narrow swathe of vulnerable countries for many years to come.

Governance and Transparency: Challenges for the Future China’s rise presents a fundamental paradox to the existing international system of global governance and is already having an impact on the quality of governance in Latin America. While China has taken greater strides toward transparency in recent years, including the November 2008 publication of the white paper enumerating its objectives in Latin America, there are a number of areas where China’s outreach to the region is less than fully transparent. This extends beyond business transactions to include relatively new areas such as foreign aid. A recent report by the US Congressional Research Service concludes that “China appears to administer foreign aid in an ad hoc fashion, without a centralized system, foreign aid agency and mission, and regularized funding schedule.”17 China’s reluctance to follow international conventions on the disclosure of aid data may stem from its desire to maintain its own position as a recipient of substantial foreign assistance from entities like the World Bank, as well as concerns about popular discontent at home if the government is seen to be engaging in profligate foreign spending overseas. Most Chinese assistance to Latin America takes the form of business-related loans and projects dealing with infrastructure and natural resources. According to a study by New York University’s Wagner School, only 1 percent of Chinese economic support for the region consisted of Western-style humanitarian aid such as support for hospitals in Cuba, assistance to the Bolivian Red Cross to help mudslide victims, and disaster relief in response to an earthquake in Peru or floods in Uruguay.18 In Central America and the Caribbean, it is well known that China and Taiwan engage in a fierce competition of “dollar diplomacy” to win over diplomatic allies, sometimes resulting in direct or indirect payoffs to government. While the penchant of both countries to woo Latin American and Caribbean partners by building soccer and cricket stadiums has become a recognized pattern in the region, in recent years the financial incentives have become more sophisticated. In September 2008,

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for example, the government of Costa Rica released documents showing that China had agreed to buy $300 million in Costa Rican bonds in exchange for that country’s 2007 decision to revoke recognition of Taiwan and extend ties to Beijing.19 Other analysts have suggested that the expanding network of formal ties between China and Latin America has laid the groundwork for the increasing presence of Chinese gang activity in the region.20 Examples include activity by Chinese criminal organizations such as Fuk Ching, Flying Dragons, and Tai Chen in the triborder area of Brazil, Argentina, and Paraguay, while the flows of undocumented Chinese migrants to these and other countries have placed increasing pressures on border officials. It is important to note, however, that any upswing in Chinese criminal activity in Latin America has thus far been modest and mostly incidental to China’s economic engagement in the Western Hemisphere, rather than as a result of state policy. Close assessment reveals that China is hardly a model worthy of emulation in the sphere of anticorruption. Instead, China’s market socialism has failed to erect proper boundaries between official power and private markets, leaving the government unable to address corruption except by mobilizing the repressive instruments of the state. Corruption occurred long before China started down the path of market reform, but party apparatchiks also held themselves in check to avoid a crackdown by authorities. Official power could be withdrawn at the leadership’s discretion, and civil servants were hesitant about overreaching and perhaps losing access to the system of perks and preferences. That level of discipline has broken down over the last decade, allowing corruption in China to soar to previously inconceivable levels. At China’s Fifteenth Party Congress in October 1997, Chinese premier Jiang Zemin declared that the “fight against corruption is a grave political struggle vital to the very existence of the party and the state.”21 Within a year, the People’s Liberation Army had been stripped of its commercial operations, reflecting a concern among high officials that the military’s participation in economic affairs had simply become too risky. The divestiture was apparently prompted by the disproportionate corruption of a half-dozen military-controlled companies, including pervasive oil smuggling that was debilitating China’s oil monopolies. While the army was allowed to continue engaging in some productive operations, it was prohibited from commercial activities such as trade, tourism, and telecommunications. Corruption management and reporting in China have undergone a qualitative shift since the early 1990s. Rather than attempting to eliminate corruption entirely, cyclical anticorruption campaigns appear intended to control it within acceptable bounds. High-level cases involving large sums of money have proliferated, but reported instances of lower-level corruption have remained static or even decreased. The shift reflects the Chinese government’s attempt to tackle corruption through an emphasis on periodic and scrupulous

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anticorruption campaigns rather than relying on regular policing. The former has proven to be a weak substitute for the latter, representing an attempt to impose compliance through the fear and uncertainty generated by random arrests, humiliation, and public denunciation. This is a worrying trend when juxtaposed with Latin America’s own problems with good governance. The shift from authoritarian regimes to democracies has contradictory effects that can expand opportunities for corruption in some areas while reducing it in others, and the negative economic effects of corruption in the region have been widely documented. Institutional reforms that do little to reshape underlying cultural patterns are unlikely to achieve much progress; indeed, as Nobel Prize–laureate Amartya Sen argues, without building a new standard of behavioral norms, organizational reforms are not enough to eliminate corruption. Sen sees corruption as part of a cyclical pattern that can be either reinforced or reversed through a combination of political institutions and personal conduct: “Just as the presence of corrupt behavior encourages other corrupt behavior, the diminution of the hold of corruption can weaken it further. In trying to alter a climate of conduct, it is encouraging to bear in mind the fact that each vicious circle entails a virtuous circle if the direction is reversed.”22 In Latin America, newly democratic societies are still struggling to overcome the political and economic distortions sown by state capture and corruption at the personal and institutional levels. China’s struggles with corruption and preference for noninterference in the affairs of other states could potentially create a situation where Chinese involvement in Latin America works to the detriment of good governance in the region. Conversely, if China moves toward greater transparency in its dealing with Latin America, then this could help to establish greater grounds for cooperation with the region and with the United States. To this end, the US decision to approve Chinese participation in hemispheric institutions such as the Inter-American Development Bank and the Organization of American States (OAS) will help to expose Beijing to regional norms and codes that are intended to support good governance.23 In addition, Chinese scholars and officials have expressed a greater desire to cooperate with the United States in Latin America, especially in nonpolitical areas such as environmental stewardship and clean energies. If China more deeply embraces an agenda of “good governance,” then this may boost US interest in collaborating in these fields and lay the basis for more productive relations moving forward.

Conclusion: From Threat to Stakeholder? US policymakers have recognized that China’s emerging role in Latin America and the Caribbean is a new phenomenon that lacks easy historical parallels. On the one hand, China is a strong economic and political partner of the

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United States, but on the other, China is a nondemocratic country that is viewed as a potential rival to US influence across the globe over the long term. The United States clearly does not enjoy the same comfort level with China that it has with the European Union, and this sometimes leads US officials to describe China’s presence in Latin America as a “threat” to US interests. At the conceptual level, however, the United States has tacitly accepted that China’s evolving role in Latin America reflects the increasingly complex mosaic of international relationships that is a product of a more globalized world. China is poised to be a major player in the Western Hemisphere for the foreseeable future, irrespective of what actions the United States does or does not take in reaction to Beijing’s growing influence. The proper US response will be to strengthen its ties with Latin America and the Caribbean, maintain an open dialogue with China on issues of US concern in the hemisphere, and carefully monitor the evolution of China’s ties with Latin America and the Caribbean in consultation with the countries of the region. Latin America may offer fewer possibilities for US-China collaboration than other areas of the world. A US-China security dialogue on Latin American issues is not likely to be a high priority for either country, and China’s security interests in Latin America are minimal. While Chinese and US business interests are generally perceived to be competing with each other in the region, there may be occasional opportunities to collaborate on major infrastructure projects such the Panama Canal. The United States is unlikely to rely on China to help mediate disputes with governments in the region where relations with Washington are strained, such as with Cuba, Bolivia, Nicaragua, and Venezuela. If Chinese officials continue to encourage the further opening of markets in Cuba, then this could be quite welcome from the US perspective, but the current Cuban leadership has resisted entreaties to embrace “the China model” of economic reform. US-China collaboration in Latin America and the Caribbean has thus far proven most fruitful when conducted under the auspices of existing multilateral institutions, such as development projects undertaken through the OAS or China’s participation in the UN peacekeeping mission in Haiti. China’s participation in the Inter-American Development Bank will pave the road for enhanced economic cooperation in a multilateral setting. In the short term, continued regional collaboration by China and the United States in multilateral institutions holds the most promise for cooperation between the two countries in Latin America and the Caribbean. The primary goal of US policy as it relates to China in the Western Hemisphere should focus on ensuring that China acts as a responsible stakeholder that contributes to the region’s economic prosperity while respecting the democratic principles that are the guiding values of the inter-American system. China has evinced little desire to interfere with Latin America’s internal politics and has kept a polite distance from leaders, like Hugo Chávez, who

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have emphasized their desire to strengthen relations with Beijing as a means to reduce US hegemony in the hemisphere. To the degree that Latin America respects foreign investment treaties and is a stable international partner, both the US and China stand to gain. In addition, there may be concrete areas that are suitable for deeper cooperation, such as combating environmental degradation, facilitating disaster relief, and enhancing regional infrastructure. If China and the United States both deal with Latin America in a manner that is open, transparent, and respectful of multilateral systems, then this may usher in a new breed of regional diplomacy with lessons for US-China cooperation in other parts of the world.

Notes 1. A full description of the Inter-American Dialogue’s work on China-related issues is available at http://www.thedialogue.org. 2. In 2006, the Dialogue published a short monograph written by a research team headed by Dialogue member and Harvard University professor Jorge I. Domínguez. See Domínguez et al., China’s Relations with Latin America: Shared Gains, Asymmetric Hopes. 3. Blázquez, Rodríguez, and Santiso, “Angel or Demon? China’s Trade Impact on Latin American Emerging Markets.” 4. Hillary Rodham Clinton, keynote address and town hall meeting at plenary session of Foreign Affairs Day, US Department of State, May 1, 2009. 5. “The First Presidential Debate: Transcript,” New York Times, September 26, 2009. 6. Jiang, “On the Development of Sino-Latin American Relations.” 7. Zhou, “China’s Relationship with Latin America.” 8. See “Growth Rate of China’s Trade with Latin America and the Caribbean Decreased in 2008,” People’s Daily On-line, April 3, 2009, http://english.people.com.cn. 9. World Bank, Latin America and the Caribbean Regional Brief, April 2010, http://web.worldbank.org. 10. Author’s calculations based on “US Trade in Goods (Imports, Exports and Balance) by Country,” US Census Bureau, Foreign Trade Division, Data Dissemination Branch, Washington, DC, 2010, http://www.census.gov/foreign-trade/balance/. 11. World Bank, Latin America and the Caribbean Regional Brief, April 2010, http://web.worldbank.org. 12. Overholt, “China in the Global Financial Crisis: Rising Influence, Rising Challenges.” 13. “China’s Trade with Brazil in December 2009,” Xinhua Economic News Service, March 4, 2010.” 14. Tyler Bridges, “China Makes Its Move as US Falls Back in Latin America,” McClatchy Newspapers, July 8, 2009. 15. James Suggett, “Venezuela and China Strengthen Energy-Based Political and Economic Alliance,” April 10, 2009, http://www.venezuelanalysis.com. 16. Graham Bowley, “Cash Helped China Win Costa Rica’s Recognition,” New York Times, September 12, 2008.

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17. Quoted in Federation of American Scientists, Congressional Research Service, “China’s Foreign Aid Activities in Africa, Latin America, and Southeast Asia,” February 25, 2009, http://www.fas.org. 18. Ibid. 19. Bowley, “Cash Helped China Win Costa Rica’s Recognition.” 20. Ellis, China in Latin America, 281. 21. Quoted in Federation of American Scientists, “Jiang Zemin’s Report at the 15th National Congress of the Communist Party of China,” October 1997, http:// www.fas.org. 22. Sen, Development as Freedom, 278. 23. Hearn, “Cuba and China: Lessons and Opportunities for the United States.”

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8 China and Mexico: Trade, Migration, and Guanxi Adrian H. Hearn, Alan Smart, and Roberto Hernández Hernández

THE “RISE” OF CHINA TO GREATER PROMINENCE IN THE GLOBAL economy, or perhaps better, its resurgence, has made an understanding of the nature of its business operations of increasing importance.1 The Chinese concept of guanxi (“relationship,” “network,” or “connection”) is widely recognized as critical to doing business in or with China and has generated a considerable volume of popular and academic literature in English, Chinese, and other languages. China has changed from simply being one of the biggest recipients of foreign direct investment to an emerging outward investor, particularly in pursuit of energy and other commodities to fuel its remarkable rates of growth.2 As a consequence, the question of what happens to guanxi when Chinese business activities extend overseas has assumed considerable significance, yet very little attention has been given to it. The term guanxi encompasses a complex body of informal practices animated by social capital, used for both affective and instrumental purposes.3 Research on guanxi has revealed its positive functions for building trust in the absence of adequate formal legal and financial institutions.4 In such contexts, guanxi has engendered the confidence necessary for foreign investment, informal loans, community mutual aid, and business partnerships.5 Unlike Western ideologies of relationships, in which instrumental considerations taint “pure” emotional ties, in classic Chinese Confucianism, expressive relationships were supposed to be manifested through the exchange of useful goods and helpful actions.6 In contrast to the enabling capacities of guanxi, recent literature on social capital warns of the problems that can emerge from personal ties and exclusive circles of trust. Loyalties and allegiances within ethnic communities, particularly when these communities gain disproportionate economic standing, can lead to societal fragmentation and provoke reactions that range from popular 139

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antagonism to outright violence.7 This chapter explores the extension of guanxi to the Mexican business environment, the role of Mexico-based Chinese immigrants and descendants in brokering bilateral projects, and the multiple outcomes this has produced. These include the development of Mexican business initiatives by mainland Chinese corporations, antagonistic reactions by local commercial competitors, and self-protective counterreactions within Chinese Mexican communities. We begin by framing the issue in the turbulent macroeconomic context of Sino-Mexican trade, and then suggest that historical factors have conditioned Mexican perceptions of China and the resident Chinese population. Next, we present case studies of the Chinese Associations of Mexicali and Tijuana to illustrate the role of guanxi in facilitating both contemporary trade with China and local community protection. Although resident Chinese communities are often accused of deepening Mexico’s trade deficit with China, we conclude by noting their recent attempts to restore balance to the bilateral relationship.

China’s Macroeconomic Relations with Mexico Mexican businesspeople are divided on the subject of trade with China. For some, China has brought enormous opportunities for the import of consumer goods and intermediate products that are cheaper than those offered by foreign and domestic competitors.8 Most, though, regard the massive influx of lowcost Chinese products as a source of disloyal competition that, together with China’s poaching of Mexico’s maquiladora factories through tax breaks and low wages, has categorically undermined the Mexican economy. With the entrance of China into the World Trade Organization (WTO) in 2001, Mexico promised to eliminate tariffs on most Chinese imports within six years.9 However, as the due date approached in November 2007, Mexican manufacturers and business leaders lobbied the Economy Department of the Mexican government to seek a new grace period. Their efforts proved successful, and in 2008, the governments of Mexico and China signed a transition trade agreement on compensatory fees, in which a period of four more years was established for Mexican industrial sectors affected by the elimination of tariffs on Chinese imports in 953 categories. Prior to 2008, duties on Chinese imports ranged from 100 to 1,105 percent. Under the new agreement, they range from 60 to 360 percent in the first year, and from 45 to 250 percent in the last.10 Trade between China and Mexico has been extremely unprofitable for the latter. In 2009, according to Mexican figures, Mexico bought products from China worth $31.9 billion, while sales to China amounted to only $2.2 billion. Chinese figures differ significantly, in part because of the methodology used for compiling each country’s statistical data. In 2004, for instance, Mexico reported a deficit of $13.53 billion, while for the same period China calculated

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the figure at $2.83 billion.11 Mexican manufacturers cannot compete with China in product areas that for many years they dominated, such as industrial machinery, telecommunications equipment, televisions and video recorders, electric generators, accessories, textiles, and cotton products. Meanwhile, the product areas that Mexico is looking to break into, such as electrical goods, camping equipment, and kitchen appliances, are also dominated by China. Manufacturing sectors across Latin America have expressed deep concern about Chinese competition, but in Mexico these concerns are particularly bitter, posing a formidable obstacle to bilateral cooperation and in some cases provoking outright hostility against Chinese immigrant communities. From traditional handicrafts and textiles to the export-oriented maquiladoras, Mexican industries have demanded that their government protect them from the flood of low-priced products arriving legally and illegally from China, and from the loss of employment due to low wages in Chinese factories.12 Products of Chinese origin are destined for mass consumption and distributed in Mexican outlets ranging from department stores to informal street markets (known as tianguis). The frustrations of competing local manufacturers first became a matter of public outrage in 2003, when China secured second place behind Canada as a provider of merchandise to the United States, pushing Mexico into third place. The same year, the maquiladora sector reported the loss of over 25,000 jobs, and over $10 billion in lost sales as Chinese contraband flooded the domestic market.13 Affected sectors have since supported the accusations of human rights advocates, arguing that substandard working conditions, low wages, and employment of prisoners and children each bear a direct influence on the low prices of Chinese products.14 Responding to these accusations, Chinese analysts have argued that a mutually beneficial solution would be for Mexico to sign a free trade agreement with China that includes petroleum.15 However, the petroleum option is very unlikely, given Mexico’s existing export commitments, especially to the United States. Furthermore, the exchange of primary products for manufactured goods—the pattern now characterizing South America’s trade with China—is a sensitive topic in Mexico because it is precisely what industrialists and voters have worked to overcome since the presidency of Lázaro Cárdenas (1934–1940). In part because of constitutional restrictions on foreign influence in oil and other strategic sectors, Chinese investment in Mexico has been tentative at best. Between 2000 and 2009, Mexico accumulated $222 billion of foreign direct investment (FDI), the third-largest amount among developing countries for that period, but China’s contribution to this inflow totaled only $109.4 million. In 2009, Mexico registered $11.4 billion of FDI (coming off precrisis highs of $27.3 billion in 2007 and $23.1 billion in 2008), but China’s share that year amounted to only $28.7 million.16 Chinese investment in Mexico has seen success, failure, and an abundance of good intentions. One successful

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case is the Golden Dragon Precise Copper Tube Group, the world’s largest producer of copper tubes, which inaugurated its first Mexican factory in October 2009 to target the US market. Its initial investment of $100 million is the largest of any single Chinese company in Mexico.17 Less impressive is the performance of small and medium-sized companies, such as the Xinjianghai fishing company from Dalian, whose intention to export seafood to China from its processing plant in San Luis Río Colorado in the state of Sonora has met with administrative and regulatory complications.18 The most spectacular failure to date, owing in part to unrealistically high expectations proffered by the Mexican media in 2007, is that of a joint venture between Mexico’s Salinas Group and China’s First Automobile Works (FAW) to assemble automobiles. Although the project started successfully and produced three models of low-cost Chinese automobiles for the Mexican market in 2008, the domestic automotive industry scuttled the operation by pressuring the government to impose stricter quality-control regulations on Chinese products. In 2009, the Salinas Group stated that the sale of Chinese automobiles in Mexico had been suspended indefinitely because of the “difficult global predicament of the auto industry.”19 The cost incurred by the failed project exceeded $27.6 million. Chinese investors view the Mexican automotive sector as a potential platform for penetrating markets across the American continent.20 Indeed, China’s third largest automobile and motorcycle exporter, Lifan Motors, has just announced that it will invest $100 million in a Mexican operation that will assemble fifty thousand vehicles per year.21 To help Chinese companies pursue such opportunities, in 2010, the China Council for the Promotion of International Trade (CCPIT), in association with Mexico’s import-export coordinating body, ProMéxico, hosted an event in Beijing called “Future Collaboration in the Mexican and Chinese Automobile–Auto Parts Industry: Coordinated Efforts to Service American and Asian Demand.” At the event, Deloitte Mexico briefed Chinese executives on current investment opportunities in the Mexican auto sector, as well as the intricacies of local industrial regulation. During the 2010 Shanghai Expo, the director of Mexico’s National Bank of Works and Public Services (BANOBRAS), Alonso García Tamés, made official presentations to China Harbour Engineering Company Limited, China Road and Bridge Corporation, Shanghai Tunnel Engineering Company Limited, Shanghai Construction Group, and China Gezhouba Corporation. A ProMéxico official, Ari Ben Saks González, stated that “concrete projects have been proposed in the areas of roads, ports, airports, rail, energy production, and others. . . . Chinese investment in Mexican infrastructure has the potential to equalize our balance of trade with that country.”22 Even though there is no legal impediment to foreign companies investing 100 percent in Mexican operations, Chinese firms typically seek local partners who know the market and have experience with distribution networks. In June

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2008, the Chinese Business Club was founded in Mexico City to facilitate precisely such connections. It is directed by representatives of leading Chinese institutions, including Huawei Technologies, FAW, Xintian Mexico, Rotomex Yuncheng, Hoseki International, the China Council for the Promotion of International Trade (CCPIT), the China Development Bank in Mexico, and the Oriental Group. The club serves to coordinate Chinese businesses, familiarize them with the Mexican environment, and, according to Chinese ambassador Yin Henming, “safeguard their legitimate interests and rights.”23 Aware that local knowledge is a prerequisite for success in Mexico, the club has assisted prominent Chinese Mexicans to establish their own commercial organizations, such as the Chamber of Chinese Enterprises of the Northeast. Based in Mexicali, the chamber draws on long-functioning distribution and exchange networks to expand markets for Chinese exports and raise awareness of Mexican products among mainland importers. These kinds of local initiatives, discussed in more depth below, harbor potentials for generating dialogue and genuinely beneficial cooperation between the Mexican and Chinese public and private sectors. Their expansion, though, is beset by considerable social and political obstacles, not the least of which is a strong public suspicion of China, its people, and their guanxi networks. Attempts to move the bilateral relationship forward must first come to terms with these historically entrenched perceptions.

The Chinese Diaspora in Mexico The first Chinese arrived in Mexico in 1864, contracted from the United States to build railroads between the cities of El Paso, Chihuahua, and Juárez, and to expand the rail network in the mid-1880s to the cities of Sonora, Tampico, and Tamaulipas. By the mid-1890s, 1,800 workers had been contracted from Macao and Hong Kong into Mexican agriculture (sugarcane cutting and cotton picking), but nearly half of these died from disease and extreme working conditions.24 Deeply embedded in Chinese Mexican historical lore is the arrival of the first group of Chinese in the Valley of Mexicali in 1908. Abandoning the copper mines of Sonora in search of opportunities in Mexicali, 160 Chinese sailed across the Gulf of California to San Felipe and were advised to walk the remaining 121 miles to their destination. After three days, in temperatures of 125 degrees Fahrenheit, they became disoriented in the desert without a compass and began to die of thirst and exhaustion, leaving only a handful to reach the township of Mexicali. The desert where they perished came to be known as the “Sierra de los Chinos,” or “El Chinero,” by locals, who report that those willing to visit this place of tragedy and sorrow have found coins and other objects abandoned by the Chinese pioneers. They also report that when clouds gather over El Chinero, one can hear the voices of the Chinese laborers begging for water.

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The size of the Chinese community grew through the activities of the Mau Li and Chung Hwa corporations, which by 1921 had contracted between forty thousand and fifty thousand Chinese laborers into mining, construction, and agriculture across Mexico. Assisted by the sympathetic immigration policies of Governor Esteban Cantú (1915–1920), Chinese traders came to dominate the local economies of cities across the state of Baja California, while making deep commercial inroads into the states of Sonora and Sinaloa. They manufactured tobacco products, agricultural produce, furniture, leather goods, and clothing, which were distributed through a network of convenience stores stretching from Culiacán, through Mexicali, to San Francisco, laying the foundation of Mexico’s modern commercial infrastructure.25 Of the nearly 25,000 Chinese resident in Mexico in the mid-1920s, 10,000 lived in the Valley of Mexicali, outnumbering the local Mexican population.26 Chinese economic success across Mexico provoked a strong backlash, which was aggravated by the tendency of Chinese companies to trade primarily with each other and to employ staff from within the ethnic community. The anti-Chinese campaigns of the late 1920s and early 1930s successfully lobbied the federal government to require Chinese businesses to diversify their workforces.27 Public hostility resulted in greater protective measures among Chinese mutual aid associations, which since the early 1920s had underpinned the development of Chinatowns in Mexicali and Mexico City. However, the alternative framework of trade, distribution, and financing provided by the Chinese associations (seventeen of which were registered in Mexicali in 1920) was perceived by those outside the community as an unfair advantage, deepening the antagonism already harbored by many Mexicans. La Frontera and other northern Mexican newspapers were key platforms for spreading anti-Chinese sentiment, publishing statements like the following: “[The Chinese community] is rejected not for the mere fact that it is Chinese, nor for racial hatred, nor for its color, and much less for its ambition to imitate our Northern neighbors. . . . It is rejected because it is the incarnation of a rotten tree trunk: selfishness. . . . And the selfish Chinese community par excellence sows a bad seed wherever it implants itself.”28 The anti-Chinese campaign reached its climax in the early 1930s, after the Great Depression sent thousands of unemployed Mexicans home from the United States. Chinese workers were the first casualty, with then-president Plutarco Elías Calles and his son, the governor of Sonora, organizing antiChinese protests in league with the notorious Comités Pro Raza around Mexico. Unified by the slogan “Mexico for Mexicans,” the movement first prohibited Chinese-Mexican intermarriage, then forced Chinese businesses to close, and by the mid-1930s had expelled almost ten thousand Chinese people from the country.29 Leaving behind only five thousand Chinese in Mexico (according to the census of 1940), many were sent with their Mexican wives and children to Macao and Hong Kong.

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The flow of Chinese immigrants has increased rapidly since the midtwentieth century, but owing to the illegal status of many, Mexican scholars have little faith in the statistics of the National Institute of Migration. The Chinese Embassy in Mexico counts three thousand Chinese nationals residing in the country, and twenty thousand Mexicans of Chinese origin, mainly dedicated to gastronomy, trade, and to a lesser extent bureaucracy and professional services. Chinese people live primarily in the border cities of Tijuana and Mexicali, the urban metropolis of Mexico City, and the southern state of Chiapas. In a 2001 interview, the secretary general of the Chinese Association of Tijuana stated that 70 percent of Mexico’s Chinese population was living in Baja California (mainly Mexicali and Tijuana), 20 percent in Mexico City, and the remainder in Sinaloa and the southern states of Veracruz and Chiapas.30 The Overseas Chinese Affairs Office in Beijing estimates that there are 10,000 Chinese people in Mexico, but unofficial accounts from Tijuana and Mexicali state that these cities alone are, respectively, home to 25,000 and 35,000 Chinese immigrants and descendants, many of whom arrived since 2000 and are not legally registered. Chinese Mexican entrepreneurs have tried to attract Chinese mainland investors to Mexico by reassuring them that the jealousy and hostility of the early twentieth century are a thing of the past. However, their enthusiasm contrasts with the poignant discontent expressed in the Mexican mass media, which focuses on China’s unstoppable economic power, the danger posed by Chinese imports (including toxic fabrics, paint, and toys), copyright violation, the threat that cheap Chinese labor represents for Mexican workers, and the need for protective tariffs and antidumping measures.31 Whether or not these claims are legitimate, they have often drawn on preconceived, historically embedded ideas about Chinese cultural and economic practices. This became evident when the Chinese Mexican drug trafficker Zhenli Ye Gon was arrested in 2007. As the Mexican scholar Jorge Gómez Izquierdo puts it: Prejudice comes to us from a past era, in which the Chinese community in Mexico was the object of resentment, jealousy, and violent assault carried out by nationalistic groups backed by a range of state institutions. In the massmediated lynching of Ye Gon, a series of Mexican social perceptions of China and its people have reappeared. Prejudice and ignorance, as always, go hand in hand when mobilization draws on the formation of phobias. . . . The racist hostility toward “the Chinaman” is not new in our country.32

Media reports have perpetuated essentialist portrayals of Chinese culture, suggesting that Chinese people in Mexico are “reserved, because their culture forces them to be . . . they are determined to generate their own sources of employment.”33 Some articles, Internet sites, and radio broadcasts are overtly malicious, criticizing the disloyal, opportunistic, and dishonest nature of Chinese business

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activities, which have allowed “China to invade us with its products through disloyal competition.”34 Chinese immigrants and descendants are publicly associated with Mexico’s diminishing productivity and competitiveness as local producers are squeezed out of the market.35 They are also publicly accused of “copying everything,” including traditional Mexican handicrafts such as blankets and pottery for the domestic and tourist markets.36 Just as the xenophobic pamphlets of the 1930s urged Mexicans to ostracize the “Yellow Beast,” whose “selfish” and “mean” mutual aid activities gave them an unfair economic advantage, contemporary Mexican websites carry inflammatory titles such as “Pinche Chinos” (Damn Chinese), “Fourteen Reasons Not to Buy Chinese Products This Christmas,” and “Buying Fraud from China.”37 As Chinese Mexican businesses and associations become more active in establishing commercial partnerships with mainland exporters, these historical parallels may deepen. Less likely to be remembered is a key sociological lesson of the 1930s: the stronger the hostility against Chinese communities, the more likely it is that they will defend themselves by strengthening internal loyalties, ethnic protectionism, and guanxi.

Trans-Pacific Guanxi: The Chinese Associations of Mexicali and Tijuana Both in China and Mexico, Chinese business practices developed in historical contexts where legal and financial institutions were inadequate and often antagonistic to Chinese entrepreneurs. Contracts were difficult, if not impossible, to enforce through legal means.38 Small business owners had no recourse against harassment from police and competing host-country enterprises, and banks generally refused to loan capital.39 Guanxi, then, functioned to replace contracts and other formal institutions. Through ever-expanding networks of “friends,” aspiring business owners could raise capital, form partnerships, seek suppliers, gather information, and conduct relatively secure transactions.40 Drawing upon these guanxi-based practices, investors from prospering Chinese diaspora communities (particularly in Hong Kong, Taiwan, and Southeast Asia) were able to make connections and build cooperative relations with actors in China. These investors were willing to send their capital “home,” despite the lack of legal protections, because guanxi provided a basis of security.41 Mobilizing guanxi networks allowed them to penetrate the Chinese market more quickly and successfully than other investors, and as China began to integrate into the capitalist world economy, these “overseas compatriots” became key sources of finance, connections, and information. Ironically, insecure property rights and ambiguous or lax legal regulations for Hong Kong investors in China, along with widespread distrust of the system,

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encouraged reliance on personal relationships, which helped produce one of the fastest-growing economies in history. China’s unparalleled economic growth, on the order of 10 percent per year since 1970, is sustained by a massive flow of worldwide exports, and overseas Chinese communities have played an important role in familiarizing mainland suppliers with domestic markets and connecting them to relevant political authorities. In 1978 the State Council of China created the Overseas Chinese Affairs Office (OCAO) to build up a sense of belonging, loyalty, and Chinese cultural identity among emigrants. Seeking to overcome linguistic and cultural misunderstandings, a key function of the OCAO is to assist overseas Chinese communities in building “harmony with the governments and communities that host them.”42 In the case of Mexico, the prospect of bilateral harmony remains a remote possibility. As China’s consul general in Tijuana, Gao Shoujian, points out, the convergence of trade friction with persisting diplomatic and social tensions constitutes a formidable challenge to any efforts to build bilateral cooperation and understanding.43 Several initiatives have nevertheless taken root in the northern Mexican cities of Mexicali and Tijuana. Eduardo Auyón Gerardo is a prominent member of the Chinese community of Mexicali. Born in Guangdong of a Chinese father and Mexican mother, he studied art in Macao and moved to Mexicali in 1960 to join his brother. He established himself as a talented painter of traditional Chinese themes, such as his trademark “celestial horses,” and worked his way to the executive ranks of Baja California’s School of Fine Arts. Among Auyón’s students were the school’s former director and the secretary of education of Baja California, people he later drew on to support artistic exchanges with China, such as a visit by forty members of the Chinese Opera and a series of visual art expositions in the 1980s. “These relationships,” he explained, “gave me a platform for making contacts in China. . . . I have blood from both countries, and I’ve always wanted to be a bridge between them.”44 From 1990 until 2006, Auyón served as president of the Chinese Association of Mexicali, a position he used to build ties with the growing number of outward-looking commercial exporters in China. In 2001 the OCAO recognized his efforts and his familiarity with Mexican retail networks by appointing him as one of thirty-two new foreign “assessors.” In this capacity, Auyón leads groups of Mexican businesspeople (mostly of Chinese descent) four times each year to Beijing, Shanghai, and Guangzhou. Comprised of forty to fifty people, his expeditions visit important historical and cultural sites, but their primary focus is the Fair of Canton. Sponsored by the government of Guangdong and the Chinese Ministry of Commerce, the fair is China’s largest trade convention, bringing together thousands of the country’s leading exporters. Each year the fair has a theme, from medicine to interior design, around which Auyón designs his trips. At the fair, the visitors contract suppliers, collect product catalogues,

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and organize reciprocal visits for Chinese business partners to Baja California. “Last year [2007],” explained Auyón, “we arranged for slightly over 100 Chinese businesspeople we had met at the fair to visit trade expos that we organized in Mexico. The Chinese Association is not a government organization, but we work through the Chinese consul in Tijuana and the Mexican Embassy in Beijing to arrange the visas.”45 Providing a stable nexus for bilateral trade together with the related advertising, matchmaking, and visas have made Auyón a key node of contact for entrepreneurs from both sides. Building commercial networks under the auspices of the OCAO, he says, has provided a robust and enduring framework for business development: The important thing is security. Some Chinese businesses have shipped their products over only to find that the market has turned against them because of exaggerated media reports about product safety and competition with Mexican producers. As an assessor for the Overseas Chinese Affairs Office I am responsible for selecting trustworthy clients who will follow through with their commitments. This has worked very well for us with electronic products and home appliances. Mexicali is on the same latitude as the Sahara Desert, so we are sourcing a new line of powerful air conditioners under our “Kooling Air” and “Dragón Refrigeraciones” brands, and sell these through the network.46

Throughout his career, Auyón has cultivated a series of official and unofficial relationships to facilitate cultural and commercial initiatives between Mexico and China. In 2004 he began arranging meetings for the governor of Baja California, Eugenio Elorduy Walther, with Chinese counterparts such as the governor of Jiangsu Province, Liang Baohua. When President Hu Jintao visited Mexico in 2005 to discuss strategies for diminishing the trade imbalance, he personally recognized Auyón’s leadership in facilitating new business linkages. The government of Baja California also showed its appreciation during National Immigration Week in October 2008. While seven Mexican states participated in the festivities, the Baja California branch of the National Institute of Migration (INAMI) dedicated the week specifically to Chinese immigration, holding all related events and ceremonies in the Chinese Association of Mexicali. The city’s mayor, Rodolfo Valdéz Gutiérrez, recognized the Chinese community as “a motor of the local economy,” while Baja California’s INAMI delegate, Javier Reynoso Nuño, promised to simplify the process of visa acquisition for relatives of the local Chinese community.47 In partnership with the Chinese Association of Mexicali, in June 2010 Auyón oversaw the establishment of the Chamber of Chinese Enterprises of the Northeast, a coordinating body for some four thousand Chinese businesspeople resident in the states of Baja California, Sonora, Coahuila, and Chihuahua. The

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chamber benefits from the logistical support of the OCAO’s Guangdong office, illustrating the Chinese government’s interest in building ties with overseas Chinese associations and in “becom[ing] the central force of the Chinese community.”48 The chamber aims to “generate a bridge to support commerce between Chinese entrepreneurs and producers in Asia and those in this region of Mexico,” particularly in the maquiladora and auto sectors.49 While Auyón’s talents for matchmaking and guanxi have established important commercial bridges to Mexico for Chinese exporters, it remains to be seen how successfully these bridges will secure concrete benefits for Mexican exporters. Auyón asserts that a key priority of the newly established chamber is to actively promote Mexican products in the Chinese market, and that the Chinese Association of Mexicali has begun to work with Chinese investors on a range Mexican projects.50 Such activities are sorely needed, for as discussed below, the current emphasis on Chinese exports to Mexico is generating hostile public reactions to the Chinese communities of Mexicali and Tijuana. Some 135 miles to the west of Mexicali, the Chinese Association of Tijuana has also positioned itself as an intermediary of bilateral trade. Its secretary general, Willy Liu Ke Wei, was recently involved in lobbying the Mexican airline Aeroméxico to open a direct flight between Shanghai and Tijuana. His efforts paid off, and in May 2008 the new route was launched with the ambition of attracting thirty thousand Chinese tourists per year, inspiring Liu to set up a travel agency catering to Chinese entrepreneurs exploring opportunities in Mexico. While Chinese businesses in Baja California are reported to have seen a 30 percent decline in earnings due to the global financial crisis, the agency aims to bring economic opportunities directly to the local Chinese community.51 For Liu, a critical first step is to build Mexican appreciation for Chinese traditions; in his words, “Commerce and culture are like sisters, and if you go down the path of culture, you arrive at the path of business.”52 The path forged by Liu’s agency is paved with both, bringing Chinese businesspeople to Tijuana three times a year to meet Mexican business partners in conventions and banquets coinciding with the Chinese New Year, New China Independence Day, and the Chinese Day of Light. Over the past five years, these events have been accompanied by public parades and street markets in the downtown area, coordinated by the Chinese Association of Tijuana. The Chinese consul has contributed resources to these events, for as Liu says, “the PRC needs our help in creating a good public image.”53 Crucial to this process are intermediaries with knowledge of the Mexican and Chinese business cultures, and who can speak both Spanish and Mandarin. One such person is Li Zhuohong, who is contracted by the Chinese Association of Tijuana as a consultant for Chinese and Mexican lawyers:

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When I was fifteen, I came to Mexico to join my father, who’d been here for three years. I’m from Guangdong, so I speak Cantonese, like most Chinese people here. The problem is that to do business with China these days you have to speak Mandarin. I learned Mandarin in school in China, and then I improved here in the Chinese Association of Tijuana. Then, the association hired me to teach Mandarin to the children of newly arrived Chinese. From there I’ve become a sort of translator and interpreter . . . I was hired by Geely [a Chinese automaker] to help it negotiate the establishment of a factory in Guanajuato. If there are legal documents that Chinese firms need then I point them in the right direction. I also get a lot of calls from the Chinese consulate, which sends Chinese businesspeople to our association because we have good relations with practically all industries in the Tijuana area. Some of these are restaurants, some are maquiladoras, and some are retailers.54

The use of Mandarin has assumed growing importance for Mexico’s Chinese communities as economic and political ties intensify with Shanghai, Beijing, Nanjing, and other mainland industrial centers. In 2001, for the first time since its 1918 establishment, the Chinese Association of Tijuana held its annual meeting in Mandarin. The change was implemented in line with the membership requirements of the Chinese Peaceful Pro-Unification Alliance of Baja California, an initiative founded in March 2001 under the auspices of the OCAO to strengthen support for Beijing’s “One-China policy” among overseas Chinese communities. Baja California’s three Chinese associations (Tijuana, Mexicali, and Ensenada) each joined the alliance, despite the fact that Cantonese is the first language of 98 percent of their members.55 In 1998 the Chinese Association of Tijuana published a set of guidelines for its members, entitled Laws of the Chinese Community of Tijuana. Written in Putonghua, the document spells out the organization’s four primary responsibilities: (1) assist the government of the People’s Republic of China in any way possible; (2) strengthen the unity of the Chinese community, promote its peaceful development, and secure for it maximum possible benefits; (3) build friendship between Chinese and Mexican people and their countries by promoting economic and cultural exchange; and (4) encourage the Chinese people of Tijuana to compensate fellow members for losses resulting from calamities with donations and support.56 While the first and third responsibilities leave the association’s political allegiance to the PRC in no doubt, the second and fourth reveal a specific preoccupation with the community’s well-being. Considering the adversity faced by Chinese people in Mexico, past and present, this is a logical concern. Indeed, while the efforts of people like Auyón, Liu, and Li to build guanxi with mainland businesses are recognized and praised in China, in Mexico they have been confronted by widespread perceptions of Chinese economic domination and the loss of opportunities for national firms.57 Liu laments that his community has borne the brunt of anti-Chinese hostility:

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In the last five years, things have gotten worse for the Chinese community in Tijuana. All of our businesses, 100 percent, have been robbed or assaulted in some way, some of them four or five times in one year! We don’t go to the police because we feel they won’t resolve anything for us and we’ll just waste more time and money dealing with them. Criminals target us because they know the police won’t investigate Chinese problems. My agency was robbed three times this year. That’s why my door is locked with a buzzer. If you don’t have an appointment or we don’t know you, we don’t let you in. Now Chinese businesses have to hire security guards . . . We’re suffering, and we’re running out of hope. Many are scared, and many are leaving. When your businesses are attacked you have to make a choice. You can either turn around to make a fuss or you can go on without looking over your shoulder. We choose to go on and not draw even more attention to ourselves.58

In the second half of 2008 alone, the Chinese Association of Tijuana registered over ten attacks on its members’ businesses; among these, the glass door of a travel agency in the business district was smashed by a brick, a Chinese supermarket just three blocks away was vandalized and robbed, and the owners of a local department store specializing in imported Chinese home appliances discovered the words Pinche Chinos (Damn Chinese) spray-painted on its front window.59 In 2009, the consul general of China, Gao Shoujian, publicly lamented these assaults and acknowledged two cases of kidnapping. Indeed, there is evidence that kidnappers, emboldened by expectations of police indifference, have targeted Chinese descendants and immigrants.60 When the mayor of Tijuana discussed the possibility with consul general Gao of establishing a Chinatown in the downtown district, the opinion pages of local newspapers showed strong opposition, one contributor writing: “How ridiculous, the damn Chinese have already inundated us with commercial piracy, and now they want to put a Chinatown in Tijuana.”61 A similar comment appeared in relation to the newly established Chamber of Chinese Enterprises in Mexicali: “First they invade us [and] now they are getting organized to demand guarantees?? I hope the people of Sinaloa don’t plan to do the same.”62 Comments like these, and the hostile actions that accompany them, reveal profound insecurity about China’s cultural and economic impact on Mexico. Confronted by this insecurity, the Chinese associations of Tijuana and Mexicali find themselves ensnared in a set of socioeconomic problems that have no clear solution. Liu recently told La Frontera of his dismay that even the law cannot help his community: “We want protection, but we do not know which institution or individuals to go to because we don’t trust the authorities, the police, or others.”63 Faced with ineffective structures of official law and order, it is no surprise that alternative mechanisms of informal protection and support should emerge, as they did a century ago. The Chinese associations’ mutual aid activities and grassroots economic assistance draw on long-standing networks of guanxi. These serve, as they

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have for Chinese communities around the world for over a century, to offset the debilitating impact of insecure economic rights and ambiguous or lax legal regulations. Just as Chinese diaspora communities in Asia used protective guanxi networks as a basis for building business ties with mainland China, the Chinese associations of Mexicali and Tijuana have also expanded locally fashioned informal allegiances into a platform for matchmaking across the Pacific. While this is a logical—even predictable—development, its consequences are far from certain. Stronger trans-Pacific relationships may assist the formation of more mutually beneficial commerce between Mexico and China, but may also provoke further hostility from those who believe China’s impact already runs too deep.

Conclusion: Sociability Cuts Both Ways The Chinese diaspora in Mexico will surely look back at the early twenty-first century as a time of new connections with China. At the forefront of these connections are the Chinese associations of Mexicali and Tijuana, which have integrated mainland partners into their historical networks of commerce, cooperation, and guanxi. From air conditioners to automobiles, linkages brokered by the associations have generated new opportunities for Chinese manufacturers, exporters, and diplomats. These new global connections, though, have provoked strong local antagonism as Mexican products and people are displaced by China’s rising industrial power. As in the early years of the Great Depression, unemployed Mexican laborers are again returning home from the United States, where the global financial crisis has intensified discrimination against them.64 As one returned migrant put it, “Suddenly, people were shouting things at you on the street . . . it was like, as the economy went down, the racism went up.”65 The “reverse migration” of an estimated three million Mexicans has overwhelmed Mexico’s social security and employment capacities, and Chinese workers in Mexico—neither displaced by the crisis nor affected by the decline of remittances—find themselves once again subjected to public hostility.66 Evident in the press, on Internet sites, and in violent acts against private businesses, antagonism toward the Chinese diaspora in Mexico invokes the nationalistic anxieties of the early twentieth century, predicated on the perceived “selfishness” of Chinese migrant workers and their structures of community support. The response from Chinese communities—then and now— has been to avoid direct confrontation with opponents and seek protection from ethnic associations, whose long-standing systems of mutual aid and economic assistance have provided relief for victims of vandalism and abuse. Adversity has in this sense reinforced and given new purpose to the associations, but the reliance of their members on customary internal procedures

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rather than the police and institutional legal defense has further ingrained their reputation as a community unwilling to integrate. As Alejandro Portes concisely puts it, “sociability cuts both ways.”67 Liu acknowledges his community’s part in perpetuating this reputation: “I am aware that our silence is partly to blame for society’s lack of understanding of us. It’s one of the things we have to change.”68 External hostility and internal protectionism constitute a long-standing vicious circle surrounding Mexico’s Chinese communities, but as the circle revolves, it has given rise to a more encompassing problem. According to analysts at the China-Mexico Research Center at the Universidad Nacional Autónoma de México (UNAM), aggression toward Chinese interests is discouraging Chinese investors and importers from proceeding with their Mexican operations. This is extremely detrimental to Mexico, as Chinese investors and importers possess more power than anybody else to restore some measure of balance to the bilateral trade relationship. The potentially massive demand of Chinese markets for Mexican products, coupled with the apparent inability of the two governments to formulate projects that produce genuine mutual benefits, thereby endow the activities of people like Eduardo Auyón, Willy Liu, and Li Zhuohong with considerable gravity. The challenge lying before these individuals and the Chinese associations they represent is to expand the scope of their guanxi networks to accommodate not only Chinese imports but also Mexican exports, and to do so before it is too late. The Chamber of Chinese Enterprises of the Northeast has explicitly recognized the importance of this challenge, as have a small number of Chinese commercial organizers resident in Mexico City.69 The Confederation of Chinese Associations of Mexico (CACHIMEX), for instance, coordinates an annual Expo China-Mexico, whose inaugural event in 2009 brought together some 250 companies, half of which were from Mexico and the other half from China, Vietnam, and other Asian countries. The second annual expo, held in November 2010, made headway in facilitating fruit, vegetable, and scrap metal exports to China. According to CACHIMEX secretary general Jimmy Li, “we hope this will reduce the perception that these fairs are all about bringing ‘made in China’ products into Mexico.”70 Li adopts an “integral” approach to Sino-Mexican commerce by complementing these trade fairs with educational seminars delivered by local scholars.71 Progress has been slow, but Li is optimistic that “change is possible . . . it will take patience.” The extension of guanxi networks to Mexico and Latin America is a recent development and a new field of analysis. Future research could follow several productive branches. One of these concerns the convergence of distinct yet overlapping informal practices, such as the Chinese custom of facilitating business through banquets, gift exchange, and “backdoor” connections (hou men), with Latin American equivalents, such as Mexican fictive kinship (compadrazgo) and

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informal favors (palanca). Ariel Armony’s concept of “GPS capital,” introduced in Chapter 2 of this volume, represents a bold first step in the study of guanxi’s capacity to engage with non-Chinese forms of informal cooperation. Another possible branch of future investigation concerns the growing importance of Latin American Chinatowns as hubs of trans-Pacific communication and cooperation. Examples from Cuba, Brazil, Panama, Peru, and Argentina illustrate how historic and symbolic connections to China have laid a propitious foundation for the development of contemporary business ties. A third possible direction might trace the role of universities and research centers in fomenting bilateral relations. The recent establishment of four Confucius Institutes in Mexico is aimed explicitly at building familiarity with China among Mexican academics and students, and at facilitating cultural convergences in general. The expansion of student exchange, currently at a relatively small scale and low level of sophistication, could be a valuable tool of cultural diplomacy for both countries, and others.72 Given the growing economic ties between Mexico and China, and the tensions that have accompanied them, the strategic deployment of social relationships will continue to play a central role in generating—and in the best of circumstances, transcending—the problems of bilateral engagement.

Notes 1. See Frank, ReOrient: Global Economy in the Asian Age. 2. Smart and Jinn, “The Chinese Diaspora, Foreign Investment and Economic Development in China”; Zweig and Jianhai, “China’s Global Hunt for Energy.” 3. Smart, “Gifts, Bribes, and Guanxi,” 399. 4. M. Yang, Gifts, Favors and Banquets. 5. Smart and Smart, “Personal Relations and Divergent Economies”; Tsai, BackAlley Banking; Keister, “Guanxi in Business Groups”; Hsu, “Capitalism Without Contracts Versus Capitalists Without Capitalism.” 6. Carrier, “People Who Can Be Friends”; Ming Lo and Otis, “Guanxi Civility: Processes, Potentials, and Contingencies.” 7. Armony, The Dubious Link, 30–33; Fiorina, “Extreme Voices: A Dark Side of Civil Engagement”; Portes, “Social Capital”; Putnam, Bowling Alone, 22–23. 8. Dussel Peters, “Errores y miedos.” 9. Cruz Zamorano, “China: Competencia comercial con México y Centroamérica.” 10. Verónica Galán and Enrique Duarte, “México quiere comprarle menos a China,” CNN, June 3, 2008, http://www.cnnexpansion.com/economia. 11. For more on these discrepancies, see Dussel Peters, “El caso de las estadísticas comerciales entre China y México.” 12. Rocio González Alvarado, “Piratería china de artesanías amenaza subsistencia del mercado de la Ciudadela,” La Jornada, July 14, 2008; Arturo Páramo, “Barrio chino: Muralla productiva,” Excelsior, August 5, 2008, 6. 13. Economic Commission for Latin America and the Caribbean (ECLAC), “Los efectos de la adhesión de China a la OMC en las relaciones económicas con América Latina y el Caribe.”

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14. “Acusan a China de competencia desleal,” La Prensa, January 30, 2005; Ochoa León, Corrupción y contrabando en el sector textil en México, 4-5. 15. Zhimin Yang, “Technological and Cultural Exchanges”; Pilar Jiménez, “Piden chinos TLC y petróleo al País,” Reforma, February 14, 2007. 16. Figures on foreign (including Chinese) investment in Mexico from “Acumula México IED por 222 mil mdd en una década,” El Financiero, August 19, 2010; Secretaria de Economia de México, Reporteador de los flujos de inversión extranjera directa en México; American Chamber of Mexico, “Foreign Direct Investment in Mexico: Is Your Investment Safe?” http://www.mexicotradeandinvestment.com. 17. “Golden Dragon logra la mayor inversión china en México,” China Daily, October 29, 2010, http://www.chinadaily.com. 18. “Interesa a los empresarios chinos invertir más en México,” La Razón, June 17, 2010, http://www.larazonsanluis.com. 19. “Grupo Salinas frena a autos FAW,” CnnExpansión, February 26, 2010, http:// www.cnnexpansion.com. 20. Wibbeke, Industria Automotriz México, 2. 21. Silvia Ortiz, “Buscan fabricar ‘coches chinos’ en México,” Vanguardia Industrial, September 13, 2010. 22. Cheng Wenjun, “Seminario de Infraestructura México 2010 en Expo Shanghai,” China Hoy, October 15, 2010. 23. “Embajador Yin Hengming presencia la fundación del Club de Empresarios Chinos,” Revista Protocolo, editorial, July 21, 2008, http://www.protocolo.com.mx. 24. Auyón Gerardo, El Dragón del Desierto, 32. 25. Chou, “Los Chinos en Hispanoamérica,” 17. 26. Velázquez Morales, Los inmigrantes chinos en Baja California, 59; Werne “Esteban Cantú y la soberanía mexicana en Baja California,” 16. 27. Starting in 1930, Chinese companies in Mexico were required by law to guarantee that 80 percent of their workforces were Mexican. Chinese companies in Cuba and Panama were subjected to similar legislation at this time. 28. Quoted in Velázquez Morales, Los inmigrantes chinos en Baja California, 270. 29. Alberto Rojas Pena, “Un viaje al pasado,” El Diario de Sonora, February 21, 2009, www.eldiariodesonora.com.mx; Carr, “Las peculiaridades del norte mexicano.” 30. The transcript of this interview was provided by Dr. Catalina Velázquez Morales of the Autonomous University of Baja California. 31. Howard W. French, “Propina crisis de seguridad,” Mural, July 15, 2007; “En México todos le declaran la guerra al ‘comercio desleal’ chino,” Gran Época, April 1, 2007, http://www.lagranepoca.com; Andrew Martin, “Escándalos favorecen seguridad alimenticia,” Mural, June 15, 2007; “Denuncia Calderón a China por comercio desleal,” Excelsior Online, March 23, 2009, http://www.nuevoexcelsior.com.mx. 32. Gómez Izquierdo, “La sinofobia de los mexicanos,” 5–6. 33. Guadalupe López, “Expanden cultura china,” Frontera, February 12, 2009. 34. “¿Y la soberanía?” Reforma (cartas del lector), January 15, 2007; also see Angélica Simón, “Comunidad estigmatizada,” El Universal, April 12, 2007; and “China produce 90% de las ‘banderitas’ de México,” El Economista, September 15, 2008. 35. Arturo Páramo, “Barrio chino: Muralla productiva,” Excelsior, August 5, 2008, 6. 36. Chinese production of Mexican artisanal handicrafts is nationally perceived as piracy. It began with the imitation of wooden products from the state of Michoacán, and has extended to rebozos (traditional Mexican shawls), tapetes (decorative rugs),

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embroidered dresses, talavera (traditional pottery from Puebla), baskets, hojas de lata (tin plates), and silver and stone jewelry, sold in tourist centers and markets around the country. This has outraged Mexican artisans, who claim that their sales have diminished by 70 to 80 percent. See Hortencia Cruz García, “Instrumentos musicales chinos invaden el mercado nacional,” Xiranhua Comunicaciones, September 1–15, 2003, http://www.xiranhua.com.mx; Alvarado, “Piratería china de artesanías amenaza subsistencia del mercado de la Ciudadela”; “Productos mexicanos ‘made’ en China,” Noticieros Televisa, September 13, 2005, http://www.esmas.com. 37. Monteón González and Trueba Lara, Chinos y Antichinos en México, 41; J. M. Romero, Comisión de Inmigración, encargada de estudiar la influencia social y económica de la inmigración asiática en México; Velázquez Morales, “Los chinos agricultores y comerciantes en Mexicali 1929–1934”; Gran Liga Nacional Pro-Raza, La bestia amarilla (The Yellow Beast), pamphlet for public distribution, 1927 (held in the collection of Dr. Catalina Velázquez Morales at the Universidad Autónoma de Baja California). Two recent websites to focus on Chinese commercial piracy and the poor quality of Chinese products are http://pincheschinos.blogspot.com and http://www .squidoo.com/comprando-en-china. 38. Albert Chen, “Rational Law, Economic Development, and the Case of China.” 39. Tsai, Back-Alley Banking. 40. Velázquez Morales, Los inmigrantes chinos en Baja California, 130. 41. Smart, “Gifts, Bribes, and Guanxi”; Hsing, Making Capitalism in China: The Taiwan Connection; Albert Chen, “Rational Law, Economic Development, and the Case of China.” 42. Milthon Minor, “Abren en Mexicali Cámara de Empresarios Chinos del Noroeste,” Frontera, March 6, 2010. 43. Gao Shoujian, interview, Tijuana, Mexico, November 5, 2008. 44. Eduardo Auyón Gerardo, interview, Mexicali, Mexico, November 9, 2008. 45. Ibid. 46. Eduardo Auyón Gerardo, interview, Mexicali, Mexico, October 7, 2008. 47. Javier Mejía, “Festejó Asociación China la ‘Semana de Migración,’” La Voz de la Frontera, October 24, 2008; “Prometen a chinos traer a sus familias,” La Crónica, October 24, 2008. 48. Barabantseva, “Trans-nationalising Chineseness: Overseas Chinese Policies of the PRC’s Central Government,” 17. 49. Minor, “Abren en Mexicali Cámara de Empresarios Chinos del Noroeste.” 50. Some of these initiatives, he says, result from the sister city relationship between Mexicali and Nanjing, which he negotiated in the early 1990s. One of these is Chinese participation in the Silicon Border Project, located in Centinela, on the western outskirts of Mexicali. Focused on nanotechnology and the production of solar cells, the project offers ten years of tax-free status to investors who contribute over $1 billion. California governor Arnold Schwarzenegger has avidly promoted the project for its potential to create 100,000 jobs. 51. López, “Expanden cultura china.” 52. Willy Liu Ke Wei, interview, Tijuana, Mexico, October 21, 2008. 53. Ibid. 54. Li Zhuohong, interview, Tijuana, Mexico, November 11, 2008. 55. Willy Liu Ke Wei, interview, Tijuana, Mexico, October 21, 2008. 56. Chinese Association of Tijuana, Laws of the Chinese Community of Tijuana, internal document (translated into Spanish by the Autonomous University of Baja California), 1998.

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57. “China’s Top Political Adviser Voices Hope for Overseas Chinese,” Xinhua, September 15, 2007, http://news.xinhuanet.com/english; Lisheng Zhan, “Event Lauds Role of Overseas Chinese,” China Daily, December 4, 2002, http://www.chinadaily .com.cn. 58. Willy Liu Ke Wei, interview, Tijuana, Mexico, October 21, 2008. 59. I (Adrian H. Hearn) learned of these events, and witnessed the discovery of one of them, while teaching for the 2008 fall semester at the Universidad Autónoma de Baja California in Tijuana. 60. Ana Ramírez, “‘Traen el jaque’ a los extranjeros,” Frontera, December 27, 2007. 61. Comments in response to Daniel Salinas, “Buscan crear barrio chino en la ‘Revu,’” Frontera, March 1, 2008. 62. Minor, “Abren en Mexicali Cámara de Empresarios Chinos del Noroeste.” 63. Quoted in Ramírez, “‘Traen el jaque’ a los extranjeros.” 64. Joaquim Ibarz, “Se fueron sin un peso y regresaron peor,” La Vanguardia, November 3, 2008, http://www.lavanguardia.es. Assessments of the scale on which US-based Mexicans are returning home are complicated by the undocumented status of many. Some studies calculate that up to 1.3 million illegal immigrants left the United States between August 2007 and May 2008, while others contend that US-based Mexicans in economically struggling towns and cities are migrating to alternative domestic destinations. See Thornburgh, “Undocumented and Undeterred.” 65. Quoted in Chris Hawley, “Returning Migrants Find Mexico, Themselves Unready to Adapt,” Arizona Republic, December 10, 2008. 66. Beith, “Reverse Migration Rocks Mexico.” 67. Portes, “Social Capital,” 18. 68. Willy Liu Ke Wei, interview, Tijuana, Mexico, October 21, 2008. 69. Minor, “Abren en Mexicali Cámara de Empresarios Chinos del Noroeste.” 70. Jimmy Li, interview, Mexico City, Mexico, June 11, 2010. 71. Critical support for these initiatives has been provided by UNAM’s Center for China-Mexico Research (CECHIMEX), directed by Enrique Dussel Peters. 72. Hearn, “China’s Relations with Mexico and Cuba: A Study of Contrasts.”

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9 China’s Relations with Mexico and Chile: Boom for Whom? José Luis León-Manríquez

THE RECENT INTENSIFICATION OF RELATIONS BETWEEN THE People’s Republic of China (PRC) and Latin America is evident in multiple spheres, with increasing trade in the region among the most prominent. In 1976, bilateral trade amounted to $200 million, and in 1988 $2.8 billion, but throughout the 1990s, Chinese–Latin American commercial exchanges increased at three-digit rates until they surpassed $140 billion in 2008, just prior to the financial crisis of 2009. Accordingly, China has become either the first-, second-, or third-largest trade partner of nearly every Latin American country. As Daniel Erikson points out in Chapter 7, this trade has fueled the unrealistic expectation that China will invest some $100 billion of foreign direct investment (FDI) in the region in the near future.1 Strengthening economic ties between China and Latin America have yielded interesting political effects, such as the release of China’s first-ever Policy Paper on Latin America and the Caribbean, on November 5, 2008. The comprehensive and well-thought-out document stresses Beijing’s perspective that the international system is moving toward multipolarity, and affirms China’s status as a developing country eager to create win-win, peaceful international relations. It also promises that China will work hard to settle trade frictions with some Latin American countries, and foresees an improvement in trade relations via the negotiation of free trade agreements with such countries as Chile and Peru. Last but certainly not least, the document emphasizes Beijing’s quest for a “One-China policy.”2 This chapter analyzes the extent to which China’s economic boom represents an opportunity or a threat to Latin America and whether the favorable economic relations enjoyed by some South American countries with China are sustainable over time. The cases under study are utterly opposite in nature: On the one hand, Chile epitomizes a (thus far) successful trade trajectory with 159

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China, mostly based on the export of copper. On the other hand, Mexico embodies a case of trade conflict with China because both countries compete with the same kind of manufactures, and because China is gaining an increasing share of the US market. The data suggest that China is affecting the countries of the region in different ways and that it is therefore inappropriate to speak of Latin America as a geographical entity subject to a homogenous commercial trend. This chapter’s five sections consider China’s uneven impact on Latin America. The first analyzes the roots of recent Chinese interest in the region, which even more than in previous decades, is based on economic factors. As an outlet for Chinese exports and a provider of commodities, Latin America has become increasingly important to China from a trade and investment perspective, and less so in political or ideological spheres. Conversely, Latin American countries harbor diverse intentions toward China: for some, these encompass the dream of political diversification and international prestige; for others, they are based on the expansion of a potentially important export market. The interaction of these interests has bred two distinct trajectories in Chinese–Latin American economic relations. On the one hand, a group of South American countries has benefited from increasing exports of their commodities to China; I have labeled their path of development “Trajectory A.” On the other hand, Mexico and Central America have suffered deleterious effects derived from increasing Chinese competitiveness; I label their path “Trajectory B.” These two trajectories, I will argue, are not written in stone, and countries may move from one to the other. The second section reviews the evolution of trade and political relations between China and Chile. Like other South American countries, Chile has gained much from China’s emergence based on exports of strategic raw materials, particularly copper. The ensuing enthusiasm on both sides of the Pacific led Beijing and Santiago to negotiate and implement a bilateral free trade agreement (FTA) in 2005–2006. Although the FTA has increased bilateral trade, it will not be easy for Chile to move away from its commodity-export profile. Conversely, it is likely that China’s exports to Chile will grow and diversify, including products of higher technological density. The third section deals with the case of Mexico and Central America, countries whose relations with China exhibit a markedly competitive trajectory. These countries resent Chinese competition for two main reasons: first, because of the severe socioeconomic consequences generated by unbalanced bilateral trade; and second, because of the loss of competitiveness in third markets, particularly the United States. For these countries, China is an unequivocal competitor whose economic impact has triggered political tensions. Despite China’s description of China-Mexico as a “strategic partnership,” the bilateral relation in the last decade has been marked by continuous anxiety, mutual criticism, and unilateral actions.

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The fourth section discusses the conditions under which Trajectory A may come to an end and turn into Trajectory B. I consider the likelihood of this outcome in light of the structuralist theses drafted in the 1950s by Raúl Prebisch, the first director of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). Prebisch and his followers showed how Latin America had become integrated into an inherently unfair system of global commerce, exchanging commodities from the periphery of the international system for manufactured products originating in its center. Whereas the price of commodities tended to fall over time, they observed that the price of manufactured goods has a propensity to rise. Drawing on this work, I discuss the extent to which current patterns of trade between China and Latin America fulfill the center-periphery model. Although not yet conclusive, there is evidence that the competitive edge gained by South America through the export of commodities to China may be reaching its limits. The final section analyzes the impact of the 2008–2010 global financial crisis on China’s economic relations with Mexico and Chile. While Mexico’s response was orthodox and restrictive, Chile designed and implemented a lofty stimulus package. In part to animate the enormous potential of its internal market, China also implemented assertive stimulus measures, provoking a range of consequences for Latin American countries. Chinese exports to Mexico underwent a modest decline, as they did to the United States, enabling Mexico to recover slightly its market share. Latin American countries that export commodities, though, have been forced to confront an uncomfortable reality: demand from China has shrunk and the commodity boom has truly ended. Owing to a partial rebound in the price of copper, Chile has fared better than most of its South American neighbors. Given the comparatively weaker performance of soy and crude oil, and the growing volume of imported manufactures from China, several Latin American countries are bound to move ever closer to Trajectory B.

Diverging Trajectories of China’s Trade with Latin America China’s relationships with Latin America encompass a broad range of approaches to market forces and state intervention. To varying degrees, in the 1980s and 1990s Latin American countries adopted marketization policies that emphasized faith in private enterprise and the free market. Nevertheless, the centralized nature of political decisionmaking in China and the preservation of spaces for economic planning make state intervention enormously important for understanding the character of Sino–Latin American engagement. Chinese approaches to Latin America respond to state strategies for securing a continuous supply of food to cover the needs of its population and of raw materials to foster economic and social requirements. This profile seems to

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resemble the priorities of the first and second Industrial Revolutions, now almost entirely surpassed in the first world. China’s accelerated growth is also dependent on elements that were present in its previous processes of industrial development, such as the need to imitate the technological patterns of foreign leaders, the intensive use of labor, and a voracious appetite for commodities and energy resources that become key propellants of economic takeoff. Besides China’s chronic need for oil, there are at least two bottlenecks that could limit its growth in the future, and together these limiting factors account for much in Beijing’s approach to Latin America. The first bottleneck is a shortage of raw materials, and the second is insufficient production of the necessary foods to satisfy the needs of the Chinese population. It is well known that raw materials are crucial in times of rapid industrialization. Recent decades have not presented many cases of large-scale accelerated development, and international demand for raw materials tended toward stagnation, if not outright decrease. This reality has now changed, and raw materials whose heyday seemed to have passed have once again become sought after, due to the “China factor.” China is one of the most important engines of the international economy, currently using 40 percent of cement, 31 percent of coal, 30 percent of iron mineral, 27 percent of steel, 25 percent of aluminum, and 20 percent of copper worldwide. As long as China’s gross domestic product (GDP) continues its upward surge, the country will keep demanding the raw materials that form the basis of its trade with several countries. Facing the impossibility of satisfying these needs with domestic production, the supply of raw materials has become extremely relevant, even in terms of national security, and hence the wave of Chinese FDI worldwide. China’s global strategy for ensuring the supply of resources is the key motivation behind its rapidly expanding partnerships with Brazilian providers of iron, Venezuelan oil companies, and Chilean copper firms. China faces another bottleneck in the scarcity of domestic arable lands. Chinese rental of land in Southeast Asian countries, such as Laos, is therefore becoming more commonplace. Even so, as one of the main consumers of food in the world, China’s dietary needs far surpass its productive capabilities. Despite China’s geographic enormity and relatively successful agricultural reforms, only 11 percent of the country’s surface is arable, and the average property measures a little over one hectare (2.471 acres). Furthermore, due to global warming, population increase, and deforestation, the Gobi Desert in China’s northeast has expanded rapidly over the past decade. Despite the Chinese government’s $7 billion effort to stop desertification by planting trees, the Gobi has grown from some 18 percent to approximately one-third of the continental surface area.3 Unless China’s efforts to substitute agricultural imports are successful, it is likely that its agricultural frontier will shrink even more in the near future. The scarcity of land, most of which is in any case low performance, coupled

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with the growing demand for food, may cause the country to continue importing enormous amounts of soy, corn, cotton, meat, and dairy products. It is just as likely that Chinese consumers will demand agricultural products with a greater degree of sophistication, but that cannot be produced domestically due to geographical and climatic conditions. Acutely aware of this problem, the Chinese government has viewed South America in strategic terms, especially with regard to the supply of soybeans and soy oil. Driven by growing demand from China, Sino–South American trade relations reflect four dynamic and simultaneous processes: (1) an increase in bilateral trade, which has made China one of the main trading partners of these countries; (2) a record of abundant surpluses for some South American nations; (3) growing (but still quite modest) foreign direct investment from China in areas related to the extraction of raw materials and the building of infrastructure; and (4) no significant competition in US markets. I call the sum of these elements Trajectory A, but as I shall argue later, by 2010 competition with China across a range of sectors had placed some of the South American countries benefiting from this trajectory under serious stress. Most Trajectory A countries have granted China the status of market economy, reducing their capacity to successfully pursue legal action against China for unfair trade practices. An important concession made by China to gain entry into the World Trade Organization (WTO) was to accept its exclusion from the list of market economy nations. Shortly after accession, however, Beijing began a series of bilateral offensives among its trade partners so that these would recognize its status as a market economy.4 This strategy, whose ultimate goal is that the United States and the European Union also grant China this category, has been quite successful. Chinese diplomacy has managed to convince twenty-four countries, including New Zealand, Singapore, Malaysia, Thailand, Argentina, Brazil, Chile, and Peru, that it is committed to free-market principles. Perhaps in reciprocity, compliant Latin American countries have been incorporated into the Chinese government’s list of “official tourist destinations.” This allows Chinese tourist groups, characterized by their growing levels of purchasing power, to travel without restrictions to the authorized destinations. Until recently there was considerable optimism about the future of bilateral relations, particularly in South American countries that have benefited from China’s growth. With the exception of industrial groups such as the Unión Industrial Argentina (UIA, or Argentine Industrial Union) and the Federación de Industrias del Estado de São Paulo (FIESP, or Federation of Industries of the State of São Paulo), by the mid-2000s, authoritative sectors of civil society, academia, and the public sphere perceived China as a key element of national development and diversification of economic links abroad. Newspaper headlines and statements from government officials, on and off the record, showed enthusiasm about the future of Sino–South American relationships. This opti-

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mism manifested itself visibly in the high-profile visits of some South American heads of state to Beijing, usually accompanied by sizable entourages. However, in the last few years, optimism has been restrained, particularly in Argentina and Brazil, due to the increasingly competitive nature of Chinese merchandise and the relative fall of commodity prices. Well accustomed to competitive Chinese merchandise are Mexico and the countries of Central America, which have shown a trajectory of conflictive trade relations with China. The components of this predicament, which I will call Trajectory B, are almost the opposite of Trajectory A. For instance, China has become Mexico’s second-largest trading partner, but unlike their South American neighbors, Mexico and Central America have accrued massive trade deficits with China. Skyrocketing imports of Chinese manufactures, particularly cheap consumer goods, have flooded the low- and middle-class markets. These products closely resemble those already produced by Trajectory B countries, and as long as this resemblance persists, the latter will continue to exhibit a high degree of conflict and competition with China. At least as worrisome is the pace at which Chinese products have displaced Mexican and Central American exports in the US market. This has provoked a plethora of trade controversies, complaints from local business, and a widespread perception that China represents a threat more than an opportunity. In the following paragraphs, I will look in some detail at both trajectories: A is exemplified by the case of Chile, and B by Mexico and Central America.

Trajectory A: Chile and the Power of Copper Chile established diplomatic relations with China on December 15, 1970, preceded in Latin America only by Fidel Castro’s Cuba. Political and cultural contacts have since developed swiftly, particularly from the early 1990s. In April 2001, the president of China Jiang Zemin conducted an official visit to Santiago in the context of his South American tour, meeting with the president of Chile Ricardo Lagos. The two countries have coordinated their objectives in multilateral forums, such as the UN, APEC (Asia-Pacific Economic Cooperation), and FEALAC (Forum for East Asia–Latin America Cooperation). Meetings between senior officials have simultaneously consolidated the bilateral relationship, evident in visits by President Hu Jintao and Vice President Zeng Qinghong in 2004 and 2005. In 2006, PRC National Assembly president Wu Bangguo met in Santiago with Chilean president Michelle Bachelet, who conducted a reciprocal visit to Beijing in April 2008. Bilateral harmony rests in good measure on economic complementarity: while China exports manufactures, Chile benefits from growing Chinese demand for commodities. Competition in the world market with products such as fish, apple juice, furniture, and wood products has not generated important

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problems between the two countries.5 Chile exports agricultural products, cellulose, sea products, and chemicals to China, but the vast majority of its exports to China (83.5 percent) are concentrated in copper. Chile is the largest copper exporter in the world, and China is the largest importer of the metal, occupying almost 20 percent of the market. The Chilean state enterprises Corporación Nacional del Cobre (CODELCO, or National Copper Corporation) and Empresa Nacional de Minería (ENAMI, National Mining Company) are responsible for the bulk of copper exports. While copper has underwritten the impressive growth of bilateral trade since 2002, China exports textiles, clothing, shoes, toys, and electronic products to Chile and has become Chile’s main supplier of consumer goods.6 As noted in Chapter 1, in 2000, Chile reported that bilateral trade with China amounted to only $1.85 billion; in 2005, it grew to $7.2 billion; and by 2009, despite the global financial crisis, it maintained its ascent to reach $17.48 billion. The balance of trade, which used to favor China, has been positive for Chile through the decade; in 2009, the current account surplus for Chile vis-à-vis China reached $7.49 billion. Accordingly, China went from being Chile’s fifteenth-largest trading partner, in 1995, to its second-largest in 2008, surpassing Argentina, Brazil, and Japan (traditionally Chile’s main trade partners), and edging ever closer to the leading position of the United States.7 Reflecting their bilateral goodwill, in 2001, Chile supported China’s entry into the WTO, and in 2004, officially recognized it as a market economy. Since 1997, no Chinese product has been subject to complaints of unfair trading practices from the Chilean government.8 The economic proximity between the two countries led them to announce, during Chinese president Hu Jintao’s visit to Santiago on November 18, 2004, the initiation of free trade agreement (FTA) negotiations. After five rounds of talks, China’s first FTA with a Latin American country was signed in November 2005, taking effect on October 1, 2006. The Chile-China FTA is a “third generation” agreement, not only covering trade and investment but also education, culture, and environmental protection, and it is therefore one of the most comprehensive agreements China has ever signed. There seems to be consensus in Chile regarding the strategic benefits of diversification through bilateral FTAs, but negotiations with China revealed some interesting points of contention. Defending the agreement, Hugo Baierlein of the Comité Empresarial Chile-China (Chile-China Business Committee) pointed out that Chile was prepared to abandon trade tariffs and face China’s burgeoning industry, stressing that for several years Chile’s already low (6 percent) tariff had made the country hospitable to competition from a range of international actors. Not everyone in Chile shared this optimism. The president of the Asociación de Industrias Metalúrgicas y Metalmecánicas de Chile (Metal and Metal-Mechanic Industry Association), Abraham Ducasse, proposed that the

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tariff level should be maintained until China had shown convincing evidence of having dismantled its subsidy structure. Other business groups, particularly small and medium-sized companies, showed even stronger resistance toward the FTA. Mario García of the Textile Institute blamed unfair Chinese trade practices for the crisis in the textile sector, in which employment dropped from 240,000 to 30,000 persons since 1994. Germán Dastrez, leader of the Confederación Nacional de la Pequeña Industria y el Artesanado (National Confederation of Small and Craft Industries) shared García’s opinions, and alarmingly added, “China has invaded us.”9 Before the FTA took effect, Chinese and Chilean strategists conducted an impact study. Employing a partial equilibrium static model, they found that despite the competition engendered by the FTA in the textile, clothing, and metal-mechanics sectors, it would substantially expand the market for Chilean exports to China. At the time, the average tariff for Chilean goods in China was 11.8 percent, although this tax was higher for the agricultural sector (25 percent) and for processed food and beverages (28 percent). It was expected that the reduction of these tariffs would pave the way for increasing exports of fruit, meat, fish, wood, paper, and wine from Chile to the “Middle Kingdom.” The FTA was also expected to augment trade in services, Chinese direct investment in Chile, and enhance existing co-investment agreements between infrastructure and commodity extraction firms, such as CODELCO and China Minmentals Corporation.10 Bilateral trade has indeed grown as a result of the Chile-China FTA, and to extend its reach, Chilean president Michelle Bachelet signed a supplementary agreement on trade in services during her April 2008 visit to Beijing. The FTA has advanced China’s quest for commodities and Chile’s strategic pursuit of free trade agreements as means to open foreign markets to its products.11 Chile’s expansive network of FTAs has not impeded its ability autonomously to promote national products, but rather has broadened its access to global markets. In support of this goal, the Chilean government has designed initiatives such as Pro-Chile, an agency dependent on the Ministry of Foreign Affairs, which conveys strategic local information and analysis to Chilean exporters. Among Pro-Chile’s responsibilities are research into market trends, advice to decisionmakers, the organization of trade fairs, and the design of programs that help small and medium-sized companies to build their export profiles. The Chilean state has long maintained a hand in national economic affairs. Even during the military-neoliberal rule of Augusto Pinochet (1973–1990), the state retained ownership of certain key state companies, particularly in the mining sector.12 Public ownership of these companies ensured a constant source of national income and exerted direct influence on national export policies. In recent years, state-owned Chilean companies have become increasingly proactive, developing aggressive strategies for commercializing

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copper in China. Shipments to China were previously contracted at the CODELCO office in Singapore, while representatives of ENAMI visited China only once per year to collect orders. Both companies have now established permanent offices in China, a move that paid off as Chinese consumption of commodities surged toward the end of the twentieth century.13 While state intervention in Chile is much less prominent than in China, the Chilean case suggests that free trade does not necessarily paralyze strategic trade policies. Nevertheless, a combination of falling commodity prices and increasing imports of Chinese manufactures could put the Chileanespoused Trajectory A under stress, and even transform it into Trajectory B. Perhaps Mexico is the most salient example of the latter path; unfortunately, it is one that every Latin America country would like to avoid.

Trajectory B: Commercial Stress and Market Competition with Mexico Mexico and Central America contrast sharply with the Chilean case and illustrate a different face of Sino–Latin American economic relations. After Brazil, Mexico is China’s largest trading partner in Latin America. In turn, China has become Mexico’s second-largest trade partner and its main associate in Asia; it has clearly surpassed Japan, which had held that position until 2002. Unlike Chile, however, Mexico has endured an overwhelming trade imbalance with China, registering a continuous and bulky deficit. As noted in Chapter 1, in 2009 Mexico exported $2.2 billion of merchandise to China, but imported from it goods worth $31.9 billion: a disparity of 1 to 14.5. Clearly at odds with the positive bilateral figures registered by some South American countries since 2000, Mexico’s growing deficit with China has become one of the causes of recurring tension between Mexico City and Beijing. Two of the three trade disputes brought forward by Latin America against China in the WTO were initiated by Mexico, with the third launched by Guatemala. Chinese competition in the US market has further complicated the economic outlook for Mexico, whose US-bound exports began to decrease in 2002, just as those from China were growing exponentially. Having replaced Mexico in 2003 as the second-largest supplier to the US market, during the global financial crisis China also displaced Canada to become the leading exporter to the United States.14 Of Mexico’s twenty primary exporting sectors, twelve are engaged in direct competition with China, including textiles, cotton products, industrial machinery, televisions, and video recorders. Regarding Central America and the Caribbean, Francisco Haro Navejas judiciously points out in Chapter 11 of this volume that China’s diplomatic competition with Taiwan has generated substantial benefits for most of these countries in the form of aid packages and trade credits. However, the same

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countries have registered growing bilateral trade deficits with China. Central America’s trade with China is considerably smaller than Mexico’s, but the asymmetries have become at least as dire. In 2009, for each dollar that Honduras exported to China, it received $6.6 worth of Chinese imports; Panama had a 1 to 23.3 ratio; Guatemala 1 to 34; Nicaragua 1 to 65; and El Salvador a stunning 1 to 111.15 Even more worrying than these imbalances is the displacement of Central American manufactures by Chinese exports in the US market. The year 2005 marked the expiration of the Multi-Fiber Agreement (MFA), established in 1974 in the context of the General Agreement on Tariffs and Trades (GATT). The MFA implemented a worldwide system of fees and tariffs for textiles and clothing, and its termination coincides with China’s emergence as the dominant global manufacturer in this sector. China expected its share in the international clothing and textiles market to increase from 17 percent in 2004 to 50 percent by 2010, a development that will cost up to thirty million jobs in the rest of the world, with Central America facing particular strain. Although the US–Central America and Dominican Republic Free Trade Agreement (CAFTA-DR) ensures preferential access to the US market for Central American textiles, Chinese competition is inherently hard to beat: Chinese workers are typically paid fifteen and thirty cents per hour, Guatemalans $1.49, and Costa Ricans $2.70. Productivity in Central America’s textile industry is approximately half that of China’s, leading one study to estimate that Central American and Mexican manufacturers will see their share in the US textile and clothing market shrink by 70 percent.16 As Hearn, Smart, and Hernández note in Chapter 8, conflict is not new in Sino-Mexican relations. Chinese migration to Mexico was, in the nineteenth and twentieth centuries, a source of mutual distrust. Unfortunately, since 2000, economic tensions between China and Mexico have generated a new wave of distrust. According to Mexican and Chinese top officials, as well as some sectors in academia, the two countries are “strategic partners.” In practice, however, a string of diplomatic incidents over the past decade reveals an underlying deterioration of political goodwill. Unlike Chile, Mexico does not recognize China as a market economy, and in 2001, fiercely opposed China’s entry into the WTO. During a visit to China that same year, members of a Mexican government delegation, including the minister of foreign affairs, appeared anything but solemn, playing hide-and-seek behind the terracotta warriors of Xi’an, in the process provoking broad criticism of their callous regard for Chinese cultural heritage. During the presidential tenure of Vicente Fox (2000–2006) trepidations about China’s growing economic power were the order of the day. In September 2003, in part due to growing discontent from domestic manufacturers, Fox declared that China’s international competitiveness had been built on an authoritarian labor system, low wages, and scant social secu-

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rity. The remark underscored Fox’s lack of diplomatic sensibility, as it was delivered just hours before receiving the credentials of the new Chinese ambassador. Political tensions surfaced again in October 2004, when the Chinese embassy in Mexico City openly criticized the Mexican Congress for receiving the Dalai Lama. It was surely viewed by some as karma when Hu Jintao and four of his aides, during a visit to the Mexican Senate in September 2005, were trapped for thirteen minutes in an elevator. President Fox resumed his peculiar criticisms of China in March 2006, stating that past Institutional Revolutionary Party (PRI) governments had deceived Mexicans “as if we were vile Chinese when they were selling their grandiose ideas, populism and demagoguery.”17 From the beginning of his tenure in December 2006, Fox’s successor, Felipe Calderón, tried to mend fences with China. In July 2008, he visited the PRC and signed seven cooperation agreements, but the diplomatic honeymoon soon came to an end. In May 2009, the first cases of the “swine flu” (H1N1) epidemic were announced in Mexico, prompting the Chinese government (perhaps hypersensitive about its own experience with severe acute respiratory syndrome [SARS] in 2003) to quarantine more than fifty healthy Mexican citizens without consulting Mexico City. President Calderón chose not to raise the issue formally with Beijing; instead, he stated in a televised intervention that, unlike other countries, Mexico was dealing with the flu in an open way. The reference to China’s initial handling of SARS was clear. In no case have the diplomatic tensions and mistakes overflowed diplomatic channels, but all of them illustrate the barely disguised tension underlying this idiosyncratic strategic partnership. To diminish economic and diplomatic frictions, the Mexico-China Binational Commission was established in 2004. Modeled on a similar structure for managing Mexico-US relations in the early 1990s, the commission attempts to identify and compartmentalize sensitive issues, such as the chronic Sino-Mexican trade imbalance, in order to minimize deleterious spillover effects on the broader bilateral relationship. The commission has convened three times since its inception, twice in Beijing (2004, 2008) and once in Mexico City (2006). The commission has not managed to defuse the main conflicts between the two countries, but it has drawn attention to some of the obstacles impeding productive solutions. To a certain extent, the trade imbalance stems from inadequate Mexican economic strategies and international priorities. One prominent shortcoming, entrenched since the establishment of the North American Free Trade Agreement (NAFTA), is Mexico’s single-minded focus on the US market. In 1990, Mexico sent 70.2 percent of its exports to its northern neighbor, and by 2009, this amount had increased to 80.7 percent.18 A further problem is that Mexican enthusiasm for the free market has not been accompanied by strategic industrial or trade policies, but rather by a reliance on reducing tariffs and signing FTAs, twelve of which have been established

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with forty-four countries (including the United States, the European Union and Japan). Such a strategy can only succeed if supported by effective industrial policy aimed at generating exports, rewarding productive actors, and incentivizing the diversification of Mexico’s trade basket. In contrast to China and other East Asian countries, the expression “industrial policy” has become almost taboo in the discourse of Mexican economic officials, even in the midst of a recalcitrant economic crisis that saw national GDP plunge to –6.55 percent by the end of 2009. Mexico’s development banking, led by Nacional Financiera (NAFINSA), appears to be heading toward extinction; commercial banking does not support large industrial and exporting projects; investments in applied research and development by Mexican firms are virtually nil; and subsidies to production in the secondary sector have long exhibited levels below the average in member countries of the Organization for Economic Cooperation and Development (OECD).19 The increasing concern about the lack of an industrial policy in Mexico is evident in the transformed ideas of Jaime Serra Puche, minister of trade and industrial development in the conservative government of Carlos Salinas de Gortari (1988–1994). An enthusiastic advocate of free trade, Serra Puche was the Mexican negotiator in chief of NAFTA. During his ministerial tenure, he was an unambiguous critic of industrial policies, and even declared, much to Mexican manufacturers’ chagrin, that “the best industrial policy is the one that does not exist.” Yet in June 2010, Serra Puche stated that Mexican exports have a scanty multiplier effect on gross domestic product (1.8 times their value compared to 3.3 times in the United States), due to the extreme concentration of markets for Mexican exports and the low level of domestic inputs added to those goods. Notably, he argued that the inadequate support of Mexican development banks to the export sector has eroded the country’s chances of finding new external markets.20 It could be said that Mexico’s sin in its relationship with China has been one of omission rather than commission: as healthy as a “strategic partnership” may sound, it has not been proactive enough to overcome the unrelenting trade imbalance. What is needed is a policy of promotion initially committed to rigorous and expeditious study of potential market niches for Mexican products in China. With this accomplished, the government could disseminate findings among Mexican companies (especially small and medium-sized firms) and provide infrastructure as well as fiscal and credit incentives for those producers willing to explore the Chinese market. Efforts should focus on sectors and products that enjoy high demand in China, and in which Mexico is competitive, such as pig and poultry products, avocados, grapes, cellulose, oil, steel, refrigeration equipment, motors, automobiles, and car parts. Mexico also has much to offer in services, in particular construction, for which there is ample demand in China.

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Bringing Structuralism Back In: Is Trajectory A Sustainable? At first glance, the diverging trajectories of Chile and Mexico regarding China seem to indicate that some Latin American countries have found a successful strategy of international competitiveness, via the export of commodities. Such an optimistic conclusion is challenged, however, by a set of ideas that emerged half a century ago. In 1948 the Argentine economist Raúl Prebisch founded the United Nations Economic Commission for Latin America and the Caribbean (ECLAC or CEPAL), and within two years published a seminal book on development economics, entitled The Economic Development of Latin America and Its Principal Problems. The cepalina or structuralist school of thought argued that Latin America was part of an unfair international division of labor in which the “center” and the “periphery” of the economic system had been assigned different specializations. While peripheral countries focused on the export of primary products, central economies possessed a technological edge that allowed them to export manufactured goods. In Prebisch’s words, “The great industrial centers not only keep for themselves the benefit of the use of new techniques in their own economy, but are in a favorable position to obtain a share of that deriving from the technical progress of the periphery.”21 While some Latin American countries experienced booms in periods of global expansion, a reliance on commodity exports made them economically vulnerable. The structural impasse was that, over time, the prices of raw materials and food in international markets were falling, while the prices of manufactures were steadily rising. Under the center-periphery scheme, Latin American countries were therefore forced to exchange increasing volumes of commodities for imported manufactures. This unbalanced pattern of trade generated acute current-account deficits and led ECLAC’s strategists to conclude that if Latin America wished to improve its international terms of exchange, it should implement strategies of import substitution industrialization (ISI). ISI was enthusiastically implemented across the region during the two or three decades after the publication of the The Economic Development of Latin America and Its Principal Problems. During that period, some countries managed to develop advanced industrialization policies, while others achieved only light industrialization. Successful Latin American manufacturers such as Brazil and Mexico increased their international market share of manufactured goods, but never created a nucleus of endogenous technological advancement. From 1980 to 2000, the pendulum swung in the opposite direction from ISI, stressing free markets and export-oriented development over import substitution. As a result, most Latin American countries underwent a process of deindustrialization; indeed, for the bulk of them, commodities continued to be key sources of

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foreign exchange. Thanks to the upsurge of China’s demand for Argentine soy complex, Brazilian soy beans and iron ore, Peruvian fish flour, Venezuelan oil, and Chilean copper, commodity prices increased rapidly in the early years of the twenty-first century, generating renewed optimism about resource exports. By 2005, South American prognoses of trade with China were generally positive, driven by massive surpluses in most Trajectory A countries and by the false expectation that China would funnel $100 billion in direct investments through Latin America. In 2004, Brazilian president Luiz Inácio da Silva (Lula) visited Beijing with an entourage of more than five hundred people, including senior politicians, officers, and businesspeople. The Brazilian minister of foreign affairs, Celso Amorim, declared that “Latin America and South America should not see China as a strategic threat, but as an opportunity for everyone.” The June 2004 visit to China of Argentine president Néstor Kirchner was described in the media as “the most important visit not only of his tenure, but of recent years.”22 The Argentine minister of the economy, Roberto Lavagna, was so enthusiastic about China that he declared: “The ministers of economy and foreign affairs should travel to China at least once a year; the president should go there every year and a half or two years.”23 Most South American countries, including Chile, Peru, and Venezuela, exhibited comparable optimism about China. In the midst of this marathon of Latin American overexpectations, and at the risk of being labeled a Leninist, structuralist, or advocate of dependency theory, I candidly wrote: I do not wish to spoil the celebration with these lines, but it is necessary to clarify that the trade relationship between South American countries and China is not free of some theoretical and historical ironies. After all, the old Leninist theses postulated that one of the main traits of imperialism in its monopolistic phase was the sacking of raw materials by the great powers. Also, the ECLAC theories, in vogue during fifty years of the last century, maintained that the way in which Latin America could move from the periphery to the center of the international system was to break the logic of the primary-exporting economies. The profile of the South American exports to China and the strategy of this country toward the region would offer an interesting case study to discuss the relevance of the theses of Lenin and Raúl Prebisch.24

The article generated a range of responses from Latin American colleagues, such as the Chilean scholars Juan Diego Montalva and Patricio Navia, who agreed that the center-periphery model does indeed bear relevance to China-Chile relations, though through a benign type of dependency: The “raw materials for manufactured goods” exchange model that has developed between the two countries does not conform to the typical and often criticized center-peripheral relations that Latin American countries had with

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the United States and European powers during most of the twentieth century. Because China has not sought to exercise political influence over domestic developments in Chile and because Chinese pressures on Chilean foreign policy have been rather limited, the nature of the trade relations that have evolved between the two countries can be defined as a good and healthy version of center-peripheral relations. In this case, both the center and the periphery seem to benefit from the trade that takes place between both countries. Moreover, because the commodities that China imports from Chile have enjoyed better terms of trade than the products that China exports to Chile, the periphery has benefited from a surplus in the total trade that takes place between both countries.25

By contrast, Brazilian researcher Alexandre de Freitas Barbosa has written: Following Lenin’s analysis, besides capturing raw materials, the imperialist powers turned to the “periphery” in the late nineteenth century in order to apply their surplus capital, so as to prevent rates of profit from falling. That is not exactly the case with China, which is using its companies’ expansion not only to gain markets, but also to secure geopolitical advantages. It is at best a proto-imperialist nation willing to cede even economic advantages in the effort to establish a multi-polar order, in spite of the rhetoric embedded in the concept. The ECLAC approach, on the other hand—even though it may seem questionable in view of the short-term improvements in terms of trade for Latin American countries—may help understand a pattern of industrial specialization which does little to bring either structural changes or major productivity increases to Latin American countries . . . there is a risk that this new Asian power helps to bury, once and for all, any promise of endogenous Latin American development.26

Whether China is viewed as the dominant proponent of a “healthy version of center-peripheral relations,” or as a “proto-imperialist nation,” one does not need to be a be a dependentista to conclude that Trajectory A is under stress, and that it may remain so in the foreseeable future. Even if we accept that economic interests are at the core of China’s engagement with Latin America, the recent evolution of world commodity markets confirms that demand is inherently unstable. One might assume that when the current global crisis subsides, global demand for commodities will once again rise. The accuracy of this forecast, however, should not be taken for granted. In early 2009, the World Bank (certainly not an advocate of ECLAC’s structuralism) released a report entitled Global Economic Prospects: Commodities at the Crossroads, which identifies a historic boom in the price of basic resources between 2003 and mid-2008. The report concludes that postcrisis prices will remain for a number of years above their levels in the 1990s, but will not return to levels recorded during the boom.27 Does the foreseeable but modest recovery of commodity prices mean that Chile and other South American countries will be able to maintain, sine die, their trade surpluses with China? Despite the commodity boom and ensuing

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optimism, the positive trade balances with China that South America’s biggest countries achieved in the early 2000s diminished rapidly during the second half of the decade, and the recent experiences of Argentina and Brazil indicate that Trajectory A may be close to its end. In the period 2006–2008, China recorded a trade surplus with Brazil, and with Argentina in 2008–2009.28 Both countries have had to adjust to massive imports of Chinese manufactured goods with increasing technological sophistication. This trend is here to stay, insofar as the proportion of low to high technology manufactures in the composition of Chinese exports has diminished over time and will continue to do so. In 1990, 40.2 percent of Chinese exports belonged to the former category and only 5.3 percent to the latter; by 2006, light manufactures decreased to 31.3 percent while high-tech exports rose to 22.8 percent.29 In the case of Brazil, there is mounting evidence of competition with China in manufactured goods such as shoes, transport vehicles, machinery, tools, and steel. Public opinion and policymakers in Brazil have become increasingly worried about China’s competitive edge. As Uziel Nogueira observed, “taking notice of Mexico’s travail, President Lula’s administration is under political pressure to come up with solutions to deal with the Chinese competition.”30 By contrast, China’s ambassador to Brazil, Chen Duqing, maintains that the Chinese and Brazilian economies are “mutually complementary” and argues that the partnership will reduce the latter’s dependence on the United States market. Chen adds that Brazilians “are claiming before my arriving here that China is invading (them) with products . . . But I told them, you know, we understand globalization. Commercial exchange is inevitable. You must buy, we must sell.”31 Whether driven by globalization or not, it is not unreasonable to suppose that diminishing commodity prices, combined with the sharp competitiveness of China’s industrial products, could spell the demise of Trajectory A in South America. Under such conditions, the region would increasingly exhibit features of the Mexican and Central American Trajectory B, as has already begun for Argentina, Brazil, and other South American countries. Peru recently signed an FTA with China, and after eight prosperous years of trade surpluses based on the export of fish flour and copper, it recorded a trade deficit with China in 2008. Curiously enough, despite the deafening pro-Chinese rhetoric of President Hugo Chávez, since 1999 Venezuela’s balance of trade with China has been continuously written up in red ink.32 In the long run, Chile could follow this trajectory too, particularly if decreasing returns on copper cannot compensate for growing Chinese industrial and consumer imports. If the not-so-outlandish scenario of a generalized Trajectory B materializes, Prebisch would perhaps be proud of his visionary ideas, but at the same time disheartened about the limited outcomes of six decades of industrialization in Latin America.

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The Global Financial Crisis: Implications for China’s Relations with Mexico and Chile The chapter’s final section seeks to identify the possible effects of the ongoing global crisis on Sino–Latin American economic relations, using the cases of Mexico and Chile as a guide. To tackle this issue, I first analyze the responses of Mexico, Chile, and China to the crisis and then present an assessment of the downturn’s impact on Mexico and Chile’s economic relations with China. As one might expect, the impact has been quite different for Trajectory A and B countries. China’s growing emphasis on its domestic market has assisted—at least in the short term—the competitiveness of Mexican products in the US market, but has brought only slim repercussions for Mexico’s deficit with China. Meanwhile, South American exporters have witnessed the end of an upward trend in raw-material prices since 2000, though a relatively strong recovery of copper markets has given Chile more room to maneuver than most of its neighbors. It is likely that in the medium term, China will resume its dynamism in the Mexican and US markets, and that the global economic recovery will lead to a surge in food prices and raw materials exported by South America. It is less likely, though, that these prices will reach precrisis levels. Coupled with the increase in value-added Chinese exports to the world, this latter trend could precipitate the passage of Trajectory A to B that some South American countries had already started before the crisis. Let us begin by analyzing the strategies adopted by Mexico, Chile, and China to deal with the crisis. For Mexico, the period 2008–2010 brought significant negative consequences, which were exacerbated by the Calderón administration’s handling of the crisis based on orthodox, restrictive policies inherited from the 1980s. Initially, the Mexican government downplayed the crisis, arguing that it had started overseas and its national impacts would be limited. In February 2008, Minister of Finance Agustin Carstens distinguished the crisis from previous downturns, stating that for Mexico it signified “a slight cold and not pneumonia as before.”33 At that time, the Mexican government announced the creation of a National Infrastructure Fund of an initial $4 billion, with the possibility of reaching $27 billion in the subsequent four years. To add credibility to his response, in October 2008, President Calderón announced a formal stimulus package. Among other measures, the package foresaw the enlargement and more efficient exercise of public spending; the construction of a new refinery for the state oil company Petróleos Mexicanos (PEMEX), worth $1.2 billion; the launch of a special program to support small and medium-sized enterprises; and further steps in the road of deregulation and trade liberalization.34 Optimistic that the crisis would soon recede in the United States, the Ministry of Finance foresaw GDP growth of 3 percent in

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2009, although the World Bank estimated 1.1 percent.35 These forecasts, combined with the president’s stimulus measures, seemed to validate the “slight cold” thesis. In the ensuing months, these favorable expectations were virtually shattered. Mexico suffered a collapse of oil prices, a sharp decline of its exports to the United States, a drop in remittances from US-based Mexican workers, and a substantial contraction of domestic demand. In addition, the stimulus package and the infrastructure fund announced in October 2008 were implemented half-heartedly, if at all. In January 2009, both the Bank of Mexico and some international consultancy firms forecast that Mexican GDP would plummet to 0 percent by the end of the year. With these gloomy forecasts in mind, the government launched several new actions in early 2009, including a freeze in the price of public-sector goods such as gasoline and electricity, and credit disbursements of some $150 million for industries hit by financial restrictions. In March 2009, the World Bank forecast a GDP decline of –2 percent, but following the outbreak of H1N1 flu in April, downgraded its prediction to –6 percent. The International Monetary Fund’s (IMF) prediction, released in July, was even worse: –7.3 percent for 2009. In the end the economy registered –6.5 percent for the year, the worst annual regression since 1994, and one of the most serious since the 1920s. The decline was one of the most pronounced in Latin America, though by mid-2010 Mexico was expecting to close the year with a growth rate of 4.2 percent.36 Social indicators have reflected economic performance: in October 2009, President Calderón reckoned that of Mexico’s 106 million people, the number in poverty soared from 14 to 20 million.37 Why did Mexico undergo this economic tsunami? Despite the government’s early indications of an assertive response, orthodoxy prevailed. Unlike China and Chile, which drew on their reserves to alleviate the crisis, the Mexican government decided that it was more important to keep inflation under control and the fiscal deficit close to zero. The country’s reserves, which in July 2008 approached $87 billion, remained virtually intact. If some funds were taken from these reserves, it was to prevent further devaluation of the peso against the dollar. Contrary to a worldwide consensus expressed by The Economist that “we are all Keynesians now,” in the end Mexico faced the crisis via restrictive policies embodied in massive cuts to public spending and new tax hikes.38 When it came to measures to support consumers and businesses, implementation was half-hearted and barely transparent. The awkward handling of the Mexican crisis was not lost on international economic analysts. In November 2009, Joseph Stiglitz, winner of the Nobel Prize for economics in 2001, said Mexico’s performance in handling the crisis had been among the worst in the world; by contrast, such countries as Australia and Brazil, notwithstanding the health of their exports and relative economic security compared to Mexico, implemented strong government actions to deal effectively with the crisis. Stiglitz added that Mexico did not finance

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small and medium-sized enterprises to engage in international trade and did not “invest in technology, education, and infrastructure—a fact that would stimulate development and growth of the economy in the short and long terms.” He also predicted that the increase of the value-added tax (VAT) and income tax (ISR), proposed by the president and approved by the Congress in October 2009, would be inimical to economic growth. Finally, he warned that instead of waiting for a speedy economic recovery by the United States, Mexico should consider other strategic alternatives for its own revitalization. In response, Ernesto Cordero, minister of social development (later appointed by President Felipe Calderón as minister of finance) declared: “I believe that Stiglitz does not know in detail the countercyclical policies implemented by the Mexican government; he does not know the reality of Mexican public finances. I think he should read a little more about Mexico.”39 In contrast to Mexico, Chile’s response was swift and unambiguously Keynesian. Unlike the economic turmoil in 1998–1999, this time Chile’s international reserves were close to $50 billion, and these were used liberally to avoid an economic collapse. To overcome the crisis, in October 2008, President Michelle Bachelet’s administration proposed a budget of about $38 billion dollars, the largest in Chilean history, of which $7 billion would be channeled to infrastructure. The budget proposal also funded ambitious programs to reduce unemployment and provide bonuses and allowances for the poorest families. These resources would be funneled through such programs as Chile Solidario (Chilean Solidarity) and Chile Crece Contigo (Chile Grows with You) to benefit 1.5 million people.40 In January 2009, the Chilean government deepened the measures outlined in the 2009 budget: it decreed a tax break; granted funds for reforestation; implemented a county-level development program; injected $1 billion into the state mining company, CODELCO; facilitated the renegotiation of credits for private businesses; designed a mechanism for securing early tax devolutions; and set fiscal incentives for employee training. Chile’s dynamic export profile was inevitably affected by shrinking external demand. In October 2008, the World Bank estimated that Chile’s GDP would grow by 4 percent; in April 2009, expectations dropped to 0.1 percent, and in October to –1.7 percent. Performing only marginally better than these expectations, the Chilean economy experienced a growth rate of –1.5 percent in 2009. Negative growth was probably unavoidable that year, but the battery of countercyclical measures almost certainly prevented a more painful fall. Given the pervasive damages provoked by the massive earthquake in February 2010, it is likely that reconstruction will require continuing expansionary policies. Even the new administration of conservative president Sebastián Piñera will probably not stop the wave of public investments. Albeit in a massive fashion, China took a path similar to that of Chile. By late 2008, analysts were concerned that the plummeting US demand would affect (as it did) Chinese exports and growth. Indeed, World Bank forecasts in

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November 2008 stressed that Chinese GDP could drop to 7.5 percent in 2009. The bank’s adjusted projections in March 2009 foresaw annual growth at 6.5 percent, while Morgan Stanley estimated 5.5 percent. Despite such “gloomy” prognoses, China deployed a vigorous strategy, mostly based on the promotion of its huge internal market. Taking advantage of abundant reserves, policymakers designed a stimulus package that rose to 7.1 percent of GDP. The Chinese “New Deal” encompassed both existing and new economic initiatives, rolling out massive infrastructure projects, tax breaks, green energy programs, and the promotion of consumption in rural areas. Not without polemic, the Chinese government took advantage of the crisis to invigorate the countryside, where two-thirds of Chinese people live.41 To boost aggregate demand, stateowned banks issued loans amounting to a stunning $660 billion in the first three months of 2009. The stimulus strategy bore fruits promptly: by June 2009, Morgan Stanley had raised its estimate from 5.5 percent to 7 percent and the World Bank from 6.5 percent to 7.2 percent.42 At the end of the year, the Chinese economy reached a GDP growth rate of 8.7 percent, less than the 9.2 percent of 2008, but still one of the highest in the world, and by April 2010 annual growth was forecast to return to double digits. China did not entirely escape the impact of the crisis: twenty million migrant workers were unable to find jobs in 2008 and 2009, and some three million graduates remained unemployed in the latter year.43 Nevertheless, China managed to consolidate its position as a relevant force in the international economy and in so doing illustrated the wisdom of a 2006 prediction made by The Economist about the changing balance of the global economy: As America’s housing boom threatens to turn into a bust, many forecasters expect household spending to stall. A few even worry that America could come perilously close to a recession in 2007. Previous American downturns have usually dragged the rest of the world economy down, too. Yet this time its fate will depend largely upon whether China and the other Asian economies can decouple from the slowing American locomotive.44

Fortunately for the United States, China did not decouple; quite the opposite: its economic vitality stemmed a deeper fall for economies worldwide. Had the more pessimistic forecasts of China’s growth trajectory materialized, the global shock would have been much worse. For Latin American countries, the consequences of the crisis have depended in large measure on whether they were moving along Trajectory A or B. At the height of the downturn, Chinese Minister of Commerce Chen Deming advised that the worst option for the international economy would be a return to the protectionist practices of the past.45 There was nothing hypocritical about this statement: between May 2009 and May 2010, China imposed only thirty-six trade restrictions, compared to Russia’s seventy, Argentina’s

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sixty-five, India’s sixty-two, the United States’ sixty-two, and Germany’s forty-two.46 For those countries with similar export structures to China (Trajectory B), Chen’s advice came as little comfort. The same countries have benefited, however, from China’s growing focus on its domestic economy. For Mexico, China’s reorientation to domestic demand has meant less competition in the US market. When the latter’s imports began to expand in the first half of 2010, Mexico regained a small part (on the order of 1.5 percent) of the market share lost in recent years. Some Mexican economic analysts and government officials believe that this process, combined with increased real wages for Chinese employees, could assist Mexico’s competitiveness. These expectations are not unreasonable, but Mexico is still far from reclaiming its position as the second largest exporter to the United States. Optimism may also be short-lived: as long as China remains an export powerhouse and the United States sustains high purchasing capacity, it is likely that China’s exports to the United States will rebound sharply and recover the ground they lost to Canada and Mexico during 2009 and 2010. A further indication of continuing trouble for Mexico is the negligible impact of the crisis on the massive quantities of Chinese consumer products imported into the country. Although Mexico’s trade deficit with China decreased from $31.96 billion in 2008 to $29.7 billion in 2009, bilateral trade did not recede to the extent that might have been expected. Crisis or no crisis, Mexican imports from China are anchored in the demand of low-income consumers for inexpensive manufactures to meet their essential needs. It is likely, therefore, that the bilateral commercial tensions outlined throughout this chapter will be a recurring issue in Sino-Mexican relations, even in the not-so-outlandish scenario of an economic recovery in Mexico. South American resource exporters also have cause for concern. By the second half of 2008, the crisis had seriously curtailed Chinese demand for raw materials, markedly impacting both the volume and value of South American exports. The crisis struck Chile on both fronts, the value of copper declining significantly through 2008 (Figure 9.1). The copper price rebounded in 2009 and 2010, but it should be noted that copper is a peculiar commodity that, together with aluminum, is a nonferrous metal for which there is exceptionally high global demand. Exporters of other commodities have been less fortunate. For Latin American soy producers, prospects for the future do not look particularly bright. The international price of this grain has recovered more slowly than expected and remains far from its late 2007–2008 level (Figure 9.2). Argentina has consequently entered into a trade deficit with China. The same is true for grain exporters such as Paraguay and Uruguay.47 Several other factors will also challenge soy exporters. First, competition in the sector is set to grow as new producers (including Venezuela and Ukraine) enter the world market. Second, China’s increasing import of meat will reduce its demand for soy grains and fish flour for domestic cattle rearing. Third, and

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Figure 9.1

International Price of Copper, 2000–2010 (US dollars per metric ton)

$10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: World Bank Commodity Price Data.

perhaps most importantly, China is making an assertive effort to replace food imports. Its National Plan for Expansion of Grain Production Capacity, issued by the government in October 2009, aims to cover 95 percent of grain demand by 2020 with domestic production. To overcome the geographical and structural bottlenecks in Chinese agriculture noted above, the plan emphasizes technological advancement in soy cultivation to enhance productivity and reduce external dependence.48 The news for Latin American countries whose trade profiles favor energy exports is similarly inauspicious. As shown in Figure 9.3, the speedy precrisis rise in the international price of crude oil seems to be well and truly over. Despite a recovery of value in 2009, energy products are still well below the historical prices they reached in mid-2008. This reality will negatively affect the export earnings of oil to China from South American countries like Bolivia, Colombia, Ecuador, and Venezuela. In sum, one of the main consequences of the global economic crisis for Latin American exporters of commodities to China could be the acceleration of their transit to Trajectory B.

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Figure 9.2

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International Price of Soybeans, 2000–2010 (US dollars per metric ton)

$700 $600 $500 $400 $300 $200 $100 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: World Bank Commodity Price Data.

Conclusion It is my hope that this chapter clarifies the dialectic character of China’s economic and political relations with Chile and Mexico. Beyond any conventional notion of hegemony, China’s interests in Latin America harbor a range of intertwined diplomatic and commercial aspirations. Resulting interactions exhibit both cooperative and conflictive tendencies, with a greater measure of cooperation in South America and of conflict in Mexico and Central America. To deny this awkward reality may be the task of diplomats, but not of international analysts. Future paths of bilateral interaction will follow the contours of China’s global strategy as it consolidates its role as a rising power. Beijing appears to have a clear vision of the future, focused on access to markets, political alliances, diplomatic isolation of Taiwan, and worldwide pursuit of oil, food, and raw materials. To the extent that this vision prioritizes natural resources

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Figure 9.3

International Spot Price of Crude Oil, 2000–2010 (US dollars per barrel)

$140 $120 $100 $80 $60 $40 $20 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: World Bank Commodity Price Data.

and agricultural imports, it converges with the strategic aims of Chile and other Trajectory A countries. To the extent that it seeks to open Latin American markets to Chinese exports, it will continue to pose fundamental challenges to Mexico and the Trajectory B countries of Central America as they confront acute competition in the manufacturing sector. For many South American countries, diminishing commodity prices combined with increasing imports of value-added Chinese products might turn Trajectory A into Trajectory B. The global economic crisis and subsequent slow recovery suggest that the boom years are over for resource exporters. For Mexico and the manufacturers of Central America, the crisis may have brought some respite from Chinese competition in the US market, but this will likely be short-lived. Beijing may for the time being focus greater attention on developing China’s domestic market, but stable domestic development will require China to continue exporting on a massive scale. The economic crisis, then, will not alter in any fundamental way the pressures that China has brought to bear on Latin America. Sino–Latin American interactions demonstrate that institutions and public policies still have an important role to play in processes of economic development. In both Chile and China, the state has opened market opportunities, created synergies with the private sector, and proactively managed the domestic

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consequences of the 2008–2010 global crisis. Chile has committed itself to export-oriented development, but its government has not given up on influencing the behavior of national exporters through the supply of information and the negotiation of an extensive FTA network. The Mexican government, by contrast, has not seriously encouraged businesses to diversify the nation’s trade basket, nor incentivized exports to markets other than the United States. It is true that Mexico has been an enthusiastic promoter of FTAs, but it has not developed stable channels for conveying strategic information to economic agents in the fashion of Jetro in Japan, Kotra in Korea, or Pro-Chile in Chile. While competitive advantages are responsible in great measure for the different trajectories that have characterized China’s relations with Latin American countries, a sophisticated industrial policy could do much to build new competitive sectors for countries that are less naturally endowed. It is worth noting that across Latin America and the United States, civil society groups have expressed growing concern about China’s impact on the region. While they do not typically state their apprehensions in terms of center-periphery schemes, skepticism about the possible outcomes of closer trade relations with China is widespread in industrial sectors, especially small and medium-sized firms. In documents and public declarations from chambers of commerce and industry representatives, it is common to find the terms “Chinese invasion” and “Chinese threat” in reference to the competitive edge that manufactured products from China have acquired in the last few years. Notwithstanding their apprehensions, in the last decades Latin American industrial sectors have generally not been able to press their governments to implement policies that protect them from Chinese competition. The relative weakness of industrialists stems from trade openness and FTAs, which have eroded the leverage of elites overprotected during the era of import substitution. The so-called national bourgeoisie therefore seems to be playing a more modest role than during import substitution industrialization. While one branch of this group has quickly adapted to the dynamics of export-led growth, another has continued catering to the domestic market, though its standing has been dramatically undermined by international competition. The most radical Marxist conceptions of the state as an “executive committee of the bourgeoisie” therefore seem to be anachronistic in today’s Latin America, where the preferences of local industries do not necessarily translate into protectionist policies.49 These days one cannot avoid hearing the claims of hawkish politicians and scholars in Washington, and of traditional Latin American industrialists, that China is “invading” the region. I do not buy the argument that China is playing a game of enhancing its power or building world hegemony via its relations with peripheral regions such as Africa or Latin America. Nor do I see Chinese leaders fixing red and blue pins on a map of Latin America (or Africa,

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or Southeast Asia) to define new zones of influence. The intention underlying my criticism of the increasingly unbalanced trade relations between Latin America and China is not to “bash” the latter as imperialist, but rather to underline the long-lasting, structural shortcomings of Latin America’s insertion into the world economy.

Notes 1. Expectations of Chinese FDI have not been fulfilled, and most has been channeled to infrastructure projects aimed at accelerating the extraction of commodities. Furthermore, according to William Ratliff, “One Chinese trade official claimed that $22.7 billion in FDI had been placed in Latin America by the end of 2006. If so, the vast bulk was plunked in tax havens in the Caribbean from whence it can be sent back to China to take advantage of preferences given to foreign investment firms.” See William Ratliff, “China’s Latin American Tango: A Partnership with Benefits for Both Sides,” Wall Street Journal Asia, November 27, 2008. 2. Xinhua, “Full Text: China’s Policy Paper on Latin America and the Caribbean,” November 5, 2008, http://news.xinhuanet.com. 3. León-Manríquez, “China y América Latina,” 38. 4. Green, “China’s Quest for Market Economy Status.” 5. Sebastián Claro, “Causas y consecuencias del milagro económico en China.” 6. DIRECON (Dirección General de Relaciones Económicas Internacionales, Ministerio de Relaciones Exteriores de Chile), Tratado de Libre Comercio con China, 16–17. 7. ECLAC (Economic Comission for Latin America and the Caribbean— Comisión Económica para América Latina y el Caribe), Database of the División de Comercio Internacional e Integración, 2010, http://www.cepal.org/comercio/SIGCI. 8. DIRECON, Informe de las conclusiones del estudio conjunto de factibilidad de un Tratado de Libre Comercio entre Chile y China. 9. Néstor Restivo, “En Chile no todos aprueban los Tratados de Libre Comercio,” Clarín (Buenos Aires), November 21, 2004. 10. DIRECON, Informe de las conclusiones del estudio conjunto de factibilidad de un Tratado de Libre Comercio entre Chile y China. In June 2005, CODELCO agreed to guarantee a continuous supply of copper to China in return for resources to improve copper extraction in Chile. Once concluded, the joint investment could surpass $2 billion. 11. Chile is the most active proponent of FTAs in the world; by June 2009 it was engaged in twenty liberalization agreements with fifty-six countries. Chile’s faith in free trade does not represent a wholesale renunciation of public support for exporters. From my point of view, the Chilean quest for FTAs worldwide is not an end in itself, but a means for avoiding unilateral commercial dependency on countries such as the United States, Argentina, Brazil, and more recently, China. 12. CODELCO, “La corporación: Historia,” 2009, http://www.codelco.com. 13. Arriagada Moreno, Sorprendente China. 14. In 2008, Canada and China were exporting about the same amount to the US market: while the former sent exports worth $334.839 billion dollars to the United States, the latter sent $337.839 billion. Yet in 2009, the gap widened: China placed $295.544 billion in the United States and Canada plummeted to $224.584 billion.

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Given the massive scale of US exports to Canada, the latter still stands as the main US trading partner. Data from the United States International Trade Commission (USITC), 2010, http://dataweb.usitc.gov. 15. ECLAC, database of the División de Comercio Internacional e Integración, 2010, http://www.cepal.org. 16. Hawkins, “The Geopolitical Challenge of Chinese Textile Exports.” 17. Mario Canseco, “The Second Campaign of Vicente Fox,” Angus Reid Global Monitor, March 18, 2006, http://www.angus-reid.com. 18. ECLAC, database of the División de Comercio Internacional e Integración, 2010, http://www.cepal.org. 19. Clavijo and Valdivieso, “La política industrial de México, 1988–1994.” 20. “Poco impacto de exportaciones mexicanas en PIB nacional: Serra Puche,” Milenio Diario, June 4, 2010, http://www.milenio.com. 21. Prebisch, The Economic Development of Latin America and its Principal Problems, 14. 22. Claudio Scaletta, “El sueño de vender más que soja,” Página 12 (Buenos Aires), June 21, 2004. 23. Martín Murphy, “Kirchner satisfecho con China,” BBC Mundo, Buenos Aires, July 1, 2004. 24. León-Manríquez, “China y América Latina,” 40. 25. Montalva and Navia, Chile and China: Building Relations Beyond Trade? 8. 26. Barbosa, “China and Latin America: Strategic Partnering or Latter-Day Imperialism?” 227, 230. 27. World Bank, Global Economic Prospects, 95. 28. ALADI (Asociación Latinoamericana de Integración), Sistema de Informaciones de Comercio Exterior (SICOEX), 2010, http://nt5000.aladi.org. 29. Falck-Reyes and León-Manríquez, “Mexico’s East Asia Strategy,” 115. 30. Nogueira, “China-Latin America Relations in the XXI Century: Partners or Rivals?” 3. 31. Quoted in Julie McCarthy, “Growing Trade Ties China to Latin America,” National Public Radio, April 1, 2008, http://www.npr.org. 32. ALADI, Sistema de Informaciones de Comercio Exterior. 33. “México tendrá catarrito por crisis en EU: Carstens,” El Universal, finance section, February 8, 2008. 34. Presidencia de la República de Mexico, “Mensaje del Presidente Felipe Calderón sobre el programa para impulsar el crecimiento y el empleo,” October 8, 2008, http://www.presidencia.gob.mx. 35. Secretaría de Hacienda y Crédito Público, “La Economía Mexicana,” 13. 36. These and subsequent figures for Mexico, Chile, and China on GDP growth in 2009 and 2010 are sourced from IMF, World Economic Outlook: Rebalancing Growth, 160–162. 37. “Admite Calderón: Hay 6 millones más de pobres desde que estalló la crisis,” La Crónica de Hoy, October 3, 2009. 38. See “Keynesian Principles: This House Believes We Are All Keynesians Now,” debate in The Economist, March 10, 2009. 39. On this debate, see “México no supo manejar la crisis: Stiglitz,” and “Cordero pide a Stiglitz leer sobre México,” both in El Universal, November 19, 2009. 40. Xinhua, “Prepara Chile medidas contra crisis financiera en 2009,” People’s Daily, October 20, 2008, http://spanish.peopledaily.com. 41. See Rodger Baker and Jennifer Richmond, “Internal Divisions and the Chinese Stimulus Plan,” Stratfor Geopolitical Intelligence Report, February 23, 2009.

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42. “World Bank Raises China Growth Forecast,” Businessweek, June 18, 2009, http://www.businessweek.com. 43. Ernst, “China’s Stimulus Package,” 1. 44. “The Alternative Engine,” The Economist, October 19, 2006. 45. Quoted in “Protectionism Doesn’t Pay,” Wall Street Journal, February 20, 2009. 46. Inter-American Development Bank (IDB), “Nuevas tendencias en las políticas comerciales y productivas de la República Popular China,” 5–6. 47. ALADI, Sistema de Informaciones de Comercio Exterior. 48. See Kosacoff and Campanario, La revalorización de las materias primas y sus efectos en América Latina, 14–16. Also see IDB, “Nuevas tendencias en las políticas comerciales y productivas de la República Popular China,” 5–6. 49. I thank one of the anonymous reviewers of this volume for this poignant observation.

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10 China and Cuba: Past, Present, and Future Mao Xianglin, Carlos Alzugaray Treto, Liu Weiguang, and Adrian H. Hearn

CHINA’S RELATIONS WITH CUBA DATE BACK TO 1847, WHEN the first of more than 150,000 Chinese indentured laborers arrived in Havana’s port of Regla. These people and their descendants came to play an important role in Cuban society, actively taking part in Cuba’s two wars of independence (1868–1878 and 1895–1898) and in the social movement that culminated in the Cuban Revolution of 1959. On September 2, 1960, Cuba’s premier Fidel Castro declared that Cuba would sever ties with Taiwan; this was done within a month, on September 28, making Cuba the first Latin American country to establish diplomatic relations with the People’s Republic of China. In the first half of the 1960s, China gave political support to Cuba to resist a US invasion, and provided economic and military aid.1 In return, Cuba supported China’s bid to restore its status in the United Nations and assisted with bilateral trade and exchanges of technology and science. The emergence of ideological differences between the Communist parties of the Soviet Union and China (the “Sino-Soviet split”) produced tensions—though never a rupture—in Sino-Cuban relations from the middle of the 1960s to the early 1980s.2 From 1983, contacts in many areas resumed, and in 1989, there were reciprocal visits by the Chinese and Cuban foreign ministers. Following the Soviet collapse, cooperation and exchange between China and Cuba developed rapidly, and by the second half of the 1990s, China-Cuba relations had entered a “period of completely new and steady development.”3 This chapter picks up the story since 2000, a period in which Sino-Cuban cooperation has deepened significantly, though in ways that are not always well understood outside of the two countries. It commences with a discussion of the political ideology that frames the interactions of both countries, noting that although their governments have adapted the concept of socialism to their individual agendas, ideology continues to provide an important basis for 187

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alliance. We then discuss bilateral commerce and Chinese investments in the Cuban petroleum, transport, and manufacturing sectors. The next section examines cooperation in education, science, and tourism, which together have provided a roadmap for future economic collaboration, and the role of the Chinese community resident in Cuba in facilitating bilateral interactions. Finally, we discuss the China–Cuba–United States “triangle” as a strategic and diplomatic challenge, but also opportunity, for international cooperation.

Alliance Politics: Socialism with Local Characteristics China and Cuba are socialist countries, whose political and ideological values have served as a basis for diplomatic understanding and frequent high-ranking visits between the two over the past decade. The statements of leaders and officials from both countries indicate the symbolic and discursive centrality of socialism as a basis for bilateral cooperation. Chinese President Jiang Zemin visited Cuba for the second time from April 12 to April 15, 2001, signing agreements on trade, technological cooperation, and educational exchange. Chairman Castro visited China for the second time from February 26 to March 1, 2003, meeting Jiang Zemin, General Secretary Hu Jintao, and other Chinese leaders. During Castro’s visit, Jiang Zemin stated that the previous ten years of bilateral interaction had evolved creatively and advanced world peace under the banner of socialism.4 Hu supported this observation, affirming that “whatever occurs in the international situation, our belief in socialism is unshaken, and our determination to walk along the road of development, according to our own local conditions, is unchanged. We are determined to pursue friendly relations between China and Cuba in the new century.”5 Having assumed office as China’s president in March 2003, Hu Jintao visited Cuba in November 2004. George W. Bush, who maintained a hard line on the Cuban embargo, had just been reelected, leading to media commentary that for Cuba there was “no better time for the visit.”6 In Havana, Hu asserted the strategic significance of the relationship, stating that China and Cuba had “helped each other and treated each other with sincerity. . . . We are fraternal brothers . . . passing the test of changing and adverse international circumstances.”7 Castro noted that he had paid close attention to all aspects of China’s development, and that Cuba admired China’s implementation of revolutionary socialism according to its specific needs. The two countries signed sixteen agreements, including the purchase of Cuban nickel, the construction of a nickel plant, a mineral exploration project, and the extension of loan repayments. A common political language has continued to frame China’s relations with Cuba under Raúl Castro (hereafter Raúl), who visited Beijing in April 2005 and stated with President Hu that both countries were committed to com-

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munist leadership and socialist direction.8 Having assumed the presidency of Cuba on February 24, 2008, Raúl hosted Hu in Havana on November 17 and 18 of the same year and accepted a donation of humanitarian cargo worth $88,000 for Cuban hurricane victims. During the trip, Hu stated that “the Chinese people will, as always, support the just struggle of the Cuban people in safeguarding state sovereignty and opposing outside interference.” In his meeting with Hu, Fidel Castro noted that “while the current international financial crisis is spreading, the Chinese economy has maintained sound momentum for development, demonstrating that China is the most prepared country . . . no force can stop it from forging ahead.”9 To underline Cuba’s favorable attitude toward China, on March 29, 2009, Fidel Castro penned an installment of his Reflections series entitled “China: The Future Great Economic Power.” Referring to the forthcoming G20 summit in London, he wrote: “The influence of the People’s Republic of China in the London meeting will be enormous from the point of view of the economic crisis. This had never occurred before when the power of the United States was supreme.”10 A later piece in the Reflections series, published on October 6, 2009, commemorated the sixtieth anniversary of the founding of the People’s Republic of China and expanded the analysis. As with previous occasions, Fidel expressed the Cuban people’s deep awareness that following the fall of the Soviet Union and Eastern European socialist community, Beijing reinforced its relations with Havana notwithstanding concerted efforts by the United States to isolate Cuba. President Hu’s 2008 visit to Cuba consolidated several initiatives (outlined below) that both sides described as “historic” and “socialist.”11 Indeed, an important practical outcome of the Chinese and Cuban governments’ shared political perspective has been the pursuit of bilateral collaboration through state rather than market channels. A strictly neoliberal framework would have trouble accommodating the long-term financial horizons of Chinese projects in Cuba, investment in language and culture awareness, and the gradual strengthening of professional and social ties. Furthermore, an emphasis on technology transfer overcomes several key disadvantages faced by Cuba and other developing countries. One of these is that contracted multinational corporations in the private sector go to great lengths to retain their technical expertise, or “intellectual property,” rather than enhance the self-sufficiency of potential local competitors. In Sino-Cuban interactions and cooperative programs, socialism has generated much more than rhetorical outcomes.

Economic and Trade Ties When Cuba established diplomatic relations with China in September 1960, the two countries initiated a system of “clearing account trade,” through which

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the exchange of products was determined by annual quotas. The first five-year trade and payment agreement was signed that year, and was subsequently renewed every five years. For three decades, bilateral trade remained relatively stable, and in 1990 Cuba was China’s second-largest Latin American trading partner. The collapse of the Soviet Union severely impacted Cuba’s capacity to export sugar and other products, and on January 1, 1996, following the legalization of US dollars in Cuba, the clearing account system was replaced by cash-liquidation trade. The Castro government showed remarkable ingenuity and creativity in its response to the crisis, opening a number of sectors to foreign investment while remaining committed to the fundamental structures of a socialist economy. China and Cuba have once again become important markets for each other’s products, with bilateral trade exceeding precrisis levels and China implementing a series of investment projects on the island. Trade is relatively complementary, with China importing raw sugar and nickel from Cuba and exporting machinery, dry beans, transport equipment, and light industrial products in return. As noted in Chapter 1, China reported bilateral trade of $2.29 billion in 2007, $2.27 billion in 2008, and $1.55 billion in 2009. By the end of 2006, the Chinese Ministry of Commerce had approved $56.78 million of direct investment in Cuban agriculture, tourism, telecommunications, and light industry. Cuba simultaneously invested in eight projects in China, including hotels, tourism, and biomedical production in Beijing, Shanghai, Zhuhai, and Shenzhen, with contracts amounting to $41.16 million and actual investment of $19.09 million. By this time, China had established several technology-transfer projects in Cuba, such as an electric appliance factory, a bicycle factory, a sheep-rearing farm, a marsh gas extraction plant, and a facility for harvesting reservoir fish. China also provided Cuba with medical equipment, educational materials, and commercial loans covering machinery, electrical products, sugar, food, television sets, and telecommunications. For Cuba, the global financial crisis made a bad situation worse. In 2008, the annual hurricane season (June to December) was one of the most harmful in the last twenty years. The storms hit Cuba at a moment when the country was trying to redesign its economic model through what President Raúl Castro called “structural and conceptual” reforms.12 President Hu’s 2008 state visit therefore came at a critical time for Cuba, as it affirmed the strength of the bilateral relationship through concrete measures.13 Since 2000, bilateral trade has grown to the extent that China is now Cuba’s second-largest trading partner. As the Economist Intelligence Unit reported, “China has emerged as an important strategic ally [of Cuba] in recent years, with extensive economic and military cooperation, including substantial credit guarantees that have had a strong impact on the cost and availability of external financing.”14

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China’s pursuit of market diversification, in conjunction with its “go global” strategy, has prompted a number of Chinese enterprises to establish representative offices in Cuba. Some of these offices focus on the export of Cuban primary products to China, such as nickel and sugar, though they are increasingly incorporating medical and biological products into their portfolios. Others oversee the import of Chinese products into Cuba and the integration of investments into economic development projects. Chinese investment in Cuban oil prospecting and production is an important recent development, as alternative energy sources such as coal and hydroelectricity harbor little potential on the island. In 1985, several years before the dramatic changes in the Soviet Union and Eastern Europe, Cuba’s oil output was 870,000 tons, accounting for only 10 percent of domestic demand. The balance was provided mainly by the Soviet Union, which heavily subsidized the price of oil for Cuba. The termination of Soviet oil supplies after the disintegration of the USSR in 1991 forced Cuba to start paying world prices, seriously hampering economic growth and draining foreign purchasing capacity. In 2004, fuel imports cost Cuba $1.31 billion, a significant figure in relation to the size of Cuba’s economy.15 Since the early 1990s, Cuba has gradually opened petroleum exploration to foreign investors, and the industry has consequently developed rapidly. Oil and natural gas fields have recently been discovered in a 112,000-squarekilometer maritime area under Cuban jurisdiction in the Gulf of Mexico. To accelerate prospecting and exploitation, the area has been divided into fifty blocks, each spanning approximately 2,000 square kilometers. Foreign capital and technology have been introduced through joint venture contracts, which are operating in seventeen blocks, each costing an average of $50 million for exploration. In March 2004 the Chinese enterprise Sinopec signed a “Memorandum on Blocks No. 1, 2, 3, and 4” with the National Petroleum Company of Cuba (CUPET), and in January 2005, the Shengli Oilfield Administration Bureau (a division of Sinopec) signed a “product-sharing contract for prospecting in and exploiting three blocks” with CUPET. The impact of Sino-Cuban trade is evident in the daily lives of Cubans. Shops and stores throughout the island sell affordable Chinese electric fans, televisions, stoves, and refrigerators, and almost every Cuban family owns at least one Chinese-brand appliance. In line with the Castro government’s “Energy Revolution,” and with global moves toward energy efficiency, many people have replaced their inefficient refrigerators with energy-efficient ones from the Chinese manufacturer Haier. Many have also replaced their electricity-intensive lighting with energy-saving Chinese light bulbs. By mid 2009, 1,572 fuel-efficient cars from the Chinese manufacturer Geely had been shipped to Cuba, and more than a thousand buses from the Chinese company Yutong had replaced the aging “camel buses” that had been refitted from use

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as trucks and trailers. Demonstrating their linguistic flexibility, many Cubans now use the word “Yutong” interchangeably with “public bus.”16

Cooperation in Education, Science, and Industry While trade is crucial to Sino-Cuban relations, exchanges and cooperation in the fields of social research, education, performing arts, science, sports, and tourism have expanded dramatically. In the early 1960s China and Cuba established several agreements for cooperation in culture and postal services, but the initiative tapered off during the subsequent two decades. A September 1987 agreement on cultural exchange revived interaction in these areas and provided a basis for the more detailed plan signed during Hu Jintao’s 2004 visit. Setting the stage for President Hu’s arrival, in September 2004 the president of the Chinese Academy of Social Sciences (CASS), Chen Kuiyuan, led a delegation to Cuba for the first Sino-Cuban Forum on Social Science. The event was held in collaboration with the Cuban Ministry of Science, Technology, and Environment (CITMA) and focused on the role of the social sciences in advancing more effective socioeconomic development policies and international collaboration. In September 2005, CITMA vice minister Lina Domínguez led a Cuban delegation to a reciprocal forum in Beijing. The participants exchanged opinions on the evolution of socialism in Cuba and in China, a discussion they continued in the third CASS-CITMA forum in Havana, in April 2008, and in a consultation meeting in Beijing in December 2010.17 Academic exchange between the two countries dates back to the early 1960s, when 150 Chinese students were sent to Cuba to study Spanish. The program was suspended in the mid-1960s and resumed in 1984. In November 2004, the two sides awarded scholarships to support the exchange of thirty Cuban students for twenty Chinese students per year. The program was expanded in 2006 to 100 scholarships each way, and the Cuban government expressed its willingness to host 1,260 Chinese graduates from central and western China. During his 2008 visit to Cuba, President Hu delivered a speech at the Tarará Student City, home to some three thousand Chinese students, in which he confirmed China’s intention to send five thousand students to Cuba by 2011 to help create a human platform for sustainable bilateral cooperation. To advance these exchanges, three conferences for Cuban and Chinese university presidents were held in Havana (2002), Beijing (2004), and Havana (2006). State-to-state cooperation has allowed China to build educational exchanges and capacity in priority areas. In 2007, the China Scholarships Council funded twelve thousand young Chinese to study overseas; four hundred of these went to Cuba to study medicine and tourism, and in 2008 the

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number doubled. As a senior representative of the council explained, the program has been strategically designed to maximize human impact: The Chinese students we send to Cuba to study medicine are overwhelmingly from the western provinces of China, because that is where our central government is trying to develop infrastructure and social programs. So these doctors will return from Cuba to western China and fill an important need. In the meantime, a significant number of Cuban doctors are in western China, filling the need for the short term.18

Medical exchange with Cuba is fresh in the minds of many in China in the wake of the Wenchuan earthquake in May 2008. Cuba immediately sent a medical team to assist in the most devastated areas, and on May 24, Premier Wen Jiabao visited the team, stating that its superior level of professional skill would maximize relief to the earthquake victims.19 The Cuban ambassador to China, Carlos Miguel Pereira Hernández, also praised the efforts of the medical team and stated that it was a “symbol of long-standing friendship between the two nations, and aid to each other in difficult times.”20 In late 2002, the University of Havana established a Center for Chinese Language Training. In September 2004, three teachers were sent from China to the university to supervise a new one-year Chinese language course through the center, and two more teachers were sent to oversee the second term. Their contracts were extended, and an additional two teachers were sent for a third term. This and other Chinese language and culture programs have been reinforced by the establishment of a Confucius Institute in the heart of Havana’s Chinatown, which was presented to a Chinese delegation in conjunction with President Hu’s November 2008 visit. Cuba and China believe that language training is an important component of broader technological and industrial cooperation, and technicians are usually enrolled in courses to become more familiar with each other’s linguistic and cultural backgrounds. Language training has therefore been increasingly coordinated with more technical spheres of collaboration, such as scientific and technological programs. Three such programs were established before the collapse of the Soviet Union, and in March 1990, the first Joint Committee on Scientific and Technological Cooperation was established. Since then the committee has met every two years to draw up a biannual plan; in October 2003 (the committee’s sixth meeting) a plan for cooperation in health, information, and agriculture was signed. The first Symposium on Sino-Cuban Biotechnology Development and Human Health was convened in February 2004, and a memorandum of understanding promoting cooperation in this field was signed in November of the same year. A Working Group on Biotechnological Cooperation was established in May 2005, coinciding with the seventh meeting of the joint committee, resulting in a five-year plan. The second

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and third meetings of the working group were held in October 2006 and September 2008. All of the above forums and meetings have promoted cultural understanding as a key component of successful technical cooperation. Bilateral visits are often timed to coincide with preparations for broader multilateral forums, providing Cuban and Chinese officials the opportunity to preview matters of mutual concern. September 2009, for instance, was a focal point of bilateral activity in the lead-up to the UN General Assembly. That month, Vice President Ricardo Cabrisas arrived in Beijing at the head of a high-level delegation to participate in the Twenty-second Session of the Joint Committee on Scientific and Technological Cooperation. Cabrisas was preceded by Cuba’s foreign minister, Bruno Rodríguez, who visited Beijing to hold talks with his counterpart, Yang Jiechi. Shortly after, Wu Bangguo, president of China’s Permanent Committee of the National People’s Assembly, visited Havana to consult with the president of the Cuban National People’s Assembly, Ricardo Alarcón, and with President Raúl Castro himself. Cuba has the most developed biotechnology and pharmaceutical sectors in Latin America, largely because the Cuban government has invested heavily in health programs, with considerable frontline medical staffing and research output. The weakness of the sector is in its manufacturing capacity, and for this reason, Chinese assistance has been important in converting Cuba’s research results into products suitable for distribution through state and market channels. Conversely, Cuban technology transfer and investment has resulted in biopharmaceutical factories in Beijing (producing anticancer drugs), Changchun (producing interferon), Shandong (producing drugs for blood diseases) and Xinjiang, whose output is expected to come onstream soon, with products to be sold in both China and Cuba. Cuba has expressed its desire that future Chinese investment in the sector be directed toward the manufacture of drugs in Cuba to meet demand both at home and in other Latin American countries. Another key area of cooperation is tourism, a sector that has become a prominent driver of Cuba’s economic development. In April 2007, a Cuban tourism office dedicated to China was established, and in July a memorandum of understanding entitled “Operational Plan for Chinese Group Tourists Visiting Cuba” was signed, coming into force in November of the same year. This has permitted a large number of Chinese tourist groups to visit Cuba, and if direct flights are established, such groups will rapidly grow in both size and frequency. Owing largely to its unique natural endowments, Cuba attracts more than two million tourists per year, and Cuban tourism enterprises are making efforts to create a more accommodating environment for Chinese tourists. The Cuban and Chinese governments have worked together to build the tourism market and establish facilities through joint ventures. On February 3, 2010, a jointly owned Cuban-Chinese hotel managed by the Spanish consortium Meliá was inaugurated in Shanghai’s Pudong financial district in the

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presence of the Cuban minister of tourism. This was a first in many ways: the collaboration of two socialist state enterprises, Xintian (Suntime) and Cubanacán, opened access for a private Spanish company into the Chinese market. The next phase of the project, now under way, is to complete a holiday resort worth $1 billion in Havana’s Marina Hemingway. The commercial ventures pursued by Cuba and China are often integrated with attempts to maximize technology transfer, with the aim of progressing from initial sales of Chinese products to their eventual manufacture in Cuba. For instance, shortly after the collapse of the Soviet Union, China shipped 500,000 bicycles to Cuba. To meet continuing demand, Mao Xianglin (coauthor of this chapter) visited Cuba in 1997 to study the domestic economy and assist with the establishment of a bicycle factory with Chinese capital and technical expertise. The success of the initiative led to a similar export-toproduction scheme for electric fans, and more recently, white goods and heavy machinery. Following the successful sale of Chinese washing machines, televisions, air conditioners, and refrigerators to Cuba, Hu Jintao signed sixteen accords in 2004 pledging Chinese support for the domestic manufacture of these and other goods, a promise that has materialized in a three-story production facility near Havana’s Lenin Park. Similarly, the buses sold by the Chinese company Yutong arrived in Cuba together with thirty Chinese technicians, commissioned to teach their Cuban counterparts how to build them. As with training in electrodomestics, this kind of human capital development will provide a valuable source of specialized talent as Cuba integrates into the world economy.

Chinese Cubans: Bridges to the Mainland Since the arrival of their ancestors 160 years ago, Chinese Cubans have made important contributions to Cuba’s economic, social, and cultural development. The first major wave of Chinese immigrants started in 1847 with the arrival of 206 indentured laborers, or “coolies.” They were joined by an additional 5,000 by 1853, and by a further 132,453 by 1873.21 Several Chinese community organizations merged in 1867 under the name Kit Yi Tong, helping members to advance professionally and gradually become retailers and managers of restaurants and hotels. Through these activities and the arrival of more Chinese people from California (fleeing racial discrimination in the wake of the gold rush), the Chinese community of Havana became the largest and most prosperous in the Americas. Thousands of Chinese Cubans went into battle during Cuba’s two wars of independence from Spain, prompting General Gonzalo de Quesada, a comradein-arms of José Martí, to state: “No hubo un chino cubano desertor; no hubo un

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chino cubano traidor!” (There was not a single Chinese Cuban deserter; there was not a single Chinese Cuban traitor).22 After the victory of the Cuban Revolution led by Fidel Castro in 1959, a great number of Chinese Cuban private entrepreneurs left for the United States or other Latin American countries. Today in Cuba, there are over 100,000 Chinese descendants of mixed blood who do not speak Chinese, and among them, only some one thousand are pureblood Chinese. One of the oldest Chinese organizations in Latin America, the Casino Chung Wah was founded in 1893 and remains the supreme Chinese Cuban institution. Almost as antiquated is the eighty-year-old Chinese newspaper, Kwong Wah Po. The headquarters of both institutions are located near the threehundred-meter street called Zanja, in the heart of Havana’s Chinatown. By 1986, the rapidly declining number of first-generation Chinese residents in Chinatown prompted the Casino Chung Wah to advise the local ethnic associations to open membership to second- and third-generation Chinese Cubans. By the early 1990s, most had done so, and by 2006, the associations together boasted a membership of 2,550 individuals.23 Unlike their parents and grandparents, second- and third-generation Chinese Cubans do not hold Chinese citizenship and are more biologically and culturally integrated into Cuban society. According to the records of the Casino Chung Wah, some 163 first-generation Chinese currently reside in Chinatown. In the mid-1990s, the Cuban government commenced a project of physical, cultural, and economic revitalization in Chinatown in order to draw attention to Chinese Cuban heritage and accommodate the business interests of the Chinese community.24 The Chinese embassy in Cuba and the Overseas Chinese Affairs Office of the State Council of China have supported these initiatives. A key figure in the project’s advancement, prior to his death in 2010, was General Moisés Sío Wong, a Cuban of Chinese ancestry who was the former president of the Cuban National Institute of State Reserves (INRE), brigadier general of the Cuban Revolutionary Armed Forces (FAR), and chair of the Cuba-China Friendship Association (AACC). He paid many visits to China, met with leaders such as former president Jiang Zemin and President Hu Jintao, and spoke highly of China’s development, reforms, and opening to the outside world. In Cuba he received Chinese governmental delegations and met with Chinese trading groups and business people. Largely due to the influence of China and Chinese Cubans, Cuban people have changed their habitual staple food from corn and wheat to rice and have embraced traditional Chinese medicine and herbs alongside Western medical traditions. According to General Sío Wong, the two countries share strong historical bonds, because “the Cuba-China friendship was cast in the battlefields, which is more significant than that made in diplomacy or commerce.”25 Alongside the establishment of official accords, visiting Chinese diplomats and businesspeople have made efforts to learn about Cuban culture, often using China-

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town as a point for meeting their counterparts. One particularly active hub of Sino-Cuban interaction is the Cuban School of Wushu. With over 1,700 students in the city of Havana, ranging in age from four to ninety years, and a weekly martial arts television show, its president, Roberto Vargas Lee, has come to command broad popular respect. Vargas Lee also harbors economic appeal, in part through his father-in-law, a businessman from Shanghai who recently moved to Chinatown to invest in the restaurant sector and establish himself as a point of reference for visiting Chinese politicians and executives. He and a small number of Chinese entrepreneurs resident in the neighborhood assist prospective investors by arranging visas, coordinating meetings with industrial counterparts, and helping them to navigate Cuba’s business environment. The acclaimed Tien Tan Restaurant, owned by Vargas Lee and his fatherin-law, has gained notoriety among visiting Chinese businesspeople as an auspicious venue for meeting Chinese Cuban officials.

The China–Cuba–United States Triangle China’s deepening cooperation with Cuba, including in the political sphere, should not be interpreted as an impediment to Sino-US ties or to the improvement of US-Cuba relations. On the contrary, China’s engagement with Cuba could create new opportunities for trilateral cooperation. Chinese officials are aware that international partnerships based on mutual benefit produce more sustainable outcomes, and therefore serve China’s long-term interests. This approach is evident in China’s Five Principles of Peaceful Coexistence: mutual respect for territorial integrity and sovereignty, mutual nonaggression, noninterference in the internal affairs of other countries, equality and mutual benefit, and peaceful coexistence. China and Cuba are socialist countries, and it is natural that they support each other politically. However, in line with the five principles, China will not allow its relationship with Cuba to undermine its relationship with the United States, nor will it seek mutually beneficial cooperation with the United States in ways that may damage its relations with Cuba. Similarly, China wishes to manage its relationships with Cuba and the United States in such a way that these have no negative bearing on Cuba-US relations. On April 13, 2009, US president Barack Obama lifted travel restrictions on Cuban Americans wishing to visit and send remittances to their country. On April 17 of the same year, at the Fifth Summit of the Americas, he stated that the United States wanted a “new beginning with Cuba” based on broader contact in every respect, and the following day he reported that his country is in the process of changing the nature of its relationship with Cuba.26 This approach carries important implications for Cuban Americans and for their relatives, many of whom are Chinese descendants. China strongly supports these

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and other measures that improve Cuba-US relations, and in line with its commitment to noninterference, steadfastly opposes the US economic blockade against Cuba. China will not revise this position in order to strengthen relations with the United States, but rather will seek new areas of cooperation between the three countries. Both China and the United States favor more open markets in Cuba, and considering the attempts of Chinese enterprises to build Cuba’s export capacities and develop its transport, manufacturing, and resource sectors, the United States is a logical source of management services and marketing expertise. The expansion of existing US activities in the Cuban agricultural, medical, and telecommunications sectors would bring economic benefits to US firms, as well as generate opportunities for harmonizing approaches to governance and information sharing with Cuba and China. Indeed, the Obama administration’s relatively conciliatory stance toward Cuba could lay the foundation of a muchneeded “mutually reinforcing diplomacy” with China in the region.27

The Future of China-Cuba Relations The historical connections and contemporary development of China-Cuba relations bode well for the future. For nearly five decades, Cuba has made great efforts to develop its economy while fighting against the US economic blockade, and in this light, as Cuba’s ambassador to China recently put it, “the relationship between Cuba and China has been and will be continuously of decisive significance . . . Cuba and China have reached increasing consensus.”28 The two countries share similar ideologies and values, and both have pursued socialism with locally adapted characteristics. Each continues to advocate multipolarity in global affairs while opposing hard power politics and external intervention, providing a strong basis for political cooperation. It is the hope of both countries that their approaches to collaboration and technology transfer will advance a more locally beneficial and reasonable mechanism of international engagement.29 The intensifying political, cultural, scientific, and commercial dimensions of Sino-Cuban relations have brought about an important economic transformation as new areas of collaboration emerge, such as medical services and education. These are now key features of Cuba’s export portfolio and were integral to the rapid rise in bilateral trade to $2.29 billion in 2007.30 The diversification of trade signifies a major change in the relationship, which for many years saw China exporting significantly more than it imported from Cuba, with the deficit financed by loans from China. In terms of territory, population, economy, historical traditions, and cultural identity, the differences between Cuba and China are so great that it would be impossible for Cuba to duplicate the Asian giant’s development

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model, as some have suggested. Nevertheless, several aspects of the reform processes introduced in China are extremely important for Cuba if it is to achieve the objectives proposed by Raúl, as articulated in the draft guidelines for the Sixth Party Congress (which took place in April 2011).31 Among these are the enhancement of productive forces as a means of achieving socialist goals; the principle that socialism is built according to the specific characteristics of each country; the pragmatic reformulation of economic policy; more effective use of monetary-commercial relations through the socialist market economy; and the monitoring and refinement of newly introduced measures to address any unintended outcomes of the reform process. Principles such as these have enabled the Chinese leadership to lift 300 million to 500 million people out of poverty in a relatively short time, to create a middle class of some 200 million, and as a result endow the country with significant social stability. These achievements have not been free of negative consequences, but we must acknowledge that there is no perfect society, and that the leaders of the Chinese Communist Party are the first to admit these difficulties. In November 2010, Ricardo Alarcón visited Beijing and officially recognized the relevance of China’s developmental evolution to the long-term upgrading of Cuba’s economic model and confirmed that his government was taking China’s experience closely into account. In the more immediate term, Cuba also has much to offer China. The country’s oil industry represents a key opportunity for Chinese firms, which are encouraged by the discovery of potentially large reserves in the Gulf of Mexico. The rapid development of the Chinese economy has dramatically increased its demand for oil, a fact that has led the Chinese government to implement strategies to secure multiple supply sources. As Cuba would benefit from China’s demand for oil, there is enormous room for bilateral cooperation in this field. Due to its lack of exploration and production capacities, Cuba needs help in finding and accessing its oil reserves. For some years, Sinopec has carried out onshore oil exploration in the west of Cuba, and the Cuban government now wishes to cooperate with Chinese oil enterprises that are capable of ultradeepwater drilling to explore and exploit offshore oilfields. Just as China’s demand for oil is increasing, so is its demand for nickel. Cuba is endowed with major nickel deposits and is an important world supplier, creating another important nexus for mutually beneficial development. The two countries have reached an agreement on strategic cooperation in this field, and further measures to facilitate the export of Cuban nickel ore to China are under exploration. There is significant room for boosting bilateral economic and trade relations. As the Cuban ambassador to China stated in September 2008, “Today, what is important to Cuba is to push and support the participation of Chinese enterprises in the Cuban market. It means not only increasing joint investment in well-known fields, but also promoting investment and cooperation in modern

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technology, import substitution, renewable energy electricity, telecommunications, transportation, infrastructure facilities, and other sectors. At the same time, Cuba will increase investment in China, especially in health services and biological products manufacturing.”32 Sino-Cuban relations will unfold in the context of both countries’ relationships with the United States. A defining challenge for Chinese and US foreign policy in the twenty-first century will be the development of mutually beneficial partnerships. With sensible diplomacy, projects based in Latin America could become a source of deeper cooperation between China and the United States, for as Daniel Erikson of the Inter-American Dialogue concisely put it to the House Committee on Foreign Affairs, “Trade is not a zero sum game.”33 Hu Jintao’s proposal at the 2009 G20 meeting to jointly develop financial monitoring mechanisms reflects China’s desire for cooperative relations with the United States. With legal authorization from their government, US firms could explore collaboration with Chinese counterparts in Cuba, and ideally generate experiences that would inform trilateral initiatives throughout Latin America.

Notes 1. Chinese Ministry of Foreign Affairs, A General Survey of Chinese Diplomacy, 365–366. 2. Zhu, Mao, and Li, Latin American Communist Movement, 319. 3. “Chairman Qiao Shi Met with Chairman Alarcon,” People’s Daily (Chinese edition), April 10, 1996. 4. “Jiang Zemin Held Talks with Castro,” People’s Daily (Chinese edition), February 27, 2003. 5. “Hu Jintao Held Talks with Castro,” People’s Daily (Chinese edition), February 28, 2003. 6. Reuters news release, Havana, November 22, 2004. 7. Mary Murray, “China Gives Boost to Cuba’s Economy,” NBC News Online, November 23, 2004, http://www.msnbc.msn.com. Also see Lam, “China’s Encroachment on America’s Backyard,” 3. 8. “Hu Jintao held talks with Raul Castro,” Xinhua, April 18, 2005, http://news .xinhuanet.com. 9. “Chinese President Visits Cuban Leader Fidel Castro,” Xinhua, November 19, 2008, http://news.xinhuanet.com. 10. This and other installments of Fidel Castro’s Reflections series are available at http://www.cubadebate.cu/reflexiones-fidel/2009/03/29/. 11. “Cuban Officials Say That Hu Jintao’s Upcoming Visit to Cuba Is Historic,” Xinhua, November 15, 2008, http://news.xinhuanet.com/world/2008-11/15/content _10363227.htm. 12. Raúl Castro Ruz, “Trabajar con sentido crítico, creador, sin anquilosamientos ni esquematismos,” speech delivered at Moncada, Camagüey, and reproduced in Granma, July 27, 2007.

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13. “Cuba’s Repayment of Debt Deferred,” China Daily, November 20, 2008, http://www.chinadaily.com.cn. 14. Economist Intelligence Unit, Country Profile: Cuba 2008, 16; the report can be acquired from http://store.eiu.com. 15. Ibid., 50. 16. “Chinese Ambassador to Cuba: Cuban Relations Best Period in History,” Xinhua, November 17, 2008, http://news.xinhuanet.com/world/2008-11/17/content _10370729.htm. 17. Dongzhen, “The Third Sino-Cuban Social Sciences Seminar,” 74. 18. Chinese official, interview, Beijing, China, July 5, 2007. 19. Ministry of Foreign Affairs of the People’s Republic of China, “Premier Wen Jiabao Visits Cuban and Japanese Medical Teams,” May 28, 2008, http://www .fmprc.gov.cn. 20. Carlos Miguel Pereira Hernández (Cuban ambassador to China), speech on the forty-eighth anniversary of the establishment of diplomatic relations between Cuba and China, Cuban embassy in China, September 26, 2008. 21. Padura Fuentes, El viaje más largo. 22. De Quesada, Los Chinos y la Revolución Cubana, 8. 23. Montes de Oca Choy, Las sociedades chinas en Cuba. 24. See López, “The Revitalization of Havana’s Chinatown”; Hearn, “China’s Relations with Mexico and Cuba: A Study of Contrasts.” 25. Yu Xi, Have a Date with Havana, 171. 26. “Obama: U.S. in Process to Change Nature of Relationship with Cuba,” Xinhua, April 19, 2009, http://news.xinhuanet.com. 27. Wilder, “The U.S.-China Strategic and Economic Dialogue,” 4–7. 28. Pereira Hernández, speech on the forty-eighth anniversary of the establishment of diplomatic relations between Cuba and China. 29. Mao, Studies on Cuban Socialism, 320–21. 30. Pereira Hernández, “Current Socialist Building in Cuba.” 31. The draft guidelines are available at http://www.cubadebate.cu. 32. Pereira Hernández, speech on the forty-eighth anniversary of the establishment of diplomatic relations between Cuba and China. 33. Erikson, “The New Challenge: China and the Western Hemisphere,” 3.

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11 China’s Relations with Central America and the Caribbean States: Reshaping the Region Francisco Haro Navejas

THIS CHAPTER EXAMINES ONE OF THE WORLD’S HOTTEST diplomatic battlegrounds: the Central American and Caribbean Zone (CACZ). To the backdrop of fierce competition with Taiwan over diplomatic recognition, China is seeking to integrate itself into the zone’s existing framework of economic and diplomatic governance, and simultaneously to transform the parameters of engagement. By establishing new mechanisms of cooperation on trade, aid, and diplomacy, China is influencing the political architecture of the subregion in active competition with the United States, the European Union, and Taiwan. As Robert Axelrod and Robert Keohane put it: “Not only can actors in world politics pursue different strategies within an established context of interaction, they may also seek to alter that context through building institutions embodying particular principles, norms, rules or procedures for the conduct of international relations.”1 CACZ countries are a small but important component of China’s evolving global plan. The zone is at the geographic crossroads of some key political interests, including those pursued by Washington, Mexico City, Caracas, Brasilia, and Madrid. The region is not easily delimited: it includes countries in Central America, such as Costa Rica and Nicaragua; countries in South America, such as Venezuela and Suriname; territories legally bound to the United States, such as Puerto Rico; and to the United Kingdom, such as Anguilla and the British Virgin Islands. It also includes Panama, which is often considered part of South America due to its historical links with Colombia; and Mexico, which is generally considered part of North America. For the purposes of this chapter, Central America comprises Belize, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama, while the Caribbean includes the Bahamas, Cuba, Jamaica, Haiti, the Dominican Republic, Saint Christopher and Nevis, Antigua and Barbuda, Barbados, 203

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Dominica, Saint Lucia, Saint Vincent and the Grenadines, Grenada, and Trinidad and Tobago. In some political, economic, and cultural respects, the countries of Central America and the Caribbean are drawn together by their intertwined histories, yet the degree of diversity among them is enormous. China is determined to surpass and defeat the Republic of China (Taiwan) in the region by obtaining diplomatic recognition from those governments that recognize the latter.2 Its advances in this objective, discussed below, have promoted slow but deep changes in the political and economic architecture of the region, effectively challenging US leadership in ways that no single actor, including the Soviet Union, has before. Part of China’s appeal is its willingness to invest and provide official aid, activities that have expanded in step with its economic growth. Its presence in the region has been strengthened by increasingly detailed research into the economic and political development of the CACZ, now being conducted methodically by the Center for Studies on Central America and the Caribbean, established in Beijing within the Chinese Academy of Social Sciences (CASS) in August 2006.3 This chapter analyzes China’s presence in Central America and the Caribbean through three primary spheres of engagement. The first of these is the symbolic battle with Taiwan over diplomatic recognition; the second is the strategic overlapping of economic, cultural, and institutional tactics to bring about outcomes that only a multidimensional approach could achieve; and the third is financial support through massive aid packages and trade credits. The role of local Chinese residents in supporting Beijing’s efforts is also considered. Competition for natural resources and political influence characterizes each of these spheres of activity and shapes China’s political-economic behavior in the CACZ, and in this respect, China is not so different from other competitors in the region: at times it is flexible and at times extremely rigid, and nowhere is this more evident than in the realm of symbols.

Symbols Under the Weight of Ideology: Taiwan, the Cold War, and the Motherland Symbolic interests are intrinsic to Chinese politics, and primary among them is the founding anti-imperialist symbol of a sole homogenous and hegemonic Chinese ethnicity and motherland. In international politics, this signifies a process of imposition, negotiation, and acceptance that there is only one China, which has its central government in the Zhongnanhai (Beijing’s equivalent of the White House). Beijing’s grand global combat with Taipei is largely symbolic, based on establishing the true source and legitimate representation of “real Chineseness.” This fight over identity governs many aspects of Chinese international politics.4

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Beyond any other consideration, economic or otherwise, China and Taiwan are locked in a zero-sum game, which China plays with only one aim— to corner Taiwan politically and diplomatically by portraying it as a rogue state. The election of the relatively moderate Nationalist Party (GMD) to govern the “rebellious island” has not changed this fact. The Chinese position is firm, and yet in some ways pliable: China has no relations with governments that side diplomatically with Taiwan, though as discussed below, there are growing trade exchanges even with these. One symbolic challenge for China is to avoid being associated with previous Chinese ruling factions or groups, such as the Qing Dynasty (1644– 1911) or nationalist governments (1912–1949). For China under its current system, the history of international relations began with the foundation of the People’s Republic of China (PRC) on October 1, 1949, despite the fact that China did not make major foreign diplomatic breakthroughs until 1972 and after. In truth, many Central American and Caribbean countries have maintained some form of diplomatic relationship with China since the second half of the nineteenth century, though interest in strengthening these ties has typically been stronger on the Chinese side. Owing in part to the large number of Taiwanese embassies present in the CACZ for many years, the zone has long been China’s Achilles’ heel. Immigration and a broad range of cultural, political, and economic activities undertaken by Taiwan since the 1960s in countries like Belize and Costa Rica have helped to make it, in historical terms, a diplomatic fortress for Taipei. By comparison, Beijing has just arrived, but its arrival has been strong and fast, and its lack of diplomatic recognition by many countries has not prevented it from developing heavy trade interactions. The Chinese government is well aware of the need of CACZ countries to diversify their trading partners and has accordingly used trade to exert diplomatic pressure on those countries that maintain relations with Taiwan.5 Since the 1950s, Beijing has been following in the tracks of Taipei, which has used all the tricks of the diplomatic trade, legal and illegal: money and speech, economics and politics, corruption and ethics, symbols and hard facts. Small islands aside, China has only two jewels: Cuba is the oldest (since 1960), and Costa Rica is the newest (since 2007).6 Figure 11.1 shows that the race between Beijing and Taipei for recognition is tight. The tiny islands are not as politically important as other countries, especially those in the isthmus, but when the time comes to count votes in international organizations (particularly the United Nations), their relative importance changes. From China’s binary diplomatic perspective, the ultimate goal is to displace Taiwan across the region. The political contest is fierce and meticulous, as illustrated by the case of Saint Lucia, an island with which both governments claim to have diplomatic

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relations and functioning embassies.7 According to Rufus Bousquet, foreign affairs minister of Saint Lucia, in 2007 the Caribbean island found itself at the epicenter of a battle between the two East Asian governments, each trying to outdo the other with investment and aid in return for diplomatic recognition.8 That year, to China’s disappointment, after ten years of spending money to build sport and health facilities, Saint Lucia’s government risked compromising the support of the domestic media and of voters by establishing relations with Taipei. The battle for Saint Lucia and the CACZ in general is far from over, as China and Taiwan continue their quest for a decisive victory. Until the beginning of the 1970s, China had almost no official relations in Latin America. Trapped in the Manichaeism of the Cold War, Latin American countries did not dare to get closer to China, with the exception of Cuba under the Soviet wing. Even Mexico, whose government waved the flag of nonintervention and stood alone in support of Cuba in the Organization of American States (OAS), did not establish diplomatic relations with Beijing, opting instead to follow the pace of US policies toward Asia during the 1950s and 1960s. Mexican president Luis Echeverría (1970–1976) has revealed that in July 1971, Richard Nixon called him to Los Pinos, the official seat of Mexican executive power, and asked him to instruct the Mexican delegation to the United Nations to vote for the entrance of China into the institution. Echeverría not only accepted, but went in person to the twenty-sixth General Assembly to express his support for Beijing on the grounds that sovereignty is indivisible.9 Prior to the 1970s, China’s engagement with the CACZ was limited to Cuba, which represented a beacon of hope in the region for Beijing until the Sino-Soviet split, after which the Chinese government labeled Cuba the “Soviet Trojan horse.” The weight of ideology at the time was heavy, and the military men and conservative politicians who gained prominence in the region in the 1980s leaned ideologically toward the United States, using antiCommunism as the engine of their policies and actions. Partly for lack of information, partly for reliance on de mode mental frameworks, and partly in defense of specific parochial interests, many elites in the region have preferred to continue playing, or to join, the binary anti-Communist game by supporting Taipei. This is not to suggest that Taiwanese governmental and nongovernmental actors have not gained economic and political spaces on their own merits, but for Beijing, anti-Communist ideologies have been a heavy and frustrating burden, especially since China’s contemporary economy is anything but Communist. In the binary diplomatic world, the influence of the Chinese continent is strongest in the islands of the Caribbean, while the Taiwanese islanders are strongest in the continental platform of Central America. China is, however, gaining Central American ground through consistent and discreet diplomatic methods, particularly in Panama and Nicaragua. Just as Taiwan has done for many years, China employs every trick in the book of international politics to

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exploit the financial weaknesses of local governments. Meanwhile, Taipei’s primary goal is to avoid diplomatic setbacks, such as the one suffered when Costa Rica shifted recognition to Beijing in 2007. One day before his June 2009 inaugural speech as the new president of El Salvador, Mauricio Funes had a conversation with Taiwanese president Ma Ying-jeou, who, apparently anticipating the worst, said he had no objection to El Salvador deepening its commercial relations with China so long as it maintain diplomatic relations with Taiwan.10 A similarly “dual” strategy serves the interests of most countries that recognize Taiwan, but it is likely that trade will ultimately open the CACZ to China and that the creation of new markets will advance China’s broader multidimensional agenda.

Multidimensional Politics: The Battle Beyond Symbols For China and Taiwan, the CACZ is a “war of position” in which embassies and diplomatic recognition are the trenches. For almost thirty years, Taipei and Beijing have been fighting for space, no matter how small.11 What matters is to win positions that represent votes and prestige in international institutions. The prowess of the fighters and their ability to achieve outcomes on the battlefield depend on material and political circumstances back home, including industrial power, international trade capacity, stable political institutions, strong nongovernmental actors, accurate foreign policies, and above all, the political will, experience, and skill to accomplish their objectives. Beijing and Taipei are evenly matched contenders in all respects save one: the global reputation of their domestic institutions. According to international standards, Taiwan performs much better than China on this scorecard. However, there seems to be no obvious causal relationship between the authoritarian or democratic character of governments and the effectiveness of their international diplomacy. The governments of the CACZ (and elsewhere) tend to act rationally by harmonizing political costs, such as the abandonment of principles and “universal” values, with material benefits, such as the acquisition of new investment and trade. Under the best of circumstances, and with skilled politicians at the helm, it has sometimes been possible to get the best of both worlds. To achieve their aims in the CACZ, China and Taiwan put all they have into practice, pouring money into local political campaigns, funding public works, and promising investments. China has won small positions in the Caribbean since the 1980s, while in Central America, its stream of defeats was finally reversed when Costa Rica, considered for a long time the only democratic country in the subregion, finally established formal relations with China in 2007. Many believed that Costa Rica’s diplomatic shift would initiate a domino effect in the isthmus, with Panama first in line. This may yet prove

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accurate, as political actors do not remain static in their trenches. Nevertheless, although China (particularly Hong Kong) has strong and embedded interests in the Panama Canal, Panama City continues to recognize Taipei for financial and political reasons.12 Taiwanese investment is very important in the national economy, and the Chinese government is perceived to be the more difficult of the two to deal with. China’s multidimensional aspirations in the CACZ involve not only the expansion of trade but also the projection of political and legal power. This broader set of goals requires increasingly sophisticated strategies for institutionalizing relationships, and trade is a primary mechanism for doing so. Caribbean countries, regardless of their diplomatic stance, are sources of agricultural and mineral resources for China and destinations for Chinese textile and electronic manufactures. Propelled forward by Chinese-designed programs like the “Economic and Trade Cooperation for Common Development” initiative, countries across the region have been sponsoring trade fairs and forums in recent years. The first was held in Jamaica in 2005, followed up by a trade fair in Xiamen in 2007. Governments from both sides are not only encouraging the participation of their respective private sectors, but also negotiating and signing legal instruments to support the expansion of trade and investment, such as the Sino-Caribbean Memorandum of Understanding on Two-Way Investment Promotion Cooperation. Beijing has been working closely with the private and public sectors of Antigua and Barbuda, Bahamas, Barbados, Cuba, Dominica, Grenada, Haiti, Jamaica, Suriname, and Trinidad and Tobago. Companies and trade associations from these countries participate in an organization called the ChinaCaribbean Joint Business Council, which organized the September 2007 meeting in Xiamen. According to the Xiamen Declaration, participating countries are “committed to conducting the cooperation in a phased approach, by solving the easier problems first, and then handling the more difficult ones.”13 The declaration states the following objectives: • Engage local business leaders to participate in periodic ChinaCaribbean Business Conferences (CCBCs) • Exchange delegations, conduct investment seminars, arrange project missions, and establish training programs • Jointly organize expositions, exhibitions, and workshops • Encourage new investment policies and strengthen the exchange of information • Improve cooperation in human resources training, legal services, media, public health, sport, and tourism • Build an information platform for participating businesses through website development and reciprocal Web links among members

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• Hold working meetings of the China-Caribbean Joint Business Council in conjunction with CCBCs to study, plan, coordinate, and implement cooperation, and write up reports of outcomes The Xiamen Declaration is evidence of Beijing’s accomplishments in the Caribbean, and it concludes with a commitment that signatory firms and associations will lobby their governments for support: “The member organizations of the China-Caribbean Joint Business Council shall report regularly to economic and trade authorities of their respective country about the work of Council, and seek their necessary support.”14 China’s proactive engagement with the Caribbean business sector is the visible result of a broader institutional masterpiece. Beijing has set about achieving nothing less than the genesis of a new regional order, built on functioning institutions and rules. The China-Caribbean Joint Business Council could be the cornerstone of a flexible and powerful regional organization, and it has begun to act like one: it has an agenda, specific on some themes and general on others; it has procedures for conducting work and negotiations (i.e., the “phased approach”); it promotes new initiatives but also seeks to engage existing schemes; it functions as a political and administrative authority with clear policies; and it has influence through the support of regional businesses and their governments. China has the necessary means, motives, power, policies, and experience (developed through its engagement with the Association of Southeast Asian Nations [ASEAN] and the Shanghai Cooperation Organization [SCO]) to construct its regional order in the CACZ. Beijing has employed multiple strategies to realize this grand objective. In Jamaica, China’s main English-speaking Caribbean trading partner, there has been growing Chinese attention to logistical and transport infrastructure. According to Robert Stephens, senior vice president of business development at the port authority of Jamaica and chair of the China-Caribbean Trade Fair Planning Committee: “Jamaica has a very strategic and important location. We are at the center of the Caribbean and we are on the axis of the North-South shipping and trading lines, we are on the East-West shipping lines as well, and all the air traffic between South America and North America passes over Jamaica, so really we are ideally located to be a distribution hub.”15 Chinese money is deployed carefully to promote local aspirations, usually appearing in the form of loans and trade credits to buy Chinese equipment. In 2008, for instance, Guyana was the recipient of “approximately US$40 million to finance the development and expansion of the Guyana Power and Light (GPL) transmission and distribution system.”16 Human capital is invested with similar foresight through the training of local technicians and cadres, either in their countries or in China. During the September 2007 forum in Xiamen, China promised to train two thousand officials and technical professionals free of charge within three years.17 Trainees will emerge from these programs better

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equipped to manage their economies and governments, while China will emerge with a network of approachable and influential alumni throughout the region. China’s proactive engagement with the CACZ has advanced a range of mutual interests, but no amount of investment can entirely overcome certain underlying problems. Like their Latin American neighbors, CACZ nations seem to be increasingly trapped in an economic quagmire that pulls them down toward reliance on the export of primary products and simultaneously suffocates their manufacturing sectors. The dependency inherent in this path of development (described by José Luis León-Manríquez in Chapter 9 as Trajectory A), together with inadequate protection of local ecosystems, has plagued the region for centuries, and Sino-Caribbean initiatives have yet to devise effective mechanisms for overcoming these problems. The next section addresses some of the trade challenges facing the CACZ as it reorients itself to China’s growing influence.

Trade: China and the Material World China’s thirst for natural resources and need for new markets (particularly for its low-cost consumer products) have provoked a widely shared perception that the emerging giant signifies an economic one-way path, wide enough only for the Chinese “depredator.” This fear is fueled partly by the historical anxieties of local elites, whose short-term interests, terrateniente (landowner) mentality, and inability to effectively plan the futures of their economies have made them more comfortable with the past than the future, and more dependent on the proven bounties of the earth than on the uncertainties of new technologies. They prefer rents to investment, rest to work. Except for Costa Rica’s positive trade balance with the European Union between the years 1990 and 2005, most CACZ countries are in chronic deficit. The European Union and Latin America are the most important trade associates of the CACZ at the regional scale, while the United States is the single most significant country for the region. The latter has promoted regional integration à la Americaine and strengthened its economic position through the institutional development of the Central America Free Trade Agreement (CAFTA), ratified in 2005 by Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the United States.18 Supporters of the initiative argue that “CAFTA is about keeping in our hemisphere work that would otherwise go to China. . . . Free trade in the Americas is about joining with neighbors in common defense against China’s growing power.” But the statistics suggest that China, driven by its multidimensional strategy, cannot be stopped.19 The implementation of CAFTA was, nevertheless, one of the few achievements of George W. Bush’s administration, if not the only one. Following the failure of

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the Free Trade Area of the Americas (FTAA), which had been initially proposed in Miami on December 11, 1994, CAFTA overcame opposition from numerous quarters of US society to become one of the few successful US initiatives in the region.20 Considering the importance of the United States to the economic predicament of the CACZ, it is perhaps natural that a common complaint among regional elites is that the White House does not pay sufficient attention to them. It is less natural that rather than take advantage of US negligence to diversify their relations and trade, most CACZ governments have resigned themselves to reliance on the US-led economic system developed since Mexico’s 1848 capitulation at Guadalupe-Hidalgo. Even Cuba has looked north, reaching important milestones in its imports from US producers during 2005–2006. Costa Rica is the most prominent case of integration with the United States, but it has also actively deepened trade with Latin America and the European Union, and consequently has a healthier overall economic profile than do its neighbors. In 2009, China reported $6.55 billion of bilateral trade with Panama, $3.18 billion with Costa Rica, $1.55 billion with Cuba, and $197 million with Nicaragua. Perhaps more than any other country, Cuba has opened itself to China’s multidimensional policies in areas ranging from industry to education and culture.21 Cuba exports manufactures based on natural resources mainly to the European Union, Latin America, and China, and it also exports mediumand high-technology manufactures to Latin America. However, Cuba imports proportionally huge volumes of medium- and high-technology merchandise from the European Union and China. With substantial reserves of primary products and natural resource–based manufactures, Costa Rica exports manufactured technology, both medium and high, to China and the United States. Its economy is more balanced than those of its neighbors, despite heavy technology imports from Europe and the United States. It also imports resource-based manufactures from Latin America, the United States, and the European Union, and low- and medium-technology products from China. Compared to Cuba, Panama, and Nicaragua, Costa Rica is the least reliant on the primary sector and has enjoyed the greatest surpluses with European economies. Panama and Nicaragua have comparable import-export structures. Their economic development has been slower, in both cases based on exports of primary products and derivative manufactures. As noted above, China has no diplomatic relations with these countries, but nonetheless provides them with medium- and high-technology manufactures. Imports from the United States and the European Union, however, far exceed those from China. Chinese trade with Caribbean economies is new and still weak. It will strengthen, however, as China deepens its presence in the region and molds the economic environment to suit its needs. In 2007, the Chinese government

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approved 4 billion yuan (US$533 million) in preferential loans to support its companies to invest in the CACZ. Investment has focused on infrastructure construction, resource development, industrial production, agriculture and forest cultivation, tourism, and telecommunications.22 Notwithstanding the global financial crisis, Beijing maintains a high level of activity in the CACZ, though the molding of a new regional order remains a goal more than a reality. According to the Chief Economist Office of the World Bank’s Latin American and Caribbean division, there is a regionwide positive correlation of recovery from the crisis with diversification of capital flows and economic complementarity with China.23 CACZ countries conform to this observation, but the zone must be understood in terms of its particular characteristics, crucial among which is the pervasive role of remittances in its economic survival. The zone’s governments and people rely heavily on money sent from the United States, Costa Rica, and Mexico, which represents more than 10 percent of gross domestic product (GDP) in Haiti, Honduras, Nicaragua, El Salvador, and Jamaica.24 The negative impact of the global financial crisis on earning opportunities in these traditional, regional sources of labor severely affected CACZ countries. The impact of the crisis on remittances to the CACZ at the end of 2008 was softened by the economic inertia of previous months, but 2009 saw remittances across the zone contract markedly: Guatemala by $539 million, Honduras by $411 million, El Salvador by $339 million, and Jamaica by $50 million. There are two primary lessons for the CACZ: first, it cannot afford to continue overlooking domestic industrial sectors whose development would diminish the need for foreign-earned remittances; and second, it must diversify economic partnerships to reduce dependence on the US market.25 The financial turbulence of 2008 and 2009 not only exposed the dangers of reliance on foreign remittances and the zone’s weaknesses in relation to the United States, but also added a layer of complexity to the intricate blend of trade and politics that characterize relations with China. Chinese trade with Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua diminished between 2007 and 2009, and only Costa Rica achieved surpluses during these years.26 Beijing took advantage of the crisis to advance its interests in the CACZ, joining the Inter-American Development Bank in 2009 with 184 shares and a commitment of $350 million.27 Furthermore, the Chinese government has stepped up its efforts to mobilize the support of Chinese diaspora communities in the region, gathering together representatives of twenty-five Chinese associations from twenty countries in Havana in October 2009. At the meeting, Ke Xiaogang, vice president of the China–Latin America Friendship Association, noted the important role that regional Chinese diaspora communities can play in brokering cooperation between Chinese embassies and local businesses.28 Indeed, the social influence of Chinese people in the CACZ has generated some important opportunities for mainland Chinese enterprises, and

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it is worth looking briefly at this important aspect of China’s multidimensional approach.

We Come from the Land of Rice: Chinese Immigrants and Cultural Diplomacy in the CACZ China has employed a range of political and cultural symbols to advance its relationship with the CACZ, and one of these is the human connection established as early as 1806 by Chinese migrant laborers, known as huagong, or “coolies.”29 These individuals provided an important source of cheap labor in economic sectors such as agriculture, construction, industry, services, and others. In Jamaica and other countries of the region, they achieved economic prominence in the fresh food and restaurant sectors.30 Chinese communities in the CACZ have diminished significantly since the early twentieth century, but those that survived political turmoil, for instance in Cuba and Panama, continue to fill important bilateral functions. Their symbolism extends beyond economics to the sphere of political allegiance, which is critical in the context of the diplomatic competition between China and Taiwan. As semienslaved “indentured” workers, Chinese immigrants made important contributions to regional physical and economic infrastructure, for instance, by building railroads and the Panama Canal. Attracted by hopes of a better life, or at least some respite from xenophobic attacks in the United States and Mexico (discussed in Chapter 8 by Hearn, Smart, and Hernández), they typically found their new homes even worse than those they fled. In every Caribbean or Central American country that they settled, Chinese workers, mainly men, found it almost impossible to survive.31 Xenophobia throughout the region, combined with the expressly antientrepreneurial spirit of the Cuban Revolution of 1959, debilitated Chinese communities and forced them into decline. Assimilation and marriage typically involved Christianization, change of names, and a strong dose of psychological and physical violence, ensuring that Chinese culture was either suppressed or driven from public view. In part as a response to these earlier circumstances, Chinese descendants in the region, young and old, from Taiwan and China, have become involved in complex processes of recovering and reinventing their identities. The resurgence of interest in Chinese heritage is almost certainly tied to China’s present economic rise and to the consequent interest of many regional governments in jointly developing collaborative programs. The sense of belonging to a great civilization with its own foundational myths undoubtedly builds cohesion among overseas Chinese communities. Being Chinese is (once again) something to be proud of, evident in the consolidation of local Chinese institutions and cultural expressions such as beauty contests.32

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Chinese communities in the CACZ are a visible and important component of their societies in their own historic right. In Cuba, their contributions and achievements are publicly recognized through monuments and state-sponsored activities, while in Belize, Costa Rica, and Panama, they are a visible part of the socioeconomic landscape, particularly in the restaurant sector and the cultural sphere. In countries that have endured regimes intent on destroying social attempts to construct civil societies, Chinese communities have been relatively successful in building robust organizations with no apparent political aims. Instead, since the beginning of their immigration to the CACZ region, Chinese people and their institutions focused their energy on becoming independent actors free from the contractual conditions of semislavery. Striving for their independence has given them power and money, though this has often made them the target of jealousy and attacks. The combination of recent Chinese immigrants and older settlers, comprised of private citizens, industrial technicians, and government employees, has augmented Beijing’s influence in the CACZ. The newcomers no longer hail from a country of rice, but from a powerful nation with enormous needs and substantial capital to export. Operating both formally and informally, Chinese immigrants are part of the emerging status quo of the region. The professional personnel of the Chinese Ministry of Foreign Affairs (MOFA) speak English, French, or Spanish, and prior to assuming ambassadorial duties in the CACZ, many study in Latin American academic institutions. Retired MOFA officials are depositories of information and experience, and provide intelligence to government and private officials, drawing on extensive networks of guanxi built up while working in Chinese embassies. Culture and education are powerful tools for attaining a stronger presence in the CACZ, and television broadcasting of Chinese news and cultural affairs has become an important strategy of penetration. On December 16, 2008, the Chinese and Cuban governments celebrated the fiftieth anniversary of the Cuban Revolution with a gala performance in Havana’s Karl Marx Theater, with the bilateral brotherhood symbolized by performing artists from both countries.33 The event was broadcast to Mexico and other Latin American countries courtesy of the Chinese television channel CCTV. Further deepening China’s “soft power,” on February 12, 2009, the Mona Campus of the University of the West Indies opened the first Confucius Institute in the CACZ.34 Together these activities show how cultural promotion is a phenomenon in which “old” and “new” Chinese influences converge to radiate pride in the social and historical achievements of the Chinese motherland. A final human dimension of China’s engagement with the CACZ is labor. Considering the intensive work regimes involved in infrastructure construction and technical cooperation, it is inevitable that issues of employment should arise, and equally inevitable that China should develop strategies for

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handling them. In October 2007, the All-China Federation of Trade Unions gathered together union leaders from the CACZ, inviting delegates from Costa Rica, Guatemala, Honduras, El Salvador, Nicaragua, Panama, and Dominica to a meeting in China.35 From the federation’s perspective, the primary objectives of the meeting were to explain China’s political values, to build consensus among participants so that they might exert political pressure on their governments to recognize Beijing, to encourage support for Chinese investment, and to minimize the likelihood of protests about job losses. Beijing is acutely aware that local hostility has focused on Chinese enterprises that not only export their capital, but also their workforces, provoking intense disputes in Trinidad and Tobago and Barbados, and to a lesser extent in Antigua and Barbuda and Grenada.36

Conclusion: Multidimensional Fantasies Chinese investments and the enterprises that manage them in the CACZ face formidable challenges. Environmentalists criticize China for supporting plans to construct a canal across Nicaragua, while conservative sectors complain about the managerial opacity of Chinese firms and China’s “long history of establishing tributary relationships between it and lesser states.”37 Some observers perceive a pattern in China’s entrance into the CACZ: build or rebuild iconic national sports stadiums, provide financial packages to help solve governments’ cash problems, import “construction battalions” to work tirelessly on public projects, and develop “cozy” relationships with national politicians—all in the interest of a protracted “cultural offensive.”38 Alarmist conclusions about China’s international expansion tend to overly simplify Beijing’s motives, often by comparing them to the political efforts of the Soviet Union during the Cold War. This comparison is inaccurate, in part because the Soviet Union and its opponents were intent on building an international order based largely on military power, while China’s policies and strategies are more multidimensional, making considerable use of symbols alongside political and material factors. These elements sometimes arise in logical sequence, as they were presented in this chapter, but in most situations, they overlap and reinforce each other. The absence of diplomatic recognition, for instance, has not stopped Chinese businesspeople from implementing aggressive economic strategies. For Chinese officials and institutions there is only one China, made up of the continent and the islands, Taiwan included, and one government, located in Beijing. The resulting zero-sum competition with Taipei for diplomatic recognition is intense in the CACZ; fighters are engaged in a war of positions, with weapons like economic aid, investment, trade, technology transfer, and political will. The symbolic dimensions of the battle assume material form in institutions,

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legal form in agreements and policies, and financial form in generous aid and credit packages to build infrastructure and to buy the will of local protagonists. With more success in the islands of the Caribbean than in the continental platform of Central America, the Chinese government is gradually consolidating its nascent institutional and legal infrastructure in the CACZ, altering the US-led status quo. While Beijing faces obstacles in this pursuit, ranging from global economic pressures to local dissatisfaction with its industrial policies, CACZ countries have several pressing problems of their own to overcome. Chief among these is to break the extractive economic pattern established in the region by Spain, continued by Europe and North America, adopted by local elites operating more like hacendados (landed gentry) than genuine economic actors, and (according to some critics) perpetuated by China. No single country exercises absolute hegemony in the CACZ, and China is in no position, as yet, to achieve it. However, Beijing’s multidimensional approach to building local alliances, defeating Taipei, opening doors to Chinese companies, and guaranteeing access to key raw commodities has significantly augmented its ability to reshape the region.

Notes 1. Axelrod and Keohane, “Achieving Cooperation under Anarchy: Strategies and Institutions,” 228. 2. A different perspective on China’s battle with Taiwan over Latin America is presented by He Li, “Rivalry between Taiwan and the PRC in Latin America.” 3. Quite the opposite is true of Latin America, where “governments lack Chinese speakers and specialists to cope with Beijing’s blitz into the region,” and are doing little to surmount their intellectual handicaps. See David Shambaugh, “China’s New Foray Into Latin America,” YaleGlobal, November 17, 2008, http://yaleglobal .yale.edu. 4. Haro Navejas, “La identidad como eje del conflicto Beijing-Taipei.” 5. Esteban Delgado, “Falta de relaciones diplomáticas impide inversiones ChinaRD,” Listin Diario, April 28, 2010, http://www.listindiario.com. 6. Two diverging analyses of Sino-Cuban relations are C. Johnson, Communist China and Latin America: 1959–1967, 129–180, and Ruilova, China Popular en América Latina, 111–122. 7. The Web pages of the Taiwanese embassy (http://www.taiwanembassy.org) and its Chinese counterpart (http://lc.china-embassy.org) in Saint Lucia describe their activities on the island. 8. “Reversal by Tiny St. Lucia Angers China,” New York Times, May 2, 2007. 9. Chao Xuehong, “Pasando revista a las relaciones sino-mexicanas,” China Today, May 2001, http://www.chinatoday.com.cn. 10. “Presidente de Taiwán asegura que Funes le prometió mantener las relaciones,” EFE News Agency, June 1, 2009, http://www.adn.es. 11. For more on the concept of “war of position,” see Hoare and Smith, Selections from the Prison Notebooks of Antonio Gramsci, 229–237. A critique of this concept is presented by Anderson, “The Antinomies of Antonio Gramsci,” 5.

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12. “The Americas: Which China Card? Panama’s Foreign Policy,” The Economist, July 13, 2002. 13. Embassy of the People’s Republic of China in the Republic of Trinidad and Tobago, “Xiamen Declaration by China-Caribbean Joint Business Council,” September 7, 2007, http://tt2.mofcom.gov.cn. 14. Ibid. 15. “Jamaica to Host China-Caribbean Economic Trade Fair and Forum,” Caribbean Net News, January 11, 2005, http://www.caribbeannetnews.com. 16. “US$40M China Soft Loan for Power Upgrade,” Stabroek News, October 3, 2008. 17. “China to Support Business Investment in Caribbean Region,” Xinhua, September 7, 2007, http://news.xinhuanet.com. 18. Because the Dominican Republic was already a signatory, the agreement is also known as CAFTA-DR. For the full text of the agreement, see http://www.ustr .gov/trade-agreements/free-trade-agreements. 19. Froma Harrop, “Central American Trade,” Christian Science Monitor, May 24, 2005. 20. Emad Mekay, “Opponents Predict Defeat for Central American Trade Deal,” Inter Press Service (IPS), May 28, 2004, http://www.commondreams.org. 21. Haro Navejas, “Cambio en el equilibrio de poder en América Latina.” 22. Gareth Manning, “China Relations to Boost Caribbean Economies—$197m Coming Jamaica’s Way,” Jamaica Gleaner, September 10, 2007, http://www.jamaica -gleaner.com. 23. World Bank (Office of the Regional Chief Economist), La crisis global: Lo peor pasó, América Latina preparada para la recuperación, 4–6. 24. Sistema Económico Latinoamericano (SELA), Migraciones y remesas en América Latina y el Caribe, 6. 25. Figures on remittances from Banco de Guatemala, Ingreso de Divisas por Remesas Familiares, http://www.banguat.gob.gt; Banco Central de Reserva de El Salvador, Ingresos Mensuales de Remesas Familiares 1991–2010, http://www.bcr.gob.sv; World Bank, Remesas de trabajadores y compensación de empleados, recibidas (US$ a precios actuales), http://datos.bancomundial.org; World Bank, Workers’ Remittances, Compensation of Employees, and Migrant Transfers, Credit, http://econ.worldbank .org. 26. F. Ancheyta and M. Pacheco, “Comercio con China se frena,” Siglo XXI, October 25, 2008. 27. Inter-American Development Bank, “China to Join the Inter-American Development Bank,” October 23, 2008, http://www.iadb.org. 28. Wu Yong Heng, “Consolida foro amistad entre América Latina y el Caribe y China,” China Today, February 4, 2010, http://www.chinatoday.com.cn. 29. For a discussion of Chinese immigrant societies in the Caribbean, see Lee Loy, “The Chinese Shop as Nation Theatre in West Indian Fiction.” 30. Hu-Dehart, “El Caribe: Los culíes, los tenderos, y sus descendientes,” 25. 31. For a general history of Chinese in Latin America, see Chou, “Los Chinos en Hispanoamérica.” 32. Siu, “Queen of the Chinese Colony.” 33. “Graban gala china en homenaje a la Revolución Cubana,” Diario Granma, December 16, 2008, http://www.granma.co.cu. 34. “Vicepresidente de China continúa su visita oficial a Jamaica,” Xinhua, February 14, 2009, http://www.spanish.xinhuanet.com.

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35. “Líderes sindicales de Centroamérica y Caribe se reúnen con sindicato chino,” EFE News Agency, October 18, 2007, http://www.radiolaprimerisima.com. 36. Bert Wilkinson, “Influx of Chinese Workers Irks Local Unions,” Inter Press Service (IPS), July 27, 2007, http://ipsnews.net. 37. Steven W. Mosher, “Red China on the March: The People’s Republic moves onto Grenada,” National Review Online, February 14, 2006, http://www.national review.com. 38. Ibid.

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12 China and Venezuela: Oil, Technology, and Socialism Gonzalo Sebastián Paz

AT THE END OF 2008, VENEZUELAN PRESIDENT HUGO CHÁVEZ Frías achieved a long-cherished goal: to enlist the support of an external power in his confrontation with the United States. Yet contrary to his own plans and expectations, this support came not from China, but Russia. Shortly after Venezuela’s regional elections in November 2008, the flagship of the Russian northern fleet, the Pyotr Velikiy (Peter the Great), anchored at the port of La Guaira near Caracas. For the first time since the days of the Cuban Missile Crisis of 1962, Moscow’s fleet sailed the Caribbean, led by one of the biggest nuclear-powered missile warships in the world. Russian president Dimitri Medvedev visited Caracas to establish a binational bank and attend a state banquet for member countries of the Bolivarian Alternative for the Americas (ALBA) economic cooperation program.1 The occasion served as a diplomatic platform for inviting Russia to become a permanent observer of ALBA. In the second half of 2008, Russia and China were both central to Venezuela’s foreign policy, illustrating the priority given by President Hugo Chávez to alliances with powerful countries other than the United States. Moscow’s angry reaction to what it perceived as Washington’s support to Georgia during the August 2008 Russian-Georgian war over the status of South Ossetia and Abkhazia opened a window of opportunity for Chávez. On September 8, it was announced that the Pyotr Velikiy, the Admiral Chabanenko, and two other warships would soon depart for Venezuela. On September 10, two Russian Tu-160 “Blackjack” long-range bombers, the Alexander Molodchi and the Vasili Senko, landed in Aragua, Venezuela. Chávez felt empowered, and the following day expelled the US ambassador to Venezuela, Patrick Duddy, and recalled the Venezuelan ambassador in Washington, Bernardo Alvarez.2 Five days after Duddy’s expulsion, Jiang Yu, a spokesperson for the Chinese foreign minister, announced that Chávez would visit Beijing, stressing 221

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that “our cooperation is based on the principle of equality, mutual benefit, and joint development, and is not against any third party.”3 Chávez left for China just as the Pyotr Velikiy was setting sail for Venezuela. The visit coincided, not by accident, with the annual meeting of the General Assembly of the United Nations in New York, where the previous year he had taken the podium after President George W. Bush and famously stated that he could still smell “the evil sulfur.” Arriving in China, Chávez announced that “Venezuela is no longer the backyard of the United States,” and that it is “more important to be in Beijing than New York.”4 On September 24, he met with President Hu Jintao, and while spokesperson Liu Jianchao diplomatically asserted that “I did not hear any exchange of views on cooperation in military technology or trade,” Chávez immediately announced Venezuela’s intention to buy eighteen to twenty-four Chinese K-8 military training planes (six of which were in operation in Venezuela by January 2010).5 It was evident to observers and analysts around the world that Chávez was trying to drag China into Venezuela’s conflict with Washington and that the Chinese were trying to avoid this at any cost, particularly in the context of the US presidential campaign. Several Latin American heads of state visited China and met with President Hu in 2008, including Chile’s president Michelle Bachelet (April), Brazil’s president Luiz Inácio Lula da Silva (July), and Mexico’s president Felipe Calderón (July). Chávez, however, was invited to visit only after the 2008 Olympic Games, China’s biggest public diplomacy effort in years. It was his fifth visit to China since taking power in 1999, but President Hu has never reciprocated with a visit to Caracas.6 In November 2008, Hu visited Costa Rica, Cuba, and Peru. A high-ranking Chinese official informed the author that Venezuela was not on the itinerary because of the latter’s regional elections that month. Russian president Dimitri Medvedev visited Caracas immediately after the elections, and as noted above, initiated military exercises between the Russian fleet and the Venezuelan navy. The exercises culminated in Venezuela’s purchase of Russian arms to the tune of US$6.5 billion. The purchase included twenty-four Sukhoi SU 30-Mk2 fighter planes (the first two delivered in November 2006), one hundred thousand Kalashnikov AK-103 assault rifles (to be constructed in Venezuela by Venezuelan defense manufacturer CAVIM), an unspecified number of Dragunov 7.62mm sniper rifles, thirty-eight M17 helicopters, and other advanced weapons systems. The two countries also agreed on a general framework for nuclear energy cooperation, laying the foundation for an October 2010 accord to build a two-unit (1,200 MW each) nuclear power plant. For Chávez these initiatives symbolically countered the reemergence of the US Fourth Fleet, based in Mayport, Florida, which was dismantled after World War II but reinstated on July 1, 2008. China has been more cautious than Russia in its dealings with Venezuela, steering clear of nuclear cooperation to avoid inciting anxiety in Washington.

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Hu Jintao’s April 2010 itinerary included the Summit on Nuclear Safety in Washington, the second Summit of the BRICS (Brazil, Russia, India, China, and South Africa) in Brasilia, and, at long last, a planned trip to Caracas. Nature intervened, however, when a powerful earthquake in Yushu (Qinghai, China), on April 14, caused him to cut his trip short and return home after Brazil. Venezuela would have to wait. China’s careful approach to Venezuela clearly exhibits a concern with protecting its own status as a rising power. It has begun to answer, at its own style and pace, the 2005 invitation by US deputy secretary of state Robert Zoellick to become a “responsible stakeholder.” Beijing has kept Chávez at arm’s length, but almost certainly for reasons of self-interest, including Venezuela’s huge oil reserves, it has not abandoned him.7 While the Chinese government wants to avoid being used by President Chávez in his confrontation with the United States, it has cooperated with Venezuela in a number of key areas, and in this respect, the bilateral relationship has bloomed. This chapter explores the most important recent aspects of Sino-Venezuelan engagement through data collected during extensive field research in Venezuela, China, and the United States, and numerous interviews with highranking officers, diplomats, and analysts. I outline the financial and legal instruments that have institutionalized the bilateral relationship and discuss the significance of oil and telecommunications collaboration in light of the global financial crisis. I then consider the China-US-Venezuela “triangle,” and conclude with some reflections on the prospects and pressures conditioning the future trajectory of this unique trans-Pacific relationship.

The Broad Parameters of China-Venezuela Cooperation The development of China-Venezuela relations over the past decade has been nothing less than impressive. Alluding to projects ranging from oil exploration to the creation of Venezuela’s first satellite, President Chávez frequently points out that Sino-Venezuelan cooperation extends “del subsuelo a la estratósfera” (from under the ground to the stratosphere). Other important sectors of Chinese involvement include finance, telecommunications, housing construction, railways, oil tankers, a much-needed power plant in the state of Miranda, and agriculture (including a national “Bolivarian Aqueduct” irrigation system). In 1998, when Chávez won the presidential election, annual bilateral trade amounted to some $200 million. As indicated in Chapter 1, in 2003 China reported that trade had jumped to $741 million; in 2004, it almost doubled to $1.33 billion; in 2005, it was $2.14 billion; in 2006, it doubled again to $4.34 billion; in 2007, it reached $5.85 billion; and in 2008, it mushroomed to $9.93 billion.8 The global financial crisis reduced trade to $7.15 billion in 2009, still an impressive figure compared to a decade earlier. Reliable data on Chinese

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investment in Venezuela is difficult to gather, but according to the Chinese embassy in Caracas, in 2006 Venezuela was home to the most important stocks of Chinese investment in Latin America.9 Bilateral planning and management is overseen by the Venezuela-China High Level Commission, created on May 24, 2001, and directed on the Venezuelan side by the minister of planning and development, Dr. Jorge Giordani (a key architect of Venezuelan cooperation with China); and on the Chinese side by the chair of the State Development and Reform Commission, Ma Kai. The commission convenes in Beijing and Caracas, and held its seventh meeting during President Chávez’s visit to Beijing in September 2008. The eighth meeting took place in Caracas in December 2009, and the ninth in Beijing in late 2010. From its outset, the commission has given high priority to energy and agriculture cooperation, and according to Venezuelan sources, more than 305 agreements have been signed between the two countries up to December 2009, over 85 percent of them during Chávez’s mandate. To finance cooperative ventures, the two countries established a Heavy Strategic Fund of $6 billion, consisting of a $4 billion soft loan from China and a $2 billion investment by the Venezuelan government. During the presidential meeting of September 2008, a further $4 billion was injected into the fund, and in early 2009 China’s vice president Xi Jinping announced in Caracas that the fund would grow to $12 billion. The increase was confirmed during President Chávez’s April 2009 visit to Beijing and expanded once again shortly afterward to $16 billion, with an injection of Chinese capital in return for commitments of Venezuelan oil. In the context of the economic crisis of 2009, this was interpreted in Caracas as an important gesture. Smaller but similar initiatives created by Venezuela with Russia and Iran have been beset by complications, but the Chinese fund, despite initial difficulties, is now supporting a range of projects in the energy, telecommunications, and transport sectors. Technical cooperation between China and Venezuela was propelled forward by the visit of the Chinese vice president Xi Jinping in February 2009 to Caracas and President Chávez’s visit to Beijing in April. Besides the expansion of collaboration in the oil and communication sectors (discussed below), an important recent development is a railway project undertaken by the China Railway Group Ltd., appointed by the Venezuela Railway Authority to design and build a 468-km railway through the Los Llanos tropical grasslands. The railway, called Ferrocarril de los Llanos Emilio Arévalo Cedeno, will unite the states of Guárico, Aragua, Anzoátegui, and Cojedes. The line, also known as the Tinaco-Anaco, will transport six million passengers and ten million tons of cargo per year and is scheduled to be operative in 2011. Contracted to the tune of $7.5 billion, the project will dramatically improve the existing railway infrastructure in Venezuela, while helping the Chinese company and its parent (China Railway Engineering Corporation) to continue overseas expansion. Venezuela’s largest steel company, Sidor (nationalized in mid-2008), will pro-

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vide rails and other hardware. Chinese railway design and construction has recently become popular in other Latin American countries, with a series of projects already carried out in Argentina. Mexico is currently negotiating Chinese participation in several rail projects, and Bolivia has requested Chinese cooperation in building a high-speed train service. The legal framework for technical cooperation is usually established through joint venture companies, in which Venezuela keeps a majority of shares (in the case of railways, the proportion is Venezuela 60 percent and China 40 percent). Such infrastructure projects are generally overseen at the ministerial level. Under Jorge Giordani, minister for planning and development, collaboration with China continues to expand and now engages almost every economic and infrastructure sector. Another area in which Venezuela has sought Chinese cooperation is electricity production. In 2009, the climatic El Niño phenomenon brought drought to Venezuela, affecting rivers, lakes, and consequently hydroelectric production (the country’s main source of electricity). Particularly affected were the Uribante de Caparo Dam and the massive Simón Bolívar Hydroelectric Plant, the single most important such plant in Venezuela. The latter supports the functioning of several power stations, such as Guri, Caruachi, and Macagua. In late 2009, the government introduced very unpopular cuts in water provision to consumers across the country and forced the reduction of aluminum and metallurgic production in several factories (such as Alcasa, Venalum, and Sidor). Short-term solutions to the energy problem proved elusive, but longerterm remedies were gradually implemented, including an agreement signed with China in September 2010 to build a thermoelectric plant in Vigía, in the Andean state of Miranda. The Chinese company CAMC Engineering will be in charge of the project for the Venezuelan state enterprise Corpoelec. Such projects demonstrate the sophistication of China’s strategy toward Venezuela: they provide concrete assistance in areas of critical need, generating political capital for Chávez while creating opportunities for Chinese companies to acquire foreign business and technical expertise.

Oil: The Prime Mover of Venezuela’s Foreign Relations Economic relations between China and Venezuela revolve around oil, the single most important component of the latter’s exports and tax revenues.10 A net oil importer since 1993, China has tried to secure supplies in many corners of the world, such as Sudan and Angola. Even before Chávez took office in 1999, oil was the economic foundation of the relationship, and since then both sides have attempted to expand cooperation in the field as fast as possible. According to the official report of the Hu-Chávez summit of September 2008, “China is ready to deepen ‘all-phase and integrated’ oil cooperation with

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Venezuela.”11 The report underscored the mutual benefit to be gained in the sector: China needs to secure new sources of imported oil to continue its rapid economic growth, and Venezuela under Chávez wants to reduce its dependency on the US market, to which it sold more than 60 percent of its output in 2007. During his trip to Beijing in September 2008, President Chávez announced the goal of selling one million barrels per day of oil to China by 2012.12 The $16 billion Sino-Venezuelan Heavy Strategic Fund will increase Venezuela’s oil production capacity, but observers remain skeptical about the feasibility of Chávez’s aspirations.13 Oil has historically been a central factor in Venezuelan politics, both domestic and international, and Venezuela under Chávez is no exception. An anti-Chávez strike at Venezuela’s state-run oil company PDVSA, in 2002– 2003, prompted the government to dismiss more than twenty thousand qualified workers, eroding the technical capabilities of the company. Production has since decreased steadily, but the losses have been more than offset by the inflation of oil prices in the 2000s, reaching an impressive peak in July 2008 at $147 per barrel. Strongly impacted by the global financial crisis, in 2010 the average price of oil was approximately $75 per barrel, with considerable implications for the Venezuelan economy. In 2009, GDP decreased by 3.3 percent, and inflation was around 30 percent. Inflation remained high in 2010, though the government expects it will not increase further in 2011. The price of oil in the 2011 budget is calculated at $40 per barrel, although most observers estimate that the price will exceed 2010 levels. To cope with the crisis, it was necessary to adjust Venezuela’s national budget and the Social and Economic Development Plan 2007–2013 (also called Plan Nacional Simón Bolívar). In January 2010, the government introduced important changes to the currency market, devaluating the bolivar and creating a dual exchange rate system. These measures helped the state to cover its financial needs, as the relative significance of oil revenues in the economy increased. Together, the devaluation and increasing importance of oil income will put non-oil tax revenues at 12 percent in 2011. As the crisis deepened in early 2009, China announced that in addition to the existing $16 billion bilateral Heavy Strategic Fund, it would provide Venezuela with a further $20 billion of fresh financing. The expenditure of this “super heavy fund,” as Chávez called it, is to follow three principles: gradualism, scientific planning, and common interest. The announcement was originally scheduled for Hu Jintao’s visit to Caracas in April 2010, to coincide with the bicentennial celebration of Venezuela’s independence. When the visit was canceled, details were announced instead during Minister Giordani’s August 2010 visit to Beijing. The final agreement was signed in Beijing on September 10, 2010, and published in Venezuela’s official bulletin Gaceta Oficial one week later. Chávez contrasted the generous conditions of this financing with

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the inflexible requirements of the International Monetary Fund and InterAmerican Development Bank. Oil is squarely at the core of Chávez’s foreign policy. Venezuela was a founding member of the Organization of Petroleum Exporting Countries (OPEC) and has actively pushed for higher prices within the organization. In 2005 Chávez created PetroCaribe, a multilateral organization that seeks to provide oil to Caribbean and Central American countries on favorable financial terms. He also created PetroSur, initially to advance the construction of a sixthousand-kilometer pipeline between Venezuela and Argentina (at the cost of $10 billion), and later to integrate with the state-operated oil enterprises of Brazil, Bolivia, Paraguay, and Uruguay. These projects encompass oil exploration, exploitation, transport, storage, and refinement. As a collaborator in the PetroCaribe initiative, Cuba has by far been the greatest beneficiary of these arrangements. Despite the publicity generated by the diplomatic skirmishes between the United States and Venezuela, the relationship between the two revolves around oil, as it has for a century. Depending on the year, the United States receives between 60 percent and 90 percent of Venezuelan oil exports, accounting for 8 to 10 percent of US daily imports. A functional bilateral relationship is therefore important to both Washington and Caracas, and any interruption of the northbound oil flow, although possible, is highly improbable. Such a disturbance would extinguish a crucial source of hard cash for Venezuela and compromise the viability of its network of CITGO retailers of Venezuelan-based petroleum in the United States. Conversely, if it refuses to buy Venezuelan oil, the United States would be forced to find alternative sources, which are not readily available. This structural impasse is the root of an acute political paradox: Chávez is a socialist leader who promotes Bolivarian revolution backed with US dollars, while the United States cannot easily avoid sending billions of dollars to the leader who has done more than any other to erode its hegemony in Latin America over the past decade. To reduce its dependence on the US market, Venezuela has two main options. One is to increase oil production in order to augment exports to China while retaining the profitable US market, though diminishing the latter’s relative weight in terms of total exports. The other is to redirect US-bound exports to another reliable customer. Experimentation with these strategies has so far proven disappointing for Chávez. Greater exploration and production requires investment, which has not been forthcoming from PDVSA. Production has in fact declined, and although the resulting losses have been offset by high oil prices, a number of chapters in this volume correctly question whether resource prices will return to their former levels. Similarly unfortunate for Chávez is the unlikelihood that China, or any other country, will encroach on the market share of Venezuelan oil currently

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occupied by the United States. There are few facilities in the world that can handle Venezuela’s “heavy” crude oil, which contains high levels of sulfur, and most of them are in the United States. Furthermore, the time frame (and therefore cost) of shipping a ton of oil from Venezuela to the United States is between three and seven days, compared to between thirty and forty days to ship the same volume to China. To reduce reliance on US and other foreign firms, Venezuela has leveraged technology transfer from China to develop the necessary technical facilities and human capital for producing its own drilling rigs. The two countries have also agreed jointly to build oil tankers in Chinese shipyards and to construct a shipyard in Venezuela. Venezuela has declared reserves of 315 billion barrels of oil, which if certified will put Chávez in control of one of the world’s largest stocks. Much of this oil is thought to be in an area of the Orinoco Basin that is difficult to access, and furthermore, it is in the form of tarlike deposits. Canada has similar deposits and has shown that the technology for processing this substance is expensive, not easily available, and environmentally damaging. The high cost of converting the substance into oil makes the viability of the process vulnerable to fluctuations in demand for the final product: high oil prices on world markets can absorb the cost of production, but low prices make production unprofitable. One critical venture is the construction in China of three refineries capable of processing Venezuela’s heavy oil. This may ultimately provide an alternative to existing facilities in the United States, but the refineries will take some years to build. Changes to the legal framework of the Venezuelan oil sector, in force since January 1, 2002, have calibrated the national economy for conducting international business through state-to-state channels rather than through private companies. Consequently, projects, investments, and transactions are implemented by way of joint ventures, in which Venezuela retains a majority share of actions (at least 51 percent) for itself. This legislative maneuver has affected previously signed agreements between PDVSA and Chinese companies such as CNPC and Sinopec. Officially, China acknowledges Venezuela’s sovereignty, but in private, Chinese executives are anxious about legal security and stability, a concern they share with officials from Western public and private institutions. Be this as it may, the Chinese economy needs oil, and Chinese companies have adapted to Venezuelan conditions to keep a share in its oil market. Cooperation continues to expand, and projects, including rigs and other heavy hardware, are blooming.

Telecommunications: From Satellites to Cell Phones Alongside the oil sector, telecommunications has become a key focus of SinoVenezuelan cooperation, symbolically spearheaded by the creation of

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Venezuela’s first satellite. On October 29, 2008, at 16:53 Greenwich Mean Time, China successfully launched the Venesat-1 Simón Bolívar, a Chinese Dong Fang Hong 4 Class (DFH-4) satellite, from the Xichang Satellite Launch Center in Sichuan. President Chávez observed the launch from a Chinese-built satellite control base in the Venezuelan town of Luepa, in the state of Bolivar, in the company of Bolivian president Evo Morales, especially invited for the occasion. The satellite was built by China Great Wall Industry, which is linked to the China Aerospace Science and Technology Corporation (CASC). Weighing 5,100 kilograms and carrying twenty-eight transponders, it has the capability to support Internet and television, thereby permitting the transmission of Telesur, the official television network created by Chávez to provide an alternative to CNN. The satellite operates from a 78-degree west geosynchronous orbital position ceded by Uruguay in exchange for 10 percent of the satellite’s capability. The coverage of the “Bolivarian Satellite” extends across the Caribbean, Central America, and South America except for the southern regions of Argentina and Chile, and it is expected to remain fully functional for fifteen years. The initiative was born in conversations in October 2004, pushed by Chávez’s visit to Beijing in December of that year, and formalized through a bilateral agreement signed on November 1, 2005. China built two control stations in Venezuela (in the states of Bolívar and Guarico), and more than ninety Venezuelan engineers were trained in China to operate the satellite. The first of these engineers arrived on March 2, 2007, and alongside their technical training were required to study Chinese language and history. The total cost of the project has been estimated at more than $400 million dollars, and President Chávez has announced that a second satellite will be built, this time to undertake strategic reconnaissance and surveillance. To showcase the technological sovereignty achieved by Venezuela with China’s support, it is likely that the second satellite will be built in Venezuela but launched in China, probably in 2013. Another development in the telecommunications sector is the quick penetration of Chinese companies into Venezuela’s expanding cellular phones market. Huawei has been the most active, but Alcatel Shanghai has followed closely on its heels, and ZTE has recently built cellular phone factories in Cua (in the state of Miranda) and elsewhere, and won a lucrative contract to provide Venezuela with Internet television (IPTV). These companies have keenly watched the expansion of domestic telecommunications in Venezuela, particularly the growth of demand for cell phones to seven million new handsets per year, and they now control the market through investment in infrastructure and the supply of ever-evolving cell phone models.14 They represent an immediately visible Chinese presence in Venezuela: a new face of South-South cooperation that has a direct and concrete impact on the quality of life of millions of Venezuelans.

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The China-US-Venezuela Triangle The report on the September 2008 meeting of presidents Chávez and Hu issued by China’s Ministry of Foreign Affairs revealed the diversity of perspectives and expectations harbored by the two about their relationship.15 China ranks its bilateral relations in the categories “strategic partner” (high significance), “cooperative partner” (medium significance), and “friendly cooperative relations” (low significance). Venezuela was upgraded in May 2001 from “friendly cooperative relations” to “strategic partner,” and the report on the presidential meeting noted that Chávez views “cooperative relations with China from a strategic point of view.”16 However, as if to stress the benevolence and innocence of Sino-Venezuelan relations, the same report mentioned twice that China views the relationship as a “strategic partnership of common development.” It made no mention of Venezuela’s purchase of eighteen to twenty-four K-8 military aircraft. Relations with the United States are a priority for China, and policy toward Venezuela and Latin America are accordingly subordinated.17 Beijing is acutely aware that since the establishment of the Monroe Doctrine on December 2, 1823, Latin America has been a sphere of vital interest to the United States. Unlike Russia, China has more to lose than gain from playing the “Venezuela card” in its relations with Washington. Strategic restraint was evident in the November 5, 2008, release of China’s Policy Paper on Latin America and the Caribbean, the country’s most important official statement on Latin America. The paper was made public the day after the US presidential election in order to minimize the chance that China’s engagement with Latin America would be targeted by the campaign of either candidate as an undesirable political factor. The strategy succeeded: China–Latin America relations were almost completely absent from the race to the White House, mentioned only on one rare occasion in the presidential debate of September 26, 2008, when Senator Barack Obama said, “The conspicuousness of their presence is only matched by our absence.”18 The 2006 electoral battle between Venezuela and Guatemala for a temporary seat on the UN Security Council was important for both the United States (which backed Guatemala) and Venezuela, but not for China. The battleground for winning votes was Latin America and the Caribbean, and while China’s position was not a major factor in the outcome, for Chávez the election was a test of China’s loyalty. China openly supported Venezuela, but made no effort to convince other voters in the region, probably due to a prior arrangement with the United States. The eventual election of Panama as a compromise candidate reflected Panama City’s long-practiced ability to maneuver between foreign interests in its canal. The structure of US-Venezuela relations remains essentially unchanged after the transition from the Bush to the Obama presidency, principally because of the need of both sides to sustain the northerly flow of oil. The new

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administration has brought a fresh attitude to the relationship, however, and President Chávez has diminished his rhetorical attacks on the United States. The diplomatic thaw allowed Secretary of State Hillary Clinton to achieve an agreement for the return of ambassadors Bernardo Alvarez and Patrick Duddy to their respective posts in Washington and Caracas. During the Fifth Summit of the Americas, held April 17–19, 2009, in Trinidad and Tobago, the two presidents shook hands and Chávez gave Obama a copy of Eduardo Galeano’s classic book, The Open Veins of Latin America. Before going to the summit, President Chávez made his sixth visit to Beijing, on April 8 and 9, where he proclaimed that China is the world’s new “center of gravity,” and that a new world order free of US hegemony is emerging. At the sixty-fourth UN General Assembly in New York, on September 24, 2009, speaking after President Obama, President Chávez stated that he could smell hope, in sharp contrast with his 2006 “sulfur” speech following President Bush in the same place. He compared Obama with John F. Kennedy, though later warned that there are “two Obamas.” Earlier in 2009, he also severely criticized the agreement between the governments of Colombia and the United States to let US forces use seven Colombian bases. Just as Sino-US relations are a top international priority for China, the same holds true for the United States. The Global Trends 2025 report, released by the US National Intelligence Council on November 20, 2008, states that China is “poised to have more impact on the world over the next twenty years than any other country,” and that the United States “will have less power in a multipolar world than it has enjoyed for many decades.”19 China appears to want closer links with Venezuela and other center-left governments in Latin America, a region historically shaped by US hegemony. Reciprocally, most countries now want closer links with Beijing. China is therefore proceeding cautiously, testing the limits of what can be done with minimal risks. Its engagement with the region, caution notwithstanding, implies an important identity change for the United States.

Prospects and Pressures Oil will remain the key Chinese interest in Venezuela. The reduction of transport times and costs are being explored through the joint construction of PostPanamax extra-large “supertankers,” whose passage from the Atlantic to the Pacific requires the widening of the Panama Canal. A strategic alternative is the construction of a pipeline from Venezuela, through Colombia, to the Pacific, or a shorter pipeline through the Panama Isthmus. The technical and political feasibility of these projects remain uncertain. The construction of heavy-oil refineries in China would alleviate dependence on US facilities, but the time horizons for bringing them online are lengthy.

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The security component of China-Venezuela relations is developing in a steady and controlled fashion. In addition to military personnel exchanges and the purchase of the K-8 planes, a second satellite equipped with reconnaissance capabilities is a likely prospect. External developments, such as the 2008 arms deal between the United States and Taiwan, may lead China to reconsider its (so far) restrained stance in this sphere. The dynamics of Venezuela-US relations will significantly influence both countries’ relationships with China. President Obama, who took office on January 20, 2009, has indicated his desire to improve relations with Venezuela and China, though as Cynthia Watson points out in Chapter 6, entrenched interests in Congress are constraining his ability to do so. International relationships are conditioned by the dynamics of domestic politics, and the recent chronology of Venezuelan voting illustrates mounting pressure on President Chávez. In December 2006, Chávez was, for the first time, defeated in a referendum that sought popular approval for the institutionalization of socialism and the removal of limits on his reelection. Despite this defeat, in November 2008, regional elections saw Chávez’s allies win seventeen of twenty-two states, though the opposition won the remainder, including Caracas. On September 26, 2010, for the first time since 2005, the opposition participated in congressional midterm elections. Chávez attempted to obtain a two-thirds majority (110 of 165 seats) with his United Socialist Party of Venezuela (PSUV), but the opposition organized a strong alliance called the Coalition for Democratic Unity (MUD). Participation was 66.45 percent, which is considered high in Venezuelan politics, and Chávez’s PSUV and its allies obtained only 48.22 percent of votes (ninety-eight representatives). The MUD obtained an impressive 47.22 percent (sixty-five representatives), while a minor party obtained only two representatives. Although Chávez remained very popular, the result was an important point of consolidation of the opposition. The real test for Chávez will come with the December 2012 presidential election, with enormous implications for engagement with the United States, and consequently the tone of relations with China. The US midterm election of November 2010 showed waning support for President Obama, a recovery for the Republican Party, and the emergence of the conservative Tea Party. Republicans in the lower chamber now hold several important foreign affairs positions, which does not bode well for USVenezuela engagement. China too is approaching a transition point, with presidential elections scheduled for November 6, 2012. Furthermore, the fifth generation of Chinese leaders is expected to take power in the Eighteenth Party Congress in 2012, raising further uncertainties about the character of the China-US-Venezuela triangle. Another factor that will shape the trajectory of Sino-Venezuelan relations is migration. Chinese immigration to Caracas and other urban centers is on the rise, and while there are no official figures, it is clearly the case that the num-

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ber of Chinese living in Venezuela is growing rapidly. Officials have privately speculated that there are now 150,000 Chinese in the country, though how they may come to serve as intermediaries and brokers is, as yet, uncertain. Understanding this form of “soft power” is a critical challenge for analysts and observers and will require the development of new social scientific approaches. Finally, the global financial crisis that erupted in 2008 modified several parameters for policymakers. The impact of the crisis in Venezuela has been conditioned by preexisting systems of economic management, such as funds controlled directly by the government to free up the allocation of resources. Venezuela’s almost total dependency on oil exports makes the global price of oil a good indicator of the general health of the economy. Despite the comparatively weak performance of oil in 2010, compared to mid-2008, recovery has exceeded the expectations of pundits and has to some extent buoyed the economic superstructure of Venezuela’s revolutionary process. China’s strong economic performance through the crisis has augmented its influence in world affairs, consolidating its position as a key US partner, an authority in the G20, and as a primus inter pares of the BRICS. The $20 billion that Beijing committed to Venezuela in 2010 was a token of China’s growing capacity to exert economic and financial power well beyond its borders. The global financial crisis has deepened China’s power and has consequently exerted a direct impact on China-Venezuela relations, US reactions to their relationship, and the flow of oil underlying both.

Notes 1. ALBA was initiated by President Chávez to consolidate regional autonomy in the face of perceived US imperialism and to oppose and undermine Washington’s FTAA (Free Trade Area of the Americas). 2. These diplomatic actions were taken in part to express solidarity with Bolivian president Evo Morales, who had recently expelled the US ambassador in La Paz. 3. Spokesperson Liu Jianchao added that “China and Venezuela have nothing more than normal state-to-state relations and normal cooperation between states,” and Chinese officials such as Wei Qiang made similar comments. See the Inter-American Dialogue’s Latin America Advisor, October 1, 2008, 4. 4. Christopher Bodeen, “Chávez: Beijing, not U.S., Is Key,” Associated Press, September 24, 2008. 5. The K-8 military training plane is also known by the names Hongdu JL-8, Nanghang JL-8, and K-8 Karakorum. It has been in service in the People’s Liberation Army Air Force since 1998 and has been exported to a number of countries, including Egypt, Ghana, Myanmar, Namibia, Sri Lanka, Sudan, Tanzania, Zimbabwe, Indonesia, and the Philippines. This extended network of users makes stocks of replacement parts widely available, while diminishing the capacity of the United States to disrupt their movement, as it has with F-16 parts in use by Venezuela. 6. A chronology of Chávez’s trips to China is presented in the Libro Amarillo, Ministerio del Poder Popular para las Relaciones Exteriores (Popular Power Ministry

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of Foreign Relations), formerly the Ministerio de Relaciones Exteriores (Ministry of Foreign Relations), Caracas. The first trip was in October 1999, during his first year in power; the second was in May 2001, after President Jian Zemin’s state visit to Caracas, the last by a Chinese head of state; the third was during Christmas in 2004; the fourth in August 2006; and the fifth in September 2008. Rather than visit in person, Hu Jintao has sent other high-ranking figures to Venezuela in his place. Vice President Zeng Qinghong visited in January 2005; Li Chang-Chun, member of the standing committee of the political bureau of the Communist Party, visited in 2007; and Vice Premier Hui Liangyu visited in May 2008. 7. One instance of mild Chinese political support for Venezuela was the latter’s struggle with Guatemala (backed by the United States), to be elected for a two-year chair on the UN Security Council. After a protracted diplomatic battle (there were forty-eight ballots in October and November 2006), Panama was elected as compromise candidate for the period 2007–2009. On the Chinese government’s ambivalent relationship with Hugo Chávez, see Francois Bougon, “China Keeps Chavez Close, But Not Too Close,” AFP, April 11, 2009, www.google.com/hostednews/afp. 8. See “Chinese Vice President Predicts Bright Future for China-Venezuela Ties,” Xinhua, February 18, 2009, http://news.xinhuanet.com. Also see Tyler Bridges, “China Makes Its Move as U.S. Falls Back in Latin America,” McClatchy Newspapers, July 8, 2009. 9. Domínguez et al., China’s Relations with Latin America: Shared Gains, Asymmetric Hopes, 41. 10. On Venezuela’s dilemmas in oil trade with China and the United States, see Corrales, “Why Venezuela Is Trapped, for Now.” On the history of Venezuela’s oil industry, see Luis Xavier Grisanti, “Hernández Grisanti y el nacionalismo petrolero,” Analítica.com, August 24, 2009; and Rossi, El epílogo del petróleo. On the role of oil in Chávez’s foreign policy, see C. Romero, Jugando con el globo, and Tronconi Heredia, ¿El petróleo: Arma de la revolución? 11. Ministry of Foreign Affairs (PRC), “Hu Jintao Talks with Chávez,” September 24, 2008, http://www.mfa.gov.cn. 12. “Venezuela to Buy Chinese Combat Planes: Chavez,” AFP, September 21, 2008, http://afp.google.com. 13. Domínguez et al., China’s Relations with Latin America. 14. “Venezuela’s Chinese-technology Cellular Phone Causes Consumer Frenzy,” People’s Daily Online, May 11, 2009, http://english.people.com.cn. 15. Ministry of Foreign Affairs (PRC), “Hu Jintao Talks with Chávez.” 16. Domínguez et al., China’s Relations with Latin America, 41. 17. Paz, “Rising China’s ‘Offensive’ in Latin America and the U.S. Reaction.” 18. Inter-American Dialogue, Latin America Advisor, October 1, 2008, 1. 19. Peter Finn and Walter Pingus, “Report Sees Nuclear Arms, Scarce Resources as Seeds of Global Instability,” Washington Post, November 21, 2008.

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13 China and Brazil: Two Trajectories of a “Strategic Partnership” Rodrigo Tavares Maciel and Dani K. Nedal

CHINA’S RELATIONS WITH BRAZIL HAVE ATTRACTED A GREAT deal of interest in recent years, both because of the rapid pace of China’s engagement with Latin America and because of the regional significance of Brazil’s economy. There has been a certain hype surrounding the so-called emerging countries, reflected in the widespread usage of the BRICS (Brazil, Russia, India, China, and South Africa) acronym invented by Goldman Sachs’s Jim O’Neill, as well as others like the G20s BASIC (Brazil, South Africa, India, and China), IBSA (India, Brazil, and South Africa), and so on. It has consequently become commonplace to refer to Brazil and China in tandem, though to do so risks overstating their mutual complementarities and understating their differences. A careful look at Sino-Brazilian interaction reveals a less cheerful picture. The aim of presenting such a picture is not to be hawkish or bearish toward China, but rather to note that bilateral ties are far from realizing their potential, and that there are important obstacles and disagreements that have thus far been downplayed or avoided. It is instructive to understand how misperceptions of China-Brazil relations develop. Observers often rely on news articles and official pronouncements and tend to take diplomatic rhetoric at face value, treating official discourse at bilateral meetings and summits—which is characteristically grandiose and pompous—as accurate.1 Terms like “strategic partnership” and notions of overlapping international identities built on demands for a more multipolar order are consumed almost without reflection. Moreover, reports and analyses refer to increasing trade and investment, the signing of memorandums of understanding and agreements, and the establishment of mechanisms for dialogue as if they were clear indicators of progress. Agreements that are not implemented, working groups that don’t meet, summits that yield no results, and dialogue mechanisms that don’t actually function are all erroneously chalked up as 235

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points for the bilateral relationship. Meanwhile, silences are neglected: cancelled visits, unsuccessful initiatives, missed opportunities, veiled tensions, unspoken disagreements, and investments that fail to materialize, are rarely present in analyses of China-Brazil relations. The obvious exception to this tendency is the highly publicized challenge China poses to Brazilian industrial sectors. Here the problem is precisely the opposite, as the negative aspects of Sino-Brazilian trade are frequently exaggerated to the point that they obfuscate the positive ones almost entirely. While economic frictions are acknowledged among Brazilian economists, journalists, businesspeople, and bureaucrats, the aforementioned reliance of international relations and political science analysts on diplomatic rhetoric shifts their focus away from the distributive effects of trade. Most work on China-Brazil relations makes little or no use of widely available methodological, conceptual, and theoretical tools in the literature on international relations, political economy, and foreign policy.2 The resulting naiveté, and in many cases ideological bias, has generated overly sanguine accounts of China-Brazil relations, especially in the last decade. Such accounts feed conveniently into the narrative put forward by Brazilian officials that portrays Brazil as attempting, with the help of China, to project itself as a global player and reform multilateral economic and political institutions to better accommodate developing countries. Policymakers have leveraged perceptions of their supposed alignment with China to increase Brazil’s bargaining power vis-à-vis the United States, and to their content, the idea of a China-Brazil “strategic partnership” has generated concern among some US officials and scholars about the dilution of US regional influence.3 To their frustration, however, this has produced no visible result thus far, as the region barely registers on Washington’s radar.4 The extant literature on China-Brazil relations is fraught with problems, which this chapter cannot hope to address in their totality. What we intend to do instead is offer an intentionally provocative yet tentative reading of ChinaBrazil relations, based on our own practical experience, extensive interactions with policymakers and businesspeople in both countries, and ongoing research. We seek not only to critique previous work on the subject, but also to suggest what we think are interesting ways to frame the main issues and indicate fertile avenues for further investigation. The chapter is divided into four parts. First, we offer a brief overview of Sino-Brazilian relations in the second half of the twentieth century, looking to pinpoint the main traits that characterized bilateral relations in that period and how this history informs and shapes relations in the present. Second, we move into the twenty-first century, disaggregating China-Brazil relations, respectively, into their multilateral and bilateral components. This, we propose, is an analytically useful distinction that accurately portrays the ambivalence of the relationship. We argue that these two narratives, while clearly intersecting and

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influencing each other, have evolved at their own tempos, responded to distinct processes, and featured different protagonists. Third, we look in some detail at the expansion of trade between the two countries and Chinese investments in Brazil during the global financial crisis, both of which reflect a range of successes, disappointments, and tensions simmering below the surface. Lastly, by way of conclusion, we touch on the global implications of SinoBrazilian interaction and offer some ideas for further investigation.

A Short History of Sino-Brazilian Relations Sino-Brazilian relations in the twentieth century can be crudely divided into two periods: from the creation of the People’s Republic of China in 1949 to the early 1970s, and from the establishment of diplomatic ties in 1974 to the turn of the century. The prior period was characterized by the limited extent and scope of their interactions, determined to some degree by each country’s respective Cold War allegiances, but perhaps more importantly by geography, low levels of openness to the outside world, and an almost complete lack of interest and knowledge about each other.5 Trade and investment between the two countries were negligible (and usually conducted through intermediaries in Europe), and political relations were similarly deficient. The second period was marked not by a dramatic shift in this state of affairs, but by the persistence of structural and ideational obstacles to closer relations. When the Communist forces defeated the Guomindang in 1949, Brazilian leaders immediately followed Washington’s lead in recognizing Taiwan. At several points during the Cold War, Brazil sought to reduce its dependence on the United States and Western Europe by turning its attention to the Communist bloc and the nonaligned nations, China among them. From 1961 to 1964, for instance, Brazil attempted to develop commercial relations with China. These initiatives were modest and ultimately resulted in more backlashes than results. In 1961, Brazilian vice president João Goulart (known as Jango) was sent by President Jânio Quadros on an official visit to China, but on his way home he learned that Quadros had resigned and that conservative forces in Brazil, especially the military, had mobilized to prevent his succession to the presidency on the basis that he was a closet Communist, citing his trip to China as evidence.6 Jango was eventually permitted to take up the position, but under a newly established parliamentary system designed to curb his powers. The same year, Brazil established diplomatic relations with the USSR, Hungary, Romania, and Bulgaria as part of its broader policy of reaching out to countries beyond the Iron Curtain and in the third world, but relations with China remained subdued. An agreement on interbank trading signed during Jango’s 1961 trip had no effect on bilateral trade. In February 1964, the two

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governments agreed to install a semiofficial Chinese commercial office in Rio de Janeiro, but when the military seized power from Jango, the nine Chinese officials in charge of establishing the office (all of whom were journalists of the Xinhua news agency) were arrested for “subversive activities.” Interestingly, ties with other Communist nations were not severed, and in fact intensified. By 1971, US-China talks were under way, the PRC had replaced Taiwan in the United Nations, and Chinese leaders had become engaged in a new effort to engage Latin America. Only then did Brazilian officials start to reconsider their China policy. In October 1971 and again in October 1972, Brazilian businesspeople visited China with an explicitly nonpolitical and nondiplomatic agenda, albeit with support from political figures at home. While these missions were relatively successful in boosting direct commercial exchanges, bilateral trade remained weak. In 1974, Foreign Minister Antônio Azeredo da Silveira counseled the new president, General Ernesto Geisel, that one of his first foreign policy moves should be to normalize diplomatic relations with Beijing. Brazil, he advised, needed to respond to several fundamental international realities: over 100 countries including Britain, France, West Germany, and Japan (whose antiCommunist credentials were beyond question) had already recognized mainland China; the United States was on track to do the same; China and Brazil coincided in their views on the extension of territorial waters and in their criticism of the Nuclear Non-Proliferation Treaty; and Brazil should avoid being at odds with a country that now had veto power in the UN Security Council. In Silveira’s own words: The substantial changes the world has seen in this decade, as well as the presence of the PRC as a power, recognized de jure by most governments and holding a permanent seat at the UN Security Council, suggest that Brazil immediately reconsider its relationship with that country. . . . The PRC has consolidated its position as an emerging power and has displayed diplomatic wit and political sensibility in its relations with other states in all international forums.7

An analysis of the Brazilian decisionmaking process that led to the establishment of ties with Beijing is beyond the scope of this chapter, but it is interesting to note that the decision faced fierce resistance.8 When Geisel opened the proposal to consultation with his National Security Council (a mere formality to indulge his ministers and feign consensus), the hard-liners unequivocally opposed it, fearing that Chinese spies would use diplomatic, commercial, and cultural venues as fronts for fostering subversion. None was as critical as Minister of the Army Sylvio Frota, who opined: The People’s Republic of China defends, undoubtedly, values that are antithetical to our culture. It exports the communist revolution and interferes in the inter-

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nal affairs of other countries, somewhat openly, according to the international and national situation of the target state and to the strategy of the international communist movement. It is intrinsic in the ideology it propagates, in the long term, to ruin and destroy to the very end human society as we know it.9

To make the prospect of diplomatic ties with the PRC more palatable to antiCommunist and conservative sectors, Silveira and Geisel went to great lengths to emphasize the potential economic benefits. Their private opinion, though, was that the economic dimension of the move was secondary to political rationale, for bilateral trade would become significant only over the very long term.10 Silveira’s prophecy was self-fulfilling. Under his direction, efforts to increase bilateral trade were sparse; it was only in 1978 that an agreement easing trade restrictions (similar to one previously held with Taiwan) was signed. Establishing diplomatic ties with China arguably had less to do with improving bilateral ties than with making an international statement about what Brazil stood for in world affairs. Over the 1980s, China-Brazil relations progressed slowly but consistently. Both President João Figueiredo (1984) and President José Sarney (1988) visited China, the latter signing an agreement that led to the development of the China-Brazil Earth Resources Satellite program (CBERS). Both presidents, however, as well their Chinese counterparts, were at the helms of relatively closed economies undergoing major domestic reforms in a global environment that limited their international undertakings. Bilateral trade nevertheless started to gather momentum in the early 1980s, producing Brazil’s first “China bubble.” While liquidity was scarce and cash-strapped Brazil was negotiating debt relief with the Paris Club, the Chinese were forecasting increasing imports from, and investments in, Brazil. Oil was a supplier’s market, and China (then a net oil exporter) set aside twenty thousand barrels for Brazil.11 Expectations were shattered when investments fell through (not only in Brazil), ushering in a further period of subdued economic interaction. If China-Brazil relations in the 1980s were constrained by each country’s domestic interests, in the 1990s and early 2000s, they were limited by their respective international priorities. Both countries were coming to terms with the post–Cold War structures of globalization, which entailed greater participation in international forums and improved relations with the sole remaining superpower.12 It also meant taking steps simultaneously toward domestic economic liberalization and regional integration.13 Relations with immediate neighbors and the United States were therefore of paramount importance during the 1990s, leaving little room for exploration around the globe beyond participation in multilateral institutions. While Brazilian leaders paid lip service to the importance of Asia in the post–Cold War order, first because of Japan and second because of China,

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Brazil’s lack of interest in the region during this period is visible in the academic literature and borne out by documentation recently made available by former government officials.14 Although bilateral trade more than doubled from 1990 to 2000, it did so from an extremely low base and with wide fluctuations. Furthermore, while numerous high-level visits were conducted, and in 1993 Jiang Zemin famously proclaimed that Brazil and China were “strategic partners,” reality has never kept up with the high expectations set by the political discourse.15 Indeed, a consistent and recurring pattern of Sino-Brazilian relations is the coexistence of polite and laudatory diplomatic rhetoric with timid economic and political follow-through. Two other features of China-Brazil relations have carried over into the twenty-first century. The first is a lack of mutual knowledge and interest, and worse still, a persisting negative image of China in Brazil. As in Mexico (see Chapters 8 and 9), resulting misperceptions have fueled disproportionately adverse reactions among political players and the general public against attempts to build bilateral engagement. They have also restricted the creativity of those Brazilian and Chinese corporate players who are genuinely interested in productive interaction. The second legacy, visible since the 1960s and reinforced by Silveira’s foreign policy formulations, is the framing of relations with China as matter of Brazil’s multilateral agenda and self-image, with the consequent marginalization of bilateral economic and commercial ties. Below we argue that this approach has been resuscitated with a vengeance since 2000.

Tracing Two Trajectories: China and Brazil in the Twenty-first Century It is safe to say that the first decade of the twenty-first century has witnessed a dramatic change in China-Brazil relations, and yet we find that most accounts of these developments tell only part of the story. What follows is an alternative reading. A good way to understand China-Brazil relations, we contend, is to distinguish between two stories that, for the sake of simplicity, we shall call the multilateral and the bilateral. The multilateral story is about the two countries’ dealings in formal international forums on trade, finance, climate, and nuclear nonproliferation, as well as in informal groupings such as the BRICS. The bilateral story, meanwhile, covers direct economic, political, social, and military ties. Multilateral Relations: The Ambivalence of an Emerging Partnership

While the 1990s saw Brazil and China preoccupied with accession to international institutions, the early 2000s marked their transition from lightweights to

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rising stars. The importance of each country in its own right is epitomized by the much-touted emergence of Brazil, Russia, India, and China (and more recently, South Africa in 2010) as the BRICS underpinning the foundations of the twenty-first-century world economy. This widespread perception has validated long-held Chinese and Brazilian views of themselves as global protagonists capable of guiding the reformation of global economic and political affairs. What’s more, the transformation of the G8 into the G8+5, the subsequent creation of the G20, and the formation of informal groupings such as the “developing G20,” IBSA, BRICS, and BASIC, has augmented both countries’ self-confidence. While the importance of these developments should not be overstated, they have considerably expanded opportunities for China and Brazil to interact. The flipside is that the well-publicized catchall of “emerging countries,” while convenient, conceals many differences and disagreements between members, including their levels of commitment to this ostensibly common identity. Brazilian leaders have eagerly asserted their country’s rising status in global affairs, and both President Luiz Inácio Lula da Silva and his foreign minister, Celso Amorim, tightly embraced the “emerging countries” rubric as a policy guideline. The idea that Brazil should privilege relations with other emerging or developing countries has thus informed its stance on many issues, including trade, international financial regulation, climate change, and nuclear nonproliferation.16 China has been a more ambivalent member of the “emerging” club. Formally, it has been part of most recent international initiatives and clearly labels itself as a “developing” country, but it has also tried to underplay its status as a rising power in an effort to counter perceptions of a “China threat.” Moreover, although China has sided with other developing nations on climate change, development cooperation, and human rights, it has behaved much like an established status quo power on issues of international security and international institutional reform. On questions of trade at the World Trade Organization (WTO), Beijing has sought a via media between developed and developing countries. While China has clearly been part of the “emerging” camp, it has done so selectively and with much less vigor than other members, including India and Brazil. This issue-specific approach to multilateral engagement has more than once been a source of discontent among Brazilian foreign policy makers. In the 2003 Cancun phase of the Doha negotiations, for instance, China’s participation in the G20 developing nations’ coalition was permeated by its own autonomous interests.17 Furthermore, when Brazil made its last big push for UN Security Council reform in 2005, it did so under the impression that China would support it, despite the fact that the proposal also nominated Japan and India as new permanent members. Brazilian negotiators had good reason to be confident: as a fellow emerging country, Brazil had strongly supported China’s

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accession to the WTO, and one year earlier had vowed to recognize China as a market economy. China’s failure to support the bid caused irreversible damage to pro-China sentiment in Brasilia, and is one of the main reasons why Brazil’s recognition of China’s market economy status has never been fully implemented. Foreign Minister Amorim is said to have been particularly disheartened by Beijing’s decision, and since then has been much more reticent in his approach to China. Brazil’s diplomatic disillusion with China continues. In 2010, as Brazil and Turkey were negotiating a nuclear swap with Iran, they attempted to convince China and Russia to delay a Security Council resolution on the imposition of sanctions on Tehran. Beijing and Moscow eventually yielded to Western pressure and voted favorably on the resolution, leaving Brazil and Turkey as the sole dissenters. The extent to which this failure to gather Chinese support may compromise Brasilia’s relations with Beijing is not yet known. Although Brazilian and Chinese diplomatic rhetoric espouses common dissatisfaction with the status quo and desire for a more multipolar world, the above tensions demonstrate that the two countries understand this goal—or at least how to achieve it—in markedly different ways. Brazil nevertheless marches on as a committed member of the “emerging” camp, in which disagreements are papered over and the appearance of cohesion is maintained, albeit counting less and less on active Chinese support. While Brazilian diplomacy is loath to recognize the cleavages in the emerging bloc and publicly denounce China, diplomatic efforts at bilateral engagement have suffered throughout the years, despite China’s growing interest in direct partnerships with Brazil. The global financial crisis has further complicated the scenario, bringing renewed impetus for institutional and regulatory reform. Emerging countries have not only been afforded more voice but have been encouraged to step up to the plate. For Brazil the new global environment has reinforced a longstanding strategy of pursuing domestic interests through concordance with the “emerging country” camp. It has also revived long-standing tensions as the camp’s “members” adopt distinct responses to the crisis. Brazil has permitted its exchange rate to appreciate in relation to the dollar; China has not. The diverging approaches are colored by strong political undertones, which in turn have begun to exert a deleterious impact on broader bilateral and multilateral interactions. Although the currency dispute is far from a determining factor in SinoBrazilian trade, since early 2010, it has become a rallying point around which different sectors of Brazilian society and government have converged in their criticism of China. These sectors, including businesses, trade chambers, industry associations, commercial lobbies, economic pundits, and even the Finance Ministry, do not necessarily buy into the Foreign Ministry’s agenda. This was evident in Brazil’s stance at the 2010 meeting of the G20, when much to the

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Foreign Ministry’s dismay, Finance Minister Guido Mantega stridently decried China’s currency policy. Mantega’s bluntness aside, the dispute over currency at the multilateral level has been relatively subdued compared to its articulation in bilateral circles. As discussed above, bilateral engagement with China has never been a priority for the Foreign Ministry; as discussed below, it remains an arena in which other players have far larger influence and in which economic issues predominate. Bilateral Relations: Unified or Unilateral?

Most accounts of the bilateral relationship portray the evolution of political and institutional ties as roughly linear and positive. The year 2004 was portrayed as a watershed, with an exchange of presidential visits and massive business delegations. Public and private mechanisms for dialogue were instated in the form of the High Level Bilateral Commission (COSBAN), presided over by Vice President José Alencar on the Brazilian side and by then– vice premier Wu Yi on the Chinese side, and the Brazil-China Business Council (CBBC), at that time led by Roger Agnelli (CEO of Vale). That year Hu Jintao pledged massive investments in Brazil, and in return Brazil signed a memorandum signaling its recognition of China’s status as a market economy. Instead of setting the tone for the following years, 2004 turned out to be an anomaly. Some initiatives simply never took off, while others were shot down. Chinese investment in Brazil remained insignificant, and growing trade generated as many misgivings as assurances. The decision to recognize China as a market economy was not only violently criticized by the media, special interest groups fearful of Chinese competition, and government officials (including in the Foreign Ministry), but it failed to obtain support even among China’s supporters.18 Because of this opposition, and the Security Council debacle mentioned above, the decision was never implemented and China is still for all intents and purposes (including application of trade protection measures) treated as a nonmarket economy.19 Exposure to criticisms and pressure from domestic actors, coupled with frustration over no-show investments, have reinforced the perception among Brazilian politicians (like Silveira and Geisel before them) that it is better to focus on the multilateral agenda, where costs are lower and results are easier to claim without sharing the glory with other government agencies. While Brazil’s interest in China remains focused on the multilateral level, it has become increasingly clear that China’s interest in Brazil is mainly bilateral. A consequence of this divergence is that direct relations between the two have become largely unilateral, to the extent that China has been the chief driving force behind the extraordinary increase in China-Brazil trade over the past decade, while Brazil has generally reacted—and seldom positively—to China’s advances. The resulting problems are visible in the institutional and

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social structures underlying bilateral relations, from trade and investment to military cooperation and diplomatic presence. A clear indicator of the uneven value that China and Brazil assign to their bilateral relationship is the state of their respective diplomatic representations. The Brazilian embassy in Beijing and consular office in Shanghai receive little support and attention from the Foreign Ministry, and both are severely understaffed (the prior has only twelve diplomats, less than its counterpart in Paraguay.20 By contrast, the Chinese embassy in Brasilia employs over forty diplomats and government officials from other agencies (the Ministry of Commerce of the PRC [MOFCOM] and Xinhua among them), and the consular offices in Rio de Janeiro and São Paulo each have more employees than Brazil’s embassy in Beijing. In 2010 the Chinese ambassador to Brazil, Qiu Xiaoqi, was elevated to vice-ministerial rank, a status granted to his counterparts in France, Germany, India, Japan, North Korea, Russia, Britain, the United States, and the European Union.21 Foreign Minister Amorim’s 2009 trip to China to negotiate the agenda for Lula’s subsequent visit was cancelled, reportedly because of his frustration that neither Hu nor Premier Wen Jiabao would meet him. Lula’s visit, initially scheduled to last five days, was cut back to two; his entourage, projected to be the largest ministerial and business delegation ever, consisted in the end of four ministers. The much-vaunted Joint Action Plan that was signed during the visit is little more than a restatement of principles and objectives without teeth, resulting in very little “action.” The institution in charge of implementing the plan, COSBAN, had planned since its 2004 inception to meet every two years, but has so far met only once. Its second summit, scheduled for 2009, was canceled by the Brazilian government on short notice, frustrating the Brazilian private sector and infuriating the Chinese, who had prepared the largest delegation ever to visit Brazil, including ten members of the State Council and sixty-two businesspeople. In the institutional sphere, one finds that Brazil still has virtually no sinologists or university courses on Chinese history, economy, politics, legislation, business culture, or other such topics, and Chinese language studies are only now becoming widely available. The number of Chinese speakers and skilled China hands in private enterprises, and especially in civil service, is therefore very small. This directly limits Brazil’s ability to make sense of the profound changes taking place in China and debilitates Brazilian capacity to formulate public and private strategies to deal with the resulting opportunities and challenges. China’s bold appearance in the international limelight, and its growing economic presence in Latin America and Brazil particularly, have certainly sparked interest among Brazilians, but with a considerable lag relative to the rest of the world. In terms of bilateral knowledge, China also scores badly. Despite the considerable number of Chinese researchers dedicated to Latin America, few of

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these focus on Brazil. Beyond familiarity with celebrities on the soccer field, public knowledge about Brazil is also poor. As Jiang Shixue notes in Chapter 3 of this volume, in 2007 and 2008, the thirty-five-year-old Institute of Latin American Studies (ILAS) of the Chinese Academy of Social Sciences (CASS) conducted a study that assessed how much the Chinese business community knows about Latin America (especially Brazil), and how much interest it has in the region. The study, entitled “How Much Do the Chinese Know About Latin America?” posed general questions such as “What is the predominant language in Latin America? And in Brazil?” and “What image do you associate with Latin America?” It also asked more specific questions about political and economic relations between these countries, China, and Taiwan; which countries had entered into free trade agreements with China; and what natural resources were common in the region. The study found that the level of interest shown by Chinese businesspeople was high, but that their knowledge of the region, of how its economy might complement China’s, and of resulting trade and investment opportunities, was poor. Seventy-five percent of respondents considered economic cooperation with Latin America important for mutual economic growth, but complained about the lack of information that limits their participation in this process. This paucity of information has no doubt further limited trade opportunities in growing sectors (other than commodities) and marginalized Brazil from the Chinese investment agenda. Brazil is home to a Chinese diaspora of some 180,000 people, and many of these engage in sourcing and importing manufactured articles from suppliers in China. Unlike Chinese communities in some parts of Latin America, Asia, and North America, the diaspora in Brazil is relatively well assimilated into society, though more easily identifiable than Japanese, Arab, or Jewish immigrants. Mostly concentrated in São Paulo, the Chinese population is deeply divided between Taiwanese, mainland Chinese, and Hong Kong Chinese, as each community arrived at different times, in different social conditions, and for different reasons. They have not formed Chinatowns nor become sufficiently organized to exert significant political or economic weight. This lack of coordination is exemplified by the existence of over thirty BrazilChina chambers of commerce, with more than a dozen in São Paulo alone. While the resulting lack of unity has no doubt impeded economic advancement, it has probably also diminished the subjection of the “Chinese community,” however constructed in Brazilian minds, to hostility and persecution as in other Latin America countries, even as anti-Chinese sentiments become more prevalent. A new and still incipient flow of Chinese citizens is coming to Brazil not as immigrants but as temporary workers on business projects. Their arrival is slowly changing the picture described above, and not necessarily for the better. They usually stay isolated in corporate housing facilities and hotels, do not

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learn Portuguese, and are publicly identified with their companies and with the Chinese government. Unlike Chinese immigrants in previous periods, their presence is starting to become noticed and arouse suspicion, especially to the extent that they are seen as an artifice used by Chinese companies to compete unlawfully for projects and markets in Brazil. Negative perceptions of China are fueled by the campaigns and publicity of special interest groups. Powerful state industrial federations such as FIESP in São Paulo, and associations connected to sectors such as textiles (ABIT), toys (ABRINQ), machinery (ABIMAQ), and shoes (ABICALÇADOS), have led the charge against China, lobbying and shaping public opinion effectively and consistently. The power and influence of these groups has enabled them to impede the formation of a strong pro-China business lobby, despite efforts to the contrary by the Brazil-China Business Council, which is backed by substantial companies like Vale, Suzano, Sadia, Embraco and Embraer, and others.22

Money Talks: Sino-Brazilian Trade and Investment The most widely cited indicator of Sino-Brazilian bilateral progress is trade, but this is also the area in which China’s lead and Brazil’s reactive stance is most clear. Between 2000 and 2010, the growth of annual trade between the two countries averaged 37 percent, regularly exceeding the average increase in Brazil’s overall foreign trade. In 2009, when Brazil’s exports were severely impacted by the global financial crisis, China was the only major market to which they grew. Over the whole period, trade expanded more than 2,000 percent, to approximately $50 billion.23 These impressive figures suggest a deepening economic relationship, with China surpassing the United States as Brazil’s largest trade partner in 2009 and 2010. However, as is the case across Latin America, the composition of trade mainly reflects the growth of Chinese demand for primary goods and its transformation into an exporting powerhouse. In 2009, 76.8 percent of Brazil’s exports to China were basic goods, notably soy, iron ore, and crude oil (see Figure 13.1). This pattern is distinct not only from that of Chinese total imports, 72 percent of which were manufactured goods in 2009, but also from Brazil’s exports to the rest of the world. Such a concentration in commodities is atypical for Brazil, but is likely to increase as new projects in mining and especially oil and gas exploration mature in the next few years. Added to the increased competition Brazil faces from China in its domestic and third markets, this has sparked fears of “deindustrialization” or “primarization.” This anxiety may be largely unfounded, as Brazilian industrial activity has not declined, and domestic consumption and exports of Brazilian industrial goods have increased, albeit with a smaller market share. Nevertheless, such concerns have empowered already-strong protectionist voices and fueled resistance to China, making it harder for the

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Composition of Brazilian Exports to China, 2005–2009 (by percentage)

100% 90% 80% 70% 60%

Semimanufactured goods

50%

Manufactured goods

40% Basic goods 30% 20% 10% 0% 2005

2006

2007

2008

2009

Source: Brazilian Ministry of Development, Industry, and Foreign Trade (MDIC).

Foreign Ministry to sustain a nonconfrontational stance, particularly in relation to trade and currency valuation. As noted above, public hostility toward China has undermined institutional support for bilateral relations and constrained the capacity of Brazilian companies to penetrate the Chinese market. With few exceptions, Brazilian manufacturers have yet to discover the side of China that is a major importer of industrial and consumer goods.24 A study conducted in 2008 identified the potential of Brazilian exporters to increase sales to China in 147 product categories in the short term, and in hundreds more in the medium and long terms.25 The research methodology, suggested by the Brazilian Ministry of Development, Industry, and Foreign Trade (MDIC), sought to identify Brazilian products whose exports to China could be expanded on short notice, based on China’s imports of those products from other suppliers and Brazil’s exports of the same items to other countries. These products accounted for 22.8 percent (over $218 billion) of all Chinese imports in 2007, but only around 1.4 percent of them came from Brazil. Only 7 percent of Brazil’s total exports of these goods went to China. When the Brazilian companies that export these items were asked why they didn’t export more to China, one of the most common answers was that they didn’t think of China as an importer, but only as a rival exporter.

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Meanwhile, the growth of Chinese exports to Brazil is also marred by confusion. As Figure 13.2 shows, China’s share of Brazilian imports has increased markedly since 2000, displacing more traditional suppliers such as the United States, Europe, and Argentina. Contrary to conventional wisdom, though, most Chinese products are destined not for low-income stores and markets, but for Brazilian industries. From 2007 to 2009, Brazilian industrial sectors purchased competitively priced capital goods, intermediate products, and other inputs, accounting for a full 68.8 percent of imports from China. In the same period, nondurable consumer goods such as shoes, toys, and clothing (together the focus of most complaints and antidumping actions) accounted for just 7.8 percent of imports from China. Even with the severe drop in Brazilian industrial production during those years, and the related decline of intermediate imports, final consumer goods maintained a relatively small share of total imports. Indeed, even in 2009, nondurable consumer goods accounted for only 8.7 percent of imports from China. This reality has been effectively masked from public perception by the persistent efforts of Brazilian textile, toy, machinery, and shoe producers to publicly blame their waning competitiveness on cheap Chinese manufactured imports. The tensions simmering below the surface of Sino-Brazilian engagement have also manifested in the area of investment. Hailed as a sign of new times in the bilateral relationship, the recent boom in Chinese investment has in reality followed some familiar and disappointing patterns. As mentioned, Hu Jintao’s 2004 visit left Brazilians with expectations that Chinese companies were ready

Figure 13.2

Composition of Brazilian Imports from China, 2007–2009 (by percentage)

100% 90% 80% Other (transport, fuel, construction, agriculture)

70% 60% 50%

Consumer goods (durable and nondurable)

40% 30%

Capital goods and other industrial inputs

20% 10% 0% 2007

2008

2009

Source: Brazilian Ministry of Development, Industry, and Foreign Trade (MDIC).

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to invest enormous sums in the country. The anticipation was evident in President Lula’s speech at a reception dinner for the Chinese president: “The awaited $7 billion of Chinese investments in Brazil will help the country to regain its competiveness in strategic sectors such as infrastructure, energy, steel, and telecommunications.” The awaited investments, however, failed to materialize. China’s foreign direct investment (FDI) stock in Latin America and the Caribbean in 2007 reached $25 billion, 21 percent of the country’s total investment abroad, but 96 percent of that FDI went to the Cayman Islands and British Virgin Islands, both well-known “tax havens.” The better part of that amount was therefore probably directed to other countries (some in other regions) and back to China. China’s FDI stock in Brazil in 2009 was still less than $600 million (see Figure 13.3). The only major investment project in place during this period was a joint venture signed in 2004 between Baosteel Shanghai and Vale (then CVRD) to build and operate a $3 billion integrated steel plant in Maranhão (later changed to Espírito Santo). The project was bogged down in negotiations for five years before finally being cancelled in late 2008. As the years went by, the enthusiasm that marked the exchange of presidential visits turned into increasing disappointment. Enter the global financial crisis. China quickly became an important source of liquidity in global markets, taking advantage of the retraction of more traditional investors and the depreciation of assets worldwide. Though this was visible as early as 2008, it was only in May 2009 during President Lula’s visit to Beijing that it became clear China was ready to start investing

Figure 13.3

Selected Countries’ FDI in Brazil, 2001–2009 (millions of dollars) United States

$8,000

Spain $7,000

Japan Germany

$6,000

China $5,000 $4,000 $3,000 $2,000 $1,000 $0 2001

2002

2003

2004

Source: Brazilian Central Bank.

2005

2006

2007

2008

2009

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heavily in Brazil. Petrobras and China Development Bank (CDB) announced a $10 billion loan agreement and, in exchange, Petrobras signed a ten-year oil supply contract with Unipec Asia, a subsidiary of China Petroleum & Chemical Corporation (Sinopec). The loan granted by CDB at a time when liquidity was scarce reignited the notion that Chinese investment would be a boon. When in February 2010 the Brazilian Central Bank announced that China already figured as one of the top ten sources of FDI in Brazil, expectations were once again very high. This feeling, again, turned out to be short-lived. The excitement lasted until Brazilians realized (in part through the antiChina lobby) that Chinese companies did not appear interested in directing their investments toward sectors that would diversify and increase Brazil’s export capacity. Instead, contrary to what President Lula had indicated in 2004, China came to Brazil primarily to engage those sectors that most closely match its economic needs, particularly natural resources (iron ore, oil, and gas). Within the space of just a few months there were announcements that Chinese companies would acquire a stake in Brazilian miner MMX, buy an iron-ore mine controlled by Votorantim in the State of Bahia, procure the Itaminas mining company in Minas Gerais, and install a steel plant at the Açu Superport under construction in northern Rio de Janeiro. Rumors and reports (mostly undocumented) also began circulating that Chinese companies were interested in purchasing lands and buying into the oil sector. The latter turned out to be true: in May 2010, Sinochem spent $3.07 billion to acquire 40 percent of Norwegian Statoil’s operations in the Peregrino oilfield, and in October, Sinopec obtained 40 percent ($7.1 billion) of Spanish oil major Repsol’s Brazilian subsidiary. Enthusiasm gave way to deep suspicions about Chinese intentions and the prospect of Chinese companies holding a relevant stake in Brazilian natural resources. The anti-China lobby, which used to complain about the lack of Chinese investment in Brazil, started to vocally denounce these investments as attempts by the Chinese government to buy up Brazilian land and resources, distort markets, and destroy Brazilian industry from within. Prominent figures like former minister Antonio Delfim Netto and Benjamin Steinbruch, president of FIESP and CEO of Companhia Siderúrgica Nacional (CSN), have actively opposed Chinese investments, especially in natural resources and steel, and advocated that the Brazilian government act to limit or impede them.26 Even the current president of the Brazil-China Business Council, a career diplomat and former minister of development, Sergio Amaral, has repeatedly opined against the investments. Sinophobia has also played a part in recent legislation limiting land purchases by foreign companies and individuals. Chinese FDI is said to be qualitatively different from that of traditional sources because of the controlled and opaque nature of the Chinese economy, China’s selectivity in allowing inbound FDI, and the close association between investing companies and the Chinese state.

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Much like the debate about trade, this discussion benefits from a closer and more sober look at the numbers and stories. First, it is now clear that Chinese investment in Brazil will be considerably smaller than the $20–25 billion figure that has circulated in the press. Not all investments that were announced will be executed this year, and some may never be concluded. Chery, a car manufacturer from Anhui, announced that it will establish a factory in São Paulo estimated to cost $700 million, but this will take some time. Votorantim’s sale of its mining asset to Honbridge Holdings and subsequent investments (appraised at up to $2.6 billion) are contingent on the results of studies pertaining to the project’s quantitative and qualitative potential. Furthermore, the Itaminas deal, valued initially at $1.2 billion, is rumored to be in danger of falling through. In light of these doubts, it is imprudent to assert at this point that China is set to surpass the United States, Japan, or Europe as foreign investors in the short term, either in net flow or stock. Accusations that China is bent on colonizing Brazil are even more rash. Contrary to common belief, Chinese investments in Brazil are actually quite diverse in nature. Chinese companies have targeted not only Brazilian natural resources but also the country’s booming consumer market and basic infrastructure demands. China’s state grid, for instance, acquired seven Brazilian electricity transmission assets from Spain’s Plena Transmissoras for $1.72 billion.27 Furthermore, two large Chinese machinery manufacturers, Sany Heavy Industry and XCMG, have announced plans for assembly plants in Brazil, and Chinese carmakers SAIC and JAC will probably join Chery in establishing factories in Brazil in the next few years. Chinese electronic manufacturers have also opened assembly plants in Manaus, and telecom majors Huawei and ZTE have existing operations in São Paulo. Finally, although it is true that some of the investing companies are state owned or favored by the state as national champions, discrimination against them on this basis is flawed in three ways. First, Brazil’s own state-owned companies (such as Petrobras) and national champions (like Vale, Odebrecht, and Embraer) have been very active in South America and Africa with strong backing from the Brazilian government and its policy bank, the BNDES. Second, there is a solid literature questioning the assumption that strategic considerations and government directives dominate corporate investment decisions, even for state-owned companies in the most “strategic” sectors.28 To the extent that these factors do play a part in Chinese FDI, it is far from clear how the Chinese case differs from Japan, the United States, Europe, and elsewhere.29 In fact, Brazilian authorities, true to the tradition of dependency theory, have always been wary of foreign economic interests of all nationalities. And hence the third flaw: these arguments against Chinese FDI are usually followed, ironically enough, by suggestions that Brazil should start imposing limits to foreign investment, just like China.30

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Conclusion: China, Brazil, and the World While China’s economic presence in Brazil is clearly increasing, this should be interpreted neither as a consequence of close political ties nor a development that invariably contributes to this end. In fact, the intricacies of managing the complex and asymmetric interdependence produced by this increase, especially its domestic political reverberations, have worked against SinoBrazilian political relations on both the bilateral and multilateral fronts. Some of the similarities that supposedly bring the two countries together, such as their partial rejection of “liberal” norms and the adoption of a more statecentered, nationalistic, and mercantilist development model, have actually pushed them apart. The global financial crisis has amplified and cast light on a range of preexisting ambivalences and paradoxes, and these are unlikely to dissipate or be resolved soon; in fact they seem poised to worsen. China’s continued growth and persisting domestic imbalances will ensure that demand for commodities, exports of industrial goods, and outward expansion of capital maintain a rising trajectory. Internal political dynamics, including the coming leadership succession, will probably reinforce Chinese nationalism and work against the country’s capacity for compromise. Similarly, Brazil’s own economic and political scenarios seem to be moving in ever more nationalistic and protectionist directions. When the rise of the so-called emerging countries finally overwhelms extant norms and institutions, these countries will find that they need to abandon grandiose rhetoric and abstract notions, and turn instead to pragmatic discussions of the specific issues at hand. These include the rules of global trade, currency, nuclear nonproliferation, climate change, and human rights—issues around which international interests do not accommodate an imaginary NorthSouth divide. The changing global landscape is evident in several nascent frictions that have begun to test Sino-Brazilian relations as both countries’ foreign capabilities and interests grow. Some Brazilian officials are wary of China’s growing economic presence in South America, a region that Brazil has come to consider its own sphere of influence. Similarly, Brazilian companies in Africa are falling behind Chinese competitors in the rush for resources, business deals, markets, and political influence.31 The view of Brazil-China relations presented in this chapter may seem rather gloomy, but what it suggests is not far-fetched. Real opportunities for cooperation and mutual benefit exist, but before they can be seized, efforts to address some daunting challenges and build bilateral compromise must be made. The sincerity of these efforts in both countries will shape not only their relationships with each other, but political and economic relations across Latin America and to some extent the world. It behooves Brazil to be far more

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proactive in developing a strategy to deal with China than it has been so far, as recently acknowledged by outgoing Foreign Minister Amorim.32 This chapter is intended as a first take on a topic of growing importance in a field of study that is only now materializing as a well-rounded discipline. Many issues were left out for the sake of parsimony; others for lack of sources and solid findings. We did not attempt, for instance, to discuss Brazilian investments or immigrants in China, the development of party-to-party relations, cultural and military exchanges, scientific cooperation, or the role of subnational governments. The topics that were discussed need to be developed further. It will be important to develop a better grasp of the mechanisms through which domestic factors like bureaucratic politics and special interest groups influence the making of China policy in Brazil, and how growing Chinese diaspora communities and public perceptions of China may come to do so throughout the region. Future research should also examine in detail how Brazilian and Chinese interests diverge or converge on emerging international issues, and how these issues will relate to bilateral interaction under President Dilma Rousseff and her new Chinese counterpart.

Notes We acknowledge the invaluable research assistance of Lara Azevedo and thank the editors for their questions and comments on an earlier draft of this chapter. 1. This, to be fair, is largely because of restricted access to primary sources in Brazil and China. Only small portions of the Brazilian Foreign Ministry’s archives have been declassified, and even these are not readily accessible for research. The Chinese Ministry of Foreign Affairs has declassified files up to the 1960s, and other selected sources have been opened but are rarely explored. For some of the best uses of Brazilian sources, see Pinheiro, Foreign Policy Decision-Making Under the Geisel Government; Becard, O Brasil e a República Popular da China; Caichiolo, Relações Brasil-China, 1949–1979. 2. The most notable exception here is Pinheiro, Foreign Policy Decision-Making Under the Geisel Government, which traces the trajectory of foreign policy decisionmaking in Brasilia that led to the establishment of diplomatic ties with China. 3. This concern, for example, constitutes the thesis of Ellis, China and Latin America: The Whats and Wherefores. As reported by Daniel Erikson in Chapter 7 of this volume, it is also evident in the tone of Secretary of State Clinton, who recently described China’s “gains” in Latin America as “quite disturbing.” In the jargon of international relations, Brazil and China, inter alia, are supposedly balancing, or at least “soft balancing” or “prebalancing,” US predominance in the post–Cold War era. For an assessment of balancing as a response to unipolarity, see Layne, “The Unipolar Illusion Revisited.” 4. See Chapter 6 of this volume by Cynthia Watson, as well as her chapter “U.S. Responses to China’s Growing Interests in Latin America.” While some have lamented the lack of US attention to the Western Hemisphere, many Brazilians quietly view it as fortuitous, since their autonomy would probably be hampered should the United States

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respond to China’s growing presence by devoting more attention and resources to the region. 5. The same factors explain Brazil’s similarly timid relations with Taiwan and other Asian countries during this period. 6. Jango’s pronouncements during the visit were warm and diplomatic, and his speech in Shanghai emphatically extolled Mao Zedong and the Chinese Revolution. See “Goulart Admires Mao of Red China,” New York Times, August 27, 1961. According to Ramiro Saraiva Guerreiro, this speech was probably improvised, since Jango went to Shanghai without his diplomatic aides. See Saraiva Guerreiro, Ramiro Saraiva Guerreiro, 139–140. 7. Quote from Silveira’s exposition to the president. The code for the document at FGV/CPDOC (Getulio Vargas Foundation/Centro de Pesquisa e Documentação de História Contemporânea do Brasil, Contemporary Brazilian History Research and Documentation Center) is EG pr 1974.03.00/2, p.73. 8. For a thorough account of that process, see Pinheiro, Foreign Policy DecisionMaking Under the Geisel Government. The archives donated by Geisel and Silveira to FGV/CPDOC, open for public consultation, make this one of the easiest periods to research in Brazilian foreign policy and most documented in China-Brazil relations. For the interviews in book format, see Castro and D’Araujo, Ernesto Geisel; and Spektor, Azeredo da Silveira. 9. Though Geisel ultimately pushed the decision through, this marked the first of many clashes between him and the hard-liners. See Castro and D’Araujo, Ernesto Geisel. 10. Spektor, Azeredo da Silveira. 11. Saraiva Guerreiro, Ramiro Saraiva Guerreiro, 488–490. 12. Sutter, Chinese Foreign Relations. 13. For an overview of the regionalist wave of the 1990s, see Mansfield and Milner, “The New Wave of Regionalism.” 14. Particularly illuminating are the archives donated by former finance minister Marcílio Marques Moreira and former foreign minister Luiz Felipe Lampreia to FGV/CPDOC. 15. President Fernando Henrique Cardoso visited China in 1995, and Jiang Zemin visited Brazil in 1993 and 2001. A more comprehensive list of official exchanges is available at the Chinese Foreign Ministry’s website. 16. Brazil’s sympathetic position on Iran, which resulted in the Declaration of Tehran, owes much to the idea that Iran and Turkey are the two most important emerging powers in the Middle East and are therefore Brazil’s natural partners in the region. We thank Matias Spektor for pointing this out. 17. Pearson, “China in Geneva: Lessons from China’s Early Years in the World Trade Organization,” 587–644. See especially pages 254 and 255. 18. Perhaps the most emblematic criticism came from Roberto Abdenur, then ambassador in Washington and former ambassador in Beijing, who declared publicly that China was not a “trade partner,” but a “trade rival,” and certainly not a market economy. This public act of dissension reputedly cost him his embassy in Washington, D.C. 19. Many critics continue to denounce Brazil’s recognition of China as a market economy, citing its surrender of protective measures as an explanation for the large increase in imports from China. As it stands, though, the decision was never internalized and China is by far Brazil’s number one target for such defensive actions. 20. Many diplomats serving in Beijing and Shanghai have expressed these feelings over the years. The situation appears to have changed somewhat since Antônio Patriota replaced Samuel Pinheiro Guimarães as deputy foreign minister in 2009, but there is still resistance at the top.

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21. Jakobson and Knox, New Foreign Policy Actors in China. 22. For an analysis of pro-China business lobbies in the United States, see Myers, Oksenberg, and Shambaugh, Making China Policy: Lessons from the Bush and Clinton Administrations; and Garrison, Making China Policy: From Nixon to G. W. Bush. 23. These calculations include reimport and reexport values; note that Figure 1.1 (Chapter 1) does not. 24. Brazilian (and other) exporters initially overestimated the size of the Chinese consumer market. Resulting frustrations led them to lower their expectations, but they did so just as the market was coming of age. Most international institutions now project a significant expansion of the Chinese consumer market in the next few years: the forecasts of BNP Paribas, Goldman Sachs, McKinsey, and MasterCard vary from 300 million to 650 million consumers by 2015. 25. The study, entitled “Agenda China,” was conducted by the China-Brazil Business Council and the MDIC, with nominal support from the Foreign Ministry and the Brazilian Trade Promotion Agency (APEX). It is available from http://desenvolvimento .gov.br. 26. Delfim Netto has been a critic of Brazil’s economic engagement with China at least since the early 1970s, when he headed the Ministry of Finance. See, for example, Caichiolo, Relações Brasil-China, 1949-1979, 86. 27. In the midst of the China-bashing spree, commentators have lumped the state grid deal together with deals in the oil sector. 28. See Houser, “The Roots of Chinese Oil Investment Abroad”; Downs, “Business Interest Groups in Chinese Politics”; Tunsjø, “Hedging Against Oil Dependency.” 29. See, for example, Doremus, Keller, Pauly, and Reich, The Myth of the Global Corporation; Gilpin, U.S. Power and the Multinational Corporation; Razeen, “Multinational Enterprises, Political Economy, and Institutional Theory.” 30. According to Sergio Amaral, “The Chinese are selective with the capital they let in. They don’t accept every kind of investment. After the election, we should consider if the same shouldn’t happen here.” Quoted from Marina Wentzel, “Brasil deve fomentar cooperação e evitar controvérsias com a China, dizem analistas,” BBC Brazil, November 17, 2010, http://www.bbc.co.uk/portuguese/noticias. 31. Nedal, Maciel, and Amorim, “A projeção econômica da China.” 32. For Amorim’s mea culpa on China policy, see Patrícia de Campos Mello, “Precisamos repensar nossa relação com a China,” interview with Celso Amorim, Estado de São Paulo, November 28, 2010, http://www.estadao.com.br/estadaodehoje/ 20101128/not_imp646388,0.php.

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14 China and Argentina: Beyond the Quest for Natural Resources Jorge Eduardo Malena

THIS CHAPTER EXAMINES CHINA’S DEEPENING RELATIONS WITH Argentina through the lens of Beijing’s broader policy toward Latin America. The analysis begins in the 1970s, a period when China’s international isolation ended and Beijing announced its Open Door policy, prompting closer links with Argentina and the region.1 I then consider the 1980s, a decade when bilateral ties thickened to an unprecedented level through an intensification of trade, joint ventures, high-level visits, technology transfer, and attention to treaties. I outline the development of political, economic, and military ties in the 1990s before considering the major bilateral issues of the current decade, including educational and cultural exchange. The chapter concludes with an analysis of the constraints and future prospects of Sino-Argentine relations. Evidence is gathered from primary materials in Chinese and Spanish, such as official documents and reports, newspapers, periodicals, and interviews.

The 1970s: The Period of Diplomatic Recognition As the radical phase of the Great Proletarian Cultural Revolution was coming to an end in the late 1960s, China accorded more importance to diplomatic relations, reducing both political and material support to revolutionary movements in the third world.2 China was supremely concerned about the shift of geopolitical gravity toward the USSR and consequently viewed relations with the United States as increasingly important. President Richard Nixon’s February 1972 visit to China signaled the beginning of Beijing’s efforts to move away from isolation, and led to both Sino-US rapprochement and more intensive Sino–Latin American relations.

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Broad support for theories of dependency in Latin America during the 1970s generated efforts to achieve greater regional autonomy and more balanced relations with the global community.3 Political and economic relations were diversified as a means for weakening the region’s dependence on its northern neighbor. When the Organization of Petroleum Exporting Countries (OPEC) increased oil prices in 1973–1974, Latin America suffered severe balance-of-payment problems, and found itself in dire need of new global export markets.4 Just as Latin America was looking outward, calls for interregional collaboration and assistance were emerging from China, which had started to prioritize government-to-government relations in Latin America while simultaneously downgrading ties with its Communist allies in the region. This cleared the way for the establishment of official diplomatic relations between China and the Argentine Republic.5 Prior to the initiation of China’s Open Door policy, eleven Latin American countries initiated ambassadorial links with China: Chile (December 15, 1970), Peru (November 2, 1971), Mexico (February 14, 1972), Argentina (February 19, 1972), Guyana (June 27, 1972), Jamaica (November 21, 1972), Trinidad and Tobago (June 20, 1974), Venezuela (June 28, 1974), Brazil (August 15, 1974), Suriname (May 28, 1976), and Barbados (May 30, 1977).6 Sino-Argentine engagement was facilitated by China’s rapprochement with the United States, but it was also motivated by the wish of de facto Argentine president Alejandro A. Lanusse to pursue a foreign policy of “ideological frontiers,” and by his foreign minister’s perception of a propitious international environment.7 The military president effectively conceded that to widen Argentina’s diplomatic options and stimulate economic growth, its government could no longer refuse to develop relations with progressive, radical, or Communist countries.8 On February 16, 1972, negotiations in Bucharest between the Argentine vice foreign minister and the Chinese ambassador to Romania produced a joint communiqué for the establishment of diplomatic relations, with normalization of bilateral ties to take effect three days later.9 The communiqué differed in two respects from the documents Beijing had already signed with Chile, Peru, and Mexico: first, Argentina only “acknowledged” (rather than accepted) Beijing’s assertion that Taiwan is an inalienable part of China’s territory; and second, the Five Principles of Peaceful Coexistence on which bilateral relations were to be based not only promised “noninterference in each other’s international affairs,” but also in each other’s domestic affairs.10 When the Peronistas were elected for the third time in 1973, they set about intensifying ties with China under Peron’s “Third Position,” a brand of nonaligned foreign policy that sought to deepen relations with Socialist countries.11 The 1976 ousting of Isabel Peron (who as the republic’s vice president had assumed the presidency following her husband’s death in 1974) did not interrupt relations with China, just as was the case in Chile after the coup against Allende.12

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China’s emergence from the standstill of the Cultural Revolution, together with its strengthening diplomatic ties, led to a rapid expansion of Sino–Latin American trade (from $131 million in 1969 to $407 million in 1974).13 Between 1970 and 1977, Sino–Latin American two-way trade totaled $2.5 billion, an increase of 25 percent over that reported for the 1960s.14 Although this evolution was dynamic, the sum was small compared with the $1.3 billion of Sino–sub-Saharan trade during the same period,15 a region whose growth rate in the 1970s was an average of five percentage points lower than that of Latin America.16 Throughout this period China sustained a yearly trade deficit with Latin America, mainly because of the latter’s abundance of natural resources and higher levels of industrialization: China imported Latin American raw materials (wheat, maize, cotton, sugar, and chemicals), equipment, and steel manufactures; in turn, China exported textiles, hydrocarbons, light industrial goods, metallurgical products, coal, and heavy water suitable for nuclear reactors.17 China’s largest trade deficit was with Argentina, from which it imported grains.18 In December 1972, China agreed to purchase three million tons of Argentine wheat and maize over the following three years, increasing bilateral trade from $2.9 million in 1972 to $18 million in 1973.19 In 1974, one year after the instatement of a democratic government in Buenos Aires, two-way trade had increased to $101 million, despite the lack of an ambassador in the Argentine embassy in Beijing for the first year and a half. Subsequent political turmoil in both countries (related to the succession struggle in China and Isabel Peron’s mandate in Argentina) diminished bilateral trade to $25 million in 1975 and, precipitously, to $3 million in 1976.20 In the wake of the military takeover of 1976, bilateral trade in 1977 grew to $97 million (of which $96 million was comprised of Argentine exports of agricultural products), demonstrating that, as in the case of Pinochet’s Chile, the Chinese were pragmatic in the conduct of their foreign relations. For China, Argentina was an important supplier of vital foodstuffs, whereas for Argentina, China was a valuable export market, particularly in the light of rising protectionist barriers to Argentina’s traditional exports (meat, grains, and manufactured goods) among trading partners in North America and Western Europe.21 After Mao’s death in September 1976, the domestic struggle for succession was partly resolved when the antagonistic members of the radical power coalition called the “Gang of Four” were arrested in October. With the rise of Deng Xiaoping, China’s rhetoric concerning the third world began to shift from insistence that it was the natural leader of such a group and responsible for its development toward an acceptance of the international “status quo.”22 China’s Open Door policy presented the third world, and particularly Latin America, with opportunities to increase economic ties, since Beijing required raw materials and expertise from abroad, as well as new export markets for its manufactures. These opportunities were pursued in the 1980s, a decade during which Beijing would strongly seek to diversify and expand its exports from

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raw materials and processed goods to more refined and technology-intensive products. Latin America was increasingly perceived as a potential export market and a supplier of the raw materials and expertise required by China for its developmental thrust. The result was a remarkable intensification of China’s interaction with Latin America, and Argentina was no exception.23

The 1980s: The Period of Intensifying Bilateral Ties In June 1980, de facto Argentine president Jorge R. Videla visited Beijing, signing two agreements on economic and scientific cooperation, indicating the continuity of sound relations despite ideological differences. When the military authorities decided to restore Argentine sovereignty on the Malvinas (Falkland) Islands in 1982, China at first made no statement on the episode, but subsequently urged a negotiated settlement, abstaining on the British resolution at the United Nations. Following the restoration of democracy in Argentina, Foreign Minister Wu Xueqian visited Buenos Aires in April 1984 and subsequently signed a cultural covenant. A reciprocal visit to Beijing by Argentine foreign minister Dante Caputo in April 1985 produced an agreement on cooperation for the peaceful use of nuclear energy. In late 1985, Premier Zhao Ziyang toured Argentina, Brazil, Colombia, and Venezuela, announcing a new policy for the development of bilateral relations, based on the “Four Principles for Relations between China and Latin America”: (1) peace and friendship, (2) mutual support, (3) equality and mutual benefit, and (4) attainment of common progress.24 Argentine president Raúl Alfonsín went to Beijing in May 1988 to sign agreements on Antarctica, air-spatial integration, and animal sanitary cooperation. Shortly after, the external liaison department of the Chinese Communist Party established formal contact with the ruling Argentine Unión Cívica Radical and the main opposition party, the Justice Party (formerly the Peronist Party). Although Alfonsín’s presidency was genuinely democratic, its approach to authoritarian foreign governments, including China’s, did not aggressively promote democratic values or criticize lack of respect for human rights. Handled by Foreign Minister Caputo, a Social Democratic ideologue who stayed in office for the duration of Alfonsín’s six-year mandate, Argentina’s foreign policy focused on more immediate concerns, such as achieving resolutions to border controversies with Chile, pursuing claims of sovereignty over the Malvinas Archipelago (Falkland Islands), strengthening peace and democracy in Latin America, condemning the stance of international creditors toward indebted nations, and building solidarity within the Non-Aligned Movement. The Chinese leadership’s identification of economic modernization as its highest priority paved the way toward more extensive commercial ties with Latin America during the 1980s. By then, Argentina, Brazil, Chile, Mexico,

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and other Latin American nations had implemented import substitution industrialization policies to advance local industrial expertise and technological upgrading.25 The prospects for profitable Sino–Latin American mercantile relationships seemed to be auspicious, and trade in commodities, direct investment, expansion of credit, and technology transfer were all on the rise. In 1979, commerce between China and Latin America had amounted to $1.04 billion; by 1989, it had tripled to $2.97 billion.26 To achieve economic modernization, China needed to import raw materials and equipment not available domestically, and export manufactured goods and fuels to earn hard currency. Latin America was endowed with abundant natural resources, a growing industrial base, and the potential to be a major market for Chinese products. To this backdrop, China recorded significant trade deficits with Argentina, reaching $645 million in 1983, $815 million in 1986, and $1.86 billion in 1989.27 While Latin America became a key supplier of raw materials to China, import permits and quotas restricted China’s sales of nonessential consumer goods to the region. Latin American exports to China at this time consisted primarily of steel products, wheat, cane sugar, copper, fish meal, wool, light industrial products, and chemicals; while China’s reciprocal exports were made up of petroleum, rice, coal, cotton cloth, consumer goods, and machinery. China’s main commercial partners in the region were Brazil with 35 percent of two-way trade, followed by Argentina with 20 percent, Cuba with 15 percent, and Mexico, Chile, Peru, and Uruguay constituting between 15 percent and 20 percent.28 China’s trade with these countries underwrote Beijing’s preferential political relations with their governments, regardless of their ideology, diplomatic stance, or geographic location. China’s economic relations with Argentina developed in a steady upward curve during the last years of military rule (1976–1983) and after the return of democracy, with bilateral trade expanding from $190 million in 1980 to $535 million in 1989. Despite ideological differences, General Videla visited China in 1980 to sign agreements on economic, scientific, and technical cooperation, which together provided a foundation for the growth of trade during the decade.29 A 1984 nuclear cooperation agreement established guidelines for joint development of nuclear energy plants, fuel cycles, low-power reactors, training, and technology transfer. Under this agreement, Argentina would grant technical aid to China, while China would sell it heavy water in return.30 In 1988, Argentina agreed to provide China with cereals and sugar, together with seamless steel tubes for its oil-drilling industry; in exchange, China provided coal for the Argentine steel sector. The same year, the Beijing Aquatic Products Corporation and the Argentine Fisheries Company set up a joint venture for fish processing and marketing.31 As Argentina had traditionally produced and exported foodstuffs, and as food consumption was increasing in China, accords were concluded in 1988 on the transfer of food-processing equipment and personnel training.32

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A final but important dimension of Sino-Argentine engagement in the 1980s was the growth of Chinese immigration, from both the mainland and Taiwan. The return to democracy in 1983 and the depreciation of the Argentine peso (which favored foreigners in possession of US dollars) combined to provide attractive political and economic conditions for immigration to Argentina. Other contributing factors were less restrictive domestic regulations in China on citizens wishing to travel overseas, and Taiwan’s rather dull outlook as a growing number of countries established relations with the People’s Republic of China (PRC). By the late 1980s, Argentina was home to approximately 45,000 immigrants from Taiwan, and 10,000 from the PRC.33 When President Carlos Menem fixed parity between the US dollar and the Argentine peso in the early 1990s, Taiwanese immigration declined to approximately 25,000. Meanwhile, in the exodus that followed the Tiananmen Square incidents, immigration from mainland China increased to 30,000. Since 2000 there is almost parity in the size of the two communities (70,000 people altogether), which live in peace with each other and are known for their hard work. Most of the children of immigrants who entered Argentina in the 1980s have graduated from middle school, and many have achieved university degrees.34 As discussed below, the Chinese community in Argentina has become an important component of economic life and civic diversity.

The 1990s: Policy Adjustment and Search for Common Goals After the decisive global episodes of 1989–1991, namely the Tiananmen incident, the downfall of Soviet Communism, and the emergence of a new international order led by the United States after the Gulf War, China’s domestic and foreign policies were shaken. Chinese hard-liners regained prominence, both provoking and responding to Western political and economic sanctions. China was compelled to remain open to the foreign capital and technology flows that were fueling an average annual growth rate of 8–10 percent, and consequently sought to develop partnerships that would maintain the supply of resources and investments while reducing reliance on the Washingtondominated coalition.35 Following Tiananmen, the Chinese Communist Party (CCP) politburo issued a revealing directive: “In the past, China’s relations with Western countries have been too intense, giving a cold shoulder to the Third World. . . . Judging from this turmoil, it seems that at a critical moment it was still those Third World countries that gave the PRC the needed sympathy and support. . . . From now on China will strive for resuming and developing relations with these old friends.”36 The high-level and high-profile visits that had become less frequent in the previous years were resumed, indicating to both the Chi-

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nese public and the world that Beijing was not isolated. In the fall of 1989 and much of 1990, Foreign Minister Qian Qichen, Premier Li Peng, and President Yang Shangkun toured Africa, Southwest Asia, and Latin America. Like Africa and the Middle East, Latin America responded to events in Tiananmen with no comments or rather perfunctory low-level foreign ministry statements.37 In November 1990, Argentine president Carlos Menem was the first post-Tiananmen head of state from the Western Hemisphere to visit China.38 Like that of Alfonsín before him, Menem’s policy toward China did not openly focus on democratic values. His approach to politics was stoutly pragmatic, as he showed during his tenure as governor of the province of La Rioja and afterward during his presidential campaign, when he accepted Taiwanese financial support. Notwithstanding this support, when Menem took office in 1989, his gratitude to Taiwan was limited to the opening of an Argentine Cultural and Trade Office to Taipei. As China was becoming a more important destination for Argentine exports, Menem openly favored diplomatic relations with Beijing. In 1994, National People’s Congress President Qiao Shi visited Brazil and Argentina, reaffirming in Buenos Aires Beijing’s support for Argentina’s posture on the Malvinas Islands, and the prospect, popular around the third world, of a New International Economic Order. The delegation included Hu Jintao, then secretary of the CCP Central Committee, who had not previously visited Argentina. Shortly after, President Menem conducted his second official visit to China, announcing the establishment of an Argentine general consulate in Shanghai. Menem’s high regard for China was reciprocated during his second mandate (1995–1999), during which State Councilor Li Tieying, Vice Premiers Zhu Rongji, Li Lanqing, and Wu Bangguo, as well as Politburo Standing Committee member Wei Jianxing visited Buenos Aires. Rather than materially reward developing countries for their post-Tiananmen political support, China focused its economic reforms throughout the 1990s on opening to the capitalist world, facilitating accelerated GNP growth and China’s ensuing industrialization. Between 1990 and 1992, China’s yearly surplus with the developing world rose to $14 billion, thanks to the expansion of exports from $9 billion in 1980 to $52 billion in 1992, and of imports from $4 billion in 1980 to $38 billion in 1992.39 Argentina fluctuated between China’s third- and fourth-largest Latin American trading partner, exporting $305 million in 1991, $128 million in 1992, $163 million in 1993, $268 million in 1994, and $285 million in 1995. In turn, Chinese exports increased from $51 million in 1991 to $489 million in 1992, to $626 million in 1993, $728 million in 1994, and $607 million in 1995.40 Argentina exported seamless steel tubes, vegetable oils, iron and steel ingots, leather, and frozen fish; whereas China sold textiles, electric goods, telecommunications equipment, metal mechanic products, and porcelain.41 The parity between the Argentine peso and US dollar contributed to a deepening reversion

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of Argentina’s historical surplus with China: within this framework, one can understand why President Carlos Menem paid a second visit to Beijing in October 1995, seeking to open the Chinese market to more Argentine exports.42 In 1996, for the first time in history, Sino-Argentine trade surpassed $1 billion, and from there it remained above this mark, reaching $1.876 billion in 1997, $1.838 billion in 1998, and $1.501 billion in 1999. The 1990s also saw an intensification of Sino-Argentine military contacts.43 People’s Liberation Army (PLA) vice chiefs Chi Haotian and Xu Huizi had opened the way to high-level military ties during their visits to Buenos Aires in 1981 and 1988, reciprocated by visits to Beijing by Argentine joint chief of staff General Brigadier Teodoro Waldener in 1986, naval chief of staff Admiral Ramón Arosa in 1987, and air force chief of staff General Brigadier Ernesto Crespo in 1988.44 Later in 1988, the British media reported on negotiations between China and Argentina regarding the supply of Chinese technology for the production of antiship and medium-range missiles capable of hitting the Malvinas Islands.45 The report focused on a missile said to be China’s CSS-2, a liquid-fueled projectile with a range of 1,500 km, which Beijing had earlier agreed to export to Saudi Arabia. In February 1990, Chinese minister of aeronautics Li Cungtang led a delegation to Uruguay, Chile, Brazil, and Argentina to discuss cooperation on communications, space research, and satellite joint ventures.46 The same year, members of North Industries Corporation (NORINCO), one of China’s main military industrial corporations, visited Argentina’s Tanque Argentino Mediano (Argentine Medium Tank) production plant, the national version of the German MBT Leopard. Serving as translator of the Argentine defense authorities, the author noted the Chinese visitors’ amazement at the speed and versatility of the Argentine tank, but also that they found its armor insufficiently thick for the PLA’s needs. In 1991, a delegation of the People’s Armed Police visited Argentina and Chile, where the visitors required help to train personnel in antidemonstration operations.47 High-level military exchanges continued through the end of the decade, with visits from PLA vice chiefs Li Jing and Wu Quanxu, Central Military Commission vice president Zhang Wannian, PLA chief Fu Quanyu, and PLA vice chief Guo Boxiong in 1995, 1996, 1997, and 2000, respectively, reciprocated with visits by joint chief of staff Brigadier General Miguel Angel Osses, joint chief of staff Lt. General Candido Díaz, and joint chief of staff Lt. General Carlos María Zabala in 1990, 1995, and 1999. In conjunction with these visits, the Chinese and Argentine Ministries of Defense discussed the joint production of a dual-use helicopter in Argentina, and the joint production of a dual-use all-terrain truck, both of which were to be sold to Latin American countries. These initiatives did not ultimately materialize, though the negotiation process gave rise to several cooperative projects early in the first decade of the 2000s.

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The 2000s: Major Issues and Prospective Directions Considering its uninterrupted annual GDP growth rate of 9.4 percent between 1978 and 2002, described by some as “the Chinese miracle” and “an amazing economic success,”48 there are grounds for supposing that China will “catch up with and overtake the [economy of] the United States and Japan in the first half of the twenty-first century.”49 To the backdrop of waning US strategic power, the emergence of new global actors (particularly Brazil, Russia, India, and South Africa), and the resulting trend toward multipolarity, China’s foreign policy in the first decade of the 2000s once again identified Latin America as an important component of its grand strategy. The pace of growth has impelled China to further develop sound relations with resource-rich nations capable of complying with its avid demand; therefore, links with Latin America, and particularly Argentina, have become crucial. High-profile official visits produced a series of covenants (thirty-nine of which were signed during Hu Jintao’s November 2004 visit to Brazil, Argentina, Chile, and Cuba).50 In addition to bilateral trade, China’s investments and credits have fortified its standing in the subcontinent.51 The Economist described the impact on the region as follows: “Latin American economies are growing at their fastest pace in decades, thanks in large part to the heavy Chinese demand for their resources.”52 Argentina is a leading global exporter of wheat, corn, beef, soy, petroleum, and mineral resources, putting it in an enviable position in light of China’s growing need to feed its population and fuel its economy. In 2001 and 2002, Argentina suffered a shattering political and economic crisis, but the rising price of agricultural products and commodities on the world market (driven largely by Chinese demand), coupled with the devaluation of the peso, brought about an unprecedented recovery. By the end of 2001, despite a 5 percent decline of the national economy, Argentina reported that bilateral trade with China had reached $2.19 billion (see Figure 1.1 in Chapter 1). A year later, when Argentina’s GDP plunged 12 percent, bilateral trade still amounted to $1.42 billion. In 2006 China was Argentina’s fourth-largest trading partner (after Brazil, the United States, and the European Union), and Argentina was China’s fourth-largest in Latin America.53 By the onset of the 2008 global financial crisis, bilateral trade had reached $13.46 billion; China had become Argentina’s second-largest trading partner and third-largest supplier, and Argentina had become China’s second-largest global supplier of agricultural products. Despite the global crisis, bilateral trade remained high, at $9.1 billion in 2009. Argentina has become dependent on Chinese demand for soybeans and soybean oil, which represented more than 60 percent of Argentine sales to China in 2006. The remainder consisted of mining-related and agricultural products, such as petroleum (15 percent of the total), leather (5 percent), copper (2 percent),

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metals (2 percent), frozen fish (1 percent), tobacco, cotton, wool, chicken feet, sunflower oil, lemons, wine, bovine embryos, paper, and chemicals (each less than 1 percent of the total amount), along with industrial products such as seamless steel pipes, software, and pharmaceutical products. From China, Argentina imported machinery, transport equipment, computers, shoes, and toys. Commodities and manufactures of agricultural origin represented 54 percent and 36 percent, respectively, of Argentine exports to China in 2007, while China’s main exports to Argentina largely consisted of capital goods (61 percent). Therefore, Argentina sold low-priced products to China in exchange for goods of comparatively higher value. The year 2007 marked a historical record in terms of bilateral trade, which grew 73.6 percent from its level in 2006. Figure 14.1 lists the main Argentine companies exporting to China in 2008. Table 14.1

Principal Argentine Exports to China by Firm, 2008

Firm

Product

ADM Argentina Aceitera General Deheza Alfred C. Toepfer International Asociación de Cooperativas Argentinas Bunge Argentina Cargill Dreyfus La Plata Cereal Nidera Argentina Oleoginosa Oeste Pecom Agra Arcor Molinos Río de la Plata Vicentin Curtiembres Argentinas S.A. Curtidos San Luis Curtiembre Arlei Sadesa Yoma Acindar Siderar/Siderca Establecimientos Textiles Ituzaingo Hart Unilan Trelew Alto Parana Petrobras Argentina Repsol YPF AGFA Gevaert PBB Polisur

Grains Grains Grains Grains Grains Grains Grains Grains Grains Grains Grains Foodstuff Foodstuff Leather Leather Leather Leather Leather Leather Ironworks Ironworks Textiles Textiles Textiles Cellulose and wood paste Petroleum Petroleum Chemicals Chemicals

Source: Fundación Exportar (Exports Foundation of Argentina). Statistics provided by the Argentine-Chinese Chamber of Trade, Industry, and Production.

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The 2004 implementation of China’s “Go Out, Go Global” policy has led numerous Chinese companies to position themselves in the Latin American market in order to secure raw materials. In 2007, China’s foreign direct investment (FDI) worldwide totaled $19 billion, of which 60 percent was directed to Latin America. Consequently, 430 Chinese companies have taken root in the region in the last five years, and thirty-seven of these currently operate in Argentina. China’s main investments in the country are joint ventures with Argentine companies, principal among which are: • Chiarpesca—joint venture with China National Fishing Corporation and Shanghai Fisheries, for fishing and seafood processing • Univpesca—joint venture with China National Fishing Corporation, for fishing and seafood processing • COSCO Argentina Maritima—joint venture with China Ocean Shipping Corporation, for shipping logistics • BACTSAA (Buenos Aires Container Terminal Services)—joint venture with Hutchinson Port Holdings Group, for operation of Buenos Aires’ Port Terminal no. 5 • Noble Group Argentina—joint venture with China’s Noble Group, for operation of Timbues Grain Port, located in the province of Santa Fe • Huawei Argentina—joint venture with China’s Huawei Corporation, for information technology • ZTE Argentina—joint venture with China’s ZTE, for information technology • Ambassador Fueguina—joint venture with Shanghai SVA, for television manufacturing • Radio Victoria–TCL—joint venture with China TCL Group, for home appliances • JINARG—joint venture with Nanjing Jincheng Group, for the production of motorcycles Other Sino-Argentine investment projects include HIPARSA (Hierro Patagónico de Rio Negro, or Patagonian Iron from Rio Negro) in collaboration with China Metallurgical Group, and a project to revamp railway equipment in collaboration with the Chinese firms CITIC, CSR, Sanhe Hopeful, and GSI. According to late 2006 figures, the accumulated amount of Chinese FDI in Argentina was $165.91 million.54 Political developments have kept pace with economic integration. In September 2000, Argentine president Fernando De la Rua visited China (his first visit as a head of state outside Latin America), signing an agreement to support China’s entry to the World Trade Organization (WTO). As bilateral trade grew to almost $2 billion, Jiang Zemin conducted a state visit to Argentina in

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April 2001, stating that “understanding and mutual trust has deepened, and cooperation in diverse fields has produced substantial results. Argentina has become an important Latin American partner for China.”55 A few months before the political and economic crises exploded in Argentina to end De la Rua’s presidency, the chair of the National People’s Congress, Li Peng, visited Buenos Aires. The timing of the visit was noteworthy considering the governing Alianza Party’s advocacy of human rights, and Li’s central role in suppressing the Tiananmen protest. In 2002, the vice chair of the National People’s Congress, Tian Jiyun, and Foreign Minister Tang Jiaxuan visited Buenos Aires, though the crisis in Argentina prevented reciprocal visits. Néstor Kirchner was elected to succeed the provisionally mandated Eduardo Duhalde as president in late 2003, just as China was becoming Argentina’s principal Asian recipient of exports, reflecting the unanticipated growth of the Argentine economy by 9 percent that year. In June 2004, President Kirchner made an official visit to China, reciprocated a few weeks later by China’s minister of trade Bo Xilai.56 A visit with far-reaching consequences was that of Chinese president Hu Jintao in 2004, which resulted in a memorandum of understanding that recognized the strategic significance of the bilateral relationship, prioritized trade and investment (particularly in Argentine infrastructure projects), and conferred on China “full market economy status” (as did Brazil and Chile).57 In Brazil, Hu announced China’s intention to invest $30 billion in South America, but the statement was manipulated by the Argentine press to indicate that Argentina would be the main recipient and exaggerated by a number of Argentine government officials, who inflated the amount. A spokesperson for China’s foreign ministry quickly dampened this speculation, adding yet another chapter to the unfolding soap opera and placing further pressure on the credibility of the Kirchner administration.58 Concluding his term in 2007, Néstor Kirchner was succeeded by Cristina Fernandez de Kirchner, whose ministers and staff conducted a series of highlevel visits to Beijing. Perhaps due to the loss of face resulting from the investment controversy, China has not reciprocated. The Kirchners have nevertheless overseen several important bilateral advances. These include (1) Argentina’s establishment of an agricultural office connected to its embassy in Beijing; (2) Argentina’s support for Shanghai’s bid to host the 2010 World’s Fair; (3) Argentina’s endorsement of China’s application for observer status in the Organization of American States; (4) China’s recognition of Argentina as an “approved destination” for travelers; (5) China’s inclusion of Buenos Aires as the only Latin American stop of the Olympic torch; (6) China’s relaxation of sanitary barriers to Argentine exports of pears, apples, citrus fruits, poultry, and bovine thermoprocessed and boneless meat; (7) China’s decision to open the first Confucius Institute in a Spanish-speaking South American country in Buenos Aires; and (8) conferral on Argentina of “special cooperative partner”

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status, China’s second-highest ranking position in international politics, and in late 2010 the highest-ranking position of “strategic partner.” The decade has witnessed several advances in the areas of culture and education, such as the 2004 creation of a diploma in Contemporary China Studies in the School of Oriental Studies at the Universidad del Salvador.59 The two-year-long degree comprises a 20 percent course load devoted to Mandarin Chinese study and covers twentieth-century Chinese history, thought, society, culture, arts, economics, domestic and foreign policy, and China’s relations with Argentina. The diploma represents a significant thrust toward understanding a nation that, despite its importance to Argentina, is nevertheless geographically and culturally remote. The school’s bachelor of arts program, established in the late 1960s, has become well known for its high standards in teaching Chinese history and culture. Courses in Mandarin language and seminars on Chinese business and culture have been organized by the Argentine-Chinese Chamber of Trade, Industry, and Production, and by the Centro Universitario de Idiomas (a private institution that teaches university-level language courses, often in collaboration with Buenos Aires National University).60 Cordoba National University offers a major in China studies within the broader specialization on East Asia, as does La Plata National University, whose Asia Pacific course of study includes a section on China. Scholarly research on China is conducted within the Research Institute of East Asian Studies in the Faculty of Social Sciences at Buenos Aires National University. Only three Argentine scholars are recognized as established sinologists, a meager number for a country of almost forty million people that is recognized throughout the region for its cultural achievements.61 That said, there are approximately 100 students at undergraduate, graduate, and postgraduate levels learning Mandarin Chinese and studying contemporary China at home and abroad, a trend that will no doubt be buttressed by the deepening bilateral relations. The early 2000s have also seen the consolidation of military relations through the transfer of dual-use technology and intelligence sharing. Peaceful use of nuclear energy dates back to the 1980s, and was strengthened during President Hu’s 2004 visit to Buenos Aires, during which the two countries negotiated the sale of Argentine low-energy neutron nuclear reactors to China and initiated talks on the cooperative launch of a binational satellite. Hu’s visit also advanced a 2003 memorandum of understanding that outlined the transfer of technology by Argentina’s National Commission of Nuclear Energy to the China National Nuclear Corporation (CNNC) for the latter’s production of Co-60 (a synthetic radioactive isotope of cobalt), and in turn the sale of Co-60 to Argentina for refinement and overseas trade. Intelligence sharing has benefited China through the provision of reports on Taiwanese diplomatic efforts in Argentina and the domestic activities of Falungong supporters.62 In return, China has supplied the Argentine government with information on the

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activities of Chinese organized criminal groups, or “triads,” that may bear relevance to its interests.63 Following a hiatus during the 2001–2002 political and economic crises in Argentina, eight high-ranking Chinese military officials have visited the country, reciprocated by two Argentine visits to China between 2005 and 2007. One of the Chinese visits (December 3–6, 2006) was conducted by the general commander of the Second Artillery Corps (in charge of China’s ballistic missile force), Colonel General Jing Zhuyuan, who led a ten-man delegation that concentrated on the organization of combat units, logistical weapons systems, and the maintenance of fighters and bombers. Another visit (December 13–17, 2006) was conducted by PLA deputy chief of military affairs Major General Leng Degui, who headed a six-man delegation that focused on administrative personnel issues and the tasks of the military police. A final noteworthy visit (August 20–24, 2007) was conducted by the vice president of the Central Military Commission (also state counselor and minister of defense), Colonel General Cao Ganchuan. The three highest-ranking Argentine officials to reciprocate were the army’s chief of staff, Lieutenant General Ricardo Brinzoni (2002); his successor, Lieutenant General Roberto Bendini (2005); and the minister of defense, Nilda Garre (2007). In 2008, the Argentine navy school ship Fragata Libertad visited Shanghai, after twenty years since its first trip to China. The PLA conducts military courses for foreign officers on such topics as “Military Doctrine and National Defense for Chief Officers,” delivered over three months in Beijing. It also organizes specifically targeted events, such as the “Cooperative Security Forum Between China and Latin America Facing the Future,” delivered in 2005 to colonels and officers of equivalent rank over twelve days in Beijing, with visits to military units and colleges in Xi’an, Urumqi, and Shanghai.64 Such events are typically characterized by a spirit of disapproval about the state of affairs in the global system and of commitment to promoting a more multipolar international order. They typically conclude with the sale of military equipment, facilitated in the Argentine case by a cooperation agreement signed on May 16, 2007, which led Argentina to assess the purchase of a transportation helicopter from China. A final noteworthy feature of the early 2000s is the deepening engagement of immigrants from mainland China and Taiwan in commercial niches such as supermarkets, restaurants, gift shops, tourism, foreign trade, and information technology. According to the Argentine-Chinese Chamber of Trade, Industry, and Production, Chinese immigrants and their descendants have endeavored to establish themselves in Argentina on their own merits rather than utilize their aptitude for business to advance the interests of Chinese firms in Argentina. Unlike their counterparts in northern Mexico (see Chapter 8), people of Chinese descent in Argentina have not tried to fashion themselves as intermediaries between China and their host country, and have generally pur-

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sued new life directions that distance them from their previous lives in China. Accordingly, most mid- and large-size Chinese companies established in Argentina, generally in the form of joint ventures, contract only a low percentage of employees from the descendant Chinese community. Bilateral interactions and face-to-face contact have increased somewhat through official “sister city” agreements between Buenos Aires and Beijing, and between Rosario and Shanghai; as well as “sister province” agreements between Buenos Aires Province and Henan, and Entre Rios and Jilin. A strong heritage of cosmopolitanism in Argentina has no doubt facilitated the Chinese community’s integration into civic and economic life, for unlike some countries in the region, Argentina has registered only minor instances of public discontent. In early 2006, for instance, rumors were spread about Chinese supermarket owners’ apparent lack of awareness of sanitary regulations. It turned out that in order to save electricity, a number of supermarkets run by citizens of Chinese origin shut off electricity during the night, affecting the condition of certain cold foods. In general, the Chinese community is accepted in Argentina and has developed a range of activities and institutions, such as six cultural centers that specialize in teaching Mandarin language, two Buddhist temples, a Taoist association, and a center for the study of Confucian thought. Alongside Argentina’s populations of American aborigines, immigrants from Europe and the Middle East, Creoles, and descendants of these groups, Chinese people from the mainland and Taiwan (like Japanese and Koreans) have contributed to the country’s cosmopolitanism.

The Tensions of Economic Crisis Three factors enabled Argentina to avoid the worst of the 2008–2010 financial crisis. First, the nationalization of private pension funds provided the state with resources to boost public investment and halt unemployment. Second, the country’s relative lack of insertion into the world economy, caused by the political turmoil in 2001–2002 and the ensuing economic crisis, paradoxically helped Argentina to avoid the negative side effects of globalization. And third, as with other Latin American economies, the impact of the crisis on Argentina was softened by commercial ties forged with East Asia and China, in particular over the past two decades. Argentina’s strategy of diversification ultimately paid off: the contraction of Sino-Argentine trade resulting from the global slowdown was less significant than that registered with traditional trade partners in the developed world. China’s critical need for foodstuffs and Argentina’s supply basket of agricultural by-products generated unwavering bilateral trade figures through the crisis. Sino-Argentine trade therefore emerged largely unscathed by the financial crash and the consequent recession because of the complementarities between

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the two economies, which have permitted Argentina to become a top supplier of several commodities to China. Bilateral economic relations were also protected by their emphasis on trade rather than financial investment, despite the currency-swap agreement signed in April 2009. Despite these positive outcomes, Sino-Argentine relations have not come through the crisis completely free of conflict. During 2009, Argentina launched eighteen antidumping investigations into Chinese products ranging from shoes and toys to steel pipes. Buenos Aires defended the measure as a necessary step to protect local jobs endangered by the economic slowdown. According to Production and Tourism Minister Débora Giorgi, “every antidumping measure is based on proof of damage to national industry . . . in every case we have followed procedures established by the World Trade Organization, where there hasn’t been any complaint by China so far.”65 China may not have openly complained in the WTO, but it did retaliate in kind. On March 31, 2010, China’s Chamber of Commerce told a conference of major traders that residues of solvents used for processing soybean oil should not exceed 100 parts per million (ppm), and that in the case of Argentina’s exports, they reach 300 ppm. A few days later a Chinese trade body urged buyers not to purchase the commodity from Argentina in retaliation for the country’s decision to restrict imports of Chinese products. Shortly afterward, Argentine foreign minister Jorge Taiana requested of Chinese ambassador Zeng Gang that he ask “the PRC government to annul the measure so that it does not enter into force.”66 Despite Taiana’s efforts, that month several Argentine companies received notifications from Chinese buyers that they were going to delay purchases or call off deals. Finally, in late April, Chinese vice minister of trade Jiang Yaoping visited Buenos Aires and described Argentine antidumping measures as “extremely abnormal” and “discriminatory,” and he urged the government of President Cristina Fernández to “take a more cautious approach to dealing with trade issues.”67 For all their diplomatic flair, these actions carry serious economic consequences. As the world’s leading exporter of soybean oil, in 2009, Argentine sales of the product to China reached 1.84 million tons (worth $1.4 billion), accounting for 77 percent of Chinese soybean oil imports. Considering Argentina’s reliance on the export of soy products, and China’s standing as the world’s largest importer of the commodity, prolonged trade disputes with China can only harm Argentine interests and benefit those of competitors in the United States and Brazil. Protectionism is ultimately a “two-edged sword,” which may also hurt those who wield it: over time, given Argentina’s limited product base, it could conceivably lose its trade surplus with China. A sustainable solution to engagement with China will therefore not be found in protectionism, but rather by developing a more comprehensive base of exports. Soybean and soy derivatives constitute a pillar of the Argentine economy and a crucial source of tax revenue for the government. The authorities in Buenos

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Aires should therefore seek new approaches to managing the industry and using its proceeds to promote economic diversification.

Conclusion: Constraints and Prospects in Sino-Argentine Relations Perhaps the most important result of the economic reforms implemented by Deng Xiaoping three decades ago has been the conversion of his country’s potential power into real power, not only in Asia but also worldwide. China’s “self-expansion” is significant because it entails both an internal transformation and an external projection of one of the most ancient civilizations of the planet, which if successful, will bring about a change in global power relations. In this context, growing links between China and its peripheral areas, such as Latin America, generate special interest. China and Argentina are both seeking to diversify their foreign partners, and they realize that the keys to economic growth lie both in engagement with the industrialized world and in “South-South cooperation.” However, while China intends to secure the supply of “strategic” commodities and foodstuffs, Argentina must identify ways to avoid dependency on soy exports. The coming years will surely see increasing Chinese demand for these resources, but as José Luis León-Manríquez notes in Chapter 9, trajectories of development that rely exclusively on resource exports can suffer dire consequences when international prices fall. The China Investment Corporation, recently created by China’s State Council with an endowment of $200 billion, will surely constitute a bone of contention for the Argentine leadership: should Chinese investment be welcome exclusively in the agricultural sector and its related infrastructure projects? The Chinese government will logically direct its monies to the supply of the resources it has determined are necessary for China’s advancement, whereas Argentina has yet to determine whether to remain a seller of commodities or to become a value-adding producer, or some combination of the two. As yet there are no signs in the Argentine press of concerns about the environmental impact of Chinese investment, most of which is directed toward agro-industrial sectors that are relatively well regulated. According to judiciary records, there have not been violations of existing legislation, though a fervent debate has taken place in the late 1990s and early 2000s among rural people about the pros and cons of a “monocultive” mode of production, given that soy accounts for more than 50 percent of Chinese purchases from Argentina. According to officials of the Sociedad Rural Argentina (Argentine Rural Society) interviewed by the author, cultivation of soy is not justified by the shortterm economic gains it generates because over time it will cause irreversible soil degradation. On the other hand, agricultural producers, supported by the

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Confederaciones Rurales Argentinas (Argentine Rural Confederations), believe that soil degradation can be avoided if soy is rotated (preferably during the winter season) with other crops such as cereals. One undeniable benefit of Argentina’s soy industry, at least in the shortand mid-term future, is that it will see the country through the global financial crisis that struck in late 2008. The crisis has affected worldwide capital markets, investment, production, foreign trade, and employment, but China’s huge population must still eat. An initial memorandum of understanding for a currency-swap agreement between Argentina’s Central Bank and the People’s Bank of China, signed in March 2009 with a value of $10.2 billion, will reinforce Argentina’s financial stability and increase bilateral trade. The initiative demonstrates that in relation to this particular crisis, foodstuffs remain a relatively stable option. Geographical distance poses a number of complications for Sino-Argentine trade. Logistical planning has not overcome the irregularities of shipping lines, and the lack of regular flights has negatively affected the delivery of merchandise and the transit of businesspeople. Furthermore, insufficient awareness of cultural particularities, market opportunities, and trade regulations continue to beset business partnerships. In this light, the creation of the Contemporary China Studies degree at Universidad del Salvador constitutes an important advance in offsetting Argentina’s persisting lack of cultural and practical knowledge about China. Domestic factors in Argentina also pose challenges to the bilateral relationship. The national industrial lobby has pressed the Argentine government for protection against Chinese products, and in December 2004, President Kirchner accommodated their demands by signing two decrees restricting imports of Chinese textile products to the previous year’s level. More comprehensive antidumping measures, however, cannot easily be implemented because of Argentina’s recognition of China as a “full market economy” during Hu Jintao’s 2004’s visit. Furthermore, the introduction of higher taxes on grain exports in March 2008 has undermined the profitability of some agricultural sectors. The relevance of the bilateral relationship to both governments is evident in the number of official consultations they have conducted, including almost twenty meetings of the Joint Commission for Economic and Commercial Cooperation, six meetings of the Joint Commission for Scientific and Technical Cooperation, and five meetings of the Joint Commission for Cultural and Educational Cooperation. Together with increasing military exchanges, these interactions have underwritten the “strategic partner” status bestowed by China on Argentina and suggest the foundations of a potentially long-term partnership. China’s interests in Argentina are a function of its grand strategy for attaining “comprehensive national power,” and similarly, Argentina views China as a source of leverage against the United States and Western Europe. Nevertheless, in terms of trade, investment, credits, technical support, cul-

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tural bonds, and even political ideology, Argentina remains closer to the latter two. Looking beyond the global financial crisis, Argentina would do well to realize that in the economic environment of the future, it is not the buyer who should set the rules. While China has used its huge purchasing power to influence commodity markets and prices, it is Argentina and other exporters that control the supply of increasingly indispensable raw materials. Supplier countries should take advantage of their position to achieve more substantial political, economic, and technological benefits from China.

Notes The author acknowledges assistance provided by the Asia and Australasia Directorate of the Argentine Ministry of Foreign Relations, International Trade and Culture; the Defense Attaché Office to the Argentine Embassy in China; the Argentine General Consulate in Shanghai; and the Argentine–Chinese Chamber of Trade, Industry and Production. 1. The historical analysis presented in this chapter draws on the author’s master’s thesis, “China’s Relations with Latin America 1970–1995.” 2. Cheng, Zhongguo Yu Disan Shijie [China and the Third World], 241, 252. 3. Theberge and Fontaine, Latin America’s New Internationalism, 160. 4. Ibid., 161. 5. He, Sino–Latin American Economic Relations, 38. 6. Han, Diplomacy of Contemporary China, 584–595. 7. Lanus, De Chapultepec al Beagle, 88–92. 8. Ferrari, Constantes de la política exterior argentina, 85. 9. “Normalization of Diplomatic Relations between the People’s Republic of China and the Argentine Republic,” Renmin Ribao, People’s Daily, February 20, 1972. 10. Oviedo, “Historia de las relaciones Argentina-China 1972–1992,” 51. 11. Lanus, De Chapultepec al Beagle, 110. 12. Author’s interviews with Juan C. Katzenstein, ambassador to China in 1976, Argentine Ministry of Foreign Affairs and Culture, Buenos Aires, March 1982; and Colonel Jorge I. Malena, military attaché to the Argentine embassy in Beijing, Ministry of Defense, Buenos Aires, November 1982. 13. Sino–Latin American trade declined after 1974 because of political turmoil in China related to the succession of the aging Mao. For trade figures, see China Resources and Trade Consultancy, Almanac of China’s Foreign Economic Relations and Trade, 890–902; and Economic Information Agency, State Statistical Bureau, Statistical Yearbook of China, 1981, 368–370. 14. Average annual two-way trade figures in the 1960s reached $200 million, of which about $150 million was accounted for by Sino-Cuban trade. See United Nations, “Figures of the PRC’s Trade.” 15. Economic Information Agency, State Statistical Bureau, 372. 16. International Monetary Fund, Economic Growth Statistics Yearbook, 1970–1980, 134. 17. Ministerio de Economía de la República Argentina [Ministry of the Economy of the Republic of Argentina], China: Reforma Económica, Política Comercial y las Relaciones con la Argentina, 14-16.

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18. Shen, Dangdai Zhongguo Duiwai Maoyi [Contemporary China Foreign Trade], 378–379. 19. China Resources and Trade Consultancy, Almanac of China’s Foreign Economic Relations and Trade, 890-902; Economic Information Agency, State Statistical Bureau 368–370. 20. Ibid. 21. Author’s interview with Juan B. Flaim, economic counselor to the Argentine embassy in China, 1978–1980, Mexico City, 1982. 22. Harris, China’s Foreign Policy Toward the Third World, 52–58. 23. He, Sino–Latin American Economic Relations, 53–54. 24. “Premier Zhao Tours Latin America, Four Principles for Bilateral Relations Announced,” Beijing Informa 46 (November 1985): 8. 25. Brock, Latin American Debt and Adjustment, 227–242. 26. “Upsurge of Trade with Latin America,” Beijing Informa 20 (May 1990): 15. 27. General Administration of Customs of the PRC, China’s Customs Statistics, 8–9. A concerted effort by Chinese authorities to reduce the trade deficit resulted in a positive balance of trade for China in the 1990s. 28. Ibid., 10–11. 29. Xinhuashe Xinwengao [New China News Agency Press Release], editorial commentary, June 15, 1980. 30. Noticias Argentinas, editorial, November 7, 1985. 31. Times of the Americas, editorial commentary, August 24, 1988, 6. 32. Ministerio de Relaciones Exteriores y Culto de la República Argentina, Acuerdo entre la República Argentina y la República Popular China sobre el Programa de Cooperación Agropecuaria (Agreement between the Republic of Argentina and the Republic of China regarding cooperation on agricultural programs), signed in Beijing, May 16, 1988. 33. The origins of immigration from mainland China to Argentina can be traced back to the mid-1940s, when the resurgence of civil war in China drove away wealthy businessmen. Attracted by Argentina’s abundance of food and relatively stable political climate (owing to the commencement of Juan Peron’s first presidential mandate), approximately a dozen Chinese families immigrated via Europe or the United States (interview with Zhu Zhihua, dean of Chinese immigration to Argentina, Buenos Aires, July 1994). 34. Author’s interviews with authorities of Argentina’s Federal Police Immigration Affairs Department, PRC consul general to Argentina, and officials in charge of consular matters in Taipei’s Commercial and Cultural Office to Argentina, conducted in 1990, 1995, and 2003. 35. Harding, “The Impact of Tiananmen on Chinese Foreign Policy,” 5–17; Shambaugh, “China’s Foreign Policy Conundrum Since Tiananmen”; Yahuda, “The PRC at Forty: Foreign Relations.” 36. Lo, “A Disaster for CPC’s Foreign Affairs,” 3. 37. Gerald Segal, “China and Africa,” 121; Yitzhak, “China and the Middle East Since Tiananmen,” 89–91. Also see the headlines of the main Argentine, Brazilian, Chilean, and Mexican newspapers between June and July 1989. The reasons underlying Latin America’s silence on Tiananmen have never been explicitly confirmed, but pragmatic political and economic considerations premised on the prospect of greater Chinese engagement with the third world were surely important. 38. Oviedo, “Las relaciones argentino-chinas bajo la administración Menem,” 22. 39. International Monetary Fund, IMF Yearbook 1993 Direction of Trade Statistics, 33.

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40. Ministerio de Economía de la República Argentina [Ministry of the Economy of the Republic of Argentina], China: Escenario Económico y Relación con la Argentina, 2. 41. Ibid., 10. 42. “Argentine President Pays Second Visit,” Beijing Informa 42 (October 1995): 18. 43. Military relations officially began in 1976, when China inaugurated a military attaché office to its embassy in Buenos Aires. Argentina reciprocated in 1979, sending the first Argentine military attaché to Beijing, Colonel Jorge Idalo Malena, the author’s father. 44. Information provided by the Defense Attaché Office to the Argentine embassy in China. 45. Louise Bransom, “Secret Argentine Missiles Deal,” London Sunday Times, May 22, 1988, 19. 46. “Minister Li Cuntang Meets Latin American Authorities,” Beijing Informa 6 (February 1990): 14. 47. Author’s interviews with members of the Argentine Federal Police, Argentine Federal Police Central Department, Buenos Aires, July 1991. 48. Devlin, “What does China Mean for Latin America?” 10. 49. Yifu et al., The China Miracle: Development Strategy and Economic Reform, 34. 50. Ellis, U.S. National Security Implications of Chinese Involvement in Latin America, 4. 51. Gallagher and Porzecanski, “China Matters: China’s Economic Impact in Latin America,” 187–189. 52. “A Ravenous Dragon,” The Economist, March 15, 2008, 3. 53. Jiang, Recent Developments of China’s Relations with Latin America, 16. 54. Information provided by the Argentine General Consulate in Shanghai. 55. “Líderes chino y argentino se felicitan por 30 años de relaciones,” El Mundo, February 20, 2002, http://spanish.peopledaily.com.cn/spanish/200202/20/sp20020220 _52636.html 56. “Kirchner Inicia Visita a China [Kirchner begins state visit to China],” La Nación, June 1, 2004, 4 and 16. 57. “Relación con China es Estratégica [Relationship with China is Strategic],” La Nación, November 18, 2004, 4–5; “Se confiere status de economía de Mercado a China [China is conferred market economy status],” Clarín, November 19, 2004, 12. The notion of “full market economy status” is ambiguous and therefore politically strategic, referring in the WTO’s definition to economies “in transition” from a “planned” to a “market” economy. 58. “China Aclara sobre Anuncios de Inversión [China Clarifies Investment Announcements],” La Nación, November 20, 2004, 2; “Un Cuento Chino? [A Chinese Tale],” Clarín, November 21, 2004, 15. 59. The School of Oriental Studies is the first (and at present only) institution in the Spanish-speaking world that offers Oriental Studies as a path of both undergraduate and graduate study. 60. It is likely that the first Confucius Institute of Spanish-speaking South America will be established at this center. 61. These are Sergio Cesarín, Eduardo Daniel Oviedo, and the author of this chapter. 62. Interviews held by the author with Argentine Intelligence Secretariat personnel, Buenos Aires, July 2006 and February–May 2007.

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63. Interviews held by the author with Chinese diplomatic personnel, Buenos Aires, May–December, 2006. 64. Kenny, “La presencia China en América Latina,” 44. 65. “China Threatens Retaliation in Trade Spat,” Buenos Aires Herald, April 23, 2010, 4. 66. “Argentina Protests China’s Soy Oil Curb,” Buenos Aires Herald, April 6, 2010, 4. 67. “Amenaza China,” Diario La Prensa, April 23, 2010, 7.

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15 China, Latin America, and the Trajectory of Change José Luis León-Manríquez and Adrian H. Hearn

CHINESE COMMENTATORS HAVE ARGUED THAT THEIR COUNTRY’S global expansion is motivated by the pursuit of mutually beneficial relations of “harmonious” development.1 For all its simplicity, this statement should not be dismissed out of hand. Accrual of international status and influence are clearly goals of China’s foreign policy, but Chinese institutions and enterprises have thus far pursued them peacefully and in accordance with multilateral rules of trade. Indeed, the predominating global economic and political architecture is conducive to the Chinese government’s aspirations, and there is no evidence that it wishes to effect major change. An unprecedented opportunity for doing so came with the global financial crisis, which would have fatally impaired the US-led economic system had the Chinese government sold its holdings of US Treasury bonds. Its decision not to do so illustrates the extent to which China’s interests are intertwined with those of the United States and best served by more subdued and harmonious strategies of integration and ascendance in the world economy. China’s swift expansion of commercial, investment, and social networks over the past three decades has made it one of the world’s major traders and an integral part of the international system. Increasingly reliant on foreign trade, the Chinese economy has become an engine of the world economy alongside the United States. The continuity of China’s performance will depend on three factors: the expansion of markets to absorb soaring Chinese exports, the availability of raw materials and energy resources to satisfy China’s ever-increasing demand, and a stable international context that is relatively free of political turmoil and conducive to the “One-China” policy. Based on pragmatism more than ideology, these factors are crucial for understanding the future of Chinese policy toward Latin America and the rest of the world. 281

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Conclusion

The future dynamics of Sino–Latin American partnerships will be conditioned by Beijing’s priorities more than vice versa. All Latin American countries are interested in the potential of the Chinese market to deepen and diversify trade and investment, but only those countries that best serve China’s interests have been selected by Beijing to occupy the highest-ranking position of “strategic partner.” These are Argentina, Brazil, and Mexico, which are the region’s largest economies, and Peru, which sits squarely in the sights of the Chinese mining companies Chinalco, Shougang, and Zijin.2 How close President Alan García comes to doubling current levels of Chinese investment in Peru to $15 billion by 2015 via the China-Peru free trade agreement will test the symbiosis of the bilateral relationship.3 Brazil represents by far the region’s deepest and most balanced partnership with China. The two countries are substantiating the validity of the term BRIC (now known as BRICS, with the addition of South Africa to the group in 2010) invented by Goldman Sachs, together gaining prominence as regional and global powers.4 In addition to bilateral trade and investment, political cooperation is evident in China’s support for Brazil, albeit somewhat subdued, in its bid for a seat on the UN Security Council. Scientific exchange under the rubric of SouthSouth cooperation has also proven beneficial for both sides through projects ranging from satellite production to the development of affordable generic drugs. China and Brazil have shown their capacity for cooperation and leadership in the Group of 20 (G20), created at the World Trade Organization (WTO) ministerial meeting in Cancun in 2003 in the context of the Doha Round. Comprising a broad constituency of developed and developing countries, the latter view the G20 as an opportunity to balance the structural power of the United States and the European Union in the WTO. They have pursued this goal by pressuring developed countries to eliminate agricultural subsidies and barriers to developing country exports. The liberalization of the agricultural sector was a key dispute at the inception of the General Agreement on Tariffs and Trade (GATT) in 1947, and remained so when the WTO replaced GATT in 1995. The conflict shows no sign of subsiding in the near future, but the creation of the G20, which was not particularly well received by the United States and the European Union, has altered its dynamic. An early outcome of the G20 was the creation of a subsection called the Non-Group-5 (NG-5), which has enabled Brazil and India to negotiate directly with the United States, the European Union, and Australia, three of the world’s most powerful agricultural players.5 By facilitating such outcomes, the G20 may help to democratize multilateral decisionmaking and create new opportunities for South-South solidarity. Reflecting the growing prominence of developing countries (especially the BRICS group) in international affairs, in September 2009 the G20 announced that it was replacing the G8 as the supreme permanent council for multilateral economic cooperation.6

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The G20’s advocacy of the interests of developing countries has been buttressed by the rise of China, whose self-confidence is reflected in Beijing’s call for a global reserve currency in place of the US dollar to protect against future financial crises. The proposition of this measure indicates China’s interest in demonstrating leadership within the G20 and in using the forum to challenge global presumptions of US primacy. Chinese foreign policy nevertheless reflects consideration for diplomatic conviviality with the United States, evident in its cautious approach to radical regimes such as those of Raúl Castro in Cuba, Evo Morales in Bolivia, and Hugo Chávez in Venezuela. In this context, South-South cooperation serves Beijing’s diplomatic interests, for however incompletely the concept may be articulated, it provides a politically neutral explanation for technology transfer, aid, soft loans, and industrial cooperation with Washington’s self-declared foes. According to the Chinese Ministry of Foreign Affairs: “Only through uniting themselves, can the developing countries elevate their position in the South-North dialogue and preserve their own interests to the fullest possible extent in the process of globalization. . . . China stands ready to offer assistance within its capacity to developing countries having difficulties. Although China’s aid is limited, it is provided sincerely and without any conditions attached.”7 China’s approach to aid, investment, and debt relief is recognized by the United Nations Development Programme as “pivotal” to the “on-going development dialogue between countries in the global south.”8 Such endorsements may temper geopolitical anxieties in multilateral forums, but they have not stemmed international criticisms of China, for instance, in disputes about the copyright violations of Sino-Brazilian generic drugs and accusations of inhumane labor practices. Beijing’s “no strings attached” approach to foreign collaboration has also been sharply criticized by environmentalists, who point to China’s domestic record on pollution to gauge its future impact on Latin America.9 According to the Chinese State Environmental Protection Agency, environmental damage costs the country $226 billion, or 10 percent of the country’s GDP, each year.10 Moreover, “the Chinese government estimates that there are more than 300 million people living in rural areas that drink unsafe water (affected by chemicals and other contaminants).”11 China’s environmental impact is already evident in its relations with resource-rich developing countries. Africa and Latin America have become increasingly dependent on commodity exports to China, provoking serious local misgivings about the degradation of water and soil quality, and the gradual abandonment of higher value-adding sectors.12 While the creation of the Sino-Brazilian Earth Resources Satellites is a positive step toward monitoring tropical ecosystems, South-South cooperation has yet to identify comprehensive solutions to environmental degradation. As one prominent adviser to Latin American governments has written:

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It’s in Latin America’s interest—and indeed a country’s sovereign right—to decide on social—and environmental—impact management systems attached to commodity extraction . . . almost all oil and gas production as well as exploitation of almost any mining resources implies considerable disturbance to the natural environment and consequently to surrounding communities, which frequently depend on this natural environment for livelihoods. Even commodities such as soy have strong environmental impacts, as Brazil currently experiences in efforts to square massive soy production with preservation of the Amazon rainforest. Thus, establishing effective impactassessment, monitoring, and mitigation systems is vital. . . . Such systems must be applied with new buyers like China.13

In addition to environmental concerns, advocacy groups like Freedom House have taken issue with Beijing’s lack of insistence on human rights and financial safeguards overseas, while global affairs watchers like the Jamestown Foundation have criticized the Chinese government for cooperating with Socialist governments in Latin America.14 Some analysts predict that China’s relaxed approach to good governance will advance Beijing’s long-term economic and political alliances, but others argue that inadequate accountability measures and poor transparency will undermine the development of hostcountry markets, and thereby impede their absorption of Chinese exports.15 The case studies presented in this volume demonstrate that concepts like good governance and transparency inevitably filter through local hierarchies of legal, ethical, and customary practice. For instance, personalistic ties between Chinese officials, overseas Chinese communities, and local authorities may not be transparent, but they have at times facilitated productive industrial linkages. Particularly in societies whose legal conventions do not comprehensively regulate investment and aid, personal relationships can provide a useful substitute for the “missing market mechanism.”16 While personalistic ties can facilitate cooperation by supplementing inadequate regulatory codes, they can nevertheless cause problems when informal alternatives subvert the very establishment of such codes and undermine institutional legitimacy.17 As Ariel Armony and Daniel Erikson each argue in their chapters, the convergence of distinct yet overlapping informal practices, such as the Chinese custom of developing business through the “back door” (hou men) and Latin American equivalents (such as sociolismo in Cuba and palanca in Mexico) pose an unprecedented challenge to institutional transparency on both sides of the Pacific. This challenge will deepen in step with the expansion of Sino–Latin American industrial partnerships and migratory flows, and to overcome it will require approaches to governance that are flexible enough to incorporate informal connections into broader regulatory systems. Recent administrative reforms in Cuba may provide useful insights into this problem, as they are specifically designed to harness economic creativity at the grassroots while

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reining in entrenched pockets of black market activity.18 Innovative approaches to the management of domestic informal economies and their foreign linkages, together with genuine internal policing and auditing of state enterprises, will be central concerns for future policy development. As their linkages with China thicken, Latin American governments seeking to build confidence in institutional channels of trade and investment will likely be forced to provide greater guidance and support to national firms, chambers of commerce, and civil society groups. Considering the pace of change in the region brought on by China’s expansion, governments themselves will require guidance from policy-oriented research into the economic, political, environmental, and social dimensions of Sino–Latin American linkages. Prominent among the questions for the future are: • How will the approaches to corporate accountability adopted by large Chinese state enterprises affect the monitoring of human and environmental impacts in Latin America, and how do these impacts compare to past experiences with European and North American firms? • Do infrastructure and aid projects negotiated through state channels and private interpersonal ties produce any characteristic outcomes for local workforces, operating budgets, ecosystems, and quality of service? • How have Latin American economies coped with the slump in demand for natural resources provoked by the global financial crisis, and how can Latin America develop more effective ways to link China’s long-term demand for commodities to industrial upgrading and diversification? • Might a region-based bilateral dialogue with China more effectively integrate the booming resource industry into a broader, more sustainable development plan? Can the multilateral capacities of the Andean Community, ALBA, Mercosur, and Unasur more effectively embed Chinese investment in local economies?19 • How can issues of mutual concern for China, Latin America, and the United States serve as a basis for trilateral engagement? To what extent might projects like the expansion of the Panama Canal and infrastructure initiatives developed through the Inter-American Development Bank generate opportunities for dialogue on best practices, environmental impact, and financial accountability? Chinese officials argue that their country’s collaborative projects in Latin America endeavor to learn from the successes and failures of the United States in the region in order to provide locally beneficial programs of economic cooperation and development. The evidence presented in this book suggests that some Latin American countries have indeed benefited from state-coordinated technology transfer and industrial integration with China. As Kevin Gallagher has argued:

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The United States is literally and figuratively bankrupt in its competition with Chinese finance. Literally, because the US has the largest deficit on the planet and owes a big chunk of that to the Chinese. Figuratively, because the economic model that the US has exported to Latin America hasn’t worked. China is funding infrastructure, exploration, science and technology, and all the other things that President Obama says we should be spending on here at home.20

Despite the readiness of Chinese enterprises to invest in Latin American infrastructure, the prevailing exchange of the region’s natural resources for Chinese consumer products—the very exchange that Chinese investment seeks to deepen—is unlikely to provide a sustainable path of development. China’s expansion challenges the world to integrate it into existing regimes of trade, investment, and regulation while simultaneously adapting these regimes to the changing geopolitical landscape. Considering the longterm horizons of China’s collaborative projects with Latin America, scholars and analysts seeking to understand their lessons for the twenty-first century will have to be both patient and equally sensitive to their economic, political, and social dimensions. Only such a broad and interdisciplinary approach can effectively trace the past, present, and future trajectory of China’s engagement with Latin America.

Notes 1. See Jiang Shixue’s chapter in this volume, as well as his chapter, “The Chinese Foreign Policy Perspective,” 27–43; Yang, “Technological and Cultural Exchanges: Tightening the Link Between China and Latin America.” 2. For a discussion of Chinese “strategic partnerships” in Latin America, see Oviedo, “China: Visión y práctica de sus llamadas ‘relaciones estratégicas.’” 3. “China, Peru Sign Trade Agreement,” EFE News Agency, May 11, 2008. 4. Wilson and Purushothaman, “Dreaming with BRICs: The Path to 2050.” 5. da Motta Veiga, “Brazil and the G-20 Group of Developing Countries.” 6. “Officials: G-20 to Supplant G-8 as International Economic Council,” CNN.com, September 24, 2009, http://www.cnn.com. 7. “China’s Stand on South-South Cooperation,” Ministry of Foreign Affairs of the People’s Republic of China, August 18, 2003, http://www.fmprc.gov.cn. 8. United Nations Development Programme, Forging a Global South, 19; United Nations Development Programme in China, “South-South Cooperation,” http://www .undp.org.cn. 9. Royston King, “South-South Cooperation Should Be Set in a Framework of Good Environmental Governance,” Stabroek News, September 25, 2009. 10. Cited in Elwell, Labonte, and Morrison, Is China a Threat to the U.S. Economy? 12. 11. Ibid., 12. 12. Blázquez, Rodríguez, and Santiso, “Angel or Devil? China’s Trade Impact on Latin American Emerging Markets.”

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13. Georg Caspary, “China Eyes Latin American Commodities,” YaleGlobal Online, January 18, 2008, http://yaleglobal.yale.edu. 14. Corrales et al., Undermining Democracy; Thompson, “China’s Global Strategy for Energy, Security, and Diplomacy.” 15. Castaneda, “China’s Paper on Latin America and the Caribbean”; Thompson, “China’s Global Strategy for Energy, Security, and Diplomacy.” 16. Smart, “Gifts, Bribes, and Guanxi,” 398–399. 17. Tokatlian, “A View from Latin America,” 77. 18. The Cuban government’s attempts to incorporate Afro-Cuban religious communities into official economic programs, and local responses to these attempts, are discussed at length in Adrian H. Hearn, Cuba: Religion, Social Capital, and Development. State efforts to regulate the socioeconomic trajectory of Havana’s Chinese community are discussed in Hearn, “China’s Relations with Mexico and Cuba: A Study of Contrasts.” 19. For a discussion of Latin American multilateralism vis-à-vis China, see Dussel Peters and Katz, “Dos vías de desarrollo en América Latina.” 20. Kevin Gallagher, “The End of the ‘Washington Consensus,’” The Guardian, March 7, 2011.

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Carlos Alzugaray Treto is senior researcher at the Center for United States and Hemispheric Studies at the University of Havana. He is a member of the Cuban Academy of Sciences and was previously coordinator of International and Strategic Studies for the Cuban Higher Institute of International Relations (ISRI). Alzugaray served in the Cuban embassies in Japan, Bulgaria, Argentina, and Ethiopia prior to working as Cuba’s consul general in Canada, ambassador to Belgium and Luxembourg, and head of the Cuban mission to the European Union in Brussels. Ariel C. Armony is Weeks Professor of International Studies and director of the Center for Latin American Studies at the University of Miami. He has served on the executive board of the Latin American Studies Association (LASA) and as a consultant to governments and nongovernmental organizations. Armony has published widely and his work has been translated into Mandarin, Spanish, and Kurdish. Rolando Avendano is an economist at the OECD Development Centre, working with the Americas Desk. His research focuses on financial and international economics, with special interest in sovereign wealth funds, commodity markets, and Asia’s impact on emerging economies. He has previously worked in research positions at the OECD Economics Department, the University of the Andes, and the University of London. Enrique Dussel Peters is a professor in the Graduate School of Economics at the National Autonomous University of Mexico (UNAM) and coordinator of the UNAM Center for Chinese-Mexican Studies (CECHIMEX). Among his recent publications are Polarizing Mexico: The Impact of Liberalization Strategy 305

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(2000); Economic Opportunities and Challenges Posed by China for Mexico and Central America (2005); and China and Latin America: Economic Relations in the Twenty-First Century (2009, edited with Rhys Jenkins). Daniel P. Erikson is senior adviser for policy in the Bureau of Western Hemisphere Affairs at the US Department of State. He previously served as senior associate for US policy and director of Caribbean programs at the InterAmerican Dialogue in Washington, D.C. Erikson has published sixty articles and numerous book chapters and is the author of The Cuba Wars: Fidel Castro, the United States, and the Next Revolution. Francisco Haro Navejas is professor of economic sciences at the Autonomous Metropolitan University in Mexico City. He has also taught at the Colegio de Mexico. His published works include Three Amigos and a NonRegional Player: China as a Challenge Inside and Outside NAFTA’s Box; International Relations Among Tom Thumbs: Taiwan as Provider of Aid in Central America; and Constructing Chinese Identity. Adrian H. Hearn is an Australian Research Council (ARC) Future Fellow at the School of Social and Political Sciences, the University of Sydney. With Enrique Dussel Peters, he cochairs the Asia and the Americas section of the Latin American Studies Association (LASA). In 2008, Hearn was awarded a Kiriyama Fellowship from the University of San Francisco for his work on China’s relations with Mexico, and the Díaz-Ayala Award from Florida International University for his study of China’s historical ties with Cuba. Roberto Hernández Hernández directs the Department of International Studies at the University of Guadalajara and is professor in the Department of Pacific Studies. His research focuses on economic development in China, including commercial relations with East Asia, Mexico, and the United States. José Luis León-Manríquez is professor of international affairs at the Department of Politics and Culture of the Metropolitan Autonomous University in Mexico City. León-Manríquez was a diplomat for the Mexican Ministry of Foreign Affairs, where he was appointed academic director of the Matías Romero Institute for Diplomatic Studies. An expert on East Asian affairs, he has edited five books and published more than seventy journal articles and book chapters. Rodrigo Tavares Maciel is managing partner at Strategus Consulting. He previously worked as the executive secretary of the China-Brazil Business Council (2006–2010) and coorganized the World Economic Forum panel on

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China and Latin America (2007–2009). Maciel has authored numerous reports, policy papers, and articles on China’s economy and Brazil-China relations. Jorge E. Malena directs the Contemporary China Studies program at the School of Oriental Studies (Universidad del Salvador, Buenos Aires) and is an adviser to the Argentine Council for International Relations and a founding member of the Argentine Academy of Asian and African Studies. He holds visiting positions at the Latin American Studies Centers of Fudan University, Nanjing University, Xi’an International Studies University, and Nankai University. Among Malena’s recent publications is the book China: La Construcción de un “País Grande.” Dani K. Nedal is a China analyst at Strategus Consulting and associate of the Center for International Relations of the Getúlio Vargas Foundation, Brazil. Nedal is coeditor of O Que a China Quer? (2010) and was an international analyst at the China-Brazil Business Council. His current research interests include Chinese foreign policy and the global implications of China’s rise. Gonzalo Sebastián Paz is a professor at the Elliott School of International Affairs at George Washington University where he specializes in China’s relations with Venezuela, Argentina, and the Latin American region. Paz is a member of the Inter-American Dialogue Working Group on China, and has consulted for the Inter-American Development Bank and the Organization of American States. His recent publications include “Rising China’s Offensive” (2006) and “Argentina’s Relations with East Asia” (2005). Javier Santiso is professor of economics at the ESADE Business School. Previously he was director and chief economist of the OECD Development Centre, in charge of emerging markets (Asia, Africa, and Latin America) and chief economist for emerging markets at Banco Bilbao Vizcaya Argentaria. Santiso is editor of The Visible Hand of China in Latin America (OECD 2007) and in 2009 accepted the World Economic Forum’s Young Global Leader award. David Shambaugh directs the China Policy Program in the Elliott School of International Affairs at George Washington University. He is a nonresident Senior Fellow in Foreign Policy Studies and Northeast Asian Policy Studies at the Brookings Institution, Washington, D.C. Shambaugh is former editor of The China Quarterly and director of the Asia Program of the Woodrow Wilson International Center for Scholars. His most recent books are Charting China’s Future: Domestic and International Challenges (2011); International Relations of Asia (2008); and China’s Communist Party: Atrophy and Adaptation (2008).

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Jiang Shixue is research professor at the Chinese Academy of Social Sciences (CASS) and vice president of the Chinese Association of Latin American Studies. He has worked in the field of Latin American studies for three decades at CASS, focusing on the region’s economy, politics, and international relations. His books include Latin American Development Models (1996); Financial Globalization and Economic Security of the Developing Countries: The Case of Latin America (2004); and The Future of Latin America (2011). Alan Smart is professor of anthropology at the University of Calgary. His research focuses on urban issues, housing, foreign investment, social change, and agriculture in Hong Kong, China, and Canada. He is the author of Making Room: Squatter Clearance in Hong Kong (1992); Petty Capitalists and Globalization (coedited with Josephine Smart, 2005); and The Shek Kip Mei Myth: Squatters, Fires, and Colonial Rule in Hong Kong, 1950–1963 (2006). Cynthia Watson is professor of strategy at the National War College in Washington, D.C., where she has taught and held an array of administrative positions since 1992. Watson specializes in China’s security policy in the global arena, with special emphasis on Latin America. Her ninth book, Combatant Commands, was published in 2010. Liu Weiguang is secretary general of the Center of Cuban Studies at the Institute of Latin American Studies (ILAS), the Chinese Academy of Social Sciences (CASS), and editor of the Journal of Latin American Studies (Beijing). Liu’s research interests lie in Latin American politics, Latin American international relations, and Cuban studies. Mao Xianglin is senior research fellow at the Institute of Latin American Studies of the Chinese Academy of Social Sciences (CASS). He has participated in numerous academic exchanges and research projects throughout North America and the Caribbean and has held prominent research positions in Chinese and international institutions. He is a Special Subsidy Winner for Distinguished Service in Social Science awarded by the State Council of China (1992). Among his publications is the book Sobre el Socialismo en Cuba (2006).

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Adams, John Quincy, 103 Afghanistan War, 114–115 Africa: GPS capital, 49(n93); growth of Sino-African trade, 23–25; inward and outward investment by region, 1990–2008, 74(fig.); Sino-subSaharan trade during the 1960s, 259 Agriculture: Brazilian production, 71, 107; center-periphery trade model, 161–162; China’s increasing commodities demands, 10; China’s scarcity of arable lands, 162–163; costs and benefits of agroindustrialization, 92–93; Cubans embracing Chinese consumption habits, 196–197; export commodities, xiv–xv; indentured labor in CACZ, 214–215; intraindustry trade with China, 80; Sino-Latin American trade for selected industries, 70(fig.); SinoVenezuelan cooperation, 224; tariff for Chilean goods, 166. See also Soybean production Aid and aid projects: debt purchases, 36–37; humanitarian aid, 62–63; increase in, xvi; informality of, 49(n93); from overseas Chinese, 61; South-South cooperation, 283 Aid societies, 144 Aircraft manufacturing, 71 Alarcón, Ricardo, 199 Alfonsín, Raúl, 260

Aluminum production, Peru’s, 75 Alvarez, Bernardo, 221, 231 Amorim, Celso, 172 Andean Pact, 107 Anti-Americanism, 32–37, 47(n55) Anti-Chinese campaign, Mexico’s, 144–145, 151 Antidumping policies, 54, 64(n5), 272–273, 274 Arbenz, Jacobo, 111 Argentina: agricultural exports, xv; challenges and directions of China’s relations with, 273–275; China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade, 2000-2009, 12–13(tables); China’s per capita GDP in comparative perspective, 2008, 94(table); China’s raw materials demands reshaping trade relations, 69; China’s socioeconomic development and, 93; Chinese gang activity, 131; Chinese investment figures, 75; commodity boom, 10; currency swaps, 36–37, 48(n68), 58; diplomatic partnership, x, 257–260; dumping, xv; economic diversification strategy, 271–273; expanding trade, diplomatic, and cultural relations, 265–271; export competition with China, 79(fig.); exports by firm, 2008, 266(table); immigrant population,

309

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276(n33); intensifying bilateral ties in the 1980s, 260–262; intraregional exports, 86(fig.); public opinion of China, xii, 31, 56(table); response to Tiananmen Square and the end of the Soviet Union, 262–264; trade figures, 122; trade trajectory, 174; Venezuela’s oil pipeline project, 227. See also Soybean production Arias, Oscar, 128 Arms sales, xiv, 116(n8) Article 98 controversy, 109 Asia-Pacific Economic Cooperation group (APEC), xi Assessors, Mexico’s, 147–148 Attitudes, 27, 32–37, 42 Authoritarian capitalism, 44–45 Automotive industry, 81, 142, 191–192, 251 Auyón Gerardo, Eduardo, 147–149 Azeredo da Silveira, Antônio, 238 Bachelet, Michele, 164, 177, 222 Backyard, Latin America in the US, 36, 57 Baja California, 98, 147–148 BBC/Globescan survey, xii Beijing Consensus, 14, 27, 31 Bematech corporation, 80–82 Bilateral relations: Brazil, 239, 243–246, 247; increase in, x–xi; Mexico’s guanxi, 148; Sino-Chilean trade, 165–167; Sino-Cuban relations, 199–200; Sino-US cooperation on the environment, 114; trade figures, 159; US concerns over Sino-Venezuelan ties, 126; US-Venezuelan oil relations, 227–228; values of, 20(n22); Venezuela, 223–225. See also Trade relations Biotechnology development, 193–194 Bitumen deposits, 106–107 Bolivarian Alternative for the Americas (ALBA), 221, 233(n1) Bolivia: China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade 20002009, 12–13(tables); export competition with China, 79(fig.); expulsion of US diplomats, 47(n55), 233(n2); public opinion of China, xii, 31; rail projects, 225;

telecommunications satellite launch, 229; Venezuela’s oil integration projects, 227 Brazil: anti-Americanism, 35; bilateral relations challenges, 252–253; bilateral relations trajectory, 243–246; China as opportunity, 172; China treaty, 65(n26); China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade 2000-2009, 12–13(tables); China’s per capita GDP in comparative perspective, 2008, 94(table); China’s raw materials demands reshaping trade relations, 69; China’s socioeconomic development and, 93; China’s trade domination, 68; Chinese gang activity, 131; Chinese investment figures, 75; commodity boom, 10; concerns over US economic and political dominance, 16; currency swaps, 58; development aid, xvi; diplomatic partnership, x; economic crisis response, 44, 69, 70–71; export competition with China, 79(fig.); foreign direct investment, xvi, 75; head-of-state visits, xvii, 107–108, 237, 239, 240, 244, 254(n6); high value-added niche, 82–83; historical context of SinoBrazilian relations, 120, 237–240; intraindustry trade with China, 78, 80; intraregional exports, 86(fig.); language barrier, xiii; loan-oil deal, 50(n100); military and security concerns, xiv; multilateral relations, 240–243; naiveté over China’s relations with, 235–237; oil exports, xv, 50(n100); political misunderstanding, 56; public opinion of China, xii, 56(table); regional trade, xiv; Sino-Argentine relations, 268; Sino-US-Brazilian oil triangle, 107–108; soft balancing US predominance, 253(n3); South-South cooperation at the firm level, 80–81; strategic partnership, 18–19, 282; trade and investment, 122, 246–251; trade competition, 174; Venezuela’s oil integration projects, 227. See also BRICS

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Brazil-China business Council (CBBC), 243, 250 Bribe Payers Index, 40, 49(n88) Bribery, 40–41, 49(n88) BRICS (Brazil, Russia, India, China, South Africa), 75, 235, 241, 282 Britain: intervention in imperial China, 7 British Virgin Islands: Chinese FDI, 249 Brown, Gordon, 1 Burton, Dan, 56–57 Bush, George H.W., 105 Bush administration: CAFTA implementation, 211–212; China’s trade expansion as security threat, 26; FTAA failure, 31; low priority of Latin American relations, 3; neglect of Latin America, 119; Obama election, 103; regional disappointment with, 105; Sino-US dialogue, 25; stance on leftist leaders, 119; systemic constraints on Latin American policy, 108–110; war on terrorism, 114–115 Business sector: CACZ, 209–210; lack of analysis of China’s Latin American presence, 119; Mexican connections, 142–143; Mexico’s guanxi, 147–150; South-South cooperation at the firm level, 80–84 Calderón, Felipe, 169, 175–176, 222 Canada, 94(table), 184(n14) Cantú, Esteban, 144 Capital. See GPS capital Caribbean states. See Central American and Caribbean Zone Casino Chung Wah, 196 Castro, Fidel, 128, 188–189, 196 Castro, Raúl, 188–189, 194 Cell phone market, 229. See also Telecommunications Center-periphery trade model, 160–164, 171–174 Central American and Caribbean Zone (CACZ): approaches shaping China’s presence, 25–28; challenges and concerns over Chinese investment, 216–217; China’s strategic policy, 24; Chinese immigrants, 214–216; export competition with China, 79(fig.); history of diplomatic relations, 205; market competition, 79(fig.),

311

167–168; political, economic, and diplomatic importance, 203–204; Taiwan issue, 17, 62, 105, 128–129, 206(fig.), 208–211; trade relations, 211–214 Central American Free Trade Agreement (CAFTA), 15–16, 54, 105, 211 Century of Humiliation, China’s, 105 Chamber of Chinese Enterprises (Mexico), 148 Chamber of Commerce, China-Mexico, 98 Charm offensive, 2–3 Chávez Frías, Hugo: anti-Americanism, 35; diplomatic visits to and from China, 224; Russian support against the US, 221; Sino-Venezuelan military exchanges, 109; SinoVenezuelan oil venture, 226–227; USVenezuelan diplomatic relations, 231. See also Venezuela Cheap labor, myth of China’s, 72–73 Chen Shui-Bian, 61 Chile: China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade 20002009, 12–13(tables); China’s per capita GDP in comparative perspective, 2008, 94(table); China’s trade domination, 68; commodity boom, 10; copper exports, 165–167; diplomatic partnership, x; economic crisis response, 177; export competition with China, 79(fig.); free trade agreements, xvi, 53, 184(n11); historical context of China’s relations with, 120; innovation implementation, 87; intraregional exports, 86(fig.); market competition advantage through infrastructure investment, 85; public opinion of China, xii, 31, 56(table); trade figures, 122; trade trajectory, 160 China in Latin America: The Whats and Wherefores (Ellis), 4 China threat, 54, 71, 119, 183–184, 241 China-Brazil Earth Resources Satellite program (CBER), 239 China-Caribbean Joint Business Council, 209, 210 China–Latin America Business Summit (2007), 93

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China-Mexico Forum (2006), 93 China’s and India’s Challenge to Latin America (World Bank publication), 4–5 China’s Expansion into the Western Hemisphere (Roett and Paz), 4 China’s Relations with Latin America: Shared Gains, Asymmetrical Hopes (Inter-American Dialogue publication), 3 Chinese Association of Mexicali, 147–149 Chinese Association of Tijuana, 149–152 Chinese Business Club (Mexico), 143 Chinese Council for the Promotion of International Trade (CCPIT), 142 Chung, Arthur, 60 Citizenship rights, 30, 196 Civil society groups: Chinese Cuban groups, 196; concerns about China’s impact, 183 Civil war, China’s, 8, 61 Clearing account trade, 189–190 Clinton, Hillary, 42, 115, 118–119, 120, 231, 253(n3) Cold War: anti-Americanism, 34; Brazil’s diplomatic relations with the East Bloc, 237–238; Sino-Latin American relations during, 8–9; US interests in Latin America, 105 Colombia: China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade 2000-2009, 12–13(tables); export competition with China, 79(fig.); FDI flows, 73; South-South cooperation at the firm level, 81; US-Latin American and Sino-Latin American ties, 110 Colonialism: anti-Americanism, 34; China’s investment in Brazil, 251; China’s policy on, 24; neocolonialism and South-South cooperation, 62–63; overseas Chinese, 60; US-Latin American conflict over political balance, 104–105 Commercial dimension. See Economic dimension; Import/export commodities; Trade relations Commodity boom, 10–11, 171–174 Communist forces, 8; Brazilian stance, 237–238, 254(n6)

Communist revolution, 8–9 Competition: export competition with China for selected countries, 2000–2009, 79(fig.); firm level response to, 80–84; high value-added global niche, 82–83; impact of Chinese trade on domestic firms, 76–78; impact of financial crisis, 175; market-led innovation, 87–88; maximizing geographical advantage through infrastructure investment, 84–85; myth of China’s cheap labor, 72–73; product segments with high volatility of demand and high customization needs, 83–84; regional integration maximizing exchange flows, 85–87; Sino-Mexican trade, 167–170; Sino-US competition, 54–55; trade trajectories, 160; upstream value integration, 81–82 Confucius Institutes, xii, 25, 268 Congress, US, 112, 116(n8) Containment policy, 34 Convergences/divergences, 14, 28(fig.); backdoor connections, 40–41; China’s economic reform model, 30; domestic-, hemispheric- and globallevel relations, 27–28; social and institutional informality, 38–41; USLatin American democracy, 37 Coolies. See Labor migration Copper exports, 142, 161, 165–167, 175, 180(fig.), 184(n10) Corruption, 40–41, 49(n88), 59, 131–132 Costa Rica: China’s importance as a trading partner, 94(table); debt purchase, 36; diplomatic relations, 62; dollar diplomacy, 131; export competition with China, 79(fig.); free trade agreements, 53, 68; One China policy, 205, 208–209; Taiwan issue, 128; US trade relations, 212 Courtesy demands reciprocity, 36 Credit markets, 124 Cricket World Cup, 129 Criminal activity, 131 Cuba: China’s Century of Humiliation, 105; China’s imports, exports, and balance of trade 2000-2009, 12–13(tables); Chinese immigrant communities, 215; congressional

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concerns about Chinese activity in, 112–113; cultural exchange, 215; diplomatic partnership, x, 8; economic and trade ties to China, 189–192; education, science and industry cooperation, 192–195; expanding regulatory systems, 284–285; free trade agreements, 68; historical context of China’s relations with, 120, 187–188; military pursuits, xiv; One China policy, 205, 207; political and economic goals, 17; postwar recognition of China, 8; US concerns over Sino-Cuban ties, 126–127; US trade relations, 212; US-China-Cuba triangle, 197–198 Cuban Revolution (1959), 196 Cultural dimension, xi–xiii; Argentina’s cultural exchanges, 268–269; Brazil’s lack of exchange, 244–245; Chinese immigrants in Mexico, 145–154; Chinese presence in CACZ, 215; cultural and socioeconomic rights, 30; cultural exchanges with Taiwan, 65(n29); Mexico’s disregard of Chinese cultural heritage, 168; Mexico’s guanxi, 147–148; as obstacle to relations, 55; Sino-Latin American gap, 26 Cultural exchange: CACZ exchange, 215; Cuba’s exchange, 192–193, 196–197 Currency: Argentine-US parity, 262, 263–264; silver peso, 7; SinoBrazilian dispute, 242–243; Sino-US battle over currency values, 1; Venezuela’s dual exchange rate system, 226 Currency swaps, 36–37, 48(n68), 58 Dalai Lama, 169 Debt: Argentina’s debt repayment, 35; debt purchases, 36–37; relief, 283; US reliance on Chinese purchases of, 104 Deindustrialization, 171–172 Democracy: anticorruption efforts, 132; authoritarian capitalism, 44–45; USLatin America divergence, 37 Deng Xiaoping, 259 Development, economic: China’s policy paper, 59–60; comparing China and

313

Latin America, 93–97; convergence on paradigms of, 27–28; diverging trajectories, 17; models of, 28–32; raw materials exports, 98–99 Development aid, xvi; harmonious, 281 Development trap, 47(n43) Diaspora, China’s: Brazil, 245–246; as bridge to Latin American relations, 60–61; CACZ, 213–214; guanxi in Mexico, 146–152; Mexico, 143–146; social networks, 40–41. See also Immigrants/immigration Diplomatic dimension: areas of misunderstanding, 55; Argentina’s recognition of China, 257–260; checkbook diplomacy, 36; Chile’s diplomatic relations, 164; China as nonmarket economy, 163; Chinese and Taiwanese embassies in the CACZ, 206(fig.); Cuban ideology, 188–189; Cuba’s ties to China, 189–192; dollar diplomacy, 130–131; emerging policy, 1–2; expulsion of US diplomats, 47(n55), 221–222, 233(n2); imperial China, 8; importance of Sino-US relations, 283; increase in bilateral diplomacy, x–xi; language barrier, xiii; Latin America’s importance to China, 52; Mexico’s deteriorating goodwill, 168–169; reinstatement of Venezuelan-US ties, 231; Sino-Brazilian relations, 65(n26), 238–239, 242–243, 244; SovietBrazilian relations, 237–238; systemic constraints on US-Latin American policy, 108–110; US relations with Taiwan, 58; US-Venezuelan relations, 227–228. See also Head-of-state visits; Taiwan Divergences. See Convergences/divergences Diversification, market: Chile, 165; China’s exports, 95; Cuba, 191; Latin America learning from China’s model, 29; Latin America weathering 2008 economic crisis, 124 Doha negotiations, 241–242 Domestic institutions, 14, 208 Domestic-level relations: Argentina’s challenges to bilateral cooperation, 274; convergences and divergences,

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28(fig.); informal rules and institutions, 27, 38–41; Obama administration conflicts and constraints, 103–104, 110–113; power of ideas, 41–42; social navigation, 43; US and China’s constraints and challenges to foreign policy, 113–115; Venezuelan referendum, 232 Domínguez, Jorge I., 57 Dominican Republic, 93, 94(table) Double standards, 34 The Dragon in the Room (Gallagher and Porzecanski), 5 Drought: Venezuela, 225 Drug trafficking, 108 Dual exchange rate system, 226 Duddy, Patrick, 221, 231 Dumping policies, 54, 64(n5), 272–273, 274 Dutch disease, 15, 76–77, 99 Early trade relations, 6–7 Earthquake, 193 Economic cooperation, 52 Economic crisis (2008): Argentina’s diversification strategy, 271–273, 274; Brazil’s response, 242, 249–250, 252; CACZ response, 213; Chile’s strategy, 177; China’s ascendance in the world economy, 281; China’s growth despite, 67–68; China’s loans, 43; China’s strategy, 178; Cuba, 190; danger to Latin American economies, 5; development models resulting from, 28–29; impact on US-linked Latin American economies, 123–125; Lula’s stance on, 1–2; macroeconomic trends following, 68–71; Mexico and Chile, 161, 175–180; as opportunity for economic advancement, 58–59; shaping Sino-Venezuelan relations, 233; Sino-Venezuelan oil venture, 226–227; trade trajectory and, 182; US concerns over changes in global balance of power, 113; US constraints on China policy, 109 The Economic Development of Latin America and Its Principal Problems (Prebisch), 171–172 Economic dimension: Argentina’s developing relations, 260–262;

authoritarian capitalism, 44–45; Brazil’s multilateral trajectory, 241; China’s macroeconomic trends with Mexico, 140–143; Cuba’s political and economic goals, 17; diverging economic trajectories, 160–174; dominating Sino-Latin American relations, 4–5; extralegal institutions, 38–39; global recovery plan, 1–2; Latin America’s importance to China, 51–52; macroeconomic trends, 68–71; post-Cold War liberalization, 10; public opinion of China’s power, 56(table); regional integration maximizing exchange flows, 85–87; Sino-Cuban relations, 189–192; structuralism, 171–174; study and analysis of, 91–93; trade driving SinoLatin American and Sino-Caribbean relations, 26; US concerns over maintaining influence, 15–16; US perception of Sino-Latin American relations, 121–123; Venezuelan oil moving relations, 225–228. See also Trade relations Economic freedom, 28–29 Economic growth: China challenging US and Japan, 265; China threat, 71; China’s impact on Latin America’s, 54; China’s per capita GDP, 94(table); China’s post-crisis growth, 44; Chinese immigrants in Mexico, 144; comparing China and Latin America, 93–97; development models, 28–29; diverging development trajectories, 17; importance of guanxi in, 147; macroeconomic trends following the crisis, 68–71; Mexico’s crisis strategy, 175–176; positive and negative implications for Latin America and the Caribbean, 122–123; poverty reduction, 62–63; world growth, 77 Economic reforms, China’s, 29–31, 40, 42, 97, 263–264 Ecuador: China’s importance as a trading partner, 94(table); commodity boom, 10–11 Education: Chinese presence in CACZ, 215; Cuban martial arts, 197; cultural exchanges, xii, 25, 269; neocolonialism and South-South

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cooperation, 62–63; Sino-Cuban cooperation, 192–193. See also Cultural exchange El Salvador, 79(fig.), 94(table), 213 Elections: Venezuela referendum and US midterms, 232 Electronics, xv. See also Technology Embraco company, 82 Emerging countries, 235, 241–242, 252 Emerging markets, impact of the crisis on, 69 Energy resources: China’s foreign policy reflecting need for, x; China’s increasing demand for, 10; crisis response, 180; Cuba’s imports, 191–192; import figures and commodities, xv; international crude oil prices, 182(fig.); Sino-Latin American trade for selected industries, 70(fig.); Sino-Venezuelan cooperation, 224, 225; US-Latin American and Sino-Latin American ties, 110. See also Oil resources Enter the Dragon? (Woodrow Wilson International Center for Scholars), 3–4 Environmental impact: Argentina, 273–274; CACZ, 216; of increased demand for exports, 99; Sino-US cooperation, 114; trade dependency and, 283–284 European Union: Latin American investment, 122 Exchange rate volatility, 15 Expansionism, 7, 26 Experiences in formal and informal contexts, 39 Experimental points, 29–30, 46(n25) Export commodities. See Import/export commodities Extralegal institutions, 38 Figueredo, João, 239 Financial crisis. See Economic crisis (2008) Five Principles of Peaceful Coexistence, 197, 258 Food production and processing, 261, 268. See also Agriculture Foreign direct investment (FDI): Brazil, 243, 248–251, 249(fig.); Central American and Caribbean Zone, 190,

315

210–211; China’s international investment position, 2006–2009, 76(fig.); China’s lag behind US and EU, 122; in Cuba, 190; go global strategy, 52–53, 267; increase in, xvi, 67; infrastructure and extraction, 184(n1); Mexico, 141–143; misunderstanding over, 56; myth of China’s negative impact on emerging markets, 73–76; Sino-Brazilian tension over, 248–251; trade growth and, 159; Venezuela, 223–224. See also Investment Foreign policy, post-Soviet changes in, 9–14 Four Principles for Relations between China and Latin America, 260 Fox, Vicente, 168–169 Free trade agreements (FTAs): ALBA, 221, 233(n1); anti-Americanism, 35; CACZ, 211–212; Chile, 160, 165–166, 184(n11); increase in, xvi, 53; Mexico, 169–170; trade friction, 64(n5); transforming Asian trade patterns, 70 Free Trade Area of the Americas (FTAA), 15–16, 31, 212, 233(n1) Freedom House, 284 Frota, Sylvio, 238–239 G20, 189, 235, 241–243, 282–283 Gang activity, 131 Gang of Four, 259 García, Alan, 282 Geisel, Ernesto, 238–239, 254(n9) General Agreement on Tariffs and Trade (GATT), 168 Georgia, 221 Germany: FDI in Brazil, 249(fig.) Gini coefficient, 31 Global Economic Prospects: Commodities at the Crossroads (World Bank publication), 173 Global engagement: factors effecting China’s, 281–282. See also Cultural dimension; Diplomatic dimension; Security/military dimension Globalization: Sino-Brazilian relations, 239–240 Global-level relations: convergences and divergences, 28(fig.); development

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models, 28–32; growth of SinoAfrican and Sino-Latin American trade, 23–25; power of ideas, 41–42; three approaches to, 25–28, 27 Go global strategy, 52–53, 267 Goulart, João (Jango), 237–238, 254(n6) Governance, 130–132, 284 GPS capital, 14, 27–28, 28(fig.), 39–40, 43, 49(n93) Grenada, 55, 128, 129 Guanxi (social ties), 17, 39, 61, 139, 146–154 Guatemala: China’s importance as a trading partner, 94(table); coup d’état, 111; export competition with China, 79(fig.); remittances to, 213; SouthSouth cooperation at the firm level, 81; Taiwan issue, 61–62; UN Security Council seat, 230, 234(n7) Guyana, 60, 210 Guzmán, Abimael, 9 Haiti, 127–128 Hard power, 34 Harmonious development, 281 Harmonized Tariff System, 95 Head-of-state visits: Argentina, 268; Brazil in China, 107–108, 237, 239, 240, 244, 254(n6); to Chile, 164; Cuba, 188, 194; increasing frequency of China’s, xvii, 24, 52; increasing Latin American optimism over Chinese presence, 163–164; Jiang’s outreach program, 120–121; Latin American optimism over, 172; Mexico in China, 168–169; Venezuela in China, 221–222, 233(n6). See also Hu Jintao Hemisphere-level relations: attitudes, 32–37; convergences and divergences, 28(fig.); power of ideas, 41–42; three approaches to, 27 High Level Bilateral Commission (COSBAN), 243, 244 High value-added global niche, 82–83 Honduras, 79(fig.), 94(table), 213 Hou men (backdoor practices), 40–41 Hu Jintao: Argentina visits, 268, 269; Chávez’s visit with, 222; China’s investment in Brazil, 75; Costa Rica’s diplomatic relations with China, 62;

Cuba visit, 188–189, 192; free-trade agreements, 64(n5); increasing frequency of visits, 24, 52; investment promises, 56, 121–122; US notice of China’s expansion into Latin America, 121; US-China-Cuba triangle, 200. See also Head-of-state visits Hui Liangyu, 24 Human rights: China’s action plan, 47(n34); cultural and socioeconomic rights, 30; international concerns over, 284; labor conditions in Mexico, 141; leftist regimes, 2; military commitment of abuses, 109; US failure to criticize China on, 115 Humanitarian aid, 62–63 Humiliation, 47(n55) Identity, national: anti-Americanism, 32–37; indentured labor in CACZ, 214–215 Ideology: Cuban socialism, 188–189; guanxi, 139; One China policy, 204–205 Illegal immigrants, 41, 49(n91), 145, 157(n64) Immigrants/immigration: Argentina, 262, 270–271, 276(n33); Chinese competition in Mexico sparking hostility towards, 141, 155(n27); Chinese gang activity, 131; guanxi in Mexico, 146–152; illegal immigrants, 41, 49(n91), 145, 157(n64); Mexico’s expulsion of Chinese, 16–17; Mexico’s history of mistrust, 168; shaping Sino-Venezuelan relations, 232–233; social networks, 40–41. See also Diaspora, China’s; Guanxi (social ties); Labor migration USNS Impeccable, 110 Imperial China, 6–7, 205 Import substitution industrialization (ISI), 171–172, 261 Import/export commodities, 10; Argentine exports by firm, 2008, 266(table); center-periphery trade model, 160–164, 171–174; changing composition of China’s trade, 95, 97; Chile, 164–165; Chile’s crisis measures, 177; China as destination for Latin American exports, 78–80;

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China’s consumer market, 255(n24); composition of Brazilian exports, 2005-2009, 247(fig.); composition of Brazilian imports from China, 20072009, 248(fig.); concerns over Dutch disease, 15; diverging development trajectories, 17; Mexico, 170; myth of China’s deleterious effect on manufacturers, 76–78; Sino-Brazilian trade, 247–248; trade of medium- and high-tech chapters, 1995–2009, 96(table); value and composition of, xiv–xvi. See also Trade relations Income inequality, 28(fig.), 30–31 India, 4–5 Industrial policy: Mexico, 170 Industrial sectors: China’s challenge to Brazil’s, 236 Industrialization, 5, 92, 261 Informal rules and mechanisms, 38–41, 43, 49(n93), 114 Infrastructure investment: Central America and the Caribbean, 18; Chile’s crisis response, 177; counterbalancing China’s need for commodities, 43; extraction as goal of, 184(n1); increase in, xvi; investment figures, 75; Jamaica, 210; maximizing geographical advantage for market competition, 84–85; Mexico, 142; South-South cooperation, 63 Innovation, 46(n25), 87–88 Institute of Latin American Studies (ILAS), 25, 245 Institutions, 27, 38–41 Inter-American Development Bank: capital diversion to China, 54; Chávez’s criticism of, 227; China’s capital investment, 53; China’s membership in, xi; economic crisis, 59, 69, 213; economic relations analysis, 91; Latin American support for, 64(n6); loan-oil deal, 50(n100); national holdings, 64(n6); US support for China’s membership, 125 Inter-American Dialogue, 3–4, 16, 117 International Criminal Court (ICC), 109 International Monetary Fund (IMF): Argentina’s debt repayment, 35; Chávez’s criticism of, 227; China’s

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nonstandard policies, 28; Mexico’s crisis strategy, 176; reform efforts, 35–36; restructuring, 31; US domination of, 48(n60) Intraregional exports, 86(fig.) Investment: investment rates in China, 1980-2008, 72(fig.); inward and outward investment by region, 1990–2008, 74(fig.); non-FDI capital sources, 76; return to capital, 73(fig.). See also Foreign direct investment Iran, 42–43, 242, 254(n16) Iraq War, 114–115 Jabil Circuits, 84 Jamaica, 210, 213, 214 Japan: cultural gap with Latin America, 26; export competition with China for selected countries, 2000–2009, 79(fig.); FDI in Brazil, 249(fig.); imperial China and, 8; public opinion of China, 56(table) Jiang Zemin, 120, 131, 188 Joint Action Plan (Brazil), 244 Kirchner, Cristina Fernandez de, 60, 268, 274 Kirchner, Nestor, 172, 268 Koramsa factory, 81, 83–84 Labor: All-China Federation of Trade Unions, 216; Argentine currency swap, 48(n68); China’s increasing exports, 54; Chinese immigrants in Mexico, 155(n27); disputes, 11, 14; policy design and implementation, 97 Labor migration: CACZ, 214–215; history of overseas Chinese, 60; indentured laborers in Cuba, 187, 195–196; 19th-century labor, 7. See also Immigrants/immigration Language: Brazil’s lack of cultural exchange, 244–245; cultural exchanges, xii–xiii; education and cultural exchanges with Argentina, 269; Latin American and US scholars’ lack of language skills, 118; Mexico’s guanxi, 150; Sino-Cuban exchange, 193. See also Cultural exchange Latin America Facing China (Fernandez and Hogenboom), 5

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Latinobarómetro, 44 Leahy, Patrick, 109 Leftist regimes, x, 34–36 Legitimacy, 42 Li Zhuohong, 149–150 Liu Ke Wei, Willy, 149–151, 153 Loan-oil deal, 50(n100), 250 Lobbyists: Brazil, 246 Lost decade, 123 Lula da Silva, Luiz Inácio, xvii, 107–108, 111, 172, 222, 244, 249 Macroeconomic trends, 68–71, 140–143 Malvinas (Falkland) Islands, 260, 263 Manila Galleon, 6, 60 Manufacturing: analysis of impact of Chinese competition on, 92–93; Brazil’s imports/exports, 247–248; Brazil’s trade competition, 174; CACZ’s dependency trap, 211; centerperiphery trade model, 160–164, 172–174; Chinese competition in Mexico, 140–141, 155(n36); composition of Brazilian exports, 2005-2009, 247(fig.); Costa Rican exports, 212; Cuba’s biotechnology and pharmaceuticals, 194; Cuba’s domestic production, 195; diverging development trajectories, 17; economic crisis recovery, 5; myth of cheap labor, 72–73; myth of China’s deleterious effect on manufacturers, 76–78; Sino-Latin American trade for selected industries, 70(fig.); SouthSouth cooperation at the firm level, 80–81; trade concentration in, xv–xvi; upstream value integration, 81–82 Martial arts: Cuba, 197 McCain, John, 119 Medical exchanges, 193 Medvedev, Dimitri, 221, 222 Menem, Carlos, 262, 263, 264 Mercosur, xi, 37, 107 Mexico: anti-Chinese sentiment, 152–154; China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade 2000-2009, 12–13(tables); China’s macroeconomic trends, 140–143; China’s per capita GDP in

comparative perspective, 2008, 94(table); China’s socioeconomic development and, 93, 97–98; Chinese diaspora, 143–146; Chinese production of Mexican artisanal handicrafts, 155(n36); Cold War relations, 8; commercial bridges to China, 16–17; competition strategies, 84; diplomatic partnership, x; dumping, xv, 54; economic crisis strategy, 175–177; export competition with China for selected countries, 2000–2009, 79(fig.); FDI, 141–143; guanxi, 146–152; historical context of China’s relations with, 120; intraindustry trade with China, 78; intraregional exports, 86(fig.); inward FDI hampering flows to, 73; market competition with China, 167–170, 179; political reform, 32; public opinion of China, xii, 56(table); rail projects, 225; South-South cooperation at the firm level, 81; trade conflict, 160; trade figures, 122; US concerns over state failure, 108; US exports, 54 Mexico-China Binational Commission, 98, 169 Military exchanges: Argentina, 264, 269–270; congressional concerns about Chinese activity in Venezuela and Cuba, 112–113; lack of analysis of China’s Latin American presence, 119; Russia’s empowerment of Venezuela, 221, 233(n5); US China policy, 109–110; US concerns over China’s, 127–128 Military regimes, 3, 259 Mitchell, Keith, 129 Modernization, economic, 260–261 Monroe Doctrine, 104, 119–120 Morales, Evo, 229, 233(n2) Multi-Fiber Agreement (MFA), 168 Multilateral relations: Brazil, 240–243; CACZ trade relations, 211–214; China’s activity in multilateral organizations, xi; China-USVenezuela, 230–232; Obama’s commitment to, 111, 115; US-ChinaCuba triangle, 197–198

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Nationalism, 32–35 Nationalist forces, 8 Natural resources. See Raw materials Nemak company, 81, 82 Neocolonialism, 62–63 Neoliberalism, 10, 29–30, 105 Networks. See Guanxi (social ties) New colonialism, 24 Nicaragua, 94(table), 212, 216 Nickel exports, 126, 190, 191, 199 Nixon, Richard, 257 Non-Group-5 (NG-5), 282 Nonmarket economy, China as, 163, 168, 243, 254(nn18,19) North American Free Trade Agreement (NAFTA), 93, 169–170 North Korea, 108 Nuclear cooperation and programs: Argentina, 260–262, 269–270; Brazil, Turkey, and Iran, 242; Venezuela, 222–223; weapons programs, 9 Obama administration, 3; China as threat to US interests in Latin America, 119–120; China-US-Venezuela, 232; China-US-Venezuela triangle, 230–231; domestic constraints on foreign policy, 110–113; governance and transparency concerns, 130–132; improving anti-American attitudes, 35; lack of Latin America message, 37; postelection euphoria and conflict, 103–104; stance on leftist leaders, 118–119; systemic constraints on Latin American policy, 108–110; travel restrictions to Cuba, 197; US and China’s domestic challenges and constraints on foreign policy, 113–115 Oil resources: Argentina’s diplomatic recognition of China, 258; Brazilian production, 71; China’s consumption, 10; commodity boom, 11; Cuba, 191, 199; importance in Venezuelan relations, 231; Latin America’s importance to China, 51–52; Mexico’s stimulus package, 175–176; neocolonialism and South-South cooperation, 62–63; Sino-Brazilian loan-oil deal, 50(n100), 250; SinoUS-Latin American triangle, 106–108;

319

Sino-Venezuelan cooperation, 1, 18, 224; trade concentration in, xv; US concerns over Sino-Venezuelan ties, 126 Omnidirectional foreign policy, x One China policy, 9, 129, 159. See also Taiwan Open Door Policy, 259 Open-door policy, 60 Organización Corona, 81, 82 Organization of American States (OAS), xi, 125 Organization of Petroleum Exporting Countries (OPEC), 227, 258 Orimulsion, 106 Overseas Chinese. See Diaspora, China’s Overseas Chinese Affairs Office (OCAO), 147 Panama: bilateral trade with China, 212; China’s importance as a trading partner, 94(table); diplomatic shift, 208–209; export competition with China, 79(fig.); US concerns over Sino-Panamanian ties, 127 Panama Canal, 16, 127 Paraguay: China’s importance as a trading partner, 94(table); Chinese gang activity, 131; commodity boom, 10; diplomatic relations, 244; export competition with China, 79(fig.); Venezuela’s oil integration projects, 227 Party-to-party diplomacy, xi, 53 People’s Liberation Army (PLA), 109, 116(n14) Peron, Isabel, 258 Peru: China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade 20002009, 12–13(tables); China’s per capita GDP in comparative perspective, 2008, 94(table); China’s public image, xii; Chinese investment presence, 75; commodity boom, 10; diplomatic partnership, x; export competition with China, 79(fig.); free trade agreements, xvi, 53, 68, 282; guerrilla movement, 9; humanitarian aid to, 63; imperial China and, 6;

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intraregional exports, 86(fig.); trade figures, 122 PetroCaribe, 227 Pew Global Attitudes Poll, xii Pharmaceuticals industry, 194 Philippine Islands, 6–7, 79(fig.) Pilot projects, 29–30 Pinochet, Augusto, 165–167 Police forces, 127–128 Policy Paper on Latin American and the Caribbean, 1–2, 59–60, 100, 159 Political dimension: anti-Americanism, 32–37; Argentina, 267–269; authoritarian capitalism, 44–45; Brazil’s strategic partnership, 282; China-Taiwan struggle for ascendance over CACZ, 208–211; convergences and divergences, 28(fig.); Cuban ideology, 188–189; economic goals and, 17; extralegal institutions, 38–39; Latin America’s importance to China, 52; neocolonialism, 63; as obstacle to relations, 55; tensions with Mexico, 168–169; US concerns over political influence, 15–16; US religious concerns affecting policy, 112; USLatin American conflict over political balance, 104–105 Political reform, 32 Political stability, 48(n70) Political systems, 46(n25) Poverty: socialist principles, 199 Power, distribution of: antiAmericanism, 32–37 Power of ideas, 41–42 Prebisch, Raúl, 54, 161, 171 Protectionism, 19, 100(n3), 246–247, 272–273. See also Antidumping policies Protests, anti-Chinese, 98 Public opinion, 56; anti-Americanism, 32–37; Brazilians’ negative perception of China, 245–246; China’s and US influence on Latin America, 31–32; Latin American opinions of China, 2004, 56(table); optimism over Chinese penetration into Latin America, 163–164; positive view of China, xii Public sector: policy design and implementation, 97

Qiao Shi, 263 Qing Dynasty, 7, 205 Railway project (Mexico), 143 Railway project (Venezuela), 224–225 Raw materials: Brazilian trade, 250; center-periphery trade model, 161–164, 172–174; Chile supplying Chinese demand, 160; Chilean copper, 165–167; China’s demand reshaping trade relations, 69; China’s foreign policy reflecting need for, x; China’s increasing demand for Argentina’s, 265–267; commodity boom, 10–11; copper prices, 180(fig.); Cuban nickel, 188, 190, 191, 199; economic crisis recovery, 5; export commodities, xiv–xv; extraction as China’s FDI goal, 184(n1); growing trade deficits, 99; impact of financial crisis, 43, 175, 179; Latin America’s importance to China, 51–52; shortand long-term development strategies, 98–99; Sino-Latin American trade for selected industries, 70(fig.); SouthSouth cooperation at the firm level, 80–84; trade concentration in, xiv–xv Referendum: Venezuela, 232 Reflections (Castro), 189 Regional-level relations: antiAmericanism, 34; Bolivarian satellite, 229; Brazilian economy, 235; Brazil’s lack of interest in, 239–240; Central American and Caribbean Zone, 209–210; China’s increasing engagement, 53; economic analysis, 91–93; intraregional exports, 86(fig.); postcrisis economic impact, 124–125; three approaches to, 27; US goal of cooperation, 16; US-Latin American conflict over political balance, 104–105 Religious concerns in US policy, 112 Remittances, 213 Reserves, economic, 29 Resource curse, 15 Resource diplomacy, 42–43 Rights: informal rules and institutions protecting, 38; socioeconomic, 30. See also Human rights Rogue state, Taiwan as, 205

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Rule of law, 14, 28(fig.) Russia, 221–222 Saint Lucia, 128, 205, 207 Salmon cluster, 87 Sarney, José, 239 SARS (severe acute respiratory syndrome), 169 Satellite programs, 127; Argentina, 269; Brazil, 71, 239; Sino-Venezuelan cooperation, 228–229. See also Telecommunications Scientific cooperation: Argentina, 264; Cuba, 192–193. See also Technology Security/military dimension: antiAmericanism, 34; China’s growing presence, xiii–xiv; extralegal institutions, 39; public opinion of China’s power, 56(table); Sino-US competition in Latin America, 42–43; Sino-Venezuelan relations, 232; US concerns over Chinese penetration into Latin America, 2, 125–128; US concerns over Sino-Latin American military exchanges, 57–58 Sendero Luminoso (Shining Path) movement, 9 September 11, 2001 attacks, 114–115 Shanghai Expo, 142 Shannon, Thomas, 56, 58 Shock therapy, 29–30 Silver peso, 7 Sino-Soviet split, 8 Sister city/sister province agreements, 156(n50); Argentina, 271 Social capital, 49(n84), 139–140 Social coordination, 38 Socialism, 188–189, 198–199 Socialist revolution, 8–9 Socioeconomic rights, 30 Soft power, x, xi–xii, 43 South Africa, 282. See also BRICS South-South cooperation, x; antiAmericanism, 32–37; currency swaps, 36–37; diplomatic importance, 283; emerging policy, 1–2; at the firm level, 80–84; neocolonialism and, 62–63 Sovereignty: anti-Americanism, 32–35; Article 98 controversy, 109; Century

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of Humiliation, 105; Malvinas (Falkland) Islands, 260 Soviet Union, 8, 190, 191, 237–238 Soybean production: challenging US hegemony, 35; China’s response to antidumping measures, 272–273; commodity boom, 10–11; controversy over, 19; downgrading manufacturing industry through, 92; international prices, 181; trade concentration in, xv; trade dependency, 265–266, 273–274 Spain: Cuba’s independence from, 195–196; FDI in Brazil, 249(fig.); Spanish empire, 6–7 Special interest groups: Brazil, 246 Stagnation, economic, 162 Star globalizers, 31 State capitalism, 42 State visits. See Head-of-state visits State-owned enterprises, 2; Brazil, 251; Venezuela’s oil production, 226 Stiglitz, Joseph, 176–177 Stimulus package: Mexico, 175–176 Strategic dimension: China’s socioeconomic strategy, 97–98; Latin American strategy, xvii; trade expansion in the Western Hemisphere, 24 Strategic partnerships, 282. See also Argentina; Brazil; Mexico; Peru Structuralism, 171–174 Sustainability, 99 Swine flu (H1N1) in Mexico, 169, 176 Taiwan: Brazil’s recognition of, 237; CACZ’s political, economic, and diplomatic importance, 17–18, 203–204, 206(fig.), 208–211; checkbook diplomacy, 36; Chinese and Taiwanese embassies in the CACZ, 206(fig.); cultural exchanges, 65(n29); dollar diplomacy, 131; domestic institutions, 208; as ideological symbol, 204–205; immigrants in Brazil, 245; importance of Chinese position, 4; Latin American shift towards China, 61–62, 105; Latin America’s importance to China, 52; overseas Chinese stance on, 61; Saint Lucia’s recognition of, 207; Sino-US tension over, 58,

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112–118, 128–130; US divided backing, 118 Tariff quotas, 55, 140, 165–166 Tea Party (US), 232 Technology: changing composition of China’s trade, 95, 97; competition strategies, 84; Costa Rica’s exports, 212; Cuba’s imports, 190, 191–192; export markets, xv–xvi; impact of Chinese trade on domestic firms, 78; intraindustry trade with China, 78, 80; Sino-Venezuelan cooperation, 224–225; trade of medium- and hightech chapters, 1995–2009, 96(table). See also Telecommunications Technology transfer, 63, 195 Telecommunications: Cuba’s imports, 190; intraindustry trade with China, 78, 80; Sino-Venezuelan cooperation, 18, 53, 224, 228–229. See also Satellite programs Terrorism, war against, 3, 114–115 Textiles industry, 83–84, 92, 168 Tiananmen Square incidents, 262, 276(n37) Tlatelolco, Treaty of, 9 Tourism, xii, 194–195 Trade: bilateral trade figures, 159; centerperiphery trade model, 161–162, 171–174; China as destination for Latin American exports, 78–80; China’s demands for raw materials and foodstuffs, 10–11, 265–266; China’s imports, exports, and balance of trade, by country, 2000-2009, 12–13(tables); Chinese imports from the emerging world, 2000 and 2009, 69(fig.); comparing China and Latin America’s performance, 93–97; deindustrialization and a reliance on commodities, 171–172; driving SinoLatin American and Sino-Caribbean relations, 25–26; economic crisis leading to, 58; emerging policy, 1–2; epitomizing China’s ascendancy, 67–68; global recovery plan, 1–2; growth of Sino-African and Sino-Latin American trade, 23–25; history of China’s, 6–7; increase in the last decade, 67; intraregional exports,

86(fig.); massive growth of China’s exports, 95; Mexico and Chile’s divergent trajectories, 159–160; postCold War expansion, 10; postcrisis figures, 124; trade of medium- and high-tech chapters, 1995–2009, 96(table) Trade imbalances: CACZ, 211; China’s deficit with Argentina, 259, 261, 264; diverging development trajectories, 17; economic crisis recovery, 5; massive growth of China’s exports, 95; Mexico and Central America, 16–17, 164, 169, 211; myth of China’s deleterious effect on manufacturers, 76–78; oscillation of Sino-Latin American imbalance, 52. See also Raw materials Trade relations: Argentina, 259; Brazil, 237–238, 240, 246–248; CACZ, 211–214; China threat, 54; China’s importance as a trading partner, by country, 2000 and 2009, 94(table); China’s raw materials demands reshaping, 69; Cuba, 191–192; guanxi -based networks, 40; Hu Jintao’s investment promises, 121–122; importance of oil to Venezuela’s, 225–228; Mexico’s market competition, 140–141, 167–170; myth of China’s deleterious effect on manufacturers, 76–78; neocolonialism and South-South cooperation, 63; overseas Chinese stance, 61; resource curse, 15; Sino-Brazilian unilateral relationship, 243–244; Sino-Chilean economic complementarity, 164–167; Sino-Latin American trade for selected industries, 70(fig.); socioeconomic strategy, 97–98; trade frictions, 54, 64(n5), 160; Venezuela, 223–228. See also Competition, market; Economic dimension Trade restrictions, 178–179 Trade/GDP coefficient, 93 Trajectories, economic, 160–174 Transparency, concerns over, 2, 130–132, 284 Transparency International, 40, 49(n88) Turkey, 242, 254(n16)

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Unemployment after the economic crisis, 178 Union labor: All-China Federation of Trade Unions, 216; Argentine currency swap, 48(n68) United Kingdom: Malvinas (Falkland) Islands sovereignty, 260 United Nations, Taiwan’s exclusion from, 62 United Nations Economic Commission for Latin America (ECLAC), 54, 91–92, 171 United Nations peacekeeping forces, xiv, 53, 127–128 United Nations Security Council: reform, 241–242; VenezuelaGuatemala struggle for seat, 230, 234(n7) United States: anti-Americanism, 32–37; Argentina’s rapprochement with China, 257–258; Brazil challenging US domination in Latin America, 253(n3); Brazil’s recognition of Taiwan, 237; CACZ economic predicament, 212; China as threat and stakeholder, 132–134; China’s crisis response, 178; China’s per capita GDP in comparative perspective, 2008, 94(table); China’s raw materials demands reshaping trade relations, 69; China’s trade expansion into the Western Hemisphere, 24–25, 26; China-US-Venezuela triangle, 230–231; Chinese immigrants in Mexico, 143; concerns over SinoLatin American relations, 56–58; export competition with China for selected countries, 2000–2009, 79(fig.); expulsion of US diplomats, 47(n55); FDI in Brazil, 249(fig.); IDB holdings, 64(n6); IMF domination, 48(n60); impact of Chinese trade on domestic firms, 77–78; market competition with China, 184(n14); maximizing geographical advantage through infrastructure investment, 84–85; Mexico’s market competition with China, 167, 169–170; military and security concerns, xiii–xiv; oilbased diplomacy with Venezuela,

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227–228; political and security concerns over China’s penetration into Latin America, 125–128; postcrisis impact on US-linked Latin American economies, 123–125; public opinion of China, 56(table); rapprochement with China, 9; Russian support of Chávez against, 221; security concerns, 2–3; Sino-Cuban ties, 187; Sino-US competition, 42–43, 54; sphere of influence, 15–16; Taiwan issue, 128–130; US-China-Cuba triangle, 197–198, 200; value chain expansion, 82; Venezuelan and Brazilian petroleum resources, 106– 108. See also Obama administration Upstream value integration, 81–82 Uruguay: China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade 2000-2009, 12–13(tables); commodity boom, 10; export competition with China, 79(fig.); Venezuela’s oil integration projects, 227 US Treasury bonds, 108–109, 115 US–Central America and Dominican Republic Free Trade Agreement (CAFTA-DR), 168 Venezuela: anti-Americanism, 35; China’s importance as a trading partner, 94(table); China’s imports, exports, and balance of trade 20002009, 12–13(tables); China’s public image, xii; China-US-Venezuela triangle, 230–231; Clinton’s stance on, 118–119, 120; commodity boom, 10–11; concerns over US economic and political dominance, 16; congressional concerns about Chinese activity in, 112–113; cooperative programs, 18; development aid, xvi; diplomatic partnership, x; export competition with China, 79(fig.); expulsion of US diplomats, 47(n55), 221–222; free trade agreements, 68; historical context of China’s relations with, 120; intraregional exports, 86(fig.); market competition advantage through infrastructure

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investment, 85; oil exports, xv, 225–228; public opinion of China, 31; Russia’s ties with, 221; scientific and technological cooperation, 53; sectors of Sino-Venezuelan cooperation, 223–225; Sino-US-Venezuelan oil triangle, 106–107; trade figures, 122; US concerns over Sino-Venezuelan ties, 126 Videla, Jorge R., 260 Wang Guangya, 62 Washington Consensus, 5, 27, 28–29, 42 Weaponry, 222; Brazil’s arms sales, xiv; China-US-Venezuela triangle, 232; Russia’s empowerment of Venezuela, 233(n5) Wen Jiabao, 108

Winners-losers dichotomy, 91–92 Woodrow Wilson International Center for Scholars, 3–4 World Bank, 28, 100(n3), 123–124, 173, 176 World Cup (Cricket), 129 World Trade Organization (WTO), 163, 165, 168, 241, 282 Xi Jinping, 24, 52, 224 Xiamen Declaration, 210 Yarn-textile-garment chain, 92 Zeng Qinghong, 52, 164 Zhao Ziyang, 260 Zhou Wenzhong, 25 Zoellick, Robert, 111, 223

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About the Book

WHILE THE UNITED STATES IS PREOCCUPIED WITH THE MIDDLE East, what inroads is China making into Latin America? In China Engages Latin America, experts from three continents provide local answers to this global question. The authors explore the multiple motivations driving the establishment of new Sino–Latin American linkages, the nature of those linkages, and the reactions that they have generated (not least, in the United States). Enriching their analysis, they also examine how China–Latin America relations have developed over more than two hundred years. The result is a work that deals with key issues of broad regional relevance, as well as country-specific political, economic, and cultural concerns. Adrian H. Hearn is an Australian Research Council (ARC) Future Fellow in the School of Social and Political Sciences at the University of Sydney. He is author of Cuba: Religion, Social Capital, and Development, and is currently writing a book on China’s cultural and diplomatic relations with Cuba and Mexico. José Luis León-Manríquez is professor of political science at Universidad Autónoma Metropolitana in Mexico City. He has served as deputy director of the Diplomatic Academy in the Mexican Ministry of Foreign Affairs and is coeditor of China en el Siglo XXI: Economía, Política y Sociedad de una Potencia Emergente.

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