MIAMI (AP) – It looked like a wedding made in the paradise of finance.
In 2010, China, with a booming economy and state-owned companies looking to expand globally, turned their eyes to Latin America, a region lacking capital but rich in natural resources that the Asian giant lacked. Result: a record $ 35 billion in state-to-state loans that year.
Move forward a decade and the previously torrid relationship is starting to mature in a way that suggests China may be getting suspicious of its previously harmless partner.
For the first time in 15 years, China’s two largest public policy banks – the China Development Bank (CDB) and the Export-Import Bank of China – did not make new loans to the region in 2020, limiting a multi-year driven fall Latin America worsens the economic downturn.
The data comes from a new report t by the Inter-American Dialogue, a Washington think tank, and by the Boston University Global Development Policy Center, which have been following China’s yuan diplomacy in Washington’s backyard for years.
China’s growing economic and diplomatic influence in the region has worried US policymakers, who have been unable to contain their increase. The task now rests with the Biden government, which has warned that the Chinese footprint in the region is a threat to national security. But with China replacing the United States as the main trading partner for several South American nations, catching up will not be an easy task.
In the meantime, the United States may have been further behind during the pandemic, when China donated more than $ 215 million in supplies – from surgical gloves to thermal imaging technologies – to allies in the region, according to the survey. In comparison, the United States Agency for International Development and the State Department provided $ 153 million. China has also conducted clinical trials or plans to manufacture vaccines in five countries – Argentina, Brazil, Chile, Mexico and Peru.
“Certainly, part of the region’s COVID response has a Chinese face,” said Rebecca Ray, an economist at Boston University and one of the authors of the new report. “It is a missed opportunity for the United States, but since the decline of American manufacturing in the 1990s, there is really no way to compete. Many of the same medical supplies that China ships to Latin America, we also buy from China. ”
But while the pandemic opened the door for much-welcomed Chinese aid, it also made it more difficult for governments to pay their bills to Beijing. A deep 7.4% recession in Latin America and the Caribbean last year eliminated nearly a decade of growth, according to data from the International Monetary Fund.
With borrowers squeezed, China suffered a blow. Last year, Ecuador negotiated a postponement of nearly $ 900 million in payment of the debt with oil remittances for a year. Venezuela – by far the largest borrower in the region – is believed to have received a similar grace period. At the same time,
“With the region facing unprecedented challenges, it is unlikely that China will make loans for now,” said Margaret Myers, head of the Asia-Latin America program at the Dialogue. “Instead, it has to deal with its own problematic portfolio.”
The slowdown in lending to Latin America reflects a broader global downturn, as China turns to itself to reinforce its own recovery efforts amid the pandemic. The government’s Communist Party has lent billions of dollars to build ports, railways and other infrastructure across Asia for Africa, Europe and Latin America to expand China’s access to markets and resources.
But Beijing became more cautious after some borrowers struggled to repay loans. Officials say they will examine projects and funding more carefully.
The Development Bank of China and the Ministry of Foreign Affairs did not answer questions about the reasons for the drop in Chinese loans to Latin America.
Although loans have dried up, Chinese purchases of soy, iron ore and other commodities from Latin America have remained robust, at around $ 136 billion. This despite a sharp increase in purchases from China of American agricultural products, a pledge made with the Trump administration to end a debilitating trade war.
Chinese state-owned energy companies also aggressively bought, at liquidation prices, energy assets from outgoing Western investors. Overall, Chinese mergers and acquisitions increased to $ 7 billion in 2020, almost double the volume of activity in 2019, according to the survey.
Among the deals: the sale of the largest electric company in Peru by Sempra Energy, based in San Diego, California, to China Three Gorges Corp. Another $ 5 billion deal giving State Grid Corp. China’s control of a major dealership in Chile was announced last year, but was not included in the data because it has not been finalized.
For leaders in the region, it is difficult to resist Chinese loans for high-cost infrastructure projects. Interest rates are low and, unlike World Bank and IMF loans, there are fewer restrictions and approval is faster, allowing leaders to proclaim achievements in time for the next elections.
Even Colombia – Washington’s staunchest regional ally and a country that accepted China’s pleas – recently joined the movement. Last year, a consortium including the China Harbor Engineering Company inaugurated the construction of the first metro in the capital Bogotá, a $ 3.9 billion project. No American company has bid for the project, which has not directly benefited from any Chinese loan.
American officials have tried to react, pointing out that US assistance abroad is old and more transparent.
“Beijing’s assistance in the region is generally aimed at promoting the commercial or political interests of the People’s Republic of China,” the State Department’s Western Hemisphere Affairs Bureau said in a statement.
In January, at the end of the Trump administration, the US International Development Finance Corporation signed an unprecedented deal with Ecuador to finance up to $ 2.8 billion in infrastructure projects, money that could be used to “refinance Chinese debt predatory ”.
But the DFC’s total funding – $ 60 billion – is insignificant compared to the $ 1 trillion that China has set aside for its “Belt and Road” initiative to expand influence around the world.
The US loan package to Ecuador was significant because it would also require the government to privatize oil and infrastructure assets and ban Chinese technology.
“It would definitely limit China’s influence,” said Myers. “But, by burdening future generations with more debt and encouraging the use of fossil fuels, does this really help Ecuador in the long run? If not, the shot could backfire against the US ”
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Associated Press writer Joe McDonald of Beijing contributed to this report.
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Joshua Goodman on Twitter: @APJoshGoodman