MIAMI (AP) – It looked like it was made a match in financial heaven.
In 2010, China, its roaring economy and state-owned enterprises seeking to expand worldwide, turned its attention to Latin America, a region starving for capital but rich in natural resources that the Asian giant lacks. The result: a record $ 35 billion in state-to-state lending in that year.
Fast forward a decade and the once teasing relationship is beginning to mature in ways that suggest China may be wary of its once-do-not-go-wrong partner.
For the first time in fifteen years, China’s two largest policy banks – the China Development Bank (CDB) and the Export-Import Bank of China – did not grant any new loans to the region in 2020, limiting a slump of more years driven by the Latin American deteriorating economic slide.
The data comes from a new report from the Inter-American Dialogue, a Washington brainstorm, and the Boston University Development Policy Center, which has been following China’s yuan diplomacy in Washington’s backyard for two years.
The growing economic and diplomatic influence in China in the region has worried American policymakers, who have resisted its increase. The task now falls to the Biden government, which has warned that the Chinese footprint in the region is a threat to national security. But because China has supplanted the US as the best trading partner of several South American countries, it is not easy to catch up.
Meanwhile, the US may have fallen even further behind during the pandemic, when China donated more than $ 215 million in stock – from surgical gloves to thermal imaging technologies – to allies in the region, according to the research. In comparison, the United States Agency for International Development and State Department provided $ 153 million. China has also conducted or is planning clinical trials to produce vaccines in five countries – Argentina, Brazil, Chile, Mexico and Peru.
“Without a doubt, part of the COVID response in the region has a Chinese face,” said Rebecca Ray, an economist at Boston University and one of the authors of the new report. ‘This is a missed opportunity for the US, but since the decline in US manufacturing in the 1990s, there has really been no way to compete. Many of the same medical supplies that China sends to Latin America we also buy from China. ”
But while the pandemic opened the door to much-welcomed Chinese aid, it also made it more difficult for the government to pay their bills to Beijing. According to data from the International Monetary Fund, a deep recession of 7.4% in Latin America and the Caribbean last year wiped out the growth of almost a decade.
With lenders under pressure, China has taken a hit. Last year, Ecuador negotiated to defer oil shipments payments for a year to nearly $ 900 million. It is believed that Venezuela – by far the largest borrower in the region – received a similar grace period. At the same time,
“While the region faces unprecedented challenges, it is unlikely that China will borrow more for the time being,” said Margaret Myers, head of the Asia-Latin America program at the Dialogue. “Instead, he has to wrestle with his own problematic portfolio.”
The slowdown in lending to Latin America reflects a broader, global downturn as China turns inward to bolster its own recovery efforts amid the pandemic. The ruling Communist Party has borrowed billions of dollars to build ports, railways and other infrastructure across Asia to Africa, Europe and Latin America to expand China’s access to markets and resources.
But Beijing has become more cautious after some lenders struggled to repay loans. Officials say they will examine projects and funding more closely.
The China Development Bank and the Foreign Ministry did not respond to questions about the reasons for the decline in Chinese loans to Latin America.
Although lending has dried up, Chinese purchases of soybeans, iron ore and other commodities in Latin America have remained strong at an estimated $ 136 billion. This is despite a sharp rise in China’s purchases of US farm goods, a promise made by the Trump administration to end a declining trade war.
Chinese state-owned energy companies have also aggressively bought up energy assets at fire prices from Western investors. Overall, Chinese mergers and acquisitions rose to $ 7 billion in 2020, according to research, nearly doubling the amount of activity in 2019.
Among the deals: the sale of Peru’s largest electric company by San Diego, the Sempra Energy-based Sempra Energy to China Three Gorges Corp. Another $ 5 billion deal that State Grid Corp. of China gives control over a large utility industry in Chile, was announced last year but not included in the data because it has not been finalized.
For the leaders of the region, Chinese loans for large ticket infrastructure projects are difficult to resist. Interest rates are low, and unlike loans from the World Bank and the IMF, there are fewer admissions and approval is faster, allowing leaders to perform in time for the next election.
Even Colombia – Washington’s strongest ally and a country that was cool to China’s pleas – has jumped on the bandwagon recently. Last year, a consortium, including China Harbor Engineering Company, broke ground in the capital’s first metro, Bogota, a $ 3.9 billion project. No US companies made a bid for the project, which did not directly benefit from Chinese loans.
U.S. officials have tried to push back, pointing out that U.S. overseas aid has been long and transparent.
“Beijing’s assistance in the region is mostly aimed at promoting the Commercial or political interests of the People’s Republic of China,” the Western Hemisphere Bureau said in a statement.
In January, at the end of the Trump administration, the US International Development Finance Corporation signed an unprecedented agreement with Ecuador to fund up to $ 2.8 billion in infrastructure projects, money they said could be used to refinance ‘predatory Chinese debt’. . ‘
But the DFC’s total funding – $ 60 billion – pales in comparison 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 important because it also required the government to privatize oil and infrastructure assets and ban Chinese technology.
“It will definitely limit China’s influence,” Myers said. ‘But does it help Ecuador in the long run by burdening future generations with more debt and encouraging the use of fossil fuels? If that is not the case, it could backfire on the US. “
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Associated Press author Joe McDonald in Beijing contributed to this report.
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Joshua Goodman on Twitter: @APJoshGoodman