China’s Policy Paper on Latin America

China’s Policy Paper on Latin America and the Caribbean

On November 5, 2008, the Chinese government released a policy paper on Latin America and the Caribbean, as it had previously done so for Europe in 2003 and for Africa in 2006. Although it may not come as a huge surprise that Latin America is the most recent region for which China has formally spelled out its foreign policy position, the region has been historically perceived as being under the United States’ sphere of influence. Perhaps the importance of the Chinese policy paper lies in the timing of its release. The release of the paper deliberately coincided with the unfolding of the current financial crisis; this congruence of events has allowed China to expand its influence in this somewhat neglected region without attracting any lasting venom from the U.S. China’s policy paper formally evidences the importance of Latin America and the Caribbean as part of China’s growth plan for its long-term strategic interests. Most of all, this includes access to raw materials as well as a plethora of natural resources, the infiltration of new foreign markets, the reduction of diplomatic support for the Republic of Taiwan, and the strengthening of Beijing political standing on the global stage through strong alliances cemented with the developing world.

The policy paper’s general context
The policy paper explicitly states its main objective is to “clarify the goals of China’s policy in this region, outline the guiding principles for future cooperation […] and sustain the sound, steady and all-around growth of China’s relations with Latin America and the Caribbean.” In the economic realm, China expresses an interest in investing in energy, mineral resources, forestry, fishing, and agriculture, areas important to expanding China’s productivity. Additionally, the Chinese government seems to show interest in infrastructure projects not directly related to its economy, albeit essential in the transportation of natural resources, and proposes to fund these projects in order to be perceived as a partner in development. Furthermore, China expresses its desire to increase military diplomacy and sale of equipment to the region. Although many of the report’s statements are merely rhetoric and general in scope, the paper helps formalize China’s economic, diplomatic and military ties with Latin America, which were first proposed by then President of China Jiang Zemin in 2001.

The policy paper was released against the backdrop of the current financial crisis and the corresponding economic hardships that have severely hit the U.S. and Europe. Its publication deliberately coincided with the emergency G-20 meeting to discuss the economic crisis that was about to take place in Washington. More importantly, it preceded Chinese President Hu Jintao’s visit to Peru for the November 2008 Asia-Pacific Economic Cooperation (APEC) summit, at which he presented China’s foreign policy towards Latin America. This timing of the paper’s release was especially important for the countries seeking to diversify their export markets and decrease their dependence on declining Foreign Direct Investment (FDI) from the US and Europe. With the vast foreign reserves accumulated by China –which totaled US $1.95 trillion in December 2008– the region had valid reasons to closely follow the summit’s developments.

The significance of the release’s timing is further clarified in light of Latin American history and Sino-Latin American relations. The U.S. officially categorized Latin America as part of its sphere of influence in 1823, when it first released the Monroe Doctrine. Presumably in response to a wave of independence struggles that had swept Latin America, the doctrine spelled out the terms whereby the U.S. would not tolerate European interference in the region. In 1904, during Theodore Roosevelt’s presidency, the doctrine was modified to justify U.S. interference in any Latin American nation in the case of “wrongdoings” on the part of their governments. The Monroe Doctrine continued to shape U.S. foreign policy into the Cold War era even though it was multilateralized years before.

During the past 50 years, China’s diplomatic and commercial relations with the region have been cyclical, as governed by the state of Sino-U.S. relations. On two previous occasions, China established ties with the region as a result of international political developments, but these ties remained short lived. In the early 1970s, China commenced forging a relationship with Latin American countries as a direct result of an earlier rapprochement with the U.S. In the late 1980s, China sought to reinstate these connections in lieu of the diplomatic isolation it suffered from the U.S. and Europe after the Tiananmen massacre. China appears to have learned from these past experiences and is now adamant to solidify its political alliances in accordance with the diplomatic and economic standards provided by the United Nations and other multilateral organizations. Thus, the financial crisis and its effect presents an ideal opportunity for China to assert its policy towards Latin America without instigating ruffled feathers on the part of the US, the hemisphere’s traditional hegemon.

The internal deliberations regarding Chinese foreign policy are difficult to discern due to the traditional secrecy of the country’s policymaking. Recently, however, the process has included not only party leaders, but also a “new generation of technocrat politicians.” As Hu Jintao expressed during his report to the Party Congress in 2007, a “collective leadership with division of responsibilities among individuals” is crucial in preventing “arbitrary decision-making by an individual or a minority of people in the Party.” Unlike previous foreign policy initiatives, which were founded on ideology, the decision to expand the scope of Sino-Latin America relations is now based on pragmatism.

Influence of domestic and international factors
Various factors in the domestic and international arena have affected China’s decision to pursue closer relations with Latin America. It may be argued, however, that the most critical of these is the desire to spur China’s economic development. Maintaining high economic growth is crucial for creating new employment for the millions of Chinese who enter the job market each year. An increase in China’s global trade would also promote the legitimacy of the Chinese Communist Party’s rule. The current financial crisis has made these strategic developments all the more imperative.

Due to relatively low levels of local consumption, China’s high economic growth over the past decade has been linked to trade and FDI. The nature of Chinese local consumption, or lack thereof, may be seen as a result of the structural changes that have favored the rise of the current system of capitalist economic development. Chinese citizens have had to heavily rely on themselves instead of on the government, making it imperative for them to retain their disposable income rather than spend it. This may explain why China’s trade balance remains strong today; although the volume of exports has considerably decreased due to the global economic crisis, there has been an even steeper drop in the country’s imports.

The measures taken by the Chinese government to stimulate the economy have had mixed results. The latest announcements show that the Chinese economy expanded by 6.1 percent in the first quarter of 2009 compared to 2008, although this figure is still well below the double-digit growth from previous years. Moreover, China’s foreign reserves have also expanded by 17.8 percent from last year to reach US$ 2.13 trillion in 2009, highlighting the difficulty the country has had in promoting local consumption. The reduction in GDP growth may have catastrophic implications for the government, given the potential rise in the country’s unemployment rate. Despite the wave of nationalism that emerge last summer with the Olympic Games, the Communist Party of China is still perceived as fragile and its popularity would most certainly deteriorate were this massive unemployment to become a long-term reality. Therefore, the Chinese government is emphatically seeking new markets to help keep the economy afloat.

Economic aid is a tool Beijing is utilizing to gain influence in new markets. China may be one of the only developing nations with sufficient economic resources to provide significant amounts of aid to other regions. Indeed, in the long term, China will undoubtedly benefit economically and politically by offering no-strings-attached economic loans. This became apparent, for example, when African votes from countries China had granted economic assistance to were decisive in selecting Beijing as the host of the 2008 Olympic Games.

The successful experience China gained during the Asian financial crisis of 1998-1999 increased its confidence to provide aid to Latin America. During the early phases of the crisis, China offered economic aid to its neighbors with virtually no strings attached, while the International Monetary Fund only provided loans to countries that followed its infamous Structural Adjustment Program, which helped worsen the crisis by lengthening the economic recovery period. This self-assurance has been apparent in the past few years ever since China made positive strides in Latin America, while simultaneously the region was neglected by the Bush administration.

Furthermore, China is seeking other commercial partners to fill the gap left by developed countries’ decrease in demand for Chinese goods. Africa and Latin America offer long-term prospects as growing export markets with an important supply in natural resources. However, Latin America offers greater political stability, which China is starting to value after the political turmoil experienced in the Democratic Republic of Congo and Guinea forced Beijing to pull out its investment. Moreover, Latin America’s economy is expected to show positive growth in 2009, and the long-term commercial prospects seem promising, as the region has a population surpassing 500 million and a total annual economy totaling nearly US $3 trillion.

The paper’s release
Hu Jintao made his first official trip to Latin America in November 2004, shortly before the APEC summit was to take place in Chile. He visited traditional allies such as Cuba as well as powerhouses Brazil and Argentina, with whom China signed “strategic partnership agreements.” The latest high-level state visit undertaken by Hu Jintao to the region took place in November 2008, on the eve of the APEC summit in Peru, which marked the occasion of its policy paper’s formal implementation. Lengthly visits by Vice Premier Hui Liangyu and Vice President Xi Jinping, who is poised to replace Hu Jintao as president of China, followed in February 2009. The two officials visited China’s biggest trade partners in the region, as well as Caribbean nations such as strategically important Barbados and the Bahamas where they signed key agreements and contracts.

These high-level exchanges with governments of often dramatically different political leanings and economic sizes reflect the Chinese government’s aggressive drive to gain political leverage in the region by exploiting its foreign policy based on non-interference in a country’s political process. The steady election of left-leaning leaders across Central and South America has also helped China to further engage with the region. Although some analysts have hastily rushed to suggest that Latin America has replaced the “Washington Consensus” for a “Beijing Consensus” based on state-led development first successfully applied by Japan after WWII these statements must be qualified. Indeed, Latin America has in reality been following its own political plight which in some occasions has gone against China’s interests and agenda, an example of this being how, in February 2009, Ecuador changed the terms of a bilateral agreement it had signed with China, therefore affecting the latter’s investments. However, there is no denying these recent changes in political processes have provided Latin America with a newfound autonomy from U.S. dominance.

The common denominator during these high-level exchanges has been the various low interest loans that China has proposed for the region. During his first visit to South America’s powerhouses in 2004, Hu Jintao proclaimed he expected bilateral trade between Latin America and China to reach US $100 billion by the next decade. This figure appeared to be ambitious; in 2000 it numbered only US $13 billion. However, by 2007 the objective was surpassed, and in 2009 bilateral trade stood at US $140 billion. Free Trade Agreements have also already been signed with Chile in 2006 and Peru in 2009, and negotiations are underway with Costa Rica, which has become the most recent country to cut diplomatic relations with Taiwan, an indispensable step towards commencing relations with Beijing.

Chinese officials’ most recent visit in February 2009 resulted in various agreements meant to further Chinese economic consolidation, in particular in the commodities sector, by taking advantage of the record drop in prices that have come as a result of the global financial crisis. For instance, within these past few months, a preliminary accord to lend Brazil US $10 billion for the development of the country’s deepwater oil reserves has been signed, and a development fund in Venezuela was doubled to US $12 billion. Beijing’s interest in the Caribbean, where natural resources are typically not found, may be explained by the role that the islands have played in offshore banking, tax evasion, money laundering, and capital flows from China.

However, China has not only relied on bilateral diplomatic and trade agreements with Latin American countries, but has also taken its own chartered multilateral routes in order to increase its presence in the area. On May 26, 2004, China became a permanent observer of the Organization of American States, an organization which has 35 members which together seek to advance peace and development in the region. Among the nine countries who proposed China’s entry were the largest economies in Latin America –Argentina, Brazil, Chile, Mexico, and Venezuela– all of which have received China’s attention in the past. China also successfully joined the Inter-American Development Bank (IADB) on January 12, 2009, to which it offered an initial contribution of US $350 million, corresponding to 0.004 percent of the bank’s total shares. The IADB, with 48 member countries, is the largest development bank in the Americas and the Caribbean. Given the bank’s aim to triple its capital to US $180 billion and increase its annual lending to US $18 billion this year in light of the current financial crisis, China’s contribution was well received, including by the U.S, who holds 30 percent of the Bank’s shares. Among the various agreements signed during the IADB annual meeting in March 2009, a 70 billion Yuan (approximately US $9 billion) currency swap with Argentina that will permit the South American nation to settle imports with Yuan currency instead of dollars stood out. This currency swap deal seemed to overshadow the country’s relatively small contribution to the IADB, and China thus appears to have used its entry to the multilateral bank as a way to pacify some concerns countries may have voiced on previous occasions upon signing bilateral agreements.

China is seeking to increase its influence by employing economic tools as well as soft power rather than focusing on strategies such as military hard power and acts of unilateralism that have led to deep regional resentment towards the U.S. Beijing’s soft power policies, which are based on culture, education and diplomacy, have been internally addressed in 2006 by Hu Jintao to the Foreign Affairs Leading Small Group and explicitly commented upon during the 17th Communist PC National Congress in 2007. In 2006, the first Confucius Institute was established in Mexico, and there are plans to expand the facility to three other nations in the region. The China Scholarship Council, which in 2007 sponsored 10,000 international students to study in China, has established formal recruitment processes with universities in eight Latin American countries. Additionally, Chinese state media giant Central China Television already broadcasts in Spanish, and Beijing has recently granted “official tourist destination” status to several nations in the Western Hemisphere.

China’s efforts seem to be paying off. According to the 2007 Pew Global Attitudes, the seven Latin American countries that were surveyed had a negative response to U.S. influence, while only three of them thought the same of China. Incidentally, these countries were Argentina, Brazil and Mexico, three rising industrial powers more likely to be affected by China’s low wage work force, which has the potential of leading to social unrest.

China’s real intentions in Latin America
Latin America and the Caribbean have become part of China’s strategic interest in recent years, not only due to their abundance of natural resources, but also because of the commercial opportunities presented by the region’s markets, along with the diplomatic and political leverage that each country may provide. However, regional over-reliance on China could create the kind of dependency that has previously occurred with several European countries and the U.S.

China’s contemporary foreign policy has been shaped by its workings from within the established international system. Since changes in these organizations are mainly achieved through consensus (or by majority vote), Beijing has placed emphasis on creating regional alliances. Moreover, China has proposed a conciliatory foreign policy aimed at being seen as a partner rather than as a new imperial power. Yet, given the various sectors in which China and Latin America compete, it would also be wise to wait for the end of the current financial crisis to evaluate the success that Beijing’s economic and soft power strategies have had in winning over genuine allies.

This analysis was prepared by COHA Research Fellow Sebastian Castaneda
Produced by COHA Research Associate Alexandra Deprez
July 29th, 2009
Word Count: 2900

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