China's Pivot to Latin America
While President Obama pivots to Asia, China has unequivocally embarked on a symbolic and cash-abundant pivot to Latin America. Following President Xi Jinping's visit to the region in July 2014, Premier Li Keqiang has now arrived to seal the deal. His first stop in Brasilia rendered a US$50 billion fund for infrastructure investments and various accords for future involvement in areas ranging from the automotive industry, to oil and gas extraction, to telecommunications, to Brazil's food industry. Notably, Brazil, China, and Peru are looking to build a railway linking Brazil's Atlantic coast to Peru's Pacific outlet, thus circumventing the need to utilize the Panama Canal. The United States, in the meantime, is standing on the sidelines.
China's "geopolitics of infrastructure" has been making significant waves in Latin America over the past several years, despite the scant attention it has received in other parts of the world, notably in the United States. According to the China–Latin America Finance Database compiled by the Inter-American Dialogue, since 2005 the region has received upwards of US$119 billion in Chinese loan commitments. Some 43 percent of Chinese resources have gone to Argentina, Brazil, and Ecuador, with Brazil being the second largest recipient of Chinese investments, losing only to Venezuela. It is especially noteworthy that Chinese finance to the region in 2014 was more than that of the World Bank and the Inter-American Development Bank combined. According to various press reports, the Chinese have pledged some US$250 billion in new loans to the region over the next decade, most of which would go towards financing infrastructure projects. It is no wonder that Brazil has been the first Latin American country to pledge support for the Asian Infrastructure Investment Bank.
In view of what appears to be an unrelenting Chinese pivot to Latin America, especially to its largest economies like Brazil, how should one evaluate the opportunities and the risks that this creates for the region? Presumably, once China liberalizes its financial account, even more resources will likely come Latin America's way. Given the region's external deficits and its notorious difficulties with large capital inflows, would this be a positive or a negative development? Will financial stability issues arise? What are the implications of having a flood of Chinese investments going into sectors where environmental issues are of great concern? Will Latin American countries with their wobbly institutions and wayward political systems be able to meet the challenges that Chinese money will bring? Tellingly, Brazil has just announced that China will invest some US$10 billion in cash-strapped, corruption-mired Petrobras.
These are questions that need if not immediate answers at least considerable reflection. The debate would certainly benefit from greater US involvement, especially in view of the current administration's stance on setting the rules and standards by which China and other rising economies should play in the international stage. Unfortunately, that kind of attention is not moving south. It should be.