Since the mid-1990s the Chinese government has steadily increased its economic and diplomatic presence in Latin America, expanding bilateral trade with the region from US $200 million per year in 1975 to US $70.2 billion per year in 2006. China’s interest in Latin American states is characterized by expanding trade flows and developing business relationships and is less concerned with expanding military ties or competing with the United States for supremacy in the region. Rather, the Chinese government has sought to exploit the region’s primary products required to continue robust economic growth while simultaneously securing additional markets for its manufactured goods.
In turn Chinese economic investment in Latin American states has been oriented towards those states that possess large deposits or reserves of primary products, particularly Latin American states with proven oil reserves and unexploited metal resources. Chinese oil companies have actively sought strategic partnerships with state and national owned petroleum companies operating in the region.
Moreover, middle-income countries, particularly Colombia and Brazil, are attractive investments for the Chinese government due to the ability of its citizenry to purchase Chinese manufactured goods.
Chinese Investment in Latin America
Ecuador
In 2005, the China National Petroleum Company (CNPC) invested US $1.42 billion to acquire a portion of all petroleum assets in Ecuador not directly owned by the state. In addition Chinese companies operate numerous oilfields throughout Ecuador that were previously operated by US-based Occidental Petroleum that was forced to leave the country by the former administration of Alfredo Palacio.
We anticipate Chinese oil investment to continue under the government of Ecuadorian President Rafael Correa. Correa’s desire to finance his populist social policies will likely require Ecuador’s authorization of future oil development within Ecuador’s Amazonian rainforest, where an estimated reserves of almost 1 billion barrels lies under the Ishpingo Tambococha Tiputini oilfields.
Chinese investment in Ecuador is not limited to the country’s untapped oil reserves however. The country possesses rich metal deposits, mainly copper and gold, worth as much as US $160 billion. President Correa is seeking to develop its mining capabilities in conjunction with developing its oilfields to, “lift itself out of poverty.” Chinese involvement is highly likely.
Brazil
Brazil is Latin American’s largest economy encouraging China to develop a close relationship with Brazil due largely to the ability of Brazilian consumers to purchase Chinese manufactured products. However, China also imports large quantities of Brazilian iron and petroleum, with Chinese oil companies launching several collaborative projects with Brazilian companies operating in these sectors.
In collaboration with Brazil’s Petrobras, the Chinese oil company Sinopec is currently constructing the Cabiúnas-Vitória pipeline. This pipeline is one of three being constructed that will comprise the Southeast Northeast Interconnection Gas Pipeline (GASENE) that will be completed in mid to late 2007.
Argentina
Chinese investment is limited in Argentina’s petroleum and mining industries at the present time, although the Chinese government has repeatedly proposed major collaborative initiatives. The Chinese-Angolan company, Sonogol, has expressed investment interest and the CNPC is rumored to be interested in purchasing US $5 billion in assets from Argentina’s Bridas45. Finally, the China National Offshore Oil Corporation (CNOOC) has approached Spanish owned-Repsol YPF about purchasing the firm’s holdings in Argentina.
Colombia
Chinese investment activity in Colombia has proceeded cautiously due to the state’s close military and political relationship with the US. However, in September 2006 Sinopec partnered with the Indian firm ONGC Videsh to collectively invest US $800 million to purchase a 50 percent stake in the Colombian oil firm Omnimex.
Similar to Brazil, the Chinese government is securing Colombian markets for Chinese manufactured goods. The Chinese automotive industry has also made enormous inroads into the Colombian market in recent years.
Implications for Chinese Investment
Chinese demand and subsequent investment in Latin American economies has produced a boom in the region’s commodity export sectors, generating significant financial earnings for private and state-owned industries. Latin American economies, particularly those possessing large deposits of both oil and metal resources, are flush with export revenues, due in large part to Chinese demand.
However, China’s increasing role in the region will continue to produce negative side effects within the region’s manufacturing industries. Cheaper Chinese light manufactured goods, such as textiles, will continue to displace those goods made in Latin American countries. Chinese light manufactured goods are on average three times cheaper than those made in Latin American countries.
In addition, US companies that had previously operated in Latin America are increasingly shifting operations to China due to its cheap capital markets and lax pollution and safety controls. This shift is evident along the US border, where a significant number of maquiladora plants have been relocated to China.
