China In L. America: Partner, Not Threat (So Far)

China's Claim in Latin America: So Far, a Partner not a Threat

By light years, Washington traditionally has held the upper hand when it comes to foreign influence on Latin America. Its hemispheric power-advantage rests on decades of security, trade, investment, and ideological connections. However, the era of globalization is now tearing down many of the world's hemispheric divides.

Latin America is rapidly diversifying its international relations as major regional powerhouses, such as China, increase their presence in the region. Many view China's growing influence in the western hemisphere as a challenge to the U.S.'s historic regional supremacy.

However, the struggle for power and influence need not automatically reflect a winner-take-all competition, as both outside megaliths can benefit from China's presence in Latin America.

China's Economic Expansion

China's phenomenal economic growth in the past quarter century has helped motivate Beijing to globalize its industries. From 1990-1998, China's average annual economic growth rate was 11.2 percent, compared to the world's average rate of 2.4 percent during the same time frame (China's Average Economic Growth Rate in the 90s Ranked 1st in the World 2000) and the country's growth rate is projected to remain above 8.5 percent for the next five years (Erikson 2008). Beijing's economic ties to Latin America have witnessed comparable growth: from 1993 to 2003, China's trade with Latin America increased by 600 percent (Xinhua News Agency 2004). Chinese president Hu Jintao set the mark for increasing trade with Latin America to $100 billion by 2010, a goal easily met when trade surged to $102.6 billion in 2007, which represents a 42.6 percent increase from 2006 (Erikson 2008).

Magnitude of Trade

Much of China's increased trade in the region is stimulated by its desire to expose its economy to new markets in order to satisfy its relentless demand for resources to fuel the economy's enormous manufacturing capacity. The rapid increase in trade between China and Latin America proves that the region can offer China a series of profitable markets. The largest market thus far has been Brazil, whose 2007 bilateral trade with China amounted to $29.7 billion, followed by Mexico with $14.9 billion (Erikson 2008). Interestingly, Mexico and Brazil are also the U.S.'s two largest regional trading partners (Hornbeck 2008). Comparatively, however, China's economic activity is mightily eclipsed by that of the U.S., which carried on $560 billion of trade with Latin America in 2007 (Erikson 2008). Nevertheless, China has every intention of increasing its economic ties to Latin America across the board. Chinese President Hu Jintao remarked in a 2004 visit to Latin America that "Sino-Latin American co-operation is facing an unprecedented historical opportunity. We should seize it and work side-by-side to push this friendly co-operation towards continuous progress" (China Daily 2004).

On the other hand, China's eagerness to engage economically with Latin America is not particularly reflected in its foreign direct investment (FDI) in the region, a sector in which the U.S. has an even stronger advantage. Although nearly a quarter of China's FDI goes to Latin America, the amount only totaled $22 billion in 2007, which is almost insignificant when compared to the U.S.'s $350 billion invested in the region (Erikson 2008). The U.S. maintains a far higher capacity to invest in Latin America than China and its resulting regional influence is indicated by the magnitude of its investments.

Ramifications for the U.S.

China's expanding economic relations with Latin America could potentially have an important impact on U.S. economic interests in the region. Primarily, China's expanding economic presence should increase the economic strength of its Latin American partners. "The expanding relationship with China is transforming Latin America. Major infrastructure projects, including contemplated rail, road and pipeline projects, are focused on getting goods to and from Pacific ports" (China-Latin America Task Force 2006). Growth in Latin American economies generated by increased trade with China would significantly increase opportunities for the U.S. to engage in mutually beneficial trade with Latin America. In fact, researcher Daniel Erikson has argued, "To the extent that China's involvement is sparking economic growth in Latin America, it may contribute to economic stability and well-being in a manner that suits the U.S. desire to see a prosperous and healthy neighborhood" (Erikson 2008). Therefore, China is unlikely to automatically encroach on potential U.S. markets in Latin America because its enhanced presence will help spur the development of entirely new markets in Latin America to which the U.S. will have access.

Furthermore, Chinese competition in the manufacturing sector is worrying many Latin Americans. "On average, [Chinese] light-manufactured goods, such as textiles and footwear, are three times cheaper than those produced in Latin America" and Latin American light-manufacturers have been largely removed from a number of export markets, with many manufacturing jobs being outsourced to China (China-Latin America Task Force 2006). China also holds intrinsic production advantages due to cheap fixed capital costs and low environmental and labor standards. Many Latin American manufacturers have responded to increased competition by focusing on goods in which they hold shipping cost or time advantages, which has allowed them to retain much of their industry (China-Latin America Task Force 2006).

China's Political Involvement

Aside from increased diplomacy and presidential visits, China's political initiatives in the region are hardly comparable to its economic ones. Despite claims that China is trying to diffuse U.S. unilateral authority in the region, it is more likely that at least part of China's Latin American policy is focused on switching official diplomatic recognition of Taipei to Beijing. In fact, Latin America is home to twelve of the remaining twenty-three countries that still recognize Taiwan diplomatically (Erikson 2008). China hopes that its increased economic presence in Latin America will prompt those countries to rescind their official recognition of Taiwan. These hopes are not so far-fetched given that in 2004, Dominica abruptly abolished its ties to Taiwan when China pledged $122 million to the country (BBC Caribbean 2004) and Costa Rica followed suit in 2007 (BBC Asia-Pacific 2007). Taiwan's president is planning a visit to Latin America in a desperate attempt to hold down its Latin American alliances.

Many in Washington worry that U.S. authority in Latin America is threatened by China's intricate involvement with Venezuela, a Latin American nation with which the U.S. has an increasingly hostile relationship. These fears appear plausible given the U.S.'s increasing concern with the Middle East and its concomitant waning involvement with Latin America. However, China's relations with Venezuela reflect its increasing need for energy, not necessarily a decision to antagonize the U.S. Chinese Vice Premier Hui Liangyu visited Venezuela in May of 2008, where the two governments agreed to joint ventures for oil development in Venezuela and the construction of a refinery in China, in cooperation with the China National Petroleum Corporation and Petroleos de Venezuela (Xinhua 2008). Venezuela currently ships 350,000 barrels per day of crude oil to China, which it aims to raise to one million barrels per day by 2012 (Xinhua 2008). Although Venezuela seeks to diversify its U.S.-dominated oil market, short-term U.S. energy interests in the region are hardly threatened since the U.S. already imports over one million barrels per day from Venezuela (Energy Information Administration 2008). Venezuela is not among the U.S.'s top three sources of oil, but the U.S. should consider negotiating oil development ventures with Venezuela to ensure the country remains a long-term energy source.

Similarly, China's relationship with Cuba is far less of a threat to the U.S. than some U.S. analysts are prepared to believe. Although Cuba's geographic proximity to the U.S. calls to mind the Soviet Union's strategic use of Cuba during the Cold War, China's interest in Cuba is largely an economic effort to secure access to even more raw materials. In fact, China is now Cuba's second largest trading partner (Caribbean Net News 2008).

China poses no significant political threat to the U.S.'s historic role in Latin America. "China is not, in the near term, seeking to develop client states in the region with foreign policies or political structures aligned with its own" (China-Latin America Task Force 2006) and has remained neutral toward a wide variety of governments. Politically, China's role in Latin America serves only to diversify Latin America's partners, but does not threaten the U.S.'s ability to pursue its own geopolitical interests in the region.

Don't Cry Wolf Just Yet

The U.S. is still the prevailing influence in Latin America. The geographic proximity of the U.S. to Latin America, as well as the cultural and historic ties of the western hemispheric nations, are just a few of the natural advantages the U.S. has over such relatively distant countries as China. At least economically, it is clear that China still prioritizes its relations with the U.S. over those with Latin America. For instance, in 2007, the U.S. was ranked as China's top trading partner, at $302.1 billion in trade; meanwhile, no Latin American country made China's top ten list (The U.S.-China Business Council 2008). Nor is China's interest in Latin America an exceptional development; rather, it corresponds to China's burgeoning relations in Africa, the Middle East, and Central Asia.

Overall, China's increased footprint in Latin America is not indicative of a new rivalry with the U.S. Instead, it more likely reveals the globalizing trend that helps to define modern international relations. China is merely taking advantage of the disintegration of political and spatial boundaries brought on by globalization, in order to expand its own economic and political interests. "... [I]t has demonstrated flexibility in relationships with Latin American regimes on both the right and left of the political spectrum. In addition, [China] has sought to maintain a low profile in Latin America that avoids provoking the United States" (China-Latin America Task Force 2006). Therefore, the U.S. should take a cooperative rather than competitive stance towards China's western advancement in order to minimize any complication of its economic and political interests, as well as capitalize on the opportunities a new hemispheric player can provide. U.S. policymakers would be wise to continue to encourage China to adopt human rights and environmental protections to ensure Beijing's responsible involvement in Latin America. At the same time, the U.S. should recognize China's ability to contribute to an increasingly prosperous western hemisphere which is now seeking autonomy from Washington's sometimes harsh manifestations.

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This analysis was prepared by COHA Research Associate Jamie Heine

July 25th, 2008

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policy makers." For more information, please see our web page at www.coha.org

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