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China goes shopping

Syed Mansur Hashim
AFTER Africa, China is now set to become a major player in Latin America. It is already the largest purchaser of raw materials in the overseas market. Indeed the country has become the second trading partner of a number of countries in the region in recent years. And in 2009, China became Brazil's # 1 trading partner, ahead of the
United States. It is not only Brazil where China is making waves. As put by' Gabriel Dabdoub, president of the chamber of commerce of the Santa Cruz region, which happens to Bolivia's economic engine: "Until recently Bolivia did not consider China a partner, it was very' wary. But now there is more trade, and, in fact, we've just acquired a satellite." What makes China the logical choice for everything from satellites to major infrastructure projects for so many African, and now Latin American nations? Unlike the United States or the European Union, Chinese aid is not inherently tied to "conditions" revolving around good governance.
According to the Global Economic Governance Initiative at Boston University, China has pumped in a little over $102 billion in loans to Latin American countries over an eight year period (2005 - 2013). That investment is now increasing exponentially. China is investing in both public and private entities. It is in the process of consolidating its commercial foothold in a continent, which until very recently' had fallen squarely under the US sphere of influence. Now that dominance is being challenged. From Brazil to Bolivia, Argentina to Peru, from raw materials to manufacturing, China is on the march. Given its voracious appetite for raw materials, the country has been buying up rights on everything from mining in Peru to oil in Venezuela.
China's foreign direct investment (FDI) still trails behind the US, which recorded a little over $41 billion in Latin America in 2012. That is hardly comforting news given that, according to a recent UN study, China's FDI in the continent had reached $11.4 billion the same year. The largest economy in the region is Brazil and it is interesting to note that China is pouring money into this country. China's CNOOC Ltd. and National Petroleum Corp, are part of a consortium led by Brazil's Petrobas that is to invest $500 million in Libra, estimated to hold "12 billion barrels of oil, which would be enough supply the world's demand for three months." China is backing even more ambitious projects. Funding has gone into Nicaragua to build a national dream. A canal that may rival the Panama Canal, which according to experts, may cost anywhere from $40 - $60 billion and is considered financially unviable. So, why is China going against the opinions of international experts? The contract for the project has already been signed at $40 billion that allows for the Hong-Kong based company to design, build and manage the canal for 50 years. Work began this year.
It is hardly surprising to see China hedging its bets on Venezuela. China has invested an estimated $50 billion into this country'. Chinese state-owned Sinopec alone has signed a $14 billion contract to develop an oil project in Orinoco in September, 2013. Indeed, going by what has been published in the international media, another $14 billion was pumped in shortly making that deal worth $28
billion. These are enormous financial undertakings. And there are huge risks entailed in such massive projects. Yet, the number of deals being signed and worked on is mindboggling. Venezuela has also been a major recipient of Chinese loans. And why wouldn't China agree to loan Venezuela nearly $50 billion in loans, especially when these are guaranteed by oil sale contracts? This is barter at its best; Venezuela pays back loan payments in oil exports to China.
From the examples highlighted here, the Peoples' Republic of China (PRC) has made calculated moves into Latin America. Yes, there are risks involved. Cost overruns, unforeseen technical challenges are there. Opening up the Latin American continent foryet another reliable source of One cannot overlook the fact that the PRC is hankering after respect. Its economy is set to overtake that of the United States'
this year or the next. It notv ivants recognition from the world's single superpower
United States that PRC's time has arrived.
raw materials works in its favour. But is it only a question of raw materials or business prospects? One cannot overlook the fact that the PRC is hankering after respect. Its economy is set to overtake that of the United States' this year or the next. It now wants recognition from the world's single superpower United States that PRC's time has arrived. From that perspective, it makes perfect sense to invest in the Nicaraguan project, i.e. to build a canal which is independent of US control; a second trade route through which international shipping could change everything.
The writer is Assistant Editor, The Daily Star.