Perspectives on the Americas

A Series of Opinion Pieces by Leading Commentators on the Region

China Fills the Vacuum Left by the

United States in Latin America
by

R. Evan Ellis
Associate Professor
William J. Perry Center for Hemispheric Defense Studies
Washington, D.C.
August 4, 2014

At a time when many Americans seem reluctant to increase, or even maintain, their
countrys involvement in other regions of the world, the Peoples Republic of China
(PRC) may have found the right leader in Chinese president Xi Jinping to lead the
global challenge to the United States. The economic and military weight of the PRC on
the world stage (relative to other international actors) has reached levels not seen since
the middle of the Qing dynasty (1644-1911). In this context, Chinas President Xi Jinping
is spearheading his nations advance while projecting charisma, confidence and
leadership qualities not seen since Mao Zedong. Xis recent trip to Latin America is a
good example of that charismatic Chinese leadership in action.
Xis visit began in Brazil on July 15, where he participated in the 6th BRICS summit, as
well as a mini-summit with leaders of the Community of Latin American and Caribbean
States (CELAC), a forum organized to unite the countries of the hemisphere that
currently excludes the United States and Canada. Xis trip also included bilateral
meetings with Bolivias president Evo Morales and Perus president Ollanta Humala,
both whom made the pilgrimage to Brazil to pay their respects to the Chinese leader.
Xis tour then continued to Argentina, Venezuela and Cuba, showcasing the growing
economic and political weight of the PRC in a region once referred to as the U.S.
backyard.
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The unifying theme of the trip, which ended on July 23, was Chinas use of its enormous
financial reserves (now more than $4 trillion dollars) to pursue the contemporary version
of a goal it has consistently sought to achieve or maintain during its 3000 year history: a
Chinese civilization that is united, strong and secure from external threats and to
which global wealth flows.
The BRICS summit highlighted Chinas money on the table approach. The key
initiative of the BRICS (PRC, Russia, India, Brazil and South Africa) was the
establishment of a new bank, which would initially be capitalized at $50 billion with a
$100 billion reserve fund. The selection of Shanghai as its headquarters suggests that
much of that money is likely to come from the PRC and that, like most other Chinafinanced ventures, it will be a tool for promoting the work of Chinese construction
companies and other Chinese firms.
In a similar fashion, the establishment of an emergency foreign currency reserve and
the commitment of a massive amount of Chinese capital to the fund advances the
PRCs strategic objective of securing a role for the Renminbi (yuan) as an accepted
currency for international trade. A new $11 billion currency swap with Argentina, like
the $10 billion Sino-Argentine currency swap in 2009, also advances this objective.
The projects in each of the countries that Xi visited will ultimately facilitate the more
efficient extraction of the resources of Latin America and the Caribbean by Chinese
companies, as well as expand access to their markets by PRC products and services.
The most ambitious initiative is the $20 billion Regional Development Fund announced
by President Xi in Brazil. Such development funds have been repeatedly used by China
in Venezuela and in the smaller nations of the Caribbean to steer work toward Chinese
companies. They often facilitate the use of Chinese firms and workers by creating a pot
of money to which nations can submit projects to be done by Chinese companies, in
lieu of the system of open bidding and competitive public procurement that the United
States has promoted in the region for most of the last century. Although it is unclear if
the fund will be more successful than the $10 billion proposal similarly put on the table
in June 2012 by Chinese premier Wen Jiabao, with the new fund the PRC has clearly
taken the game to a new level, compared to the previous decade, when it would build a
cricket stadium or a hospital to convince a small Caribbean nation to change its
diplomatic recognition from Taiwan to the PRC.
The cash for projects approach was also on display in the proposal for a
transcontinental railway from Brazil to the Pacific coast of Peru, which would facilitate
the export of soy to the PRC. Similarly, China announced $7 billion for two
hydroelectric facilities on the Santa Cruz river in Argentina, as well as a railway
modernization project, with the work to be done by Chinese companies. The Chinese
credit agency SINOSURE had previously refused to underwrite the loan for the
hydroelectric project because the railroad project was stalled. Now, all will go forward
simultaneously with Chinese money in a true win-win situation.
In Brazil, the mining giant Vale got money for the purchase of new ships. Vales prior
attempt to purchase ships with its own money had been opposed by Chinese
steelmakers, who feared the competition.
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In Venezuela, the teetering government of Nicolas Maduro got a new $4 billion line of
credit in addition to the $5 billion it received last December, both backed by Venezuelan
oil as collateral. The bet may be smarter than it initially appears. While the country
itself may be on the brink of collapse, Chinese engineers in Venezuelas petroleum
block MPE-3 are pumping the oil used to repay themselves. Through the loan, China
Development Bank hopes to fund projects that make it more likely that the Chinese get
all of their money back. But the loans are short term, just in case.
In Cuba, the primary carrots offered by the PRC were also economic, including
forgiveness of $6 billion in previous Cuban debts to Chinese banks. In addition, 50
Chinese businessmen and economic officials traveled to Cuba with President Xi,
suggesting that they were contemplating investing in the newly-constituted Mariel trade
zone. Nonetheless, despite the socialist fraternity expressed between the two
governments, few of the previously-announced Chinese projects in Cuba have gone
forward, including an unrealized investment by Minmetals in Cubas nickel industry and
$6 billion to expand and modernize the Cienfuegos petroleum refinery.
Xis trip also illustrated how Chinas political and economic initiatives strongly
complement its political priorities of increasing the strength and security of the middle
kingdom. For example, the elevation of Venezuela, the oil supplier, and Argentina, the
food provider, to the status of comprehensive strategic partner highlights the slow
transition of leftist nations in the region from beneficiaries of PRC largesse to
collaborators in Chinas long-term strategic project. The China-CELAC meeting,
although a quickie designed to comply technically with the commitment made at the
second CELAC summit held in January 2014 to hold such a meeting before the end of
the year, nonetheless demonstrated the PRCs willingness to engage the nations of
Latin America in a fashion that excludes the United States and Canada. Like the ChinaCELAC meeting, the BRICS summit had an important political dimension for Xi,
showcasing the PRC as the leader among the self-anointed new elite of the developing
world. The fact that the summit focused on the creation of a bank that will ultimately
benefit Chinese companies, and not on issues such as Ukraine, which is of current
political interest to BRICS-member Russia, suggests that the BRICS is an ever-thinner
veil for the ambitions of an increasingly dominant PRC to rally the developing world
behind its leadership to replace the post-World War II financial and institutional order
with one that is more advantageous to the Middle Kingdom.
Beyond multilateral initiatives, Xi also made a little-noticed speech in Brazil, in which he
emphasized PRC support for national sovereignty over the Internet, thereby not-sosubtly playing to lingering Brazilian resentment over spying activities in that country by
the U.S. National Security Agency.
If Xi demonstrated Chinas willingness to openly challenge the web of hemispheric
political and economic relationships that the United States has dominated for more than
a century, it also pointed to areas where China wished to proceed in a more low-key
fashion. Although China announced several new projects in strategically-sensitive
industries, including collaboration with Argentina on a nuclear reactor and a
commitment to launch a third satellite for Venezuela, the significant Chinese arms sales
to the nations that Xi was visiting were played down: There was no mention of the
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almost $500 million in Venezuelan purchases of advanced combat systems since 2011,
including L-15 fighter aircraft, Z-9 helicopters, amphibious assault vehicles, SR-5
multiple rocket launch vehicles and SM-4 self-propelled grenade launchers (in addition
to the K-8 fighters, Y-8 and Y-12 transport aircraft and radars acquired previously). Nor
was there public mention of talks with Argentina to co-develop and produce Chinas JF17/FC-1 fighter.
During and after President Xis trip, the Obama administration was disappointingly
silent. While it is understandably prudent to avoid an archaic re-assertion of the 19th
century Monroe doctrine, many of my colleagues who have grown up in Latin America
and believe in democracy, human rights and free markets, which the United States has
long championed (however imperfectly), watch the advance of China and ask, Where is
the United States?
For the past decade, the PRC has recklessly provided tens of billions of dollars in
financial support to nations such as the members of ALBA and Argentina, whose
actions have helped to undermine democracy, security and good governance in the
hemisphere, including defaults on debts (indeed the looming Argentine debt default
overshadowed Xis visit), and permitting or even facilitating the activities of terrorists and
transnational criminal groups in their territories. Xis recent trip not only celebrated and
expanded Chinas financial support for such regimes, but by embracing CELAC, it
deepened Chinas challenge to the inter-American system and the efforts of that system
to advance democracy and good governance in the region.
Chinas increasingly bold anti-status quo moves also impact the security of the region in
other ways. Expanding PRC commerce with the region is fueling an accompanying
growth in trans-Pacific organized crime, such as human trafficking, contraband goods,
the illegal purchase of minerals from the informal Latin American mining sector, the sale
of precursor chemicals to Latin American criminal organizations, and the increasing role
of Chinese goods and institutions in money laundering. Similarly, Chinese arms
companies, such as NORINCO, Poly Technologies and AVIC are selling goods to rogue
regimes on the point of collapse, such as Venezuela, increasing both the risk of a
regional arms race and the likelihood that such goods will wind up in the hands of
terrorists and criminals if or when those regimes fall apart.
For the PRC, Latin America is literally on the other side of the globe, mitigating the
immediate negative consequences of Chinese actions. For the United States, however,
as much as the current administration might wish that Latin America stay off its radar
screen, what happens in the region directly impacts U.S. security and prosperity. If
Chinese actions in Latin America help expand political and economic turmoil and
criminality, democratic institutions will be increasingly penetrated and weakened by nondemocratic individuals and groups, and the refugees and criminals will continue to come
to the United States. While the United States must respect the sovereign right of the
countries of the hemisphere to conduct relations with whom they wish, it is time is for
the U.S. government to put forth a credible strategic vision, backed by an increased
commitment of time and resources, to help protect the interests of our democratic
friends in the region, as well as our own.

R. Evan Ellis is an associate professor at the William J. Perry Center for Hemispheric Defense Studies
in Washington, D.C. Dr. Ellis is author of over 80 works on Latin America and the Caribbean and their
relationships with extra-hemispheric actors, including the forthcoming book, Chinese Companies on the
Ground in Latin America.
All statements of fact or expression of opinion contained in this publication are the responsibility of the author.