OIL, MINERALS, AND POWER The Political Economy of ’s Quest for Resources in and

Inaugural-Dissertation

zur Erlangung der Doktorwürde

der Philosophischen Fakultät

der Albert-Ludwigs-Universität

Freiburg i. Br.

vorgelegt von

Ángel Fabricio Rodríguez Zambrano

aus Quito,

WS 2017/18

Erstgutachter: Prof. Dr. Jürgen Rüland

Albert-Ludwigs-Universität Freiburg

Zweitgutachterin: Jun.-Prof. Dr. Maria Backhouse

Friedrich-Schiller-Universität Jena

Drittgutachterin: Prof. Dr. Lena Partzsch

Albert-Ludwigs-Universität Freiburg

Vorsitzender des Promotionsausschusses der Gemeinsamen Kommission der Philologischen und der Philosophischen Fakultät: Prof. Dr. Joachim Grage

Datum der Fachprüfung im Promotionsfach: 14.09.2018

Acknowledgements

The completion of this dissertation could not have been possible without the generous help and support from my colleagues, friends, and family.

First and foremost, I would like to dearly thank Prof. Dr. Jürgen Rüland for agreeing to supervise my thesis. His thought-provoking questions, considerate advice, and encouraging guidance at all times made it possible for me to conduct an intellectually challenging and rewarding research project.

I also thank Jun.-Prof. Dr. Maria Backhouse who supported my research in every way possible. Her insightful comments provided me with a firm standpoint from which to critically reflect upon the development of my arguments.

The Arnold-Bergstraesser-Institute in Freiburg (ABI) provided me with an exceptionally fruitful environment to conduct my research. I am grateful to Prof. Dr. Reinhard Kössler, Prof. Dr. Andreas Mehler, Dr. Martin Adelmann, and Dr. Ingrid Wehr for the opportunity to conduct my research at ABI. Their personal advice and institutional support were key to the completion of this thesis. I would like to thank Prof. Dr. Christian von Lübke, Dr. Tilman Lüdke, Clemens Jürgenmeyer, and Dr. Cristina Espinosa for valuable contributions to my work. I am also deeply indebted to Rosa Lehmann, Juan Luis Camacho, Benedikt Kamski, Anna Fünfgeld, Anran Luo, Jennifer Stapornwongkul, who influenced a great deal of my work through many inspiring and encouraging conversations. I am sincerely indebted to Adepeju Solarin for her insightful comments on my work and advice on academic writing. Many thanks also to Martina Baltkalne for the editing and proofreading. My gratitude also goes to Prof. Dr. Hans F. Illy, Prof. Dr. Heribert Weiland, Dr. Helga Dickow, Dr. Benjamin Schütze, Dr. Franziska Zanker, Judith Altrogge, Stefanie Gerum, and Petra Bauerle for being an example of collegiality at all times. I am also indebted to my dear colleagues from the Junior Research-Group Bioeconomy and Inequalities in Jena, supported by the German Federal Ministry of Education and Research (BMBF). My work within the group equipped me with valuable research skills and broadened my academic horizon, especially during the last stages of the research process.

I sincerely thank Prof. Dr. Benedicte Bull from the Centre for Development and the Environment (SUM) at the University of Oslo for early comments regarding the research design of this thesis. I also thank Prof. Dr. Arlene Tickner and Dr. Antulio Rosales for valuable comments on my thesis proposal. My sincere gratitude and appreciation also go to Prof. Dr.

Zhang Qingmin from the School of International Studies at Peking University. I am very fortunate to have had the opportunity to learn about Chinese foreign policy with him.

I also would like to acknowledge the generous support from my friends Lily Wang during fieldwork in China, Eike Büllesbach during fieldwork in Brazil, and Claire Zuloeta de Sackers as well as César Bazán during fieldwork in Peru. They all welcomed me very dearly in each country and/or got me in contact with important political and economic actors.

I would like to thank my parents and my brother David, who I look up to for his sense of dedication and courage. I also thank all my friends in Freiburg—especially Elke Seidl and Jens Handwerker—who supported me and my family along different stages of this journey.

Last but not least, I thank my wife Viorica, who always believed in this project. The many extra hours of parenting and housework she assumed while I was traveling and writing went far beyond all possible expectations. I simply could not have written this thesis without her encouraging, patient, and caring support. Grazie di cuore. I also thank our wonderful daughters, Rebecca and Giulia, who filled this journey with joy, strength, and inspiration.

Table of Contents

1. Introduction ...... 1

2. Analytical framework: Approaching Chinese-Latin American relations ...... 2

2.1 Analytical challenges in the current debate ...... 2 2.1.1 Chinese-Latin American relations: Contested at best, polarizing at worst ...... 2 2.1.2 The political economy of resource extraction ...... 4 2.1.3 Latin America’s left turn and the rise of neo-extractivism ...... 6 2.1.4 Open issues regarding theory and method ...... 7 2.2 Research question ...... 9 2.3 Theorizing extractive power: A multidimensional approach ...... 10 2.3.1 Structural power...... 14 2.3.2 Institutional power ...... 15 2.3.3 Productive power ...... 16 2.3.4 Compulsory power...... 16 2.4 Research design: Towards a comparative and contrasting analysis ...... 18 2.4.1 Diverse-case research design ...... 18 2.4.2 Scope and limitations of the study ...... 22 2.4.3 Data sources, collection, and assessment ...... 24 2.4.4 Structure of the thesis ...... 28

3. Latin America in sight: China’s and the primacy of extraction ..... 29

3.1 The structural power of China’s economic transformation ...... 30 3.1.1 The new core of growth and foreign reserves ...... 30 3.1.2 The new core of energy consumption ...... 31 3.1.3 The new core of oil and mineral imports ...... 35 3.2 The institutional power of China’s resource diplomacy ...... 39 3.2.1 Resource-intense: From the China Model to the Chinese Dream ...... 39 3.2.2 Resource diplomacy: China’s quest to the South ...... 41 3.2.3 Forgoing ideology for status? ...... 44 3.3 The productive power of words: China reaches out for Latin America ...... 48 3.3.1 Rising with the South: “Win-win” and “common development” ...... 48 3.3.2 Non-interference: Coming in as a different power ...... 50 3.3.3 Framing extractive needs and interests ...... 52 3.4 The compulsory power of China’s power projection towards Latin America ...... 53 3.4.1 The coercive side of China’s economic diplomacy ...... 53 3.4.2 Power projection into Latin America ...... 54 3.4.3 The primacy of extraction ...... 56 i

3.5 Chapter Conclusion ...... 58

4. The Sino-Brazilian case: Oil and the production of South-South subalternity ...... 61

4.1 The structural power of economic disparity ...... 62 4.1.1 Trade inequalities and oil rents ...... 62 4.1.2 Investment in the oil sector ...... 69 4.1.3 Loans-for-oil: Unlocking Pré-Sal ...... 72 4.2 The institutional power of oil diplomacy ...... 75 4.2.1 Brazil: Oil, developmentalism and the quest for autonomy ...... 76 4.2.2 China-Brazil: Challenging the order of things...... 79 4.2.3 Brazilian oil between Washington and Beijing ...... 83 4.3 The productive power of “South-South” ...... 86 4.3.1 “Win-win,” “complementarity,” and “South-South” ...... 86 4.3.2 How the BRICS matter ...... 89 4.3.3 Collective identities despite structural inequality ...... 91 4.4 The compulsory power of oil (and its drawbacks) ...... 93 4.4.1 China, Brazil and the US: Geopolitical tension ...... 93 4.4.2 Pré-Sal: gaining control of a powerful resource ...... 95 4.4.3 Compulsory power gone wrong: The Brazilian oil disease? ...... 98 4.5 Chapter Conclusion ...... 100

5. The Sino-Peruvian case: Copper and the production of structural control under Washington’s terms ...... 103

5.1 The structural power of asymmetric complementarity ...... 104 5.1.1 Trade asymmetries and mining rents ...... 104 5.1.2 Investment: deepening asymmetries ...... 111 5.1.3 Finance: Avoiding debt, risking fiscal dependence ...... 115 5.2 The institutional power of adaptability ...... 116 5.2.1 Peru and the Washington Consensus ...... 117 5.2.2 China and Peru: high-level diplomacy in the Pacific ...... 120 5.2.3 Unlocking copper: The China-Peru FTA ...... 123 5.3 The productive power of “partnership” and “pragmatism” ...... 127 5.3.1 “Win-win,” “complementarity,” and “commercial pragmatism” ...... 127 5.3.2 Strategic partnership between the core and its periphery ...... 130 5.3.3 Peru: Enforcing the extractive imperative ...... 134 5.4 The compulsory power of structural control ...... 139 5.4.1 The violent coerciveness of neoliberal extractivism ...... 139 5.4.2 Peru: Public force at the service of transnational capital ...... 141

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5.4.3 China in Peru: Compulsory power in potentia? ...... 143 5.5 Chapter conclusion ...... 144

6. Extractive relations of power? Contrasting perspectives on Sino-Brazilian and Sino- Peruvian relations ...... 147

6.1 The structural power of Chinese relations with Brazil and Peru ...... 148 6.1.1 China’s imprint: Disparities and asymmetries ...... 148 6.1.2 Structural demand, capital, and transnational actorness ...... 150 6.1.3 Shifting terms to the advantage of China ...... 151 6.2 The institutional power of China’s adaptive resource diplomacy ...... 154 6.2.1 The Extractive Consensus between Washington and Beijing ...... 154 6.2.2 High-level politics, state-led oil industry, liberalized mining ...... 157 6.2.3 Resources for status ...... 159 6.3 The productive power of diplomatic language ...... 161 6.3.1 In Washington’s backyard: Setting the tone accordingly ...... 161 6.3.2 Win-win, global insertion, and resource extraction ...... 163 6.3.3 Identity building, non-interference, and partnership ...... 165 6.4 The compulsory power of access and control ...... 167 6.4.1 China: seeking control of control ...... 167 6.4.2 Latin American oil and minerals: what is at stake? ...... 169 6.4.3 Gaining control of the whole package under US hegemony? ...... 170 6.5 Chapter Conclusion ...... 172

7. Conclusion ...... 174

7.1 Making sense of China’s extractive power in Brazil and Peru ...... 176 7.2 The production of South-South dependency ...... 183 7.3 Final remarks ...... 185

8. References ...... 188

Annex 1: List of interviewees ...... 210 Annex 2: Key technical definitions ...... 214 Annex 3: Additional data ...... 215 Annex 4: Zusammenfassung in deutscher Sprache ...... 222

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List of abbreviations and acronyms…………………………………………………...………...v

List of figures………………………………………………………………………….………vii

List of tables…………………………………………………………………………….……viii

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List of abbreviations and acronyms

ADB ADBI Asian Development Bank Institute AIIB Asian Infrastructure Investment Bank ANP National Agency of Petroleum, Natural Gas and Biofuels of Brazil APEC Asia-Pacific Economic Cooperation APRA American Popular Revolutionary Alliance ASEAN Association of Southeast Asian Nations BCRP Central Reserve Bank of Peru BGR Bundesanstalt für Geowissenschaften und Rohstoffe BP British Petroleum BRICS Brazil, Russia, , China, CBERS China-Brazil Earth Resource Satellites Program CCP Chinese Communist Party CDB China Development Bank CEO Chief Executive Officer CEPAL Comisión Económica para América Latina y el Caribe China Exim Export-Import Bank of China CNI National Confederation of Industry CNOOC China National Offshore Oil Corporation CNPC China National Petroleum Corporation COFIDE Development Bank of Peru COSBAN China-Brazil High-level Coordination and Cooperation Committee DERA Deutsche Rohstoffagentur DNA Deoxyribonucleic acid ECLAC Economic Commission for Latin America and the Caribbean EIA Energy Information Administration EU EY Ernst & Young FDI Foreign direct investment FIESP Federation of Industries of the State of São Paulo FTA Free Trade Agreement GASENE Southeast-Northeast Interconnection Gas Pipeline GATT General Agreement on Tariffs and Trade v

GDP Gross Domestic Product IADB Inter-American Development Bank IBP Brazilian Petroleum, Gas and Biofuels Institute IEA International Energy Agency IFI International Financial Institution IMF International Monetary Fund IR International Relations ISI Import substitution industrialization LSE London School of Economics and Political Science MES Market Economy Status MIMEM Ministry of Energy and Mines of Peru MINAM Ministry of the Environment of Peru Mincetur Ministry of Commerce and Tourism of Peru MMG Minerals and Metals Group MRTA Revolutionary Movement Tupac Amaru NDB New Development Bank NGO Non-governmental organization NOC National oil company NSA United States National Security Agency OPEC Organization of the Petroleum Exporting Countries PKU Peking University PPSA Pré-Sal Petróleo S.A. Sinopec China Petroleum & Chemical Corporation SOE State-owned enterprise SP Strategic Partnership SUNAT Superintendencia Nacional de Aduanas y de Administración Tributaria TPP Trans-Pacific Partnership UK United Kingdom UN UNCTAD United Nations Conference on US United States of America USGS United States Geological Survey USSR Union of Soviet Socialist Republics WITS World Integrated Trade Solution WTO vi

List of figures

Figure 1 Shifting dynamics in global energy consumption, 1990-2014 [Mtoe] ...... 32

Figure 2 China’s oil production and consumption, 1965-2015 [Thousand bbl/d] ...... 36

Figure 3 Domestic consumption of oil products, 1990-2014 [Mt] ...... 37

Figure 4 Chinese FDI in South America by sector, 2005-2016 [US$ million] ...... 55

Figure 5 Brazilian exports to China, 1995-2014 [US$ billion] ...... 63

Figure 6 Brazilian oil exports to China, 2000-2015 [US$ thousand] ...... 65

Figure 7 Oil rents in Brazil [Percent of GDP]...... 67

Figure 8 Chinese loans to Latin America, 2005-2016 [US$ billion] ...... 73

Figure 9 Mineral rents in Peru [Percent of GDP] ...... 107

Figure 10 Peru’s trade balance with China, 2001-2015 [US$ thousand] ...... 108

Figure 11 Copper extraction in Peru, 1950-2016 [Mt] ...... 110

Figure 12 Total Peruvian copper exports by destination, 2015 ...... 111

Figure 13 Peruvian copper exports to China 2000-2014 [US$ millions]...... 126

Figure 14 Power Taxonomy of China's Resource Diplomacy in Brazil and Peru ...... 176

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List of tables

Table 1 World energy consumption by country, 2014 ...... 33

Table 2 Brazilian oil exports to the US and China, 2004-2015 ...... 68

Table 3 China-Peru trade balance, 2004-2015...... 109

Table 4 Power taxonomy of China's resource diplomacy in Brazil's oil sector...... 178

Table 5 Power taxonomy of China's resource diplomacy in Peru's copper sector ...... 179

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1. Introduction

China’s expanding presence in Latin America is a controversial and much disputed field of debate. While critics caution against , several Latin American governments understand China as an attractive partner after many decades of US hegemony. The central question is to what extent China’s critical demand for oil and minerals affects the political and economic conditions of Latin American states. However, two analytical challenges stand in the way of scientific debate. First, scholars of International Relations have yet to develop adequate categories of analysis to study the link between China’s economic rise and the upsurge of extractive politics in Latin America. Second, available research must take greater account of the structurally uneven, and institutionally diverse landscape of extractive economies in the fragmented context of the Latin American region.

This thesis addresses these problems by analyzing China’s resource policies towards Brazil and Peru over the period 2000-2015. Using a comparative case study approach, the research focuses on the study of the Sino-Brazilian and Sino-Peruvian ties through the lens of extractive power. This concept is defined by the author as the social production of extractive effects that enable some actors to gain better command of their own circumstances while others remain disadvantaged (Barnett, Duvall 2005a; Bridge, 2011). By developing a multidimensional framework including structural, institutional, productive and compulsory concepts of power (Barnett, Duvall 2005a) the thesis explains the ways oil and minerals have shaped the Chinese-Latin American tie since the beginning of the twenty-first century.

The results unveil an increasingly powerful China, while Brazil and Peru struggle to maintain political and economic stability in their function as Beijing’s resource suppliers. In the case of Brazil, China’s oil quest has induced a relationship of structural subalternity unfolding within blocks that seek to destabilize US hegemony in international politics. In Peru, by contrast, Chinese investment in mining has produced a relationship of structural control to Beijing’s advantage. These asymmetries have, in fact, unfolded within and not against the norms and values of the Washington Consensus: free trade, deregulation and liberalization. Despite short-lived gains, neither Brazil nor Peru have been able to leverage China’s quest for oil and minerals as a way to enhance their international capacities. Against this backdrop, the thesis exposes the limits of extractive power as a strategy for political and economic emancipation in the context of South-South relations.

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2. Analytical framework: Approaching Chinese-Latin American relations

The analytical framework of this thesis is structured along four levels of analysis, organized accordingly in the four sections of this chapter. The first section undertakes a critical review of current debates related to China’s expanding presence in Latin America while identifying the research challenges that inform the theoretical and methodological choices of the thesis. The second section states the research question. The third section presents the theoretical framework developed to explore and understand the qualities and dynamics of inter- and transnational relations of power driven by the extraction of subsoil resources, such as oil and copper. The fourth section explains why a comparative research design based on the influential yet diverse cases of Brazil and Peru is an insightful way to make sense of the analytical and strategic implications of China’s quest for resources in Latin America in the period 2000-2015.

2.1 Analytical challenges in the current debate

2.1.1 Chinese-Latin American relations: Contested at best, polarizing at worst

Given its strong focus on extractive trade and investment (CEPAL 2008, 2012, 2016), China’s rapidly expanding presence in Latin America is a matter of deep intellectual and strategic concern. For centuries, foreign and national interests in squeezing profit out of the extraction of natural resources have been greatly influential on the ways in which the “new continent,” as named by the European conquerors, has acquired territorial functionalities within the global- capitalist world, once almost exclusively dominated by unquestioned Western powers. Historically, resource extraction has decisively shaped the political, economic, institutional, and ecological circumstances under which societal change has unfolded in the region. According to international NGOs (Detsch 2013), critical Latin American actors have denounced China’s quest for strategic resources as an exploitative endeavor, which shall pave the way for China to become the prime of the twenty-first century, whilst pushing Latin American manufacturing further back into the periphery of global labor division.

In this context, scholars of International Relations caution Latin Americans to be “wary of new dependencies which bear resemblances to old or new forms of colonialism” (Gardini 2012, p. 125). Remarkable work scrutinizing Chinese-Latin American patterns of trade and 2

investment emphasizes the formation of new structural asymmetries and deepening dependence on “primary commodities” to the advantage of China (Jenkins 2012, p. 1355). Such propositions are an important point of departure for this thesis, but they lack a thorough explanation of why a number of Latin American governments would seek to reduce dependence on the US through increasing dependence on China. Some scholars have, in fact, eloquently pointed at the necessity to expand dependency perspectives. Ruben Gonzalez-Vicente (2012b), for instance, argues in favor of a targeted account of how historically entangled structures of privilege may motivate some actors to promote a tightening relationship with China while others are systematically exploited or dispossessed.

From a different analytical standpoint, a number of scholars deliver important insights on the relationship between China’s rise in Latin America and the systemic rearrangement of great . Paz (2012), for instance, assesses China’s presence in Latin America as a potential hegemonic challenge to the US. Chinese scholars support this analytical posture by affirming the geopolitical relevance of Latin America as a “fulcrum in China’s rise” (Yu 2015). By way of comparison, think tanks in the US see “the leading edge of China’s interest in Latin America, and vice versa, [as] economic—and on a massive scale” (Arnson, Davidow 2011, p. 1). Chinese authorities themselves understand their emerging relationship with Latin America as part of “an irreversible move toward multi-polarity and economic ,” as stated in China’s Policy Paper on Latin America and the Caribbean (2008).

The efforts to make sense of China’s expanding presence in Latin America are thus numerous and contradictory. Only a few studies (Fernández Jilberto, Hogenboom 2010; Strauss, Armony 2012; Xu 2016) actually explore the evolution of China-Latin America relations by taking variations of countries, policy areas, economic sectors, and periods into account. In an early study, Alves (2011) compares China’s economic statecraft in the oil industries of Brazil and Angola over the period 2000-2010. Her results show that domestic institutions have an important impact on China’s effectiveness to access oil resources in two different world-regions of the Global South. In a particularly relevant contribution, Strauss (2012) studies the dynamics of rhetorical elements used by Chinese authorities in order to “frame” their specific mode of interaction with state and non-state actors in Brazil and Peru and then “claim” access to strategic assets in each context. Strauss sets an analytical milestone in treating non-material dimensions of power as a two-way-process of social interaction and mutual constitution. Her research, however, does not aim at explaining whether an expanding nexus based on resource extraction

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can realistically contribute to long-term relationships grounded on “common development” and “mutual benefit” as stated obstinately by Chinese officials and their Latin American counterparts (ibid.).

2.1.2 The political economy of resource extraction

Social scientists have long been skeptical of the potential benefits of resource extraction as a means of fostering economic prosperity, reducing inequalities, and promoting democracy. The troublesome implications of booming commodity exports, such as growing inflation and currency appreciation, are commonly referred to as the “Dutch disease” (Bruno, Sachs 1983; Davis 1995; Usui 1997). According to this literature, countries that lack a diversified economy, robust macro-political arrangements, and fiscal stability are especially vulnerable to the “resource curse” which refers to the paradoxical tendency of resource-rich nations to fall into or perpetuate economic stagnation (Sachs, Warner 1995), authoritarian regimes (Jensen, Wantchekon 2004), and violent conflict over resources (Collier, Hoeffler 2004, 2005).

The literature on the political economy of natural resources is further critical of “extractive rents”, defined as “the difference between revenues and extraction cost” (Barma et al. 2011, p. 11), and their implication in the formation of unequal structures of power at the domestic level. Rents are a particular kind of income which puts little to no pressure on profit- driven organizations to re-invest profits in regenerative business activities other than resource extraction. Expansive cycles of resource extraction increase the probability of “rent-seeking” (Krueger 1974). This phenomenon refers to the domestic competition for resources amongst economically and/or politically privileged elites1 capable of mobilizing and/or attracting the large amounts of capital needed to set extractive investments in motion. States in which public revenue is highly dependent on taxes, fees and royalties stemming from the exploitation of oil and minerals thus tend to evolve into rentier-states (Luciani, Beblawi 1987). Rentier-states have little or no incentive to re-invest abundant extractive revenues in the development of other

1 In this literature different definitions of the term “elites” can be found. These definitions normally highlight the privileged position of social actors within the domestic power structure of resource-rich states. However, they make little reference to the fact that these different elites—government and military officials, business actors, intellectuals, religious leaders, etc.—can also affect the international balance between power and resource extraction. Moreover, it is important to specify the different kinds of resources that put these actors in a position of privilege and influence in relation to the non-elitist spectrum of societal actors. To meet these requirements, this study uses and adapts the work of Bull et al. (2015, p.18), to define “elites” as “[g]roups of individuals that, due to their control over natural, economic, political, social, organizational or symbolic (expertise/knowledge) resources, stand in a privileged position to influence in a formal or informal way decisions and practices with key [geostrategic] implications [in the extractive sector of a given state].” 4

economic sectors other than the extractive industries. Due to the long-term income stability, social actors in command of the state are capable of buying off political opponents, increasing their power, and ruling domestically according to their particular interests, thus significantly increasing the risk of corruption, authoritarianism and anti-democratic developments (Basedau, Kappel 2011b).

The above-examined literature underlines the fact that the empirical and analytical link between resource extraction and domestic development is quite problematic but not essentially new. The fact that privileged elites may compete for the access to and control over extractive rents through controlling the state infrastructure is a valuable insight. This debate is however limited in three ways. First, while there are good reasons for pessimism, most of this literature takes a deterministic stance on the fact that resource wealth is almost automatically linked with negative developmental performance. This is largely due to the fact that most of this research is based on large-N studies pointing in this direction. By contrast, recent research based on qualitative comparative analysis, argues in favor of stronger attention to contextual factors. According to Basedau and Kappel (2011a), for instance, the key variable explaining problematic developments in oil exporting countries is not resource abundance per se but rather resource-dependency.

Second, while the focus on national elites is an important factor to take into account in terms of rent-seeking phenomena, it is important to note the diversity of actors and interests surrounding the rentier state apart from the rentier elites themselves. Recent research elaborates on the notion of the “rentier space” (Omeje 2010), which describes a competing field of tension in which contesting social actors seek to destabilize the rentier elite in control of the state infrastructure. The rentier space may be additionally shaped by the interests of external actors with a strategic interest to access and/or control a particular extractive economy. The third problem is that rentier postulates have thus far failed to acknowledge the complex landscape of inter- and transnational interests, values and ideas of great relevance to the intensification of extractive politics in many resource-rich states in the Global South. Most of the prominent literature discussed at the beginning of this subsection was, in fact, developed at a time when the rise of China and its implications for the rest of the South were not yet part of the empirical landscape. A new historical juncture gives way for a novel field of inquiry.

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2.1.3 Latin America’s left turn and the rise of neo-extractivism

The global rise of China and the associated increase in commodity prices between 2000 and 2010 (Ericsson 2009; Östensson 2009; Stürmer, Hagen 2012) coincided quite notably with the rise to power of center-left political movements in Latin America. Though not homogenous, this new political elite emerged out of a broad basis of popular support and shared a number of political ambitions with domestic and regional implications. These included most importantly an active commitment to restore and strengthen the role of the state in the promotion of social inclusion and install self-tailored schemes of development, which meant moving away from Washington’s policies of structural adjustment. As a result, the nationalization of the so-called “strategic sectors” encompassing oil, gas, and minerals came to constitute what influential Latin American scholars have termed the cornerstone of the Latin American “left turn” (Rosales 2013). In this context, left-leaning states like , Ecuador, and engaged in the empowerment of the state apparatus as the producer and recipient of oil and mineral rents in order to foster government-driven programs of social and economic development. Despite the rise of the left in and Brazil, these regional powers maintained liberalized policies in the mineral and large-scale agricultural sectors but expanded state-control in selected areas of the oil and gas industries.

The use of resource-based rents as the material basis to support national development policies is, however, not limited to the progressive spectrum of Latin American states. , , and Peru are important examples of Latin American states in which transnational companies are in command of resource extraction, while the state’s role is limited to the regulation and facilitation of trade and investment. The regional trend towards the contradictory use of exhaustible resources as a pathway towards autonomous development and subaltern global insertion has been criticized by Latin American scholars through the concept of “neo- extractivism” as opposed to classical forms of extractivism (Acosta 2013; Gudynas 2011, 2014, 2015; Svampa 2013, 2015). While classical extractivism is based on the deregulation and liberalization of subsoil resources, neo-extractivism refers to the state-led mobilization of extractive rents as part of an all-encompassing, redistributive development discourse (Arsel et al. 2016). Along these critical lines, “neo-extractivism” has also been reflected in terms of development theory (Burchardt, Dietz 2014) by combining perspectives of political economy with those of political ecology. This research raises important questions as to how the appropriation and commodification of nature work to the advantage of a few and to the strong

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disadvantage of those who are most affected by the ecological damage caused by large-scale resource extraction. It also questions the ways in which the ruling principles of global capitalism connect with state-led developmental discourses and clash against the ways in which local, oftentimes indigenous communities make sense of their relationship with the natural environment (Espinosa, Rodríguez 2017). Latin American debates are generally concerned with domestic questions and regional socio-ecological trends. Some scholars situate the discussion of Latin America’s shifting territorial functionalities in a wider geopolitical context (Svampa 2013, 2015), but only a few of them (Schmalz 2013) point explicitly at China’s significant contribution to the expansion of extractive politics in the region.

2.1.4 Open issues regarding theory and method

The currently available literature reveals two important aspects of relevance to the theoretical and methodological choices of this thesis. The first relates to theoretical matters of power. There is a pressing necessity to develop an integrated theoretical framework for the systematic analysis of the ways in and the extent to which China’s rise to world power status and the particular developmental pathway leading to this outcome is connected to the expansion of different forms of extractivism in Latin America. The scientific and public debate situates China’s expanding presence in Latin America between economic exploitation and political emancipation. The question of theoretical relevance is whether these two positions are necessarily contradictory. This thesis argues that they are not. The economic benefits of a relationship with China may well reduce a state’s economic and political dependency from the US. This fact, however, does not automatically eliminate the risk of a new, and co-existent relationship of economic subalternity to the asymmetric advantage of China.

The central problem, then, is the limited understanding of how and to what extent a new rising power of the South—like China—may pursue and fulfill its core geostrategic interests in the less powerful states of the South—like Brazil and Peru, for instance. This is poses a particularly important analytical challenge, given that different frameworks of South-South cooperation emphasize “[the shared] principles of ‘complementation’, ‘cooperation’ and ‘solidarity’” (Muhr 2016, p. 631), which portray South-South relations as inevitably more balanced, and substantially more beneficial than the—historically—more conflict-laden, and asymmetric relationships between the North and the South. A better theoretical understanding of how power is exercised in the context of South-South relations is indeed crucial to

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recognizing the historical continuities and changes in past and present schemes of dominance and emancipation.

Regarding the choice of theory, therefore, it is important to recognize the Chinese-Latin American tie as an essentially new phenomenon of power relations unfolding under a thus far undertheorized rationale of South-South cooperation. Additionally, the available literature provides important islands of knowledge which can, so the argument at hand, be fruitfully integrated into a single theoretical framework. Important aspects of this relationship include the structural dimensions addressed by dependency analyses, the role of national and international institutions, as well as the qualities of language as a powerful element of identity and capacity building. In order to meet this challenge, this dissertation builds on a multidimensional concept of power developed by Barnett and Duvall (2005a), which includes structural, institutional, productive, and compulsory concepts of power, which are discussed in more detail in Section 2.2 of this chapter.

The second important analytical challenge that emerges from the literature review is intraregional variance. Available research has yet to take careful consideration of the diversity of institutional preferences, structural asymmetries and extractive economies that characterize the Latin American context. A comparative methodological perspective is hence key. This includes the necessity to move beyond the analysis of oil as a shaper and enabler of power relations within and across different societies. While oil is the most important source of combustion in growth-dependent economies, the geopolitical importance of copper increases considerably as China’s infrastructural needs advance and as renewable energy technologies require higher levels of electricity conduction (Ridder 2013). Hence, the inclusion of oil and copper promises to be a fruitful endeavor despite some limitations in terms of data comparability (Basedau, Kappel 2011a; Burchardt, Dietz 2014). Overcoming these obstacles requires an adequate level of abstraction that places the analytical lens on the way in which these two raw materials are differentially productive of specific power relations. A diverse-case research design (Gerring 2007) provides a solid basis for such an endeavor and is further discussed in Section 2.3 of this chapter.

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2.2 Research question

One of the most deeply rooted concerns for Latin American intellectuals dealing with issues of development and foreign policy is the dependency/autonomy dichotomy (Tickner 2009, 2013). While dependency understands the structural conditions of the global economy as the key determinant of development outcomes, the concept of autonomy focuses on the political level of independence available to a state to determine its own development path and strategy of global insertion (Hurrell 2013 [1986]; Tickner 2009, 2013). In both cases, the main point of reference has been the US.2 Paradoxically, a new dependency pattern between China and different Latin American states is observable at the beginning of the twenty-first century. Nonetheless, the regional context is now very different from the time when the theory of dependencia emerged in the region. While Brazil has emerged as a BRICS3-state, a , and accounts for an expansive state-owned oil industry, Peru is a key regional ally of the US and accounts for a deregulated mining economy with strong neoliberal features. The specific qualities and dynamics of China’s relationship with Brazil and Peru are therefore unclear. Hence, the research question of this thesis is:

In what ways and to what extent has China’s quest for oil and minerals affected the development of Sino-Brazilian and Sino-Peruvian relations over the period 2000-2015?

The main goal of this research question is to identify the extent to which Brazil and Peru have been differentially capable of leveraging the extraction of subsoil resources as a source of self-determined development and global insertion in relation to China. This research focus is important for two reasons. First, polarizing positions in the public debate call for the production of context-sensitive knowledge about China’s growing presence in Latin America. This includes a consideration of how the specific conditions and strategic choices of a given state may influence particular outcomes in a relationship with an increasingly powerful China.

2 In the 1950s, the Economic Commission for Latin America and the Caribbean (ECLAC or CEPAL, by its acronym in Spanish), designated unequal terms of trade to be the most detrimental factor determining the subordinated position of the Latin American continent in the Post- global division of labor (Prebisch 1950). Throughout the 1960s and 1970s, dependencia theorists (Prebisch 1964, Cardoso, Faletto 1973; Santos 1968) attributed domestic underdevelopment to the conditions of structural inequality in the US-led capitalist system. The autonomy-narrative emerged in part out of the nationalistic sentiment of progressive elites who believed that the State had a pivotal function in protecting and defending the sovereign economic interests of Latin American nations against foreign intervention (Tickner 2009; Hurrell 2013 [1986]). 3 Emerging power-block integrated by Brazil, Russia, India, China and South Africa. 9

Second, there is a pressing necessity to decenter the China-debate in International Relations. Relevant research is unsurprisingly biased towards the question of how China’s rise will affect the Sino-US relationship (Cox 2012; Hao 2015; Kurlantzick 2011; Lieber 2009; Singh 2008; Wang Jisi 2011) and how Latin America fits strategically (Gallagher 2016; Yu 2015) or theoretically (Paz 2012) into that equation. While the research question at hand acknowledges the importance of this literature, it focuses on a clearly delimited yet still missing account of how resource extraction produces unequal relations of power between China and Latin American states as actors of international politics in their own right.

2.3 Theorizing extractive power: A multidimensional approach

A thorough understanding of how China’s resource policies affect the political and economic conditions of Latin American states requires a theoretically grounded and historically informed analysis of power. However, given its recent, rapid, and contested character, there is no theoretical framework available to study China’s resource policies from this angle. Not surprisingly, valuable studies have used a structuralist approach based on dependency theory to explain the short-term incentives and long-term perils of an emerging pattern of core/periphery relations (Gonzalez-Vicente 2012b; Jenkins 2012). While this approach is fitting, it is hampered by the analytical bias of rational-choice theories that explain power in terms of the material incentives and historical constraints available to different social actors in their pursuit of specific objectives, e.g. self-determined development (Caporaso 1978). The greatest weakness of structural approaches, however, is their lack of engagement with the institutional and ideational aspects of power, which are fundamental constituents of China’s “go out” strategy (Glaser 2012; Heath 2016; Shambaugh 2013; Shambaugh 2017; Wang 2016; Zhang 2015) and are equally neglected by rentier theories (Subsection 2.1.2) and recent debates on extractivism (Subsection 2.1.3).

A complementary theoretical approach is hence needed in order to deal with the question of how power is exercised in the multilayered architecture of global governance. Neo- institutionalist approaches based on the concept of “complex interdependence” (Keohane, Nye 1989) provide a common yet limited lens through which to tackle this issue. This theoretical approach is indeed problematic because it leads to the explanation of the Chinese-Latin American tie as the result of “natural” complementarities (Arnson, Davidow 2011) while losing sight of the uneven territorial functionalities generated in the process. To stimulate a fruitful 10

analysis, institutionalist approaches must thus be cross-checked for consistency with structuralist approaches. And yet, additional theories are required in order to unpack the discursive programs through which China’s bilateral and multilateral diplomacy is enacted, legitimated, and sustained in Latin America.

Based on the assumption that knowledge and meaning—among other non-material factors—condition the social “making” of power (Guzzini 2005), constructivist approaches to the IR-theory make important contributions in this respect. Strauss (2012), for instance, applies a constructivist approach to emphasize the importance of China’s complex set of past and present ways of understanding its own position as a world power that has, at least partly, suffered from external domination. This theoretical position is utterly insightful in the study of the mental representations of social identity (e.g. a common history of subordination) that motivate Latin American actors to embark in a joint project of economic and political emancipation through tightening relations with China. A constructivist approach is nonetheless insufficient for the purpose of this thesis. The assessment of China’s policy—and discourse— of “mutual benefit” (The People's Republic of China 2008) would be extremely limited without a structuralist account of how trade, investment, and lending affect the political and economic conditions of resource-dependent states. It would be similarly difficult to understand, for instance, whether the institutional construction of the BRICS actually serves the purpose of collective problem solving, or whether this acronym actually functions as a discursive platform of “equal partnership” through which China gains a better position to foster its individual interests in Brazil, which would point to an emerging form of “diminished multilateralism” (Rüland 2012).

To summarize, the study of China’s quest for resources in Latin America requires multiple analytical lenses through which to make sense of a new and undertheorized phenomenon of South-South relations of power. Consequently, an adequate theoretical framework must enable the researcher to engage with the structural, institutional, and discursive aspects of the Chinese-Latin American tie while providing an account of how the extraction of natural resources allocates political and economic advantages, to whom, and under what exact circumstances. Furthermore, a solid theoretical framework must satisfy three requirements. First, it must provide an explicit definition of power and illustrate how the extraction of oil and minerals fits analytically into that definition. Second, a solid approach to theory must enable the researcher to recognize how the transnational dynamics of economic exchange interact with

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the international and domestic politics of resource extraction. This is a precondition to understanding how the global politics and economics of the oil and mineral markets fit together in the context of South-South relations. Third, and finally, the use of theory must give the researcher adequate analytical tools to shed light on both general and specific features of how Chinese power finds its way into, through, and out of two structurally unequal and institutionally diverse states like Brazil and Peru. The theoretical pathway designed to meet these requirements is discussed in what follows.

The social production of extractive power

The theoretical foundation of this thesis draws on the work of Michael Barnett and Raymond Duvall, who define power as “the production, in and through social relations, of effects that shape the capacities of actors to determine their own circumstances and fate” (Barnett, Duvall 2005a, p. 8).4 The authors further specify this definition through a taxonomy of power that encompasses four distinct concepts including structural, institutional, productive, and compulsory forms of power (ibid., pp. 8-22). This conceptualization of power has several analytical advantages and some limitations, which deserve discussion prior to its operationalization.

The main argument in favor of Barnett and Duvall’s concept of power (ibid.) is that it matches the interest of this thesis to explore how “extractive effects,” i.e. the large-scale extraction of oil and minerals, shape the capacities of actors as they engage in mutually constitutive relations of economic exchange and diplomacy. The central characteristic and contribution of the chosen concept of power is its strong emphasis on social relations as the single most important moment, i.e. unit of analysis, in the production of power. From this perspective, power is not only identifiable as an attribute (or a set of attributes), which enable(s) an actor to shape and control the behavior of others. According to Barnett and Duvall (2005a), power is moreover identifiable as a social process of interaction. This conceptualization of power directs the researcher’s attention to the question of how different positions of privilege,

4 For other scholars, who have used Barnet and Duvall’s (2005a) taxonomy of power, please refer to: Cohen, Benjamin J.; Chiu, Eric M. P. (Eds.) (2014): Power in a Changing World Economy. Lessons from East Asia.; Diez, Thomas; Stetter, Stephan; Albert, Mathias (2006): The European Union and Border Conflicts: The Transformative Power of Integration. In International Organization 60 (3), pp. 563–593. Available online at: http://www.jstor.org/stable/3877820, accessed 2 February 2015; Lübke, Christian von (2015): Continuity and Change Societal Power and Accountability in Democratic . In ABI Working Paper (1). Available online at: http://www.arnold-bergstraesser.de/continuity-and-change-0, accessed 23 March 2016. 12

structural advantage, and influence are socially produced, defended, and contested. This is an important analytical platform for this thesis to study how the interplay between transnational relations of economic exchange and international relations of bilateral and multilateral diplomacy translate into distinct expressions and conditions of power.

These circumstances allow for useful theoretical specifications. Consider fossil commodities: why are they to be treated as sources and enablers of power? Oil and minerals produce relations of power because they determine the capacities of entire states to lose or sustain “the material basis through which […] society reproduces itself while preserving social structure and function” (Bridge 2011, p. 310). Stable sources of energy (oil) and electricity distribution (copper) are cases in point. Oil and copper are hence essential resources needed by industrial economies. However, the rate at which oil and copper are extracted from the underground is increasingly and disproportionately high in comparison to the rate at which they are able to regenerate (Bridge 2011; Sverdrup, Ragnarsdóttir 2014). This forces import- dependent states to project power beyond their borders in order to extract underground resources in other sovereign states (Amineh, Guang 2017; Amineh, Guang 2014). Exhaustible, energy-related resources thus lie “at the core of international , and structure the domestic politics of large exporting and importing states alike” (Bridge 2011, p. 317). From a theoretical perspective, it is therefore essential to acknowledge China’s resource quest for oil and minerals in Latin America as a matter of power—but what kind of power?

By reference to Barnett and Duvall’s (2005a) definition of power and based on Bridge’s (2011) analysis of how the materialities of energy-related, non-renewable resources—mainly oil—affect the social equilibrium of industrial societies, the concept of “extractive power” has been defined by the author as the core analytical lens through which to develop this thesis:

“Extractive power is the collective transformation and appropriation of nature in and through social relations that enable some actors to gain better command of their own circumstances while others remain disadvantaged.” (based on Barnett, Duvall 2005a; Bridge 2011)

Notably, this concept is based on the assumption that China, like other (Western) nations searching to protect their position of power and wealth, relies on its ability to secure long-term access to strategic resources overseas. At the same time, “extractive power” refers to the structural conditions, institutional choices, and geostrategic drivers that motivate and/or

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constrain Latin America’s resource-exporting states to engage in a tighter relationship with China as its strategic need for oil and certain minerals reaches critical levels (Section 3.1). Extractive power is consequently formed through and by a series of social relations of transnational economic exchange and international diplomacy. In this light, a theoretical account of how extractive power is produced must engage with the ways in which specific Latin American actors themselves seek to enhance their position of privilege through tightening ties with Chinese stakeholders. Similarly, if resource extraction is the main driver of the Chinese- Latin American tie, then aspects of identity constitution must be taken into account as a function of extractive power. This involves the study of the ways in and the extent to which resource extraction sets the cognitive boundaries to how leading politicians, businesses, and activists develop an understanding of who they are as social actors, the kind of places and projects they claim for themselves, and the extent to which they embrace or reject dominant systems of meaning and signification in domestic and international politics (Barnett, Duvall 2005a, p. 10). Ultimately, a political economy analysis of “extractive power” must, 1) systematically scrutinize the diversity of effects that resource extraction has on different actors, and 2) provide an account of the extent to which these extractive effects, i.e. the extraction of oil and minerals, benefits some actors while others remain disadvantaged. To accomplish its epistemological task, the concept of extractive power is analytically disaggregated into and constructed through the four concepts that build Barnett and Duvall’s taxonomy of power: structural, institutional, productive, and compulsory power (ibid., pp. 8-22).

2.3.1 Structural power

From the perspective of structural power, it is of key importance to acknowledge the People’s Republic of China as the new transformative center of global capitalism in terms of raw material demand (Ericsson 2009; Östensson 2009; Stürmer, Hagen 2012). It is also important to recognize its economic, financial, non-territorial means to influence outcomes in less powerful, resource-exporting states of the Global South. This presupposes an account of how China mobilizes trade, investment, and lending mechanisms to secure strategic resources while structurally constraining the resource-exporting states to reinforce their peripheral position in the global system of production. Structural power thus draws on the analytical perspectives of world-system (Wallerstein 1979, 1996, 2004, 2010) and dependency theories (Cardoso, Faletto 1970, 1979; Santos 1968, 1973). Besides providing a core/periphery lens, as discussed earlier in this chapter, this stand of theory points at the connecting function of Latin American elites in

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the promotion of transnational relations of resource extraction (Bull, Aguilar-Støen 2015; Tickner 2009). Structural power, however, differs significantly from dependency thinking as it does not attribute underdevelopment in the Global South exclusively to external constraints generated in the Global North. More importantly, the concept of “structural power” and its overlap with the concept of “institutional power” (see below) enable the treatment of Latin American countries as subjects and actors in their own right (Tickner 2008), assuming that Brazil and Peru are differentially capable of shaping their relations to China through a certain degree of agency, which is not only dependent on external conditions but also on internal factors.

2.3.2 Institutional power

Neo-institutional theorists argue that global institutions enhance the efficiency and reduce the complexity of international and transnational economic relations for the benefit of the whole system (Keohane, Nye 1972). However, international institutions and their mechanisms are themselves the product of global inequalities (Hurrell 2005). For instance, free trade agreements (FTA) governed in and through the World Trade Organization (WTO) are meant to set the values, principles, terms, and conditions that regulate commodity transactions within the globalized economy in a “fair” context of liberalized markets. However, even if the terms and conditions for the negotiation of FTA were to treat exporters and importers as equal partners, the effects of such deals might still work to the advantage of China since it controls the most decisive steps in the global process of value creation (transformation, product innovation, and market penetration). Meanwhile, Latin American states risk serving China’s economy mainly as resource providers and low- to mid-end consumer markets. Institutional power may thus generate unequal power relations and at the same time strengthen and reproduce structural power asymmetries and dependencies. In addition, at the national level, the institutional choices that regulate the relationship between government and the marketplace are central to Latin America’s wide-ranging approaches to development and global insertion (Burchardt, Dietz 2014; Kingstone 2011; Rosales 2013, 2016). Norms, rules, and ideas are an important form of institutional power inasmuch as they determine what can be done by whom, to whom, under what circumstances, and with what consequences (Kingstone 2011, p. 129). These are hence important variables to consider if one aims to identify the domestic processes of preference aggregation (Moravcsik 1997) that push for or against China’s entry into the region.

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2.3.3 Productive power

Social constructivists have placed the relevance of ideational, non-material devices at the center of theoretical discussions in International Relations (Guzzini 2005; Strauss 2012; Wendt 1995, 1999). In their view, the social construction of meaning is an important way of understanding how interests are conceived, communicated, made sense of, and how they ultimately shape the specific conditions under which actors do what they do. Following this influential stream of thought and building on Michel Foucault’s work on the structured and structuring power of language (Burchell et al. 1991; Foucault 1970, 1980), “productive power” focuses on how “discursive processes and practices produce social identities and capacities as they give meaning to them” (Barnett, Duvall 2005a, p. 21). Official and semi-official language is in fact a powerful element of Chinese power and its reach for a tighter relationship with Latin American states (Strauss 2012). In this context, rhetoric is understood as the expression of meanings through words while discourses entail an identifiable, structured and institutionally stable praxis that orient the terms and conditions of social interaction in a particular direction (Keller 2011, p. 68). Chinese diplomatic language is hence understood as “part of a complex of critical appeals between the state and significant audiences it wishes (variously) to attract, persuade, reassure, mobilize or consolidate support from” (Strauss 2012, p. 136). In this respect, the concept of “productive power” enables the understanding of how China and Brazil may mutually balance out structural asymmetries of power through the creation of common identities like the BRICS. In the case of China-Peru relations, this process of diffuse social interaction may fix ideas of “win-win” and “territorial complementarities” as the “normal,” the “natural,” and the “desirable” (Barnett, Duvall 2005a, pp. 21–22). At the same time, it is important to understand how national discourses that promote “extractivism” as a nationally urgent endeavor match China’s extractive interests as well as those of the government and business elites in charge of the extractive industries discussed in this thesis.

2.3.4 Compulsory power

Much of the international debate on global conflicts over resources draws upon the theoretical premises of realism (Art, Waltz 2009; Morgenthau et al. 2006; Waltz 1959). Under this view, the presence of military coercive forces is a precondition for one actor acquiring a direct controlling condition over another. Scholars arguing from a realist perspective assume that great powers will compete with each other to secure scarce strategic goods and use military means if their circumstances of existence are threatened. China’s goal-efficiency in Latin America 16

responds, however, to a peaceful and silent yet highly target-oriented resource diplomacy. The concept of “compulsory power” calls attention to the wide range of mechanisms, technologies, and circumstances that may allow one actor to “directly control the conditions of behavior of another actor” (Barnett, Duvall 2005a, p. 15). Compulsory power may, in fact, entail non- material, i.e. discursive elements that are commonly labeled as “” (Nye 1990, 2001, 2004, 2013). For instance, disproportionate dependence on trade and investment relations might grant the superior power direct control over the political and economic decisions of the exporting country without resorting to physical force, political conditionalities, and/ or economic sanctions. By contrast, strong levels of import dependency on a particular resource can, under specific circumstances, put great powers in a position of weakness, granting less powerful, exporting states significant room to alter or control their behavior. The specific mechanisms that allow China to gain control of resources, either against the opposition or with compliance of particular social actors in the host country, are of relevance to this thesis. As the dynamics of power are best understood from the perspective of the more disadvantaged, a complementary question is whether Brazilian and Peruvian stakeholders are able to exert any kind of pressure on Chinese officials and companies, given their critical need to sustain China’s economy through stable supplies of oil and minerals; and if yes, at what cost and under what circumstances.

Having explained how the concept of “extractive power” operates analytically through structural, institutional, productive, and compulsory forms of power, it is important to delimit the scope of this theoretical construct. To begin with, the theoretical framework of this thesis allows the researcher to systematically chart the way in and the extent to which different kinds of social relations produce extractive effects, affect behavior, and shape the conditions of the existence of social actors. In this way, this theoretical framework offers a comprehensive lens through which to study how, to what extent, and under what circumstances China’s resource policies rely on particular forms of power to access strategic resources in Latin America. At the same time, the theoretical framework provides a typological instrumentarium, which allows for the identification of the general patterns as well as the specific forms of power at work in China’s resource quest for resources in Brazil and Peru.

While the aforementioned approach facilitates a comparative and context-sensitive analysis, it necessarily favors breadth over depth. For example, each of the four presented concepts of power could demand an individual analysis. The application of the four concepts

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of power sacrifices analytical detail in each dimension but offers a consistent and broad perspective on an emerging research field. In this light, regional or country experts might demand a higher degree of attention to domestic variables, while foreign policy scholars would devote more attention to a focused and structured study of foreign policymaking processes. Equally, energy experts might demand a more detailed account of the technical and economic aspects of the extraction of oil and minerals, while peace and security scholars might miss an in-depth account of the associated conflict potential. The theoretical framework touches upon these important aspects but weaves them into a central argument on how the extraction of oil and minerals shape power relations and vice versa. In doing so, the theoretical framework at hand helps to understand this theoretical relationship by using the case of Chinese-Latin American relations. It does so by examining China’s power relations with Brazil and Peru by focusing on elitist networks of interaction and their effects on the political economy of the involved states as a whole. Research focusing on other social actors, economic sectors, and moments of Chinese-Latin American interactions would demand further theoretical and methodological considerations.

2.4 Research design: Towards a comparative and contrasting analysis

2.4.1 Diverse-case research design

The main goal of this thesis was to produce insight into the contextual factors and causal mechanisms determining the way in and the extent to which China’s critical need for oil and minerals has been productive of specific kinds of power relations between Beijing and different Latin American states. In this context, the power dynamics of the Sino-Brazilian and Sino- Peruvian relationships constituted the units of analysis of a diverse-case research design (Gerring 2007), which was used to develop hypotheses of relevance to the Chinese-Latin American tie as a whole. China’s resource policies span across resource-rich Latin American states with significantly diverging features and strategies of global insertion. It was therefore important to first understand the geostrategic drivers of China’s quest for resources and Latin America’s place in it. The next step in the research design of this thesis dealt with the inevitable question of case selection (George, Bennett 2005; Gerring 2007). This subsection explains why and how the cases of Brazil and Peru, as well as their tightening partnerships with China, were selected as the main empirical focus of the research. The second methodological decision opted for the comparative method (Collier 1993; Lijphart 1971; Sartori 1991) as the principal tool of 18

case treatment. Finally, the research design was solidified through the quasi-experimental conditions generated through China’s notably traceable presence in Latin America over the period 2000-2015 (Behnke et al. 2012; Blatter et al. 2007; Gerring 2007).

Case selection

The empirical focus of this thesis was largely influenced by an exhaustive appraisal of the concerns dominating the scientific as well as the public debate at the beginning of the research: Is China a neo-colonial power? Have China’s resource policies been accompanied by an ideological and/or hegemonic challenge towards the US? If so, have CCP authorities privileged extractive partnerships with left-leaning Latin American states? Is Latin America an instrumental “” for the “Beijing Consensus” to “flourish” in the “US backyard?” If yes, will Beijing motivate or pressure Latin American states to replicate China’s development model just like other major powers have done in the past?

These questions seemed quite relevant to the understanding of China’s increasing presence in Latin America but lacked empirically convincing examination in the literature. This problem gave way to the selection of Brazil and Peru as two influential cases. The “influential case” is, according to Gerring (2007, p. 108), a case in which the researcher observes specific characteristics and conditions with the potential to invalidate, or at least challenge, substantial aspects of a given theory. The selection of influential cases thus necessitates justification on behalf of the researcher. Although there is no general theory about China’s resource policies in Latin America, the cases of Brazil and Peru were selected because they challenge key arguments put forward implicitly and misleadingly through the above-mentioned questions dominating the debate on Chinese-Latin American relations in the twenty-first century.

Among the ten Latin American states that received presidential visits from China between 2001 and 2015, 5 Brazil and Peru qualified as two influential cases for the following reasons. In the first case, it was contested to classify Brazil, a regional power and a BRICS- state, as a peripheral resource-exporting country, which underlies the controlling power of China’s neo-colonial rule. Theoretically, Brazil could have taken advantage of China’s critical dependency on oil and other raw materials to boost its own projection as a global power.

5 The list (in alphabetical order) includes Argentina, Brazil, Chile, , , , Peru, Trinidad & Tobago, , and Venezuela. 19

Equally, the case of China’s copper extraction in Peru challenged the fact that ideological and political alignments in favor of left-wing governments or against the “Washington Consensus” were the factors at work in explaining China’s expanding policies of extraction across Latin America. Peru’s liberal mining economy hardly fits into the state-driven extractive sectors that are characteristic of the “left-leaning” states that promote “post- Washington” discourses like Venezuela, Ecuador, Bolivia, Brazil (before Temer in 2016), and Argentina (before Macri in 2015). Moreover, Peru’s expanding economy stands out as one of the International Monetary Fund’s (IMF) and ’s paradigmatic examples of open- market-indoctrination in Latin America. Yet, China’s extractive partnership with Peru has intensified and expanded quite swiftly despite Peru’s tight level of political proximity with Washington.

Besides, Brazil and Peru were considered representative of the structurally uneven and institutionally diverse Latin American context. Both cases were considered influential in that they challenge the idea that China engages with a homogenous and eventually cohesive region. Instead, the comparative approach of both cases enabled the researcher to shed light on the way in and the extent to which the structural position of a given Latin American state matters to its relationship with China. In doing so, the choice of an influential-case strategy in terms of case selection compensates for the moderate size of the sample while highlighting intraregional context-specificity. Furthermore, Brazil and Peru possess two distinct industries (state-led oil and liberalized copper), which exhibited the potential to encounter a wide range of variation in terms of how China exercises power in these two different contexts. This feature was important in terms to the diverse-case design of the thesis, which promised to deliver a differentiated analysis of how China’s resource policies affect the political and economic conditions of two structurally and institutionally different Latin American states.

Case treatment

The next important decision in terms of research design was case treatment. In this regard, the researcher opted for a theory-led, interpretive approach to case comparison. This kind of endeavor enabled a deductive proceeding based on the typological, contrasting, and comparative exploration of the ways in which China’s resource policies were affected by the conditions and strategies of global insertion of Brazil and Peru and vice versa (Blatter et al. 2007; George, Bennett 2005; Gerring 2007). For the purpose of cross-case comparison, Brazil was treated as an “influential” case (Gerring 2007, p. 115), given its BRICS-status and 20

relatively strong bargaining position vis-à-vis China. At this level of analysis, Peru was treated as an “influential” case (Gerring 2007, p. 91), which is closer to those Latin American states that lack Brazil’s capacities to bargain with China.

Moving one level up the ladder of abstraction (Sartori 1991), three points regarding the method of structured, focused, and dynamic comparisons deserve close attention (George, Bennett 2005; Gerring 2007). In general terms, the purpose of comparison is to “bring[…] into focus suggestive similarities and contrasts among cases” (Collier 1993, p. 105) as a way to “establish[…] general empirical propositions” on the basis of the intensive analysis of a “small number of cases” (Lijphart 1971, pp. 682–684). The specific method of comparison used in this thesis is “structured” (George, Bennett 2005, p. 67) in that it combines a vertical logic of within- case analysis with a horizontal logic of cross-case analysis (Gerring 2007). The method of comparison is “focused” (George, Bennett 2005, p. 67) in that it pays particular attention to the ways in which resource extraction is productive of or effected by four specific forms of power: structural, institutional, productive, and compulsory power (Barnett, Duvall 2005a). Finally, the method of comparison that was deployed in this study is “dynamic” in that it draws on temporal and spatial variation (Gerring 2007, p. 152). Temporal variation means that China’s resource policies can be analyzed at different points in time over the selected period of study (2000- 2015). This enables to understand the changing dynamics of China’s resource policies across time. Spatial variation is not necessarily limited to spatial units. Instead, it refers to the fact that the research design allows for the comparison of how China’s resource policies are affected by changes in the structural and institutional conditions of Brazil and Peru. The virtues and pitfalls of these methodological choices were further balanced through the quasi-experimental setting of the research as explained below in more detail.

Quasi-experimental conditions

The quasi-experimental conditions under which this thesis could be conducted were central to the design and outcomes of the research. China’s engagement in the extractive economies of Latin America started to increase concurrently with its entrance into the World Trade Organization in 2001. Therefore, the state of affairs in 2000 allowed for the treatment of Brazil and Peru as “control cases” because China’s intervention was almost non-existent (Behnke et al. 2012, pp. 68–73). The period 2000-2015 is hence fundamentally relevant to the quasi- experimental setting of this thesis. The focus on this time-frame enabled the researcher to treat China’s resource policies as a “stimulus” (ibid.) and thus observe, reconstruct, and interpret its 21

changing dynamics and effects across time (diachronically) and space (synchronically) (Gerring 2007, p. 152). The same rationale applied to the analysis of the changing conditions and strategies of Brazil and Peru to respectively engage in a bilateral relationship with China. As a result, the analysis of China’s resource policies in the structurally uneven and institutionally diverse context of Brazil and Peru enabled a process of hypothesis-building on how contextual and temporal variation influenced the power dynamics at work in the Chinese-Latin American tie in the period under study.

The quasi-experimental setting of the research proved coherent with the goals of the thesis. The temporal circumstances of China’s increasing presence in Latin America enabled the researcher to take full advantage of the analytical possibilities associated with a diverse- case design (Gerring 2007, p. 97). This approach allows to first maximize the level of variance concerning the first and second independent variables (X1: China’s resource policies) and (X2: Brazil’s and Peru’s strategic responses) to that empirically observable stimulus (Behnke et al. 2012, p. 68). Then, it allows for a controlled degree of variance on the first dependent variable (Y1: increasing trade and investment relations in the state-led oil industry in Brazil and deregulated copper industry in Peru). Finally, this research design clears the way for the identification of additional intervening variables (Y1, Y2, Y3, etc.) affecting the level of political and economic autonomy available to Brazil and Peru to determine their own conditions of power in relation to China.

2.4.2 Scope and limitations of the study

The main limitation of case study-oriented research is the problem of “many variables, small number of cases” (Lijphart 1971, p. 685). This proposition regards the statistical analysis of a large number of cases as a superior alternative to testing general hypotheses about a given social phenomenon. This is, however, not the aim nor the scope of this thesis. First, there is not a sufficient number of cases available to conduct a large-N analysis. Second, there is no general theory about China’s resource quest in Latin America to be tested. Therefore, a careful selection of a small number of cases is the best alternative available to a researcher committed to the development of hypotheses about the “contingencies” and “specificities” of the Chinese-Latin American tie over the period 2000-2015. This entails the development of propositions about the kinds of conditions that explain the effects of particular independent variables unknown to the researcher at the beginning of the research process (George, Bennett 2005).

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The internal validity of this hypothesis-generating process could be guaranteed given three critical aspects of the research design. First, the diachronic perspective on China’s relationship with Brazil and Peru allowed the researcher to work with two different sets of observations for each case (one in the year 2000 and one in the year 2015), which increased the number of cases from two to four (Przeworski, Teune 1970). Second, a comparative case study approach was important to minimize the risk of case bias, which is a significant limitation of single-case studies. This problem refers to the selection of one single unit of inquiry, which is a priori confirmatory of the researcher’s ideas on how to explain the social phenomenon of interest and hence runs counter the objective to produce valid arguments. By contrast, the combination of within-case and cross-case analysis constrains the researcher to check whether inferences “hold across the cases to which they [are thought to] apply” (Sartori 1991, p. 244). Third, the validity of the comparative diverse-case design was secured through the systematic deployment of parsimonious, i.e. clearly defined, theoretical concepts of structural, institutional, productive, and compulsory power (Barnett, Duvall 2005a), which were specifically operationalized for each case under study and cross-checked for consistency through within-case and cross-case analysis (Collier 1993; Przeworski, Teune 1970).

In general, a theory-led, case study approach has the advantage of delivering strong interpretive categories of analysis to disentangle explanatory pathways to a complex phenomenon in international relations. The disadvantage of such an approach is the fact that the researcher may observe reality in a way that is fitting or responsive to the initially proposed theoretical concepts. This particular risk was diminished through an empirically rich inductive analysis at a more advanced stage in the research process. Indeed, the empirical analysis of the distinct conditions and strategies through which Brazil and Peru have come to engage economically and/or politically with China allowed the researcher to question, rework, and refine the theoretical underpinnings of the study in a “bottom-up” analytical wrap-up (Della Porta, Keating 2010; George, Bennett 2005; Gerring 2007). Under these methodological circumstances, the scope of inference of this thesis is broader than that of a single case study and deeper than that of a large-N analysis (Gerring 2007). The analytical trade-offs of this theory-led, diverse-case design are hence significant, given 1) the limited number of cases available in the entire population of Chinese-Latin American ties, and 2) the representative level of heterogeneity attained through the selection of the Sino-Brazilian and Sino-Peruvian ties as the main empirical focus of the research.

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2.4.3 Data sources, collection, and assessment

The theoretical and empirical interest to understand the complexity of causal linkages between China’s “go out” strategy and Latin America’s new extractive “moment” determined the targeted search for relevant sights of empirical evidence in the form of quantitative and qualitative data. Part of the empirical material was publicly available, while important data segments were generated through qualitative fieldwork conducted in the US, China, Brazil, and Peru between 2015 and 2017. Importantly, the theoretical framework encompassing structural, institutional, productive, and compulsory concepts of power (Barnett, Duvall 2005a) guided the identification, classification, and interpretation of data as well as the critical scrutiny of the reliability and validity range of data sources. This thesis thus draws on a tight interconnection between theory, methods, and research techniques as a means to maximize the stringency, coherence and validity of the argument.

Interviews

Between 2014 and 2017, a total of 44 semi-structured interviews with diplomats, government officials, businesses, activists, and academic experts with substantial levels of experience and expertise on China’s economic diplomacy in the world, Latin America, and, more precisely, Brazil and Peru were conducted. The insights resulting from the interviews were used to build analytical bridges between the quantitative and qualitative data gathered throughout the research process and to go back and forward between the theoretical framework and the empirical findings. In practical terms, no verbal content from the interviews has been disclosed, unless otherwise specified. Government officials and business stakeholders from China, Brazil, and Peru cataloged key aspects of the shared information as “sensitive” and requested confidential use of the data. The same applied to critical NGOs and locally based consultants. With some exceptions, interviewees requested not to be recorded. Most of them preferred to remain anonymous and to be mentioned according to their institutional affiliation. Upon express consent, the specific function within the institution is mentioned in the text.

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Meaningful informal conversations

Besides conducting formal interviews, the author’s background and professional networks in international consultancy, as well as his academic accreditation in Germany granted access to formal and informal events in Beijing, Rio de Janeiro, Sao Paulo and . These settings allowed for informal conversations of investigative character with Chinese, Brazilian and Peruvian decision-makers and stakeholders as well as directing members of US international institutions and a wide range of Western diplomats working in these countries. Moreover, a short-term consultancy conducted for a Washington-based international financial institution (IFI) in 2014 provided the opportunity to observe and discuss the US’ perception of China’s growing presence in Latin America. Finally, two weeks of intensive research at the Department of International Studies at Peking University (PKU) in the context of a Summer Academy organized jointly with the London School of Economics (LSE) in 2016 provided a suitable setting for a comprehensive study of the drivers and rationale of Chinese foreign policy making and to conduct a series of interviews with Chinese scholars, policy-makers and businesses who took part in the event.

Qualitative analysis of statistical data

The empirical point of the departure of this thesis consisted of the qualitative analysis of economic patterns of exchange between China and Brazil and between China and Peru over the period 2000-2015. This included the systematic collection of statistical data on trade, investment, and loans. These indicators were classified and interpreted through the lens of structural power, which aims to understand how the social positions of actors determine the symmetries and asymmetries of social interaction and territorial functionalities in the global economy.6 It further enabled the researcher to understand the effects of bilateral economic diplomacy and to contrast bilateral discourses with other forms of empirical evidence. Quantitative sources of data consisted primarily of economic data. The primary sources of trade data included the UN-Comtrade database7 and the World Integrated Trade Solution (WITS). 8 The qualitative analysis of these data was further supported through the use of visualization

6 In both cases, China figures as a major importer and investor while Brazil and Peru take the positions of semi- peripheral, and peripheral resource providers in the search for abundant Chinese capital. A creditor-borrower relationship was particularly relevant in the case of Brazil and empirically irrelevant in the case of Peru. 7 Available online at: https://comtrade.un.org/, accessed 14 September 2017. 8 Available online at: http://wits.worldbank.org/, accessed 14 September 2017. 25

software available from The Observatory of Economic Complexity9 and from The Atlas of Economic Complexity.10 Data on Chinese foreign direct investment (FDI) was further gathered from The China Global Investment Tracker11 and complemented with a documental analysis of several studies conducted by the Economic Commission for Latin America and the Caribbean (CEPAL 2012, 2016; ECLAC 2015). Data on global energy consumption was gathered from Enerdata Global Energy Statistical Yearbook 2016.12 The main advantage of these international and publicly accessible data-bases was data comparability for the states under scrutiny. These statistical data sources allowed for the systematic reconstruction of the context and main avenues of economic interaction connecting Beijing with Brazil and Peru and vice versa.

International data sources were further inspected for consistency against national statistical data from the National Agency of Petroleum, Natural Gas and Biofuels of Brazil (ANP)13 and from the Ministry of Energy and Mines of Peru (MIMEM).14 These sources provided further information on oil (Brazil) and copper (Peru) production, trade, and reserves, which was systematically visualized by the author according to the theoretical and empirical requirements of the analysis. Important technical information from transnational oil and mining companies was further incorporated into the analysis according to necessity.

Strong data limitations of the exact quality and volume of oil and mineral rents must be however acknowledged. While the WITS platform provides useful estimates, data inconsistencies were established at the national level. Nevertheless, undisclosed conversations with government officials and businesses provided an adequate basis to clarify inconsistences in terms of data. Finally, the presented information on Chinese lending to Latin America was gathered from The China-Latin America Finance Database15 and complemented with data from state, para-state, and international agencies based in Brazil and Peru, which are cited accordingly throughout the text.

9 Available online at: http://atlas.media.mit.edu/en/, accessed 14 September 2017. 10 Available online at: http://atlas.cid.harvard.edu/, accessed 14 September 2017. 11 Available online at: http://www.aei.org/china-global-investment-tracker/, accessed 14 September 2017. 12 Available online at: https://yearbook.enerdata.net/2015/, accessed 14 September 2017 [restrictions apply]. 13 Available online at: http://www.anp.gov.br/wwwanp/dados-estatisticos, accessed 14 September 2017. 14 Available online at: http://www.minem.gob.pe/_sector.php?idSector=1, accessed14 September 2017. 15 Available online at: http://www.thedialogue.org/map_list/, accessed 14 September 2017. 26

Additional qualitative sources and data assessment

Apart from interviews, qualitative sources of data also included publicly and sometimes online available documents, newspaper articles, official documents, laws and regulations, institutional newsletters, and business reports from national and transnational companies. The process of collection, classification, organization, and interpretation of these data represented a particularly challenging task. Although guided by the basic principles of qualitative content (Mayring 2000, 2014) and discourse (Jäger 2015; Keller 2011) analysis, the interpretation of this empirical material did not follow a rigid and linear logic. Instead, the above-mentioned analytical steps were conducted simultaneously, repeatedly, and with increasing rigor until each of the power concepts used in this thesis reached the point of “theoretical saturation” (O’Reilly, Parker 2012). This point was reached at a late stage in the research process when the analysis of additional data did no longer lead to any challenges in the logic and content of the argument (ibid.). This technical procedure was thus grounded on the eclectic interpretation of a broad range of empirical evidence, informed by the theoretical choices, and geared cumulatively towards the research question of this thesis. The eclectic approach to data interpretation and theory building can be difficult if it lacks analytical focus. It proves nonetheless fruitful if the research is committed to bridging different theoretical postures and “disciplined” islands of knowledge, especially if the literature on the topic is not yet extensive as is the case for this thesis (Katzenstein, Sil 2008).

For example, the examination of China’s White Papers on Latin America and the Caribbean (2008), on China’s Energy Policy (10/24/2012) and on China’s Policy on Mineral Resources (12/23/2003) provided empirical elements to understand the structural constraints, the institutional background, as well as the discursive contours of China’s “go out” policy and its implications in the constitution of bilateral ties focused on resource extraction in the cases of Brazil and Peru. At the same time, these official documents provided the empirical basis for the identification of dominant narratives which were then observed to develop into powerful extractive effects in each of the two cases in focus. It was then left to the researcher’s critical judgement to identify the specific forms, mechanisms, and intersecting dynamics of the forms of power (structural, institutional, productive, and compulsory) at work in each relationship.

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2.4.4 Structure of the thesis

This thesis is organized into seven chapters including the introduction in Chapter 1 and the conclusions in Chapter 7. Chapter 2 provides an overview of the analytical framework encompassing the literature review, the research question, and an account of the theoretical, methodological, and research procedures of the thesis. All chapters are vertically structured along the analysis of structural, institutional, productive, and compulsory power. Chapter 3 outlines the context of the thesis and explains the contours of China’s rise to world power status and its geostrategic implications for the Chinese-Latin American relationship. Chapter 4 explores the power dynamics of China-Brazil relations in the oil sector based on a diachronic, within-case analysis. Chapter 5 follows the same method and explores the power dynamics of China-Peru relations in the copper sector. Chapter 6 draws on cross-case comparison and diachronic analysis to identify the general and specific variables shaping the Chinese-Latin American tie by employing the cases of Brazil and Peru.

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3. Latin America in sight: China’s power projection and the primacy of extraction

This chapter provides a contextualizing analysis of the geostrategic drivers, as well as the sources and forms of power (Section 2.3) that, according to the argument of this thesis, inform China’s resource diplomacy in Latin America. Section 3.1 provides an analysis of China’s rise from the perspective of structural power. The aim is to identify and clarify Beijing’s new social position as an importer of oil and minerals in the global structure of production. Given their growing reliance on external sources of supply, the open question is to what extent Chinese actors can develop a position of structural advantage in relation to resource-rich states from which they expect to increase the import of oil and minerals. Section 3.2 acknowledges the structural options and constraints created by China’s four-decade long process of economic reforms to explain the drivers of Beijing’s resource diplomacy from the perspective of institutional power. This section analyses the institutional mechanisms that give way for Chinese SOEs to go out for resources with Beijing’s political and financial backing.

Given that resource-exporting states regard the exploitation of oil and minerals as the cornerstone of national sovereignty, the institutional power of China’s resource policies exhibits a strong focus on bilateral relations and a pragmatic approach to the production of “extractive effects.” Accordingly, Section 3.3 analyses China’s use of diplomatic language towards Latin American states as an expression of productive power. The analysis focuses on the way China portrays its social identity in relation to that of its Latin American counterparts. This analysis examines the ways in which Chinese actors seek to enhance the political conditions needed for Beijing to maximize the target-efficiency of its resource diplomacy. Finally, Section 3.4 engages with the analysis of China’s power projection towards Latin America through the lens of compulsory power. While emphasizing the absolute primacy of China’s objective to secure long-term access to Latin American resources, this section assesses the extent to which Beijing can be expected to mobilize coercive means for this purpose.

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3.1 The structural power of China’s economic transformation

The international recognition of China as one of the most influential powers of the twenty-first century is largely due to its economic take-off and its increasing financial and political capacities to directly or indirectly influence outcomes worldwide (Cox 2012; Hao 2015; Lampton 2016; Mahbubani 2008; Shambaugh 2013; So, Chu 2016; Wang 2011b; Wang Jisi 2011). Unprecedented processes of industrialization, urbanization and motorization are the central pillars of China’s economy (Kroeber 2016; Schmalz 2010; So 2014; Zhao 2015). However, China’s growth-based economic transformation translates into an unprecedented demand for strategic materials, such as crude oil and minerals, which are not sufficiently available within China’s own territorial boundaries (Humphries 2015; Stürmer, Hagen 2012; The People's Republic of China 12/23/2003, 10/24/2012; Wu 2014). The purpose of this section is to explore how China’s rise affects its structural position of power relative to the US, to the BRICS and to resource-rich countries of the developing world. This is a prerequisite to understanding how China’s rise shapes its own material and geostrategic constraints to “go out” in search for subsoil resources in Latin America. The analysis sheds light on the vulnerabilities and capabilities that enable and constrain Chinese leaders to integrate Latin American resources into China’s fast-tracked economic metabolism through the workings of structural power.

3.1.1 The new core of growth and foreign reserves

While economic growth is a rather reductionist indicator of the specific qualities of economic transformation, it continues to set the standard by virtue of which capitalist economies make sense of their own dynamism, stagnation and decline. Paradoxically, this applies to China and the US in similar ways. While there is an important debate about the extent to which China’s economic rise can be equated to “the decline of the West” (Cox 2012) or, more specifically, to that of the US (Beckley 2012; Lieber 2009; Singh 2008), it is safe to acknowledge China’s rise as the main engine of growth and largest energy consumer since the turn of the century. Between 2000 and 2011, for instance, China’s economy grew at an average of 10 percent, while the US economy grew at an average rate of only 2 percent (IMF 2015). China’s impressive capacity to withstand the negative effects of the global financial crisis of 2008/2009 further strengthened the CCP leaders’ self-confidence to reap the benefits of global capitalism under China’s own terms. It also granted China strong levels of international recognition from developing nations, which are themselves trying to leave the periphery of global labor division (Zhang 2015, 2016; Zhao 2010). 30

In recent years, China has nonetheless experienced an important economic slowdown, which the CCP authorities have described as China’s “new normal” stage of economic development. This new condition has, in fact, left the rise of Chinese economic power relatively unaffected. In 2014, for instance, China grew at an average rate of 7.4 percent which led the nation to hit the lowest level of growth recorded since 1990. This figure nevertheless represented double the rate of global growth in the same year (EIA 2015; IMF 2015). In a somewhat unanticipated transformation of the global balance of power, Western economies riddle over the way in and the extent to which China’s economy will continue to grow above the global average. The global attention on China indeed underlines previously raised arguments that depict China as the central driver of change in the “” (ADB 2011, p. 115): an era in which Asia will account for more than a half of global GDP until 2050 and in which “the center of gravity of the global economy will shift gradually from the Atlantic Ocean to the Pacific Ocean, and ultimately to mainland Asia” (ibid.). Finally, China’s strong economic performance translates into outstanding financial capabilities to influence political and economic outcomes in virtually every corner of the globe. These have gone from US$0.16 trillion in 2000 to US$3.9 trillion in 2014.16 Despite a relatively strong decrease in the last years, this twenty-six-fold expansion grants China an unparalleled structural position of power vis-à-vis resource-rich Latin American states governed by national elites in the search for alternative sources of transnational capital.

3.1.2 The new core of energy consumption

China’s rise to world economic power has brought about dramatic changes to the structure of the global economy, placing China at the core of global energy consumption. In the year 2000, as a matter of fact, the US still figured as the world’s leading consumer of energy, with a total energy demand of 2,269 Mtoe (Million tons of oil equivalent), including coal, gas, oil, electricity, heat and biomass (Enerdata 2016). This represented almost twice as much the amount of energy consumed in China, whose total energy demand accounted for 1,161 Mtoe. Between 2000 and 2009, however, the largest single share in global energy consumption shifted gradually but visibly from the US towards China. In 2009, China’s primary energy demand surpassed quite notably that of the US as economic activity contracted in most Western economies because of the global financial crisis of 2008/2009. China’s energy demand,

16 Source: People’s Bank of China. Available online at: http://www.safe.gov.cn/wps/portal/english/Data/Forex/ForeignExchangeReserves, accessed 14 June 2016. 31

however, continued its pathway of steady growth until 2014. Despite low growth rates that year, China’s energy demand reached a total of 3,034 Mtoe, accounting for 22 percent of global energy consumption (ibid.). Figure 1 illustrates China’s steady pattern of energy consumption, which gained momentum in 2001, surpassed the US in 2009, and reached its prime in 2014.

Figure 1 Shifting dynamics in global energy consumption, 1990-2014 [Mtoe]

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World G7 BRICS European Union Brazil China United States

Source: Enerdata 2016; Global Energy Statistical Yearbook 2015; author’s illustration.

Notably, since the turn of the century, China has climbed to the core of global growth in energy consumption. Another important factor to situate China’s structural position of influence between the Global North and the Global South is its importance within the BRICS. While the role of the BRICS is widely acknowledged in terms of the geopolitical restructuring of the global economy, important asymmetries in terms of energy consumption must be noted. In fact, the level of energy consumption of the BRICS outpaced that of the G7 in 2009, while China surpassed the US as the largest energy consumer in the same year. This fact is indicative of the growing importance of the emerging economies on the demand side of a large array of energy- related materials. The BRICS acronym is, however, misleading in that it artificially obscures China’s dominant share of 60 percent in the total energy consumption within this emerging power block.

Structural asymmetries are in fact significant. For instance, China’s energy demand in 2014 was 3.5 times that of India, 4 times that of Russia, 10 times that of Brazil, and more than 32

20 times that of South Africa as illustrated in Table 1. According to these data, China’s total energy demand in 2014 was not only one third higher than that of the US but was also equivalent to the total energy demand of the US and India combined, the second and third biggest energy consumers in the world respectively. This is an important fact, given that China and India are oftentimes mentioned as the major drivers of the shifting geopolitics of energy without sufficient account of the structural differences between these two emerging powers from the South.

Table 1 World energy consumption by country, 2014

Primary Energy Share of World Total Rank Country Consumption in 2014 Consumption [Mtoe] [Percent] 1 China 3,034 22 2 US 2,224 16 3 India 872 6 4 Russia 751 5 5 Japan 437 3 6 Germany 307 2 7 Brazil 306 2 Top 7 7,931 58 Rest of the World 5,806 42 World 13,737 100

Source: elaborated on the basis of Enerdata (2016), author’s illustration.

Besides gaining a picture of the sheer scale of China’s energy-intense pattern of economic transformation, it is important to understand the quality of China’s energy mix and what it means for China, for the world, and for other world regions. China’s economy is, in fact, driven substantially by highly polluting, non-renewable energy sources. In 2012, fossil sources of energy accounted for 91 percent of China’s total energy consumption. The single most important source of energy is coal with a dominant share of 66 percent in the total energy mix. According to EIA (2015a, p. 1), “China is the world’s top coal producer, consumer, and importer and accounts for almost half of global coal consumption.” The second most important source of energy is petroleum with a smaller share in comparison to coal but still accounting for 20 percent of China’s total energy mix. The third most important energy source is hydroelectric power, which makes up 8 percent of China’s total energy demand. The fourth 33

most important energy source is nuclear power accounting for 1 percent of total energy demand, while all other renewable sources including wind and solar power, as well as biomass, account together for only 1 percent of China’s total energy mix (EIA 2015).

The magnitude of China’s economic transformation is as significant as its impact on the global environment. While China’s economy has grown the most and the fastest since the turn of the century (Mahbubani 2008), so too have its contributions to global pollution. Between 2000 and 2006, China was responsible for a half of the global increase in CO2 emissions. In 2007, two thirds of the global CO2 emissions originated in China (Malm 2012, p. 147). A large part of the negative effects of China’s energy needs is due to the combustion of fossil fuels, including most prominently coal, oil, and natural gas, which accounted together for about 85 percent of national CO2 emissions in 2015 (Olivier et al. 2016, p. 19). By that year, China had achieved its status as the world’s largest CO2 emitting actor with a share of 29 percent of the global total emissions, followed by the US with 14 percent and the EU (before Brexit) with 10 percent, India with 7 percent, Russia with 5 percent and Japan with 3.5 percent of the global total CO2 emissions (Olivier et al. 2016, p. 13).

China’s intense levels of energy consumption are tightly linked with its growth- dependent pathway of export-led industrialization and global insertion. It would be nonetheless wrong to understand China’s economy in isolation from its own territorial specialization in the context of the global economy as a whole. China is the world’s second-largest recipient of FDI, while 40 percent of its manufactures—mostly high-end products—are exported back to Western countries. This has granted China’s economy the status of the “workshop of the world” (Gao 2012) at best and the “chimney of the world” (Malm 2012) at worst. However, as the global critique of the ecological damage generated by China’s economy increases, the CCP authorities and Chinese manufacturing companies ask “why they are criticized for such rising emissions by the very consumers whose market demands they are supplying (Pan et al. 2008, p. 355).” Indeed, China’s economy is not a “self-contained entity,” and is more conveniently understood “as a hub where natural resources are mobilized for transnational production,” as plausibly argued by Gonzalez-Vicente (2012b, p. 97). With this idea in mind, the next subsection examines why and how China’s prominent role at the core of global growth and energy consumption translates into an overwhelming demand for oil and minerals, which is the central determinant of its relationship with the resource-rich states of the Global South, including Brazil and Peru.

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3.1.3 The new core of oil and mineral imports

Fossil and mineral resources are essential for growth-oriented economies, but the rate at which they are extracted is increasingly and disproportionately high in comparison to the rate at which they regenerate (Bridge 2011; Sverdrup, Ragnarsdóttir 2014). Oil and minerals are exhaustible, non-renewable elements of nature and have a strategic importance in the global race for power and wealth. As the struggle for finite resources becomes increasingly fierce, China’s economic rise has been highly influential in changing the international behavior of the great powers as they also strive for security of supply (Amineh, Guang 2017; Amineh, Guang 2014). The recent decisions of the US to reduce its dependency on crude oil imports by increasing domestic investments in fracking technologies is a case in point. Additionally, a number of global actors, including the EU (ibid.), for instance, have launched official agendas that aim to secure constant flows of energy and raw materials needed by their domestic industries, while a number of emerging economies are expected to claim an increasing share of these resources (Ericsson 2009; Östensson 2009; Stürmer, Hagen 2012), given the accelerating pace in energy consumption as noted in detail in the previous subsection.

Oil, however, is a matter of special concern for CCP. Oil consumption has been growing steadily, while domestic capacities to meet demand have decreased consistently and considerably since the beginning of the 2000s. In 2009, China became the world’s second- largest oil consumer behind the US, while domestic demand for petroleum products converted the nation into the world’s largest net oil importer in 2013 (IEA 2015). That year, China’s oil consumption totaled 10.5 million bbl/d (barrels per day) which was equivalent to 55 percent of the 19 million bbl/d of oil consumed in the US. While the structural gap between China and the US is still very large, China’s demand for oil is expected to catch up by the middle of the 2030s (EIA 2015). Taking the present trend of economic slowdown into account, China is most likely to assert a dominant yet needy position on the demand side of the global oil markets with oil demand expected to grow from 13.1 million bbl/d in 2020, to 16.9 million bbl/d in 2030 and 20.0 million bbl/d in 2040 (ibid.).

Oil has indeed remained one of the core issues of geopolitics ever since it was discovered and became the foundation of motorization, industrialization, and economic, political, and the military expansion of the US empire in the twentieth century (Sverdrup, Ragnarsdóttir 2014). As a liquid source of energy that can be transported across different world regions, oil ranks the highest in the amount of energy delivered by each unit of content in 35

comparison to other materials (Bridge 2011, 2015; Bridge, Le Billon 2013). Its qualities as an energy commodity are hard, if not impossible, to replace, and yet it is the first exhaustible material whose availability is unlikely to meet global demand beyond 2040 (Stürmer, Hagen 2012; Sverdrup, Ragnarsdóttir 2014). In this context, the CCP authorities handle the “oil issue” with the utmost attention, given the critical levels of dependence upon external sources illustrated in Figure 2.

Figure 2 China’s oil production and consumption, 1965-2015 [Thousand bbl/d]

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China Oil Production China Oil Consumption

Source: BP Statistical Review of World Energy 2016, author’s illustration.

The ratio of external sources of oil required to meet the total domestic demand has grown from 4 percent in 1993 to 31 percent in the year 2000 and to 64 percent in 2015 (BP 2016). Oil imports are thus a fundamental factor shaping China’s transnational interests as well as its economic and diplomatic strategy towards oil-rich countries and Beijing’s global competitors, including most notably the US (Andrews-Speed, Dannreuther 2011; Amineh, Guang 2014) and, to a less significant though important extent, the EU (Amineh, Guang 2017). As a fundamental source of energy in the fossil economy, oil does not simply represent a commodity. Oil is, most importantly, a pre-condition for the interconnection between states, markets, corporations, households, citizens, and the environment (Amineh, Guang 2014, 36

p. 506). In this context, oil is addressed with special attention by those in need and by those in control of this crucial source of energy. Figure 3 illustrates China’s growing consumption of oil products with the first period of intensification between 1990 and 2000 and a decisively expanding trend ever since. The illustration also denotes a decreasing tendency in oil consumption in the G7 and an increasing tendency in the BRICS. While advanced economies have to some extent decoupled energy consumption from their GDP-growth, emerging economies show higher levels of material input per unit of GDP, commonly referred to as an indicator of resource-intensity. Nevertheless, the US and the EU remain important consumers of oil products, while China has grown into a significantly stronger oil consumer than Japan. Per capita measures of resource consumption would clearly reconfigure this landscape. In terms of foreign policy, however, it is important to acknowledge the absolute need for oil resources as this is a key determinant of the ways in and the extent to which the nation-state will engage in economic diplomacy as a means to protect and secure the reproductive mechanisms of social and economic development, among which oil resources figure as the top priority.

Figure 3 Domestic consumption of oil products, 1990-2014 [Mt]

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Source: Enerdata 2016 Global Energy Statistical Yearbook 2015; author’s representation.

While oil is rightly treated as the most relevant issue in terms of great power politics and its implications for the Global South, a number of other resources have long been underestimated despite their growing geostrategic value, as in the case of copper. Copper is a

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non-fuel mineral commodity and part of “the big six” group of metals with the highest production rates in the world, which include iron, chromium, manganese, aluminum, and zinc (Sverdrup, Ragnarsdóttir 2014, p. 176). Copper is the most efficient conductor of heat and electricity and a central component in the generation and distribution of electricity. Given its resistant and malleable wiring characteristics, copper is central to the production of a large array of high-end and low-tech consumer goods exported by China. It is also highly demanded in large-scale urbanization and infrastructural projects that connect rural towns with the industrial centers through the grid. The use of copper in fact stretches beyond the limits of the fossil economy. Copper is not a fossil resource but an indispensable metallic material used in the construction of windmill turbines. Copper is therefore of crucial importance to the production of renewable energy technologies that are thought to fill part of the gap generated by the gradual displacement of fossil energies in the context of climate change (Ridder 2013).

China’s impact on the global extraction of non-fuel minerals cannot be overstated (Stürmer, Hagen 2012). Since 2001, China’s economy has transitioned from a labor-intensive to a material-intensive process of heavy industrialization, which has required unprecedented levels of non-fuel minerals. Between 2000 and 2010, China’s consumption of several minerals reached an unprecedented share of the world’s total consumption, namely 38.4 percent of copper, 39.8 percent of aluminum, 44.0 percent of lead, 39.3 percent of nickel, 42.5 percent of zinc and 41.0 percent of tin (DERA 2011). China’s shares in the global consumption of these and other important non-fuel minerals expanded consistently until 2015 (BGR 2016).

The case of copper is representative of this global trend. By 2014, China had come to dominate the demand side of the market with an estimated consumption of 11.0 Mt (Million metric tons) of copper, which was equivalent to 48.0 percent of the world’s total demand for copper (USGS 2016). The demand of the US, by contrast, accounted for 8.0 percent of the world’s total demand for copper. However, global pressures in terms of the future availability of copper are not as strong as in the case of oil. Both the US and China are, in fact, important producers of copper, and China partly supplies the US market as well. Since 2009, the global production of refined copper has nevertheless been unable to meet the global demand for this product. China’s consumption of copper has been, in fact, increasing despite economic slowdown (ibid.). In this context, the US authorities have become more attentive to these developments as strategic reporting anticipates the possibility that China may, in fact, increase

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the use of copper resources for domestic purposes (Humphries 2015) and to fuel the export of new copper-intensive technologies in a slowly-shifting energy landscape (Ridder 2013).

3.2 The institutional power of China’s resource diplomacy

This section explains how China’s structural advantages and constraints have pushed its political leadership to enact a specific kind of economic diplomacy that focuses on the extraction of natural resources by the means of institutional power. This particular phenomenon is referred to in this thesis as China’s “resource diplomacy” which is used synonymously with China’s “resource policies.” The analysis focuses on why and how the Chinese government mobilizes and adapts instruments of foreign policy to gain international status in the global architecture of economic governance while directing specific attention to resource-rich Latin American states. An important objective of this section is to understand the extent to which China has become an active player in global governance and to what extent it has embraced or challenged Western norms and institutions.

3.2.1 Resource-intense: From the China Model to the Chinese Dream

China’s rapidly position in the global economy is the result of almost four decades of comprehensive reforms. Following the death of Chairman Mao in 1976, the political leaders of the CCP started a new chapter in China’s vast history of social and economic interaction with the world. In December 1978, the central government enacted a comprehensive policy of “reform and opening up” under the political and intellectual leadership of Deng Xiaoping, who put an end to the socialist revolution and marked the beginning of the reformist era. One of the key goals was to gradually set up an investor-friendly environment according to Western standards without sacrificing the legitimacy of the one-party system. Deng Xiaoping believed that a process of gradual and controlled liberalization was crucial to overcoming the state of “backwardness” and isolation that had negatively affected the People’s Republic of China since its foundation in 1949. Reformist factions within the CCP had begun to envisage the potential benefits of economic globalization after President Nixon visited Chairman Mao in 1972 in a successful bilateral effort to overcome a long period of Sino-US confrontation.

Recognized as the leader of China’s steady pathway towards economic modernization, Deng Xiaoping introduced the attraction of Western FDI as a means to expanding China’s

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industrial base while generating millions of workplaces for the Chinese people. These measures were part of the “Four Modernizations,” which encompassed structural reforms in agriculture, industry, science, and technology, as well as in the nation’s defense sector. A key objective was to transform China into a moderately prosperous society by the year 2000 (Hsü 1982). Deng Xiaoping’s vision was to abandon the failed economic principles of the Cultural Revolution and to start a process of gradual economic liberalization. However, his plans were opposed by Mao’s inner political circle, which was called the “Gang of Four” and included the latter’s wife and three other high-ranking politicians with a strong determination to neutralize Deng Xiaoping’s political leadership and economic ideals. The Four-Modernizations-Program could only be launched after Mao’s death on 9 September, 1976, which enabled a coalition of pro- opening factions to convict and arrest the “Gang of Four” for the crimes committed under Mao’s rule and for acting against the principles of the CCP (ibid.). Since the day Deng Xiaoping was able to consolidate his domestic power, economic growth was instituted as the fundamental source of domestic legitimacy of the CCP and the ultimate policy goal for Chinese leaders to come.

According to So (2014), the “China-Model” is a developmental paradigm that encompasses the state-led promotion of 1) accelerated growth, 2) export-led industrialization, 3) value creation through technological innovation, 4) poverty reduction, and 5) an increasing level of independence to implement development policies without external interventions. This appraisal highlights speed and autonomy as two of the most important features of China’s development pathway. Indeed, China has been able to industrialize much faster than most Western powers due to the process of selective emulation that ought to liberalize parts of the domestic markets while keeping the doors closed for democracy (Huang, 2011; Zhao, 2010). Given that China is host to one-fifth of the world’s population, its achievements in terms of poverty reduction are nonetheless noteworthy. Today, China has the largest emerging middle class in the world and the rising purchasing power capacity of its citizens is reconfiguring trade and investment relations on a global scale.

While Deng Xiaoping is prominently considered to have laid the bedrock of China’s comprehensive process of economic transformation, this process could not have been implemented without the institutional architecture of an all-powerful Leninist state apparatus inherited from the Maoist era (Zhao 2010, p. 423). This is in fact a fundamental characteristic of China’s pathway of development and global insertion. According to So (2014, p. 454), for

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instance, Mao’s Leninist state was not only able to control the political dynamics of social change “all the way down to the village, family, and individual levels” but could also ensure the desired direction of change in policy areas ranging from education, health care, marriage, and culture to “the radical socialist policies of land reform, collectivization, and the Cultural Revolution” (ibid.). The role of the state took a radical turn with Deng Xiaoping. While Maoist rule focused primarily in guaranteeing the ideological stability of the revolutionary socialist system, the reformist era converted China’s bureaucratic infrastructure into a massive engine of economic promotion, which gave birth to the largest on Earth.

Today, the “Chinese Dream” emerges as President Xi Jinping’s vision to take China’s reformist spirit to a new level of ambition. His vision encompasses two targets. The first is to transform China into a “moderately well-off society” by 2020, which is the year in which the CCP will celebrate its 100th anniversary. The second is to finally convert China into a fully developed nation, which is recognized as a global leader in economic, scientific, technological, military, and cultural affairs. This political vision further aspires to double the 2010 level of GDP per capita to reach about US$10,000 until 2020 and to complete China’s urbanization process, thereby allowing 70 percent of China’s population to make a living in well-equipped cities by 2030 (Lawrence Kuhn 2013). Under these circumstances, China’s critical levels in the consumption of oil, copper and other non-renewable resources are unlikely to decreases. Taking the China-Model to its next level of ambition will indeed require a lot of power to access the critical levels of resources needed to secure the regime’s stability. Failing to do so would call the “social contract” between the CCP and China’s emerging middle-class into question. The latter holds on to their leaders’ promise to modernize Chinese living standards, “in return for which citizens agree not to challenge CCP rule” (Zweig 2016, p. 259).

3.2.2 Resource diplomacy: China’s quest to the South

In 2004, Chinese political leaders gathered in Beijing to discuss the focus and scope of China’s economic diplomacy towards the developing world (Zhang 2011, pp. 1601–1604). In the context of dynamic growth rates and increasingly pressing material constraints, this conference paved the way for Chinese authorities to “go South” (Strauss 2012) in search for closer political ties with developing countries. The main goal was to promote stronger economic relations by the means of high-level political contact and a deliberate focus on “practical effect” (ibid.). China’s broader policy to “go global” (Shambaugh 2013) gained geographic focus and political content. A few months later, the Chinese President Hu Jintao undertook the first of two rounds 41

of high-level visits (2004 and 2008), which first included the large and resource-rich states of Brazil, Argentina, and Chile as well as the longstanding historical friend, Cuba. Notably, President Jiang Zemin had prepared the political terrain in 2001 in a diplomatic trip that included these states as well as Venezuela, and Uruguay. Venezuela was the first nation to establish an oil partnership with China under President Hugo Chávez, while China’s presence in Uruguay represented important diplomatic means of exerting pressure against ’s diplomatic recognition of Taiwan. Recognition of the One-China policy is the single most important prerequisite for any nation to establish a bilateral relationship with Beijing. Since the beginning of the twenty-first century, China’s high-level diplomacy has been considerably visible. Between 2001 and 2015, for instance, Latin America received a total of 31 state-visits on behalf of Chinese presidents and premiers, a period in which Brazil stood out as China’s most-visited nation (Dussel Peters 2015, p. 7).

Following Zhang (2011, p. 287), “diplomacy” can be understood as “the official exercise of sovereignty externally by an independent state and an important means for a country to defend its interests and implement its foreign policy.” China’s resource quest for resources is conducted officially and cautiously under the label of “economic diplomacy” (Heath 2016; Zhang 2011). The concept of “resource diplomacy” is nonetheless not part of the official language used by Chinese authorities, because it produces hegemonic images of China, which the CCP leaders want to avoid at all costs in an effort to diminish undesired perceptions of a “China threat” (Okuda 2016). Instead, the concept of “economic diplomacy” refers to the strategic mobilization of foreign policy to ensure the necessary external conditions, both in the Global North and the Global South, for China to achieve sound economic and social development domestically and close wealth and power gaps internationally (Heath, 2016; Wang, 2016; Zhang, 2011). Economic diplomacy is therefore different from other types of official diplomacy that include, for example, military diplomacy, cultural diplomacy, people- to-people diplomacy, and parliamentary diplomacy (Zhang, 2011).

Economic diplomacy has gained chief importance in China’s omnidirectional foreign policy since the beginning of the twenty-first century (Zhang 2011, p. 1592). The targets, scope, and instruments vary according to China’s core interests and according to the function and strategic significance that China’s political leadership ascribes to a given region or state. Chinese foreign policy envisions the powerful nations of the West as the “key,” the developing world as the “basis” and China’s neighborhood as the “priority” (Zhang 2015, 2016). In this

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context, the relationship with the US is by far China’s main point of reference as Washington’s power politics determines the political, economic, institutional, and military space available for China to pursue its core interests in the world and its immediate neighborhood.

China’s quest for resources in Latin America is hence determined by the systemic and hierarchical scope and constraints of its foreign policy. As a transnational hub for the transformation of the globe’s natural resources (Gonzalez-Vicente 2012b), China’s economy connects to the North in search for capital and export markets for technologically advanced exports. In the South, China’s foreign activities concentrate mostly on the penetration of less diversified markets alongside the systematic roaming for oil, minerals, and agro-industrial products needed domestically. In this context, China’s “resource diplomacy” in the Global South is an increasingly debated issue (Alves 2011; Breslin 2012; Power et al. 2012; Zweig, Hao 2016); however, a concise definition of the term is lacking. In this thesis, “resource diplomacy” or China’s “resource policies” refer to:

“The bundle of foreign policy instruments that China’s authorities mobilize with the aim of fostering favorable political, institutional, and economic conditions for Chinese state-owned enterprises (SOEs) to gain and secure access to and control of strategic resources in different regions of the world.”

By the same token, “oil diplomacy” refers more specifically to China’s endeavors to ease its concerns over energy security through long-term alliances and agreements with oil-rich countries located most prominently in the Middle East (Clarke, Chen 2010; Lai 2005a, 2005b), Africa (Alves 2011; Lai 2005b; Taylor 2006), and Latin America (Alves 2011; Xu 2016). The instruments employed by China in order to secure resources overseas include high-level diplomatic contact, strategic partnerships, trade and investment deals, and the allocation of loans by Chinese state-owned banks, particularly China Development Bank (CDB) and The Export-Import Bank of China (China EximBank). In this context, Chinese authorities rely on the structural leverage of China’s massive resource demand to promote trade while taking deliberate advantage of China’s unmatched financial capabilities to project structural power in the form of large-scale investment in infrastructural projects related to energy and mining. SOEs with strong governmental support play a crucial performative role in this respect. They combine China’s structural leverage with the direct and indirect effects of China’s bilateral diplomacy in order to proceed to the operational task of drilling and extracting according to the specific institutional circumstances in which the resources at stake are entrenched. 43

There is different empirical evidence that illustrates China’s deliberate policies to reach out for resource-rich countries. The Eleventh Five-Year Plan (2007–2012) established cross- border cooperation in the oil and gas sector as a central priority in China’s long-term pathway towards economic and social development in 2006 (Zhang 2011, p. 1634). China’s pressing concerns regarding oil resources are openly stated in China’s Energy Policy (10/24/2012), which envisions “[g]rave challenges to energy security,” given the country’s overwhelming and growing “dependence on foreign energy sources” and “ever greater security risks” in sea line transportation routes and transnational pipeline infrastructure on the mainland (The People's Republic of China 10/24/2012). Strategic concerns hence expand beyond Beijing’s policies to access and control resources in situ.

China’s Policy on Mineral Resources (12/23/2003) fired the starting gun for Chinese SOEs to “go out” much earlier. Strategic targets include Australia and Canada, where China’s power projection in the mining sector has varying characteristics. In this important document, “[t]he Chinese government encourages domestic enterprises to take part in international cooperation in the sphere of mineral resources, and in exploration, exploitation and utilization of foreign mineral resources” (The People's Republic of China 12/23/2003). Governmental support aims to create and protect the necessary conditions for Chinese investment in the mining sector to unfold swiftly in the long term. This includes preferential access to public credit lines for Chinese mining SOEs to finance the development of local infrastructure projects as a means to foster “friendly relations” with the host country and outcompete transnational competitors that lack such financing possibilities (Gonzalez-Vicente 2012a, pp. 37–40).

3.2.3 Forgoing ideology for status?

Chinese foreign policy has served different goals and taken different positions at different moments in history. During the first three decades after the founding of the People’s Republic of China in 1949, the main focus of diplomatic action was “to oppose the threat from big powers, consolidate national independence, and safeguard sovereignty and territorial integrity” (Zhang 2011, p. 116). During the Maoist era, the Chinese government believed that it was imperative for China to lean towards the Soviet Union and work against American imperialism. This included ideological support for Maoist liberation movements in developing countries of the Global South (Zhang 2016, p. 97). While the Sino-Soviet relationship eventually deteriorated due to ideological differences regarding both nation’s interpretation of the Marxist- Leninist doctrine, the relationship with the US eventually improved during the second half of 44

the Cold War after the historical Nixon-Mao meeting in 1972. During the three decades after the process of opening-up and economic reform, the focus of Chinese foreign policy shifted gradually from a position of ideological defense towards one of proactive, omnilateral economic and political engagement with the rest of the world (Zhang 2011, 2016).

Despite China’s shift from ideology to pragmatism (Alves 2011), questions regarding the ideological tension between Washington and Beijing continue to resonate in the twenty-first century (Ikenberry 2008). Addressing this topic is important because the economic policies and ideological inclinations of Latin American countries have been traditionally shaped by powerful US institutions. For China, gaining control of strategic resources in Latin America inevitably means dealing with US hegemony in the region. Great powers are conscious that the colonization of the mind is a crucial aspect in terms of asserting dominance over a given territory. Ideological rivalry between the US and the USSR transformed Latin America and other world regions into a bloody and system-defining battlefield during the Cold War. Whether China accepts, rejects, or challenges Washington’s hegemonic rules and norms influences the way in which the Chinese government approaches different Latin American states, as well as the ways in which the latter react to China’s resource diplomacy, which is discussed in detail in the next chapters.

In general terms, China’s strategy of development and global insertion emulates the Western formula of industrialization, urbanization, and infrastructural advancement as the central drives of economic prosperity and material wealth. In contrast to the Western experience, however, the single most important attribute of China’s economic take-off is the political blend of liberal market reforms with an authoritarian system of social control under the almighty rule of the CCP. This is commonly referred to as “capitalism with Chinese characteristics,” whereby the most prominent advocates of this concept highlight the virtues of the strong liberalizing policies of the 1980s against the illiberal (in their view), less fruitful policies of state-led economic reformism during the 1990s (Huang 2008). Other scholars are strong advocates of the China-Model, which in their opinion indeed represents a counterhegemonic destabilization of “the Western modernization model that attempts to impose free-market and liberal democracy simultaneously on non-Western and developing societies” (Zhao, 2010, p. 420).

The last argument builds on the notion of “The Beijing Consensus” put forward by Ramo (2004) to stress the non-prescriptive (and to less powerful countries potentially 45

inspirational) character of China’s unique and autonomous development path. In Ramo’s view, China’s state-led approach to capitalism has basically created an alternative system of possibilities for developing countries to free themselves from the disciplining neoliberal norms embodied in the “Washington Consensus” (Williamson 2011).17 Huang (2011, p. 3) captures this antagonistic field of normative contestation succinctly in the form of three important questions:

“If state ownership promotes growth, why privatize? If a one-party system works wonders in generating GDP growth, why democratize? If state financial controls are effective in resource mobilization, why liberalize?” (Huang 2011, p. 3)

In Latin America, the “Washington Consensus” stands for the imposition of neoliberal norms and values upon nations which would, under different circumstances, potentially choose not to dismantle state-led developmentalism in favor of free-market economics. Washington- based institutions, including the International Monetary Fund (IMF), the World Bank, and the Inter-American Development Bank (IADB), are perceived to embody the powerful institutional arm of the US to dominate the political and economic circumstances of the region. Given China’s rising status, a number of scholars and analysts wonder whether China will follow Washington’s steps and constrain less powerful states to surrender to the norms and values of its own formula of development. The complexity and relevance of this question are further exacerbated by China’s ambivalent behavior within and in relation to US-led international institutions. During the 1980’s and 1990’s, China’s economic diplomacy was set to attract large inflows of Western capitals, while high-level politics focused on integrating China into global economic institutions. This included first and foremost the task of revitalizing China’s voice in the World Bank, IMF, Asian Development Bank, as well as regaining a seat at the General Agreement on Tariffs and Trade (GATT), which later became the WTO (Zhang 2011). Thanks to these reforms, Western countries became major investors, trade partners, and key export destinations for high-end Chinese products and technologies. China’s rise must thus be understood within and not against the prevailing economic order established in the context of US supremacy after the post-Cold War era. Since the turn of the century, however, China’s

17 Given the relevance and contested nature of this tension, this point is discussed separately in Subsection 4.2. 46

status in economic governance has increased and its institutional presence in the world has diversified.

At the same time, China has actively worked towards the construction of territorial imageries and international institutions that call the US and Western dominance into question. In 2014, China’s top leadership launched the “One Belt, One Road” initiative as a Chinese-led economic vision of territorial interconnections that could, if implemented, tilt the balance of economic power towards the Eurasian sphere. Through the creation of visible, to some extent redundant institutions, China has also engaged in “forum shopping”, which is a strategy that allows Beijing to increase its options to “pick and choose” (Forman, Segaar 2006, p. 213) from distinct institutional arenas and mechanisms to attract and reward less powerful actors away from the uncomfortable influence and pressures from the West (Rüland 2012). In 2013, for instance, China announced the creation of the Asian Infrastructure Investment Bank (AIIB), which the US sees as a direct competitor of the Washington- and Japan-dominated Asian Development Bank (ADB). In 2014, China instituted the New Development Bank in alliance with the BRICS-states in a move to deconcentrate global development policy away from Washington. China has also pushed for the to emerge as an informal institution seeking to lift the voice of Global South in the context of the WTO. However, Beijing still struggles with the fact that the US and the EU are not willing to recognize its Market Economy Status (MES), which Beijing, in turn, regards as an obstacle in its quest for great power status. To compensate, China will most likely take advantage of the Trump administration’s decision to abandon the Transpacific Partnership (TPP), which gives Beijing the opportunity to take the driver’s seat and enhance its position of economic leadership in the Asia-Pacific.

In this complex scenario, China emerges as a strong embracer of neoliberal values on the one hand and as a counterbalance to US hegemony on the other. Ideology, however, is not the main driver of China’s global behavior but rather its economic performance, and the recognition of its new status in international politics. These are indeed two important variables to explore in the analysis of China’s resource policies in Latin America, as they shape the way China sees itself and others and expects to be seen by others. This is explained more accurately through the lens of productive power in the next section.

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3.3 The productive power of words: China reaches out for Latin America

Given China’s pressing necessity to “go out” and secure strategic sources of oil and minerals overseas, as well as the complex landscape of normative and institutional tensions between Washington and Beijing, the discursive production of favorable circumstances to drill into the Latin American subsoil is imperative. Based on the analysis of official rhetoric, this section explores how Chinese authorities express their perception of Latin American states and the importance they ascribe to this region from the perspective of China’s geostrategic interests (Rodríguez 2017). In doing so, it explores how China’s diplomatic language is productive of the social identities through which Chinese authorities wish Latin American actors—mainly government officials and business elites—to acknowledge China. This presupposes an account of the way in which Chinese officials themselves regard China and the way they expect Washington and Latin American states to comprehend Chinese power in relation to the US.

3.3.1 Rising with the South: “Win-win” and “common development”

China’s official perception of Latin America is best studied in China’s two Policy Papers on Latin America and the Caribbean which state the CCP’s understanding of the principles and norms that should guide cooperation with the region. The first paper was released by China’s Ministry of Foreign Affairs in 2008 and the second in 2016. Although the first document came out at a relatively advanced stage in Chinese-Latin American relations, it contains the main discourses through which Chinese officials engaged with the region over the period 2004-2015, with 2004 featuring as the year in which the CCP leadership agreed on the terms of China’s economic diplomacy towards the “developing world” (Subsection 3.3.2). The focus of the analysis hence rests on the first document.

Chinese policy-makers have traditionally understood Latin America to be a part of the “developing world,” which in their view represents a rather heterogeneous set of countries that share a certain degree of “backwardness” and the intention to transition from a “traditional” towards a “modern” economy (Zhang 2016, p. 96). Notably, China’s diplomatic approximation of Latin America has been grounded on self-representing imageries that portray China as “the largest in the world, [which] is committed to the path of peaceful development and the win-win strategy of opening-up” (The People's Republic of China 2008). This posture stands in line with China’s Five Principles of Peaceful Co-existence, which emerged to support the resolution of the bilateral tension between China and India in 1953-54 48

(Strauss 2012, p. 138). These principles include non-aggression, non-interference, equality, mutual benefit, and peaceful co-existence, and have since structured the ideational basis of Chinese foreign relations to the present day.

China’s self-representation as the largest developing country also stands in line with Deng Xiaoping’s position, which maintained that “keeping a low profile” was central for China to attain a prominent role in international affairs (Wang Jisi 2011, p. 73). Given the undeniable pace, scale, and structural impact of China’s economic rise, perceptions of a “China threat” were unavoidable in many parts of the world including Latin America. In this context, Chinese authorities have been increasingly troubled by the fact that China has come to be perceived as the new exploitative power of the twenty-first century.

The remaking of China’s identity and intentions has thus played a key part in the context of China’s quest for resources in the region. China’s Policy Paper on Latin America and The Caribbean (2008) provides important insights into this issue. Symbolically “released the day after the US presidential election of 2008” (Strauss 2012, p. 143), the policy paper is repeatedly insistent of Beijing’s diplomatic commitment to “mutually beneficial” relations driven by “mutual respect,” “mutual trust,” a “strong [collective] desire for self-development,” “durable peace,” “common development,” “common prosperity,” and shared ambitions to “expand strategic common ground” on the basis of “South-South cooperation” to “ensur[e] a bigger say […] for developing countries in international trade and financial affairs” (The People's Republic of China 2008).

Underpinning this series of dispersed keywords is the strategic interest of the CCP political leadership to construct the image of a trustworthy China and hence oppose, neutralize and dismantle every notion of risk in China’s openly stated intentions to reach out for Latin American resources. A complementary device that emerges powerfully from this set of imageries is the idea of “self-determined development,” which implicitly denotes a degree of self-entitled technical and political authority for China to engage with Latin American actors from its own experience of “success” (Strauss 2012, p. 140). Beijing’s “win-win” is moreover persuasive in that it depicts China’s rise as a historical juncture and opportunity for Latin American states to attain economic and political emancipation through cooperation with China.

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3.3.2 Non-interference: Coming in as a different power

Given the fact that Chinese authorities still understand Latin America as the “sphere of influence” and “backyard” of the US (Strauss 2012; Yu 2015), China’s diplomatic language cultivates “friendly relations” with the hegemon while seeking acceptance and recognition from the subaltern states. From Beijing’s perspective, this presupposes the clarification of the kind of power that China aspires to be in relation to the US and Latin American states. This is, however, a complex endeavor because of the unknown difference between the identity by which Chinese leaders wish China to be acknowledged and the actual kind of power they aspire China to be. There are nevertheless two important aspects to be highlighted with regards to the way in which China engages in extractive partnerships with different Latin American states.

The first important aspect with relevance to the US audience has been to deny hegemonic aspirations while creating space for challenging the status quo in the international system. Since 1992, the CCP has systematically cultivated anti-imperialist sentiments in China’s collective memory through a process of comprehensive rewriting of the history books. This process has led to a gradual and cross-generational shaping of Chinese public opinion, which, in turn, has led to the societal recognition of external dominance as the main source of “humiliation” in Chinese history (Wang 2008). The core objective of the reformist CCP leaders has been to transition from a national identity determined by the “victorious” narratives of the Maoist era to “victimizing” self-representations grounded in the social reconstruction of China’s history of partial colonization between 1800 and 1900. As a result, the CCP’s political vision to restore China’s position of power is hence nurtured by deep-seated domestic sentiments against foreign powers (ibid.).

In this context, China emerges as the natural hegemonic competitor of the US. The extent to which China gains prominence and influence in Latin America is hence conceived as an important barometer of the extent to which that hegemonic challenge is materializing or not. However, Beijing’s contemporary foreign policy has worked consistently against the widely perceived notion that China is looking to gain a hegemonic position, as this would undermine its foreign policy objective to work towards a multipolar world order (Hao 2015). For this reason, the CCP leaders and Chinese intellectuals have opposed the idea of clustering Sino-US relations into the G2. This would, in their view, undermine China’s relationships with developing countries, which have long opposed US imperialism and from whom which China still needs substantial levels of material and political support (Hao 2015; Zhang 2016). Instead, 50

the CCP authorities and influential advisors debate China-US relations under the slogan of a “new type of great power relations” (Hao 2015). This framing is an expression of productive power as it shapes China’s identity as a cooperative power when dealing with the US while leaving enough room for the deconcentration of institutional power in the international arena.

The second important aspect conditioning the CCP leaders’ entry into Latin America has been the social construction of China’s identity as a qualitatively different power in comparison to the US by building on the historical experiences of Latin American states with the US for that purpose. The central discursive enabler in this context is China’s principle of non- interference in internal affairs, which conceals both the way China expects to be treated and the way others can expect to be treated. Certainly, China’s emphasis on non-interference is coupled with the rejection of foreign attempts to influence sensitive domestic issues, such as human right violations, democracy, Taiwan, Tibet, and Xinjiang (Strauss 2012, p. 139). Latin American governments are consequently mute in many of these topics with the exception of the international isolation of Taiwan, which China enforces as the single most important pre- condition for any kind of bilateral engagement to take place.

The key point of the “non-interference” discourse emerges nonetheless mainly in relation to Washington. Latin American actors and intellectuals have long thought of and experienced the region in terms of Washington’s uncomfortable conditionalities to apply a particular model of development in exchange for money, technocrats, and “dependent underdevelopment.” In this context, China emerges as a different kind of power, although the qualities of that power are largely contested and still unexplored as argued in the introductory chapter of this thesis. The potential effects of “non-interference” on the ways China wishes to be perceived by its Latin American counterparts are, however, important. The message that China is ready to respect internal decisions and political processes is immediately reminiscent of the US interventionism and hence productive of a positive image of China in the eye of many Latin American governments. Decisively, “non-interference” is also productive of the identities and capacities of Latin American actors seeking to enlarge political space for the promotion of specific development discourses, political programs, and extractive policies in the name of the national interest. This powerful discourse moves Latin American decision-makers as well as their relevant domestic clienteles to reinvent and empower themselves as part of a transnational, emancipatory movement beyond the disciplining arrogance of Western powers. Occasional mention of shared experiences of colonization and humiliation by external actors reinforce

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China’s proximities and commonalities with the developing world to the extent of destabilizing the idea that China itself might share some of the negative qualities of Western imperial and colonial powers.

3.3.3 Framing extractive needs and interests

Given the overwhelming weight of resource extraction in China’s economic relations with Latin America, Chinese authorities have poured equally substantial efforts into balancing the threatening character of structural asymmetries through the right wording. The powerful effects of China’s “South-South” discourse and its attached principles of “win-win” unfold by subsuming “resource extraction” under the fuzzy concept of “common development.” The effects of this framing are important in the context of Latin American embrace of extractivism as the development paradigm of the moment, which allows China to portray “the whole package” as an inherently positive and legitimate endeavor with equal advantages for both sides. The emphasis on developing country commonalities furthermore accentuates the Chinese-Latin American tie—however structurally constituted—as a mutually beneficial move toward the construction of a more fair and equitable political and economic order. This is hence a powerful way to blur and alter the conditions of geostrategic self-interest that underpin China’s resource policies in Latin America and portray them as “win-win” cooperation.

In technical terms, “win-win” is portrayed in terms of comparative advantages (Strauss 2012) that Chinese authorities emphasize to project the Sino-Latin American destiny as complementary instead of exploitative. The topic of “Resources and Energy Cooperation” takes, in fact, minimal space in China’s elaborated Policy Paper on Latin America and the Caribbean (2008). In this context, the Chinese aim is “to expand and deepen mutually beneficial cooperation with Latin American and Caribbean countries in resources and energy within bilateral cooperation frameworks.” While there is little essentially wrong with trade and investment in the energy and mineral sectors, it is a long shot to understand this endeavor as a “win-win” situation under conditions of structural asymmetry. The question is whether the large-scale and untamed expansion of extractivism is the best way for Latin American states to move out of the global periphery and whether a partnership driven substantially by the extraction of Latin American oil and minerals can produce and/or enhance the conditions for common development. Understanding the structural, institutional, productive, and compulsory power dynamics of China’s relationship with different Latin American states is thus key before equating “South-South” as the rise of the Global South as a whole. 52

3.4 The compulsory power of China’s power projection towards Latin America

3.4.1 The coercive side of China’s economic diplomacy

One way to understand why the Chinese leadership attaches central importance to the task of securing resources overseas is to look at China’s own behavior as a dominant supplier of certain raw materials. A highly sensitive case of diplomatic tension arose when a Chinese fishing trawler collided with two Japanese patrol boats in the immediate perimeter of the Senkaku Islands in the morning of September 7, 2010. This is a conflict-laden area as both China and Japan but also Taiwan raise unresolved claims over this part of the East China Sea, which is said to host significant deep-water oil reserves. After the collision, the Chinese captain Zhan Qixiong and his crew were arrested by Japanese authorities for having engaged in illegal fishing. They were also charged for public order disruption in what Japan regards as part of its sovereign territory. While the rest of the crew was released after Beijing enacted diplomatic actions against Tokyo, the Chinese captain was not. In response, China stopped its rare earth exports to Japan until Zhang Qixiong was finally set free and diplomatic frictions cooled down (Bradsher 2010; Fackler, Johnson 2010; Ridder 2013; Smith 2012).

This case of bilateral confrontation highlights China’s readiness to use its natural resources as a means to force other actors to align with its will. With a share of 95 percent, China has virtually total control of the global production of rare earths, while almost 82 percent of Japanese rare earth imports come from China (Smith 2012). Rare earths are central to the production of many electronic devices that are crucial to Japan’s economy; they also play a key role in the production of hybrid automobiles, windmills, and are important components in the development of high-end military technologies (Bradsher 2010). Under such conditions, the fact that Japan is highly dependent on rare earth imports from China put Beijing in the position to leverage its monopoly over supply as a means of directly compelling Tokyo to alter its behavior according to China’s will. This is, in fact, an extreme example of how the control over natural resources can translate into compulsory power when the potential risks and costs of disobedience are disproportionately higher for the import-dependent country.

China has also used its dominant position on the demand side of the market in order to alter the political behavior of actors. In 2010, for example, as the government-independent Norwegian committee decided to award the Nobel Peace Prize to Liu Xiaobo, a Chinese democracy and human rights advocate who was released shortly before his death, China decided 53

to cut diplomatic relations and stop FTA negotiations with Norway. The Chinese government further established new veterinarian inspection on Norwegian salmon, which hit this industry with a 60 percent decrease in exports to China in 2011 even though the Chinese demand for the product kept rising at a rate of 30 percent in the same year (Glaser 2012). While the award of the Nobel Peace Prize could not be reversed, it took six years of consultations for bilateral relations between China and Norway to be formally re-established on the condition that Norway had “reflected upon the reasons bilateral mutual trust was harmed” (Chan 2016).

Glaser (2012) describes this kind of behavior as “coercive economic diplomacy.” In doing so, the author alerts international actors of Beijing’s increasingly stronger inclination “to use economic means to compel target nations to alter their policies in line with Chinese interest.” Given China’s tactics to shape the behavior of actors by freezing the export of natural resources, it is not surprising that Chinese authorities themselves experience a growing “anxiety” (Zweig 2016, p. 256) regarding China’s own security of supply. This might have specific implications in the case of oil, which is China’s most pressing strategic concern in terms of energy security. However, as the transition away from fossil fuels becomes an increasingly relevant matter of global concern, the geopolitical importance of non-fuel minerals is expected to rise. As a conditio sine qua non for large-scale urbanization in the era of untamed electrification needs, copper is likely to reach a similar status in the hierarchy of coveted raw materials.

3.4.2 Power projection into Latin America

China is a rising power with rapidly growing and diversifying geostrategic stakes in different parts of the world. While China’s geostrategic behavior in Asia is determined by complex military dilemmas between China and some of its neighbors, the political economy of China’s presence in Latin America is primarily determined by increasing pressures to preserve, protect, and expand the reproductive basis of its growth model. This requires the leaders of the CCP to project power beyond China’s territorial confines in a quest to access critical resources, foster new investment segments, and conquer new markets (Amineh, Guang 2014, p. 505). The geostrategic drivers of China’s resource quest in Latin America follow both a geopolitical and geoeconomic rationale. In geopolitical terms, it is imperative for China to secure the conditions of stability for Chinese SOEs to arrive, invest, and operate in resource-rich Latin American states. This includes a conscious relationship with Washington and sensitive bilateral relations with Latin American leaders. The geoeconomic rationale requires domestic capital to expand 54

geographically, thereby reinforcing the efficiency of China’s geopolitical power projection (Rodríguez 2017).

Figure 4 Chinese FDI in South America by sector, 2005-2016 [US$ million]

Metals $23.880 Energy / Oil $21.540 Energy $16.520 Energy / Hydro $4.430 Agriculture $3.780 Finance $2.890 Chemicals $2.510 Transport- Autos $1.620 Real Estate $1.160 Energy / Gas $1.100 Technology $750 Transport Aviation $460 Energy / Alternative $430

$- $5.000 $10.000 $15.000 $20.000 $25.000 $30.000

Source: China Global Investment Tracker, author’s illustration.

The first period of China’s presence in Latin America (2001-2008) was, in fact, characterized mainly by trade operations. Investment began in the aftermath of the global financial crisis 2008/2009 and has been overwhelmingly concentrated on the extractive industries of the region, mainly metals and energy, with oil providing the largest share in that sector as illustrated in Figure 4. Given China’s overwhelming concentration of demand in the oil and mineral sectors, the trade mechanism is a viable bargaining arena to gain access to critical resources. It does however not guarantee direct control over the rate and means of production or the channels and quotas of distribution. Investment entitles Chinese stakeholders a greater level of influence and control over these market segments, but it requires either stable political relations with the host countries to protect and defend Chinese stakes or mounting coercive capabilities to shape the behavior of government decisions and state institutions in the long term. The sources of coercion are diverse and are explored in the case studies of China’s quest for resources in Brazil (Chapter 4) and Peru (Chapter 5).

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Strategic resources such as oil and minerals are unevenly distributed across the globe. Their location and availability are oftentimes disconnected from the industrial centers through intercontinental distances threatened by complex security risks. This is particularly the case for oil and a number of non-fuel minerals of crucial significance to the smooth functioning of the Chinese economy. The latter undergoes an accelerating process of “sequential industrialization” (Amineh, Guang 2014, p. 505) that builds on the lessons of the Western experience but faces greater material and environmental constraints in the context of climate change rooted in the industrialization processes of the West (Malm 2012, 2016). This condition affects the global race to maintain, protect, and close wealth and power gaps between regions and states and increases the confrontational potential between the emerging and the established great powers. China’s power projection into the “US backyard” is hence conditioned by a complex geostrategic calculus that shapes the tendency of the CCP political elite “to reward less powerful states that submit to its wishes and to discipline those that resist” (ibid.). Whether and when such behavior applies is a question that must accompany any account of China’s resource policies in Latin America.

3.4.3 The primacy of extraction

The resource intensity and the global scale of China’s development path are uncontested. Section 3.1 of this thesis demonstrates this fact. Nonetheless, the kind of strategic behavior that this particular condition elicits in Latin America is disputed at best and misunderstood at worse. Given the noiseless, peaceful, and dialog-oriented entry into the region, some stakeholders in Latin America—mainly government officials—regard China as a new kind of “imperial soft power” (Nye 1990, 2001, 2004, 2013). According to this view, China is understood as an increasingly influential power with the capacity to motivate less powerful states to comply with its will without necessarily resorting to coercion or “to the arrogant policies of Western powers.”18

While there are, as argued in Section 3.3, important ideational, rhetoric, and symbolic aspects to China’s behavior in Latin America, the notion that China is a new kind of soft power (Nye 1990) is essentially wrong. The fact that China dominates the demand side of the oil and mineral markets with global shares above the 40 percent mark questions this idea. De facto, any Latin American state with the ambition to position oil and/or non-fuel mineral commodities on

18 Interview with Peruvian government official, Ministry of Foreign Affairs, China Division. Lima, 8 March 2017. 56

the global market is structurally constrained to deal with China in one way or the other. There is no choice. This is indeed why China does not need to deploy coercive means to enhance the target-efficiency of its resource policies and instead focus on diplomatic dialogue. And yet, the question remains: Is there a real possibility that China will resort to coercion to access resources in Latin America? If so, under what conditions and through what kind of mechanisms?

As China goes out in search of oil and minerals in Latin America, it is important to note the strategic relevance and the ascending level of securitization of energy and economic concerns within Chinese foreign policy. Subsection 3.2.2 described 2004 as the point of departure for Chinese economic diplomacy towards the developing world while taking account of China’s prominent energy (2012) and mineral (2003) policies in Beijing’s foreign policy understanding. Since President Xi Jinping’s rise to power in 2013, material security of supply for China’s economy has reached a new level of geostrategic relevance. Traditionally, China’s foreign policy has been principally driven by China’s domestic core interests, while international issues are not officially identified as part of the CCP’s concerns in international relations (Wang Jisi 2011, p. 71). The purpose and scope of Chinese foreign policy were openly stated by President Hu Jintao in 2009 and clarified later by the Chinese administration as the protection and safeguarding of “sovereignty, security and development.” These core interests imply first and foremost the stability of China’s socialist system under the rule of the CCP; second, the protection of territorial unity, integrity, and sovereignty; and third, to ensure the necessary conditions for China’s social and economic development (ibid.).

These core principles were politically and strategically refurbished in the context of China’s National Security Law passed at the 15th meeting of the Standing Committee of the 12th National People's Congress in 2015. Approved with 154 votes in favor, none against, and a single abstention, this law not only covers strictly military issues but spans across virtually all aspects of industrial, technological, social, economic, cultural, and even religious matters of relevance to the internal cohesion of the CCP regime (Panda 2015). In this context, this important document laid inter alia the legal and institutional foundation for the Chinese state to foster the necessary conditions of security for the Chinese economy to unfold and prosper to the benefit of the Chinese people. With reference to resource and energy security of supply, Article 21 contends that:

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“The state shall […] ensure the sustainable, reliable, and effective supply of resources and energies required for economic and social development.” (The People's Republic of China 7/1/2015)

Between 2004 and 2015, the strategic concept and relevance of energy security changed from being intermingled with the concept of “economic diplomacy” to becoming embedded in a comprehensive understanding of “economic security.” This concept merges developmental and foreign policy concerns with military interests, as described by Wang (2011a, p. 74). China’s new geostrategic positioning is certainly tied to the political ambitions of President Xi Jinping as the President of the People’s Republic of China, the general secretary of the CCP, the chairman of the Central Military Commission, and the leader of the newly established National Security Commission (Panda, 2015). Under these circumstances, economic interests may indeed prevail over ideological confrontation. It would be, however, wrong to see the “soft” side of South-South diplomacy in contradiction with compulsory power. While China’s economic diplomacy may be guided by dialog-oriented behavior and “non-threatening” framings, the purported effects can still lead to a coercive relationship if trade and investment asymmetries, for instance, continue shifting uncontrollably to Beijing’s advantage.

3.5 Chapter Conclusion

The aim of this chapter was to identify the different forms of power that inform China’s resource quest for oil and minerals in Latin America. Instead of understanding resource diplomacy as an isolated form of institutional power constituted in and through bilateral relations in the extractive sector, the analytical scope has been extended through the complementary analysis of structural, productive, and compulsory power (Section 2.3). The analysis of China’s rise through the lens of structural power has delivered a crucial understanding of the importance and dominance of the Chinese economy as the core of oil and mineral consumption. The specific pathway of development the CCP leadership has chosen for China has led to a resource- intense process of accelerated growth via accelerated industrialization. Identified in the literature as the “China-Model,” this particular process of domestic re-orchestration of productive forces and state institutions has led to the structural reconfiguration of the global economy as a whole. For resource-exporting states, China emerges as an unavoidable point of reference at the intersection of structural and compulsory power. While structurally

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disadvantaged, these states are directly and/or indirectly constrained to deal with China’s rise and its systemic as well as endogenous reconfigurations.

By the same token, China’s increasing dependence on external sources of oil and non- fuel minerals forces its political leadership to develop stable relations with resource-rich states in the Global South. The analysis of institutional power provided the background of principles and reforms that combine a socialist system under one-party rule with market economics and that is commonly understood as antagonistic to the Washington Consensus. This particular landscape of norms and ideas entail the CCP’s imprint of how development and global insertion can and should work for China. While this seems an important aspect to understand how China’s quest for resources unfolds in Latin America, China is keen to divert the attention of the international and Latin American audiences away from a potentially hegemonic, and threatening perception of China, towards a more benign identity constructed and projected through the means of productive power.

The author has applied the concept of productive power to understand how the CCP authorities perceive and wish to be perceived in and by Latin American states. The capacity of officially documented rhetoric to produce the kinds of social identities through which CCP authorities want China to be acknowledged by Latin American actors and relevant hegemonic audiences like the US has also been analyzed in this chapter. Notably, this analysis has shown that China denies its identity as an economic and instead equates its identity with that of developing countries in a move to minimize the noise of a “China-threat”. At the same time, China differentiates its identity from that of the US through the principle of “non- interference,” which is welcomed by Latin American states, with which China acknowledges to share a common history of subordination by the West. Taking advantage of these historical circumstances, the CCP leaders have been keen to frame China’s pressing interests to secure stable flows of oil and minerals as a “win-win” situation with the prospect to deliver “common” developmental outcomes for China and its resource suppliers from Latin America. In doing so, Chinese authorities destabilize external perceptions of an asymmetrical, exploitative and coercive relationship to the advantage of China through a persuading emancipatory discourse grounded on “South-South” commonalities.

To conclude, the main question of this chapter is what kind of power projection will characterize China’s resource quest in Latin America. While this is only the beginning of the analytical journey of this thesis, a key issue regarding China’s conditions as a world power in 59

critical need for resources has to be mentioned. While China’s economy has grown progressively strong, so too has the compulsory character of its strategic behavior. In this context, China’s economic diplomacy has transitioned from ideology to pragmatism (1970s, 1980s, 1990s), from pragmatism to assertiveness (2000-2010), and from assertiveness to securitization (2010-2015). Under these circumstances, it is safe to expect China’s behavior in Latin America to be driven by the geostrategic interest of its leadership and less so by the “soft” norms and principles of “South-South” solidarity.

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4. The Sino-Brazilian case: Oil and the production of South- South subalternity

Given its standing as a BRICS-state and its strong capacities to regulate foreign investment, Brazil is an influential case within which to study China’s oil quest in Latin America. The analytical focus of this chapter rests on two questions. In what ways have China’s strategies to access Brazilian oil unfolded over the period 2000-2015? What factors have affected Brazil’s capacities to translate its oil endowments and its strategic relationship with Beijing into higher levels of political and economic autonomy in the international system? In 2006, the state-owned oil company Petrobrás discovered Pré-Sal, which is a complex of large offshore deposits of oil (Morais 2013; Schutte 2012b) that confronted the nation with a strategic dilemma. Given the strong interest of the US and China in these oil resources, it is possible to assume that Brazil would grant the latter privileged access. This would, in the first scenario, strengthen China’s energy security and tilt the balance of power in favor of the BRICS. In the second scenario, Brazil could privilege the US and prevent China’s expansion into the Western Hemisphere. In the third scenario, Brazil could boost its own position of influence on the basis of the strategic balancing of these two competing and oil-dependent powers.

Instead of arguing in favor of one particular scenario, this chapter takes these premises as a point of departure to unveil the Sino-Brazilian tie as an extractive relationship of South- South subalternity embedded in and constituted by structural, institutional, productive and compulsory forms of power (Section 2.3). In doing so, this chapter provides a picture of how oil has shaped the specific dynamics of the extractive relations of power between China and Brazil. For this purpose, Subsection 3.1 uses the concept of structural power to explain how an intensifying level of commercial interaction has strengthened China’s mid-term security of oil supply while producing a relationship of structural subalternity in which Brazil becomes the former’s peripheral provider of raw materials. Subsection 3.2 analyses the robust dynamics of multilateral cooperation as an expression of institutional power, which grants Brazil higher status in international politics while enhancing China’s prospects to access the oil in Pré-Sal. Subsection 3.3 uses the concept of productive power to understand how the bilateral discourse of “South-South” is constitutive of the collective identities, i.e. BRICS that obscure the growing level of inequality shaping the Sino-Brazilian over the period of study. Finally, Section 4.3 explores the extent to which Brazil has been capable of using its oil resources as an instrument of compulsory power in the face of China’s critical dependency on external supply. 61

4.1 The structural power of economic disparity

“The pre-salt discoveries introduce Brazil into a new era within the context of oil-producing nations. First, because the country consolidates itself as one of the largest hydrocarbon exploratory frontiers in the world. Second, because the development of these deposits could place Brazil among the countries that make up the select group of significant net oil exporting nations.”

José Formigli, former Petrobrás E&P Executive Manager Pré-Sal, c.f. Rasheed (2010, p. 9)

The single most important motivation for China to expand its economic presence in Brazil is the former’s increasing dependence on a series of raw materials, which are insufficiently available at home. Amongst them, oil is the politically most relevant input required by the Chinese leadership to provide its industries and growing population with uninterrupted energy flows and fluid transportation. As the greatest importer of oil since the turn of the century, China has used three main avenues to gain increasing access to Brazil’s oil resources. The first is to purchase oil from Brazil-based transnational companies using trade mechanisms. The second is to acquire equity stakes in these companies or to gain equity stakes for its own NOCs by virtue of direct investment in Brazil. The third is to extend conditional loans to Brazilian stakeholders in the oil sector in exchange for guaranteed shipments of oil. The structural positions of China and Brazil are primarily determined, on the one hand, by the former’s outstanding position as the largest oil importer and holder of foreign reserves and, on the other hand, by the latter’s emerging position as a net oil-exporter with strong technological capacities in offshore drilling but limited financial means to fully tap into its oil reserves.

4.1.1 Trade inequalities and oil rents

Given China’s increasing reliance on external sources of agricultural products, minerals and oil on the one hand, and Brazil’s privileged endowments in these rubrics on the other, bilateral trade has expanded enormously though narrowly and unevenly. Trade data for the period 2000- 2015 reveals that Brazilian exports to China have expanded more than thirtyfold from US$1.2 billion in 2000 to US$35.9 billion in 2015. In a similar proportion, Brazilian imports from China have gone from US$1.3 billion in 2000 to US$30.0 billion in 2015 (The Atlas of Economic

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Complexity 2017; The Observatory of Economic Complexity 2017). Strikingly, however, these patterns of bilateral exchange depict an increasingly wealthy and powerful China at the core of global growth and resource consumption, while Brazil has grown into a semi-peripheral provider of raw materials with a rapidly deteriorating status in the global economy. Consulted trade data (ibid.) show that three commodities account for three-quarters of Brazilian exports to China. Soybeans accounted for 44 percent, iron ore for 19 percent and crude oil for 12 percent of the total Brazilian exports to China in 2015. Chinese exports to Brazil, by contrast, consist mainly of electronic merchandise, nuclear reactors, machinery, and organic chemicals with significantly higher levels of value added, so that an unbalanced pattern of territorial specialization in the shifting configuration of the global economy is evident.

Figure 5 Brazilian exports to China, 1995-2014 [US$ billion]

Source: The Atlas of Economic Complexity, accessed 3 June 2017.

While commercial exchange between China and Brazil has grown disproportionately unbalanced, so too has the latter’s structural dependence on the former. In other words, what China’s authorities do or omit in terms of economic policy has become crucial to the Brazilian economy as well. In terms of trade volume, for instance, China has become Brazil’s single most important export market in almost no time. In 2000, for example, the US market represented Brazil’s main export destination, while China had come to constitute the latter’s most dominant 63

market in Asia.19 That year, the US held a 24.3 percent share of Brazilian exports, while China was in the twelfth place, attracting less than 2 percent of Brazilian exports. These figures show that at the start of the twenty-first century almost one-quarter of Brazilian exports were dependent on the US market. Remarkably, Sino-Brazilian trade took off between 2002 and 2008, and experienced a substantial expansion between 2009 and 2013. The expanding dynamics of bilateral trade were hardly affected by the global financial crisis of 2008/2009, which in turn hit the US demand and investment quite significantly. China’s countercyclical measures to expand domestic investment in infrastructure development contributed decisively to the stabilization of the economy, which simultaneously benefited many resource exporters across the world, including Brazil. Due to increased demand for raw materials resulting from China’s domestic economic policies, China and Brazil stood out as two strong and resilient economies in comparison to the severely affected economies of the West. As trade relations intensified due to sharp territorial complementarities and tightening bilateral diplomacy, China displaced the US as Brazil’s most relevant export market in 2009 (The Atlas of Economic Complexity 2017; The Observatory of Economic Complexity 2017).

Chinese-Brazilian trade further consolidated between 2011 and 2015. During this period, China came to attract 18.6 percent of Brazilian exports to the world, while the US market accounted for 12.7 percent. In 2015, China was also the largest source of Brazilian imports with a share of 17.9 percent, followed by the US in the second place with 15.6 percent and by Germany on the third place with 6.1 percent of total Brazilian imports (WITS World Bank, 2015). To sum up, Brazilian trade with China has contributed to the diversification of global markets away from the US but it has also meant an increasingly problematic level of trade dependency upon the Chinese market. Certainly, the Brazilian economy is not as dependent on exports as other Latin American economies. In 2014, Brazilian exports contributed less than 10 percent to the national GDP, while this figure was three times higher for Mexico and Chile (Baker V. Pereira 2015, p. 37). Notwithstanding this fact, the significance of the Chinese market for the Brazilian economy has almost quadrupled within eleven years. In 2002, exports to China represented 0.5 percent of Brazil’s GDP while this figure reached 1.9 percent in 2013 (ibid., p.36).

19 For a chronology of bilateral relations between China and Brazil see website of the Brazilian Ministry of Foreign Affairs: http://www.itamaraty.gov.br/en/ficha-pais/5988-people-s-republic-of-china, accessed 1 August 2017. 64

Even though oil is only the third most important commodity in terms of Brazilian exports to China, its political relevance as a driver of the Sino-Brazilian tie could not be overstated. Shaped by China’s concerns about energy security on the one hand, and Brazil’s historical aspirations to mobilize oil reserves as a source of geopolitical power on the other, oil exports to China began to intensify parallel to President Lula da Silva’s rise to power in 2003. Despite important technological challenges to tap these reserves in ultra-deep waters, Pré-Sal converted Brazil into the second most important holder of oil reserves in Latin America. The most important actor in the region is the oil-rich but profoundly troubled Venezuela (Rosales 2016), which holds the equivalent of 300 billion barrels of proven oil reserves (BP 2016). Thanks to Petrobrás’ advanced technologies in offshore drilling, oil production has grown significantly. According to the company, daily production from the Pré-Sal wells went from an average of 41,000 barrels per day in 2010 to one million barrels per day in mid-2016. This represented a nearly twenty-fourfold increase in oil production in only six years.20 Consequently, as oil production in ultra-deep waters increased, so too did Brazil’s oil exports to China, as illustrated in Figure 6.

Figure 6 Brazilian oil exports to China, 2000-2015 [US$ thousand]

$5.000.000 $4.500.000 $4.000.000 $3.500.000 $3.000.000 $2.500.000 $2.000.000 $1.500.000 $1.000.000 $500.000 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: UNCTAD, author’s illustration.21

20 See Petrobrás on “Pre-Salt”, available online at: http://www.petrobras.com.br/en/our-activities/performance- areas/oil-and-gas-exploration-and-production/pre-salt/, accessed 3 August 2017. 21 International trade in goods and services/Trade structure by partner, product. Data available online at: http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx, accessed 3 June 2017. 65

After the official announcement of the Pré-Sal discoveries in 2007, Brazil emerged as crucial source of oil imports from the perspective of China. Meanwhile, Brazilian authorities understood this situation as a crucial opportunity to promote Brazil’s national interests by taking advantage of China’s ever increasing demand for oil. This goal seemed particularly promising in the context of high commodity prices driven by China’s initially increasing (2000-2014) and then dwindling demand (from 2014 onwards). Notably, the price of the oil barrel went from US$39 in 2000 to US$107 in 2008 and to an average of US$111 between 2011 and 2014. This long period of sustained oil prices was shortly interrupted in the aftermath of the global financial crisis, with the oil price reaching US$68 in 2009 and US$86 in 2010 (BP 2016).

From the Brazilian government’s perspective, the state-controlled development of Pré- Sal proved auspicious even during this period. Given the advanced technological capabilities of Petrobrás in offshore drilling, the break-even point of each barrel of oil extracted from underneath the geologically challenging salt layers could be brought down from an international oil price of US$40-US$45 in the initial to US$35-US$40 in the mature exploratory stages (Chetwynd 2012). The difference between the break-even point and the international oil price hence showed great potential for rent capture.

As illustrated in Figure 7, oil rents had been making an important contribution to the Brazilian economy even before the discovery of Pré-Sal. However, when these new reserves were discovered in 2006, oil rents had reached a historical high, accounting for 2.3 percent of Brazil’s GDP. Hence, the expectations to develop Pré-Sal loomed high since these new oil deposits promised to boost state revenues and bring them under tighter control on behalf of President Lula da Silva and his governing Worker’s Party. However, it took a long time for Brazil to develop a new legal framework so that the State could secure a larger share of the newly discovered oil in ultra-deep waters (see Subsection 4.2.1). Furthermore, a progressive decline in the oil price caused a significant reduction of oil rents after 2012.

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Figure 7 Oil rents in Brazil [Percent of GDP]

3% 2,3% 2,3% 2,2%

1,9% 1,9% 1,9% 2% 1,8% 1,7% 1,7% 1,6% 1,4% 2% 1,4% 1,2% 1,2% 1,1% 1% 0,9%

1%

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: World Bank, author’s illustration.

In this context, Brazilian oil exports to China experienced steady and dynamic growth between 2003 and 2008, gaining additional and impressive momentum between 2009 and 2013. In 2013, China became the largest importer of Brazilian oil with a share of 31 percent, while the US lagged behind with a share of 27 percent of Brazilian oil exports to the world (EIA Brazil). However, this geographical shift deserves careful attention given that the US experienced significant increases in its domestic oil production between 2012 and 2014,22 which made it less dependent on Brazilian oil (Moreira 2016). This increase was short-lived as the US was back on top of the list in 2014. In 2015, however, China again surpassed the US as Brazil’s most important customer of crude oil by a margin of 14 percent. These figures suggest that China and the US are likely to have competing interests to gain access to Brazilian oil in the future. For the period between 2004 and 2015, however, it is important to note that Brazilian crude oil exports to the US accounted for a yearly average of 28 percent, while crude oil exports to China accounted for 17.5 percent, as illustrated in Table 2.

22 For data on US crude oil production see: https://tradingeconomics.com/united-states/crude-oil-production, accessed 4 August 2017. 67

Table 2 Brazilian oil exports to the US and China, 2004-2015

Brazilian Share of Brazilian Crude Oil Exports Crude Oil Exports [US$ billion] [percent]

year Total US China 2004 2.7 18 8 2005 4.5 22 12 2006 7.2 31 12 2007 9.0 36 9 2008 15.0 36 11 2009 10.4 33 13 2010 17.6 28 13 2011 22.9 29 21 2012 20.7 29 23 2013 13.2 27 31 2014 16.5 24 21 2015 11.8 21 35 average 12.6 28 17.5 2004-2015

Source: The Observatory of Economic Complexity, author’s illustration.23

While demonstrating Beijing’s importance, these figures provide no solid evidence that China—as a BRICS fellow—has gained privileged access to this particular industry (Moreira 2016). What they do suggest is that China and the US are enmeshed in a head-to-head interest for strategic resources in Brazil as the country has transitioned away from a one-sided dependence on the US market towards a double dependence on the two . In fact, an important question in this thesis is whether Brazil has been able to translate its structural position as an emerging oil power into any kind of leverage vis-à-vis China, given the above- stated circumstances. This assertion is shaky and the year 2013—the first year in which Brazilian oil exports to China surpassed its exports to the US—will provide an explanation. While the Chinese market was responsible for a 31 percent share of Brazil’s total exports of crude oil in 2013, Brazilian oil represented no more than 2 percent of Chinese oil imports (EIA 2015a).24 This is certainly different for Russia, another BRICS state, which delivered 11 percent

23 Data available online at: http://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/bra/show/2709/2015, accessed 20 January 2017. 24 According to Moreira (2016, p. 199), this is also true for the US’ imports of oil from Brazil. 68

of China’s oil in the same year and, consequently, has much more strategic leverage on China than Brazil (EIA 2015b). Despite China’s growing dependence on external sources of oil (Chapter 3), Brazil is more dependent on China than China on Brazil.

Nevertheless, China’s ambiguous effects on the Brazilian economy go beyond issues of trade dependence. With an overwhelming concentration on soy, iron ore and crude oil, Brazilian exports to China have expanded to the dramatic detriment of industrial manufacturing, hence negatively affecting Brazil’s overall export structure. Between 2000 and 2014, the export of electrical machinery and domestic merchandise decreased from 13 percent of total exports in to 6.0. In a similar vein (2000-14), the export of vehicles, car parts and accessories, as well as aircraft and spacecraft decreased from a relative weight of 12 percent of total exports to 7.0 (The Atlas of Economic Complexity 2017). Industrialization in China has meant a series of conflicting challenges for Brazil’s large but staggering industries, though not as much for the service sector,25 which has tended to benefit from China’s market-seeking investment (China- Brazil Business Council 2013). The Brazilian Ministry of Foreign Affairs officially refers to this phenomenon as the China-driven “reprimarization” of the Brazilian economy,26 which is a term prominent diplomats have endorsed through recent studies on Chinese-Brazilian economic relations (Rosito 2016).

4.1.2 Investment in the oil sector

Brazil is by far the largest recipient of Chinese direct investment in the oil industries of South America. Between 2005 and 2016, Brazil received 62 percent of all Chinese investment in the region’s oil industries. This share is much larger than the shares of Ecuador (23 percent), Venezuela (11 percent), or Colombia (2 percent) and Argentina (2 percent) combined (The China Global Investment Tracker 2017). It should be noted that China’s oil alliance with Venezuela is not based on FDI but rather on loans allocated in exchange for oil, which is a mechanism that China uses to secure oil deliveries (subsection 4.1.3). The four largest national oil companies (NOCs) Sinochem Corporation, China Petroleum & Chemical Corporation (Sinopec), China National Petroleum Corporation (CNPC) and China National Offshore Oil Corporation (CNOOC) are at the forefront of China’s involvement in the oil and gas sector of Brazil. Additionally, the China Development Bank (CDB) and The Export-Import Bank of

25 Interview, Institute of International Relations (IRI), University of São Paulo. São Paulo, 30 November 2016. 26 Interview with Brazilian government officials, Ministry of Foreign Affairs, China and Mongolia Division. Brasilia 17 November 2016. 69

China (China Exim) provide Chinese authorities and the executive managers of these companies with a long and powerful arm to secure bilateral oil agreements at the highest level of bilateral diplomatic contact.

Chinese investment in fossil energy is directed at oil and gas, which is approached as part of one single economic sector in Brazil. China’s strategy to penetrate the Brazilian oil and gas sector has been gradual and opportunity-driven yet careful of building up trust and recognition from the host country as well. This strategy has also focused on partnering with heavy weight players in Brazil’s big oil business. The first investment was modest and geared towards the alleviation of Brazil’s own infrastructural needs. The second set of investments took advantage of the liquidity weaknesses of Western transnational companies in the context of the global financial crisis of 2008/9 (Alves 2011). This move granted Chinese companies equity stakes in and technical experience from long established stakeholders (China-Brazil Business Council 2013). The third set of investments built on these experiences so that Chinese NOCs could win important bid rounds and cooperate with other important players in offshore operations.

China’s first step into the oil and gas industry of Brazil was the provision of technical and financial assistance to Brazil’s Southeast-Northeast Interconnection Gas Pipeline (GASENE) in 2004, which carried important value in terms of Brazil’s own energy security and economic policies. Petrobrás contracted Sinopec to provide technical assistance to the construction of a 300 km pipeline to connect Brazil’s northeastern and southeastern gas transportation and distribution systems (Alves 2011; China-Brazil Business Council 2013; SINOPEC Group n.d.). Despite considerable friction in the operationalization of a US$750 million loan that China Exim Bank allocated to Petrobrás (Subsection 4.1.6), Sinopec successfully implemented this important project by 2010. The demonstration of strong technical capabilities27 granted Sinopec additional recognition in the energy sector of Brazil, turning GASENE into a prestigious milestone in China’s careful entrance into the oil and gas sector of Brazil. This achievement contributed to China’s visibility as a new actor in Brazil’s oil business.

27 According to a report issued by the China-Brazil Business Council, Sinopec was the first company to introduce a vacuum suction system, which “eliminate[d] the use of wire ropes and straps [to lift the pipeline] between the cities of Valencia and Catu [and] reduced the 28-inch pipe lifting time from 10 minutes to 25 seconds” (China- Brazil Business Council 2013, p. 67). 70

It paved the way for Sinopec to broaden its operations and become increasingly acquainted with Brazilian oil business and politics (SINOPEC Group n.d., p. 11).

In addition to its more involved role, Sinopec also acquired a 40 percent stake, worth US$7.1 billion, from the Spanish oil company Repsol Brasil in 2010. This joint venture gave birth to a new company called Repsol Sinopec, which enabled Chinese stakeholders to benefit from Repsol’s extensive and auspicious experience in the complex landscape of offshore drilling in Brazil. According to the China-Brazil Business Council (2013, p. 69), “Repsol has a leading position in exploration activities in Brazil’s offshore Santos, Campos, and Espírito Santo Basins, with participation in 16 blocks and operations in six.” Along the lines of this report, this joint venture equipped Sinopec with the necessary know-how to participate in joint operations with Petrobrás in the Pré-Sal reservoirs.

As part of an increasingly assertive move to secure further amounts of crude oil, Sinochem joined China’s quest to secure Brazilian oil in 2010. In a year characterized by an impressive inflow of Chinese investment in the oil sector of Brazil, Sinochem invested US$3.0 billion to acquire a 40 percent share of Norway’s Statoil stakes in the prominent Peregrino field in the Campos Basin (China-Brazil Business Council 2013, p. 71). In 2011, Sinopec acquired a 30 percent stake worth US$4.8 billion in the Portuguese oil transnational Galp Energia. This company is an important player in the oil industry of Brazil because it has a large and diversified investment portfolio that stretches across 19 projects in partnership with Petrobrás and include important deep-water blocks in the Pré-Sal Santos Basin.

In 2012, Sinopec’s stakes in Repsol enabled China to secure access to more oil resources in the Pré-Sal oil fields. That year, Repsol-Sinopec committed to tapping into three additional Pré-Sal oil fields, namely Carioca, Sepinhoa, and Gura, with Sinopec’s contribution accounting for US$1.7 billion (ibid.). Due to the extremely difficult conditions of ultra-deep-water drilling in Pré-Sal, and the institutional privileges of Brazil’s Petrobrás (Subsection 4.4.1), Chinese companies were constrained to cooperate with other important stakeholders in the oil industry. Thus, in 2012 a tripartite consortium of oil and gas companies including Repsol-Sinopec Brazil with a 35 percent stake, Statoil with a 35 percent stake and Petrobrás with a legally enforced stake of 30 percent, announced important discoveries in a high impact area of the Campos Basin. With a potential to deliver the equivalent of 250 million barrels of oil, China had taken a step forward in its quest to secure oil resources in Brazil’s fresh but challenging oil deposits in ultra-deep water. 71

Finally, based on the acquired knowledge and good reputation as a nation fully committed to meeting and elevating the standards of the Brazilian oil industry, two other major Chinese NOCs were successful in the direct acquisition of stakes in public bid rounds of the Libra field. Located in the Santos Basin, this field held crucial value with oil reserves amounting to approximately 7.9 billion barrels (Schutte 2012b, p. 29). Accordingly, Petrobrás kept control of drilling operations and a 40 percent share of the investment, which is equivalent to 10 percent more than the legal requirements foreseen in the national legislation on shared production agreements (see 4.4.1). Represented through ANP, the Brazilian State allocated the other 60 percent to a mixed group of Western and Chinese heavyweight oil transnationals. The British- Dutch transnational oil company Shell gained a 20 percent stake in the project, French Total gained 20 percent, while the two Chinese NOCs CNPC and CNOOC gained a 10 percent stake each.

4.1.3 Loans-for-oil: Unlocking Pré-Sal

Loans-for-oil is perhaps China’s best known foreign policy instrument to secure access and control of energy resources overseas (Alves 2011; Meidan 2016; Power et al. 2012; Rosales 2016; Xu 2016; Zweig, Hao 2016). Subject to the influence of bilateral politics, these loans are meant to alleviate financial bottle-necks faced by resource-rich countries on the one hand, and accelerate the extraction of oil reserves for China on the other. Thus far, this relatively powerful instrument of economic diplomacy has enabled China to gain privileged access to the oil industries of a diverse set of countries including Russia, Kazakhstan, Venezuela, Brazil, Ecuador, Bolivia, Angola, and Ghana (EIA 2015a, p. 9). According to Meidan (2016, p. 9), between 2009 and 2010, CDB extended close to US$65 billion worth of loans to be repaid with oil shipments to China. According to the China-Latin America Finance Database by Gallaher and Myers (2014), Chinese banks provided a total of sixty-eight loans to Latin American and Caribbean countries between 2005 and 2016. These loans accounted for $US 124.6 billion, surpassing World Bank and Inter-American Development Bank lending to the region. The main player was CDB with a participation of thirty-eight loans worth US$114.3 billion, while China Exim Bank allocated thirty-eight loans worth US$27 billion. The bulk of these loans was allocated to the Energy sector with 56 percent, while 32 percent went to infrastructure development, 1 percent to mining, and 10 percent to other sectors (ibid.). Regionally, Brazil was the second most important recipient of Chinese loans (not the same as FDI) after oil-rich Venezuela, as illustrated by Figure 8.

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Figure 8 Chinese loans to Latin America, 2005-2016 [US$ billion]

70

60

50

40

30

20

10

0 Trinidad & Venezuela Brazil Argentina Ecuador Bolivia Jamaica Mexico Costa Rica Barbados Guyana Bahamas Peru Tobago number of loans 17 8 8 11 2 6 9 1 1 1 1 2 1 amount in billion USD 65 21,8 15,3 15,2 2,6 1,6 1,5 1 0,395 0,17 0,13 0,099 0,05

Source: Gallagher, K. P., & Myers, M. (2014), author’s illustration. 73

Loans-for-oil proved particularly effective during the global financial crisis and its repercussions on the availability of fresh money on the one hand and the collapse of oil prices on the other (Alves 2011). The second important event creating favorable conditions for Beijing was the debt crisis of Petrobrás, which emerged in the context of grave management deficiencies and the crash of oil prices in 2014.

Lending diplomacy, defined as the large-scale provision of money to finance the development of infrastructural projects, proved particularly useful in Africa (Alves 2011) and some Latin American countries like Venezuela (Rosales 2016). According to Meidan (2016, p. 9), “in 2010, Beijing had secured 0.75 mb/d in loan repayments from oil-rich nations around the world. By 2015, lending generated an estimated 1.4 -1.6 mb/d in oil.” This means that every tenth barrel of oil imported per day was subject to the conditionalities of Beijing’s loans. This strategy, however, did not deliver the same results in Brazil. China’s loan to finance the GASENE project in 2005 (Subsection 4.1.2) was initially meant to pave the way for Chinese NOCs to enter the Brazilian oil market through the acquisition of equity at a much faster pace than was the case (Alves 2011). As discussed in the previous subsection, investment began to flow in the Brazilian oil sector in 2010. The lack of contextual experience, strong competition from other transnational companies and the Lula administration’s nationalistic aspirations delayed China’s foray into the complex landscape of Brazilian oil politics.

Nevertheless, China’s loans delivered significant results in terms of leveling the field for Chinese investment to grow. In 2009, three years after the discovery of the Pré-Sal oil-fields, CDB granted Petrobrás a 10-year bilateral loan worth US$10 billion to promote the extraction of these new oil reserves. The loan was negotiated in 2008 by top executives of both institutions, who received a political windfall from top leaders of both countries, allowing for a deepening cooperation of “mutual interest” in the oil sector (Alves 2011). The single most important condition attached to this loan granted at a comparatively low rate of 6.5 percent was that Brazil would guarantee oil exports to China amounting to 150,000 barrels per day during the first year, and 200,000 barrels per day in the subsequent nine years (Alves 2011; EIA 2015c; Meidan 2016; Xu 2016).

Although the envisioned delivery-target did not exactly meet its schedule, China did become the largest destination for Brazilian crude oil export and received 115,000 barrels per day in 2013, followed by the US and India, who imported 110,000 and 49,000 barrels per day respectively (EIA 2015c). In response to the first major Chinese Petrobrás grant, the US 74

allocated a US$2 billion loan for a period of ten years (Moreira 2016, p. 4928). In 2015, however, there was no response from the US to another Chinese grant to Brazil, as Petrobrás was plagued with declining prices and highly-publicized corruption problems. As Petrobrás was downgraded by all international rating companies because of its overheating debt burdens, China served as a lender of last resort, extending a new loan in exchange for similar quantities of oil negotiated in 2010 (Kiernan 2016). Despite initial hesitancy, President Dilma Rousseff saw herself in a position of absolute necessity to rescue Petrobrás from its financial problems and resume negotiations on a second loan worth US$10 billion to be received from China in 2015. This negotiation obtained political backing from Premier Li Keqiang during his visit to Brazil. This was an opportunity for China to demonstrate its multilateral commitment to the BRICS while tightening a creditor/debtor relationship with Brazil.

4.2 The institutional power of oil diplomacy

This section provides a historical background of the norms and values that shape the institutional arrangements in which the state-led oil industry of Brazil is embedded. It also discusses the Sino-Brazilian partnership in its global dimension, as both BRICS states share the goal of revising the status quo of international affairs towards a multipolar world order. The question of interest is the extent to which these strong institutional ties shape cooperation in the oil sector and how bilateral and multilateral diplomacy tilt the balance of power to one side or the other. One of the main characteristics of the Sino-Brazilian strategic partnership is its objective to destabilize the established architecture of global governance, which both actors perceive as a disadvantaging extension of Western institutional power (see Rüland 2012). As a way of questioning the legitimacy of the G7, World Bank, IMF, WTO, for instance, China and Brazil engage in the creation of counterhegemonic arenas for multilateral action, e.g. the BRICS, New Development Bank, and G20 while strengthening the political dialog and economic cooperation on a bilateral basis. This last feature is further accentuated by the fact that oil-rich states typically regard the politics of oil as a matter of national sovereignty, which is why bilateral cooperation gains even more relevance as an instrument of resource diplomacy. It is against this backdrop that institutional power must be addressed in the case of Chinese- Brazilian relations in the oil sector.

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4.2.1 Brazil: Oil, developmentalism and the quest for autonomy

Oil has been at the heart of Brazil’s quest for national development and autonomy since 1938. With the nationalization of the oil industry, the Government of Getúlio Vargas, one of the most influential political leaders in Brazil’s postcolonial history, opened a new chapter in the nation’s quest towards the industrialization and modernization of the nation (Dickenson 1980; Seaborn Smith 1972). Vargas was appointed interim President (1930-1934), indirectly elected as President by the Constitutional Assembly (1934-1937), dictator (1937-1945) and democratically elected President from 1951 until his suicide in 1954. Despite very limited knowledge about the existence of oil reserves, Vargas deemed state-control over the oil sector crucial to Brazil’s political and economic sovereignty. Consequently, his government created the National Petroleum Council, which granted the State exclusive property rights over all possibly existing oil deposits in 1938, although domestic production did not contribute more than 1 percent of the total consumption until 1950 (Dickenson 1980, p. 125).

Transnational oil companies began paying attention to Brazil’s underdeveloped oil sector after the end of World War II. This triggered the interest of domestic business elites who welcomed the idea of attracting foreign investment to expand exploration activities. Although Vargas was tempted, strong nationalistic sentiments amongst Brazilians prevented this project from becoming a reality. In 1947, a diverse movement of social actors opposed the liberalization of oil under the historical claim “O Petróleo é Nosso”, which means “The Oil Is Ours.” This movement included army officers who saw oil as a national security issue, intellectuals and technocrats who rejected Brazil’s subordinated position in global capitalism and influential journalists in support of radical notions of economic nationalism. This seemingly diverse and partly conflicting fabric of social actors was held together by the belief that industrialization was the best pathway for Brazil to gain economic autonomy and that it was crucial for Brazil’s political emancipation to exert centrifugal pressure against transnational companies (Seaborn Smith 1972, p. 185).

In this context, Brazil’s NOC Petróleo Brasileiro S.A. (Petrobrás) was born. Petrobrás was envisioned as an institutional cornerstone and symbol of a nationalist-developmentalist quest to promote economic sovereignty, while maximizing political independence from external powers. In 1953, the National Congress enacted Law Nr. 2004, which instituted Petrobrás as “a government-owned company which was given a monopoly over the prospecting for and production of domestic petroleum, all expansion of refining capacity after 1953, and the 76

transport of domestic oil and derivatives” (Dickenson, 1980, p. 125). Different leaders to come, including Kubitscheck, Quadros and Goulart, defended and utilized Petrobrás as the source of patriotic conquers and Brazilian resistance to the neo-colonial interference of transnational oil companies and foreign powers (Seaborn Smith 1972, p. 197).

Despite decades of state-led investment in the development of the oil industry Brazil remained highly dependent on imports. Additionally, as noted by Dickenson (1980, p. 125), “[m]uch of the country’s post-war development strategy had been based on the assumption that cheap oil imports would be available.” In 1972, however, a nine-fold increase in oil prices due to geopolitical tensions in the Middle-East proved this calculus troublesome.28 At that time, Brazil was the eighth largest importer of oil, and its domestic production was still limited. With oil imports accounting for more than three-quarters of total consumption, the Brazilian economy was exceedingly vulnerable to potential disruptions in terms of energy supply. Hence, Brazil’s pathway towards national industrialization, which had granted it an average growth rate of 9 percent since 1968, was profoundly called into question (Dickenson 1980, p. 125). In reaction to the 1973 oil shock, Brazil’s ruthless military dictatorship (1964-1985) began to foster the development of ethanol as an alternative source of combustion, while Brazil’s continued quest for oil lost international attention.

With the return to democracy, the state’s monopoly over oil resources was institutionally reinforced in Article 177 of the 1988 Constitution. During the 1990s, however, declining oil prices in the context of Iraq’s invasion of Kuwait and the Asian financial crisis significantly affected oil exploration in Brazil (BP 2016). Production costs were comparatively high, proven reserves had no substantial significance, and exploration technology was unaffordable to a deeply indebted state (Schutte, 2012). In this context, the neoliberal government of Fernando Henrique Cardoso (1995-2002) broke with the prevailing nationalized oil regime and opened the oil industry for the participation of private companies, transforming Petrobrás into a mixed company under comprehensive state-control. Through the “Lei do Petróleo nr. 9.478” (Petroleum Law) of 1997, the National Congress approved the introduction of oil concessions, which allowed private companies to take over exploration activities, while the state organized

28 According to BP (2016), the barrel of oil went from US$1.8 [US$11.0 in 2015 equivalent] in 1970 to US$31.6 [US$103.2 in 2015 equivalent] in 1979. Between 1973 and 1974 the price of the oil barrel rose abruptly from US$3.3 [US$17.6 in 2015 equivalent] to US$11.6 [US$55.7 in 2015 equivalent]. 77

competitive bid-procedures led by the National Petroleum Agency (ANP), which emerged as the single most important regulatory institutional body.

In 2006, the discovery of vast oil reserves set an unprecedented milestone in the history of Brazil’s oil industry, significantly reconfiguring the political and economic landscape of the country. Pré-Sal played directly into the political program of President Lula da Silva, who came into office in 2003 with an overwhelming support from the Worker’s Party. The global and domestic contexts intersected in a most favorable manner, converting oil into a remarkable source of domestic and international power for the Lula Administration. Fueled by expanding agricultural and mineral exports to China, Brazil’s economy was booming. Domestically, increasing signs of economic and political independence increased Lula’s political strength, and in 2005 Brazil paid off its US$16.1 billion debt to the IMF two years earlier than scheduled. Expanding exports to China and growing capital inflows played an important role in boosting Brazil’s trade surpluses and financial capacities in the context of rising commodity prices.29 President Lula attributed this achievement to his administration’s focus on a self-determined pathway of development and global insertion. The Lula Institute, which aims at safeguarding and diffusing the developmental achievements of the Lula Administration and is headed by President Lula da Silva himself, has been emphatic about this issue. In an online commentary, the Lula Institute states:

“For the first time in 500 years, Brazil ceased to be a debtor and joined the select group of international creditors. The country that was once forced to cut investment, jobs and social programs to meet the targets of the International Monetary Fund (IMF) today controls its own destiny. It has US $ 376 billion in reserves and full autonomy in economic management. Brazil chose [to] grow with income distribution. And even lends money to the IMF.”30

29 For data on Brazil’s financial transactions and debt payment to the International Monetary Fund see: http://www.imf.org/external/np/fin/tad/extrans1.aspx?memberKey1=90&endDate=2017%2D08%2D06&finposit ion_flag=YES, accessed 6 August 2017. See also BBC News (2005): Brazil to pay off IMF debts early, 12/14/2005. Available online at: http://news.bbc.co.uk/1/hi/business/4527438.stm, accessed 8 June 2017. 30 See Instituto Lula (n.d.): Autonomy in economic management. Available online at: http://www.brasildamudanca.com.br/en/macroeconomia/lula-imf-no-longer-runs-things-here, accessed 8 June 2017. 78

In this context, Brazil’s newly discovered oil wealth became the central engine of Lula’s new developmentalist agenda. This political and economic program maintained important aspects of the economic policies inherited from the IMF (Ban 2013) but moved on decisively to cut dependency liaisons with Washington. Brazilian economist Bresser-Pereira (2009) referred to this developmental pathway through the concept of “new developmentalism,” which describes a nationally orchestrated strategy for emerging economies to grow and catch up with developed nations through the active and competitive insertion of key industrial sectors into the global economy. In his view, new developmentalism is an emancipatory political and economic program that allows middle-income countries, and emerging economies “to reject rich nations’ proposals and pressures for reform and economic policy” (ibid., p. 18). At the core of this neo- developmentalism lies the argument that global markets are key to the achievement of national developmental goals, while the state has a strategic and performative function “not only as a regulator, but also as owner and investor” (Ban, 2013, p. 320). Neo-developmentalism gained academic backing, as leading economists proclaimed countercyclical state interventionism as a superior alternative to Washington’s neoliberal program at a time when the Brazilian economy was growing and the US struggled with the global financial crisis (Agosin 2012). To summarize, oil may be viewed as the single most important medium through which Brazil has strived to reach political and economic self-determination. As argued in this thesis, oil is not just a resource but a crucial catalyst that has simultaneously enabled and distorted Brazil’s capacities to find a new place for itself in the international system.

4.2.2 China-Brazil: Challenging the order of things

China and Brazil established bilateral relations in 1974, only after US President Nixon visited Chairman Mao to normalize relations with China in 1972. At that time, Brazil underwent military dictatorship under President Ernesto B. Geisel (1974-1979), who viewed China as an increasingly relevant actor and decided to extend Brazil’s diplomatic reach to Beijing despite steep ideological differences with socialist regimes. This embryonic phase in the Sino-Brazilian relationship unfolded until 1990 (Ramos, 2006, p. 361-362). As a result, a large array of bilateral agreements were signed to promote technical cooperation in various areas. For example, in 1988, the China-Brazil Earth Resource Satellites Program (CBERS) was signed, which denoted an early and unprecedented South-South initiative (Altemani de Oliveira, 2010, p. 41). In addition, China and Brazil launched five satellites between 1999 and 2014. The objective of

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this program is to strengthen mutual independence in satellite imaging technologies, which includes an advanced system to monitor deforestation dynamics in the Amazon (ibid.).

While the 1990s were marked by the sustained institutionalization of diplomatic ties, the 2000s are characterized by a rapid unfolding and consolidation of more ambitious bilateral and multilateral projects. For instance, China and Brazil headed the 2003 Ministerial WTO Conference, where the G20 Developing Nations was launched to eliminate US and EU agricultural subsidies and enhance the terms of trade for developing countries. The G20 has also pushed to double the voting quota of its members within the IMF, but the US has vetoed these efforts based on its disproportionately high voting power of 17 percent.

The Sino-Brazilian alliance is indeed grounded on the shared recognition that “[international [i]nstitutions are not […] neutral arenas for the solution of common problems but rather sites of power, even of dominance” (Hurrell 2005, p. 56). China and Brazil have used existing and new institutional arrangements to climb up the ladder of political power in what they regard as an unequal, unjust international system (BRICS 4/16/2010; China, Brasil 2016; China, Brazil 5/10/2009; Moreira 2016; Moreira Lima 2016). According to Chinese and Brazilian authorities, liberal post-Cold-War institutions and norms work to the disproportionate advantage of their Western creators—especially the US—and to the disadvantage of the developing world (Carvalho Lyrio, Diniz da Silva Pontes 2016; Christensen 2013; Zhang 2015). In this context, China and Brazil have instituted South-South cooperation31 as the central institutional platform to advance their joint interest to revisit the status quo of power distribution in the international system. This kind of relationship results in a “diminished” approach to multilateralism (Rüland 2012), which describes the process through which newly rising powers make use of international institutions to promote the national interest instead of fostering a norms-based attitude towards the collective regulation of global challenges (ibid.).

Consequently, China and Brazil have geared their South-South cooperation towards three fundamental goals. First, through the mutual ambition to work towards “multipolarity” and “democratize” international relations32 both actors implicitly welcome a relative decline of

31 According to Muhr (2016, p. 630), “South-South cooperation” refers to “partnerships that involve or are facilitated by so-called ‘(re)emerging’, ‘new’, or ‘non-traditional’ actors not pertaining to the OECD Development Assistance Committee (DAC),” and may hence include Latin American actors such as Mexico and Chile. 32 See item No.7 of the Joint Statement between Brazil and China on the “deepening of the global strategic partnership.” This document was issued on 17 July, 2014 in the context of President Xi Jinping’s visit to Brazil and is available online in Portuguese at: http://www.itamaraty.gov.br/pt-BR/notas-a-imprensa/5712-declaracao- 80

US power. This implies the second: China and Brazil strive for a relative gain of influence for themselves and for other emerging powers, among which the BRICS figures as the most prominent emerging power block (Cox 2012; Degaut 2015; Heath 2016; Moreira Lima 2016; Muhr 2016; Stuenkel 2015; Wilson 2015; Yu 2015). Third, with a “major developing countries” label China and Brazil regard South-South cooperation as a political instrument to enhance the stature of developing countries in diverse institutional arenas (China, Brazil 5/10/2009).33 The bilateral commitment to these goals is illustrated by the following quote from a Joint Communiqué on “Further Strengthening China-Brazil Strategic Partnership” in 2009:

“The two sides agreed that their cooperation in multilateral affairs is an important component of their strategic partnership. Stronger bilateral dialogue and cooperation between China and Brazil, both being major developing countries, will strengthen international efforts to address major challenges. To this end, China and Brazil are ready to maintain close communication within the framework of the five developing countries and of the BRICs. At the same time, they will step up communication and coordination with other developing countries to promote regional and inter-regional cooperation and increase the participation and say of developing countries in major international affairs.” (China, Brazil 5/10/2009).

For China and Brazil, the expected advantages of South-South cooperation are multiple. The deconcentration of power away from the US increases the room for economic and political maneuver in their respective regional and global spheres of interest and conflict. Collective advocacy for the interests of the developing world is expected to provide both nations with a broad political basis of support to gain institutional power in different areas of international affairs (Carvalho Lyrio, Diniz da Silva Pontes 2016; Zhang 2011, 2015, 2016), including but not limited to global finance, climate change, international development, and global security (Brasil de Holanda, F. M. 2016; Cardoso 2013).

conjunta-entre-brasil-e-china-por-ocasiao-da-visita-de-estado-do-presidente-xi-jinping-brasilia-17-de-julho-de- 2014 , accessed 28 June 2017. 33 Interview with Brazilian government official, Ministry of Foreign Affairs, Planning Office. Brasilia, 18 November 2016. 81

A combined diplomatic action under a South-South rationale has been at the core of the Sino-Brazilian “strategic relationship” since its formalization in 1993. This was in fact the first strategic partnership that China established with any other country (Cardoso 2013; Feng, Huan 2014; Strauss 2012; Xu 2016). Arguably, South-South cooperation gained increased relevance during Lula da Silva’s (2003-2010) and Hu Jintao’s (2003-2013) presidencies. This period also coincided with a remarkable economic performance which translated into a higher status and influence for both nations (Christensen 2013). Lula persistently pursued an active foreign policy which led him to spend one eighth of his two terms abroad (Schutte 2012a). He considered that China could play a strategic role in the diversification of Brazil’s international ties, in the promotion of national economic development, and the promotion of a more balanced international power structure (Cardoso 2013; Christensen 2013; Noesselt 2013; Ramos 2006; Xu 2016). Lula, as well as his successor, Rousseff (2010-2016), considered these variables a key aspect of Brazil’s long-aspired level of international autonomy. By the same token, Hu Jintao wanted Brazil to recognize China’s Market Economy Status (MES) as part of a global effort to advance Beijing’s strategic interests. This initiative went into effect in 2004. A stronger tie with Brazil helped Hu amplify China’s political and economic radius of influence in the Americas, paving the way for Chinese SOEs to access Brazil’s abundant natural resources.

Recently, China and Brazil have continued to support each other’s efforts to create more inclusive arenas of development finance. The BRICS-led New Development Bank (NDB) and the China-led Asian Infrastructure Investment Bank (AIIDB) are cases in point. Some analysts have understood these developments as a signal of China’s “alternative diplomacy” in reaction to Washington’s unwillingness to open up space for the equal participation of emerging powers in international affairs (Wang 2015). In this context, President Rousseff and President Xi Jinping upgraded the Sino-Brazilian tie to a Global Strategic Partnership in 2012. This was a new step in the consolidation of institutional power, as it opened the floor for the establishment of the China-Brazil Strategic Global Dialogue, which is a high-level annual meeting to agree on the necessary steps to achieve a more decentralized international system (Graça Lima 2016).

Albeit deep, multifaceted, and constantly expanding, South-South cooperation does have significant dimensions of bilateral conflict, and tensions concerning BRICS solidarity and national interest of both states exist. Brazil was the first country to grant China Market Economy Status (MES) on the basis of bilateral talks between Hu Jintao and Lula da Silva in 2004 (Altemani de Oliveira 2010). While China’s request materialized as expected, Brazil did not

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receive China’s support to obtain a permanent seat in the UN Security Council in exchange (Haibin 2010). In fact, both the US and China opposed Brazil’s proposal. China did not welcome the fact that Brazil had built an interest coalition to revisit vote quota at the UN Security Council with Germany, India and Japan, given the prickly relations between China and Japan. China’s opposition led to a series of domestic conflicts in the government of Lula da Silva. The Federation of Industries of the State of São Paulo (FIESP) and the National Confederation of Industry (CNI), who had initially opposed Lula’s initiative to grant China MES, saw themselves reassured in their position of distrust towards China (Cardoso 2013). These groups denounce the fact that Brazil has lost important market shares to China in key markets including Latin America, Africa, and the US (ibid.). Despite these significant disagreements, China and Brazil share a strong institutional basis that not only shapes their bilateral agenda but also their identities and capacities as global actors from the South as addressed in Section 4.3.

4.2.3 Brazilian oil between Washington and Beijing

Given the BRICS as well as the Sino-Brazilian resolution to work towards a multipolar world order (China, Brasil 2016; China, Brazil 5/10/2009) on the one hand, and Brazil’s tense relationship with the US between 2003 and 2010, on the other, the oil question arises. Have Brazilian authorities granted China privileged access to Brazil’s state-controlled oil sector as a means to balance US power both globally and regionally? This question is not trivial, given the geopolitical importance of oil security for both the US and China. Conscious of these conditions, President Barack Obama took official steps to enhance Washington’s relationship with Brasilia and seek greater space for energy cooperation with Brazil under the government of President Dilma Rousseff (2010-2016). During an important speech at the CEO Business Summit in Brasilia on 19 March, 2011, President Obama stated:

“[W]e want to partner with Brazil […] on the issue of energy, which is why President Rousseff and I also agreed to launch a Strategic Energy Dialogue. By some estimates, the oil you recently discovered off the shores of Brazil could amount to twice the reserves we have in the United States. We want to work with you. We want to help with technology and support to develop these oil reserves safely, and when you’re ready to start selling, we want to be one of your best customers. At a time when we’ve been reminded how easily instability in other parts of the world can affect the price of oil, the United 83

States could not be happier with the potential for a new, stable source of energy.” (The White House 3/19/2011)

Because the US and China are both interested in Brazil’s oil resources, it is tempting to assume that the progressive governments of Lula da Silva and Dilma Rousseff would use the nation’s newly available oil reserves as an instrument to balance US power with increasing oil exports to China. But the analysis of trade as a function of structural power (Subsection 4.1.1) has shown that Brazilian oil exports to China, while growing, did not exceed oil exports to the US in the period under study (2000-2015). Despite alternation as the two most important export markets in recent years, the US has prevailed over China as the main destination for Brazilian oil between 2004 and 2015. During Lula’s first and second term in particular, the US was responsible for the largest share of Brazilian oil exports. There is hence no empirical basis to assume that China has obtained privileged access to Brazilian oil because of its status as an allied BRICS-state. In fact, given China’s large loans to secure stable shipments of oil from Brazil, Beijing has paid a high price to secure a place of its own in the Brazilian oil and gas business, which Western transnationals had populated long before.

This is not to say that the BRICS institutional commitment towards multipolarity and South-South solidarity has been irrelevant in helping China get a better grip on Brazilian oil. While the BRICS fellowship has not represented a free pass, it has, more precisely, granted China political backing from Brazil’s top leaders for Chinese NOCs to enter and become acquainted with Brazil’s complex oil and gas sector. Notably, bilateral politics proved vital for Brazilian leaders to endorse Sinopec’s first major contract in the GASENE-project (Subsection 4.1.2) as summarized in the following statement by Mr. Zuo Yaojiu, General Manager of Sinopec Brazil:

“The GASENE natural gas pipeline project was awarded to the Chinese company when the former Brazilian President Lula met the Chinese President Hu Jintao, visiting Brazil in November 2004. Sinopec and Petrobras signed the Strategic Alliance Agreement in the same year […]” (SINOPEC Group n.d., p. 11)

Additionally, bilateral exchange proved particularly intense in the context of the global financial crisis 2008/2009, as European transnationals began to lose oxygen on the international market. These structural conditions proved favorable for Chinese NOCs to purchase equity

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stakes from the Spanish company Repsol in 2010 and from the Portuguese company Galp Energia in 2011. Given that these are two major companies in the hands of Latin America’s most significant colonial powers, these developments held symbolic meaning as a symptom of the declining power of the West and China’s rising power in the South. As such, Sino-Brazilian trade and investment in the oil sector enjoyed strong presidential support on both sides. In 2009, for instance, President Hu Jintao guaranteed President Lula the allocation of the first CDB loan worth US$10 billion to unlock oil reserves in Pré-Sal. In exchange, President Lula da Silva guaranteed increasing oil shipments to China for the next 10 years (Subsection 4.1.3).

As a result of bilateral diplomacy and due to structural changes in the , China managed to secure a prominent spot in Brazil’s highly competitive oil and gas environment between 2009 and 2012. The first loan-for-oil in 2009 played a key role as a door opener for greater inflows of Chinese FDI to get access to Brazilian oil as off 2010. At the same time, Western transnationals welcomed Chinese equity purchases as these alleviated their balance sheets during difficult times. In the context of high commodity prices, and as a result of comprehensive legal reforms to harness oil rents from Pré-Sal (Subsection 4.4.1), the Brazilian State and its ruling authorities gained structural leverage as powerful rule-setters vis- à-vis Chinese and Western transnationals. As a result, important stakeholders, such as the Brazilian Petroleum, Gas and Biofuels Institute (IBP), which is a conglomerate of the most important Western transnationals, began to denounce the increasing politicization of the Brazilian oil industry. These actors sensed a growing level of closed-door negotiations between Chinese stakeholders and high-ranking Brazilian officials. This is a common praxis in “big oil” business, but China’s growing influence in Brazil seemed irritating at best and threatening at worst.34

Because of rising domestic pressures from diverse industry sectors, the Brazilian government began to question China’s one-sided pattern of investment towards the extractive sectors of the country.35 President Dilma Rousseff began to advocate bilaterally for a diversification of trade and investment in the Sino-Brazilian tie. However, declining oil prices as of 2014 and strong levels of corruption put a heavily indebted Petrobrás in an overwhelmingly disadvantaged position of need. Bilateral politics again became vital. After

34 Interview with oil expert in Rio de Janeiro, 6 April 2016. 35 Interview with Brazilian government official, Ministry of Foreign Affairs, China and Mongolia Division. Brasilia 17 November 2016. 85

Prime Minister Li Keqiang’s visit to Brazil in 2015, President Rousseff had secured China’s second loan-for-oil worth US$10 billion. Their Joint Communiqué36 again emphasized 1) the importance of bilateral cooperation between Chinese and Brazilian NOCs regarding the expansion of exploration activities in the Pré-Sal Libra Field, 2) an additional financial package to be executed between China Exim Bank and Petrobrás to develop industrial capacities and equipment in offshore oil drilling, and 3) a financial cooperation agreement between Petrobrás and ICBC Leasing, which is a Beijing based company that provides financial services in maritime trade logistics.37

4.3 The productive power of “South-South”

Productive power emphasizes the analysis of discursive processes and practices of social interaction that “produce social identities and capacities as they give meaning to them” (Barnett, Duvall 2005a, p. 21). This section engages with the analysis of how Chinese diplomatic language is received by Brazilian stakeholders, matched by national discourses and ultimately produces collective identities that legitimize the extraction of oil as a mutually beneficial endeavor.

4.3.1 “Win-win,” “complementarity,” and “South-South”

China’s official rhetoric towards Brazil is based on the former’s general policy of “peaceful development” (The People's Republic of China 2005) and the attached wording of “win-win” alongside “complementarity” and “common development.” These “framings” (Strauss 2012) replicate China’s broader neoliberal discourse, which is based on a globalization process driven by comparative advantage, vertical integration, and spatial division of labor. Within this frame, China’s leaders understand and portray China’s rise as a positive development of economic progress for the world (Xiaoming 2017) as well as a potential source of inspiration for developing countries to “follow suit” (Zhao 2010, p. 419). When it comes to Brazil with its sphere of influence in the Western Hemisphere, China has maintained a deliberate political and

36 For a compendium of bilateral documents in Portuguese including the protocols of the China-Brazil High-level Coordination and Cooperation Committee (COSBAN), Press releases, Joint Communiqués, Speeches, and further official documents related to key aspects of the China-Brazilian partnership see Moreira Lima, Eduardo (Ed.) (2016): Brasil e China: 40 anos de relações diplomáticas. Analises e Documentos. FUNAG. Available online at: http://funag.gov.br/loja/index.php?route=product/product&product_id=844, accessed 8 July 2017. 37 See http://www.icbcleasing.com/index.html, accessed 19 December 2017. 86

diplomatic tone. In a mutually constitutive, and highly visible, dialogue geared towards “multipolarity” and the “democratization of international relations,” China has emphasized “mutual trust,” “mutual respect,” and, most importantly, “equality” as the pillars of a joint diplomatic program with Brazil (China, Brasil 7/17/2014; China, Brazil 5/10/2009).

China’s emphasis on a mutually beneficial relationship based on economic complementarities has been well received by business elites in Brazil, who wish to expand the export of products required by the Chinese market. Chinese agents with strong connections to and in Brazil espoused the official “go-out” discourse while adapting it to the local circumstances to advocate for a “growing alliance.” From a position of privileged market visibility, Charles Tang (2013), Chairman of the Brazil-China Chamber of Commerce & Industry, writes in the World Policy Blog:

“Latin America and China’s economies are complementary. Brazil, like much of Latin America, has insufficient internal savings to finance increases in export production and job creation or to build the infrastructure it needs. China has abundant capital, but needs the plentiful strategic resources that Brazil has.” (Tang 2013)

While China’s rise has meant significant monetary opportunities for the large-scale agricultural, mining and energy sectors as demonstrated by the analysis of structural power (Section 4.1), the idea of “win-win” as portrayed by Tang (2013) is contested for at least four reasons. First, because of the core/periphery pattern depicted by territorial complementarities in which Brazil assumes the role of a resource provider, while China exports manufactured merchandise in exchange. Second, because of Brazil’s increasing dependence on volatile market conditions which have transformed China into a lender of last resort in the context of falling commodity prices. Third, because of aggravating symptoms of reprimarization and rentierism as a result of expanding extractive activity to meet China’s overwhelming demand. And fourth, because of the unequal distribution of environmental risks associated with the disproportionate allocation of capital to the large-scale expansion of extractive activities outside of China. In addition, most countries in Latin America actually lack Brazil’s financial capacities and are hence far worse off in terms of turning China’s rise into an opportunity for in the long run.

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Politically, however, China’s rhetoric of “win-win,” “mutual benefit,” “mutual respect,” “mutual trust,” and “equality” (Strauss 2012) has an important effect in terms of captivating the minds of Latin American leaders subjected to Washington’s disciplining and denigrating attitudes, policies and discourses. An example below from the Lula Institute highlights the new- found confidence of Brazil and the remarkable denigration the country experienced:

“Prior to the Lula Administration, Brazil was not able to control Brazil. There was even one Foreign Minister who was obliged to remove his shoe before entering the United States. From time to time a representative from the International Monetary Fund (IMF) would land in Brazil with the greatly feared little black briefcase to see if the country was doing its homework. And to tweak the noses of Brazil’s leaders if, for example, Brazil was spending too much money with social policies.”38

Under the above-stated circumstances, Chinese and Brazilian authorities had no difficulties in establishing common rhetorical ground, as two “major developing nations” seeking to tilt the balance of power to the benefit of the Global South. Following the relative destabilization of the US and other Western economies in the context of the global financial crisis of 2008/2009, Chinese President Hu Jintao and Brazilian President Lula da Silva stated in their Joint Communiqué from 2009:

“The two presidents agreed that in the current complex international situation, it is all the more important for China and Brazil to build a stronger strategic partnership. They reaffirmed their commitment to handling bilateral relations with a strategic and long-term perspective, deepening mutual trust and enhancing cooperation on the basis of mutual respect, equality and mutual benefits and working to push bilateral cooperation to a new height.” (China, Brazil 5/10/2009)

The progressive consolidation of a South-South discourse grounded in a “win-win” foundation proved important not only in terms of legitimizing bilateral deals in the oil sector but also in terms of gradually constraining Brazilian authorities to fill this strategic relationship

38 See Instituto Lula (n.d.): Autonomy in economic management. Available online at: http://www.brasildamudanca.com.br/en/macroeconomia/lula-imf-no-longer-runs-things-here, accessed 8 June 2017. 88

with “substance.” Oil became the central reason behind China’s call for a bilateral relationship as it reached a “new height” because of its crucial value to both the Chinese and the Brazilian agenda. The CCP welcomed increasing flows of fossil energy, while Brazilian authorities gained financial room to materialize a neo-populist yet partly effective discourse of rent allocation through redistributive social policies. In Lula’s words, the discovery of Pré-Sal was equivalent to Brazil’s “second independence” (Schutte 2012b) as it paved the way for the Brazilian state to pay back its “historical debt to the poor.” Lula, along with his successor Rousseff, promoted a federal law that directed 75 percent of all oil royalties from the Pré-Sal deposits to a social fund at the free disposal of the executive branch to finance public investment in education.39 In the context of a widely-advertised law, President Rousseff contended that the “finite wealth stemming from oil should be invested in the eternal wealth of well-educated people.”40 This time, Washington’s political conditions would not interfere with Brazil’s socio- political program, while a new relationship grounded on “South-South” would lead to the subaltern integration of Brazil as China’s provider of crops, minerals, and fossil energy.

4.3.2 How the BRICS matter

Originating from a former Goldman Sachs manager in 2001, the BRICS concept quickly went from a loose idea to an institutionalized power block by 2009. The key objective was to gain influence in global development policy by balancing against established multilateral institutions like the World Bank and IMF. However, China has not ignored its opportunity to use these multilateral platform as a means to enhance its national interests. For instance, China has actively invited the other BRICS members to support the internationalization of the Renminbi in bilateral trade transactions, after the IMF included the Chinese currency in its Special Drawing Right Basket following Beijing’s successful political pressure in 2015 (The People's Republic of China 11/16/2015). In spite of China’s interest-driven approach to multilateral cooperation in the BRICS, Beijing has supported the equal voice of all members the BRICS- led New Development Bank.41 This is quite important as Beijing is the largest provider of capital. This institutional arrangement stands in stark contrast to the US-dominated structures

39 There also appears to be little coincidence that one of the first oil-wells in the Pré-Sal oil fields is named after President Lula. For more on this law, see http://www.brasildamudanca.com.br/educacao/mais-recursos, accessed 27 October 2016. 40 Ibid. 41 See NDB website. Available online at: http://www.ndb.int/investor-relations/investor-presentations/, accessed 1 July 2017. 89

of the World Bank and IMF, in which voting quota is assigned relative to each member’s share of capital stock contributed.42

Scholars have different views about the strategic cohesiveness of the BRICS. Degaut (2015), for instance, suggests that the agency of this institutional framework is ultimately eroded by diverging interests, incoherent strategic cultures, and economic disparities amongst its members. From a complementary perspective, Wilson (2015) identifies resource abundance as a common feature among the BRICS members which has not translated into collective leverage in world politics. In his view, geostrategic tensions between its members are additional obstacles to the development of a common front in the global balance of power. While some question “[whether] the BRICS still matter” (Degaut 2015), the analytical emphasis of this subsection resides on the question of how the BRICS matter to the constitution of an oil-nexus between China and Brazil.

Regarding the Sino-Brazilian relationship, the BRICS matters primarily as a discourse of power, which unifies the mental representations of Chinese and Brazilian stakeholders in terms of the social order they regard as “desirable,” “just” and “worth striving for. In this sense, the BRICS, as a “discursive moment of South–South cooperation” (Muhr 2016, p. 633), delivers the grounds for China and Brazil to subvert the notion that Brazilian oil must rest at the exclusive disposal of the US as the sole and unquestioned hegemonic power in Latin America. From this perspective, the BRICS-discourse justifies South-South cooperation as an essentially “good thing.” It enables the Chinese and Brazilian leaders to persuade each other, as well as their relevant domestic audiences (Strauss 2012, p. 136), that a deepening and expanding nexus for oil extraction is a “strategically legitimate” means of promoting mutual interests. These interests also include: 1) raising the voice of the Global South in international affairs, 2) fostering new forms of self-determined development, and 3) stimulating a structural change towards a multipolar world order.

From the perspective of productive power then, the BRICS-discourse provides a basis for solidarity and the necessary conditions of consent for the “C” (in the BRICS) to ease a minor

42 Ironically, while Brazil has been an active supporter and beneficiary of these reforms, it has refused to support the establishment of a regional development bank in which its political weight would not reflect its financial contributions. This appraisal is based on an interview with a Russia-expert of the Ecuadorian Ministry of Foreign Affairs. Freiburg, 14 July 2017. For information on this topic see also Chirinos, Carlos (2007): Finanzas continentales "bolivarianas." In BBC Mundo Venezuela, 12/9/2007. Available online at: http://news.bbc.co.uk/hi/spanish/business/newsid_7132000/7132419.stm, accessed 8 March 2017. 90

part (2 percent) of its energy security concerns while stimulating the rent-seeking behavior of the political and economic elites in the “B.” Domestically, the positive idea associated with South-South cooperation and the BRICS-discourse enables Chinese and Brazilian actors to— misleadingly—portray a structurally unequal relationship with core/periphery characteristics as a “mutually beneficial” partnership among “equals.” In this context, the BRICS-discourse is packaged in and through discursive images of “win-win,” “complementarity,” “common development,” “mutual respect,” and “equality” and produces a set of positive images that extrapolate the Sino-Brazilian partnership into a politico-economical vacuum. This phenomenon has far-reaching implications not only in terms of the internal cohesiveness and hence credibility of the BRICS but also in terms of the social production and allocation of unequal functionalities and hence capacities and identities among its members, as argued in more detail in the next subsection.

4.3.3 Collective identities despite structural inequality

Given the interactive processes and practices of productive power, the construction of collective identities within Sino-Brazilian relations comes from visual imagery expressed through the use of constructive language—verbally or textually.43 Understandings of self, status or world order taking place through direct (i.e. negotiations) or indirect (i.e. norms diffusion) interactions. Bilateral interaction between Chinese and Brazilian leaders, in particular, has shaped the collective and individual perceptions of their states as they collaborate in multilateral frameworks like the BRICS. However, the strength of this collective perceptions can also be influenced by the perceptions of each leader and by their domestic constituents. This suggests the various interactions can often be driven by the national interests (of the masses or ruling elite), particularly when it comes to concrete interests and outcomes.44

Given the logic of a collective identity crafted by Sino-Brazilian relations, there are many possible ways to understand their impact on the oil partnership. First, collective bargaining in multilateral organizations such as the IMF and G20 (Subsection 4.2.2) has afforded easier conditions of trust-building, which is beneficial for China as it addresses energy issues with key leaders in the Brazilian oil industry (Subsection 4.2.3). Second, the progressive institutionalization of South-South cooperation has provided the institutional basis (Subsection

43 Examples include speeches, bilateral agreements, policy papers, and other spaces of diplomatic communication. 44 Adapted from Rüland (2006, p. 308) on “collective identity building” in interregional processes. 91

4.2.2) for the production of a collective identity which depicts China and Brazil as two “major developing countries” with shared experiences (of colonial humiliation by Western powers) co- striving for a decentralized world order with a stronger position for the nations of the Global South. Third, South-South cooperation has generated the conditions of consent for Brazil’s political elites to endorse China as a welcomed player in the oil and gas sector, while outsourcing the risks of rentier politics on the rest of Brazilian society. Finally, the BRICS identity has enabled China to compensate for its comparatively late and hence disadvantaged entry into a strategic field in which the presence of powerful Western transnationals has prevailed for decades.

To summarize, the “South-South” discourse and the attached principles of “win-win,” “complementarity,” and “mutual development” have contributed to the creation of collective identities between China and Brazil as two “major developing,” BRICS-countries with (apparently) similar capacities, (shared) experiences of humiliation by Western powers and (naturally) intertwined destinies in a changing world order. These collective identities create the socio-political conditions of consent and legitimacy, which help Chinese leaders expand and deepen a partnership, in which the risks and burdens of extractivism are put on the Brazilian society. While China’s economic and political international conditions are overwhelmingly stronger than those of Brazil, the ongoing BRICS-discourse has proved effective in obscuring widening structural inequalities. This discourse and its rhetoric is an artificial construct of productive power, even if it suggests that China’s destiny is intrinsically and positively intertwined with that of Brazil. Instead of illuminating the unequal options of choice at the disposal of each nation, the productive power of “South-South” compensates discursively for structurally and institutionally unequal capacities through its reiterative assertion of self- determined equality and solidarity. Consequently, Brazilian elites with an interest to get a larger grip of oil rents accommodate domestic rhetoric and policies (e.g. distribution of oil rents qua social policy) to match China’s interests and discourses to the detriment of Brazil’s democratic institutions and society in general.

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4.4 The compulsory power of oil (and its drawbacks)

4.4.1 China, Brazil and the US: Geopolitical tension

As a liquid source of energy transported across different world regions, oil ranks the highest in the amount of energy delivered by each unit of content in comparison to other sources such as, for instance, biomass-based fuels. Its qualities as an energy commodity are hard, if not impossible to replace;45 at the same time, the rate at which oil is extracted and consumed is disproportionately high in comparison to the rate at which it regenerates (Sverdrup et al. 2014). Energy is not just a part but a pre-condition to economic growth. Therefore, oil is given special attention by those in need and by those in control of this crucial resource (Amineh, Guang 2014, pp. 505–506). This special attention is evident in the way China and the US have both interacted—directly, indirectly, or covertly—with Brazil.

The way China and the US act towards Brazil is hence substantially determined by the material constraints that—depending on the perspective—enable or threaten the protection, reproduction, or subversion of domestic and international structures of power and wealth (ibid.). In the future, however, competition and conflict are likely to prevail and perhaps intensify in different geostrategic spheres, among which the South China Sea figures as just one example.46 While the US has managed to increase domestic production through the intensification of fracking practices, dependency on external sources of oil remains a national security issue. The same applies to China, where anxieties related to the stability of external oil flows are even stronger (Zweig 2016). As explained in the preceding chapter, China’s domestic oil production and proven reserves are insufficient compared to the rising levels of oil consumption in the upcoming decades of the twenty-first century. The improvement of energy-efficiency as well as the progressive diversification of energy sources, will help but not solve China’s overwhelming dependence on foreign oil in the long-run.

In this context, geostrategic tensions between China and the US are evident at least at two different levels. First, stockpiling measures to react against possible disruptions in oil

45 Although oil has facilitated unprecedented levels of productivity, permeating almost every aspect of daily life in industrialized societies, it has also contributed to the ecological destabilization of carbon stocks into the atmosphere (Bridge 2011; Bridge, Le Billon 2013). 46 Arguably, the US and China have competing interests in terms of long-term security of oil supplies (see Zweig, Hao 2016; Amineh, Guang 2014). However, this does not preclude their respective transnational companies from cooperating in specific areas if necessary. 93

supply illustrate a crucial aspect of this phenomenon. According to EIA (2015a), China began building a strategic crude oil storage facility as part of the 10th Five-Year Plan (2001-2005). The target is to store a minimum of 500 million barrels (ten times more than conservative estimates of reserves in Pré-Sal) until 2020, while current status accounts for 140 to 180 million barrels (EIA 2015a). The US’ Strategic Petroleum Reserve, since 1977, has stored a total of 695 million barrels of oil since geopolitical tension in the Middle-East confronted US businesses, households, and the military with unexpected shortages in the accustomed oil flows. Both powers are conscious of the vulnerabilities of their respective economies in the event of an unexpected interruption in oil supply (Bridge 2011; Wu 2014; Zweig, Hao 2016). Under these circumstances, energy security concerns will continue to foster geostrategic tension between China and the US independently of future speculation regarding available reserves.

Second, given that Pré-Sal is one of the most important oil frontiers in the Western Hemisphere, the competing character of the US’ and China’s foreign and security policy agendas cannot escape from materializing in Brazil (Moreira 2016; Schutte 2012b). It should be noted that the geostrategic tension between these two powers is not only about the security of supply. The history of the Brazilian oil industry suggests that gaining control of this sector is equivalent to gaining control of the nation’s political and economic nervous system. Institutional arrangements in the oil sector are the key to Brazil’s domestic power structures. The way oil is embedded in the country’s institutions is a barometer of its relations of power with other states and determines the scope, content and orientation of Brazil’s political, economic, developmental, energy, foreign and military policies. Therefore, transnational and domestic efforts to gain control of the oil industry of Brazil are not exclusively limited to gaining control of the oil, but also involve the access to important institutions and actors in control of the Brazilian oil industry and politics. Additionally, and perhaps more decisively, geostrategic tensions and internal rivalries gravitate around the possibility to influence and/or control the normative, institutional, and ideological DNA of a powerful nation in the Southern part of the Western Hemisphere.

It would be nonetheless wrong to overstate Brazil’s options to confront the US, and the Washington Consensus through the use of its oil resources. Brazil is indeed significantly dependent on US imports of refined petroleum products given its own limited refining capabilities. In 2014, for instance, the US imported 145,000 b/d of Brazilian crude oil while it exported 215,000 b/d of refined petroleum products to Brazil. However, the US still has the

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interest to keep and increase control over Brazilian oil. Geostrategic misbehavior by the US became public in 2013 when leaked information provided evidence that the US National Security Agency (NSA) had been monitoring President Dilma Rousseff’s personal phone and electronic communication, as well as that of high-ranking officials of the Ministry of Energy and Mines while systematically targeting Petrobrás’ information systems containing strategic data on Brazil’s oil industry (Fantástico 2013).47 Although the extent, quality, and the exact flow of the information collected by the US Intelligence Services remains undisclosed, bilateral tension as a result of geopolitical mistrust has emerged. On September 8, 2013, James R. Clapper, the US Director of National Intelligence, released an Official Statement confirming that the US collects information with the potential to “provide insight into other countries’ economic policy or behavior which could affect global markets” (Office of the Director of National Intelligence. United States of America. 9/8/2013). By the same token, Clapper, refuted “allegations of economic espionage” to “enhance the[…] international competitiveness [of US companies]” (ibid.). In response, President Dilma Rousseff at the General Debate of the sixty- eighth Session of the United Nations General Assembly on September 24, 2013, denounced the misbehavior of the US as “a situation of grave violation of human rights and civil liberties; of invasion and capture of confidential information concerning corporate activities, and especially of disrespect of national sovereignty.”48 These events provide evidence for an ever-increasing tension in the Americas, and one that lies at the nexus of the Sino-Brazilian oil partnership.

4.4.2 Pré-Sal: gaining control of a powerful resource

Conscious of the geostrategic tension between China and the US, Brazilian President Lula da Silva understood the discovery of Pré-Sal as a point of international leverage vis-à-vis China and the US. President Dilma Rousseff continued with the same understanding but faced less favorable conditions due to abruptly declining oil prices and major corruption scandals. Under these circumstances, the ability of Brazilian leaders to use oil as a foreign policy instrument to

47 See also Süddeutsche Zeitung (2013): NSA hat Brasiliens Ölkonzern Petrobras im Visier. In Süddeutsche Zeitung, 9/9/2013. Available online at: http://www.sueddeutsche.de/wirtschaft/ueberwachung-durch-us- geheimdienste-nsa-hat-brasiliens-oelkonzern-petrobras-im-visier-1.1765740, accessed 8 September 2017. On a 2015 attack on Brazilian top leaders see Greenwald, Glenn; Miranda, David (2015): NSA's Top Brazilian Political and Financial Targets Revealed by new WikiLeaks Disclosure. In The Intercept, 7/4/2015. Available online at: https://theintercept.com/2015/07/04/nsa-top-brazilian-political-and-financial-targets-wikileaks/, accessed 8 September 2017. 48 See Rousseff, Dilma (2013): Statement by H.E. Dilma Rousseff. President of the Federative Republic of Brazil, at the Opening of the General Debate of the 68th Session of the United Nations General Assembly. United Nations General Assembly. Available online at: http://www.voltairenet.org/article180382.html, accessed 8 September 2017. 95

alter the behavior of other states stands and falls with their capacity to maintain control over Pré-Sal. From Lula’s perspective, it was important to guarantee strong regulating capacities to bargain with foreign oil companies. On the other hand, it was key to safeguard Pré-Sal from the rent-seeking interests of political adversaries and their external supporters. Anonymous, but privileged information confirmed that oil lobbyists from Western transnationals stood in radical opposition to the legal initiatives of the Worker’s Party to nationalize exploration and production in Pré-Sal.49 The idea that the Brazilian government would gain increased control of the oil industry on the basis of closed-door, high-level negotiations of loans and investment from China sat uneasily with the longstanding position of dominance Western oil companies had long had in the country. While the next subsection will return to this point, it is first important to understand how this geostrategic scenario influenced the use of oil as a source of power from a domestic perspective.

In 2007, one year after the discovery of Pré-Sal, President Lula da Silva initiated a process of legal reforms to gain control of Pré-Sal in 2010 (Alves 2011; Florencio 2016; Schutte 2012b, 2013). This process began with the intra-governmental revision of Brazil’s regulatory framework in the oil sector, which led to the cancellation of bid-rounds for 41 off-shore blocks. The President’s power was central to induce support from the National Council for Energy Policy, which was dominated by members of his cabinet. Following their approval by National Congress in 2010, these reforms led to four important specifications in the way Pré-Sal deposits were to be governed (Schutte 2012b).

First, Law Nr. 12.304 created a fully state-owned enterprise named Pré-Sal Petróleo S.A. (PPSA) as the single entity holding the authority to manage and supervise oil exploration, production, and commercialization in the newly discovered Pré-Sal oil fields and other areas, which the Government could potentially classify as “strategic” (Florencio 2016; Schutte 2012b, 2013). Although the Brazilian government holds a 53 percent share of voting power in Petrobrás’ board, the company must also respond to its private stakeholders (Alves 2011), which makes it incapable of exerting complete control over policies on behalf of the federal government (Schutte 2012b). Second, for the purpose of maximizing state-control over oil exploration, extraction, and commercialization in Pré-Sal areas, Law Nr. 12.304 created a new regulatory system called “partilha” (ibid.). This is a system of “production sharing agreements”

49 These are confidential sources of information accessed during field trips to various sites. 96

that replaced the prevailing system of concessions reducing the influence of private companies (ibid.). Third, a rigorous local content regime was established as a public instrument to promote industrial development in associated domestic branches (Florencio 2016; Schutte 2012b). Fourth, these reforms established a social fund that entitled the central government to use expected oil rents for re-distributional policies (Alves 2011; Schutte 2012b, 2013).

In turn, these four reforms boosted the state’s compulsory power in four central ways. First, the governance structure of Pré-Sal reserves requires all winning consortia to build a central committee in charge of all strategic and operational decisions. Notably, the new legal framework grants the fully state-owned company PPSA 50 percent of the voting power, while Petrobrás, the state-led oil company, which, by contrast, also has private stakeholders in its board, acquired 30 percent of the voting power. Transnational oil companies were hence left with a residual 20 percent of the overall voting power to be distributed among several companies in the decision-making process (Florencio 2016, p. 249). Second, the replacement of the concessions system through the new production sharing regime gave the state more power. While concessions place oil property rights as well as exploration risks and commercial decisions in the hands of transnational companies, production sharing agreements under “partilha” returned oil ownership and comprehensive control of upstream and downstream decisions to the Brazilian state, legally represented by PPSA (Schutte 2012b). Third, the “partilha” system granted Petrobrás the exclusive authorization to operate all Pré-Sal reserves (Alves 2011; Schutte 2012b).50 Foreign companies were welcomed to invest in oil exploration and production activities, but they remained deprived of the right to directly operate Pré-Sal deposits.51 This eliminated the choice for non-Brazilian transnational companies with advanced

50 The new system of production sharing agreements restored property rights of oil resources to the Federal Government of Brazil, as opposed to the concession system that granted property rights to concessionaries. Risk management in the exploratory phase was outsourced to the contracted companies, whereby the new legal framework required Petrobrás to participate in every oil development project with at least 30 percent of investment. Additionally, the federal government not only receives royalties foreseen under the concessions regime but it also participates of oil revenues through the state-owned company Petrobrás. Notably, the new oil framework based on production sharing agreements only applied to areas of Pré-Sal that were untapped until 2010. This legal reform had no retroactive character. Hence, while these institutional reforms granted significantly more power to the state in comparison to the concessions system, which benefited mostly private companies, President Lula and his advisors did not incur in the radical nationalization of the oil industry as in the case of Bolivia (2006), Venezuela (2007) and Ecuador (2010). The new regulation left ongoing concessions operated by transnational companies unchanged. 51 In 2016, de-facto President Michel Temer promoted a legal reform to take away Petrobrás’ exclusivity to explore Pré-Sal deposits. As a result, Western transnational have shown greater interest in Brazil’s oil industry. See: https://www.bloomberg.com/news/articles/2017-07-06/your-evening-briefing, accessed 7 July 2016. 97

technological capabilities in ultra-deep waters to compete against Petrobrás in the so-called “Blue Amazon” (Schutte 2012b).

Fourth, a strong regulatory framework for local content measures obliged Petrobrás to feed its upstream requirements through domestic purchases as a means to strengthen domestic industrial development. This led, according to Schutte (2013, p. 62), to the revival of an almost extinguished shipbuilding industry, raising the number of industrial workers in that subsector from 1,900 in 2000 to 80,000 in 2010. This was an important step for the government to demonstrate that the Brazilian oil industry was not an enclave economy and to legitimize the promotion of the oil industry as the cornerstone of its neo-developmentalist agenda.

Critics, however, point at the counterproductive effects of an overregulated and increasingly restrictive oil sector (Florencio, 2016). They see a loss of managerial competitiveness and a trend towards technological downgrading given the lack of horizontal linkages and vertical integration with innovative foreign companies. In their view, “[i]nstead of dictating [the state] should be stimulating, instead of requiring it should be relying, instead of controlling it should be regulating.” In fact, Schutte understands these reforms as an antagonistic posture towards the Washington Consensus, which, in his view, “heavily influenced the structure of the new regulatory framework for the Pre-Salt areas” (Schutte 2013, p. 67). In any case, the expansion of oil rents in the hands of the state has not necessarily led to a strengthening of Brazil’s capacities to foster developmental outcomes and an autonomous pathway of global insertion. Instead, for Presidents Lula da Silva and Dilma Rousseff, expanding control of Pré-Sal epitomized the beginning of a tragic series of political and economic scandals.

4.4.3 Compulsory power gone wrong: The Brazilian oil disease?

President Lula da Silva understood Pré-Sal as the material basis to consolidate his own position of power as well as those of his political allies through a neo-populist program of rent- distribution via social policy. To a certain extent Lula da Silva did succeed in this goal—thanks to favorable conditions on the commodity markets and stable macro-economic policies partly inherited from the Cardoso administration. He handed off the oil baton to his successor Dilma Rousseff with the expectation of further consolidation of the Worker’s Party rule domestically, and an increased force internationally. President Dilma Rousseff came to power in 2010, as her predecessor Lula da Silva left office with impressive levels of popularity. Arguably, both

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political leaders understood Brazil’s oil industry as the Party’s strategic bedrock. The political basis of the Worker’s Party consisted originally of the urban working classes and a wide range of social movements including traditionally excluded social actors, with Lula himself embodying the social rise of a poor industrial worker to the President of the country. Lula’s project enhanced the living standard of all Brazilians, particularly the most disadvantaged. Lula’s project to gain full control of Brazil’s oil wealth was hence widely accepted as a legitimate step to catapult the country—the seventh largest economy and the fourth largest democracy in the world—onto the major stage of international affairs.

In accordance with rentier-state theories (Subsection 2.1.2), Brazil’s booming oil industries led to the weakening of key democratic institutions, evidenced by the limits of compulsory power and economic diplomacy. Recently, Petrobrás has been at the center of an enormous corruption scandal with unprecedented reactions. Lula and other leading members of the -then governing- Worker’s Party as well as opposition party members are implicated, with Brazilian courts unveiling a criminal network of high-ranking officials to fraudulent practices of Petrobrás managing members. They had made closed-door arrangements to overestimate Petrobrás’ enormous service and purchasing contracts by a margin of an additional 3 percent (Sotero, 2017). In an unmatched act of rent capture based on a wide-reaching system of corruption, this additional money was illicitly distributed among participants. A large number of contracts were signed between Petrobrás and the Brazilian construction corporation Odebrecht, which turned out to have a wide ranging network of corruption in several Latin American states. According to estimates by the new Petrobrás executives, the company lost an approximate of US$17 billion to corruption practices between 2004 and 2015. In the process, Petrobrás lost half of its market value, while rising debt levels suffocated the company’s access to Western financial markets (Kiernan, 2016).

Falling commodity prices since 2014 have furthermore driven the Brazilian economy into a great recession, also negatively affecting the fiscal capacities of the state-apparatus to provide public goods and sustain rent distribution through social policies. Ultimately, these problems have given oppositional forces enough arguments to make the Worker’s Party responsible for the implosion of a once emerging global player. Opposing members of parliament, themselves facing corruption charges, have succeeded in manipulating Brazil’s democratic institutions as far as to illegitimately push President Dilma Rousseff (2010-2016) out of office. In this way, conservative elites have cleared the way for Vice-President Michel

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Temer to assume power without one single vote, even as his own record of corruption disqualifies him as a credible fix for Brazil’s political crisis.

Interestingly, China continues to pour large investments into Brazil’s oil industry even as Dilma’s impeachment remains a subject of controversial and divisive debate, and charges against Lula place an even heavier burden on the Worker’s Party. In 2015, for instance, China and Brazil agreed on a new loan worth US$10 billion, with very similar terms and conditions to the loan signed by the two sides in 2009. China has continued its strategy to secure much- needed oil shipments irrespective of a new power base and de-facto rule by Michel Temer. Rhetoric devices to “galvanize” (Rüland 2006) the new conditions of bilateral interaction were soon to emerge: according to Xinhua, China’s government-controlled news agency, President Xi’s central message to Michel Temer during bilateral talks at the G20 Summit in Hangzhou 2016 was that “China and Brazil should strengthen cooperation and advance their comprehensive strategic partnership to new heights” (Xinhua 2016a). According to Xi’s official statement, “Brazil is willing to enhance cooperation with China in economy and trade, energy, aviation, agriculture, finance, infrastructure and reactions to climate change” (ibid.). China’s behavior suggests an ever-increasing reliance on productive power through rhetorical devices and inclusive dialogue geared at engaging Brazil in an even stronger oil partnership for the future.

4.5 Chapter Conclusion

Since Brazil experienced the disadvantages of being an import-dependent nation in the 1950s, the development of the national oil industry became a top priority. Brazilian leaders have since cherished oil as the bedrock of a self-determined development path and foreign policy. By the time the state-led company Petrobrás discovered the vast oil deposits of Pré-Sal in 2006, Chinese-Brazilian relations had already reached a mature phase in economic and political terms. Oil joined Brazil’s basket of exports to China to complement a rather narrow but rapidly expanding pattern of trade based on soy and minerals. Rising commodity prices between 2000 and 2008 provided incredible pecuniary gains for the Brazilian side since China’s global demand for Brazilian commodities brought a major restructuring shift in their South-South relations. Booming commodity trade with China contributed significantly to the strengthening of Brazil’s foreign reserves and enabled President Lula da Silva to drastically reduce the country’s dependence on the US by paying off Brazil’s debt to the IMF in 2005. Therefore, the 100

expanding dynamics of resource-based exports to China provided Brazil with a higher level of autonomy to determine its own political and economic conditions vis-à-vis the US. This was particularly visible during the two Lula administrations over the period 2003-2010. Throughout this time-span Brazil was able to assert an increasing position of influence in the international system in alliance with China. The positive effects of expanding extractive activities were however short-lived and were soon to confront Brazil with grave problems, especially with regards to the development of the oil sector after 2013.

Despite Brazil’s promising prospects as a BRICS state, this chapter shows the inability of Brazil to use its oil independence and China’s critical need for oil as a means to strengthen its self-determining capacities for development and global insertion in the long term. The contrasting analysis of the four dimensions of power explain this phenomenon. While rising commodity prices provided the Brazilian economy with a substantial windfall, the partnership with China amplified structural inequalities in trade, which ultimately intensified an already uneven division of labor to China’s advantage. By 2014, China’s structural dependence on Brazilian oil was minimal (2 percent in 2015) while Brazil had come to rely on China for a large part of its oil exports (35 percent in 2015). China’s two loans-for-oil in 2009 and 2015 further reinforced bilateral disparities in a creditor/debtor relationship of structural power to the advantage of China. However, these nesting disparities were eclipsed by the short-term benefits of high commodity prices and the rewarding effects of higher international status for Brazil in the context of the BRICS. Parallel to an increasing trade-dependency and a deepening creditor/debtor relationship, the Sino-Brazilian institutional agenda within the BRICS grew stronger.

Bilateral and multilateral diplomacy proved important mechanisms for China and Brazil to raise their voice collectively through the means of institutional power. Notably, one of the key aspects of the workings of extractive power in the Sino-Brazilian relationship has been the emergence of “forum shopping” (Forman, Segaar 2006), as a strategy through which China has used commonly created multilateral arenas, e.g. the BRICS, as a means to enhance the political conditions for its SOEs to gain progressive foothold in the Brazilian oil industry. At the same time, Brazil has fully embraced China’s political leadership to create counterhegemonic institutions while enhancing its international status in tacit exchange for resource-based exports to China. For Brazil, however, its structural capacities within the global economy actually decreased as its global profile in international governance increased. The mismatch of structural

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and institutional power became strikingly evident as soon as commodity prices dropped in 2014. Internal struggles for power and corrupt management of oil rents further undermined Brazil’s structural position in relation to China and the international system.

This chapter furthermore demonstrates that productive power has been a crucial enabler of extractive power in the context of the Sino-Brazilian tie. Collective identity building through the production of an all-weather partnership has been a fundamental component of Brazil’s way of perceiving its own position of power in international affairs. Its most ambitious goal to attain a permanent seat at the UN Security Council remained, however, unfulfilled when China failed to support Brazil’s request in 2005. This put an end to the Brazilian dream of becoming an international veto-power. The failure of the BRICS-identity and Brazil’s rising resource-wealth to boost Brazil’s capacities therefore exposes the dramatic limits of extractive power as a means to conquer a better place in the international system. At the same time, this chapter shows that Brazil has not necessarily opened the door automatically for China to gain privileged access to its oil reserves. Considering Sino-US competition for energy security, Brazil is now able to balance its structural position of power between these two superpowers. For Brazil, in fact, the potential to translate its oil reserves into compulsory power vis-à-vis the US is limited as well. Notably, Brazil is more dependent on the US for refined petroleum products than the US is on Brazilian oil. Additionally, the strong decay of international oil prices since 2014, rising levels of dependence on Chinese loans, and striking levels of corruption in its state-led oil industry, undermine Brazil’s prospects to achieve economic and political autonomy in the long term.

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5. The Sino-Peruvian case: Copper and the production of structural control under Washington’s terms

This chapter provides an analysis of the different forms of power that explain China’s target efficiency to gain control of mineral resources in Peru while taking account of Peru’s own economic interests and political constraints. Studying the Sino-Peruvian case is important because it contradicts the argument that China has an inherent interest to challenge the Washington Consensus and heighten Beijing’s own hegemonic profile in the Western Hemisphere due to ideological rivalry, i.e. state-led capitalism under one-party rule versus deregulated markets and liberal democracy. This chapter provides an alternative argument. It argues that China has actually embraced and is now benefiting from the deregulation of Peruvian mining and the liberalization of trade and investment. These norms and ideas were instituted by the advocates of the Washington Consensus in the first place.

In what ways and to what extent, then, has China’s quest for resources shaped the Sino- Peruvian tie during the period 2000-2015? What factors have affected Peru’s capacities to use its copper resources as a means to attain higher levels of political and economic autonomy in the international system? In order to address these questions, this chapter scrutinizes the Sino- Peruvian partnership through the prism of extractive power in its four different forms. Section 5.1 takes stock of Chinese-Peruvian commercial relations and identifies a deepening pattern of asymmetry deriving from Peru’s rapidly growing dependence on Chinese imports and investments in mining. Section 5.2 highlights the process by which Peruvian authorities have used the means of institutional power to establish a diplomatic relationship with China, in spite of a longstanding relationship of political and ideological proximity to the US. While Peru has used the multilateral trade regime of the WTO to engage in FTA negotiations with China, bilateral diplomacy continues to be a central instrument of institutional power for Beijing to obtain mining concessions on behalf of the Peruvian state. Complementing this argument, Section 5.3 uses the concept of productive power to enlighten the reader about the ways in which Peruvian leaders portray Chinese investment in mining as an indispensable opportunity to maximize economic growth based on a strategic partnership driven by “commercial pragmatism.” Finally, Section 5.4 analyses the extent to which Chinese actors have used coercive technologies as a strategy to secure control of copper resources in Peru. In doing so, the section delivers a picture of the extent to which China’s resource policies are directly shaping Peru’s position in the international system. 103

5.1 The structural power of asymmetric complementarity

The concept of structural power allows for an analysis of how commercial relations are constitutive of the social capacities, positions and conditions of importing and exporting states (Barnett, Duvall 2005a). Hence, the unit of analysis of the structural relations of power between China and Peru lies in the emerging patterns of transnational exchange via trade and investment that determine each nation’s relational position in the social and hierarchical structure of the global economy. Following this rationale, Chapter 3 has demonstrated that China’s rise into the twenty-first century is best interpreted as a structural shift that places Beijing at the core of global growth and resource consumption, while a number of Latin American countries have become prominent providers of oil, minerals and agricultural commodities to an increasingly powerful China. In the case of minerals in particular, China has reached an impressively strong position of influence on the demand-side, accumulating 49 percent of the global consumption of copper (USGS 2016), which is the main component of Peru’s mineral exports.

For China, gaining access to new sources of copper is crucial. Copper is a non-renewable resource with increasing relevance not only for the production of conventional electronic merchandise but also for the development of renewable energy infrastructure, electric cars, and urban-rural electrical grids. Since all of these aspects are central to the realization of the “Chinese Dream,” the question of interest in this section thus focuses on how China’s structural leverage on the demand side of the market has shaped the conditions of existence of Peru as a prominent producer of copper in the Latin American context.

5.1.1 Trade asymmetries and mining rents

China and Peru share a longstanding record of commercial interaction but the terms and conditions of their relationship have changed considerably ever since the first Chinese migrants reached the coast of Peru between 1849 and 1874. At that time, the Chinese economy was undergoing significant challenges, and large segments of the population saw themselves constrained to live under conditions of poverty. On the other side of the Pacific, by contrast, large-scale Peruvian companies in the sugar and cotton industries could not keep pace with rising levels of demand driven by Great Britain’s industrial revolution. Because of increasing deficits in agricultural work force, the Peruvian and Chinese governments came to a bilateral agreement to promote the immigration of Chinese peasants to work on Peru’s coastal fields. As a result, the Peruvian government passed a special immigration law, which established a 104

financial stimulus paid to large-scale Peruvian landowners (latifundistas) for each Chinese worker they hired (Rodríguez Pastor 2012, p. 66). Accordingly, an estimated 100.000 Chinese workers left the Portuguese controlled port of Macao to reach the coast of Peru during the second half of the nineteenth century. Peruvian business elites viewed Chinese immigration as a “necessary evil” to meet the demands of the market (Carrasco Atachao 2012, p. 213). Once in Peru, Chinese workers were constrained to work under conditions of hardship and systematic exploitation (Carrasco Atachao 2012, pp. 228–229).52 Upon political pressure from China, Peru agreed to strengthen the social and economic rights of Chinese workers under the Treaty of Friendship, Trade and Navigation, which was ratified on behalf of the two States in 1875 (García-Corrochano Moyano, Tang Unzueta 2011, pp. 60–61). Today, Peru hosts the largest community of Chinese migrants in Latin America and Chinese culture is widely acknowledged as an important factor stretching across large segments of the Peruvian society (ibid.).

Today, the structural positions of these two economies are radically different. The period under study (2000-2015) portrays an increasingly dominant China in the process of gaining significant levels of control over the Peruvian economy. Peru is a democratic country located on the Pacific coast of South America. The country is host to 30 million people, a third of which is concentrated in the urban spheres of Peru’s capital Lima. Peru’s territory encompasses large segments of the Andean copper belt. The latter is source of vast mineral resources, which Peru’s authorities and business elites emphasize as key assets in Peru’s strategic insertion into the global economy. Since the end of the Cold War, Peru’s economy, like most in Latin America, has been largely dependent on the US. However, 2000-2015 trade data reveal a gradual shift away from the US towards China. Today, the latter represents Peru’s most important export destination. In the year 2000, for instance, the US was Peru’s most important export market with 28 percent of total exports, measured in terms of total value. The UK followed on the second place with 8.4 percent, while Switzerland took the third place with 8 percent. In 2000, China represented Peru’s fourth most important export market accounting for 6.5 percent of Peruvian exports, while Japan was fifth with a share of 5 percent (WITS World Bank 2015).

China has been an important market for Peruvian exports since the beginning of the twenty-first century. However, its structural position of dominance on the demand side of raw

52 Chinese workers usually signed eight-year contracts with a Peruvian large-scale landowner who paid them in cash and forced them to live in the farm under subhuman conditions. Chinese workers often adopted the surname of their respective Peruvian contractor and were highly dependent on their willingness to pay for medical attention and other social services (Carrasco Atachao 2012, pp. 228–229). 105

material markets has boosted its level of influence on the Peruvian economy in quite significant ways. Indeed, China-Peru trade has expanded consistently with China surpassing the US in 2011. By 2015, it had become Peru’s largest export market with a share of 22 percent, followed by the US with 15 percent, Switzerland with 8 percent, Canada with 7 percent and Japan with 3 percent (WITS World Bank, 2015). The gradual shift is, in part, an effect of declining US imports from Peru in the aftermath of the 2008/2009 financial crisis. By contrast, Peruvian exports to China continued to expand due to the CCP’s countercyclical measures to stimulate growth via infrastructural development at home (Trading Nation Consulting, 2015, p. 13). These projects spurred China’s demand for copper while the China-Peru FTA, which was signed in 2009 (Subsection 5.2.3), played a pivotal role in the expansion of bilateral trade.

Importantly, China’s growing demand for mineral resources was matched by the interests of Peruvian leaders and business elites, who supported the untamed expansion of mining as a source of state revenues and profit. Indeed, unusually high commodity prices and comparatively low costs of production by international standards gave way to the steady rise of mineral rents since the year 2000. In fact, China’s rising demand for copper and other metal and non-metal minerals caused the mining sector to become the main structuring axis of the Peruvian economy. The growing importance of mineral rents as a percentage of GDP supports this observation as illustrated by Figure 9. Indeed, mineral rents rose impressively from 0.4 percent in the year 2000 to 11.7 percent of GDP in the year 2007. Even during the global financial crisis, mineral rents accounted for an important share of Peru’s GDP with 9.2 percent in 2008 and 7.0 percent in 2009. The dynamism of Chinese demand further contributed to an increase in world commodity prices, which caused mineral rents in Peru to account for 9.5 percent of GDP in 2010 and 11 percent in 2011. This strong recovery was however short-lived. Given a substantial decrease in commodity prices because of China’s slower pace of economic growth and an associated decrease in demand for raw materials, the mineral rents decreased substantially between 2011 and 2015 (World Bank 2017).

In Peru, the direct beneficiaries of mineral rents are mainly government officials and national business elites with transnational contacts in the mining industry. Contrary to state-led models of extractivism, the Peruvian state does not participate directly in the process of exploration and/or extraction of minerals and does not own the means of production. Investments in equipment, digging, processing, and transport of minerals lie mostly in the hands of foreign companies, while the state captures mineral rents through fiscal mechanisms

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including income tax, royalties, and other special fees enforced upon investors according to specific legislation (Häntsche 2014, p. 44). In this way, the Peruvian state apparatus—and Peru’s governing elites by extension—can rely on a stable source of revenue which is largely independent of the political pressure of citizens. By contrast, Peruvian business elites are able to establish long-term relationships of profit accumulation in alliance with transnational companies. They not only benefit from investment in mining but also from profits generated in associated economic branches, for example, infrastructure development and construction.

Figure 9 Mineral rents in Peru [Percent of GDP]

14%

11,7% 12% 11,0% 10,7%

9,5% 10% 9,2% 9,0%

8% 7,3% 7,0% 6,2% 6% 5,4%

3,9% 4% 2,3% 2% 0,4% 0,1% 0,1% 0,4% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: World Bank, author’s illustration.

In general, the value of Peruvian exports to China reached a steady pattern of expansion without major interruptions between 2001 and 2012. In fact, this was a period of high commodity prices in the context of the China-driven “super cycle.” Hence, although Peruvian exports to China have expanded significantly, they have remained limited to a few raw materials, including minerals, metals, and fishmeal (Sanborn, Chonn 2015, p. 7). According to the Atlas of Economic Complexity (The Atlas of Economic Complexity 2017), Peru’s exports of non-metal minerals to China (mainly iron ore and lead) increased fiftyfold from US$99.5 million in 2000 to US$3.1 billion in 2009 and to US$5.0 billion in 2012. The export of metal minerals (mainly copper) also rose from US$55.2 million in 2008 to US$1.1 billion in 2012.

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Trade data for 2015 exhibits a hardening pattern of structural dependence, which places China at the core and Peru at the periphery of global resource consumption. According to the World Bank’s WITS Database, China imported 36.5 percent of all Peruvian raw materials in 2015. This is quite an impressive figure given its threefold value when compared to the US share of 11.7 percent in the same year. Additionally, Peru’s imports from China consist mainly of manufactured products as well as services with much more added value than that of Peruvian exports to China. As a result, the value of Peruvian imports from China for the period 2001- 2015 has increased by a factor of twenty-five, while the value of Peruvian exports to China increased by a factor of seventeen as illustrated by Figure 10.

Figure 10 Peru’s trade balance with China, 2001-2015 [US$ thousand]

18000000,00

16000000,00

14000000,00

12000000,00

10000000,00

8000000,00

6000000,00

4000000,00

2000000,00

0,00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Export (US$ Thousand) Import (US$ Thousand)

Source: World Integrated Trade Solution WITS, author’s illustration.

The evolution of trade relations between China and Peru has been dynamic but increasingly asymmetric. While Peruvian exports to China constituted 0.4 percent of the latter’s total imports in 2015, Chinese exports to Peru constituted 22.8 percent of the latter’s total imports. In terms of structural power, this means that the amount of China’s exports to Peru are fifty-seven times larger than Peru’s exports to China. Such asymmetry is to some extent unsurprising, given the sheer difference of scale between China and Peru. What is most important from the perspective of structural power, however, relates to China’s new position of 108

increasing economic dominance in relation to Peru. China’s potential capacities to exert economic pressure on Peru have evolved quite significantly, while Peru has become increasingly reliant on Chinese demand to sustain its own economy. Table 3 summarizes the extent to which the structural gap between China and Peru has widened to the overwhelming advantage of China over the last twelve years.

Table 3 China-Peru trade balance, 2004-2015

China imports Peru´s share Peru imports China's share Peru exports China exports from the of Chinese from the of Peruvian year to China to Peru world imports world imports [US$ millions] [US$ millions] [US$ millions] [percent] [US$ millions] [percent]

2004 534,410 1,245 0.2 9,349 702 7,5 2005 628,295 1,871 0.3 11,563 958 8,3 2006 751,936 2,261 0.3 14,224 1,446 10,2 2007 904,618 3,040 0.3 18,981 2,252 11,9 2008 1,113,100 3,567 0.3 27,736 3,717 13,4 2009 1,396,195 5,426 0.4 20,265 3,019 14,9 2010 1,396,195 5,436 0.4 29,972 5,140 17,1 2011 1,742,851 6,956 0.4 37,904 6,365 16,8 2012 1,817,780 7,841 0.4 42,169 7,814 18,5 2013 1,950,377 7,354 0.4 43,327 8,413 19,4 2014 1,960,290 7,043 0.4 42,184 8,918 21,1 2015 1,681,951 7,333 0.4 38,066 8,661 22,8

Sources: SUNAT, IMF, based on Mincetur 2009, 2012, 2012, 2016; author’s illustration.

China’s rise has thus contributed to the reproduction, stabilization, and solidification of Peru’s subaltern conditions of insertion into the global economy. In fact, the overall structure of the Peruvian economy has remained largely dependent on the export of minerals while no substantial evidence of a change in this trend can be identified. In fact, the export of metal and non-metal minerals amounted to 64.7 percent of the total value of Peruvian exports, which was US$34.4 billion in 2015 (The Observatory of Economic Complexity 2017). Therefore, the new element in Peru’s traditional territorial functionality as an exporter of raw materials does not necessarily imply higher levels of autonomy from the US but rather a new pattern of dependence from China’s economic development and attached resource needs.

The case of copper is, in fact, illustrative of the most recent dynamics of a developing pattern of structural asymmetries derived from territorial complementarities in China-Peru 109

relations. Despite China’s position as the second largest producer of copper until 2015, it still maintains an ambitious import strategy.53 In fact, China’s total copper imports have grown significantly from 2.7 million tons in 2003 to 7.8 million tons in 2012 (USGS cf. Humphries, 2015, p. 8). Given the fact that Peru holds the second largest reserves of copper in the world, copper has become the new structuring axis of the Sino-Peruvian relationship.

Figure 11 Copper extraction in Peru, 1950-2016 [Mt]

2.500.000

2.000.000

1.500.000

1.000.000

500.000

0

1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: MIMEM Peru, author’s compilation and illustration.54

Peruvian copper exports to China increased from US$10.4 million in 2000 to US$155.0 million in 2005. In 2007, exports dropped sharply to 40.2 million due to ongoing FTA negotiations but skyrocketed to $US 658.8 million once an agreement was signed in 2010. Additionally, the value of exports to China increased more than fourfold between 2000 and 2010 and continued to grow to a record mark of $US 1.1 billion in 2013. However, the total value has dropped considerably because of a sharp and continued decline in copper prices between 2011 and 2013. Declining prices in the context of China’s “new normal” have forced the Peruvian State to increase the volume of copper extraction to maintain urgently needed

53 It is second to Chile, and in 2015 was ahead of Peru. Peruvian 2016 copper production surpassed China’s, owing to growing Chinese investments in two major copper mines. The first is called Toromocho. This mega-mining project is operated by the Aluminum Corporation of China (Chinalco) and was installed with the target to increase Peru’s copper production by 20 percent. The second is called Las Bambas, which is another mega-mining project under the control of China Minmetals which has continued to boost Peru’s copper production since 2014 (Sanborn, Chonn 2015, p. 7). 54 Data available online at: http://www.minem.gob.pe/_estadisticaSector.php?idSector=1&idCategoria=10, accessed 15 March 2017. 110

levels of public revenue stemming from taxes, royalties and fees on mining activity. Consequently, Peru extracted 1.2 million tons of copper in 2011, 1.4 million tons in 2013, and 1.7 million tons in 2015.55 These changing market conditions no longer work to the advantage of the resource exporters. Instead, under these new circumstances, China has come to gain even more structural bargaining power vis-à-vis Peruvian stakeholders. For instance, Figure 12 shows that China has become the largest importer of Peruvian copper, by holding a 55 percent share of total Peruvian exports of copper in 2015.

Figure 12 Total Peruvian copper exports by destination, 2015

Spain India Other 3% 3% 13% Italy China 4% South Korea 55% 4% Brazil 5% Germany 5%

Japan 8%

Source: BCRP, MIMEM, author’s illustration.

5.1.2 Investment: deepening asymmetries

The presence of Chinese mining companies in Peru is not a recent phenomenon. Shougang Iron and Steel Corporation was China’s first state-owned company to invest in Peruvian mining in 1992 and take advantage of Peru’s early policies of trade and investment liberalization (Gonzalez-Vicente 2012a, p. 51). Shougang acquired a mining concession from the Peruvian government to extract iron and ore in a large mine located in the district of Marcona (Sanborn, Chonn 2015, p. 6). Previously controlled by the Peruvian state, the Marcona mine was an economically attractive opportunity for Shougang to boost its core business through direct control of extractive sights overseas. Reserves in Marcona exhibited a high level of iron-ore content (55 percent compared to 30-35 percent in China), and shipment costs to China were

55 Data analysis for the period under study (2000-2015) suggests the beginnings of a long-term expansion of copper extraction. In fact, extraction reached a record of 2.4 million tons in 2016. This figure is equivalent to twice the level of copper extraction in the 2010, four times the level of copper extraction in 2000, and more than 70 times the levels of 1950 (Gonzalez-Vicente 2012a, p. 37). 111

comparatively low by international standards (Gonzalez-Vicente 2012a, p. 51). Yet, Shougang’s monetary gains did not pay off in terms of China’s reputation in Peruvian mining. Instead, a detrimental record of social and environmental misconduct hampered the development of Chinese investment in mining for more than a decade. Disregarding national regulations, Shougang’s management replaced Peruvian workers with Chinese, engaged in loan-dumping tactics, and failed to refurbish time-worn equipment leading to severe ecological damage (MISEREOR 2013, p. 22).

The dynamics of Chinese investment in Peru for the period 2000-2015 are, however, difficult to assess. Chinese investment is channeled through tax heavens in the Caribbean, which makes it difficult to trace the real amounts of money flowing into specific sectors of the Peruvian economy. Nevertheless, the consensus in the literature and public debates is that although Chinese investment is still low in comparison to that of Western countries, it is particularly high in Peru’s mining sector (Sanborn, Chonn 2015, p. 10). In 2013, for instance, China occupied the 17th place on the list of foreign investors in Peru, while Spain, the US, and the UK were the three biggest investors. By contrast, China has come to concentrate as much as 20 to 30 percent of total FDI in Peruvian mining since 2010 (ibid.). According to the China Global Investment Tracker (2017), all traceable Chinese investment in Peru over the period 2005-2016 was directed to mining with the exception of one investment in the energy sector. Data from the Peruvian Ministry of Mining for 2017 lists China as the single most important actor in mining with investments expected to reach US$11.1 billion, which is equivalent to 22.5 percent of total investment Peru receives in the mineral industries. Other important players include Canada with 20 percent, the US with 11.2 percent, the UK with 11.1 percent, Mexico with 10.9 percent and Peru with 9.5 percent.56

China’s total outward investment in metal mining focuses basically on three commodities: copper, steel and aluminum. Investment in copper accounted for a total of US$35.6 billion, which represented 29 percent of China’s outbound FDI in metals in the period 2005-2016. During this period, Peru received 37 percent of all Chinese outbound investment in

56 Peruvian Ministry of Energy and Mining (MIMEM). Estimated Project Portfolio (Cartera Estimada de Proyectos). Available online at: http://www.minem.gob.pe/_estadisticaSector.php?idSector=1&txtString=cartera&cmbMes=&cmbAnio=&cmbC at=, accessed 3 September 2017. 112

copper (The China Global Investment Tracker 2017).57 This shows that Peru has clearly reemerged as an important destination for Chinese investment in mining.

The evolution of Chinese FDI in Peru can be divided into four different phases. The first phase took place prior to the global financial crisis in 2007 with investment in the copper industry accounting for US$1.4 billion. The second phase took place between 2008 and 2009 right after the approval of the China-Peru FTA. In 2008, China invested US$2.2 billion in the Toromocho copper mine, and in 2009 two other investments totaling US$1.9 billion were directed towards Peru’s steel industry. The third phase took place in the aftermath of the global financial crisis in 2010. That year, China’s FDI in Peru concentrated in the copper industry, accounting for US$2.5 billion. This set of investments proved particularly important for Peru to recover from the external shock of the financial crisis and converted China into an important economic partner and alternative source of capital in times of crisis. The fourth wave took place as a result of the Chinese-Peruvian comprehensive strategic partnership, which was agreed upon in 2013. That year, China’s investments in Peru accounted for US$2.9 billion and were directed to the energy sector. To sum up, the recent record-high of Chinese investment in Peru has been directed towards the strategic sectors of the Peruvian economy unfolding along the turmoil in the global financial order and the signing of bilateral agreements between 2008 and 2009.

In terms of the copper sector, China has made two major investments which Peruvian leaders have publicly endorsed as being of utmost importance to the national interest. The first investment was bound to the acquisition of the Toromocho mine in the Central Andes. This investment was carried out by Aluminum Corporation of China (Chinalco) and came into effect in 2007. The second investment was conducted by a Chinese-led consortium backed by China Minmetals’ which targeted the mega-mining project Las Bambas in the Apurimac Region. This investment took over a Swiss project and came into effect in 2014. For Peru, China’s decision to invest in the Toromocho mine held crucial value, because this mining project is set to increase Peru’s mining production by 17 percent (El Comercio 2013) and is thus central to Peru’s “dream of surpassing Chile as the world’s leading producer of that metal” (Sanborn & Chonn, 2015, p. 7).

57 In the process, Peru surpassed China as the world’s second most important producer of copper in 2016. The world’s most important producer and China’s most important supplier of copper is Chile. 113

Toromocho is one of the most important mines in Peru. It is located in the central part of the country, 140 km East of Lima at an altitude of 4,700 to 4,900 meters on the Mount Toromocho. This is an open-pit mining project with a good railway connection to the port of Callao, which allows for a convenient access to the Pacific. The project aspires to mine minerals at an average rate of 117,200 t/d during an expected lifespan of 36 years. During this time, the open pit mine expects to produce an average of 1,838 t/d of copper concentrates and 25.7 t/d of molybdenum.58 Copper production is forecast to be particularly strong during the first ten years, producing up to 2,335 t/d of copper concentrate. On its official website, Chinalco announces that Toromocho holds a reserve of MT 1,526 millions of ore “with an average grade of copper of 0.48 [percent], an average grade of molybdenum of 0.019 [percent] and an average grade of silver of 6.88 grams per ton.”

Las Bambas is not only the largest single transaction ever made in Peruvian mining. This mine is set to become the largest Chinese mining operation in Latin America (El Comercio 2014a, 2014b). Proven reserves are massive, allowing for the extraction of an annual average of 880,000 tons of copper ores (approximately 314,000 tons of refined copper)59 during an expected mine-lifetime of 18 years at an ore concentration grade of 35.2 percent. The Swiss company Glencore Xstrata, who gained access to the mining pit through an investment contract with the Peruvian State in 2011, initially developed the project. Three years later, Glencore Xstrata sold all of its stakes to a Chinese-led consortium at a price of US$5.9 billion. The investment group was constituted by Minerals and Metals Group (MMG), a subsidiary enterprise of China Minmetals with a share of 62.5 percent of total investment, Guoxin International Investment Corporation with a share of 22.5 percent, and Citic Metal Corporation with a share of 15 percent (El Comercio 2014b). Given its strong mining potential and privileged geographic location, MMG investors consider Peru as a strategic platform to expand mining operations across South America (see Sanborn & Chonn, 2015, p. 7).

Investment has been an increasingly important instrument of structural advantage for China to gain direct control of Peruvian minerals. Meanwhile, Peru has been very receptive to Chinese investment to fuel its own growth and global mineral export aspiration. As a result,

58 Contracts available online at: http://www.minem.gob.pe/_detalle.php?idSector=1&idTitular=188&idMenu=sub154&idCateg=188, accessed 28 March 2017. 59 EJ Atlas, accessed 28 March 2017. 114

China’s huge capacity to mobilize financial resources and leverage its dominant position on the demand side of the mineral markets has reinforced Peru’s territorial functionality as a source of untamed resource extraction to feed China’s industries.

5.1.3 Finance: Avoiding debt, risking fiscal dependence

Unlike other resource exporting countries in Latin America, Peru stands out for not acquiring financial burdens from China.60 Between 2005 and 2015, for instance, China Development Bank and China Export-Import Bank were responsible for more than US$125 billion worth of loans provided to countries and state-owned companies in Latin America and the Caribbean. The largest recipient was Venezuela with seventeen loans accounting for a total of US$65 billion, followed by Brazil, Argentina, and Ecuador with eight loans worth US$21.8 billion, US$15.3 billion, and US$15.2 billion respectively (Gallagher & Myers, 2014). In 2009, the China Development Bank allocated a loan worth US$50 million to Peru’s Development Bank (COFIDE). This loan was part of a bilateral agreement signed between both institutions in the context of the Asia-Pacific Economic Cooperation (APEC) Leader’s Meeting in 2008, which took place in Lima. These figures illustrate Peru’s conscious choice to avoid taking official loans from China and ground commercial interaction on trade and investment instead. Interviews conducted with state officials of the Peruvian Ministry of Commerce and Tourism (Mincetur) and representatives of the Ministry of Foreign Affairs,61 confirmed the fact that Peru has taken a deliberate position not to engage in a creditor/debtor relationship with Chinese banks while maintaining Peru’s “good and stable” relationship with the World Bank and IMF.

Peru’s financial dependence on China is not directly reflected in its external debt. China’s influence on Peru’s fiscal system is rather indirect due to its effect on world commodity prices, its large share of Peruvian mining exports (more than a half) and foreign investment in Peru (more than one third). In 2012, for instance, former Minister of Economics and Finance, summarized the increasing importance of extractive rents in a statement that attributes 12 percent of the central government’s current revenue to mining activity. He noted that more than 75 percent of these revenues come from income tax paid by mining

60 A similar case is Chile. 61 Interview with Peruvian government official, Ministry of Commerce and Tourism (Mincetur). Lima, 28 February 2017; interview with Peruvian government official, Ministry of Foreign Affairs, China Division. Lima, 8 March 2017.

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enterprises (El Comercio, 2012). Public revenue from mining, i.e. mineral rents (Subsection 5.1.1), consist of taxes (canon minero), royalties (regalías), and mining fees on extraction rights (derecho de vigencia). Besides income tax paid by mining companies, the state also receives income tax paid by employees of mining companies (Häntsche 2014, p. 28). Large-scale mining is an important source of income for the state to fulfill its duties. In 2012, income tax from mining corresponded to 120 percent of the state’s budget for education and to 8 percent of its total budget. Mining rents were furthermore central to increases in public investment, which accounted for an average of 2.9 percent of GDP for the period 2000-2005 and for an average of 4.4 percent of GDP in the period 2006-2011. Peru’s mining rents are however tightly linked to price volatility. Due to this fact, the pressure on the state to maintain revenues from mining increased substantially after 2012, as commodity prices started to drop as a consequence of China’s declining demand. Due to its structural impacts on the global commodity markets, the ups and downs of China’s economic performance are an important determinant of the fiscal space available to the Peruvian state.

5.2 The institutional power of adaptability

Peru provides an insightful case of how resource diplomacy has advanced China’s interests to gain access to mineral resources in semi-peripheral countries of the Global South.62 Instead of being a target of China’s resource policies, Peru makes a case for the strategic use of club- membership in the Asia-Pacific Economic Cooperation forum (APEC) as a strategic platform from which to engage Beijing in bilateral relations of trade and investment. 63 Interestingly, the Sino-Peruvian relationship evolves within and not against the norms and values of the Washington Consensus, which have come to constitute Peru’s normative pathway towards development (growth-oriented liberalization and deregulation), and global insertion (free trade within WTO rules) since the 1990s. In this case, institutional power must be studied at the interplay between bilateral interactions in multilateral fora and a deepening bilateral relationship enabled by the previously established norms and values of US hegemony in Peru.

62 Peru is considered a semi-peripheral country because of its ongoing negotiations to enter the Organization of Economic Cooperation and Development (OECD). 63 It is worth noting that Peru was not an initial priority in China’s Latin America policy, as evidenced by China’s other relations in the region during the early 2000s. 116

5.2.1 Peru and the Washington Consensus

Peru stands out as a Latin American country that has fully embraced the neoliberal norms and values of the Washington Consensus alongside a rock-solid commitment to the international political and economic order established by the US since the 1990s (Berríos 2010; Kingstone 2011; Ruiz Torres 2005; Strauss 2012; Weyland 1996). Peru’s adoption of neoliberalism was a response to the failure of protectionist policies during the 1960s, 1970s, and 1980s. Intermittent attempts to open up the economy and deregulate the domestic market also proved unsuccessful. The social-nationalist military regime of President Juan Velasco (1968-1975) introduced unsuccessful policies of import substitution industrialization (ISI). By contrast, the conservative military regime of Francisco Morales Bermudez (1975-1980) as well as the first democratic government of Peru, headed by the right-wing President Fernando Belaunde (1980-1985), failed to liberalize the economy due to widespread resistance from citizens, who opposed the potential dismantling of worker’s rights and social protection systems.

Taking a critical distance from neoliberal advocates in Washington, President Alan García (1985-1990) from the center-left party Alianza Popular Revolucionaria Americana (APRA)64 came to power based on a promise to restore state interventionism. García followed a neo-structuralist program that equipped the state with the authority to regulate prices, control wages, promote state-owned enterprises in agriculture and manufactures, expand public investment and fiscal capacities, increase tariffs on imports, and regulate the exchange rate through public action. In terms of foreign and macro-economic policy, García made a unilateral decision to stop servicing Peru’s debt to the IMF (Lewis 1990). The goal was to use that money to stimulate the national economy and progressively attain a higher degree of economic self- sufficiency for Peru (Wise 1997, cf. Silva 2009, p. 237). The results were quite the opposite. Garcia’s political program led to the collapse of internal demand because of the low purchasing possibilities of an impoverished population. Consequently, the state apparatus became incapable of providing public goods because of declining tax revenues and weak institutions. Protectionist measures induced a dramatic decline in export-based revenues, which increased Peru’s external debt. The inflation rate escalated from 90 percent in 1983 to 7,650 percent in 1990 (ibid.), which finally led the IMF to declare state insolvent (Ruiz Torres 2005, p. 202). As a result, it fell into a deep economic and political crisis.

64 English translation: American Popular Revolutionary Alliance. 117

It was in this difficult context that a barely known politician of Japanese descent, Alberto Fujimori (1990-2000) came to power. Fujimori lacked a strong party basis but enjoyed political support from conservative business elites and pro-market members of the military with strong ties to the US. He viewed the crisis as a political opportunity to cement domestic power with Washington’s political, financial, and ideological backing. At the same time, Washington’s financial institutions saw Fujimori’s government as the perfect platform to enforce neoliberalism as a remedy to the structural diseases of a broken economy. With Fujimori in power, the IMF, the World Bank, and the IADB restored financial support to Peru, while the national government paved the way for a comprehensive and authoritarian process of structural adjustment programs in line with the Washington Consensus (Ruiz Torres 2005, p. 203). Using special powers transferred from the National Congress to the President in 1991, Fujimori enacted a set of 126 presidential decrees to implement structural adjustment programs. These reforms included “foreign exchange rate unification and liberalization, deeper trade liberalization, removal of export taxes, capital market liberalization, […] flexibilization of labor, [t]ax and banking reform, an aggressive privatization program, and the dismantling of agrarian reform” (Silva 2009, p. 238).

The radical liberalization of the economy was not implemented easily. Peru’s radical turn to neoliberalism intensified internal grievances of two anti-capitalist and anti-imperialist terrorist insurgencies: Movimiento Revolucionario Tupac Amaru (MRTA)65 and Sendero Luminoso (Shining Path). Based on the ideological promotion of a violent kind of Maoist- socialism, these two terrorist groups had emerged in previous years as radical opponents of market-opening reforms. Shining Path was very popular among different segments of Peru’s marginalized population, leading Fujimori to treat them as a fundamental threat to his stabilization program. Alluding to the national interest to combat terrorism, Fujimori proclaimed the need to concentrate even more power in the presidency. As a result, Fujimori orchestrated a military-backed coup in 1992, in which he dissolved the National Congress and replaced judiciary posts with close allies.

Fujimori’s rule became more punitive and authoritarian, as he used his expanded presidential powers and close links to the military to politically eradicate Shining Path and MRTA. He also took advantage of the domestic chaos to combat all kinds of leftist civilian

65 English translation: Revolutionary Movement Tupac Amaru. 118

movements opposing neoliberal reform. 66 By 1993, half the population lived in areas governed by Fujimori’s hard hand—a state-of-emergency-decrees, with security forces enjoying a free hand to repress terrorism and all kinds of oppositional forces not in line with Fujimorism. This term represented an all-powerful authoritarian ruling ideology that relied on repression to enforce the norms and values of the Washington Consensus upon Peruvian society. According to Roberts and Penecy (1997, c.f. ibid., p. 244), until 1995, violent disputes between state security forces, paramilitaries, and insurgents had led to the killing of more than 27,000 Peruvians.67

In exchange for ideological compliance, Washington’s IFIs supported Fujimori’s personalistic and plebiscitarian policies of poverty reduction among unorganized and underrepresented voters in the urban and rural peripheries. Weyland provides a succinct summary of this relationship:

“Given the limited aggregate cost, these [anti-poverty] programmes were acceptable to neoliberals, who saw them as a useful means of enhancing the political sustainability of the new development model. International financial agencies, who pushed hard for neoliberal reforms, therefore footed a good part of the bill for these social emergency programmes. Thus, market reform proved surprisingly useful for boosting the mass support of its successful initiators, allowing them to strengthen their populist leadership.” (Weyland 2003, p. 1100)

Washington’s financial and ideological support of Fujimori has had a major impact on Peruvian institutions since the enactment of structural adjustment reforms in the 1990s. Today, the World Bank and IMF praise Peru’s status as an overachiever in terms of implementing neoliberal reform. According to a recent World Bank report called “Peru. Building on Success: Boosting Productivity for Faster Growth” (The World Bank 2015), the Peruvian economy grew at an average rate of 3 percent between 1990 and 2013, while the world’s average growth rate

66 In fact, the year before President Fujimori came into power, terroristic cell-networks of Sendero Luminoso conducted bombings against the Chinese and Russian Embassies in Lima. They claimed that the two states had betrayed socialist ideology, because they had turned into “revisionist socialists” and “socialist Empires,” while the US, whose marine headquarters were also attacked on the same night, represented the highest symbol of “imperial capitalism” and a threat to Peruvian society (Murillo, 1989). 67 According to the Peruvian Truth and Reconciliation Commission, the internal armed conflict, which is not yet fully resolved, took the lives of 69,000 people between 1980 and 2000. 119

accounted for 1.3 percent and that of Latin America for 1.7 percent. The report furthermore emphasizes the inclusiveness of the Peruvian growth-model, which has managed to lift 25 percent of the population out of poverty between 2000 and 2013. The IMF, on its behalf, continues to emphasize trade and investment liberalization as a key to Peruvian success, as illustrated by Christine Lagarde (2016), Managing Director of the IMF, at a public speech at the Universidad del Pacífico on 18 November, 2016 in Lima:

“Average income in Peru has nearly tripled to $6,000 over the past two decades—because of good macroeconomic policies and booming commodity trade, combined with a better investment climate and stronger social protection programs. In other words, economic openness does not guarantee success—but without it, Peru would not be where it is today.”

Peru’s total embrace of neoliberal norms and values is no coincidence. Rather, its normative character was decisively (and violently) shaped by the country’s history of authoritarian rule under Fujimori and by Washington’s institutional power. This same power was also used to suppress democratic opponents of the neoliberal agenda as a fight against terrorism, simultaneously affording no significant opposition to the Washington Consensus. Moreover, Peru’s venerating stance on US hegemony is closely linked to the country’s sound macro-economic performance under the neoliberal model. Hence, an analysis of the ways in which the Sino-Peruvian partnership has evolved requires careful consideration of this Washington embrace and its enduring impact on the Peruvian State. This analysis is provided in the next subsection.

5.2.2 China and Peru: high-level diplomacy in the Pacific

Sino-Peruvian diplomatic relations began in 1971 with Peru’s early recognition of the People’s Republic of China as the legitimate government of the Chinese people. After Cuba in 1960 and Chile in 1970, Peru was the third Latin American country to break relations with Taiwan and establish diplomatic ties with the People’s Republic of China. At the time, all three states had leftist governments. In fact, Peru’s nationalist government under President Velasco Alvarado (1968-1975) had the goal of promoting diplomatic relations with socialist countries (Berríos, 2010, p. 136). Consequently, Peru and China established diplomatic relations even before the US President Nixon visited Chairman Mao in 1972. Today, China and Peru enjoy an almost

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five-decade span of diplomatic relations accompanied by a longstanding history of commercial interaction and migration.

Despite this span of years, Peru was not an immediate priority in China’s Latin America policy during the early 2000s. In 2001, for instance, President Jian Zemin visited six states including Brazil, Argentina, Chile, Venezuela, Uruguay, and Cuba. In 2004, President Hu Jintao paid state visits to Brazil, Argentina, Chile, and Cuba but Peru was again not included in this list. Certainly, Peru had a strong disadvantage of scale when compared to Brazil, Argentina, Chile, and Venezuela. Brazil and Argentina are South America’s largest countries in terms of natural resources, market size and political weight. Chile is by far the largest producer of copper in the world, and Venezuela has the largest oil reserves. Uruguay, which President Jian Zemin visited in 2001, is a strategic tool for Beijing to exert indirect pressure on Paraguay. This is because Paraguay is yet to subscribe to the One-China policy. Cuba, which also received China’s attention in 2001 (as well as in 2004) is one of China’s longstanding socialist friends. Hence, it is reasonable to infer that Peru lacked the size, strategic relevance, and ideological proximity for China to proactively engage in high-level resource diplomacy.

Reasons for this abound. One is that these two nations had maintained an unusually close commercial interaction, allowing China to access Peruvian minerals without additional need for resource-diplomacy. Peru’s highly liberalized trade regime meant China could buy Peruvian minerals on the international market. While China’s dominant position on the demand side of Peruvian exports left the state and its foreign exporters no choice but to engage with the Chinese market. Furthermore, Chinese mining companies did not face major constraints to allocate investments in Peruvian mining and gain direct control of mineral resources either. In fact, Shougang Iron and Steel Corporation acquired an important state-owned iron mine in the Peruvian district of Marcona in 1992 (Sanborn, Chonn 2015, p. 6). Peru was also the first Latin American country to receive Chinese investment in the oil industry in 1993. Furthermore, China and Peru reached an unusually early “Agreement Concerning the Encouragement and Reciprocal Protection of Investments” in 1994. The early establishment of commercial relations between China and Peru was, in fact, due to President Fujimori’s efforts to connect Peru with the Asia-Pacific market-place, described by Berríos (2010) in the following terms:

“Although Fujimori had a particular interest in having closer relations with Japan, he perceived China as the upcoming star of the Asia Pacific region. His Japanese roots did not affect the Sino-Peruvian relations. Fujimori was 121

impressed by China's economic success and wanted to explore the opportunities offered by such a large expanding market.” (Berríos 2010, p. 137)

In fact, Fujimori became the first Peruvian President to visit China in April 1991, paying a non-official visit to Guangdong Province on the same year. Fujimori’s last visit to China took place on behalf of Beijing’s official invitation in September 1995. Hence, Fujimori’s ethnic ties with the Asia-Pacific had an important impact on the early institutionalization of Peru’s high- level diplomacy towards China. Additionally, Peru’s early diplomatic endeavor in Asia resulted in Peru’s admission to APEC in 1998, while “others such as Colombia and Ecuador” were unsuccessful (Ellis 2011, p. 13). Consequently, Sino-Peruvian relations have ever since developed a strong focus on the promotion of trade and investment, while avoiding any sign of political contestation of US values.

Elements of institutional power are evident in Peru’s strategic commitment to the US not only at the domestic but also at the global and regional levels. It is important to note that these elements remain, even as Sino-Peruvian relations grow. For example, the September 2003 Cancun WTO demonstrates this commitment to US interests at the global level. Peru had to choose between two competing positions. The first was to join China and Brazil in the G20 to strengthen the position of developing countries in their efforts to force the US and other developed countries to dismantle subsidies in the agricultural sector. The second was to join the US in its position to maintain these measures. Peru decided to support Washington, because of its top economic and political priority in the Peruvian agenda.68

At the regional level, Peru’s political and ideological alignment with the US is best expressed through its membership in the Pacific Alliance. Founded in 2011, the Pacific Alliance is a regional grouping of Latin American states with a strong commitment to free trade, foreign investment, and open market policies to facilitate the agile economic integration of Mexico, Colombia, Peru, and Chile into the Asian-Pacific marketplace. Together, these four countries constitute a 225 million people market with a per capita GDP of US$16,759 in purchasing power parity terms. They also represent 39 percent of Latin America’s GDP, agglomerate 45 percent of total trade and attracting 45 percent of total FDI to the region (Alianza del Pacífico,

68 Interview with Peruvian government official, Ministry of Commerce and Tourism (Mincetur). Lima, 6 March 2017. 122

n.d.). Strategically, the Pacific Alliance represents a US-backed regional grouping with the objective to balance Brazil’s reformist stance on the US policies at the global and regional level.

China’s rise to a world economic power has confronted Peru with a number of challenges, especially considering its history of commitment to the political and economic international order established by the US in the second half of the twenty-first century. Domestic business elites in the mining and agro-industrial sectors view Chinese exports to Peru as a long- term opportunity to increase profit while manufacturing companies in the textile and leather sectors continue to denounce free trade with China as a threat. Hence, the question for Peruvian authorities has been how to maintain good relations with the US and protect sensitive sectors of its manufacturing industry while trying to maximize exporting opportunities and selling its status as an attractive economy in the Asia-Pacific through cooperation with China. To tackle these issues, Peruvian authorities have actively promoted US values as the basis for trade and investment negotiations with China.69 The next subsection explores this issue in more detail and directs the focus of the analysis to the case of copper.

5.2.3 Unlocking copper: The China-Peru FTA

Peru’s long-term commitment to the neoliberal order of international trade has provided Peruvian and Chinese stakeholders with a viable framework to embed their growing bilateral nexus without harming their respective relations with Washington. Having inherited strong negotiating capacities through its US FTA-negotiations, Peru employed forms of institutional power to intensify its China-engagement during the mid-2000s.70 In this context, President Alejandro Toledo began introducing Peru’s wish to initiate FTA negotiations with China in 2004. Yet, it was not easy for Peru to attract China’s interest. In 2004, for example, while US- Peru FTA negotiations were still ongoing, China put important diplomatic pressure on Peru to grant their country Market Economy Status (MES) in accordance to WTO rules. Beijing understood this measure as a basic precondition for its government to engage in bilateral talks with any resource-exporter embracing the US-led neoliberal order of international trade. However, the FTA-negotiations between China and Peru did not start immediately. Given

69 In fact, China’s first official visit to Peru took place during Alan García’s second term where President Hu Jintao announced the successful conclusion of China-Peru FTA negotiations at the 2008 APEC Economic Leader’s Meeting. This was a great opportunity for both leaders to launch the beginning of new era of Sino-Peruvian relations under the norms and values put forward in the Washington Consensus. 70 Peru and the US concluded FTA negotiations in 2005, and after twelve rounds of negotiations, a comprehensive process of liberalizing reforms, in which the US imposed on Peru, the US-Peru FTA went into effect in 2009. 123

Peru’s comparative disadvantage in terms of its international profile and status, China was still not convinced of the necessity of an FTA. Additionally, Peruvian stakeholders in the manufacturing sector were rightfully doubtful of the benefits of an FTA with China, while Peruvian diplomats had to find a balanced bargaining position vis-à-vis both the US and China.

For Peru, APEC (Asia-Pacific Economic Cooperation) membership was crucial for a recognized international status, as well as to gain credibility as a valuable negotiating partner in the South American Pacific. Peruvian government officials, academics, and other elites campaigned on the strategic value of such membership. They argued that APEC provided the context for Peruvian officials to promote the economic and territorial advantages of a relatively small but growing economy, offering efficient access to the South American market. One of the key steps for Peru to raise its status of credibility vis-à-vis China was to establish FTA negotiations with Singapore. The process began in the aftermath of a bilateral meeting between Singapore’s Prime Minister Lee Hsien Loong and Peruvian President Alejandro Toledo at the 2004 APEC Economic Leaders Meeting in Santiago de Chile.71 According to an interview with Peruvian authorities involved in the design of the China-Peru FTA negotiation process, the start of bilateral talks with Singapore was of crucial significance for Peru to gain credibility in the Asia-Pacific sphere. This process then led Peru to sign FTA agreements with select Asian countries.72

The signing of the China-Peru FTA 73 in 2009 is the single most important event in the rapid evolution of China-Peru relations. The two governments agreed to assess the prospects of an FTA through the elaboration of a Joint Feasibility Study in January 2007,74 and by August 2007, the study was officially available. The recommendation was that both sides begin negotiations “as soon as possible,” arguing for strong evidence of “significant complementarities” and the “benefit [for] the people and economies of both countries”

71 Available online at: http://www.embassyperu.org.sg/pages.php?id=52, accessed 7 May 2017. 72 They include Singapore (2008), China (2009), and more recently, (2011), South Korea (2011), and Japan (2011). It has to be noted that since the 1990s, Peru has signed 18 FTAs encompassing 52 different countries and all major world powers including the EU and Japan. 73 Available online at: http://www.acuerdoscomerciales.gob.pe/index.php?option=com_content&view=category&layout=blog&id=39& Itemid=56, accessed 8 April 2017. 74 Available online at: http://www2.congreso.gob.pe/sicr/cendocbib/con2_uibd.nsf/79BFC7E810B3A76D052576CB00730496/$FILE/ PERU_CHINA_FREE_TRADE_AGREEMENT.pdf, accessed 8 April 2017. 124

(Mincetur n.d., p. 160). One month after the Joint Feasibility study was finished, a Joint Memorandum of Understanding fired the starting shot for negotiations to commence in September 2007. A key feature of the FTA was its comprehensive character. It details regulations on trade, services and investment, where the latter two aspects were included upon Peruvian request. The process entailed six rounds of complex negotiations, which were concluded quite swiftly. The FTA negotiation process came to a successful closing in time for it to be announced at the 2008 APEC Leader’s Meeting in Lima.75 This highly symbolic event provided the setting for both countries to set a historical milestone in terms of advancing their respective strategic objectives via institutional power. Finally, the Peru-China FTA was formally subscribed on the 28th of April 2009, parallel to the signing of China’s much more complex FTA with ASEAN (Strauss, 2012, p. 149).

For China, the FTA with Peru represented an important platform to demonstrate its capabilities and willingness to strengthen trade and investment relations with Latin American countries in which the Washington Consensus has set the rules (since the 1990s). For Peru, the FTA with China meant a crucial step to link its economy to a massively relevant market for its exports, position and differentiate itself as a pro-market economy in the regional context, and diversify its foreign relations with great powers on the basis of commercial pragmatism and higher status in the Pacific. Although Peru did initially not figure on China’s priority list of Latin American countries, the means of institutional power have spurred Peru’s position as a key economic partner to China. Figure 13, in fact, shows that Peruvian exports to China have increased significantly since the FTA negotiations ended in 2008, even surpassing those of Argentina, a nation with more resources and political weight, in 2011 (WTO 2015).

The FTA did have immediate implications in the Peruvian economy, especially its exports. One of these was the almost immediate expansion of copper exports. Prior to the FTA negotiations, China’s tariff on Peruvian copper was relatively low, accounting for 0.14 percent. Despite the seemingly low threshold of this tariff barrier, the 2007 Joint Feasibility Study estimated that banning this tariff would cause Peruvian mining exports to China to grow at an annual rate of 3.6 percent (Mincetur n.d., p. 124). Representing a painless decision for China, this measure was, in fact, enacted immediately after the FTA negotiations with Peru were concluded. Figure 13 illustrates how Peruvian copper exports to China began to increase

75 Interview with Peruvian Lead Negotiator of the FTA with China, 16 March 2017. 125

significantly in after signing the FTA. Notably, the total value of copper exports to China experienced a steep upheaval between 2008 and 2010, which represented a key aspect of Peru’s economic resilience in the context of the global financial crisis. Peruvian exports of copper benefited both from the China-driven increase in commodity prices as well as from China’s direct demand for Peruvian copper. Chinese domestic supply of copper meets less than 30 percent of the country’s demand, with the remainder imported from countries including Chile, Peru, Australia and Mongolia (Greennovation Hub 2014, p. 43).

Figure 13 Peruvian copper exports to China 2000-2014 [US$ millions]

1.200

1.000

800

600

400

200

- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: UN-COMTRADE, author’s illustration.

In general, Peruvian copper exports have grown significantly in terms of value between 2007 and 2013. This trend has developed because of the institutionalization of commercial ties via FTA and rising commodity prices. By contrast, declining commodity prices in the context of China’s “new normal” have led to a decline in the total value of Peruvian copper exports to the former, while Peru has been forced to extract larger amounts of copper as discussed in Subsection 5.1.2. This section’s analysis sheds light on important aspects of how extractive outcomes are produced and gives an account of the different ways in which China’s economic transformation has shaped the Chinese-Latin American tie. From the perspective of institutional power, the production of extractive outcomes (increasing copper exports to China) is not necessarily the immediate result of China’s “going out” strategy but a result of institutionally mediated relations of economic diplomacy on both sides. Copper has provided one way a small country like Peru (with strong ties to the US) could leverage its institutional power to engage the much larger China in resource diplomacy. However, the basis for such an institutionally- 126

powered interaction has its roots in the structural power asymmetries that underpin Sino- Peruvian relations.

5.3 The productive power of “partnership” and “pragmatism”

Barnett and Duvall propose the concept of productive power to “examine how particular social relations are responsible for producing particular kinds of actors” (Barnett, Duvall 2005a, p. 9). According to this view, social relations are inherently co-constitutive of subjects with initially different capacities, interests, and also identities. Economic exchange, diplomatic contact, and the social process of interaction within particular institutional arrangements, not only shape the capacities of actors (for example to access particular markets under certain conditions) but also these actors’ self-awareness, their collective (as partners, friends, or allies) self-identification, and the way in which their relationship is perceived (as uneven, threatening, mutually beneficial) by relevant third-parties (Rüland 2006, pp. 308–310).

5.3.1 “Win-win,” “complementarity,” and “commercial pragmatism”

China’s rhetoric towards Peru is based on the former’s general policy of “peaceful development” (The People's Republic of China 2005) and the attached wording of “win-win,” “complementarity” and “common development” (Strauss 2012). China has reiteratively stressed “complementarity in trade and investment” as the single most important source of its own interests to strengthen bilateral ties with Peru.76 What is more striking about Chinese official rhetoric in the Peruvian context is the emphasis on “commercial pragmatism” on the one hand, and the avoidance of “politically-laden” language on the other. The emphasis on “win-win” and “complementarity” suggests that China and Peru have a natural opportunity to enhance the performance of their respective economies by taking advantage of each other’s comparative advantages (ibid.). “Complementarity” is a suitable way for both Chinese and Peruvian elites to portray asymmetric functionalities in a positive way, while the emphasis on “commercial pragmatism” communicates the fact that the Sino-Peruvian partnership will actually seek to maximize the benefits of but not challenge the US-led neoliberal order adopted by Peru.

76 Given the latter’s neoliberal economic trading history, this rhetoric has been more easily accepted on the international stage. 127

The Sino-Peruvian case shows a strong focus on trade and investment while diplomatic interaction does not expand to the political realm of international affairs. In fact, there is little evidence of common language making reference to the necessity to reconsider and change “the [US-led] international political and economic order [to make it] more fair and equitable”, which is one of the implicit guiding principles of China’s White Paper on Latin America and The Caribbean (2008). In other words, given Peru’s longstanding record of political proximity to the US, the Sino-Peruvian version of “win-win” is reinforcing rather than challenging of Washington’s norms and values concerning free trade and open market economics. This explains why the China-Peru FTA is insistently reiterative of the bilateral “belief that a free trade agreement shall produce mutual benefits to each Party and contribute to the expansion and development of international trade” (FTA China-Peru, 2009, p. 4). Moreover, the language used in this document is categorically assertive of the Chinese and Peruvian embrace of the neoliberal economic order and a strong commitment to “enhance the multilateral trading system as reflected by the World Trade Organization (WTO)” (ibid). In this context, the Sino-Peruvian discourse reinforces US hegemony inasmuch as both parties comply with Washington’s ideological predilections towards economic liberalization to “govern[..] their trade” (ibid.).

Under these circumstances, the question in terms of “win-win” is about the extent to which China and Peru can realistically benefit equally from a relationship driven extensively, though not exclusively, by resource extraction. The analysis of structural power has demonstrated that while complementarity between the two economies exists, the relationship that emerges from them is essentially unequal. China mostly exports manufactured products and, increasingly, advanced technologies and services to Peru, while the latter takes the historical role as a resource exporter and a dependent recipient of Chinese investment to tap into finite resources to promote growth and development. Hence, given their asymmetry in the global economy, “win-win” means substantially more advantage for China.

At the same time, however, the Sino-Peruvian relationship could not be sustained without considerable gains on the Peruvian side. In fact, Peruvian business elites with an interest to expand the export of minerals and non-traditional products to China have unanimously embraced China’s rhetoric of “win-win” as the basis to expand trade and investment relations with China (Strauss 2012). The words of Juan Manuel Varilias Velasquez, the Chairman of the Peruvian Association of Exporters are a case in point. In an interview given to Chinese official media, Varilias Velasquez stresses the fact that “China as the most vigorous economy in the

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world has contributed to the consistent development of Peru in the past 15 years" (Xinhua, 2016).

Certainly, China’s rise has brought significant monetary gains for many resource- exporters across the world, including Peru. However, the problematic aspect of “win-win” is the production of an exclusively positive set of ideals, in which the growing socio- environmental, as well as economic and financial risks of an extractive nexus, evaporate from the discussion. Peru’s comparative advantage in mining generates profits and rents for a few privileged businesses, while rent-seeking elites in the state apparatus outsource the immediate and long-term burdens of extractivism to the entire society and future generations. Hence, “win- win” not only produces winners but also losers. Certainly, the China-Peru FTA has had some positive effects on the export of exotic fruits and Peruvian vegetables to satisfy the increasingly sophisticated taste of China’s rising urban middle classes (Strauss 2012, pp. 149–150). Nonetheless, given the large-scale nature of China’s demand, these businesses tend to work to the disadvantage of small-scale agriculture while simultaneously raising the cost of these products for local consumers.77 However, it is safe to acknowledge that the “win-win” discourse on “complementarity” and “commercial pragmatism” is subcutaneously reinforcing the asymmetries with a significant disadvantage to Peru. Consider the last two sentences of the following quote by a Chinese official media source:

“The China-Peru Free Trade Agreement, which came into force in 2010, also facilitated bilateral cooperation. […] Meanwhile, various economic cooperation mechanisms have been promoted to boost production capacity cooperation in the areas of mining, energy and infrastructure construction. [...] China has been Peru's largest trading partner, export market and source of import while Peru has become China's third-largest trade partner in Latin America. […] Last year, trade between the two sides hit a record high of nearly 15 billion dollars. In the first eight months of this year, trade grew by 9 percent year-on-year, with Peruvian exports to China rising by 21.8 percent […] Peruvian avocados are well received in China, much the same way Peruvians buy and use made-in-China smartphones, cars and construction machines.” (Xinhua 2016b, p. 1)

77 There is certainly a salient need for more research on this issue. 129

This quote is revealing of how Chinese official media interprets, portrays, and converts an asymmetric relationship of trade and investment into a nearly miraculous partnership based on bilateral cooperation. The number of sectors that open opportunities for Chinese businesses spans across the most important capital-intensive sectors of Peru. Chinese merchandise highlighted in this quote encompasses cars, cellular phones, and construction machines, all products of mass consumption and/or advanced manufacturing, while Peru offers avocados.

Narratives of “win-win,” “complementarity,” and “commercial pragmatism” have, in fact, created a discursive field in and through which Chinese and Peruvian stakeholders portray structural asymmetries as a “mutually” and “equally” beneficial exchange. The effect of these discursive formations is largely beneficial for Peruvian elites, who want to expand extractive profits and rents through an expanded partnership with China. In an interview with Xinhua News Agency, president Jose Tam of the Peru-China Chamber of Commerce emphasized that “[b]usiness is not the only thing that [China and Peru] can develop, […] but also investments in various sectors such as mining” (Xinhua 2015).

The framings of “win-win” and “complementarity” under the neoliberal tenet of “commercial pragmatism” have been a viable pathway for both China and Peru to engage in a deepening nexus of commercial interaction without hurting their respective relationship with Washington. In fact, The Sino-Peruvian focus on “commercial pragmatism” illustrates how China’s rhetoric towards Latin America varies according to the institutional context and development discourse of a given political regime. In the context of Peru, “win-win” rhetoric connects to the neoliberal institutions and discourses that shape the history and trajectory of the Peruvian economy. Official Chinese rhetoric has been shown to be sensitive to the Peruvian political hierarchies within a multilayered context of global governance. Hence, narratives of “win-win,” “complementarity,” and “commercial pragmatism” are perfectly in line with Peru’s and China’s ultimate priority to maintain stable relations with the US.

5.3.2 Strategic partnership between the core and its periphery

As both the Chinese and the Peruvian leadership have a collective interest to tap into Peru’s mineral resources, they need a collective discourse to legitimize their extractive program (see Castree, 2010, p. 11). The preceding subsection has shown the “win-win” discourse as one way to achieve it. In addition to a collective discourse, language can also be used in the form of productive power to communicate how such actors intend to relate with each other (in order to

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maintain their relationship). Furthermore, the fact that China labels its partnerships “strategic,” “comprehensive,” or “comprehensive strategic,” with the last category being the most important from China’s perspective, shapes the way in which less powerful states regard themselves as social actors in relation to China and vice versa. This subsection provides an analysis of how China’s “strategic partnership diplomacy” within the Sino-Peruvian compact (Feng, Huan 2014; Strüver 2016) is productive of social hierarchies and reinforces the unequal positions and (official) representations of self and others in the global economy.78

Two aspects of China’s strategic partnership with Peru shed light on the way extractive outcomes are produced. First, China is the actor that sets the conditions, limits, and timing in terms of the sequential evolution of the Sino-Peruvian partnership. The second is the fact that Peru—as a significantly less powerful country than China—perceives and projects its “strategic” recognition by China as a significant gain for power-posturing in Asia-Pacific realm. The focus on commercial diplomacy has enabled Peru to attain a balanced position of privilege between the US and China alongside a widening radius of interaction with Japan and other emerging economies in Asia. This means, to some extent, that Peruvian authorities have assumed the expansion of trade and investment in the extractive sector as a necessary condition for Peru to enhance its institutional power in the context of APEC, Transpacific Partnership (TPP) negotiations, and among Latin America’s members of the Pacific Alliance.79

The discursive production of the Sino-Peruvian partnership has evolved in three steps. First, in 2004 a “comprehensive partnership” was established when Market Economy Status (MES) was provided to China as a pre-condition to start FTA negotiations. Second, the status of the relationship was elevated to a “strategic partnership” once FTA negotiations ended successfully in 2008. It is worth noting that the word “strategic” only came into play once China and Peru were ready to announce the expansion of the bilateral relations on the basis of a joint commitment to the multilateral trade system, which tacitly suggests a bilateral agreement to comply with Washington’s predilection for neoliberal norms and values. Third, during a state

78 The scope, purpose, and mechanisms of China’s “strategic partnerships” vary broadly, depending on the historical context in which such partnerships evolve (ibid.). 79 According to several interviewees, several of whom are Peruvian diplomats, officials, academics, and high- ranking members of the FTA negotiating team, APEC provided Peru with a platform to socialize with and progressively become part of the Asian Pacific community. Colombia, by contrast, was denied access to the TPP negotiations. It is important to highlight this point as Colombia and Peru, in fact, display similar trade and investment policies in addition to their well-placed position within the Pacific region. Peru’s trajectory in the Pacific seems, however, much more institutionalized thanks to its membership in APEC. 131

visit to China in 2013, President expressed Peru’s solid commitment to guarantee the necessary conditions for an increased level of investment from China. In exchange, Xi Jinping upgraded the relationship to a “comprehensive strategic partnership” on behalf of the Chinese government.

From China’s official perspective, “strategic” means that the relationship “transcends the differences in ideology and social system and is not subjected to the impacts of individual events that occur from time to time” (Feng, Huan 2014, p. 8). Hence, the announcement of a “strategic partnership” in the context of successful FTA negotiations with Peru is highly symbolic and delivers three central messages. The first message implicitly states that China will not impose any kind of political model on its partner, hence prioritizing “practical effect over ideology.” Consequently, the second message is that Beijing has no deliberate intentions to replace the Washington Consensus with anything similar to the China-Model (So 2014). These two messages are certainly directed to Peruvian audiences as an assertion of Chinese principles of “mutual respect” and “non-interference.” Their single and perhaps most decisive purpose, however, is to reduce the noise of a “China threat” in the form of ideological rivalry against Western powers, e.g. the US. This analysis of structural and institutional power has, in fact, shown that China has benefited from the US-led trade institutions to attain greater access to strategic resources, with Peru being a representative study of China’s focus on the production of extractive instead of political “effects.”

The third message is directed at Peruvian actors and concerns the anticipation of “individual events” that should not work to the detriment of China’s bilateral relations with its partners. In the case of Peru, some of the most problematic events are oftentimes linked to local resistance against the repressive behavior of Chinese mining companies in alliance with Peruvian authorities (Section 5.4.). As a discursive instrument of productive power, the Sino- Peruvian “strategic partnership” inflicts a substantial level of pressure on Peruvian authorities to accept conflicts in mining as “minor events” in the context of an asymmetric relationship propelled by China’s extractive power. As a result, Chinese and Peruvian authorities have continued to stress the growing importance of mining for the future development of the bilateral relationship. In 2013, for instance, China and Peru finally established a “comprehensive strategic partnership.” Chinese official media deemed it as “the highest level of relations between China and Latin American countries” providing Peru with “a privileged platform for deepening ties” (Xinhua 2016b). President Xi also highlighted this new level during bilateral

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talks with President Humala, stating that it should allow both sides to “fully tap complementary advantages […] and strengthen tangible cooperation in the fields of agriculture, mineral products, infrastructure and projects concerning people's livelihoods” (The People's Republic of China 2013). Furthermore, President Humala encouraged “Chinese businesses to invest and develop in Peru” and stated Peru’s intention to build on the Pacific Alliance as a regional platform to boost Latin America’s relations with China (ibid.).

Hence, while Chinese authorities characterize their partnership with Peru as “mutually beneficial” and hence “strategic,” the Sino-Peruvian link is best understood as the result of an extractive relation of power, in and through which Chinese authorities and Peruvian elites win, while the rest of Peruvian society loses. This becomes particularly evident when Chinese and Peruvian diplomats articulate the way they perceive their own place in the global economy, as well as the way they wish to be perceived by others. For example, Liu Xiaoming (2017), Chinese Ambassador to the UK, gives account of China’s own expectations to be finally recognized by the US and the EU as a full-status economy in the context of the WTO:

“Through its active participation in the multilateral trade system, China has made huge contribution to the world economic growth. It is now the second largest economy, largest trading nation in goods and the biggest trading partner for more than 130 countries around the world. It is also the number one destination for foreign investment and second largest outbound investor. As an important powerhouse of the world economy, China in recent years has contributed 25 per cent to global growth.” (Xiaoming 2017)

Although China’s Policy Paper on Latin America and the Caribbean presents China as “the largest developing country in the world” (The People's Republic of China 2008), this quote emphasizes China’s self-understanding as a growing—and not yet fully recognized—global economic power. In fact, this statement is not directed to any developing country and is instead addressing the US and the EU, for whom China’s economic rise might have come as a challenging surprise. Indeed, China’s rise has different and uneven implications for different actors. For a resource-exporting country like Peru, China’s rise constitutes a major gravitational shift in the structure of the global economy, which is the main market upon which Peru is dependent. In fact, the deeply reconfiguring effect that China has brought to the global economy has not only reinforced Peru’s historical condition as a resource exporter. From the perspective of productive power, it is similarly important to acknowledge the extent to which this structural 133

shift has shaped the ways Peruvian officials make sense of Peru’s own identity. The words of Silvia Alfaro Espinosa (EY 2017), Director General of Economic Promotion, Ministry of Foreign Affairs, shed light on this issue:

“[Peru] is quintessentially a mining country. Peru currently is the world's second largest copper producer and one of the leading producers of gold and silver. It also has the largest silver reserves in the world and third largest reserves of copper and zinc. It is estimated that in 2016, mining and oil production represented 14.36 [percent] of the GDP, while revenue from mineral exports came to more than 50 [percent] of the country's total export revenue. These figures will increase when the new portfolio of projects comes into operation, estimated at over 46 billion dollars in the next five years.” (EY 2017)

The juxtaposition of this quote with that of Liu Xiaoming (on the previous page) delivers striking evidence of the ways in which asymmetries in the structural dimension of power intersect with the asymmetries in productive power (i.e. the construction of self). Although these two official statements are not directed at each other, they are equally emphatic about growth, trade, investment, and liberal trade as the virtues of economic success. The official understanding of self also shows how structural and productive power interact and reinforce a bilateral relationship of structural control to the advantage of China’s industries. While China regards itself as a “growth-powerhouse,” Peru regards itself as a “mining economy par excellence.” The asymmetries between China and Peru are not only evident in terms of structural power—the material capacities of actors in relation to their position in the global economy—but also in terms of productive power—the way in which actors acknowledge themselves in the establishment of social relations with others. This relationship is hence hegemonic in the sense that Peruvian authorities promote their position of domination as a source of opportunity, while their conditions of existence become increasingly dependent on China as the new core of growth and resource consumption.

5.3.3 Peru: Enforcing the extractive imperative

As shown in the two preceding subsections, Chinese and Peruvian stakeholders have made sustained efforts to develop a common discourse to justify resource extraction as a positive and indispensable endeavor for Peru’s development and strategic positioning. As a result, Chinese

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investments in the copper sector have indeed gained increasing relevance as the new driver of Peru’s mining economy. However, it would be mistaken to state that Peru’s intensifying pathway towards neoliberal extractivism is nurtured exclusively by China’s rhetoric of “win- win,” “complementarity,” and the respective construction of a hierarchical “partnership” on the basis of “commercial pragmatism” with Peru. Instead, these discursive practices have meaningfully merged with a previously existing ideological imperative to harness the underground as a strategic platform to fuel Peru’s FDI-driven growth model. Peru’s extractive imperative emerged with the enforced absorption of neoliberal values in the 1990s and intensified as a rent-seeking response to the China-driven commodity super cycle during the 2000s. In other words, Peru’s neoliberal extractivism has made it easy for China to produce the current asymmetry in the Sino-Peruvian partnership.

The extractive imperative is a powerful discursive construction through which Peruvian authorities seek to propagate the belief that mining is the key to the nation’s growth, economic stability, social development, and international status. With minimal to non-existing consideration of ecological burdens, rising conflicts, and long-term dependency patterns, the extractive imperative portrays investment in mining as an inherently positive thing for Peru and thus produces three important effects. First, the extractive imperative generates the conditions of general consent needed by national authorities to enforce resource extraction as a “legitimate” and “unique opportunity” to promote “growth and development” without major societal opposition from the urban middle classes.

Second, the widespread absorption of the extractive imperative enables Peruvian authorities to portray the China-Peru nexus as an inherently positive and novel feature in the promotion of the nation’s economy, because Chinese investment in mining translates into new sources of growth, dynamism, and global outreach for Peru. This second point is in fact key to the restoration of China’s negative reputation since Shougang Iron and Steel Corporation failed to meet minimal social, environmental, and financial standards in 1992. Hence, China’s comeback as an investor could not have been as feasible as it has been in recent years without the effort of Peruvian authorities to portray the financial capabilities of their “strategic partner” as an exceptional opportunity to enhance Peru’s own conditions of existence through China’s large-scale investments in copper.

Third, the extractive imperative produces a social divide between “pro-mining” and “anti-mining” social actors, where the former hold an auspicious position towards “growth” 135

and “development” and the latter an obstructing one. In the context of this social divide, the extractive imperative is productive of a general social mindset, in which state authorities see themselves entitled to reward those who favor “growth” while disciplining those who do not. The result is a “pro-” and “anti-mining” categorization, providing authorities with (a problematic source of) legitimacy to portray and treat those who question or oppose mining (and Chinese investment by extension) as “backward,” “criminals,” or “terrorists.”

The extractive imperative is deeply rooted in Peru’s longstanding history of colonialism, which is largely responsible for today’s unequal power hierarchies regarding the commodification of the underground. In addition, the authoritarian enforcement of the neoliberal agenda (i.e. Fujimorism) contributed to the formation and encroachment of an institutional environment biased towards investors. Only recently has China begun to benefit substantially from these historical conditions. For example, Chinese mining companies began receiving substantial symbolic and rhetorical support from the Peruvian government once the bilateral FTA with China went into effect in 2010. Chinese authorities acknowledged an important necessity to rehabilitate China’s reputation as a responsible actor in Peruvian mining. In response to these concerns, Peruvian political leaders have since updated a previously existing extractive imperative to endorse China’s new wave of investment in Peruvian copper.

The promotion of Chinese investments by President Ollanta Humala (2010-2015) is a case in point. Despite rhetorical opposition to mining during his presidential campaign, Humala became a fierce promoter of Chinese mining companies after his election. For instance, when Humala inaugurated the Toromocho mega-mining project operated by Chinalco in 2013, he stressed the Chinese and Peruvian government’s commitment to foster “modern” and “responsible” mining practices, “strengthen Peru’s human capacities,” and focus on “social inclusion” (El Comercio 2013). In the next quote, President Ollanta Humala (2010-2015) implicitly suggests Peru’s official recognition of China’s “good will” to “avoid past mistakes” as he depicts China’s extractive investments as an exclusively beneficial chance for Peru to improve its socio-economic conditions:

“Thanks to Chinese investment in Toromocho, Peru will become a world mining power.” (El Comercio 2013)

Humala’s was not the first nor the last Peruvian administration to promote mining as a source of international power for Peru. The Toromocho project was in fact announced as a major

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Chinese contribution to Peru’s expanding position in world mining under the second government of Alan García (2005-2010), who enjoyed significant economic and political windfall in the context of the China-driven commodity cycle. President Humala, however, faced greater challenges to justify the expansion of mineral extraction in the context of falling commodity prices because of China’s “new normal” economic status. Indeed, Humala played a key role in the allocation and enforcement of the highly conflict-laden project Las Bambas, China’s most recent investment in Peruvian copper and its biggest mining investment in Latin America. This project has faced strong opposition from local communities and has led to bloody disputes with the military police. In an effort to justify the importance of this project to local authorities, Humala again emphasized the fact that “90 percent of the engineers [were] Peruvian, with the large majority coming from Cusco.” 80 In the name of “the national and regional interest to boost growth and development,” he highlighted how Las Bambas would propel Peru to become “the second largest producer of copper in the world” (La República 2016). Circulated by the public media, Humala’s speeches must be understood as his intent to persuade the broad domestic audience of the idea that Chinese investments are an inherently “good thing for Peru.”

While Humala was keen to mobilize symbolic and rhetorical elements to promote China’s new presence in Peruvian mining, his pro-mining and pro-investment program is a result of a wider neoliberal Peruvian discourse. Neoliberal extractivism has, in fact, benefited Chinese and non-Chinese mining companies alike. One striking illustration how the extractive imperative has been socially and politically constructed by the advocates of the Washington Consensus are the words of the current president Pedro Pablo Kuczynski (or PPK as he is known) four years before winning the 2016 election:

“[Stopping Conga] would be like shooting ourselves in the feet, taking away the context of stability that investments need to unfold. That is why, it is important that the government does not give in before pressures of those who oppose mining. It should continue promoting the project until it is realized […] Conga is an emblematic case. If it is not carried out now, it would send

80 Cusco is the capital of the Apurimac region where the mine is located.

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out a very bad signal to the investors of the world.” (Pedro Pablo Kucyznski 2012)

This statement refers to one of the most contested mining projects in Peruvian history. Conga is a gold and copper mining project owned by the US-based Newmont Mining Corporation and the Peruvian company Buenaventura. This mining investment worth US$4.8 billion was financed in part by the World Bank’s International Finance Corporation, where Kuczynski served as an economic adviser in 1975. On closer analysis, his statement communicates the idea that if the Peruvian State does not win the battle against those who oppose mining, the whole of Peruvian society will pay the costs of a self-destructing image vis- à-vis mining companies. The statement was directed at Humala, who entered the political scene as a challenger of the neoliberal tenets of the Washington Consensus. A former World Bank employee, Kuczynski, by contrast, has always viewed transnational investment corporations and the mining consortia as vital to strong Peruvian economy. His pro-mining and pro- investment discourse is hence not surprising.81

Despite ideological differences, Humala and Kuczynski have both agreed to the enforcement of Western and Chinese FDI as the material foundation for Peru’s all-powerful extractive imperative. The US-led Conga project is an insightful example of this problematic phenomenon. Conga was responsible for massive protests by indigenous groups, who disapproved of Newmont’s plans to exploit local water resources and illegally occupy private properties without prior consent of landowners and community members. In response to the colliding interests of the mine and local leaders, Humala called a state of emergency on July 4, 2012, suspending every democratic channel of conflict resolution in the region of Cajamarca, where the mine is located. These events paved the way for the radical and brutal mobilization of police and military forces against local communities, human rights activists, and local leaders, some of whom lost their lives in several lethal battles to stop the expansion of mining in water-sensitive areas. These contested patterns of repression are not isolated but rather endemic to the Peruvian State’s urgent necessity to enforce the expansion of extractivism as a way to secure the financial conditions of its own existence. In this context, the extractive

81 President Kuczynski obtained an undergraduate degree in politics and economics from Oxford University and later, in 1961 a graduate degree in economics from Princeton University. Upon graduation, he served as a loan officer at the World Bank headquarters in Washington. His duties included economic research on mining and extractive industries in Latin America. See https://archivesholdings.worldbank.org/pedro-pablo-kuczynski-files, accessed 5 April 2017. 138

imperative delivers the overarching ideological setting for state authorities to justify such action and hence incorporate new players, such as China, as well as their respective discourses into a historical playfield demarked by uneven, repressive, and opportunistic structures of power.

5.4 The compulsory power of structural control

Notably, compulsory power is the most vivid expression of structural dominance and control of one actor over another. This section has the objective of scrutinizing the Sino-Brazilian and Sino-Brazilian cases in search for common and distinct features regarding the use of coercive technologies as an instrument to produce extractive effects. A key question is what factors enable and/or constrain the use of compulsory power with regards to China’s relationship with two seemingly unequal counterparts. Does the use of compulsory power enhance the target- efficiency of Chinese resource policies? The cross-case analysis is expected to deliver clearer insights about the kind of compulsory technologies at play in China’s relationship with two structurally different states. When does compulsory emerge as a viable instrument and does it replace or complement other forms of power?

5.4.1 The violent coerciveness of neoliberal extractivism

In Peru, mining activities are the main source of social and violent conflict. Significant segments of the rural population situated in the Andean provinces of the Peruvian copper belt fear the contamination of water and land resources due to a long list of irresponsible mining practices all over the country. Local livelihoods oppose the expansion of mining concessions to protect community-managed agricultural lands. While some indigenous groups are in favor of, many do oppose extractive activities based on ancestral worldviews that are fundamentally irreconcilable with the profit-driven expansion of transnational capital. Indigenous people’s cultural and social self-understanding is oftentimes based on the principle that economic activities should not take away more from nature than can be returned. Unfortunately, the large- scale extraction of fossil materials and minerals contradicts this principle in quite a radical way. Neoliberal extractivism hence fosters a structural risk for violent conflicts to arise and intensify alongside the expansion of foreign investment.

The state uses compulsory power to allocate and (de)regulate investment, provide normative and financial safeguards for the production of extractive outcomes, repress

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resistance, and gain mass support for the expansion of the extractive frontier based on “pro- mining” and “pro-growth” discourses. As a result, Chinese mining companies have increased mining operations in Peru thanks to a coercive, rent-seeking state apparatus entrenched in a problematic form of neoliberal extractivism. Inherent to this growth-led developmental model is the state’s political bias in favor of the untamed attraction of foreign investment to unlock mineral resources from the underground, which explains Peru’s highly deregulated institutional framework for mining.

In fact, environmental regulations in the extractive sector are lax, and the influence of political actors to liberalize the mining sector in coalition with mining companies is strong. For instance, the Ministry of the Environment (MINAM), which was created in 2010 has lost its authority in the midst of the expanding mining activity. The ministry is actually the result of Washington’s pressure on Lima to guarantee minimal environmental regulations in the context of US-Peru FTA negotiations. Nevertheless, another authority, the Ministry of Mining (MINEM) continues to retain the power to approve or reject the Environmental Impact Assessment (EIA) needed for mining companies to start operations. MINAM lost further regulatory competences in 2014, when Humala limited its authority to set maximum permissible limits to resource extraction, determine environmental management criteria for mining companies, and block mining activity in National Protected Areas. President Humala instead delegated these functions to his Ministerial Council composed of 18 ministers appointed on a political and personalistic basis (Sullivan, 2014; Bajak, 2014). In this light, Peru’s highly deregulated framework for mining as well as the strong position of top leaders, enhances the coercive power of foreign investors to gain structural control of Peruvian minerals. The state approves mining concessions according to the investment and production capacity of the company with an interest to tap into Peruvian minerals.

Concessions granted to mining companies are irrevocable as long as companies meet minimum production rates. This guarantees transnational companies long-term security of tenure alongside the possibility to repatriate previously taxed profit without further constraints (EY 2017). Concessions are in fact powerful examples of how coercion and legally binding rules are mutually constitutive of Peru’s extractive regime. These legally protected extractive enclaves enable transnational companies to gain long-term control of a given territory and entitle foreign companies to tap into a finite public good (i.e. minerals) for the sake of profit maximization and capital accumulation. The expansion of mining concessions is perhaps the

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single most striking indicator of the way highly deregulated institutions in Peru prefer to operate. Between 1992 and 2014, for instance, the area covered by mining concessions went from 40,000 to 257,400 square kilometers. In other words, transnational mining companies have come to occupy no less than 20 percent of Peru’s territory, holding an irrevocable right to either explore or extract minerals until the resources are extinct or exploration activities no longer profitable (Kampagne Bergwerk Peru 2014).

China’s impact on the territorial expansion of mining concessions in Peru is twofold. The first effect is indirect: Peru expanded extractive activities because of China’s rising demand for commodities, causing prices of minerals and exports from Peru to increase exponentially between 2000 and 2012. The second is direct and more recent: China’s direct operations in Peruvian mining have begun to intensify since 2007 thanks to additional safeguards granted by Peruvian authorities in the context of FTA negotiations. Notably, China has begun to intensify its direct presence in Peru in the context of declining commodity prices, which are the result of its own weakening yet still important demand for mineral resources. This reveals how Chinese companies are not primarily worried about profit maximization but about the security of supply instead.

5.4.2 Peru: Public force at the service of transnational capital

While deregulation and liberalization are the international standards in the mining industries of the world, Peru’s extractive sector exhibits extreme forms of compulsory power at the service of transnational capital. Strikingly, Peru’s legal framework allows private companies to purchase security services from the National Police in order to protect their interests in the case of escalating confrontations with protesting sectors of society. These measures were instituted during the government of President Alán García, who enacted a Presidential Decree in 2009 (Decreto Supremo N 004-2009) to use public force as a way to guarantee a maximum of state support for foreign investors. This means, for instance, that transnational companies can legally subcontract the professional services of Peru’s National Police to neutralize citizens’ protest though public force. According to Jorge Bracamonte, Executive Secretary of the National Human Rights Coordinating Committee,82 the National Police of Peru has signed about 200 contracts with private companies, 31 of which have involved mining companies (RED MUQUI 2016). Authorized purchase of public force to

82 This is an internationally recognized organization providing reports on the state of human rights in Peru. 141

defend the interest of mining companies is, in fact, a central indicator of the hyperliberalization of Peru’s extractive economy alongside the problematic readiness of the state to discipline social actors in favor of foreign investors. Given the conflict-prone climate promoted by neoliberal extractivism, mining companies, including Chinese ones, have not hesitated to take advantage of Peru’s singular services, to include the purchase of public security force in their investment budget. According to José de Echave from the Peruvian NGO CooperAccion (Cooperation & Action), such practice is not the exception but the rule among the major players in Peruvian mining:

“The majority of the big mining companies in Peru, like Yanacocha, Xstrata and Antamina, have an agreement with the police. These type of agreements pervert its role as a state entity protecting citizens, and make it appear more like private police at the service of big companies.” (Hill 2015)

The coercive power of the Peruvian State is a service transnational companies can use in order to ensure the viability and enhance the predictability of investment and profit in mining. Use of physical force is hence endemic to Peru’s neoliberal institutional infrastructure to secure the untamed expansion and capture of mineral rents. Accordingly, Chinese mining companies have not hesitated to take advantage of these conditions in order to secure long-term access to Peruvian minerals and copper in particular. The RED MUQUI reports the Chinese-owned Mining Project Las Bambas has paid between 100 and 110 Peruvian soles per day (equivalent to US$30/d and US$33/d respectively) to police officers contracted to repress social protests and safeguard the security of the mine and its workers (RED MUQUI 2016). This information is included in an inter-institutional agreement signed between the Las Bambas mine and the Regional Office of the National Police in Cuzco (Oficio N° 088-2016-REGPOL CUSCO- EM/OID). Below is an excerpt:

“The National Police will make use of force in exceptional and extreme cases, when the life of LAS BAMBAS workers and/or that of its contractors is at risk.” (RED MUQUI, 2016, translation by the author, capitals in original)

The Peruvian State considers Las Bambas a strategic project in the country’s quest to double the production of copper. The Chinese consortium led by the Chinese corporation Minerals and Metals Group (MMG) acquired the mine from Swiss corporation Glencore Xstrata in 2014, and ever since, social relations with local, mostly indigenous, communities have been

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far from peaceful. While most community members approve the presence of this mining project, there have been major disagreements between the mine’s staff and local community leaders who complain about the lack of transparency in the negotiation of environmental standards between the central government and the mine’s managers. Additionally, some of the local mine workers accuse MMG of the failure to fulfill employment agreements and social benefits previously negotiated with Xstrata. An important driver of conflict is that employment of large numbers of local workers dropped significantly after the construction of preliminary infrastructure. With the completion of the basic infrastructure, demand for local (or unqualified) workforce declined due to increased requirements for the mining staff’s technical skills.83

In 2015, the precarious presence and lack of democratic legitimacy of state institutions to respond to local concerns became evident when the levels of social frustration among community members escalated into violent confrontations with mine workers. Community leaders took mining staff hostage in order to exert pressure on Las Bambas’ management to increase the mine’s financial and other contributions to local development.84 The Peruvian State responded to the conflict with a brutal mobilization of special police forces created to conduct anti-insurgency operations in the 1990s. Violent confrontations between public force elements and local communities climaxed on September 28, 2015, resulting in eleven injuries and three deaths. Additionally, fourteen police officers were severely injured through violent attacks by locals. The police arrested seventeen protesters, who were illegally kept imprisoned for 24 hours inside the mine (Pérez, Bazán 2015). The following year, a civilian protester was shot in the head by the police. 85 These tragic incidents are representative of the ongoing struggles between the different stakeholders involved in and affected by the extractive focus of the Sino- Peruvian partnership.

5.4.3 China in Peru: Compulsory power in potentia?

The coercive workings of China’s resource diplomacy are indirect and mediated by the other three forms of power: structural, institutional, and productive. The exercise of compulsory power by Chinese mining companies and the Peruvian police is the result of a bilateral nexus

83 Interview with Peruvian expert on human rights, social conflict, and mining. Freiburg, 26 May 2017. 84 See EJ Atlas available online at: https://ejatlas.org/print/las-bambas-peru, accessed 27 May 2017. 85 A public statement regarding this event can be read in English on the website of the mining project Las Bambas; available online at: http://www.lasbambas.com/news-and-publications/press-releases-/public-service- announcement.html, accessed 27 May 2017. 143

that encourages the movement of transnational capital and uses state power to enforce the expansion of mining. The coercive effectiveness of the Peruvian State to allocate investment, produce extractive outcomes, repress resistance, and gain mass support in favor of an extractive pathway of global insertion is the key enabler of China’s resource policies. In exchange for the creation of favorable conditions for extractive investment, Chinese authorities hand out institutional incentives as a way to stimulate and reinforce a relationship of structural dominance. Mining concessions are, in fact, powerful examples of how Chinese mining companies acquire long-term territorial control of extractive sights while benefiting from lax regulation on behalf of the state. The ultimate purpose of mining concessions is to guarantee transnational capital an exclusive right to make use of a public good (i.e. minerals) for the sake of profit maximization, even against the will of directly affected populations.

Ultimately, not only Peru’s mineral resources, the socio-ecological balance of its ecosystems, and the sovereign use of its territory are at stake. Mining, and copper in particular represent the material basis of Peru’s developmental pathway and strategy of global insertion. When Chinese authorities gain control of Peruvian minerals, they gain control of the latter’s already limited possibilities of self-determination. The Sino-Peruvian nexus is consistently emphatic about its pragmatic focus and its bilateral emphasis on trade and investment. Under these circumstances, the step from economic towards political and military authority is not big. As the geostrategic landscape in the Pacific calls China and the US for new strategies, Peru may soon underlie the pressure from its longstanding ally and from its new strategic partner. This would pose a strategic dilemma to be reflected within the realist realms of power.

5.5 Chapter conclusion

This chapter has shown how the structural, institutional, productive and compulsory dimensions of power (Section 2.3) have led to the structural integration of the Peruvian subsoil into China’s fast-tracked economic metabolism. Traditionally, Peru’s economy was built on the extraction of minerals with China’s rise to the core of resource consumption opening up new space for both countries to restructure their relationship under new terms. Since the beginning of the 2000s, China has come to concentrate 49 percent of global consumption of copper (USGS 2016), which puts Beijing in a position of absolute dominance vis-à-vis public and private Peruvian stakeholders in mining. Hence, Peruvian elites have deliberately sought to connect Peru’s extractive economy to the ever-expanding Chinese market through the establishment of 144

the 2009 FTA. Thus, the terms and conditions of this Sino-Peruvian nexus have been mediated and shaped by the norms and values of the liberal international trading system. Furthermore, membership in transregional organizations like APEC has created favorable conditions for Peru to gain China’s attention as a strategic partner for trade and investment in the Pacific region.

Notably, this chapter shows how China has translated its structural position of dominance as a capital-rich importer of minerals into compulsory power vis-à-vis Peruvian actors. This became evident when Lima was constrained to grant China MES before starting bilateral FTA negotiations. Furthermore, Chinese mining companies have been able to purchase public security service in order to enforce resource extraction against the resistance of local communities.

This relationship of structural control—structural and compulsory power—to China’s overwhelming advantage has evolved in the context of a highly deregulated institutional environment, which is the product of several decades of US-led neoliberal reform in Peru. In fact, institutional power has played an important function as an enabler of the Sino-Peruvian partnership. Club membership in APEC provided Peru with the necessary diplomatic means to attract China’s attention in the face of its limited market visibility compared to other South American states. At the same time, China has exhibited an impressive capacity to accommodate its modus operandi to the norms and values of the Washington Consensus as long as its extractive interests are served and its international image as a fair competitor in the international markets enhanced.

Not surprisingly, Chinese authorities and Peruvian elites have framed the expansion of the extractive frontier as a source of mutual benefit hence legitimating the collective transformation and appropriation of the subsoil through the means of productive power. Indeed, during the period of high commodity prices driven by China’s demand, resource exporters experienced significant monetary gains across the world. During this period, the Peruvian government and business elites with stakes in the extractive sector were particularly keen to adopt Chinese rhetoric of “win-win” to justify resource extraction domestically. Sound macroeconomic management equipped the Peruvian government with the necessary rhetoric to attain approval from the urban middle classes, while poverty reduction programs gave neoliberalism a “better-than-nothing” image in the rural sectors.

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This chapter shows that the use of productive power was helpful in creating the conditions of consent needed by the Peruvian State, Chinese mining companies, and local business elites to continue pushing for the expansion of the extractive frontier with sufficient political backing from Lima, Beijing, and large segments of Peruvian society. Notwithstanding the stabilizing effects that Chinese trade and investment in mining has brought to the Peruvian economy, grave challenges arise. Peru faces increasing dependence on the export of minerals and on Chinese investments in mining. This aggravating situation is likely to intensify the Peruvian State’s historical record of repressing local resistance while causing substantial ecological damage. Under this circumstances, it will be increasingly difficult for future Peruvian governments to sustain political and economic stability without taking careful note of China’s domestic economic policy and Washington’s strategies to protect its geostrategic interests in Latin America and the Pacific.

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6. Extractive relations of power? Contrasting perspectives on Sino-Brazilian and Sino-Peruvian relations

The last two chapters have shown that China’s resource policies produce significantly more disadvantages than advantages for Brazil and Peru. In both cases, it has become evident that Brazil and Peru provide the Chinese economy with growing quantities of oil and minerals, which contribute to the material basis for Beijing to climb up the ladder of power and wealth. The result is a relationship of structural inequality to the disproportionate disadvantage of Brazil and Peru as these two states become increasingly dependent on the export of a few raw materials (Brazil, Peru), Chinese loans (Brazil) and Chinese investments (Brazil, Peru). As the terms of trade shift in favor of China because of declining commodity prices, which are also co- determined by China’s economic performance, Brazil and—to an even greater extent—Peru become increasingly vulnerable to Beijing’s rising position of structural dominance.

While both Brazil and Peru struggle to maintain economic and political stability as they engage in extractive relations with China, contextual differences apply. Through the comparative and contrasting analysis of the Sino-Brazilian and Sino-Peruvian cases, this chapter sheds light on the contingency and specificity of extractive power. To meet this objective, this chapter conducts a cross-case analysis to identify the commonalities and differences on how the structural, institutional, productive and compulsory elements of extractive power apply specifically to each case. Section 6.1 highlights the particular sources and instruments of structural power that determine China’s uneven positioning in relation to Brazil and Peru. It delivers a differentiated analysis of how the structural positions of importing and exporting states shift according to volatile changes in the global economy. Section 6.2 uses the concept of institutional power to explain the capacities of adaptability that shape the target- efficiency of China’s resource diplomacy in Brazil and Peru. Section 6.3 focuses on the concept of productive power to differentiate between China’s rhetoric in Brazil and Peru. This enables a critical assessment of the extent to which the production of collective identities is a sufficient condition for China to gain privileged access to Brazilian oil, and if so, under what circumstances. To wrap up the comparative analysis, Section 6.4 draws on the concept of compulsory power to address the question of “who controls what for whose benefit?” Tackling this issue, so the argument of this section, is a precondition to understand the specific degree to which Brazil and Peru are differentially capable of leveraging the extraction of oil and minerals as a source of power in relation to China as addressed in the chapter conclusion. 147

6.1 The structural power of Chinese relations with Brazil and Peru

This section engages with the extent to which Brazil’s and Peru’s significantly different structural positions in the global economy have shaped their respective of relationship with China. The analysis seeks to identify the degree to which a relationship of structural dependence is evolving in each case. Additionally, the contrasting analysis of the two cases is set to deliver a clear picture about the different sources and mechanisms of structural power that inform China’s resource policies in each context. These results will deliver a closer picture of the contingency and specificity of each relationship (Subsection 2.4.1).

6.1.1 China’s imprint: Disparities and asymmetries

The first common feature to be highlighted is the rise of China as the single most important export destination for Brazil in 2009 and for Peru in 2011. In both cases, China has rapidly taken the lead of the demand side of the global markets, hence dwarfing the US and increasing its economic influence upon the two Latin American states. In 2000, the US imports from Brazil were 22.3 percent greater than Chinese imports and 21.5 percent greater in the case of Peru. By 2015, Chinese imports were 2.3 percent greater than the US imports from Brazil and 7.0 percent greater in the case of Peru (WITS World Bank 2015). The period 2000-2015 demonstrates that Brazilian and Peruvian exports are now mostly dependent upon the US and Chinese markets. In fact, the latter has grown into the single most important driver of structural change for the Brazilian and Peruvian economies. This is not necessarily surprising given that a large portion of US manufacturing was outsourced to China during the 1980s and 1990s while global growth has grown increasingly dependent upon China’s economic development and changing patterns of consumption. In fact, since the 2000s, the Chinese market has gained utmost importance for wealthy nations such as the G7 to sustain their own economic balance, while China’s competing drive at the upper levels of value generation has become an increasing topic of concern.

For Brazil and Peru, the question of interest is how their relationship with China translates into specific opportunities and obstacles to move out of the global periphery. The results are rather discouraging. Regardless of the structural disparities between Brazil and Peru, exports to China are concentrated in both cases on a few commodities. Around three-quarters of Brazilian and Peruvian exports encompass agricultural products, minerals, and oil. As many studies have confirmed, Brazilian and Peruvian exports underpin the regional trend towards an increasingly unbalanced trade pattern, which is based on the export of a limited number of 148

commodities in exchange for Chinese goods with much higher levels of added value (ADB, IADB, ADBI 2012; CEPAL 2008, 2012, 2016; ECLAC 2015).

In terms of structural power, this cross-case perspective depicts a constantly growing Chinese economy with the capacity to obtain diverse Latin American subsoil resources to feed its own quest for wealth, power, and status. This certainly reinforces rather than offsets Brazil’s and Peru’s subordinated territorial functionalities as China’s peripheral resource providers. A careful degree of differentiation is, however, needed. Structural inequalities in the oil and mineral sectors illustrate why Brazil is much more dependent on China than the other way round. While Brazil provided China with an average of 2 percent of its oil imports between 2013 and 2014, oil exports to China represented an average of 26 percent of Brazil’s total oil exports (EIA 2015b, 2015c; The Observatory of Economic Complexity 2017). In the case of Peru, structural inequalities are even stronger. In 2015, China was responsible for an overwhelming 55 percent of Peru’s copper exports, while Peruvian copper provided China with a 10 percent share of its copper imports (BCRP, MIMEM, Datamyne 2017).

While Peru’s contribution to China’s copper imports is five times greater than Brazil’s contribution to China’s imports of oil, Brazil can potentially exert much more pressure on China given the former’s capacity to supply the latter with unparalleled volumes of food, industrial inputs and energy commodities, which are key for China’s development in the long term. In terms of the oil sector, Brazil can turn to a number of oil importers, while Peru cannot necessarily do so in the case of copper. Besides, China’s dependence on external oil sources puts its leadership in a critical position of vulnerability with more than three quarters of oil consumption expected to come from outside. Regarding the copper sector, China is not only the most important consumer but also the third biggest producer in the world. In fact, China lost the second place in copper production to Peru in 2016. Peruvian elites understand this as a major accomplishment in their quest to convert the nation into a world mining, or better, extractive powerhouse. From China’s point of view, by contrast, these developments can be understood as the outsourcing of socio-ecological risks and an important gain in terms of its long-term vision to climb up the ladder of value generation and become a comprehensive world power. Against this backdrop, it is adequate to differentiate between a relationship of structural disparity in the case of China and Brazil and a relationship characterized by a deepening structural asymmetry in the case of China and Peru.

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6.1.2 Structural demand, capital, and transnational actorness

China’s pattern of a structural rule is contingent upon the opportunity-driven behavior of different Latin American elites to harness control of the underground resources as a source of rent and profit accumulation. On the other hand, China’s capacity to integrate these differences into its own process of economic transformation is determined by three sources of structural power. First, China has become the largest importer of oil and minerals with an unparalleled position of dominance on the demand side in the global markets of oil and mineral resources. This means that China’s massive demand has come to constitute the most important structural framework that constrains the possibilities of choice for Brazil and Peru as they seek a place of their own in the international system. Second, China’s structural position as the new core of growth and resource consumption is enhanced by an unparalleled capacity to mobilize domestic capital to fortify its extractive endeavors in countries that lack such financial capacity. This has prompted Brazilian and Peruvian elites to actively engage seek contact with China in its quest for resources. Third, China’s structural advantage vis-à-vis Brazil and Peru hinges upon its capacity to orchestrate the financial and organizational strengths of Chinese banks and prominent SOEs to support Beijing’s economic diplomacy. This allows China to expand its geostrategic frontiers, becoming a visibly powerful actor in a diversity of political, institutional and economic settings across the world.

Trade, investment, and loans are the main mechanisms China uses to access strategic resources in Brazil and Peru. Analyses of both cases reveal that the logic of “first trade, then invest” can be identified in both the oil and mineral sectors. China’s economic presence began to intensify after its WTO entry in 2001. Trade is the less-politicized aspect of Chinese-Latin American relations as it responds to the convergence of demand and supply in an authentic albeit unequal territorial complementarity. Investment relations are also responsive to market conditions, but the allocation of Chinese capital overseas is contingent upon political factors. The analysis of the Peru case illustrates this well. Chinese investment in mining is contingent upon the commitment of the host government to secure and even enforce stable conditions for capital to operate without fears of disruption in the long term. Peru’s authoritarian version of neoliberalism, à la Washington Consensus, has been particularly helpful in this respect.

However, for Brazil, loans are clearly more effective in combination with investment. This is due to the fact that oil, usually in the hand of the central government, is more about politics than business. Negotiated at the highest political level and disbursed to state-owned 150

banks or oil companies, loan-for-oil deals are the strongest evidence of how Chinese authorities mobilize economic and political capital to secure concrete amounts of fossil energy in the mid- term. However, state-backed loans are also supportive of Chinese investment in mining, as illustrated by the case of the Toromocho mine in Peru (Subsection 5.1.3). Here, loans are channeled directly to Chinese mining corporations seeking to leverage on the government’s “go out” strategy and their country’s outstanding position as the core of global demand for minerals. In some instances, Chinese authorities have also allocated accompanying loans to finance ports and roads to enhance the level of efficiency in the transportation of minerals (Gonzalez-Vicente 2012a). The domestic conditions and preferences of the host countries also determine China’s choice of instruments. In Brazil, it mobilized trade, investment, and conditional loans to secure an increasing access to oil. Loans without major conditionalities, as in the Gasene-Project, have been an important instrument to generate trust in the initial stages while ensuring increased oil quotas in the mid-term. Peru, by contrast, has successfully resisted the loan-for-resources option but is nevertheless dependent on an increased Chinese investment in its mining sector. All three instruments progressively paved the way for Chinese NOCs to acquire experience and recognition as emerging investors.

6.1.3 Shifting terms to the advantage of China

The results of this thesis confirm the hypotheses developed in recent studies that periods of high commodity prices contribute to rising levels of public revenues and hence constitute an important source of domestic and international power in the short term, while long-term prospects are generally problematic (Basedau, Kappel 2011a). As these hypotheses were developed during a period of high commodity prices (2000-2010), the study at hand contributes additional insights by expanding the studied period of time, which includes periods of rising (2000-2011) and declining commodity prices (2012-2015). As this study’s results are not limited to oil politics, it is also possible to expand the analysis to include minerals, using copper as a representative example.86

The main contribution of this subsection is the observation that the structural advantage of resource exporters and importers may shift according to specific and changing conditions across time. Additionally, the within-case analysis shows that specific world events, such as the 2008/9 global financial crisis, China’s “new normal” stage of slower economic growth, and the

86 While oil prices began to decline in 2014, minerals began to decline in 2012 (see Annex 2). 151

US decision of 2013 to expand fracking technologies have been important determinants in Chinese relations with each country.

Extractive power under high prices

With the unparalleled increase of commodity prices in the context of the China-driven super cycle, resource exporters across the world, Brazil and Peru included, saw a magnificent opportunity to expand resource-based exports as a source of rent generation and accumulation. The Chinese market offered an alternative to divert exports away from the US and other Western economies. At the turn of the twenty-first century, China was still an emerging economic actor in Latin America, while Brazil had just gained prominence as an emerging power in the Western Hemisphere. In 2005, increased exports of goods to China provided Brazil with important levels of surplus to pay its debt to the IMF and gain leverage as a regional and global power. Pré-Sal was discovered the following year, providing President Lula da Silva a remarkable source of domestic and international power.87 Domestically, Lula was able to secure power for himself and his Worker’s Party through rent distribution at the bottom of the pyramid. This explains to a great extent his reelection in 2007 as well as his unprecedented levels of popularity after the end of his second term in 2010. During this period and well into 2013, China’s position towards Brazil was rather compliant. Given China’s increasing presence in Brazil, the Obama administration saw itself in the need to persuade President Dilma Rousseff to deepen the cooperation with the US on Pré-Sal. As a result, Brazil gained stature vis-à-vis these two great powers.

The Sino-Peruvian nexus had a different result due to high copper prices. As the world’s greatest consumer and the second largest producer of copper, China’s need for this commodity was not as pressing. Besides, Peru’s political proximity to the US put an additional obstacle for China to take a proactive approach in this context. Nevertheless, high prices and China’s rising demand were strong enough to motivate Peruvian authorities to proactively seek an extractive nexus with China under García and Humala governments. Here, high prices worked to the disproportionate advantage of China. In fact, these two governments created the institutional conditions for Beijing to gain rapid and direct control of one-third of the nation’s mining

87 Increased rents had already been filling up the state budget while the discovery of new oil deposits proved even more promising in the context of high prices and China’s global quest for oil (see Figure 8, Subsection 4.1.3). 152

investment portfolio. China’s access to control was due to the normative Washington Consensus framework, which the former was careful not to work against.

Extractive power under declining prices

The decline of oil prices must be understood in the context of significant changes in the structure of the oil and mineral markets. The first factor leading to the decline of oil prices since 2013/2014 was the decision of the US to foster energy independence through the accelerated expansion of domestic production through the intensification of fracking. These developments put strong pressure on the international oil price, given the unexpected increase in the global availability of oil resources, which was underpinned by rising production in previously alienated areas of the world, such as Iran, and by the decisions of the Organization of the Petroleum Exporting Countries (OPEC) not to reduce production despite a historical low in the oil price. In the case of minerals, the cooling of China’s economy had a negative effect on the prices of industrial inputs since 2012. These developments shifted the balance of power away from Brazil and Peru, who suddenly lacked the means to sustain their rentist and extractive modes of development. Both states saw themselves forced to dig deeper into the subsoil and extract more resources in exchange for less money from China. In Brazil, declining oil prices led to an increasing debt and financial overheating in the context of rising corruption in the oil sector, which placed Petrobrás and the Brazilian government in a position of need vis-à-vis China, while Peru’s government has been increasingly constrained to dismantle environmental regulations and mobilize its police and military to enforce the untamed mining expansion. Failing to do so would lead to the collapse of its macroeconomic stability and harm Peru’s exemplary standing vis-à-vis the IMF, World Bank, and IADB.

Extractive power during the global financial crisis of 2008/2009

Brazil and Peru depict the 2008/2009 global financial crisis as an important event which helped China gain structural leverage vis-à-vis Western powers in Latin America’s extractive sector. For example, Sinopec acquired a 40 percent stake worth US$7.1 billion in the Spanish company Repsol, while Sinochem acquired a 40 percent stake worth US$3.0 billion of Norway’s Statoil investments in the Campos Basin of Pré-Sal in 2010. The purchase of significant stakes of the Portuguese transnational oil company Galp Energia followed in 2011. China was able to provide significant amounts of capital, which were not available to these companies due to the negative effects of the financial crisis on the international markets. China’s countercyclical measures to

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boost infrastructure development and spur domestic demand as a means of economic recovery proved beneficial for Peruvian exports. In fact, the Sino-Peruvian FTA was signed in 2009, right in the middle of the crisis, paving the way for China to purchase the Toromocho copper mine with investments worth US$2.2 billion. In 2010, Chinese investment in the extractive sector of Peru accounted for US$2.5 billion, which helped Peru to recover its dynamic growth rate in the aftermath of the financial crisis. These investments enabled China to take over important mining projects initially developed by Canadian and Swiss mining companies.

6.2 The institutional power of China’s adaptive resource diplomacy

This section discusses the way in which the institutional settings, norms and values that govern the extraction of oil and minerals have shaped China’s resource diplomacy as well as the bilateral responses of Brazil and Peru. It highlights how China’s rational-choice code of conduct offsets the prevalent China-versus-US ideology within Latin America’s own “Extractive Consensus” (Svampa 2015). Moreover, the section explains why and how China has adopted a differentiated strategy to access oil and minerals in the two institutionally diverse nations. Finally, the section explains how China uses different arenas of institutional power to provide Brazil and Peru with incentives and rewards, e.g. international status, in exchange for oil and minerals.

6.2.1 The Extractive Consensus between Washington and Beijing

Between 2000 and 2015, China’s increased global influence alongside a rapidly expanding economic and diplomatic presence in Latin America ushered in a new set development schemes and foreign policy strategies. As a state-led socialist economy with a single political party in control of domestic and foreign affairs, China’s distinct pathway of domestic governance and global insertion has been referred to as “The Beijing Consensus” (Ramo 2004). It is a novel phenomenon and, contradicts the central values and norms promoted by Washington (Zhao 2010, 2015). This ideological and practical field of tension between China and the US brings forth three key questions: “If state ownership promotes growth, why privatize? If a one-party system works wonders in generating GDP growth, why democratize? If state financial controls are effective in resource mobilization, why liberalize?” (Huang 2011, p. 3).

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Certainly, these questions are predestined to find the acceptance of Latin American actors with a critical stance towards Washington’s longstanding practice to indoctrinate the less powerful on how to better manage their fates under neoliberal norms and values. Additionally, China’s example of global insertion, resonates with Washington’s Latin American critics. When looking at China’s increasing economic influence in Latin America, the question that emerges is whether Beijing will promote—or even impose—its own system of political and economic values on its Latin American counterparts as a means to destabilize, challenge, or even replace US hegemony in the Western Hemisphere as suggested, for instance, by Paz (2012). China has not taken conscious steps to persuade or coerce Brazil and/or Peru into adopting anything like the China-Model. On the contrary, this thesis provides strong evidence on how China has refrained from putting political conditionalities in order to enhance its influence. It has achieved this by distancing itself from Washington’s discredited record of hegemonic interference. Thus, arguing that China’s increasing economic influence in Latin America is inherently linked to the incubation or even formation of the so-called “Beijing Consensus” is a long shot.

Instead, the case studies show China’s geoeconomic interest to gain access and control of key resources as vastly more important than a politically costly endeavor to promote Chinese norms and values (as an alternative to US hegemony). This demonstrates that Beijing has been keen to cooperate with two ideologically different states, independently of their political preferences in terms of development and global insertion. Provided the One-China policy is endorsed and its extractive interests met, Beijing adapts its policies and behavior to the normative and institutional choices of its partners. This is how China built a political and ideological affinity with Brazil—by exerting counterhegemonic pressure on the US on one hand while creating favorable conditions for its NOCs on the other. With Peru, a Washingtonian favorite, China’s resource diplomacy has utterly reinforced Washington’s values in exchange for a broad control of the mineral industries. Under these circumstances, China’s increasing presence in Latin America has not automatically represented a challenge to the Washington Consensus nor a deliberate step towards the promotion of the Beijing Consensus.

It is actually the persistence of Latin American neo-patrimonial institutions coupled with China’s rise that has brought about and reinforced Latin America’s own “Extractive Consensus” (Rosales 2016; Svampa 2015). This term is not new but lacks empirical scrutiny with regards to the ways in which China’s rise connects to the expansion of extractive models of

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development in different Latin American states.88 It is important to note that the Extractive Consensus is a generalized, contradictory, and counterproductive embrace of subsoil resources (and expansive monocultures) as the material basis for both neoliberal and progressive paradigms to secure their own economic and political existence. In other words, China’s increasing presence in Latin America cannot be detached from the socialization of its own normative choices to foster a fast-tracked kind of development through the embrace of capitalism under an authoritarian state. However, China’s normative and ideological impact on Latin American states has little to do with an active or tacit promotion, or even an imposition of this model. Instead, Beijing’s ideological imprint consists in the diffusion and institutionalization of resource extraction as the single most important prism through which Latin American states have come to understand and reconsider their interests and desires since the beginning of the twenty-first century. Herein lies the normative infrastructure through which China and its Latin American counterparts are capable of producing extractive effects across the region.

For instance, the Sino-Brazilian oil nexus has been supportive of Brazil’s endeavors to break away, at least partly, from a strategy of development and global insertion guided by the neoliberal tenet of the Washington Consensus and transition towards a self-tailored model of development and an autonomous foreign policy instead. In a similar vein, the Sino-Peruvian nexus supports Peru’s neoliberal economic model based on an untamed deregulation and liberalization of the underground as a source of growth and investment. The results are most problematic and deeply contradictory. In the case of Brazil, expanding oil rents have contributed to the formation of rent-seeking interest coalitions and criminal networks of corruption affecting its democratic institutions, undermining the political legitimacy of progressive leadership, and, finally, paving the way for the socially predatory politics of the ultra-conservative de facto government of Michel Temer. Economically, an imploding domestic market as a result of declining commodity prices, reprimarization, and internal mismanagement is hardly advantageous in terms of Brazil’s international standing. By the end of 2015, academic advocates of neoliberalism promoted claims in favor of: “IMF therapy for Brazil” (Bolle, Talvi 2015). In Peru, the macro-economic prospects have been astoundingly stable. However, business elites with stakes in the mining industry have taken the state hostage and forced Peruvian society to cede one-third of Peru’s territory to China (RED MUQUI 2015). Peru’s

88 For an account of how China’s oil quest has been supportive of the Venezuelan State in its own determination to use “the fruits of the subsoil” as its main source of development and global insertion, see Rosales 2016, p. 13). 156

Extractive Consensus is grounded in a radical commodification of the state, putting Peruvian police and military forces at the disposal of transnational capital while systematically criminalizing and silencing the “undisciplined.” Thus, pathways of development and global insertion for these two states can be found between Washington, Beijing, and the exhaustible layers of the Subsoil.

6.2.2 High-level politics, state-led oil industry, liberalized mining

The comparative analysis of China-Brazil and China-Peru relations shows that the CCP authorities have refrained from imposing a one-size-fits-all scheme to gain access to and control of strategic resources via compulsory power. Instead, Beijing has opted to establish and strengthen bilateral dialog at the highest level to determine the “contingency” and “particularity” (Bridge 2013, p. 2) of diplomatic action in each context. Chinese authorities have been mindful of two important factors. The first relates to the institutional underpinnings that connect the state infrastructure with the extraction of subsoil resources and vice versa. The second is a thorough consideration of how the relationship between the state infrastructure and the extraction of oil and minerals is functional to the political and/or economic agendas of government and/or business elites in control of the resource sector at stake.

In Brazil, the state is not only a strong regulator and investor in the oil sector. As argued in Subsection 4.2.1, the Brazilian State has historically evolved into a powerful actor with a comprehensive control of all areas concerning the oil industry. With the discovery of Pré-Sal in 2006, government officials, oppositional forces and foreign stakeholders became eager to use or influence the state apparatus to maximize rents and profits from the recently discovered oil. Petrobrás is the centerpiece that connects the state infrastructure to oil resources in ultra-deep water. This state-led oil company has enjoyed widespread legitimacy within the state apparatus and amongst Brazilian society to act as the strategic bedrock of Brazil’s state-centered approach to social policy, economic development, and independent foreign policy (Schutte 2013, 2012a, 2012b; Christensen 2013). In fact, the different systems of Brazilian oil exploitation89 tell a story of political and ideological struggles between the advocates of neoliberalism and neo- developmentalism. Despite focal interventions to liberalize parts of the Brazilian oil industry,90

89 Ranging from oil concessions with strong participation of foreign companies to production sharing agreements under comprehensive control of the state. 90 For instance under the neoliberal governments of President Fernando Henrique Cardoso in the 1990s and currently, under Michel Temer. 157

Petrobrás and Pré-Sal hold strong political symbolism as Brazil’s geostrategic buffer zone and platform to globalize the nation’s economy against foreign dominance.

Under these circumstances, Chinese authorities have mobilized all political and financial means available to support a high-level platform of exchange as the structuring axis of an oil nexus with Brazilian authorities. The bilateral exchange has played several functions. First, Brazilian authorities played an important role in terms of endorsing the entrance of Chinese NOCs into the nation’s oil and gas sector and then move up the social ladder of recognition as a new investor. With the discovery of Pré-Sal in 2006, Brazilian authorities recognized China’s critical need for external oil sources, as an opportunity to obtain Beijing’s large-scale financial assistance. Chinese authorities took advantage of this political juncture to allocate two important loans in exchange for guaranteed oil shipments, but Brazil’s position vis-à-vis China remained strong. During the period of high prices, the Brazilian government was able to direct Chinese investment into its areas of interest and enforce local content conditions while keeping control of operational activities and technology development. As oil prices declined, corruption scandals and mismanagement of oil wealth eroded the political basis of the Worker’s Party. Acute problems resulting from rentier politics put Petrobrás in a financially difficult position. Nevertheless, it is important to note that Chinese NOCs have gained increasing access to Brazilian oil resources but no direct control. Despite all adversities, Petrobrás has managed to maintain control of Pré-Sal deposits and limit the influence of Chinese and Western transnational companies to minority stakes in most fields.

In Peru, the scenario is quite different given the state’s role as an active pursuer, deregulator, and enforcer of foreign investment. However, the government cannot be said to be the prime actor in control of the mining industry. Because of Peru’s radical embrace of neoliberalism, the power of the state has been historically reduced to the minimum extent necessary. Indeed, the Peruvian State has historically and pathologically evolved into a subordinate agent at the service of transnational capital and domestic profit accumulation. This places the economic power of Peruvian elites well above the public long-term democratic interest of the nation. In Peru, a commercial and political elite based in Lima determines the economic and political destiny of the country (Strauss 2012, p. 146). This explains why mining regulations have evolved to the advantage of foreign direct investment and its domestic

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beneficiaries91 independently of the political color of the government at stake. It also explains why Chinese resource diplomacy has placed a strong discursive accent on “commercial pragmatism” while mobilizing trade and investment as the key instruments to lubricate the state-business connection that unlocks the gate to access Peruvian minerals. Backed by Peru’s “extraordinary measures” to enforce the extraction of minerals against social resistance, Chinese mining companies have been able to purchase entire mines and acquire direct control of specific land patches through long-term concessions with increasingly lax environmental conditions.

To sum up, China’s presence has magnified the pre-disposition of both states to neopatrimonial politics, hence undermining the quality of democracy in important yet different ways. In Brazil, China’s presence has intensified rentist behavior and contributed to the political discreditation of one of Latin America’s largest and most significant efforts to institutionalize state-led globalization with social redistribution. In Peru, China’s structural position of dominance has been a major factor of attraction for domestic business elites to sponsor state action towards the radical opening and institutional dismantling in favor of neoliberal extractivism.

6.2.3 Resources for status

This subsection argues that the production of regional and global status have played a key function in generating and enhancing the conditions of consent for Brazil and Peru to embrace a long-term extractive partnership with China. On the other side of this partnership, cooperation with Brazil and Peru has also meant an important step for China to enhance its status as a rising world power both within Latin America and on the international stage. Chinese authorities are aware that international recognition as a function of international status (Paul et al. 2014) is a central aspect of institutional power (Barnett, Duvall 2005a). In fact, CCP leaders cannot reconcile themselves to the idea of having transformed China into the world’s gravitational center in terms of economic growth (an expression of structural power), while the US and the EU still fail to recognize its Market Economy Status (MES) (Xiaoming 2017). Hence, one of the fundamental goals of President Hu Jintao during his 2004 trip to Latin America was to gain political support from “the basis” (the developing world) to progressively reach that level of

91 The interests of these powerful economic actors are institutionally clustered around the National Society of Mining, Oil and Energy. See http://www.snmpe.org.pe/quienes-somos/asociados/mineria.html, accessed 3 September 2017. 159

recognition from “the key” countries at the top (Zhang 2015, 2016). That year, President Hu Jintao held bilateral talks to persuade Brazilian President Lula da Silva to take a step in favor of China and recognize its Market Economy Status (MES) in the hope that more Latin American states would follow (Altemani de Oliveira 2010). The latter did so owing to the unfulfilled hope that China would back Brazil’s ambition to attain a permanent seat on the UN Security Council (Pereira, de Castro Neves, Joao Augusto 2011). In the case of Peru, Chinese authorities unilaterally established the recognition of China’s MES as a pre-condition to begin bilateral FTA negotiations within the WTO (Section 5.2).

Given Brazilian and Peruvian consent to Beijing’s requests in return for recognition as a strategic player in the politics of economic governance, Beijing has been ready to hand out institutional carrots in a tacit exchange for strategic resources. To put it bluntly, Latin American actors are conscious of the structural inequalities that result from a deepening extractive partnership with China. For Latin American governments, much of the substance of “win-win” lies in the upwards “mobility effects” that result from bilateral and multilateral cooperation with China.92 In Brazil, for instance, the government considers the institutionalization of the China- Brazil High-level Coordination and Cooperation Committee (COSBAN) a central accomplishment in determining the institutional rules of the game, contents, and channels of interaction in the Sino-Brazilian relationship.93 In fact, additional data discussed in Chapter 4 demonstrate this as a matter of “inter-presidential politics.” Needless to say, Brazilian diplomats value China’s international pulling effect in international governance, although the issue of Brazil’s “China dependency” or its “reprimarization effects” is treated with caution.94 Indeed, membership in the BRICS, Sino-Brazilian leadership in the G20, as well as the unique nature of COSBAN95 have become powerful status accreditations for Brazil to gain domestic, regional,

92 In-depth interviews with government officials in charge of Chinese Affairs in the Foreign Ministries of Brazil and Peru affirm this argument. 93 It actually is. This one-of-a-kind inter-ministerial commission is in charge of the most important issues related to the implementation of a broad agenda of bilateral goals and multilateral commitments as explained in Subsection 4.2.3. Interview with Brazilian government officials, Ministry of Foreign Affairs, China and Mongolia Division. Brasilia, 18 April 2016. 94 Meeting with high-ranking officials of German Embassy and Brazilian Ministry of Foreign Affairs. Brasilia, 20 April 2016. 95 According to interviews with two government officials in charge of Chinese Affairs at the Brazilian Ministry of Foreign Affairs (18 April 2016; 17 November 2016), COSBAN was established upon Brazil’s request to harmonize and institutionalize bilateral mechanisms of interaction given the increasing complexity of the bilateral agenda and the initial difficulties to find institutional counterparts between two different political systems. COSBAN deals with eleven different policy areas, including issues related to energy and mining. It has thus far held four meetings (2006, 2012, 2013, 2015), and developed two Joint Action Plans (2010-2014, 2015-2021), a Decennial Plan for 160

and international recognition as an outstanding though now crumbling representative of the rising South.

The Sino-Peruvian case exhibits its own characteristics. Despite tightening ties with China, Peruvian authorities have continued to leverage their regional status as “Washington’s favorite.” In fact, Peru has used the country’s early record of engagement with the Asia-Pacific to attract China and gain international status within APEC.96 Once the successful closing of Sino-Peruvian FTA negotiations was announced in the context of APEC Leader’s Meeting in Lima 2008, Peru attained higher diplomatic recognition from China in exchange for an increased supply (Subsection 5.2.3). Peru’s regional and international status as a strong advocate of liberal trade and investment also rose when several high-profile countries97 signaled interest in signing an FTA with Lima. This series of events contributed to Peru’s regional profile building as an archetypal absorber of Washington’s neoliberal values and a well-regarded member of the US-backed Pacific Alliance and Trans-Pacific Partnership (TPP). Peru’s overwhelming gains in the institutional realm of power may, however, soon face significant challenges as the state’s financial capacities become increasingly dependent on the extraction of mineral resources, and on Beijing’s long-term economic, political and military ambitions in the Pacific sphere by extension.98

6.3 The productive power of diplomatic language

6.3.1 In Washington’s backyard: Setting the tone accordingly99

An overarching argument of this study is that Washingtonian hegemony is a critical variable with regards to how China diplomatically approaches its Latin American relationships. This is one of the most important insights to be inferred from the comparison of China’s diplomatic rhetoric in Brazil and in Peru. Chinese authorities are conscious that Latin America’s political

Bilateral Cooperation (2012-2021), as well as a Decennial Plan for Spatial Cooperation. To access these documents, see Moreira Lima, Eduardo (Ed.) (2016). 96 In short, institutional status can—under certain conditions—compensate for structural asymmetries, albeit only in the short run. 97 These include the US, China, Japan, the EU, Singapore, Thailand, Malaysia and India amongst other players. 98 Interview with Prof. Dr. Oscar Vidarte, Lecturer in International Relations at the Pontificia Universidad Católica de Perú (PUCP). Lima, 25 March 2017. 99 I am thankful to my colleague Anran Luo, University of Freiburg, for her valuable comments on this issue. 161

and ideological postures towards the US fluctuate from a total rejection (i.e. Cuba) to antagonistic confrontation (Venezuela), emancipatory detachment (Bolivia and Ecuador), revisionist defiance (Brazil before Temer), and, finally, unrestrained commitment to the US values (Chile, Colombia, and Peru).100

This explains why China’s discursive strategies in Brazil and Peru are different. The Sino-Brazilian plea to strengthen the voice of the Global South is underpinned by concrete measures to augment the voice of developing countries (Subsection 4.2.2). Hence, China’s diplomatic rhetoric towards Brazil and the latter’s respective responses mutually reinforce a global partnership with the explicit political goal to change this situation, thus implicitly diminishing US power as a result. China’s rhetoric in Peru is very different. Given Peru’s historical record of political proximity to the US, China tempers its diplomatic wording accordingly. In Peru, Chinese diplomats have exclusively stressed “commercial pragmatism” as opposed101 to promoting “a more fair and equitable [political and economic international order],” in which “the legitimate rights and interests of developing countries [are upheld in a more democratic manner],” as intended originally in China’s White Paper on Latin America and the Caribbean of 2008 (The People's Republic of China 2008). Arguably, this phrase suggests a destabilization of US hegemony in the regional and global sphere, which explains why Peru has not embraced the political dimension of China’s diplomatic discourse in Latin America.102 For instance, Peru opposed China’s and Brazil’s joint efforts to make the US dismantle its agricultural subsidies at the Fifth WTO Ministerial Conference held in September 2003 in Cancún, Mexico. This shows that Peru is not interested in joining a political

100 Cuba has maintained a socialist dictatorship in direct opposition to US values and hegemonic rule in Latin America since the nationalization of US businesses under Fidel Castro in 1960. Venezuela engaged in a confrontational course towards Washington since President Hugo Chávez came to power in 1999. Bolivia and Ecuador have terminated bilateral FTAs signed with the US in the 1990s, and Ecuador did not renew the permission for the US to maintain a military base in Manta under the government of Rafael Correa. Brazil opposed the US- led FTAA in 2005 and has criticized the role of Washington’s financial institutions in Latin America. Chile, Colombia, and Peru maintain strong economic and political ties with the US. The last three nations cultivate neoliberal values in terms of social and economic policy and maintain high levels of military and intelligence cooperation in the drug sector. 101 In its White Paper on Latin America and the Caribbean of 2008 there is a clearly contradictory political stance. See China (2008, article IV, item number 5). In this part of the document, Chinese authorities underline their wish to strengthen their relationship of cooperation with the region in the field of international affairs. 102 Besides having absorbed, enforced, and systematically cultivated Washington’s neoliberal values, macroeconomic and globalization formulas, Peru tends to jump on the US bandwagon in key regional and international issues. This claim is based on interviews with different Latin American diplomats and the author’s interaction as a consultant for Washington’s international financial institutions (IFI) in 2013. 162

alliance with China, given its tight relationship of political and ideological proximity with the US.

In conclusion, China is a rising world power with a long-term necessity to grow its economy through external sources of oil and minerals. Given these new conditions, China has employed an adaptive and opportunity-driven approach to its resource diplomacy in Brazil and Peru. It can thus be inferred that China will continue to adapt its diplomatic discourse to the specific political conditions of each Latin American state, while maximizing the production of extractive effects. While China regards Brazil as an important political and economic partner with a common interest to question the US supremacy in international affairs, Peru differs by favoring Washington’s ideological stance. Against this backdrop, the concept of productive power enables a better understanding as to why China’s rhetoric is geared towards “commercial pragmatism” in Peru while emphasizing “South-South” and “multipolarity” in the case of Brazil.103

6.3.2 Win-win, global insertion, and resource extraction

The cases of Brazil and Peru show that the language of “win-win” and “complementarity” are effective mechanisms for China to produce favorable conditions for its diplomats and SOEs to advance the “go out” strategy in the extractive sectors of distant world-regions. This emphasis on mutual benefits has had several advantages. First, it allows China to “freeze” the meaning of resource extraction as a “fully legitimate economic transaction” and tune out the background noise of a structurally unequal relationship that critics denounce as neo-colonialist or neo- imperialist. Second, “it portrays China’s rise—and the associated need for raw materials—as a unique moment of opportunity for Brazil and Peru to move up the ladder of wealth and progress according to each state’s capacity. Third, the emphasis on mutual benefits and comparative advantage suggests the inevitable production of equal gains on both ends, irrespective of the structurally unequal conditions for Brazil and Peru. However, analyzed data provide solid evidence that Brazil’s and Peru’s extractive relationships with China are a case of “unequal complementarity” at best and “structural control” to the advantage of the latter at worst. The

103 This does, however, not mean that the Sino-Peruvian nexus is apolitical in nature. Indeed, China’s rapidly increasing influence on the Peruvian economy, as well as the recent US decision to withdraw from its engagement in Asia and TTP negotiations, may open a new field of political opportunity as a result of an increasingly stronger geoeconomic tie in the Pacific sphere. In that case, the study of Chinese rhetoric in Peru would make an interesting case for further research. 163

negative effects of an extractive nexus with China are quite visible even with Brazil, which the creators of the BRICS once acknowledged as Latin America’s most dynamic economy.

However, the question remains: why and to what extent has the “win-win” discourse been productive of favorable conditions for China in a region that has long denounced trade dependency as detrimental to development? It is due to the capacity of these words to fit into a diversity of national discourses that promote resource extraction as Latin America’s legitimate pathway to development while simultaneously producing higher levels of international status for China’s counterparts. This strategic formula can be summarized as “resources for international status.” In the case of Brazil, China’s need for oil engaged Lula’s Symbolpolitik, which portrays the Pré-Sal discovery as the nation’s “second independence,” a phrase that suggested oil wealth catapulted Brazil into an unprecedented level of autonomy vis-à-vis foreign powers. Additionally, a growing oil market proved central to Rousseff’s neo- developmentalist discourse which offered to pay back Brazil’s “historical debt to the poor” in the form of targeted rent distribution. By contrast, China’s Peru strategy engaged neoliberal discourses as catalysts to the liberalization of the mining sector as a platform to sustain the nation’s chosen pathway to growth and economic globalization. These ideas were well received among Peruvian business elites represented in the National Society for Mining and Petroleum and consistently promoted by governments of differing political camps such as Alan García, Ollanta Humala, and Pedro Pablo Kuczynski.

An important aspect to be highlighted when looking at China’s diplomatic language and posture with regards to Brazil and Peru is certainly the former’s capacity and decision to embrace the full political spectrum of discourses at play in Latin America, regardless of the internal consequences of an expanding extractive nexus. However, it would be wrong to understand such capacity as the sole product of China’s deliberate strategy to enlarge its global radius of influence into the Western Hemisphere. In fact, China’s capacity to effectively engage with a politically and ideologically diverse range of Latin American actors is tied to its own developmental history and chosen pathway of economic insertion. China has embraced neoliberal reforms as much as it has chosen to institutionalize an all-powerful state under one- party rule (Huang 2011; So 2014; Zhao 2010, 2015). Indeed, China’s rise has unfolded within the global neoliberal order and not against it (Amineh, Guang 2014). At the same time, however, one of the most significant features of the China Model, as argued by So (2014), is the CCP’s outstanding capacity to determine its own developmental pathway as well as its foreign policy

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choices without intervention from the outside. This explains why China’s diplomatic discourse has been so appealing to Brazilian authorities in the search for an autonomous pathway of development and global insertion. It also explains why China’s “win-win” suits the ideas and interests of those who embrace the Washington Consensus as in the case of Peru.

6.3.3 Identity building, non-interference, and partnership

It is worth noting that China’s presence in Brazil and Peru is systematically emphatic about its self-ascribed condition as the “largest developing country.” This is a critical observation when compared with China’s approach to productive power in the US and EU contexts, where Chinese diplomats present China as a “great power” (Hao 2015) and an “economic powerhouse” (Xiaoming 2017). This shows how China has been careful to cultivate a peaceful, non-threatening, and opportunity-offering “identity of equals” in Latin America due to its need for resources (The People's Republic of China 2008). China’s self-perception is sensitive to the social hierarchies and mindful of geostrategic sensitivities the international system. On the one hand, it is consistent with China’s policy of Peaceful Development (Strauss 2012; The People's Republic of China 2005), which is the CCP’s effort to counterbalance global anxieties about the potential threats associated with an economically, politically and militarily rising China (Okuda 2016). On the other hand, China’s emphasis on its identity as a developing country entails a series of persuading messages directed to the US as well as those Latin American states with whom Beijing wishes to interact more closely (Strauss, Armony 2012).

The argument is that China’s identity-building process should neutralize any suspicion that China has a deliberate interest to challenge the US in its own “backyard” (Paz 2012). This is certainly the view held by all the interviewees in charge of bilateral and multilateral affairs with Beijing. The prevailing sense is that China portrays itself as a respectful power that does not underline its own developmental achievements as the standard to be followed by others. China’s policy of “non-interference” certainly builds the trademark for Latin American actors to recognize China as a different and perhaps a superior twenty-first-century power. Moreover, a key message directed to Latin American audiences relates to the production of China’s identity by reference to regional perceptions of the US as an arrogant power at best and a disciplining empire at worse. Seeking “mutual trust” and “common ground” (The People's Republic of China 2008), the social construction of a “peer-identity” implicitly suggests that China’s power is qualitatively and significantly different from that of the North American hegemon (Strauss 2012). 165

How, then, and to what extent is this process of identity building related to China’s target efficiency in the oil and mineral sectors of Brazil and Peru?

Data results of this thesis show how China’s diplomacy can produce collective identities, reinforce individual identities and distort and/or deny particular identities. For example, the BRICS discourse is productive of collective identities that portray China and Brazil as “equal partners,” and “two major developing countries” fighting a just and common cause of greater political and economic voice for the Global South. The “win-win” discourse is a powerful way for China to obscure growing disparities, which strongly disadvantage Brazil. Caught in a discursive fog of constructing the identity of a rising regional and global power, Brazil has damaged its political, normative and economic infrastructure (Chapter 4). In the Sino-Peruvian case, it is inadequate to speak of collective identity building. Instead, China and Peru have made use of productive power to make the commercial scope of their partnership clear to the outside, and especially to the US—Peru’s longstanding ally. Peru’s choice to engage with China on the basis of an FTA holds strong symbolism as this kind of instrument is rejected by most left-leaning states who oppose the US in its policies of economic regionalization and globalization. In this sense, Peru’s self-understanding in the regional context also shapes China’s identity in Latin America as well as the way the US may perceive China’s presence in the region. In fact, cooperation with Peru allows China to portray itself as a “pragmatic” power with no deliberate interest to impose the China-Model on Latin American states and hence reduce the noise of an ideological confrontation with Washington. The negative effects for the Peruvian economy are not visible from a macroeconomic perspective, but they are most problematic to its institutional infrastructure and long-term socio-ecological balance.

Finally, it is important to note that China has established a comprehensive strategic partnership with both Brazil and Peru despite obvious disparities in terms of size, power, and scale. The productive power of this diplomatic instrument manifests itself in several ways. First, it frames China’s relationship with its “partners” in exclusively positive terms and hence deviates the participant’s as well as the audience’s attention from the collateral damage induced by two relationships driven substantially, if not mainly, by the extraction of finite resources. Second, the emphasis on “partnership” actually distorts the positions of structural inequality, which stand in the way of a mutually beneficial relationship, even if China committed to playing the “benign hegemon.” Third, because China is the “partner” who decides on the timing and scope of a given relationship, “strategic partnerships” are first and foremost China’s

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hierarchical instrument to produce the kind of subordinated partners it would like to incorporate into its own process of economic and political transformation. Productive power is hence crucial, because it not only produces a “benign” identity for China, but it also generates the conditions of consent needed for Beijing to minimize the risk of its—structurally disadvantaged—partners opposing resistance to its extractive agenda.

6.4 The compulsory power of access and control

The political legitimacy of the CCP hinges upon its assertiveness to restore China’s historical position of wealth and power while systematically improving and protecting the living conditions of the Chinese people (Yu 2015). As the chosen pathway to achieve these crucial goals is heavily, and increasingly, reliant on external sources of oil and minerals, CCP must “go out” and establish control of these resources overseas. These section analyses the extent to which compulsory technologies of power can be identified in China’s strategic approach to Brazil and Peru, while asking whether these two Latin American states have developed any kind of coercive capacities in relation to Chinese actors.

6.4.1 China: seeking control of control

One of the key questions about the target efficiency of Chinese resource diplomacy in Latin America is the extent to which China has applied coercive means to gain control of oil and minerals in a largely heterogeneous context. The resulting analysis in Chapters 4 and 5 reveal a pattern of how China intends to gain long-term access to foreign subsoil resources by controlling the actors in charge. Chinese diplomacy has insisted on “non-interference” as a way to define and enhance its own qualities as a different and hence superior world power when compared to the US. However, China’s resource policies have been certainly productive of structurally coercive effects inasmuch as important parts of the Latin American subsoil are now peripherally (and perhaps irreversibly) connected to China’s socio-economic metabolism. While this point is treated in more detail in the next subsection, the focus here is to name the power mechanisms that have enabled Chinese authorities to produce a relationship of structural control to the advantage of China without resorting to the coercion.

China knows that a relationship of structural inequality to its advantage requires institutional carrots in exchange for strategic resources (Subsection 6.2.3). This is why “win-

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win” rhetoric has been so effective, especially with the BRICS state Brazil. In terms of rhetoric, it has improved Brazil’s status, thus effecting change in Brazilian authorities’ readiness to promote counterhegemonic development policies and autonomy discourses via increasing dependence on Beijing. It also explains why Peruvian business elites have been more than willing to meet China’s rising demand for resources in exchange for rising flows of investment and international status in the Asia-Pacific. For them, China’s transactional rationale is not challenging but reinforcing their ideological commitment to neoliberal values and discourses inherited from Washington. The Peru analysis demonstrates that if Washington’s values work to the advantage of China, then China will leverage such ideational infrastructure to gain control of actor’s behaviors and, by extension, control of the underground.

The use of physical force and non-physical violence to alter the behavior of actors and gain control of subsoil resources is nonetheless relevant yet dependent on the social context in which resource extraction is historically embedded. In Brazil, for instance, the government does not need to use physical force to enforce the extraction of oil and meet the interest of its clients. Indeed, broad segments of society have historically recognized the development of the oil industry as a legitimate, collective investment as long as the state remains in control of production, extraction, technology, and rent distribution.104 Social resistance is not directed against the expansion of oil extraction per se but against the failure of the political class to convert the nation’s resource endowments into a solid basis for social development and progress.

The Sino-Peruvian case has its own implications. Given the urgency to pave the way for foreign, and especially Chinese, investment in mining, the Peruvian State has mobilized different coercive technologies to silence resistance in the urban households and in towns and villages near the mines. The Peruvian government has mobilized a national discourse to recognize those who comply with the expansion of the extractive frontier as the “entrepreneurial forces” of the nation while criminalizing those who oppose the untamed expansion of extractivism as “obstacles to the national interest.” The untamed expansion of mining concessions covering approximately one-third of the nation has been subject to increasing levels

104 In fact, the broad popular basis that brought and maintained the Worker’s Party in power from 2003 to 2016 expected the discovery of Pré-Sal to take effective policies against the reduction of poverty and inequality to a new level of coverage and success. Increasing corruption across the political class resulting from neopatrimonial structures prevented this wishful thinking from materializing. Author’s observation of public protest against President Dilma Rousseff during impeachment voting in Congress. Brasilia, 17 April 2016. 168

of localized resistance. Historically, mostly indigenous and local actors have been negatively affected by the social and ecological effects of large-scale mining. Many of these actors stand in radical opposition to the predatory worldview of transnational capitalism. In response, Peruvian legislation provides public police and military forces at the service of Chinese mining companies. For China, gaining control of the state and its associated clientele means greater control of key resources. In this endeavor, Chinese mining companies will go as far as the host state allows.

6.4.2 Latin American oil and minerals: what is at stake?

As argued throughout this thesis, oil and minerals are important sources of power. Their unique yet exhaustible materialities are crucial in shaping the capacities of social actors to produce and reproduce their material and ideational conditions of existence. For the CCP authorities, the failure to secure much-needed sources of fossil energy and industrial inputs overseas would call the preservation and consolidation of China’s rise into question. Such an event would involve a profound deterioration, if not a partial collapse, of the growth-based, political legitimacy of the CCP (So 2014; So, Chu 2016; Yu 2015; Zhang 2006). Limiting China’s core interests in Latin America to issues of security of supply would be, however, short-sighted. China’s resource diplomacy is not just about liquids and metals. China’s increasing capacity to gain control of oil and minerals is hence tied to a growing potential to directly control the political and economic choices of resource-rich Latin American states in the future. Whether China will use its growing economic influence to gain specific political outcomes remains to be seen. Brazil and Peru lack the means to put pressure on China by stopping oil and minerals exports.

There is good reason for concern as Latin American governments actively endorse the expansion of extractive frontiers as the vehicle of progress and international emancipation in the twenty-first century (Espinosa, Rodríguez 2017). Latin American literature has rightly denounced extractivism expansion as a pervasive malformation of state-society relations which is detrimental to nature (Acosta 2013; Gudynas 2011, 2014, 2014, 2015; Svampa 2013, 2015). The results of this thesis reinforce these assertions while stressing China’s substantial yet analytically neglected contribution to this problematic phenomenon. China’s resource policies produce structurally coercive effects inasmuch they integrate substantial parts of the Latin American subsoil into its own economic transformation through structural, institutional and productive forms of power. In fact, China’s intensifying and spreading presence in the region has implications not only at the level of the national state and its institutional ramifications with 169

regards to the subsoil resources. Given that oil and minerals are addressed bilaterally, regional integration is less likely to become effective in the future as there is an observable pattern of regional fragmentation. While Brazilian foreign policy is built on the BRICS and its objectives, Peru provides a counterbalancing US response. Hence, China must not be surprised when its efforts to connect the Brazilian coast with the Peruvian and increase the efficiency of resource transportation is blocked by diplomatic differences between its partners.105 The inability of Latin American states to leave their place in the periphery of global labor division in the twenty- first century is at stake, which suggests that each state must reconsider the disproportionate use of extractive power as a means to achieve this long-desired objective. Will the political and economic weight of a single state be capable of balancing China’s extractive power? The analysis of the Sino-Brazilian and Sino-Peruvian cases provides a strong basis of evidence from which to state that this will most likely not be the case.

6.4.3 Gaining control of the whole package under US hegemony?

The two previous subsections have demonstrated Beijing’s capacity to structurally assemble substantial parts of the resources available from the Brazilian and Peruvian subsoil into China’s economic metabolism. They also demonstrated that “controlling resources means more than controlling resources.” Indeed, US behavior in each of these two contexts suggests that Washington has balanced Chinese influence wherever indispensable (Brazil) and taken note of growing economic ties wherever evident yet not necessarily threatening (Peru).

China and the US are the two most influential world powers and both are, to different degrees, dependent on external sources of oil. Access to foreign sources of oil is important to the US but absolutely crucial to China. Hence, with regards to Sino-US competition over oil resources in Brazil, the first aspect to note is that “access to oil matters, but the geopolitics of oil matter more.” The US does not need to worry too much about losing access to Brazilian oil in the mid-term because the latter’s economy is still significantly reliant on its imports. The US is still an important market for Brazilian products and, at the same time, it still possesses powerful compulsory capacities to alter Brazilian behavior in terms of oil supply should

105 Romero, Simon (2015): China’s Ambitious Rail Projects Crash Into Harsh Realities in Latin America. In The New York Times, 10/3/2015. Available online at: https://www.nytimes.com/2015/10/04/world/americas/chinas- ambitious-rail-projects-crash-into-harsh-realities-in-latin-america.html?mcubz=0, accessed 9 June 2017. See also: Reuters (2016): Peru's president throws cold water on Chinese railway proposal, 9/13/2016. Available online at: http://www.reuters.com/article/us-peru-china-train/perus-president-throws-cold-water-on-chinese- railway-proposal-idUSKCN11J2I1, accessed 9 June 2017. 170

circumstances call for such a response. The greatest risk of a hegemonic challenge comes from the geopolitical value of a deepening oil nexus between the two BRICS states and a potential strengthening of Brazil’s counterhegemonic capacities in Latin America. The US may be able to counterbalance disruptions of oil supply from Brazil, but it cannot afford losing global and regional influence to Brazil and the BRICS in the long term.

Thus, the US has responded in several ways. The first was the US$2 billion loan in 2010 right after China’s first major Petrobrás loan of US$10 billion (Moreira 2016, p. 188). This was followed by a presidential request in 2011, in which Barack Obama asked Dilma Rousseff to embrace Washington as “one of Brazil’s best oil customers” by accepting technical and financial assistance for Pré-Sal (The White House 3/19/2011). It was revealed in 2013 that the US intelligence was monitoring high-level decision-making and sensitive data to gain more leverage in Brazil’s oil sector (Fantástico 2013). The loan and presidential request position the US behind China, which might explain why intelligence activity was later employed. All three responses show the American use of structural, institutional, and compulsory forms of power over the Brazilian oil industry.

Washington’s reaction to the Sino-Peruvian partnership has been radically different. In fact, no evidence of balancing activities could be identified. However, evidence of strategic concern has been observed. As argued in Chapter 5, Peruvian authorities have been careful of setting the terms of interaction with China. This might be surprising given Peru’s structurally disadvantaged position vis-à-vis China. However, Peru’s institutionalized position to establish the WTO framework and the US neoliberal values as the main strategy of development and global insertion have contributed to Peru’s capacity to determine the rules of the game with China. Given China’s own record of partial absorption of neoliberal norms and a strong commitment to the WTO integration, the signing of an FTA with Peru has provided a most workable bilateral format. Moreover, the avoidance of politically sensitive rhetoric against the US as well as Peru’s decision not to take on financial burdens with Chinese banks and remain close with Washington’s IFIs have been key in reducing the noise of a hegemonic challenge.

Additionally, the US concerns over the security of copper supply are significantly smaller thanks to important levels of domestic production (USGS 2016).106 This makes copper

106 US production of copper was similar to that of Peru and equivalent to seven percent of the world’s total production in 2014. This situation might change in the future, given the growing importance of this raw material in the development of renewable energy, electronic merchandise and large infrastructure development. 171

shortages a much more pressing concern for China, given the enormous scale of infrastructural needs for its massive electricity coverage. However, the US authorities are still concerned by the deepening Sino-Peruvian partnership (Humphries 2015). In fact, interviews with Peruvian officials at the Ministry of Foreign Affairs reveal the US concerns over China’s growing economic clout and the risk that this could translate into an increasing level of geostrategic leverage to Beijing’s advantage in the Asia-Pacific realm. The Peruvian coast is a valuable geostrategic asset, not only in terms of market and resource accessibility but also in terms of military and naval presence. Thus, the US Navy is tasked with monitoring China’s growing economic presence in Peru. As long as the Sino-Peruvian partnership refrains from pushing into the security realm, trade and investment with minerals may well continue to rise.

6.5 Chapter Conclusion

The main goal of this chapter was to identify the intervening factors that shape China’s resource policies and the respective strategic responses on behalf of Brazil and Peru as two different cases of states with a deepening relationship with Beijing. A priori, both states were selected because of the similarly expanding weight of resource extraction as a driver of their bilateral interaction with China. The question of how resource extraction has shaped China’s relationship with two actors accounting for seemingly different structural positions in the global economy as well as contrasting institutional frameworks and choices in terms of development and global was raised at the beginning of the research process. The analysis of each of these two cases was grounded on the assumption that Chinese-Latin American relations in the twenty-first century are best understood through the lens of extractive power defined as the social production of extractive effects that shape the capacities of actors to determine their own circumstances (Barnett, Duvall 2005a; Bridge 2011).

The analysis of this chapter allows for several conclusions to be drawn. The comparative analysis of the Sino-Brazilian and Sino-Peruvian cases demonstrates that China’s resource policies are driven by a highly adaptive behavior. Chinese authorities take careful note of the specific institutional arrangements and elitist power structures in command of the resources of interest to Beijing. Further, it is important to state that Latin American states are part of China’s global strategy to establish a long-term relationship with the so-called developing world. However, the cases of Brazil and Peru deliver contrasting insights as to how these ties can evolve. For instance, China’s resource policies have been both proactive (Brazil) and reactive 172

(Peru). In both cases, China has leveraged its outstanding position of structural dominance on the demand side of the markets, its unparalleled financial arm, and its increasingly visible organizational SOEs infrastructure to establish deepening trade and investment relations with Brazil and Peru. In the case of Peru, however, lending has not been part of Beijing’s bilateral instrumentarium, given Peru’s own choice to hold on to longstanding financial ties with Washington’s international financial institutions (IFIs). The analysis shows that China has been both pragmatic and ideological depending on each state’s political proximity to the US; it has also been adapting the use of diplomatic language to these specific circumstances. More decisively, Chinese diplomatic rhetoric has been used as a means to blur growing structural inequalities through the idea of the BRICS in the case of Brazil or as a means to communicate its compliance to US hegemony in the case of its interventions in Peru.

Furthermore, this chapter shows which contextual factors matter and how they matter. It has become clear that the structural positions of actors may shift across time depending on specific global events. The long period of high prices privileged the resource exporters, while structural power has continuously shifted in favor of China. An important factor has been the former’s increasing reliance on extractive policies to secure economic and fiscal stability through Chinese imports and investments. Additionally, China could gain significant leverage vis-à-vis Western powers in the context of the global financial crisis of 2008/2009. Notably, the internal and historical conditions of the resource-exporting states are important variables determining the way in which the relationship with China has unfolded. This has played an important role in terms of how China distributes and manages international status as an institutional carrot to produce the conditions of consent required for a relationship based on structural inequality to consolidate itself in the long term. Finally, this chapter highlighted the fact that resource extraction may be carried out on equal footing in institutional terms. Yet, the extractive effects produced in and through a deepening partnership with China produce unequal advantages and disadvantages on both sides. Ultimately, the question of who benefits is key and is addressed separately in the concluding chapter.

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7. Conclusion

More than fifteen years after China intensified its economic relations with the world, the hopes of different Latin American states to leave the global periphery through expanding ties with Beijing remain unfulfilled. This thesis engaged with the comparative analysis of Brazil and Peru as two influential yet diverse cases of Latin American states aiming to mobilize their resources to enhance bilateral relations with China. Gaining a thorough understanding of Chinese- Brazilian relations was of great importance, since there was no study available explaining the kind of power at work in China’s quest for Brazilian oil.

While China’s structural position vis-à-vis most Latin American states is disproportionately advantaged, Brazil stands out as an important regional power and BRICS- state that cannot be commanded at will by the means of compulsory power. Furthermore, the case of Peru was considered of great importance to the debate on China and Latin America, given this state’s close and longstanding relationship of ideological and political proximity to the hemispheric hegemon, i.e. the US. The case of Peru raised the question of how China’s resource policies would unfold in a state, which has long embraced the norms and values of the Washington Consensus as its normative and institutional choice for development. From a comparative perspective, the cases of Brazil and Peru evidenced a high level of divergence in terms of their structural capacities and institutional choices to negotiate extractive trade and investment with China. Ultimately, a thorough understanding of these two cases promised to deliver contrasting and differentiated analytical elements to make sense of China’s resource policies in the largely heterogeneous context of Latin American states.

The question at the core of this research design focused on the ways and the extent to which China’s quest for oil and minerals has shaped the Sino-Brazilian and Sino-Peruvian ties over the period 2000-2015. This question was addressed through the lens of extractive power, which the author defined as “the collective transformation and appropriation of nature in and through social relations that enable some actors to gain better command of their own circumstances while others remain disadvantaged” (Barnett, Duvall 2005a; Bridge 2011). With the objective of gaining a comprehensive understanding of how extractive power is at work in China’s resource policies towards Latin America, the study built on Barnett and Duvall’s taxonomy of power (Barnett, Duvall 2005a). This theoretical lens articulates the concepts of structural, institutional, productive, and compulsory power into a single analytical framework

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in order to analyze the diversity of power-effects generated in and through extractive relations of economic diplomacy (ibid.). Taking this analytical framework as a point of departure, the research was set to identify the extent to which Brazil and Peru have been differentially capable of taking advantage of China’s critical levels of demand for oil and minerals to enhance their political and economic conditions in the international system.

In general, the study at hand confirms the fact that China’s resource policies in Brazil and Peru have produced two distinct relationships of structural dependence with case-specific characteristics. The results of this thesis demonstrated that the Sino-Brazilian tie has developed into a South-South relationship of structural subalternity to the disproportionate advantage of China, while the Sino-Peruvian tie depicts a pattern of deepening asymmetries unfolding under the norms and values of the Washington Consensus. In each case, China has relied on distinct forms, sources and mechanisms of power and mobilized them with different levels of intensity to secure strategic resources in different contexts. Similarly, China’s resource diplomacy has had distinct repercussions on Brazil’s and Peru’s capacities to determine their own political and economic circumstances in the context of a rapidly changing world order. This chapter brings together the findings of the thesis and situates them in a broader discussion on Chinese-Latin American relations. Section 7.1 highlights the analytical contributions of the thesis. Section 7.2 provides a short reflection on the production of South-South dependency. To conclude, Section 7.3 provides final remarks on the strategic and analytical implications of the thesis while outlining suggestions for future research.

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7.1 Making sense of China’s extractive power in Brazil and Peru

This study has shown that resource extraction has been the single most important driver of economic interaction and diplomatic exchange between China and Brazil and between China and Peru over the period 2000-2015. Interestingly, China’s resource policies have been target- efficient to a similar extent in the context of Brazil’s state-led oil industry and Peru’s liberalized copper sector. Although to different degrees and under diverging conditions, both states have significantly expanded resource-based exports to China. Both states have further welcomed Chinese capital in the form of investment (Brazil, Peru) and/or loans (Brazil) to intensify resource extraction. One of the main drivers to expand a bilateral relationship of trade and investment with China has been to maximize oil and mineral rents to promote domestic and international agendas. Given the significant differences in the structural and institutional conditions of Brazil and Peru, two important questions must be addressed by way of conclusion: what are the different approaches to power that Beijing has pursued to stimulate higher levels of access to and/or control of resources in Brazil and Peru? How and to what extent has China’s critical need for resources shaped the Sino-Brazilian and Sino-Peruvian partnerships in the period under study? Figure 14 provides an overview of the answers to these questions.

Figure 14 Power Taxonomy of China's Resource Diplomacy in Brazil and Peru

Brazil Peru (state-led oil) (liberalized copper)

dependence /

structural very high high asymmetry

adaptability / effects institutional very high high reward of power of

s consent / productive very high low identity

form access / compulsory low very high control

structural institutional-productive institutional-compulsory

kind of relationship to China

Source: author’s illustration, based on Barnett and Duvall (2005a) and the results of this thesis.

Figure 14 illustrates the application of Barnett and Duvall’s taxonomy of power (Barnett, Duvall 2005a) to make sense of China’s resource policies in Brazil and Peru by tying

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together the results discussed in Chapters 4, 5, and 6. The taxonomy sheds light on the extent to which structural, institutional, productive, and compulsory forms of power have shaped China’s resource policies in Brazil and Peru over the period 2000-2015. 107 The illustration provides an account of the effects generated by each form of power and states the general and specific features of the Sino-Brazilian and Sino-Peruvian ties respectively. The taxonomy shows the four forms of power on the left column. The two columns in the center display the extent (the level of intensity) to which China relies on each form of power in order to access resources in the case of Brazil’s state-led oil industry as well as in the case of Peru’s liberalized copper sector. On the right column, the effects108 of each form of power are outlined using two keywords. At the bottom, the arrows point at the general and specific quality of the Sino- Brazilian and Sino-Peruvian partnerships. This part of the illustration shows that, albeit to different degrees, China’s relationships with Brazil and with Peru are substantially shaped by the workings of structural power. In its specific formation, however, the Sino-Brazilian case is characterized by its additional emphasis on institutional and productive forms of power, leading to a South-South partnership based on structural subalternity. By contrast, the Sino-Peruvian case is characterized by its strong emphasis on institutional and compulsory forms of power, leading to a relationship of structural control with China’s resource policies evolving under the norms and values of the Washington Consensus. Table 4 and Table 5 provide a separate taxonomy of power of China’s resource diplomacy in Brazil and Peru respectively. Each table specifies the indicators as well as the supporting evidence used to develop a qualitative appraisal of how extractive power is at work in each of these two relationships.

The key question underlying Tables 4 and 5 is about the extent to which each form of power is relevant to the target-efficiency of China’s resource policies in Brazil and Peru. There are several conclusions that can be drawn on the basis of these findings as illustrated in Figure 14. The first conclusion is that structural power is the single most important power informing China’s resource policies towards Brazil and Peru. There are three important sources of structural power determining China’s capacity to gain access to and/or control of underground resources in Latin America. These are: 1) China’s overwhelming position of global dominance

107 The extent to which China has relied on different forms of power for each case is indicated in terms of an intensity scale (very high, high, medium, low, very low, none). The way in which the specific intensity was defined for each case is explained in more detail in Tables 4 and 5, which provide a separate taxonomy of power for the cases of China’s resource diplomacy in Brazil and Peru respectively. 108 These effects are found in the case of Brazil and Peru but apply to different degrees and under specific conditions in each case. 177

on the demand side of the resource markets, 2) China’s uncontested position as the largest holder of foreign reserves, which translates into unprecedented capacities for Beijing to allocate investment and loans in the extractive sectors of its own interest, and 3) China’s increasingly competitive fleet of SOEs, which benefits from substantial diplomatic and financial backing from Beijing to secure access to resources overseas.

Table 4 Power taxonomy of China's resource diplomacy in Brazil's oil sector

Form of Indicator Level* Key supporting evidence Relevance** power second most important export market (17,5%); China's influence as an importer very high China is dependent on external sources but only of Brazilian oil 2% of its oil imports come from Brazil China holds important stakes but must compete China's influence as an investor Structural high with others; Brazilian government keeps control very high in the oil sector (>50%) prime lender of last resort, two major loans China's influence as a creditor high worth US$10 billion each to Petrobrás Multilateral institution building, very high BRICS, NDB, G20 coalitions COSBAN, China-Brazil Strategic Global Dialogue, two Joint Action Plans (2010-2014; Institutional Bilateral institution building very high very high 2015-2021); Decennial Plan for Bilateral Cooperation (2012-2021) Comprehensive Strategic Partnership (highest Strategic partnership (SP) very high level of SP) Joint legitimation of economic globally, as “major developing countries”, very high interests through BRICS-partnership Joint legitimation of political internationally, towards the “democratization of Productive very high very high interests international relations” and “multipolarity” BRICS, “major developing countries”, “South- Production of collective identity very high South-partners” guaranteed oil shipments to China are the result Coercive conditionalities to gain medium of bilateral bargaining but oblige Brazil to control of oil resources deliver Compulsory Use of force none no evidence found low China must balance its power projection with the Potential to use compulsory very low US and Brazil; Brazil is a key actor and means in the future important market in the Western Hemisphere

* Level of intensity observed in the phenomenon described by each indicator, ranging from none=no evidence found; very low=minimal levels of evidence found, low=some level of evidence found, medium= ambiguous level of evidence found, high=significant levels of evidence found, very high=exhaustive levels of evidence found. ** Level of relevance of each form of power for China’s resource diplomacy, based on the level of intensity of the three indicators observed for each form of power. Quantitative data sources: The Observatory of Economic Complexity, The Atlas of Economic Complexity, The China Global Investment Tracker, UNCTAD, EIA, Gallagher, K. P., & Myers, M. (2014). Author’s illustration, on the basis of a comprehensive analysis of qualitative and quantitative data in Chapter 4.

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Table 5 Power taxonomy of China's resource diplomacy in Peru's copper sector

Form of Indicator Level* Key supporting evidence Relevance** power single most important export market (55%); China's influence as an export very high China is the third most important producer, and market for Peruvian copper the greatest importer (33% from Peru) China holds important stakes and has significant China's influence as an investor Structural very high control of investment in Peruvian mining high in the copper sector of Peru (>33%)

China's influence as a creditor low one small loan (US$0,05 billion)

Multilateral institution building, low cooperation within APEC, WTO coalitions

Institutional Bilateral institution building high Peru-China FTA 2009 high

Comprehensive Strategic Partnership (highest Strategic partnership (SP) very high level of SP) Joint legitimation of economic domestically, regionally and internationally very high interests within APEC Joint legitimation of political Productive none no evidence found low interests “pragmatic partnership,” emphasis on “economic Production of collective identity very low and commercial complementarity” Coercive conditionalities to gain recognition of China’s MES as condition to start very high control of copper resources FTA negotiations purchase of public security services from Compulsory Use of force high Peruvian government to repress local protests in very high support of Chinese SOEs China’s economic influence in Peru is rapidly Potential to use compulsory very high growing and has strong potential to translate into means in the future coercive capacities in the near future

* Level of intensity observed in the phenomenon described by each indicator, ranging from none=no evidence found; very low=minimal levels of evidence found, low=some level of evidence found, medium= ambiguous level of evidence found, high=significant levels of evidence found, very high=exhaustive levels of evidence found. ** Level of relevance of each form of power for China’s resource diplomacy, based on the level of intensity of the three indicators observed for each form of power. Quantitative data sources: The Observatory of Economic Complexity, The Atlas of Economic Complexity, The China Global Investment Tracker, MIMEM, BCRP, Gallagher, K. P., & Myers, M. (2014). Author’s illustration, on the basis of a comprehensive analysis of qualitative and quantitative data in Chapter 5.

The extent to which China relies on and combines the above-mentioned sources of structural power is, however, different in the cases of Brazil and Peru respectively. The relevance of structural power is very high in the case of China’s resource policies towards Brazil and high in the case of Peru. In the case of Brazil, China is constrained to mobilize all sources of structural power available, making use of trade, investment, lending and different SOEs to gain access to but not necessarily control of Brazilian oil. In the case of Peru, the focus clearly lies on trade and investment to secure control of entire mines. This difference is, on the one hand, due to China’s own critical dependence on external sources of oil (>50% of domestic oil

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consumption)109, which forces Beijing to mobilize trade, investment and lending mechanisms to gain access to Brazilian oil. On the other hand, China has taken advantage of Peru’s own strategy to attract foreign direct investment and grant transnational mines long-term control of entire mines based on mining concessions. By contrast, the Brazilian government has deliberately maintained a considerable level of control over its oil resources (>50% in Pré-Sal investment, >30% in other deposits), which requires China to exert more structural pressure on its BRICS-fellow and explains why China is nevertheless unable to gain total control of any particular drilling well in Brazil.

Notwithstanding its structural advantages in relation to Peru, Brazil faces a growing export dependence on China (35%), while China only exports a minimum share of its oil from Brazil (2%). This means that China may require lower levels of structural pressure on Brazil in the future as the latter faces increasing dependence on the former. Additionally, Brazil has grown increasingly dependent on China’s loans-for-oil (2 loans worth US$10 billion). This makes it difficult for the state-led company Petrobrás to negotiate better terms for its oil exports to China in the upcoming decade, hence reinforcing Brazil’s subaltern position in a creditor/debtor relationship. In Peru, by contrast, Chinese loans are not visible as an instrument of structural power. This is because different Peruvian governments have been keen to maintain a sound credit rating to access different kinds of loans on the international market while cultivating a creditor/debtor relationship with the World Bank and IMF. Nonetheless, China’s two other sources of structural power, namely trade and investment, show important levels of intensity in the case of Peru. For instance, China holds important stakes of total investment in mining (>30%) while being responsible for a substantial share of total Peruvian copper exports (55%). In addition to its increasing dependence on trade and investment relations with China, the Peruvian government has limited capacities to regulate mining activities, especially in the case of mining concessions, which represent almost one-third of the Peruvian territory (RED MUQUI 2015).

China’s resource diplomacy has also relied on important levels of institutional power, although the specific approach and level of intensity has been different in in each case. China’s resort to institutional power has been very high in the case of Brazil and surprisingly high in the case of Peru. An important feature of China’s resource diplomacy has been its capacity to adapt

109 All percentages in this paragraph are given for the year 2015 unless otherwise stated. 180

its resource policies to the different normative frameworks —state-led or deregulated— that govern the extractive industry of its interest. At the multilateral level, Beijing has resorted to “forum shopping” (Forman, Segaar 2006), which is an opportunistic strategy through which China “picks and chooses” to support less powerful states in their efforts to attain “club membership” in distinct international fora (ibid.). Through this kind of “diminished multilateralism” (Rüland 2012), which is an interest-led as opposed to a norms-based approach to multilateralism, China has intrinsically “remunerated” Brazil and Peru with higher international status in exchange for strategic resources and structural subalternity. Brazil’s membership in the BRICS, the New Development Bank (NDB), and Sino-Brazilian cooperation in the G20 are cases in point. China’s announcement of its FTA with Peru at APEC 2008 and its support for Lima to host this high-level forum in 2016 add to the evidence.

At the bilateral level, however, important differences in terms of institutional power must be noted. Upon Brazil’s request, for instance, China and Brazil have established high- level bilateral institutions to manage the bilateral agenda (Subsection 4.2.2). These elements of institutional power are rather absent in the Peruvian case. However, despite Peru’s position of structural asymmetry in relation to Brazil and China, Beijing has been constrained to develop an adequate entry strategy (FTA) to gain control of Peruvian minerals without directly challenging Peru’s longstanding embrace of the norms and values promoted by the US through the so-called Washington Consensus. The fact that institutional power has had such an important function in the production of the Sino-Peruvian partnership is a surprising finding, which shows that small states can—to a limited extent and under certain conditions—compensate structural disadvantages vis-à-vis China by sticking to the US hegemonic norms and by drawing on institutional memberships in international fora.

Strikingly, productive power is a crucial determinant of China’s capacity to produce extractive effects in Brazil and to a much lower degree in Peru. The relevance of productive power, in fact, exhibits very high levels of relevance in the case of Brazil and low levels of relevance in the case of Peru. With the objective to generate favorable conditions of political consent and shape social subjectivities of partnership in Brazil and Peru, China has set the tone and chosen its diplomatic language according to the relevant political agendas and audiences of each state. Beijing’s attention to the political and economic programs of the domestic elites in control of resource extraction has been an important factor affecting how China exercises productive power in each case. For instance, Beijing has put enormous diplomatic effort into

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and at the same time benefited from the creation of collective identities in the case of Brazil, while the latter has profoundly embraced international recognition as a BRICS-state despite growing structural inequalities. The case of Peru has been very different. Given Lima’s political proximity to Washington, this bilateral tie has produced a common narrative of partnership based on “mutual benefit” and “commercial pragmatism,” but no effort has been made to portray the Sino-Peruvian tie in the light of a global political alliance as in the case of Brazil.

Finally, with regards to compulsory power, the structural and institutional differences between Brazil and Peru have played an important part in terms of the extent to which China has resorted to coercive means in its relationship with each state. The use of coercive means as a strategy for Beijing to gain control of resources has been low in the case of Brazil and very high in the case of Peru. In the case of Brazil, China has been able to gain prominence as the single most important “new coming investor” in the Brazilian oil industry and attained guaranteed exports of oil in exchange for conditionally approved loans. Nonetheless, these extractive effects furthering China’s security of supply, have been the result of intense bilateral negotiation at the highest level and not necessarily the result of coercive conditionalities or sanctioning threats. Chinese companies have been able to secure important shares of oil drilling projects in Pré-Sal, but oil resources are largely regulated, owned, and controlled by the Brazilian State. Hence, compulsory means have not represented an important aspect of China’s resource diplomacy in Brazil, although this situation may change as Brazil’s structural dependence on the Chinese economy expands, and China’s position as an economic, political and military superpower consolidates.

In the Peruvian case, Chinese leaders obliged Peruvian authorities to grant China Market Economy Status (MES) as a pre-condition to negotiate a bilateral free trade agreement (FTA). In order to attain a similar outcome in Brazil, Chinese authorities saw themselves obliged to engage in diplomatic negotiation at the highest level. Moreover, other problematic forms of compulsory power could be identified in the case of China’s resource diplomacy in Peru. Given the legalized option for transnational mining companies to purchase public security services, Chinese mining companies in Peru have been able to resort to compulsory power as a means to enforce resource extraction against local protesters (Subsection 5.4.2). China’s future potential to control the behavior of different stakeholders in Peru is noteworthy, especially since the latter’s economy grows increasingly dependent on China’s unparalleled demand for copper

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resources, which are, in fact, similarly available but not as profitable and ecologically feasible to exploit at home.

Returning to the question about the specific strategies that Beijing has pursued to stimulate higher levels of access to and/or control of strategic resources in Brazil and Peru, some final remarks deserve close attention. The power taxonomy of China’s resource policies in Brazil and Peru evidences Beijing’s highly adaptive, opportunity-driven, and target-oriented strategy to secure strategic resources through all four different forms of power. Differences in context, however, are key shapers and enablers of the specific forms, dynamics and intensity with and through which extractive power unfolds. China’s power to produce extractive effects in Brazil and Peru is indeed contingent upon several contextual factors, including each state’s structural position in the global economy, its international status in global governance, domestic power structures, the norms and values governing its extractive economies, as well as the level of political and ideological proximity to the hemispheric hegemon, i.e. the US. These factors affect Beijing’s power projection and shape the specific formation and dynamics of China’s long-term relationship with Brazil and Peru. Further research on Chinese-Latin American relations will have to take careful account of these and other relevant contextual factors and identify the extent to which different states are capable of translating China’s rise into long- term prosperity or a new form of dependency.

7.2 The production of South-South dependency

One of the main purposes of this thesis was to identify the extent to which Brazil and Peru have been differentially capable of leveraging the extraction of subsoil resources as a source of self- determined development and global insertion in relation to China. The results demonstrated that the Sino-Brazilian tie has developed into a South-South pattern of subalternity to the advantage of China, while the Sino-Peruvian tie depicts a pattern of growing asymmetries unfolding under the norms and values of the Washington Consensus. The two cases selected for the study deliver important insights about the impact of China’s growing demand for resources on the political and economic conditions of Latin American states. The analysis of structural power demonstrated the great challenges that even a large and relatively well-diversified Latin American economy like that of Brazil faces to avoid trade dependency patterns in relation to China. Brazilian exports hinge upon three basic products, namely soy, minerals, and oil, three- quarters of which have grown dramatically reliant on Chinese imports. This is even more 183

alarming for the case of Peru, where Chinese imports account for more than a half of Peruvian copper exports, the country’s new platform for growth and international commerce.

Through a complementary analytical lens, the concept of institutional power exposed China’s careful attention to Brazilian and Peruvian ambitions for club memberships and international recognition in a reconfiguring world order. As a result, China has granted Brazil and Peru important institutional “carrots” using its growing influence on multiple international arenas. Brazil’s China-supported membership in the BRICS and China’s symbolic support of Peru within APEC are cases in point. Brazilian and Peruvian authorities have thus been receptive to China’s strategy to gain access and control of strategic resources in complying exchange for international status. At the same time, China’s international status has grown disproportionately higher since cooperation with Brazil and Peru amplifies Beijing’s institutional reach into Washington’s sphere of influence and thus enhances its status as the most influential power behind the US.

This situation clearly benefits leading Chinese politicians working towards the institutionalization of the Chinese Dream. However, it also benefits different Latin American elites. In fact, China’s quest for oil and minerals matches the self-empowering and/or self- enriching interest of privileged groups in control of the extractive economies of interest to Beijing. There would be no Sino-Brazilian and Sino-Peruvian tie with the observed intensity and dynamism without this crucial component. For resource-rich Latin American states, nonetheless, the institutional incentives to gain international status will not balance the social, political, ecological, territorial, and economic disequilibrium generated through the untamed expansion of the extractive frontier to feed China’s material needs. In this context, the internal structures of power at play in each of the exporting states are a crucial variable determining the extent to which Brazil and Peru can leverage China’s critical need for resources as a source of self-determined development and global insertion. The imminent risks of China’s rise are an expansion of extractive politics to the detriment of democracy, reprimarization, irreversible ecological imbalances, and the systemic marginalization of the worldviews of disadvantaged populations resisting the expansion of predatory economies of scale.

For Brazil and Peru, the intensification of resource extraction has in fact led to short- term economic and political benefits at best and to long-term dependence on the exhaustible powers from the underground at worst. While China has progressively left the global periphery to become the most important driver of change in the global economy, Brazil and Peru have on 184

their part grown into new relationships of structural dominance and control to the advantage of Beijing. These findings support the assumptions of prior work (Gardini 2012; Schmalz 2013; Jenkins 2012) that pointed at the emergence of “new” forms of structural dominance—a mixture of structural and compulsory power—but did not analyze how such patterns are produced in Sino-Latin American relations. The analysis provided throughout this thesis delivers an explanation of how institutional and productive forms of power contribute to the specific formation of a novel case of South-South inequality.

This phenomenon requires historical contextualization. Concisely, Latin American dependencies on China not only “resemble” (Gardini 2012, p. 125) but also build on prior episodes of colonial rule and North-South asymmetries. In Brazil, Chinese SOEs have bought stakes in Spanish and Portuguese oil companies. Paradoxically, these two nations represent the two colonial powers that ruled Latin America between the fifteenth and the early nineteenth centuries. In Peru, Chinese SOEs have purchased entire mines from Swiss corporations that had previously gained control over resource-rich territories as in the case of the mine Las Bambas. Yet, these new dependencies unfold in a radically new global context as well as in and through novel forms and mechanisms of power. China’s rise is a historical and system redefining moment in and of itself. Great Britain dominated global resource consumption in the nineteenth century, the US in the twentieth, while China takes on this role at the beginning of the twenty- first century. Today, pressing concerns over the status quo of the global economy and the natural limits of the planet are, however, much greater. Therefore, China faces new geostrategic concerns to develop a “grand strategy” (Wang 2011c) that ensures a favorable global environment to service its core interests and anxieties and is sufficiently target-effective in the most diverse circumstances across the Global North and Global South.

7.3 Final remarks

This thesis has shown that China’s strategic projection towards Latin America builds on a comprehensive approach to power, which has thus far lacked theoretical and empirical scrutiny. The results of this thesis question, for example, the unfruitful analytical bias found in the literature that portrays China as either a threat or an opportunity. A multidimensional analysis of power reveals that these two apparently contradictory perceptions are in fact “two sides of the same coin” (Zhang 2016, p. 110). Threat and opportunity actually co-exist and complement each other within China’s omnilateral and comprehensive approach to power. Despite the 185

rhetorical insistence on its condition as a developing country—by the means of productive power—, China is now a great power with critical concerns over “economic security” rising at the same pace of its status (ibid.). Under these conditions, China is constrained to motivate, dominate, reward, and discipline less powerful states according to its strategic interests and circumstantial possibilities of choice.

Against this backdrop, Latin American states are well-advised to take careful note of the above-mentioned factors in order to develop cohesive answers to China’s power projection towards the region. Additionally, it is imperative for Latin American scholars, policy makers, intellectuals, and activists to devote more attention to the ways structural, institutional, productive and compulsory forms of power intersect to produce extractive outcomes that allocate different capacities to different actors (Section 2.3). Latin America will be in a far worse position to engage with an increasingly powerful China without a thorough understanding of how extractive effects are produced in and through social relations of power.

Finally, the limitations of this thesis must be addressed as a way to stimulate further research on the topic. This thesis has laid a strong focus on the bilateral politics of the Chinese- Latin American tie. Latin America’s presidentialism, as well as China’s one-party rule, give way to the dominance of government to government interaction and high-level meetings seeking to promote economic activity. Different views from the periphery of these events have not been sufficiently addressed. This includes non-official Chinese views on Chinese-Latin- American relations, which could bring more analytical detail on how the production of social inequalities in Chinese-Latin American relations relates to the production of social privilege and exclusion within China (see Butollo 2014). The scope of the thesis, which privileged breadth over detail, could not give adequate attention to these important factors. Equally, this thesis has primarily engaged with the political economy of the Chinese-Latin American tie at the beginning of the twenty-first century while the ecological implications of this nexus give way for a large field of inquiry. Future research could also analyze the ways extractive power is experienced and exercised on behalf of local actors exerting resistance to extractive activities by the means of transnational agency.

For the time being, this thesis has contributed a comprehensive analytical framework to shed light on the relationship between oil, minerals and power and provided an example of its implementation using the case of China’s resource policies towards Brazil and Peru. In the process, this thesis has fostered a cross-fertilizing dialog across a largely disconnected literature 186

to make sense of a polarizing and diffuse topic in the emerging field of South-South international relations. The results of the thesis also have practical relevance. As the need to transition away from the fossil economy becomes increasingly pressing, and as China’s wish for international recognition grows stronger, the Sino-Latin American tie could focus on the development of shortcuts and alternatives to oil. However, rising levels of electricity consumption make the case for many more years of global struggles for copper. Hence, the question of strategic and academic relevance is whether the green technologies of the future will be so easily detachable from the extractive relations of power of the present.

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Annex 1: List of interviewees

Interviewee Affiliation / Relevant Position Location / Date

1. Anonymous CEO of Chinese Business Beijing / 16.08.2016

Alessandre de Gusmão Rio de Janeiro / 2. Anonymous Foundation Brazil 22.11.2016

Rio de Janeiro / 3. Anonymous Brazilian oil expert Several talks 04/2016-11/2016

4. Anonymous Critical NGO Peru Lima / 27.02.2017

5. Anonymous Critical NGO Peru Lima / 27.02.2017

6. Anonymous Critical NGO Peru Lima / 02.02.2017

7. Anonymous Critical NGO Peru Lima / 02.02.2017

Lima / 8. Anonymous Peruvian expert in mining Several talks 02/2017- 03/2017

Oil and Venezuela expert, 9. Anonymous Atlanta / 19.03.2016 University of Waterloo

Brazilian government 10. Division of China and Mongolia Brasilia / 18.04.2016 official I

Brasilia / 18.04.2016 Brazilian government 11. Division of China and Mongolia 18.11.2016 official II

Brazilian government Planning Office, Ministry of Foreign Brasilia / 20.04.2016 12. official III Affairs 17.11.2016

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Sao Paulo-Brasilia Brazilian government Division Non-Renewable Energy, 13. Skype conference official IV Ministry of Foreign Affairs 30.11.2016

SEBRAE Small Business Promotion São Paulo / 14. Anonymous Agency Brazil 12.04.2016

APEC Policy Support Unit Freiburg-Singapore / 15. Anonymous Peruvian Lead Negotiator of the Peru- Skype-conference China FTA 16.03.2017

16. Anonymous Peruvian lawyer, expert in mining Lima / 27.04.2017

General Consulate of the People’s Rio de Janeiro / 17. Chinese diplomat I Republic of China in Brazil 22.11.2016

Chinese diplomat II General Consulate of the People’s Rio de Janeiro / 18. Republic of China in Brazil 22.11.2016

Rio de Janeiro / 19. Anonymous Trade and China expert, UNCTAD 22.11.2016

University of Monterrey, Professor in 20. Anonymous Atlanta / 19.03.2016 Social Science

Energy geopolitics expert Universidade Estadual Paulista São Paulo / 21. Anonymous (UNESP) & National Institute for 02.12.2016 Studies on the United States

Industry Engagement Associate at 22. Anonymous Beijing / 17.08.2016 China-Australia Chamber of Commerce

Brasilia Press and Cultural Affairs German Several talks 23. German diplomat I Embassy, Brazil 04/2016 11/2016

Press and Cultural Affairs German 24. German diplomat II Brasilia / 21.04.2016 Embassy, Brazil

Beijing / Department of International Studies, 25. Anonymous Several talks Peking University 08/2016

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Beijing / Indian government 26. Ministry of Finance of India Several talks official 08/2016

27. Anonymous Red MUQUI, critical NGO Peru Freiburg /15.01.2015

Beijing / Department of International Studies, 28. Anonymous Several talks Peking University 08/2016

Brazilian oil expert Rio de Janeiro / 29. Anonymous Institute of Public Security 26.04.2016

30. Anonymous Asia Correspondent, Sky News Beijing / 07.08.2016

Peruvian expert on South-South 31. Anonymous Lima / 04.03.2017 international trade

32. Anonymous Red MUQUI, critical NGO Peru Freiburg /15.01.2015

Peruvian government Ministry of Foreign Commerce and 33. Lima / 28.02.2017 official Tourism

Peruvian government Ministry of Foreign Commerce and 34. Lima / 06.03.2017 official Tourism

Peruvian government Ministry of Foreign Affairs, 35. Lima / 08.03.2017 official I China Division

Peruvian government Ministry of Foreign Affairs, 36. Lima / 08.03.2017 official II China Division

Peruvian government Ministry of Foreign Affairs, 37. Lima / 08.03.2017 official III China Division

Institute of International Relations, São Paulo / 38. Anonymous University of São Paulo 30.11.2016

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Brazil-US expert São Paulo / 39. Anonymous Post-Graduate College of International 02.12.2016 Studies San Tiago Dantas, São Paulo Brazil-US expert Universidade Estadual Paulista São Paulo / 40. Anonymous (UNESP) & National Institute for 02.12.2016 Studies on the United States Beijing / Department of International Studies, 41. Anonymous Several talks Peking University 08/2016

Pontifical Catholic University of Peru, 42. Anonymous Lima / 09.03.2017 Department of International Relations

43. Swiss diplomat Swiss Embassy to Brazil Brasilia / 21.04.2016

Taiwan and China Expert Beijing / 44. Anonymous North-East Asia Strategic Issues, Several talks Russian Academy of Sciences 08/2016

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Annex 2: Key technical definitions

Copper Copper is a non-fuel, metallic mineral, which is a key based on element in the production of electronic applications Sverdrup et al. and in the conduction of electricity. Copper is an (2014) exhaustible resource but it can be recycled without loss of its properties.

Fossil “Remains, imprints or traces of an ancient organism Kurniawan et al. that have been preserved in the rock record. Bones, (2009) shells, casts, tracks and excrement can all become fossils.”

Hydrocarbon “Any organic chemical compound (gaseous, liquid or Ibid. solid) that is composed of carbon and hydrogen. The term is frequently used in reference to fossil fuels, specifically crude oil and natural gas.”

Mineral “A naturally occurring, inorganic solid with a definite Ibid. [emphasis chemical composition and an ordered internal by the author] structure.”

Oil A carbon‐rich fluid material resulting from the natural based on decomposition of organic, i.e. formerly living Kurniawan et al. organisms, which have built hydrocarbon deposits over (2009) millions of years and can be produced and burned as a fossil fuel.

Reserves The amount of identified raw materials that can be based on economically recovered using current technologies. BGR (2015) The availability of reserves is dependent on changes in commodity prices and technological development.

Resources The amount of identified raw materials that are based on currently not available for extraction due to the lack of BGR (2015) economic or technological feasibility. Resources also refer to the amount of estimated raw materials, which could potentially become available for extraction due to geological assessments.

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Annex 3: Additional data

Change in the structural profile of the analyzed countries (2000-2015)

GDP ppp GDP per capita Foreign reserves Population [US$ billion, ppp [US$ billion, [million] current [US$, current current] international] international] 2000 2015 2000 2015 2000 2015 2000 2015 China 1,262.6 1,371.2 3,703.7 19,852.7 2,933.3 14,478.1 171.8 3,900.0 Brazil 175.3 206.0 1,579.8 3,222.8 9,012.8 15,647.6 33.0 356.5 Peru 25.9 31.4 134.8 393.9 5,202.2 12,555.1 8.7 61.6 US 282.2 320.9 10,284.8 18,120.7 36,449.9 56,469.0 128.4 383.7

Source: World Bank, IMF, author’s illustration.

China's Foreign Exchange Reserves 1999-2015 [100 million US dollars] 45.000,00

40.000,00

35.000,00

30.000,00

25.000,00

20.000,00

15.000,00

10.000,00

5.000,00

- June 2000 June 2001 June 2002 June 2003 June 2004 June 2005 June 2006 June 2007 June 2008 June 2009 June 2010 June 2011 June 2012 June 2013 June 2014 June 2015 June December 1999 December 2000 December 2001 December 2002 December 2003 December 2004 December 2005 December 2006 December 2007 December 2008 December 2009 December 2010 December 2011 December 2012 December 2013 December 2014 December 2015 December

Source: PBOC, author’s illustration, available online at: http://www.safe.gov.cn/wps/portal/english/Data/Forex/ForeignExchangeReserves

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Source: The China Global Investment Tracker, author’s illustration.

Source: The China Global Investment Tracker, author’s illustration.

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China's total investment in the oil sector of South America 2005-2016

Brazil Ecuador Venezuela Colombia Argentina

Source: The China Global Investment Tracker, author’s illustration.

China's total investments in metals 2005-2016 [million USD]

$40.000,00 $35.000,00 $30.000,00 $25.000,00 $20.000,00 $15.000,00 $10.000,00 $5.000,00 $- Copper Steel Aluminum Other

Source: The China Global Investment Tracker, author’s illustration.

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Total rents from natural resources [ percent of GDP]

Source: World Bank, author’s illustration.

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Brazil crude oil exports 2000-2015 [million barrels] 300.000.000

250.000.000

200.000.000

150.000.000

100.000.000

50.000.000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bbl/year 6.818 40.43 85.76 88.24 84.25 100.1 134.3 153.8 158.1 191.8 230.4 220.6 200.5 138.9 189.4 268.9

Source: ANP 2015, author’s illustration.

Oil: Crude oil prices 2000 - 2015 [US$ 2015 equivalent] 140,00

120,00

100,00

80,00

60,00

40,00

20,00

0,00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 US$ 39,22 32,71 32,97 37,14 48,01 66,17 76,59 82,75 107,0 68,13 86,41 117,2 115,2 110,5 99,06 52,39

Source: BP 2016, author’s illustration.

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Total merchandise exports to China [$US Million] 90.000,00

80.000,00

70.000,00

60.000,00 Peru 50.000,00 Chile 40.000,00 Brazil 30.000,00 Argentina 20.000,00

10.000,00

- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: WTO, author’s illustration.

Peru- Export Structure 2004-2015 [$US million]

50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mining commodities (metals) Mining commodities (non-metals) Iron & steel products, jewels Metal-mecanic products Oil & gas Fish non-processed Agricultural Fish (processed) Textiles Wood & paper Chemical products Other

Source: BCRP, INEI, MEM, author’s illustration.

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Commodity Prices 2000-2015

Source: http://www.indexmundi.com/commodities/?commodity=crude-oil&months=180, accessed 7 October 2015

Source: http://www.indexmundi.com/commodities/?commodity=copper&months=180, accessed 7 October 2015

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Annex 4: Zusammenfassung in deutscher Sprache

Seit Beginn des 21. Jahrhunderts setzt sich die Volksrepublik China verstärkt für die Sicherung von Erdöl und Mineralien in Lateinamerika ein. Dies ist für die globale Machtkonsolidierung Pekings von dringlicher Relevanz. Zahlreiche lateinamerikanische Regierungen begrüßen den Zuwachs der bilateralen Wirtschaftsbeziehungen zu China und verbinden damit die Hoffnung, einen höheren Grad an ökonomischer und politischer Autonomie von den USA zu gewinnen. Im Zuge einer umfangreichen außenpolitischen Strategie ist es chinesischen Staatsunternehmen innerhalb weniger Jahre gelungen, die Rohstofflieferungen aus unterschiedlichen lateinamerikanischen Ländern exponentiell zu steigern. Brasilien und Peru spielen als Exporteure von Rohstoffen nach China eine zentrale Rolle. Zwischen 2000 und 2015 stieg China zum zweitgrößten bzw. größten Abnehmer von Erdöl aus Brasilien und von Kupfer aus Peru auf. Doch inwieweit wirkt sich Chinas Aufstieg auf die politischen und ökonomischen Kapazitäten der lateinamerikanischen Staaten auf internationaler Ebene aus?

Diese Frage wird in der lateinamerikanischen Öffentlichkeit kontrovers diskutiert, doch die wissenschaftliche Literatur dazu ist begrenzt. Dependenztheoretische Ansätze gehen davon aus, dass steigende Rohstoffexporte die Machtasymmetrien zwischen dem globalen Norden und dem globalen Süden verfestigen. Politökonomische Ansätze verbindet die Annahme, dass die unkontrollierte Erdöl- und Bergbauförderung mit der quasi zwangsläufigen Verschärfung sozialer und politischer Konflikte um gesellschaftliche Teilhabe einhergeht. In Lateinamerika problematisieren diverse Studien zu Extraktivismus die negativen sozioökonomischen und ökologischen Effekten von Entwicklungspolitiken, die größtenteils auf dem Abbau nicht erneuerbarer Ressourcen fokussiert sind. Obwohl unterschiedliche Regierungen die Einnahmen aus dem Rohstoffexport für die Teilfinanzierung dringend notwendiger Sozialpolitiken nutzen, fallen diese in die sukzessive Abhängigkeit von den volatilen und umweltschädlichen Effekten des Rohstoffabbaus. Bislang ist der Zusammenhang zwischen Chinas Aufstieg und Lateinamerikas neue „Rohstoffwende“ in sozialwissenschaftlichen Arbeiten jedoch wenig untersucht worden.

Vor diesem Hintergrund setzt sich die vorliegende Dissertation mit Chinas Rohstoffpolitiken in Lateinamerika auseinander. Ziel der Arbeit ist es, ein besseres Verständnis über die sich verschiebenden Süd-Süd Verhältnisse zu gewinnen. Der vergleichende Fokus auf Brasilien und Peru eignet sich aus mehreren Gründen. Zum einen ist Brasilien Chinas strategischer Verbündeter im Rahmen der BRICS—ein Machtblock der Staaten Brasilien, 222

Russland, Indien, Russland, Südafrika. Zum anderen ist Peru ein strategischer Partner der USA, welcher die Normen des Washington Consensus seit den 1990er Jahren als eigene Entwicklungsstrategie internalisiert und institutionalisiert hat. Außerdem unterscheiden sich Brasilien und Peru bezüglich der Rahmenbedingungen im Rohstoffsektor. Brasilien verfügt über einen der einflussreichsten staatlich gelenkten Erdölkonzerne der Welt (Petrobrás), während Peru darauf setzt, den Bergbausektor zu liberalisieren und ausländische Direktinvestitionen anzuziehen. Beide Länder sind also hinsichtlich ihrer wirtschafts- und außenpolitischen Ausrichtung sehr unterschiedlich. Vor diesem Hintergrund stellt sich die Frage, welche Machtstrategien Chinas politische Führung gegenüber diesen zwei unterschiedlichen Staaten einsetzt und wie sich die bilateralen Machtverhältnisse dadurch verändern.

Um diese Fragen zu beantworten greift die vorliegende Dissertation auf die theoretische Arbeit von Michael Barnett und Raymond Duvall (2005a) zurück. Die beiden Politikwissenschaftler haben eine passende Taxonomie zur Untersuchung von Machtphänomenen in den internationalen Beziehungen entwickelt und unterscheiden analytisch zwischen vier Konzepten von Macht: „Strukturelle Macht“ bezieht sich auf die Kapazitäten, die Akteure aufgrund unterschiedlicher Positionen innerhalb der globalen Produktionsstruktur im Verhältnis zueinander entfalten. „Institutionelle Macht“ versteht die Normen und Institutionen der globalen Institutionenarchitektur als Mittel zur Gestaltung von Verhandlungsprozessen im extraktiven Sektor. „Produktive Macht“ bezieht sich auf den Prozess der gegenseitigen Identitäts- und Subjektivitätsproduktion zwischen Import- und Exportland. „Kompulsive Macht“ bezieht sich auf den direkt kontrollierenden Einfluss eines Akteurs auf einen anderen. Dieser Analyserahmen ermöglicht eine vergleichende und typologisierende Untersuchung der sich entfaltenden Machtbeziehungen zwischen China und Brasilen bzw. Peru. Methodisch beruht die Studie auf einem theoriegeleiteten, komparativen Forschungsdesign, dem die qualitative Analyse von statistischen Datensätzen, Expert*inneninterviews, und offiziellen Dokumenten als empirische Grundlage dient.

Vor diesem Hintergrund liefert die Arbeit neue Erkenntnisse über den Zusammenhang von Erdöl, Mineralien und Macht am Beispiel von Chinas Rohstoffpolitiken in Brasilien und Peru. Die in dieser Arbeit vertretene These ist, dass es sich in diesen zwei Fällen um ein Phänomen „extraktiver Machtbeziehungen“ handelt. Dabei setzen die beteiligten Akteure auf unterschiedliche Formen der Machtausübung, um ihre Herrschaftsposition durch den Handel

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mit strategisch wichtigen Rohstoffen wie Erdöl (Brasilien) und Kupfer (Peru) zu sichern oder auszudehnen. Die Folge ist ein strukturell asymmetrisches Machtverhältnis zwischen China und den lateinamerikanischen Ländern. Während Chinas Wirtschaft an Versorgungssicherheit gewinnt, nehmen Brasilien und Peru benachteiligte Positionen als Rohstofflieferanten Chinas ein. Dennoch lässt sich die Entstehung dieses neuen Abhängigkeitsverhältnisses nicht allein durch einen strukturellen Dependenzansatz erklären. Chinas extraktive Machtposition speist sich nicht nur aus seiner massiven Rohstoffnachnachfrage und seinen finanziellen Kapazitäten gegenüber Brasilien und—zu einem noch höheren Maße—Peru. Diese strukturelle Macht ist zudem begleitet von institutionellen und diskursiven Machtverhältnissen, die darüber entscheiden, inwieweit China in der Lage ist, das eigene Schicksal und das der anderen Staaten durch kompulsive Macht zu kontrollieren.

In diesem Zusammenhang lassen sich Chinas Machtbeziehungen zu Brasilien und Peru in ihrer spezifischen Qualität erläutern. Während Chinas Beziehungen zu beiden Staaten von einem ungleichen strukturellen Machtverhältnis geprägt sind, unterscheiden sich beide Fälle hinsichtlich Form, Dynamik und Intensität. Da Brasilien ein BRICS-Staat ist, der über starke, jedoch abnehmende Machtkapazitäten auf der internationalen Ebene verfügt, ist China verstärkt auf den Einsatz von institutioneller und produktiver Macht angewiesen. Institutionelle Macht kommt insofern zum Einsatz, als die von China und Brasilien geschaffenen Institutionen wie die BRICS-Gruppe zur Legitimation der bilateralen Beziehungen im Erdölsektor führen. Mit diesem Prozess ist darüber hinaus die Produktion einer kollektiven Identität verbunden, die Süd-Süd-Solidarität bei gleichzeitiger Vertiefung der strukturellen Ungleichheiten betont. Kompulsive d.h. erzwingende Machtmechanismen treten in Fall von Chinas Partnerschaft mit Brasilien kaum in Erscheinung. Vielmehr besitzt der brasilianische Staat als Eigentümer, Hauptinvestor und Regulierer umfassende Kontrollmöglichkeiten über die eigenen Erdölressourcen. Nichtsdestotrotz lässt sich feststellen, dass die wachsenden Erdölexporte nach China zu einer strukturell benachteiligenden Partnerschaft führen, was mit tiefgreifenden politischen und ökonomischen Problemen für Brasilien verbunden ist: steigende Verschuldungsraten gegenüber China, eine zunehmende Abhängigkeit von Rohstoffexporten und die Verschärfung von Korruption im staatlich-gesteuerten Erdölsektor.

Das Fallbeispiel China-Peru zeigt eigene Charakteristika. Der peruanische Staat gilt in den Augen der USA als Musterland bei der Umsetzung des Washington Consensus, d.h. einer auf Deregulierung und Liberalisierung abzielenden Reformpolitik. Dies hat Perus bilateralen

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Beziehungen zu den USA seit den 1990er Jahren außerordentlich gestärkt. Vor diesem Hintergrund verfolgt die chinesische Regierung eine Rohstoffpolitik der institutionellen Anpassung. Statt den Beijing Consensus, d.h. die für China charakteristische Kombination aus Autoritarismus und Kapitalismus, als überlegene Alternative zum Washington Consensus voranzubringen, setzt China einen pragmatischen Fokus auf die Extraktion von Ressourcen. Dabei passen sich chinesische Diplomaten und Unternehmer den neoliberalen Marktregeln des peruanischen Staates an, um mittels eines Freihandelsabkommens den größtmöglichen Nutzen in Form der Rohstoffsicherung zu erzielen. Um den peruanischen Staat langfristig an die eigenen Interessen zu binden, setzt China auf weitere Formen der institutionellen Macht. So unterstützt Peking zunehmend Lima dabei, Peru als attraktives Investitionsziel im Kontext der Asiatisch-Pazifischen Wirtschaftsgemeinschaft APEC zu positionieren.

Das chinesisch-peruanische Verhältnis ist daher durch strukturelle Machtasymmetrien geprägt, die sich entlang der Normen des Washington Consensus und in der ökonomisch wichtigen Sphäre des Pazifiks entfalten. Dabei ist die diskursive Produktion der bilateralen Partnerschaft auf eine wirtschaftliche Ebene eingeschränkt, während eine politische Allianz, wie im Falle Brasilien, ausgeschlossen bleibt. Nichtsdestotrotz wird der Einsatz von kompulsiver Macht seitens von China gegenüber Peru sehr deutlich. China forderte Peru dazu auf, den Market Economy Status (MES) von China gegenüber der Welthandelsorganisation (WHO) anzuerkennen, bevor jegliche Handels- und Investitionsbeziehungen in Gang gesetzt werden konnten. Andererseits nutzten chinesische Bergbauunternehmen die gesetzlich gegebene Möglichkeit, peruanische Sicherheitskräfte des öffentlichen Dienstes unter Vertrag zu nehmen, um die extraktiven Interessen des Minenmanagements gegen lokale Proteste auf gewalttätige Weise durchzusetzen. Mit der ungebremsten Ausweitung extraktiver Kooperationsbeziehungen mit China entstehen für Peru gravierende politische und ökonomische Nachteile: ein zunehmend akutes Abhängigkeitsverhältnis gegenüber chinesischer Investitionen, eine Verschärfung sozialer Konflikten im Bergbausektor, und ein strukturell-kontrollierendes Machtverhältnis zum langfristigen Vorteil Pekings bei zunehmender Umweltzerstörung.

Zusammenfassend lässt sich feststellen, dass Chinas Aufstieg mit weitreichenden Folgen für die rohstoffexportierenden Staaten Lateinamerikas verbunden ist. Die vorliegende Arbeit zeigt, dass Chinas Rohstoffstrategien in Brasilien und Peru neue Abhängigkeitsverhältnisse innerhalb des Globalen Südens produzieren. Allerdings entstehen diese neuen Beziehungen

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nicht im Gegensatz zu, sondern parallel zu bestehenden Nord-Süd Konflikten und Allianzen. Gleichzeitig sind die hier untersuchten Staaten Brasilien und Peru in ihrer wirtschaftspolitischen und außenpolitischen Ausrichtung derart unterschiedlich, dass ein differenziertes Verständnis von Macht notwendig ist, um die vielschichtigen und mehrdimensionalen Implikationen von Chinas Rohstoffpolitiken adäquat zu verstehen. Die Studie hat ergeben, dass eine extraktive Machtpolitik, die hauptsächlich auf der Ausbeutung und dem Export von Rohstoffen basiert, bestenfalls nur kurzfristig zu einem höheren Grad an politischer und ökonomischer Selbstbestimmung im internationalen System führt.

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