The Involvement of the People’s Republic of in Through Economic

and Security Lenses. The Case of Argentina, , Ecuador and Venezuela

Senior Thesis

By

Sandra Mishell Armas Navarrete

Submitted in Partial fulfillment

Of the Requirements for the degree of

Bachelor of Arts

In

International and Economic Relations

State University of New York

Empire State College

2021

Reader: Max Hilaire Statutory Declaration / Čestné prohlášení

I, Sandra Mishell Armas Navarrete, declare that the paper entitled:

The Involvement of the People’s Republic of China in Latin America Through

Economic and Security Lenses. The Case of Argentina, Brazil, Ecuador and

Venezuela

was written by myself independently, using the sources and information listed in the list of references. I am aware that my work will be published in accordance with § 47b of Act No.

111/1998 Coll., On Higher Education Institutions, as amended, and in accordance with the valid publication guidelines for university graduate theses.

Prohlašuji, že jsem tuto práci vypracovala samostatně s použitím uvedené literatury a zdrojů informací. Jsem vědoma, že moje práce bude zveřejněna v souladu s § 47b zákona č.

111/1998 Sb., o vysokých školách ve znění pozdějších předpisů, a v souladu s platnou

Směrnicí o zveřejňování vysokoškolských závěrečných prací.

In Prague, 27.04.2021 Sandra Mishell Armas Navarrete

ii Acknowledgements

I hereby wish to thank the people who have taken part on this journey.

Foremost, I wish to express my deep sense of gratitude to my family, my mother Sandra, my father Carlos and my brother Carlos Antonio who have always motivated me to move forward and have guided me with the wisest advice. It is to them that I owe the completion of this work. Moreover, I wish to thank Tobias, who has become a part of my family. Thanks for believing in me.

Also, I wish to express my gratitude and admiration for Professor Max Hilaire for his valuable criticism and expertise that have enriched my work and pushed me to see beyond the ordinary. Likewise, I wish to thank professor Óscar Hidalgo-Redondo who has infused me with his passion for this discipline and has motivated me to pursue my dreams.

Finally, my work is a reflection of an awaken and united Latin America that seeks to reflect its human greatness and economic potential in international relations. With this work I wish to thank the many people who have contributed to this goal.

iii Abstract

Parallel with China’s development over the last half-century, its presence in all other continents is becoming increasingly more substantial and obvious. One of the regions which got to experience China’s rapidly growing influence is Latin America. Economically, Sino- Latin American trade has transformed from virtually non-existent just a few decades ago, into a considerable competitor to the commercial and political domination exerted over the region by the . The important bilateral partnerships built within the financial and trade spheres, continue to influence the development in the region in key areas such as infrastructure and management of natural resources. Likewise, security and military contacts are swelling as a result of opportunities and challenges derived from economic interaction. This thesis will assess the influence that the People’s Republic of China exerts over its top four Latin American economic partners – Argentina, Brazil, Ecuador and Venezuela – from an economic and security perspective. For the Chinese regime, Latin America is perceived as a key target for the Belt and Road Initiative and will continue being one of the interest areas of Chinese foreign policy with the ambition to assist its pursuit of becoming a global leader. This study claims that China is a revisionist power attempting to challenge and reorganize the ongoing international order and secure leadership in the global geopolitical hierarchy. Furthermore, we observe that the contemporary alliance between China and these Latin American countries serves Chinese power ambitions as well as Latin American interests, yet it possesses structural challenges which can often negatively impact the countries’ development. Nevertheless, the Sino-Latin American partnership is very likely to expand over the next decades and, if handled and manufactured properly, can bring a positive impact to the four studied countries which can benefit from diversifying its commercial and diplomatic partners.

Keywords: China, Latin America, Argentina, Brazil, Ecuador, Venezuela, Belt and Road Initiative, security cooperation, natural resources, surveillance technology, Digital Silk Road.

iv Table of Contents

Introduction...... 1

Methodology ...... 3

Chapter I: “Early Chinese Footprint in Latin America” ...... 4

Chapter II: “The Chinese Dream — of Power and Wealth”...... 14

Chapter III: “Sino-Latin American Relations: Economic Involvement and Governance” ...... 28

Argentina ...... 30

Brazil ...... 35

Ecuador ...... 38

Venezuela ...... 44

Chapter IV: “Beyond Economics: Military and Security Cooperation”...... 48

Military engagement ...... 49

Surveillance technology transfer...... 57

Chapter V: “Analysis”...... 61

China’s Ambitions in the Region: Looking at China Through Realist Lenses ...... 61

Emerging Challenges ...... 70 Economic Perspective ...... 70 Social and Environmental Perspective ...... 75 Political Perspective ...... 79 Military and Security Perspective ...... 83

Chapter VI: “Conclusion” ...... 87

Bibliography ...... 92

v Introduction

In 2019, China has become the world’s largest economy and, with a GDP of USD 23 trillion, surpassed even the United States. This success highlights the resilience of a country which, only 30 years ago, resided ten ranks lower in the global GDP comparison, behind countries like Spain and Italy. Parallel with China’s development over the last half-century, its presence in all other continents is becoming increasingly substantial and obvious. One of the regions which got to experience China’s rapidly growing influence is Latin America. Economically,

Sino-Latin American trade has transformed from virtually non-existent just a few decades ago, into a considerable competitor to the commercial and political domination exerted over the region by the United States. The important bilateral partnerships built within the financial and trade spheres, continue to influence the development in the region in key areas such as infrastructure and management of natural resources. Likewise, security and military contacts are swelling as a result of opportunities and challenges derived from economic interaction.

This thesis will assess the influence that the People’s Republic of China exerts over its top four Latin American economic partners – Argentina, Brazil, Ecuador, and Venezuela – from an economic and security perspective. Currently, 90% of the overall loans provided by China to Latin America flow to the economies of the four above-mentioned countries. During and due to the Covid-19 pandemic, China’s financial presence in the region has become even more essential for countries struck by the economic crisis, while the current instability of the region places the world’s largest bilateral lender in a position of uncertainty. For the Chinese regime, Latin America is perceived as a key target for the Belt and Road Initiative and will continue being one of the interest areas of Chinese foreign policy with the ambition to assist its pursuit of becoming a global leader. Hence, it is crucial to research the ongoing

1 partnerships and understand the motivations, and the gains and losses for both sides. This work will assess the questions What are Beijing’s objectives/intentions towards the analyzed countries? and What are the threats and challenges deriving from this transpacific partnership economically, socially, politically, and militarily?

This study claims that China is a revisionist power attempting to challenge and reorganize the ongoing international order and secure leadership in the global geopolitical hierarchy.

Furthermore, we observe that the contemporary alliance between China and Latin American countries serves Chinese power ambitions as well as Latin American interests, yet it possesses structural challenges which can often negatively impact the countries’ development. Nevertheless, the Sino-Latin American partnership is very likely to expand over the next decades and, if handled and manufactured properly, can bring a positive impact to the four studied countries which can benefit from diversifying its commercial and diplomatic partners. To provide context, we will focus on exploring the early beginnings of the Sino-Latin American relations in the first chapter, followed by the second chapter which examines the “Chinese dream” and its twentieth-century journey to becoming a global power.

Moreover, the third chapter will present a country-specific analysis of Argentina, Brazil,

Ecuador, and Venezuela, depicting the economic and political cooperation with China.

Following, the fourth chapter will describe the security cooperation focusing on military engagement and surveillance technology transfer. This research will culminate with an analysis and a conclusion which will be offered in the fifth and sixth chapters respectively, providing a comprehensive evaluation of the subject matter.

2 Methodology

To navigate Sino-Latin American relations, and attempting to provide answers to the research questions: What are Beijing’s objectives/intentions towards the analyzed countries? and

What are the threats and challenges deriving from this transpacific partnership economically, socially, politically, and militarily? this research has relied on various data outlets including academic written articles published in prominent databases; books; local newspapers; reports issued by regional and international organs such as the ECLAC and the

World Bank; and official governmental websites. Additionally, to enrich the quality of the study, foreign policy statements in English and Spanish from the People’s Republic of China,

Argentina, Brazil, Ecuador, and Venezuela as well as from regional alliances such as the

CELAC, have been analyzed throughout the text to underpin key claims. The lack of official publications from China on its economic activity across Latin America has been a burden for this study; however, it has been overcome by data compiled from various anglophone think tanks largely knowledgeable of Chinese affairs such as the Brookings Institution, Diálogo

Chino, the Jamestown Foundation, the Peterson Institute for International Economics, the

Center for Strategic and International Studies, the Council on Foreign Relations, the Carnegie

Endowment for International Peace, and several others cited in the body of the thesis. In addition to economic indicators, these outlets have provided valuable and strategic insights on international relations concerning both sides of the investigation. Similarly, documents issued by civil society organizations and regional non-profit organizations belonging to the four above-mentioned countries have enriched the quality of information used to evaluate the transpacific partnership, foremostly in matters related to social and environmental hazards.

3 Chapter I: “Early Chinese Footprint in Latin America”

Historically, Latin America has not ranked high on the Chinese agenda. Diplomatic and economic relations have been constrained by their geographical distance, China’s domestic political changes, and the region’s proximity to the United States; yet Latin America gained an important place in Chinese foreign policy during the twentieth century. During the 1950s and 1960s, the diplomatic blockade imposed by the United States to prevent the spread of communism in Latin America did not prevent China from forging informal relations with like-minded actors across the continent. Latin America represented a strategic factor in the anti-imperialist and revolutionary struggle.1 Following the same rhetoric as with the rest of what it considered the “third world”, China continued to seek alliances with like-minded governments to grow international recognition, improve its chances for accession to the

United Nations, and form ideological and commercial partnerships (Connelly & Cornejo

Bustamante, 1992). It attempted to win the friendship of certain Latin American authorities and peoples by appealing to their economic and political similarities and their common struggle against , employing cultural diplomacy in the absence of significant economic and political contact, which paved the way for official diplomatic recognition and further bilateral collaboration.

In statements of Chinese foreign policy, Latin America was intrinsically linked, whether in anti-imperialism or revolution themes, to the policies of the United States. According to the image created in the Bandung Conferences, during the 1950s and 1960s, China approached

1 In the words of Lin Biao (1956) “[...], the main battlefield of the fierce struggle between the people of the world on one side and U.S. imperialism and its lackeys on the other is the vast area of Asia, Africa, and Latin America” and Mao Zedong (1965) “the peoples of Latin America are not slaves obedient to U.S. imperialism” (p. 78).

4 the region using a peace and development discourse that emphasized the need to achieve an independent social and economic policy free from the influences of American imperialism, and to strive for national liberation through peaceful means, particularly acclaiming those efforts from non-armed groups (Ratliff, 1972). During this time, the Chinese celebrated the fall of dictators Juan Perón in Argentina, Gustavo Rojas Pinilla in Colombia, and Marcos

Pérez Jiménez in Venezuela, as well as forecasted the triumph of the Cuban people’s revolution against President Fulgencio Batista. Moreover, the actions of the US in the region were closely monitored, mainly Richard Nixon’s visit to eight Latin American countries where he, in words of Mao Zedong, was received by most people “with eggs and spits”

(Strong & Keyssar, 1985, p. 494). During 1959, the Chinese only advocated for armed struggles in countries where the balance of power has completely become asymmetric in favor of dictatorial governments such as in the Dominican Republic, , Nicaragua, and

Paraguay. Nevertheless, the emergence of democratic nationalists’ political fractions around the world represented the momentum for the anti-imperialist struggle and awoke a

“revolutionary consciousness” that improved the prospects of armed struggles in the region

(Ratliff, 1972, p. 849). Similarly, the prospects of revolutionary wars in Latin America became more feasible in the light of the Guatemalan establishment of a government more aligned to Chinese ideology headed by Jacobo Arbenz and, principally, the victory of

Castro’s revolution in Cuba in 1959. At this point, Latin American popular movements had the example of the Cuban Revolution to look up to. During various conversations between

Mao Zedong and Cuban delegations in 1960, the victorious Cuban Revolution was compared to the Chinese communist fight of 1949; and its substantial value for the Latin American struggle for social and economic development and against American imperialism was heightened. For the United States, Castro’s victory represented a latent threat to their

5 ideological pole during the Cold War and called for an even more interventionist foreign policy. In an effort to maintain their sphere of power before the Cuban Revolution and the popularity of Che Guevara’s foquismo theory in several nations, Operation Condor and other missions were activated to repress any trace of alignment to the opposite hemisphere. Right- wing coups dethroned leftist leaders in Chile, Paraguay, Brazil, Bolivia, and Uruguay — some consolidating political power in military juntas — and massive campaigns of state terror that included political repression, disappearances, and killings were launched.

In the early 1960s, communist groups continued to form and expand the united front against the United States and to strengthen the national-democratic movement in Latin America. For its part, the issue of the seizure of power through armed struggle was increasingly discussed in Chinese publications as the Cuban Revolution had laid the foundations for armed movements in Latin America. However, as a result of the Sino-Soviet conflict, relations between China and Cuba deteriorated as the latter finally leaned to the side of the USSR

(Garner, 1968). In the second part of the 1960s, the Chinese declared that the most appropriate method for revolution was the one set out by Lin Biao in The People’s War in

1965. They pointed out that the peoples of Latin America had become aware of the importance of armed struggle as the Chinese revolutionaries led by Mao Zedong have done.

The correct path for the Latin American liberation was to raise the peasant masses under the leadership of the Communist Party and build rural bases, to use guerrilla warfare as a form of struggle, to promote an agrarian revolution, and to use the countryside to surround the cities until they are captured (Ratliff, 1972, p. 850). China considered Mao’s theories of warfare an ideological weapon that helped them to oppose American imperialism and the revisionist Soviet ideology (Garner, 1968, p. 254). Before Chinese leaders, the Latin

6 American struggle that followed the Maoist rules continued marching marvelously in its task of achieving emancipation.2 However, the situation was very different. The parties epitomizing Maoist doctrines that formed after the conflict with the , failed to achieve their goals through the Chinese route due to the lack of ideological formation, the subordination of party interests to personal ones, the lack of contact with the masses or global perspective of the problems that affected the masses, and as a general note, the ignorance of the reality in which they were operating (Ellner, 2013).

In the absence of formal diplomatic and economic relations between China and several Latin

American nations, and as a consequence of the American-sponsored hostile policies derived from the Truman Doctrine that considered the PRC a communist threat, bilateral relations were not established until the second half of the twentieth century. The first country to have built diplomatic relations with China was Cuba when Fidel Castro consolidated the leadership of the communist party in his country. For their part, Chile and Mexico had various commercial contacts with the PRC yet did not openly recognize it diplomatically. Similar to those two countries, other Latin American nations did not seek to establish formal diplomatic relations; therefore, China needed to heavily rely on soft power to achieve gradual rapprochement. Throughout the 1950s, various instruments of cultural diplomacy were incentivized including visits of personalities to the PRC, the establishment of institutes for cooperation, literature translation, trade, and cooperation with local communist parties

(Ratliff, 1969). Many Latin Americans that were known to be involved in cultural, political,

2 Through the Report to the IX National Congress of the Communist Party of China, Lin Biao stated that "the enemy rots with every passing day, while for us things are getting better daily. On the one hand, the revolutionary movement of the proletariat of the world and the people of various countries is vigorously surging forward […] The armed struggles of the peoples of Latin America steadily growing in strength.”

7 and media circles were invited to the PRC 3 and received by major communist leaders including Zhou Enlai and Mao Zedong. Students receiving their academic training in the

PRC also helped to write, translate, and distribute texts in Latin America. In parallel, various guests, mainly intellectuals and journalists, were invited to participate in conferences and guided tours around China. The Chinese People’s Association for Cultural Relations with

Foreign Countries intensified the number of visits to the PRC reaching 75 000 people between 1949 and 1962 (Strabucchi, 2010, p. 70). By exploiting cultural affinity in the broadest sense and reinforcing the Third World rhetoric, within an anti-imperialist discourse, the Chinese managed to catch the attention of many Latin American intellectuals and pave the way for the establishment of official diplomatic relations. Congruent to national developments within China, the Cultural Revolution allowed the recognition of the importance of Maoist indoctrination inside and outside the PRC. During the 1960s in Latin

America, various Spanish texts sponsored by several “friendship organizations” and the people who have been guests to the People’s Republic, were distributed by the Beijing

Foreign Languages Press. By the late 1950s, at least sixty books and pamphlets containing discussions on various topics such as land reform and guerrilla warfare had been published in Spanish by the Foreign Languages Press, and Mao’s writings circulated widely in Latin

America, outstandingly his Little Red Book imported to guide the revolutionary struggle

(Ratliff, 1969, p. 69). Additionally, communication prospects were upgraded with the use of media. The first New China News Agency (NCNA) was established in Havana in 1959, and later on, other offices were opened in Argentina, Brazil, Colombia, Ecuador, Peru, and

Venezuela. This agency became the unofficial first point of contact of the PRC in Latin

3 Among them Salvador Allende, Lázaro Cárdenas del Río, and Alfonso López Michelsen.

8 America, “handling trade issues, organizing mutual visits between people from the PRC and

Latin America, establishing contacts with overseas Chinese, and also financially supporting pro‐Chinese groups” (Strabucchi, 2010, p. 75). Intrinsically related to the circulation of pamphlets, magazines, and books of Chinese origin is the contact between Latin American communist parties and the PRC. After the Sino-Soviet conflict, the few parties that have chosen to align to Maoist principles had relatively different degrees of contact with the

People’s Republic. Rothwell (2010) narrates two particular cases showing how Chinese influence operated in Latin America in political matters through dissident groups. The first case involves the Bolivian student Oscar Zamora, whose contacts with Chinese political leaders were mainly through the International Union of Students in Prague and meetings with

Mao Zedong and Zhou Enlai in the PRC destined for consultations on the future of the pro-

Chinese Party of Bolivia, in which despite being away from Bolivia, he had acquired the position of general secretary and second in command. Furthermore, Zamora “arranged for at least 200 Bolivians to travel to China for multi-month cadre training courses where they received political and military training between 1966-1970”; reciprocally, many Bolivians were sent to teach indigenous languages such as Quechua and Aymara and develop Spanish language propaganda to be broadcasted in Beijing and La Paz. The case of Zamora, later called Comandante Rolando, illustrates how networks of international communist movements and direct contact with leaders have enabled the formation of Maoist parties and guerrilla forces, as well as introduces a new dimension to cultural diplomacy in the Sino-

Latin American relations — the military. Military training and widespread propaganda sponsored the birth of Maoist parties and military factions in Latin America, most of which constituted powerless political entities while few others launched devastating civil wars such as the Shining Path in Peru between 1985 and 1992.

9 Another side of the people’s diplomacy practiced towards Latin America has taken the form of trade relations. The first commercial contact between the PRC and the region was through the Moscow International Economic Conference in 1952 in which the People’s Republic had forged trade relations with five countries. A great increase in this number was experienced during the second half of the 1960s comprehending twenty Latin American nations, among them Argentina offering mostly wheat, Chile offering and nitrates, Cuba offering sugar, and Mexico offering cotton and wheat (Ratliff, 1972, p. 858). Nevertheless, during the late 1960s, due to the hostile environment with the Soviet Union and the internal political repercussions of the Cultural Revolution, trade with Latin America plumbed rapidly. After

1976, China attempted to recover the prosperous trade relations it has established before the revolution by sending commerce delegations to the region and actively participating in international forums such as the United Nations Conference on Trade and Development held in Chile. Here, Chinese delegates expressed the centrality of cooperation between developing countries in terms of international trade and aid to promote their growth and self-reliance while “safeguarding national independence, developing the national economy, opposing the economic plunder and monopoly by imperialism, [and] establishing international economic and trade relations based on equality and mutual benefit” (p. 369). This language highly assimilates the one used in joint documents issued by the Community of Latin American and

Caribbean States (CELAC) in the present century. Furthermore, China became the main communist donor of economic aid shifting from African countries such as Tanzania and

Zambia to Latin America. By 1972, the Chinese offered millions of dollars in aid and contributed to disaster relief particularly in Chile, Bolivia, and Peru.

10 Efforts from Chinese foreign policy during these past two decades prelude the diplomatic recognition of the “One-China” policy in Latin America. The establishment of formal diplomatic relations responded to the dynamic international environment, the PRC’s efforts to gain a seat in the United Nations, and the election of governments that were sympathetic towards Beijing. Similarly, concerning American influence, the rapprochement foreign policy of China during this decade lowered the tensions with the United States. Henry

Kissinger and Richard Nixon’s visits to the PRC during the 1970s contributed to the formation of “pragmatic and issue-oriented relations between Beijing and Latin American capitals, free of any ideological ballast” (Dosch & Goodman, 2012, p. 7). Moreover, the

Nixon administration promoted a “discreet but protracted campaign of bilateral dialogue” justifying Latin American nations to forge diplomatic relations with Beijing4 in the first half of the 1970s (Hearn & León-Manríquez, 2011, p. 9). Throughout this decade, China acquired a seat in the United Nations as well as established diplomatic relations with Latin American countries, including Peru in 1971, Mexico and Guyana in 1972, Argentina in 1973,

Venezuela and Brazil in 1974, Ecuador and Colombia in 1980, and Bolivia in 1985. Sino–

Latin American relations in this new era were mostly motivated by political interests and were driven by reciprocal “favors”. Latin American governments voted in favor of granting

China entry into the United Nations, while Beijing supported Latin American claims for 200- mile territorial sea limits in the Law of the Sea negotiations (Dosch & Goodman, 2012).

During that time, the strategic objectives in Latin America seemed to be aimed at fostering political cooperation to develop joint strategies in international forums. This has been evident in the similar positions adopted by Argentina and China within the United Nations on

4 Initially by opening embassies in the PRC.

11 decisions concerning human rights monitoring in China and the Falkland Islands sovereignty issue, as well as the formation of organizations led by developing states such as the G77 in the framework of the UN. Similarly, China has supported the region’s attempts to settle the

Central American conflict under the Contadora Group. Importantly, Latin American countries had supported Beijing’s “One-China” policy when establishing economic ties.

Also, the PRC has been actively promoting the forge of strong ties between developing countries to break the monopoly of industrialized countries in foreign affairs and research and development, particularly in technological innovation, reflected in the partnership with

Brazil in the field of scientific and technological development.

By the end of the Cold War and the fall of the Soviet bloc, China began to prioritize government-to-government relations in Latin America, while simultaneously downgrading ties with its Communist allies in the region. While the political issue of continued being a driver in the PRC’s foreign policy, sustaining food security and promoting the growth of the emerging domestic manufacturing sector proved to be the main interest in the Western

Hemisphere, particularly Latin America as a provider of raw material. These changes in the international arena intensified the overturning of the ideological engine of Chinese foreign policy to a more practice-oriented approach to foreign affairs, as well as reinforced its attempts for marketization. This not only represented a change in domestic governance dynamics but indicated a shift from the political nature of the Sino-Latin American economic approach that allowed China to complete its growth plan. Latin America became a cornerstone in this era featuring economic foreign policy. This shift was observed during the

2000s signing of Free Trade Agreements with Chile, Peru, and Costa Rica, and the increasing volume and value of Chinese exports and imports with Latin America. Furthermore, the PRC

12 has consolidated itself as a major source of investment providing loans based on a non- interventionist principle. In light of the growing Chinese presence in the region, it is fair to argue that it is already being considered as an alternative diplomatic and economic partner in lieu of the United States. Countries in the region are seeking to diversify their foreign relations working towards multidirectional diplomacy that would allow the participation of new actors that can serve Latin American interests over foreign, particularly in times of despair such as the global economic recession of 2008 and the current Covid-19 pandemic.

13 Chapter II: “The Chinese Dream — of Power and Wealth”

In preparation for studying Sino-Latin American relations, we must observe the internal changes, mainly economic reforms, that the People’s Republic has undergone in the last decades and which have shaped its approach to foreign relations. This chapter seeks to explore the Chinese inwards reformist agenda and the “Socialism with Chinese Characters” exposed by Deng Xiaoping and then nourished by Xi Jinping; and scrutinize the various projects that would entail the participation of foreign commercial partners such as the Latin

American nations that this project will examine.

China, for a considerable part of its history, has been an affluent nation characterized by a growing economy based on agriculture, industry, and commerce. It is not until the defeat of the Chinese before the British Empire during the Opium Wars of the 19th century that the poverty and industry gaps begin to widen compared to other empires in the European and

American continents. In the following decades, the main objective of the last dynasty and successively the leaders of the Republic of China had been economic modernization in response to the backwardness in development related to their Asian counterparts such as

Japan, and the declining living standards of the Chinese people. The economic planning proposed by Mao Zedong after the formation of the People’s Republic of China in 1949 had further accentuated the negative situation of the agricultural and industrial sectors. As a result of the Great Leap Forward, by 1959, China’s economy had entered a stage of crisis characterized by the decline of food grain production and industrial output which in turn caused the steady decline of living standards particularly in rural areas in tandem with severe famine. This economic breakdown further deepened with the 1966 Cultural Revolution that had generated socioeconomic chaos as industrialization “had almost been stopped except in

14 the case of industries connected with defense” and resulted in a high human cost (Singh,

1968, p. 332). Chinese policymakers saw the need to propose a more pragmatic and liberal economic policy. The leader of the reform project Deng Xiaoping came to be a revolutionary in his plan to transform the internal economic structure under the gaige kaifang (reform and opening-up) and to insert China into the global economy. As well as inaugurated the concept of Socialism with Chinese Characteristics that enforced the dichotomy between adopting market-oriented reforms to allow the use of foreign investment to boost productivity, modernization, and economic growth; and maintaining the commitment for Maoist ideals in the political realm, thus providing a power monopoly to the Chinese Communist Party.

Today, we witness a similar reformist spirit under President Xi Jinping’s leadership reflected in his famous phrase “The China Dream” that is carried out via the Belt and Road Initiative.

“Emancipate the mind, seek truth from facts and unite as one in looking to the future” were the words of former Chinese Paramount Leader Deng Xiaoping during the Third Plenum of the XI Central Committee of the Communist Party held on December 18, 1978. Deng has been regarded as the architect of economic reforms in China that have transformed a near- to-autarky foreign economic policy and have pushed for a domestic cutback on poverty. He called for a return to order, professionalism, and efficiency, rooted in the subordination of political correctness to professional competence and delving on the concept of education as a key to modernization and development of technology and science (Kissinger, 2011). Deng promoted the convergence of the fundamental principles of Maoism with an empirical form of policymaking, where truths would emanate from facts and policy would be dictated according to what has proven to work prosperously. Domestic growth and development would become the primary goal of leadership which would keep its head down over foreign

15 affairs. The pragmatic approach is envisaged in the creation of the Special Economic Zones

(SEZs)5 and the freeing up of coastal areas that welcomed foreign investment to trigger a massive inflow of foreign capital to China and facilitate exports as well as imports of foreign technology to sponsor productivity improvements and science development. According to the World Bank (2017), SEZs have allowed for experimentation with market-oriented reforms and have acted as a “catalyst for efficient allocation of domestic and international sources”. These zones vary in their scope fostering industry parks, free-trade areas, technological innovation parks, and experimentation parks. Analogously, other reforms came into place in rural China such as the de-collectivization of households to produce and sell their consumption under the Household Responsibility System. Additionally, the emergence of the market-oriented township and village enterprises (TVE) designed to be managed by local governments, rapidly shaped manufacturing and export capacity. Under these reforms, hundreds of millions of peasants were lifted out of poverty, and employment prospects dramatically increased. Following the same trend, Chinese exports rocketed from 10 billion

USD in 1978 to 25 billion USD by 1985. The continuation of Deng’s reforms after his death in 1992 has earned China the place as the world’s largest trading nation in goods amounting to 4.3 trillion USD, and on a purchasing power parity basis, it has become the biggest economy in the world with a GDP of over 23 trillion USD in 2019 (Cable, 2017) (World

Bank, 2019). The overwhelming growth of the People’s Republic since the activation of the open-door policy was obscured by the suppressive nature of the Communist Party reflected in the Tiananmen Square massacre that had sent the message that economic liberalization did

5 Shenzhen, Zhuhai, Shantou, Xiamen, Hainan, Shanghai Pudong New Area, and Tianjin Binhai New Area.

16 not mean political liberalization; therefore, countries would have to learn to deal with the matter of human rights being excluded from the cooperation agenda.

After the Tiananmen episode, economic growth boosted once again alongside the many challenges derived from an inwards unequal economic growth – between industries, and between rural and urban areas – and endemic corruption within party structures. Precisely these last items have been issues of top priority for president Xi Jinping in tandem with a rejuvenated approach to international affairs and a more active role in international economic regimes. Xi’s commitment to the Socialism with Chinese Characteristics was stated in his speech delivered before the XIII National People’s Congress in March 2018, where he advocated for the uplift of innovation, entrepreneurship, and market mechanisms to achieve higher competitiveness globally. This implies a set of reforms on state-owned enterprises, foreign investment legislation, fiscal taxation, market access, and financial systems.

Additionally, China promised to further “expand opening-up by diversifying export markets and expanding imports, boosting foreign investment inflow and advancing the Belt and Road

Initiative” (National People’s Congress of China, 2019, p. 16). The latter project has allowed

China to expand its outbound foreign investment starting in Eurasia and then turning global

– including the Latin American region – and has allowed the promotion of friendly rhetoric which describes the BRI as an economic pie that benefits the local people rather than a debt trap. Furthermore, it has been aimed at optimizing development at a faster pace and producing win-win outcomes, and not at seeking spheres of political influence. Outside the framework of the BRI, China has already embarked other nations on various key projects by actively participating in economic regimes as well as regional organizations; issuing

17 politically attractive loans through policy banks; and sponsoring mergers and acquisitions headed by Chinese state-owned enterprises.

President Xi’s signature foreign policy embedded in the Belt and Road Initiative (or the One

Belt One Road) has been labeled as the most ambitious Chinese project that would not only serve domestic economic goals uncovered in the Made in China 2025 plan but has been argued to be a great geopolitical tool in China’s rise as an economic hegemon (Bhattacharya et al., 2019). In an attempt to resuscitate the ancient trade route of the Silk Road, Chinese policymakers have launched this transcontinental investment program aimed at improving regional and global connectivity and accelerating development and economic cooperation through the investment in infrastructure projects varying from those serving transportation needs, to energy sources and telecommunication structures and networks. In the words of Xi

Jinping, “China will actively promote international co-operation through the Belt and Road

Initiative. In doing so, we hope to achieve policy, infrastructure, trade, financial, and people- to-people connectivity and thus build a new platform for international co-operation to create new drivers of shared development” (OECD, 2018, p. 4). The BRI pursues food, energy, and resource security through a network of economic, strategic, and cultural connectivity that would allow the facilitation of trade and investment, and thus boost development for the member states whilst China occupies a headship role in such process. Foreign policy statements declare the aims of the BRI to be (a) to increase trade and investment through bilateral and multilateral cooperation focusing on five links (wu tong) “policy communication, infrastructure connectivity, trade facilitation, capital flow, and people-to- people exchanges”, (b) to implement free trade zones along the Silk Road, (c) to strengthen financial cooperation with economic regimes and international organizations to fund

18 infrastructure, (d) to gain access to natural resources, (e) to improve transport infrastructure within the BRI corridors, and (f) to intensify cultural exchanges by strengthening cooperation in areas of education, science, technology, tourism, sports, environmental protection, health care and traditional Chinese medicine (OECD, 2018). Internationally, the execution of the

Belt and Road Initiative has contributed to the narrowing down of infrastructure gaps not only in Asia but in the rest of the world – even in countries outside the BRI framework.

Domestically, it has allowed the advancement of objectives laid out in policy papers such as the 13th Five-Year Plan, Made in China 2025, and the Internet Plus Strategy. The development of global projects in these areas has the potential to move Beijing up in the value chain as well as relocate low-technology industries to BRI nations and attain the goal of reduction of air pollution and modernization of the metal industry through cleaner and higher-tech tools (OECD, 2018).

The scope of the BRI is immense and exceeds China’s immediate neighborhood and traditional partners. During official visits to and Indonesia in 2013, President Xi has announced the launch of the BRI, first the Silk Road Belt and later the 21st Century

Maritime Silk Road, respectively. The former route aspires to connect Chinese proximate neighbors through six corridors encompassing China-Mongolia-; Eurasian countries;

Central and West Asia; Pakistan; other countries of the Indian sub-continent; and Indochina.

The latter concentrates on a different geographical zone covering Coastal China-South China

Sea-Indian Ocean-Europe; Coastal China-South China and Sea-South Pacific; as well as other farther regions such as Latin America that is seen as a “natural extension” of the

Maritime Silk Road (Chin & Winnie, 2016). Table 1 enumerates the 140 members that have joined the BRI until February 2021, organized by regions.

19 Regarding financing, attempting to advance the vast number of projects under the

BRI framework, China has sought the intervention of state-directed development banks, state-owned commercial banks, and specialized funds, particularly the Silk and Road Fund.

According to information gathered by the Organization for Economic Cooperation and

Development (China has not published official information), the first bulk of institutions include the China Development Bank that has already supported more than 500 projects in

37 countries, accounting for an estimated exposure of USD 110 billion; the China Exim Bank that until 2015 had financed more than 100 projects in 49 members of the BRI, accounting for USD 80 billion; the Agricultural Development Bank of China that supports the Silk Road

Fund and national companies; The China Construction Bank with an investment of USD 10 billion; the New Development Bank that is to become a major player in the infrastructure sector expecting to provide loans in the value of USD 811 million; and finally the Asia

Infrastructure Investment Bank that although not contributing to BRI plans, has already provided vast investment for 9 infrastructure projects in BRI member states, totaling USD

1.73 billion. The second source of financing has been the two of the four biggest commercial banks in the People’s Republic, namely the Industrial and Commercial Bank of China providing an expected investment of USD 159 billion, and the Bank of China expected to support BRI-related projects of USD 100 billion value. Finally, the Silk Road Fund has been created to invest in BRI-related energy projects and has already pledged USD 40 billion in financing. Table 2 offers a comprehensive description of the features of the abovementioned institutions and provides examples of projects developed under each.

20 Table 1

Member States of the Belt and Road Initiative (2021)

Region Countries East Asia and Pacific Brunei Darussalam, Cambodia, China, Cook Islands, Fiji, Indonesia, Kiribati, Republic of Korea, Laos, Malaysia, Federated States of Micronesia, Mongolia, Myanmar, New Zealand, Niue, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, Thailand, Timor-Leste, Tonga, Vanuatu, Vietnam South (East) Asia Afghanistan, Bangladesh, Maldives, Nepal, Pakistan, Sri Lanka Europe & Central Asia (including members of Albania, Armenia, Austria, Azerbaijan, Belarus, Bosnia and the European Union) Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Georgia, , Hungary, Italy, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Luxemburg, Malta, Moldova, Montenegro, North Macedonia, , Portugal, Russian Federation, Serbia, Slovak Republic, Slovenia, Tajikistan, Turkey, Ukraine, Uzbekistan Middle East & North Africa Algeria, Bahrain, Djibouti, , Iran, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Romania, Saudi Arabia, Tunisia, United Arab Emirates, Yemen Sub-Saharan Africa Angola, Benin, Botswana, Burundi, Cabo Verde, Cameroon, , Comoros, Democratic Republic of Congo, Republic of Congo, Côte d’Ivoire, Equatorial Guinea, , Gabon, Gambia, Ghana, Guinea, Kenya, Lesotho, Liberia, Madagascar, Mali, Mauritania, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, South Sudan, Sudan, Tanzania, Togo, Uganda, Zambia, Latin America & Antigua y Barbuda, Barbados, Bolivia, Chile, Costa Rica, Cuba, Dominica, Ecuador, El Salvador, Grenada, Guyana, Jamaica, Panama, Peru, Suriname, Trinidad and Tobago, Uruguay, Venezuela Note. It should be noted that membership of certain nations is unclear as of the lack of a particular process to confirm the status of members; however, these countries have signed BRI memorandums of understanding

(MoU), cooperation agreements, or BRI framework agreements. Countries in italics denote the lack of information about the signature of a Memorandum of Understanding for becoming official members of the

Belt and Road Initiative (BRI). Data retrieved from Green Belt and Road Initiative Center, by C. Nedopil, 2021, https://green-bri.org/countries-of-the-belt-and-road-initiative-bri/

21 Table 2

Chinese lending institutions excluding governmental bodies

Institution Features Projects China Development Bank Non-concessional loans1, E.g., a 40-year concessionary loan to Credit lines, Indonesia, with no guarantee and 10- Concessionary loans, year grace period financing a high- Overseas investment support2 speed railway (USD 4 billion). 60% is in USD (2% interest) and 40% is Denominated in USD, EUR, and in RMB (3.4% interest). RMB and granted to government agencies and companies.

Limits to sovereign borrowers are implied as well as controls on the concentration of loans.

Supplementary lending programs greatly reduce costs. China Exim Bank Preferential export credits2, Exports Total loan balances exceed USD 80 buyer’s credit2, billion mainly in transportation and Export seller’s credit2, telecommunications. E.g., USD 800 Concessional loans usually 20-year million low-interest rate loan for the maturities, 5-year grace periods, and Penang bridge in Malaysia. 2% interest rates (at least 50% tied to exports), Non-concessional loans and credit lines3 Overseas investment support3

Debt ceilings for borrowers.

Supplementary lending programs greatly reduce costs, but no counterpart funding is required. Agriculture Development Overseas investment support3 Loans for Chinese companies and in Bank support of the Silk Road Fund. Non-concessionary and semi- concessional loans1

Denominated in USD, EUR, and RMB and granted to government agencies and companies. Industrial and Commercial Non-concessionary and semi- More than 200 BRI-related projects Bank of China concessional loans1. to a total of USD 67.4 billion to date. Potential projects are expected Denominated in USD, EUR, and to bring this to USD 159 billion. RMB and granted to government agencies and companies. Bank of China Non-concessionary and semi- Spent USD 100 billion by 2017, concessional loans1 financing projects related to BRI.

22 Denominated in USD, EUR, and RMB and granted to government agencies and companies. Silk Road Fund State-backed and long-term Financed the UAE Egypt Power investment fund of 40 billion USD. Plant Project and the Karot Hydropower Project in Pakistan Four shareholders: State (2015), which is a priority in the Administration of Foreign Exchange “China-Pakistan Economic (65%), China Investment Corridor” and will be developed by Corporation (15%), Export-Import the South Asia Company (part of the Bank of China (15%), and China China Three Gorges Corp.) and Development Bank (5%). financed by the Silk Road Fund which, together with the Export- Import Bank of China, the CDB and the International Finance Corporation, has developed a syndicate – providing USD 200 million for the project. China Construction Bank Non-concessionary and semi- Based on the information from the concessional loans1 Ministry of Commerce, the bank has lent out USD 10 billion. Denominated in USD, EUR, and RMB and granted to government agencies and companies. New Development Bank Estimated to play a large role in Loans mostly in the infrastructure projects within the BRI sector. In 2016 it provided USD 811 million to energy projects, such as those in Brazil and South Africa, focused on achieving a generating capacity of 2370 Mega Watts of renewable energy. China Export and Credit Export Credit Insurance Focuses on exports, investments, Insurance Corporation Overseas Investment Insurance and projects in regions along the (SINOSURE) Export Credit Insurance BRI area. By the end of 2015, it has provided USD 570.56 billion. Asia Infrastructure Not BRI-related projects By the end of 2016, it has provided Investment Bank USD 1.73 billion, financing mainly slum upgrading, and energy and transportation initiatives in the BRI regions (Bangladesh, Oman, Indonesia, Myanmar, Pakistan, etc.).

Note. The layout of the table and a great portion of the data was retrieved from the 2018 OECD Business and

Finance Outlook on the Belt and Road Initiative, complemented with Morris, Parks & Gardner (2020) analysis of Chinese loans, and information presented in the available official websites of the institutions described above.

1 According to Morris, Parks & Gardner (2020) “typically, base interest rates of these loans are set to the

(floating) LIBOR rate, and then an additional margin is incorporated to account for borrower-specific risk and repayment capacity,” combining interest rates ranging from 4.5% to 6% and diverse maturities and grace

23 periods. Valid for non-concessionary and semi-concessional loans from China Development Bank (CDB) and

Chinese state-owned commercial banks (Bank of China, Industrial and Commercial Bank of China, China

Construction Bank, and Agricultural Bank of China).

2 Tied to exports

3 Can be tied to exports

Parallelly, Chinese investment in all five continents has predated the launch of the BRI.

Enterprises and state-owned banks have long been interacting with foreign economies outside the BRI framework in the form of mergers and acquisitions and lending, respectively.

Chinese companies have been granted extensive financing to realize their expansionist agenda worldwide which has allowed them to rapidly defeat the competition and access profitable international markets. In a similar manner, today China occupies the position of the world’s largest bilateral lender and constitutes the largest official external creditor to the developing world (Morris, Parks, & Gardner, 2020). Projects under the BRI and independent loans and investments are sometimes difficult to distinguish due to a lack of reporting.

In respect to enterprises, we must recognize a “golden triangle” between Chinese companies, the state, and the quasi-commercial lending institutions, which allows them to access discounted credit lines for overseas exploration and acquisitions. Derived from this substantial capacity for funding, Chinese enterprises have carried out a “massive buy-out of foreign resource companies, mineral, and energy reserves” as well as sponsored projects in the oil and infrastructure sector6 (Executive Research Associates, 2009). Similarly, other

6 The biggest players in the field – CNPC, Sinopec, and CNOOC – have greatly increased the PRC’s overseas equity oil production from 140 thousand to 1.5 million barrels of oil a day between 2004 and 2011 (Chazan, 2013). Among the M&A in the oil and gas sector we can mention the CNOOC’s takeover of the Canadian

24 industries have been impacted by growing M&A around the globe. Chinese companies target enterprises focused on new technologies and R&D facilities attempting to capture intellectual property, research, and design value. This is exemplified in the acquisition of the Fischer

Advanced Composite Components (FACC) by the Xi’an Aircraft Industrial Corporation to support the development of the aviation industry. Various problems have arisen due to the incompatibility of corporate cultures between the PRC and the host country, along with the lack of interaction between locals and Chinese nationals. Additionally, other social problems related to the erosion of environmental and labor standards, constitute a burden in this transpacific commercial integration, which will be further discussed in the context of Latin

American projects.

In respect to loans, conditions for lending greatly vary from institution to institution (see table 2), and the type of flow is tailored by the recipient, meaning that “advanced and higher middle-income countries tend to receive portfolio debt flows, via sovereign bond purchases of the People’s Bank of China [and] lower-income developing economies mostly receive direct loans from China’s state-owned banks, often at market rates and backed by collateral such as oil” (Horn, Reinhart , & Trebesch, 2019, p. 8). For a better understanding of the lending terms offered by Chinese institutions, we must discuss Morris et al. (2020) comparison with those of the World Bank in respect to concessionality. Before doing so, it is necessary to note that there is limited knowledge about the terms of Chinese lending.

Beijing offers credits to developing countries in a more concessional way than the market or private institutions would do, yet its terms are also less concessional than those of the World

Bank. Although the Chinese government does not constitute a single creditor, the general

company Nexen Inc.; GALP energy’s sale of 30% of its assets in Brazil to Sinopec, as well as the 40% stake purchase of Repsol’s Brazilian subsidiary.

25 Chinese lending trend to low-income countries (LICs) typically offers a 2% interest rate, 6- year grace periods, and 20-year maturities. In contrast, the World Bank for its most concessional loans directed towards LICs under the International Development Association

(IDA) framework, grants a 1.54% fixed interest, 10-year grace periods, and 40-year maturities, while less concessional ones are fixed spread loans above a 6-month LIBOR reference rate and up to 18 to 20 years of maturity (p. 5). The difference in lending trends according to Morris et al. responds to two key distinctions between both creditors, first, the profit-maximizing approach of the Chinese, portrayed in their “mutual benefits from lending” rhetoric and the antithetical goal of the World Bank to eradicate poverty and promote shared prosperity at a global scale. And second, the limited knowledge on the coordination across

Chinese lending institutions concerning the borrower’s repayment capacity when assigning concessionality – something that raises questions about debt sustainability. Overall, the study found that the World Bank provides more concessional financing to the borrowers, with lower interest rates, longer maturities, and more generous grace periods. In concrete values, with respect to interest rates, China stands at a relatively high average of 4.14% different from the 2.10% of the World Bank. Likewise, maturity dates show a similar tendency with the World Bank offering 17.9 years and China offering only 16.6 years on average; as well as grace periods where the World Bank once again shows to be more generous with 7.7 years in contrast to 4.8 years offered by China on average. However, if the World Bank surpasses

Chinese credits in terms of concessionality, why are countries opting out from traditional lenders such as the IMF and the World Bank? We may answer this question first by citing the limitations of the quoted research. Because of the vague and incomplete reporting on lending activity by Chinese authorities, the presumed existence of ‘hidden loans’, the lack of a borrower’s country-specific analysis, and information concerning the ex-post

26 concessionality in case of loan restructure, the accurateness of reports of this kind is obscured. Hence, the availability of unreported facts in the lending activity has the potential to deliver different results that may modify the study’s findings in favor of Chinese lending conditions. Additionally, a solid persuader behind this shift is the lack of political constraint and (often western) norm liability attached to this financing that includes liberalizing markets, eliminating government subsidies, deregulating key sectors, debt managing, and privatizations that have been empirically proved to be harsh, faulty and widely unpopular in places such as Argentina, Greece, and Thailand. Currently, we are witnessing the rise of a new player in international relations that has provided a wider catalog of creditors to the developing world, and thus has enhanced their capacity to choose. Such new option is less restrictive and has allowed countries in Africa and Latin America to access non-concessional and large-size multi-billion-dollar commercial credits that were before denied to them in virtue of their economic misfortunes.

As a response to the lack of transparency of the lending process, the red flags on the debt- sustainability of borrowers, and the oil-backed contracts between China and emerging economies; China’s developmental rhetoric has been blurred with criticism of debt-trap diplomacy and unequal trade. The following chapters will put forward a country-specific analysis of Argentina, Brazil, Ecuador, and Venezuela along with an evaluation of their partnership with the PRC.

27 Chapter III: “Sino-Latin American Relations: Economic Involvement and

Governance”

After having explored the roots of the Chinese Miracle along with the worldwide programs that are responsible for the PRC’s insertion into the global economy, this chapter will set forth quantitative data depicting Chinese overall economic involvement in Latin America emphasizing trade, lending, and infrastructure projects. Following, a country-specific analysis of Argentina, Brazil, Ecuador, and Venezuela will describe the corresponding bilateral economic relations as well as the political implications of such partnerships.

Chapters 1 and 2 of this work allow us to understand the evolution of this transpacific partnership being catapulted by the cultural diplomacy of the 1950s and 1960s, to the unfolding of official diplomatic recognition (and the expansion of the “One-China” policy) and higher trade volumes during the 1970s and 1980s, and finally, the current stage shaped by the “Going Out” policy and the reorientation of Latin American countries away from traditional hegemons, which foresees immense cooperation in the political, cultural, economic and military realms. In this last stage, Latin America has become an intrinsic piece of the Chinese continuous growth plan, being able to offer food security for its growing population and natural resources to support its massive industrialization. The interest towards this region has been reassured in the 2008 and the 2016 White Policy Papers issued by the

PRC. Both documents highlight cooperation as the foundation of China’s foreign policy towards Latin America based on 5 principles that were also mentioned in the China-CELAC forum, namely peaceful coexistence, equality on a “South-to-South approach”, reciprocal benefit, common development, and trust and friendship. As well as emphasized on the “1 +

3 + 6” cooperation plan that can be translated into “1” cooperation agreement between China

28 and the region, “3” bilateral engines of the partnership: commerce, investment and lending, and “6” areas of cooperation including energy and natural resources, infrastructure, agriculture, manufacture, science, and technology.

Over the past two decades, the trade relations between China and Latin American countries have grown rapidly. The Sino-Latin American import-export deals have registered more than

2500% increase in value since 1999, equating to more than USD 300 billion in 2018

(Carvalho, 2019), compared to only USD 8 billion at the end of the previous millennium. As an example of the growing commercial influence that China enjoyed over its competitors in the last two decades, we can compare the above statistic with the US-Latin American trade growth which equated to only about 50% between 1999 and 2010 (Mellor & Sogol, 2021, p.

61). By 2017, five Latin American countries relied on China as its main export market, surpassing even the United States. This was a considerable change compared to 2005 when no Latin American country positioned China as its top export partner. Correspondingly,

Chinese imports to the region follow the same trend, placing the PRC in the top five import partners for every Latin American country, with countries like Cuba, Chile, or Brazil importing more from China than from any other country. China has provided more than USD

136 billion in loans to Latin American countries (see Figure 1), with the China Development

Bank (USD 110 billion) and China Eximbank (USD 26 billion) being the lenders (Myers &

Gallagher, 2018). The major recipients are Venezuela, Brazil, Ecuador, and Argentina, which enjoy over 90% of the total loans, with various infrastructure developments, energy and oil- related projects being the main focus of the financing. The funding of these projects has been granted on the condition of employing Chinese suppliers and construction companies for its development. While remaining considerably large, Chinese loans to the region are decreasing

29 in their amounts, which may account for the fragile economic situation in some Latin

American countries and the Chinese disinterest in investing in such economies. Nevertheless, the ongoing Covid-19 pandemic and its consequences could constitute an increasing regional interest in Chinese lending from Latin American economies who have before been reluctant to make such deals with the PRC, while Chinese policy banks could also face defaults as for the incapacity of other states to cover already-existing loans. The lines below will analyze bilateral relations between Argentina, Brazil, Ecuador, and Venezuela with China, in detail.

Figure 1

Distribution of Policy Bank Lending by Country, 2005-2017

Retrieved from “Down but Not Out: Chinese Development Finance to LAC in 2017” by M.

Myers & K. Gallagher, 2017, The Dialogue, p.3.

Argentina

Similar to other nations in Latin America, the volume of trade between Argentina and the

PRC has greatly increased in the last decades. By 2010, trade between both nations reached

30 USD 13 billion in contrast to USD 252 million in 1990 (Nacht, 2011). An always-negative balance of payments for Argentina shows an increase in exports and imports from USD 5.4 billion and USD 8.7 billion in 2015; to USD 7 billion and USD 9 billion in 2019, respectively

(Instituto Nacional de Estadística y Censos, 2019). These numbers position China as the second-largest trading partner to Buenos Aires, while the latter only constitutes 0.4% of

Chinese imports, providing the PRC with a large leverage power. Currently, as a result of the stoppage of the due to the health emergency, China has overridden

Brazil as Argentina’s largest trade partner, although this trend is considered by experts to only be temporary. The commercial relations between Argentina and the PRC seem to exercise a center-periphery dynamic when it comes to the volume of trade and the nature of exports and imports with constant deficits on Buenos Aires’ side. Argentinian exports are highly concentrated in three products: soybean, meat, and oil, which fall in the categories of manufactured products of agricultural origin and primary products where China constitutes the leading destination for exports, accounting for 12% and 27% respectively. Similarly, and energy account for 6% of the exports, thus leaving industrialized products behind. In contrast, Chinese exports to Argentina are highly diversified and sophisticated including intermediate goods (18% of Argentinian imports), parts and accessories for capital goods

(highly technological, 24%), and consumer goods (24%). This trend has been intensified with the ongoing joint projects mainly in agriculture, hydrocarbon activities, and cattle raising that involve high levels of foreign direct investment. As Luque (2019) suggests, in 2013, the total stock of Chinese Outward Foreign Direct Investment for Latin America (COFDI) was USD

7 billion of which 90% was destined to five countries, among them Argentina. China has been highly active in the hydrocarbon sector from which it has earned a higher position in respect to the volume of OFDI on account of the acquisition of the Occidental ’s

31 Argentina operations; the 40% stake of the Pan American Energy providing the PRC rights over Cerro Dragon – the most important oil and gas field in the country; and the acquisition of 100% of the shares of the US subsidiary Corp that extended exploitation rights in the provinces of Mendoza, Santa Cruz and Chubut (p. 612). Moreover,

China has been widely interested in the production of soybean and its derived products such as soybean oil, as well as fishing and cattle farming mainly for bovine and porcine meat.

However, case studies hardly indicate an easy path to such projects, even when high politics seemed to be aligned with Beijing’s ideology as was during the Kirchner and (Cristina)

Fernandez administrations. In the agriculture sector, in 2010, the Chinese state-owned

Heilongjiang Beidahuang Rice Industry Group Co. attempted to seal a deal that would grant it a 20-year concession of 320,000 hectares for soybean production in the Rio Negro valley, irrigation rights, permission to carry out infrastructure works in the Port of San Antonio to further make use of the port, and the right to build a soy oil plant. Nevertheless, the project was dismissed on account of legislation related to land ownership that has been enacted in response to the social unrest in respect to possible land-grabbing by China; as well as to the environmental concerns over the Rio Negro valley; and the “bad image” that China holds among Argentinians (Luque, 2019, p. 614)

By the same token, China has been funding infrastructure projects as expressed in the China-

CELAC forum and outside the Belt and Road Initiative, of which Argentina is not a part of

(yet still following the BRI’s rhetoric and building on the BRI 5 links), although with a considerable slowdown in comparison to previous years7. Chinese-backed projects include

7 In 2010, loans peaked with a value of USD 10 billion in comparison to 2015 and 2016 where no new loans were granted, and finally in 2019 bilateral lending reached a lower value of USD 236 million.

32 the construction of railways, energy sources, and electric dams financed by policy banks – mainly China Exim and CDB – that have also contributed to the increase in Argentina’s foreign debt and positioned China as its fourth-largest lender, still not surpassing the IMF, with an average loan value of USD 18 billion. To illustrate, the CDB has approved a USD

4.7 billion loans to finance 85% of the two hydroelectric dams in Patagonia, namely the

Condor Cliff and La Barrancosa Dams which includes a “cross-compliance” clause that establishes the erection of the dams as a prerequisite for the advance of other Chinese-backed projects. Furthermore, Argentina has been granted a concessional loan of USD 2.4 billion by the CDB to renovate San Martin Railway which is in Chinese utmost interest as this line is used for the transportation of yields; and the China Exim Bank has financed the development of the Chauchari Solar Parks for USD 331 million (Myers & Gallagher, 2018). Similarly, in terms of energy, we can highlight the future construction of the Atucha III plant in the province of Buenos Aires, which will be the fourth Chinese-backed nuclear plant after Atucha I and II, and Embalse (Córdoba). Various projects have been reactivated during the current Fernandez’s administration after Macri's opposition to Chinese profound engagement in Argentina. Likewise, Fernandez has expressed interest in BRI membership, something that would allow the Republic to unlock further investment in infrastructure. This financing along with enormous credits granted by the IMF and other private, multilateral, and bilateral institutions in tandem with internal conditions have pushed the debt to unsustainable levels amounting to USD 272.8 billion and endangered future economic growth. Currently, Argentina faces a widening poverty gap, peso devaluation, and soaring inflation rates.

33 Since its return to democracy in 1983, Argentinian high politics appear to be volatile with the alienation to foreign hegemons. The Menem, De la Rúas, and the Macri administrations governed under a US-aligned foreign policy. In contrast, Duhalne, Kirchner, and Cristina

Fernandez offered a more independent approach to foreign relations and distanced Argentina from the US, seeking new partners such as China; and today President Alberto Fernandez seems to be leaning towards the Kirchnerist preferences. However, it would be incorrect to state that political ideology has dominated how Argentina engages with the international community and particularly with China, even in light of the grand labels of “comprehensive” and “strategic” imposed on the partnership and the reciprocal high-level bilateral visits.

Although, we can recognize that the conditions of lending by Chinese institutions have been largely attractive as for the political and fiscal freedom that they provide in contrast to the obscure past of the IMF reforms imposed in 2001-2002 and 2018. Even during Peronist administrations (ideologically turned to the left) such as that of Cristina Fernandez, we encounter opposition to Chinese investment and lending, such as in the Tierra del Fuego urea plant when a cargo ship bringing construction equipment was banned by the government from entering Argentinian territory on the charges of violating import restrictions. Therefore, we can argue that relations with this hegemon are shaped by the opportunities for growth and that of diversifying foreign partners – that may include the United States, China, and immediate neighbors (particularly the MERCOSUR) – rather than being entirely political.

However, it is right to argue that politics do play a role particularly following the political orientation of the leader. Additionally, it is worth noting that during Argentina’s struggle to flourish economically and in the light of the default on international loan obligations in 2002 and poor credit ratings restricting access to capital markets, Chinese loans represented a much-needed financial lifeline.

34 Brazil

Since the beginning of the XXI century, in its path to achieving economic development and political autonomy, the South American giant has been following a policy of autonomy towards the established international legal order particularly during Luiz Inácio Lula da

Silva’s administration where Brazil sought to underpin vigorous political cooperation with the South, namely the emerging economies that are members to the (Vigevani &

Cepaluni, 2007). This diversification in foreign partnerships paved the way for the consolidation of political and economic relations with China. According to Cardoso (2013), both nations share the goal of reforming the financial and the political international order to provide developing countries with a louder voice.8 This is portrayed in their extensive cooperation in multilateral fora such as the BRICS and the G20 which have been used as means for achieving their objectives, as seen in the 2012 joint statement issued to the IMF where an increase in contributions was offered in exchange for the placement of a comprehensive reform that included changes in the voting power and quota shares. Similarly, the BRICS have proposed alternatives to the IMF and the World Bank, namely the

Contingency Reserve Arrangement and the BRICS Development Bank, respectively. The

“strategic bilateral partnership” signed in 1993 experienced an amplification of its original scope of economic and technological cooperation. China and Brazil established direct links for political communication such as the China-Brazil High-Level Coordination and

Cooperation Commission that allowed policy coordination by high-level officials; as well as sealed a Joint Action Plan that extended cooperation to thirteen other areas related to the economy, culture, and science. Outstanding among the cooperation instances is the China-

8 The status of China as a developing country has been widely debated producing no clear answer.

35 Brazil Earth Resources Satellite program. Jair Bolsonaro’s arrival to the Brazilian presidency revealed an alteration in relations between the two countries. His anti-Chinese rhetoric has complemented his pro-US foreign policy and alignment with President Donald Trump’s policies that have promoted a protectionist view at home, particularly in front of the overcompetitive Chinese industry in the Brazilian market. However, Covid-19 has appeased

Bolsonaro’s rhetoric to a more conciliatory one that seeks Chinese assistance against the virus (Trinkunas, 2020). Even under his administration, trade, investment and lending have soared in comparison to the values of the last decades. Brazil constitutes a cornerstone in the

Chinese strategy in Latin America and its journey towards global hegemony. Parallelly,

Brazil takes on the opportunity to achieve long-desired economic growth and to gain a stronger voice in international affairs.

The Sino-Brazilian Comprehensive Partnership oversees cooperation in several areas, particularly in commerce and finance. Brazil, as a large export economy, widely trades soybeans, oil, iron , cellulose, and meat with China. Bilateral trade has risen from

USD 3 billion in 2001 to USD 44 billion in 2010 and reaching as high as USD 100 billion in

2019 (Studart & Myers, 2021). Brazil constitutes China’s most important partner in the region, and in 2009 China replaced the United States as Brazil’s top trading partner. Similar to Argentina, the terms of exchange between Brazil and China have been described as a

“center-periphery” partnership and equated to economic dependence on the Brazilian side.

However, commercial ties between both actors have been said to be driven by economic complementarity in contrast to the American economy that is seen as a potential rival, especially in soy trade. The low value-added of Brasilia’s exports has made the economy highly vulnerable to price shocks as well as to the developments in Chinese demands. Amidst

36 the Covid-19 pandemic, China has become even more important for Brazilian exports as trade with the Mercosur members has been harshly struck as a result of the stagnation of the auto industry. Moreover, Chinese direct investment in Brazil accounts for almost half of the overall investments from Chinese companies in the region, receiving USD 55 billion distributed in 145 projects over the last 10 years; and has gained momentum since the 2008 global financial crisis. It is also a top receiver of financing and assistance by the China Exim

Bank and the CDB, second only to Venezuela with a loan value of nearly USD 29 billion

(Studart & Myers, 2021). The sector of utmost interest for the PRC has been petroleum, as indicated by the major capital injections (USD 10 billion) in the Brazilian state oil company

Petrobras that has served to finance its soaring debt and the exploration of the deep-sea oil fields; the consequent purchase of Brazilian holdings of the Norwegian Statoil by Sinochem in 2010; as well as the former’s purchase of a 10% stake of the Perenco operations; and the

Repsol’s reception of over USD 7 billion granted by Sinopec. It is worth noting that lending has also been carried out in times of financial distress – a condition that has transformed

Chinese credits into a lifeline. Beijing’s oil diplomacy in Latin America has been remarkable in the case of Brazil. The oil-for-loan mechanism – that will be further explained in the lines below – has been put in practice in this country, noteworthy in the case of the USD 5 billion loan to Petrobras that established the obligation of providing 10,000 b/d of oil for a period of

10 years. This practice has prompted the over-indebtedness of countries that use natural resources as a collateral in the face of poor credit ratings, as well as a corrupted use of funds on account of the lack of transparency of the lending process. In the sector, the PRC has played the role of consumer and investor, the former through large volumes of trade with

Vale S.A., the largest producer of iron and the second largest producer of worldwide, and the latter through the China Co. acquisition of the Anglo-American

37 Group’s and phosphate business and the prospects of building a mill in

Maranhão.

Although Brazil is not part of the BRI and has fewer prospects of membership under

Bolsonaro, China has been extremely active in the development of projects pertaining to the

BRI’s five links. Out of the eleven projects listed in The Dialogue’s database for Chinese credits in Brazil, eight are linked to the energy sector ranging from pipelines and coal plants to oil production. Similarly, China has largely invested in hydropower infrastructure through the acquisition of assets in the sector such as Duke Energy’s Brazilian business by China

Three Gorges that granted it ten hydropower plants; and the greenfield investment carried out by China’s State Grid in the electricity transmission sector. Investment in other types of infrastructure, however, has moved slower. Although, there is high interest in the development of areas such as agriculture, transportation, and telecommunications. An example of this is the stagnation of the Bi-Ocean Railway Project that aspired to facilitate the transportation of soybeans and other between Brazil, Peru, and Bolivia.

Ecuador

Ecuador and the People’s Republic of China have entered a quite cumbersome marriage in the last decade founded on the complementarity of their economies and betraying the win- win promise. The former constitutes a showcase in the unsustainable growth of foreign debt.

Diplomatic relations between both nations were established in January 1980 and during the following decade, China and Ecuador fairly had commercial relations. It is not until the beginning of the XXI century, and particularly since the investiture of Rafael Correa as president of Ecuador in 2007 that financial and political cooperation erupts. A

38 Comprehensive Strategic Partnership has been the framework under which trade, foreign investment, and lending have reached inconceivable numbers. According to the values published by the Ecuadorian Central Bank for 2019, commercial exchanges have been subject of asymmetric growth, disadvantaging the Andean nation which heavily relies on commodity exports namely flour, cocoa, bananas, shrimps, wood and products derived from wood, precious metals and copper, and oil. In contrast, China exports more sophisticated items such as private transport vehicles, electric generators, mobile phones, machinery, electrical equipment, monitors and projectors, and transport equipment. Although regional trade (including the United States and Latin American neighbors such as Panama, Chile, and

Peru) is of utmost importance in the Ecuadorian balance of payments; China has earned a place in the top five commercial partners only second to the US as the destination for 13% of its exports and providing Ecuador with 16.4% of its imports in 2019. It is worth noting that while there was evidence of a slight decrease in exports to several geographical zones,

China experienced the opposite effect evinced in the 92.2% increase of exports to this market

(Oficina Económica y Comercial de España en Quito, 2020). Concerning Chinese Foreign

Outward Direct Investment (COFDI) – although less remarkable than lending as for

Ecuador’s small market – it has greatly increased from USD 19.77 million registered in the period between 2002 and 2006 to USD 345.1 million by 2017. Recent years have seen the decline of such investment which can be attributed to the country’s upsurge in investment risk. A great portion of COFDI (over 90%) has been destined to the extractive resource industry namely mining and quarry exploration and the rest has been divided into different sectors such as real state, hospitality, and energy (The Dialogue, 2021). As of 2018, 90 companies operated and invested in the Andean territory. Among them, we can mention

EcuaCorriente S.A (ECSA), a creation of the China Railway Construction and China

39 Nonferrous that have taken charge of the Condor Mirador copper mining megaproject that has been infested with social and environmental scandals ranging from deforestation to the spillover of toxic substances to water resources. Moreover, since 2006, China National

Petroleum Corporation and China Petrochemical Corporation (SINOPEC) have obtained six oil concessions, one oil storage and transfer station, and a heavy-crude-oil pipeline.

Among the exploited territories, we can identify blocks 43, 79, and 83, which are partially within the Yasuní National Park which is home to indigenous tribes and is characterized by its high biodiversity.

Chinese credits and loans have remarkably influenced Ecuador’s finances as its funding has surpassed that of the Development Bank of Latin America (CAF) and the Latin American

Reserve Fund in the period between 2010 and 2017. Currently, 73.54% of loans to Quito come from China, mainly from the Exim Bank and the CDB in the amount of USD 18.4 billion (The Dialogue, 2021). Correa’s fierce anti-Washington rhetoric and the external policy of ideological and economic alignment with the South – namely with left-wing governments in the region and beyond – has allowed China to become an important economic actor, also as a response to its global leadership. In contrast to Argentina, Herrera-Vinelli and

Bonilla (2019) suggest that the Ecuadorian leadership has “molded its domestic policies in

China’s favor” intending to obtain a greater benefit from COFDI and larger access to lines of credit. In light of its isolation from global capital markets, Correa used Beijing's financing to sponsor its new and expensive growth model directed to what he called Buen Vivir (or wellbeing) which implied high levels of spending in infrastructure, energy, education, and health sectors (p. 638). However, today Ecuador’s economic growth has been masked by over-indebtedness, over-pricing in projects that have erected defective infrastructure, and

40 corruption scandals emanating from those same loans; as well as a soaring debt accounting to 48.5% of the country’s GDP (CEIC, 2019). The Coca-Codo-Sinclair (CCS) and Sopladora hydroelectric dams, the road to Quito’s airport, the Minas-San Francisco hydroelectric dam, and the Yachay education complex are some of the projects that have been backed by Chinese capital. Among them, the Coca-Codo-Sinclair dam can be said to best display the relation between Quito and Beijing. In an attempt to transform the energy matrix into a cleaner one less dependent on fossil , Ecuador sought financing from China’s Eximbank for a 6.9% interest loan of over USD 2 billion to cover 85% of the cost of a hydroelectric dam that would supply 35% of the country’s overall electricity consumption. The project built by Sinohydro is situated on the Coca River between the provinces of Napo and Sucumbíos on the slopes of the active volcano El Reventador. This controversial location and a lack of detailed studies of the geological conformation of the Coca River channel have shut down previous attempts of developing this project until 2009. The project has been regarded as highly detrimental in terms of social impact. Personnel working on its construction has complained about mistreatment, poor working conditions, and a lack of health care, food, and fair wages. In

2014, a landslide caused the death of 14 workers and 12 were injured. The possibility of such disaster was previously predicted by geologists; however, it was ignored (Centro de Derechos

Económicos y Sociales et al., 2020). In a similar manner, the structure itself has shown imperfections that threaten its partial or complete collapse, along with many environmental concerns about the erosion of the Coca River and the change in the landscape of the San

Rafael waterfall. Furthermore, China’s financing for this and other infrastructure projects has used the loans-for-oil conditionality that seeks to secure repayment and a continuous oil supply over the repayment period. As depicted in Figure 2, payment is guaranteed by using the model that works as follows: a certain amount of oil is sold to an indicated Chinese

41 national oil company by the host country for the period of maturity of the loan. Afterward, this company is required to deposit the earnings on the borrower’s account with the Chinese lending institution which provided the loan. Finally, a certain portion of these revenues is directed to repaying the loan. In the case of Ecuador, CNPC deposits 79% of the oil revenue into Petroecuador’s CDB account and diverts the remaining 21% to pay back the loan. The

CCS and many infrastructure projects use this modality mostly to circumvent poor credit ratings (Alves, 2013, p. 101) (Arellano Banoni, et al., 2019). Currently, Petroecuador has seven alike contracts with PetroChina and Sinopec. These and other cases have been perceived as constant attacks on sovereignty.9 As noted in the CCS and Mirador mining projects, environmental impact is an important feature of this partnership. According to

Amazon Watch (2014), China has also tried to secure payment for its credits by pushing for oil exploitation in the central-south Amazon and the Yasuní National Park. This is embedded in the scandalous extraction of oil in blocks 14 and 17 that touch the Yasuní Natural Reserve.

PetroOriental S.A. is the company that has been granted the green light on the extraction of oil in this area and already faces lawsuits brought by the Waorani tribe on the charges of resource pollution. Oil extraction has been forced even against Article 57 of the Ecuadorian constitution that guarantees prior consultation regarding projects of prospecting, exploitation, and commercialization of non-renewable resources on their lands along with protection to biodiversity.

9 President Correa himself has expressed that "negotiating with China is worse than with the IMF" and has labeled the creditor's demand as "barbaric" and "outrageous" such as the request for the Ecuadorian Central Bank to put its assets as a collateral.

42 Current president, Lenin Moreno, has hampered the anti-American rhetoric and has entered into various deals with Washington including one ensuring the export of roses to North

America, and other regarding international assistance. However, he has also continued to acquire economic compromises with China and has joined the BRI initiative in 2019.

Moreno’s government is pursuing new credits from Beijing that would imply an elevated increase in the production of Ecuadorian oil, probably unattainable, which has already caused fractures within Petroecuador, exemplified by the resignation of two of its CEOs – Pablo

Flores and Ricardo Merino who opposed the oil presale. Although no projects have adhered to the BRI framework officially, it is evident that China has made great progress in advancing the BRI’s objectives in Ecuador on account of the high-level political cooperation and the funding of the various infrastructure projects cited above.

Figure 2

Oil-backed-loan Mechanism for Ecuador

Retrieved from “Credit Implications of Chinese Investment in Latin America-Infrastructure

Investment” by V. Arellano Banoni et al., 2019, Columbia School of International Affairs, p.21.

43 Venezuela

For more than a decade, Venezuela’s social and political situations have been heavily discussed in the context of the Bolivarian revolution. Hugo Chávez and his hand-picked successor Nicolás Maduro have been key actors in the development of Sino-Venezuelan relations. Additionally, understanding Venezuela’s internal politics and its nature as a petrostate allows us to grasp the significance of oil as the main motivator for this risky friendship. Diplomatic recognition of the PRC was forged in 1974 and since then only

President Luis Herrera has made an official visit to Beijing. It is not until the triumph of Hugo

Chávez in 1999 that economic, political, and military relations begin to intensify. Different from the cases examined above, commercial relations between Beijing and Caracas are not largely documented, rather lending and investment attract more attention. Nevertheless, it is evident that trade relations follow the same center-periphery Latin American pattern, as

Venezuela possesses the largest proven reserves of oil and produces other natural resources such as natural gas, , gold, bauxite, diamonds, and other minerals, which constitute a supplement to China’s quest for oil and other raw materials to support its massive industrialization and growing middle class.

Venezuela is a textbook example of an oil-dependent country. According to PDVSA, oil revenue accounts for about 99 percent of export earnings, and oil comprises 95 percent of its exports. Indeed, the massive availability of this resource has been the main tool in the

Chavista domestic and foreign policies. Kaplan and Penfold (2019) suggest that Chávez’s governance strategy has been built around the use of oil revenues to counterbalance US influence in Latin America, and the pursuit of international support from non-Westerner state actors such as China and Russia. Chávez came to power during a period of economic

44 recession which was adjudicated to the use of neoliberal policies in Venezuela, therefore his anti-American rhetoric suited the beliefs of millions of Venezuelans that were immersed in poverty. The president had adapted Venezuela’s national oil company Petróleos de

Venezuela S.A. (PDVSA) to be his personal bank and fund his expensive social program labeled “Socialismo del Siglo XXI” and has used it as a power crutch to legitimize his regime.

This was done through the manipulation of oil legislation, reforms on the internal organization of PDVSA, and large foreign capital injections to the company’s structures.10

China has been very active in the energy sector in Venezuela; it constitutes Caracas’ largest creditor having provided 17 loans in a value of USD 62.2 billion (largest in Latin America) that have been used to finance development projects namely in mining, housing, communication (satellites) and transportation. The commodity boom experienced in the decade ending in 2013, has allowed China and Venezuela to parade the benefits of their win- win partnership as well as “epitomized an elective affinity between South America’s ascendant New Left leadership and China as a new, alternative diplomatic and commercial partner in the region” (Ferchen, 2020, p. 5). The secrecy and loose political conditions tied to loans and investment have been a key feature of their economic complementarity and have fueled corruption in Venezuela. By 2001, Chávez and Jiang Zemin have established the High-

Level China-Venezuela Commission to institutionalize energy cooperation and facilitate the access of CNPC, Sinopec, and CNOOC into the Venezuelan oil sector and to comply with

Chávez’s goal of achieving oil independence from Washington. Embracing this enthusiasm,

Chávez has signed various commodity-backed loan agreements with the CDB that would grant access to billions of dollars – to solve financial imbalances and finance further oil

10 To illustrate, after the oil strike of 2002-2003 Chávez substituted important high-level PDVSA employees with loyal supporters of his regime who were usually part of the military.

45 exploration – in exchange for a share of PDVSA’s oil output. Similarly, with the view of expanding Venezuela’s economic reach, the China-Venezuela Joint Fund was established based on the injection of Chinese capital into the fund, parallel to the signing of a contract by PDVSA to provide oil to any subsidiary of the CNPC. China has largely bid in this risky environment on account of the fact that as long as Venezuela has oil to drill, it would be able to comply with its loan commitments (Kaplan & Penfold, 2019, p. 3). However, this statement was challenged by the decreasing oil output caused by the politicization and mismanagement of PDVSA before Chávez’s death and particularly during the Maduro regime. Since the latter assumed power, the South American country has experienced a plunging oil production because of the lack of maintenance, the faltering financial state of

PDVSA, limited workforce, faulty production technology, power outages, and international sanctions. In 2019, Caracas’ average crude oil production amounted to an already-low value of 877,000 barrels per day, and in 2020 it reached its lowest levels with 360,000 b/d (U.S.

Energy Information Administration, 2020). China’s collateral strategy to mitigate credit crises seemed to have overestimated Maduro’s capacity to repay, as devious exchange-rate policies have not been lifted, prices of oil have reached extremely low levels, and output has not sufficed to comply with debt obligations. Although there is a lack of official information from both sides regarding lending, it is estimated that Venezuela still owes China around

USD 20 billion in commodity-backed debt payments (Guevara, 2020). Amidst the aggravation of Venezuela’s crisis, the incompetence of Maduro’s economic policy that increases credit riskiness and delays loan payments, and the erosion of China’s reputation for its silent support of Chavismo; Beijing is reluctant to increase financing,11 but it has not

11 The distancing is evident in the absence of credits since 2017 and in Sinopec’s lawsuit against PDVSA for alleged breach of contract and conspiracy to defraud on a 2012 agreement.

46 completely ceased capital flows to Venezuela, nor has it withdrawn diplomatic support, holding tight to the non-intervention principle.

In all, Chinese funding has already erected several structures destined to boost development in various areas in light of the indisposition of the World Bank and the IADB to expand its credit portfolio to Venezuela; as well as political cooperation has been extended to the framework of the BRI. China has invested in over 50 combined FDI and construction projects that have sponsored “sugar refineries, cellphone assembly, electricity generation, cattle ranches, egg farms, and transportation.” However, the quality of such projects has been widely criticized as many were either left incomplete or were not commercially viable, namely the high-speed train in Chaguaramas (Kaplan & Penfold, 2019, p. 19). This funding has allowed the realization of populist initiatives – remarkably the Chinese-backed housing programs and the giveaway of “Made in China” home appliances. Similarly, Maduro has already signed 28 bilateral agreements with China and confirmed its membership in the BRI initiative in 2018 through a MoU. Caracas has received technical assistance to allow for a more “effective” social control in projects such as the Carnet de la Patria. Additionally, military cooperation increased through the upsurge in arms sales.

47 Chapter IV: “Beyond Economics: Military and Security Cooperation”

Statements of foreign policy issued by the People’s Republic have framed cooperation with

Latin America and the Caribbean around a variety of areas emphasizing the fulfillment of economic complementarity. Nevertheless, fragments of Beijing’s White Policy Papers issued in 2008 and 2016 reference further collaboration in military exchanges and other non- traditional security issues. The deficiencies of these areas in respect to resources, bilateral agreements, and people involved shall not overshadow their prominence in the study of Sino-

Latin American relations, assuming forthcoming security bearings for the region. This chapter will attempt to elucidate military and security cooperation between China and the four American nations in two main areas: military engagement and surveillance technology transfer.

In the short and medium terms, Chinese involvement in the region is driven by the largely predicated economic complementarity that has allowed the Asian country to conduct its economy towards its 2049 goal. Parallelly, such partnership has also permitted further engagement in other markets pertaining to the security sector that may be necessary to sustain economic relations in the long term. Changes in the international order since the end of the

Cold War have allowed Latin American leaders to proudly trumpet the inauguration of multifaceted relations with China going beyond economic and financial collaboration.

Beijing has made clear that it is eager to expand its relationship with Latin America to the realm of peace, security, and judicial affairs and create a common framework to facilitate defense dialogue, law enforcement assistance, and information sharing.12 Several nations in

12 Judicial cooperation has been growing in light of tighter economic links that have allowed the emergence of various security threats. Cooperation has attempted to tackle money laundering, extorsion of Chinese

48 the United States’ neighborhood have fractured their alignment with this hegemon and have diversified their foreign allies, seeking either to branch out their foreign policy or to contradict American influence in light of ideological clashes. Indeed, in his study of the emergence of China as a prominent actor in the Western Hemisphere, Professor Evan Ellis

(2020a) classified Latin American countries according to their position in international affairs concerning the US and China in light of the absence of a strong and consistent alignment to the PRC in Latin America. This taxonomy contains four categories (1) anti-US communist and populist regimes, (2) diversity-of-partner and in-transition regimes, (3) diplomatically “off-the-table” regimes, and (4) strongly US-allied regimes. Ecuador

(Correa), Venezuela (Chávez and Maduro), and to a certain extent Argentina (Kirchner and

Fernández) are ubicated in the first group, the latter also figures in the second and fourth group (both during Macri’s administration), and finally, Brazil which is not located in any group by Ellis, could be argued to have touched the second (Lula Da Silva and Rousseff) and the fourth groups (Bolsonaro).

Military engagement

Ellis’ categorization allows the introduction of the first variable to be studied in this chapter: military engagement. Argentina, Brazil, Ecuador, and Venezuela have established some kind of contact with the PRC in this realm. This is epitomized in arms sales and donations, military training and institutional high-level exchanges, and the physical presence of China in Latin

American territory. The first element can be identified mainly in countries belonging to the

communities in Latin America by groups linked to the PRC, illegal sales of chemicals for drug production and the retail of the final product, smuggling of Chinese nationals to Canada and the United States through Latin America and the Caribbean by PRC-based gangs, trafficking of contraband goods, and the illegal procurement by Chinese enterprises of metals obtained from informal mining projects. Argentina is a prominent example of police cooperation with the PRC.

49 first category of Ellis’ taxonomy of the region. Chinese global arms exports experienced a twofold increase between 1990 and 2016.13 Not only the volume of arms sales has soared, and the variety of weaponry has risen, but distant markets have also been conquered, among them Latin America. Sales to this region have rocketed from almost no military commercial interaction in 2005 to trading over USD 676 million in the decade starting in 2008 (CSIS,

2018). Moreover, products have diversified from low-level military equipment such as small weapons and uniforms to more elaborated goods as seen in Figure 4. Socialist-leaning regimes in Venezuela, Ecuador, and Argentina have made the largest arm purchases from

Chinese companies in the region. In the case of Venezuela, Hugo Chávez and later Nicolás

Maduro have pioneered the purchase of military hardware, receiving around 90% of Beijing’s arms transfers to the region. These deals have been concluded using oil output as a choice of payment. Among the products purchased are the K-8 light jets for fighter trainers’ use, Y-8 military transport aircraft, and 10 JYL-1 military radars (Ellis, 2020a). During the ongoing deep economic recession, Maduro has opted to expand its military expenditure at the expense of citizens’ food security and has purchased from China JY-27A long-range air defense radars and military ground armored vehicles and artillery for its National Guard and the

Naval Infantry. To a lesser extent, Ellis narrates that Ecuador has followed a similar path during Correa’s administration. Military equipment such as MA-60 medium transport aircraft, air radars, military vehicles including 4x4 and 6x6 trucks and buses, and assault rifles have been acquired from China. However, purchases have occasionally not been as smooth as in Venezuela due to local discontent about the quality of the equipment, particularly the

13 By 2019, according to the Stockholm International Peace Research Institute "China accounted for the second-largest share of arms sales by the top 25 arms companies, at 16 %" reflecting the success of the Aviation Industry Corporation of China, the China Electronics Technology Group Corporation, and China North Industries Group Corporation (SIPRI, 2020).

50 air radars that did not fulfill the requirements of the Ecuadorian Air Force. Additionally, the

PRC has made donations of non-lethal goods such as trucks and ambulances and has expressed its interest in doubling such donations in 2010 (Ellis, 2011, p. 26). Arms exchanges with Argentina have intensified during the holding of office of Peronist governments still overshadowed by a historically limited military funding since the return to democracy. As part of a larger acquisition of equipment for the Argentine-Chilean peacekeeping force

Fuerza de Paz Binacional Cruz del Sur, Nestor Kirshner has welcomed Chinese military equipment by purchasing WMZ-551 armored vehicles. Alike, according to the 2015 China-

Argentina bilateral agreement, Cristina Kirschner had engaged in negotiations with Beijing that, if confirmed, could have significantly elevated inflows of Chinese military equipment to Latin America. The deal valued at millions of USD included the purchase of FC-1 fighters,

110 VN-1 armored vehicles, and P-18 offshore patrol vessels; and a plan for the coproduction of 8x8 VN1 Amphibious armored personnel carriers to be developed by the Chinese conglomerate Norinco and produced in Argentina, and later to be marketed within the region

(Wilson, 2015, p. 4). Nevertheless, President Fernandez was voted out of office before the deal could be realized and her successor Mauricio Macri paralyzed further military engagement. Similar to Ecuador, follow-up and further procurement of Chinese military equipment including X-11 helicopters have been suspended on account of dissatisfaction with the products and legal issues regarding property rights.14 In contrast, perhaps assimilating its egalitarian political partnership – not to be mistaken with political ideology,

Brazil’s fitting to the last group in Ellis’ categorization, and its well-developed defense industry; Beijing’s military sales to Brazil are null according to the SIPRI Arms Transfers

14 France has threatened to take legal action against Argentina if it purchases Chinese helicopters that have been claimed to be a copy of those marketed by Eurocopter (Ellis, 2013, p.103).

51 Database. However, coproduction plans of military equipment were put on the table in 2010 during a meeting between ministers of defense of both nations in Brasilia. As an example, we may cite the Brazilian airplane manufacturer Embraer’s collaboration with China

Aviation Industrial Corporation in the production of ERJ-145 business jets.

The second element, training and institutional high-level exchanges, is a common denominator in the four studied countries and it is linked to the diplomatic recognition of the

PRC as almost all countries in Latin America that have established diplomatic relations with

Beijing have sent military personnel to Chinese schools, namely to the Institute for Defense

Studies at China’s National Defense University in Changping, China’s Army and Navy

Command and General Staff colleges, among others (Ellis, 2017, p. 6). Likewise, multilateral forums such as the “China-Latin America High-level Forum on Defense” as well as bilateral meetings have fostered inter-ministerial contact in the field of security. Furthermore, transpacific military engagement has been strengthened with the participation of the PRC in humanitarian peace-keeping missions (evident in other territories in the region), remarkably the participation of the PLA in the MINUSTAH Haiti and the collaboration of the Chinese military personnel in Peru during the Angel de la Paz humanitarian exercise. Furthermore, institutional visits have allowed the PRC to underpin institution-to-institution linkages in

Latin America and reach a larger audience including military professors and mid-grade officers. Other contacts include visits to Latin American ports and conferences and seminars such as the Symposium for Upper-Level Officers hosted by China that target the presence of

Latin American military officers. Similarly, countries such as Argentina have expanded cooperation to other security sectors such as police and judicial affairs in order to counteract criminal activity derived from economic interaction.

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53 In the case of Venezuela, similar to its performance in the arms trade, it has been actively sending personnel for training and professional military education. After talks held at the

Ministry of Defense in Caracas, the army Commander of the Lanzhou Military Region Liu

Yuejun and Venezuelan Defense Minister Vladimir Padrino expressed that “there’s common ground between the two nations for expanding military cooperation beyond the technical field, to include education and logistics” (Ministry of National Defense of the PRC, 2015).

By 2017, Venezuelan military personnel was deployed to the “Clear Sky” military exercise in China; and reciprocally, personnel from the People’s Liberation Army (PLA) was occasionally deployed in Venezuela possibly for training and maintenance of Chinese-made military goods, and participated in Venezuela’s military parades (Ellis, 2020a, p. 5). In contrast, Ecuador has not hosted PLA personnel in its territory; however, it has sent military forces to Beijing for professional military education, training, and institutional engagement.

Similarly, visits have been made to the Guayaquil port by the Chinese naval flotilla. On a similar note, Argentina has enrolled personnel into military courses and institutional exchanges; reciprocally there has been an increase in the number of visits by Chinese officials to the Argentine National Defense University and senior war colleges. Also, the South

American country has hosted “two PLA Navy missile frigates for a port call, after they made a historic crossing through the difficult seas of the Straits of Magellan” (Ellis, 2020a, p. 6).

During the Chinese military personnel’s regular visits to Latin American defense institutions, they have taken part in local defense courses including the Jungle Warfare School in Manaus,

Brazil (Ellis, 2017, p. 6). Similarly, military-to-military contact was evidenced in the UN-led

MISHUSTAH mission in Haiti, where the PLA acquired first-hand working experience in the region and established relations with militaries participating in the mission, including that of Brazil. Lastly, Brazil has hosted chief military staff including Minister Liang, as well as

54 China has received Brazilian ministers of defense such as Nelson Jobim. Despite the low impact of visits in relation to the substance of the discussions and the few bilateral agreements existing in the field of defense, visits have sowed the possibility of future deeper cooperation in the military realm by building confidence and familiarity for the PLA with local logistics, infrastructure and people that might as well be used to break the cultural distancing.

The third element, the physical presence of China in Latin American territory, is still to be developed. China and the PLA have not yet established a permanent physical presence in the region as they have done in Africa with the Djibouti army support base. However, we might place other initiatives in this category, particularly those related to space collaboration namely the Espacio Lejano Station in the South Cone. As part of the 2015 agreements between China and Argentina, space cooperation has been boosted through the erection of a

500-acre facility in the province of Neuquén to be used for “peaceful space observation and exploration” yet many doubt such rhetoric and pair the base with Chinese strategic missions15 including intercepting signals from American and other overflying satellites (Ellis, 2021). It was established through non-public memoranda of understanding between China and

Cristina Fernandez’s government that granted considerable tax exemption to the project, effective control of the station’s activities to Beijing, and free labor mobility for the Chinese workforce whose wages and rights are governed by the country of origin (Watson-Lynn,

2020). Despite the civilian nature of the base – a characteristic that has been widely defended in Argentinian and Chinese declarations – its secretive nature and cautious clauses have

15 Doubts about the real purpose of the project emanate from its managing structure. The station is managed by the China Satellite Launch and Tracking Control General which reports to the PLA’s Strategic Support Force, and internally it is operated by Chinese military personnel.

55 raised concerns among policymakers and residents of the area. Considering this fact, when

Mauricio Macri secured La Casa Rosada, he entrusted the Argentine diplomatic mission to the PRC to negotiate that the agreement is added the condition that the station would only be used for non-military purposes, something that the Chinese accepted. Still, mistrust of the activities of the station has continued to flourish in the light of its free functionating without oversight from the local authorities, reflecting a loss of sovereignty in their territory. In a similar token, locals have been quick to create conspiracy theories around the functioning of the base and have fueled the segregation of Chinese communities that have done little to integrate into the Argentinian society. For Washington, suspicion emanates from the institutional hierarchy of the base that directly associates it with the PLA, and the consequent possibility of space militarization and espionage. Besides the Espacio Lejano Station, presence in the region has been documented in satellite launches, telecommunication infrastructure, and port concessions. Satellites have been built and launched for several Latin

American countries including Brazil, Ecuador, and Venezuela. Similarly, Venezuela has granted access to Chinese firms such as Huawei and ZTE, while Ecuador faces Washington’s pressure to prevent China from entering its telecommunications markets. Particularly, they have provided Venezuela with infrastructure for the extension of the national fiber-optic network and cable TV to uncovered areas, as well as have worked towards introducing 4G.

Interestingly, Huawei has also granted training and services for the military organization

DICOFAN, and ZTE has guided the formation of the Carnet de la Patria database. The interest of the PRC in Latin American ports can be exemplified in the BRI infrastructure plans as well as in the acquisition of control of existing facilities, for example, the purchase of 90% of TCP Participações S.A., Brazil’s most profitable port terminal by China Merchants

Port Holdings.

56 Surveillance technology transfer

The digital component of the BRI labeled the Digital Silk Road (DSR) aims at “the development of the digital service sector, such as cross-border e-commerce, smart cities, telemedicine, and internet finance, [and] accelerates technological progress including computing, big data, Internet of Things, artificial intelligence, blockchain, and quantum computing” (Yong, 2019). Projects related to the areas covered by the DSR around the 100+ members of the initiative have the duty to satiate the world’s infrastructure financing gap projected to reach USD 15 trillion in 20 years, by improving the recipients’ technological capabilities including telecommunication networks, digital financial services, and surveillance technology. However, this initiative has raised concerns in the Western

Hemisphere with the possible erosion of good governance that could sponsor technology- enabled authoritarianism. As explored in the previous chapter, China’s engagement with countries in Latin America that are ruled by autocratic governments has allowed these to use capital injections as a power crutch for their regimes. Even in light of the non-intervention principle characterizing Chinese foreign policy, loans and investments have indirectly supported the activities of regimes, particularly in ALBA members. Alike, Chinese firms guided by corporate behavior have boosted technology and know-how transfers of surveillance systems in the region that although having positive impacts on the local security environment helping to monitor crime and natural disasters, also provide opportunities for the misuse of such technology to buttress a regime’s power and curb fundamental human rights.

57 The Council of Foreign Relations16 has widely covered the topic of the advancing Digital

Silk Road and has pointed out the dangers of providing non-democratic regimes with surveillance capabilities – that also involve training and research and development programs

– as they may be directed to attack opposition groups and assign rights to citizens according to their loyalty to the government. Correspondingly, the dominance of Chinese firms in the provision of these goods and services allows them to integrate data from a variety of sources including telecommunication infrastructure, smartphones, and surveillance systems that could be used for espionage or blackmail of political elites. This is even feared in the private sector because under the 2017 PRC National Security law all Chinese companies are required to “turn over data passing through these architectures” to the government, undermining privacy and compromising political independence (Ellis, 2020b, p. 3). The application of this technology has already been identified in Argentina, Bolivia, Ecuador, Panama, Uruguay, and Venezuela. From the countries analyzed in this paper, Venezuela and Ecuador have greatly allowed the expansion of the DSR to their territories with the Fatherland and Identity card and the ECU 911 systems, respectively. The former is a malicious identity system imposed by Nicolás Maduro whose official aim is to, through a QR code, register the socioeconomic status of the beneficiaries and to streamline the Bolivarian mission system and therefore improve the organization of the social popular power. Yet it has been used for tracking voting and loyalty to the regime and to grant access to essential goods such as subsidized food and medicine to the loyal cardholders (Transparencia Venezuela, 2018, p.

6). During the “Domingos con Maduro” weekly television sessions, Maduro called for the inscription in the program as a requirement for the reception of social welfare, additionally,

16 See Kurlantzick, J. (2020). Assessing China's Digital Silk Road Initiative. Council on Foreign Relations. Retrieved from https://www.cfr.org/china-digital-silk-road/

58 public employees have been coerced to acquire the identity card. There is no official information on the system and the institution in charge of the gathering of data from registered citizens and the analytics; nevertheless, it is known that the Chinese firm ZTE

Corp is involved in the process, although with few details. Reuters delineates the role of ZTE in developing a payment system and assembling databases to serve the identity card. Inside the database, “birthdays, family information, employment and income, property owned, medical history, state benefits received, presence on social media, membership of a political party and whether a person voted” are registered to later be used to reward like-minded citizens and punish dissidents (Berwick, 2018). This company has also shipped telecommunication systems to Iran and North Korea, as well as surveillance systems to the former which allows the thought that the People’s Republic is exporting authoritarianism. A similar concern has been raised due to the use of Chinese-made equipment for managing the

ECU 911 emergency line. Ecuador has received financing of USD 240 million from the PRC to establish a nationwide network of 4,300 surveillance cameras and 16 regional response centers to monitor the country’s emergencies ranging from volcano activity to street crime.

The center is fitted with “thermal cameras, drones capable of night vision, an automated platform for sending video evidence to courts, and an artificial intelligence research lab inaugurated by Xi himself,” and it is researching the use of facial recognition technologies

(Rollet, 2018). The digitalization of populist regimes could potentially promote intrusive activities such as observation and monitoring of citizens, similar to what is happening in

China. Foreign press such as the New York Times17 have already unveiled the divergent uses

17 See Mozur, P., Kessel, J., & Chan, M. (2019). Made in China, Exported to the World: The Surveillance State. . Retrieved from https://www.nytimes.com/2019/04/24/technology/ecuador- surveillance-cameras-police-government.html

59 of the information gathered by this system. The footage captured by the equipment provided by the firms C.E.I.E.C. and Huawei, not only serves for police review and training but has also been sent to the domestic intelligence agency during Correa’s administration, widely known for intimidating and persecuting the opposition. Although the firms have made clear that they do not intervene in the policymaking around the use of the technology, the sole transfer of repressive equipment stains their corporate responsibility and gives rise to questions regarding the role of China in the region.

60 Chapter V: “Analysis”

After having closely scrutinized the partnership between the People’s Republic of China and

Argentina, Brazil, Ecuador and Venezuela through economic and security lenses, this chapter will attempt to answer the research questions: 1) What are Beijing’s objectives/intentions towards the analyzed countries? 2) What are the threats and challenges deriving from this transpacific partnership economically, socially, politically, and militarily?

China’s Ambitions in the Region: Looking at China Through Realist Lenses

The first query shall be responded to by citing academic writings on international relations theory, namely offensive realism. Assessing China’s behavior through this theoretical framework may shed light on its short- and long-term objectives in the context of its rise as a global hegemon. To start, it is necessary to delineate the bedrock assumptions of the proposed theory. Offensive realism, represented by the American scholar John Mearsheimer

(2014), accepts five main premises: the anarchical nature of the international system, hence the absence of a central authority; the offensive military capabilities possessed by great powers that permit aggressive action to ensure survival; uncertainty regarding the intensions of other powers and consequently the adherence of this feature to the international system as a whole; and states as rational actors that think strategically about how to assure survival within the system; and survival as the state’s main goal (p. 30-31). For offensive realists, power “lies at the heart of international relations” and is defined as “nothing more than specific assets or material resources that are available to the state.” Also, it divides power into two kinds: latent and military, where the former refers to socio-economic influences, namely money, technology, and personnel for the consolidation of military power; and the latter is “based largely on the size and strength of a state’s army” (p. 56). In respect to

61 economic power, Gilpin observes that understanding world politics implies understanding the dynamics of power relations over time and the long-term variations deriving from economic growth that in turn produces changes that redistribute relative power over time which create “a natural tendency for divergences to emerge between power and privilege in world politics, which encourages rising states to challenge the status quo” (Kirshner, 2010, p. 54). Accordingly, great powers strive for hegemony in their geographical region and aim at the maximization of wealth and military power to attain the fundamental goal of survival

(Kirshner, 2010). They may also use other means for the achievement of this goal such as blackmail, bait and bleed, balancing and buck-passing, and appeasement and bandwagoning.

Additionally, Mearsheimer considers institutions as an integral part of power politics as the most powerful states are the ones shaping these according to their domestic interests, thus reflecting the distribution of power globally. This is complemented with the idea that states are constantly engaging in a security competition due to the war-prone nature of multipolar international systems that in turn oversee rising powers. Under this vision, cooperation is possible but limited by the uncertainty of other’s intentions and scrutinized according to relative gains as opposed to absolute gains. After having discussed the theory, we shall apply it to the case of the rise of China and its presence in Latin America. We shall look at the

PRC’s objectives as put forward by President Xi Jinping in various speeches introducing the concept of the “China Dream” and second, we shall observe China’s engagement with

Argentina, Brazil, Ecuador, and Venezuela to assess the theory in practice.

Firstly, Xi Jinping's notion of the rejuvenation of China has appeared repeatedly in his rhetoric. Different from leaders such as Deng Xiaoping, Jiang Zemin, and Hu Jintao, Xi

Jinping seems to have dusted off the thought of military power as an important defender of

62 core national interests, along with Deng’s extolling idea of economic development; thus, converting them into twin goals. Xi’s view of China reflects the power maximization embedded in offensive realism. Contrary to the premises divulged by defensive realism of maintaining the status quo, Xi Jinping’s new vision allows the thought of China as a revisionist power that wishes to rise as a hegemon economically and militarily to recover its glory, evoking memories of the country as the Middle Kingdom. Similarly, in face of anarchy, China seeks to maximize its power in relation to other hegemons such as the United

States and balance global power dynamics to its favor by using economic tools such as the

Belt and Road Initiative, reflecting the premise that one must hold power (latent and military) to achieve security and most definitely survival. This is not to be mistaken with a nationalistic approach that might generate aggressive scenarios as a consequence of past humiliations (as

Germany in World War II), but a more pragmatic foreign policy, in light of the current international setting, guided by the cautious expansion of power that permits international cooperation that does not compromise national interests – measured by relative gains. This allows China to participate in multilateral forums and to sow relations with countries that serve its interests while remaining vigilant about their intentions. Another signal of Xi’s alignment to offensive realism is his overstress on the development of the military, even though we have already observed that it is not the biggest stick in its relationship with Latin

America. Speeches and foreign policy declarations denote Xi’s equation of the call for rejuvenation with the “Chinese Dream” and the multiple calls for the development of a stronger military that is “capable of fighting and winning wars.” Baohui (2014) points out that “China’s uncompromising defense of its core interests and his championing of a strong military seemed to support this perspective [the nation’s rejuvenation]” (p. 72). As suggested by Economy (2018) “by the late 2000s, the Chinese leadership had progressed from

63 rhetorically staking its claims to maritime sovereignty in the East and South China Seas to using its military prowess to realize them.” Notwithstanding, the PRC has also posed heavyweight in developing alliances through diplomatic and economic means, the former by cautiously engaging with global powers such as the United States and as a tool for resolving foreign policy matters; and the latter by using the “win-win” rhetoric when approaching potential commercial partners, which has labeled China as a friendly rising power. Perhaps

Xi’s rhetoric forecasts the vision for China’s future position in the international system hierarchy which he has already begun to pursue. However, one must be mindful that Chinese foreign policy has not yet shown a holistic approach to offensive realism (particularly in terms of military tools), thus we shall concentrate on the revisionist nature of its rhetoric attempting to export Chinese values and norms and economic and political expansion and its implications for the studied countries.

Secondly, we can assess the PRC’s intention by looking at China’s attempt to include Latin

America in its growth plan as a provider of resources, and as a rook on a chess game that can trigger the fall of an international order in which China is not the protagonist. We can evaluate the offensive realist premise of expansion of aspiring powers through economic, political, and military means, although disregarding an aggressive military strategy in the case of

China’s presence in the region. With Latin America being an abundant area in terms of natural and energy resources, it could be argued that Chinese intentions towards the region can be interpreted as a reflection of its mantra for engaging in international relations. This reflects the maximization of power through the inclusion of Argentina, Brazil, Ecuador and

Venezuela in its financial institutional framework and bilateral collaboration, seeking to boost its latent power by acquiring resources necessary for achieving “national rejuvenation”,

64 together with increasing connectivity and economic interdependence to maximize food and energy security, and perhaps using these economic tools to restructure the international order.

Additionally, China’s presence in the region also allows it to influence global supply chains,

“the expansion of the Panama Canal, shipping lanes in Venezuelan ports, and critical inland transportation systems in South America” provide China with a more competitive commercial advantage and undisrupted access to goods and services (Acosta, 2020).

Moreover, Chinese private and state-owned companies have found a new extensive market where to flourish and have boosted the development of strategic areas such as oil extraction, mining, and telecommunications. The latter in particular has been the subject of much controversy on potential espionage to governments and citizens in the Americas. In the XXI century, the realm of technology licenses countries such as the United States and the People’s

Republic to project their power and display superior capabilities, as well as creates prospects for its polarization and politicization. This is particularly true when dealing with 5G technology that provides opportunities for the abuse of data to achieve national interests by undermining the sovereignty and privacy of other nations. While facing the decision to allow

Huawei to erect the 5G network, Latin America seems to be trapped in the middle of a US-

China technology war. US efforts to stop the expansion of China in this field have been reflected in the policy initiative labeled “Clean Network” that has already embarked Ecuador that has agreed to exclude Huawei from its telecommunication networks in exchange for the

US providing USD 3.5 billion to repay Ecuador’s debt with the Chinese, showing that

Washington is willing to defend its sphere of power. As mentioned above, China’s interest in the region despite geographical distance can be identified as an attempt to rebalance international order. According to the realist view that international institutions reflect the power dynamics of the international system, through the creation of the Belt and Road

65 Initiative and the many policy banks accompanying it, China attempts to challenge the global economic order by providing an alternative commercial partner and source of financing that would reflect its national policies, namely that of non-intervention in internal affairs. This has been quite opportune in the context of the emergence of Socialism of the XXI Century in Ecuador and Venezuela, the rule of the Workers’ Party in Brazil, and the governance of

Peronist leaders in Argentina. In the current international order coined after the Second

World War where China did not constitute a leading nation, the United States has gathered dominance in international organs such as the Bretton Woods institutions, which are subject to “Western” ideals of economic liberalization and democratization. In this area, Brazil has been a great partner as they have jointly pushed a reformist agenda trying to remodel voting shares in the International Monetary Fund and the World Bank to reflect the new economic reality. Furthermore, the use of the renminbi as a vehicle currency for trade and loans for infrastructure projects might boost its positioning as a globally viable currency. The same pattern has been observed in the voluminous trade exchanges and investments in Argentina,

Brazil, Ecuador, and Venezuela. Although the United States has historically been the prime receptor of the exports of these countries, China has rapidly caught up in light of the economic and political vacuum left by Washington since the beginning of the present century. In the case of Argentina and Brazil, the PRC constitutes their top trade partner, having displaced the United States and traditional neighboring partners; and in the case of

Venezuela and Ecuador, lending sees its highest values in the region constituting USD 62.2 billion and USD 18.4 billion respectively, again having dislodged traditional global and regional lending institutions as for the mistrust on such organs and the prohibition of access to capital markets in light of financial default or human rights abuses.

66 A similar situation is perceived amidst the Covid-19 pandemic. Many have speculated about

China’s role in Latin America predicting a similar heroic behavior as after the 2008 financial crisis. The PRC’s Ministry of Foreign Affairs (2020) has spoken about the spread of the virus in Latin America and the consequent economic instability produced by the drop in productivity and the collapse of health systems, saying that “when the virus spreads in Latin

America and the Caribbean, China feels it as its own flesh” and offered support within its reach. The ministry has emphasized that this joint battle reflects the popular sayings

“friendship erases the geographical distance, and in the misfortune and the road, the true friend is verified.” To date, the over 27 million units of emerging health supplies such as masks, gowns, and test kits and respirators; videoconferences to exchange experiences; and help in the acquisition of anti-epidemic materials in China, have marked its leadership in handling the crisis, along with Russia in the light of a less interventionist and financially capable US. Likewise, the despaired need for vaccines in the region has initiated a geopolitical game. Brazil is a clear example. While Bolsonaro had embraced the Clean

Network initiative to refrain Huawei from its 5G networks as a sign of support of its greater ally, the United States, a drastic change of scenarios involving Brazil’s soaring infection rates and overwhelmed health care facilities have allowed the re-incorporation of Chinese tech giants to the 5G auctions in Brazil and the appeasement of anti-Chinese rhetoric from the

President along with vaccine requests from Brasilia to Beijing. Even though there is not a definite connection between the request for vaccines and the participation of China in telecommunication projects, the timing of the events and Brazil’s opt-out of the US strategy have raised concerns about China’s use of its medical diplomacy. For now, Latin America seems to have become a military-free “battlefield” between the US as a traditional hegemon

67 and China as an aspiring power attempting to use all tools in their arsenal to resonate its growing influence.

Other intentions certainly are the Taiwan question and the possibility of using friendly relations to build alliances that could enhance Chinese presence in international organs. In

Chapter 1, we have studied the historical background of the diplomatic relations between the

PRC and Latin America. During the XX Century, the four studied countries have granted recognition to the PRC; however, nine out of fifteen countries holding formal diplomatic ties with the Republic of China (ROC) are still located in the Latin American and the Caribbean region; amongst them Honduras, Nicaragua, and Haiti. Beijing and Taipei have engaged in a battle for diplomatic recognition within the region, utilizing economic tools. On one hand,

Taipei has been a larger granter of foreign aid that has enhanced its image as a development miracle and its strong democratic stance among Central America and the Caribbean. On the other hand, China advantaged by its commercial surpluses and its membership to the Security

Council has been able to offer Latin American countries better deals through trade, investment and funding in exchange for adhering to the “One-China” policy. In this way,

Dominican Republic, Panama, and El Salvador have seen a great opportunity and have switched diplomatic relations to the PRC. This strategy seems to be aligned with the PRC’s urge for territorial unification and the realist idea of the accumulation of latent power to achieve national interests. Finally, another aspiration of China in the region is the possibility to forge alliances to strengthen its presence in international organizations. As Piccone (2016) suggests from his studies of voting behavior in matters of human rights – a contentious area for China – in the United Nations, that “some LAC states are more influenced than others by their growing economic and trade ties with China. Ideologically aligned states in the ALBA

68 bloc with close economic ties to China reliably vote with Beijing, while states geographically closer and more integrated with the United States tend to align with Washington [Argentina and Chile]” and countries such as Brazil tend to swing (p. 16). However, one must bear in mind that voting should also be considered separate from external pressures as it might only converge with the powers’ views when domestic politics harmonize with the issues at play as approaches to international matters tend to vary according to each administration, rather than representing a national linear pattern; therefore, these are not necessarily aligned to

China even in light of it holding abundant economic leverage. This is evident in the diplomatic split over the accusation of China’s prosecution of Uyghurs and other Muslims in the autonomous region of Xinjiang. A letter issued by 22 states, amongst them no Latin

American country, condemned China’s human rights abuses to the 41st session of the United

Nations Human Rights Council for the episodes in Xinjiang. As a response, other 37 states that later summed up to 50 issued an opposite statement asserting “China’s remarkable achievements” in “protecting and promoting human rights through development” and called for non-politicization of the matter and the refrainment from groundlessly accusing the PRC.

The so-called second letter was backed by only three LAC countries, Bolivia, Cuba, and

Venezuela which constitute China’s like-minded partners in the region. However, the non- pronouncement of other Latin American countries on any side of the spectrum could signal censorship in sensitive topics for Beijing in light of China's economic leverage in their investment and trade. China’s backlash over the NBA’s Houston Rockets over Daryl

Morey’s tweet of an image that showed support for Hong Kong, and the current boycott over

H&M and Nike products due to the overstatements concerning Xinjiang cotton, have shown that Beijing could use its economic leverage to harmonize views in sovereign matters by creating pressure around commercial links. By providing LAC countries with preferential

69 commercial agreements (boosting dependence on Chinese markets) and large financing,

China can tilt the countries’ attitudes or keep them quiet on matters related to human rights and democracy, international law, and maritime sovereignty issues; and could potentially exercise leverage more aggressively to achieve other geopolitical aspirations. Reciprocally, and perhaps practicing the non-intervention policy, China remains silent before unpleasant situations in the region such as the Venezuelan humanitarian crisis or the Amazon fires. Yet,

China ought to identify the limits of such leverage as negative action can backfire. A potential scenario in which this may happen is in the attempt to use economic leverage against Brazil, from which Beijing has increased its reliance for the import of soybeans and beef in light of a disrupted supply chain amidst the Covid-19 crisis. Parallelly, Trinkunas’ (2016) study of

China’s economic leverage to the region shows very few cases where Latin American governments have been coerced to shift domestic policies, showing a limited scope for

Chinese leverage in this realm. Finally, as Nugent and Campbell (2021) suggest, we may expect certain Latin American support for Chinese appointees to international organizations as a response to growing friendships in the region.

Emerging Challenges

The next section will attempt to answer the second research question: What are the threats and challenges deriving from this transpacific partnership? by focusing on the economic, social, political, and security consequences of the Sino-Latin American interaction.

Economic Perspective

China’s presence in Latin America has boosted economic growth particularly during the

2000s commodities boom, helped close the infrastructure gap, and been a financial lifeline

70 for governments in need. Yet, it has exacerbated dependency on undiversified exports of raw materials in bilateral trade and the praxis of the oil-for-loan mechanism, as well as raised concerns over a possible ‘debt trap’ embedded in Chinese economic diplomacy. These factors threaten to trigger a new ‘lost decade’ that in turn seems to be aggravated by the effects of the Covid-19 health emergency. The challenges ahead Sino-Latin American economic relations lay in the transformation of the negative traits perceived on the unequal structure of trade, and the accumulation of debt accompanied by the need of an urgent loan restructure.

Commodity dependence has been a structural issue affecting countries in the region since their incorporation into the world economy. A breakdown of Sino-Latin American trade relations showcases a highly concentrated demand of commodities and natural resource- based manufactured goods from China; and of intermediate, capital, and consumer goods from Latin American countries. This structure has contributed to the discussion of the phenomenon of reprimarización in the region, acknowledging that China has been the trigger of deindustrialization in countries that have consolidated concise industrial and manufacturing sectors; and therefore, have returned to a position of economic dependency in highly vulnerable primary goods. The cases of Argentina and Brazil stand out as China’s largest trade partners in the region and historically strong regional economies. In this debate, it is fair to argue that China cannot be attributed the peripheral position of these countries on account of the diversity of partners that have lengthier experiences in the region and have long exploited this trade model of dependency on raw materials, among them the United

States and several European nations. Likewise, this phenomenon has shown to be a structural feature of Argentinian and Brazilian economies (and of other Latin American big players such as Mexico, Colombia, and Chile) since the 1980s when the Import Substitution

71 Industrialization model indicated defects as a response to the unwillingness of local economic elites to participate in high-tech industries to compete with multinational enterprises around the globe (Kellner & Wintgens, 2021). Thus, China has not been the trigger for deindustrialization, but it has come to reinforce it. Nevertheless, a healthy relationship would entail a diversification of the Latin American export basket by branching out to strategic sectors such as the agro-food industry, higher-value-added and higher-technology-content products, and e-commerce in order to tap into China’s growing demand as pointed out by

Ley López and Suárez Zaizar (2020). Analogously, China, following the South-to-South cooperation, shall expand investment away from the traditional sectors of resource extraction to other competitive industries such as those cited above. This would imply joint efforts from

Latin American governments and companies and their Chinese counterparts, first by using existing Chinese political and business agreements to facilitate market insertion (into this highly regulated market) of Latin American products, and forums, trade expos, and investment fairs such as the Canton Fair to project Latin American offerings in the PRC.

Furthermore, indebtedness has been a permanent feature of Latin American public finances.

Debt to private and public lenders has soared even before the health emergency, especially to China who has been keen on financing infrastructure projects. A debt cap has been perceived in China’s no new financing commitments in the region and the focus on a renegotiation of existing debts in light of default from countries such as Ecuador and

Venezuela. These countries have been the top receptors of financing from Chinese banks using the loan-for-oil mechanism described in Chapter 3. In the case of Ecuador, debt to

China has steadily expanded until 2016 and has slowed down since then, comprising 71% of bilateral debt. Although rejecting traditional conditionality such as that of other lenders like

72 the IMF considering fiscal discipline and governance, China’s conditionality does not meddle in domestic affairs, yet it is bound to the early sale of oil. However, this last feature is not sustainable in the long term, particularly in light of untransparent governance in the host country. The presale of oil means that this resource would be sold to China with a woven price that does not reflect the reality of the market, many times negatively affecting the country’s budgets. Similarly, in an attempt to circumvent poor credit ratings, the use of oil as a collateral encourages heavy indebtedness as a consequence of blurred numbers regarding the states’ debt burden. This becomes even riskier in light of the secretive nature of oil- backed deals that seldom publish data that could be used to assess the real financial situation of the borrower. While credits acquired by Correa’s government have sponsored his social programs that have improved infrastructure and social mobility, the long-term consequences see adverse effects, endangering the finances for future governments. The oil pre-sale mechanism can be beneficial or detrimental due to the volatility of the oil market. Hence, compromising crude production deprives Ecuador of the possibility of trading it at spot market prices that would offer higher income. Moreover, when the prices of oil plunge, more of it is needed to liquidate financial liabilities that would imply a longer contraction of public finances. The Covid-19 pandemic and the structural narrow fiscal space have called for the restructuring of loans to allow Ecuador to fulfill repayments; and later on, unsustainable finances predict further use of these mechanisms. Venezuela faces a similar situation, yet information regarding loans and their conditions have not been disclosed. Nevertheless, in light of its pending USD 20 billion debt, it is fair to claim that the further concession of resource exports to China jeopardizes its economic and political sustainability providing

Chinese companies and banks with leverage in the productive, consumption, and financial sectors. In the case of Brazil, even though its finances have been hit by low oil prices and

73 corruption scandals, according to its relatively higher economic strength and more developed oil sector, the repayment of loans through this mechanism has not had the same impact as in

Ecuador and Venezuela. The emphasis on achieving energy security from the Chinese side has not only pushed public finances to the verge of default but has increased the reliance of these countries on primary goods whose price is volatile and its extraction detrimental to the environment. It can be argued that resources that are being utilized to elevate production to cover liabilities may be better allocated in other more sustainable industries that would allow the diversification of exports; however, this remains a question of local governance which has been the trigger of financial deficits in the first place that needed to be swelled by external capital injections. Yet it is opportune to utter that debt must be restructured – on account of the negative economic juncture experienced when these loans have been adjudicated – to improve terms and conditions of credits in a way that countries in Latin America can fulfill their obligations without overburdening oil production and prevent further indebtedness and exploitation of the Amazon rainforest. Additionally, greater transparency on deals made via the oil-for-loan mechanism must be prioritized in order to prevent rent-seeking behavior and disclose a more accurate balance sheet for future credit assessments.

Another concern that has emanated from the high levels of debt acquired by developing countries with China is the so-called ‘debt trap’ described by several US public officials such as Mike Pompeo and Peter Navarro warning Latin American countries of Chinese predatory economic activities. This narrative blames China for deliberately overloading developing countries with debt used to build infrastructure projects that may later serve as collateral for repayment which would entitle China to take possession of these. Assuming the certainty of this claim would disregard the agency power of local leaders. The negotiation and

74 implementation of unsustainable deals are a result of distorted political aims in the host country. Various projects cited in this paper have come to be agreed upon under the presence of governments with low democratic rankings. This fact, however, does not disregard

Chinese participation, Beijing shares responsibility for facilitating distorted deals and feeding corruption networks that have advantaged its firms. Similarly, China’s lending has appeared to be reckless in light of the lack of political, economic, and environmental risk assessments attached to its credits that have led to miscalculations that have damaged the host country’s quality of governance and its interests. As Pryke (2020) comments “the sheer scale of China’s lending in a short time and its lack of strong institutional mechanisms to protect the sustainability of borrowing countries pose clear risks” (p. 1). This combination does not result in a ‘trap’, rather urges the addressing of good governance and transparency from both sides to mitigate debt hazards. Similarly, amidst the pandemic, the willingness of Chinese banks to restructure loans – as has been done with Ecuador and Venezuela – instead of seizing assets has further blurred this narrative. China’s relatively new role as a global lender prevents us from identifying a pattern of behavior that would support claims of a debt trap, nonetheless, we can consider economic leverage as the clearest expression of this rhetoric and the implications regarding other areas of collaboration including diplomacy and defense, a tool that has not yet been largely exploited.

Social and Environmental Perspective

Consequentially, it is pertinent to delineate the social impact generated by Chinese presence, namely environmental concerns and the disregard for local communities affected by the development of joint projects. Chinese interest in the region has been theoretically founded upon the cooperation between equal partners, destined to lift economic growth and the living

75 standards of all inhabiting the regions. Nevertheless, the local and international civil society has traced recurrent patterns of human rights violations, a lack of due diligence assessment from Chinese regulators, and the absence of commitment for the implementation of effective measures to satisfy China’s extraterritorial obligations concerning international commitments assumed in the International Covenant on Economic, Social and Cultural

Rights (ICESCR) and other international law sources particularly when dealing with environmentally and socially sensitive areas. The Third Cycle of the Universal Periodic

Revision of The People’s Republic of China Contributions of the Civil Society issued in 2018 reported issues of this kind in 18 projects in Argentina, Bolivia, Brazil, Ecuador, and Peru concerning the mining, oil, and hydroelectric industries. This document spotlights the disproportional damage to local indigenous communities and protected areas, importantly, the expansion of oil drilling to the Amazon as studied in Chapter 3 and other sites declared a

Cultural World Heritage by UNESCO. Until 2017, China had borrowed USD 145 billion to the region and had largely expanded its foreign investment of which 65% has been directed to the extraction of minerals, oil, and gas.

Several projects carried out along with Chinese companies have been accompanied by human rights violations. To name a few, the right to live in a healthy environment as exposed in

Article 12 of the ICESCR and various other international instruments such as the General

Assembly Resolution 45/94, the Rio Declaration on Environment and Development, and embedded in local constitutions, have been vulnerated on multiple occasions. This has been evidenced in the Río Blanco mining project in Ecuador where firms in charge have caused the contamination and dry-out of water sources that have consequently impacted local biodiversity and agricultural production; and in Brazil, the construction of the São Manoel

76 HEPP has triggered the deterioration of water quality and altered the behavior of the Teles

Pires River repercussing on basic survival activities such as fishing for the Kayabi,

Munduruku and Apiaká communities. Similarly, the right to land and to hold traditional territory promulgated in the Article 22 and 25 of the UN Declaration on the Rights of

Indigenous Peoples (UNDRIP) has been transgressed by Chinese firms and local authorities.

In the case of Ecuador, the Mirador and San Carlos Panantza projects are clear examples as

Chinese mining companies have engaged in “irregular land-acquisition practices, such as irregular purchase without consultation, arbitrary claims of mining rights of way and filing civil actions against families without property titles” (Centro de Derechos Económicos y

Sociales et al., 2020, p.16); in Argentina, the erection of the Condor-Cliff Hydroelectric

Complex has impacted areas constituting a cultural and archaeological heritage of indigenous communities belonging to the Mapuche Tehuelche de Lof Fem Mapu people; and in Brazil, the São Manoel HEPP has damaged territories belonging to the Munduruku, Kayabi, and

Apiaká indigenous people. Additionally, workers’ rights as stipulated in Article 23 of the

UNDHR and Articles 7 and 8 of the ICESCR delineating the rights to work, favorable conditions and to form unions have also been subject of controversy. Again, Ecuador has been the scenario of human rights violations at the Mirador project where workers have claimed to be exposed to a dangerous working environment, ill-treatment, and subject to unlawful dismissals. Likewise, locals cannot enjoy the perks of infrastructure building particularly because Chinese support comes under the condition of using Chinese materials and labor, even when several contracts have stipulated a certain quota for local workers, these have seldom been fulfilled as in the case of the Espacio Lejano station in Argentina. Ongoing and future projects reflect a still-reckless presence in Latin America, disregarding social and environmental consequences as exposed by the cattle project in Argentina known as “Mega

77 Factoria” that aims at counteracting the effects of Swine Fever on Chinese porcine cattle by increasing Argentina’s hog output to meet demands from the Chinese market. Although this project might represent the balance needed in the China-Argentina trade relations and could help solve the issue of the monoculture plantations of soybean, it has been fiercely opposed by activists and legislators grounding on the potential sanitary and environmental disasters.

The marginalization of indigenous groups and the attacks on biodiversity have signaled a continuous threat stemming from the Chinese presence in the region. The lack of information regarding the projects and the actors involved as well as the secrecy of deals have prevented the possibility to hold companies accountable for breaches of human rights. Sino-Latin

American relations are expected to grow in the near future as many countries are considering joining the BRI initiative and, amidst the effects of the Covid-19 pandemic, Chinese investment will be crucial for achieving positive numbers in the region’s economic growth.

For this reason, China must confront its national companies that have already engaged in inhuman practices along with ensuring an effective remedy to those impacted by the firms’ actions and act with due diligence assuring a correct assessment of the social and environmental impacts for future projects. Domestically, countries suffering from human rights abuses and environmental damage 18 must establish higher social and environmental standards that could assure a smooth interaction to fulfill the expectations listed on the many policy papers issued by both parties. This would include clearer legal guidelines that satisfy constitutional provisions directed at regulating these kinds of projects, more transparent

18 Highlighting Ecuador in light of the extensive list of scandalous projects and the very likely further exploitation of the Amazon for oil extraction.

78 negotiations assuring the access to information by the public, stronger capacity for law enforcement, and good governance (stressing anti-corruption measures).

Political Perspective

China’s presence in Latin America has been associated with the sponsoring of poorly governed countries such as Venezuela and Ecuador. Lending and investment have been targets of criticism as detractors draw a relation between Chinese foreign capital injections and the consolidation of authoritarian regimes. Additionally, the non-intervention policy in countries with high levels of corruption and stained human rights records threatens to jeopardize economic interests and stain its reputation in the region.

Chinese overseas direct investment follows the same logic as overall foreign direct investment coming from Western nations as it is enticed to large and safer markets as well as to natural resource wealth. However, according to Dollar (2017), it differs from global

FDI in its uncorrelation with the World Bank Index for property rights and the rule of law which allows the assumption that Chinese ODI is indifferent to the quality of governance in countries where it invests. This characteristic is envisaged in its involvement in Latin

America. Voluminous economic ties with countries considered to be poorly governed such as Venezuela, Ecuador, and Argentina have raised concerns over China’s business model.

Similarly, these three countries have been the major recipients of credits issued by China’s

Exim Bank and the CDB. However, it is unfair to state that China deliberately channels cash to countries ranking low in the Rule of Law Index. It follows the global patterns for

79 investment in the region19 and a domestic agenda when lending, targeting food and energy security through the access to oil, minerals, and agricultural products that are offered by countries that turn to struggle with chronic corruption. Yet it is visible that China disregards good governance as a condition for offering economic assistance and is willing to interact with high-risk nations as part of bilateral deals. Likewise, we may also claim that China has greatly exploited the opportunity to establish advantageous deals in countries with low social and environmental standards that provided extremely favorable conditions for Chinese investments such in Argentina with the Espacio Lejano Station and in Ecuador in numerous oil drilling and mining projects. Even when Chinese interaction with regimes with authoritarian tints seems to be strategic rather than intentional, their actions have repercussed on the quality of democracy in the region. Loans have served the interests of populist regimes in Venezuela and Ecuador to finance the extremely expensive social programs labeled

Bolivarian Missions and Buen Vivir, respectively, that have been accompanied by many corruption scandals. These in turn have supplied a tool for the legitimization of despotic power by exploiting poverty and lack of literacy in their favor. Similarly, technology transfer and arms sales have provided tools for repression portrayed in the use of the Fatherland

Identity Card to allocate foodstuffs and medical goods to like-minded citizens and punish dissidents, as well as the repression of protests using Chinese non-lethal military goods by the National Guard in the case of Caracas; and the transfer of information gathered through the ECU 911 to local intelligence agencies to intimidate the opposition and censor the media in Quito. Additionally, other forms of corruption have attacked a diversity of countries in the region. The untransparent deals with China have prompted the corruption in the assignment

19 Considering that Brazil, praised to be better governed and to have a safer business environment, is China’s top investment destination in the region.

80 of contracts to Chinese companies, in Ecuador the hydraulic power project Toachi Pilaton has been surrounded with scandals accusing the China International Water & Electric

Corporation of providing kickbacks to officials to win the contract to erect the project; and in Argentina, a joint venture between Electroingeniería and China Gezhouba Group Corp

(CGGC) has been accused of corruption in the bidding process during Peronist administrations. Likewise, contracts negotiated for the presale of oil as part of loan commitments have been obscure and constantly characterized by the lack of information from both sides, this is particular to Ecuador and Venezuela. Interestingly, most public officials from the former country that had participated in the approval and authorization of these contracts are being investigated or have been convicted on corruption charges.

Investment and lending in poorly governed environments have already shown blemishes, and the non-intervention principle guiding Chinese foreign policy is likely to jeopardize economic interests. The case of Venezuela sheds some light on this claim. Chávez and

Maduro have been great allies to Beijing permitting its expansion on the extractive industries, while in exchange receiving extensive financing for the realization of the Bolivarian program and the maintenance of nationwide corruption networks. China has opted to inject voluminous capital into mismanaged PDVSA on the belief that as long as Venezuela has oil to drill, it would be able to repay loan commitments. However, this claim has been challenged by Venezuela’s oil outfall production caused by chronic mismanagement and shortages of basic equipment, and exacerbated by low oil prices. This has barred Caracas from abiding by the loans’ maturity periods and risked Chinese investments. Chinese loans, investment, and trade (importantly, military sales) are helping Maduro’s government maintain power, while that same regime has been responsible for worsening oil output that in turn requires further

81 credits for loan restructure. In this scenario, the principle of non-intervention seems to contradict its economic interests as the worsening of the Venezuelan situation could mean a loss on the Chinese side. Similarly, China may be hurting its image in the region when protecting Maduro’s regime in international organizations as it has already vetoed a Security

Council proposal calling for free and fair presidential elections. Amidst the emergence of the

Lima Group whose aim is to prompt a solution to the multi-dimensional crisis affecting

Venezuela, and the migration crisis produced by the exodus of 4 million Venezuelans that now take shelter in neighboring countries, China is in a compromising position that challenges the efficiency of the non-intervention policy. It is yet to be seen whether China decides to give in to practical economic considerations and uphold its image as a friend of the region, or strictly follow its foreign policy mantra inhibiting it to meddle in Venezuela’s internal matters. Perhaps, joining the Lima Group on its claims could allow a healthy power transition and foster a safer investment environment, and secure the returns of economic compromises already acquired, as Juan Guaidó has stated that he will be willing to recognize

Caracas’s responsibilities to Beijing. However, other factors such as the presence of Russia,

Iran, and Turkey, combined with its foreign policy guidelines make Chinese action even more unlikely.

Overall, threats are not precisely embedded in Chinese lending and investment, indeed there is an infrastructure gap that needs to be closed in Latin America, and China has shown to be an important ally as the international order is being rearranged, yet we may identify a threat in the disregard for governance factors when establishing economic ties. The exacerbation of the Venezuela crisis and the possible upsurge of other authoritarian leaders in countries such

82 as Ecuador threatens the region’s security in the case of a spillover effect that could exacerbate the migration crisis and promote the rise of populist movements.

Military and Security Perspective

Military collaboration constitutes a small fraction of Beijing and Latin America's overall interaction. Changes in the international order since the end of the Cold War have allowed

Latin American leaders to proudly trumpet the inauguration of multifaceted relations with

China going beyond economic and financial collaboration. These include military exchanges, training and know-how transfer, arms sales, and law enforcement collaboration that in the long-term may be strategic for China’s tactics in the face of a potential conflict with the

United States. Furthermore, the expansion of the Belt and Road Initiative to the digital world and outer space foresees greater partaking from Latin American nations in the use of this technology, as well as anticipates other security challenges.

Traditional military engagement with China has not shown dangerous traits away from surveillance systems supporting authoritarian governments. Military interactions shall be examined from a long-term perspective. Possibly, the growing interest of China in expanding military links through high-level exchanges and army-to-army interaction as well as commercial interaction is paving the way for future military cooperation that could serve its national interests in relation to the United States. Indeed, a report from the Asia Society Policy

Institute on the “Weaponization of the Belt and Road Initiative” indicates a fusion of the military and civilian programs reflecting and advancing “a clear leadership preference for leveraging growing overseas People’s Republic of China commercial capacity” ( Russel &

Berger, 2020, p. 18). Legislature governing Chinese enterprises contains provisions directed

83 at establishing compatibility of civilian and military projects, therefore, providing China’s army with “the authority to command civilian assets and resources.” The National Defense

Transportation Law and the National Defense Mobilization Law sponsor the convergence of peace-time production with war-time production and the possible transfer of strategic civil resources to the military (p. 19). Although China has not attempted to bring this strategy to

Latin America as it is expected in Indo-Pacific BRI ports and has denied this feature in its business model, this kind of legislation, as well as over-indebtedness, might prognosticate the seizing of strategic assets such as the Hambantota Port leasing in Sri Lanka that could be later used to support the PLA; yet there is not sufficient evidence to identify a pattern of such behavior. The access to ports by Chinese enterprises allows the military to advance overseas operational logistic capabilities as already grasped with the participation of China Merchant

Port Holdings and COSCO in People’s Liberation Army Navy’s exercises overseas. This claim is followed by various “preventive” policy implications related to the conditions posed when erecting BRI projects where governments must anticipate a civil-military fusion of assets such as ports, railroads, and waterways that have the potential to endanger their national security. As Mauricio Macri has already anticipated in the Espacio Lejano Station.

In the long-term, this is important in light of the presence of the US as a regional hegemon and a possible belligerent scenario between both powers where Latin American countries, particularly those with great commercial ties, could be in the grip of conflict.

When evaluating the geopolitical landscape, it is pertinent to focus on security areas beyond military interventions matching our XXI century technology-based reality. In this scenario, information technology, as well as areas thought unreachable such as cyberspace and outer space, are now contested, raising stakes in global geopolitics. Countries such as Argentina,

84 Brazil, Ecuador, and Venezuela have built and launched satellites along with the PRC and have amplified collaboration for research in space science as well as forged people-to-people contact with the exchange of researchers and students, labeling space as another tool for development and to gain international influence. Satellite technology channeled through the

China-Brazil Resource Satellites program has empowered both actors to autonomously generate Earth observation imagery for the monitoring of environmental conditions and their territories without relying on Washington, which has prompted a more pluralistic space previously dominated by the United States and Russia. Likewise, in June 2020 China has announced that its own global navigation satellite system the “BeiDou” has been completed, and ready to be used as an alternative for the US-led Global Positioning System (GPS), allowing a more accurate multi-dimensional monitoring of land, sea, and space for civilian and military purposes. This service is complemented with the erection of 5G networks that aim to provide a self-sufficient technology infrastructure including undersea cables, space- supported, and earth-based links. China’s offer is compatible with the region’s ambition for independence from the United States and greater influence from the Global South – Brazil,

Argentina – and in some cases matches growing anti-Washington rhetoric – Argentina,

Ecuador, and Venezuela. Importantly, Chinese technology and infrastructure can provide a better internet and information experience to countries in the region. However, as Goswami

(2020) suggests, information-based economic dependency increases Chinese leverage on users of this technology whose attitude towards sensitive political topics such as Taiwan, the

Tibet, the South China Sea, or other future questions related to sovereign matters would have to match that of Beijing due to its ability to cut off critical technology for the nations’ security and commerce. Additionally, China through its sponsored infrastructure, 5G networks, and mobile phones is likely to have great access to data, a situation that raises concerns about

85 espionage. The “Five Eyes” alliance20 has warned the region on the possible risks emanating from the erection of telecommunication structures relying on Chinese technology. This is based on the belief that companies could “force a backdoor in the hardware or software to give Beijing remote access” and provide eavesdropping capabilities that would grant access to compromising information that could be used to push its national agenda at the expense of privacy (Schneier, 2020).

20 Intelligence alliance comprising the U.S., New Zealand, Australia, the United Kingdom, and Canada.

86 Chapter VI: “Conclusion”

The significant and rising presence of the People’s Republic of China in Argentina, Brazil,

Ecuador, and Venezuela has sparked both hope and concern. In bilateral and multilateral policy documents issued by Beijing, relations with Latin America are described on the framework of cooperation and mutual benefit in a wide range of areas including economy and defense. Practically, the reciprocal nature of this South-to-South cooperation has been blurred by the uneven distribution of costs derived from this interaction. Nevertheless, Sino-

Latin American relations are far from being one-dimensional, these have also benefited both sides according to their demands and promise improved results if challenges are addressed.

Hence, this paper has attempted to put forward a careful evaluation of the situation to encourage an effective policy response and further studies on the topic.

Reforms in the Chinese economy put forward by Deng Xiaoping allowed not only to transform its near-to-autarky economy but to become a strategic player in the international system. This legacy has been shared by the current leader Xi Jinping who seeks to position

China at the top of the global hierarchy by challenging the established order using tools such as the Belt and Road Initiative and its numerous state-owned enterprises and policy banks.

Through offensive realist lenses, we observe China as a revisionist power attempting to export alternative values, norms, and institutions, and to expand economic and political influence. Yet, China has also personalized Mearsheimer’s approach as its behavior in international relations is no longer offensive, nor is it entirely aggressive. This is evidenced in the still restricted use of military capabilities and the shortly exploited economic leverage.

In the context of the rise of China and the political and economic vacuum left by the United

States, Latin America constitutes an abundant market for the acquisition of primary products

87 needed to contain the industrialization of the Chinese economy and feed its emergent middle class, as well as has served as a territory for an armless geopolitical battle between Beijing and Washington. The regional economic and political juncture has allowed China to expand relations across Latin America, first approaching socialist-leaning regimes such as Peronists in Argentina, the Worker’s Party in Brazil, Correistas in Ecuador and Chavistas in

Venezuela, and then by virtue of economic position, forging relationships with countries very close to the US. The rise of China has also allowed Latin American countries to diversify their commercial partners and access new markets, in addition to exploring new political and diplomatic alternatives away from the “worn out” Washington Consensus.

China’s relationship with the aforementioned countries has undergone several metamorphoses since the 1950s when it was dominated by cultural diplomacy dependent on soft power, until today, when collaboration has expanded to the economic, political, social, and military realms, providing China with greater leverage that has yet to be fully utilized.

Throughout the paper, we have identified benefits and challenges in each group.

Economically, Latin American nations have forged commercial relations with the second- largest economy globally. Particularly Brazil and Argentina have immensely expanded their exports to the Chinese market and have enjoyed sizeable portions of Foreign Direct

Investment. Similarly, all countries, particularly Venezuela and Ecuador have been recipients of large amounts of capital in form of loans that have been used to close infrastructure gaps and nourish key state-owned companies often in light of isolation from global capital markets. Likewise, Chinese loans have allowed them to apply their own governance and fiscal formulas without imposing harsh conditionality, in contrast to Western institutions.

However, China has accentuated the countries’ raw material dependency pattern through

88 trade and oil-backed loans that in turn have prompted their economies to be vulnerable to price shocks and demand changes, and has contributed to over-indebtedness in light of untransparent deals that have compromised future state income. Politically, the South-to-

South collaboration has allowed these countries, particularly Brazil, to achieve foreign policy objectives of maximizing their voice in international affairs. Similarly, China constitutes an important partner in international organs on account of its seat in the UN Security Council that has proven valuable for the achievement of Latin American interests as for the rejection of resolutions targeting Venezuela. The reciprocity of the partnership in international affairs is also reflected in the G77 + China declaration for the support for the resumption of negotiations between Argentina and the UK on the issue of the Falkland Islands and the former’s sovereignty claim over natural resources on the Islands. Indeed, countries in the region should avoid stagnation on a Cold War mentality and seek to diversify partners to achieve their interests. On the negative side, the non-intervention mantra of Chinese foreign policy has aided the consolidation of authoritarian regimes by exporting surveillance technology and boosted corruption that in turn affects the region’s quality of democracy and

China’s economic interests. Socially, capital injections into Argentina, Ecuador, and

Venezuela have motivated welfare spending and the erection of long-needed infrastructure.

Additionally, people-to-people exchanges have been boosted through student exchanges and epistemic collaboration in areas such as technology and science. However, the lack of due diligence of Chinese firms and the absence of political and environmental risk assessments when doing business in the region have endangered local ecosystems and indigenous groups living in them. Finally, the military realm is still underdeveloped, and further experience is needed to create a clear forecast for collaboration. Positively, military contacts with the PLA can serve to break cultural distance with local armies and allow its joint participation in

89 missions such as the one deployed in Haiti. Also, cooperation in the realm of security can boost the action capacity of law enforcement agents to combat threats emanating from economic interaction such as money laundering or trafficking of contraband goods.

Moreover, China has shown to be a great ally in the development of information technology

(the BeiDou navigation system) and space cooperation, particularly with Brazil. Yet, the opportunity of dual-use of Chinese-backed facilities may be considered and framed into policy decisions that maintain peaceful regional relations with the United States.

Argentina, Brazil, Ecuador, and Venezuela must transpose the lessons grasped in their experiences with other powers such as the United States and Europe to forge a healthful relationship with China, as well as clarify regional and national ambitions to optimize the partnership and rebalance gains. Correspondingly, the risks and challenges faced in dealings with China are not exclusive to its position as a growing power that supports an alternative paradigm to the conventional one forged after WWII, but respond to how internal agents engage and take on the opportunity to use resources. Poor governance, structural corruption, and disregard for nature and local communities have triggered a counterproductive relationship. Therefore, these countries should strive for the transformation of the modus operandi of this transpacific relationship so that it can contribute to long-term sustainable development rather than benefiting the governments in turn. Likewise, Latin American countries must increase their understanding of the relationship between the US and China to apply appropriate policies that protect Latin American interests. By the same token, China is responsible for not being consistent with its mutually beneficial developmental discourse since the non-intervention policy has blinded it from urgent problems such as the humanitarian crisis in Venezuela, which threaten to damage its economic interests and image

90 in the region. China does not need to become a godfather for Latin America, mirroring the same practices as the US and its institutions, but it ought to reaffirm its rhetoric of mutual benefit and bet on the rejuvenation of this relationship which includes amending early missteps.

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