JAMAICA INFRASTRUCTURE Some background & context to Highway 2000 and proposed Transhipment Hub within the Portland Bight Protected Area by the China Harbour Engineering Company 1/3 JAMAICA INFRASTRUCTURE 1/3
Title Date Page
OCG to launch special investigation into award of US$400 million JDIP 2011/7 1 contract to CHEC after Works Permanent Secretary fails to substantiate public statements made by Works Minister Mike Henry
Investing in Jamaica 2011 2011/na 3
The New Banks in Town: Chinese Finance in Latin America 2012/2 35
The Expanding Chinese Footprint in Latin America : New Challenges for China, 2012/2 75 and Dilemmas for the US
Contractor General writes to the Jamaica Observer Newspaper in Response 2012/2 111 to Flawed Mark Wignall Column
Open Statement by the OCG Regarding the Proposed Highway 2000 2012/5 114
A Review of Recent Government of Jamaica Infrastructure Procurement 2012/5 126 Decisions
Verbatim notes of the public presentation on the findings of the Environmental 2012/10 148 Impact Assessment for the North South Link
Beyond ‘Win-Win’ and the Menacing Dragon: How China is Transforming Latin 2013/1 242 America
The Rise of China in the Caribbean: Impacts for Regional Security 2013/2 261
Opening of Sectoral Debate Parliamentary Year 2013/2014 2013/5 359
Lepanthes Orchids: One of Jamaica’s Hidden Treasures 2013/9 380
Summary of the Environmental Management Scoping of the Portland Bight 2013/10 390 Area, Inclusive of the Goats Islands
Any reply or subsequent reference to this communication should be addressed to the Contractor-General and the following OFFICE OF THE CONTRACTOR-GENERAL reference quoted:- PIOJ Building No. : 16 Oxford Road TELEPHONE No.:876-929-8560/6466 P.O. BOX 540 FAX No. : 876-929-2476 KINGSTON 5 E-mail: [email protected] JAMAICA, W.I
MEDIA RELEASE
OCG TO LAUNCH SPECIAL INVESTIGATION INTO AWARD OF US$400 MILLION JDIP CONTRACT TO CHEC AFTER WORKS PERMANENT SECRETARY FAILS TO SUBSTANTIATE PUBLIC STATEMENTS MADE BY WORKS MINISTER MIKE HENRY
Kingston; July 22, 2011 – The Office of the Contractor General (OCG) has taken the decision to launch a Special Investigation into the circumstances surrounding the award of a US$400 million Government contract to the China Harbour Engineering Company Limited (CHEC), for the execution of the Jamaica Development Infrastructure Programme (JDIP).
The OCG’s decision follows the failure of the Permanent Secretary in the Ministry of Transport and Works, Dr. Alwin Hales, to substantiate the widely published claims that were recently made by Minister of Transport and Works Mike Henry “…that the US$340 million loan being used to fund the (JDIP) project came from the China Exim Bank with a pre-condition for a Chinese firm of their choice to undertake the programme”. (OCG Emphasis).
The Minister, in making the claim, had publicly branded the OCG as being “manipulative and misleading in its publication of information” about the controversial JDIP. He had also said then that ”… the process of selecting China Harbour was well known to the OCG”.
The Minister’s questionable statements were made on Monday, June 27, 2011, after the OCG had issued a Media Release on the same day in which it outlined several concerns regarding the JDIP. Among the OCG’s listed concerns was the following:
“One of the critical issues which is of prime concern to the OCG, regarding the JDIP, is that it represents the first occasion in the history of Jamaica that a major road works rehabilitation contract of this value and magnitude has been awarded by the Government of Jamaica to a single contracting entity, CHEC, and has been so awarded without competition. Indeed, it is important that the public is made aware of the fact that the National Contracts Commission (NCC), in its letter of January 20, 2010, written to the Ministry of Transport and Works, with copy to the NWA, expressly stated that it was ‘… concerned that a contract of this size (i.e. US$400 million) should be entered into without competition in order to ensure that value for money was being obtained’.”
When the Minister publicly claimed that it was the China Exim Bank that had imposed the selection of CHEC upon the Jamaican Government, the OCG’s concerns in the matter were heightened further, 1
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particularly since a careful perusal, by the OCG, of the contractual and financing documentation which the Ministry had previously submitted to it, had failed to substantiate the Minister’s claims.
Consequently, and out of an abundance of caution, a decision was taken by Contractor General Greg Christie to write immediately to the Permanent Secretary in the Ministry of Transport and Works, Dr. Alwin Hales, to have him provide, among other things, documented proof of the Minister’s assertions.
By way of letter, dated June 28, 2011, the Permanent Secretary was requisitioned by the OCG to provide a “… comprehensive Executive Summary outlining, inter alia, …the specific provision, in the agreement between the GOJ and the Export-Import Bank of China, which imposes the pre-condition upon the Government of Jamaica to engage China Harbour Engineering Company”.
In his response of July 13, 2011, to the OCG, the Permanent Secretary failed to explicitly point the OCG to the provisions in the agreements which would lend credence to the Minister’s claims.
Consequently, by way of a further letter which was dated July 18, 2011, the OCG again wrote to the Permanent Secretary requiring him to “… respond clearly to the referenced request and provide the necessary explanation, in support of the said imposition, by no later than July 21, 2011”.
In his July 19, 2011 response to the OCG, which was hand-delivered to the OCG yesterday afternoon, the Permanent Secretary responded to the OCG, inter alia, in the following terms:
“...There are areas of the (news) reports (about Minister Henry’s statements) that conflict with the facts attending this issue. Accordingly, your request to be directed to the specific provision, in the agreement between the GOJ and the Export Import Bank of China, which imposes the pre-condition upon the Government of Jamaica to engage China Harbour Engineering Company Limited, cannot be fulfilled, as there is no such provision in the agreement”. (OCG Emphasis).
The commencement of the OCG’s Investigation will enable it to invoke its special powers under the Contractor General Act, as a Judge of the Supreme Court of Jamaica, to secure the information which it will now require to clarify the true circumstances surrounding the award of the JDIP contract to CHEC. Sworn statements, given under oath, on the pain of criminal prosecution, will be solicited by the OCG from several persons, inclusive of Minister Mike Henry and other senior public officials.
Section 4 (1) of the Contractor General Act mandates a Contractor General, acting on behalf of the Parliament of Jamaica, to ensure that Government contracts are awarded impartially and on merit and in circumstances that do not involve impropriety or irregularity.
-END- Contact: The Communications Department, Office of the Contractor General of Jamaica C/o Craig Beresford, Senior Director of Monitoring Operations, Corporate Communications and Special Projects E-mail: [email protected]. Tel: 876-929-8560; Direct: 876-926-0034; Mobile: 876-564-1806
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2 INVESTING IN JAMAICA 2011
www.tradeandinvestjamaica.org
3 4 Mrs. Sancia Bennett Templer President, JAMPRO
ur approach to 2011 is marked To better serve potential and existing by a renewed sense hope, which investors, the agency recently launched the Ohas been buttressed by our JAMPRO Interactive Investment Map, which diligent efforts to implement measures is a resourceful online mapping tool that that seek to advantageously position is accessible from our web site at www. Jamaica for increased investment, even as tradeandinvestjamaica.org. It serves as an aid the world continues to recover from the in the investment decision-making process worst global economic crisis in 80 years. by providing a pictorial view and related data on key infrastructure and institutions, As the government agency with investment projects, lands for development, responsibility for promoting business opportunities in Jamaica, JAMPRO has been streamlining its operations As part of a public-private sector to promote Jamaica’s many business collaborative aimed at capitalising in a opportunities while meeting the needs tangible way from Brand Jamaica at the of investors, who will undoubtedly be effectiveness in investment promotion, 2012 Olympics in London, JAMPRO and impressed by the range of opportunities facilitation and support services. Ranked the Private Sector Organisation of Jamaica presented in this publication. Jamaica as the leading investment promotion (PSOJ) will be embarking on an exciting is ready to do business, and we intermediary (IPI) in the Caribbean by promotional programme of investment look forward to developing mutually the World Bank Group in 2009, JAMPRO and trade missions, as well as cultural and beneficial connections with discerning participated in a regional workshop last consumer events, to concretely connect investment interests. year that sought to upgrade its skills and Jamaica to the UK. systems in an effort to attract a greater share of the market for foreign direct The aforementioned initiatives have investment (FDI). placed JAMPRO in an excellent position 1
INVESTING IN JAMAICA | 2011 5 CONTENTS
Contents 03 ECONOMIC OVERVIEW 13 AGRICULTURE 14 CREATIVE 17 ICT 19 INFRASTRUCTURE 22 MANUFACTURING 23 TOURISM 26 MEET JAMAICA 27 JAMPRO: Facilitating Investments in Jamaica Publisher: JAMPRO Corporate Communications Contributors: JAMPRO and Moin Siddiqi Art Director: Steven Jones Conference Team: Deanne Lintorn, Jennie Wengrovius, Rebecca Isaacs Conference Directors: Leon Isaacs, Atam Sandhu Correspondence Developing Markets Associates Ltd (DMA), 150 Tooley Street, London, SE1 2TU email: [email protected] | web: DMA acknowledge the assistance of all the individuals and organisations who have contributed to his publication. The views expressed herein are the opinions of the authors, and do not necessarily represent the High Commission of Jamaica, the Government of Jamaica, JAMPRO (Jamaica Promotions Corporation) or DMA. All rights reserved. No part of this publication may be reproduced or transmitted in any form without the written permission of the publisher. Published by Developing Markets Associates Ltd (DMA) Printed by Woodrow Press Picture credits: JAMPRO, istockphoto.com
© Developing Markets Associates Ltd
6 2011 | INVESTING IN JAMAICA 2 ECONOMIC OVERVIEW
Quest for higher foreign investment BY MOIN SIDDIQI, ECONOMIST
AMAICA, the largest English-speaking centre for some of the world’s major declines in 2009. Given benign global Caribbean Island, boasts the distinct transnational corporations (TNCs). market conditions and the government’s Jqualities of a vibrant emerging market But Jamaica’s fortunes, like other small/ commitment to macro-prudential with enormous possibilities for trade open economies, depend heavily upon policies, Jamaica is well positioned to and inward investment. Its comparative the health of the global economy, which advantages that attract strategic investors and tourists include natural beauty, storms. The International Monetary Fund The country offers numerous foreign geographical location (only one hour and (IMF) expects global output and trade direct investment (FDI) opportunities twenty minutes by air from Miami), time volume (goods and services) to increase in sectors such as infrastructure zone, English-speaking skilled labour force, by 4.4% and 7.1%, respectively, in 2011. beverages, agro-business, base-metal seventh-largest natural harbour and By contrast, the global economy and processing, construction, private security mineral resource endowments, as well as international trade fell by 0.6% and 10.7%, information communication technology a spirit of enterprise and well-established respectively, during 2009. Concurrently, (ICT); and emerging sectors such as traditions of democracy and accountability. external shocks negatively impacted healthcare and education. Jamaica’s tourism receipts, remittances These endowments have aided Jamaica’s and the bauxite industry. Nonetheless, the Jamaica’s close proximity to the North rise as the hub for trade within the number of tourist arrivals actually rose by American Free Trade Agreement-NAFTA Caribbean Community and Common 3.4% on an annual basis, whilst many other countries (the US, Canada and Mexico) Market (CARICOM) and into a popular provides ample scope to attract vertical
3 INVESTING IN JAMAICA | 2011 7 ECONOMIC OVERVIEW
advised the World Bank. At the core of Jamaica continues to rank favourably in business/ reform is the new Fiscal Responsibility investmnet freedom indicators. The 2011 Index Framework, which seeks to cut public debt to below 100% of GDP by 2015/16 of Economic Freedom published by the US’s (from a peak of 139.8% in 2009/10).
Heritage Foundation ranks it at 58 out of The Jamaica Debt Exchange (JDX) 79 countries. programme involving outstanding public debt of J$1.26 trillion (US$14.2bn) was or asset-seeking FDI, which is export- relations with Britain are strong, with successfully concluded on February 24, oriented and involves relocating parts increasing numbers of UK nationals and 2010 with a participation rate of 99.2%. of the production chains to low-cost corporates investing in real estate and locations. The output is mainly exported tourism on the island. savings of 3% of GDP over 2010/11 to the investor’s home country and/or and a 70% reduction in the amount of regional markets. Hence, FDI is unaffected INVESTING IN DURABLE maturing debt over the medium-term. by the host country’s market size. Jamaica RECOVERY It also extended maturities on short- is an ideal place for TNCs to base their term instruments by over two years Caribbean operations and tap into The government, led by Prime Minister and reduced the interest rates by 7 the wider NAFTA markets of 448mn Bruce Golding, is working towards and 2 percentage points respectively customers worth some US$17 trillion – on outstanding domestic and US dollar the world’s largest trading bloc. tackling development challenges with support from a 27-month IMF Standby help divert funds for social and capital It also enjoys favourable access to the Arrangement and budgetary support spending in the coming years. US under the Caribbean Basin Trade from the World Bank, the European Preferences. The island’s infrastructure is Union (EU) and the Inter-American geared towards supporting output facilities Development Bank (IADB). “Fiscal by the JDX programme, thus Jamaica’s and handling exports with good transport sustainability requires containing and sovereign credit rating was upgraded to linkages both internal and external, utilities reducing debt, enhancing government B- (with stable outlook) by Standard & and access to communications. Unit labour costs and wages are moderate. Historically, public sector spending and investment”, Jamaica’s debt-servicing record is
2011 | INVESTING IN JAMAICA 4 8 ecoNomIc oVerVIew
‘untarnished’ by defaults. The donors are grew by 2% in 2010, driven by moderate a saFe FdI desTINaTIoN pleased with Jamaica’s performance on growth in agriculture and mining. Bauxite the structural reform agenda. Jamaica has output recovered after the reopening of Jamaica has a track record of implementing passed 4 consecutive rounds of the IMF’s the Windalco alumina refinery (majority- micro-business reforms that underpin quantitative performance assessment under owned by Russia’s UC Rusal) and the private enterprise and FDI. Many sectors the existing Stand-by Agreement, and an expansion in hotels and restaurants was are fully accessible to prospective investors, improvement in the perception of ‘country helped by positive trends in tourism. though media, life insurance and mining are risk’ is reflected in lower yields on the According to PIOJ, stopover arrivals rose subject to some restrictions. The FDI code Eurobonds. The Eurobond was reopened by 3.1% to about 2mn visitors – equivalent encourages inward investments, guarantees on 14 February and was oversubscribed. to 70% of Jamaica’s total population – capital repatriation, compensation (if a while tourist spending increased by 1.9%, property is expropriated) and the ‘equal Nominal gross domestic product (GDP) thanks to intensified marketing efforts and treatment’ of all investors with respect rose by two-fold between 2004/05 and discounts by hoteliers. to fiscal incentives. There are no limits 2009/10 and is projected by the IMF on the foreign control of companies to reach J$1.23 trillion (US$14.2bn) in An upturn in economic activity led to and non-residents can purchase real estate. 2010/11 (ending March 31), representing the creation of 21,000 jobs, in net terms, The legal system upholds the sanctity a compound annual growth rate of after consecutive quarters of job losses. of contracts. 20.7%. Creative entrepreneurship, Overall, real GDP growth is conservatively skilled-adjustable workforce and pro- forecast at 1.8% in 2011/12, edging up to The tax regime offers added incentives business policies have supported dynamic 2% in 2012/13.. CPI inflation and interest such as tax holidays, duty concessions expansion in the tourism, financial services, rates are falling, which in turn, should on imports of capital goods and other telecoms, and leisure and distribution revive private consumption and boost preferences targeted at key sectors – sectors. Although services accounted for lending for micro, small and medium- notably tourism, manufacturing, mining/ 60% of GDP in 2009, Jamaica also boasted sized enterprises (MSMEs) – the engine energy, infrastructure, agro-business and a diversified manufacturing base. Export- of job creation. The Jamaican dollar is ICT, coupled with an investor-friendly free zones were created to encourage relatively stable versus the US greenback. environment that is not stifled by heavy industrial diversification and FDI. The Bank of Jamaica (BoJ) is likely to red tape. sanction further cuts in policy rate in the The Planning Institute of Jamaica (PIOJ) near-term. In late 2010, the central bank’s The UN Conference on Trade and estimated that the goods-producing sector policy rate stood at 7.5%. Development (UNCTAD) figures put total
5 INVesTING IN JamaIca | 2011 9 ecoNomIc oVerVIew
that could be turned to profitability The key success factor for foreign investors after restructuring and capital injections. in Jamaica is simply the good returns The Development Bank of Jamaica is responsible for the divestment of state on capital. assets. Potential candidates include
boosTING compeTITIVeNess INdex net FDI during 2000-09 at US7.82bn (see credit/equity to First Global Bank. IFC is Table 3). Indeed the total 2009 FDI stock also providing advisory services on the Jamaica continues to rank favourably in (US$11bn-plus) to GDP ratio (84.5%) privatisation of Air Jamaica, the national business/investment freedom indicators. was among the highest in the region. carrier, and a number of other state- The 2011 Index of Economic Freedom, The key success factor for foreign investors owned enterprises. published by the US’s Heritage Foundation, in Jamaica is simply ‘the good returns on ranks it (58) out of 179 countries, which capital’. Retained earnings account for The Multilateral Investment Guarantee is higher than some EU members, for larger chunks of inward investment. Agency (MIGA) provides demand-driven example, France (64); Portugal (69); Italy guarantees to Jamaican-based projects, (87) and Greece (88). Procedures for Jamaica is the International Finance mainly in the tourism, financial services, conducting a business are straightforward Corporation (IFC) second-largest and power sectors. Its portfolio includes a and simple. The legal system is based on country exposure in the English-Speaking total guarantee exposure of US$72.2mn. English common law and regulations on Caribbean, behind Trinidad and Tobago, Recent projects include guarantees for the working hours are flexible. with a portfolio of US$137mn at end- financing of two stages of the expansion 2009. The IFC, the private-sector arm of of the Kingston Port Container Terminal. The World Bank’s Doing Business 2011 the World Bank, has invested US$85mn MIGA’s online investment promotion survey ranked Jamaica in the upper half (including US$20mn in syndications) for services feature 100 documents on public- of 183 economies on the ease of doing the development of the Montego Bay private investment opportunities and the business for the period April 2009-June Airport, as well as US$73mn in Jamaica legal and regulatory environment in Jamaica. 2010. Its global ranking (81) exceeded Energy Partners (JEP). In 2010, it approved regional peers – Dominican Republic US$25mn in new commitments for the For strategic investors, privatisation offers (91); and Trinidad & Tobago (97). On Montego Bay airport expansion and outlets to acquire under-valued assets several criteria such as business start-
2011 | INVesTING IN JamaIca 6
10 ECONOMIC OVERVIEW
ups, obtaining construction permits, SMALL BUT bad debt provisions over NPLs declined registering property, enforcing contracts PRUDENT BANKS from 120% to 71% over the same period, and bankruptcy law, Jamaica scores above according to the BoJ. Fortunately, Jamaican- the regional average (see Table 6). run banks, unlike their European and US counterparts did not face ‘systematic risks’ The overall rating is undermined by high well-capitalised banks and a developed during global crises. top corporate tax rate (33.3%), plus stock exchange in Kingston. Five of the other taxes on property transfer and seven banks are foreign owned – with the THE NATIONAL AGENDA interest. Moreover, higher trading costs three top lenders (National Commercial impact export competitiveness, despite Bank of Jamaica Ltd, Scotia Group Jamaica the island’s strategic geographic location. Ltd and Pan Caribbean Financial Services “Vision 2030” (launched in 2008) aims Excess administrative costs in paying taxes Ltd) accounting for over 80% of total to transform the economy from one are a major hurdle for businesses. The assets. These banks provide corporate, fuelled largely on exploiting “basis government recognises the need to simplify factors” – notably sun/sand tourism, a complicated tax system. Development are similar to OECD banks. They rely mineral deposits and basic agricultural on local deposits for funding domestic of tax payment procedures, which should activities; credit to the private sector in based on higher forms of capital, including improve business climate indicators. 2009/10 totalled J$49bn, up from J$33bn human skills, knowledge and institutional on previous year. – thereby capable of sustaining its own However, to restore sustained job- development and achieving OECD creating growth, Jamaica needs to improve The ongoing efforts to improve the tnuoc yr s sutat revo eht txen owt sedaced . competitiveness in trade and productivity regulatory framework for the banking The Vision’s four ‘pillars’ are: a robust Minh Pham of the United Nations Credit Reporting Bill and reform of the productive economy that helps nationals Development Programme (UNDP) National Payments System. The banks, to realise their full potential; human in Kingston believes: “With the right however, were not immune to global development seeks to build world- measures, implemented effectively and in crises. Consequently, non-performing loans class educational (especially science/ tandem, Jamaica can create a momentum (NPLs) as a percentage of total credit technology) and health services; effective jumped from 2.2% in June 2008 to 5.7% governance and public institutions to hoped-for path of development for all.” in September 2010, whilst the ratio of channel resources to priority sectors with
7 INVESTING IN JAMAICA | 2011 11 ECONOMIC OVERVIEW
legislation, with support from the IFC and IDB. Its passage would improve access to much-needed venture capital and loans.
High domestic input costs (mainly electricity) adversely affect Jamaica’s competitiveness. The country needs to commission about 300MW of new generation capacity over the medium- term to meet demand and to replace costly generating installations. Public- Private Partnerships (PPPs) in energy, transport and telecoms sectors will help in infrastructure development. Jamaica is
as a fuel for future power generation. The offshore areas offer scope for oil-gas exploration programme.
Jamaica can set up aluminium smelters with its known bauxite deposits. Similarly, sea salt reserves along the coastline could be used to produce caustic soda (a vital raw material for the soap/detergent industry). It also possesses marble and limestone for roads and housing construction. Such activities are labour- intensive. A skilled workforce and fairly good infrastructure can help develop export capacity in manufactured products and agriculture, too, offers value-added agro-processing activities.
Jamaica’s market share of regional tourism has steadily increased in recent years. But it has not fully tapped the market for ‘culture-oriented’ tourism, which offers potential, especially in rural areas that could be promoted and developed. The U.N. World Tourism Organisation study “Impact of the Global Economic the highest economic returns; and security opportunities for entrepreneurs, such Crisis on Local Tourism Destinations,” and improved access to an effective social as reducing the transactions cost for revealed marked trends within the titling and registering land, improving industry; it showed sluggish growth of for all citizens. The government aims to access to credit for sole proprietors and the Sun, Sand and Sea market – rising nurture conditions needed for putting small micro businesses, and improving by 2-3% a year in the Caribbean, in the this enterprising nation onto a much incentives for informal businesses to decade before the onset of global crises. higher growth trajectory, averaging 5-6% become formal.” In contrast, tourism focused on nature, per annum to achieve Vision 2030 and for cultural and adventure grew at robust 15- Jamaica to become a major global player. Promoting small and medium-sized 20% and is more resilient to unexpected enterprise (SME) sector and increasing downturns in travel demand. THE WAY FORWARD credit facilities, coupled with a strong focus on skills and vocational training, In the aftermath of global recession, Jamaica’s growth over decades is should help a sizeable informal sector Jamaica stands at a crucial stage in its clearly incompatible with its potential. evolve into a mainstream tax-paying development. Achieving a higher ‘self- The capacity for expansion is greater than formal sector. The World Bank stated: sustaining’ growth, reducing output other island-states like Bahrain, Malta and “Facilitating growth with equity, volatility and greater social harmony are Mauritius. Overall an improved micro- particularly in uplifting and empowering key challenges. This island-nation, among business environment holds the key to the lowest quintiles through strengthened future prosperity. The Inter-American MSMEs, is essential to the national goal a growth path and has a strong resolve Development Bank (IDB) advised: “A of a safe, cohesive and just society.” The to expand trade and attract productive key aspect will be in building economic government is preparing credit bureau investment in the coming years.
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Table 1: KEy MACROECONOMIC & FINANCIAL INDICATORS
projections 2008/09 2009/10 2010/11 2011/12 2012/13 Nominal Gross domestic product (Gdp) (in billions of Jamaican Dollars)(1) 1,028 1,112 1,234 1,356 1,477 GDP (in millions of U.S. dollars) 13,586 12,510 14,211 15,256 16,400 Nominal GDP growth (annual % chg) 12.1 8.2 11.0 10.0 9.0 Consumer Prices (period average) 20.2 9.7 11.1 7.0 5.5 Real GDP Growth (annual % chg) -1.7 -2.5 -0.1 1.8 2.0 Gross Fixed Capital Formation (%) of GDP 25.0 26.0 27.0 27.5 28.0
Government operations (%) of Gdp Budgetary Revenue and Grants 26.9 27.0 26.0 26.2 26.3 Total Expenditure 34.3 37.9 32.3 28.5 26.5 o/w: Primary Expenditure 22.0 20.9 21.1 19.3 18.9 Overall Fiscal Balance -7.4 -10.9 -6.3 -2.3 -0.2 Gross Financing Needs, J$ billions 180.7 290.6 179.2 152.1 - Government Debt, excl. IMF, J$ billions 1,119 1,266 1,361 1,406 - Public Sector Debt (%) of GDP 108.8 113.8 110.3 103.7 - Treasury Bill Rate (%), end-of-period 21.5 10.5 7.5 6.0 5.0
(1)JamaIca has the second-largest Gdp of the commonwealth caribbean after Trinidad & Tobago. Fiscal years run from april 1st to march 31. Sources: ImF, Jamaican authorities and private estimates.
Table 2: BALANCE OF PAyMENTS & EXTERNAL DEBT (IN US$MN, UNLESS OTHERWISE INDICATED)
projections 2008/09 2009/10 2010/11 2011/12 2012/13 Exports, fob. 2,315 1,406 1,648 1,939 2,202 Imports, f.o.b. 6,786 4,425 4,920 5,314 7,280 Merchandise Trade Balance -4,471 -3,019 -3,272 -3,375 -5,078 Total Foreign Trade (%) of GDP 67.0 46.6 46.2 47.5 57.8 Tourism Receipts 1,939 1,964 1,960 2,212 - Private Transfers (net) 1,955 1,761 1,905 1,913 - Current Account Balance -2,497 -932 -1,100 -1,017 -984 As percent of GDP -18.4 -7.4 -7.7 -6.7 -6.0
Gross External Financing Need 3,000 1,300 1,500 1,600 1,700 As percent of GDP 22.1 10.4 10.5 10.4 10.3
Gross International Reserves 1,644 2,434 3,268 3,602 3,494 FX Reserves (in months of imports) 2.9 6.3 8.0 8.1 5.7
Public External Debt 6,983 8,569 9,947 10,480 11,267 Total Debt Stock (%) of GDP 51.4 68.5 70.0 68.7 65.4 External Debt Services 1,438 685.7 503.7 846.5 960.8 Debt service ratio (%)(1) 33.6 16.8 11.9 17.2 18.4
(1)scheduled debt service (principal & interest) as % of total exports.
Sources: ImF, world bank, Jamaican authorities and private estimates.
main export commodities: alumina, bauxite, sugar, rum, coffee, yams, beverages, chemicals, wearing/apparel, mineral fuels.
main Import commodities: Food & other consumer goods, Industrial supplies, Fuels, parts & accessories of capital goods, machinery & Transport equip, construction materials.
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Table 3: FDI INFLOWS TO JAMAICA (US$MN) projections (%) chg 2008/09 2009/10 2010/11 2011/12 2012/13 2000 2003 2005 2007 2009 2000-09 Nominal Gross domestic product (Gdp) Inward FDI (net)(1) 469 721 682 867 1,062 126.4 (in billions of Jamaican Dollars)(1) 1,028 1,112 1,234 1,356 1,477 Total FDI stock(2) 3,317 4,930 6,335 8,580 11,166 236.6 GDP (in millions of U.S. dollars) 13,586 12,510 14,211 15,256 16,400 As (%) of GDP 42.0 62.4 65.1 66.5 84.5 - Nominal GDP growth (annual % chg) 12.1 8.2 11.0 10.0 9.0 Consumer Prices (period average) 20.2 9.7 11.1 7.0 5.5 Sources: uNcTad world Investment reports. Real GDP Growth (annual % chg) -1.7 -2.5 -0.1 1.8 2.0 (1)After repatriation of interest, profits and dividends (IPDs). Gross Fixed Capital Formation (%) of GDP 25.0 26.0 27.0 27.5 28.0 (2)FDI stock represents the value of the share of affiliate enterprise at book value or historical cost, reflecting prices at the time when the investment was made and reserves (including retained profits) attributable to the parent firm, plus net indebtedness of the affilitate to the parent company. Government operations (%) of Gdp Budgetary Revenue and Grants 26.9 27.0 26.0 26.2 26.3 Total Expenditure 34.3 37.9 32.3 28.5 26.5 Table 4: FINANCIAL SECTOR INDICATORS(1) (IN PERCENT) o/w: Primary Expenditure 22.0 20.9 21.1 19.3 18.9 Overall Fiscal Balance -7.4 -10.9 -6.3 -2.3 -0.2 dec-09 mar-10 Jun-10 sep-10 Gross Financing Needs, J$ billions 180.7 290.6 179.2 152.1 - balance sheet Growth (yr-on-yr) Government Debt, excl. IMF, J$ billions 1,119 1,266 1,361 1,406 - Capital Base 14.6 11.6 11.7 9.2 Public Sector Debt (%) of GDP 108.8 113.8 110.3 103.7 - Non-performing Loans (NPLs)(2) 65.1 78.0 40.2 39.1 Treasury Bill Rate (%), end-of-period 21.5 10.5 7.5 6.0 5.0 liquidity Loans/Deposit Ratio 73.9 70.1 69.2 69.7
asset Quality Provisions for Bad Debts/NPLs 75.0 70.0 70.3 71.4 NPLs to Total Loans 4.6 5.5 5.9 5.7
capital base Capital Base/Total Assets 10.4 10.3 10.8 10.9 Capital Adequacy Ratio (CAR) 18.9 18.7 19.8 19.6
Profitability Pre-tax Profit Margin 17.8 17.8 21.2 23.8 Return on Assets 0.6 0.5 0.7 0.7 (1)Includes commercial banks, merchant banks and building societies. (2)Non-performing loans are bad debts – (typically in interest arrears for 90 days or more). banks are required to cover these credit losses commonly referred to as “expected losses” on an ongoing basis by provisions & write-offs.
Source: The bank of Jamaica.
Table 5: SECURITIES INDUSTRy FINANCIAL INDICATORS
dec-09 mar-10 Jun-10 sep-10 Funds under management (Fum) (in billions of Jamaican Dollars) 610.1 610.7 614.5 579.8 (in millions of U.S. dollars) 6,830 6,837 7,167 6,740
(In percent) Capital to Risked Weighted Assets 64.5 67.2 56.4 56.6 Capital to Total Assets 9.9 10.3 11.0 11.6 Net Profit to FUM 0.1 0.0 0.2 0.2 Net Interest Income to FUM 0.2 0.2 0.2 0.2
Source: The bank of Jamaica.
14 2011 | INVesTING IN JamaIca 10 ecoNomIc oVerVIew
Table 6: JAMAICA’S BUSINESS DATA
Jamaica latin america oecd & caribbean average starting a business Procedures (number) 6.0 9.3 5.6 Duration (days) 8.0 56.7 13.8 Cost (% of GNI per capita) 5.2 36.2 5.3 Paid in min. capital (% of per capita) 0.0 4.6 15.3
dealing with construction permits Procedures (number) 10.0 16.6 15.8 Duration (days) 156.0 220.0 166.3 Cost (% of income per capita) 258.3 191.1 62.1
registering property Procedures (number) 6.0 6.8 4.8 Duration (days) 37.0 68.6 32.7 Cost (% of property value) 7.5 5.9 4.4
paying Taxes Payments (number per year) 72.0 33.2 14.2 Time (hours per year) 414.0 384.7 199.3 Profit tax (%) 28.6 20.9 16.8 Labour tax and contributions (%) 13.0 14.7 23.3 Other taxes (%) 8.5 12.4 3.0 Total tax rate (% profit) 50.1 48.0 43.0
Trading across borders Documents for exports (number) 6.0 6.6 4.4 Time for exports (days) 21.0 18.0 10.9 Cost to export (US$ per container) 1,750.0 1,228.3 1,058.7 Documents for import (number) 6.0 7.1 4.9 Time for import (days) 22.0 20.1 11.4 Cost to import (US$ per container) 1,420.0 1,488.0 1,106.3
enforcing contracts Procedures (number) 35.0 39.8 31.2 Duration (days) 655.0 707.0 517.5 Cost to enforce; in (%) of claim 45.6 31.2 19.2
protecting investors Extent of disclosure index(1) 4.0 4.1 6.0 Extent of director liability index(1) 8.0 5.3 5.2 Ease of shareholder suits index(1) 4.0 6.0 6.8 Strength of investor protection index(1) 5.3 5.1 6.0
Getting credit Strength of legal rights index(1) 8.0 5.5 6.9 Depth of credit information index(2) 0.0 3.3 4.7 Public registry coverage (% adults) 0.0 10.1 8.0 Private bureau coverage (% adults) 0.0 31.5 61.0
closing a business Time (years) 1.1 3.3 1.7 Cost (%) of estate 18.0 15.9 9.1 Recovery rate, cents on dollar 65.1 32.8 69.1
(1)(0-10) - most 10; least 0-1. (2)(0-6) - scope and accessibility of credit information distributed by public credit registries and private credit bureaus; most 6; least 0-1.
Source: world bank doing business 2011 report.
11 INVesTING IN JamaIca | 2011 15 ecoNomIc oVerVIew
charT 1: SURGE IN FDI STOCK US$MN 12,000 11,166
10,000 9,456 8,580 8,000 7,264 6,335 5,783 6,000 4,930 4,410 4,000
2,000
0 2002 2003 2004 2005 2006 2007 2008 2009
Source: uNcTad world Investment reports
charT 2: DOMESTIC INTEREST RATES ARE FALLING 30
25.5 25
20
15 12.8 10.9 10.8 10 8.8 9.3 9.0
5 4.5
0 2003 2004 2005 2006 2007 2008 2009 2010
Source: ImF, International Financial statistics
charT 3 MAIN DESTINATION OF EXPORTS charT 4 MAIN SOURCES OF IMPORTS (PERCENT OF TOTAL 2009) (PERCENT OF TOTAL 2009)
us us 19% canada Venezuela 30% uk Trinidad & Tobago
3% Norway 37% china 4% Iceland brazil others * France, others * mexico, 52% Netherlands, Japan, canada, Japan, and 11% Trinidad & Tobago 3% uk 5%
11% 12%
Source: ImF, direction of Trade statistics yearbook Source: ImF, direction of Trade statistics yearbook
16 2011 | INVesTING IN JamaIca 12 aGrIculTure
With such a wealth of fertile land, Jamaica has yet to reach its potential in agricultural production. With the right level and type of investment, not only will Jamaica see its revenues from agriculture dramatically increase, but investors will see healthy, sustainable returns, plus associations with quality products that are recognised and respected around the globe.
Reorganisation and sustained, government- supported investment in the agricultural sector itself would result in significant increase in the island’s productivity. There are growing markets for Jamaica’s produce: the large, consistent tourist trade; inhabitants of Jamaica; the large markets of nearby USA, central and South America; countries around the world who are used to the quality goods that Jamaica produces; and the Diaspora populations, who are Agriculture hungry for a taste of home. JAMPRO is actively engaged in developing opportunities for Jamaican companies to griculture represents great likely to grow with the tourism industry, leverage strong consumer demand for potential for much of Jamaica’s there is a need for investment in facilities speciality foods in external markets. The A future prosperity and that can farm shrimp on a sustainable primary focus is on market entry and prospective revenues. There are roughly basis to levels that are sufficient to meet partnership opportunities for individuals 2.7 million acres of land in the country, current and future demand. or clusters of companies dealing with of which 17% or 450,000 acres are functional foods, nutraceutical ingredients, considered arable. There are many examples around Jamaica seasonings, condiments, spices, and other of businesses that are looking for FDI authentic Jamaican food and beverages. Agricultural exports have generated in order to maximise their potential; some US$100mn per annum for the one such example is the Sheep Farm island over the last five years. Given the Development Project. Between 2002 and effects of globalisation and competing 2006, import costs for lamb and mutton INCENTIVES AND market demands, there are many ways stood at J$2.5bn, whereas local production that the sector can be diversified in order stood at only between J$1.5-2mn annually. OPPORTUNITIES to improve its competitive advantage. Recognising that this as an unsustainable • The government has extended The government of Jamaica supports situation, the government is trying to boost numerous incentives to investors this, and whilst ensuring that consistently local production in order to close the gap in the agricultural sector, including high traditional exports such as coffee between imports and exports, respond to income tax relief, duty concessions are maintained, focus is also being placed the demand from the tourist industry and on production-related imports • In a bid to improve on increasing resources in areas such others, and increase revenues for the island. competitiveness in international as organic farming, biotechnology and trade, the government has aquaculture, which enable the cultivation The Cocoa Industry Board of Jamaica is a introduced online registration for of plants that contain nutrients that can member and signatory of the International importers and exporters that allows be extracted for the nutraceutical and Cocoa Organisation (ICCO). Only 17 access to all trade-related agencies functional foods industries. countries that are producers of fine • There is access to information or flavoured cocoa are recognised by on commerce and industry such as The demand from overseas, as well the ICCO, and Jamaica is recognised as information on product marketing, as from the tourist trade, means that one of eight exclusive producers of fine trade statistics and government there will be a need for expansion and cocoa. Presently there are 11,000 farmers incentives • Large scale improvements to the improved efficiency in the industry. producing around 650 tons of cocoa, transport infrastructure and services Agriculture currently contributes 5.6% though there is a national capacity for • Incentives to provide traders with to the Jamaican economy and employs the production of 1,400 tons. There is information on financing and over 18% of the workforce, which is a drive within the sector to expand the technical assistance likely to increase. An example is in shrimp cocoa industry by maximising production. • Contract farming joint venture production, where tourism accounts for This move, however, will require private opportunities to produce crops all over 80% of the consumption of the sector investment through joint venture year round. product. With this high demand, which is or equity partnerships.
13 INVesTING IN JamaIca | 2011 17 creaTIVe
Creative Industries
amaica’s reputation as the ‘cultural Hollywood movies such as dr no, golden comprehensive suite of administrative mecca of the Caribbean’ has eye, how Stella got her groove back, and support services. These include Jpositioned the country’s Creative license to wed and Knight & day were location scouting, acquisition of filming Industries as a key revenue generator filmed in Jamaica. The island has even licences and the provision of incentives with strong linkages potential to other hosted prominent television dramas, to production companies. areas of the economy. The island’s success such as the BBC’s Small Island, and reality in this regard is clearly demonstrated shows, such as bad girls’ Club. Projects The abounding talent that drives Jamaica’s in its manifold creative offerings, such as these have not only increased Creative Industries is underscored by which promote Jamaican culture and the island’s visibility as an investor- shrewd business acumen, skill and ingenuity. inventiveness to the world. The Creative friendly, competitive and attractive filming The country is ripe with potential, and Industries are those sectors that are destination, but have also aided in the the Jamaican brand is already rich with born out of individual creativity, skill and dramatic growth of the industry. associations of excellence in athletics, music, talent and have the potential for wealth the arts and cuisine. Now is the perfect and job creation through the generation Jamaicans are famous for their vibrant time for filmmakers from around the world and exploitation of intellectual property. spirit, excellence, and creativity, which to come and take their best shot! Chief among the core areas encompassed by the Creative Industries are Film, Music, Fashion and Sports. The abounding talent that drives Jamaica’s Creative Industries is underscored by FIlm shrewd business acumen, skill and ingenuity Jamaica, with its cascading waterfalls, incredible beaches, green rolling mountains, caves, lagoons, mini-jungles, are attributes that combine to make musIc varied architecture and diverse flora and Jamaica the production capital of the fauna, has been a premier choice for film English-speaking Caribbean. A corps of Reggae music is the pulse of Jamaica. It is production for over 50 years. The more skilled English-speaking professionals, undoubtedly the heartbeat and essence than 3,200 projects that have been shot trained and accredited in the latest of the island. The dynamic expression of in Jamaica, which range from full length film techniques, is available to work on the vibrant Jamaican spirit, reggae music features and documentaries to television location and post-production. Through speaks of Jamaica’s past, its present and its series and music videos, confirm the JAMPRO’s Film Commission and other vision for the future. It is the vibration of island’s status as a sought-after location. agencies, filmmakers can access a a people whose creativity and ingenuity
2011 | INVesTING IN JamaIca 14 18 creaTIVe
best man and the little mermaid have all capitalised on Jamaica’s sound. Jamaica’s picturesque landscapes and urban chic have also provided an enviable and highly sought after backdrop for the filming of music videos for numerous artists including Alicia Keys, Gwen Stefani, Willie Nelson and Gnarls Barkley.
FashIoN
Jamaicans are a vibrant people with a strong, creative spirit that resounds throughout the world. This is uniquely captured and expressed in our fashion, which utilises a kaleidoscope of tones and a plethora of patterns and shapes that are distinctly Caribbean and reflective of our historical and cultural experiences. Complemented by the beauty of the people and its connection to reggae and
have given the world some of its greatest and most renowned artists, producers Jamaicans are a vibrant people with and sound engineers. a strong, creative spirit that resounds As the capital of reggae, Jamaica is home throughout the world to a multi-billion dollar industry. No other small, developing country or island in the Caribbean has been as popular global appeal of reggae has commanded dancehall in the music industry, Jamaican or influential as Jamaica has been in the the attention of international artistes and fashion is one of the fastest growing of global entertainment industry. Bob Marley, producers, many of whom have come the Creative Industries. voted the most prolific reggae superstar to Jamaica to catch the vibe and record of all time, established Jamaica as a nation material. Among the artists who have The island’s annual fashion calendar boasts abounding in creative talent. In the 1960s, worked in Jamaica are the Rolling Stones, two major events – Saint International’s Jamaican Chris Blackwell founded Island Paul Simon, Simply Red, Drake, No Doubt, Style Week Jamaica (SWJ), with the Records, which was headquartered in Amy Winehouse and Nas. The original internationally acclaimed Fashion Block, Kingston, and it has grown to become the version of the popular FIFA World Cup and Caribbean Fashion Week (CFW), largest independent record company in anthem wave your Flag was recorded in produced by Pulse Entertainment Group. the world – Jennifer Lopez and Bon Jovi Jamaica at Tuff Gong Studios. International A stunning majority of established and are among the prominent signings by Island acts have also frequently worked on new designers use the SWJ platform Records. A decade later, Sir Richard Branson collaborations with Jamaica artists. to shine in the local and international started Virgin Records by capitalising on spotlight as Jamaica becomes the centre the powerhouse that is reggae music. Blockbuster movie soundtracks such as of global glamour. Staged annually bad boys, rush hour 2, i am legend, the during the period that strategically Today, Jamaica has the largest number of recording studios per square mile worldwide. Many are outfitted with state- TAX INCENTIVES of-the-art equipment and operated by • Waiver of duty on temporary importation • No withholding tax on dividends paid to highly skilled and reputable producers and for the film industry resident shareholders with investments in trained technicians. The studios include film companies. Non-resident Arrows Recording, Studio One, Big yard, • Income tax relief for up to nine years for shareholders earn dividends taxed Harmony House, Penthouse Recordings, feature films produced in Jamaica according to the provisions of the double Taxation Treaty with their respective the Marley family’s Tuff Gong Studios and • Duty-free and tax-free concessions on Gee Jam Studios. countries (e.g. the usa and uk are treaty equipment, machinery and materials for members, thus eliminating the payment of the building of film studios and taxes in Jamaica) The presence of these studios has resulted support facilities in dozens of new releases each day, the • Discount on government-owned • An investment allowance of 70% of locations most per capita in the world. Jamaican sums spent on investment in producers and engineers continue to infrastructure, with a carry forward • Benefits exist under existing Co- record for not only the local market, of the unused portion production Treaties/production Treaties. but the international market as well. The
15 INVesTING IN JamaIca | 2011 19 creaTIVe encapsulates Memorial Day Weekend in sporTs the US and Banking Holidays in Europe, INCENTIVES AND SWJ’s shows, after parties, international A solid track record of excellence editorial photo shoots, development through the decades has earned Jamaica OPPORTUNITIES seminars and roundtable discussions the undisputed title of ‘The Sprint Capital • Animation/film studio construction, contribute to the strong positioning of the Caribbean’, if not the world. equipment rental facilities and post of Jamaica as a serious fashion/ The name Usain Bolt looms large in the production in the film and lifestyle market. international athletics arena, and has taken music sectors; Brand Jamaica to the world. The record- • Performing arts venue construction Since its debut in 2005, Fashion Block breaking exploits of Bolt, the fastest man and upgrading – the finale of SWJ – has been one of on the planet, has the world waiting the most recognisable fashion events with baited breath to see the Jamaicans • Introduction and upgrading of in the region. Blocking a major business in action at the London 2012 Olympics. production and distribution thoroughfare and staging a spectacle Jamaica will also have the distinction technology for creative products on a 150-foot catwalk remains a feat of fielding reigning 100m Olympic and to be topped anywhere in the world. World champion Shelly-Ann Fraser, • Skills training and support business services across creative sectors International fashion media consider five-time Olympic medallist Veronica it one of the top fashion shows in the Campbell-Brown and Asafa Powell, the • Earning potential exists in sport world, with favourable comparisons being former 100m word recorder holder. training and events promotion made to Victoria’s Secret’s Christmas Fashion Show. Jamaica’s prowess is clearly demonstrated • The University of Technology in other areas of sport. The island is home (uTech) is currently seeking CFW has been hailed for the creative to the Reggae Boyz, the highest-ranked investment to facilitate construction of a multi-modal, multi-purpose ingenuity of its designers, the brilliance football team in the English-speaking sports centre. of its supermodels as well as its high Caribbean and qualifiers in the 1998 FIFA production standard. The event’s amazing World Cup in France, and the Sunshine Fashion designers seeking success is reflected in its recognition by Girls, who consistently rank among the investments include: British Vogue as an important trend in top four netball teams in the world. the fashion world. Now aired on Fashion As a tropical country, Jamaica defied • Biggy’s Fashion – Dancehall- influenced designs by Earl TV, CFW is seen in close to 400 million the odds in the 1994 Winter Olympics Turner, who has been designing for households worldwide. The parties, by finishing in 14th place in the bobsled international celebrities for over entertainment and social networking competition, ahead of the United States 15 years opportunities abound and provide a and Russia. Jamaica has also produced lively backdrop for both the established top cricketers such as George Headley, • Carlton Brown – Men’s formal wear, and emerging Caribbean designers and Courtney Walsh and Chris Gayle. featured to great acclaim at Toronto models. As part of its 25th anniversary and caribbean fashion weeks celebrations in 2005, Pulse opened The fact that a significant portion of • Les Campbell – Men’s formal and the $40mn Caribbean Fashion Centre Jamaican teams train at home presents casual wear, recognised for extension to its Trafalgar Road Complex a clear investment opportunity in sports. innovative use of a variety of fabrics in New Kingston. It also launched the The main training facilities are currently Caribbean Fashion Collective project, preparing for expansion. The Racers Track • Keneea Linton – Women’s formal aimed at manufacturing and marketing Club, which counts Bolt among its cadre and semi-formal wear, displayed at the work of Caribbean designers of athletes, and the MVP Track Club, which fashion weeks in Jamaica and North america. throughout the region as well as in is home to Asafa Powell and Shelly-Ann external markets. Fraser, are both homegrown Jamaican additionally, there is an investment clubs that already train athletes from all opportunity for a fashion incubator, as Both major fashion events provide a over the region. In fact, the University of a number of designers require a place platform for investment and sponsorship. Technology (UTECH), home to the MVP to manufacture their pieces. Jamaica Relationships can be established with Club, has the distinction of being the already has an established fashion design cluster with over 100 members. designers seeking loan financing, technical university with the most Olympians in and marketing assistance as well as training – 11. supply-side and distributor partnerships. They also present opportunities to Jamaica has also quietly built a reputation Jamaica will host the CARIFTA (Caribbean establish linkages beyond the fashion as a host of sporting events and teams. Free Trade Association) Games. With its industry in related cultural areas such The 2002 International Associations of solid infrastructure and resident sports as film and music. As we ‘show off’ our Athletics Federations (IAAF) World Junior and event management competencies, style to the world, the Creative Industries Championships and the 2003 Netball World Jamaica has managed to distinguish Unit of JAMPRO is standing by, ready to Championships were staged in Jamaica. The itself in this area, but there is scope for facilitate local and international companies island was also one of the regional hosts even greater improvement through and individuals who choose Jamaica as a of the 2007 ICC Cricket World Cup, with investment and the promotion and destination to conduct business in the the grand opening ceremony staged at the development of the country as an off- Creative Industries. Trelawny Multi-purpose Stadium. This year, season training destination.
20 2011 | INVesTING IN JamaIca 16 IcT
TelecommuNIcaTIoNs
Jamaica’s world-class and robust telecoms infrastructure supports all the requirements for global connectivity and ranks among the most developed in the world when compared to the US and UK. Jamaica has the highest teledensity rate in the entire Latin America and Caribbean (LAC) region, while mobile penetration exceeds the rest of the Caribbean and rivals many developed nations in the World. Other key features of the local telecoms landscape include:
Ample bandwidth capacity as a result of multiple telecoms providers offering a wide choice of circuits, including T1, DS3 and OC3
Three major broadband carriers that provide triple redundancy and 99.99% up-time on broadband services. Broadband penetration stands at over 35%, with accessibility from anywhere in the island
Multiple mobile service providers offer 3G, 4G, WiMax and international roaming capabilities. The island’s extended Fibralink submarine cable network provides reliable delivery of Information and business and broadband traffic
Three parallel fibre routes (and Communications drop off points) on the island link to the Americas Region Caribbean Ring System (ARCOS-1) submarine cable in the Dominican Republic. This provides Technology seamless connectivity to North America, Latin America and the Caribbean. There is also a complete ecognising the way that business the enacting of new legislation in support fibre ring around Jamaica, with fully is evolving in the modern, fast- of the development strategy, such as the digital networks R paced and inter-connected world, Cyber Crime Act (2010), as well the government of Jamaica has introduced as an overhaul of the existing 2007 Additional telecoms players will be a range of reforms and measures Telecommunications Policy. These efforts entering the market to provide designed to support information and clearly demonstrate to overseas investors undersea broadband connection; this communication technologies (ICT) that the necessary measures are being will increase the overall capacity and industries and therefore attract businesses taken to ensure that their operations and redundancy on the island. to the island. investments are secure. busINess process In 2001, the government launched a Jamaica’s Human Employment and ouTsourcING (bpo) decisive ICT development strategy, which Resource Training/National Training in the ensuing years has served to establish Agency (HEART/NTA) currently Today’s Jamaica is a highly competitive Jamaica’s reputation as a strong regional ICT operates 28 training institutions across and attractive business destination, which service provider. The country is now in a the island. Funded and operated by the has emerged as the leading contact position to look towards the United States government, these institutions focus on centre location in the English-speaking and beyond as an important recipient of employer-specific training, while new Caribbean with over 10,000 full time its services. The growing sophistication training programmes will be developed agents in the offshore business process of Jamaica’s ICT industry is evidenced by to specifically support ICT. outsourcing (BPO) sector. With an
17 INVesTING IN JamaIca | 2011 21 IcT established track record in finance & accounting, human resource outsourcing (HRO), receivables management, technical helpdesk support, outbound sales and lead generation, Jamaica has been recognised by Gartner as a destination to watch and by A.T. Kearney as a favourable BPO destination.
With nearshore access to the US, low attrition rates and high labour force availability among secondary and university graduates (over 20%), Jamaica provides great value to anyone looking for a BPO destination. This value proposition is bolstered by average call centre and BPO salaries being 40-60% lower than the corresponding salaries in the USA. These advantages, as well as the fact that the government has demonstrated its support for this priority sector, have kept industry heavyweights such ACS (Xerox), Teleperformance and West Corporation operating in the island for almost a decade. why JamaIca For ouTsourcING? In addition to the work being done by an available and adaptable workforce. In ✓ Close to the United States the government to provide more space further support of the ICT sector, the within the Free Zones for expansion government is creating a BPO-oriented ✓ Educated English speaking workforce among existing players and the syllabus at the National Training Agency accommodation new entrants, there are to ensure the suitability of the labour ✓ Dedicated and productive workers private sector-focused BPO projects, such pool. The government continues to as the Barnett Tech Park in Montego Bay, maintain dialogue with the sector, with ✓ Competitive business costs which will allow operators to build their the singular purpose of ensuring that all own facilities or to partner with the park the right issues are adequately addressed. ✓ Priority on improving Data security owner in the build out process. Currently, Vistaprint, a leading online provider Jamaica offers great value: a ready ✓ Excellent telecoms infrastructure of marketing collateral, is building its domestic market, closeness to other huge Caribbean headquarters in the Barnett international markets, a trained English- ✓ Established track record in BPO Tech Park. They have hosted their English speaking workforce and the capacity language customer service operations in to support all aspects of businesses ✓ Strong government support for ICT Jamaica since 2003 and will be significantly operating in the ICT industry. With expanding their operations in this new continued planning and execution by ✓ Stable business climate environmentally friendly workspace. the Jamaica government, the country will continue to be the nearshore destination ✓ Great quality of life With an unemployment rate of 11% of choice in the Caribbean and Latin and a literacy rate of 87%, Jamaica has American region for years to come. Jamaica’s BPO providers typically operate as free zone-type companies, whether or not they are physically located in a Free INCENTIVES Zone. The flexibility of Jamaica’s Free Zone laws allows for Single Entity Free 100% tax holiday on profits in perpetuity No limits on the repatriation of foreign Zones, which can be established anywhere for organisations that export over 85% exchange, and Free Zone companies of their services outside carIcom may operate forex accounts outside of a designated free zone space. The export Industry encouragement In both scenarios, companies operating duty free import of goods for act, which offers duty-free importation under the Free Zone Act are eligible for companies located in the Free Zones, of raw materials and capital goods, and a range of benefits (See ‘Incentives and including capital goods, consumer a tax holiday on profits for ten years for Opportunities’). Designated Free Zone goods, raw materials for approved organisations that export less than areas in the island are located in Montego activities and office equipment 85% of their services. Bay, Kingston and Portmore.
22 2011 | INVesTING IN JamaIca 18 INFrasTrucTure
which welcomed its first mega cruise ship with 4,500 passengers and crew members on February 17, 2011. The pier, which is expected to increase visitor arrivals to one million passengers annually, is being built by Royal Caribbean Cruise Line and the Port Authority of Jamaica. Initial plans for the new facility include the construction of duty free shops, bars, restaurants, a helipad and tramcar connecting the pier to a model colonial town. The pier presents significant opportunities for the development of tourist attractions and other services within Falmouth.
Jamaica’s main airport, the Norman Manley International Airport (NMIA), which is located about 15 minutes away from the main business district of New Kingston, has recently undergone a US$140mn modernisation programme and presently services over 1.7 million passengers per year. Financing has come from various sources, including the private sector and the European and Caribbean Development banks. By 2022, NMIA will have been completely redeveloped, bringing both direct and indirect benefits to the city and country.
Similarly, a US$200mn investment package has been ploughed into the redevelopment and modernisation of the Sangster International Airport (SIA) Infrastructure in Montego Bay. This has transformed it into the second busiest airport in the Caribbean, serving over 3.3 Million development passengers per year. Following the investment in modernising the NMIA, the government of Jamaica he successful development of The north coast has also experienced launched the Palisadoes Shoreline any region or country requires significant development, especially in Rehabilitation and Protection Project T the solid underpinning of quality the area of tourism and hospitality. in 2010. This project, which is being infrastructure and the availability of The eagerly anticipated Montego Bay executed by the China Harbour services to enable businesses to operate. Convention Centre was completed Engineering Company at an estimated The Jamaican government is leveraging in January 2011 at a cost of US$45 cost of US$65mn, will expand the significant resources to ensure that these million. The project represented Palisadoes strip connecting the airport to are in place, with specific attention being another significant partnership with the Kingston’s main business district. placed on the urban centres of Kingston government of the People’s Republic of and Montego Bay. China and was constructed by the China The government has also sought to National Complete Plant Import Export position Jamaica as the main multi-modal Infrastructural improvements such as the Corporation (COMPLANT). The venue logistics hub in the region. Leveraging its construction of Highway 2000, which links will significantly enhance the stock of port and logistics capacity and proximity the south and north coast of the island, as banquet and conference facilities in the to key markets, the government is seeking well as the revamping of the island’s airports tourist capital of Montego Bay and is in investors to partner in the redevelopment and seaports, have created a number proximity to five major hotels. of the Vernamfield property into a major of investment linkage opportunities in air cargo hub, aircraft maintenance and the area of logistics and transhipment Other developments in the tourism aviation training facility, as well as a local management, tour operations and other sector include the construction of the military base. Current capacity at the professional services. Falmouth cruise ship pier in Trelawny, property includes a 5,000-foot concrete
19 INVesTING IN JamaIca | 2011 23 INFrasTrucTure runway. The total development project is Company (KRC) are leading the plans estimated at US$1 billion to design and to redevelop the downtown area, and INVESTMENT construct two parallel 11,000 foot runways projects so far include the revitalisation and taxi ways. These rehabilitated runways of the West Kingston Market District, OPPORTUNITy will have the capacity to handle the world’s the Kingston Waterfront Festival Jamaica Railway Transportation largest aircraft, including the Antonov AN- Marketplace, Business Centre and 124, AN-225 and the Airbus A-380. The the completion of the Downtown The government has prioritised development includes the construction Transportation Centre. Improved public the rehabilitation of the passenger of Category Five hurricane-proof aircraft transportation systems were introduced rail system and has commenced hangers, which will include offices and to complement other planned full rehabilitation of tracks and the warehousing. Its redevelopment has been developments such as the construction reconditioning of railway equipment the long-nurtured brainchild of veteran of the corporate headquarters and locomotives. Its initial plans are parliamentarian and current Minister of Digicel, the leading mobile to rehabilitate the spanish Town to of Transport and Works, the Hon. telecommunications provider, on linstead route, followed by the spanish Mike Henry, who has set out to the Kingston Waterfront. Digicel will Town to May Pen and Williamsfield lines. The Jamaica railway corporation (Jrc) make the project a major catalyst construct an 11-storey building with is also seeking to privatise its railway for economic development in the basement as well as a 7,050 square- assets with a view to revitalising the parish of Clarendon and the broader foot food court and an 11,000 square- rail service for freight and commuter central Jamaica region. foot two storey ancillary building over movement. The redevelopment of a basement car park. It is anticipated the island’s railway is also seen as a In the short term, the government also that this development will spur the key component of the multi-modal intends to develop the Tinson Pen expansion of economic infrastructure transportation and logistics system for Aerodrome in Kingston into a logistics along the waterfront. The government the country.
New Kingston – the main business district – is The government intends to provide 19,963 growing rapidly, with major businesses moving housing solutions over five years targeting low to middle income earners through into the available office space its property development company, the Housing Agency of Jamaica Limited (HAJL). The projected capital investment is centre with display rooms and storage will also be offering enhanced incentives US$590mn and it is expected to yield 4000 space. The Tinson Pen development is to companies establishing new facilities jobs. The projects are dispersed island wide envisaged to generate sustainable income or headquarters in Downtown Kingston in two geographical clusters – the North by attracting and providing a wide range under the revised Urban Renewal (Tax Western Cluster and the South Eastern of logistics and promotional services Relief) Act. Cluster. The North Western Cluster to the international trade community, comprises of four parishes that are in thereby broadening the revenue Other proposed developments include close proximity to the major tourist resort streams of the Port Authority of Jamaica. the Ward Theatre Cultural Square and centres, while the South Eastern Cluster The 40-hectare site at Tinson Pen various new hotel and conference centres. consists of the parishes of Manchester, is expected to generate 7.5-10% of It is expected that overall investment will Clarendon, and St. Catherine, which are additional cargo throughput over the top US$5bn. The Prince’s Foundation for near the Highway 2000 corridor that port per annum based on international the Built Environment is working with a provides access to all major townships benchmarks of similar facilities. range of agencies in Jamaica on the Rose and urban facilities. The project is expected Town redevelopment, which is at pilot to yield positive net returns and should Within Kingston, there are a number of stage. This is a good example of the type generate sufficient cash flow by year two ongoing and prospective redevelopment of project that is possible and it will have a of the projected period and the average plans. New Kingston – the main business positive impact on innercity communities return on the investment for the Greenfield district – is growing rapidly, with major once replicated. project portfolio is estimated at 20.25%. businesses moving into the available office space. This area will continue to be the centre for the ongoing modernisation of INCENTIVES AND OPPORTUNITIES the city. Downtown Kingston, the old city centre, offers tremendous opportunities • Sites being developed or slated to be • Generous tax and duty concessions, developed in the near future offering especially for Free Zone situated for redevelopment, including the buildings, modern, affordable space for a range businesses, easing the burden of operation transport network, sanitation and waste of industries management services, and the associated • A highly developed island infrastructure tourism industry that would naturally • A skilled workforce at the ready, which allowing easy movement of goods, follow all of this. can quickly be drafted in to operate communications and personnel and support facilities for corporations that access to airports. The Urban Development Corporation establish businesses in Jamaica (UDC) and the Kingston Restoration
24 2011 | INVesTING IN JamaIca 20 INFrasTrucTure
of the consistent tourism influx. Port Royal, the historic sunken city, requires investment to develop it as a major tourist attraction close to Kingston. Around Jamaica, there are a number of sites that are waiting to be developed that could accommodate residential, commercial and/or tourist projects. These are often granted with the relevant permits already secured and tax incentives to ensure swift development and maximum returns.
The Jamaican Social Investment Forum (JSIF) has funding to develop infrastructure and community projects that will enhance social development e.g. schools development, community spaces, agro- processing and more. There are a number of high-profile companies that have invested and are investing heavily in the telecoms sector, from infrastructure such as cabling through to the user interface side of the industry. Technology parks are being developed around the island that can accommodate and support the service industries housing call centres, data processing businesses, accounts, legal The government continues to expand and jobs. The programme has commenced services, or direct marketing, among others. rehabilitate the island’s road infrastructure with the Christiana Development Road, under the Northern Jamaica Development which is scheduled for completion by year- Infrastructure and service development Programme and more recently the end at a cost of US$8.9mn. is an area that is on the cusp of serious Jamaica Development Infrastructure expansion in Jamaica. The number of Project (JDIP). JDIP is a five-year public Many other projects are likely to different industries that are increasing works programme, funded by a loan commence in the near future, including their focus on the island is growing, and from the Export/Import Bank of China. the development of major roads to open with that, there is a growing need to The project is being implemented by the up all areas of the island and link the develop capacity to continue to attract National Works Agency (NWA) and the north and south regions more effectively. and support them. Investment in this area China Harbour Engineering Company Ltd The development of the major tourist in the short to medium term is very likely (CHEC), which serves as the contractor. centres and tourist ports continues, but to prove wise and to generate sustainable, The projected capital injection is $36 there remains the opportunity for FDI to long-term returns. billion and it is expected to create 6700 increase this and better take advantage pre-FeasIbIlITy
RAILWAy INVESTMENT OPPORTUNITIES To determine hydro-electric power potential of various schemes based The following opportunities currently exist for the generation of revenue for the revitalised railway service: on alternative Mahogany Vale Dam configurations and the totality of the • Freight (both bulk and containerised) • Transportation of petroleum products water resources of the Blue Mountains. from the port of kingston to seven The project will take place in three multimodal hubs strategically placed • Transportation of cargo from the phases at a total cost of US$930mn. to serve customers in the counties of proposed Vernamfield Aerodrome facility In the first phase, the project will include cornwall and middlesex construction of a 6.8 km tunnel from the • Transportation of sugar cane between yallahs River to the Flora River in the • Transportation of aggregates from mines sugar factories in areas that are Hope River system. In the second phase, to port facilities connected to the rail network the project will generate 55 MW at an • Workshop engineering services • Passenger services (including commuter underground power plant near Gordon and tourist trains) Town. In the final stage, the project also • Property rental includes the construction of a 7.5 km • Bauxite services (including freight trans-mountain tunnel and a conveyance • Rights of way income from haulage, training and maintenance). system of tunnels (22.2 km) and pipelines utility companies hydro electric power Generation (3.8 km) on the northern side of the Blue Mountains.
21 INVesTING IN JamaIca | 2011 25 maNuFacTurING Manufacturing
rom Agro-processing, bedding and In the spirits sector, Jamaica continues leather to stone and clay products, to grow its market share with an 11.3% INVESTMENT F Jamaica boasts a diverse array of increase in the export earnings for manufacturing enterprises. Manufacturing this segment during the 2009 period. OPPORTUNITIES is very important to Jamaica’s economy, Red Stripe beer, perhaps Jamaica’s best • Investments in companies that are as it contributes more than US$700mn in known brand, is exported to many poised for growth but require capital, foreign exchange earnings and represents countries across the globe. Similarly, the expertise and market reach 8.3% of the country’s gross domestic world-renowned Appleton Estate Rum product (GDP). The sector includes continues to grow its international sales • Manufacturing of formulations that small, medium and large enterprises with its range of products. have been created by the Scientific that manufacture for both the domestic research council of Jamaica (src) and export markets. Many of Jamaica’s Tobacco continues to be a significant manufactured brands are well recognised contributor to Jamaica’s export industry, • Investment in large scale manufacturing to serve domestic internationally and have become with players such as Adduci Cigars and regional markets synonymous with excellence. making strides and embarking on a • Manufacturing of furniture, boats, linen and drapery for the hotel sector The world is still looking on in awe at Jamaica’s • Manufacturing of leisure wear and emerging car manufacturing industry craft items for the tourism sector
• Processing of purees and flavourings for regional markets In the foods sector, the distinctive flavour US$50mn expansion plan as part of its • The contracting of local of our raw material inputs goes into the efforts to become a premier brand in the manufacturers in the areas of food, making of palate-pleasing end products international cigar market. The company household appliances and chemicals. that are delicious and unique. Companies is actively seeking investment partners such as Jamaica Producers (chips and to assist them with their expansion and fresh produce), Jablum (coffee) Grace international promotion. (juices and condiments) and LASCO These examples provide a peek into (soy based milk products) have tapped The world is still looking on in awe at Jamaica’s manufacturing industry, which into the highly motivated and productive Jamaica’s emerging car manufacturing is currently poised for investment Jamaican workforce to produce goods industry, which is being spearheaded as manufacturers seek just-in-time, that are enjoyed internationally. In 2010, by Patrick Marzouca – a boutique car customised delivery options for the the American-based Madrona Speciality manufacturer since 2000. He managed to markets they serve. Among Jamaica’s Foods Group established the Sandy Bay overcome challenging odds and successfully many advantages are: Sweets manufacturing facility in Hanover, exported the locally made Island Cruiser which produces an impressive array of motor vehicles to the Turks and Caicos Strategic location within major hard candies and cookies that are sold Islands late last year. For 2011, he has shipping lanes under the ‘Just Delicious” brand in the US already secured orders for an additional market to large retail distributors such as 32 cars, which will be manufactured and The ability to dock the largest ships TJ Maxx, Costco and Wal-Mart. shipped over a 24-month period. coming through the new Panama Canal
Vast tracts of available land within BUSINESS INCENTIVES minutes of the Port of Kingston
• The Export Industry Encouragement equipment for adopting productivity- Close proximity to the North American Act offers qualified firms 10 years of oriented processes and Latin American markets income tax relief, plus exemptions on duty for imported machinery • The Jamaica Export Free Zone Act and raw materials. details on offers a range of benefits and relief Enviable market access through strategic what conditions apply can be found for companies that operate in one of bilateral agreements via Jampro Jamaica’s designated Free Zones or in a single entity Free Zone, including Jamaica presents tremendous value for • The Modernisation of Industry duty waivers and tax breaks. investors in the manufacturing and/or programme offers relief on capital logistics arena and is open and ready for business.
2011 | INVesTING IN JamaIca 22 26 TOURISM
Tourism
hen it comes to breathtakingly beautiful scenery, luxury The very mention of the island’s name conjures surroundings and warm up images of famous, world-class white sand Whospitality, Jamaica is unequalled in the world of tourism. The very mention of beaches, lush forests and soaring mountains the island’s name conjures up images of famous, world-class white sand beaches, lush forests and soaring mountains. Every The North Coast Highway is now coastline and the wealth of possibilities year, over two million visitors travel to complete, giving tourists and islanders for investment in the increased tourist Jamaica to experience the country’s alike a quick route along the picturesque trade that this will provide. natural beauty, exotic cuisine and rich stretch of coastline from Negril in the cultural offerings. west to the Blue Mountains in the east. The Ian Fleming International Airport A number of resorts and destinations in Boscobel, St. Mary on the north In the face of increasing competition from can be found along this route, including other Caribbean islands, as well as from James Bond creator Ian Fleming’s former third international airport in January Florida, Central and South America, and residence, Goldeneye, now a luxury hotel. 2011, joining Sangster in Montego Bay and Norman Manley in Kingston. on the South Coast Highway, as well as Located approximately 10 km west of resources are being channelled into a north-south highway that will dissect the resort town of Ocho Rios, the Ian tourism infrastructure, with a view to the island geographically, creating easier Fleming International Airport can reinforcing the island’s reputation as a access between regions in the north accommodate private jets and small high-quality destination in the 21st centur y. and south and opening up the wilder commercial aircrafts.
23 INVESTING IN JAMAICA | 2011 27 TOURISM
INVESTMENT OPPORTUNITIES
• Health tourism is growing at the rate of • A centre similar to Island Village in Ocho around 5-6% annually, and Jamaica boasts Rios and the construction of a tourist plaza in popular Negril nearby, housing a health centres in the world. The Milk range of shops, bars and restaurants River Spa, which has been compared to the world famous Lucerne Spa in • The government allows the import of a Switzerland, is part of the government’s number of different goods without Millennium Project, and with capital investment could offer a world-class on corporation tax for investors. service with established, sustainable Accommodation on the island ranges from the economical to the 5-star, and attracts a high level of foreign direct investment (FDI). Market leaders such them to leave the ships. Around Ocho in history to the island’s British colonial as Sandals, AM Properties and RIU run a Rios in the north of the island there is past through the beautiful Georgian number of sites on the island, and with an established infrastructure known as architecture. Trelawny’s proximity to the the additional increase in ‘boutique’ hotels, Island Village, which caters to the cruise resort towns of Montego Bay and Ocho it is expected that an extra 10,000 rooms passengers who dock there, and this type Rios will also allow for access to other will be created by 2012 on top of the of development is being encouraged in exciting attractions. 24,000 already available. the other destination ports. An integrated tourism system is being The cruise industry forms a crucial part The historic town of Falmouth, located encouraged whereby cruise line of the tourism income for Jamaica, and it in the parish of Trelawny on the north operators, accommodation, and activity remains one of the world’s most popular coast of Jamaica, is the latest cruise providers work together to attract as cruise destinations. In 2009, there was destination in Jamaica following the recent many tourists as possible, for as long as an increase of 9.6% in stop-over arrivals construction of the Falmouth cruise ship possible, maximising the revenue from over 2008, which is impressive given the pier. The town is being transformed into them whilst they are in the island. global downturn in the industry. Whilst the number of visitors is expected to purpose-built facilities to host the new Jamaica has established itself as one of the stay strong, the key now is to maximise Genesis class vessels including the world’s must-visit destinations in the world. With the income from these passengers by largest ship Oasis of the Sea. Cruise the ease of international travel and the providing more and better reasons for passengers will be transported back conceptual shrinking of the globalised
28 2011 | INVESTING IN JAMAICA 24 TourIsm
world, travellers are now more likely to provides a ‘near shore’ advantage given spa or golfing facilities. The number of see areas such as the Caribbean – which its close proximity to North American casinos will be restricted and the casino once were considered by many to be markets, where high medical costs component will form no more than remote and exclusive – as within their and ease of travel make it an attractive 20% of the total scope and cost of each reach. As the economic climate improves location for accessing health care and approved project. Based on the distinct over the coming years, not only will the wellness services. nature of casino gaming and the specialist tourism industry pick back up again, but expertise required for its proper so will investment in Jamaica. Sites and The government of Jamaica is currently management, including the establishment businesses relating to tourism that are developing a Health and Wellness of a new taxation regime, it has been currently available will be bought, and Tourism Roadmap to guide investments determined that the casino gaming those that invested will reap the rewards in the sector, as well as to drive exports of facilities would be better administered of this good timing and the knowledge value-added niche products and services. through the introduction of a separate that when people are looking for the JAMPRO, in its capacity as the premier Casino Gaming Act, which has its own ultimate holiday experience, one of the investment promotion agency, continues Commission to regulate their activities. first places they will think of is Jamaica. to promote the island as a destination for health and wellness tourism healTh & wellNess investments and has facilitated investment TourIsm projects in offshore medical education as well as private hospitals that cater to INCENTIVES With the global health tourism sector medical tourists. • The Hotels (Incentives) Act which valued at US$40 billion in 2005 and provides income tax relief and import projections indicating that 1.2 million casINo GamING duty concessions for up to ten years medical tourists will travel from the USA for approved hotel enterprises, and 15 years for convention-type hotels in 2012, Jamaica is ideally poised to attract The government of Jamaica (GOJ) value-added investments in this area. approved the introduction of casino • The Resort Cottages (Incentives) Investments in the health and wellness gaming in Jamaica within the context of act which provides resort cottages sector would enjoy the benefit of approved integrated tourism resorts, with income tax relief for up to seven leveraging the presence of highly trained which refers to developments with an years and import duty concessions medical professionals in Jamaica, as well investment value of no less than US$1.5 on imported building materials as the high quality of medical training billion and room capacity of 2,000, in and furnishings. that may be accessed locally. Jamaica also addition to other amenities such as a
25 INVesTING IN JamaIca | 2011 29 meeT JamaIca Meet Jamaica
he Meet Jamaica 2012 Initiative the mission, such as those venues with is a private-public sector the highest concentration of Jamaican T collaborative that is designed to Diaspora, strong commercial ties to the increase the trade of goods and services region and proximity to the Olympic between Jamaica and the United Kingdom Village. by capitalizing on the global brand platform afforded by the 2012 London Birmingham will be the launching pad for Olympics. This will be accomplished activities in the UK, and the University through the staging of a programme of Birmingham will be the base for the of trade and investment missions and Jamaican team. participation in a number of cultural events in the British capital London, as The Meet Jamaica 2012 Initiative is well as in Birmingham, the host city of the premised on strong business outcomes Jamaican Olympic team. that will come from increased trade leads, new supply and distribution contracts
Jamaica will be looking to leverage foreign direct investments in some of the key growth sectors of its economy
JAMPRO, Jamaica’s investment and trade for the island’s many export brands promotion agency, and the Private Sector especially in the agro-processing industry. Organisation of Jamaica, the PSOJ are the Additionally, Jamaica will be looking to principal partners in this ground-breaking leverage foreign direct investments (FDI) Initiative, which will be officially launched in some of the key growth sectors of its in London and Birmingham in mid-March economy, namely, Tourism for which it has 2011 with the support of the Jamaican a strong global reputation, ICT, which has Diaspora, and partners in the UK such as grown exponentially over the past two the Birmingham City Council. This bold decades, Agriculture and Manufacturing programme of investment/trade missions in which it has strong traditions; and of and business events promoting authentic course its ubiquitous Creative Industries Jamaican products & services in the UK/ as defined in its culturally inspired music, European market is designed to: film, entertainment and wide array of artistic expressions. Leverage Jamaica’s participation in Olympics 2012; Send enquiries on the Meet Jamaica 2012 Initiative to [email protected]; Increase visibility, awareness, trial and [email protected]; sale of quality export products [email protected]. & services;
Create ‘cross-over’ possibilities into mainstream UK market;
Provide a ‘big tent’ to accommodate merchandising opportunities for Jamaicans at home and in the Diaspora.
In developing the programming for the Initiative, careful consideration was given to those events and locations that would provide the most visibility and impact for
30 2011 | INVesTING IN JamaIca 26 FACILITATING INVESTMENTS IN JAMAICA
Jamaica is the place to do business on a global scale, and JAMPRO – the national investment and export promotion agency - is the gateway that connects the world to Jamaica. In extending Jamaica’s image beyond that of a tourist destination, the agency works closely with entrepreneurs from around the globe to enable them to tap into the wealth of investment and trade opportunities available in the country.
Operating under the direction of the Ministry of Industry, Investment and Commerce (MIIC), JAMPRO promotes investments in a number of targeted sectors, which include the creative industries (film, music and entertainment), manufacturing, tourism, agri-business, information and communication technology, mining and professional services. In facilitating both local and foreign direct investment, JAMPRO guides investors through the necessary processes to ensure expeditious and successful start-up. The agency also offers development support services after an investment project becomes operational. This serves to encourage continued growth and maximise the contribution of the investment to the national economy.
In order to ensure the smooth implementation of investment projects, JAMPRO offers a suite of services in partnership with key government agencies and ministries. These services include securing work permits, non-tourist visas, duty waiver concessions, incentives, appropriate permits/licences, customs clearances, fiscal incentives, and building and development approvals. In this regard, JAMPRO collaborates with the National Environment and Planning Agency (NEPA), Jamaica Customs Department, the ministries of Industry, Investment & Commerce, Finance, Labour and Tourism, and the various Parish Councils. The The aforementioned entities are guided by the mandate to simplify and harmonise the processes, procedures and documentation related to getting an investment off the ground.
The agency’s cadre of knowledgeable and professional business facilitators stands at the ready to assist all potential investors, who can also access pertinent information on Jamaica and investment prospects through JAMPRO’s web site at www.tradeandinvest.org. As part of its ongoing efforts to appropriately use technology to efficiently accommodate the information needs of potential investors, the agency launched the web-based JAMPRO Interactive Investment Map. This resource provides a pictorial view and related data on key infrastructure and institutions, investment projects, lands for development, film locations, natural resources and other related information that will assist them in making investment decisions. The Investment Map, which runs on the Google Maps platform, can be accessed from the home page of JAMPRO’s web site or directly at http://projects.monagis.com/jampro_test.
JAMPRO remains committed to improving promoting, stimulating and facilitating the development of industry and trade, improving the nation’s business climate, fostering economic relationships with key players in international markets and deepening the absorptive capacity of the economy.
2011 | INVESTING IN JAMAICA 27 31 Reach a JAMPRO Facilitator
Sancia Bennett Templer Ian Spencer Gail Barrett President, JAMPRO Senior Consultanting O cer Senior Consulting O cer 876-978-7755 Ext. 2101 Investment Facilitation Services Tourism & Allied Services [email protected] 876-978-7755 Ext. 2227 876-978-7755 Ext. 2270 [email protected] [email protected] Claude Duncan Vice President, Investment Promotion Donnalee Mitchell Conrad Robinson 876-978-7755 Ext. 2201 Consulting O cer Manager [email protected] Investment Facilitation Services Montego Bay O ce Tel: 876-978-7755 Ext. 2223 876-952-3420 Dana Morris Dixon, Ph.D. [email protected] [email protected] Vice President Planning & Corporate Development Vivion Scully Robert Kerr 876-978-7755 Ext. 2147 Manager, Knowledge Services Manager [email protected] 876-978-7755 Ext. 2271 North American Regional O ce [email protected] Toronto Delaine Morgan 416-932-2200 (direct) Vice President, Trade & Ricardo Durrant 416-598-3008 Ext: 239 Business Development Manager, Manufacturing, [email protected] 876-978-7755 Ext. 2040 Energy & Mining [email protected] 876-978-7755 Ext. 2230 Nardia McKenzie [email protected] Snr. Consultanting O cer Berletta Forrester North American Regional O ce Manager, Export Promotion Kim Marie Spence Toronto 876-978-7755 Ext. 2069 Manager, Creative Industries 416-932-2200 (direct) [email protected] 876-978-7755 Ext. 2243 416-598-3008 Ext: 232 [email protected] [email protected] Marlene Porter Manager, Export Development Shulette Cox Laurence Jones 876-978-7755 Ext. 2046 Manager Manager [email protected] President’s Strategic Support Unit European Regional O ce 876-978-7755 Ext. 2100 London Beverley Moses [email protected] 44-207-584-8894 Manager, Business Facilitation [email protected] 876-978-7755 Ext. 2004 Gillian McDaniel [email protected] Senior Consultant Creative Industries Carol Straw 876-978-7755 Ext. 2234 Manager, Tourism & Agriculture [email protected] 876-978-7755 Ext. 2225 [email protected] Mark Thomas Manager, Stacy Adams Corporate Communications & Manager, Investment Publications Facilitation Services 876-978-7755 Ext. 2284 876-978-7755 Ext. 2258 [email protected] [email protected]
32 33 34
AAssiiee..VViissiioonnss 4499
______The Expanding Chinese Footprint in Latin America New Challenges for China, and Dilemmas for the US ______
Evan Ellis
February 2012
.
Center for Asian Studies
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The Institut français des relations internationales (Ifri) is a research center and a forum for debate on major international political and economic issues.
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1 © Ifri 77
Executive Summary
The physical presence of China in Latin America is entering a phase of significant expansion, as the logical consequence of the rapid growth over the past decade of its trade, investment, and infrastructure for doing business in the region. Although the rapid advance of PRC trade and investment in the region, to date, has not involved a significant number of Chinese companies or personnel in the region, this is changing. The new Chinese physical presence in Latin America is focused in five areas, each with its own dynamics and consequences: (1) leaders visits, business delegations, students and other official groups, (2) construction and infrastructure projects, (3) extractive industry investments and associated service companies, (4) retail and manufacturing, and (5) tourism. The growing Chinese physical presence will generate five types of challenges which will make it increasingly difficult for the PRC to maintain, in fact, its policy of non-interference in the internal politics of the region: (1) disputes with Latin American governments over tax and regulatory frameworks impacting Chinese companies and operations, (2) disputes over investment terms and with local communities during implementation, (3) labor issues and problems with local suppliers while conducting business operations, (4) resistance to Chinese projects from environmentalists and other interest groups, and (5) threats to the physical security of Chinese personnel and operations. The PRC is likely to employ its growing understanding of, and sources of leverage in Latin America to protect its increasingly important interests in the region, while simultaneously attempting to avoid that its actions to defend its interests are seen in threatening terms by the United States or other strategically important partners.
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Contents
INTRODUCTION ...... 4
THE EXPANDING CHINESE FOOTPRINT IN LATIN AMERICA, AND FACTORS BEHIND IT ...... 6 Government, culture and business development activities ...... 7 Construction ...... 8 Chinese Investors Using Chinese Contractors ...... 9 “Gifts” by the Chinese Government ...... 11 Projects funded by Chinese loans ...... 11 Primary Product Industries and Associated Service Companies .... 15 Retail, Manufacturing, and Supporting Services ...... 19 Tourism ...... 22
TRANSFORMATION OF THE RELATIONSHIP AND UPCOMING CHALLENGES FOR THE CHINESE ...... 24 Fights over tax and regulatory framework ...... 25 Disputes over investment terms ...... 26 Labor issues ...... 28 Resistance from environmentalists ...... 29 Protection of Chinese personnel ...... 31
CONCLUSIONS ...... 33
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Introduction
During the first decade of the 21st Century, bilateral trade between the People’s Republic of China and Latin America expanded by a factor of 18, from approximately $10 billion in 2001 to $180.2 billion in 2010,1 This rapid and continuing trade growth has captured the atten- tion of businessmen, academics and policymakers in the region, as well as those in the United States and the rest of the world. Initially, the growth in Chinese investment in Latin America did not keep pace with the growth in trade. Nonetheless, behind the scenes was a rapid and often chaotic process of learning and adaptation and the deve- lopment of relationships and infrastructures laying the groundwork for more sophisticated transactions. Because this process took place outside the purview of mainstream media coverage, the region was largely taken by surprise at the end of the decade when, contrary to conventional wisdom, Chinese banks and companies began to invest tens of billions of dollars into Latin America. China’s evolving engagement with Latin America may be divided into three stages: (1) the pre 2002 period, when the relation- ship was distant, and generally concentrated on political matters such as south-south ties and party-to-party relations, (2) the period of simple trade expansion, from 2002 through 2007, as China’s entry into the WTO, and the “go out” policy announced as part of the 10th 5 year plan of 2002 began to take effect, and (3) the period of invest- ment expansion. This was triggered in part by opportunities for Chi- nese companies and financial institutions presented by the global financial crisis, but also reflected an expansion of relationships, a growth of infrastructure, and a maturation of Chinese companies. These processes both made it possible and necessary for the Chinese to begin to invest substantially in Latin America, whereas previously their interactions with the region were based on simple financial transactions. The current expansion of Chinese engagement with Latin America reflects a number of distinct, yet interrelated tendencies. Large state owned enterprises have made a wave of acquisitions in
R. Evan Ellis, Ph.D, is Assistant Professor, Center for Hemispheric Defense Studies, NDU, Washington DC. The views represented are those of the author, and do not necessarily reflect those of the Center for Hemispheric Defense Studies, the Department of Defense or the U.S. government. 1 Direction of Trade Statistics Yearbook 2011. International Monetary Fund. 2011.
4 © Ifri 80 E. Ellis / The Expanding Chinese Footprint in Latin America
extractive sectors to secure control over key resources, and now must follow up by exploiting those investments. At the same time, smaller provincially-backed companies are projecting themselves into international markets and are now led to invest in international distribution networks and local manufacturing hubs for traditional business reasons: serving local markets in a more agile fashion, avoi- dance of import taxes, inventory and logistics costs, access to the technology of local partners, and other benefits. In addition, logistics, construction and other service companies are also projecting themselves into international markets, backed by the leverage of Chinese banks, and the maturation of supporting infrastructures. Even the Chinese tourism industry is advancing abroad, enabled by the new prosperity. The core thesis of this article is that the same dynamic which has pushed Chinese SOEs and medium sized companies to begin to invest in Latin America is now propelling an even more fundamental transformation in the China-Latin America relationship. As in other parts of the world that offer the PRC resources and export markets, China’s trade and investment with Latin America, in combination with its political and cultural engagement there, are dramatically expan- ding its physical presence in the region. These interactions will pro- foundly change the nature of how China is seen by, and relates to the region, generating new sources of conflict, even while expanding Chi- nese influence and accelerating learning by government, business, and other personnel involved in the relationship. This article examines the growing Chinese physical presence in the region, its dynamics and consequences. The first section examines the nature of that presence and the areas in which it is occurring. The second section examines the likely consequences, including the interplay between sources of conflict, growing Chinese leverage within the region, and accelerated learning and adaptation.
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The Expanding Chinese Footprint in Latin America, and Factors Behind It
The expanding Chinese footprint in Latin America is the natural product of the expansion and evolution of activities by Chinese companies in the region, in pursuit of both secure sources of supply globally, and new markets as they move up the value-added chain, build distribution networks, and expand global service offerings. While this engagement may be associated with government policies, such as the endorsement of a “go out” posture in the 10th 5- year plan of 2002, it also reflects the maturation and growth of Chinese companies (both state owned enterprises and provincially backed companies), associated infrastructure, and their ties to Latin America. One significant factor has been a process of learning and confidence. Although major Chinese primary-product oriented state owned enterprises have long had an interest in purchases abroad which would allow them to more reliably service the current and projected needs of their clients, it has taken time for such companies to develop the market knowledge to move forward with multi-billion dollar acquisitions. For market-seeking manufacturing and service companies, the maturation of China-oriented banking and services infrastructures has also played an important role in making such investments financially viable. Because of the relative lack of transparency of Chinese busi- nesses and government operations to Western analysts, and because the Chinese presence in Latin America is still in its infancy, its analysis and measurement are hampered by methodological issues, including the absence of good data on the number of Chinese personnel and businesses in Latin American countries, survey data on attitudes of the society toward those persons, measures of the influence of Chinese in local communities, and good data on incidents of conflict. Despite the absence of good systematic data, the very rapid development of the Chinese presence in the region since 2002, and the transformational character of this engagement make it critical to study the phenomenon. The analysis done in this paper is thus preliminary, based on anecdotal data, with the purpose of laying out the key dynamics and issues associated with the transformational impact of the expanding Chinese footprint in Latin America.
6 © Ifri 82 E. Ellis / The Expanding Chinese Footprint in Latin America
The expanding Chinese footprint in Latin America can be analyzed in terms of five areas, each of which have their own sepa- rate dynamics, and impacts on the local social and political environ- ment: (1) government, culture and business development activities, (2) construction and infrastructure projects, (3) extractive industry investments and associated service companies, (4) retail and manufacturing, and (5) tourism.
Government, culture and business development activities
The aspect of the increasing Chinese footprint with the greatest visibility, but arguably, smallest footprint in terms of personnel is increasing visits by Chinese governmental delegations to Latin America, as well as increasing political and cultural exchanges, and an increasing number of visits by Chinese businessmen in pursuit of markets, or evaluating investment deals in Latin America. Official visits to Latin America by Chinese leaders, including President Hu Jintao, to the Vice President Xi Jinping and Vice Premier Hui Liangyu, traditionally receive significant press coverage in the region, and often serve to facilitate the expansion of business and other contacts. Within the category of official interactions, China’s expanding military presence in the region has strategic significance that goes beyond the numbers of people involved. This presence includes the contingent of approximately 200 peacekeepers which it has maintain- ned in Haiti since 2004, the deployment of a PLA contingent in Peru in conjunction with the Angel de Paz peacekeeping exercise in November 2010,2 and the deployment of its new hospital ship “Peace Arc” to the Caribbean in September 2011.3. PRC trainers and technical personnel have also been deployed to Venezuela, Bolivia, and Ecuador, in conjunction with the acquisition of Chinese military and space hardware by those countries. Such personnel include Chinese sent to Venezuela to train Venezuelan pilots on the recently acquired K-8 light fighter aircraft and personnel to help set up and operate ground stations for the Venesat-1 communications satellite.4
2 “Operación Conjunta China-Peru de Rescate Medico Humanitario ‘Ángel de la Paz’” Maquina de Combate. http://maquina-de-combate.com/blog/ archives/10429 November 24, 2010. 3 “Ja welcomes China medical ship.” Jamaica Observer. Kingston, Jamaica. http://www.jamaicaobserver.com/news/Ja-welcomes-Chinese- medical-ship_10045788. October 30, 2011. 4 See R Evan Ellis, “China-Latin America Military Engagement: Good Will, Good Business, and Strategic Position.” US Army War College Strategic Studies Institute. http://www.strategicstudiesinstitute.army.mil/pubs/displ ay.cfm?pubid=1077. August 25, 2011.
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Chinese technical personnel will also likely travel to Venezuela to support the VRSS-1 satellite to be launched in late 2012, and to Bolivia, to support the Tupac Katari satellite, to be launched in early 2014.5 Beyond these examples, the PRC has also sent trainers to Venezuela help set up the production of oil drills and electronic warfare facilities at DICOFAN.6 A special category of the “non-commercial” presence in Latin America is increasing number of Chinese students traveling to the region. The greatest concentration of such students are in Cuba, with an estimated 1130 in residence in Havana at the time of President Hu Jintao’s visit in November 2008, and some 5,000 Chinese students passing through Cuba between 2006 and 2011.7 Such students, learning the language and culture of the region, lay the groundwork for the next generation of Chinese government and commercial personnel to more effectively engage with the region. Despite the significance of “official” Chinese activities in Latin America, by contrast to the “state-centered” presence of the Soviet Union in Latin America during the Cold War, the most impactful part of the Chinese footprint in Latin America is arguably its growing commercial presence, to which this paper now turns.
Construction
In recent years, Chinese construction companies have won, and are now beginning to execute, increasing numbers of projects across Latin America and the Caribbean.8 In executing these projects, where permitted by local governments, they generally bring with them significant numbers of their own workers and logistics support staff, disappointing local construction firms and workers whose expectations of being hired are not fully realized, and creating labor relations challenges among those who are, as well as potential conflicts with local communities and governments, as discussed in the subsequent section of this paper.
5 “China, Bolivia Kick Off Communications Satellite Project [Xinhua].” Space News. http://www.spacenews.com/commentaries/201108112-china- bolivia-kick-off-communications-satellite-project.html. August 12, 2011. 6 R Evan Ellis, “China-Latin America Military Engagement” August 25, 2011. 7 Jorge L. Rodríguez González, “Cálido encuentro de Raúl y Hu Jintao con estudiantes chinos” Juventud Rebelde. http://www.juventudrebelde.cu/cuba/2008- 11-19/calido-encuentro-de-raul-y-hu-jintao-con-estudiantes-chinos/. November 19, 2008. See also “Estudiantes chinos se gradúan en curso de español en Cuba” Xinhuanet. http://www.spanish.xinhuanet.com/spanish/2009- 05/29/content_885862.htm. May 29, 2009. 8 In part, this reflects the increasing effectiveness of Chinese companies in leveraging loans from Chinese financial institutions to perform the work, as well as the increasing experience of Chinese companies working and winning contracts in the region.
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In general, a particularly large portion of these projects are concentrated in the Caribbean, and in the “ALBA” countries.9 Be- cause the governments are relatively small in the former case, and personalistic regimes increasingly dependent on the Chinese in the latter,10 it is also in these countries where the relative Chinese bargainning position tends to be strongest, with respect to the number of workers it brings in, and the autonomy with which it conducts the work. For the purpose of understanding the associated footprint of Chinese companies and personnel, the construction projects may be divided into three categories: (A) Those in which Chinese investors are building facilities in the region and contracting Chinese compa- nies to do the work, (B) those in which the work is a donation by the Chinese government to the receiving country, and the Chinese government contracts a Chinese company to do the work, and (C) that in which the work is paid for by the host country, or a public entity within it, but financed by a Chinese bank, with the work done by a Chinese company as part of the package.
Chinese Investors Using Chinese Contractors In virtually all of the projects in Latin America directly funded by Chinese investors (not considering those funded by loans from Chinese banks), Chinese companies have been selected to do the work, bringing in a significant number of Chinese workers, as well as managers and technical personnel, albeit only on a temporary basis. The majority of these projects fall into two categories: tourist resorts in the Caribbean, and infrastructure supporting Chinese projects in primary product industries in the region. In the Caribbean, the largest such project is the 3800-rooms “Baha Mar” resort on New Providence Island in the Bahamas,11 funded by a $2.4 billion loan from the Export-Import Bank of China.12 The work is to be done by China State Construction and Engineering Corporation, which is reportedly negotiating to bring in approximately
9 In the case of the ALBA countries, the anti-US / anti-Western orientation of these regimes has simultaneously pushed Western companies out, foreclosed traditional financing options, and made the regimes involved more receptive to Chinese companies, investments, and loans. 10 Countries such as Ecuador have explicitly defaulted on prior loan obligations to Western financial institutions, while nationalizations have created a string of lawsuits for compensation that make obtaining funds from Western institutions difficult in practical terms, while the political orientations of these regimes make the pursuit of such aid difficult in political terms. 11 “China's Caribbean march.” BBC. http://www.bbc.co.uk/caribbean/ news/story/2010/10/101019_chinadomrep.shtml. October 20, 2010. 12 “Bahamas, China sign Economic Technical Cooperation Agreement.” The Bahamas Investor. http://www.thebahamasinvestor.com. September 12, 2011.
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6,150 Chinese workers.13 Other examples include the $462 million Punta Perla beachfront resort on the eastern coast of the Dominican Republic,14 and plans by private Chinese investors to invest $200 million in two hotel resort complexes in Grenada.15 Chinese construction work associated with primary product industries typically involve roads and rail lines to extract the materials, or facilities to process them. Examples include the possible construc- tion of a minerals loading facility by the Chinese company Tongling in the port of Machala, so that it can export minerals extracted from its recently acquired mining operations in Zamora Chinchipe. Similarly, Hebei Wenfeng has announced plans to build a mining port in conjunction with its $250 investment to develop the San Fierro mineral deposit in the Atacama region of Chile.16 Beyond the mining sector, the Chinese company Tierra del Fuego Energia y Quimica plans to expand the port at Tierra del Fuego, as part of the Urea plant that it is building in the region.17 Similarly, the Chinese firm Sanhe Hopeful has announced plans to invest $7.5 billion in a soy processing and storage complex and related infrastructure in Goais, Brazil, while the firm Chonquing grain plans a similar complex in Bahia,18 and Beidahuang plans one in the province of Rio Negro, Argentina, including the construction of irrigation systems and other accompanying infrastructure, with the work to be done by Chinese engineers.19 In each case, the number of Chinese laborers and contractors used in the project is likely to be particularly high, since Chinese companies and investors are paying for the work.
13 Arnaud de Borchgrave, “Chinese takeaway; Middle Kingdom is eating America’s lunch in our own backyard.” The Washington Times. Sec. B, p. 4. 14 This project is particularly notable because it is one of the few major investments by a Chinese company, where the PRC does not have diplomatic relations with the receiving country. See “China's Caribbean march.” BBC. http:// www.bbc.co.uk/caribbean/news/story/2010/10/101019chinado mrep.shtml. October 20, 2010. 15 The funds of the Chinese group are managed by the PRC financial company Touchstone Capital Partners. See “Chinese investors promise investment in Grenada.” BBC. http://www.bbc.com. May 24, 2011. 16 “Compañía industrial china invertirá $250 millones de dólares en Chile.” Prensa. http://www.prensa.com. August 20, 2011. 17 Oliver Galak, “Invierten 1000 millones de dólares para fabricar urea.” La Nación. Buenos Aires, Argentina. http://www.lanacion.com.ar. January 14, 2011. 18 “China plans to invest 10 billion USD in soy production and processing in Brazil.” Mercopress. http://en.mercopress.com/2011/04/11/china-plans- to-invest-10-billion-usd-in-soy-production-and- processing-in-brazil. April 11, 2011. 19 Paula Lopez-Gamundi and Winston Hanks. “Land-Grab Loopholes in Latin America.” World Press. http://www.worldpress.org. August 11, 2011.
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“Gifts” by the Chinese Government The second category of construction projects increasing the presence of Chinese companies and workers in the region are “gifts” by the Chinese government to Latin American countries in conjunction with a change in diplomatic recognition from Taiwan to the People’s Republic of China. The most recent major example was the construc- tion of the $89 million sport stadium in Costa Rica, following that nation’s diplomatic recognition of the PRC on June 1, 2007. Because the stadium was a gift from the Chinese government, the PRC chose a Chinese company to do the work, with 600 Chinese workers brought in to execute the project.20 Other recent examples include the construction of a multiuse sports stadium in Grenada following that nation’s diplomatic switch in 2004, with 500 Chinese laborers brought in to do the work, a $21 million stadium in Antigua, a $12 million stadium in St. Kitts,21 and construction of the National Academy of Performing Arts and the Prime Minister’s residence in Trinidad by Shanghai Construction of China, involving the use of 500 Chinese construction workers.22 With the diplomatic rapprochement between the PRC and Taiwan since the election of the nationalist KMT government there in 2008 elections, both governments have refrained from attempting to offer Central American and Caribbean governments such “gifts” as a way of convincing them to change their diplomatic recognition from one country to the other. Nonetheless, if the political rapprochement between Taiwan and China breaks down in the coming years, such competition may resume, with more such “gifts” and a corresponding inflow of Chinese companies and laborers to construct them.
Projects funded by Chinese loans The most significant source of Chinese construction companies and workers entering Latin America is the third category of projects: the billions of dollars of infrastructure work being done by Chinese companies directly for Latin American governments, tied to loans to those governments from Chinese banks. Since 2010, there has been a massive increase in such projects, as the Chinese government seems to have discovered an effective formula for leveraging their access to the ample capital of Chinese banks to meet the infrastructure needs of cash-strapped Latin American governments.
20 Claire Saylor, “Construction To Get Underway On Costa Rican Stadium.” Costa Rica Pages. http://www.costaricapages.com. Accessed December 8, 2011. 21 Tom Dunmore, “Free Stadiums, At a Price: China’s Global Stadium Diplomacy.” Pitch Invasion. http://pitchinvasion.net/blog/2011/11/29/free- stadiums-at-a-price-chinas-global-stadium-diplomacy/. November 29, 2011. 22 Lieslle Maraj, “500 Chinese help build TT.” Newsday. http://www.newsday.com. July 15, 2007.
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To date, the concentration of such projects has been in those countries which have turned away from, or have disqualified them- selves from receiving funding from traditional investors and multila- teral institutions such as the World Bank and International Monetary Fund. As of the end of 2011, for example, Venezuela had a portfolio of over $25 billion in infrastructure projects being funded by China Development Bank, all using Chinese companies and workers, including a $520 million effort for China Harbor Engineering Company (CHEC) to expand a new terminal in Puerto Cabello,23 a $200 million project for the Metallurgical Corporation of China (MCC) to expand the port of Palua, and another $161 million project for China Cons- truction Corporation to dredge the Orinoco river.24 Also as part of this portfolio, the Chinese company Sinohydro is earmarked to construct the new “El Chorrin” hydroelectric facility, while other Chinese compa- nies including China Harbor Engineering corporation will build seven new thermoelectric facilities in the country, as well as upgrading an existing facility. Also in Venezuela, China Railway Engineering Corporation is building a $7.5 billion high-speed rail line across the center of the country from Tinaco to Anaco. The project will reportedly employ 7500 workers, of which a substantial number are likely to be Chinese.25 In addition, the Venezuelan mining ministry (MIBAM) has signed $727 million in contracts with four Chinese companies to perform mining-related activities: Wuhan Iron and Steel, China Railway Engineering Corporation, Metallurgical Group Corporation, and China Communications Construction Company LTD.26 In Ecuador, the government has awarded a $2 billion contract for the construction of the nation’s largest hydroelectric facility, Coca Coda Sinclair, to the Chinese firm Sinohydro, while the Chinese Gezhouba Group has been contracted to construct the $672 million Sopladora hydroelectric project.27 Yet another Chinese firm, China Water and Electric Corporation, will construct the $517 million Toachi- Pilaton hydroelectric facility,28 and in October 2011, a Chinese company was awarded a dam construction project in Chone.29
23 “Venezuela y China firman acuerdo para construir nuevo Puerto.” El Nacional. Caracas, Venezuela. http://el-nacional.com. October 4, 2011. 24 “Venezuela signs three new agreements with China.” El Universal. Caracas, Venezuela. http://www.eluniversal.com September 6, 2011. 25 “Gobierno firma contrato ferroviario con China por $7500 millones.” El Universal. Caracas, Venezuela. http://eluniversal.com. July 30, 2009. 26 “Khan reporta avance de acuerdos con China para potenciar Guayana.” El Universal. Caracas, Venezuela. http://rayma.eluniversal.com. October 14, 2011. 27 “Con China se oficializa crédito para segunda hidroeléctrica.” El Universo. Guayaquil, Ecuador. http://eluniverso.com. October 11, 2011. 28 “El financiamiento para Toachi Pilatón tropieza.” El Universo. Guayaquil, Ecuador. http://eluniverso.com. December 29, 2010. 29 “Río Grande no vende ni compra en cantón Chone.” El Universo. Guayaquil, Ecuador. http://eluniverso.com. November 12, 2011.
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Beyond these projects, the Chinese may also play a role in the construction of the $12 billion “Refinery of the Pacific” near Manta.30 In Bolivia, the government has expressed a preliminary interest in Chinese aid to build a rail link from Puerto Suarez to Ilo, on the Pacific Coast of Peru,31 while the Chinese firm CITIC has signed an agreement to develop the lithium deposits in the salt flats of Copiasa.32 In Cuba, in June 2011, CNPC subsidiary China Huanqiu Contracting & Engineering Corp was contracted to support a Cuba- Venezuela consortium in a $6 billion project to double the output of Cuba’s Cienfuegos refinery.33 To date, there are few indications that the Venezuelan, Ecuadoran, Bolivian, or Cuban governments have tried to limit the role of Chinese companies and workers in these projects funded by Chinese institutions. Moreover, as the ALBA governments’ dependence on funding from the PRC continues to increase, the associated role of Chinese construction companies and workers in these countries is likely to expand. Although Venezuela and the ALBA countries have been the spearhead for the entry of Chinese companies and construction workers into Latin America, other countries are also increasingly using or considering Chinese service companies. In February 2011, Colombian President Juan Manuel Santos announced that his government was negotiating with a Chinese consortium for a “dry canal” – $7.6 billion in railroad work linking the Atlantic and Pacific coasts of Colombia.34 A Chinese company currently manages six regional airports near Medellin. Other Chinese firms have expressed interest in building a new metro in Bogota,35 as well as participation in a host of other projects including the “Ruta del Sol” and “Autopista de las Americas” highways and the Socomoso and Ituango hydroelectric
30 “Fortalecen cooperación Ecuador y China en sectores estratégicos.” Andina. http://www.andina.com.pe. September 14, 2011. “‘Ecuador propuso acuerdo con China’” El Universo. Guayaquil, Ecuador. http://eluniverso.com. December 21, 2010. 31 “Bolivia buscará salir al mar "casi con autonomía" por puerto peruano.” El Comercio. Lima, Peru. http://elcomercio.pe. August 6, 2011. 32 “Citic financiará exploración de litio en salar de Coipasa.” Business News Americas. http://www.bnamericas.com. September 26, 2011. 33 “China, Cuba agree on refinery project, new loans.” Cuba Standard. Havana, Cuba. http://www.cubastandard.com/2011/06/06/china-agrees- on-refinery-project-new-loans/. June 6, 2011. 34 There has been considerable confusion regarding the specifics of the project, including whether it refers to a direct rail line between Uraba and Cupica near the Panamanian border, or a series of railway improvements linking Cartagena to Buenaventura across the center of the country. Robert Wright, “‘Dry canal’ latest twist in tangled tale of isthmus.” Financial Times. http://www.ft.com/ intl/cms/s/0/72dbe15e-3799-11e0-b91a-00144feabdc0.html #axzz1g37rG1y3. February 13, 2011. 35 “Acuerdo Para Que Llegue Inversión Chino” El Tiempo. Bogotá, Colombia. http://www.eltiempo.com. March 30, 2009.
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projects.36 In Argentina, Chinese banks are financing $10 billion in railway projects, including the $2.5 billion 1700 kilometer line from Belgrano to Cargas, to be done by China Machinery Equipment Corporation, and subway lines in Cordoba, to be done by China Railway Engineering Corporation.37 In Costa Rica, the national oil company Recope is engaged in a $1.2 billion project backed by Chinese capital, to significantly expand the refinery at in Moin.38 In Brazil, Chinese companies have participated in initial bidding for the $24 billion high-speed rail link from Sao Paulo to Rio de Janeiro in Brazil,39 while the Chinese national power company State Grid, which established a physical presence in the country through a $989 million acquisition in 2010, will participate in cons- truction of the Belo Monte dam,40 the third largest hydroelectric project in the world. Previously, the Brazilian state oil company Petrobras contracted with Sinopec for $1.3 billion to construct the 1,300 kilometer long Gasene pipeline. In the Caribbean, projects funded by Chinese loans and executed by Chinese companies include the $80 million Palisades Road improvement project in Jamaica, which will connect the capital of Kingston to the nearby international airport.41 China Harbor Engineering Company is doing a total of $400 million in road construction and bridgework in the country under the Jamaica Development Infrastructure Program (JDIP). In Honduras, which does not even have diplomatic relations with the PRC, the Chinese company Sinohydro has signed a $50.5 million contract with the national electric company Empresa Nacional Energia Electrica (ENEE) to construct the Patuca III hydroelectric facility,42 with 750 Chinese to be brought in to work on the project, in addition to the
36 R Evan Ellis, “Las relaciones China-Colombia en el contexto de la relación estratégica entre Colombia y los EE.UU.” Security and Defense Studies Review. Vol. 9, Issue 1-2. 2009. p. 16. 37 “Habrá financiamiento chino para el tren Belgrano Cargas.” La Nación. Buenos Aires, Argentina. http://www.lanacion.com. September 10, 2011. 38 “China aprueba seguir con plan de refinería con Recope.” Nación. San Jose, Costa Rica. October 10, 2011. 39 “Brazil bullet train project fails to attract bidders.” BBC News. http://www.bbc.co.uk/news/world-latin-america-14118028. July 12, 2011. 40 Song Shengxia, “China seals Brazil dam deal.” Global Times. http://business.globaltimes.cn/industries/2011- 04/644823.html. April 15, 2011. 41 Garfield Meyers, “JDIP will boost economy — Golding”. Jamaica Observer. Kingston, Jamaica. http://www.jamaicaobserver.com/JDIP-will- boost-economy-Golding_7957497. September 13, 2010. See also “Gov't secures $6-b funding from China for Palisadoes.” Jamaica Observer. Kingston, Jamaica. http://www.jamaicaobserver.com/news/Palisadoes- funding_7383362 February 3, 2010. 42 “Honduras firma convenio por USD 50,5 millones con China para hidroeléctrica.” La Nación. San Jose, Costa Rica. http://www.nacion.com. April 17. 2011.
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2000 Hondurans to be employed.43Chinese companies have also been involved in housing projects in the region, similarly backed by Chinese banks. These include 26,000 housing units to be constructed in Venezuela, under contract with China’s CITIC group,44 and a $76 million contract for the Chinese firm Complant to construct housing in Jamaica, with funding provided by the Import-Export Bank of China.45 Perhaps the largest series of construction projects being done by Chinese companies however are in Suriname, where the company China Dalian International is executing $6 billion in work to build a deep sea port and make highway improvements to support that country’s role as a transportation hub for commerce linking northern Brazil to China.46 According to media reports, the Chinese workers brought in for the project has boosted the Chinese community in Suriname to 40,000 people, or almost 10 percent of the population. 47
Primary Product Industries and Associated Service Companies
Although construction projects are arguably the largest single source of Chinese companies and workers entering the region, an equally important trend involves the entry of Chinese workers, technical personnel and service companies as Chinese companies begin to develop the resources they have acquired through acquisitions in industries such as petroleum, mining and industrial agriculture.48 To date, most Chinese investments in the primary product sectors of Latin America have involved the acquisition of assets, such as mines and oilfields. Examples of this approach include the 2005
43 “Empresa Sinohydro China Inicia Construcción de Hidroeléctrica en Honduras” El Norte de Castilla. http://www.elnortedecastilla.es. May 16, 2010. 44 Mayela Armas H., “Venezuela comprará 6.000 maquinarias chinas para viviendas” El Universal. Caracas, Venezuela. http://www.eluniversal.com. August 26, 2011. 45 “COMPLANT to build Jamaican homes backed by J$6.5b Chinese loan.” The Jamaica Gleaner. http://jamaica-gleaner.com. December 5, 2010. 46 Simon Romero, “With Aid and Migrants, China Expands Its Presence in a South American Nation.” New York Times. http://www.nytimes.com. April 11, 2011. The actual work is being done by two Chinese companies: Don International and China Harbor Engineering Corporation. Mark McGowan, “Suriname’s deep sea port, road and rail link to Brazil challenge Guyana’s bid to become Brazilian gateway.” Starbroek News. Georgetown, Guyana. 47 Simon Tomero, “With Aid and Migrants, China Expands Its Presence in a South American Nation.” New York Times. http://www.nytimes.com/2011/ 04/11/world/americas/11suriname.html?_r=1&emc=eta1. April 10, 2011. 48 Such activities are part of the strategy of resource-oriented Chinese companies, supported by the Chinese government, to obtain the resources necessary to meet the current and projected demands of Chinese clients, in support of the country’s continuing growth.
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purchase of the Ecuadoran holdings of the Canadian oil firm EnCana for $1.42 billion by a consortium headed by China National Petroleum Corporation, the acquisition of a 50 percent interest in Omimex Colombia by a Chinese-Indian consortium, the 2009 purchase of the Colombian holdings of the Canadian Emerald Energy by Sinochem, the May 2010 $3.1 billion purchase by Sinochem of rights to the Peregrino oilfield in Brazil, the infusion of $7.1 billion by Sinopec into Repsol YPF five months later, the May 2010 purchase of the Argentine petroleum firm Bridas by Sinochem, and the subsequent purchase by the newly formed firm of the Argentine assets of Occidental Petroleum.49 In general, such acquisitions were done with the logic that the new Chinese owner would subsequently put more resources into the operation, to maintain or increase output as part of its broader plans to meet the projected demand of its clients in China and elsewhere.50 In a small number of cases involving ideologically “friendly” Latin American regimes, Chinese companies have directly purchased the rights to develop oilfields from national governments. Examples include $600 million paid by CNPC to Venezuela for rights to develop the Junin-4 block in the Orinoco tar belt of Venezuela, and subse- quent agreements to develop the Junin-1, Junin-8, MP3, and Boyaca- 4 blocks,51 as well as the development of the Mariscal Sucre gas deposits off the eastern cost of Venezuela.52 In the mining sector, as in petroleum, Chinese companies to date have invested relatively small amounts to acquire assets, with the promise of much larger investments to come to develop the resources. In Peru, Chinese firms spent a mere $235 million from 2003 through 2010 to acquire rights to mines in the country,53 but with a promise to invest more than $10 billion to develop the mines including $2.15 billion by China Aluminum Corporation to develop
49 “OXY Argentina Deal Closed.” Sinopec official website. http://www.sipc.cn/english/News/news/146.shtml. Accessed December 9, 2011. An even more significant deal which fell through was a $7.1 billion deal for the purchase of the Argentine assets of Anglo American. See Rodrigo Orihuela, “BP’s $7.1 Billion Sale of Pan American to Cnooc Group Scrapped.” BusinessWeek. http://www.businessweek.com November 7, 2011. 50 In the specific case of Mansrovar in Colombia, for example, the objective was to increase production from 24,000 to 100,000 barrels per day, meeting the company’s obligated quota to the Colombian national oil company Ecopetrol, and exporting the rest to Asia. Interview with Ponce de Leon. Mansrovar Energy, Ltd. Bogota, Colombia. January 22, 2010. 51 “China operará cuatro nuevos campos petroleros en Venezuela.” El Universal. Caracas, Venezuela. http://www.eluniversal.com. November 23, 2011. 52 “PDVSA picks China, Malaysia, Russia and Algeria for offshore gas project.” Petroleum World. http://www.petroleumworld.com/storyt11021 601.htm. February 16, 2011. 53 Juan Carlos Guzmán, “Nuevas inversiones chinas anunciadas para Perú suman US$ 3,600 millones, afirma BID.” Andina. http://www.andina.com.pe. October 5, 2011.
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Toromocho, $1.44 billion by Zijin Mining Group to develop Rio Blanco, $1 billion by Shougang to develop Maracona, $2.5 billion for China Minmetals to develop Galleno, and a possible $3.28 billion commitment by Nanjinzhao to develop Pampa de Pongo.54 Similarly, in Ecuador, the Chinese company Tongling purchased the local assets of the Canadian firm Corriente for $652 million yet has announced plans to spend $3 billion to develop its newly acquired mineral field in the southern province of Zamora Chinchipe.55 Examples in other countries of mining investments creating larger, long term obligations to exploit the assets include the $1.2 billion purchase of Itaminas, with its Brazilian mining holdings, by East China Mineral Exploration and Development Bureau,56 the 2010 $390M acquisition of Sul Americana de Metais, S.A. (SAM) by the Chinese investment group Honbridge Holdings, and the acquisition of a 20% stake Companhia Brasileira de Metalurgia e Mineraçào (CBMM) for $1.95 billion by a five company consortium in CITIC and Baosteel-led Chinese consortium.57 They also include the 2006 acquisition by China Metallurgical Group of a 70% interest in the Sierra Grande mine in the Rio Negro Province of Argentina,58 and the May 2007 acquisition by the Bosai minerals of a 70% interest in the Omai bauxite mine in Guyana.59 As Chinese companies perform the work detailed in the preceding section, they are also likely to continue their practice of favoring their own subcontractors and service companies, further magnifying the footprint of Chinese technicians and workers during implementation. In Colombia, for example, following the acquisition of Emerald Energy in 2009, the new Chinese parent company began bringing in its own service companies, including Great Wall Drilling Corporation (GWDC).60 Similarly, in Ecuador, petroleum service
54 Ruben Gonzalez-Vicente, “Mapping Chinese Mining Investment, With a Focus on Latin America: Politics or Market?” Paper prepared for the China-Latin America meeting at the UCLA Asia Institute. 15-16 April, 2011. 55 “Tongling, China Railway Plan to Invest $3 Billion in Ecuador Copper Mine.” Bloomberg. http://mobile.bloomberg.com/news/2010-08-13/tong ling-china-railway-plan-to-invest-3-billion-in-ecuador- copper-mine. August 13, 2010. 56 Fernanda de Biaga, “Chinese firms looking to go solo in iron ore mining – Ibram.” BNAmericas. http://www.bnamericas.com/news. October 25, 2010. 57 Alison Tudor, “China Group Taps Into Brazil Miner.” Wall Street Journal. http://online.wsj.com. September 5, 2011. 58 Francisca Pouiller, “Deal reached in water-supply dispute at Sierra Grande mine.” Mining Weekly. http://www.miningweekly.com/article/deal- reached-in-water-supply-dispute-at-sierra-grande-mine- 2009-09-03. September 3, 2009. 59 “China regulator approves Bosai Minerals’ stake buy in Guyana’s Omai Bauxite. http://www.worldal.com/news/china/2007-03-06/1263984315 14660.shtml. March 6, 2007. 60 “Vicepresidente les exige a las Farc liberar a tres ciudadanos chinos.” El Tiempo. Bogotá, Colombia. http://www.eltiempo.com. June 10, 2011.
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companies such as CPEB Chanquing have followed the entry of larger firms such as CNPC and Petroriental into the country.61 In the agricultural sector, the entry of Chinese companies and investors has been more complicated than in the petroleum and mining sectors, but also is moving forward with a series of multi-billion dollar investment projects that implies an infusion of new Chinese managers and workers. Following a number of years in which Chinese companies made expanded purchases of goods from the major agricultural companies with almost no investment, various Chinese groups began to quietly acquire land with the assistance of local partners, and investigate larger projects, including activities in Brazil and Argentina, by Beidahuang Nongken, the Pallas group, China National Agricul- tural Development Group Corporation (CNADC) and Chonquing Grain Group. 62 In the face of political resistance to land purchases, including the passage of a law in Argentina,63 a restrictive interpretation of an existing law in Brazil, and a proposed new law that would impose further restrictions,64 Chinese investors have turned to a new strategy involving the renting of land and the construction of agricultural infrastructure in the Latin American countries themselves. Examples include a contemplated $2.4 billion investment by Chongqing Grain group to build industrial complex for processing and transporting soy in Brazil’s Bahia state,65 a $237 million project by the Noble group to build similar facilities in Mato Grosso, including soy crushing facilities, storage silos, and a biodiesel plant,66 plans announced by Sanhe Hopeful in April 2011 to invest $7.5 billion in soy processing facilities in Goias,67 and announced plans by Beidahuang for a $1.45 billion project to lease and grow grain on 320,000 hectares of land in the Rio Negro province of Argentina.68
61 “Operadoras chinas dominan negocio petrolero ecuatoriano.” El Universo. Guayaquil, Ecuador. http://www.eluniverso.com. November 3, 2009. 62 Although there is very little data on the total quantities of land purchased, there are anecdotal reports, such as a purchase of 166 hectares in Brazil by the Zhejiang Fudi group through intermediaries. “Chinese capital eyes Brazil's high-tech sector.” China Daily. http://www.china.org.cn. July 5, 2011. 63 “Argentina will limit farm land holdings and purchases by foreigners.” Mercopress. http://en.mercopress.com. April 28, 2011. 64 “Brazil to further limit foreign ownership of land, says local media.” Mercopress. http://en.mercopress.com. November 21, 2011. 65 “Chinese group Chongqing Dragonfly Oil Sunday in Brazil lays first stone of soy processing factory.” MacauHub. http://www.macauhub.com. June 7, 2011. 66 Thomson Reuters, “Noble bets on Brazil’s center-west soy belt.” The Edge. Singapore. June 23, 2011. 67 “China plans to invest 10 billion USD in soy production and processing in Brazil.” Mercopress. http://en.mercopress.com. April 11, 2011. 68 Rodrigo Orihuela, “Chinese agro giant to invest $1.5b in Argentina.” China Daily. Beijing, China. http://www.chinadaily.com.cn/business/2011- 06/10/content_12672742.htm. June 10, 2011.
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As in the petroleum and mining sectors, Chinese initiatives to establish industrial agricultural operations in the region will bring Chinese managers and technical personnel into the region, as well as the Chinese companies and workers who will be involved in the construction of the facilities and associated infrastructure. It will thus make Chinese companies an important force in the local economy as a purchaser, an employer, and as a direct manager of those facilities that it operates on the ground.
Retail, Manufacturing, and Supporting Services
Although the attention given to Chinese activities in Latin America has focused on primary product industries, an equally important phenol- menon is Chinese investment in the region’s retail and manufacturing sectors. The reasons behind such investment resemble those driving investments by Western firms: the need to invest in distribution networks in order to support product sales in local markets, and the occasional need to build final assembly facilities to avoid import duties, cut inventory carrying costs and response times, to better serve local markets. China’s projection into Latin America’s retail and manufactu- ring sectors may be divided into four categories, each of which has its own dynamics and implications: small scale retail, own brand retail, manufacturing, and service companies. Small scale retail, such as restaurants, grocery stores and other shops, often leverages members of the existing Chinese com- munity. Although there are no good figures available to characterize the relationship, the Chinese-owned grocery stores in the greater Buenos Aires area offer an example. The expansion of these shops tends to raise the visibility of the Chinese community and merchan- dise from China, and may come to be perceived as “displacing” the status quo of other small shops, and the “way of life” in the com- munity. Although such shops have been a common feature of Latin American capital cities and other urban areas for many years, the current influx of Chinese merchandise and companies, in conjuncttion with the “rise of China” globally, casts new light on these “Chinese communities within,” with symbolic connections to the threat percei- ved from the projection of the PRC from beyond the region’s borders. “Own brand retail” refers to the activities of major Chinese brands, to establish a chain of retail outlets in the region, or position themselves with existing retailers. Examples include investments by JAC and Chery to set up networks of auto dealerships in Brazil. The projection of a Chinese brand into the region also includes its movement from a Latin American distributor representing various
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brands, such as Socoma or Cinascar,69 to the direct representation of own brand, with a corresponding increase in the profile of the company. The third subcategory is the establishment of manufacturing operations in the region by Chinese companies. Examples include auto assembly facilities established by the Chinese firm Chery in Montevideo, Uruguay and Aragua, Venezuela,70 and announced plans by both Chery and JAC to establish plants in Brazil,71 As well as plans by the heavy equipment manufacturer XCMG to establish facilities in Brazil and Venezuela,72 and plans by Sany heavy indus- tries, to construct a $200 million factory in Sao Paulo. In the computer industry, Lenovo has built a 750 person factory in the north of Mexico,73 and has announced that it will build a plant for manufac- turing notebook computers in Tierra del Fuego, in the south of Argentina. 74 Often the factory, or the promise to construct it, plays an explicit role in the efforts of the Chinese company to enter the local market. The Chinese appliance maker Haier has announced that it will construct a factory in Venezuela, as a follow-up to its sale of 300,000 consumer appliances to that country.75 In Brazil, China Northern Railroad will invest $125 million in a plant to manufacture trains in Rio de Janeiro, as a condition for its sale of the trains to the Brazilian government. As with Chinese investment in the extractive sector, these investments imply that Chinese companies will become important actors in Latin American communities. Correspondingly, Chinese personnel will increasingly interact with their Latin American
69 “Saic - Wuling y Geely, firmas representadas por Cinascar, filial del Grupo Hyundai de Colombia, serán las próximas marcas de vehículos chinos que entrarán a competir en el mercado automotor en el país.” El Tiempo. Bogotá, Colombia. http://www.eltiempo.com. May 20, 2005. 70 Roberto Deniz, “Ejecutivo prevé ensamblar 5.000 autos en empresa mixta.” El Universal. Caracas, Venezuela. http://www.el-universal.com. August 16, 2011. 71 “China's JAC motors to build factory in Brazil, hoping to avoid higher import taxes.” Mercopress. http://www.mercopress.com. October 9, 2011. 72 “Venezuela y China instalarán empresas mixtas de construcción y servicios.” El Universal. Caracas, Venezuela. http://eluniversal.com.ve. March 14, 2011. 73 “Lenovo's Mexican Computer Factory Starts Production” China Tech News. http://www.chinatechnews.com. February 23, 2009. See also Jeremy Kirk, “Lenovo Opens Manufacturing Plants in Mexico and India.” PCWorld. http://www.pcworld.com/article/135099/lenovo_opens_manuf acturing_plants_in_mexico_and_india.html. July 26, 2007. 74 Nuria Rebon, “Lenovo empezó a fabricar notebooks en Tierra del Fuego.” El Cronista. Buenos Aires, Argentina. http://190.2.45.93/negocios/ Lenovo-empezo-a-fabricar-notebooks-en-Tierra-del-Fuego- 20110825-0066.html. August 25, 2011. 75 “Gobierno firma acuerdos con empresa china Haier.” El Universal. Caracas, Venezuela. http://www.eluniversal.com. May 14, 2010.
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counterparts as supervisors, co-workers, and neighbors, creating new dynamics in Latin American communities at the micro as well as at the macro level with political implications for both Latin America and China. With respect to service companies, as in other sectors, the growing PRC presence is a function of growing Chinese companies with increasingly sophisticated international operations, projecting themselves into new markets, although they also leverage the increa- sing Chinese manufacturing and retail presence in Latin America. In logistics, the Chinese firm Hutchison-Whampoa has opera- ted facilities on both sides of the Panama Canal, at Balboa and Cristobal, since 1999, as well as facilities in the Freeport, Buenos Aires, and in four of Mexico’s major ports: Ensenada, Manzanillo, Lazaro Cardenas, and Veracruz. In the Bahamas, it has invested $2.6 billion to establish a regional hub for its container shipping operations in Freeport, and has expanded to complimentary operations there as well, including administration of the airport, and operation of various commercial shipping and storage facilities. It is also rumored to be interested in acquiring the semi-private regulatory and administrative organization, the Grand Bahamas Port Authority.76 The major shipping firms, such as China Overseas Shipping Company (COSCO) China Shipping, Hanjin, Pil, and others are active in the Latin American ports, transporting goods between Latin America and the region. In telecommunications, two leading Chinese firms, Huawei and ZTE, are similarly expanding their presence throughout the region. In Brazil, where both Huawei and ZTE have established regional hubs, the former has announced plans to build a training facility,77 while ZTE is expected to build a high tech industrial park with a research and development center, a production plant, and a training and logistics facility in Sao Paulo state.78 In Bolivia, in September 2011, the national telecommunications company Entel signed an agreement with Huawei to help the country build infra- structure to expand cell phone coverage to rural areas.79 In Honduras, Huawei is reportedly interested in acquiring the state telecommunications firm Hondutel, if the later is privatized. The firm Shanghai Alcatel Bell has also been active in Latin America to a lesser degree; with the completion in February 2011 of a fiber optic
76 Ianthia Smith, “Gov’t Told ‘Block Hutchison” Jones Bahamas. http://www.jonesbahamas.com. October 29, 2009. 77 “China’s Huawei invests US$300 million in research centre in Brazil.” MacauHub. http://www.macauhub.com. April 12, 2011. 78 Yun-Hee Kim, “ZTE to invest in high-tech industrial park in Brazil.” ZTE Official Website. http://wwwen.zte.com.cn/en/press_center/press_clip ping/201104/t20110418_228822.html. April 13, 2011. 79 “Bolivia y China firman 6 acuerdos de cooperación.” Los Tiempos. Cochabamba, Bolivia. http://www.lostiempos.com. September 23, 2011.
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telecommunications line connecting Cuba and Jamaica to the Venezuelan telecommunications infrastructure,80 as well as work in building the Venezuelan fiber optic infrastructure.
Tourism
Chinese tourism with Latin America, although a recently emerging phenomenon, is the one with the possibility to put Latin Americans in contact with the greatest number of ordinary Chinese. An estimated 100 million Chinese will be traveling internationally by 2015, compa- red to 65 million in 2011.81 Although it is not clear what portion of these will visit Latin America, companies in the tourism business in the region are reporting significant increases, and are adapting their operations for more. Starwood hotels, for example, has reported a 364% increase in Chinese tourists at its Sheraton hotel in Mexico City, as well as a 260% increase at its Park Tower facility in Buenos Aires.82 To date, the geographic concentration of investment anticipa- ting Chinese tourism in Latin America has occurred in the Caribbean, including the previously mentioned “Baha Mar” resort in the Bahamas, the Punta Perla resort in the Dominican Republic,83 and hotel resort complexes in Grenada.84 One factor shaping where Chinese tourists actually travel to is the granting to Latin American countries as “approved destination status.” In recent years, virtually all Latin American countries with which the PRC has official relations have been approved by the Chinese government as official tourist destinations, including the designation of Bolivia as a “priority” tourist destination in September 2011.85
80 “Cuba gets fiber-optic cable link to Venezuela.” Reuters. http://www.reuters.com. February 10, 2011. 81 “The China Outbound Travel Handbook.” http://chinacontact.org/ shop/china-outbound-travel-handbook. Accessed December 9, 2011. 82 Brian Byrnes. “Latin America Lures Chinese Tourists.” CNN. http://www.cnn.com/2011/09/26/travel/latin-china- tourism/index.html?hpt=tr_c2&utm_source=TravelBuzz&utm_c ampaign=783f6889b1-Travel_Buzz_9_27_119_27_2011&utm_med ium=email. September 27, 2011. 83 This project is particularly notable because it is one of the few major investments by a Chinese company, where the PRC does not have diplomatic relations with the receiving country. See “China's Caribbean march.” BBC. http://www.bbc. co.uk/caribbean/news/story/2010/10/101019_chinadomrep.sh tml. October 20, 2010. 84 Although the resorts are not oriented solely to Chinese tourists, they are likely to accommodate Chinese tourists more than existing resorts in the region. 85 “China declara a Bolivia como destino turístico prioritario.” La Patria. http://www.lapatrienlinea.com. September 28, 2011.
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Overall, it is likely that increasing Chinese tourism will gene- rate more perceptions of opportunity than conflict, since tourists from the PRC represent a new market. On the other hand, beyond the inevitable cultural clashes between Chinese tourists and the local population, it is likely that a disproportionately large share of the new business will be captured by local Chinese businessmen offering their services in Mandarin Chinese, or China-based booking agents, creating a source of possible disappointment and resentment for other local merchants.
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Transformation of the Relationship and Upcoming Challenges for the Chinese
The increasing footprint of the PRC in Latin America in the coming years will fuel a number of significant, but difficult to predict impacts on the region. On one hand, the expanding PRC physical presence will provide its companies, and its government with increased oppor- tunities for learning about how to operate effectively in the Latin American culture. While the Chinese may become more adept in dealing with the region’s sensibilities on issues such as labor relations, the environment, and indigenous rights, they will also become more effective businessmen, learning to better assess the risks of specific projects in the region, and improving their ability to negotiate the labyrinth of influence networks and other informal structures. As the Chinese become increasingly important as customers, investors, and employers, their leverage in dealing with challenges facing their people and operations will also increase. Such increased sophistication and leverage will rapidly be put to the test, however, since the expanding Chinese physical presence implies that the number of challenges to Chinese interests in Latin America will also expand, along with the perceived importance of defending them.86 This section of the paper builds on the analysis of the previous section regarding the expanded Chinese footprint in the region to explore the ways in which this growing physical presence is likely to raise difficult issues in China’s relationships with the countries of the region. The imperatives for China to respond to challenges and defend its interests in the region, either implicitly or explicitly, will make it increasingly difficult for the PRC to adhere, in fact, to its official policy of non-intervention in the affairs of Latin American states. While it is likely that the PRC will continue to publicly espouse
86 This is because the relative size of Chinese investments in Latin America, and the number of people will be larger, the market share represented by Latin America more important, and the resources flowing from the region an increasingly integral part of global operations ultimately feeding Chinese companies. At the same time, Chinese companies, including not only state owned enterprises, but also provincially backed firms, will increase their prowess in lobbying the government to protect these interests, while the new generation of PRC leadership will likely become more confident in asserting the nation’s growing power and leverage to defend them.
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such a policy, its government will increasingly face the need to use its growing “soft power” in Latin America to defend its companies, nationnals, and interests in the region, even as the new generation of Chinese leaders grow in their confidence that they have the ability and “right” to do so. Challenges to Chinese interests associated with its growing physical presence in Latin America can be grouped into five cate- gories:87 (1) fights with Latin American governments over the tax and regulatory framework in the region, (2) disputes over investment terms and fights with local communities during implementation, (3) labor issues and problems with local suppliers while conducting business operations, (4) resistance to Chinese projects from environ- mentalists, and (5) physical protection of Chinese personnel and operations.88
Fights over tax and regulatory framework
With respect to the region’s tax and regulatory framework, the influx of Chinese companies will naturally generate disputes as national and local governments try to maximize the tax and royalty revenue obtain- ned from the new entities, or alternatively, try to accommodate the interests of local competitors by using taxes and regulatory policies to attempt to block the entry of the would-be Chinese competition. Brazil’s passage of an Industrial Products Tax in September 2011, partially in response to the rapid penetration by the Chinese auto- maker JAC in the Brazilian auto market, is an example of the later.89 The action provoked the Chinese automaker, Chery, which had committed to invest $400 million to build an auto factory in Brazil, to seek a 90 day injunction over implementation of the new tax. In a separate case, in March 2011, the Chinese automaker Chery com- plained that the Argentine government was delaying approval of its request made under the Mercosur framework, to import 6,100 cars from the plant that Chery had recently built in Montevideo, thus seriously impacting the company’s Latin American sales and profitability.90 Brazil has also passed protectionist measures against the import of Chinese steel,91 textiles,92 tires and footwear, among
87 In the near term, challenges to non-commercial elements of the growing Chinese presence, such as resistance to official visits or training operations are not considered a significant challenge. 88 This includes not only Chinese businessmen, but also tourists, students, and to a lesser extent, official delegations. 89 “China Paving Brazil Silk Road With Hard-to-Beat Prices: Cars.” Bloomberg. http://news.businessweek.com/article.asp?documentKey=137 6-LRMHF40UQVI901-2KAUE9SMAJRKGM3MKQB5UVK6NQ. September 26, 2011. 90 “Argentine Trade Restrictions Put a Damper on Chery’s Sales.” Anhuinews. http://english.anhuinews.com. March 14, 2011. 91 “Brazil Protects Domestic Trade, Slaps Steel Tariff On Chinese Products.”
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other goods. Argentina has similarly imposed restrictions on Chinese toys,93 textiles, and computer equipment.94 According to a 2010 study by the International Bar Association, Latin America as a whole initiates more anti-dumping cases against Chinese companies than any other region.95 Such battles involving Chinese companies have also been prominent in the extractive sectors, and are likely to become more prominent as Chinese investment expands there. Examples include an increase in royalty payments and taxes in the petroleum sector by the Ecuadorian government in 2006, affecting two major Chinese companies which had just entered the sector,96 and a forced negotiation of petroleum contracts by the Ecuadoran government in 2008.97
Disputes over investment terms
With the growth in the number of Chinese firms investing in extractive sectors, there is also likely to be an increasing number of disputes over the terms of investment, as well as with relationships with local communities during project implementation. Examples to date include the Toromocho mining project in Peru, in which, despite a substantial public relations campaign, the new Chinese owner of the mine, China Aluminum Company (CHINALCO) has been caught up in disputes with the local community regarding the relocation of the town of Morococho, per the terms of the mining concession.98 Similarly, in Hierro Peru mine near Marcona, local residents have publicly com- plained about the water and sanitation services provided by the Chinese owner Shougang.99 In Argentina, the Sierra Grande mine was shut down by its owner China Metallurgical Group (CMG), over a http://www.e-to- china.com/tariff_changes/data_tariff_changes/2011/0908/9 6991.html. August 9, 2011. 92 “Brazil adopts China import tariff on eve of visit.” Reuters. http://www.reuters.com. April 5, 2011. 93 “Argentina slaps tariffs on China-made goods.” France24. http://www.france24.com/en/20110310-argentina-slaps- tariffs-china-made-goods. March 10, 2011. 94 “Argentina imposes antidumping measures on Chinese and Brazilian imports.” Mercopress. http://www.mercopress.com. July 23, 2010. 95 “Anti-Dumping Investigations Against China in Latin America. International Bar Association. www.ibanet.org. 2010. 96 “Broja anunció cambios en el reglamento de hidrocarburos.” El Universo. Guayaquil, Ecuador. http://www.eluniverso.com. July 6, 2006. 97 “Min. de Minas y Petróleos espera concluir renegociación de contratos petroleros antes de fecha fijada por Correa.” El Comercio. Quito, Ecuador. http://www.elcomercio.com. February 8, 2008. 98 “Brutal represión en Morococha en nombre de Chinalco.” YouTube. http://www.youtube.com/watch?v=V9Uqrvck3dk. February 1, 2010. 99 Mialgros Salazar, “Social Responsibility Missing in Growing Trade Ties.” IPS. http://www.ipsnews.net/news.asp?idnews=50206. February 3, 2010.
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dispute with government over storage of explosives, and because of concern from CMG that the government was not supplying the agreed to amount of water.100 Such disputes have not been confined to petroleum and mining, but have also arisen in the service sector, particularly with respect to Chinese companies performing construction work in the region. In Jamaica a series of protests broke out in September 2010 against China Harbor Engineering Company (CHEC), contracted to improve the road connecting the international airport to the capital, Kingston, with the argument that the company was not hiring sufficient numbers of Jamaicans.101 In Suriname, local residents have complained that Chinese brought into the country to work on road projects do not all leave the country when the work is complete, but rather, fall into the hands of the local Chinese mafia. 102 Often, resentment and distrust by the local community is fueled by the lack of meaningful contact with Chinese workers, brought in to perform the task. In the case of workers at the Sierra Grande mine in Argentina, contact between the 80 Chinese workers and the rest of the 340 employed at the mine is limited. As one observer complained, “They have built a safe enclosed neighborhood that even has a gym and are not even seen walking around town."103 A common element in such problems is the perception by local communities that the Chinese workers and businessmen are both isolated and very different from them, driving suspicion and mistrust by the locals. The “truckers strike” against Chinese shopkee- pers in greater Buenos Aires in 2007 included not only specific grie- vances, but also suggestions that the competitiveness of the Chinese was based in part on their ties to organized crime groups.104 More recently, accounts have appeared in the Argentine press concerning incidents against the Chinese shops, possibly connected with a
100 Francisca Pouiller, “Storm erupts over production halt at Sierra Grande mine.” Mining Weekly. http://www.miningweekly.com/print-version/ storm-erupts-over-production-halt-at-sierra-grande-mine- 2009-06-26. June 26, 2009. 101 Kimmo Matthews, “Angry protesters demand jobs on Palisadoes project.” Jamaica Observer. Kingston, Jamaica. http://www.jamaicaobserver.com. September 22, 2010. 102 Simon Tomero, “With Aid and Migrants, China Expands Its Presence in a South American Nation.” New York Times. http://www.nytimes.com/2011/ 04/11/world/americas/11suriname.html?_r=1&emc=eta1. April 10, 2011. 103 “An eye-opener for the Chinese at the Sierra Grande mine”, No a la Mina. http://www.noalamina.org/english/rio-negro/an-eye- opener-for-the-chinese-at-the-sierra-grande-mine. April 6, 2010. Even where interactions are possible, the Sierra Grande case suggests that the language barrier also limits interaction, with few of the 80 Chinese speaking Spanish. 104 “Los camioneros ratifican el boicot a los súper y autoservicios chinos.” Clarín. Buenos Aires, Argentina. http://www.clarin.com. June 26, 2006.
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failure to pay “protection money” to the local Chinese mafia.105 Similar allegations appeared in newspaper reports in Trinidad regarding workers brought into the country to work on construction projects. 106 Media reports of human trafficking networks smuggling Chinese into the region doubtlessly contribute to this image. A large number of such cases appeared in the press in Colombia, for example, following the 2008 decision by neighboring Ecuador to drop its visa require- ments for Chinese to enter the country.107 For whatever reasons, the tendency to associate Chinese merchants and workers with illegal activity will continue to play a significant role in the tensions between Chinese and the Latin American communities in which they operate.
Labor issues
With respect to challenges to Chinese companies in dealing with the local labor force and supplier, the difficulties of Chinese companies operating in the region to date may indicate what is to come as more such firms set up operations in the region. The oldest major case is that of the Peruvian iron mine operated by the Shougang Corporation since 1993, with between one and three strikes per year, including a month-long work stoppage in September 2011108 that became a major political event, Peru’s Vice-President taking the complaints of the workers to the Peruvian congress.109 In neighboring Ecuador, in 2007, a strike against the Chinese oil company Petroriental in the province of Orellana turned violent, forcing the declaration of a state of emergency, and ultimately resulting in the death of over 24 police and military. Protesters blocked road access to the Petroriental facility to call attention to complaints that the oil company had not hired the promised number of workers from the local population. When Petroriental vehicles escorted by Ecuadoran security forces attempted to break the blockade, violence ensued.110 The Chinese- operated Sierra Grande mine in Argentina has had similar problems with strikes and disputes with subcontractors,111 while in the Bahamas
105 “Aislados por el miedo a la violencia.” La Nación. Buenos Aires, Argentina. http://www.lanacion.com . October 11, 2011. 106 “Chinese Triad expands in T&T.” Trinidad and Tobago Guardian Online. May 17, 2011. 107 See, for example, “Deportaciones y expulsiones de ciudadanos chinos se dispararon en 2008, según datos del DAS.” El Tiempo. Bogota, Colombia. http://www.eltiempo.com. December 21, 2008. 108 “Shougang Peru strike ends after one month.” Reuters. http://www.reuters.com. September 25, 2011. 109 “Marisol Espinoza canalizará al Congreso pedidos de mineros de Shougang.” Andina. http://www.andina.com.pe. September 8, 2011. 110 The dispute was over Petroriental’s compliance with a 2006 promise to employ 80% local workers in its operations in the region. “Heridos 24 militares en incidentes en protestas en Orellana.” El Universo. Guayaquil, Ecuador. http://www.el- universo.com. July 5, 2007. 111 “An eye-opener for the Chinese at the Sierra Grande mine”, No a la Mina.
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in October 2009, bad labor relations with the Chinese port operator Hutchison fueled a political movement to block Hutchison’s attempt to take over Grand Bahamas Port Authority.112
Resistance from environmentalists
Beyond labor-management conflicts, the expanding Chinese footprint in Latin America is also likely to generate a range of conflicts with environmental groups, due to a combination of the inherent focus of Chinese extractive industry investment in environmentally sensitive areas, and the lack of experience by Chinese companies in dealing with well organized and politically well connected environmentalist movements. By its nature Chinese investment in Latin America concentrates in areas which inherently raise conflicts with environmentalists. Examples include the oil sector, with Chinese rigs exploring for oil off the western coast of Cuba, not far from the site of the massive BP Horizon deepwater oil spill. Similarly, since prior to 2006, Chinese firms have expressed interest in the development of the Ishpingo-Tambococha- Tiputini (ITT) oilfields in the environmentally sensitive Yasuni national parkland.113 In Peru, the nation’s five major Chinese investment projects all involve exploitations of mines – a sector in which there have traditionally been significant protests over issues such as rights to land and water.114 Indeed, Chinese mine operators in Peru have already found themselves involved in environmental disputes: Shougang has been subject to complaints over the dumping of its mining byproducts into the steams leading from its operation to the sea,115 while the Chinese firm Shen Pe Resources, operating since 2008 in Arequipa, has been accused of dumping and storing its metals without proper protection.116
http://www.noalamina.org/english/rio-negro/an-eye-opener- for-the-chinese-at-the-sierra-grande-mine. April 6, 2010. 112 According to newspaper accounts, locals complained that Hutchison treated workers in its Freeport facility “like second class citizens in their own country…violating their rights, classifying permanent workers as temporary workers to avoid paying them benefits.” Ianthia Smith, “Gov’t Told ‘Block Hutchison” Jones Bahamas. http://www.jonesbahamas.com. October 29, 2009. 113 Jose Olmos, “Temor de etnocidio por ‘extractivismo’” El Universo. Guayaquil, Ecuador. http://www.eluniverso.com. May 2, 2010. 114 See, for example, the November 2011 protests in Cajamarca over the diversion of water from traditional agriculture for use in a mining project. “Defensoría del Pueblo buscará mediar en conflicto en Cajamarca.”Andina. http://www.andina.com. November 29, 2011. 115 Robin Emmott, “Peru miners feel oppressed by China's Shougang.” Mines and Communities. http://www.andina.com.pe/Espanol/PortalBusqueda .aspx?BuscaEn=0&xcig=Shougang%20huelga. July 21, 2005. 116 “GRUPO INICIATIVA ANTICORRUPCION ILO.”
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In the area of agriculture, as Chinese companies continue to expand their Latin American operations, it is likely that their fights with environmental groups will similarly continue to expand. The com- plaints are likely to resemble those leveled against other agro indus- trial operators: erosion, chemical runoff from heavy use of fertilizer contaminating local waterways, the legal and illegal transformation of forests into agricultural land, and the transformation of traditional agriculture into a soy monocrop. Such concerns have already been expressed by groups such as Oxfam and the International Land Coalition against investments by the Chinese firm Beidahuang in the Argentine province of Rio Negro,117 and have played a role in an argentine law limiting the purchase of rural land in the country by foreigners to 1000 acres.118 Similar concerns were behind a 2010 ruling by Brazil’s Attorney General restricting the ability of foreign entities to purchase land in that country. In Uruguay as well, proposals for new laws restricting land purchases by foreigners have been proposed, ostensibly motivated by Chinese interest in purcha- sing Uruguayan farmland. Yet another series of environmental struggles for Chinese companies is likely to stem from the increasing number of current and proposed hydroelectric projects involving Chinese companies, including Coca Coda Sinclair, Sopladora, and Toachi-Pilaton in Ecuador alone, and improvements to Venezuela’s main Guri dam hydroelectric facility.119 In Chone, Ecuador, local merchants have declared that they will not sell food and other goods to Chinese construction workers because the dam that they are constructing is in a geologically unstable area, and thus represents a threat to the local community.120 Although to date host governments in Ecuador and Venezuela have tempered local resistance, protests against hydroelectric projects in Brazil over issues of land and the transformation of ecosystems, including occupation of the Belo Monte dam, where a Chinese firm is a key partner,121 may be indicative of what is to come.
http://grupoiniciati vaanticorrupcionilo.blogspot.com/2010/10/contaminacion- al-medio-ambiente-y-las.html. October 27, 2010. 117 Felicity Lawrence. “Global food crisis: China land deal causes unease in Argentina” The Guardian. London, England. http://www.guardian.co.uk/global- development/2011/jun/01/china-land-deal-unease- argentina-agribusiness?intcmp=239. June 1, 2010. 118 “Chinese Investment in Argentina Continues to Grow.” The Debts of a Nation. http://debtsofanation.blogspot.com/2011/06/chinese- investment-in-argentina.html. June 17, 2011. 119 “Aseguran que Fondo Chino va a energía, transporte y tecnología.” El Universal. Caracas, Venezuela. http://www.eluniverso.com. November 25, 2011. 120 “Río Grande no vende ni compra en cantón Chone.” El Universo. Guayaquil, Ecuador. http://eluniverso.com. November 12, 2011. 121 “Brazil: Indian Activist Occupy Belo Monte Hydroelectric Dam.” The Huffington Post. http://www.huffingtonpost.com. October 27, 2011.
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Protection of Chinese personnel
Finally, as the Chinese expand their footprint in the Americas, they will increasingly confront challenges to the security of their people and operations in the region. The likelihood of problems is magnified by the concentration of Chinese investment on petroleum and mining operations in remote areas of the country, whose population often includes criminal and subversive elements, as well as refugees, indigenous groups, and others. In Colombia, there have already been at least two high-profile kidnappings of petroleum industry workers; the kidnapping of a crew from the CNPC subsidiary SAPET near the Pacific coast of Colombia in 2005, and the June 2011 kidnapping in Caquetá of three Chinese oil workers from Great Wall Drilling Corporation.122 In addition to kidnappings, multiple violent incidents have occurred against Chinese mining and oilfield operations in Latin America including Tarapoa, where an oilfield run by Andes petroleum was overrun by protesters in November 2006, with 30 Chinese oilworkers taken hostage,123 as well as the previously mentioned violence in Orellana,124 with violence that has continued sporadically through 2011.125 In Peru the Rio Blanco mine has been similarly plagued by violence since before the Chinese company Zijin acquired the property from Monterrico Metals.126 Although Zijin may have calculated that the change in ownership, and the intervention of the Peruvian government would diffuse the conflict, the violence has continued, including two murders in Huancabamba in December 2009 that may have been a reprisal for a prior attack on the mine.127 In preparing themselves for such violence, Chinese compa- nies have found themselves caught in a dilemma. On one hand, as the prior cases have illustrated, the predominant practice to date of contracting private security companies has proven inadequate. The PRC also has few private security companies of its own that
122 “Colombia busca a trabajadores petroleros chinos secuestrados.” Prensa Libre. Guatemala City, Guatemala. Http://www.prensalibre.com. June 9, 2011. 123 “Petrolera china desestima que protesta en Tarapoa haya afectado sus intereses.” El Universo. Guayaquil, Ecuador. http://www.el-universo.com. November 14, 2006. 124 “Heridos 24 militares en incidentes en protestas en Orellana.” El Universo. Guayaquil, Ecuador. http://www.eluniverso.com. July 5, 2007. 125 Jose Olmos, “Matanza en Oriente sería por petroleras” El Universo. Guayaquil, Ecuador. http://www.el-universo.com. August 7, 2011. See also Jose Olmos, “Pariente de muertos a lanzadas pide que se cumplan promesas.” El Universo. Guayaquil, Ecuador. http://www.el-universo.com. August 7, 2011. 126 Mialgros Salazar, “Social Responsibility Missing in Growing Trade Ties.” IPS. http://www.ipsnews.net/news.asp?idnews=50206. February 3, 2010. 127 Maria Elena Castillo. “Comuneros de Huancabamba fueron baleados mientras huían” La Republica. Lima, Peru. http://www.larepublica.pe/impresa -2009-12-17-pag5. December 17, 2009.
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companies can rely on when going abroad. On the other hand, the Chinese government has reasons to shy away from closer security collaboration with governments of the region, so as not to alarm the United States, although it has cautiously moved toward informal arrangements, such as the deployment of the Honduran armed forces in the vicinity of the Patuka hydroelectric project in that country, so as to protect the Sinohydro workers and operations associated with it.128
128 “Empresa Sinohydro China Inicia Construcción de Hidroeléctrica en Honduras” El Norte de Castilla. http://www.elnortedecastilla.es. May 16, 2010.
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Conclusion
The increasing Chinese presence on the ground in Latin America is likely to fundamentally impact the internal political dynamic of the region, as well as China’s relationship with each of its member states. For the PRC, its people and companies will increasingly become part of the region, and as such, will be impacted by, and inadvertently drawn into its political dynamics, insofar as decisions taken by politi- cal leaders in the region will impact the livelihood of Chinese compa- nies, and the cooperation of the region’s security forces will impact the well-being of Chinese citizens living and working there. With ever more people at risk on the ground, ever more valuable assets in the region and ever more critical flows of resources originating from it, the PRC will find it increasingly difficult to maintain, in reality, its policy of “non-intervention.” In this regard, China’s need to evacuate 12,000 of its nationals from Libya in 2011129 may have been a “wake-up call” to the Chinese leadership concerning the obligations incurred through its growing economic engagement with the rest of the world. While the PRC may be reluctant to intervene in the region overtly, in a heavy-handed way, it is likely to use its growing leverage, coming from being a key source of investments and markets and an important player in Latin American communities, in order to shape outcomes to its benefit. Such Chinese leverage will come from multiple sources. They include (1) growing dependence of the region’s governments on Chinese loans and investments (2) increa- sing reliance on Chinese commodity purchases by select countries in the region, and (3) expectations of future access to Chinese markets, whether or not those expectations are realistic for the particular products involved. In many cases, the exercise of Chinese influence may be “consensual.” In Venezuela, Bolivia, and Ecuador, for example, governments sympathetic to, or dependent on China, increasingly have the power to approve projects, suppress dissent through press control, and even co-opt problematic figures such as labor union leaders, from within the movement.
129 “Libya evacuation: China evacuates 12,000 nationals via naval frigate.” Christian Science Monitor. http://www.csmonitor.com. February 25, 2011.
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As with the history of US engagement with Latin America during the previous century, the PRC may be drawn into applying its influence in the region in response to short-term exigencies, without fully comprehending the path that it is choosing. In the context of upcoming Venezuelan elections in October 2012, for example, the PRC may be tempted to permit otherwise questionable loans so as to avoid undercutting an ally. Conversely, it may be tempted to negotiate with the opposition as the defeat or death of its ally becomes increasingly likely, in an attempt to secure a commitment to respect the debts and commitments entered into by the previous regime. Whatever the case, two things are certain. With the expanding footprint of China, the political dynamic of Latin America will be vastly different than what it was during the 20th century, dominated by US and European political, business, and cultural influence. Yet China’s engagement with Latin America in the 21st Century will not be the world of consequence-free “win-win” interactions envisioned by official public diplomacy. If the PRC is weaving an ever more tangled web for itself in Latin America that will draw it more closely into the region, the future will belong to those who anticipate the new dynamics, and who position themselves to reap the associated opportunities and avoid the pitfalls.
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China and Latin ameriCa report
The New Banks in Town: Chinese Finance in Latin America 1 Kevin P. GallaGher, amos irwin, Katherine KolesKi
executive summary namely Argentina, Ecuador, and Venezuela, which are not able to borrow as easily in global capital markets. We estimate that since 2005, China has provided loan com- • Chinese and IFI/Western banks do not overlap signifi- mitments upwards of $75 billion to Latin American countries. cantly in Latin America: They give different size loans China’s loan commitments of $37 billion in 2010 were more to different sectors in different countries. Chinese banks than those of the World Bank, Inter-American Development have largely focused on loans to natural resource-based Bank, and United States Export-Import Bank combined for and infrastructure sectors. that year. After providing estimates of Chinese finance, we • Chinese banks impose no policy conditions on borrower also examine the common claims that Chinese loans to Latin governments but do require equipment purchases and America have more favorable terms, impose no policy condi- sometimes oil sale agreements. tions, and have less stringent environmental guidelines than • The financing terms in oil sale agreements seem to be the loans of international financial institutions (IFIs) and better for the South Americans than most people believe. Western governments. We find that: • Chinese finance does operate under a set of environmen- • China Development Bank (CDB) loans carry more strin- tal guidelines, but those guidelines are not on par with gent terms than World Bank loans. those of its Western counterparts. • The Export-Import Bank of China (China Ex-Im Bank), It is our hope that this report will provide a more empiri- by contrast, generally offers lower interest rates than the cal-based foundation for research on Chinese finance in Latin US Ex-Im Bank—though this difference stems from the America and the Caribbean (LAC). Our investigation lends fact that the World Bank offers concessional interest rates credence to some claims about China in Latin America, but as a form of aid, while China offers concessional rates not less so to others. through CDB but rather through China Ex-Im. On the positive side, China is a new and growing source of • Chinese banks provide financing to a significantly dif- finance for LAC, especially for the nations having trouble gain- ferent set of countries than the IFIs and Western banks, ing access to global capital markets. Chinese loans do not come with the policy conditionalities that are tied to IFI and Western loans. Finally, LAC nations can get more financing for infra- 1 Kevin P. Gallagher is associate professor of international relations at Boston University and senior researcher at the Global Development and structure and industrial projects to enhance long-run develop- Environment Institute (GDAE), Tufts University. Amos Irwin and Kather- ment rather than for the latest Western development fads. ine Koleski are researchers at GDAE. The authors acknowledge research support from a generous grant from the Rockefeller Brothers Fund to However, contrary to much of the commentary on the sub- GDAE. We also thank Deborah Bräutigam and Erica Downs for useful ject, LAC nations generally pay a higher premium for loans and constructive commentary on an earlier draft.
February 2012
35
Inter-AmerIcAn DIAlogue Repo Rt
Foreword
The Inter-American Dialogue is pleased to publish this report by Kevin Gallagher, Amos Irwin, and Katherine Koleski. Gallagher is associate professor of international relations at Boston University, and senior researcher at the Tufts University Global Development and Environment Institute (GDAE). He is also author of the highly- acclaimed book, The Dragon in the Room: China & the Future of Latin American Industrialization. Irwin and Koleski are researchers at GDAE. This report, a product of the Dialogue’s China and Latin America program, offers the first comprehensive summary of China’s lending practices in Latin America and the Caribbean (LAC). The authors provide esti- mates of the volume, composition, and characteristics of Chinese lending to the region since 2005, offer comparisons to international and Western lending institutions, and examine some commonly held notions about Chinese loans to LAC. These include claims that China’s loans have less favorable terms than those of international financial institutions (IFIs) and Western banks, that Chinese lending carries few policy condi- tions, and that Chinese lenders impose less stringent environmental guidelines than their Western counter- parts. The report lends credence to some of these claims, but less so to others. The Dialogue’s aim in publishing this report, as well as our series of China and Latin America working papers, is to inform and engage policy makers, civil society representatives, and academics from China, Latin America, and the United States on evolving themes in China-Latin America relations. We seek to determine areas of interest, identify shared priorities, and develop ways by which emerging relationships can be made most productive for all countries involved. Our China and Latin America Working Group, of which Gallagher is a member, has been the centerpiece of the Dialogue’s China-related programmatic efforts since it was launched in 2011. The group is made up of approximately twenty select policy makers, analysts, and scholars from Latin America, China, the United States, Europe, and Australia. Group meetings have generated diverse interpretations of the issues driving China-Latin America relations to highlight opportunities for cooperation and address emerging challenges. The Dialogue’s China-related papers and reports have dealt with a wide variety of topics including China’s “grand strategy” in Latin America, energy-based engagement and cooperation, the US-China-Latin America dynamic, and the possibility of developing an integrated regional approach to China’s expanding influence. This report in particular seeks to provide a better understanding of China’s often misunderstood financial activity in the region. We are pleased to recognize the Open Society Institute for its assistance in publishing this report.
margaret myers Director, China and Latin America Program
michael shifter President
2 CTHitEizNenEWSeBCAuNrKitSyIiNn TLOaWtinN:aCmHeIrNiECSaE FINANCE IN LATIN AMERICA 36
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from China. That higher premium comes in the form of To our knowledge, our report provides the first comprehen- interest rates, not loans-for-oil. It is commonly thought sive summary of Chinese loans to Latin America. that LAC simply sends barrels of oil to China in return for In 2007–2008, the Congressional Research Service financing and, thus, may lose out given the rising price of teamed up with students at New York University to produce oil. Our analysis shows that this misreads the evidence: a report on China’s economic assistance to Latin America the majority of Chinese loans-for-oil in Latin America are (Lum 2009). While pioneering, it only includes conces- linked to market prices, not quantities of oil. Another cost sional loans, and it was published too early to capture the of Chinese finance can be tied to working with Chinese vast majority of Chinese lending that came since 2008. contractors and businesses. This reduces “spillover” effects Erica Downs of the Brookings Institution published an in LAC in terms of local contracting related to the loans. analysis of China’s major loans-for-oil borrowers across the And finally, the composition and volume of Chinese loans are This report provides a foundation for research potentially more environmentally degrading than Western banks’ loan on Chinese finance in Latin America and the portfolios in LAC. Although the Caribbean. It lends credence to some claims IFI/Western banks’ environmental record is far from perfect, Chinese about China in Latin America, but less so banks require less demanding envi- ronmental standards. to others.
globe, including those in Latin America (2011). Our study 1. Background and includes those loans-for-oil projects as well other loans and methodology commitments in other forms and sectors. Our goal in this report is to establish a comprehensive empirical foundation There is a burgeoning literature on the Chinese-Latin for future analysis of Chinese lending to Latin America. American economic relationship and its implications for Most of China’s international lending comes from the Latin American development and global geopolitics (see China Development Bank (CDB) and China Export-Import Hearn and Leon-Marquez 2011; Gallagher and Porzecanski Bank (China Ex-Im Bank). During 1994 reforms of the 2010; Jenkins and Dussel 2009; Ellis 2009). For the most financial sector, the Chinese government created CDB and part, this literature has focused on Sino-Latin American China Ex-Im Bank as “policy banks,” meaning “tools of trade relations. There are two reasons for this. First, China- the government” (Bräutigam 2009, 79). Their loans would LAC trade took off in the early 2000s, while China-LAC explicitly support the government’s policy objectives. investment and loans did not follow suit until the later part Prior to 1994, policy lending had been the responsibil- of the decade. Second, unlike the China-LAC trade data in ity of the “big four” Chinese banks (Bank of China, China the UN Comtrade database, there is no reliable database of Construction Bank, Agricultural Bank of China, and ICBC), Chinese investment or loans in the region. Despite the lack so the new policy banks were designed to free the four to of data, there has been increasing speculation and alarm act as commercial banks. In separating policy from com- about Chinese investment and loans. mercial lending, the government sought to reduce bank Scholars and researchers have had to resort to assem- managers’ moral hazard. If managers could blame all their bling their own databases in order to study Chinese eco- losses on policy loans, they had an incentive to direct their nomic activity overseas. Deborah Bräutigam of American commercial loans toward high-risk, high-return projects University has been tracking Chinese finance in Africa. (Steinfeld 1998, 71). The creation of separate policy banks Derek Scissors of the Heritage Foundation has compiled would hold commercial banks accountable for rational, data on China’s large foreign direct investments worldwide, market-based lending. but no similar efforts have addressed Chinese loans (2011).
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The CDB mainly supports China’s macroeconomic poli- policy banks eventually would be converted into commer- cies—laid out in the Five-Year Plans—focusing on eight cial banks, but the process has stalled following the finan- areas of development: electric power, road construction, cial crisis (Downs 2011, 22). railway, petroleum and petrochemical, coal, postal and tele- The Chinese government’s “Going Global” policy has communications, agriculture and related industries, and brought this amalgamation of commercial and policy lend- public infrastructure (CDB). An estimated 73.7 percent of ing to the international stage. In 1998, President Jiang CDB’s total new loans went to these sectors (CDB “Strategic Zemin championed the internationalization of Chinese Focus”). In contrast, the China Ex-Im Bank’s mandate is to: investment and lending. He argued: “Regions like Africa, the Middle East, Central Asia, There is no easy way to measure Chinese and South America with large developing countries [have] banks’ loans to Latin America. Unlike very big markets and abundant the World Bank and Inter-American resources; we should take advan- tage of the opportunity to get in” Development Bank, Chinese banks do (Chen 2009). As Downs points out, CDB is the main bank sup- not regularly publish detailed figures porting this strategy with loans to regarding their loan activities. Chinese and foreign companies overseas (2010, 9). Bräutigam “facilitate the export and import of Chinese mechanical adds that “the Eximbank has been at the center of China’s and electronic products, complete sets of equipment and strategy of ‘going global’” (2009, 112). Over the last five new and high-tech products, assist Chinese companies with years, both banks have reached new heights in international comparative advantages in their offshore contract projects lending (Bräutigam 2009, 112, 116). and outbound investment, and promote Sino-foreign rela- There is no easy way to measure Chinese banks’ loans to tionships and international economic and trade coopera- Latin America. Unlike the World Bank and Inter-American tion” (China Export-Import Bank). Development Bank, Chinese banks do not regularly publish detailed figures regarding their loan activities. We follow the It achieves these set objectives through export or import lead of scholars such as Bräutigam, who examine govern- credit; loans to overseas construction contracts or overseas ment, bank, and press reports in both China and borrowing investment projects; Chinese government concessional countries in order to compile a list of loans and their char- loans; international inter-bank loans; etc. (China Export- acteristics. This method is highly imperfect. Although we Import Bank). have gone to great lengths to ensure reliability by confirm- Though the government designed the reforms to divorce ing reports in both China and LAC, our estimate should not policy and commercial lending, Chinese banks continue be taken as a precise figure. On the one hand, we may have to mix them. Steinfeld points out that the government still underestimated Chinese finance in Latin America because forced the nominally commercial banks to bail out state- we do not examine many loans under $50 million. On the owned enterprises (1998, 70). At the same time, the policy other hand, we may have overestimated the total in the banks have become quite commercial. CDB head Chen event that most recent loans are partially or entirely can- Yuan has successfully married the bank’s policy objectives celled or if a line of credit is not fully committed. with sound commercial loans so that CDB has high profits We consulted a wide variety of publicly accessible sources and a balance sheet that is even healthier than China’s big to gather details on each loan. We found loan agreements commercial banks (Downs 2011, 11). China Ex-Im Bank published by the Venezuelan and Bolivian governments in also often lends at commercial rates and boasts a low share their Official Gazettes. Brazil’s state-owned oil company, of nonperforming loans (Bräutigam 2009, 114; Downs Petrobras, is a publicly traded corporation; we uncovered 2011, 13). Premier Wen Jiabao announced in 2007 that the the interest rate on CDB’s loan-for-oil deals with Petrobras
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by examining the company’s filings with the US Securities Part 7 analyzes the nature of Chinese environmental guide- and Exchange Commission (SEC). We discovered four lines for its loans and puts that in a comparative perspec- Chinese loans in the Jamaican government’s 2011 Annual tive. Part 8 suggests topics for further research and draws Report to the SEC. policy implications. We classified loans as commercial or concessional based on reports from Chinese embassies in the borrowing coun- tries. We found details on Brazilian and Ecuadorian loans- 2. Chinese loans to latin for-oil in local newspaper interviews with the countries’ america are larger and finance ministers. We only include one detail that is not Growing Faster than their publicly accessible online—the interest rate on the 2008 China Ex-Im Bank loan to Chinalco Peru, which we learned western Counterparts in interviews with company officials in Lima. We supple- Our best estimate of Chinese loan commitments to Latin mented and double-checked all sources with newspaper America since 2005 is $75 billion (Table 1). CDB made 82 articles or governments in both the borrowing countries percent of the loans, and China Ex-Im Bank and the ICBC and China. We omit loans that have not been confirmed bank contributed 12 percent and 6 percent, respectively. by reliable sources on both sides of the Pacific. We cite The loans were quite large and heavily concentrated among the most valuable sources for each individual loan in the a few borrowers. The governments of Venezuela, Brazil, report’s annex. Argentina, and Ecuador received 91 percent of the total. Acquiring World Bank and Inter-American Development Our best estimate of Chinese loan Bank (IDB) loan information to compare with the Chinese loans commitments to Latin America since 2005 was more difficult than we had anticipated. These Western banks is $75 billion. CDB made 82 percent of these publish lists of loans in their loans, and China Ex-Im Bank and the ICBC annual reports, and the World Bank even publishes individual bank contributed 12 percent and 6 percent, loan contracts—but it withholds key details. The World Bank con- respectively. siders the interest rates on out- standing loans to be proprietary information and refused Two thirds of all the loans were loans-for-oil. Although to provide it officially for this study. For interest rates, the they possess natural resources and other production char- most important indicator of the fairness of a loan, we had acteristics of interest to China, the governments of Peru, to approach these otherwise transparent institutions in the Colombia, Chile, and Mexico received little to no financing. same way as their Chinese counterparts. Just as in the case A comparison of our $75 billion estimate to previous esti- of Chinalco Peru, we acquired the World Bank interest rate mates of total Chinese financing suggests that Latin America information through a confidential interview with a World accounts for a large part of Chinese lending abroad. The Bank employee. Financial Times estimated total Chinese loans during 2009- This paper is divided into eight parts. Part 2 presents 2010 at $110 billion (Dyer 2011). If it is accurate—and our estimates on the quantity of Chinese finance in LAC. we cannot confirm that—more than half those 2009–2010 Part 3 examines the terms of Chinese finance to LAC with loans went to LAC. a comparative perspective. Part 4 examines the special case China has only just started providing financing to Latin of commodity-backed loans in LAC. Part 5 discusses the America, but in 2010 it already loaned more than the World composition of Chinese finance. Part 6 analyzes the extent Bank, IDB and US Ex-Im Bank combined (Table 2). Prior to which Chinese loans attach Western-style conditionality.
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table 1. summary of Chinese loans to latin america
Borrowing amount Year Country Borrower lender ($m) Purpose 2005 Brazil Gerdau Acominas ICBC and BNPP 201 Steel mill equipment 2005 Chile Codelco CDB 550 Improve company efficiency and technology 2007 Jamaica Government Ex-Im 45 Montego Bay Convention Center 2008 Costa Rica Government SAFE 300 Government bonds 2008 Peru Chinalco Peru Ex-Im 2,000 Mining Equipment 2008 Venezuela BANDES and PDVSA CDB 4,000 Funding infrastructure, other projects 2009 Bolivia YPFB Ex-Im Bank 60 Home gas lines, oil drilling rigs 2009 Brazil Telemar Norte/Oi CDB 300 Expand telecom network 2009 Brazil Petrobras CDB 10,000 Pre-salt business plan 2009 Ecuador Petroecuador PetroChina 1,000 Advance payment for Petroecuador oil 2009 Mexico América Móvil CDB 1,000 Telecom network infrastructure/equipment 2009 Multiple BLADEX CDB 1,000 Regional trade financing 2009 Peru Cofide CDB 50 Transportation, infrastructure 2009 Venezuela BANDES and PDVSA CDB 4,000 Infrastructure, including satellite 2009 Venezuela CVG CDB 1,000 Mining project credit 2010 Argentina Government CDB and others 10,000 Train system 2010 Bahamas Government Ex-Im Bank 58 Airport infrastructure 2010 Bolivia Government CDB 251 Chinese satellite 2010 Bolivia Government Ex-Im Bank 67.8 Infrastructure 2010 Brazil Vale Mining Company CDB and Ex-Im 1,230 Ships to transport iron ore to China 2010 Ecuador Government Ex-Im Bank 1,682.7 Hydroelectric dam Coca-Codo Sinclair 2010 Ecuador Petroecuador CDB 1,000 80% discretionary, 20% oil-related 2010 Ecuador Government Ex-Im Bank 621.7 Sopladora hydroelectric dam 2010 Jamaica Government Ex-Im Bank 340 Road construction 2010 Jamaica Government Ex-Im Bank 58.1 Shoreline reconstruction 2010 Venezuela PDVSA CDB and BES 1,500 Trade-related credit facility 2010 Venezuela BANDES and PDVSA CDB 20,000 Funding infrastructure 2011 Bahamas Baha Mar Resort Ex-Im Bank 2,450 Resort Construction 2011 Bolivia Government Ex-Im Bank 300 Helicopters, infrastructure 2011 Ecuador Government CDB 2,000 70% discretionary, 30% oil-related 2011 Peru BCP CDB 150 Finance 2011 Venezuela PDVSA CDB 4,000 Infrastructure 2011 Venezuela PDVSA ICBC 4,000 Housing TOTAL 75,215.3 Sources: see Annex
6 THE NEW BANKS IN TOWN: CHINESE FINANCE IN LATIN AMERICA 40 Figure 1. Comparison of Chinese and Western Bank Loans to Latin America Inter-AmerIcAn DIAlogue Repo Rt 40
35 China to 2008, China’s annual lending never exceeded $1 billion. a $10 30 billion loan issued in 2009 to fund an ambitious off- But in 2008, loans ramped up to $6 billion. In 2009, lend- shore oil project using Chinese inputs. In Argentina, all 25 billion)
ing tripled again to $18 billion, passing the World Bank’s 2010 financing came from a single loan: $10 billion to buy
($ $14 billion and IDB’s $15 billion. In 2010, lending doubled Chinese 20 trains. once more to $37 billion, well above loan levels of the World For Ecuador and Venezuela, the large influx of Chinese loans
15 Bank ($14 billion) and IDB ($12 billion). China overtook lending has served as a key sourceIDB of foreign finance. The
the World Bank and IDB despite the fact that, from 2006 WorldTotal 10 Bank has almost no lending presence in these coun- World Bank to 2010, both those banks had doubled their lending to the tries; since5 2005, it has given two small loans to Ecuador region. Since 2005, China Ex-Im Bank has out-financed US and nothing to Venezuela. IDB’s lending toUS these Ex -countriesIm Ex-Im by a factor of almost four, $8.3 billion to $2.2 bil- was higher0 in both absolute and relative terms in 2009- 2005 2006 2007 2008 2009 2010 lion. That said, both China and World Bank, IDB, US Ex-Im Sources: respective Annual Reports US Ex-Im banks have historically China has only just started providing financing concentrated on guarantees and insurance, and these direct loans to Latin America, but in 2010 it already loaned comprise only a small part of their portfolios. more than the World Bank, IDB and US Ex-Im It is unlikely that Chinese Bank combined. lending to LAC will continue to double every year. China’s 2009 and 2010 lending booms were driven by a $20 billion 2010 than it was in 2006-2008. The increase in lending loan commitment to Venezuela and $10 billion in commit- in 2009-2010 is significant, since Chinese lending over the ments to Brazil and Argentina. With these mammoth loans same period exploded from zero to over 20 times IDB lend- to major South American economies already concluded, ing. IDB lending had been higher in 2005, but it fell years Chinese lending may plateau due to a lack of demand. before China began lending to these countries. Viewed We have uncovered less than $13 billion in loans in 2011; in this context, Chinese lending is adding to, rather than China’s 2011 lending will still probably exceed that of the replacing, IDB lending. World Bank and IMF, but it will fall short of 2010 levels. Chinese banks provided financing to a significantly dif- ferent set of countries than the IFIs and Western banks. Chinese banks dedicated 61 percent of lending to Venezuela and Ecuador. This is an enormous share considering that these countries make up only 8 percent of the LAC region’s population and 7 percent of its GDP. The Chinese loans equal almost 10 percent of the two countries’ combined annual GDP. Over the same period, Venezuela and Ecuador received 13 percent of IDB loans and less than a third of a percent of World Bank loans. IFIs and Western Banks domi- nate lending to Mexico, Colombia, and Peru. Peru received its largest Chinese loan to date four months after the coun- try’s new president, Ollanta Humala, took office. Chinese and Western banks barely overlap when it comes to their borrowers. Only Brazil and Argentina have received significant shares of lending from both. In both cases, the vast majority of the Chinese funds came from a single loan. In the case of Brazil, 85 percent of the lending came from
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table 2. recipients of world Bank, iDB, and Chinese lending from 2005–2011 Figure 2. IDB Lending to Ecuador ($and million) Venezuela Before and Duringtotal loans the world Bank iDB China VenezuelaChinese Influx $44,528 $— $6,028 $38,500 Brazil $39,628 $15,338 $12,559 $11,731 40 60% Mexico Chinese EV $27,410 $14,739 $11,671 $1,000 35 IDB Total Argentina $26,774 50% $7,164 $9,610 $10,000 IDB EV Colombia30 $12,118 $6,241 $5,877 $— IDB EV % Ecuador $8,914 40% $153 $2,457 $6,304 20 Peru $6,113 $3,045 $2,868 $200 20 30% El Salvador26 $2,954 $1,196 $1,758 $— Guatemala15 $2,887 $1,176 $1,711 $— 20% Panama 14 $2,811 $591 $2,220 $— 10 11 6 Costa Rica 7 $2,741 10% $698 $1,743 $300 5 Dominican Republic 0 $2,555 $854 $1,701 $— 0% Other0 $14,079 $2,169 $6,730 $5,180 2005 2006 2007 2008 2009 2010 TOTAL $194,321 $53,365 $67,741 $73,215 IDB Source: Annual Reports Chinese source: Figure 1 World Bank and IDB Sources: respective Annual Reports Chinese Sources: Figure 1
Chinese and Western banks also differed in another way. Bank and IDB loans went to Brazil and Mexico, with the China’s loans were much larger. The overwhelming major- remaining 7 percent for Argentina. Meanwhile, 68 per- ity of Chinese financing packages to LAC were $1 billion cent of China’s large loans went to Ecuador, Bolivia, and or greater, compared to 22 percent for the World Bank Venezuela—countries where large loans from Western and 9 percent for IDB. Some 93 percent of the large World banks have been absent. Interestingly, Chinese lending to Venezuela and Ecuador is filling in for the sovereign debt markets. As energy economist Roger Tissot argues, “Chinese financing is often the ‘lender of last resort.’ It is not a cheap one, but due to the concern the international financial community has over Venezuela and Ecuador, and the large risk premiums they would charge, Chinese lending is an attractive option” (Myers 2011). Argentina and Ecuador essentially cut them- selves off from mainstream lending by defaulting on their sovereign debt in 2001 and 2008–2009, respectively. The billion) Venezuelan government has scared off some investors by ($
its domestic actions as well. As a result, the sovereign debt
Totals markets charge Argentina, Ecuador, and Venezuela spreads
of 838, 935, and 1220 basis points, respectively (Table 4).
Loan These are four to six times higher than interest rate spreads for South American countries with similar size econo- mies. For example, the spread for Colombia is 195 basis points and, for Peru, 218 (JP Morgan 2011). Chinese banks loaned disproportionately large amounts to these high-risk
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table 3. recipients of world Bank, iDB, and Chinese loans of $1 Billion or Greater
($ million) total world Bank iDB China Venezuela $38,500 $— $— $38,500 Brazil $17,675 $3,445 $3,000 $11,230 Mexico $11,221 $8,021 $2,200 $1,000 Argentina $11,200 $— $1,200 $10,000 Ecuador $5,683 $— $— $5,683 Bahamas $2,450 $— $— $2,450 TOTAL $86,729 $11,466 $6,400 $68,863 World Bank and IDB Sources: respective Annual Reports Chinese sources: Figure 1
table 4. Chinese lending and Government Debt ratings
% of Chinese lending to oeCD oeCD emBi+ Country Government risk rating Premium s&P rating Debt spread Chile 0.8% 2 162 A+ Panama 0.0% 3 177 BBB- 186 Mexico 0.0% 3 177 BBB 188 Peru 0.3% 3 177 BBB 218 Brazil 13.7% 3 177 BBB 219 Costa Rica 0.4% 3 177 BB Colombia 0.0% 4 198 BBB- 195 Bolivia 0.9% 6 231 B+ Jamaica 0.6% 6 231 B– Ecuador 8.6% 7 251 B– 838 Argentina 13.7% 7 251 B 935 Venezuela 52.6% 7 251 B+ 1220 http://www.cbonds.info/cts/eng/index_detail/group_id/1/
countries, compensating for the lack of sovereign debt lend- of 50-285 basis points over LIBOR, only a fraction of its ing (Figure 3). 935 basis point cost in sovereign debt markets. Similarly, China has used its loans-for-oil and purchase require- China’s $10 billion line of credit to Argentina is actually a ments to reduce the cost of lending to these otherwise non- credit line to Chinese railway companies, meaning that the creditworthy borrowers. CDB does not subsidize its money will effectively stay in China. Since the $10 billion interest rates as development aid or to outcompete other loan will directly support these Chinese companies, CDB lenders, instead offering the loans at cost (Bräutigam 2009, charged 600 basis points above LIBOR, well below the 935 115). But as CDB founder Chen Yuan stated, “backing loans basis point spread on Argentine sovereign debt (Gill 2011). with oil shipments effectively keeps risks to a minimum Similarly, China Ex-Im Bank gave Ecuador a $1.7 billion level” (Forsythe and Sanderson 2011). The risk mitiga- export credit at a rate of 6.9 percent, well below Ecuador’s tion of loans-for-oil seems to explain why CDB was able 838 basis point spread. to offer the $20 billion Venezuelan loan at a floating rate
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AnotherFigure factor3. Loans is that Over CDB is$1 backed Billion by theby Chinese gov- nor their borrowers routinely announce loans to the public. ernment.Governments’ Borrowers who Credit default Ratings risk angering not only the That limits us to major loans reported in the news, approved CDB but also the Chinese government, and that might jeop- by legislators, recorded by publicly traded companies, or 70 ardize future deals with Chinese firms. announced by proud government officials. We have likely China’s surrogate sovereign lending Venezuelahas helped (7)Ecuador missed a number of loans under $50 million. 60 heal after its default. Chinese loans haveEcuador covered (7) its bud- More importantly, we rarely learn of loans between get shortfall. Only two years after the default, Ecuador has branches of the Chinese government, from state-owned 50 Argentina (7) largely regained investor confidence. Government bonds banks to state-owned companies operating overseas. The are performing40 better than any others inBrazil Latin (3)America. As Heritage Foundation’s China Investment Tracker lists 36 Mexico (3) large-scale Chinese investment China has30 used its loans-for-oil and purchase projects in Latin America worth more than $42 billion, but we 20 have recorded only one case of requirements to reduce the cost of lending Chinese intra-state lending, the 10 to otherwise non-creditworthy borrowers. $2 billion China Ex-Im Bank 0 loan to Chinalco Peru in 2008. a result, governmentChina investment World is driving Bank recordIDB economic We confirmed this deal only because we had the opportu- growthSource: (Gill 2011). By taking the place of shell-shocked nity to interview Chinalco officials in Peru. We assume that sovereign lenders, China has given Ecuador a second similar deals go unreported. chance to rebuild investor confidence. There is another side to this, however. Despite our Our China loan totals may actually underestimate the best efforts to use reliable sources, suspended and can- level of Chinese lending. Unlike the World Bank and IDB, celed loans may cause us to slightly overestimate the loan which provide annual reports and searchable databases totals. Moreover, some nations may not draw the full line with complete lists of their loans, neither the Chinese banks of credit. Agreed-upon, signed, and ratified loans may not always materialize due to political or economic changes on either end. The Financial Times reports: “In some cases, developing country governments have announced large sums for loan agreements which have not been realised” (Dyer 2011). Congressional Research Services warns in its report on Chinese foreign aid that “estimated totals should be interpreted with caution. Some reported values may be inflated: some loans represent offers or pledges that may not have been fulfilled; some projects may have been can- celled” (Lum 2009). Loan agreements, like Argentina’s million) $10 billion agreement in 2010, simply set an amount to ($ be carved into projects later. As such, they may only be Total
partially fulfilled. Still, we confirmed that for most major loans the loan tranches have been arriving on schedule, so Loan we anticipate only minor inaccuracies due to loan cancella- tions. Also, we assume that World Bank and IDB loans will suffer partial and complete cancellations at similar rates.
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beneficial for China’s development” (2009, 50). Peter Evans 3. Chinese Finance terms also criticizes the OECD rules, pointing out that they allow are not always so “sweet” developed countries to collude and maximize profits at the when there is access to expense of developing-country borrowers (2005). Our study reveals that Chinese banks differ in their use international Capital markets of financing. China’s development bank generally offers Some have expressed concern that Chinese banks are higher rates and China Ex-Im Bank offers slightly lower replacing the World Bank and Western export credit agen- rates when compared with their IFI and Western coun- cies (ECAs) by offering lower-interest loans and generally terparts. But these comparisons are misleading because better terms. However, we find that this is often not the case. Chinese banks package commercial financing and develop- Melissa Graham at the Council on Hemispheric Affairs ment aid differently than their counterparts. Regardless, it argues that Chinese state banks may be replacing Western is clear that the real low-ball financing only happens within banks in Latin America by “offer[ing] interest at rates that are the Chinese government. lower than other competing developed countries”(Graham When we compare development banks, CDB offers mostly 2 2010). The Washington Post explains that “China is a master commercial interest rates that exceed the World Bank rates at low-ball financing, fashioning loans of billions of dollars (Table 5). In 2010, CDB offered Argentina a $10 billion at tiny interest rates that can stretch beyond 20 years… loan at 600 basis points above LIBOR. The same year, the This has become a headache for Western competitors, espe- World Bank Group’s International Bank for Reconstruction cially members of the 32-nation Organization for Economic and Development (IBRD) granted Argentina a $30 million Cooperation and Development (OECD), which long ago loan with a spread of 85 basis points. The Chinese spread is agreed not to use financing as a competitive tool” (Pomfret 2010). The same article notes that the US Chinese banks differ in their use of financing. Ex-Im Bank has complained that China’s development bank generally offers China Ex-Im Bank makes its exports more attractive with “below-market higher rates and China Ex-Im Bank offers interest rates [and] easy repayment terms.” The Financial Times notes slightly lower rates when compared with IFI “escalating competition over loan and Western counterparts. deals” between Chinese banks and the World Bank (Dyer 2011). At the same time, some observers praise the Chinese more than 5 percent wider, which more than compensates loans for broadening the financing options for developing for the larger size of the loan. In 2009, CDB gave Brazil a countries. Antonio Castillo argues in the China Daily that $10 billion loan at 280 basis points. The IBRD gave Brazil “China is good news as a source of the much needed devel- a $43.4 million loan in 2000 at a variable spread of 30–55 opment loans” for Latin America (Castillo 2010). Bräutigam basis points. Again, the Chinese spread is much larger. In calls China’s entrance a “positive development” since it will 2009, CDB granted Mexico’s América Móvil a $1 billion loan challenge the “wealthy countries’ rules” that protect exces- at over 100 basis points. The IBRD gave Chile a $24.8 mil- sive financing costs, like upfront fees of 21 percent on US lion loan in 2007 for 5 basis points. Since Chile and Mexico Ex-Im Bank loans (Bräutigam 2011b). She points out that have similar credit ratings, CDB’s rates again seem higher the OECD banned competitive financing to benefit lenders, than the IBRD’s. We could not compare loans of similar sizes not borrowers (2009, 298). When Japan and OECD coun- tries competed on financing terms to win deals with China 2 World Bank rates are not officially concessional but because the bank has an exceptional credit rating and does not often add a in the 1970s and 1980s, “China saw [this competition] as country risk premium, its finance is effectively concessional when compared to pure market rates at LIBOR plus country risk.
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table 5. CDB and world Bank loan interest rates
spread includes Borrowing (bp above amount Payment Purchase Commodity Year lender Country Borrower liBor) ($m) Period requirements Backed 2010 CDB Argentina Government 600 10,000 19 Yes–Trains from No CNR 2009 CDB Mexico América ›100 1,000 10 Yes–Huawei tele- No Móvil com equipment 2009 CDB Brazil Petrobras 280 10,000 10 Yes–$3b for oil drill- Oil ing equipment 2010 CDB Venezuela PDVSA and 50–285 20,000 10 Yes–70%, incl CITIC Oil BANDES construction 2000 WB (IBRD) Brazil Eletrobras 30–55 43.4 15 No No 2007 WB (IBRD) Chile Government 5 24.8 10 No No 2010 WB (IBRD) Argentina Government 85 30 25 No No Chinese Sources: See Annex. World Bank Source: Interview, World Bank Lending Department Official, 2011
in the same country in the same year because both CDB and than the exceptionally high rate for Ecuador’s Coca-Codo the IBRD make every effort to keep their interest rates secret. Sinclair Dam, China’s rates fall 1 to 2 percent below US rates. However, it is significant that all the CDB interest rates we The lower rates of China Ex-Im Bank stem from China’s found exceeded IBRD’s rates, including all standard rates unconventional breakdown of commercial and concessional listed on the latter’s website (World Bank Treasury 2010). finance rather than from cutthroat competition. The IBRD In other words, the CDB charges higher interest rates than and other development banks offer concessional interest IBRD, despite conventional wisdom to the contrary. rates as an official form of development aid. Despite CDB’s When we compare export credit agencies, China’s Export- “development bank” label, the Chinese bank generally Import Bank offers slightly lower interest rates than US charges borrowers the full cost of finance.3 For this reason, Ex-Im Bank. The Washington Post argues that China is using Bräutigam labels CDB “the development bank that doesn’t “low-ball financing” to make its export credits more attrac- give aid” (2009, 115). The IBRD is effectively offering con- tive, since “China has handed out billions of dollars at less cessional rates in relative terms for the same reasons as the than 1 percent interest” (Pomfret 2010). However, China World Bank (see footnote 2), while CDB is not. It is not Ex-Im Bank is not giving out sub-1 percent loans. China surprising, therefore, that CDB’s interest rates are higher. Ex-Im Bank’s lowest-interest loans were its 2 percent loans Instead of giving development aid through its development to Jamaica and Bolivia in 2010. Bräutigam reports similar bank, China channels it through China Ex-Im Bank. rates for China’s Ex-Im Bank loans to African countries In order to give concessional loans, like Bolivia’s loans (Bräutigam 2009, 129, 140, 173). To compare China and at only 2 percent interest, China Ex-Im Bank receives sub- US Ex-Im interest rates, we subtract the OECD’s “country sidies directly from the Ministry of Finance (AFP 2011; risk” premiums to compensate for the fact that some coun- Bräutigam 2011a, 756). China budgets these subsidies as tries are riskier than others. These premiums are substantial; official development aid, though OECD countries prohibit they add 2.51 percent annually on loans to Argentina and mixing export credits with development aid. China Ex-Im Ecuador and 2.31 percent on loans to Bolivia and Jamaica Bank’s concessional interest rates fall 1 percent to 2 percent (OECD 2011; OECD 2011). While the US Ex-Im Bank below US Ex-Im’s commercial rates. China Ex-Im Bank’s charged 1.5 percent to 2.5 percent above the OECD risk premium, China Ex-Im Bank’s loan rates ranged from 0.31 3 As discussed in the previous section, CDB’s commercial rates still percent below the premium to 4.4 percent above it. Other shave hundreds of basis points off the commercial rates offered by sovereign debt lenders.
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largest loans, however, are unsubsidized commercial loans US trains. Pakistan still chose General Electric trains over at much higher interest rates. These include a $2.4 billion Dongfeng trains because they considered GE’s trains to be of loan for the Baha Mar resort in the Bahamas and a $1.7 bil- higher quality (Reddy 2011). Large price and quality differ- lion loan for Ecuador’s Coca-Codo Sinclair dam (Hu 2011). ences outweigh a 1 to 2 percent gap in interest rates, though China Ex-Im Bank is not undercutting US Ex-Im on these a 1 to 2 percent interest differential would increase total loans; it charged 6.9 percent interest on the latter, about financing costs by 18 percent to 30 percent for a twelve- 2 percent higher than US Ex-Im rates, even adjusting for year loan. Bräutigam reports a similar discrepancy in the Ecuador’s high risk premium (“Embassy” 2010). case of China Ex-Im’s loans to Africa. “There is no question The difference between China Ex-Im Bank’s concessional credits “Low-ball,” sub-1 percent Chinese loans exist, and IFI/Western ECA market-rate credits may not unduly influence but only within the Chinese government. borrowers. ECAs are not provid- ing discretionary loans but, rather, lines of credit for pur- that these subsidized loans do help… But their role should chases from US or Chinese companies. Thus, in addition to not be exaggerated… [Often,] Chinese companies are sim- interest rates, borrowers have to consider the differences in ply more competitive” (Bräutigam 2009, 98). product quality and pricing between US and Chinese com- China may be outcompeting OECD ECAs by reducing risk panies. For example, in a recent high-profile case of Ex-Im exposure fees, which goes beyond the scope of this study. bank competition in Pakistan, the Wall Street Journal reports In addition to the risk premium, the OECD requires mem- that Chinese trains were “30 to 50 percent cheaper” than bers to assess a substantial upfront risk exposure fee. For
table 6. China and Us ex-im Bank loan interest rates
rate minus Borrowing interest oeCD risk amount Payment Year lender Country Borrower rate Premium ($m) Period Purpose 2007 China Jamaica Government 2 –0.31 45 20 Montego Bay Ex-Im Convention Center 2009 China Bolivia YPFB 2 –0.31 60 20 Home gas networks, Ex-Im oil drilling rigs 2010 China Ecuador Government 6.9 4.39 1,683 15 Hydroelectric dam Ex-Im Coca-Codo Sinclair 2010 China Jamaica Government 3 0.69 340 5 Road construction Ex-Im 2009 US Ex-Im Mexico Pemex 3.81 2.04 600 10 Oil Exploration and Production Equipment 2009 US Ex-Im Mexico Electrica 4.3 2.53 81 4 Clipper Windpower del Valle de wind turbines Mexico 2009 US Ex-Im Brazil MRS Logis- 3.3 1.53 87 General Electric diesel tica electric locomotives 2010 US Ex-Im Dominican Pueblo Viejo 4.02 1.8 375 Caterpillar trucks, Republic Dominicana bulldozers, and loaders 2010 US Ex-Im Honduras Energia 4.42 2.11 159 18 Gamesa Wind turbines Eolica de Honduras
Chinese Sources: See Annex. US Sources: US Ex-Im Annual Reports
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Argentina and Ecuador, this fee is 14.4 percent; for Bolivia and Jamaica it declines to 13.2 percent (OECD 2011). While 4. on China’s terms: China Ex-Im Bank claims that it charges risk exposure fees Commodity-Backed loans according to bank regulations, we found no information on Chinese companies recently began arranging a new type the specific levels of these fees (Export-Import 2009). The of loan package, the loan-for-oil, for LAC (and elsewhere). Washington Post reports that US Ex-Im Bank competed with Loans-for-oil with Latin America have reached $46 billion China on a Pakistan loan by reducing its exposure fee to 8.2 in only three years, well over half of China’s total commit- percent, when the OECD requirement is 14.4 percent (Reddy ments to the region (Table 7). Venezuela has negotiated four 2011). If China Ex-Im Bank is indeed offering exposure fees such loans, totaling $32 billion, since 2008. Brazil signed 6 percent lower than OECD countries, its exports will be one for $10 billion in commitments in 2009. Ecuador more competitive, although this 6 percent pales in compari- signed a $1 billion loan-for-oil in 2009 and a second in son with a 30 to 50 percent price difference. 2010. In July of 2011, it added a third for $2 billion. The “low-ball” sub-1 percent loans exist, but they fall A loan-for-oil generally combines a loan agreement and within a special third class: loans within the Chinese gov- an oil-sale agreement that involves two countries’ state- ernment. State-owned Chinese banks will grant loans at owned banks and oil companies. The Chinese bank grants a negligible interest rates to state-owned Chinese companies billion-dollar loan to an oil-exporting country like Ecuador. operating abroad since there is little risk that one branch Ecuador’s state oil company, Petroecuador, pledges to ship of the government will default on another. In 2008, China hundreds of thousands of barrels of oil to China every Ex-Im Bank granted Chinalco Peru a $2 billion, 15-year day for the life of the loan. Chinese oil companies then loan at less than one basis point above LIBOR (Gallagher buy the oil at market prices and deposit their payments 2011). In other words, CDB treats Chinalco like it would into Petroecuador’s CDB account. CDB withdraws money treat a trusted fellow bank. We confirmed this interest rate directly from the account to repay itself for the loan. These agreements secure more Mainly because of a misconception about oil oil than will go to pay back the loan, since it would be politi- prices, Chinese loans have been criticized as cally untenable for the borrowing harmful to Latin American borrowers. countries to give China oil and get nothing in return. For example, Venezuela agreed on a ten-year, in an interview with Chinalco company officials in Lima. $20 billion loan-for-oil in 2010. To pay this loan back with The Washington Post reports that Chinese state banks are $110 barrels over the ten-year tenor, Venezuela would only supplying similarly cheap financing for Wuhan Iron and have to send 50,000 barrels per day. However, Venezuela Steel’s investments in the Brazilian steel and oil industries committed to send 200,000 to 300,000 barrels per day to (Pomfret 2010). No sources have reported rates this low China, four to six times as much. By incorporating the repay- outside the Chinese government. ment into a larger supply contract, Venezuela can truthfully In sum, Chinese banks are not offering better interest say that CDB will only deduct a portion of the revenues to rates than Western banks across the board or by large mar- cover loan interest, while the rest will return to Venezuela. gins. CDB’s rates appear high when compared to the IBRD. Today, Venezuela has signed so many loans-for-oil that it China Ex-Im Bank’s rates fall slightly below US Ex-Im’s allows China to keep $70 per barrel to pay back the loans, rates, but China Ex-Im’s lower rates stem from government while China refunds the remaining $40 or so according to development aid subsidies rather than competition with market prices (Crooks and Rodriguez Pons 2011). Brazil and OECD credit agencies. Ecuador retain a larger percentage of the oil revenue because they have smaller loans. In Ecuador, PetroChina deposits 79 percent of the oil revenue into Petroecuador’s CDB account
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table 7. Chinese loans-for-oil in latin america
Year Borrowing Country Borrower lender amount ($m) Purpose 2008 Venezuela BANDES and PDVSA CDB 4,000 Funding infrastructure, other projects 2009 Brazil Petrobras CDB 10,000 Pre-salt oil technology 2009 Ecuador Petroecuador PetroChina 1,000 Advance payment for Petroecuador oil 2009 Venezuela BANDES and PDVSA CDB 4,000 Infrastructure, including satellite 2010 Ecuador Petroecuador CDB 1,000 80% discretionary, 20% oil-related 2010 Venezuela BANDES and PDVSA CDB 20,000 Funding infrastructure 2011 Ecuador Government CDB 2,000 70% discretionary, 30% oil-related 2011 Venezuela PDVSA CDB 4,000 Infrastructure 2011 Venezuela PDVSA ICBC 4,000 Housing Sources: See Annex
and diverts the remaining 21 percent to pay back the loan Still, some scholars also argue that China has turned to (Arias Sandoval 2010). In Brazil, Sinopec pays market prices loans-for-oil as a second-best strategy. Chinese oil compa- for Petrobras oil and deposits its payment in Petrobras’ CDB nies would prefer to own foreign oil by buying equity in account. Brazil must maintain a minimum account balance foreign oil fields, rather than simply gaining an oil purchase equivalent to six months of interest on the loan (Zissis 2009). agreement. However, foreign governments have blocked CDB has made headlines with its loans-for-oil, but it did many of China’s attempts to buy oil fields, with the most not invent them. Indeed, Japan gave China loans for its oil famous example being the US refusal to allow the UNOCAL in the 1970s. These deals meant Japanese technology for merger. Unable to buy oil fields, it has been argued that China and energy security and industrial diversification for China turned to loans-for-oil to secure at least its oil pur- Japan (Bräutigam 2009, 13, 47). Both countries considered chases (Chao 2010, 158; The Economist 2010; Jiang 2010, these loans-for-oil successful; now that China imports oil 14; Arnson and Davidow 2011, 17). and exports technology, it has copied Japan’s deals. In fact, Mainly because of a misconception about the oil prices, Japan and China both signed loans-for-oil with Venezuela the loans have been criticized as harming Latin American in 2011 (Parraga 2011). borrowers. Chinese scholars and politicians declare loans- Loans-for-oil have received international acclaim for their for-oil a “win-win arrangement” and argue that they will benefits to China. They help China establish diverse, long- strengthen China’s image as a great power that helps other term oil supply chains, promote Chinese exports, put dollar developing countries (Chao 2010, 159; Zheng 2010). But reserves to a productive use, expand the international usage Latin American and US observers are wary of the deals. of the Chinese yuan, and win favor with borrowing govern- Many have made the assumption that the borrowers are ments. Jeremy Martin, director of the Energy Program at simply giving the shipments of oil to China to pay back the the Institute of the Americas, calls loans-for-oil the “most loan. This would be equivalent to selling a fixed quantity of important arrows in Beijing’s quiver” (Arnson and Davidow future oil to China at a pre-set price, and it would rob the 2011, 17). Downs argues that as a hybrid of policy and exporters of massive revenues as oil prices rose. commercial banking, CDB has designed the loans-for-oil to The New York Times repeats a Venezuelan lawmaker’s fulfill both policy and commercial objectives. In addition to claim that “China locked in low prices for the oil Venezuela securing oil supplies, helping Chinese companies expand is using as repayment” (Romero and Barrionuevo 2009). abroad, and building relationships with South American But China cannot “lock in” low prices, since the contract governments, the oil-backed commercial loan terms lower requires it to purchase the oil shipments at the relevant risk and increase profits (Downs 2011, 3). market price on the day they are received. In an interview
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with the Inter-American Dialogue, energy economist Roger not released the particulars of those agreements. But the Tissot argued that China can use loans-for-oil to “hedge Venezuelan government recently sent documentation to against future price spikes” (Myers 2011). China cannot the Wall Street Journal from which the paper concluded that hedge using loans-for-oil because it is purchasing the oil “China appears to be paying roughly market prices for the at spot market prices. For example, Petroecuador sells to oil” (De Córdoba 2011). Chao Caizhen, professor at China’s China based on West Texas Intermediate (WTI) prices. If People’s University, reports that Brazil is also selling oil WTI spikes, China’s prices will do the same. This miscon- based on market prices (2010, 160). ception has given loans-for-oil a black eye. Instead, as an If Chinese banks are not reaping large rewards from IMF Africa specialist noted: “It all depends on the terms” loans-for-oil, what is their purpose? First, the loans-for-oil (Bräutigam 2009, 149). have secured China’s access to half a year’s supply of oil. Financing terms in loans-for-oil agreements seem better Since only a fraction of the oil payment goes to pay back for the South Americans than most people believe. Some the loan, for every $1 of loans China has practically guaran- have criticized the loans in Ecuador, the only country to teed around $4 of oil supply. Among its seven agreements reveal details on its loans-for-oil. Ecuadorian oil ana- with Brazil, Ecuador, and Venezuela, China will receive lyst Fernando Villavicencio argued that the terms, which roughly 1.5 billion barrels of oil over the next ten years. include crude oil differentials and deal premiums, “rep- With China’s daily consumption at almost 8 million barrels resent million-dollar losses for the Ecuadorian state” (El per day, the 1.5 billion barrels constitute about 6.5 months Universo, “Más” 2010). Since Ecuador’s crude is of lower of oil. It should be noted that the volume of deliveries will quality than WTI, the deals subtract a differential of $4.20 likely fluctuate on an annual basis due to the structure of to $7.20 per barrel for Oriente crude and $7.90 to $10.70 the contracts. Nevertheless, this is a small but comforting for Napo crude (El Universo, “Negociaciones” 2010). At the share of China’s future oil needs. time the deals were concluded, Petroecuador’s official price Second, and perhaps more importantly, the loans-for-oil for Oriente crude included a differential of $5.67 and, for allow China to give loans to otherwise non-creditworthy Napo crude, a differential of $9.45 (Recent Business News borrowers by reducing the risk of borrower default. CDB 2010). These differentials seem to be in line with those in can siphon interest directly out of the oil payment, ensur- the Chinese deals. ing that if the country wants to export oil to China, it will China also pays oil premiums, or per-barrel bonus pay- have to pay back the loan. Lower default risk means lower ments above market price. The 2009 deal adds $1.25 to risk premiums and reduced interest rates. Thus CDB could $1.30 per barrel for the Ecuadorian crude (El Universo, offer Venezuela a ten-year, $20 billion loan. While it cost “Negociaciones” 2010). The 2010 deal cut this premium to a spread of 50-285 basis points, no other international $0.50, which sparked fierce controversy in Quito. However, lender would give Venezuela such a large, long-term loan. Petroecuador has recently sought to encourage high-volume Still, the risk of default is higher than most people believe deals by offering per-barrel discounts, so even the small because the oil is not collateral for the loan. If the borrowers Chinese premiums are positive (“Petroecuador” 2008). The threaten to cut off the supply of oil, CDB cannot seize extra final component of the financial package is the loan’s inter- oil or oil revenue to compensate4 (EFE 2009; El Universo, est rate. CDB set the rate at 7.25 percent for the first loan, 6 “Préstamo” 2010; Chao 2010; Jacob 2010). percent for the second, and 6.9 percent for the third. These
rates are high because Ecuador defaulted on $3.2 billion 4 China can sue the borrower in international arbitration tribunals, but the Chinese government avoids arbitration. Rather than forcing in government bonds in 2008 and 2009 (Mapstone 2008). the borrowers into international arbitration, it would most likely force Still, they are lower than the rates charged by sovereign debt repayment by blocking access to the borrower’s exports (Gallagher 2011). For example, when Argentina began anti-dumping investigations on lenders. According to JP Morgan’s EMBI+ Index, sovereign Chinese manufacturing exports, the Chinese government responded by lenders charge Ecuador 8.45 percent above Treasury yields banning Argentine soybeans. Since China had been buying 75 percent of Argentina’s soybeans, the ban carried far more weight than an arbitration (JP Morgan 2011). case. Orihuela, R. (2010). “Argentina Sets Levies and Ends Anti-Dumping Brazil and Venezuela also sell the oil to China for mar- Investigation on Chinese Goods.” Bloomberg. Retrieved 20 Dec 2011, from http://www.bloomberg.com/news/2010-07-22/argentina-stops- china- ket prices. The Brazilian and Venezuelan governments have anti-dumping-probes-after-failure-to-end-oil-spat.html.
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In sum, Chinese banks maintain some oversight over infrastructure and heavy industry, while the Western loans their loans by attaching either purchase requirements or oil span a range of governmental, social, and environmental pur- sale agreements. Most Chinese loans require the borrow- poses (Table 8). Chinese banks channel 87 percent of their ers to use a portion for Chinese technology or construc- loans into the energy, mining, infrastructure, transportation, tion. The latest CDB innovation is the loan-for-oil, which and housing (EMITH) sectors. Only 29 percent of IDB loans now constitutes 69 percent of total Chinese lending to the and 34 percent of World Bank loans go to the EMITH sectors. region. The Ecuador loans-for-oil do not seem as harmful to Instead, the IDB and World Bank direct more than a third of Latin American borrowers as is commonly believed, but few their loans toward the health, social, and environment sec- financial details are available. These strings-attached loans tors, which are devoid of Chinese investment. reduce the risk of default, allowing China to loan to less According to the Chinese banks themselves, they give creditworthy borrowers. more EMITH loans because they seek to directly support economic growth rather than social welfare. China Ex-Im Bank’s website states that its projects must “be able to gener- 5. Different Development ate foreign exchange revenue and create jobs in the borrow- model? China seeks to ing country. The [loans] focus on supporting infrastructure such as energy, transportation, telecommunication projects, Finance a Different, but and high-efficiency sectors such as manufacturing, process- sometimes overlapping, ing, and agriculture in the borrowing country.” set of Projects Bräutigam argues that in Africa, China is filling an unmet need for EMITH lending, which was all but aban- Chinese loans to LAC are more concentrated in certain sec- doned by the World Bank decades ago. She points out that tors than IFI and Western loans, although there is overlap. from 1946 to 1961, three-quarters of World Bank lend- Some argue that this reflects the fact that China has a dif- ing funded transportation and electrification (Bräutigam ferent development model than IFIs, favoring infrastructure 2009, 133). Today, that share has plummeted owing to and industrialization over micro-interventions in health Millennium Development Goals that focus donors’ atten- and social services. Others argue that Chinese loans reflect tion on indicators of social welfare (2009, 77). Chinese Chinese interests in the region and provide access to key banks, on the other hand, copy Japanese banks’ focus on natural resources and markets. infrastructure and transportation because they credit it Chinese banks loan money for different purposes than with spurring Chinese development in the 1970s (2009, their IFI/Western counterparts. The Chinese loans focus on
table 8. Bank loans to latin america by sector, 2005–2011
($ million) total world Bank iDB Chinese Health $17,926 $8,463 $9,463 $— Education $7,008 $4,389 $2,619 $— Water, Environment $16,144 $7,061 $9,084 $— Public Administration $19,105 $11,013 $8,092 $— Finance, Trade $18,328 $7,170 $9,858 $1,300 Housing, Infrastructure $38,098 $— $4,397 $33,701 Transportation $27,693 $7,192 $8,821 $11,680 Energy, Mining $30,061 $2,565 $7,576 $19,920 Other $10,651 $378 $2,028 $8,614 TOTAL $185,383 $48,231 $61,937 $75,215 Chinese sources: Annex. World Bank and IDB sources: respective Annual Reports
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Figure 4. China’s Impact on World Bank and IDB EMITH Lending 48). Interestingly, China Ex-Im Bank’s lending philosophy Chinese banks have focused on loans to the EMITH sectors, is showing35 signs of change. The bank’s 2010 annual100% report but even in this area, Western banks maintain their pre- notes: “In accordanceChina with EMITH the Loans Central Government’s foreign China lending. 30 WB/IDB EMITH Loans investment guidelines, requiring wise and effective80% use of WB/IDB Total Loans foreign25 investments, the Bank gave full support to projects WB/IDB EMITH 6. no Policy Conditionality in key areas, suchLoans as infrastructure, % of Total medical and health care,
million) 60% education, 20 [and] environmental protection” (Export-Import
($ for Chinese loans but
2010, 28). While loans targeting43 social indicators may be 15 40 40% strings still attached Total gaining ground within China, we have not seen31 evidence of them 10in China23 Ex-25Im Bank’s international portfolio. We compared World Bank and Chinese terms on similar Loan It is possible that Chinese loans in16 these sectors20% have loans to judge if the conditions were significantly different. 5 While the World Bank attempts to reshape the project and complemented, rather than supplanted, World Bank and IDB loans.0 World Bank and IDB loans to EMITH0% sectors even the organization receiving the loan, Chinese loans do rose in 20082005 and 20062010 despite 2007 2008a tenfold 2009 increase 2010 in Chinese not require that a borrower change its policies in return for lendingSource: over the same period (Figure 1). The share of World financing. Instead, Chinese banks usually force borrowers Bank and IDB loans going to EMITH sectors did fall by more to spend a share of the loan on Chinese goods. 50 percent in 2009. However, this relative drop in EMITH The World Bank imposes stringent conditions on its loans is misleading because, in 2009, total World Bank and borrowers. For example, the IBRD’s $30 million loan to IDB lending doubled as a result of financial crisis-related Argentina in 2010 required the Argentine government loans to the financial, health, and social sectors (World to submit numerous financial statements and evaluation Bank 2009, 47). We performed a simple linear regression reports as well as hire bank-approved experts to monitor here and found that Chinese EMITH lending had no signifi- transparency and efficiency (World Bank, “Loan” 2010, 8). cant impact upon Western EMITH lending. World Bank loan terms often go beyond administering the We conclude that Chinese and IFI/Western banks do not project to reforming the borrowing organization itself. The overlap significantly in Latin America because they give dif- IBRD loaned $485 million to the Brazilian state of Rio de ferent size loans to different sectors in different countries. Janeiro in January 2011 as “budget support” or discretion- ary funding. Although the World Bank did not tell Rio how to use the loan, it would not transfer the loan the state ful- filled a two-page list of conditions. To receive the first half of the loan, Rio had to integrate tariffs for intercity trans- portation, expand the environmental department’s human resources and financing, levy a fee on water users for watershed management, implement disaster risk mitigation policy, broker an agreement on housing plans with munici- pal governments, increase land titling programs, establish social programs in the slums, and set up a directive com- mittee led by the vice-governor. To receive the second half of the loan, Rio will have to restructure the Secretariat of Social Assistance and Human Rights, double land tenure regularization capacity, change the State Housing Fund’s operating rules with respect to low-income families, cre- ate an integrated plan for metropolitan governance, and execute a monitoring and evaluation program (World Bank, “Loan” 2011).
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Chinese banks give greater loan spending and tracking partners treat them as equals and simply seek to do business freedom to borrowers. China’s ambassador to Bolivia, Shen with them (2009, 10). If Chinese lending appears to generate Zhiliang, proudly said it is China’s “principle” not to “impose economic growth, developing countries may reject the World political conditions on foreign aid”5 (Ministry 2011a). The Bank’s “big brother” philosophy and demand Chinese-style Financial Times reports that Chinese banks “tend to impose equal treatment from Western powers. less onerous transparency conditions” (Dyer 2011). As While Chinese banks do not seek to reform their bor- president of the World Bank, Paul Wolfowitz complained rowers with Western-style policy conditionality, they attach that Chinese companies “do not respect” the Equator other strings in an effort to mitigate loan risks. Chinese banks Principles that set social and environmental standards for almost always tie their loans to the purchase of Chinese loans (Crouigneau and Hiault 2006). Former European goods. Other than a few loans-for-oil and smaller loans with Investment Bank (EIB) President Philippe Maystadt alleged that Chinese and IFI/Western banks do not overlap Chinese banks steal EIB’s projects by “undercut[ting] the conditions significantly in Latin America because they it imposed on labour standards and environmental protec- give different size loans to different sectors tion” (Parker and Beattie 2006). in different countries. African officials have noted “there is a risk that some governments in Africa may use Chinese money in the wrong way to avoid few details available, we found conditions in every loan pressure from the West for good government” (Swann and requiring the borrower to purchase Chinese construction, McQuillen 2006) As a result, Oxford professor Paul Collier oil, telecommunications, satellite, and train equipment. declared that “the Chinese are making [governance] worse” Some set aside only a small portion of tied funds, like CDB’s (Bräutigam 2009, 13). $1 billion loan-for-oil to Ecuador in 2010, which man- But others argue that Chinese loans offer a new, potentially dated 20 percent Chinese purchases. At the other extreme, liberating model of non-interventionist lending. Although China Ex-Im Bank gives 100 percent export credits, like a a Ugandan government spokesman said “[Western lend- $1.7 billion loan to pay a Chinese company to build the ers’] conditions are probably well intentioned, but they are Coca-Codo Sinclair hydroelectric dam in Ecuador in 2010. humiliating” (Swann and McQuillen 2006), the Heritage Since Venezuela committed to spend the majority of its $20 Foundation pointed out that “Many African governments billion loan in 2010 on Chinese goods and services, CDB like the Chinese policy of ‘non-interference’ in their internal denominated half in Chinese yuan (De Córdoba 2011). affairs” (Brookes 2007). Venezuelan President Hugo Chávez This is the largest Chinese-currency loan to date, but China declared that Chinese aid “differs from other multilateral loans Ex-Im has also issued yuan-denominated lines of credit to because it comes without strings attached, like scrutiny of Jamaica and Bolivia for equipment and construction (Urban internal finances” (Romero and Barrionuevo 2009). Indeed, Development Corporation 2007; Gaceta Oficial del Estado Bräutigam observes that Chinese lending follows the nation’s 2011). Whether the loans are issued in yuan, dollars, or sim- Five Principles of Peaceful Coexistence, which prohibit med- ply establish a line of credit with a given Chinese company, dling in other countries’ domestic affairs (Bräutigam 2009, the purchase requirements allow Chinese banks to reduce 24). She argues that Chinese loans actually constitute a differ- their exposure to default risk. It also reduces the recipient’s ent philosophy of development assistance. Rather than forc- room for corruption (Bräutigam 2009, 293). ing the borrowers to comply with Western norms, Chinese The difference between strings attached to Chinese loans and those attached to Western loans helps explain the dif- ference in countries borrowing from the Chinese and those 5 It should be noted that China almost never gives foreign aid to borrowing from Western lenders. The leftist governments in countries that recognize Taiwan (Republic of China) as the legitimate government of China. The only exception to our knowledge is Haiti. Ecuador, Venezuela, and Bolivia avoid World Bank loans in
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order to free themselves from the neoliberal policies the World to construction projects in Latin America and Africa. Within Bank imposes. They find purchase requirements attached to China, environmental regulations are constantly circum- Chinese loans less objectionable because they seek to build vented. In 2009, the Ministry of Environmental Protection up their EMITH sectors inexpensively using Chinese equip- reported that 15.5 percent of projects started construction ment. The loyal World Bank and IDB borrowers—Mexico, without approval, 9.6 percent of enterprises that were closed Colombia, and Peru—are undertaking projects outside the for environmental reasons resumed production without EMITH sectors for which Chinese purchase requirements permission, and 25 percent of the main sources of pollution would be a burden. They have been cooperating with the were not operating properly (McElwee 2009). To add to this US and World Bank for decades and find the transparency concern, a majority of Chinese loans are in environmentally sensitive industries, such as min- Chinese loans do not require that a borrower ing, or on infrastructure projects in developing countries with low change its policies in return for financing. environmental standards. International Rivers and Instead, China’s banks usually require Friends of the Earth, two envi- borrowers to spend a share of the loan ronmental advocacy organiza- tions, noted in July 2004 that on Chinese goods. the China Ex-Im Bank financed projects that other financial insti- and reform requirements less costly than Chinese equip- tutions had refused to fund. For example, in December 2003, ment. Brazil and Argentina accept Western loans where they the China Ex-Im Bank financed the Merowe Dam in Sudan, a find it acceptable to comply with Western standards. At the project that had attracted little funder interest in part due to same time, they take on Chinese oil, mining, and train loans the resulting displacement of 50,000 people (Bosshard 2010). because they are willing to use Chinese inputs and have little In 2007, the OECD recommended that China “improve gov- objection to the purchase requirements. ernmental oversight and environmental performance in the overseas operations of Chinese corporations” (OECD 2007, 12). Even Chinese officials have echoed these concerns. 7. environmental Cheng Siwei, a leading member of the People’s Congress, in Guidelines exist but not January 2007 stated: “Even in developing countries, foreign companies that turn a blind eye to their social responsibilities on Par with western will be kicked out of the market.” (Bosshard 2008, 11) Counterparts Chinese-led investments in Angola and Zambia have led to documented international labor and environmental Major infrastructure and heavy industry projects have violations (Kotschwar, Moran, and Muir). In Peru, poor the potential to create environmental problems in LAC. In environmental practices factor into a nearly two-decade- response to civil society efforts to “green” the development long conflict between the Chinese mining firm Shougang banks, many Western banks now have significant environ- and its workers and the local population. A 2006 inspec- mental guidelines. China has developed similar environ- tion by Peru’s mining investment regulatory agency found mental guidelines for its development banks. However, that 12 percent of Shougang’s workforce had unreported comparison of those guidelines finds that, despite signifi- lung disease. Beyond health concerns, Shougang was fined cant progress in the past decade, China’s guidelines do not for environmental damage following the contamination of yet match those of its Western counterparts. water supplies to the local community and surrounding Environmental advocacy organizations have expressed areas (Kotschwar, Moran, and Muir 2011). According to concern about the potential for Chinese firms to transfer Hermilia Zamudio, a local resident: “The Chinese see us as their lax adherence to domestic environmental regulation
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little more than slaves. They deem it beneath them to talk to passage of the “Environmental Impact Assessment Law us, and when they need to address problems here, they do of the People’s Republic of China,” effective September 1, so with their thugs” (Romero 2010). The negative relation- This law specifically expanded the role of EIA from ship between Shougang and the community has led other pollution assessment to overall eco-assessment and has communities to fear similar practices. been a critical component in encouraging change through- Financers play an important role by ensuring social and out China’s bureaucracy (Global Environmental Institute environmental guidelines are adhered to and practiced. But the 2011). In addition, this guideline officially established EIA lure of large loans to needed areas has led government officials as an important factor in deciding whether to go ahead on a in host countries to skirt domestic regulations. In Argentina, project (China Environment Law n.d.). Heilongjiang Beidahuang State Faros Business Trade Group Co. The Chinese government over the past Limited and the Río Negro provin- cial government signed an agree- five years has sought to incorporate social ment in 2010. This agreement awards Heilongjiang the lease of and environmental guidelines into its 320,000 hectares of land for agri- banks’ procedures. cultural production in Patagonia and the right to build a needed irrigation system for $1.45 In subsequent years, the State Environmental Protection billion. However, this agreement has sparked sharp criticism Administration (SEPA) has taken a leading role in imple- from Raúl Montenegro, president of the Environment Defense menting the “Environmental Impact Assessment Law of Foundation. Montenegro, winner of the prestigious Alternative the People’s Republic of China.” In February 2004, SEPA Nobel Prize, accused the Río Negro government of violating and the Ministry of Personnel jointly established a certifi- national and provincial environmental laws because of the loan cation system for professional EIA engineers and strength- (Hanks and Lopez-Gamundi 2011). ened requirements on professional EIA practitioners (Zhu and Lam 2009, 55). This effort was further strengthened China’s evolving environmental Guidelines when SEPA adopted the Equator Principles in January 2008 It may come as a surprise to many that the Chinese govern- (Bräutigam 2010, 36). China’s development banks have also ment over the past five years has sought to incorporate social followed suit with their own guidelines. The most important and environmental guidelines into its banks’ procedures to guidelines for each are CDB’s “Guidelines on Environmental improve both domestic and international lending practices. Protection Project Development Review” and China Ex-Im Bank’s 2007 “Guidelines on Environmental and Social 6 Environmental Guidelines Impact Assessment of Loan Projects” (Global Environmental Since the 1970s, the State Council has gradually pursued Institute 2011, 61-63). Under these guidelines, lending increased environmental protection. The 1979 “Law on practices at China’s leading development banks incorporate Environmental Protection (Provisional)” and the 1989 “Law social benefits and environmental protections. on Environmental Protection of the People’s Republic of The CDB’s “Guidelines on Environmental Protection China” created the framework for environmental protec- Project Development Review” focuses on client suitability tion and environmental impact assessment (EIA) proce- review, ex-ante EIA, and ex-post environmental monitor- dures within China (Global Environmental Institute 2011). ing. The CDB conducts a client suitability review by evalu- These laws were further strengthened by the State Council’s ating the environmental record of the company requesting
6 For a complete history of the development of China’s EIA system, see: ed. Zhu, Tan and Kin-Che Lam (2009). “Environmental Impact 7 For a complete review of the Environmental Impact Assessment Assessment in China.” Nankai University Research Center for Strategic Law, see: Stender, Neal, Dong Wang, and Jing Zhou (2007). “China’s Environmental Assessment and The Chinese University of Hong Kong Centre New Environmental Impact Assessment Law,” Orrick, Herrington,& of Strategic Environmental Assessment for China. Retrieved 13 Jan 2012, Sutcliffer, LLP. Retrieved 13 Jan 2012, from http://www.orrick.com/ from http://cseac.grm.cuhk.edu.hk/publications/EIA_IN_CHINA.pdf. fileupload/1188.pdf.
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table 9. major environmental Guidelines of Chinese Banks
state Council regulations when adopted Law on Environmental Protection (Provisional) 1979 Law on Environmental Protection of the People’s Republic of China 1989 Environmental Impact Assessment Law of the People’s Republic of China 1-Sep-03 Ministry of Commerce Provisions on the Authorization of Investment to Run Business Abroad 2005 Guidelines on Sustainable Building of Overseas Forests by Chinese Companies (With State Forestry Bureau) 27-Aug-07 Guidelines on Sustainable Management and Utilization of Overseas Forests by Chinese Companies 31-Mar-09 (With State Forestry Bureau) China Banking Regulatory Commission Opinion on Strengthening the Corporate Social Responsibility of Banking Institutions Nov-07 China Development Bank Guidelines on Environmental Protection Project Development Review Environmental Impact Assessment Framework for Lending to Small or Medium-Sized Enterprises (SMEs) Guidelines on Special Loans for Energy Conservation and Emission Reduction Work Plan on Loans for Pollution Control and Emission Reduction Ex-Im Bank of China Guidelines on Environmental and Social Impact Assessment of Loan Projects 2004; Revised 28-Aug-07 Source: Environmental Policies on China’s Investment Overseas. Global Environmental Institute (China Environmental Science Press, 2011)
the loan. Then the CDB conducts an ex-ante EIA review The China Ex-Im Bank has been a domestic leader in to ensure that resource and environmental protection costs adopting environmental policies. Shortly after passage are incorporated into the project’s operational costs. After of the “Environmental Impact Assessment Law of the the project is completed, the CDB will also conduct ex-post People’s Republic of China” in 2003, the China Ex-Im environmental monitoring. This monitoring includes con- Bank drafted its own internal guidelines. The “Guidelines sultations with environmental agencies and review to see if on Environmental and Social Impact Assessment of Loan the project’s implementation methods complied with envi- Projects” were instituted in 2004 and later updated and ronmental protection requirements (Global Environmental released to the public in August 2007.8 These guidelines Institute 2011, 62-63). strengthened requirements for consideration of the envi- In addition to strengthening internal guidelines, the CDB ronmental and social impact during the loan approval pro- engaged the international community to enhance its domes- cess, requiring EIA both prior and after the project, and tic lending practices. For example, the CDB partnered with regular review of the implementation of the project. More the World Bank on loan projects, leading to creation of the specifically, the guidelines stated that the EIAs must adhere “Environmental Impact Assessment Framework for Lending to four key principles: to Small or Medium-Sized Enterprises (SMEs).” This frame- work is only applicable within China, but spillover due to
familiarity with such lending practices may occur. The CDB 8 An excerpt (unofficial translation) of the Guidelines for Environmen- is currently considering adoption of the Equator Principle, tal and Social Impact Assessments of Loan Projects by the Global Wit- ness can be found at: http://www.google.com/url?sa=t&rct=j&q=&esr which would further strengthen its social and environmental c=s&frm=1&source=web&cd=1&ved=0CB8QFjAA&url=http%3A%2 procedures (Global Environmental Institute 2011, 62-63). F%2Fwww.globalwitness.org%2Fsites%2Fdefault%2Ffiles%2Flibrary %2FChinese%2520guidelines%2520EN.pdf&ei=kRrVTo_UHqWP0Q GOkIGCAg&usg=AFQjCNEmMR0OFgHG33CvroLTdvyzYKo4pg.
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1) Conduct ante and post EIA and monitor project after they are carried out so as to propose counter- implementation measures for preventing or mitigating the unfavorable 2) Base EIA on host country’s environmental standards impacts and make follow-up monitoring” (Zhu and 3) Respect indigenous people’s land and resources rights Lam 2009, 26). 4) Solicit public opinion for projects with potential for 2. Project Review of the EIA: Once the ex-ante environmen- serious adverse impact on the local environment tal impact assessment is complete, the bank needs to Violations can result in the China Ex-Im Bank halting make sure the EIA findings are addressed and mitigate its lending or demanding early repayment from lenders the environmental and social impact of the project. (Global Environmental Institute 2011, 61-62). 3. Industry-Specific Social and Environmental Standards: The The China Ex-Im Bank has also worked with IFIs in project should adhere to the relevant industry-specific establishing international social and environmentally standards. These standards are generally accepted as responsible lending practices abroad. In 2007, the China the ones defined by the World Bank and the IFC. Ex-Im Bank signed two Memorandums of Understanding 4. Ensure Compliance with Host Country Environmental with the World Bank and International Finance Corporation Laws & Regulations: The bank needs to ensure the proj- (IFC). These agreements strengthened cooperation efforts ect is in compliance with host country’s environmental in energy and transport projects in Africa, IFC equity laws and regulations. investments, and advisory services on environmental issues a. Ensure Compliance with International Environmental (Bosshard 2008, 13). Laws & Regulations: The bank needs to ensure the This progress is due to pressure by the Chinese central project complies with international environmental government and by non-governmental organizations. In laws and regulations, usually set by the World Bank conversations between the president of China Ex-Im Bank or the IFC. and Deborah Bräutigam, the president stated that China 5. Public Consultations with Communities Affected by the Ex-Im Bank only works with Western agencies for EIAs Project: The government, borrower, or third party as these organizations had better credibility. Furthermore, expert needs to publically consult with the affected the China Ex-Im Bank wanted to avoid making environ- communities and incorporate their concerns into the ment the central issue, indicating both internal and external project as much as possible. Early release of relevant pressure to adhere to social and environmental guidelines information regarding the project and the results of the (Bosshard 2010). EIA is crucial. 6. Grievance Mechanism: It requires that the borrower Common social and environmental provide a mechanism to receive, facilitate, and address Guidelines concerns raised by the affected communities during Over the past twenty years, social and environmental the duration of the project. guidelines have been incorporated into many regional and 7. Independent Monitoring and Review: To ensure due dili- government development banks, establishing a set of inter- gence, an independent social or environmental expert nationally agreed upon lending practices. These practices not associated with the borrower will review the EIA, have shaped the rise of social and environmental protection the project review, and consultation process (Equator within the developing world by tying such values to avail- Principles 2006). ability of loans. These common guidelines include: 8. Establishing Covenants linked to Compliance: The loans 1. Ex-ante EIA: An EIA “involves a systematic assessment need to link environmental guidelines through cove- of the potential environmental impacts of a proposed nants. Violation of the set guidelines will lead to review project and its alternatives” (Europe Aid). Similar to or possible cancellation of funds. international definitions, China’s State Council specifi- 9. Ex-post EIA: Once the project is complete, the bor- cally defined an EIA as “the methods and institutions rower will conduct a final EIA to review the project’s for analyzing, predicting and appraising the impacts of overall impact on society and the environment. programs and construction projects that might incur
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Using the nine common guidelines listed above, we con- The CDB has also worked to increase transparency by ducted two side-by-side comparisons of official guidelines publishing an annual corporate social responsibility report to see the degree that the CDB and China Ex-Im Bank have on its website in both English and Chinese. As a result of incorporated social and environmental guidelines into their its efforts, the CDB has won numerous domestic awards, current lending practices. First, since the CDB is most including the “‘People’s Social Responsibility’ Award” (con- similar to a development bank, we compared CDB guide- secutively for the past five years), “Most Socially Responsible lines with those of the World Bank, International Finance Bank of the Year” in 2010, and “Most Socially Responsible Corporation, and IDB. Then we compared the guidelines of Corporation in 2010” (CDB 2010). China Ex-Im Bank to US Ex-Im Bank as both promote their However, the CDB does not incorporate into its process domestic corporations abroad (Table 10). four widely-accepted guidelines: a grievance mechanism, a The CDB currently incorporates four of the common requirement for adherence to international environmental social and environmental guidelines into its lending prac- laws and regulations, an independent review and assess- tices. These guidelines include: environmental impact ment, or the establishment of covenants linked to compli- assessment, project review, public consultations with com- ance. A grievance mechanism and an independent review munities affected by the project, and an ex-post environ- and assessment are important avenues for addressing public mental impact assessment. Interestingly, CDB is the only concerns and ensuring transparency throughout the process. development bank among the three in Table 10 above Furthermore, the overall environmental standards applied are (WB, IFC, and IDB) that requires an ex-post environmen- the host country’s standards, which are generally lower and tal impact assessment. This requirement is an improvement less restrictive than the international environmental laws and over current IFI guidelines in that it creates a formal review regulations (Global Environmental Institute 2011, 62-63). process on the project’s overall effect on the community and The China Ex-Im Bank has also incorporated EIA, project environment, allowing for future corrective action. review, public consultations with communities affected by the project, and an ex-post EIA into its social and environmental
table 10. side-by-side Comparison of iFis with CDB
international interamerican China Finance Development Development environmental Guidelines world Bank Corporation (iFC) Bank (iaDB) Bank (CDB) Ex-ante environmental impact assessment X X X X Project review of environmental impact X X X X assessment Industry-specific social and environmental X X standards Ensure compliance with host country X X X* environmental laws and regulations and international environmental laws and X regulations Public consultations with communities X X X affected by the project Grievance mechanism X X Independent monitoring and review X Establishing covenants linked to compliance X X X Ex-post environmental impact assessment X *The CDB requires that if the host country’s environmental standards are inadequate, the firm follow Chinese standards or international best practices.
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table 11. side-by-side Comparison of China ex-im Bank with Us ex-im Bank*
U.s. export- export-import environmental Guidelines import Bank Bank of China Ex-ante environmental impact assessment X X Project review of environmental impact assessment X X Industry-specific social and environmental standards X Ensure compliance with host country environmental laws and regulations X X* and international environmental laws and regulations X Public consultations with communities affected by the project X X Grievance mechanism X Independent monitoring and review X Establishing covenants linked to compliance X X Ex-post environmental impact assessment X† X *China Ex-Im Bank requires that if the host country’s environmental standards are inadequate, the firm follow Chinese standards or international best practices. †Members of the Equator Principles are required to submit annual public reports for review. Not sure if this is supposed to be part of the * note or if it stands alone.
guidelines. An unofficial translation of China Ex-Im Bank’s These additions are a step forward for socially and environ- 2007 “Guidelines on Environmental and Social Impact mentally responsible loans because they directly link the Assessment of Loan Projects” cites the requirement of an ex- loans to adherence to guidelines. ante EIA and further states that “those projects that are Still, despite these additions, China Ex-Im Bank’s guide- harmful to the environment or do not gain endorsement lines remains relatively limited. China Ex-Im Bank has yet or approval from environmental administration will not be to require adherence to international environmental laws funded.” Like the CDB, the China Ex-Im Bank requires an and regulations, a grievance mechanisms, or independent ex-post EIA. Based on the findings of the ex-post EIA, China review and assessment. These additional requirements Ex-Im Bank “will revise the measures taken before and during would provide an avenue for mitigating any potential social the project implementation for similar projects. If necessary, and environmental concerns that emerge during the dura- the related requirements and policies will be fully revised.” tion of the project. China Ex-Im Bank, in contrast to other IFIs or the US Ex-Im Bank, does not cite any financial threshold to applying its implementation of environmental EIA. This omission could broaden the EIA screening process Guidelines to cover a greater number of projects (Environmental Defense Although China has made significant progress over the 2007). China Ex-Im Bank has also made efforts to increase past five years, measuring the degree with which Chinese transparency by publishing an overview of major projects and development banks have implemented these environmental a corporate social responsibility section in its annual report, guidelines is difficult. This difficulty is most likely due to available on its website in both English and Chinese. the relative newness of the laws, lax adherence to domestic China Ex-Im Bank goes beyond the CDB by requiring environmental laws, language barriers in conducting con- project review during the duration of the loan and estab- sultations with affected communities, and lack of publicly lishing covenants linked to compliance. Therefore, the dis- available information. covery of negative environmental impacts prior and during Based on the duration of time in the development lending the course of the project will lead the China Ex-Im Bank to industry, the CDB and China Ex-Im Bank are young players “require the implementation unit to take immediate reme- and their adoption of social and environmental guidelines dial or preventive measures. Otherwise, they will discon- is relatively new. In comparison with the World Bank in the tinue financial support” (Environmental Defense 2007). 1980s, the CDB and China Ex-Im Bank are ahead of history,
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starting implementation guidelines much earlier. China has Finally, due to the sensitive nature of loans in China, loaned Latin America $75 billion since 2005 with more there is an overall dearth of publicly available information. than half of that total issued after 2009. Many of these proj- This is further restricted by the lack of website information: ects have long construction periods with work still ongoing. neither CDB nor China Ex-Im Bank websites list EIA find- That makes it difficult at this point to evaluate the effective- ings for their major projects–in either Chinese or English. ness of the guidelines on Chinese lending practices. Despite this, some Chinese firms are adhering to social A complicating factor is lax adherence to domestic envi- and environmental practices. In Peru, Chinalco has taken ronmental laws. In 2004, a joint investigation by the SEPA steps toward following social and environmental guidelines. and Ministry of Land and Resources found that only 30 The company conducted an EIA and held public hearings to 40 percent of the mining construction projects went with the local community. In December 2010, its environ- through the EIA procedure (Gu 2005). This investigation mental impact assessment was approved, and the company occurred after the implementation of the State Council’s has since contracted with a Canadian firm to implement an Environmental Information Management System (Kotschwar, China’s environmental progress is Moran, and Muir 2011). Moreover, China Ex-Im Bank suspended the result of pressure from the Chinese funding for a hydropower dam in central government and from non- Gabon after local NGO Brainforest raised environmental concerns governmental organizations. over its location in a national park (Bosshard 2010). new law, indicating that there are conflicting goals when Further research is needed to assess how deeply Chinese it comes to rapid economic growth versus environmental development banks have implemented these environmental protection. Casual adherence to environmental protection guidelines, particularly on larger infrastructure and mining has continued as evidenced by the severe impact pollution projects. These projects are the most environmentally sen- has on cities across China. In Beijing, the US Embassy has sitive and, as such, are more likely to face EIA scrutiny at assessed that air quality is unhealthy 80 percent of time, home and abroad. causing health concerns for the city’s population (Andrews In conclusion, Chinese banks’ adherence to interna- 2011). In 2010 alone, there were an estimated 171 envi- tional environmental guidelines is relatively new, beginning ronmental accidents within China (Rong, Ying, Yuan 2011). approximately five years ago. In comparison to other devel- Domestic and international environmental accidents have opment-focused banks, the CDB and China Ex-Im Bank raised concern that, given weak domestic enforcement, incorporate the core principles of EIA, but both have a ways Chinese companies’ adherence to another country’s envi- to go to meet internationally established environmentally ronmental guidelines will remain low. This poor compliance responsible lending practices. Furthermore, evaluating the with domestic regulations could potentially transfer to con- overall implementation of these guidelines is hampered by struction projects done by Chinese firms in Latin America the newness of the loans, lax domestic enforcement of envi- and Africa, where a majority of Chinese loans are in environ- ronmental laws, language, and lack of publicly available mentally sensitive industries such as mining or infrastructure. information. China has made significant progress in incor- Language barriers are an additional obstacle in measur- porating social and environmentally responsible guidelines ing implementation of environmental guidelines. Language into its official guidelines, but further progress can be made. barriers can hamper efforts to conduct consultations with affected communities, can limit understanding of the host country’s environmental laws and regulations, and can weaken communication between the Chinese company and the host government.
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policy conditionalities of IFI and Western loans. Finally, 8. summary and Conclusions with loans from China, LAC nations can obtain more For this paper, we estimated the volume of Chinese public financing for the infrastructure and industrial projects they financing in Latin America and the Caribbean and looked seek to enhance long-run development—rather than the at the composition and characteristics of those loans. We latest Western development fads. then compared those estimates with LAC lending by the Contrary to much of the commentary on the subject, LAC World Bank, Inter-American Development Bank, and nations, by and large, pay a higher premium for loans from Export-Import Bank of the United States. We found that China. That higher premium comes in the form of interest China has committed approximately $75 billion in loans rates, not loans-for-oil. It is commonly thought that LAC to Latin American countries since 2005. China’s loan com- simply sends barrels of oil to China in return for financ- mitments of $37 billion in 2010 were more than those of ing and, as a result, may end up losing in the face of rising the World Bank, Inter-American Development Bank, and oil prices. But our analysis shows that such thinking mis- the US Ex-Im Bank combined for that year. We also exam- reads the evidence. The majority of Chinese loans-for-oil in ined the extent to which Chinese loans to Latin America are Latin America are linked to market prices, not quantities more favorable, impose policy conditionalities, and have of oil. Meanwhile, the loans are often tied to working with less stringent environmental guidelines than the loans of Chinese contractors and businesses, and that condition rep- their Western counterparts. Contrary to the suggestions of resents another cost because it reduces the “spillover” effect other observers, we find that the terms of Chinese loans to in terms of local contracting in LAC. Finally, although the Latin America can be more stringent than those of Western IFI/Western banks’ environmental record is far from perfect, loans, that Chinese banks impose no policy conditionali- Chinese banks do not operate on par with the environmen- ties (but do impose conditions of another nature) and, to tal guidelines of Western banks. This distinction is of grave the surprise of many, we show that Chinese finance does concern given that the composition and volume of Chinese operate under a set of environmental guidelines, although loans is potentially more environmentally degrading than those guidelines are not yet on par with the guidelines of Western banks’ loan portfolios to LAC. Western lenders. As more projects move forward, this research should It is our hope that this paper adds to the empirical be coupled with on-the-ground case studies comparing research on Chinese finance in LAC. The investigation we Chinese-financed projects with Western-financed projects. performed here gives credence to some claims about China However, even this research will be difficult to conduct in Latin America but less so to other claims. On the positive given the lack of available data and China’s limited experi- side, it is clear that China is a new and growing source of ence in reporting on such activities. We hope that we have finance for LAC countries, especially for countries having shed some empirical light on China’s financial activity in trouble gaining access to global capital markets. Moreover, LAC, and that others can deepen and expand our analysis from a LAC perspective, China’s loans come without the in a policy-relevant manner.
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annex: Key loan sources 2005 Brazil (Gerdau Acominas, $201 million) Bowley, Graham (2008). Cash Helped China Win Costa Rica’s Trade & Forfaiting Review (2006). TFR 2005 Deal of the Recognition. The New York Times. September 12. http://www. Year winners. Vol 9, No 4, February 6. http://www.tfreview. nytimes.com/2008/09/13/world/asia/13costa.html (accessed com/xq/asp/sid.0/articleid.EEEBCCBC-1BC8-4B7C-80C3- January 10, 2012). D8F9FDEB0862/eTitle.Deals_of_the_Year_2005/qx/display. htm. (accessed January 10, 2012). 2008 Peru (Chinalco Peru, $2 billion) Chinalco Peru Manager (2011). Private interview by Kevin P. Trade Finance Magazine (2005). BNPP and Sinosure sign Brazilian Gallagher. Lima, Peru. steel deal. November 1. http://www.tradefinancemagazine. com/Article/2140264/Regions/22996/BNPP-and-Sinosure-sign- China.cn (2008). Construction industry to fuel copper price Brazilian-steel-deal.html (accessed January 10, 2012). rise. http://en.china.cn/content/d442348,e0850e,2849_ 13988.html. (accessed January 10, 2012). 2005 Chile (Codelco, $550 million) Cespedes, T., and T. Wade (2008). UPDATE 1- China’s Codelco (2005). Memoria Anual. http://www.codelco.cl/ Chinalco gets $2 bln loans for Peru mine. Reuters. flipbook/memorias/memoria2005/codelco_memoria_2005. November 20. http://uk.reuters.com/article/2008/11/20/ pdf (accessed January 10, 2012). apec-chinalco-peru-idUKN Codelco (2006). Memoria Anual. http://www.codelco.cl/ flipbook/memorias/memoria2006/pdf/memoria.pdf (accessed 2008 Venezuela (BANDES and PDVSA, $4 billion) January 10, 2012). Gaceta Oficial de la República Bolivariana de Venezuela (2008). Ley Aprobatoria del ‘Convenio entre el Gobierno de El Mercurio (2005). Codelco-Minmetals: sólo falta la la República Bolivariana de Venezuela y el Gobierno de Ia negociación con el banco chino. December 22. http://diario. República Popular China sobre el Fondo de Financiamiento elmercurio.cl/detalle/index.asp?id=%7B8f45dca5-a8c5-4ba5- Conjunto’, 39019: 3-4. ad0c-f46645b01038%7D. (accessed September 9, 2011). Downs, Erica (2010). Inside China, Inc: China Development 2007 Jamaica (Government, $45 million) Bank’s Cross-Border Energy Deals. John L. Thornton China “Montego Bay Convention Centre” (2007). Urban Center Monograph Series, No. 3, Brooking Institution. Development Corporation. http://www.udcja.com/ March. http://www.brookings.edu/~/media/Files/rc/ Fact%2520Sheet/Fact_sheet_MontegoBayConCnt.pdf papers/2011/0321_china_energy_downs/0321_china_energy_ (accessed January 10, 2012). downs.pdf (accessed January 10, 2012). U.S. Securities and Exchange Commission (2011). Form De Córdoba, José (2011). China-Oil Deal Gives Chávez a Leg 18-K: Annual Report of the Government of Jamaica. http:// Up. Wall Street Journal. November 9. http://online.wsj.com/ marketbrief.com/jamaica-government-of/18k/annual-report- article/SB100014240529702037335045770260734130454 for-foreign-gove/2011/11/1/9084513/filing (accessed January 62.html (accessed January 10, 2012). 10, 2012). 2009 Bolivia (YPFB, $60 million) 2008 Costa Rica (Government, $300 million) SinoLatin Capital (2009). Bolivia gets $60 million loan from Ministerio de Relaciones Exteriores y Culto (2008). China (in Chinese). http://www.sinolatincapital.com/news Establecimiento de relaciones diplomáticas con la República letter_news_show.asp?id=336&n_id=41&noid=8. (accessed Popular China ha resultado beneficioso para el país. http://www. January 10, 2012). rree.go.cr/file-hn.php?id_file=414. (accessed January 10, 2012). Morales, E. (2011). Ley No 187: Ley de 22 de Noviembre de Anderlini, J. (2008). Beijing uses forex reserves to target 2011. Gaceta Oficial de Bolivia. http://www.gacetaoficialdebolivia. Taiwan. Financial Times. September 12. http://www.ft.com/ gob.bo/edicions/view/315NEC. (accessed January 10, 2012). cms/s/0/22fe798e-802c-11dd-99a9-000077b07658.html Erbol, (2009). Gabinete autoriza la firma de millonario (accessed January 10, 2012). crédito chino para el sector de hidrocarburos. November 18. http://www.erbol.com.bo/noticia.php?identifica dor=2147483920961. (accessed January 10, 2012).
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2009 Brazil (Telemar Norte, $300 million) Upstream (2010). Ecuador seals $1bn China loan. August Mayer Brown (2009). Emerging Markets. July. http://www. 31. http://www.upstreamonline.com/live/article228146.ece mayerbrown.com/publications/article.asp?id=7264&nid=6 (accessed January 10, 2012). (accessed January 10, 2012). 2009 Mexico (América Móvil, $1 billion) Trade Finance (2009). Telemar secures China Development Cellular New (2009). America Movil Profits Up on Lower Costs Bank loan. March 23. http://www.tradefinancemagazine. —Secures Chinese Bank Loan. April 30. http://www.cellular- com/Article/2175590/Search/Results/Telemar-secures-China- news.com/story/37273.php (accessed January 10, 2012). Development-Bank-loan.html?Keywords=Telemar&PageMove =0&OrderType=1. (accessed January 10, 2012). Business News America (2009). América Móvil secures US$1bn loan from China Development Bank. April 17. http:// 2009 Brazil (Petrobras, $10 billion) www.bnamericas.com/news/telecommunications/America_ Ifeng News (2009). Chen Yuan: Sino-Brazilian Oil Movil_secures_US*1bn_loan_from_China_Development_ Cooperation Talks Hit an Impasse (in Chinese). http://news. Bank (accessed January 10, 2012). ifeng.com/mainland/200908/0808_17_1291581.shtml. (accessed January 10, 2012). 2009 Multiple (BLADEX, $1 billion) Trade Finance Magazine (2009). China Development Bank Petrobras (2009). Formulário 20-F: Relatório Anual. offers jumbo loan to Bladex. September 21. http://www. Comissao de Valores Mobiliários dos Estados Unidos tradefinancemagazine.com/Article/2300180/Regions/22996/ da América. http://www.petrobras.com.br/ri/Download. China-Development-Bank-offers-jumbo-loan-to-Bladex.html aspx?id=10491 (accessed January 10, 2012). (accessed January 10, 2012). Trade Finance Magazine (2009). Petrobras concludes China Banco Latinoamericano de Comercio Exterior (Bladex) deal. May 20. http://www.tradefinancemagazine.com/ (2009). Bladex Announces the Successful Closing of Two- Article/2207578/Regions/22996/Petrobras-concludes-China- Year Syndicated Loan. September 16. http://www.blx.com/ deal.html (accessed January 20, 2012). Comunicados_de_Prensa/prestamo_sindicado_16_9_09_eng. Blount, J. (2009). Petrobras’s Gabrielli Says China Loan Won’t pdf. (accessed January 10, 2012). Be Backed by Crude. Bloomberg. April 20. http://www.bloom- berg.com/apps/news?pid=newsarchive&sid=a2Nl7Q1KjCqw 2009 Peru (Cofide, $50 million) (accessed January 10, 2012). Andina (2009). Cofide and China Development Bank signed loan agreement for up to $50 million. October 30. http:// Zissis, C. (2009). Interview: Petrobras CEO José Sergio www.andina.com.pe/ingles/Noticia.aspx?id=xeGdFRA+rnw= Gabrielli on Brazil’s Energy Outlook. Americas Society/Council (accessed January 10, 2012). of the Americas. June 23. http://www.as-coa.org/articles/1719/ Interview:_Petrobras_CEO_José_Sergio_Gabrielli_on_Brazils_ Alide (2010). Fuentes de Financiamiento y Oportunidades Energy_Outlook/. (accessed January 10, 2012). de Inversión. October-December. http://www.alide.org.pe/ download/Publicaciones/ffoi_oct-dic%202010.pdf (accessed 2009 Ecuador (Petroecuador, $1 billion) January 10, 2012). http://www.alide.org.pe/download/ El Universo (2011). Petroecuador destina el 9,5% Publicaciones/ffoi_oct-dic%202010.pdf para Petrochina. January 4. http://www.eluniverso. com/2011/01/04/1/1356/petroecuador-destina-95-petrochina. 2009 Venezuela (BANDES and PDVSA, $4 billion) html. (accessed January 10, 2012). Chao, C. Z. (2010). ‘Loans for Oil’—China’s New Search for Overseas Oil Sources (in Chinese). Economic Research Guide, El Universo (2009). Crédito de banco chino va atado No. 13. a la venta de crudo. July 3. http://www.eluniverso. com/2010/07/03/1/1356/credito-banco-chino-atado-venta- Gaceta Oficial de la República Bolivariana de Venezuela crudo.html?p=1354&m=638. (accessed January 10, 2012). (2009). Ley Aprobatoria del Protocolo de Enmienda entre el Gobierno de la República Bolivariana de Venezuela y el Arias Sandoval, Nilsen (2010). No se pueden comparar los dos Gobierno de la República Popular China al Convenio entre contratos de Petrochina. El Universo, October 29. http://www. el Gobierno de la República Bolivariana de Venezuela y el eluniverso.com/2010/10/29/1/1356/nilsen-arias-sandoval-no- Gobierno de la República Popular China sobre el Fondo de pueden-comparar-dos-contratos-petrochina.html. (accessed Financiamiento Conjunto. (accessed January 10, 2012). January 10, 2012).
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Petróleos de Venezuela S.A. (PDVSA) (2009). Informe de Reed, Frederick (2010). Two Hundred Chinese Labourers To Gestión Anual 2009. http://www.scribd.com/doc/35417118/ Build Roads in Nassau. Bahamas B2B, September 23. http:// PDVSA-Informe-Anual-de-Gestion-2009. (accessed www.bahamasb2b.com/news/2010/09/two-hundred-chinese- January 10, 2012). labourers-to-build-roads-in-nassau-2351.html (accessed January 12, 2012). 2009 Venezuela (CVG, $1 billion) EFE (2009). Venezuela, China sign oil, mining agreements. 2010 Bolivia (Government, $251 million) China Mining.org, December 25. http://www.chinamin- Gaceta Oficial de Bolivia (2011). Ley No 87: Ley de 2 de ing.org/Investment/2009-12-25/1261707285d32720.html Marzo de 2011. http://www.gacetaoficialdebolivia.gob.bo/ (accessed January 10, 2012). edicions/view/232NEC. (accessed January 10, 2012).
Global Insight (2009). New Oil, Mining Co-Operation China Daily (2010). China lends Bolivia $251m to fund satel- Accords Inked Between Venezuela and China. lite. January 24. http://www.chinadaily.com.cn/china/2010- 12/24/content_11749627.htm (accessed January 10, 2012). Baker Botts (2012). Alex Choinski: Senior Associate. http://www. bakerbotts.com/alex-choinski/. (accessed January 10, 2012). EFE (2010). Bolivia, Chinese firm sign deal to build satellite. La Prensa, April 1. http://www.laprensasa.com/309_america- 2010 Argentina (Government, $10 billion) in-english/639162_bolivia-chinese-firm-sign-deal-to-build- Hall, Simon (2010). China to Invest in Argentine Railways. satellite.html. (accessed January 10, 2012). Wall Street Journal. July 13. http://online.wsj.com/article/SB1 0001424052748704518904575364523811330964.html 2010 Bolivia (Government, $68 million) (accessed January 10, 2012). Garcia, E. (2010). Bolivia, China team up on communications satellite. Reuters, April 1. http://www.reuters.com/article/2010/ Mei, X. (2011). Guanzhu ziben shuchu fengxian beihou de 04/01/us-bolivia-china-satellite-idUSTRE63035220100401 jiyu. January 22. Financial Times Jinrong shibao. (accessed January 10, 2012). China CNR Corporation Limited (2010). China CNR China Daily (2010). China gives loan to Bolivia for regional Formally Begins Argentina Export Project (in Chinese). July development. April 1. http://www.chinadaily.com.cn/business/ 21. http://www.chinacnr.com/272-655-2727.aspx (accessed 2010-04/01/content_9676784.htm (accessed January 10, 2012). January 10, 2012). Gobierno Autónomo Departamental de Oruro (2010). Crédito 2010 Bahamas (Government, $58 million) de $67,750,000 de la República Popular China. April 28. Embassy of the People’s Republic of China in the http://www.oruro.gob.bo/?p=647. (accessed January 12, 2012). Commonwealth of the Bahamas (2011). Ambassador to the Bahamas Hu Dingxian Accompanies Bahamanian 2010 Brazil (Vale Mining, $1.23 billion) Prime Minister to Inauguration of Nassau Airport Highway Parra-Bernal, G. (2010). UPDATE 2-Vale borrows $1.23 bln Construction Project (in Chinese). http://bs.china-embassy. from China banks for ships. Reuters. September 10. http:// org/chn/sbgx/t804245.htm. (accessed January 12, 2012). www.reuters.com/article/2010/09/10/vale-china-vessels- idUSN1024736820100910 (accessed January 10, 2012). Ministry of Foreign Affairs of the People’s Republic of China (2010). The Chinese Government Celebrates Signing Weltman, George (2010). The Power of Export and its Critical Ceremony For Nassau International Airport Highway Lubricant—Export Credit Award West. Marine Money, Renovation Project Preferential Loan (in Chinese). September February/March 2011. http://marinemoney.com/publications/ 30. http://www.fmprc.gov.cn/chn/gxh/tyb/zwbd/wshd/ awards/2010_ExportCredit.pdf (accessed January 10, 2012). t758222.htm (accessed January 12, 2012). 2010 Ecuador (Government, $1.68 billion) Hu, Shan. (2011). Improving economic and trade coopera- Wall Street Journal, (2010). Ecuador Negotiates $1 Billion tion between China and The Bahamas. Nassau Guardian. Loan With China. July 2. http://online.wsj.com/article/SB1 September 9. http://www.thenassauguardian.com/index. 0001424052748704898504575342731104821918.html php?option=com_content&view=article&id=12739&Ite (accessed January 10, 2012). mid=86. (accessed January 12, 2012). Trade Finance Magazine (2010). China Exim steps in for Ecuador The Bahamas Investor (2011). Bahamas, China sign Economic hydro project. June 4. http://www.tradefinancemagazine.com/ Technical Cooperation Agreement. September 12. http://www. Article/2585104/Regions/22996/China-Exim-steps-in-for- thebahamasinvestor.com/2011/bahamas-china-sign-economic- Ecuador-hydro-project.html (accessed January 10, 2012). technical-cooperation-agreement/ (accessed January 12, 2012).
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El Universo (2009). Crédito de banco chino va atado 2010 Jamaica (Government, $58.1 million) a la venta de crudo. July 3. http://www.eluniverso. Jamaica National Works Agency (2010). The Palisadoes com/2010/07/03/1/1356/credito-banco-chino-atado-venta- Peninsula Shoreline Protection and Rehabilitation. n.d. http:// crudo.html?p=1354&m=638. (accessed January 10, 2012). www.nwa.gov.jm/content/projectread.aspx?projectId=619 (accessed January 10, 2012). (accessed January 10, 2012).
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2010 Jamaica (Government, $340 million) Jiang, X. (2010). The Deep Significance of Sino-Venezuelan Energy Cooperation (Zhongwei nengyuan hezuo de shen Office of the Prime Minister of Jamaica (2010). Jamaica and China sign agreements for over $500 million for road, housing cengci yiyi). China Petrochem (Zhongguo shiyou shihua) 9: 32. & culture projects. n.d. http://www.opm.gov.jm/news_and_ China Business News (2010). Citic Group to build public_affairs/jamaica_and_china_sign_agreements_for_over_ 10,000 homes in Venezuela. December 20. http://cnbusi- us500m_for_road%25EF%25BC%258C_housing_culture_ nessnews.com/citic-group-to-build-10000-homes-in- (accessed January 10, 2012). venezuela/#axzz1j969ES4q. (accessed January 10, 2012). Auditor General of Jamaica (2011). Special Audit Report of the 2011 Bahamas (Baha Mar, $2.45 billion) Jamaica Development Infrastructure Programme (JDIP). November. Ministry of Foreign Affairs of the People’s Republic of China http://jamaica-gleaner.com/pages/jdipspecialauditreport2011/ (2011). Ambassador to the Bahamas Hu Shan Gives Special jdipspecialauditreport.pdf (accessed January 10, 2012). Interview to Xinhua Reporters (in Chinese). June 24. http:// U.S. Securities and Exchange Commission (2011). Form www.fmprc.gov.cn/chn/gxh/wzb/zwbd/dszlsjt/t833738.htm 18-K: Annual Report of the Government of Jamaica. http:// (accessed January 12, 2012). marketbrief.com/jamaica-government-of/18k/annual-report- for-foreign-gove/2011/11/1/9084513/filing (accessed January 10, 2012).
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Hu, Shan (2011). Improving economic and trade cooperation El Universo (2011). $200 millones de crédito anterior de China between China and The Bahamas. Nassau Guardian. Sept. 9. fueron a petróleo y seguridad. July 7. http://www.eluniverso. http://www.thenassauguardian.com/index.php?option=com_ com/2011/07/07/1/1356/200-millones-credito-anterior-china- content&view=article&id=12739&Itemid=86. (accessed fueron-petroleo-seguridad.html. (accessed January 10, 2012). January 12, 2012). 2011 Jamaica (Government, $71 million) Reynolds, Megan (2011). Baha Mar Chairman never doubted U.S. Securities and Exchange Commission (2011). Form viability of project. The Tribune. February 22. http://www. 18-K: Annual Report of the Government of Jamaica. http:// tribune242.com/news/02222011_bahamarbahamas_news_ marketbrief.com/jamaica-government-of/18k/annual-report- pg1(accessed January 12, 2012). for-foreign-gove/2011/11/1/9084513/filing (accessed January Whitefield, Mimi (2011). China is financing $3 billion resort 10, 2012). in the Bahamas. Miami Herald. April 23. http://www.dominican Housing Agency of Jamaica Limited welcomes the 3rd China- today.com/dr/forum/living-in-the-dr/general-info/4786/Why- Caribbean Economic and Trade Cooperation Forum (2011). is-China-spending-billions-in-the-Caribbean (accessed 3rd China-Caribbean Economic and Trade Cooperation January 12, 2012). Forum. September 11. http://cncforumenglish.mofcom.gov.
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XAirforces Aviation Society. December 22. http://www. 2011 Peru (BCP, $150 million) xairforces.net/newsd.asp?newsid=739&newst=1. (accessed Andina (2011). Peru’s BCP, China Development Bank sign January 10, 2012). US$150mln loan agreement. November 28. http://www. Gaceta Oficial del Estado Plurinacional de Bolivia (2011). andina.com.pe/ingles/Noticia.aspx?id=gFurjAGfpUw= Decreto Supremo No 1103. http://www.gacetaoficialdebolivia. (accessed January 11, 2012). gob.bo/edicions/view/323NEC. (accessed January 10, 2012). América Economía (2011). Perú: BCP y China Development Reuters (2011). Bolivia’s President Evo Morales Holds Loan Bank suscriben préstamo por US$150M. November 28. http:// Contract. Yahoo! News, December 22. http://news.yahoo. www.americaeconomia.com/negocios-industrias/peru-bcp- com/photos/bolivias-president-evo-morales-holds-loan- y-china-development-bank-suscriben-prestamo-por-us150m contract-shen-photo-175336480.html. (accessed January 10, (accessed January 11, 2012). 2012). Xinhua (2011). China Development Bank and BCP Sign Loan ICBC Market Review (2011). China, Bolivia Sign Credit Agreement (in Chinese). http://news.xinhuanet.com/world/2011- Agreement of Industrial Purchase. December 27. http://www. 11/29/c_111203142.htm (accessed January 11, 2012). icbc.com.cn/ICBC/Market%2520Review/China%2520Bolivia %2520Sign%2520Credit%2520Agreement%2520of%2520In 2011 Venezuela (CDB, $4 billion) dustrial%2520Purchase.htm (accessed January 10, 2012). Rumsey, John, and Matthew Plowright. (2011). Billion-dollar deals deepen dependence on China. Emerging Markets. March 2011 Ecuador (Government, $2 billion) 27. http://www.emergingmarkets.org/Article/2795362/Billion- Alvaro, Mercedes (2011). China, Ecuador Sign $2 Billion dollar-deals-deepen-dependence-on-China.html (accessed Loan Deal. Wall Street Journal, June 28. http://online.wsj.com/ January 10, 2012). article/SB100014240527023043144045764123739160295 Minaya, E. (2011). Venezuela Strikes Latest Loan Deal With 08.html (accessed January 10, 2012). China; To Fund Housing. Wall Street Journal. December 13. El Universo (2011). China aprobó préstamo por $ 2.000 mil- http://online.wsj.com/article/BT-CO-20111213-714416.html lones. June 28. http://www.eluniverso.com/2011/06/28/1/1356/ (accessed January 10, 2012). china-aprobo-prestamo-2000-millones.html. (accessed January 10, 2012).
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Crooks, Nathan, and Corina Pons (2011). China EFE (2011). Venezuela firma un macroacuerdo y un crédito Development Bank to Lend Venezuela $4 Billion for Oil. de 4.000 millones de dólares con empresas chinas. Noticiero Bloomberg, November 22. http://origin-www.bloomberg.com/ Legal. March 15. http://www.noticierolegal.com/index. apps/news?pid=conewsstory&tkr=SDBZ:CH&sid=aXUlMJcn5 php?option=com_content&view=article&id=6667:venezu 7.Q (accessed January 10, 2012). ela-firma-un-macroacuerdo-y-un-credito-de-4000-millones- de-dolares-con-empresas-chinas&catid=21:pdvsa&Itemid=22. 2011 Venezuela (ICBC, $4 billion) (accessed January 10, 2012). Agencia Venezolana de Noticias (2011). Gobierno impulsa Pons, Corina (2011). Venezuela Signs Deals With Citic, ICBC planes de vivienda mediante alianza con empresas chinas for $4 Billion in Loans. Bloomberg. March 15. http://mobile. por $4.000 millones. March 15. http://www.avn.info.ve/ bloomberg.com/news/2011-03-16/venezuela-signs-deals-with- node/48272. (accessed January 10, 2012). citic-icbc-for-4-billion-in-loans (accessed January 10, 2012).
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Romero, Simon and Alexei Barrionuevo. “Deals Help China Urban Development Corporation. “Montego Bay Expand Sway in Latin America.” New York Times, April 15, Convention Centre.” September 2009. Accessed January 2009. Accessed January 12, 2012. http://www.nytimes. 10, 2012. http://www.udcja.com/Fact%20Sheet/Fact_sheet_ com/2009/04/16/world/16chinaloan.html. MontegoBayConCnt.pdf.
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inter-american Dialogue Board of Directors
Michelle Bachelet, Co-Chair, Chile Carla A. Hills, Co-Chair, United States Enrique Iglesias, Co-Vice Chair, Uruguay Thomas F. McLarty III, Co-Vice Chair, United States Peter D. Bell, Chair Emeritus, United States Fernando Henrique Cardoso, Chair Emeritus, Brazil Ricardo Lagos, Chair Emeritus, Chile
Alicia Bárcena, Mexico Billie Miller, Barbados David de Ferranti, United States Brian O’Neill, United States Francis Fukuyama, United States Pierre Pettigrew, Canada L. Enrique García, Bolivia Jorge Quiroga, Bolivia Donna J. Hrinak, United States Marta Lucía Ramírez, Colombia Marcos Jank, Brazil Eduardo Stein, Guatemala Jim Kolbe, United States Martín Torrijos, Panama Thomas J. Mackell, Jr., United States Elena Viyella de Paliza, Dominican Republic M. Peter McPherson, United States Ernesto Zedillo, Mexico