China’s loans to Latin America dry up as governments in the region are hit by the pandemic

MIAMI – It seemed like a match made in finance heaven.

In 2010, China, with its roaring economy and state-owned companies seeking to expand globally, set its sights on Latin America, a region starved for capital but rich in natural resources that the Asian giant lacked. The result: a record $ 35 billion in state-to-state loans that year.

Fast-forward a decade and the once steamy relationship is beginning to mature in ways that suggest China may be increasingly suspicious of its once-wrong partner.

For the first time in 15 years, China’s two largest policy banks, the China Development Bank (CDB) and the Export-Import Bank of China, did not make any new loans to the region in 2020, ending to a multi-year decline driven by the Latin American crisis. worsening economic downturn.

The data comes from a new report by the Inter-American Dialogue, a Washington think tank, and the Boston University Center for Global Development Policy, which have been tracking China’s yuan diplomacy in Washington’s backyard for years. .

China’s growing economic and diplomatic influence in the region has worried US lawmakers, who have been unable to counter its rise. The task now falls to the Biden administration, which has warned that China’s footprint in the region is a threat to national security. But given that China has displaced the United States as the main trading partner of several South American nations, catching up will not be an easy task.

Meanwhile, the United States may have fallen further behind during the pandemic, when China donated more than $ 215 million in supplies, from surgical gloves to thermal imaging technologies, to allies in the region, according to the research. By comparison, the United States Agency for International Development and the State Department have provided $ 153 million. China also conducted clinical trials or plans to make vaccines in five countries: Argentina, Brazil, Chile, Mexico and Peru.

Venezuelan workers unload humanitarian aid from China at the Simón Bolívar International Airport in La Guaira, Venezuela, on March 30, 2020.Matias Delacroix / AP File

“Certainly, part of the region’s COVID response has a Chinese face,” said Rebecca Ray, an economist at Boston University and one of the authors of the new report. “It’s a missed opportunity for America, but since American manufacturing bottomed out in the 1990s, there’s really no way to compete. Many of the same medical supplies that China sends to Latin America we also buy from China. “

But while the pandemic has opened the door for much-welcomed Chinese aid, it has also made it difficult for governments to pay their bills to Beijing. A deep 7.4% recession in Latin America and the Caribbean last year ended nearly a decade’s growth, according to data from the International Monetary Fund.

With borrowers squeezed, China has suffered. Last year, Ecuador negotiated to delay for one year almost $ 900 million in debt payments serviced by oil shipments. Venezuela, by far the largest borrower in the region, is believed to have received a similar grace period.

“With the region facing unprecedented challenges, China is unlikely to lend more for now,” said Margaret Myers, director of the Asia-Latin America program at the Dialogue. “Instead, you have to deal with your own troubled portfolio.”

The slowdown in lending to Latin America reflects a broader global pullback, as China turns inward to bolster its own recovery efforts amid the pandemic. The ruling Communist Party has loaned billions of dollars to build ports, railways, and other infrastructure in Asia, Africa, Europe, and Latin America to expand China’s access to markets and resources.

But Beijing has grown more cautious after some borrowers struggled to repay loans. Officials say they will scrutinize projects and funding more carefully.

The China Development Bank and the Foreign Ministry did not respond to questions about the reasons for the decline in Chinese loans to Latin America.

Despite the exhaustion of loans, Chinese purchases of soybeans, iron ore and other raw materials from Latin America remained strong, at an estimated $ 136 billion. That’s despite the sharp increase in purchases of American agricultural products by China, a promise reached with the Trump administration to end a debilitating trade war.

Chinese state energy companies also aggressively bought energy assets at auction prices from outgoing Western investors. Overall, Chinese mergers and acquisitions rose to $ 7 billion in 2020, nearly double the activity in 2019, according to the research.

Among the deals: the sale of Peru’s largest power company by San Diego, California-based Sempra Energy to China Three Gorges Corp. Another $ 5 billion deal that gives State Grid Corp. of China control of a major utility company in Chile was announced last year, but not included in the data because it has not been finalized.

For the region’s leaders, Chinese loans for high-priced infrastructure projects are hard to resist. Interest rates are low, and unlike World Bank and IMF loans, there are fewer strings attached and approval is faster, allowing leaders to tout achievements in time for the next election.

Even Colombia, Washington’s staunchest regional ally and a country cold to China’s pleas, jumped on the bandwagon recently. Last year, a consortium that included China Harbor Engineering Company began construction of the capital Bogotá’s first metro, a $ 3.9 billion project. No US company submitted bids for the project, which did not directly benefit from any Chinese loans.

US officials have tried to back down, pointing out that US foreign aid is long-standing and more transparent.

“Beijing’s assistance in the region is generally aimed at promoting the commercial or political interests of the People’s Republic of China,” the State Department’s Office of Western Hemisphere Affairs said in a statement.

In January, at the end of the Trump administration, the U.S. International Development Finance Corporation signed an unprecedented agreement with Ecuador to finance up to $ 2.8 billion in infrastructure projects, money it said could be used to “refinance the predatory Chinese debt. “

But the total funding for the DFC – $ 60 billion – pales in comparison to the $ 1 trillion that China has put aside for its “Belt and Road” initiative to expand its influence around the world.

The US loan package to Ecuador was significant in that it would also require the government to privatize oil and infrastructure assets and ban Chinese technology.

“This would definitely limit China’s influence,” Myers said. But by burdening future generations with more debt and encouraging the use of fossil fuels, does it really help Ecuador in the long term? If not, it could backfire against the United States. “

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