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China’s Latin American ambitions on display in Chile

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ByBenedict Mander

Belt and Road Initiative’s latest expansion brings new investments and challenges

The recent arrival of 200 electric buses made by Chinese manufacturers BYD and Yutong in Santiago has highlighted a dramatic shift in China’s relationship with Latin America.

Officials in Santiago said the BYD and Yutong deals — which will give Chile’s capital the second-largest fleet of electric buses in the world, for an undisclosed price — are just the beginning of a ramp-up of Chinese investment in Latin America.

“We’re at an inflection point where Chinese investment is going to start growing strongly,” said Cristián Rodríguez Chiffelle, director of InvestChile, the state investment promotion agency, for which Chinese investment is a top priority.

While Brazil, Latin America’s largest economy, remains the biggest prize, China is increasingly focused on making inroads in the region through countries such as Chile, whose fast-growing economy, stable government and natural resources such as lithium — a key component in batteries that power everything from smartphones to electric cars — make it an attractive target for China’s efforts to expand its global reach.

But China’s Latin American ambitions — coming as the US takes a step back from a region it once dubbed its “backyard” — have drawn criticism from those who fear Beijing is trying to expand its geopolitical dominance, leaving partner countries with big debts. Jair Bolsonaro, Brazil’s president, for instance, has complained that China is “buying Brazil”.

Until recently, China’s investment in Chile was limited, despite robust trade — Chile is the world’s top copper producer and China the biggest buyer. But in November Chile joined six other countries in Latin America and the Caribbean, including Ecuador, Panama and Cuba, in signing a memorandum of understanding with China to participate in its Belt and Road Initiative (BRI), a development strategy aimed at improving infrastructure and connectivity to China from surrounding countries.

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The administration of Sebastián Piñera, Chile’s centre-right president, has also made increasing foreign direct investment a priority since taking office last year, enacting a law aimed at cutting red tape and encouraging new investments. The result, according to the government, was $8.2bn in FDI in 2018, a 28 per cent increase from the year before.

China has seized the invitation. China-based Tianqi Lithium Corp snapped up a 24 per cent stake in Chilean lithium miner SQM for $4bn, the country’s biggest foreign investment in 2018. Chinese companies have also invested in Chile’s electricity, renewable energy, salmon and fruit sectors in the past year.

China has also begun to compete with the US as a supplier of technology. Chinese ride-hailing app Didi Chuxing goes head to head with Uber in Brazil and Mexico, and is set to expand into Chile as well as Peru and Colombia.

Meanwhile, a pipeline of $1.8bn of investments from Chinese companies, including the China Three Gorges Corporation, the State Grid and Alibaba would double the amount of the country’s investments in Chile from a year ago, before the Tianqui deal, said Mr Rodríguez Chiffelle.

“As China’s investing and trading relationships have matured and become more commercialised, Chile and China are a natural match,” said Mike Derham, a partner at Novam Portam, a consultancy focused on the link between Latin America and Asia.

China’s increased interest in Chile has not come without controversy, however. Its increased interest in the region has prompted US officials to warn Latin America about China’s “predatory” nature, and the “debt traps” it has created for developing countries.

Even in Chile, which has been largely receptive to China’s advance, there has been pushback. The Tianqi deal ran into concerns about its potential to hand China more control over the already heavily concentrated market for lithium.

Chilean antitrust authorities closely scrutinised the deal, prompting criticism from China’s ambassador to Chile, Xu Bu, who told local newspaper La Tercera that opposition might “leave negative influences on the development of economic and commercial relations between both countries”.

A settlement was reached, which allowed Tianqi to purchase the stake but blocked it from appointing its employees to SQM’s board and required it to tell regulators about future lithium deals struck with SQM or top rival Albemarle.

 

 

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There was still “considerable interest” in China in striking large-scale deals with other governments in the region, said Margaret Myers, a fellow at the Inter-American Dialogue think-tank in Washington DC.

But many cash-strapped Latin American governments that sought Chinese credit over the past decade had been replaced with more market-oriented administrations — most importantly in Brazil and Argentina — that preferred open bidding for contracts and partnering on infrastructure projects, she said.

“As a result, Chinese companies are increasingly bidding for projects [alongside local and international firms],” Ms Myers added.

Chile alone has a $14.5bn portfolio of public works projects. In a “historic” change, China will win some contracts “for sure”, said Mr Rodríguez Chiffelle. He emphasised that China had never won a concession in Chile until the China Harbour Engineering Company, the country’s second-biggest construction company, was successful in its bid to build a hydroelectric dam last year. “That marked a before and after,” he said.

After recent Chinese investment announcements of major infrastructure projects to upgrade the Panama Canal and build a $3bn port at Chancay in Peru, there are hopes that Chinese companies will invest in a “bi-oceanic corridor” from Brazil to Chile, building a railway that would link South America’s Atlantic and Pacific coasts.

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Although the BRI has been criticised for creating debt traps in countries such as Pakistan and Sri Lanka, observers say Chile is less at risk because of its insistence that Chinese companies follow best practices and regulations, as other international and local companies are obliged to do — in contrast to the murkier rules of state-to-state deals.

Officials have studied mistakes made by heavily indebted countries in Asia as a result of the BRI, and have also seen closer to home the problems experienced by countries such as Venezuela, which has had trouble repaying its Chinese debts.

Whether Chinese investment reaches the proportions that many governments in the region are hoping for may depend on factors beyond their control. “China may start looking inwards more. The slowdown of the Chinese economy is making people wonder whether the flow of investment money into Latin America will come to a halt,” said Mr Derham.

But Jorge Heine, a former Chilean ambassador in Beijing, argued that the size of the Chinese economy was such that there would not be a big impact on investment flows to the region. “We are going to see more rather than less Chinese investment in the years to come,” he said.

This article has been amended to reflect the fact that Chinese manufacturer BYD also provided electric buses in Chile.