High in the Andes mountains, pipes carry natural gas from Bolivia to neighbouring Argentina. Down in Patagonia, Chinese technology helps Chilean farmers raise salmon. And along Brazil's coast, a Chinese firm runs Latin America's largest port.
Across Latin America and the Caribbean (LAC), China has spent over $150 billion in foreign direct investment (FDI) over the past two decades. Its quest for resources and new markets has transformed economies from Mexico to Argentina. Along the way, it has shifted political alignments and challenged U.S. regional economic dominance.
For China's President Xi Jinping and the ruling Communist Party, Latin America represents both economic opportunity and geopolitical importance. It is a leading supplier of commodities and agricultural goods needed to fuel China's growth and feed its immense population. Many nations there have also shifted diplomatic recognition from Beijing over Taiwan.
In the vacuum created by loss of American interest in the region after the collapse of the Soviet Union, Latin American and Caribbean leaders welcomed China's overtures as a counterweight to traditional Western influence. Chinese state-owned firms were eager partners for major infrastructure projects governments sought but struggled to fund on their own. From highways to dams, telecom networks, mines and more, Beijing's largesse helped build crucial economic arteries across the region.
Critics argued China’s true interest was extracting resources and agricultural products, not mutual development. Chinese firms were accused of lax standards, harming the environment, and displacing local jobs and businesses. Promised spillover benefits often failed to materialise.
Initially, such concerns were outweighed by China's willingness to finance projects Western funders deemed too risky. That brought accusations China was practising "debt-trap diplomacy," doling out easy loans countries would struggle to repay. Yet study after study has shown China's lending practices in LAC are not markedly different from those of institutions like the World Bank.
Of course, money alone does not purchase lasting influence. As China's engagement with the region passed the two-decade mark, a more complex dynamic is emerging. Shifting economic growth trajectories, policy priorities and competitive pressures have reshaped the calculus driving Chinese investment.
Amid these changes, China's leaders are touring a "new era" focused on higher quality, sustainable and innovative engagement abroad. But translating slogans into reality on the ground has proved challenging. Tensions persist between China's global ambitions and economic self-interest, between state-driven investment and market-oriented priorities.
How these tensions play out may dictate much about the future of China's economic statecraft in its own neighbourhood and across a region in flux.
Early ambitions
In the wake of the 2008 financial crisis, China leveraged its strong fiscal position to dramatically expand investment abroad. This helped Chinese firms gain advanced technology and managerial expertise overseas to fuel China's growth and upgrade its economy.
The expansion dovetailed with the 2013 launch by President Xi of the Belt and Road Initiative (BRI). The BRI framed overseas infrastructure construction as a vehicle for China to project commercial and geopolitical influence. It soon accounted for billions in Chinese-financed projects from East Africa to Latin America.
That same year, Xi committed to investing $250 billion in LAC over a decade and invited Latin America to join the BRI. The region seemed a natural extension of the effort given its infrastructure needs, export commodities and political alignments.
Chinese policy banks like China Development Bank (CDB) and Export-Import Bank of China (CHEXIM) proved ready lenders for projects that helped secure resources critical to China's growth. State-owned oil and mining firms led the push into the region's rich hydrocarbon and mineral reserves.
Major Chinese state-run construction firms like China Railway Construction Corporation (CRCC) won contracts to build everything from roads, bridges, ports and railroads. Telecom equipment makers like Huawei and ZTE spread cellular networks across the region. Over 90 per cent of investment came from state-owned enterprises (SOEs) acting as long arms of Chinese government policy.
These moves supported China's "Going Out" strategy to harness overseas resources and markets for its domestic modernisation drive. They also helped Latin America expand exports and upgrade physical infrastructure to reduce transport costs domestically and reach global markets.
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High profile projects
Several mega-projects symbolised China's ambitious initial investment footprint across LAC, demonstrating its seeming potential to transform regional economies:
Nicaragua Canal: In 2013, billionaire Wang Jing's Hong Kong Nicaragua Canal Development Group was granted a 50-year concession to build and operate an interoceanic canal rivaling Panama's. The $50 billion canal would allow ships to bypass the existing Panama Canal, shortening transport times between East Asia and the US East Coast. But progress has stalled, mired in environmental concerns and the fading personal fortune of Wang.
Southern Cone Rail: China agreed to upgrade Argentina's creaking railways and build a transcontinental line linking Brazil's Atlantic coast with Chile's Pacific ports. Spanning over 5,000 km, it would cut shipping times and expenses for trade between China, Brazil and Chile. In 2021 Chile and Argentina agreed to promote the Trans-Andean Railway System. Though Chinese companies and Argentine authorities agreed to upgrade the Norpatagonico Train through southern Argentina as a section of the Trans-Andean System, negotiations on the nearly $800 million investment have been slow.
Amazon Rail: In a parallel project further north, China committed to building another transcontinental railway connecting Peru's Pacific coast with Brazil's Atlantic coast, a breathtaking span across the Amazon basin. It, too, was billed as a way to boost regional trade and integration, lowering transport costs for Brazilian commodities. Like the Southern Cone rail, however, the project is mired in economic and political hurdles and actual work is on a more modest scale (see below).
Belo Monte Dam: In 2010, Brazilian officials initially rejected multilateral lender financing for the controversial $16 billion Belo Monte hydroelectric project, citing onerous environmental controls. Instead, CHEXIM bankrolled 80 per cent of the mega-dam's construction cost. Completed in 2019, Belo Monte boosted Brazil's power supply but was plagued by cost overruns, displaced communities and environmental harm.
But China's presence also generated unease. Leaders in Brazil and other countries see China’s road building and megastructure projects as empire-building, seeing them as the in-your-face power the Romans projected in the conquered lands across their empire with the massive infrastructure that remain even today.
Nevertheless, such high-profile initiatives cemented perceptions of China's economic clout and ambition in the region. Yet many also exposed the risks and complexities accompanying BRI projects. Grand visions collided with political and financial realities on the ground. Promises of transformative regional integration went unfulfilled.
Unmet expectations
By the late 2010s, research documents showed BRI transportation projects were routinely delayed and plagued by corruption, environmental damage, and labour abuses. Promised local job creation and technology transfer were limited. Financial return for Chinese firms and local economies often proved elusive.
As major infrastructure construction slowed globally after 2013, researchers found negative returns overall from BRI investments. Projects built with Chinese financing in Latin America also faced rising scrutiny over sustainability issues.
Belo Monte highlighted chronic problems like improperly consulting and compensating communities displaced by Chinese-backed mega-projects. In Ecuador, CDB-financed dams contributed to environmental damage and social conflicts. A railway built by China Railway Group through Peru's Andes to transport minerals faced protests over indigenous land impacts. Road building projects in Bolivian Amazonia’s Beni region created resentment over isolationism by the contractors and their visible impact on the environment.
Such issues underscored that for all its scale, Chinese FDI was not a panacea to Latin America's deep-rooted development challenges. Transport infrastructure alone could not solve structural problems like reliance on commodity exports, weak governance, and inequality.
Contention also grew over lopsided trade patterns between China and Latin American economies. Raw material exports boomed but local industry struggled to compete with surging Chinese manufactured imports. Promises to "climb the value chain" by exporting more processed goods to China proved elusive.
By the late 2010s, attitudes toward BRI participation soured in some quarters. Political leaders aligned with China were voted out of power. Successor governments sought to review, revise or cancel Chinese mega-projects agreed to by previous administrations.
The need for a "rebalance" was acknowledged even by Chinese officials and academics previously boosting BRI's potential. Amid a slowing domestic economy, calls grew within China to ensure future BRI ventures were financially sound and economically viable for participants.
Shifting ground
China's foreign investment slowdown reflected changing economic realities both at home and abroad. During the 2010s, China's double-digit growth waned as it matured from an emerging economy to an industrial powerhouse. Demand eased for steel, oil and other commodities that fuelled its rapid rise.
New strategic priorities also emerged under President Xi, like developing China's high-tech sector and expanding domestic consumption. SOEs were instructed to better balance state goals with market principles. Overseas, this meant pursuing commercially viable projects that could recoup returns.
Global economic volatility, rising inflation and weakening demand in the wake of Covid-19 further complicated cost-benefit calculations. Developing nations struggled with growing debt burdens, increasing risk of loan defaults.
Within Latin America, the end of its own commodities boom meant less readily available revenue to finance big infrastructure dreams. Tighter budgets made countries wary of swelling debt obligations, even on attractive terms from China. Progress slowed on major projects as governments sought to renegotiate elements like equity stakes, debt payments and timelines.
What arose from these shifts was a China that, while still expanding overseas engagement, was now more cautious and targeted in deploying its financial resources. Chinese lenders embraced more sustainable, financially prudent global development principles like those touted by Western institutions.
For its part, Latin America also aimed to better leverage China's vast commercial presence for domestic development rather than just feeding its growth. Calls increased for more technology transfer, local supply chain integration and "high quality" Chinese investment in value-added sectors.
The need to balance geopolitics, commerce and financial sustainability has remade the calculus around major BRI projects. Grand visions continue percolating but are now tempered by discretion. For example:
- After lengthy delays, work quietly began in 2022 on a much-reduced version of the transcontinental Brazil-Peru railway spanning just the first third of the route.
- Similarly, only certain proposed sections of the Southern Cone railway are moving forward under a scaled-back vision stressing upgrades versus new construction.
- The stalled Nicaragua canal remains in limbo as the government is reluctant to surrender sovereignty over assets like ports under the generous terms it once offered Chinese developers.
Such adjustments reflect changing attitudes and possibilities on both sides. The sweeping proposals that once headlined regional ambitions are giving way to less flashy but more concrete collaboration.
'New infrastructure'
Even as major transport projects languished, Chinese investment in Latin America has continued via different avenues. Policy adjustments encourage Chinese firms to pursue new forms of engagement abroad consistent with China's own economic priorities.
This marks a transition from traditional infrastructure to emerging high tech industries encompassed under the umbrella of “new infrastructure”. It covers digital networks, artificial intelligence, biomedicine, renewable energy, electric vehicles, high-speed rail and more.
New infrastructure represents the technological foundation on which to construct the advanced economy and society envisioned in national plans like 'Made in China 2025'. Developing expertise in these frontier sectors is also vital for Chinese firms to move up the global value chain.
Increasingly, China touts new infrastructure as a key channel to improve living standards for developing country partners. At the 2022 BRICS summit, President Xi pledged China would pursue such “high-standard, sustainable and people-centred development” across the Global South.
Latin America has consequently become a proving ground for Chinese new infrastructure investment. Deals in future-oriented sectors barely registering a decade ago now make up the largest portion of Chinese FDI in the region.
Digital expansion
Nowhere has China’s shifting focus been clearer than in telecommunications, where firms like Huawei and ZTE built extensive 3G and 4G networks with state financing earlier this century. While their 5G presence has been barred in the US, parts of Europe and allies like Australia due to security concerns, Latin America remains a growth market.
As countries upgrade connectivity, Huawei has secured 25 commercial 5G contracts in Latin America. Competitor ZTE lists 5G collaborations in nine LAC countries spanning Brazil, Chile, Peru, Dominican Republic, and Suriname. Chinese vendors promote 5G’s power to enable next-gen services like smart cities, autonomous vehicles, and internet-of-things.
Beyond supplying equipment, Chinese firms increasingly pursue “digital silk road” projects applying technology to drive development. Examples include:
- Huawei assisting Montevideo, Uruguay to become a Latin American intelligent city pioneer. Efforts span urban governance, transportation, utility management and public safety systems utilising 5G, cloud computing, big data and AI.
- ZTE helping build Mexico’s first modular 5G hospital at Guadalajara. The facility’s technology platform aims to enhance services and medical training through innovations like remote surgery and augmented reality.
- China's CloudWalk partnering with Universidad Mayor in Chile to establish an AI institute conducting research on facial recognition and visual algorithms.
Such initiatives provide local test beds for Chinese companies to refine advanced technology capabilities and business models for global export. They support targeted technology transfer and capacity building tailored to local needs.
Financial upstarts
While the US and allies worry about privacy, security and political implications, Latin American governments have generally welcomed Chinese digital expansion as affordable paths to modernisation.
The same appeal has aided Chinese entry into Latin American finance as Beijing champions broader financial inclusion. Chinese fintech investment in LAC has risen six-fold over the past five years, totalling $5.9 billion.
Major players include Ant Group, operator of the Alipay mobile platform, which has invested $1.4 billion across roughly 50 ventures ranging from wallets to lending apps to cloud computing. Tencent has backed Brazilian financial startups like Nubank, Latin America's largest fintech.
Chinese insurance giant Ping An runs venture funds investing over $1 billion in around 20 LAC insurtech startups since 2017. Chinese agribusiness and health-tech firms are also now targeting the market.
Part of the draw is leveraging innovations like blockchain, AI, and big data to serve the region's large unbanked population. Chinese firms are essentially exporting developed world technology to help countries leapfrog to the financial future.
Their presence aids countries seeking to increase financial inclusion, enhance consumer convenience, expand small business credit access and lower remittance costs. It also accelerates the adoption of cashless mobile payments, online banking, and other services.
Renewable push
A similar dynamic is spurring Chinese involvement in Latin America's energy transition. China has positioned itself as a global leader in renewable technology, aiming to dominate industries of the future like solar, wind and batteries.
The region's abundant natural resources offer prime proving ground. Chinese solar equipment makers have over half the market share in Chile, Argentina, Brazil and Mexico. Chinese wind turbine manufacturers enjoy strong presence in Brazil, Mexico, and Chile. Notable projects include:
- Longi and BYD, two Chinese companies leading in solar technology and manufacturing, supplying modules for Latin America’s largest solar park, Cauchari in northern Argentina, part of Beijing’s pledge to help the country meet non-fossil fuel targets.
- PowerChina financing and building one of Ecuador's biggest hydropower plants, Sopladora, helping shift the country's energy mix toward renewables.
- State Grid Corporation of China investing $3 billion to acquire CPFL Energia, Brazil’s largest private power utility company focusing on clean energy.
Such moves support China's own net-zero goals by allowing its companies to gain expertise in green technology development, project execution and policy. They aid in transitioning energy infrastructure while bringing in affordable Chinese equipment and financing.
More broadly, though, Chinese firms are expanding presence across the region's budding innovation ecosystem. Growing numbers of partnerships, joint labs and R&D centres with universities and companies target next-gen areas like biotech, automation and advanced materials. Alibaba alone has pledged to partner with 100,000 Latin American startups.
Beijing envisions such efforts nurturing a community of shared innovation between China and developing countries. They provide channels to help Latin America translate resource wealth into value-added industries, a perennial regional economic challenge.
Two-way street?
Of course, questions persist whether such deals can mature into truly collaborative ventures versus one-way transfers of Chinese technology and investment in exchange for extraction of other resources. Ultimately, the aim is establishing mutually reinforcing innovation networks binding China closer to the region.
But this remains an aspirational work in progress. Most cooperation to date follows conventional North-South patterns of advanced economies exporting expertise and equipment to the developing world.
Whether China's envisioned "community of common destiny" becomes reality depends greatly on Latin America also bringing innovative capacity and contributions to the table. This may necessitate upgrading regional intellectual property protections, education systems, and technical skills to foster more symbiotic ties.
Lingering interests
Even as China reorients investment, traditional areas retain importance reflecting its underlying resource needs. Secure access to fuels, minerals and agricultural products remains essential to domestic growth.
Notable deals continue in oil and gas, like CNPC and Chevron's $4 billion joint shale gas/oil development in Argentina. Chinese firms remain active bidders in mining concessions from Chilean lithium to Ecuadorian copper to Brazilian niobium. State-run ChemChina owns Brazilian fertiliser giant Fertilizantes Heringer.
However, here too China's approach is changing. Rather than outright resource control, the emphasis is shifting to partnerships and technical upgrading by applying expertise in enhanced recovery, automation and environmental remediation.
Where Beijing was once laser-focused on securing Latin America's raw materials, now the aim marks a shift to developing innovative ways to tap its bounty more efficiently. This is consistent with China's own economic transition toward quality, not quantity.
So too with agriculture, where Chinese firms are expanding investment in the region’s massive meat and grain sectors. But the push now extends into creating integrated biotechnology labs and e-commerce platforms to raise yields, improve logistics, and help countries climb the food production value chain.
Even in conventional infrastructure, project focus is shifting from roads and dams to quality-of-life improvements like water treatment plants such as Shanghai Electric's $225 million Jirau plant employing ultrafiltration membrane technology to provide clean water for 500,000 Brazilians.
In concert with its Greentech push, China also increasingly finances Latin American projects integrating renewable components. For example, PowerChina built Argentina's $4.7 billion Caucharí solar park, the nation's first renewable project to beat fossil fuel prices, helping it meet climate targets. And a new CPFL wind complex in Brazil is the country's largest.
More discreet deals
Across most sectors, Chinese firms now favour incremental “mini-mega” deals versus eye-popping flagship projects of years past. Investments are smaller in scale and scope, more cautious and commercial-minded.
Where single investments may have reached billions before, today the norm is companies buying smaller stakes scattered across emerging industries and startups. This curbs risk while diversifying access to technology.
Illustrating this trend, Chinese VCs participated in over 140 startup funding rounds across Latin America and the Caribbean in 2022 alone. The average Chinese energy generation investment in the region from 2016 to 2020 was just $330 million versus $722 million over the previous five years. Average M&A deal size dropped by over 40 per cent to $469 million.
This shift echoes China's own transition toward consumption-driven growth, innovation priority, and market discipline. Overseas, it means fewer grand declarations and more discreet dealmaking across wider commercial fields.
For host countries, it can translate to more diversified opportunities versus singular dependence on Chinese mega-projects. The strategic nature of new infrastructure also inherently demands greater local partnership around training, data controls, and other sensitivities, something the region’s governments have increasingly sought in their engagement with China.
Evolving ties
In a region long beset by commodity dependence, economic volatility and development gaps, China retains appeal as a major power able and willing to finance brick-and-mortar progress. Its demand sustains Latin American exports while its firms actively target opportunities in infrastructure, energy and beyond.
Yet the nature of that engagement is changing in ways that reflect not just economic realities, but policy priorities and strategic goals on both sides. Sweeping visions have given way to more modest ventures actually brought to fruition.
This ongoing recalibration has pluses and minuses for the region. Pledged largesse is no cure-all for structural gaps in skills, institutions and governance. More sustainable, diversified Chinese investment could support economic upgrading. But it may offer less flashy benefits than the metropolis-remaking makeovers leaders once envisioned.
Much depends on the ultimate contributions derived from China's growing presence in knowledge sectors key to future competitiveness.
Can Latin America truly become enmeshed as a collaborative innovation partner? Will its own capacity be elevated in the process?
The extent Beijing can balance state commercial interests with win-win development may determine if Xi's lofty rhetoric manifests in meaningful ways for ordinary Latin Americans. But China is also aiming to see enough reciprocal benefit to sustain engagement as its economy matures.
Navigating the intricate nuances of their asymmetrical relationship with China, the region’s leaders are grappling with multifaceted challenges and shifting dynamics.
Over two decades, China's ascendancy has profoundly altered economic landscapes across Latin America and the Caribbean. As the journey into the future unfolds, a profound conclusion emerges:
For the region, the path ahead demands astute discernment to avoid succumbing into the sphere of a faraway growing power that challenges the U.S. in its Monroe-doctrine influence in the Americas, with all its economic and geopolitical implications. Whether Beijing successfully balances state commercial interests with mutually beneficial development will be the litmus test for realising Xi's lofty rhetoric in meaningful ways for ordinary Latin Americans.
The stakes are high, and as China's economy matures, sustaining engagement requires a reciprocal benefit substantial enough to warrant continued collaboration. The narrative of their evolving relationship is yet to be fully written, and the conclusion hinges on the delicate equilibrium struck between mutual gains and the complexities of asymmetry.
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