Thursday, May 14, 2015

China's pivot to Latin America: worry for US and opportunity for India

In the China-CELAC (Community of Latin American and Caribbean States) Forum meeting held in Beijing in January  2015, the Chinese President announced that the trade with the region would double to 500 billion dollars and investment would reach 250 billion dollars in the next ten years.
The trade has already reached 275 billion dollars in 2013 from 12 billion in 2000. China has become the top trading partner for some countries (especially Brazil) and has overtaken European Union as the second largest trading partner of the region. China's share of the region's exports was 10% and imports 16% in 2013. 
China has already invested around 100 billion dollars in Latin America, much of it in oil fields and mines.
China has extended 119 billion dollars of credit to the region in the period 2005 to 2014, according to Inter American Dialogue, a US think tankIn 2010, the Chinese credit of 37 billion dollars given to the region was much more than the combined total given by World Bank, Inter American Development Bank and the US EximBank.  The largest recipient is Venezuela (56.3 bn $) followed by Brazil (22 bn), Argentina (19 bn), Ecuador (10.9 bn), Mexico( 2.4 bn) and Peru (2.3 bn) besides six  more Latin American countries.

Besides these loans to individual countries, China has also extended credit for region-wide projects in collaboration with the Inter American Development Bank, of which it is a member. The US blackballed the Chinese application for membership for a year and let them in only after extracting some back door concessions.

The Chinese banks have become the principal sources of finance for countries such as Venezuela, Ecuador and Argentina and have come to the rescue of these countries which have been spurned by the Western capital markets. China is heaven-sent for the Argentine government, harassed by the American vulture funds and blocked from western finanical sources. When Petrobras, the Brazilian company got mired in a corruption scandal recently, the American investors filed class action suits in the courts and the rating agencies downgraded the investment rating of the company. The Brazilians contrast this with the Chinese who came to their rescue quickly. The China Development Bank agreed to give a bridge loan of 3.5 billion dollars on 1 April 2015, as part of a two year cooperation agreement. The Chinese have extended currency swap facility to Argentina and Venezuela  to help them tide over foreign exchange shortage. The Chinese have opened branches of their banks in Latin America and have bought controlling stakes in local banks to facilitate the growing financial relations with the region
A Chinese company HKND has signed a contract with Nicaragua to build a canal connecting the Atlantic with Pacific ocean at a cost of 50 billion dollars. Although there is lot of skepticism within Nicaragua and outside about this project being done by the little-known Chinese firm without previous experience of large scale projects, one cannot miss the comparison and potential competition with the US-built Panama canal. In any case China has become the second largest user of the Panama canal after the US.

The Chinese are providing aid and technical assistance to the the region and are setting up Confucious Institutes to teach Chinese language and have started a number of student and academic exchange programmes. They have also started supplies and collaborations in defense, space satellites and nuclear energy.

There is a win-win complementarity between China's resource needs and surplus cash with Latin America's surplus resources and need for cash. China's arrival has coincided with the Latin American aspiration to diversify their economic partnership and reduce their dependence on their overbearing traditional partners.
The US is worried by the Chinese 'encroachment' in Latin America, considered as the 'backyard of US' since the declaration of Monroe doctrine in 1823. Recently, the Head of the U.S. Southern Command is reported to have said in his Congressional testimony that “While the Pentagon is launching its 'pivot to Asia', China is engaged in its own 'pivot to the Americas”.
The US media has articulated the concerns more openly. For example, Forbes published an article on 15 Oct 2014 " As the US sleeps, China conquers Latin America" and Business Insider wrote on 9 April 2015 "Obama lands in Latin America while China is 'running away with the gold' in the region". These reports and articles portray China as a predatory investor exploiting Latin American natural resources, dumping cheap chinese manufactured goods, damaging the Latin American industry, lending without concern for human rights and extracting natural resources without environmental safeguards. One of the motives for the US reopening of diplomatic relations with Cuba and their enthusiastic courting of the region at the April 10-11 Summit of the Americas in Panama city is to counter the growing Chinese influence in the region.

While recognizing the commercial importance of China, the Latin Americans also perceive China as a potential threat.  There is a trust deficit. They impose antidumping duties on Chinese goods and restrictions on Chinese immigration. Brazil, Argentina and Uruguay have imposed limits  on acquisition of agricultural land by foreigners after some Chinese companies scared them with proposals to buy several hundred thousand hectares. 
In contrast, the Indian firms have a good image in Latin America. The Indian IT firms which employ 25,000 young Latin Americans in their operations in the region have earned admiration and respect.  The reduction in the cost of health care for the Latin American consumers and governments after the entry of less expensive Indian generics has created goodwill. Latin Americans have a better understanding of India with their admiration for Indian culture and practice of yoga, meditation and spiritualism. India's democratic, pluralistic and open model resonates more with the Latin Americans who do not like the communist dictatorship model of China.
The Latin American firms and governments have started realizing the perils of over dependence on China and are keen to diversify relations and reach out to other large and growing markets such as India. The news that India is overtaking China in annual growth rate has caught the attention of the Latin American businessmen who have started stopping by Mumbai on the way back from Shanghai.This opens an unmissable opportunity for Indian business. 

As part of the containment of China in Latin America, the US seems to be keen to see more Indian presence in the region. This is evident from a blog of Americas Quarterly (28 January 2015) with the title,"Now is the time for India to make a move". The blog ends with the suggestive question" Is 2015, the year of India in Latin America?". It is time for Prime Minister Modi to pay closer attention and make a trip through the region, just as Chinese leaders are doing frequently, the latest being Premier Li Keqiang's visit to Brazil, Chile, Peru and Colombia from 17 to 29 May.  

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