Tuesday, October 16, 2018

From Coolies to Patrons and Partners: the Chinese paradigm shift in Latin America

Latin America had imported Chinese as Coolies in the second half of the nineteenth century after the abolition of slavery. About a quarter million Chinese coolies were imported by Peru and Cuba between 1847 and 1874. The Peruvian Congress passed a law about the coolie system. It provided a subsidy of 30 pesos to be paid to the shipping company which brought in the coolies from China. The coolies had to be between the ages of 10 and 40 and were obliged to work generally for eight years, after which they were free to go back or be on their own. The Law had provisions for management of the coolie which included teaching of Bible. It specified the number of lashes to punish the coolies for disobedience or indiscipline. In practice, the employers ill-treated and exploited the coolies almost like slaves, auctioning, buying and selling them. 

The Chinese coolies worked in plantations and mines and  were made to dig up the guano pits in Peru and load them in ships for exports to US and Europe. The strong stench of guano droppings were so nauseating that the ships used for transportation could not be used for any other goods and had to be retired. Thousands of the coolies fell sick and died in the miserable conditions of their work. 

In 1874, the Chinese government signed an Agreement with the Government of Peru to enquire into the conditions of the coolies and improve them. The Commission interviewed many coolies who had related their sufferings and misery.

Mexico had imported Chinese coolies to work in the arid areas of north not only as workers but also as barbers and domestic help. After the end of their bondage, the entrepreneurial Chinese started their own businesses and flourished. But this attracted a backlash from the Mexicans who accused the Chinese of “ stealing Mexican jobs and businesses”. The anti-Chinese movement lead to harassment of the Chinese whose shops and houses were burnt.

Panama had imported Chinese coolies to work in their railway and canal project.

Descending from the coolies, today there are over a million people of Chinese living in Latin America. The Latin Americans look down on them and use the expression Cuento Chino ( Chinese tale) which means exaggeration, unbelievable and might be untrue.

The 19th century coolies have now become the twenty first century patrons and partners for Latin America. 

Today, the Chinese have become the single most important investor, creditor and the second largest trading partner for Latin America. The Chinese companies have become owners of the mines where the coolies used to work earlier. The Latin Americans have now realised that Cuento Chino is not a cuento do China… The story of China is not an exaggeration.

China is creating jobs and wealth for the Latin Americans who work hard to provide food to the Chinese people. The Latin Americans dig up deeper in the mines to supply ores and minerals to China and this helps China to continue as the Global manufacturing power. 

China’s investment in Latin America is estimated to be around 120 billion dollars. Brazil has received the bulk of the investment with 61 billion dollars followed by Peru-18 billion, Mexico-6 bn, Argentina-5 bn and Venezuela only 2 billion. 27 billion has gone into mining, 25 bn into oil and 13 billion into electricity sector. The target of investment is 250 billion dollars by 2025, as announced by the Chinese President in 2015 during his visit to Latin America.

The estimated Chinese credit to Latin America is 150 billion dollars. Of this, Venezuela has received 62 billion, Brazil-42 bn, Argentina-18 bn and Ecuador-17 bn. While the earlier credits had flowed into mining and oil, the recent credits are mostly for infrastructure and services.

The China-Latin America trade in 2017 was 257 billion dollars of which Chinese exports were 130 bn and imports 127 bn. The Chinese target is 500 billion dollars by 2025, according to the 2015 announcement by the Chinese President. China has overtaken European Union as the second largest trading partner of Latin America. China is the #1 trade partner for Brazil, Peru and Chile. 

There is a long term win-win complementarity in trade between China and Latin America. The top global exports of Latin America are crude oil, minerals and agro products. China is the leading importer of these items in the world and will continue to be so in the coming years. Latin America is well endowed with oil and minerals and lot of arable land with abundant water reserves. The region has the potential to increase the production and exports of oil and minerals and can increase its agricultural production which can feed another 500 million people outside the region. In contrast, China is losing millions of acres of agricultural land to urbanisation and industrialisation and faces water and pollution problems. So the Chinese see Latin America as a long term source of imports while the Latin Americans can count on China as a long term market for their exports.

In contrast to China, the market of United States for South America has become less important. The US is the principal market for Latin American crude oil exports. But thanks to the shale revolution, the US has become the largest producer of crude in the world now and has drastically reduced imports. The US has no need for so much minerals since the country has shifted its manufacturing to other less expensive countries including China. In the case of agro products the US is a competitor to soybeans and maize exports of Mercosur countries. 

In the 1980s, the US authorites and IMF had imposed the neoliberalistic “ Washington Consensus” policies on the Latin American countries which were transitioning from military dictatorships into democracies. These policies ruined the economies and pushed millions of people into poverty. The Latin Americans bitterly remember this period as the “ Lost Decade”. In contrast, the Latin Americans celebrated the first ten years of the new century as the “ Growth Decade” thanks to the prosperity resulting from the largescale Chinesedemand for commodities and the consequent high prices. The Latin American governments  had used the windfall profits for pro-poor policies with which they have pulled out 70 million people from below poverty lineinto middle class.

The US had exploited Latin America as its “backyard” since the Monroe Doctrine of 1823.  In the name of its “wars on communism, drugs, corruption and immigration’ the US has destabilised the region and undermined democracies and had created and supported military dictatorships. The drug business is a consumer driven business. Millions of Americans pay top dollars to continue their habit of drug consumption. If this is stopped, no outsider will find any profit in supplies. But the US government wrongly blames the producers of coca and the traffickers from Latin America. The US is destroying agricultural fields in Latin America with chemical sprays in the name of eradication of coca plants. On the other hand, the US is responsible for the killings of thousands of Latin Americans every day by the guns smuggled from US. The Latin Americans are frustrated with this hypocrisy and the destructive and negative agenda of US. In contrast, the Chinese agenda for Latin America is constructive and positive. The Chinese construct railways, roads, ports and power stations in the region. Latin America needs massive investment in infrastructure for its development, which China provides.  

While the Washington DC does the political destabilisation of Latin America, the Wall Street and its vulture funds cause havoc in the Latin American markets regularly and systematically. The Wall Street brings in hot money to take advantage of the high interest rates in Latin America periodically and make a quick buck. The money is pulled out suddenly and massively when the interest rate goes up in US or when other aveneues open up for higher profit margins. Such large scale withdrawals cause devaluation and foreign exchange crisis in the countries of the region which have been forced to remove capital controls by the Washington Consensus. 

The Wall Street firms encourage and advise the Latin American governments to issue dollar bonds and oversell them outside the region. When the bond issuing countries have difficulty in servicing the debt, the Wall Street and Washington DC bring in IMF as rescue. The IMF funds are used primarily to pay the creditors while the governments are forced to cut down budgets for social welfare, education and infrastructure. When Argentina rejected the IMF formula and did a successful restructuring on its own in 2002, the Wall Street and Washington DC had excommunicated Argentina from the international capital market and cut off all Fund-Bank resources. The vulture funds which held out against the debt restructuring kept harassing and blackmailing the Argentine government and even threatened to seize the bank accounts of Argentine embassies. They managed to seize  a prestigious Argentine naval vessel in Ghana through a fraudulent local court order. The naval ship was on a world good will tour and its seizure was a grave embarrassment for the country. President Cristina did not travel to US and Europe in the official Argentine plane since there was the risk of seizure of the aircraft by the vulture companies. She had to hire planes for the travels. 

The Chinese had come to the rescue of Argentina, Venezuela, Ecuador and Venezuela when the Washington-Wall Street Fund mafia blocked out international capital when these countries needed the most. The Chinese came to the rescue and provided emergency short term funds and currency swaps. But for the timely and generous Chinese rescue, these countries might have got into serious economic crisis and Venezuela might have collapsed years back.

Trump has been insulting and humiliating Mexicans and Latin Americans with his abuses. To add insult to this injury, the US has criticised El Salvador, Dominican Republic and Panama for their decision to recognise China in place of Taiwan. The US State Department has recalled its ambassadors to the three countries to show its displeasure, threatened aid cut and has advised the other countries in the region (such as Paraguay and Nicaragua) to keep up diplomatic relations with Taiwan. This has bewildered the Latin Americans since the US, UN and over 180 countries of the world have cut off diplomatic relations with Taiwan and recognised China. The Latin Americans see this as yet another attempt to make a fool of them.

Given the historic exploitation and hegemony of US, the Latin Americans welcome China as a relief to counter the US domination, to a limited extent. This is the first time in Latin American history since Monroe Doctrine that an outside power has established a massive presence challenging the US control of the region. The Latin Americans like to play the China card against US to get the best from both. The Latin American presidents who craved to be invited to the White House in the past, now  queue up to make pilgrimage to Beijing with business delegations to promote trade and investment.

Latin America is conscious of the downside and limitations of partnership with China. Firstly, they see it as a purely commercial transactional partner and nothing more. They detest the communist dictatorship of China, having come out of dictatorships themselves after terrible sufferings. They are suspicious of the non-transparent nature of Chinese activities and the overwhelming role of Chinese state companies and financial organisations. There is an enormous cultural and communication gap. They are also hurt by the flooding of less expensive Chinese products which have adversely affected domestic manufacturing sector. 

But the Latin Americans see that China is a manageable risk unlike US whose actions are beyond control. While the US has repeatedly invaded Latin American countries and changed regimes, the Chinese will never dare to do such atrocities in Latin America. The Latin Americans have the option to stop, reduce or reject Chinese credit and investment and manage the Chinese activities smartly. For example when the Chinese  looked around to buy hundreds of thousands of agricultural land, the governments of Brazil, Argentina and Uruguay changed their rules and imposed restrictions on acquisition of agricultural land by foreigners. The Chinese backed out. It may be noted here that these restrictions are only against new investors. They do not affect the ownership of hundreds of thousands of hectares of South American farmland by European and Americans who had invested before the new restrictions.

The Latin Americans would love to see an end to the unipolar world and welcome the rise of other powers to challenge US and minimise the harm and domination of US. At the same time, they would also like to reduce their overdependence on China and diversify their economic partnerships. In this context, they welcome more trade, investment and involvement of India in the region. 

Unfortunately, India has no plan, vision or trade target for Latin America, despite the emergence of the region as a large market for its exports and the region’s contribution to India’s energy and food security through supply of petroleum, vegetable oil and pulses.  

India’s credit to the region is just under 200 million dollars in contrast to the 150 billion Chinese credit. India’s total trade with Latin America is just about the same as China’s trade with Chile which is 36 billion dollars. The Latin Americans hope that India would wake up and take advantage of the opportunities for business in the large and growing middle-income market of Latin America with 620 million people.

India could set a target of 25 billion dollars of export (from 12 billion in 2017), investment (from the current 13 billion) and credit of 5 billion ( from 200 million so far) by the year 2025. This could be announced during the visit of Prime Minister Modi to Buenos Aires in November 2018 for the G-20 summit.

The Wire published an edited version of this article in