Latin America embraces China's Belt and Road with enthusiasm

China’s sphere of influence in Latin America is evolving rapidly. For years, Beijing has been strengthening ties with governments across the region – eyeing a piece of its fabled natural resources – and has quickly become its second most important trade partner after the US.

These relationships have now evolved beyond the extractive sectors as Latin American countries have joined China’s Belt and Road Initiative (BRI) on a mass scale. The BRI has paved the way for new co-operation and investment into infrastructure, but also manufacturing and other sectors, strengthening even further China’s leverage in the region, right in the US’s backyard. 

BRI push 

In 2017, Panama became the first Latin American country to join the BRI, a few months after switching its diplomatic ties from Taiwan to China. Under the presidency of Juan Carlos Varela, Chinese investment into Panama flourished and the two countries even started working on a free-trade agreement (FTA). Panama paved the way for others to follow.

In the next few years, 18 of the 33 countries in the Latin American and Caribbean region (LAC) would join. A few regional heavyweights, such as Argentina, Brazil, Colombia and Mexico, have all deepened their economic ties with China over the years, though they have not yet officially embraced the BRI.  

“There are no free rides, but strategic interests,” says Claudia Uribe, head for the LAC region at the International Trade Centre. “Infrastructure is much less developed in Latin American than in Asia. China is pushing the idea that co-operating in the area of infrastructure means diminishing logistics costs, and in this way it is selling the BRI model.” 

Thinking big

Latin American countries have historically suffered from very poor basic and transport infrastructure, which weighs heavily on the competitiveness of the region's products on the global market, as well as its territories as recipients of foreign investment. Water and sewage infrastructure is scarce and leaking; ICT networks are fragmented; overland connections are poor and struggle to connect inland, resource-rich provinces with ports on the coast, hindering their export potential. The Inter-American Development Bank estimates that the infrastructure investment gap across the LAC region stands at 2.5% of regional GDP, or $150bn per year. 

Since 2005, China Development Bank and China Export-Import Bank have provided more than $141bn in loan commitments to LAC countries, according to figures from the Inter-American Dialogue. However, the bulk of this ($96.9bn) went towards the oil and gas and energy sectors, particularly in Venezuela and Brazil, whereas much less was allocated to infrastructure projects ($25.9bn). The BRI now brings promises of greater emphasis on infrastructure projects, and policymakers across the region are thinking big.

Peru’s president, Martín Vizcarra, did not hide his interest when asked by Reuters in May 2019 – just a few weeks after Peru had joined the BRI – about the construction of a massive Chinese-backed inter-oceanic railway corridor running through Peru, Bolivia and Brazil. With a $60bn price tag, it would have seemed unfeasible just a few years ago. But even if the inter-oceanic railway is still a long shot, Chinese investors are already at work in Peru (as well as in Bolivia and Ecuador, among others) in dozens of infrastructure projects to upgrade local road, rail and air connections. 

Strategic thinking 

Further north, the Panama Canal stands out as the most strategic asset in the LAC region and China is building momentum locally after Panama joined the BRI in 2017. Chinese companies are developing major port terminals on both sides of the canal. Besides, the previous government in Panama – under Mr Varela – seemed committed to moving forward with a $4.1bn railway project running from Panama City all the way to the border with Costa Rica, laying the foundation of a possible railway connection running through Central America. 

“Chinese infrastructure can indeed be a boon for Latin America, especially as the region seeks to address its critical deficit. But making this happen will require no shortage of strategic thinking on the part of policymakers,” Margaret Myers, the director of the Asia and Latin America programme at the Inter-American Dialogue, wrote in 2018. “To fully benefit from the BRI, Latin American countries must create the conditions necessary to attract Chinese investors while ensuring that projects are demand driven and promote long-term, responsible, and sustainable economic growth,” she added. 

The strategic thinking of Latin American policymakers can be volatile, however. Panama’s new president, Laurentino Cortizo, has put both the railway project and FTA negotiations triggered by his predecessor on ice. In Venezuela, the heyday of co-operation with China inaugurated by late president Hugo Chávez is a distant memory. In Bolivia, the political crisis surrounding the succession of former president Evo Morales leaves many questions unanswered. Besides, when it comes to projects spanning more than one country, the region’s typical political fragmentation is often a major hurdle too. 

Making manufacturing work 

Despite such political uncertainties, Beijing is flexing its muscles in the region, and the BRI in Latin America is becoming a framework for co-operation between the two locations, going beyond merely filling an infrastructure gap. In fact, it is driving Chinese investment into other major sectors across the region, particularly manufacturing. Chinese investors announced a record 33 manufacturing projects across the LAC region in 2019, driving total estimated investments worth $6.03bn, according to figures from greenfield investment monitor fDi Markets. 

The LAC region has emerged as the new frontier of the BRI. Chinese engineers and technicians are already at work across the region to bridge an infrastructure gap that has historically hindered regional competitiveness. Chinese manufacturers are also following suit. It is up to local policymakers now to turn this co-operation into a real, long-lasting opportunity for their countries. Only by upgrading their strategic thinking and governance will the BRI become an authentic 'win-win' development for Latin America.