Latin America suddenly finds itself as one of the bright spots for global economic investment. As a whole, the region successfully weathered the recent global financial crisis. It did this not by repudiating the gospel of the "neoliberal" model, the Washington consensus and other economic orthodoxies but instead by adhering to tenets of fiscal discipline and sound economic management.
Ironically, the United States, which failed to apply its own prescriptions, paid the heaviest price. Latin America is now one of the most popular targets of global economic investors, with countries competing for its commodities and friendship. Analysts say the new attention is a good thing. It helped bolster several of the region's economies during the worst of the global financial crisis.
The growth of the BRICS (Brazil, Russia, India and China) which are today four of the largest emerging economies, is another element in the global investment equation. In 2001, when the Chief Economist of the investment firm Goldman Sachs coined the term it was predicted that by the year 2050 in dollar terms the BRICS would eclipse the combined economies of the current richest economies of the world.Now the dynamic has changed to such an extent that this prediction has been moved closer to 2025!
The BRICS account for more than a quarter of the world's land surface and represent more than 40 per cent of its population. The share of the BRIC nations in world trade has increased dramatically from 2001 (7 per cent) to 2008 (13 per cent). Interestingly, the BRICS used the global economic crisis as an avenue to better their relations with the less fortunate members of the developing world. They have also built good diplomatic and economic relations among themselves and created a niche for the group in world affairs. However, while the members may find common ground, there is rivalry within the group and it is hardly likely that it will develop easily into an alternative nexus for world order.
China and Latin America
The People's Republic of China is the leading external BRIC in the race for commodities in Latin America. In the midst of the global financial crisis its economy grew by 8 per cent in 2009. It has already eclipsed the United States as the world's largest energy consumer. In April 2010 Chinese President Hu Jintao was in Brazil hammering out investment deals, and on this visit, and a previous trip to Brazil in 2004, President Hu sought to secure access to raw materials critical to China's growth. (Hu was also supposed to visit Venezuela and Chile, but cancelled that leg of his trip after a major earthquake in China.)
China became Brazil's No 1 trading partner in 2009, taking the spot from the US, with trade between the two surging from USD 6.7 billion in 2003 to USD 36.1 billion last year, according to Brazilian government figures. It has also replaced the United States as Brazil's and Chile's main trading partner. Just as Europe and the United States once bought Latin America's commodities, China is now pursuing a similar strategy to fuel its own spectacular development. Its voracious appetite for soybeans, minerals and oil, is another reason that some South American countries were able to get through the financial crisis.
While the pace of China's involvement in Latin America is quite dramatic it is not as yet as extraordinary as the ambition, speed and scale of China's involvement in Africa. According to Chris Alden, author of China in Africa, two-way trade stood at USD 10 billion in 2000 and by 2009 it reached USD 90 billion, making China Africa's largest single trading partner, surpassing US trade with Africa of USD 86 billion in 2009.
This comparison is important because Beijing insists that it is a partner in Africa's development, delivering investment and gaining a new market for its products and important access to resources. But Western business interests say China is on a resource grab paying low wages, skirting standards on safety, the environment and human rights, and using its assistance and diplomacy in questionable ways.While the truth lies somewhere between, the reality is that Chinese aid is quick and direct, and its businesspeople are "risk happy" searching for long term potential rewards in developing countries.
China and Venezuela
As China expands and deepens its relationship with Latin America, Venezuela has emerged as one of its key interests in the region. According to Evan Ellis, a professor who has written widely on the relationship, China recognises Venezuela as one of its four "Strategic Partners" in Latin America.
With the help of a high-level bilateral working group and frequent trips by senior officials, including six trips by Venezuelan president Hugo Chávez to China, the relationship has produced over 300 bilateral in investment commitments.China-Venezuela bilateral trade exceeded USD 10 billion in 2009, and is likely to expand even more rapidly.
China's interest in resources is focused on Venezuelan oil, although it has also demonstrated an interest in iron and other metals and minerals. While the oil in the Orinoco region is expensive to extract and requires specialised refineries to process, the sheer quantities involved make it of interest to China, as that nation seeks to satisfy ever expanding demands for oil imports.
Chinese petroleum companies are extracting oil while Chinese commercial companies are simultaneously embarking on major new projects to sell their consumer goods in the country. China edged out Colombia in 2009 to become Venezuela's second-largest trade partner (other than the US oil market.)
Not so subtly, Venezuela is using China to try to replace its US market. One analyst, Roger Noriega, estimates that US purchases of Venezuelan crude oil have slipped from 1.74 million barrels per day (bpd) in 1998 to 1.42 million bpd in 2002 to a possible 950,000 bpd in 2010.
Starting from a tiny role in Venezuela's oil market when Hugo Chávez came to power, China is today participating in the export, transportation, refining and distribution of Venezuela's heavy Orinoco crude oil through, upstream operations, massive capital investments, strategic planning and long-term purchase agreements.
While the specific initiatives by China toward Venezuela, as well as its style of engagement are distinct from its relationship with other individual Latin American countries, the underlying motivations involved in China's engagement with Venezuela are a specific expression of China's broader global interests.
But as Ellis and other analysts warn, China's support of Venezuela, with financial aid and generous investment, creates an unsustainable cycle of indebtedness and dependency on China.
In the future, there is scope for crisis since Chinese interests in Venezuelan commodities and markets may not fully coincide with the foreign policy objectives of the Chávez regime.
In the meantime, the Chinese are distancing themselves from the anti-US crusade of the Chávez regime in order to avoid being inadvertently involved in a crisis of the regime. Beijing has deep investments and companies on the ground. For both Venezuela and China, the rapid deepening and expansion of the relationship is characterised by significant incentives and risks...but the Chinese are great risk takers!
This commentary was firth published in the Business Journal and is used with the permission of the author