MIAMI (AP) – It seemed like a match made in finance heaven.
In 2010, China, its economy roaring and globally expanding state companies, set their eyes on Latin America, a region starved of capital but lacking in an Asian giant rich in natural resources. The result: a record $ 35 billion in state-to-state debt that year.
A decade ahead, fast and once-held relationships are maturing in ways that suggest China may be wary of its one-time wrong partner.
For the first time in 15 years, China’s two largest policy banks — the China Development Bank (CDB) and the Export-Import Bank of China — made no new loans to the region in 2020, facing a multi-year recession driven by Latin America. Was lying. The deteriorating economic slide.
The data comes from a new repor t by the Inter-American Dialogue, a Washington think tank and Boston University’s Global Development Policy Center, which have both been tracking China’s yuan diplomacy in Washington’s backyard for years.
China’s growing economic and diplomatic influence in the region has worried US policymakers, who are at a loss to counter its rise. The task now falls to the Biden administration, which has warned that the Chinese footprint in the region is a national security threat. But China has displaced the US as the top trading partner of many South American countries, capturing it will not be an easy task.
Meanwhile, the US may lag even further during the epidemic, when China donated more than $ 215 million in supplies – from surgical gloves to thermal imaging techniques – according to research for all of the region’s allies. By comparison, the United States Agency for International Development and State Department has provided $ 153 million. China also conducted clinical trials or plans to manufacture the vaccine in five countries — Argentina, Brazil, Chile, Mexico, and Peru.
Rebecca Ray, an Boston University economist and one of the authors of the new report, said, “The region’s COVID response is without a doubt a Chinese face.” “This is a missed opportunity for the US, but since the bottom of US manufacturing in the 1990s there is no way to compete. Many of the same medical systems supply Chinese ships in Latin America which we also buy from China. “
But while the epidemic has greatly welcomed China’s aid, it has also made it harder for Beijing to pay its bills. According to data from the International Monetary Fund, a 7.4% slowdown in Latin America and the Caribbean last year wiped out almost a decade of growth.
Along with borrowers, China has taken a hit. Last year, Ecuador negotiated a delay of nearly $ 900 million in debt payments serviced by oil shipments. Venezuela – by far the region’s largest debtor – is believed to have received a similar grace period. At the same time,
“With the region facing unprecedented challenges, China is unlikely to lend any more,” said Margaret Myers, head of the Asia-Latin America program at Dialogue. “Instead he has to grapple with his problematic portfolio.”
The slowdown in lending to Latin America reflects a widespread, global pull, as China arrives in the midst of the epidemic to step up its own recovery efforts. The ruling Communist Party has loaned billions of dollars to build ports, railways and other infrastructure in Asia, Africa, Europe and Latin America to expand China’s access to markets and resources.
But Beijing has become more cautious after some borrowers struggled to repay the loan. Officials say they will examine projects and financing more carefully.
The China Development Bank and the Foreign Ministry did not answer questions about the reasons for the decline in Chinese loans in Latin America.
Even as lending dried up, Latin America’s sugar purchases of soybeans, iron ore and other commodities remained strong, estimated at $ 136 billion. It reached a promise with the Trump administration to end the trade war, despite a sharp increase in China’s purchases of American agricultural goods.
Chinese state-run energy companies also aggressively bought out energy prices by selling out Western investors. Overall, Chinese mergers and acquisitions increased to $ 7 billion in 2020, almost double the amount of activity in 2019.
Among the deals: San Diego’s sale of Peru’s largest electric company, CA-Sempra Energy to China Three Gorges Corp. Another $ 5 billion deal to give the State Grid Corp of China control of a large utility in Chile was announced last year but is not included in the data because it has not been finalized.
For sector leaders, it is difficult to resist Chinese loans for big ticket infrastructure projects. Interest rates are low and, unlike World Bank and IMF loans, fewer strings are attached and approval is quicker, allowing leaders to postpone achievements in time for the next election.
Even Colombia – Washington’s staunch regional ally and a country that was good for China’s threats – recently jumped on bandism. Last year, a consortium including the China Harbor Engineering Company focused on the $ 3.9 billion project, the capital’s first subway in Bogota. No US firm made bids for the project, which did not directly benefit any Chinese debt.
US officials have tried to push back, saying that US foreign aid is long-term and more transparent.
The State Department’s Western Hemisphere Affairs statement said, “Beijing’s assistance to the region is generally aimed at furthering the People’s Republic for China’s commercial or political interests.”
In January, at the end of the Trump administration, the US International Development Finance Corporation signed an unprecedented agreement with Ecuador to fund up to $ 2.8 billion in infrastructure projects, funds that it said would be used to “refinance hunter sugar.” Loan “.
But the DFC’s total funding – $ 60 billion – is less than the $ 1 trillion that China has chosen for its “Belt and Road” initiative to expand influence worldwide.
The US loan package was important for Ecuador because it would require the government to privatize oil and infrastructure assets and ban Chinese technology.
“It would certainly limit China’s influence,” Myers said. “But by burdening future generations with more debt, and encouraging the use of fossil fuels, does it really help Ecuador in the long run? If it doesn’t, it could struggle against America.”
Associated Press writer Joe McDonald in Beijing contributed to this report.
Joshua Goodman on Twitter: @APJoshGoodman