The Dragon’s Appetite for Latin America

China_LatAm
By Antonio Sampaio

For decades a generation of Latin American thinkers criticized the unequal relationships between the region and developed countries - especially the US. Their preferred weapon was Dependency Theory, which focuses on the pattern of poor countries providing cheap labour and natural resources to rich ones, and receiving in exchange manufactured goods in a way that perpetuates the backwardness of Third World economies. In the last decade, the rise of another developing economy, China, has made the old theory resurface. 

The Asian power has surpassed the US as the main destination for exports in key countries such as Brazil and Chile. Many economists are now sounding alerts to the damaging impact of the dragon’s appetite in Latin America, which can perpetuate the region’s role as a raw material exporter while the Chinese economy solidifies its place as a hub of manufacturing production and technological development. China’s rapid advance is being met with growing suspicion and sometimes even hostility.

It is all happening very quickly. Trade registered an average annual growth of 28,4 per cent during the past decade. Direct investment by Chinese companies in the region grew by 40 per cent just last year, reaching US$15 billion. Before 2009, Chinese investments were considered irrelevant. Now the Asian power is already the third largest country in foreign direct investment to Latin America, after the US and the Netherlands.

Looking purely at numbers, it is easy to see a win-win situation: Latin American countries have large deposits of natural resources such as copper ores, iron, soybeans and crude oil. China needs them and has a seemingly infinite amount of currency to spend. The UN Economic Commission for Latin America and the Caribbean (ECLAC) has concluded that China was one of the main reasons for Latin America’s rapid growth in recent years, with millions of people taken out of poverty in some countries, such as Brazil. But the numbers hide worrisome tendencies that become clearer as trade intensifies. Ninety per cent of confirmed Chinese investments in Latin America targeted the extraction of natural resources.

The worries are justified. After all, China has selected Latin America as one of the main destinations for its aggressive policy of increasing foreign direct investment. The dragon is going shopping, and it is eying lands, food and natural resources.

Besides Dependency Theory, there is another, more human, problem. Local farmers and officials are becoming increasingly concerned about China’s new mania: buying plots of land. This has caused serious concerns in South America’s two largest economies, Brazil and Argentina. 

In the central Brazilian town of Uruaçu, farming communities refused to sell large areas of agricultural land to Chinese investors. But money can make many things happen: the Chinese found a way to get control of the soybean crops by providing credit to local farmers, according to The New York Times. The attitude is part of a strategy to assure food security, as the Chinese population becomes more urbanized and fond of meat and processed food. In Argentina, a similar situation occurred in Río Negro province, in the Patagonia region. The state-owned company Beidahuang made a deal to acquire 320,000 hectares (790,000 acres) of farmland, according to The Guardian. The local community criticized the deal, saying that irrigation will deplete water resources and that soya cultivation will mean mechanization of production and unemployment. As a result, Brazil and Argentina are considering the imposition of limits on farmland purchases by foreigners.   

Even deeper social tensions are erupting in Suriname, a small country in South America with just 500,000 inhabitants. A wave of Chinese investments has had the side effect of bringing 40,000 Chinese immigrants to compete for jobs – a number that represents almost 10 per cent of the country’s entire population, according to official numbers cited by The New York Times. Some people say there is a “Chinese invasion” in this quiet corner of the Americas. Social and environmental impacts, plus cultural suspicions, are growing almost at the same pace of Chinese international investments.

Partially to quell the Dependency-theory concerns, one of the top names in the Communist party, Xi Jinping, made a tour of the region last month, and promised a more diversified relationship, with trade in high value-added goods. He assured an audience in Chile that cooperation will assume a ‘comprehensive, deeper, balanced and sustainable direction", in sectors such as infrastructure, new energy, aviation and space. The UN confirms the tendency towards a broader Chinese interest in Latin American manufactures and infrastructure projects.

But there is a long way to go to correct imbalances such as the China-Argentina bilateral trade, in which soybeans account for almost half of all products imported by the Chinese. Although China is now Brazil’s largest trade partner, 84 per cent of Brazilian exports last year were raw materials. Also, there is the global problem of competitiveness. “Made in China” products are damaging the Latin American manufacturing establishment to the point that long-term prospects for economic growth in the region are under threat. Mexico is particularly in danger, since 85 per cent of its exports compete with the Asian low-priced products, particularly in US markets.

That such imbalances and tensions have erupted after less than a decade of intense economic relationship raises the question of what will happen in the future. China is already the main buyer in the market for commodities. That relationship may seem rosy as it has helped boost growth in the past. But trade imbalances and the negative impacts on Latin American communities and businesses mean tensions will probably grow in the coming years. The Asian giant must be convinced to march more carefully so that other developing countries can have the chance to rise.

 

Antonio Sampaio is a Brazilian national and holds a BA in Journalism from the Pontificia Universidade Católica do Rio de Janeiro. He is currently pursuing an MA in Terrorism, Security and Society at King's College London. Before moving to London, Antonio worked as Editor of International Affairs at Globo TV. 

 

13 July 2011

 

Photo Credit: Xinhua/Ma Zhancheng

 

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