Webinar Summary – At a Crossroads: China’s Post-Pandemic Economic Relations with Latin America and the Caribbean
On Wednesday, May 24, 2023, the Boston University Global Development Policy (GDP) Center hosted a webinar discussion with Margaret Myers of the Inter-American Dialogue, Rebecca Ray of the GDP Center and Ignacio Tornero, Founder and CEO of East Consulting and an Adjunct Instructor with Pontífica Universidad Católica de Chile, to discuss the evolution of economic relations between Latin American and the Caribbean (LAC) and China in the post-pandemic era. Moderated by Fermín Koop of the China Dialogue, the discussion highlighted opportunities for collaboration across supply chains for green transition materials and considered new governance challenges for increasingly complex relationships of finance, investment and trade.
The conversation began with a high-level overview of new developments in the relationship as outlined in the 2023 edition of the China-Latin America and the Caribbean Economic Bulletin. In her remarks, Ray cited the bulletin and emphasized three trends. First, rather than switching from reliance on the US economy to dependence on China, LAC has instead diversified its economic relations towards a more balanced pattern of engagement across multiple partners. Second, the relationship has begun to mature beyond the export of primary products, for example in renewable energy investments or electric vehicle manufacturing. Third, Ray noted the increasing prioritization of LAC goals in the relationship, such as Ecuador’s attention to exporting non-traditional agricultural products in its recently announced free trade agreement (FTA) with China.
Myers then provided a focused overview of the past year’s loans to LAC countries from China’s two main development finance institutions: China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM). According to a recent report co-authored by Myers and Ray, $813 million in loans were signed in 2022 between China’s DFIs and three LAC countries: Barbados, Brazil and Guyana. Myers highlighted a potential new focus on the Caribbean where smaller loans can have a much greater impact. These loans are part of a more diversified global financial landscape, she pointed out, where non-traditional development lenders such as the New Development Bank and the Asian Infrastructure Investment Bank are also important players. As the COVID-19 pandemic and its economic impacts recede, Myers expects future financing from these DFIs for projects such as a potential expansion of Argentina’s Cauchari solar project, zinc refineries in Bolivia and the Patuca II dam in Honduras.
Tornero provided a deeper look into Chile’s relationship with China, which, in his view, has taken a stable and pragmatic approach since the establishment of relations in 1970. He cited the Chile-China FTA signed in 2005 and the average 14 percent annual growth in bilateral trade since then. He cautioned that the export basket is composed mainly of mining products, copper in particular, and that diversification remains a major challenge. In recent years, lithium has grown in importance for both trade and investment from China, offering a new opportunity to move Chile’s exports up the supply chain into batteries or electric vehicles.
Koop then turned the conversation towards potential challenges on the horizon for the China-LAC relationship, including lithium governance policies and rising investor-state dispute settlement (ISDS) claims from Chinese firms.
ISDS mechanisms allow private investors to sue host countries when regulations or policy decisions negatively affect their profits. Ray summarized the first ever case of a private Chinese company suing a LAC state over environmental regulations. In 2018, an Ecuadorian court had halted operations at the Río Blanco gold mine, owned and operated by Hong-Kong based Junefield, citing the company’s lack of sufficient consultation with Indigenous communities over the mine’s environmental impacts. While GDP Center research shows that Chinese investors have historically been flexible in adapting to host country regulations, Ray noted that a new trend of ISDS claims from Chinese companies presents a challenge for LAC countries to establish and enforce environmental and social governance regulations.
Another legal question for LAC countries is how to manage local content requirements and mergers with Chinese state-owned enterprises (SOEs). Tornero explained that Chile’s current legal regime for reviewing potential mergers is narrowly focused on the technical question of whether the merger would create an unfair monopoly. All energy-related mergers and acquisitions by Chinese SOEs in Chile have thus been approved, including State Grid Corporation of China’s acquisition of nearly 60 percent of Chile’s electricity distribution network, despite concerns that these companies lack sufficient transparency with respect to the role of Chinese Communist Party officials.
Despite these governance challenges, new diplomatic developments show deepening of existing China-LAC relationships. Myers characterized China’s diplomatic efforts in the region as shaping the broader environment to further its economic goals, such as exporting excess industrial capacity or securing access to supply chains for key minerals or food products. She also highlighted the emerging structure of multi-tiered diplomacy, where China engages with LAC countries on a regional level through the Forum of China and Community of Latin American States (China-CELAC) and at the sub-national level through projects such as smart cities or contracts with provinces, like that with Jujuy in Argentina for the Cauchari solar plant.
The discussion concluded with each panelist offering their perspective on anticipated developments for the China-LAC relationship in the coming years. Ray posed the question of whether China will be willing to act on the new priorities LAC is putting forth, such as supporting lithium battery production facilities beyond extraction. Tornero reflected on how ongoing shifts in geopolitical and macroeconomic relations between China, the US and the European Union may impact the LAC region. Myers noted the uncertainty regarding how China will grapple with the outstanding debt owed to it by LAC countries, as the fallout from multiple economic shocks ripple through the region.
Ray, Myers, Tornero and Koop’s conversation underscored the increasingly complex relations between China and LAC, as new actors, opportunities and challenges emerge on the landscape. In the post-pandemic global context, renewed partnerships will be needed to ensure LAC countries can effectively leverage the benefits of a green energy transition, diversified trading relationships and multiple levels of diplomatic relations with China.
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