Latin America’s Chinese loans plunge into virus ties

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In 2010, China, its rushing economy and state companies looking to expand global, turned a blind eye to Latin America, a region hungry for capital but rich in the Asian Giant’s natural resources. The result: a record $35 billion in government loans that year.

A decade has passed and China’s once torrid relationship is beginning to mature in ways that suggest China is wary of its once-no-false partner.

China’s two biggest policy banks – the China Development Bank (CDB) and the Chinese Export-Import Bank – failed for the first time in 15 years to issue new loans in 2020, capping a multi-year slump driven by the deteriorating economic slide in Latin America.

The data is from a new report from the Inter-American Dialogue, a think-tank in Washington, and the Global Development Policy Center of Boston University, which have both been tracking the yuan diplomacy of China in Washington for years.

The growing economic and diplomatic influence of China has worried US policymakers in the region. The task now is for the government of Biden to warn that the Chinese footprint in the region poses a threat to national security. But since China has replaced the United States as the leading trading partner for several South American countries, it is no easy task to catch up.

In the meantime, the United States may have fallen even further back in the pandemic, when China donated over $215 million in supplies to allies in the area – from operative gloves to thermal imaging technologies. In comparison, $153 million were provided by the United States Agency for International Development and the State Department.

China has also conducted or plans to produce vaccines in five countries, including Argentina, Brazil, Chile, Mexico and Peru. China has conducted clinical studies.

“The COVID response of the region certainly has a Chinese face,” said Rebecca Ray, an economist from Boston University and one of the authors of the new report. “It is a missed opportunity for the U.S. but there is really no way to compete since the end of American manufacturing in the 1990s. We also buy many of the same medical supplies from China to Latin America.”

But while the pandemic has opened the door to the much welcomed aid by China, government payments to Beijing have also been made harder. According to international monetary fund data, a deep 7.4 percent recession in Latin America and the Caribbean last year wiped out almost a decade of growth.

China has hit with borrowers squeezed. Last year, Ecuador negotiated delays in debt payments serviced by oil shipments for a year of almost $900 million. Venezuela—the largest borrower in the region by far—is supposed to have received a similar grace period.

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“China is unlikely to lend more for the moment, as the region faces unprecedented challenges,” Margaret Myers, Head of the Asia-Latin America dialog program said. “It has its own problematic portfolio instead.”

The slowdown in Latin America loans reflects a wider, global rebound as China moves to strengthen its own recovery effort in the midst of the pandemic. To expand Chinese access to markets and resources, the governing Communist Party has lent billions of dollars for ports, railways and other infrastructure across Asia to Africa, Europe and Latin America.

But Beijing has become more cautious after certain borrowers have had difficulties repaying loans. Officials say they will look more closely at projects and funding.

The China Development Bank and the Ministry of Foreign Affairs did not answer questions as to why Chinese loans to Latin America are falling.

While the lending has dried up, Chinese buys of soybean, iron ore and other commodities from Latin America have remained robust, estimated at $136 billion. This is a promise reached with the Trump administration to put an end to a weakening trade war despite the sharp rise in China’s purchases of American farm goods.

China’s state-owned energy companies also aggressively purchased energy assets from Western investors at fire sales prices. According to research, overall Chinese mergers and acquisitions increased to $7 billion in 2020, almost twice the amount of activities in 2019.

The sale by San Diego of Peru’s largest electricity company, Sempra Energy, CA, to China, Three Gorges Corp. Another $5 billion deal was announced last year that gives the State Grid Corp. China control over a major company in Chile, but was not included in the data since it was not complete.

Chinese loans for large ticket infrastructure projects are difficult for regional leaders to resist. Interest rates are low and, unlike the World Bank and IMF loans, fewer strings are attached and approvals are given faster, allowing leaders to achieve everything in time for the next election.

Even Colombia—the strongest regional ally of Washington and a country that was cool to China’s plea—jumped recently into the car. Last year, on the first metro of Bogota’s capital, a $3.9 billion project, a consortium of China Harbor Engineering Company broke ground. No American companies placed offers for this project that didn’t benefit directly from Chinese loans.

U.S. officials have tried to repress and have pointed out that U.S. assistance abroad is longer and more transparent.

“Beijing assistance in the region generally aims to promote the commercial or political interests of the People’s Republic of China,” said the State Department Bureau for Western Hemisphere Affairs in a statement.

At the end of the Trump administration in January, the USA. An unprecedented agreement with Ecuador to finance up to $2.8 billion in infrastructure projects, which the International Development Corporation said could be used to finance “predatory Chinese debt refinancing.”

The total funding of the DFC—60 billion dollars—pale in relation to China’s $1 trillion allocation for its “Belt and Road” (BRI) initiative, also known as One Belt, One Road, to spread international influence.

Ecuador received the US loan package because it would also require the government to privatize oil and infrastructure assets and ban Chinese technology. “This would definitely limit China’s influence,” Myers said.

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