COMMERCIAL INFLUENCE OF CHINA IN LATIN AMERICA: POLITICAL AND ECONOMIC IMPLICATIONS FOR THE ENERGY STRATEGY OF THE EU

Introduction

The current global geopolitics, characterized by the expansion of Chinese influence and its growing rivalry with the United States, often limits academic study to the regional implications in the Asia-Pacific and Middle East. This article emphasizes on the increasing insertion of China in Latin America, as well as its implications for the European Union (EU) in the current energy crisis and transition to renewable alternatives.

China’s Insertion in the Latin American market 

In just two decades, China’s political and economic relations with Latin America have grown exponentially, occupying spaces previously dominated by the United States and the EU. Since 2015, China has positioned itself as the most important individual trading partner in South America, occupying 25% of its commercial flows in 2020, and 24% in Mercosur countries. China also reached the second position in the rest of Latin America (18%), behind the United States (38%) and displacing the EU (11%). This situation is less significant in Central America and Mexico, where the United States maintains commercial leadership. In terms of foreign direct investment (FDI), the EU leaders the rank followed by the United States, which together represents 75-80% of FDI in the region, which positions China in a modicum third largest regional investor. Nevertheless, and despite a first decline experienced after Covid-19, China has increased its FDI since the beginning of the 2000s, experiencing greater diversification, mostly focused on the energy and mining sector (72.4%) (Raza & Grohs, 2022). Therefore, in its efforts to become the world’s leading producer of renewable energy technology, the Asian country currently exerts global control over the production chain of lithium batteries and the extraction of rare earth minerals. In Latin America, China holds a dominant position through the companies Ganfeng Lithium and Tianqi Lithium, particularly in Brazil and the South America’s Lithium Triangle (Argentina, Chile, and Bolivia) 

The Lithium Triangle. Source: U.S. Geological service (USGS)

However, it is through the substantial economic loans offered by state-own banks such as the Export-Import Bank of China or the China Development Bank where the country exerts its greatest political-economic influence, exchanging them for concessions and exports mainly in the energy sector. This foreign policy is similar to that implemented in other regions adjacent to its ambitious Belt and Road Initiative (BRI), to which 21 Latin American countries have already subscribed (Nolte, 2018). The flexibility and lower conditions offered by these banks follow the debt trap diplomacy, which translates into an increasing dependence. An example of this situation is the recognition of China as a voting member of the Inter-American Development Bank (IDB) or the Caribbean Development Bank (CDB) (Roy, 2022; Wintgens, 2023).

Lithium Mining in the Southern Area of the Uyuni salt dessert, Bolivia 

Thus, the influence and, above all, the relationship of dependence generated by China’s foreign policy in Latin America, poses possible threats and a growing obstacle to the EU’s attempts at diversification and energy decarbonization. The crisis generated by the war in Ukraine has highlighted the need to seek alternatives in Latin America through different strategic trade relations.

The new Latin American leftward: Opportunities and Challenges 

Only Colombian coal has experienced a considerable significant increase in its exports to the EU as a mechanism in emergency situations, unlike other fossil fuels that have meant a residual increase. Thus, solutions have been sought for European energy security in fields mainly associated with renewable hydrogen, various forms of friendshoring in Latin American markets, or the advancement in the mining extraction sector, essential for the transition. However, two domestic factors that could alter that possible cooperation are relevant: the resurgence of political left-wing in the region and nationalist rhetoric towards the renewable sector (Escribano & Urbasos, 2023).

In the case of countries such as Colombia, Chile, or Brazil, the leftward turn of their governments raises doubts about whether they will follow trajectories similar to non-aligned policies, guarding their own regional interest without yielding to Chinese or American influence (Fortin, 2020). Consequently, the non-extractive ambitions of the majority of these new politicians, for the benefit of sustainable development, opens opportunities for cooperation with the EU in the sustainability spectrum. Similarly, the nature of commercial interactions with China is generating a situation of economic subordination due to the percentual increase in trade represented by the Asian giant, as in the case of Chile or Brazil which its exports to China represents the 52% and 22 % respectively. Furthermore, the nature of those import and export mechanisms, which focuses on the export of raw material (e.g., ores and metals, fuels and food related products) and importation of manufactured Chinese goods, could exacerbate a re-primarization of the Latin American economy (Escribano & Urbasos, 2023). The export-oriented model based on energy exports and the importation of higher-value manufactured products from China generates for dimmish social development and undermines the existing local economy due to their non-competitive prices (Wintgens, 2023; Roy, 2022; Nolte, 2018). 

However, it is concerning for European investment the nationalist tendencies in certain sectors of the electric and renewable industry, such as in the case of Mexico favoring the Federal Electricity Commission (CFE), which may cause a worrying drift for future cooperation within the framework of the energy transition.

Conclusion

The strategy that the EU should follow regarding its commercial interaction with Latin America in relation to its energy supply should prioritize mutual growth that generates added value for both parties. It should not pursue an asymmetrical commercial policy that simply grants perceived characteristics in the region such as economic dependency chains. In this way, the EU must be able to highlight as a differential value the common development between both parties, which will generate its attractiveness in the region. To achieve this, it must promote economic development and ensure that its commercial relationships stimulate sustainable growth.

Bibliography

Chin, G. T., & Gallagher, K. P. (2019). Coordinated Credit Spaces: The Globalization of Chinese Development Finance. Development and Change, 50(1), 245–274.

Escribano, G., & Urbasos, I. (2023, Marzo 21). Real Instituto Elcano. Retrieved from ¿Por qué importa América Latina a la UE en energía? Diversificación, compañeros de transición y nuevas cadenas de valor: https://www.realinstitutoelcano.org/analisis/por-que-importa-america-latina-a-la-ue-en-energia/

Fortin, C. H. (2020, April 10). Nueva Sociedad. Retrieved from ‘El no alineamiento activo: un camino para América Latina: https://nuso.org/

Instituto de las Americas. (2021). China Afirma su Incidencia en el Sector Energético Latinoamericano. San Diego: Instituto de las Americas.

Nolte, D. (2018, February 12). German Institute of Global and Area Studies (GIGA). Retrieved from China Is Challenging but (Still) Not Displacing Europe in Latin America: https://www.giga-hamburg.de/en/publications/giga-focus/china-is-challenging-but-still-not-displacing-europe-in-latin-america

Pu, X., & Myers, M. (2022). Overstretching or Overreaction? China’s Rise in Latin America and the US Response. Journal of Current Chinese Affairs, 40-59.

Raza, W., & Grohs, H. (2022). Trade aspects of China’s presence in Latin America and the Caribbean . Brussels: European Parliament.

Roy, D. (2022, April 19). Council on Foreign Affairs. Retrieved from China’s Growing Influence in Latin America: https://www.cfr.org/backgrounder/china-influence-latin-america-argentina-brazil-venezuela-security-energy-bri

Wintgens, S. (2023). China’s Footprint in Latin America. Brussels: European Union Institute for Security Studies (EUSS).

Joan Manel Serra

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