Chinese leaders are in the midst of a two-pronged diplomatic mission this week, with President Hu Jintao visiting Saudi Arabia and Africa while Vice President Xi Jinping and Vice Premier Hui Liangyu visit Latin America. China has pursued closer bonds with African and Latin American nations in the past decade for political and economic reasons, but there are specific reasons for the officials’ visits to the small, out-of-the-way countries on their itineraries.
Analysis
China’s leaders have launched a diplomatic tour of various countries in Africa and Latin America. Chinese President Hu Jintao is visiting Saudi Arabia on Feb. 11 before traveling to Mali, Senegal, Tanzania and Mauritius. Meanwhile, Chinese Vice President Xi Jinping and Vice Premier Hui Liangyu are touring Latin America; Xi is headed to Brazil, Mexico, Colombia, Venezuela and Jamaica, while Hui will stop in Argentina, Ecuador, the Bahamas and Barbados.
Some of these destinations are crucial for Chinese trade and economy. Saudi Arabia is China’s number one oil provider, and China is invested in its oil production and refining facilities. Furthermore, China and Saudi Arabia signed an agreement Feb. 11 under which China will build a railway system in the country. Brazil and Mexico are major trading partners for China. And Beijing has long had an interest in the smaller players in Latin America and Africa, providing much-needed aid and investment for these countries in return for raw materials, new consumer markets and political support.
Though Chinese leaders frequently make visits of this nature, this time around the timing is awkward. The world economy is in a fit of convulsions over a financial crisis that has triggered a deep recession. The Chinese domestic economy is slowing, creating waves of unemployment and social troubles that the government believes could threaten its control of the country. Why the sudden fixation on Mali and Barbados·
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China’s Involvement in Africa
In fact, the diplomatic missions fit well within China’s immediate and long-term policies for Africa and Latin America. First, China is attempting to turn lemons into lemonade, converting the financial crisis into an opportunity to improve its long-term economic advantage and energy and food security. China typically provides countries with financing and expertise for building all kinds of infrastructure and, in return, gains access to mineral resources, trade channels and new markets for Chinese goods. With plentiful cash reserves, Beijing and its state-owned companies can try to secure access to strategic commodities now, while global competitors are hamstrung by credit crunches and retrenching. Some of these opportunities eventually will dry up; for instance, the United States will not always be tied down with war and recession and could eventually be more likely to compete for political and economic influence in these regions.
Second, China has said it wants to demonstrate its commitment to smaller partners “regardless of the financial crisis.” China needs to show that it will not abandon even its smallest friends during tough times, and that it is not just another colonial power looking to exploit them, in order to firm up its political influence in these countries — both to increase its international standing and to secure the economic deals it has lined up. China’s frequent state visits to Africa and Latin America rotate among the countries in an effort to keep all the allies happy and generate a positive atmosphere with the region as a whole.
There are also specific reasons why China included seemingly insignificant countries on its current itinerary.
China has sought greater involvement in Africa for the past decade and is following up on relations with several countries under the framework of a China-Africa summit held in November 2006. Chinese leaders have visited Tanzania more frequently than the other countries on the schedule, as China sells Tanzania arms and has invested in building up its seaports. Tanzania is an East African power, and maintaining relations there offers China influence throughout East Africa. China is also heavily invested in the mining industry in Zambia (where Hu visited in 2007), which lies along Tanzania’s western border, and financed a now ill-kempt railroad connecting the Tanzanian port of Dar es Salaam to Kapiri Mposhi in Zambia, which borders Zambia’s copper belt. A route eastward from Zambia to Tanzania avoids the problem of sending goods south through strife-torn Zimbabwe to South African ports (though China has connections with Zimbabwe, too). Hu’s current visit to Tanzania, in addition to maintaining Chinese interests in that country proper, could also serve to bulk up its relations to make sure that its investments in landlocked Zambia are not left stranded.
Mauritius is a free trade zone, a vacation island with good ports and a textile manufacturing base, with long-standing ties to China. China has poured investment into the island for infrastructure improvement (bridges, airports) and for business projects like the proposed $730 million Terre Rouge commercial zone. Mauritius has trade relationships with other African nations — for instance, through its membership in the Southern African Development Community’s free trade area, which comprises 12 countries, 170 million people and a market value of $360 billion — and thus gives China a foothold in various African consumer markets. The island is also a major point through which capital flows, and the 10th largest source of foreign direct investment into China due to investors whose funds transit Mauritius to enter China. The Chinese may want to keep closer tabs on these capital flows — particularly amid the financial crisis, when China is wary of capital outflows further damaging its economy.
China and Senegal re-established ties in 2005, after disagreements over Taiwan’s status, opening the way for a flood of Chinese imports into the country. In return, China has provided infrastructure like schools, electricity facilities and a national theater. Hu’s current visit to Senegal is about maintaining this fledgling relationship and gaining entrance to ports on the West African coast. Mali, meanwhile, signed an economic cooperation agreement with China in 2006, with China agreeing to undertake development projects in Mali in exchange for opening trade channels. Mali also exports cotton to China. Senegal and Mali lie between the western coast of Africa and landlocked Niger, where China is investing $5 billion over the next three years to develop oil reserves; therefore, better ties with them will give China a corridor of influence in West Africa.
Meanwhile, Xi and Hui are on diplomatic missions in Latin America. As with Africa, China has pursued closer relations with Latin America for the past decade. In November 2008, Beijing published a policy paper on the region, and Hu made official visits to Cuba, Costa Rica and Peru (separately from the Asia-Pacific Economic Cooperation summit that month). Xi and Hui’s visits are just another example of Beijing’s express intention to increase focus on Latin America as a region.
The priority destinations for Xi and Hui’s current tours are those whose trade with China is the largest — namely Brazil (about $29.7 billion), Mexico ($14.9 billion), Argentina ($9.9 billion), Venezeula ($5.8 billion), Colombia ($3.4 billion) and Ecuador ($1 billion). Not only is Brazil a major trading partner for China, but it is — along with China, India and Russia — one of the world’s top developing countries, so the Chinese are keen to strengthen this relationship. Mexico and China have linkages involving trade, manufacturing and energy, while Chinese interest in Venezuela, Colombia and Ecuador is mostly about access to oil supplies. China also imports soybeans and other agricultural products from Brazil and Argentina. Beijing hopes that by increasing trade with Latin America, it can take a bite out of U.S. trade with the region, gaining new destinations for its exports.
The less obvious places of Chinese focus are Jamaica, the Bahamas and Barbados. Infrastructure projects remain a major component of China’s contribution to these countries, which offer mining, agriculture and manufacturing opportunities for the Chinese. For instance in Jamaica, Chinese companies are invested in bauxite and aluminum mining sectors and in information technology ventures; Xi is attending the ribbon-cutting of a nearly $2 billion convention center partially funded by the Chinese government. Caribbean countries also serve as locations for offshore banking, money laundering, tax evasion and capital flight out of China. As with Mauritius, Beijing may want to cozy up to these governments to better monitor where Chinese money is going.
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Saturday, February 14, 2009
Chavez:Adios amigos
Even if Hugo Chávez wins Sunday’s referendum, low oil prices have doomed his dream of Latin American socialism.
JUAN BARRETO/AFP/Getty Images
Adios amigos: With oil revenues dwindling, Chávez may find it harder to keep Venezuela's allies happy.
Also on ForeignPolicy.com: Two of Chávez's top allies in Venezuela's government defend the president in a special interview.
With the impending Feb. 15 referendum to abolish term limits for all Venezuelan elected officials, including President Hugo Chávez himself, the last thing he needed was for the price of Venezuelan oil to fall by more than half. His government had already postponed oil refinery projects to confront a budget deficit, and it is struggling to stave off currency devaluation ahead of Sunday's vote.
Venezuelan government resources are overwhelmingly channeled to the referendum campaign, which in mid-January was technically tied, with 51.5 percent in support of abolishing term limits, and 48.1 percent against. According to Margarita López Maya, a Venezuelan social scientist and fellow at the Washington-based Woodrow Wilson International Center, Chávez "can win with a minimal margin and maintain his project" of self-styled socialism at home. But even if Chávez does eke out a referendum victory, low oil prices may have taken the wind out of his policy of petrodollar diplomacy.
If Venezuelan crude commands $37 per barrel on average this year (well below the $60 figure in the approved 2009 federal budget), total oil exports would amount to $36 billion -- half of what is paid to service public and private foreign debts and for imports and other ordinary expenses, writes Domingo Maza Zavala, a former Central Bank director. An early casualty could be the regional alliances promoted by Chávez to challenge what he considers U.S. hegemony in Latin America.
Even before trouble hit the oil market, Chávez was having problems turning his dream of a unified Latin America into reality. His main regional initiative, the Bolivarian Alternative for the Americas (ALBA), was intended to obstruct the U.S.-promoted Free Trade Area of the Americas. To put teeth into ALBA, Chávez launched the Banco del Sur, a regional bank signed into existence in December 2007 by founding members Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay, and Venezuela. Banco del Sur hoped to raise between $7 billion and $10 billion that would be used to capitalize loans for social programs and for an interlocking grid of highways, bridges, waterways, ports, and power lines.
But Banco del Sur still does not have any paid-in capital, nor has it named officers or staff. And it is not yet engaged in development funding. Early on, Brazilian officials obstructed Chávez's hopes for tapping neighboring countries' international reserves to capitalize the bank by saying their reserves were off-limits. Venezuela has signaled it would put up 70 percent to 80 percent of the bank's capital, but hasn't yet delivered.
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Venezuela's failure to come up with the cash could have long-term diplomatic consequences. Venezuela's good relations with other Latin American countries are largely based on Chávez's largesse -- generous donations of oil and aid, and indirect assistance in aircraft, vehicles, and personnel. No one knows how much has been spent on oil diplomacy. The biggest ticket item -- donations of crude oil and derivatives to Cuba topping 94,000 barrels a day -- was valued at $3 billion in 2008, according to some estimates. In Bolivia, where U.S. aid now totals $125 million annually, Venezuela is expected to exceed U.S. assistance levels. But Chávez's lavish promises to create or upgrade refining capacity in five countries (Brazil, Cuba, Jamaica, Nicaragua, and Vietnam) have only been fulfilled so far in one country -- Cuba.
Venezuelan government finances are notoriously opaque, because aid funds can be drawn from several different government development funds and stabilization funds. Ambassadors are known to disburse aid from their checkbooks during official trips in friendly countries, making accounting impossible. Yet it is still clear that Chávez's ability to pursue oil diplomacy slips with each drop in the price of petroleum.
Chávez is by no means broke. Foreign exchange reserves held by the Central Bank now total at least $28.6 billion, but this amount is significantly less than what was held prior to the Jan. 21 transfer of $12.5 billion to Venezuela's National Development Fund. "He still has some money, and everybody is being as nice as they can to get money out of him," says Robert Bottome, editor of VenEconomía economic research publications, who has reported on the country's economy for 50 years. But, he adds, the government will have to borrow for the 2009 budget. Low oil prices are shrinking the economy, which is estimated to have grown less than 5.5 percent in 2008 -- a 3 percentage point drop from the previous year. In 2009, Venezuela could experience either imperceptible growth or even a recession if oil prices fail to recover. Like most countries, Venezuela might find that foreign aid is one of the easiest budget items to cut.
Chávez's axis of alliances is further challenged by shifts in geopolitics that will likely reduce the appeal of Bolivarianism in favor of pragmatism and new channels of cooperation. U.S. President Barack Obama's popularity in the region could enable him to engineer a reengagement with Latin America, including opening a dialogue with Cuban leader Raúl Castro, which could potentially affect Venezuela's relationship with Havana. Brazil's newfound economic power and influence might also bolster its willingness to assume its natural place as a regional leader. For the United States, Cuba, and Brazil, the promise of transforming hemispheric relationships might transcend commitments to Venezuela.
All of this suggests that Venezuela's most ambitious regional initiatives may already be thwarted. On Feb. 16, Chávez might awake to find that he has been given a new lease on political life, only to lead a revolution that cannot expand beyond the home front.
Lucy Conger covers Latin America for publications including Institutional Investor, Emerging Markets, and Business News Americas. A longer version of this article appeared in Americas Quarterly.
JUAN BARRETO/AFP/Getty Images
Adios amigos: With oil revenues dwindling, Chávez may find it harder to keep Venezuela's allies happy.
Also on ForeignPolicy.com: Two of Chávez's top allies in Venezuela's government defend the president in a special interview.
With the impending Feb. 15 referendum to abolish term limits for all Venezuelan elected officials, including President Hugo Chávez himself, the last thing he needed was for the price of Venezuelan oil to fall by more than half. His government had already postponed oil refinery projects to confront a budget deficit, and it is struggling to stave off currency devaluation ahead of Sunday's vote.
Venezuelan government resources are overwhelmingly channeled to the referendum campaign, which in mid-January was technically tied, with 51.5 percent in support of abolishing term limits, and 48.1 percent against. According to Margarita López Maya, a Venezuelan social scientist and fellow at the Washington-based Woodrow Wilson International Center, Chávez "can win with a minimal margin and maintain his project" of self-styled socialism at home. But even if Chávez does eke out a referendum victory, low oil prices may have taken the wind out of his policy of petrodollar diplomacy.
If Venezuelan crude commands $37 per barrel on average this year (well below the $60 figure in the approved 2009 federal budget), total oil exports would amount to $36 billion -- half of what is paid to service public and private foreign debts and for imports and other ordinary expenses, writes Domingo Maza Zavala, a former Central Bank director. An early casualty could be the regional alliances promoted by Chávez to challenge what he considers U.S. hegemony in Latin America.
Even before trouble hit the oil market, Chávez was having problems turning his dream of a unified Latin America into reality. His main regional initiative, the Bolivarian Alternative for the Americas (ALBA), was intended to obstruct the U.S.-promoted Free Trade Area of the Americas. To put teeth into ALBA, Chávez launched the Banco del Sur, a regional bank signed into existence in December 2007 by founding members Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay, and Venezuela. Banco del Sur hoped to raise between $7 billion and $10 billion that would be used to capitalize loans for social programs and for an interlocking grid of highways, bridges, waterways, ports, and power lines.
But Banco del Sur still does not have any paid-in capital, nor has it named officers or staff. And it is not yet engaged in development funding. Early on, Brazilian officials obstructed Chávez's hopes for tapping neighboring countries' international reserves to capitalize the bank by saying their reserves were off-limits. Venezuela has signaled it would put up 70 percent to 80 percent of the bank's capital, but hasn't yet delivered.
');
//-->
Venezuela's failure to come up with the cash could have long-term diplomatic consequences. Venezuela's good relations with other Latin American countries are largely based on Chávez's largesse -- generous donations of oil and aid, and indirect assistance in aircraft, vehicles, and personnel. No one knows how much has been spent on oil diplomacy. The biggest ticket item -- donations of crude oil and derivatives to Cuba topping 94,000 barrels a day -- was valued at $3 billion in 2008, according to some estimates. In Bolivia, where U.S. aid now totals $125 million annually, Venezuela is expected to exceed U.S. assistance levels. But Chávez's lavish promises to create or upgrade refining capacity in five countries (Brazil, Cuba, Jamaica, Nicaragua, and Vietnam) have only been fulfilled so far in one country -- Cuba.
Venezuelan government finances are notoriously opaque, because aid funds can be drawn from several different government development funds and stabilization funds. Ambassadors are known to disburse aid from their checkbooks during official trips in friendly countries, making accounting impossible. Yet it is still clear that Chávez's ability to pursue oil diplomacy slips with each drop in the price of petroleum.
Chávez is by no means broke. Foreign exchange reserves held by the Central Bank now total at least $28.6 billion, but this amount is significantly less than what was held prior to the Jan. 21 transfer of $12.5 billion to Venezuela's National Development Fund. "He still has some money, and everybody is being as nice as they can to get money out of him," says Robert Bottome, editor of VenEconomía economic research publications, who has reported on the country's economy for 50 years. But, he adds, the government will have to borrow for the 2009 budget. Low oil prices are shrinking the economy, which is estimated to have grown less than 5.5 percent in 2008 -- a 3 percentage point drop from the previous year. In 2009, Venezuela could experience either imperceptible growth or even a recession if oil prices fail to recover. Like most countries, Venezuela might find that foreign aid is one of the easiest budget items to cut.
Chávez's axis of alliances is further challenged by shifts in geopolitics that will likely reduce the appeal of Bolivarianism in favor of pragmatism and new channels of cooperation. U.S. President Barack Obama's popularity in the region could enable him to engineer a reengagement with Latin America, including opening a dialogue with Cuban leader Raúl Castro, which could potentially affect Venezuela's relationship with Havana. Brazil's newfound economic power and influence might also bolster its willingness to assume its natural place as a regional leader. For the United States, Cuba, and Brazil, the promise of transforming hemispheric relationships might transcend commitments to Venezuela.
All of this suggests that Venezuela's most ambitious regional initiatives may already be thwarted. On Feb. 16, Chávez might awake to find that he has been given a new lease on political life, only to lead a revolution that cannot expand beyond the home front.
Lucy Conger covers Latin America for publications including Institutional Investor, Emerging Markets, and Business News Americas. A longer version of this article appeared in Americas Quarterly.
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