MIAMI (AP) – It seemed like a match made in finance heaven.
In 2010, China, its economy roaring and state-owned companies looking to expand globally, turned its gaze to Latin America, a region lacking capital but rich in natural resources that the Asian giant lacked. The result: a record $ 35 billion in state-to-government loans that year.
Fast forward a decade and the once-scorching relationship begins to mature in a way that suggests China may be increasingly wary of its once-not-wrong partner.
For the first time in 15 years, China’s two largest policy banks – the China Development Bank (CDB) and the Export-Import Bank of China – failed to provide new loans to the region in 2020, covering a multi-year slump amid worsening economic downturn.
The data comes from a new report t through the Inter-American Dialogue, a Washington think tank, and Boston University’s Global Development Policy Center, both of which have spent years following Chinese yuan diplomacy in Washington’s backyard.
China’s growing economic and diplomatic influence in the region worries American policymakers, who have been unable to cope with its rise. The task now rests with the Biden government, which has warned that China’s footprint in the region poses a threat to national security. But now that China has ousted the US as the main trading partner of several South American countries, catching up will not be an easy task.
Meanwhile, the US may have fallen even further behind in the pandemic, as China donated more than $ 215 million in supplies – from surgical gloves to thermal imaging technologies – to allies in the region, according to the study. In comparison, the United State Agency for International Development and State Department has made $ 153 million available. China has also conducted clinical trials or plans to manufacture vaccines in five countries: Argentina, Brazil, Chile, Mexico and Peru.
“Undoubtedly, some of the COVID response in the region has a Chinese face,” said Rebecca Ray, a Boston University economist and one of the authors of the new report. “It is a missed opportunity for the US, but since the US production low in the 1990s, there is really no way to compete. Many of the same medical supplies that China ships to Latin America are also sourced from China. ”
But while the pandemic has opened the door to acclaimed Chinese aid, it has also made it more difficult for governments to pay their bills to Beijing. A deep 7.4% recession in Latin America and the Caribbean last year wiped out nearly a decade’s growth, according to data from the International Monetary Fund.
With borrowers under pressure, China has taken a hit. Last year, Ecuador negotiated to postpone nearly $ 900 million in debt payments paid by oil shipments by a year. Venezuela – by far the region’s largest borrower – would have received a similar grace period. At the same time,
“With the region facing unprecedented challenges, it is unlikely that China will borrow any more for the time being,” said Margaret Myers, head of the Asia-Latin America program at the Dialogue. “Instead, it has to grapple with its own problematic portfolio.”
The slowdown in lending to Latin America reflects a wider, global downturn as China turns in to support its own recovery efforts during the pandemic. The ruling Communist Party has borrowed billions of dollars to build ports, railways and other infrastructure in Asia to Africa, Europe and Latin America to expand China’s access to markets and resources.
But Beijing has become more cautious after some borrowers have struggled to repay loans. Officials say they will examine projects and funding more carefully.
The China Development Bank and the Ministry of Foreign Affairs have not responded to questions about the reasons for the decline in Chinese loans to Latin America.
Although lending has dried up, China’s purchases of soybeans, iron ore and other commodities from Latin America remained robust, at an estimated $ 136 billion. That is despite a sharp increase in purchases in China of US farm goods, a pledge reached with the Trump administration to end a grueling trade war.
Chinese state energy companies also aggressively bought up energy assets from abandoned Western investors at fire sales prices. Overall, Chinese mergers and acquisitions soared to $ 7 billion in 2020, nearly double the activity in 2019, according to the research.
Among the deals: the sale of Peru’s largest electric utility by San Diego, CA-based Sempra Energy to China Three Gorges Corp. Another $ 5 billion deal that State Grid Corp. of China in control of a major utility company in Chile, was announced last year in the data because it has not yet been finalized.
For the leaders of the region, Chinese loans for major ticket infrastructure projects are difficult to resist. Interest rates are low and unlike World Bank and IMF loans, there are fewer liabilities and faster approval, allowing leaders to announce their performance in time for the next election.
Even Colombia – Washington’s staunchest regional ally and a country cool against China’s pleas – jumped on the cart recently. Last year, a consortium including China Harbor Engineering Company broke the ground for the capital Bogota’s first metro, a $ 3.9 billion project. No US firm has bid for the project, which did not directly benefit from Chinese loans.
US officials have tried to push back by pointing out that US overseas aid has been around for a long time and is more transparent.
“Beijing’s assistance in the region is generally aimed at advancing the commercial or political interests of the People’s Republic of China,” the State Department’s Bureau of Western Hemisphere Affairs said in a statement.
In January, at the end of the Trump administration, the US International Development Finance Corporation signed an unprecedented agreement with Ecuador to fund up to $ 2.8 billion in infrastructure projects, money that it says could be used to “defray predatory Chinese debt. refinance “.
But the DFC’s total funding – $ 60 billion – pale in comparison to the $ 1 trillion that China has set aside for its “Belt and Road” initiative to expand its influence around the world.
The US loan package to Ecuador was important because it would also require the government to privatize oil and infrastructure assets and ban Chinese technology.
“This would certainly limit China’s influence,” Myers said. “But by saddling future generations with more debt and encouraging the use of fossil fuels, will it really help Ecuador in the long run? If not, it could backfire against the US ”
Beijing Associated Press writer Joe McDonald contributed to this report.
Joshua Goodman on Twitter: @APJoshGoodman