Chinese investment is strategic, driven by the nation's needs, but Beijing has also taken advantage of the irrational Cold War-style ideological confrontation between a number of Latin American governments, among the most important Venezuela, to secure a substantial market share. The investment is in metals, oil, soybeans and other agricultural products, with some manufactured products playing a secondary role in trade. Because Chinese products are low-cost, they are securing an ever larger market share from those of other countries. Given that the economy of China is so well integrated with the world economy, China's investment in Latin America, 85% of which is in extractive industries, as are 60% of its loans, it would be misleading to see this issue from the prism of national interests or the US losing ground to its Asian rival. In fact, the beneficiaries of China-Latin American trade include Western multinational corporations.
Those with most to lose in Latin America are actually manufacturing companies faced with increased Chinese competition, just like manufacturers in other parts of the world. In this sense, China actually poses a greater threat to the hopes of national industrial development and national capitalism vs. dependent capitalism, than it does to the US as the traditional hegemonic country in the Western Hemisphere. This issue is political and it has to do with what kind of integration model Latin America wants in the 21st century.
The most serious issue before all of Latin Americans today is the model of integration that the US has been pursuing, a model based on a patron-client relationship of dependency, a model based on the old concept of spheres of influence that Great Britain established in the 19th century. Not only is the traditional patron-client model that the US has been pursuing coming under enormous pressure in a number of countries, most notably Argentina and Venezuela, but the rapidly changing economic power structure with Asia as the new core of the capitalist economy is also contributing to dilute Latin American dependence on the US.
Although Brazil and Argentina have been unique and in a class of their own in Latin America, Chile may actually represent more of a mainstream republic for the region in terms of the development of its institutions that include the labor movement. All of Latin America experienced a period of external dependence on Great Britain during the 19th century and until the Great Depression. The US began to challenge British imperialism during the Spanish-American War by eliminating Spain as a political entity in countries where the US enjoyed economic dominance, i.e. Cuba. All of Latin America fell under US hegemony during the Great Depression and remained so until the Cuban Revolution challenged US imperialism. The only way for the US to maintain its hegemony in Latin America was to work with military dictatorships, something it had started doing even during the FDR presidency. Using the Cold War and the threat of Communism, especially after Castro took over Cuba, the US managed to keep in line Latin American governments through various organization from the OAS to LAFTA and NAFTA.
Today, the challenge ton the US patron-client model of integration comes from Venezuela, Bolivia, Nicaragua, Ecuador and Argentina, to mention the most important ones. However, the reality is that China through massive investment and trade is also diminishing the role of the US in Latin America. The once monopoly of hegemonic power that the US enjoyed is gone, because of the multi-dimensional economic dependence of Latin America in a multi-polar world that includes EU and Japan as major players. It is up to Latin American political and socioeconomic elites how to play the new world balance of power in order to forge a new integration model. Maybe Venezuela is not the perfect example, though in my view Chavez at least tried to chellenge the patron-client relationship, but something other than the old spheres of influence patron-client relationship is needed to lift the entire region and its people. The 21st century will continue to change the US-Latin America relationship largely because the US cannot keep using fear and threats to keep regimes in line.
Considering that from 2005 to 2010, China has invested $75 billion in loans to Latin America, and that in 2010 China's loans to the republics amounted to sums greater than the World Bank, Inter-American Development Bank, and US Exim-Bank combined, the question if whether Latin Americans are trading one patron for another. Why would China be any different, any better for the living standards of Latin Americans than the US was in the 20th century? One answer to this question is that Beijing is offering loans without imposing fiscal and monetary policy conditions IMF-style that keep a national economy weak and externally dependent with few prospects for growth and development. Although China offers lower interest rates than the US EX-IM BANK, China Development Bank (CDB) loans carry more austere repayment terms that those of the World Bank and there are no environmental preconditions to China's loans as there are of the World Bank.
One could argue that China has no choice but to offer loans on better terms than the US or EU, because the goal of Beijing is to become a major player in Latin America and to capture market share from the other industrialized nations. Once again, I would caution that this issue cannot be viewed in terms of national economies in competition, because China's economy is so thoroughly integrated into the global economy. Therefore, its role in Latin America is not harming the US national economy, but actually helping raise more profits for Western corporations operating in China. The more fundamental question is whether Latin America will be better off with China as a major trading partner than it was with Great Britain in the 19th century under imperialist conditions, and the US in the 20th century under military interventionist and neo-imperialist conditions.
According to China's EX-IM Bank, the purpose of its loans is to:
1. Fund manufacturing projects, infrastructure construction projects and social welfare projects in
the borrowing country, which can generate promising economic returns or good social benefits;
2. Finance the procurement of Chinese mechanical, electronic products, complete sets of equipment,
technology and service and other goods by the borrowing country.
From the above conditions, it seems that the loan recipient ought to benefit. However, the Chinese EX-IM BANK actually operates not much differently than its US counterpart. This means that the money is spent mostly to fund export of products and services to the loan recipient where the project is to take place, instead of helping to develop the national economy of the loan recipient. In short, loan funds are spent inside China to help strengthen Chinese firms, not Latin American ones. How is this different than the US EX-IM BANK? It is not, especially given that the investment is in those sectors of the loan recipient's sectors intended for export rather than meeting internal demand.
Having spent decades researching, writing, and publishing on Latin America, I fear that the republics are not likely to see much difference in the 21st century with China as the newest trading partner operating under the patron-client integration model and perpetuating external dependency. The only way for Latin Americans to escape this fate is to demand the kinds of terms for loans and investment that South Korea and Taiwan demanded and the US along with Japan permitted, not necessarily for economic reasons but for geopolitical, namely, owing to the fear of Communism.
My replies to comments from LINKEDIN readers:
CHINA DEFENSE SPENDING for 2012: $100 billion
Defense spending as % of GDP for 2004-2007: 1.4%
China defense spending as % of GDP declined from 7% of GDP in mid-1980s to just a bit over one percent today!
USA DEFENSE SPENDING for 2012: $940 billion - excluding the numerous intelligence agencies as well as numerous security operations domestic and foreign.
USA defense spending as % of GDP for 2004-2007: 3.6%
The US spends ten times as much on defense as China, or roughly half of the defense spending in the world is spent by the US!
China has a proven record that it is interested in global economic hegemony, whereas the US that enjoyed economic, political, and military hegemony is now the world's sole superpower and it is using that status to secure all kinds of economic concessions around the world. The strategy is very different with China that uses capital investment, instead of following the US model. China's rise to global economic preeminence has not been peaceful by anyone's standards, while the US rise to global prominence was with the use of gunboat diplomacy and imperialist policies that it adopted from the mother country. (see William Appleman Williams, EMPIRE AS A WAY OF LIFE).