China has done a lot for South America and plans to do a lot more. This was made clear by President Xi Jinping of China last week on his first visit to the region.
Venezuela will receive $45 billion (€33.2 billion), Argentina’s troubled banks $11 billion in credit and Argentina itself about $5 billion for the construction of two hydroelectric power stations. In Brazil, 30 agreements for energy and infrastructure projects were concluded, and in Cuba, 29 contracts were signed.
In both countries the level of investment was not specified. The investments are more generous than those promised by the Russians recently when they agreed with Cuba to write off about $29 billion in debts. But that money is long gone and of no more use to the Cuban economy.
However, China isn’t happy, as the return on investment will be smaller than planned.
The South Americans are like poor relations, always in need of new money, because they cannot manage their affairs. Their mistakes are reminiscent of those made during the Asian crisis in the late 1990s. Because money was cheap, the emerging countries borrowed too much, too quickly from abroad. When the U.S. Federal Reserve reduced the supply of money earlier this year, making it more expensive, many international investors withdrew from emerging countries.
Mr. Xi now finds himself in a dilemma. He cannot just bang on the table because non-interference is a basic feature of Beijing’s relations.
While the Chinese have remained loyal to their friends up to now, the loyalty will be tested in the coming economic crisis, especially as the South Americans cannot just shift blame to international financial markets. The countries have managed their own affairs poorly. Faced with an inflation rate of more than 25 percent, investors in Argentina fear the next peso crisis.
Twelve years ago, the last one drove the country into bankruptcy. In Brazil, poor infrastructure, a crippling bureaucracy and high taxation prevent a recovery.
So China has good reason to worry. Stagnation is now likely, after five years of 30 percent average annual growth created a trade volume of $261 billion. China went looking for new friends in South America because it could no longer rely on growth in Western economies.
Mr. Xi now finds himself in a dilemma.
He cannot just bang on the table, as non-interference is a basic feature of Beijing’s relations. Shared long-term objectives are another reason to be cautious: Together, the rapidly growing, emerging countries of Brazil, Russia, India, China and South Africa want to create a world in which they also make the rules, no longer just the old industrial nations of the Northern Hemisphere.
The so-called BRICS group of nations’ establishment last week in Brazil of financial institutions to compete with the World Bank and the International Monetary Fund should be seen in this context.
China must strike a balance between two extremes: subsidizing South America for political reasons or using the rules of the new BRICS institutions to impose its economic policy, if need be, against the will of the South Americans. No easy task for the burgeoning world power.
Correspondent and author Frank Sieren is considered one of the leading German experts on China. He can be reached at: firstname.lastname@example.org