Loans by Chinese state-owned banks to South American and Caribbean countries rose to £14bn in 2014 according to the China-Latin America Finance Database. The rise in loans comes as Chinese President Xi Jinping pledged to double annual trade between China and Latin America to £330bn over the coming decade. China appears to be an ever-increasing investor in developing countries through government loans, trade and Chinese companies contracted for infrastructure developments.
Since 2005 China has provided Latin America with more than $119bn in loan commitments and in 2010 its loans were more than those of the World Bank, Inter-American Development Bank and U.S. Export-Import Bank combined, according to Inter-American Dialogue. The biggest beneficiary of Chinese loans in the region is Venezuela who under President Nicolas Maduro, Hugo Chavez’s successor, has received $56.3bn. The loans provided are aimed at a number of projects such as infrastructure developments, energy and facilities for the extraction of resources. Equally, the loans come from a variety of sources such as the China Development Bank, Bank of China and China Export-Import Bank. According to Inter-American Dialogue the banks focus on separate areas with the China Development Bank centring on energy, infrastructure, agriculture and petroleum whilst the China Export-Import Bank offers export and import credit and overseas construction contracts.
Chinese banks tend to finance countries that appear to find borrowing from global capital markets challenging such as Argentina, Ecuador and Venezuela. Chinese lending in Latin America and other parts of the world is seen to be profit-motivated although also seen to be a form of diplomacy. Equally, Chinese banks seem to steer clear of overlapping the loans of International Financial Institutions (IFIs) and Western banks by offering loans to different sectors in different countries. Furthermore, Chinese loans are becoming increasingly important to oil producing countries in the region as the reductions in the price of Brent Crude begin to challenge their economies.
China might be seen to favour Venezuela who, under the United Socialist Party, possesses left-wing ideology with some similarities to the Chinese. Due to the high levels of governmental involvement in China there are strong, influential links between the government, companies and lending institutions and therefore political and diplomatic aims might be part of the motivation behind these loans and investment. China’s loan book goes beyond South America to other countries that find borrowing challenging due to political reasons – such as Russia. The diplomacy behind Chinese loans can be seen through almost half of their loans to Latin America going to Venezuela, a country with a similar political ideology, whilst also being available to large, powerful countries such as Russia whom find borrowing challenging due to political sanctions.
China is increasing its position as an international financial lender to countries that have yet to receive support from western banks or IFIs. This may be seen to be an opportunity for China to increase its influence internationally. The benefits to the Chinese economy and Chinese businesses involved in the projects may also be an important factor behind this willingness to be involved with developments in Latin America. Speaking at the first ministerial forum of China and the Community of Latin American and Caribbean States (CELAC) President Xi Jinping said “I believe that this meeting will achieve fruitful results, give the world a positive signal about deepening cooperation between China and Latin America”.
For South America and Caribbean states, the availability of capital from a source other than IFIs and western banks means that they have options regarding their own development. Equally it may appear to reduce the dependence on these organisations as their Chinese counterparts might aid development in the region. The growth in Chinese loans to Latin America highlights the movement of influence and power towards economic ties and development. Furthermore, as a growing economic power, many developing nations may look at China as a country that is completing the transition they aim to make. This transition from an economically developing nation to one of the world’s largest economies may be seen as challenging, although China seems willing to assist.
How might loans to Latin America highlight China’s growing international influence?