China’s Strategic Priorities and Foreign Investment
In 2014, China consumed some 12.4% of the world’s petroleum, but it only produced 5.0% of the global supply of this precious resource. Therefore, China has to import more than half of its annual oil consumption and has to target its foreign economic activities towards securing that supply. Given Beijing’s strict control of its State-Owned Enterprises (SOE) and of capital or currency leaving the country for foreign investment, Chinese investment in Latin America has been mainly directed towards the sectors that the government has identified as strategic national priorities, including energy resources. Simultaneously, it is important to point out two trends that have recently affected Chinese investments in Latin America. Firstly, there is China’s slowdown in foreign investment worldwide since 2013, due to a decline in the country’s economic growth as a result of the shockwaves from the 2008 financial crisis. Likewise, Latin America’s “Pink Tide” of left-leaning political leaders that governed almost every country in the region during the first decade of the century has finally given way to a wave of centrist and right-wing governments, which are much more likely to align with the United States and show skepticism towards Chinese investment.
China’s Strategic Priorities and Foreign Investment
Out of the US$141.3 billion that China has provided in financing to Latin America between 2005 and 2016, roughly 71% or US$100 billion have been destined towards energy related projects, such as petroleum extraction, oil pipelines, and refineries. Meanwhile, another 17% or US$24.3 has been geared towards infrastructure projects, such as railways, maritime ports, and highways. Lastly, some US$2.1 billion, less than 2.0%, has been destined towards mining projects, including gold and steel mines. Simultaneously, in certain cases, it can be difficult to identify if financing or development assistance loans came directly from Beijing because they are managed through offshore structures, in places such as Hong Kong or Panama. For example, between 2011 and 2013, Chinese data shows that the British Virgin Islands and the Cayman Islands each received over US$1 billion in Chinese investments. However, it is certain that these offshore structures just serve as a springboard for Chinese capital operating throughout Latin America.
Much of this Chinese financing into Latin America came in the way of conditional development assistance that requires the hiring of Chinese State-Owned Enterprises (SOE) for specific projects. One such Chinese SOE is Sinohydro, which recently merged with PowerChina Resources to form the Power Construction Corporation of China. In recent years, Sinohydro has been the Chinese company that has built the most hydropower projects worldwide. Furthermore, in recent months, Sinohydro has been considering picking up the contract left by the Brazilian company Odebrecht in Colombia’s Magdalena River Navigability project, which is an ambitious US$837 million project to transform one of Colombia’s most important rivers into a major transport artery.
(Read more about International Financing and Latin American Development)