Agribusiness, Loans & China’s Economic Ambitions

Overall, agribusiness accounts for more than US$2 trillion in global trade annually and macroeconomic factors are pushing these quantities upwards. In 2015, foodstuffs made up 3.3% of all world trade, vegetable products made up 2.9%, animal products and hides made up 2.7%, and wood and paper products made up 2.4%. Over the past years, rising awareness of these economic trends has triggered massive interest and investment in the agribusiness industry. Within the global food and agriculture industry, a major supplier and consumer is China. In recent years, China has become one of the world’s largest importers, producers, and investors in global agribusiness, particularly throughout Asia, Latin America, and Africa. Chinese investments in agriculture, natural resources, and infrastructure throughout these regions of the Global South are perceived by some as a way for China to position itself as a major economic power.

Agribusiness, Loans & China’s Economic Ambitions

Several economists have observed that steps towards increased financing activities by China are driven by its interest in becoming a global creditor. Firstly, Asian nations, led by China, have created several international institutions that both directly and indirectly challenge Western economic hegemony and seek to replace the Washington consensus system, which is based on the Bretton Woods institutions, such as the International Monetary Fund (IMF) and the World Bank (WBG). One of the last conditions that China has to meet in order to become a major player in the global economy is for its national currency, the Yuan (RMB), to become a widely use method of international payment. In this regard, new financial institutions, such as the Asian Infrastructure Investment Bank (AIIB) and the New BRICS Development Bank, offer China the opportunity to issue Yuan (RMB) loans and debt to developing countries. Through these mechanisms, China seeks to start globalizing its national currency and financial system. Nevertheless, if China really intends to take on the hegemony of the United States dollar and financial system, this enormous task could take decades or even longer. Currently, the US dollar is the undisputed global currency of choice, accounting for more than 80% of all international transactions worldwide.

In recent years, the China Development Bank and the China Export Import Bank have become Latin America’s largest credit providers, overtaking the Inter-American Development Bank (IDB) and the World Bank. Since 2005, China has given 17 loans to Venezuela for a grand total of US$62.2 billion, followed by ten loans to Brazil for a total of US$36.8 billion. Venezuela and Brazil are China’s largest debtors in the region, which explains why Beijing is particularly worried about the prospect of losing its investments in Venezuela when the regime collapses. Venezuela’s economic relationship with China is mainly based on petroleum trade, whereas China’s relationship with Brazil features both energy resources and agricultural commodities, including soybeans, sugar, and ethanol. However, most of the loans and debts that Chinese institutions have issued in Latin America are still not geared towards positioning the Yuan (RMB) as a global currency because they are denominated in US dollars.

(Read more about Agriculture and Land Distribution in Mongolia)