Win-Win Relations?: An Exploration Of China’s Relationship With Latin America & The Caribbean

By

Todd Julie

For

Professor Abbas Gnamo

POL417

July 17, 2012

It is the job of this paper to examine the effects of China's increasing geopolitical and

economic interest in Latin America and the Caribbean and whether this interest

constitutes a win-win scenario. It will be seen that while the economic relationship is

problematic in many ways, China increases Latin American/Caribbean government

options and opportunities and in that sense can be considered a win-win. It must be

stressed that the relationship is much more complicated and significant for Latin America

and the Caribbean – the weaker of the two parties. Accordingly, this paper will examine

the issue primarily from the Latin American/Caribbean perspective. For China, the

relationship is a win if it gains access to natural resources, isolates Taiwan and does not

upset its important relationship with America. All these points will also appear

throughout the paper. To determine a win or loss for Latin America and the Caribbean,

we add a smaller social line of inquiry. It is difficult to assess the value of economic gain

without examining how that gain is distributed.

In its distribution of ‘winners and losers’ and in many other respects the China – Latin

American/Caribbean relationship is emblematic of the globalized context in which it

takes place. Chinese demand for natural resources privileges sectors that deliver those

resources and punishes manufacturers whose products compete with China’s own

imports. This encourages differentiation both between and within states. Chinese

influence may actually be detrimental to job growth in some cases, but it is a boon for

government coffers, consequent social programs, perhaps even the poor's cost of living.

Politically, the increasing relationship with China, relative to what it was just ten years

ago, can encourage overstatement of its present significance vis-à-vis the Latin

American/Caribbean relationship with the U.S. It is nonetheless true that China has

contributed to increased political independence, confidence and creativity.

One further note: this paper conflates, at times, the experiences of Latin America and the

Caribbean. While the difference, in relationship to China, between Latin

American/Caribbean states is significant, the difference between the two regions is

mainly one of scale. The Caribbean is a smaller exporter of resources to China but its

appeal for China is the same. Trends noted throughout the paper are generally applicable

to both regions, unless otherwise noted.

Economic

The rise of China effects the trade of these two regions (Latin America, the Caribbean)

both directly, through their own trade with China and indirectly, through China's impact

on their trade with third parties. With respect to direct trade with China, the Chinese

import primary resources like oil, minerals, etc. and export value-added industrial

products. Consequently, the China trade has been greatest with those countries whose

economies rely chiefly on export of primary resources: Brazil, Argentina, Peru,

Venezuela, etc1. While Central American countries like Mexico, who are exporters of

value-added industrial products have found themselves in a losing competition with

Chinese exports2. Jenkins & Edwards report this negative effect on manufactures is

1 Jenkins, R. & Edwards, C., How Does China’s Growth Affect Poverty Reduction In Asia And Latin America? (Latin American/Caribbean And Asia/Pacific Economics & Business Association, Working Paper No.34, Dec 2004), 142 Ibid., 17

particularly strong in Nicaragua and Bolivia, where domestic industries are weak3. In

fact, both Latin America4 and CARICOM, an association of Caribbean countries,

maintain trade deficits relative to China5. It must be said however, that in absolute terms,

most big Latin American and Caribbean countries have enjoyed overall increased terms

of trade since 2002, due to the combination of rising prices for primary commodities and

lowered pricing for many imported manufactures6.

The China trade can inhibit regional economic coherence in Latin America as well, by

encouraging production for export to China over intra-regional trade. Alternately, "China

is replacing Brazil as a supplier to other countries in the Americas"7 of cheap

manufactures8. On the world market, China's large purchases of raw materials drive up

the price of those materials. This represents a further indirect benefit to primary resource

exporters9, as well as a further negative effect on industrial manufacturers including those

in Central America, like Mexico, who must pay a higher price to import primary

resources from their neighbors.

The positive benefit to primary resource producers and negative effect on industrial

manufacturers takes place not only at the regional level, favoring one Latin American

3 Ibid., 34 Ibid., 2465 Bernal, R.L. “The Dragon In The Caribbean: China-CARICOM Economic Relations” in The Round Table, Vol.99, No.408 (June 2010): 2856 Jenkins R., Peters, E.D., Moreira, M.M., “The Impact Of China On Latin America & the Caribbean” in World Development Vol.36, No.2 (2008): 2457 Li, H., “Red Star Over Latin America” in NACLA Report On The Americas, 40. 5 (Sep/Oct 2007): 23-278 Ibid., 23-279 Between 2001 and 2008 China spurred an international commodities boom. Jenkins, R., “China's Global Expansion And Latin America” in Journal Of Latin American Studies, 42 (2010): 825 -

state over another, but within these states as well. A country that draws most of its GDP

from primary resource exports will see that sector's share of the national GDP increase as

cheaper Chinese manufactures beat out similar domestic manufactures. Further, within

the primary resource sector, production is increasingly centered on the handful of

commodities that China imports in large quantities. This is known as export

specialization. The phenomenon can have a negative impact on small-holder farmers

(bought up by commercial agri-business) as well as domestic market access to a wider

variety of crops and materials whose production is displaced by the conversion to mass

production of a few staple crops for export. For example, "The extension of Soya

cultivation in South America has been blamed for the destruction of forests and the

displacement of labour as Soya replaces other more labour-intensive crops"10.

The changing relationship of Latin American and Caribbean countries with the American

market is the most obvious example of China's indirect impact on those regions' trade

with third party states. China's own export trade in industrial manufactures will tend to

displace similar products offered by Latin American countries on the world market. Rhys

Jenkins cites an analysis by Brazilian economist Jorge Chami Batista that asserts the

share of 18 countries in Latin America of the U.S import market was down 9% in the 5

years after China's ascension to the WTO (in 2001) from what it would have been had

China's share not increased in that period11. It seems the only choice available to Latin

America and the Caribbean is to avoid competition with Chinese exports and take

advantage of Chinese appetite for primary resource imports as much as possible.

10 Jenkins & Edwards, How Does China’s Growth Affect Poverty Reduction In Asia And Latin America?, 1511 Jenkins, China's Global Expansion And Latin America, 820

However, Jenkins & Edwards qualify this by speculating that Mexico and other Central

American manufacturers may be able to retain their comparative advantage in certain

industrial sectors, due to their close proximity to the American market12.

Social

Economic and political gain must be translated into improved living standards and

prospects for the mass of the Latin American and Caribbean citizenry to be considered

truly beneficial. Does the relationship with China increase the living standards of

everyday Latin Americans and Caribbeans? Jenkins & Edwards examine China's effect

on poverty in Latin America in their report, How Does The Rise Of China Affect Poverty

Reduction In Asia, Africa And Latin America? They are careful to stress the need for

further inquiry and research and their findings are somewhat mixed. They point out that

Latin American exports to China are mainly in "non labour-intensive agricultural

products and extractive products (timber, minerals and petroleum)"13 that require a

limited amount of unskilled labour (limited job creation) and are potentially harmful to

communities living in the extraction zones. As a result, any social benefit to the poor in

these export industries, to the extent it takes place, will be in the form of government

revenue, taxed from these industries and spent on pro-poor social programs.

Draibe & Riesco describe how, since the turn of the new century, Latin American

governments have been re-introducing orthodox "ground rents" in primary resource

12 Jenkins & Edwards, How Does China’s Growth Affect Poverty Reduction In Asia And Latin America?, 1913 Jenkins & Edwards, How Does China’s Growth Affect Poverty Reduction In Asia And Latin America?, 2

industries. Ground rents are basically taxes on natural resource extraction14. The United

Nations sponsored book in which their chapter appears documents the increasing trend in

Latin America towards innovative, progressive social welfare programs. Whether or not

the recent implementation of these programs bares any direct relationship to the

concurrent rise in trade with China, the appropriation of larger ground rents in primary

industries exporting to China certainly helps pay for them. Government assistance aside,

there is also a potential benefit for the poor in lowered prices on certain goods, now

imported from China. This potential benefit to the consumer may offset the cost to

domestic producers in aforementioned countries like Nicaragua and Bolivia to some

extent15.

Political

The political aspect of China's increasing relations with Latin America and the Caribbean

are potentially the most positive. Here increased relations with China are viewed as a

potential counterbalance to the influence of the United States. Jenkins highlights four

important questions that need to be asked to evaluate this proposition: “First, how will

the rise of China affect US hegemony in the region? Closely related to this is the effect of

Latin America’s growing relationship with China on the autonomy and bargaining power

of the Latin American states internationally, and particularly in relation to the United

States. Third, what are the implications of Latin Americas growing relations with China

14 Draibe, S.M., Riesco, M., “Latin America: A New Developmental Welfare State In The Making” in Riesco (Ed.) Latin America: A New Developmental Welfare State In The Making, UNRISD Social Policy In A Development Context Series, Palgrave Macmillan, 2007: 66-6715 Jenkins & Edwards, How Does China’s Growth Affect Poverty Reduction In Asia And Latin America?, 26

for democracy in the region? Finally, will China's influence strengthen the role of the

state in Latin America's economies and lead to a shift away from neo-liberalism in the

region?”16.

In regards to the first two questions about China's influence on Latin America's

relationship with the U.S., Jenkins points out that China's own relationship with the U.S.

is much more important to them than Latin America17. The Chinese are unlikely to

jeopardize that relationship for Latin America's sake. Further, despite increasing

economic and political relations, the U.S and Europe remain the dominant powers in the

Latin American/Caribbean region18. In some cases China's presence has actually led to

increased ties with the U.S. This is true of the Dominican Republic and Central

American countries that feel more threatened by China, for the economic reasons stated

earlier in the section on economy. The DR-CAFTA trade agreement was signed with

America by these countries, in an attempt to prevent further loss of American market

share19. Bernal says China's presence may also reinvigorate U.S. and European interest in

CARICOM countries, which has been in decline since the end of the Cold War20.

Nonetheless, the presence of a second (or third if you count Europe) major player in the

region cannot help but grant increased latitude to individual states, even if its only a

binary choice between the two major players.

The Question of what influence China has had on the quality of democracy in Latin

16 Jenkins, China's Global Expansion And Latin America” in Journal Of Latin American Studies, 828-82917 Ibid., 83018 Ibid., 83019 Ibid., 83220 Bernal, The Dragon In The Caribbean: China-CARICOM Economic Relations, 297

America and the Caribbean is a complicated one. It is important to note that unlike in the

West European and North American experience, the goals of democratization and

development have not been mutually reinforcing in Latin America21. Munk explains

how, in Latin America, countries participating in the global economy "have been more

economically dynamic"22 but have experienced higher levels of inequality. Whereas

countries that have opted out or at least thumbed their nose to a significant degree at the

global economy have experienced greater equality but poorer economic performance.

Furthermore, in Latin America the leaders who have traditionally striven for greater

equality have been those who also strive to concentrate power, leading (according to

Munk) to an erosion of democracy23. China’s own success seems to validate these

leaders. Raul Castro, Hugo Chavez and Argentina's Nestor Kirchner have all expressed

admiration for China's "market socialism" - a model for rapid growth under an

authoritarian regime24.

Certainly the China-Latin America connection has created solidarity in opposition to past

Neo-liberal policies, what is sometimes called "The Washington Consensus”. "The

Beijing consensus" or "East-Asian model" and Latin American "neo-structuralism" draw

strength and legitimacy from their ideological convergence25. China's success provides an

example separate from the neo-liberal reforms urged by the West in earlier periods. Li

points out that "Chinese foreign aid and loan programs attach no conditions except that

21 Munk, G.L., “Democracy And Development In A Globalized World: Thinking About Latin America From Within” in Studies In Comparative International Development (2009): 35122 Ibid., 35223 Ibid., 35224 Li, H., “Red Star Over Latin America” in NACLA Report On The Americas, 40. 5 (Sep/Oct 2007): 23-2725 Gore, C., “The Rise And Fall Of The Washington Consensus As A Paradigm For Developing Countries” in World Development, Vol.28, No.5 (2000): 800

recipient countries must recognize the People's Republic as the sole legitimate

government of China”26. This is quite different from “the famous structural adjustment of

neo-liberalism"27. Brazilian President "Lula" has crafted an assertive foreign policy that

in some ways parallels China's, seeking to unify the opposition of poor and

underdeveloped countries to the Washington Consensus and to push for better terms of

trade for the Southern Hemisphere. While the Chinese government apparently has no

interest in challenging the U.S., multi-polarity is identified by the PRC as the ideal

condition for China 's "peaceful rise"28. In this vein China is pleased to see these regions

exhibit more independence from the U.S.29. Indeed, China has voted with the

"developing nations" in the U.N 95% of the time30. So while China’s influence may lead

to economic differentiation between states, it encourages regional political unity.

In understanding the political relationship between China and Latin America and the

Caribbean, it is useful to keep China’s own objectives in mind. These objectives are two-

fold: to increase its role as a world power and to convince countries in these regions to

renounce their support for Taiwan31. While some commentators maintain China's interest

in Latin America and the Caribbean is primarily economic32, Bernal considers the

Chinese interest, in the Caribbean at least, to be motivated primarily by political

26 Li, Red Star Over Latin America, 23-2727 Ibid., 23-27 28 Cheng, J.Y.S., “Latin America In China’s Contemporary Foreign Policy” in Journal Of Contemporary Asia, Vol.36, No.4 (2006), 50529 “The Chinese media are pleased to report that on issues relating to Iraq, WTO and negotiations on the FTAA, many Latin American Countries are willing to oppose the U.S. position”. Ibid., 51030 Li, Red Star Over Latin America, 23-2731 Ibid., 29032 Horta, L., “A Brave New World: China Embraces The Caribbean” in Defense And Security Analysis, Vool.25, No.4 (2009): 430

objectives33. He points out that the amount of trade China does with the Caribbean is

miniscule compared to its concerns in other parts of the world. However, over half the

countries that maintain diplomatic support for Taiwan are located in the Latin American

or Caribbean regions34. Cheng predicts this will be a source of friction in ongoing

relations35 but adds that China “realizes that Latin America has no strategic interests in

the Asia-Pacific region, and they therefore are more tolerant of the formal and informal

ties between Latin American countries and Taiwan”36

In this paper we have seen that while the relationship with China is an economic boon for

Latin America and the Caribbean in absolute terms, it privileges non-labour intensive

resource sectors over indigenous manufacturing sectors. In doing so it encourages export

specialization that narrows the selection of goods produced and available in the domestic

market and threatens to cut out small-holder farmers. It also creates differentiation at the

regional, state and sectoral level. However, scholars are quick to point out that increased

social welfare spending by Latin American governments due to increased ground rents,

along with a potentially lower cost of living due to cheaper Chinese goods available in

the market, may offset the losses mentioned above to some degree. Politically, the

Chinese connection is more exclusively positive. The emergence of China gives Latin

American/Caribbean leaders greater flexibility in determining their own policies, even if

the determination ends up being to move further into the U.S. orbit (as in the case of

Central America). However, China’s existence as a symbol of economic success outside

33 Bernal, The Dragon In The Caribbean: China-CARICOM Economic Relations, 291 34 Jenkins, Peters & Moreira, The Impact Of China On Latin America & The Caribbean, 23735 Cheng, Latin America In China’s Contemporary Foreign Policy, 523-52436 Ibid,, 525

the western democratic, multi-party political system, supported by some leaders in the

Latin America/Caribbean region can be uncomfortable to some western scholars.

Bibliography

1. Bernal, R.L. “The Dragon In The Caribbean: China-CARICOM Economic Relations” in The Round Table, Vol.99, No.408, 2010

2. Cheng, J.Y.S., “Latin America In China’s Contemporary Foreign Policy” in Journal Of Contemporary Asia, Vol.36, No.4, 2006

3. Draibe, S.M., Riesco, M., “Latin America: A New Developmental Welfare State In The Making” in Riesco (Ed.) Latin America: A New Developmental Welfare State In The Making, UNRISD Social Policy In A Development Context Series, Palgrave Macmillan, 2007

4. Gore, C., “The Rise And Fall Of The Washington Consensus As A Paradigm For Developing Countries” in World Development, Vol.28, No.5, 2000

5. Horta, L., “A Brave New World: China Embraces The Caribbean” in Defense And Security Analysis, Vool.25, No.4, 2009

6. Jenkins, R., “China's Global Expansion And Latin America” in Journal Of Latin American Studies, 42, 2010

7. Jenkins, R. & Edwards, C., How Does China’s Growth Affect Poverty Reduction In Asia And Latin America? (Latin American/Caribbean And Asia/Pacific Economics & Business Association, Working Paper No.34, 2004

8. Jenkins R., Peters, E.D., Moreira, M.M., “The Impact Of China On Latin America & the Caribbean” in World Development Vol.36, No.2, 2008

9. Li, H., “Red Star Over Latin America” in NACLA Report On The Americas, 40. 5, 2007

10. Munk, G.L., “Democracy And Development In A Globalized World: Thinking About Latin America From Within” in Studies In Comparative International Development, 2009