Chinese loans to Latin America decline as virus strains bind | Business news

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By JOSHUA GOODMAN, Associated Press

MIAMI (AP) – It seemed like a game in financial heaven.

In 2010, China, with its booming economy and state-owned companies looking to expand globally, turned its gaze to Latin America, a region that was poor in capital but rich in natural resources that the Asian giant lacked. The result: a record $ 35 billion in state-to-state loans for the year.

Fast forward a decade and the once hot relationship is beginning to mature in a way that suggests China is becoming suspicious of its once “not wrong” partner.

For the first time in 15 years, China’s two largest monetary policy banks – the China Development Bank (CDB) and the Export-Import Bank of China – did not issue new loans to the region in 2020, a multi-year slump that of Latin America’s worsening economic downturn.

Political cartoons about world leaders

Political cartoons

The data comes from a new report by the Inter-American Dialogue, a Washington think tank, and Boston University’s Global Development Policy Center, both of which have been tracking China’s yuan diplomacy in Washington’s backyard for years.

China’s growing economic and diplomatic influence in the region has worried US politicians who could not withstand its rise. The task now falls to the Biden government, which has warned that the Chinese footprint in the region poses a threat to national security. But with China ousting the US as the top trading partner of several South American nations, catching up won’t be an easy task.

Meanwhile, the U.S. may have fallen even further behind during the pandemic when China donated more than $ 215 million in relief supplies – from surgical gloves to thermal imaging technologies – to allies in the region, according to the study. By comparison, the United State Agency for International Development and State Department has allocated $ 153 million. China also conducted clinical trials or planned to manufacture vaccines in five countries – Argentina, Brazil, Chile, Mexico, and Peru.

“Undoubtedly, part of the region’s COVID response has a Chinese face,” said Rebecca Ray, an economist at Boston University and one of the authors of the new report. “It’s a missed opportunity for the US, but since American manufacturing bottomed out in the 1990s, there has really been no way to keep up. We buy many of the same medical supplies that China delivers to Latin America from China. “

But while the pandemic has opened the door to much welcome Chinese aid, it has also made it difficult for governments to pay their bills to Beijing. A deep 7.4% recession in Latin America and the Caribbean last year wiped out nearly a decade of growth, according to the International Monetary Fund.

With borrowers under pressure, China has suffered a blow. Last year, Ecuador negotiated to postpone the $ 900 million debt payments serviced by oil shipments for a year. Venezuela – by far the largest borrower in the region – is said to have received a similar grace period. At the same time,

“With the region facing unprecedented challenges, it is unlikely that China will lend more for the time being,” said Margaret Myers, Asia-Latin America program director at Dialogue. “Instead, she has to deal with her own problematic portfolio.”

The slowdown in lending to Latin America reflects a broader, global retreat as China turns inward to step up its own recovery efforts amid the pandemic. The ruling Communist Party has borrowed billions of dollars to build ports, railways, and other infrastructure across Asia to Africa, Europe, and Latin America to expand China’s access to markets and resources.

But Beijing has become more cautious after some borrowers struggled to repay loans. Officials say they will take a closer look at projects and funding.

The China Development Bank and the Ministry of Foreign Affairs did not respond to questions about the reasons for the decline in Chinese loans to Latin America.

Although lending has dried up, Chinese purchases of soybeans, iron ore, and other commodities from Latin America remained robust at an estimated $ 136 billion. And that’s despite a surge in China’s purchases of American agricultural goods, a promise by the Trump administration to end a debilitating trade war.

Chinese state-owned energy companies also aggressively bought power plants from outgoing Western investors at emergency sale prices. Overall, Chinese mergers and acquisitions rose to $ 7 billion in 2020, almost twice as much as in 2019, according to the study.

Among the deals: San Diego’s sale of Peru’s largest power company, Sempra Energy, based in California, to China Three Gorges Corp. Another $ 5 billion deal made by State Grid Corp. of China giving control of a major energy company in Chile was announced last year but not included in the data as it is not yet finalized.

It is difficult for the leaders of the region to withstand Chinese loans for large infrastructure projects. Interest rates are low, and unlike World Bank and IMF loans, there are fewer conditions and faster approval, so leaders can advertise their achievements well in advance of the next elections.

Even Colombia – Washington’s strongest regional ally and a country that has been cool to China’s pleas – has jumped on the bandwagon recently. Last year, a consortium including China Harbor Engineering Company broke ground for the first metro in the capital, Bogota, a $ 3.9 billion project. No American firms made offers for the project that did not directly benefit from Chinese loans.

US officials have tried to push back, suggesting that US aid overseas has been long and more transparent.

“Beijing’s aid to the region is generally aimed at furthering the commercial or political interests of the People’s Republic of China,” the Foreign Ministry’s Western Hemisphere Office said in a statement.

In January, at the end of the Trump administration, the US International Development Finance Corporation signed an unprecedented agreement with Ecuador to fund up to $ 2.8 billion in infrastructure projects, money supposedly to “refinance predatory Chinese Debt ”could be used.

But the DFC’s total funding – $ 60 billion – pales in comparison to the $ 1 trillion China allocated to its Belt and Road initiative to expand its influence around the world.

The US loan package to Ecuador was significant as it would also require the government to privatize oil and infrastructure assets and ban Chinese technology.

“That would definitely limit China’s influence,” Myers said. “But is it really helping Ecuador in the long run by burdening future generations with more debt and promoting fossil fuel use? If this is not the case, it could backfire against the US. “

Associate press writer Joe McDonald in Beijing contributed to this report.

Joshua Goodman on Twitter: @APJoshGoodman

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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