Hoover Institution - Hoover Digest - China Goes South of the Border

Chinese President Hu Jintao has spent more time in Latin America than George W. Bush. What are the Chinese up to? By William Ratliff.

Now that Chinese president Hu Jintao has consolidated military as well as political power in his own hands, China has accelerated its domestic programs for economic development and military modernization and expanded its role on the world stage. All these objectives are closely interrelated. An official Chinese Defense White Paper released in late December said that one of the country’s five basic tasks today is “to pursue an independent foreign policy of peace and adhere to the new security concept featuring mutual trust, mutual benefit, equality and coordination with a view to securing a long-term and favorable international and surrounding environment.” In pursuit of this objective, toward the end of 2004 President Hu and Premier Wen Jiabao traveled from Southeast Asia to Europe to Africa to Latin American, conducting an impressive campaign of politics, business, and charm.

Hu’s longest international trip was in November 2004 to four Latin American countries and the Asian-Pacific Economic Cooperation (APEC) forum. Some commentators say he used the “back door” to slip into what Americans have for almost two centuries considered their exclusive sphere of influence. But although going in by the houmen (the back door) is a common practice in China, it is not at all what Hu did on this visit to the Western Hemisphere. He toured with a large delegation of Chinese businesspeople as the president of the world’s most populous and rapidly growing country, with much fanfare, visiting a major area of the world the Chinese think will play an increasingly significant part in their long-term domestic and international strategies. Hu spent almost two weeks in Brazil, Argentina, Chile, and Cuba—more time than George W. Bush spent in all of Latin America during his first four-year term as president. Indeed, Hu’s predecessor, Jiang Zemin, took two long trips to Latin America, in 1993 and 2001, and in all probability spent more time there than any serving U.S. president in history. Even more than Jiang before him, Hu went in by the front door, and one of the main messages of his trip was that Chinese leaders intend to continue doing so from now on.

Hu’s trip must be seen in the context of the current political and economic conditions of the region. Predominant among these is almost continent-wide frustration with the alleged market reforms undertaken during the 1990s, whose failures a high percentage of Latin Americans blame directly (and generally demagogically) on the United States. In addition, U.S. policy in Iraq is almost universally condemned, and the war on terror, the signature policy of the Bush administration, is perceived by many in Latin America (and in China) as in part a cover for U.S. global expansion and unilateralism. A minor incident at the APEC forum in Santiago, Chile, attended by Hu, Bush, and many other world leaders, served to fortify the region’s perception of Washington as shoving other countries around. The American president got into a widely reported (and highly ridiculed) scuffle with Chilean security personnel. On his way home from his brief visit to Chile, Bush stopped in only one other country and for only a couple of hours: Colombia, to strategize on the drug war.

Since the Monroe Doctrine was formulated in 1823, Washington has proclaimed the Western Hemisphere off-limits to “outside” powers. This doesn’t mean the United States has always enforced this restriction or itself consistently taken a serious or constructive interest in the region. To be sure, investments and trade with Latin America are greater than those with any other region of the world, but, although important, they are not government relationships. When campaigning for the presidency in 2000, George W. Bush pledged that his administration would take Latin America seriously, in contrast to the administrations of Bill Clinton and most previous U.S. presidents. Bush did not follow up on his pledge, however, presumably largely because of the post-9/11 emphasis on terrorism. Despite the busy schedule of U.S. trade representative Robert Zoellick, and the dumping of additional hundreds of millions of dollars into the drug war in Colombia, the last four years have seen U.S. prestige nosedive in most of the region. The perception in much of the hemisphere is that the United States is interested only in terrorism, drugs, and self-serving trade. In Latin America and beyond, Chinese leaders have actively sought to create a very different image, with substantial but by no means complete success.

Before arriving at the APEC forum, Hu Jintao visited South America’s two largest countries and there and elsewhere signed letters of intent promising tens of billions of dollars in investments and trade, though these are more proposals than firm investment decisions. Subtly yet obviously picking up on the region’s underlying frustration with and distrust of the drug-and-terrorism-obsessed Americans, Hu generally came across as a friend of all countries trying to “catch up” in a world of glaring inequalities. Without saying so explicitly, he reminded Latin Americans that China was overcoming its past and thus, though he did not say so, offered a kind of developmental model for less-successfully-developing countries. He suggested that the well-being of the region and the world depended above all on economic growth and more diversity in international centers of power of all kinds and that closer Sino–Latin American ties would contribute positively to both. This point was reiterated in the Defense White Paper, which said one of the major problems of the day is “the prolonged existence of uni-polarity vis-à-vis multi-polarity” in the world. Many Latin Americans strongly agree with this position.

Hu told members of Brazil’s National Congress that China’s primary objectives in expanding relations in Latin America are to (1) strengthen strategic common ground and enhance mutual political trust; (2) tap potential for economic cooperation in a practical and creative way, from expanding trade to cooperating in high technology and industry; and (3) expand cultural exchanges to deepen mutual understanding.

Although most media reports on Hu’s activities focused on economic promises and agreements, it was no accident that the Chinese president put strategic and political goals at the top of his list. China’s agreements with Latin American countries specifically note strategic and other interests between and among developing countries that have similar histories and challenges, domestically and vis-à-vis the developed nations. Hu pledged that he will “forever stay on the side of developing countries.”

China’s upbeat campaign in the Americas, and the country’s willingness to develop mutually beneficial economic relations, is also intended to weaken Taiwan’s international position. The first Latin American country to grant diplomatic recognition to China was Cuba in 1960, the year after Fidel Castro took power. Since the 1970s most Latin American countries have switched their recognition from Taipei to Beijing, but more than a dozen small Latin American/Caribbean nations still have full diplomatic relations with Taiwan, generally in exchange for generous economic assistance. China is trying to chip away at that dozen.

More-specific political gestures during Hu’s trip included his support for Brazil’s bid for a permanent seat in a potentially expanded United Nations Security Council. This support, and Hu’s very presence in the country discussing China’s already substantial and rapidly expanding bilateral links, gave substance to Brazilian president Luiz Inácio Lula da Silva’s effort to raise his country’s status in the hemisphere vis-à-vis the United States. Hu’s second stop was in Argentina. A poll in the Buenos Aires paper La Nacion showed that China has a positive image with 63 percent of Argentines—a full three times more than those with a positive image of the United States! Thus Hu’s visit to Argentina, with billions of dollars to invest, became a friendly pledge of Third World solidarity and inevitably a kind of jab at Washington because many or most Argentines incorrectly but fervently blame their economic collapse in 2001–2 on the United States. By visiting Chile and launching bilateral trade negotiations, he recognized Beijing’s very close and complementary interests with that country, which has not forgotten having to wait more than a decade after the signing of the North American Free Trade Agreement for special economic and other recognition from Washington.

Promoting political ties through cultural links is another of Hu’s efforts to advance mutual understanding and support. Programs already under way range from vigorously encouraging tourism in both directions to converting Macao, which returned to Chinese control in December 1999 after 442 years as a Portuguese colony, into a kind of cultural bridge between China and the Portuguese-speaking world, especially Brazil.

Much international attention has focused on the rapidly expanding economic ties between China and Latin America, and much has correctly been made of China’s need for raw materials (ranging from copper, oil, gas, and ore to soybeans and other agricultural products) and Latin America’s ability to supply many of them. China is clearly emphasizing trade and investments in energy resources, both because its need for energy and other resources is growing explosively and because it wants to reduce its degree of dependence on sources in the volatile Middle East.

But Latin America is also unstable, if in a different way, for economies in the region are quite unpredictable. For example, the Latin American/ Caribbean economy as a whole is said to have grown by 5.5 percent in 2004, by some calculations the region’s best performance in many years. But the growth is based primarily on external factors, and given Latin America’s history of relative booms and busts, a good record in 2004 does not necessarily signal continuing improvement or significant benefits for the bulk of the population. Some in the region are hoping that Chinese money may help stabilize things. Because China has something like $500 billion in foreign exchange reserves, and Latin America is deeply in debt and increasingly in need of foreign investment, China has much to offer in exchange for the natural resources it needs. Trade between China and Latin America increased nearly sixfold between 1993 and 2003, and it has more than doubled in the past three years alone, to $26.8 billion in 2003. China expects its total investments in Latin America to double in the next six years, and specialists say bilateral trade should reach $100 billion by 2010.

Thus China may be poised to become one of Latin America’s foreign economic engines, if its promises become realities. On his trip, Hu pledged a $10 billion investment in Brazil (mainly in transportation, iron, and steel) over the next two years; by way of comparison, current U.S. investments in Brazil are approximately $30 billion. The Chinese delegation promised nearly $20 billion in investments in Argentina (mainly in railways, energy production, infrastructure, and housing) over the next decade, which if it comes off is the largest bilateral economic accord for Argentina since its economy collapsed.

Chile occupied a special place in Hu’s tour because it is the only Latin American country that has a fairly sustained record of economic development, somewhat similar to China’s. During Hu’s visit, the two countries announced the beginning of negotiations to bring about China’s first bilateral free trade agreement in Latin America. Several other Latin American countries have expressed interest in such agreements with China, but Beijing is testing the process with Chile, which already has such agreements with many other countries and thus is more experienced than China. If an agreement is reached by the target date of December 2005, or later, it will smooth the way for China to import still more copper from Chile and at the same time teach Beijing how it can more effectively negotiate free trade agreements elsewhere in Latin America and beyond. Meanwhile, bilateral trade volume between China and Chile is expected to reach $10 billion within the next four years.

Hu got a political as well as an economic boost from Brazil, Argentina, Chile, and Peru when all recognized China’s status as a “market economy,” which China hopes will help shield it from possible dumping charges in the World Trade Organization. Business groups in Brazil, Argentina, Mexico, and other countries have, however, expressed deep reservations about this relationship to China, fearing they will not be able to compete with Chinese imports.

China is already actively competing for resources and markets with many other countries, from South Korea to the United States. A specific example is Venezuela, the third most important supplier of oil to the United States. Venezuelan president Hugo Chavez, a close ally of Fidel Castro and thorn in the side of the United States, visited China (for the third time) in December and signed agreements intended to “diversify” his country’s oil exports, 60 percent of which now go to the United States, but not, he said, to end shipments to the States. Chinese companies will invest in exploration for oil, setting up refineries, reactivating 15 mature wells, and producing natural gas. Chavez says bilateral trade will double to $3 billion annually by the end of 2005. China will also sell Venezuela radar equipment for its borders and a satellite Chavez says will give his country “full sovereignty” in telecommunications.

For perspective, trade volume between China and Latin America in 2003 was less than 3.4 percent of China’s total international trade, although the raw materials coming in and expected from Latin America in the future are mostly necessities for a growing Chinese economy. By contrast, China is one of the largest trade partners in the world for some Latin American countries: for example, China is Brazil’s second-largest individual market and Chile’s largest after the United States and the European Union. And for Latin America almost all trade balances are positive.

Some Chinese military officers have visited their Latin America counterparts over the years, including meetings between Chinese defense minister Chi Haotian and officers in Colombia, Venezuela, and of course Cuba, discussed more below. But Chinese leaders do not wish to provoke the United States frontally, and nothing seems to have happened to make Washington particularly apprehensive. Reports of arms deliveries to Cuba several years ago turned out to have been inflated, and charges that China was taking over the Panama Canal after the United States left in 1999 were never proven. As noted above, China has just made commitments to Venezuela, and in late 2004 China officially deployed its first security personnel in the hemisphere, about 125 riot police to the seriously understaffed United Nations peacekeeping mission in Haiti. Finally, China has an active space program with Brazil, which launched its first satellite in 1999. According to high-ranking Brazilian officials, a joint program could not be worked out with the United States because Brazil lacked the money to help fund it. The cooperation with China provided an alternative because costs are paid in products.

Bilateral relations between China and Cuba were hostile during much of the Cold War, but goodwill has soared in the past 15 years. Jiang Zemin visited Cuba twice, and Hu’s visit in 2004 was designed to strengthen China’s relationship with Fidel Castro and other Cuban officials in this friendly but economically and politically stagnant nation. Chinese and Cuban sources report trade of $400–$600 million in recent years. Although Cuba is of little economic importance to China, except for its nickel production, China is Cuba’s third-largest trading partner in the world (after Venezuela and Spain). During Hu’s visit, China extended four interest-free loans (granted in the early 1990s) for another 10 years and donated $6 million to Cuban hospitals and clinics and an equal amount for school uniforms. The two countries signed agreements strengthening links in many fields, including biotechnology, offshore oil prospecting, mining, tourism, and telecommunications. China is also quietly cultivating post-Fidel leaders in Cuba, many of whom have expressed interest in jump-starting Cuba’s moribund economy by carrying out Chinese-style economic reforms as soon as the Maximum Leader is gone.

China sees a kind of parallel between Cuba and Taiwan. Beijing claims Taiwan as part of China, a position also officially held in Taipei and Washington. Over China’s strenuous objections, Washington nonetheless sells billions of dollars of sophisticated arms to Taiwan. In this hemisphere, however, although no one today claims Cuba is part of the United States, Washington objects when China provides even rudimentary arms to the island. Thus, Beijing cultivates ties to Havana both to support a fellow “socialist” country and to jab back at the United States for its deep involvement in Taiwan. Trade-offs may also be under way. Reports have surfaced over the past five years that the Chinese operate intelligence facilities at Bejucal near Havana, which may well be exaggerated, if true. If such activities are under way, Washington is very silent about them, and one may speculate that the United States may be tolerating a degree of Chinese intelligence activity in Cuba in exchange for China’s quietly permitting the United States to continue surveillance flights along the coast of China. These flights shook up the Bush administration in early 2001 when an EP-3 reconnaissance plane was forced to land on a Chinese island in the South China Sea.

Chinese foreign minister Li Zhaoxing summed up what China says it can do for Latin America when he said that “China’s economy will realize sustained, rapid and sound development and China’s peaceful development is bringing great opportunities to the world.” Many countries recognize that reality, and many already benefit (and some suffer) from it. Most Latin American countries, having great trouble moving much beyond supplying raw materials, seem to figure they might as well cash in on China’s explosive demands and substantial reserves, as they did in the past when Europeans demanded Peruvian guano and Argentine beef. Occasionally Latin America may produce something more sophisticated for the foreign market, such as Brazilian Embraer aircraft.

How should the United States respond to these expanding Chinese activities in Latin America? We should watch them carefully, but until a real threat occurs we should see this increasing involvement as the normal, even inevitable, result of the Middle Kingdom’s prolonged domestic development and emergence as a world power. Unless China suffers a catastrophic domestic collapse, which is possible but not likely, Beijing’s leaders will continue to develop ties worldwide, as the United States continues to do in China’s neighborhood, from Japan to Central Asia. Indeed, as Chinese influence expands in the region, Latin Americans will become increasingly suspicious of Beijing’s motives and the more demagogic of the region’s leaders will begin blaming their own repeated failures on the Chinese as well as on us. Americans who already fear and condemn China’s policy in Latin America would do better to focus their attention on improving U.S. policies and image in the region. Of course we must continue to combat terrorism worldwide, more creatively perhaps than in the past, and we should completely revamp our drug policy. But we should also do what President Bush promised during his first campaign for president, that is, take Latin America more seriously and go beyond terrorism, drugs, and trade that tends to benefit mainly the United States and Latin America’s elites. The challenge for the United States and China will be to keep the inevitable competition as friendly (or at least non-hostile) as possible.

William Ratliff is a research fellow and curator of the Americas Collection at the Hoover Institution. He is also a research fellow of the Independent Institute. An expert on Latin America, China, and U.S. foreign policy, he has written extensively on how traditional cultures and institutions influence current conditions and on prospects for economic and political development in East/Southeast Asia and Latin America.