Business is booming between China and Latin America as the competition for resources continues.
China has been busy in Latin America. Trade between Latin America and China has exploded from $10 billion in 2000 to $140 billion in 2008. While this is still a small amount compared to U.S. trade with Latin America, Beijing has now surpassed the United States as Brazil’s biggest trading partner and is on a path to do the same with other Latin American nations.
China’s drive into Latin America has one major reason behind it: resources. China needs them; Latin America has plenty of them. Maintaining its economy’s rapid growth requires China to have access to raw materials such as oil, iron ore, copper and soybeans. This need is leading China into competing aggressively with the European Union in filling a void in the region created by America’s focus on Iraq, Afghanisttan, and domestic issues.
Business links with the region are easier to form for China than for the U.S. because China isn’t concerned with a country’s human rights records or record of democracy. For China, it’s all about business, and business is booming.
China is importing zinc from Peru, iron ore from Brazil and copper from Chile while exporting cheap clothes to Mexico and cars to Peru. Venezuela is buying high-tech oil-drilling platforms from China and sending China 380,000 barrels of oil per day as it diversifies its oil exports away from the U.S. Two Chinese companies are embarking on major mining projects in Peru. Costa Rica and China are scheduled to sign a free-trade treaty at the end of the year, the third for China in the region.
It’s not just trade either. China suddenly is rivaling the World Bank and the Inter-American Development Bank as a major lender to Latin America. While many countries are borrowing huge sums of money to keep their economies going, China is able to use its vast amounts of cash to invest in Latin American companies.
Brazilian oil company Petrobras is borrowing $10 billion from China in exchange for shipping 150,000 barrels of crude per day this year, and 200,000 barrels per day for the next nine years. Ecuador is borrowing over $2 billion to finance operations for its state oil company and to build a hydropower dam. China is even sending $74 million to Costa Rica to build a new soccer stadium.
With all the business deals also comes political influence. Brazil and its new biggest trade partner, China, are part of the BRIC group of nations. This bloc includes Brazil, Russia, India and China, four of the world’s largest developing economies, which are demanding a greater role in global political and economic affairs. The financial crisis has provided the resource- and cash-rich BRIC nations a great opportunity to make their presence felt.
China’s growing influence in Latin America does concern the U.S., but there is little it can do about it. China’s need for resources and Latin America’s need for investment and its desire to diversify its export markets make them natural business partners. Unless the U.S. wants to start a trade war, then it’s inevitable it will lose its top trading partner position in more Latin American nations. As Latin America becomes less dependent on U.S. business, the United States will lose not just the business deals, but political influence as well.
However, there is another player in the region as well: the European Union. As we have written before, Europe has a vital interest in the area. The EU is Latin America’s second-biggest trade partner, its biggest investor and its primary donor of developmental aid. “What is emerging as a result of the EU’s trade and humanitarian efforts in Latin America,” the Trumpet wrote back in 2004, “has more to do with the extension of the EU’s empire than just a simple free-trade deal.”
As competition for resources heats up, tensions will mount. While the U.S. might be unwilling to fight for its markets in Latin America, other countries will be more forceful in their acquisition of vital resources. To learn what direction the competition for resources in Latin America, and other areas of the world, will take, read “The Battleground.”