Source: Caixin
Eyes have been on Latin America recently. Besides the 2014 World Cup, many state leaders have visited this region which is referred to as America’s backyard, including American President Barack Obama, Russian President Vladimir Putin, Chinese President Xi Jinping, and Japanese Prime Minister Shinzo Abe.
From July 15 to 23, President Xi Jinping attended the Sixth BRICS Summit and had state visits to Brazil, Argentina, Venezuela and Cuba. He also attended the China-Latin America and the Caribbean Summit, and met the Presidents of Peru and Chile.
This is Xi’s second visit to Latin America since becoming President. In late May 2013, Xi visited Trinidad and Tobago, Costa Rica, and Mexico. Not long before Xi’s first visit, Vice President Joe Biden visited Trinidad and Tobago, Cuba, and Colombia. In April President Barack Obama visited Mexico and Costa Rica. In the same month of Xi’s second visit, Russian President Vladimir Putin started his six-day state visit to Cuba, Argentina, and Brazil.
Two days after Xi’s July visit, Japanese Prime Minister Shinzo Abe began a visit to 5 Latin America states including Mexico, Trinidad and Tobago, Colombia, Chile, and Brazil over 9 days. Abe is the first Japanese Prime Minister to visit Latin America in ten years. This timing made some think Japan’s foreign policy is calculated with China in mind. Why did Abe choose this time? What are the similarities and differences between China and Japan’s policy towards Latin America? What implication does China’s Latin America policy have for the United States? Matt Ferchen of the Carnegie-Tsinghua Center for Global Policy did a Q&A with our Caixin reporter.
Learning from Japan: loans-for-oil
Caixin: After Chinese President Xi Jinping visited Latin America, Japanese Prime Minister Abe visited Latin America also. The length is similar and the visited countries overlapped.
Matt Ferchen: Given the high tensions between Japan and China lately, I wouldn't doubt that the timing of Abe's trip is meant in some sense as a symbolic response to Xi Jinping's recent trip. Abe's selection of countries, especially Mexico, Colombia and Chile, all of which are part of the relatively new Pacific Alliance, is certainly a strong contrast to some of the economically closed and anti-U.S. countries Xi chose to visit.And at a commercial level, there is certainly some direct competition as Japan and China seek to win bids for infrastructure projects in places like Brazil. But Japan's and China's economies are at very different stages of development and therefore the kinds of trade and investment relations that either country is likely to have with Latin America will be rather different. And in fact, some of China's own strategies for engaging Latin America, including loans-for-oil deals, were learned directly from Japan's own strategies decades ago.
Japan also has strong cultural ties to Brazil, where a large and well-established community of Japanese immigrants has long provided an important link between the two countries. Beyond the superficial diplomatic and commercial competition, the nature of China's and Japan's engagement with Latin America is most likely to show more differences than similarities.
Caixin: From your perspective, what are the natures of China’s and Japan’s engagement with Latin America? What are the similarities and differences between China and Japan’s interaction with Latin America?
Matt Ferchen: In terms of the comparison between Chinese and Japanese engagement with Latin America there are at least three key differences.
The first is that Japanese commercial engagement with Latin America precedes China's more recent ties. Japan's rapid economic growth from the 1950s to 1970s meant an expansion of trade and investment ties, including with Latin America. In the 1980s and 1990s Japan and especially Pacific coast Latin American countries deepened these ties through organizations like APEC that sought to expand trade and investment networks across a wide range of countries in Asia and the Americas.
China's commercial relations with Latin America are really only about a decade old, but in that decade they have grown rapidly and are now important for both sides.
Second, along with the rapid growth in China's commercial engagement with Latin America, China has included the region in a broader strategy of deepening and expanding "South-South" relations. Similar to Africa, China looks to Latin America as a junior partner in its efforts to build commercial and diplomatic ties with developing countries in these regions. Latin America has not featured as prominently in Japan's foreign economic or diplomatic policy, but as Japan's economy shows signs of recovery it makes sense that like China it too will look for expanded trade and investment opportunities especially with open Pacific coast economies like Chile, Peru, Colombia and Mexico and with commodity-rich Atlantic coast countries like Brazil and Argentina.
Lastly, Japan can build on its technology-intensive economy for kinds of investment opportunities that may differ from China's commodity-heavy approach. There may be opportunities for cooperation, though, between Japanese and Chinese firms in areas like infrastructure development since Chinese firms are well financed and Japanese firms have cutting-edge technology.
Caixin: It is accepted by some pundits that China’s visit to Latin America is a “tit for tat” policy aimed at the American “pivot” to Asia. What is your view?
Matt Ferchen: It is almost a certainty that some Chinese foreign policy officials and thinkers are promoting the idea that rising Chinese influence in Latin America can be a kind of counterweight to U.S. influence and policy in Southeast Asia (or in Asia more generally). We can see evidence of this in the timing of Chinese Foreign Minister Wang Yi's visit to Latin America just after President Obama's spring visit to allies in East and Southeast Asia. Some of this can be explained by long-standing principles of diplomatic reciprocity.
It is also clear that China is prioritizing Southeast Asia in particular as a region where it feels it can and should practice a new form of influence and potentially even leadership. Notwithstanding the more recent "pivot" or rebalancing, the United States actually has a long tradition of commercial, diplomatic and security ties to countries in Southeast Asia and in Asia more generally. This has inevitably led to some tensions between the two countries as they seek to find a new accommodation to China's rising influence, to the distrust and tensions that have emerged among some countries in Southeast and East Asia, and to America's longstanding role in the region.
However, I think it is unwise, unhealthy, and ultimately would be self-defeating for China to push the logic of "backyard diplomacy" too far. U.S. ties to East and Southeast Asia are of a much longer duration, are much deeper, and much broader than China's ties to Latin America. China's commercial links to Latin America, impressive as they have become, are only about a decade old.
Moreover, they are built on a narrow base: commodity exports and investment. Even this narrow base has become a question of concern recently as China's own economy has slowed and as its development model has undergone fundamental changes. Many in South America are openly questioning how long the boom in relatively high-priced exports to China of minerals like iron ore and copper can continue. When we add deeply troubled countries like Venezuela, arguably the country that has built up the closest thing to a friendship with China in the Americas, we find further evidence of the precarious foothold China has in the Americas, especially compared to the U.S. role and influence in Asia.
Ultimately, no one in Latin America or Asia wants to be pushed into a Cold War "us or them" kind of mentality when it comes to choosing between the United States and China. It will be up to government leaders, businesspeople, and the citizens of China, the U.S., and their neighbors to ensure that such a choice does not become necessary.
A mix of old and new policies
Caixin: How would you compare Chinese President Xi jinping’s first trip to Latin America with the second one this time?
Matt Ferchen: President Xi's two trips to Latin America during the last two summers have both drawn considerable attention outside and inside of China due to certain features. His trip last summer was notable because all three countries he visited: Costa Rica, Trinidad and Tobago, and Mexico were all north of South America, the region of Latin America where China's commercial and diplomatic ties have grown the fastest in the last decade. President Xi's visit to Mexico was especially notable not only because it signified a possible improvement in the often-tense economic relationship with Mexico, but also because of Mexico's proximity to the United States.
His most recent trip, with the exception of Cuba, was focused on visits to more traditional commodity-rich South American countries. Of particular interest to many observers were President Xi's visits to formally socialist, and anti-U.S. Cuba and Venezuela. For both supporters and critics of the Venezuelan and Cuban governments, many emphasized that Xi's visit had an important ideological component and that China was visiting socialist and anti-American friends in the U.S.'s "backyard". However, my own view of this is somewhat different. President Xi's visit to Venezuela in particular comes after many years of frustrations on the Chinese side about what a difficult business partner Venezuela has been. In fact Venezuela's economic, social, and political difficulties have only deepened since former President Hugo Chavez died in March of 2013, and these difficulties have increasingly begun to have adverse effects on China's core interests in Venezuela and the region.
Caixin: What is the meaning of this time’s trip of Xi to both China and America?
Matt Ferchen: The overall trip to Brazil, Argentina, Venezuela and Cuba, including the BRICS Summit at the beginning of the trip, has both more general and more specific components. Generally speaking, China's now decade-old commercial and diplomatic initiatives in Latin America are part of China's foreign economic strategy to secure resources and markets as well as to build commercial and diplomatic partnerships with other developing country regions (like Africa). At the BRICS Summit China, along with the other BRICS members, were able to once again emphasize their general commitment to "South-South" relations and in this case to put forward plans to build a concrete institution: the BRICS Bank. Especially in Venezuela and Brazil, but also to a certain extent in Cuba and Argentina, China has found cooperative partners in promoting the rhetoric, if not always the substance, of South-South ties.
At the more specific level of official state visits to each of these countries, China promoted a mix of new and old policies, mostly in the commercial realm. Again, however, it should be noted that three of the four countries, Venezuela, Cuba and Argentina, but also to a certain extent Brazil, all face serious economic and even political challenges, which in turn affect China as it attempts to move forward with deeper or broader relations with each country.
For its part, the United States has generally welcomed China's growing economic role in the Americas. Many in U.S. government and business circles see China as playing a healthy role in Latin America by providing a new driver of economic growth through rising trade and investment ties. I do think that President Xi's choice of visiting Venezuela and Cuba together was potentially unnecessarily provocative in that it could be seen as a conscious effort to strengthen ties with two of the most anti-U.S. governments in all of the Americas. Some, especially in the U.S. Congress, which happens to be in an election cycle, have pointed to Xi's visit as overt support for actively hostile Cuban and Venezuelan governments. However, as I have stressed, President Xi's trips to both of these countries was made out of a position of weakness, not strength. More importantly, in the future it would be much better for all involved if the U.S. and China could find ways to cooperate in helping to create well-functioning economic, social and political institutions in countries that currently face instability and crisis.
Caixin: You also mentioned that China promoted a mix of new and old policies in Latin America. What are those that you consider new and what are those that you consider old?
Matt Ferchen: In terms of what is old and what is new about China's policy approach to Latin America, there is more consistency than innovation. The most important continuity is that raw materials are still China's primary commercial interest in Latin America. President Xi's South American itinerary reflected this as Venezuela, Brazil, and Argentina are important sources of oil, iron ore, and soy beans for China. Based on commodities as a foundation, another continuity is China's emphasis on "complementary”and “win-win" relations where Latin America provides what China demands, all of which is assumed to underpin stable political relations. However, these consistent aspects of China's Latin America policies are increasingly less satisfying to many Latin American countries because they worry that Chinese demand may falter and would like to broaden the range of commercial ties beyond commodities.
In terms of what is new, there are at least two important Chinese policy initiatives. One of them is the building of a new "China-CELAC Forum" that is an effort to build a regional Latin American body to engage with China in a way that is similar to the Forum on China-Africa Cooperation (FOCAC). It is still unclear how this new region-wide mechanism for China-Latin America engagement will function, but Chinese policy makers appear especially eager to see it succeed.
Secondly, and potentially more controversial, is the new Venezuela office of the China Development Bank (CDB) that was announced the day before Xi Jinping's visit. This new office will be promoted by both Chinese and Venezuelan government officials as a sign of deepening, friendly cooperation. But in fact the new office has likely been established to help the CDB and Chinese diplomats keep a closer eye on the billions of dollars that have been lent to Venezuela through multiple loans-for-oil deals.
Caixin: From your observations, did Xi successfully achieve what he wanted through this trip?
Matt Ferchen: From a short-term public relations point of view, the trip certainly seemed to be very smooth. The BRICS Summit and the announcement of the Bank was a particular a success, again at least in the short term. How well the BRICS countries are actually able to cooperate in managing the Bank, and then how successful the Bank is in terms of actually promoting its development goals, are entirely different and more difficult questions.
I think the one country where it’s most difficult for China to point to success is Venezuela. Venezuela's own, mostly self-created problems, require fundamental reforms. The most important part of the China-Venezuela relationship revolves around oil and nowhere are Venezuela's problems more obvious and harmful than in the oil sector. China would like to buy and invest in more of Venezuela's oil sector, but unless the broader economic, social and political challenges can be addressed, it is hard to imagine the oil sector showing real signs of improvement. Ultimately, with Venezuela China's challenge is how it can try to effectively seek its own interests when Venezuela itself faces such dire challenges. As I have argued elsewhere, China's policy of non-interference is of little practical guidance in the face of this kind of a situation.
The creation of a new China Development Bank office in Caracas just before Xi's trip is most likely a sign of how at least one important state bank seeks to find a solution to this dilemma.
This article was originally published in Mandarin on Caixin.
