Source: Phoenix Weekly

The Chinese government has clearly been promoting infrastructure finance and development in its economic and diplomatic ties in regions as far away as Latin America and as close as Central, South, and Southeast Asia. New institutions like the Asian Infrastructure Investment Bank as well as funds tied to the New Silk Road (also known as the One Belt One Road initiative) and the Shanghai Cooperation Organization all include an important emphasis on infrastructure development and financing. 

Premier Li Keqiang’s recent visit to Latin America simply highlighted and expanded on this trend in China’s already-deepening ties to Latin America, yet this emphasis on infrastructure as a key feature of China’s ties to countries in Latin America, Africa, and Asia is really nothing new. It’s largely the timing and publicity surrounding the creation and promotion of these institutions and initiatives all around the world that is new or that makes it appear as if something new is happening. 

As China seeks to invest more in Latin American infrastructure, it should be careful of the legal and public affairs dimensions of its deals and the complexities and difficulties associated with such investments. 

This is important because, at least in Latin America, China and many of the region’s countries and financial institutions (like the Inter-American Development Bank) have been speaking about the importance and possibilities of infrastructure development for at least the last decade. The LAC-China Infrastructure Fund, which entails the creation of a private equity fund, is an example of the Inter-American Development Bank cooperating with China. This began in 2012, but other discussions took place even earlier—for instance, around the time of the Olympics, Chinese companies, banks, and engineers consulted with Brazil about its infrastructure and building plans for the World Cup in 2014 and the Olympics in 2016. (One of the best databases for existing and proposed investment projects, including infrastructure ones, is coordinated by the Inter-American Dialogue’s China and Latin America program.)

Yet the very real need for more and better infrastructure in Latin America, and China’s obvious interest in supporting such development, has not translated into as many successful projects as might have been anticipated or desired. The most obvious example is the deal last year in Mexico for a high-speed rail link that fell through. There was also a recent announcement that Mexico will pay some compensation to the Chinese companies involved with that project. This case is a perfect example of how Chinese companies bidding for infrastructure projects in the region need to pay very careful attention to the legal and public affairs dimensions of the deals. They have to be free from corruption and, just as importantly, have to be seen as fair, open, and well-intentioned. In fact, China may have to work even harder at this, because there is sometimes an impression that Chinese companies may have unfair advantages due to either Chinese or local government support or corruption (and not just on the Chinese side).

In general, there has been a concern that more investment has been promised than has actually taken place, but it’s challenging to find evidence of “failed” or uncompleted projects. In 2004, Hu Jintao made a trip to the region and supposedly offered over $100 billion in investments, but that number turned out to be controversial. A big part of the problem with overall investment figures is that many of the official Chinese investment figures for Latin America and the Caribbean actually include short-term or portfolio investments in Caribbean tax havens. Although a significant number of examples of failed infrastructure projects likely exist, it would require a lot of research and conversations with investors and officials in Latin America to find them.

Lack of attention to the legal and public affairs dimensions of deals is a challenge that China faces in almost every region where it promotes infrastructure development and finance. Part of the contradiction here is that China’s own domestic infrastructure development, much of it in the last fifteen years, has been a key part of the country’s own recent development strategy. Yet for other developing countries (not to mention developed ones like the United States), such large-scale projects like high-speed rail are notoriously difficult to complete. On his recent trip to Latin America, Premier Li Keqiang announced that the proposed Inter-Oceanic Railway from Brazil to Peru would undergo a feasibility study over the next year. Much depends on how such a study is conducted, because ultimately any successful project must take into account what the governments, businesses, and people of the host countries want and are willing to support. In many countries, including the United States, such support is often incredibly difficult to generate. 

Local opposition and violence are two challenges that China will need to address. In some Latin American countries where China has proposed major infrastructure projects, like rail or highway links between Venezuela and Colombia, there are local conflicts and concerns about violence that make such projects incredibly difficult to launch, let alone complete. The most obvious example, at least from Premier Li’s recent trip, of the complications presented by local conflict is in Colombia, where the government is negotiating with the FARC guerrillas. Among other serious obstacles to any kind of infrastructure investment, or Chinese agriculture investment in the case of Colombia, is the major issue of land mines from the guerrilla war. 

In other countries in the region, bureaucratic obstacles or local opposition from politicians or civil society make such projects difficult. Clearly China will face similar challenges as it hopes to implement similar projects in Central, Southeast, and South Asia. This does not mean such projects are impossible, only that they will require a much more sophisticated, careful, and patient approach than is probably apparent from all the headlines and publicity surrounding the excited talk of these initiatives. 

Historical comparisons to previous examples of foreign participation in Latin American infrastructure projects are also very interesting. Maybe the most obvious example is the key role that British companies played in the financing and building of railways in South America in the mid- to late-1800s. At the time, Britain played a role somewhat similar to that of China today in the sense that British banks and companies were seeking financing and investment opportunities around the globe and their strengths seemed to fit with the needs of countries that were undertaking major development initiatives. Large parts of Argentina’s railway network were therefore built with British capital and technology. Such involvement was ultimately highly controversial, however, and it became even more so over time as many in Argentina came to view Britain’s role in the country’s strategic sectors, like railways, as a barrier or threat to the country’s independent development. Many asked why the country should be relying on foreign finance in the first place. 

Today the situation is obviously not the same as it was over a hundred years ago, and yet China does need to be cautious and aware that there is a history of sensitivity to dependence on foreign finance and control of local infrastructure, especially in Latin America. The controversial nature of British investment in Argentina’s railways in the 1800s continued to be debated into the 1900s. The dependency school of Latin American development in the 1950s, 1960s, and 1970s emphasized worries about dependence on primary commodity exports and foreign finance, especially when capitalists from the developed world collaborated with local elites. The irony is that today China is basically filling the role of Great Britain in the 1800s, at least in terms of providing finance for infrastructure and serving as a key market for South American commodities.

Clearly Latin America needs more and better roads, ports, airports, and public transportation, but whether these projects are supported by banks and companies from China or other countries, all of these foreign parties must work carefully to understand local conditions and collaborate with a broad range of partners both in government and society at large to make such projects work. China is right to propose more public-private partnerships (PPP) in infrastructure and other development projects. 

Yet it appears the Chinese government, at least on its official visits, is still much more comfortable arranging state-to-state deals. The problem is that there aren’t really many examples of large, successful infrastructure projects in Latin America involving China. There is the Coca Codo dam in Ecuador, but it has both supporters and serious critics. At least in Peru, especially in the case of Chinese mining investment, there has been a real range of outcomes, and different Chinese companies have done different kinds of corporate social responsibility (CSR) work.

At the end of the day, China will both be more successful and create more goodwill, especially in vibrant democracies, if it is willing to ask clearly what it is that partner countries in Latin America and elsewhere want and need. This will require a sophisticated understanding of and a willingness to work with a broad range of state and non-state partners.   

This article was originally published in Chinese by Phoenix Weekly.