External Affairs

Doing the Tango, With Chinese Characteristics

Sao Paulo shop selling Chinese goods [Photo: Shobhan Saxena]

Sao Paulo shop selling Chinese goods [Photo: Shobhan Saxena]

Rio de Janeiro: Just off Rua Oscar Freire, a fashionable street with trendy stores crammed with posh ladies in the leafy Jardim area of Sao Paulo, sits a small shop with no name. Strategically placed on a table in the middle of the store is a mannequin with a T-shirt that says: “I AM NOT MADE IN CHINA.” A few customers stop by to have a look at the shirt. “I am sure even this one is made in China,” jokes one customer. In this tony corner of the richest city in South America, almost all products on sale – from Zara dresses to Louis Vuitton bags to iPhones – are made in China. The T-shirt joint is desperately trying to stand out to attract some clients with a witty message, which is barely working. “People know all the stuff here has come from China and that’s why they shop here,” says a shop attendant. “The only thing that doesn’t sell here is a joke about China.”

Far from this Brazilian city, in another corner of the Latin world, banana growers and shopkeepers in the Ecuadorian capital Quito also have a joke about China. It’s said that a business magnate goes around telling people that if each “Chinese citizen would eat just one Ecuadorian banana per week, we would be a wealthy country”. They just hope that the joke comes true. Other neighbouring countries too have similar expressions and aspirations.

Capturing the imagination

The Chinese have truly arrived in Latin America. Almost 12 time zones away and separated by several oceans and a difficult language, China has little in common with Latin America – historically or culturally. But it has captured the Latin American imagination in a way other countries haven’t managed to do. With investments in finance, infrastructure, energy, technology and oil and gas, China is now the biggest trading partner of most Latin American countries, including the largest South American economy Brazil. It has been a business of convenience. Latin America – from Mexico to Argentina – is rich in raw materials. China is the world’s factory. They sell to each other: commodities go from here; cheap products come from China. This has been the story so far.

But now China seems poised to become Latin America’s biggest political partner too as it is working on taking its engagement with the region to a higher level. “Open your heads: the world is different, China leads,” declared  Argentine President Cristina Kirchner last month on her return from Beijing, where she signed many deals ranging from agro-products to fighter jets and patrol vessels in the framework of an “integral strategic association”. “You cannot be so small-minded, [or have] colonised minds my dear friends,” Kirchner told critics of the deals. “I’ve been to all G20 meetings. I can assure you that dialogue between China and the US is permanent and nothing comes out of those meetings unless it has the consent of both the US and China. Please drop the intellectual corset you are tied up to,” said the straight-talking leftist leader.

In western capitals — and their media — Kirchner is often portrayed as an eccentric politician who is prone to gaffes and mood swings, but in this part of the world her words carry weight. So when Kirchner was blasting her critics, she was also sending out a message to Washington and London that the game has changed: South America was no longer dependent on them for money and trade; there is a new player in town.

The game-changer

China has a plan for the region. It’s neither doing charity nor throwing money around for grabbing headlines. It has the cash, projects and a political objective – all in place. China has already made investments in Latin American totaling $119 billion since 2005. At the Third Summit of the Community of Latin American and Caribbean States (CELAC) in Costa Rica in January this year, China promised to double its trade with Latin America to $500 billion within 10 years. At the meeting, Chinese President Xi Jinping pledged to increase China’s direct investment in the region to $250 billion in the next decade. “The relationship between China and Latin America is on an upward trend. Mutual political trust between the two has also been boosted,” said the Chinese leader at the gathering of 33 member states, which passed a Political Declaration, a Plan of Action and a Five-Year Plan, which covers areas as diverse as political security, trade, investment, finance, infrastructure, energy, resources, industry, agriculture, science and people-to-people exchanges. “The best thing about making deals with the Chinese is that they do their home-work so well before they put anything on the table. They leave no room for confusion, and all their proposals look like a win-win situation for everyone,” says a Brazilian diplomat who attended the summit. “They make offers you can’t say no to, though everybody knows that growing economic power has made China invest where capital is needed, and raised China’s demand for energy.”

Even as some in the West brand China as the new coloniser which is using its cash to grab land and resources in Africa and Latin America, China’s “win-win” model is working quite well in this part of the world. For cash-strapped economies of Latin America, China is an ideal lender. Chinese loans to Latin American governments, given mostly by China Development Bank, do not impose the type of conditions that Western governments often imposed in the past, especially the demand for fiscal austerity. Also the need to send material – oil, soya or meat – has created structures which were earlier missing. “On one hand, the money is being used for social projects without austerity demands and on the other hand, we are building infrastructure. This model suits everyone,” says the diplomat.

A new canal to the Atlantic

Now, in a massive display of this model that will change the nature of Atlantic-Pacific trade and lift a small country out of poverty, China has planned a $50 billion canal project in Nicaragua to rival the Panama Canal. Called the Grand Inter-Oceanic Canal, the project will run across Central America and challenge the Panama Canal for the world’s cargo traffic. Even as alarm bells ring in Washington, which has activated environmental groups against the project, the Chinese plan has sparked an unprecedented enthusiasm in Nicaragua.

Nicaragua_canal_proposals_2013

Proposed canal routes in red (2013). Blue: Panama Canal. The canal, which started construction in 2014, will follow the second route from the top [Credit: Wikimedia Commons]

“The canal will bring prosperity to all in this poor nation,” Francisco Talavera, the chief of Nicaragua’s prestigious National Agrarian University, told the National Public Radio recently. According to Talavera, the canal will create 50,000 jobs during the five-year construction period and 200,000 more once it’s up and running. That, Talavera believes, will turn the second-poorest nation in the western hemisphere into the region’s powerhouse, with economic growth rates as high as 14 percent a year.

The canal, expected to be ready by 2020, would be a game-changer for Nicaragua – and China. It would actually change the game – and the nature of trade — in Central America as China has an access route from the Pacific to the Atlantic. large enough to accommodate large ships that the existing Panama Canal cannot accommodate.

Till the 1990s, most South American countries, ravaged by decades of US-backed dictatorships were basket-case economies. During the 1990s, when most of them returned to democracy and globalization became the buzzword of international affairs, the trade between the region and China did not develop much. But in the 2000s as one country after another – from Venezuela to Brazil to Argentina to Uruguay and Chile — elected leftist and centre-left governments, things began to change dramatically. In the 2000s, almost all South American nations witnessed sharp growth as they engaged with China for business and trade. “The political change brought a set of new leaders who wanted to get out of the US sphere of influence and also achieve high growth. China offered that possibility and everybody jumped on train,” says the Brazilian diplomat. “Though it also brought with it a set of problems, China has been the main driver of economic growth here. The age of predatory capitalism promoted by the US came to an end in the last 10-15 years.”

US: Good cop, bad cop game

Ronald Reagan once famously confused Brazil with Bolivia. It was probably Richard Nixon who called South America an “afterthought” in international politics. And for almost a century, the US has believed – and treated – the region as a backyard to be controlled by the Washington Consensus. But now, as the region partners with a distant Asian country, the US are getting worried. Last month, former White House economic adviser Larry Summers said China’s Asian Infrastructure Investment Bank, which Brazil has signed up for and many Latin American countries are poised to join, was a “wakeup call”. The Americans think they are losing their grip over the region as Chinese investment in Latin America exceeds that of the World Bank and the Inter-American Development Bank combined in the last year. Rodger Baker, vice president of Asia-Pacific Analysis at advisory firm Stratfor, recently told CNBC that the Chinese government was trying to develop itself on par with the US and Europe as an international leader. “Being able to be this lender of last resort, or person who seems willing to offer financial aid to these countries, gives China a leg up in the United Nations and other foreign affairs organizations. It’s kind of buying friends,” Baker told the US channel.

It’s not just the Chinese lending that is making the Americans lose sleep. The trans-oceanic canal and Chinese plans to construct high-speed rail networks in Mexico and South America – from Brazil to Peru – and to bail out a struggling Venezuelan economy with huge investments had made Washington sit up and think about how to curtail China’s influence in their ‘backyard’. The result of this thinking has been a quiet and undeclared US pivot to Latin America, with the Americans doing what they do the best: playing good cop, bad cop with different countries with different objectives. On April 11, President Barack Obama made global headlines as he shook hands with Cuban President Raul Castro at the Summit of the Americas in Panama. Just a few days prior to this “historic” meeting, Obama had issued and signed an executive order declaring Venezuela as a “national security threat”. “Even as Obama is trying to normalize ties with Cuba, he doesn’t want to look weak and is threatening Venezuela, which is a key ally of Havana. Obama is making these gestures at Cuba not because of a sudden change of heart but he is worried about China’s growing influence in Central America. He is telling the whole region ‘if you don’t stand up to us, we can work together’,” says an Argentine diplomat. “The world is changing but the US still wants to dominate us in the old ways. They can’t be true partners. As an emerging country, China is a better partner.”

A symbiotic relationship

Call it irony, but while the world’s biggest capitalist economy, still struggling with the after-effects of the 2008 financial crisis, fails to invest in the region closest to it, China has managed to build a symbiotic relationship with Latin America.

Just about when Obama was busy declaring Venezuela as a security threat, Xi Jinping promised to invest $20 billion in the country’s struggling economy. As China gets oil from Venezuela, Caracas would use the money for housing, technology, energy and infrastructure projects. Beijing has extended $50 billion worth of credit to Venezuela since 2007, mostly in exchange for oil shipments. Unlike the US, which mostly gave aid to South American countries for security-related matters or for its “war on drugs”, China has become a partner in their development and social welfare projects. At the CELAC summit, Ecuadoran President Rafael Correa Delgado, who will head the group over the next 12 months, said that the Plan of Action adopted at the meet would focus on eradicating hunger and poverty and improve lives in the 33 countries that form the bloc.

The kind of engagement envisaged  is so comprehensive that there won’t be any sphere of development and welfare without a Chinese footprint in it.

Apart from its hunger for raw material, what is China trying to achieve in this part of the world? The answer could probably come from that old fox of realpolitik, Henry Kissinger who has spent more time than anyone in the western world engaging with China. In a chat with Google head Eric Schmidt at the firm’s headquarters in California last month, Kissinger tried to connect China’s ancient past and philosophy to its current global ambitions. Speaking about China’s growing influence in the world, Kissinger said, “The Chinese do not think historically of conquering territory by force and colonizing it and holding it the way the Europeans have. The Chinese think, and it’s a general rule, that they will influence other societies by the majesty of their performance, by the magnitude of their efforts, and that they will then draw them into a pattern of relationships that is based on cultural and psychological domination.”

Kissinger’s theory may not be absolutely spot-on, but he comes pretty close to explaining what China is doing – and has achieved – in Latin America. It’s not just trade and cheap Chinese gadgets that have dazzled the people here.  Chinese soft-power has grown immensely in less than a decade. At the five Confucius Institutes run by the Chinese government in Brazilian universities, there is long waiting list for students wanting to learn Mandarin; Chinese New Year celebrations attract almost 200,000 people every year in Sao Paulo; and in the Metro of Rio de Janeiro, local commuters take great pride in travelling by brand-new “Made in China” trains. With the “majesty of their performance” and by “the magnitude of their efforts”, the Chinese have won hearts and minds across the region.

Chinese new years celebrations in Sao Paulo [Photo: Shobhan Saxena]

Chinese new years celebrations in Sao Paulo [Photo: Shobhan Saxena]

That doesn’t mean there are no problems and everything is hunky-dory. A Chinese plan to buy land was met with strong resistance in Brazil and its neighbouring countries. In Nicaragua too, there is some public opposition to the canal project. There is still a lot of concern about the balance of trade being in China’s favour and local manufacturing not flourishing as markets are flooded with Chinese products. Diplomats and business people complain in private about China becoming too big a player in their region. “Thank god, we do not have a border with China. Otherwise, we will have to worry about their military strength,” says the Brazilian diplomat. “We just do business and political engagement with them, and that’s fine.”

From India, words but no action

On their part, the Chinese have been sensible enough to do their work without making too much noise. After the BRICS summit meeting in July 2014 in Fortaleza, while Indian Prime Minister Narendra Modi was constantly tweeting about his meetings with other leaders and managing headlines back home that suggested he was running the show in Brazil, Chinese President Xi Jinping flew to Brasilia for a bilateral meeting with President Dilma Rousseff and signed 32 agreements in commerce, education, civil aviation and energy, including a deal that will see Brazilian company Embraer sell 60 E-190 jets to China. On the other hand, according to sources, with nothing much to show for the Prime Minister’s first major foreign trip, Indian officials rehashed three existing agreements with Brazil and they were signed again by Modi and Rousseff. “We were under pressure to do something in the bilateral meeting, but no one had bothered to do any ground work. So they just signed something for the sake of it,” says an Indian diplomat who was posted at the Indian embassy in Brasilia at that time.

While posturing and making tall claims remain the hallmark of Indian efforts in the region, China has positioned itself as a real partner with almost all the countries. Even as Indian trade with Brazil languishes at $10 billion, the South American powerhouse’s business with China now exceeds $100 billion. It’s the same story in other countries. “We do not even have embassies in countries like Uruguay and Paraguay. Our diplomats do not want to come here. Everybody wants to serve in London and New York,” says the Indian diplomat. “Forget competing with China in the region, we are a marginal player. Our private sector wants quick returns on their investment. The public sector doesn’t have much financial muscle, and now with the government’s focus on North America and Europe, we will remain a marginal player here. We are wasting a great opportunity to engage with these vibrant countries who are like us in many respect.”

Another reason India has missed the bus here is its inability to follow-up on pacts signed and commitments made. This is what differentiates India from China, which rolls out its projects after years of preparation. Also, the Indians have used the excuse of the financial crisis to scale down their investments in the region. On the other hand, China – flush with funds – has actually increased its investments here since 2008, when the crisis began. Even at present, problems such as a slowing down Argentine economy or the corruption scandal in Brazilian state oil firm Petrobras have not deterred Beijing from funding energy projects in Latin America. “The Chinese seem to have chosen the moment of weakness to announce their help in order to show the strategic importance that these countries have for China,” says Jorge Castro, a Buenos Aires-based analyst of economic issues. “They have long term objectives.”

On May 19, just a couple of days after Narendra Modi flies back from Beijing after his first visit to the neighbouring country, Chinese Prime Minister Li Keqiang lands in Brasilia with an agenda that includes purchase of aircraft from Brazil, building a railway line from Brazil to Peru, reopening of the Chinese market to Brazilian beef and, most importantly, Brazil’s involvement in the founding of the Asian Infrastructure Investment Bank. Both the countries have been working on these pacts for months. When Brazil and China sign on the dotted line in a week’s time, they won’t be rehashing some old plans. It will be a commitment to a concrete blueprint for growth that promises to be a “win-win” proposition for both the emerging countries.

Shobhan Saxena is an independent journalist based in Rio de Janeiro. He writes on South American affairs