China in the USA’s backyard

It is very early to assess the changes introduced by China’s new leadership, but the perception is that the country is preparing for a role of ‘great power’ on the international stage. China’s rise is silent but will not be unnoticed.
Perhaps Beijing is not ready to play the role of ‘peacemaker’ in the Middle East; however, its growing economic weight in the region seems to suggest the ‘peace plan’ proposed on 6 May by Xi Jinping might be more than a vague or symbolic gesture.
Moreover, Beijing would have offered (24 May) 500-600 soldiers for the UN Peacekeeping Mission in Mali. This is a hard moral blow to Europe and in particular to France. Both Brussels and Paris often indulge in pacifist and humanitarian rhetoric, but as a matter of fact they endorse neo colonial initiatives and lose the role of peacekeepers to the advantage of ‘authoritarian’ China…whose hegemony over Africa is hardly challengeable.
Even more interesting though is the fact that China is constantly gaining ground in Latin America, the old ‘backyard’ of the USA. Since 31 May, president Xi has visited Trinidad & Tobago (where he promised loans of 3 billion$ to those Caribbean countries which will support the ‘One China’ policy), Costarica (where he granted a 400 million$ loan on infrastructure projects) and Mexico, just before meeting Obama in the USA on 7-8 June.
The ‘Monroe doctrine’ has long gone. With an overall trade of 250 billion$ (2012), China is currently the second partner of Latin America, and the second investor as well; even more significantly, China is the largest partner of the biggest country (Brazil, a fellow in the BRICS group) and of the one with the highest living standards, Chile (whose per capita Gdp, according to the IMF, would be 15,410$ in 2012, higher than Hungary and Poland). The USA has clearly realised the problem; for example, experts from Tufts University have drafted the long report The New Banks in Town: Chinese Finance in Latin America (2012); so far however nobody in Washington DC has reacted. How can we explain this unexpected ‘chemistry’ between the Dragon and Latin American countries? Professor Carlos Murillo (National University of San Jose’, Costarica) has a clear answer: “The general perception in the country [Costarica] is that China is mainly interested in financing economic projects, while the U.S. cares more about having political influence without offering loans or aid”.
China has large availability of capital and tends to invest it in a high number of projects, in particular in infrastructure and energy: in 2010 it lent Latin American countries some 35 billion$, more than the sum of all loans from the USA and the World Bank together! This also highlights that the IMF rules should finally be modified: China’s share of votes there is 3.81%, less than Germany, Britain or France!
Moreover, co-operation between China and Latin America extends to financial markets. The stock exchanges of Shanghai and São Paolo (Bovespa) in early 2011 signed an agreement with the aim of facilitating capital movements between China and Brazil, and Bovespa is also connected to Hong Kong in the BRICS Exchange Alliance (2012). There is then clear commercial synergy between China and this region of the world. In general terms, Beijing exports industrial goods and technology, and imports energy resources (oil from Venezuela and Brazil), commodities (Chilean copper), and crops (for instance, soya from Brazil).
Another interesting aspect has to do with the location of Chinese activities. ‘Atlantic’ countries (Brazil, Venezuela, Uruguay, and Argentina, to mention the most important) have socialist and ‘statist’ traditions and might be considered ‘naturally’ close to Beijing. A surprise is the fact that China is also ‘winning over’ the Pacific countries (Mexico, Colombia, Peru, Chile), which in recent years have embraced the free market and are generally ‘closer’ to the United States. Mexico, Colombia, Peru and Chile have formed the Pacific Alliance (June 2012), an economic organisation aimed at creating a ‘bridge’ between Europe and East Asia. They can boast strong average growth (5% in 2012) and have soon realised that the future of world economy and politics is played in its biggest ocean. The three bourses of Lima, Santiago, and Bogota have joined forces and established the MILA (Mercado Integrado Latino Americano), an integrated financial market with a capitalisation of more than 700 billion$, which combines different specialisations (Santiago in services, Bogota in energy, and Lima in mining) and might be soon joined by Mexico. In other words, at the moment the most successful Latin American countries are those facing the Pacific Ocean…Two of them, Chile and Peru, already have FTAs with China, while Colombia and Mexico might follow soon. Despite fierce competition on industrial goods, Mexico and China have annual exchanges for 37 billion$ – up from 13 million in 1972.
The USA remains Latin America’s main trade partner and its most important security provider; nevertheless, US foreign policy’s current weaknesses might leave room for change. Obama’s difficulties have been confirmed by the recent choice of a Republican (and a former member of the Bush administration), James Comey, as head of the FBI. Brazil and Argentina, despite their industrial competition with China, might take advantage of Washington’s troubles and move closer to Beijing. Brazil will host the World Youth Day (2013), the Football World Cup (2014), and the Olympics (2016), and has enough economic and diplomatic weight to act as a mediator between China and the US, the ‘South’ and the ‘North’ of the world, the BRICS and the rest. Brazil and China have also signed (27 March) a $ 30 billion currency swap deal, and enjoy important relations in the energy sector. At the moment the USA does not have the availability of capital China does. Nor is Washington showing foreign policy assertiveness: let us just think about the exhausting negotiations on Syria between the USA and Russia, whose Foreign Secretary, Mr Lavrov, is proving a new ‘Mister Nyet’, after more than two years of war and violence.
The USA might be in a difficult moment; Europe, for its part, is completely off. Even the Mercosur, which was born in 1991 and drew inspiration from European integration, is in a troubled phase and is sometimes perceived as a trade bloc dominated by Brazil. By contrast, the Pacific Alliance is on the rise. In Chile’s president Piñera’s words, “The Pacific Alliance may become a great platform for Europe to project itself towards the Asia-Pacific region”. In other terms, the EU would need the Pacific Alliance’s support in order to have an impact in East Asia…we are afraid at the moment this is true. The EU has now its own credit rating agency, Dagong Europe, which in fact is…Chinese, or, better, a partnership of Dagong Global and Mandarin Capital. Uruguay’s outspoken president, Mujica, put it very clearly ‘a policy of integration (with Asia) is a strategy for the future and something necessary as long as Asia and its needs continue to grow.’ Integration with Asia is now more important than integration with Europe.
To be honest, the EU has never been able to establish a free trade agreement with Mercosur, and has never solved its controversies on agriculture with Brazil and Argentina. This adds to current economic woes, and tremendously mistaken initatives such as the war in Mali. Latin American countries have understood and are now turning their face elsewhere.