Policy 360: The Consequences of China's Belt and Road Initiative in Latin America
The Belt and Road Initiative, more commonly known as China’s One Belt One Road (OBOR), is a global infrastructure project that was developed and launched by the Chinese government in 2013 as a means to facilitate new trade for countries in Asia and around the world. While the initiative intends to usher in new trade opportunities that would benefit numerous countries stationed along OBOR, the initiative has not gone without criticism and backlash. The U.S., for example, expresses concerns that this initiative is a power-move on behalf of China to expand their regional economic and military hold, and the initiative has also raised concerns in some BRI countries that are facing large debt crises.
Through the BRI, China has expanded economically and politically in Central and South America. Now, China is South America’s biggest trading partner and a significant source of foreign direct investment and infrastructure. This economic partnership, while beneficial, has also negatively impacted the political relationship between South American nations, specifically the seven countries that are part of BRI, and the Chinese government. Hence, it is worth asking: how is Chinese involvement in South America changing the political allegiances of the region, and what are the broader geopolitical impacts as the rivalry between the U.S. and China continues? Moreover, will countries in South America rely on the U.S.’ help to allow them to escape from Chinese debt, will they continue to abide by China’s rules, or will they look for other solutions?
Through analysis of individual perspectives of four South American countries, this piece will allow readers to better understand the reasons for political and economic instability in South America with respect to their economic relations with China, and how this may impact future economic relations in the region.
Economic Reliance and Venezuela’s Stockholm Syndrome
By Moya Linsey, Barnard College ‘25
Shortly after the United States shot down a Chinese spy balloon in early February, 2023, Venezuela quickly came to China’s defense. Venezuela declared the event an “attack by the United States against an unmanned civilian aircraft of Chinese origin.” Caracas was quick to align itself with Beijing in the burgeoning conflict, especially after a similar balloon was spotted above Latin America. Venezuela’s vocal support for China is emblematic of the complex relationship between the two countries, as China has become increasingly intertwined in the infrastructure and economy of the South American country, particularly through its Belt and Road Initiative (BRI). Yet, a subcurrent in this geopolitical arena is the domestic conflict over the presidency in Venezuela, with two figures—Juan Guaidó and Nicolas Maduro—vying for both the office and global legitimacy. However, the relationship with China was nurtured under the leadership of President Maduro, so China has been instrumental in propping up his regime despite widespread public disapproval of his administration. Hence, China’s involvement in Venezuela is not merely an issue of economic dependence but of overarching political reliance.
In 2001, Venezuela became the first Latin American country to enter into a “strategic development partnership” with China. In 2014, this agreement was promoted to a “comprehensive strategic partnership,” though the Chinese government stipulated that, with the upgrade, Venezuela would have to give Chinese corporations priority and preference in future infrastructure contracts. In 2018, President Nicolás Maduro of Venezuela visited China for the 16th annual China-Venezuela commission, where Venezuela officially joined China’s BRI. Notably, in 2016, China stopped issuing new loans to Caracas, as Maduro’s government is about $20 billion in debt to Beijing. Given that Venezuela is highly dependent on Chinese investment, it seems likely that joining the BRI was a way of gaining access to investments from Beijing. Indeed, the Chinese Development Bank has invested $150 billion over the past twelve years in Latin American countries, but at least a third of it has gone to Venezuela specifically.
Although Venezuela is currently experiencing an economic and humanitarian crisis, Chinese investment has not aided the flailing South American nation; instead, it harms the domestic economy. China’s investment in the region first emerged because of Venezuela’s natural abundance of oil, and Beijing has been pushing for Caracas to produce more oil. Reportedly, Maduro promised his country would reach 1 million barrels per day of exports, come “rain or shine.” However, Venezuela’s oil industry has massively contracted since the 1970s—to the tune of 2.3 times less production per day, falling to 1.5 million barrels per day from 3.8 million. Such a commodity-driven relationship can be expedient in the short-run, but if Venezuela's production of oil continues to fall, then China could leave its partner high and dry. Caracas has little reason to expand its industry or economy outside of oil, but if China removes its oil investments, Venezuela could be devastated. Additionally, between 2000 and 2017, Venezuela purchased over $628 million in weapons from Beijing despite food and medicine shortages among the Venezuelan population. The notoriously brutal military police have acquired these weapons, despite the International Criminal Court’s investigation into the organization. Unsurprisingly, these weapons, in the hands of a savage police force, have concerned the mass public as a safety concern.
Ultimately, Caracas’ deal with China will hurt more than it will help. But now, Venezuela cannot extricate itself—nor does it seem to want to. Perhaps an odd form of diplomatic Stockholm Syndrome, Venezuela is in a parasitic relationship with China, a country which stands to lose very little while the Venezuelan people could lose what little they still have.
Ecuador’s Sovereignty Problem: How Chinese Predatory Lending Threatens to Upend It’s Autonomy
By Farhan Mahin, Columbia College ‘25
As Ecuador and China conclude negotiations over a Free Trade Agreement that would allow increased market access and reduced barriers to trade between the two partners, alarm bells have sounded in Washington over what has been perceived as an insidious Chinese presence in South America, especially with unstable petro-states such such as Ecuador.
In the past two decades, following Ecuador’s default on billions in foreign debt in 2007, and again in 2020, China has become Ecuador’s prime creditor, lending over $11 billion to Ecuador since 2011. At the time, the defaults were seen as a precursor to Ecuador’s purported exit from dollarization, which first began in 2000. As of around 2008, following the global financial crisis, former President Rafael Correa began to feel trapped by the lack of monetary policy capabilities Ecuador retained. He saw defaulting as an acceptable cost for eliminating or restructuring the country’s massive debt. Thus, although it retains loans from the IMF and World Bank, and China has thus been bankrolling the majority of the government’s budget for over ten years, the nation has become a credit pariah among the rest of the international community. This greatly helps China expand its soft power into a region traditionally dominated by U.S. influence. China could use this leverage to force policy votes on the international stage, seize Ecuadorian assets in the account of defaults, and even deploy Chinese troops to the country.
Most of the money China has lent Ecuador has flowed steadily into oil infrastructure projects—including contracts with Chinese state owned oil refining company Sinopec—that would allow it to control up to 90% of its oil exports. The fact that Ecuador owes a large chunk of its GDP to China in the form of debt raises concerns about the country’s sovereignty. Many loans from China were shrouded in secrecy, with the terms unknown to any except those involved, and if Ecuadorian oil runs out, the country may be forced to drill in protected natural and ethnic reserves. It was further revealed in 2014 that the Chinese administration had signed a decree allowing PetroChina, another state owned company, to seize assets from Ecuador in the case that it is unable to pay back its loans. In this light, President Guillermo Lasso of Ecuador has sought to restructure his country’s debt with the help of the IMF and the United States through the Development Finance Corporation, a U.S. government agency that offers financing to developing countries, and was largely created to counter Chinese influence in South America.
Ecuador’s best path forward, then, likely involves a rejection of China’s predatory lending and a turn toward international organizations, and the U.S., as the primary source for loans. Although the country’s credit was damaged by the repeated defaults on foreign debt in the past two decades, a continuing relationship with China could lead to a drastic loss in sovereignty and state assets for Ecuador—potentially even the seizure of state owned refineries and the loss of control over drilling rights in protected zones throughout the country. Beyond losses for the government, the Ecuadorian populace could see displacement and unemployment as a result of Chinese megaprojects in the nation hiring Chinese workers rather than using native Ecuadorians. Thus, the West serves as a far superior alternative to the breach of national sovereignty that China threatens. Furthermore, faced with its soft power losses in South America, it is likely to open to discussions of debt restructuring. Ultimately, Ecuador must look to closer regional allies such as the U.S. for an escape route from Chinese debt.
China and Chile: How Condors Survive Tigers
By Genesis Vanegas Calvo, Columbia College ‘24
On November 18, 2022, Chilean President Gabriel Boric met with Chinese President Xi Jinping in Bangkok after the Asia-Pacific Economic Cooperation summit. President Xi underscored The People’s Republic of China’s (P.R.C.) “readiness to step up friendly interactions with Chile at all levels,” inviting President Boric to visit China in 2023. The Ministry of Foreign Affairs of the P.R.C. touted the relationship between China and Chile as a “prime example for win-win cooperation between developing countries.” China was Chile’s top trading partner in 2022.
China and Chile have a longstanding relationship: in 1970, Chile was the first country in South America to establish diplomatic relationships with China. According to the Mercator Institute for China Studies, Chile was the first Latin American country to develop a joint venture with China in 1982, to support China’s entry into the World Trade Organization in 1999, to recognize China as a market economy in 2004, and to sign a Free Trade Agreement (FTA) with China in 2005.
Despite the long-standing history of this bilateral relationship, it lacks balance and trust. The Chinese-Chilean FTA allows 97% of all products traded to be duty-free, compared to the 80% of duty-free exports in the U.S.-Chile FTA. The Chinese-Chilean FTA also protects business confidentiality between the two countries and requires notice of any new investigation or safeguard measure between them. It favors the production of finished products over raw materials and prohibits establishing foreign chain stores with more than 30 outlets in China if they distribute certain products. While China restricts foreign engagement in the primary sector and in the tech industry, Chile defers to national agencies for approval of foreign agents’ enterprises. Both limit the distribution of print and educational materials.
The tension between the countries intensified when Chile joined the Belt and Road Initiative (BRI) in November 2018. China became Chile’s primary source of imports and exports, focusing on exploiting Chile’s mineral assets and promoting growth in renewable energy and public utilities. Because Chile accounts for 78.7% of China’s lithium imports and these are essential for China’s position in the market, Chile is also an important player. However, protests from indigenous communities affected by unsustainable lithium mining practices and Chile’s own enterprises in electric vehicles and railways could change Chile’s exportation rates.
Discussions about the Chinese government “buying” Chilean congresspeople’s silence in light of condemnable actions by the P.R.C. could also affect the relationship between the two countries. China’s former ambassador to Chile aggressively sought to secure trade agreements favorable to China and a positive opinion of the P.R.C., but gained disapproval from media outlets and congresspeople that denounced his actions and advocated for more regulation of foreign investment. Despite these tensions, Chile has maintained its agency and protected its economic independence while benefiting from its favorable position in negotiations with more powerful entities like the P.R.C., the U.S., and the European Commission competing in the lithium market.
In October 2021, Chile revealed a plan to phase out sales of carbon-emitting vehicles. In January 2023, President Boric announced that Chilean State Railways would upgrade an existing line between Santiago and Valparaiso instead of building a new line with half the travel time with the help of China Railway Engineering.
Although the U.S. surpassed China as Chile’s top investor in 2022, China holds considerable influence in Chile’s health, electricity and technology, infrastructure, and mining industries. Rather than align with either power, Chile fiercely defends its interests. Though far from being a dominant force in the global market, Chile protects its political agency and domestic economy to remain independent from China.
Human Rights and Wrongs: Dangers of Chinese-Cuban Relations
By Sofia Rivera, Columbia College ‘24
Although Cuba was never an official colony of the United States, the Treaty of Paris that ended the Spanish-American War in 1898 set in motion an economic dependency on America that would endure for decades. Cuba’s political alliances have shifted over the past century, but its economic reliance has remained, and the country has turned toward eastern powers such as China for support in recent years. The inclusion of Cuba in China’s Belt and Road Initiative (BRI) is an example of this, but it indicates an economic development that could have dangerous political ramifications, given China’s authoritarian values and Cuba’s increasing human rights violations against students, artists, and activists. Due to a lack of transparency in BRI negotiations and a risk of debt traps, as seen in Sri Lanka, this partnership could render Cuba economically and politically beholden to the eastern powerhouse, which would likely lead to the rise of an increasingly conservative and authoritarian state in the Caribbean.
In October 2021, the Cuban Foreign Ministry released a statement officiating Cuban integration into the “Alliance for Energy” portion of the program. According to the business intelligence website Silk Road Briefing, the countries have continued to collaborate on energy developments with a specific focus on “infrastructure, technology, culture, education, tourism, energy, communication, and biotechnology.” While the plans are still in development, their cooperation demonstrates Cuba’s increasing reliance on China in a variety of sectors.
Foreign interference has only served to push Cuban alliances further outside the western hemisphere. For instance, as a result of Washington’s recent blockade, Cuba’s electric power sector suffered greatly, forcing them to look across the towards Beijing for support. However, in tandem with these economic benefits come political implications, and the Cuban government’s detainment of artists and activists in recent years only points to an increasingly oppressive structure, without much pushback from Cuba’s political allies. In fact, China’s economic support assists the Cuban government in its efforts to shut down protests and suppress anti-government pushback. Thus, Cuba’s economic ties increasingly affect the government’s ability to defy the global community’s human rights standards. This signifies how Chinese partnerships garnered through the BRI equip governments around the globe with the tools to carry out oppressive measures, and with minimal resistance.
Insofar as Cuba’s ability to progress past this economic dependence on China, there are various solutions, including diversification of trade partnerships. For example, to avoid aligning itself politically with either the U.S. or China, Cuba could explore its options for economic allies and lean deeper into programs such as the Bolivarian Alliance for the Peoples of Our America (ALBA), founded in 2004 by the then-president of Venezuela Hugo Chávez as an alternative to the U.S.-led Free Trade Area of the Americas and the BRI. While political instability in the region has affected this trade agreement, diversification of trade partnerships of this model could help integrate Cuba into the global market more broadly, and thus allow for more accountability in the global sphere when it comes to issues of human rights and violations.
Thus, while Chinese assistance in Cuban industries will undoubtedly augment the country’s wealth, Cuba's increased dependence on China could result in increased isolation from the global community and further oppressive political tactics. If Cuba does not diversify its trade partners, it will likely become trapped by underlying debt to China—and could end with a crisis akin to the Sri Lankan case.
Conclusion
The Belt and Road Initiative and the large Chinese hold on trading relations with countries in South America has ultimately manifested into a parasitic partnership; China stands to gain a lot and lose very little, whereas its South American partners stand to lose a lot and gain very little if the partnership continues to remain the way it is.
Given the domestic political and economic instability present within countries in Latin America, they rely on Chinese funding and investments to support their export-oriented industries. Yet, these investments have put the majority of South American countries into severe debt, which has further served to exacerbate the existing instabilities in the region. Therefore, the key ‘dilemma’ in the trade and investment relationship between China and South American countries rests in the motives behind Chinese investments. By intertwining political and economic motives, and by creating a reliance on Chinese investments, countries like Venezuela, a country already subject to political instability, are left standing on even more shaky grounds.
Given their domestic political circumstances, the authors here contend that the South American countries need to hold China more accountable in their investment strategies. Without the domestic stability to benefit from Chinese investments to the fullest extent, these governments stand no chance of exiting the parasitic relationship that they currently find themselves in. As such, both Chinese investors and South American leaders need to keep the political circumstances in mind while trying to devise a plan that allows them to equally benefit from Chinese investments, and allows them to sustainably harvest their resources so as to avoid their complete depletion at the hands of a foreign actor.