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Geo-political capital

Frank Sieren, BeijingFebruary 2, 2015

China’s generous investment in Latin America, including key infrastructure projects, is a geo-political chess game, but it is also high-risk, writes DW columnist Frank Sieren.

https://p.dw.com/p/1EUhA
China Nicaragua-Kanal
Image: AFP/Getty Images/Ocon

In geo-political terms, the world's most significant infrastructure project can currently be found in Nicaragua. To the tune of $50 billion, the Chinese began work last December on a new canal linking the Pacific and the Atlantic. 280 kilometers long and 30 meters deep, The Nicaragua Canal will be able to accomodate ships too large for the Panama Canal, thereby bringing an end to its100-year long monopoly.

El Gran Canal is a prime example of how Beijing skillfully navigates the world stage. It uses favorable credit terms to win politically valuable contracts and major infrastructure projects that bring with them a supply of resources such as oil and natural gas, as well as foodstuffs such as corn.

The new waterway is only one of many ambitious projects that China is currently rolling out on the US doorstep. Earlier this year, Beijing hosted the first summit of the 33 countries that make up the Community of Latin American and Caribbean States (CELAC). Despite the many landmark decisions made at the meeting, it was largely ignored by the western media.

Further investments planned

Chinese President Xi Jinping, for example, pledged to ringfence a further $250 billion for China's partners over the next 10 years. But there's no such thing as a free lunch. In the past, Beijing approved loans in return for raw materials.

Frank Sieren Kolumnist Handelsblatt Bestseller Autor China
DW columnist Frank SierenImage: Frank Sieren

The January summit underscored a development that has been underway for a few years; namely, that China's role in Central and South America is defined less by the country's thirst for resources and more by an overall push for influence. Beijng is no longer satisfied merely with buying oil. The lion's share of its investment has been earmarked for infrastructure in the CELAC countries in a move designed to boost trade relations.

On a visit to Latin America last year, Chinese President Xi Jinping inked deals as though they were going out of fashion. Argentina got new rail projects; 29 contracts were signed in Cuba, including one for a new port, while China has now signed over 300 agreements with cooperation partner número uno, Venezuela, a country that has received loans worth over $40 billion in the last four years. Beijing is now eyeing not only Latin America's raw materials but increasingly, its markets, too.

Knocking the US off the top spot

As always, trade is no one-way street. 25 percent of Chile's exports already make their way across the Pacific; 15 percent of Brazil's and Uruguay's, while 8 percent of Colombia's and Argentina's total exports go to China. Trade volume is 20 times higher than it was at the start of the 21st century. China is now the main trade partner of Brazil, Chile and Peru, and the second main trade partner for Argentina.

It seems obvious that President Xi is aiming to replace the US as the region's trade partner, reducing its influence in the process as an added bonus. It's a goal he will most likely achieve.

Washington is hardly able to top China's generous financial injections. But it can comfort itself with the knowledge that China's strategy is a risky one. After all, the faltering economies of Latin America are failing to recover as efficiently as Beijing would like.

Other foreign investors are taking their money out of these unstable emerging economies. Inflation is rampant in Brazil, the region's largest economy. The economies of Argentina and Venezuela shrunk in the last quarters. If these markets don't get back on track, the flurry of Chinese investment could start to tail off fast. But after the recent summit in Beijing, the aforementioned countries can breathe a sigh of relief – at least for now. Beijing hasn't lost its patience yet. But it's setting higher prices for its geopolitical gains. These, however, shouldn't be underestimated.

DW columnist Frank Sieren has lived in Beijing for 20 years.