China has gone around the world looking for natural resources to power its growing economy, which, of course, is growing strongly, but growing less rapidly than before. In particular, China is and has been expanding its reach into South America to look for raw materials and commodity goods in that resource-rich region.
The countries of Latin America have seen their middle classes grow, and many people lifted out of poverty, due to strong economic growth over the past decade from rising natural resource prices, much of which is sold to China. Now these countries are very much concerned about China’s slowing growth and have revised their economic forecasts down. Peru and Colombia are still growing strongly at 4% and 5%, respectively, while growth has slowed elsewhere, like 2.8% in Chile, 1% in Brazil, and Argentina is in decline at -1.2% (mainly due to political instability).
Most of the big countries in South America have natural gas and petroleum. Chile and Peru have copper and gold and some iron. South America also is rich in grain and corn (Argentina, Brazil, and Uruguay), farm-raised salmon (Chile), lithium (Bolivia and Chile), fruit (Chile), wine (Chile and Argentina), and Colombia has most of the world’s emeralds plus oil. Ecuador has oil; Venezuela is overflowing with oil; and one of the world’s largest new discoveries of oil was made right off the beach of Rio de Janeiro in Brazil.
Chile
In Chile, La Tercera and El Mercurio newspaper fret almost daily about the economic slowdown in China. Economic growth in Chile has slowed to its lowest rates in three years. The price of copper keeps moving back and across the psychologically important $3 per pound threshold. A typical headline from these newspapers reads: “Copper market closes with losses in the face of the slowdown in China’s economy.” Chile’s is the world’s’ largest copper exporter. Much of the government’s budget comes from royalties on private mining and from revenues from the state-owned Codelco copper mining company.
Fruit, salmon, lithium, and wine are also key exports from Chile. Chile and China signed a free trade agreement seven years ago. El Mercurio reports that since then fruit exports to China have increased at an average annual rate of 83%. In the southern hemisphere, it is summer when it is winter in the north, so Chile’s vast output of grapes, cherries, apples, avocados, lemons, and oranges are ripe when growers on the other side of the world have nothing fresh to sell.
Undercurrent News reports that sales of salmon to China have doubled since last year, reaching 5% of that country´s exports. Notably, salmon are raised in fenced areas in the fjords of Patagonia.
Peru
South America’s producers of oil and natural gas include Argentina, Brazil, Ecuador, Peru, Colombia, Bolivia, and of course Venezuela. Argentina has the world’s second largest reserves of shale natural gas. Not much is coming out of the newly discovered Vaca Muerta gas fields yet; Chevron has started drilling there.
One of the countries that can be said to be newly rich in natural gas is Peru. Mining Magazine says that 5 new copper mines there, an investment of $16 billion, are to start production in 2016. In March, Reuters reported that China National Petroleum Corporation (CNPC) expects to invest at least $2 billion in Peru over the next 10 years, Gong Bencai, head of CNPC’s Latin America division, told Reuters that the company is also “eyeing” the $4 billion natural gas pipeline that Peru is building away from the gas fields near Lima to the south of Peru (more than 3,000 km), close to the border with Chile.
There is not much chance that Peru will continue the pipeline into Chile, as those two countries have a pending border dispute—over 3 hectares of ground, their maritime border having finally been agreed. Bolivia’s natural gas pipelines also go in the wrong direction for the same reason – no access to the ocean – and because of the lack of infrastructure in Bolivia, say energy experts. Bolivia’s exported natural gas is piped into Argentina.
Argentina
Argentina is a country that, like Uruguay and Brazil, has lots of flat arable land suitable to farming. China signed an agreement to buy corn from Argentina in 2012. That agreement went nowhere until 2013, as Chinese regulars do not allow genetically modified (GMO) corn in China. Most of the corn in Argentina and practically all of it in the in the United States is GMO as well as soybeans and even rice too. China has not changed its stance, yet some Argentine imports have been allowed as well as those from Uruguay and Brazil while no GMO corn from the U.S. has been imported into China.
When President Xi was at the BRICS Summit at the tail end of this year’s World Cup, he cast a lifeline to Argentina by offering a currency swap to put $11 billion into that country’s cash reserves, which had fallen below $30 billion (In other words, they have less cash than Warren Buffet has capital). Argentina has said it does not have enough reserves to pay its bondholders in the U.S., a fight that has recently made international news. La Nacion reports that as part of the Chinese commitment to help finance the construction of two hydroelectric projects in Patagonia, Argentina promised to negotiate with its bondholders, rather than trying to circumvent the jurisdiction of the New York court, as well as improve its relations with the International Monetary Fund, which in the past years has accused Argentina of making up inflation figures they submit to the agency.
Chinese investments in manufacturing in Latin America continue to increase. BYD electric buses and Chery vehicles are sold in Latin America in large numbers as well as computers, cell phones, and other electronics from Huawei. Those companies are putting more manufacturing and marketing efforts into Latin America’s developing markets than they are in the United States. Although BYD buses are used in the U.S., Chery lists no U.S.-based dealerships on its website. Also, as China Daily points out, Huawei is still trying to sell telecom equipment in the U.S. despite “a 2012 US congressional report called the company’s infrastructure business with major US carriers a threat to national security.” In the future, it should be expected that China’s expansion into Latin America will only continue.
Walker Rowe is a Publisher at Southern Pacific Review. He is currently working on a book on pollution in Chile, where he resides.
