The video delves into the growing economic and political relationship between China and Latin American countries over recent years. It highlights China's interests in Latin America due to the region's abundance of natural resources and its strategic importance for China's economic growth. China has significantly increased its trade with the region, becoming Latin America's second-largest trading partner, and its investments have diversified beyond traditional sectors into technology and infrastructure.

China's Belt and Road Initiative has played a pivotal role in strengthening its ties with Latin America, with several countries signing multilateral agreements for infrastructure development. These projects are often financed by Chinese policy banks with specific terms that involve hiring Chinese contractors. China's investments in Latin America cover essential industries like telecommunications, mining, and logistics, which include crucial port infrastructure projects across the continent.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. accession [ækˈsɛʃən] - (noun) - The act of attaining a position of power or the process of joining an organization. - Synonyms: (admittance, entry, acceptance)

Since China's accession into the World Trade Organization in 2001, external trade has flourished...

2. underpinned [ˈʌndərˌpɪnd] - (verb) - To support or form the basis of an idea, argument, or process. - Synonyms: (support, sustain, bolster)

Trade in commodities in particular has underpinned the relationship for again over two decades.

3. bilateral [ˌbaɪˈlætərəl] - (adjective) - Involving or affecting two sides or parties, often used in terms of agreements or negotiations. - Synonyms: (mutual, reciprocal, two-sided)

China's economic relationship with Latin America takes on three trade, official foreign direct investment and bilateral loans.

4. extrative industries [ɪkˈstræktɪv ˈɪndəstriz] - (noun) - Industries involved in the extraction of natural resources, such as mining and oil drilling. - Synonyms: (mining, quarrying, drilling)

Most Chinese investment in Latin America went into the extractive industries, into mining and oil.

5. diplomatic campaign [ˌdɪpləˈmætɪk kæmˈpeɪn] - (noun) - A planned series of actions to achieve a particular diplomatic objective. - Synonyms: (diplomatic effort, foreign policy strategy)

The Belt and Road Initiative as a diplomatic campaign has had an impact...

6. infrastructure [ˈɪnfrəˌstrʌktʃər] - (noun) - The fundamental facilities and systems that serve a country, city, or area, such as transportation and communication systems, power plants, and schools. - Synonyms: (facilities, framework, base)

The Belt and Road initiative did, however, spur investment into logistics and infrastructure.

7. espacio lejano [ɛsˈpæsio lɛˈhano] - (noun) - A deep space ground station operated by China in Argentina. - Synonyms: (space station, observatory, ground station)

In 2018, for example, China started operating espacio lejano, a deep space ground station in a remote area in the nocan province of Argentina...

8. ambitions [æmˈbɪʃənz] - (noun) - Strong desires to achieve something, typically requiring determination and hard work. - Synonyms: (aspirations, goals, objectives)

Critics therefore worry that China's interest in the station goes beyond commercial interest and could help facilitate China's military and civilian ambitions in space.

9. facilitating [fəˈsɪlɪteɪtɪŋ] - (verb) - Making an action or process easier or helping something to happen. - Synonyms: (ease, assist, enable)

...serves the twin purpose of facilitating payment in China's local currency...

10. sovereign [ˈsɒvrɪn] - (adjective) - Possessing supreme or ultimate power or authority. - Synonyms: (autonomous, independent, self-governing)

...rather than big loans that only have the guarantee of a sovereign government telling you, yes, we are going to pay it back.

Why China has its eye on Latin America

Take a look at this picture. This is the Venezuelan President Nicolas Maduro meeting with President Xi Jinping of China in September 2023. In the last ten years, they've had at least five different meetings to discuss politics, diplomacy and economic ties. These trips saw ties between the two countries grow even stronger to an all-weather strategic partnership. But Venezuela is just one of the many Latin American countries that China is courting, even though thousands of kilometers separate them.

China became Latin America and the Caribbean's second largest trading partner in 2021, with almost $450 billion worth of goods exchanging hands, up from $12 billion in 2000, almost a 40-fold increase. So why is China so interested in the region? And does this flourishing trade come at a cost? Since China's accession into the World Trade Organization in 2001, external trade has flourished and the country has built up a notable presence in key industries crucial to Latin America, such as mining, telecoms, electricity and energy. China's economic relationship with Latin America takes on three trade, official foreign direct investment and bilateral loans.

Why do you think Latin America is such an attractive investment proposition for China? It's many of the same reasons that had driven Chinese engagement with Latin America really even two decades ago. Market seeking behavior as China looks to export a much wider range of goods now of much higher value, technological goods, for example, services. In addition to that, there's resource seeking activity. Trade in commodities in particular has underpinned the relationship for again over two decades. And in Latin America, China's looking for soy above all to address what is a fairly critical food security challenge at home.

The region also plays an important role in China's broader energy security calculations, and that's one reason why we see China continuing to engage with Venezuela, despite the many challenges there. China also invests directly in key sectors through investments, mergers and acquisitions. Between 2005 and 2020, it invested more than $130 billion in the region, including $60 billion in Brazil, $27 billion in each of Peru and Chile, while Argentina received $12 billion of Chinese ODI from 2000 to 2010. Most Chinese investment in Latin America went into the extractive industries, into mining and oil.

In South America, mostly the Belt and Road Initiative starts in 2013, and what you start seeing is a lot of loans from Chinese policy banks to governments in the region that are used to hire Chinese contractors to develop infrastructure. The Belt and Road Initiative is a vast infrastructure and development project with the original purpose of connecting East Asia to Europe. The project has since expanded to Africa and all the way to Latin America.

In 2022, Argentina signed a memorandum of understanding with China, which means that 21 out of the 33 Latin American and Caribbean countries have formally signed up to the Belt and Road Initiative. This changed the nature of investments in the region. Before 2013, more than half of Chinese overseas investments were in the basic material and energy sectors. Since then, these investments have diversified to include consumer goods, financial services, industrial goods, telecommunications services, and utilities.

Signing into the Belt and Road initiative is a way of gaining diplomatic favor from China or being on the right side of things with China. Of course, this brings some controversy when it comes to the US and Europe. What about the economic impact? Has there been a discernible economic impact for these countries, the ones that decided to join the Belt and Road Initiative? Yes and no. There are countries that are not part of the Belt and Road initiative which have received significant loans from China, significant investments, and others that are part of the Belt and Road initiative that are not the center of attention for Chinese investors. The Belt and Road Initiative as a diplomatic campaign has had an impact, but in terms of its economic impact, it hasn't been so profound.

The Belt and Road initiative did, however, spur investment into logistics and infrastructure. This includes strategic ports. The US State Department estimates that Chinese state-owned companies are involved in around 40 port infrastructure projects from Mexico all the way down to the southernmost tip of the continent in Ushuaia, Argentina, along the Panama Canal, for example, which is one of the world's busiest waterways. Chinese company Ho Chisun manages and operates the ports of Balboa and Cristobal, located on both the Pacific and Atlantic of the canal, while Hutchison only operates the ports.

Washington is increasingly uncomfortable with the Chinese presence, as around 60% of goods passing through are destined for the US. China's state-owned shipping company Costco is also the majority owner of a new port project in Peru, the Port of Chiang K, which will offer a deep water port for container ships making the trip from South America to China. Beyond infrastructure projects, China has also poured money into politically sensitive areas such as ports and space. In 2018, for example, China started operating espacio lejano, a deep space ground station in a remote area in the nocan province of Argentina, consisting of a 35 meters diameter dish. The stations stated aim was peaceful space exploration. However, the facility is managed by an agency which reports into the Chinese military and suspicions have grown that the base is being used to gather intelligence. It has little or no oversight by the Argentinian government.

There is a space station of China with military personnel, Chinese military personnel. So we are entering into a new phase of the Chinese Latin American relationship. It's not only trade, it's not only commodities, but also a presence that is becoming very important in technological areas. Critics therefore worry that China's interest in the station goes beyond commercial interest and could help facilitate China's military and civilian ambitions in space. This comes as it also looks to increase its footprint in key telecommunications sectors. China or Chinese private companies have taken key stakes in some sensitive sectors like telecommunications. How should we read that China views its capacity in telecommunications and ICT, but also in wide-ranging innovation-related sectors and industries, as being absolutely fundamental to its future growth prospects. You know, that's Huawei, that's ICT, obviously that's 5g, but that also includes things like high-speed rail, you know, cloud computing, a lot of AI-related things, energy, renewable energy in particular, these things that require some high tech inputs as being fundamental to its prospects, to overcoming what economists call the middle income trapden.

I thought it was interesting that when the US applied a Huawei export ban that Latin American countries didn't follow suit. Why do you think they hesitated? It all comes down, I think in this particular case to economics. Huawei is able to offer its equipment, especially for 5g, these small cells right at such a reduced cost that for countries that are coming out of the pandemic or are struggling to manage high levels of debt at the moment and have many other objectives that they're pursuing. Along with selling its tech to South American markets, China needs the continents critical raw materials such as lithium, copper and nickel, which are essential for making batteries that ultimately underpin the green energy transition.

It is estimated that up to 60% of the world's lithium reserves are located in the lithium triangle, a region that includes Chile, Argentina and Bolivia. Lithium and copper-rich Chile is a good example of China's presence. Chinese mining firm Tianxi holds more than 20% of Chilean chemicals and mining firm SQMS shares, and China itself has been Chile’s largest trading partner and export market since 2009. It doesn’t stop there. China has been actively engaged in emergency financing to countries in financial distress, typically the purview of multilateral development banks such as the IMF and the World Bank.

Since 2005, China's state-owned policy banks have lent $136 billion to the region and distributed 123 loans, notably to Brazil, Ecuador and Venezuela. These loans typically carry lower interest rates than countries could access in public markets and are often accompanied by different conditions. For example, Chinese loans are sometimes granted to those that agree to hire Chinese infrastructure firms. The loans are also denominated in yuan, which serves the twin purpose of facilitating payment in China's local currency, while at the same time reducing the need for creditor countries to use US dollars. It also means that when countries run into trouble, as in the case of Bolivia and Ecuador, they are at the mercy of Chinese creditors.

When countries are struggling economically, can they even afford to push back against China interests? Most Latin America's countries have very serious debt with China, and we will see what are the consequences of that very intense and complex relationship. And the western countries haven't reacted in a manner to give alternatives to the present. And this is also something that must be thought by Europe and the US on how to deal with the matter, because the limits of Latin American countries are quite intense and the alternatives very limited indeed. Since the 2008 global financial crisis, American companies have moved away from the region. We saw not just US companies, but, you know, a lot of other companies and partners exit the region.

And that includes, you know, companies from Latin American countries, which, you know, in many cases divested from major projects. This created major openings, very large openings for Chinese companies to come in and invest in strategic sectors. Venezuela is a notable beneficiary of Chinese loans. In 2007, it entered into a loan for oil agreement with China, getting money in exchange for partial oil payments. The weight of US sanctions and economic and political troubles domestically caused its oil production to dwindle. China was obliged to grant the country a grace period to repay its debt. Ruben Gonzalez Vicente says that since then, the Chinese have been more discerning about lending China.

Chinese policy banks started to reevaluate the loans that they have given in the region and beyond. Between 2021 and 2022, Chinese policy banks needed to renegotiate loans for a value of $52 billion. And this was problematic. These were loans that were not being paid back, that were not turning a profit. Venezuela became a big example of what could go wrong if you give huge loans to a country that is not performing very well economically. So I think this is being rethought and the focus is now more on smaller loans that have been through proper due diligence, rather than big loans that only have the guarantee of a sovereign government telling you, yes, we are going to pay it back. Ultimately, as China's ambitions grow, it will continue to rely on key natural resources from Latin America. And as long as Latin American political leaders welcome the investment and trade that China offers, China's influence will continue to grow.

China, Latin America, Economics, Mining, Telecommunications, Belt And Road Initiative, Cnbc International