“The New Challenge: China
and the Western Hemisphere”
Testimony
before the House Committee on Foreign Affairs,
Subcommittee
on the Western Hemisphere
Daniel P. Erikson
Senior Associate, U.S.
Policy
Director,
Caribbean Programs
Inter-American
Dialogue
June 11,
2008
It is an honor for me to testify here today about China’s
evolving role in hemispheric affairs and I thank the chair and members of this
distinguished committee for the opportunity, as well as my fellow panelists for
sharing their views. The Inter-American
Dialogue has been closely following China’s
engagement with the Western Hemisphere over
the past several years with an emphasis on the political, economic, and
security aspects of the relationship. In
addition, we have actively sought to bring together
top scholars and analysts from the U.S.,
China, and Latin
America to explore the current dynamics of the relationship and
identify important future trends.
Today, there is little doubt that the People’s
Republic of China
has moved from the periphery to become a central actor in hemispheric
affairs. This development should not be
viewed in a vacuum but rather as part of a broader shift in Latin America’s
global relations as the region seeks to complement its strong partnerships with
the United States and the European Union with new ties to Asia, the Middle
East, and Africa. Still, while many
Latin American and Caribbean countries enjoy long established political and
economic ties with Beijing,
the scope of change since 2001 has been striking. By almost every conceivable metric, including
presidential visits and high level diplomacy, the pace of trade and investment,
and the level of cultural exchange, China’s
relations with Latin America have never been
so robust. Moreover, this deepening relationship
has occurred against the backdrop of three inter-related trends. First, China’s
stunning rate of economic growth has driven its search for new markets as well
as endowed it with greater resources to cultivate political alliances
throughout the world, including Latin America. Second, Latin American and Caribbean
economies are seeking to diversify their trade partners and take advantage of
the economic opportunities presented by China. Third, Latin America remains an important
battle ground for diplomatic recognition between China
and Taiwan as Beijing attempts to pry loose Taipei’s remaining allies in the region.
President Hu Jintao’s successful visit to Latin
America in November 2004, during and after the Asia-Pacific Economic
Cooperation (APEC) summit, marked the moment when China’s
expansion into the Western Hemisphere drew widespread notice in the United States. After the summit in Chile, President Hu traveled to Argentina, Brazil,
and Cuba, and he
subsequently returned the following year to visit Canada
and Mexico. This spate of high level diplomacy between China and the Western Hemisphere prompted a
flurry of articles and policy reports from U.S.-based institutions that sought
to explain increased Chinese activity on America’s southern flank. Some observers fretted that the combination
of an expanding China, the
rise of the political left in Latin America, and the declining U.S. image and influence in the region would
create a potentially negative situation for U.S. interests in region. A preliminary assessment of the past three-and-a-half
years indicates that the more alarmist fears were unfounded but areas of
concern remain. Now that President Hu
Jintao plans to return to South America once again to attend the upcoming APEC
summit in Peru
this November, it is a particularly opportune time to explore these questions
in greater depth.
China’s
Economic Relationship with Latin America
China is a rising economic power. Its growth rate has exceeded 10% for the past
decade and is forecast to remain strong - above 8.5% - for the next five years
at least. There is little question that
China’s global search for the commodities necessary to sustain its rapid
economic expansion forms the bedrock of its relationship with Latin America. The pace of trade between China and the
region has skyrocketed from $10 billion in 2000 to over $100 billion in
2007. This is an impressive figure,
although still well below the $560 billion in U.S.-Latin American trade last
year, and less than half the $250 billion in trade between Europe and Latin America. Still,
China is now Latin America’s
third largest trading partner after the United States and the European
Union, and its clout is poised to grow.
In 2004, following Hu Jintao’s speech to the Brazilian
parliament, he was widely reported to have promised that China would make $100
billion in investments in Latin America over the next decade, that is, by 2014. Given that Chinese investment in the region
at that time was only $6 billion, it appeared to be a boldly ambitious vow that
galvanized expectations in the region. It
certainly helped China to
win coveted “market economy status” from many of the fifteen Latin American and
Caribbean countries that have granted this recognition to Beijing. The Chinese government now claims
that Hu was misquoted and that the $100 billion figure referred to trade, not
investment. Nevertheless, they allowed
the initial assertion to be repeated in the Latin American press for well over
a year before Chinese officials decided to walk back this figure and clarify
that the objective was $100 billion in trade.
Beijing now estimates that trade between China and Latin America
reached $102.6 billion in 2007 – marking a 42.6% jump over the previous year –
and thus claims that President Hu’s pledge has been fulfilled ahead of
schedule. However, the initial confusion
over what precisely China
was promising to Latin America indicates the degree to which cultural
differences and China’s
relative lack of experience with the region has at times undercut its
diplomacy.
Chinese foreign direct investment in Latin America
lags far behind that of the European Union and the United States. In fact, it is the European Union that is the
region’s largest investor with an estimated $620 billion in investments,
followed by U.S.
investment of $350 billion. By contrast,
a top Chinese trade official recently estimated that about 25% of China’s total overseas investment of $90 billion
went to Latin America, which would equal about
$22 billion. However, official estimates
of Chinese investment in Latin America often vary, and, in any case, the vast
majority goes to off-shore financial havens such as the Cayman Islands and the
Virgin Islands, with only about $1.9 billion accounting for non-financial direct
investment in the region. Conversely,
Latin American companies have made sizable investments in China with $20
billion already paid in of the $34.6 billion contracts signed.
According to the official Chinese trade figures for
2007 recently released by Xinhua Economic News Service, Brazil was China’s
largest trading partner last year with two-way trade totaling $29.9 billion,
followed by Mexico with $14.9 billion, Chile with $14.6 billion, Argentina with
$9.9 billion, and Peru with $6 billion. Venezuela, Panama,
and Colombia rounded out China’s top
eight trading partners in the region. It
is striking to note that Chile is on the verge of edging out Mexico to become
China’s second largest trading partner, reflecting the fact that Chile became
the first ever country to sign a free trade agreement with China in 2005. China
is now beginning trade negotiations with Peru
and Costa Rica. However, China only joined the World Trade
Organization in 2001, and is still in the very early stages of plotting its
long term trade strategy.
China’s growth has both positive and negative implications
for Latin America and the Caribbean. It is true that the commodity exporting
countries of South America have profited handsomely from their relationship
with China, but Mexico, Central America, and the Caribbean have felt the sting of Chinese competition in
the manufacturing sector. Moreover,
there remain important concerns about whether China
will be willing to adhere to basic labor and environmental standards as it
deepens its engagement with Latin America. China’s focus on basic commodities, its
reluctance to open some sectors of economy to competition from Latin America,
and the slow pace of value-added investment are all likely to emerge as points
of future contention between China
and the region.
While China’s
expansion into Latin America may imply a potential loss for some U.S. business
sectors, it is important to note that trade is not a zero sum game. To the extent that China’s
involvement is sparking economic growth in Latin America, it may contribute to
economic stability and well-being in a manner that suits the U.S. desire to
see a prosperous and healthy neighborhood.
In any case, it is up to the Latin American countries themselves to
ensure that they are reaping the benefits of China’s growth and competing
effectively in the global marketplace.
Political
and Security Concerns
Does China’s
renewed economic presence in Latin America pose a short term or long term
threat to U.S. political and
security interests in the Western Hemisphere? This question defies an easy “yes” or “no”
answer. While China’s
engagement in Latin America appears highly dynamic at a moment when the U.S. influence has diminished sharply across the
region, there are few signs of any real frictions between the U.S. and China
in Latin America. Indeed, China
is sensitive to U.S.
perceptions of its involvement in Latin America and clearly places its highest
priority on its relations with Washington. For its part, the U.S.
supported China’s bid to become
an observer of the Organization of American States in 2004 and recently backed
its application to join the Inter-American Development Bank, although the final
terms of China’s
entry are still under negotiation.
Still, Washington has expressed some
concerns about China’s
activities in the hemisphere, principally related to Venezuela
and Cuba, as well as
questions about the Chinese role in managing the Panama
Canal. Bilateral tensions
could grow over time, although it is equally possible that the economic links
with China can play a
positive role in helping to build a more prosperous and globally-minded Latin America.
Indeed, given the rapid advancement of globalization, it is important to
remember that China is just
one of many non-hemispheric actors deepening ties with Latin America – a group
that includes strong U.S.
allies like the European Union, Japan,
India, and South Korea, as well as current or potential
rivals such as Iran and Russia.
The relationship between China
and Venezuela’s
Hugo Chavez has been the subject of substantial debate and analysis. Much of this has been driven by Chavez’s
obvious interest in developing China
as an export market for petroleum products, but China
has shown little enthusiasm in becoming entangled in Chavez’s larger goal of
counter-balancing U.S.
influence in the hemisphere. In May, China and Venezuela
established the first-ever refinery in China for the purpose of processing
Venezuelan oil. This may help to deepen
China-Venezuela trade, which currently lags behind many other countries,
reaching only $5.9 billion in 2007, ranking as China’s sixth largest trading
partner. Chavez has pledged to sell China 1 million
barrels of oil per day by 2011, but the two countries have been slow to hit
their targets. While Chavez’s own
comments have sparked speculation and concern that the Venezuelan government
may attempt to cut off oil supplies to the United
States and sell to China instead, the logistical
difficulties and transportation costs remain daunting. In any case, Venezuela
is currently heavily dependent on its sales to the U.S.,
and since oil is a fungible commodity on the global market the U.S. could
simply purchase oil from alternative sources.
Thus, the existing relationship between China
and Venezuela
should not be a cause for immediate alarm, though its evolution does bear
careful watching. The same is true for China’s energy investments elsewhere in the
Andes, including Colombia, Ecuador, and Bolivia. China
is an increasingly relevant factor at a time when competition for Latin America’s energy supplies will intensify as many
nations are seeking to exercise greater control over their oil and gas
reserves.
China is currently the second largest trading partner of Cuba, and last
year trade between the two countries jumped by nearly 25% to $2.2 billion. Cuba’s
main exports to China
include nickel and sugar, and Havana
is buying a range of Chinese consumer goods, as well as buses and trains to
help alleviate the island’s transportation crisis. However, Venezuela still remains by far the island’s
largest trading partner, and collectively the European Union exceeds China as an economic partner, although China outranks
any single European country. Chinese
officials stress that they want to maintain positive relations with Cuba and adhere
to their policy of non-intervention in the affairs of other states. Still, their renewed economic engagement in Cuba has helped to revive the Cuban economy even
though Cuba shows few signs
of adopting the “China
model” of economic development. One
suspects that China is
disappointed by Cuba’s
resistance to undertaking more robust economic reforms, while the hard-nosed
approach of Chinese investors has chastened Cuban officials who seek “socialist
solidarity” from a China
that is primarily driven by capitalist motivations.
China’s role in Panama
has been another area of U.S.
concern, driven mainly by the geo-strategic importance of the Panama
Canal. Indeed, when the United States formally handed over the control
of the Canal Zone to Panama
on December 31, 1999, there was a swathe of commentary that the move would
endanger U.S. interests due
to the fact that Hutchison-Whampoa, a Hong Kong
company with ties to the Chinese military, had won a contract to manage two
canal ports. During the past eight
years, however, trade through the Panama Canal
has proceeded uninterrupted. The United States
and China now rank as the
two top users of the canal, and companies from the two countries have joined
with a Japanese firm in a consortium to bid for a role in the expansion of the Panama Canal.
Given the record of smooth cooperation, and China’s
own strong interest in maintaining an uninterrupted flow of trade through the
canal, it appears unlikely that China’s
role in Panama will to
disrupt U.S.
interests there.
More broadly, China’s
military relations with Latin America and the Caribbean remain underdeveloped
and there are few signs that China
is pursuing the goal of conventional power projection into the Western Hemisphere.
The principal form of military-to-military contact between China and Latin America
occurs in the form of exchanges of defense personal for professional
development and the placement of military attachés in their respective
embassies. There is some satellite
cooperation between China
and several countries in Latin America – including Brazil,
Argentina, and Venezuela – although
most of these ventures remain in the planning phase. Since 2004, China
has deployed 125 riot police in Haiti
as part of the 9,000 strong United Nations peacekeeping mission
there. This is notable because it
represents the first deployment of substantial Chinese security personnel in
the Western Hemisphere, but China has overall been supportive of the mission’s
goals and even authorized a full one-year extension for the mission last
October, even though Beijing is still rankled by Haiti’s strong ties to Taiwan.
The Taiwan Factor
Latin
America is half a world away from the decades-long conflict simmering in the
Taiwan Strait, but the diplomatic tussle between Taiwan
and China remains a red-hot
issue in the Caribbean and Central America. Beijing rigorously promotes its “One China” policy, which
means that non-recognition of the Taiwanese government is a prerequisite for
conducting formal diplomatic relations with the People’s Republic of China—in effect forcing other governments to
choose between Beijing and Taipei. Although Latin American countries
involved in this geopolitical chess match have little individual clout,
together they make up the most significant group of states caught in the
cross-strait tug-of-war, representing 12 of the 23 countries that recognize Taiwan. Today,
Taiwan preserves relations with Guatemala, Belize, El Salvador, Honduras, Nicaragua,
and Panama, as well as the Dominican Republic, Haiti, St. Kitts and Nevis, St.
Lucia, St. Vincent and the Grenadines, and Paraguay—the lone holdout in South
America.
After
nearly a decade of fairly stable alliances, the battle between China and Taiwan
in Latin America really began to heat up in 2004, when Dominica defected to China. Grenada
followed suit in 2005, but Taiwan
struck back in 2007 by wooing the newly-elected government of St. Lucia. Beijing notched a major victory later that year by winning
over Costa Rica, which was
the first Central American country to recognize China. For China, Costa Rica's
benign image in Washington presented a huge
advantage by minimizing U.S.
concern about this decision. Its president, Oscar Arias, is a Nobel
Prize-winner who supports free trade and has tangled publicly with Cuba's Fidel
Castro. The defection of Costa Rica may mark the beginning of a domino
effect that will lead all of Central America to forge ties with Beijing over the next
decade. Given the change in government
in Taipei, coupled with the conciliatory rhetoric of the new president Ma
Ying-jeou, China hopes to seize the moment to peel off other Latin American
nations—especially Guatemala, the most populous country to recognize Taiwan,
and Panama, which is already a key trading partner. In addition, the recent election of
left-leaning Fernando Lugo will likely put Paraguay
in play and raises the risk that Taiwan
will lose its last remaining ally in South America.
China is also eyeing new alliances in the
English-speaking Caribbean, where Chinese
trade has doubled in the in the past two years to about $4 billion. In 2007,
China used the opportunity
posed by the Cricket World Cup to seal a series of geostrategic alliances with
the small, island countries that hosted this event in the Caribbean.
Its principal method was to woo local support by building stadiums and
financing infrastructure projects for the region's first major sporting event.
Of the eight venues constructed or refurbished for the 2007 World Cricket Cup, China assisted
in the construction of five, providing more than 1,000 workers and more than
$140 million. Chinese aid also paid for roads, schools, hospitals and other
infrastructure improvements in recent years, earning the allegiance of many
nations in the process. The results
earned China significant
political capital in the Caribbean and
enhanced what had been a weak to nonexistent relationship with many countries.
Today,
Taiwan feels the pressure of
the One-China policy and has sought to give the tiny nations of the Caribbean
good reason for bucking the world trend of recognizing China. In St. Kitts, Taiwan
stemmed pressure to switch allegiance to Beijing
by funding the construction of Warner Park Stadium, an $8 million ''Thank you''
from Taipei.
But the overall trajectory is clear. China has successfully used a combination of aid
projects through dollar diplomacy and trade preferences to wean the Caribbean
away from Taiwan.
Still, the diplomatic competition between China and Taiwan
in Latin America and the Caribbean is rife
with unintended consequences that have proven to be a double-edged sword for
many countries. In the case of the UN peacekeeping mission in Haiti, fears
persist that China will seek to use its troop contribution and UN Security
Council veto as an instrument to pry Haiti away from Taiwan’s grasp – although
this has not yet come to pass. Taiwan’s
financial gifts have been at the center of several major corruption scandals
throughout Central America, and communist China is hardly a force for greater
transparency and good governance. Even countries that switch their allegiance
to China
often find that the diplomatic pressure remains intense. In Dominica, when
opposition leaders flew Taiwanese flags at their political rallies, the Chinese
government formally protested, raising concerns about freedom of speech. In
February 2007, Grenada
committed one of its most grievous errors in recent memory when officials
accidentally played the Taiwanese national anthem at the inauguration of a new
national stadium built by China
at a cost of $40 million, much to the embarrassment of Prime Minister Keith
Mitchell. Other Caribbean countries were both
amused and troubled by the matter, which they viewed as a cautionary tale that
reflects the region’s delicate balancing act.
If the estimation of Chinese officials is correct,
Taiwanese diplomats stationed throughout Central America and the Caribbean are fighting a losing battle. For every major
economy of the region, however, it is largely a settled matter, with China by far
the victor. The United
States finds itself in an awkward position
with respect to the cross-strait dispute. The official U.S. position is, understandably, that other
governments’ decisions to maintain or sever diplomatic relations with Taiwan are for
those governments to make. Moreover, since Washington
also officially recognizes the People’s Republic of China,
it has little moral authority with which to lobby other governments on Taiwan’s
behalf, and little apparent motivation to do so. At present, the United
States has publicly reacted with nonchalance towards the
prospect that Taiwan’s
hemispheric alliances will continue to unravel.
This strategic ambiguity may suit the United
States, but it often leaves officials in Beijing,
Taipei, and the capitols of Central America and
the Caribbean scratching their heads as they try to divine Washington’s true feelings. In the final analysis, the choice between China and Taiwan will remain a highly charged
foreign policy decision for a narrow swathe of vulnerable Latin American
countries for many years to come.
Conclusion: From Threat to Stakeholder?
China’s
emerging role in Latin America and the Caribbean
is a new phenomenon that lacks easy historical parallels. On the one hand, China
is a strong economic and political partner of the United
States, but on the other, China
is a non-democratic country that is viewed as a potential rival to U.S. influence across
the globe over the long term. Clearly,
the United States does not
enjoy the same comfort level with China
that it has with the European Union, but nor should China’s
presence in Latin America be interpreted as a de facto “threat” to U.S. interests. Rather, China’s
evolving role in Latin America reflects the
increasingly complex mosaic of international relationships that is a product of
a more globalized world. China is poised to be a major player in the
Western Hemisphere for many years to come,
irrespective of what actions the U.S.
does or does not take in reaction to Beijing’s
growing influence. The proper U.S. response will be to strengthen its ties
with its neighbors in Latin America and the Caribbean, maintain an open
dialogue with China on
issues of U.S. concern in
the hemisphere, and carefully monitor the evolution of China’s ties with Latin America and the Caribbean in consultation with countries of the region. The primary goal of U.S. policy as its
relates to China in the Western Hemisphere should focus on ensuring that China
acts as a responsible stakeholder that contributes to the region’s economic
prosperity while respecting the democratic principles that are the guiding values
of the Inter-American system.