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Win-Win Relations?: An Exploration Of China’sRelationship With Latin America & The Caribbean By Todd Julie For Professor Abbas Gnamo POL417 July 17, 2012
It is the job of this paper to examine the effects of Chinas increasing geopolitical andeconomic interest in Latin America and the Caribbean and whether this interestconstitutes a win-win scenario. It will be seen that while the economic relationship isproblematic in many ways, China increases Latin American/Caribbean governmentoptions and opportunities and in that sense can be considered a win-win. It must bestressed that the relationship is much more complicated and significant for Latin Americaand the Caribbean – the weaker of the two parties. Accordingly, this paper will examinethe issue primarily from the Latin American/Caribbean perspective. For China, therelationship is a win if it gains access to natural resources, isolates Taiwan and does notupset its important relationship with America. All these points will also appearthroughout the paper. To determine a win or loss for Latin America and the Caribbean,we add a smaller social line of inquiry. It is difficult to assess the value of economic gainwithout examining how that gain is distributed.In its distribution of ‘winners and losers’ and in many other respects the China – LatinAmerican/Caribbean relationship is emblematic of the globalized context in which ittakes place. Chinese demand for natural resources privileges sectors that deliver thoseresources and punishes manufacturers whose products compete with China’s ownimports. This encourages differentiation both between and within states. Chineseinfluence may actually be detrimental to job growth in some cases, but it is a boon forgovernment coffers, consequent social programs, perhaps even the poors cost of living.Politically, the increasing relationship with China, relative to what it was just ten yearsago, can encourage overstatement of its present significance vis-à-vis the Latin
American/Caribbean relationship with the U.S. It is nonetheless true that China hascontributed to increased political independence, confidence and creativity.One further note: this paper conflates, at times, the experiences of Latin America and theCaribbean. While the difference, in relationship to China, between LatinAmerican/Caribbean states is significant, the difference between the two regions ismainly one of scale. The Caribbean is a smaller exporter of resources to China but itsappeal for China is the same. Trends noted throughout the paper are generally applicableto both regions, unless otherwise noted.EconomicThe rise of China effects the trade of these two regions (Latin America, the Caribbean)both directly, through their own trade with China and indirectly, through Chinas impacton their trade with third parties. With respect to direct trade with China, the Chineseimport primary resources like oil, minerals, etc. and export value-added industrialproducts. Consequently, the China trade has been greatest with those countries whoseeconomies rely chiefly on export of primary resources: Brazil, Argentina, Peru,Venezuela, etc1. While Central American countries like Mexico, who are exporters ofvalue-added industrial products have found themselves in a losing competition withChinese exports2. Jenkins & Edwards report this negative effect on manufactures is1 Jenkins, R. & Edwards, C., How Does China’s Growth Affect Poverty Reduction In Asia And LatinAmerica? (Latin American/Caribbean And Asia/Pacific Economics & Business Association, WorkingPaper No.34, Dec 2004), 142 Ibid., 17
particularly strong in Nicaragua and Bolivia, where domestic industries are weak3. Infact, both Latin America4 and CARICOM, an association of Caribbean countries,maintain trade deficits relative to China5. It must be said however, that in absolute terms,most big Latin American and Caribbean countries have enjoyed overall increased termsof trade since 2002, due to the combination of rising prices for primary commodities andlowered pricing for many imported manufactures6.The China trade can inhibit regional economic coherence in Latin America as well, byencouraging production for export to China over intra-regional trade. Alternately, "Chinais replacing Brazil as a supplier to other countries in the Americas"7 of cheapmanufactures8. On the world market, Chinas large purchases of raw materials drive upthe price of those materials. This represents a further indirect benefit to primary resourceexporters9, as well as a further negative effect on industrial manufacturers including thosein Central America, like Mexico, who must pay a higher price to import primaryresources from their neighbors.The positive benefit to primary resource producers and negative effect on industrialmanufacturers takes place not only at the regional level, favoring one Latin American3 Ibid., 34 Ibid., 2465 Bernal, R.L. “The Dragon In The Caribbean: China-CARICOM Economic Relations” in The RoundTable, Vol.99, No.408 (June 2010): 2856 Jenkins R., Peters, E.D., Moreira, M.M., “The Impact Of China On Latin America & the Caribbean” inWorld Development Vol.36, No.2 (2008): 2457 Li, H., “Red Star Over Latin America” in NACLA Report On The Americas, 40. 5 (Sep/Oct 2007): 23-278 Ibid., 23-279 Between 2001 and 2008 China spurred an international commodities boom. Jenkins, R., “Chinas GlobalExpansion And Latin America” in Journal Of Latin American Studies, 42 (2010): 825 -
state over another, but within these states as well. A country that draws most of its GDPfrom primary resource exports will see that sectors share of the national GDP increase ascheaper Chinese manufactures beat out similar domestic manufactures. Further, withinthe primary resource sector, production is increasingly centered on the handful ofcommodities that China imports in large quantities. This is known as exportspecialization. The phenomenon can have a negative impact on small-holder farmers(bought up by commercial agri-business) as well as domestic market access to a widervariety of crops and materials whose production is displaced by the conversion to massproduction of a few staple crops for export. For example, "The extension of Soyacultivation in South America has been blamed for the destruction of forests and thedisplacement of labour as Soya replaces other more labour-intensive crops"10.The changing relationship of Latin American and Caribbean countries with the Americanmarket is the most obvious example of Chinas indirect impact on those regions tradewith third party states. Chinas own export trade in industrial manufactures will tend todisplace similar products offered by Latin American countries on the world market. RhysJenkins cites an analysis by Brazilian economist Jorge Chami Batista that asserts theshare of 18 countries in Latin America of the U.S import market was down 9% in the 5years after Chinas ascension to the WTO (in 2001) from what it would have been hadChinas share not increased in that period11. It seems the only choice available to LatinAmerica and the Caribbean is to avoid competition with Chinese exports and takeadvantage of Chinese appetite for primary resource imports as much as possible.10 Jenkins & Edwards, How Does China’s Growth Affect Poverty Reduction In Asia And Latin America?,1511 Jenkins, Chinas Global Expansion And Latin America, 820
However, Jenkins & Edwards qualify this by speculating that Mexico and other CentralAmerican manufacturers may be able to retain their comparative advantage in certainindustrial sectors, due to their close proximity to the American market12.SocialEconomic and political gain must be translated into improved living standards andprospects for the mass of the Latin American and Caribbean citizenry to be consideredtruly beneficial. Does the relationship with China increase the living standards ofeveryday Latin Americans and Caribbeans? Jenkins & Edwards examine Chinas effecton poverty in Latin America in their report, How Does The Rise Of China Affect PovertyReduction In Asia, Africa And Latin America? They are careful to stress the need forfurther inquiry and research and their findings are somewhat mixed. They point out thatLatin American exports to China are mainly in "non labour-intensive agriculturalproducts and extractive products (timber, minerals and petroleum)"13 that require alimited amount of unskilled labour (limited job creation) and are potentially harmful tocommunities living in the extraction zones. As a result, any social benefit to the poor inthese export industries, to the extent it takes place, will be in the form of governmentrevenue, taxed from these industries and spent on pro-poor social programs.Draibe & Riesco describe how, since the turn of the new century, Latin Americangovernments have been re-introducing orthodox "ground rents" in primary resource12 Jenkins & Edwards, How Does China’s Growth Affect Poverty Reduction In Asia And Latin America?,1913 Jenkins & Edwards, How Does China’s Growth Affect Poverty Reduction In Asia And Latin America?, 2
industries. Ground rents are basically taxes on natural resource extraction14. The UnitedNations sponsored book in which their chapter appears documents the increasing trend inLatin America towards innovative, progressive social welfare programs. Whether or notthe recent implementation of these programs bares any direct relationship to theconcurrent rise in trade with China, the appropriation of larger ground rents in primaryindustries exporting to China certainly helps pay for them. Government assistance aside,there is also a potential benefit for the poor in lowered prices on certain goods, nowimported from China. This potential benefit to the consumer may offset the cost todomestic producers in aforementioned countries like Nicaragua and Bolivia to someextent15.PoliticalThe political aspect of Chinas increasing relations with Latin America and the Caribbeanare potentially the most positive. Here increased relations with China are viewed as apotential counterbalance to the influence of the United States. Jenkins highlights fourimportant questions that need to be asked to evaluate this proposition: “First, how willthe rise of China affect US hegemony in the region? Closely related to this is the effect ofLatin America’s growing relationship with China on the autonomy and bargaining powerof the Latin American states internationally, and particularly in relation to the UnitedStates. Third, what are the implications of Latin Americas growing relations with China14 Draibe, S.M., Riesco, M., “Latin America: A New Developmental Welfare State In The Making” inRiesco (Ed.) Latin America: A New Developmental Welfare State In The Making, UNRISD Social Policy InA Development Context Series, Palgrave Macmillan, 2007: 66-6715 Jenkins & Edwards, How Does China’s Growth Affect Poverty Reduction In Asia And Latin America?,26
for democracy in the region? Finally, will Chinas influence strengthen the role of thestate in Latin Americas economies and lead to a shift away from neo-liberalism in theregion?”16.In regards to the first two questions about Chinas influence on Latin Americasrelationship with the U.S., Jenkins points out that Chinas own relationship with the U.S.is much more important to them than Latin America17. The Chinese are unlikely tojeopardize that relationship for Latin Americas sake. Further, despite increasingeconomic and political relations, the U.S and Europe remain the dominant powers in theLatin American/Caribbean region18. In some cases Chinas presence has actually led toincreased ties with the U.S. This is true of the Dominican Republic and CentralAmerican countries that feel more threatened by China, for the economic reasons statedearlier in the section on economy. The DR-CAFTA trade agreement was signed withAmerica by these countries, in an attempt to prevent further loss of American marketshare19. Bernal says Chinas presence may also reinvigorate U.S. and European interest inCARICOM countries, which has been in decline since the end of the Cold War20.Nonetheless, the presence of a second (or third if you count Europe) major player in theregion cannot help but grant increased latitude to individual states, even if its only abinary choice between the two major players.The Question of what influence China has had on the quality of democracy in Latin16 Jenkins, Chinas Global Expansion And Latin America” in Journal Of Latin American Studies, 828-82917 Ibid., 83018 Ibid., 83019 Ibid., 83220 Bernal, The Dragon In The Caribbean: China-CARICOM Economic Relations, 297
America and the Caribbean is a complicated one. It is important to note that unlike in theWest European and North American experience, the goals of democratization anddevelopment have not been mutually reinforcing in Latin America21. Munk explainshow, in Latin America, countries participating in the global economy "have been moreeconomically dynamic"22 but have experienced higher levels of inequality. Whereascountries that have opted out or at least thumbed their nose to a significant degree at theglobal economy have experienced greater equality but poorer economic performance.Furthermore, in Latin America the leaders who have traditionally striven for greaterequality have been those who also strive to concentrate power, leading (according toMunk) to an erosion of democracy23. China’s own success seems to validate theseleaders. Raul Castro, Hugo Chavez and Argentinas Nestor Kirchner have all expressedadmiration for Chinas "market socialism" - a model for rapid growth under anauthoritarian regime24.Certainly the China-Latin America connection has created solidarity in opposition to pastNeo-liberal policies, what is sometimes called "The Washington Consensus”. "TheBeijing consensus" or "East-Asian model" and Latin American "neo-structuralism" drawstrength and legitimacy from their ideological convergence25. Chinas success provides anexample separate from the neo-liberal reforms urged by the West in earlier periods. Lipoints out that "Chinese foreign aid and loan programs attach no conditions except that21 Munk, G.L., “Democracy And Development In A Globalized World: Thinking About Latin AmericaFrom Within” in Studies In Comparative International Development (2009): 35122 Ibid., 35223 Ibid., 35224 Li, H., “Red Star Over Latin America” in NACLA Report On The Americas, 40. 5 (Sep/Oct 2007): 23-2725 Gore, C., “The Rise And Fall Of The Washington Consensus As A Paradigm For Developing Countries”in World Development, Vol.28, No.5 (2000): 800
recipient countries must recognize the Peoples Republic as the sole legitimategovernment of China”26. This is quite different from “the famous structural adjustment ofneo-liberalism"27. Brazilian President "Lula" has crafted an assertive foreign policy thatin some ways parallels Chinas, seeking to unify the opposition of poor andunderdeveloped countries to the Washington Consensus and to push for better terms oftrade for the Southern Hemisphere. While the Chinese government apparently has nointerest in challenging the U.S., multi-polarity is identified by the PRC as the idealcondition for China s "peaceful rise"28. In this vein China is pleased to see these regionsexhibit more independence from the U.S.29. Indeed, China has voted with the"developing nations" in the U.N 95% of the time30. So while China’s influence may leadto economic differentiation between states, it encourages regional political unity.In understanding the political relationship between China and Latin America and theCaribbean, it is useful to keep China’s own objectives in mind. These objectives are two-fold: to increase its role as a world power and to convince countries in these regions torenounce their support for Taiwan31. While some commentators maintain Chinas interestin Latin America and the Caribbean is primarily economic32, Bernal considers theChinese interest, in the Caribbean at least, to be motivated primarily by political26 Li, Red Star Over Latin America, 23-2727 Ibid., 23-2728 Cheng, J.Y.S., “Latin America In China’s Contemporary Foreign Policy” in Journal Of ContemporaryAsia, Vol.36, No.4 (2006), 50529 “The Chinese media are pleased to report that on issues relating to Iraq, WTO and negotiations on theFTAA, many Latin American Countries are willing to oppose the U.S. position”. Ibid., 51030 Li, Red Star Over Latin America, 23-2731 Ibid., 29032 Horta, L., “A Brave New World: China Embraces The Caribbean” in Defense And Security Analysis,Vool.25, No.4 (2009): 430
objectives33. He points out that the amount of trade China does with the Caribbean isminiscule compared to its concerns in other parts of the world. However, over half thecountries that maintain diplomatic support for Taiwan are located in the Latin Americanor Caribbean regions34. Cheng predicts this will be a source of friction in ongoingrelations35 but adds that China “realizes that Latin America has no strategic interests inthe Asia-Pacific region, and they therefore are more tolerant of the formal and informalties between Latin American countries and Taiwan”36In this paper we have seen that while the relationship with China is an economic boon forLatin America and the Caribbean in absolute terms, it privileges non-labour intensiveresource sectors over indigenous manufacturing sectors. In doing so it encourages exportspecialization that narrows the selection of goods produced and available in the domesticmarket and threatens to cut out small-holder farmers. It also creates differentiation at theregional, state and sectoral level. However, scholars are quick to point out that increasedsocial welfare spending by Latin American governments due to increased ground rents,along with a potentially lower cost of living due to cheaper Chinese goods available inthe market, may offset the losses mentioned above to some degree. Politically, theChinese connection is more exclusively positive. The emergence of China gives LatinAmerican/Caribbean leaders greater flexibility in determining their own policies, even ifthe determination ends up being to move further into the U.S. orbit (as in the case ofCentral America). However, China’s existence as a symbol of economic success outside33 Bernal, The Dragon In The Caribbean: China-CARICOM Economic Relations, 29134 Jenkins, Peters & Moreira, The Impact Of China On Latin America & The Caribbean, 23735 Cheng, Latin America In China’s Contemporary Foreign Policy, 523-52436 Ibid,, 525
the western democratic, multi-party political system, supported by some leaders in theLatin America/Caribbean region can be uncomfortable to some western scholars.
Bibliography 1. Bernal, R.L. “The Dragon In The Caribbean: China-CARICOM Economic Relations” in The Round Table, Vol.99, No.408, 2010 2. Cheng, J.Y.S., “Latin America In China’s Contemporary Foreign Policy” in Journal Of Contemporary Asia, Vol.36, No.4, 2006 3. Draibe, S.M., Riesco, M., “Latin America: A New Developmental Welfare State In The Making” in Riesco (Ed.) Latin America: A New Developmental Welfare State In The Making, UNRISD Social Policy In A Development Context Series, Palgrave Macmillan, 2007 4. Gore, C., “The Rise And Fall Of The Washington Consensus As A Paradigm For Developing Countries” in World Development, Vol.28, No.5, 2000 5. Horta, L., “A Brave New World: China Embraces The Caribbean” in Defense And Security Analysis, Vool.25, No.4, 2009 6. Jenkins, R., “Chinas Global Expansion And Latin America” in Journal Of Latin American Studies, 42, 2010 7. Jenkins, R. & Edwards, C., How Does China’s Growth Affect Poverty Reduction In Asia And Latin America? (Latin American/Caribbean And Asia/Pacific Economics & Business Association, Working Paper No.34, 2004 8. Jenkins R., Peters, E.D., Moreira, M.M., “The Impact Of China On Latin America & the Caribbean” in World Development Vol.36, No.2, 2008 9. Li, H., “Red Star Over Latin America” in NACLA Report On The Americas, 40. 5, 2007 10. Munk, G.L., “Democracy And Development In A Globalized World: Thinking About Latin America From Within” in Studies In Comparative International Development, 2009