China's forays into Latin America are part of its grand strategy to acquire "comprehensive national power" to become a "global great power that is second to none." Aiming to secure access to the continent's vast natural resources and markets, China is forging deep economic, political and military ties with most of the Latin American and Caribbean countries. There is more to China's Latin American activism than just fuel for an economic juggernaut. China now provides a major source of leverage against the United States for some Latin American and Caribbean countries. As in many other parts of the developing world, China is redrawing geopolitical alliances in ways that help propel China's rise as a global superpower. Beijing's courtship of Latin American countries to support its plan to subdue Taiwan and enlist them to join a countervailing coalition against U.S. global power under the rubric of strengthening economic interdependence and globalization has begun to attract attention in Washington.

Nonetheless, Beijing's relations with the region are neither too cozy nor frictionless. For Latin America and the Caribbean countries, China is an enviable competitor and rival, potential investor, customer, economic partner, a great power friend and counterweight to the United States, and, above all, a global power, much like the United States, that needs to be handled with care.

As in Asia and Africa, China is rapidly expanding its economic and diplomatic presence in Latin America -- a region the United States has long considered inside its sphere of influence. China's interest in Latin America is driven by its desire to secure reliable sources of energy and raw materials for its continued economic expansion, compete with Taiwan for diplomatic recognition, pursue defense and intelligence opportunities to define limits to U.S. power in its own backyard, and to showcase China's emergence as a truly global great power at par with the United States.

In Latin America, China is viewed differently in different countries. Some Latin American countries see China's staggering economic development as a panacea or bonanza (Argentina, Peru, and Chile view China as an insatiable buyer of commodities and an engine of their economic growth); others see it as a threat (Mexico, Brazil, and the Central American republics fear losing jobs and investment); and a third group of countries consider China their ideological ally (Bolivia, Cuba, and Venezuela).

While China's growing presence and interests have changed the regional dynamics, it still cannot replace the United States as a primary benefactor of Latin America. Chinese investment in the region is US$8 billion, compared with $300 billion by U.S. companies, and U.S.-Latin America trade is ten times greater than China-Latin America trade.

Nonetheless, China is the new kid on the block that everyone wants to be friendly with, and Beijing cannot resist the temptation to exploit resentment of Washington's domineering presence in the region to its own advantage. For Washington, China's forays into the region have significant political, security and economic implications because Beijing's grand strategy has made Latin America and Africa a frontline in its pursuit of global influence.

China's Grand Strategy: Placing Latin America in the Proper Context

China's activities in Latin America are part and parcel of its long-term grand strategy. The key elements of Beijing's grand strategy can be identified as follows:

• Focus on "comprehensive national power" essential to achieving the status of a "global great power that is second to none" by 2049;
• Seek energy security and gain access to natural resources, raw materials and overseas markets to sustain China's economic expansion;
• Pursue the "three Ms": military build-up (including military presence along the vital sea lanes of communication and maritime chokepoints), multilateralism, and multipolarity so as to counter the containment of China's regional and global aspirations by the United States and its friends and allies;
• Build a network of Beijing's friends and allies through China's "soft power" and diplomatic charm offensive, trade and economic dependencies via closer economic integration (free trade agreements), and mutual security pacts, intelligence cooperation and arms sales.

Economic Penetration

China's double digit growth for more than a quarter of a century has fed an appetite for resources from around the world, including Latin America, to fuel its economic expansion. Beijing sees Latin America and the Caribbean countries as an important source of energy resources, raw materials, commodities and as a market for Chinese manufactured goods. Over the last five years, China has concluded a number of energy, natural resource, tourism, education, aviation, space and investment agreements that will guarantee long-term access to valuable natural resources and markets, as well as bolster Beijing's presence in the region.

Sino-Latin American trade reached $50 billion in 2005, with China emerging as the region's third largest trading partner. Latin American exports to China are growing at a brisk 47 percent a year, with Mercosur countries such as Argentina, Brazil, Uruguay and Paraguay accounting for 85 percent of the total, according to data from the Inter-American Development Bank. China's trade volume surpassed Japan's total trade with the region in 2004, and is moving up the lists of major trading partners for a number of regional countries. China is now the second largest trading partner for Peru and Brazil; the third largest for Chile; the fourth largest for Argentina; and trade with China now falls within the top ten for Paraguay and Uruguay. Significantly, China is investing more in Latin America than any region outside Asia.

During his November 2004 visit to Argentina, Brazil, Chile, and Cuba, President Hu Jintao pledged that China would invest over $100 billion in Latin America over a decade. Chinese investment and purchases are seen as vital for economies short on capital and struggling to emerge from a long recession. In Argentina, for example, Hu announced nearly $20 billion in new investment in railways, oil and gas exploration, construction and communications satellites, a huge boost for a country whose economic vitality has been sapped since a financial collapse in December 2001. China is busy buying huge quantities of iron ore, bauxite, soybeans, timber, zinc and manganese in Brazil. It is buying tin from Bolivia, oil from Venezuela, and copper from Chile where it has displaced the United States as the leading market for Chilean exports.

More importantly, Chinese firms have an edge over their international competitors because Beijing enthusiastically pursues deals with so-called pariah states where Western companies are either barred by sanctions or constrained from doing business because of concerns over human rights, repressive policies, labor standards and security issues. For example, the Chinese government, unlike the United States, does not lecture the Latin American countries on human rights, good governance, democracy, fiscal prudence and drug trafficking. In addition, Chinese state-owned corporations, using generous lines of credit from the Chinese government and financial institutions, are not averse to entering into uneconomic deals, driven as they are less by market and profit considerations and more by their government's strategy to establish strategic footholds and lock up resources.

Strategic Motivations

First and foremost is the Chinese strategic objective of limiting U.S. dominance worldwide. The world's rising superpower, China, has long viewed the world's reigning superpower, the United States, as its major global strategic rival that needs to be contained and balanced. Notwithstanding Beijing's rhetoric of "peace and development," China's strategic posture is based on the realist paradigm of "comprehensive national power" with which it seeks to defend its interests and intimidate, aggrandize, and support the enemies of its enemies. Faced with a dramatic expansion of U.S. military power ("hard power") all around China's periphery after the September 11 attacks, Beijing responded by unveiling its "soft power" strategy in the form of a diplomatic "charm offensive," the notion of "China's peaceful rise," and laid greater emphasis on multilateralism and economic integration.

As per the August 2002 central leadership's decision to bring about a shift in the "international correlation of forces," Beijing also stepped up its drive to gather as many friends and allies as possible to form a countervailing coalition to the United States without antagonizing Washington for fear of jeopardizing access to the U.S. market, capital and technology. Put simply, Beijing's strategic objective of expanding its influence is to be achieved under the rubric of strengthening economic interdependence and globalization so as to avoid provoking Washington.

Despite Beijing's repeated assurances to U.S. officials that it intends to stay out of political and military affairs in Latin America, Africa and other resource-rich regions with significant Chinese investments, China is quietly throwing its weight behind those countries in Europe, Asia, the Middle East, Africa, and Latin America that seek to counter the United States and its policies. Beijing's growing role in Latin America has also coincided with elections that have brought populists and leftists to power in Venezuela, Brazil, Argentina, Uruguay and Bolivia. In particular, Brazil, Cuba, and Venezuela have made no secret of their game plan to play "the China card" to offset U.S. influence and trade dominance.

In most country cases, when the U.S. withdraws or is negligent militarily, politically or economically, the Chinese move in. Thus, Beijing's courting of those Latin American leaders who are at loggerheads with Washington (such as Lula da Silva of Brazil, Castro of Cuba, Chavez of Venezuela, Toledo of Peru, and Morales of Bolivia) could be seen as part of Beijing's "containment through surrogates" strategy with its roots in the classic strategic principle of "make the barbarians fight while you watch from the mountain top" (zuo shan guan hu dou). This strategy has the additional benefit of plausible deniability. It certainly fits into the "vacuum-filling" pattern of past Chinese behavior in North Korea, Pakistan, Myanmar, Cambodia, Sudan, Iran, Nigeria, Nepal, and Zimbabwe. Many interpret Beijing's growing presence in Latin America as a "tit-for-tat" response to the U.S. presence in China's own backyard.

In fact, courting the strategically-located, resource-rich but isolated and turbulent countries run by authoritarian leaders and fishing in troubled waters, while simultaneously chanting the mantra of "non-interference in domestic affairs" and "peace and development," have long been key characteristics of Chinese foreign policy. In the case of Latin America, China's moves come at a time when leaders from Mexico to Argentina seem increasingly disillusioned with a United States pre-occupied with the Middle East, and bent on tightening border controls closer to home. As chairman of the House International Relations Subcommittee on the Western Hemisphere, Congressman Dan Burton noted: "Weak legal systems, lax enforcement of labor standards and an immature institutionalization of the respect for human rights are fertile ground for Beijing's agenda and China is definitely exploiting this opening."

Beijing's customary denials notwithstanding, "the successful Chinese model" of "development-minus-democracy" or "development before democracy" is being sold to the developing world as an alternative model for ending poverty, and it resonates well across the world. The pitch is certainly winning an audience in Africa and Latin America. This "contest of ideas" further opens the door for Beijing to position itself to play the role of balancer and neutralizer right in Washington's backyard.

Notwithstanding China's insistence that its Latin American dealings are aimed at promoting "world peace, stability and common development," a military dimension is also evident. General Bantz John Craddock, commander of the Miami-based Southern Command, told the House Armed Services Committee recently that China's military is stepping up its involvement, "offering resources to cash-strapped militaries and security forces with no strings attached." He added:

• China's increasing influence in the region is an emerging dynamic that can't be ignored. China needs to protect its access to food, energy, raw materials, and export markets. This has forced a change in its military strategy, to promote a power-projection military, capable of securing lanes and protecting its growing economic interests abroad.

Beijing is training increasing numbers of Latin American military personnel, taking advantage of a void created by a 2002 U.S. law barring military training and aid to a dozen Latin countries -- Barbados, Bolivia, Brazil, Costa Rica, Ecuador, Mexico, Paraguay, Peru, St. Vincent and the Grenadines, Trinidad and Tobago, Uruguay and Venezuela -- that refuse to exempt U.S. citizens from the jurisdiction of the International Criminal Court. These countries had, in the past, received U.S. training and aid. During a recent trip to the region, Secretary of State Condoleezza Rice described the result of the law "the same as shooting ourselves in the foot." (The Bush administration is reportedly considering exercising a provision in the law that allows the government to waive the rule and restore military aid to Latin Americans.)

Chinese military officials have made more than 20 trips to Latin America and the Caribbean in recent years. Chinese Defense Minister Cao Gangchuan has visited Brazil and Cuba. As part of their "strategic partnership," Brazil and China have jointly developed a satellite program, are discussing Brazilian sales of uranium for Chinese nuclear reactors, and the Brazilian aircraft manufacturer Embraer has recently set up a plant in China.

China also has had exchanges of senior defense officials with Ecuador, Bolivia and Chile and provided military aid and training to Jamaica and Venezuela. In addition to its growing commercial prowess in Caribbean ports such as the Bahamas, Beijing has been operating two intelligence stations out of Cuba since 1999. Media reports speak of cooperation among the Chinese, Cuban and Venezuelan intelligence agencies. In August 2005, Venezuela decided to buy the Chinese JYL-1 mobile air defense radar and surveillance system. In his testimony before the House Subcommittee on the Western Hemisphere, Roger Pardo-Maurer, deputy assistant secretary of defense for Western Hemisphere affairs, said that the United States needs "to be alert to rapidly advancing Chinese capabilities, particularly in the fields of intelligence, communications and cyber-warfare, and their possible application in the region. We would encourage other nations in the hemisphere to take a close look at how such activities could possibly be used against them or the United States."

Additionally, rivalry with Taiwan for diplomatic recognition is another strategic motivation behind China's courting of Latin America -- home to 12 of the 25 countries that officially recognize Taiwan. Luring these 12 countries toward the "one China" policy remains a key objective of Beijing's Latin America policy. In short, China's Latin America policy has shifted from its Cold War-era export of Maoist ideology to a more single-minded pursuit of national self-interest in the form of access to raw materials, markets and spheres of influence through investment, trade and military ties so much so that it now bears remarkable resemblance to the classical goals pursued by the 19th and early 20th century imperialist great powers.

The Dragon in Latin America: The Fear Factor

This mercantilist shift in Chinese foreign policy explains some of the tension in Sino-Latin American relations. China is certainly not popular everywhere in the region. In fact, frictions, tensions and conflicts of interest are emerging due largely to the unequal nature of the Sino-Latin American relationship. China is a fear-inducing competitor of Latin American countries in the areas of labor-intensive manufactured products, jobs, investment, development and environment.

In a classic re-run of the trade relations established by European colonial powers, Latin Americans (and Africans) export raw materials to China while importing cheap Chinese products which compete with, and undercut, local industries. While the share of Chinese manufactured goods sold in Latin America increased from one to 13 percent between 1980 and 2005, the Latin American share in world trade has dropped 1.8 percent during the past 15 years, largely because of competition from China.

Beijing's primary interest in infrastructure projects that would improve access to, and transportation of, resources, raw materials and commodities (as in Myanmar, Cambodia, Pakistan, and Central Asia) to fuel China's economic expansion causes unease in the region. Many Latin American economists and analysts warn against falling into the trap of being a supplier of commodities for China's value-added manufacturing enterprises, and thus assume the posture of a Chinese colony or economic dependency like Myanmar.

China's cheap labor has undercut the competitiveness of Mexican goods and increased unemployment, especially in textiles and electronics sectors in Mexico and elsewhere in Central America. Mexico's trade deficit with China made it oppose Beijing's entry into the World Trade Organization. Mexican trade barriers are said to have cost China some $20 billion during the last 15 years.

Brazil's early enthusiasm for China has also cooled. The euphoria over "strategic partnership" has already given way to a fear of Chinese imports, disappointment over unkept Chinese promises of investment worth $10 billion, anger over Beijing's undermining of Brazil's bid for a permanent seat on the U.N. Security Council, concern over the potential environmental costs of China-aided developmental projects given Beijing's poor record of environmental conservation, and anxiety over the leftist-leaning Lula government placing ideology over pragmatism in its dealings with China. Many Brazilian businesses and experts now want their government to "fight for a more equal relationship, raising concerns from trade flows to environmental damage." Most Latin Americans do not wish to replace U.S. dominance with Chinese dominance over their countries.

Furthermore, with so much foreign investment going to China, Latin America is finding it difficult to obtain the capital it needs to finance its own growth. Finally, despite the proliferation in the number of Chinese language classes, the cultural barriers that separate China and Latin America remain formidable. Geography, history, culture and values inextricably tie Latin America's present and future to the United States.

In short, Beijing's relations with Latin America are neither too cozy nor frictionless. Different countries and sectors in Latin America benefit differentially from economic ties with China. While labor-intensive manufacturers (in Brazil, Mexico and Central America) are losers, energy and resource extractors and high-tech goods suppliers (in Venezuela, Uruguay, Peru, Argentina and Chile) are winners. Nonetheless, the point is that for Latin America and the Caribbean countries, China is no longer a distant Asian power, but a mighty rival, indispensable partner, potential investor, as well as a great power friend and counterweight to the United States, and, above all, a global power that needs to be handled with care.

Implications for Washington

With the United States preoccupied with Iraq and Afghanistan, Beijing has obviously been busy carving out a large sphere of influence for itself in Asia, Africa and Latin America. With the presence of China being felt everywhere, from the backwaters of the Amazon to mines in the Andes, U.S. dominance in its own backyard is no longer unquestioned or unrivaled. Opinion is divided on whether China's economic engagement is guided only by commercial interests or is a ruse to divert attention from Beijing's geostrategic goals in the region. Some contend that the Chinese presence in Latin America marks the end of the Monroe Doctrine, while others are more skeptical.

Over the long term, Chinese intentions in Latin America may not be as benign as some China-watchers suggest. Nor can China's expansion be equated with Japan's or Spain's interest in Latin America because of the highly competitive nature of the U.S.-China relationship. Beijing calculates that one of the consequences of the burgeoning Sino-Latin American trade and resource dependency will be a widening of the gap between U.S. and Latin American interests. As U.S. Deputy Assistant Defense Secretary for Western Hemisphere Affairs Roger Pardo-Maurer points out: "China has its own set of political, economic and military interests, requiring us to carefully distinguish between legitimate commercial initiatives and the possibility of political or diplomatic efforts to weaken the democratic alliances we have forged."

While Beijing's forays do not indicate a seismic change in the balance of power within Latin America, the very presence of China does make U.S. diplomacy difficult. Increasingly, "the China option" affords Latin American countries greater room for maneuver and an additional source of leverage vis-à-vis Washington. While the Chinese may not want to be drawn into Venezuela, Brazil or Cuba's problems with the United States, that does not mean that these countries will not play "the China card" in their relations with the United States.

Likewise, the revival of the old ideological debate over which political system -- Chinese authoritarianism or Western democracy -- delivers more people from poverty, and whether wealth or elections are a greater measure of freedom does not bode well for Washington's efforts to promote transparency and democracy. Beijing's strategic interests and unconditional investments prop up many authoritarian regimes, thereby undercutting Washington's ability to persuade them to change their behavior.

Just as the United States can no longer take the Latin American countries' allegiances for granted, its access to the region's resources is also far from assured. Washington is increasingly concerned over Beijing's efforts to "lock up" oil and mineral supplies with new ventures in Latin America, Africa, Central Asia and Russia, and the Middle East. Hong Kong-based Takungpao News recently quoted General Xiong Guangkai, the former PLA deputy chief of staff, as saying that "in the long term, the strategic race for the world's energy may result in regional tension and even trigger a military clash." In particular, Beijing's newly cultivated energy alliances with populist left-wing leaders in Latin America have caused alarm in Washington and prompted the dispatch in May 2006 of Thomas A. Shannon, Jr., assistant secretary of state for Western Hemisphere affairs, to hold first-ever talks with his Chinese counterpart on China's role in a region that some analysts fear could become a site for great power rivalry.

Concerned about Chinese advances, Japan, South Korea and India have recently stepped up their efforts to secure their own supplies of energy and raw materials from Latin America. Since Beijing's quest for energy security is an important part of its global outreach and activism, the United States and other energy-dependent countries may decide to engage China in energy security cooperation.

China's increasing imprint on the economic, political and strategic character of its region makes it important for Washington to seek a mutually beneficial accommodation with its new neighbor. Washington welcomes China's trade and economic ties with Latin America, seeing it as a means to reduce pressure on the United States to underwrite regional economic development. A test of whether China is a stakeholder or just a seeker of the continent's natural resources and markets would be its commitment to developing some rules and common objectives whereby Latin America gains as much from its economic engagement as China without undermining transparency, growth, stability and democracy in the region. To this end, Beijing would need to invest not just in oilfields and mines, but in other sectors that would contribute to Latin American growth and development.

Conclusion

China's influence in Latin America cannot supersede that of the United States. U.S. trade and investment in Latin America not only dwarfs that of China, but its economic engagement is also qualitatively different from that of China -- as a provider of high-tech and knowledge-based goods and services. The enormous power asymmetry between China and the United States, and Beijing's domestic development priorities, ensure that the Chinese leadership will continue to steer clear of direct confrontation with Washington.

Report Drafted By:
Dr. Mohan Malik

The Power and Interest News Report (PINR) is an independent organization that utilizes open source intelligence to provide conflict analysis services in the context of international relations. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of inquiries@pinr.com. All comments should be directed to content@pinr.com.