Spotlight on Geopolitics

If anyone is in doubt as to where today’s global economic clout lies, they should take a look at China’s increased FDI activity in Latin America over the past few years. The energy- and minerals-hungry Chinese economy has determined its state companies to invest in the development and exploitation of oil, copper, iron and other needed raw materials in Africa as well as Latin America.

The strategy of obtaining the resources China needs is different in Latin America than in Africa. As my previous post on the subject illustrated, in Africa the mining concessions have been obtained by the Chinese government by providing a number of resource-rich African countries with the infrastructure they lacked, be it roads, harbour facilites, schools or hospitals. In Latin America the infrastructure exists, therefore China has lately employed FDI (foreign direct investment) as the means to getting the resources it needs. The new strategy was adopted as a result of resistance of countries such as Australia and Canada to Chinese investments in their oil & gas and minerals sectors.

If previously China had preferred to make its purchases of raw materials from Latin America on the open market, as of 2005 it started using its more than 2 trillion dollars in foreign reserves to acquire stakes into energy and mining companies. Thus in 2005 it bought a large copper producer in Chile, agreed to invest 1.5 billion dollars in oil and gas exploration in Bolivia, and (a Chinese-controlled company) Andes Petroleum bought the (Canadian) Encana Oil and pipelines from Ecuador for 1.42 billion. In 2007, the Aluminium Corporation of China bought Peru’s Copper Inc. for 792 million dollars and in 2009 China lent 10 billion dollars to Brazil’s Petrobras, in exchange for ten years’ guaranteed supply of oil. Also, in 2010 CNOOC bought 50 percent of Bridas Holdings in Argentina for 3.1 billion dollars. The latest deal involves the acquisition of OGX Brazil, an oil producer that has yet to pump any oil, for 7 billion dollars, and that of Pan Am in Argentina.

The FDI dollars invested by China in Latin America are providing a much needed boost to local economies affected by the 2008 economic crisis and at the same time are securing China’s future oil, gas and mineral needs. Such investments, unlike those from the USA, come with no political strings attached and could take the form of portfolio investments or loans-for-oil arrangements, as it happened in Bolivia, Ecuador and Brazil. It should come as no surprise, therefore, if politicians and company executives from Latin America were highly favourable to the expansion of China’s FDI drive on their continent. China’s investments in Latin America complement those made in recent years by EU countries, especially by Spain, concentrated in areas like banking and telecommunications. Taken together, these investments also contribute to diminishing the political dependence previously experienced by the countries concerned on Washington or Canada.

(sources: Le Monde, Reuters, Santiago Times)

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