14 SHAPING CHINESE ENGAGEMENT IN LATIN AMERICA Margaret Myers “The Chinese government first implemented its “going-out” strategy (HIE i884) in 1999. The polic firms to go abroad in an effort ro promote the export of goods and services, supplement pply of natural resources, and foster the development of China’ multina- tional companies. The Chini-Latin America relationship has grown moze complex in recent years a8 an increasingly diverse group of ages the region. For the most part, however, Chinese entities ate sill operating according to the country’s “going- cout” objectives and a limited set of foreign policy interests, including Taiwan-related political competition and support for China’ interests in international organizations. imbalanced trade and China's highly concentrated lending. and inves relationship hinese firms, lenders and investors ent are also consistent features of the Chinese commercial entities, in particular, have learned a considerable amount from their years now of experience in the region's hydrocarbons, agriculture, mining and other sectors. Re (Chinese-language literature on operational lessons learned in the region suggests that the Chinese government and n and C: approaches to public relations, risk assessment and corporate social responsibility to reduce local disputes and establish a sustainable presence in the region. Indications of enhanced “professionalism” among Chinese firms also suggest an active and critical role for Latin American nations in shaping China's growing presence in the region, Pro- motion of “mutually beneficial” relations in mining and other sectors depends on the existence of strong domestic regulations and effective enforcement mechanisms. And progress toward more balanced economic relations with China depends increasingly on informed and competitiveness enhancing policy solutions ina’s many overseas entities are developing a more nuanced view of the Latin Americ bean political and economic dynamics. In some cases, they have adopted new China’s Enduring Economic Objectives ‘More than a decade after the going-out strategy was first promoted, Latin America is still an important market for Chinese exports. The region became even more critical following the 2008 global financial crisis and resulting decreases in demand for Chinese goods from Europe and the United States. Chinese exports to Europe fell 9 percent in 2011 in comparison with export levels, in 2010, and exports to the United States fell 5 percent. Whereas Latin America and the 21‘Margaret Myers Caribbean are seen as lagging in terms of industrial upgrading, China is increasingly exporting hiigher-tech goods to the region and is marketing a wider variety of Chinese brands. Chinese ears are being sold in several Latin American countries including Brazil, Peru, Venezuela and Colombia, And Chinese cell phones and computers are increasingly popular options for Latin American consumers, Since 2004, medium- and high-tech products have accounted for more than 60 per- cent of the region’s imports from China (Dussel Peters 2013). ‘The proposed transfer of an estimated 360 million Chinese from rural to urban areas over the next three decades will ensure that Latin America also remains an important source of raw materials for China, China's imports of iron ore, crude oil and copper already account for more than 20 percent of its total imports, with additional import growth expected. In 2011 China's petroleum and iron ore imports were as high as 63.14 million tons and 177.17 million tons, respectively—an increase of 11.4 percent and 14.3 percent over the previous year. At current rates of consumption, China is expected to be self-sufficient in only five of the nine~ teen major minerals (Jiang 2011). Domestic demand will ensure that Chinese entities con~ tinue to seek out resources in Latin America through commodity-backed lending, investment and trade. Latin America’s and the Caribbean’s trade imbalance with China has been addressed exten sively in academic and policy-related literature, with the general conclusion that the region's model of exporting commodities to China while importing manufactured goods is not promot ing of long-term economic growth (see, among others, Barcena and Rosales 2010; Dussel Peters 2013;Gallagher and Porzecanski 2010; Jenkins, Dussel Peters and Mesquita Moreira 2008; Rosales and Kuwayama 2012; and others). Ching’s trade with Latin America is also highly concentrated in specific countries and sectors. The vast majority of Chinese imports originate from the region's ‘major agricultural, hydrocarbons and minerals producers, As a result, Latin America share of overall Chinese raw materials imports increased from 16.4 percent in 1995 to 22 percent in 2006. During his 2013 Latin America trip, President Xi Jinping sought to harmonize the China Mexico trade relationship, which is considered the most antagonistic in the region. Chin: Mexico bilateral trade reached a high of US$36 billion in 2012, but Mexico's considerable trade deficit with China continues to test relations. Growth in China's share of US. manufacturing imports is alo of concern to Mexico, China's market share nearly doubled between 2001 and 2005, effectively eroding Mexico's previous North American Free Trade Agreement (NAFTA) related gains. Mexican imports have increased in recent years as labor costs rise in. China, but China’ share still far surpasses that of Mexico (Kamil and Zook 2013), China's resource sector engagement in Latin America is also accomplishing a series of non- resource-related objectives. China’s commodity-backed loans in Latin America are intended not only to secure resource supply but also to promote Chinese exports, to put China's surplus dollar reserves to productive usc, to provide employment for excess national oil company service teams, to gain access to advanced technology and even to promote Chinese currency internationaliza~ tion. Many loans also include procurement clauses for Chinese goods and services by Chinese contracting firms (Gallagher, Koleski and Irwin 2012). China Development Bank's USS1 billion oilcbacked loan to Ecuador in 2010 requited 20 percent Chinese purchases, for example. In Ven ceuela and elsewhere, Chinese exporters and construction companies have benefitted considera~ bly from contracts awarded in association with Chinese energy loans. Some are denominated in renminbi in an effort to facilitate procurement and promote global use of Chinese currency (Aziz 2013). According to its Energy Development Five-Year Plan, China will continue to promote projects that “drive the ‘going-out’ of equipment and engineering services.” China's national oil companies (NOCs) also make deals in an effort to acquie high-tech capa- bilities. As Erica Downs (2011) explains, China’s NOCs have expressed interest in the development 212Shaping Chinese Engagement of pre-salt deposits in Brazil in an effort to learn from Brazilian firm Petrobras, a world leader in deep water drilling. China has also contributed capital for pre-salt development. In 2008, China| Development Bank provided Petrobras with a line of credit to develop pre-salt deposits im exchange for oil Gallagher, Koleski and Irwin 2012). Loans of this sort to state-owned firms in exchange for commodities also have the added benefit of reducing Chinese firm exposure to local ‘The Political Dimension Beyond Beijing's and individual Chinese firms’ enduring export-related and raw materials inter~ sts in the region is a surprisingly static political agenda. Much of China's recent engagement in Latin America and the Caribbean is intended not as a form of competition with the United States, ‘ras an effort to assert Chinese influence in the region but rather to promote the very same goals that have formed the basis of Chinese foreign policy for years. These include support for China's foreign policy agenda, “market economy” recognition and the promotion of China asa partner for developing nations. China continues to seek support in the region for what David Shambaugh (2013) cals its “narrow self-interests” Taiwan-related concerns rank high among these, as does policy on Tibet. A history of diplomatic competition between China and Taiwan has meant that Caribbean countries, in particular, continue to receive significant and disproportionate attention from China, Aid, trade and lending are offered to those nations that recognize the People’s Republic as the sole legitimate representative of China, A patron-client dynamic is evident in Costa Rica, China's only affiliate in Central America. Costa Rica received a stadium, infrastructure deals and a fice trade agreement in exchange for diplomatic recognition of the People’s Republic of China Since Costa Rica's switch, only twelve countries in Latin America and the Caribbean still recognize Taiwan diplomatically. Of these twelve, several—including El Salvador and Honduras— have indicated an interest in switching their affiliation to China, aware of the benelit of engag- ing the world’ second-largest economy. A 2011 Taiwan Central News Agency report suggested that China has rejected their requests, however, in compliance with an informal diplomatic truce in place since the election of Taiwanese president Ma Ying-Jeou in 2008, As China global economic influence expands, however, affiliation with ‘Taiwan will increasingly seem outdated and economically ill-advised option among its current supporters, For the time being, however, ‘China's presence in the region is still driven by a legacy of “cross-Strait” competition, China's foreign policy goals were a clear factor in President Xi Jinping’s 2013 trip to the region. While in Trinidad and Tobago, Xi connected with the leaders of Antigua and Barbuda, Barbados, the Bahamas, Dominica, Grenada, Guyana, Suriname and Jamaica—all of which rec- ‘ognize China diplomatically—to bolster China's ties in the Caribbean, While Xi was in Mexico, President Petia Nieto pledged not to interfere in China's claims on Taiwan or its Tibet policy The Dalai Lama's visits to Mexico in 2004 and 2011 aggravated already strained bilateral relations, For years now, China has also looked to the region for international recognition of its market economy status. Concerned that a non-market-economy status in the World Trade Organization, ‘makes it vulnerable to protectionism, China has embarked on a global campaign for market economy recognition. Argentina, Brazil, Chile, Peru, Antigua and Barbuda, Barbados, Guyana Jamaica, Trinidad and Tobago, Suriname and Venezuela all recognized China as a market econ- ‘omy by 2005. Costa Rica did so as part of its fiee trade agreement with China in 2008, and ‘Uruguay joined the list in 2009. Several others have held out, however, including major trade partners Mexico and Ecuador and most of Taiwan's affiliates. 23