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Rise of China on Argentina

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Rise of China on Argentina

In the previous two decades, China and Argentina have strengthened their partnership,

boosting trade and investment via joint venture projects across different sectors. Argentina has

received loans and investments in hydropower and solar energy from China The worth of China-

Argentina bilateral trade was recorded at $450 billion in 2021, showing the ever-increasing

potential of cross borders trade between the two countries. The trade relations have grown

significantly between 2001 and 2022, from $2.3 billion to $26 billion. Partnerships between

Beijing and Buenos Aires have increased significantly, which has amplified China's mark in

Argentina's economy. The partnerships have been predominantly in the rail transport,

infrastructure, energy, and mining sectors. China is ranked among the country’s significant

trading partners rating third in standing behind the European Union and Brazil (Nye, 2023). This

paper explores the rise of China, its impact on Argentina and how the relationship between the

two countries informs China's standing and influences the global order.

Summary of the relationship between China and Argentina

The commercial ties between Argentina and China have been steadily improving.

Nonetheless, the trade surplus and deficit have led to unexpected trade imbalances. As is typical

with countries that mainly export agricultural products, there are bound to be trade balances as

they import electronics and technology because of the cost differences. Despite initially being

favorable for Argentina, with time, it has caused a deficit that has left the country pleading for

Chinese banks to fund significant infrastructure projects. A demand that has not been met since

2019 (Luque, 2019). In 2021, China exported goods worth $12.6B to Argentina, including

computers ($797M), transmission equipment ($541M), and other Organo-Inorganic compounds

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($439M). Over the past 26 years, China's exports to Argentina have increased by 12.8% annually,

from $549M in 1995 to $12.6B in 2021. In 2021, Argentina exported commodities worth $5.93B

to China. The main products were soybeans ($1.78B), sorghum ($492M, and frozen meat

($1.68B). Argentina's exports to China have increased by 11.7% annually, from $332M to

$5.93B between 1995 and 2021.

Despite the success of China led investment in projects like the Belgrano Cargas Railway

in Argentina’s Jujuy province, obstructions have been realized. In Santa Cruz, the Nestor

Kirchner, a hydroelectric plant has been opposed by the local people and environmentalists. The

contention is the project's threat to the region's glaciers and biodiversity. Moreover, Buenos

Aires’ Atucha III nuclear plant, which is a joint nuclear energy project, is experiencing financial

difficulties (Bernal-Meza, Raúl, & Zanabria, 2020). Based on recent reports, the success of the

projects is questionable, with funding related conflicts reported between China and Argentina.

Although China has committed to funding 85%, of the cost, Argentina has been pushing for the

entire investment to be covered. Nonetheless, both parties remain hopeful of the future as the

presidents united in celebrations to mark 50 years of diplomacy in 2021.

The rise of China makes Argentina a better place

The Belt and Road Initiative (BRI)

The initiative is anticipated to generate a $3.7 trillion global effect, targeting developing

economies and Latin America. Argentina stands to benefit from this undertaking. The approval

of the BRI, which is China's primary project will provide over $23 billion in Chinese

investments. Joining the BRI is not a prerequisite for receiving financing or investments from

China but is a collection of infrastructure projects that China had been announced and are
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currently categorized under the initiative's umbrella. The BRI will come in handy, especially with

the current economic crisis that Argentina is experiencing, as it provides for a free trade

agreement and debt repayment extensions. The BRI presents financing opportunities for

infrastructure projects that developing nations in the global south find difficult to access (Raza,

Shah, & Yousufi, 2021). The collaboration between China and its partners is geared towards

enhancing export volumes, production, and trade while evading the conditional financing

presented by other credit institutions. The loans and investments by China conform to a non-

interference policy in the internal affairs of recipient countries and are devoid of any "political

collateral." Such declarations set China apart from conventional international lenders like the

IMF, which typically link financial assistance to regressive partisan and monetary reforms in

societal matters. The Belt and Road Initiative is expected to boost energy investments, as China

is well-positioned to provide essential funding for Argentina's clean energy ambitions and

emissions reduction targets.

Energy deals

The energy pacts between China and Argentina are anticipated to surge considerably,

with a focus on enhancing Argentina's wind and solar energy industries. Furthermore, reinforcing

trade and investment relations between the two nations will aid Argentina's foreign currency

reserves as a result of the mutual currency exchange agreement. Argentina has inadequate energy

resources, particularly in terms of natural gas (Rubio, & Jáuregui, 2022). Therefore, China's

investment will enhance Argentina’s economy and avail the much-needed resources to the

citizens. The establishment of a new power plant will be a noteworthy accomplishment for the

country and, despite being shrouded in controversy, will have a positive impact on Argentina's

economy. Chinese enterprises have been significant investors in Argentina’s energy sector. One
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such instance is the installation of one of the largest solar plants in Jujuy province in 2020, which

was constructed and funded by Chinese policy bank loans worth $400 million in 2017.

Additionally, China intends to update the country's obsolete transmission infrastructure,

facilitating the transfer of electricity generated by isolated renewable resources to Buenos Aires

and improving the power grid's resilience. Investing in energy marks a positive move towards

energy transition, promoting sustainable economic development. The Chinese-backed renewable

energy ventures in Argentina predominantly use Chinese technology and workforce. However,

the government seeks to focus more on knowledge sharing and creating employment

opportunities within the country to encourage green domestic growth (Stanley, 2019). Moreover,

if Chinese firms take over lithium production, Argentina will have to modify its policies to

maximize the growing demand and guarantee that local communities reap the benefits.

The currency swap

Argentina engaged in a bilateral currency swap with China allowing its central bank to

access a significant amount of Chinese renminbi to boost its dwindling reserves. The agreement

enables Argentinian export companies to make Chinese-based settlements in Yuan or US Dollars,

easing the outflow of foreign currency from the central bank (Mohammed, 2019). The first

currency swap was signed in 2009, valued at 70 billion yuan and was meant to run for three

years. The deal was renewed in 2017 between the Argentina and China's central bank. This deal

allowed for an exchange of 70 billion yuan for 175 billion Argentine pesos (Catapano, & Leite

Araujo, 2022). In addition to the 2017 agreement, the two banks signed a additional currency

swap deal of 60 billion yuan in 2018, extended in July 2020. The deal's inception preceded

Argentina's official participation in the Belt-and-Road Initiative. Considering the rising

investments of Chinese firms in Latin American nations, it was anticipated that every country in
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the region would ultimately become part of the initiative, guaranteeing growth within the region.

The swap makes China one of the largest non-institutional lenders to Argentina, and it allows the

country to hedge against uncertainties presented by the US financial policy tightening.

Additionally, it will promote Argentina's industrial development.

The losers

Argentina has a comparative advantage in producing prime commodities like agricultural

products and energy, while China has a similar advantage in producing manufactured goods.

Therefore, Argentina exports agricultural products while importing manufactured goods from

China. Trade agreements between Argentina and China will likely have winners and losers. In

this case, the losers are usually domestic manufacturers that must compete against imports from

China. The commodities from China are generally not as costly as those locally produced,

making it difficult to sell their products (Hao, & Han, 2022). Also, if China can manufacture and

export goods more effectively than Argentina, it can result in unemployment and a reduction in

the competitiveness of the domestic manufacturing sector.

Argentina's economy stands to suffer from the possibility of imbalanced trade conditions,

where Argentina might be disadvantaged as China can export manufactured items at cheaper

rates compared to the selling prices of Argentine goods in China. Such eventualities could

adversely impact local producers leading to layoffs in specific industries. Moreover, the

overreliance on China for exports and investment may restrict Argentina's capacity to diversify

its economy and achieve its developmental goals. Likewise, environmental groups have decried

the adverse environmental effects of energy projects like Jorge Cepernic hydroelectric plants.

Such infrastructural projects are usually linked to adverse environmental impacts that affect the
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country's agricultural expansion programs, which could harm local communities and ecosystems.

Argentina’s economy is largely centered on agriculture. Nonetheless, majority of the funding by

China is meant to facilitate the energy sector and based on previous instances where such

developments have been done, the environment has suffered significantly. The reservations by

environmental groups show the possible adverse effects to the environment.

How the case study helps in understanding China’s influence on the global order

Over time, China’s economic power has grown significantly to its current level where it

ranks as a significant global player. China has utilized its economic prowess to influence the

global order, wielding significant economic leverage on the international order and is a major

source of goods and services, investing considerably in various countries worldwide (Bernal-

Meza, 2021). China is currently ranked as the second largest economy; China has a lot of

influence in global matters. As a result, China can shape international trade, investment patterns,

and affect policies by other countries. Argentina has benefited massively from China, with

investments ranging from energy and infrastructure. The development of hydroelectric dams in

Argentina has facilitated significant economic growth and the currency swap facilitated currency

stabilizations and a declined reliance on the US dollar.

Furthermore, China based companies like Sinopec have invested in oil and gas

exploration globally and Argentina has not been left behind. China’s standing has allowed for

grater control in the global dynamics as it asserts its power in the South China Sea (Sicular,

Yang, & Gustafsson, 2022). The country’s diplomacy can be seen through the BRI, which aimed

to improve infrastructure development and investments across Asia, Europe, Africa, and Latin

America. With nations like Argentina gaining from China’s infrastructural investment through
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the project, they also become more intertwined with China, making them more susceptible to its

political influence.

Similarly, China has emerged as a significant contender in the technological sphere, with

corporations like Huawei and Alibaba becoming global pioneers in their respective domains and

having established their presence in the country. China's increasing technology has enabled it to

shape global technology standards and influence the evolution of new technologies, like the one

that China seeks to establish through advanced power production techniques (Abbas, Wang,

Belgacem, Pawar, Najam, & Abbas, 2023).). China has also collaborated with

telecommunication firms in Argentina to develop 4G and 5G networks. China's impact on

Argentina's technology sector is evident in incorporating Chinese technology into the nation's

infrastructure initiatives. One instance of this is the participation of Chinese enterprises in

constructing the recently established Belgrano Cargas railway line, which will facilitate the

transfer of agricultural commodities from the country's rural areas to its ports. The railway

network employs locomotives and wagons manufactured in China. The impact of China on the

realm of Artificial Intelligence (AI) is increasingly noticeable in Argentina. Buenos Aires

witnessed Huawei's inauguration of an AI research center in 2018, which was geared towards

advancing AI technologies for the Latin American region. Baidu and Tencent, two Chinese

enterprises, have also directed their investments toward AI research in Argentina.

In conclusion, bilateral trade agreements are significant for economic growth, as seen in

the case of China and Argentina. Despite the growth propagated thanks to China, the country has

a geopolitical and economic interest in its relationship with Argentina, and that cooperation is not

entirely free. Both parties benefit from such engagements, with the developed economies

benefiting more. The trade deficits show that China benefits more than Argentina, especially
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since Chinese products cost more than agricultural products. Also, the financial assistance is in

the form of repaid loans, with projects conducted by Chinese companies.

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References

Abbas, J., Wang, L., Belgacem, S. B., Pawar, P. S., Najam, H., & Abbas, J. (2023). Investment in

renewable energy and electricity output: Role of green finance, environmental tax, and

geopolitical risk: Empirical evidence from China. Energy, 269, 126683.

Bernal-Meza, R. (2021). China-Argentina: A new core-periphery relationship. In China-Latin

America and the Caribbean (pp. 112-125). Routledge.

Bernal-Meza, Raúl, and Juan Manuel Zanabria. "A Goat’s Cycle: The Relations Between

Argentina and the People’s Republic of China During the Kirchner and Macri

Administrations (2003–2018)." China–Latin America Relations in the 21st Century: The

Dual Complexities of Opportunities and Challenges (2020): 111-145.

Catapano, C., & Leite Araujo, A. (2022). The International Financial System and its Discontents:

China, Argentina, and the Contestation of Western-led Institutions. Interdisciplinary

Political Studies, 8(2), 247-264.

Hao, K., & Han, L. (2022). The impact of China's currency swap lines on bilateral

trade. International Review of Economics & Finance, 81, 173-183.

Luque, J. (2019). Chinese Foreign Direct Investment and Argentina: Unraveling the

Path. Journal of Chinese Political Science, 24(4), 605-622.

Mohammed A. (2019). China’s Bilateral Currency Swap in International Trade Clearance: An

Empirical Investigation.
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Nye, J. S. (2023). The rise of China’s soft power. In Soft Power and Great-Power Competition:

Shifting Sands in the Balance of Power Between the United States and China (pp. 97-99).

Singapore: Springer Nature Singapore.

Raza, S. A., Shah, S. H., & Yousufi, S. Q. (2021). The impact of public-private partnerships

Investment in Energy on carbon emissions: evidence from nonparametric causality-in-

quantiles. Environmental Science and Pollution Research, 28, 23182-23192.

Rubio, T. G., & Jáuregui, J. G. (2022). Chinese overseas finance in renewable energy in

Argentina and Brazil: implications for the energy transition. Journal of Current Chinese

Affairs, 51(1), 137-164.

Sicular, T., Yang, X., & Gustafsson, B. (2022). The Rise of China's Global Middle Class in an

International Context. China & World Economy, 30(1), 5-27.

Stanley, L. E. O. N. A. R. D. O. (2019). China’s OFDI in Argentina. CHINA’S FOREIGN

DIRECT INVESTMENT IN LATIN AMERICA AND THE CARIBBEAN, 121.