By Zara C. Albright and Rebecca Ray
For the second year in a row, the China-Latin America Finance Database, jointly managed by the Boston University Global Development Policy (GDP) Center and the Inter-American Dialogue, recorded no new official finance commitments from China to Latin American governments or state-owned enterprises (SOEs) in 2021 through its two most active policy banks, the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM).
This does not mean the China-Latin American and Caribbean (LAC) relationship is dwindling. Rather, our new report documents that 2021 was an active year, with a flurry of multilateral diplomacy, growing exports of green energy commodities, and increased trade in Chinese-produced COVID-19 vaccines.
In 2021, the uneven economic recovery from the COVID-19 pandemic continued around the globe, and as Chinese production rebounded, LAC countries struggled to keep pace. LAC’s trade deficit with China reached new heights in 2021, at an estimated 1.2% of regional GDP. LAC countries also still have significant debt obligations to China, especially Ecuador, Venezuela, and Suriname, whose public and publicly guaranteed debt to China is estimated to exceed 5% of GDP.
The past year saw heightened multilateral diplomacy between China and LAC. Argentina, Chile, and Peru joined Brazil, Ecuador, and Uruguay as full members of the Asian Infrastructure Investment Bank (AIIB), while Bolivia and Venezuela remain prospective members. In comparison, 11 African countries are full AIIB members and nine are prospective. In 2021, the AIIB approved $560 million in loans to African countries: two loans of $100 million each to Rwanda for digital acceleration and COVID-19 recovery and a $360 million loan to Egypt for COVID-19 recovery. The only loan to date from the AIIB to a LAC country was a $50 million COVID-19 Crisis Recovery Facility for Ecuador, approved in 2020.
As of March 2022, 60% of LAC countries – 21 out of 35 – are Belt and Road Initiative (BRI) members, compared to 45 African countries, 83% of the region. The most recent LAC countries to join the BRI are Nicaragua and Argentina. In December 2021, Nicaragua established relations with the People’s Republic of China, joining the BRI shortly thereafter. In February 2022, Argentina also joined the BRI and signed a Memorandum of Understanding (MOU) with China outlining over $23 billion in financing, primarily for transportation and energy infrastructure projects.
While China-LAC trade has historically been dominated by Chinese imports of soy, copper, iron, and oil, LAC has recently begun exporting commodities for renewable energy to help China meet its goal of 40% renewable energy by 2030. China’s annual imports of balsa wood from Ecuador, used in the interior of wind turbines, grew 57% between 2012-2016 and 2017-2021.
LAC’s long history of mining has also evolved to meet the growing demands for green energy. Between 2012-2016 and 2017-2021, Jamaican alumina exports (used in aluminum smelting) to China skyrocketed by nearly 3,000%, where the metal will be used in electric vehicle batteries, wind turbines, and solar panels. Chinese companies have begun investing in Guyanese mining, Jamaican refining, and Mexican manufacturing of bauxite and alumina. The Lithium Triangle Countries (LTCs) of Argentina, Bolivia, and Chile have seen a 91% increase in China’s imports of lithium carbonate, used in electric vehicle batteries and in renewable energy storage technology. Chinese companies have also been investing in molybdenum mining in Peru to support construction of solar panels and the steel frames of wind turbines. In Brazil, Chinese mining companies have invested in niobium extraction and production of the ferroniobium steel alloy for use in wind turbines.
In the second year of the COVID-19 pandemic, LAC countries purchased over 1.5 billion doses from Chinese vaccine manufacturers. Chinese vaccines account for 29% of the region’s COVID-19 vaccine purchases, roughly in line with China’s share of the region’s overall merchandise imports, 31%. Most LAC countries have diversified their vaccine imports to minimize the risks of shortages and have also contracted with Russia, the United Kingdom, and the United States.
Finally, it’s important to highlight what did not happen this year: debt traps. The past two years of pandemic-induced debt payment suspensions and renegotiations have shown China is not interested in ‘trapping’ borrowers into relinquishing assets. Instead, China has engaged in debt renegotiations with Ecuador and may do so with Suriname and Argentina later this year.
Looking forward to 2022, the China-LAC economic relationship is likely to continue growing, and official finance may re-enter the picture with several new countries joining the BRI and AIIB.
Zara C. Albright is a Global China Pre-doctoral Research Fellow at the Boston University Global Development Policy Center and Rebecca Ray is a Senior Academic Researcher at the Boston University Global Development Policy Center
