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Undercutting the Amazon? Deregulation in the Wake of South America’s Chinese Investment Boom

Aerial view of the Jamanxim National Forest in northern Brazil. ANTONIO SCORZA / AFP

By Rebecca Ray

As Brazilians head to the polls at the end of this month for a presidential runoff between current President Jair Bolsonaro and former President Luiz Inácio Lula da Silva, one of the many issues on the table is management of the Amazon rainforest.

While deforestation fell by 82% during Lula’s previous term, it rebounded to historic levels under Bolsonaro. However, Bolsonaro is far from alone in relaxing environmental standards in the Amazon region. Across the Amazon basin countries of Brazil, Bolivia, Peru, and Ecuador, commodity prices and Chinese investment slumped after a decade of soaring Chinese investment from 2002-2011. To encourage new investment, national governments rolled back social and environmental protections.

The strategy didn’t work – a new working paper from the Boston University Global Development Policy Center and the BRICS Policy Center at the Pontifical Catholic University of Rio de Janeiro found that these efforts to prolong the China boom and expedite pipeline projects accomplished neither goal.

As regional environmental standards were relaxed, the total amount of Chinese investment in the Amazon basin generally declined, the average size of investment declined and the average time between announcement and commencement increased. In sum, Chinese investment in the Amazon basin neither rebounded nor accelerated. Interestingly, the environmental and social risk profile of Chinese investment – including risks to Indigenous territories and biodiversity as well as changes in the speed of deforestation – also did not rebound as protections loosened.

A few exceptions demonstrate the result of investments moving forward under these relaxed standards. A handful of high-risk projects bucked these downward trends, two of which (oil investment by China National Petroleum Corporation in Peru and China Three Gorges Corporation’s São Manoel dam in Brazil) rank among the highest environmental risk in the portfolio and another of which (China MinMetals’ Las Bambas copper mine in Peru) has been bogged down in social protests since its inception, struggling to meet production goals. Still, other projects (such as Bolivia’s Rositas dam and Peru’s Amazon Waterway) have never broken ground, facing civil society mobilization over concerns that the environmental and social risks weren’t adequately addressed by these newly relaxed standards.

It is impossible to know whether the boom may have been more pronounced in the absence of standards or if it might have dropped off even more significantly without the rollback. But these findings reinforce already abundant evidence on the drivers of Chinese investors – linked to China’s domestic goals rather than short-term regulatory costs abroad – and their willingness to meet host country standards. For South America – and Belt and Road Initiative host countries generally – these results suggest that governments have policy space to enact investment protections based on their own domestic needs rather than trying to lower costs for Chinese investors.

Rebecca Ray is a Senior Academic Researcher at the Boston University Global Development Policy Center. Follow her on Twitter: @BUBeckyRay.

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