China in Latin America: Major Impacts and Avenues for Constructive Engagement

Over the past two years, US officials have sought to highlight China’s negative effects on the Latin American and Caribbean (LAC) region’s development and stability, whether to US or Latin American audiences. For Latin Americans, though, relations with China aren’t so black and white. China may be an imperfect partner for LAC, as many in the region will attest, but it is an increasingly important one.

After nearly two decades of enhanced Chinese economic engagement with the region, LAC governments and economic sectors rely heavily on China’s economic partnership and inputs. China is LAC’s second most important trading partner, second most important source of mergers and acquisitions foreign direct investment, and top source of development finance. For South America, China’s importance is even more pronounced: it became the top export destination for South American goods in 2010.

In a new white paper produced for the Carter Center, Margaret Myers and Rebecca Ray explore both the positive and negative effects of Chinese finance on Latin American development. In terms of investment and trade, the results of the relationship vary from country to country, but nonetheless, the budding relationship between LAC and China should not be overlooked. Overall, to achieve a wide range of development objectives—economic, environmental and social—LAC must depend on increasingly well-planned and coordinated engagement from all of its major economic partners and donor nations, including China. This is especially true in times of growing uncertainty, as the region grapples with humanitarian and migration crises, growing populist tendencies, relentless corruption and climate change, among other factors.

Main findings:

• Chinese development assistance to LAC, which includes concessional finance, grants, technical assistance and aid, has undoubtedly affected development outcomes in the region, especially at the community level in certain countries.
  • Chinese disaster assistance was critical in the aftermath of the 2016 Ecuador earthquake, for example, and China-funded housing projects in Venezuela are of clear individual benefit to certain Venezuelans. Chinese technical assistance, including in agricultural technology and telecommunications, is also on the rise, especially as Chinese capacity in these sectors advances in its own right.
• China’s broader economic engagement with LAC has a far more profound impact on the region’s development trajectory than its official aid, however.
• This report aims to qualify China’s effect on key development indicators in LAC, using the United Nations’ 17 Sustainable Development Goals (SDGs) as a basis for analysis.
  • China’s extensive trade and investment with the region is at least partially supportive of three of the priority areas outlined by the SDGs: affordable and clean energy (Goal 7), decent work and economic growth (Goal 8) and industry, innovation and infrastructure (Goal 9).
  • Chinese engagement has had a seemingly neutral or negative effect on LAC progress toward some of the other SDGs.
• Chinese actors are increasingly cognizant of the drawbacks of their approach, prompting important conversations in Beijing about new ways forward.
• The effects of Chinese infrastructure projects and extractive sector investments are nonetheless of considerable concern to certain communities and environmental groups in LAC and globally.
  • Despite extensive reference to environmental and ecological cooperation in China’s LAC policy, and China’s own progress in recent years toward the environmental SDGs, Chinese engagement would appear to have an overall negative effect on the region’s environmental sustainability.
  • LAC’s environmental and social standards are among the most ambitious in the world, and Chinese investors have at times struggled to meet them. This is especially common where enforcement has been lacking from national governments in Latin America.

Policy suggestions:

Though an exceedingly challenging prospect in the current political environment, US-China-Latin America trilateral cooperation would be of great benefit to the LAC region’s development. Existing institutional approaches leave gaps in pursuing SDGs, including unmet demand for infrastructure finance.

• DFI Collaboration
  • The relative newcomer status of Chinese investors and DFIs in the region has left them vulnerable to taking on high-risk projects and establishing inadequate oversight to prevent project-related environmental degradation and social conflict. Western multilateral development banks (MDBs) and LAC countries’ NDBs can complement Chinese DFIs’ size and flexibility with their own local experience, access, and technical abilities.
• Security Cooperation
  • Security forces in the region rarely have the language skills or networks of contacts needed to combat emerging and growing human trafficking, drugs, contraband goods, money laundering, and other security issues. Few have working-level technical contacts with counterpart organizations in China to follow key leads, for example.
  • Collaboration between LAC and China on data sharing and for language support would be of benefit to both sides. Trilateral collaboration and information-sharing with the US would also be of likely benefit considering these networks also often touch upon US territory.
• Humanitarian Assistance
  • The cooperation efforts described above can be bolstered by, and in turn bolster, multilateral humanitarian efforts in public health in LAC. A rationale prevails for continued cooperation, including in the humanitarian space, to maintain critical lines of communication between the US and China, address humanitarian challenges in the region, and help to reduce suspicion that either country is seeking to advance a strictly unilateral agenda through such aid.

With China very much in the region to stay, LAC’s development outcomes are best supported by engagement from a range of partners and growing commitment from both regional governments and external actors to sustainable, long-term development initiatives. Collaboration will be increasingly critical as the China-LAC relationship continues to grow, which it is likely to do in the coming years in at least some important ways. Through trilateral cooperation, the US might also help to reduce tension with China at a moment of growing strategic rivalry between Washington and Beijing.