Belt and Road a Natural Extension to Latin America
Infrastructure is a bottleneck for growth in a region which Chinese investment and expertise can clear
Jorge E. Malena
Jorge E. Malena is the director and senior lecturer of Contemporary China Studies (Universidad del Salvador—Buenos Aires, Argentina) and he is the director of China Working Group (Argentine Council for International Relations).
The 19th National Congress of the Chinese Communist Party confirmed that the People’s Republic of China will further push forward on the path of reform and opening-up, following the guidance laid by Deng Xiaoping in December 1978.
Accordingly, the Chinese leadership continues to implement two major policies announced in the late 1990s and 2013 respectively: the “going out” strategy and the Belt and Road Initiative(BRI).
China has been a strategic partner for the Latin American and Caribbean region (LAC), as revealed by the unceasing efforts made by both parties and China’s policy papers on LAC published in 2008 and 2016, the free trade agreements with Chile,Peru and Costa Rica, the creation of the CELAC-China Forum and the Cooperation Plan 2015—2019, and the numerous bilateral visits by top leaders aimed at bolstering the mutual commitment to reinforce cooperation.
China’s existing overproduction capacity and financial surplus meet Latin American needs for industrial specialization and moving up the value chain. In Latin America, infrastructure construction needs to be upgraded; therefore, connectivity is one of the five priorities for the Community of Latin American and Caribbean States (CELAC, its acronym in Spanish). Against this backdrop, the Integration of the Regional Infrastructure of South America (IIRSA, its acronym in Spanish), has experienced noteworthy development and therefore offers the potential for benefiting from the BRI’s extension to LAC.
Improving infrastructure integration is one of the crucial preconditions for developing countries to join in the process of economic globalization and make developmental gains. Challenged with huge demand for investment, most developing countries do not have enough domestic savings, and government and private funding are also limited. While multilateral financial institutions have made substantial contributions, they are far from meeting demand.
As was affirmed by Santiago Levy Algazi, vice-president of the Inter-American Development Bank: “Whether it is integration into the global production chain, or realization of inclusive growth and development in urban and rural integration, developing countries would need a lot of investment in infrastructure.”
Since the beginning of the 21st century, China has become a leading trading partner for LAC. Whereas in 2000 just 1 percent of regional exports were sent to China and 2 percent of imports came from there, in 2017 these figures had risen to 16 percent and 18 percent, respectively. In particular, China is already the top or second-biggest destination for exports from several South American countries, and it is one of the three top providers of imports for nearly all of them.
Moreover, since 2010 China has become a key foreign investor in the region — reaching a historical peak that year with around$14 billion (equivalent to 11 percent of the total FDI received by the region in 2010) — and an important source of credit for several countries. Furthermore, under the CELAC-China Cooperation Plan, both parties expect to increase trade to $500 billion and reciprocal direct investment to $250 billion by 2025.
In the Communiqué of Brasilia, issued on September 1, 2000,heads of state from 12 South American countries proposed the Plan of Action for the IIRSA. In December the same year, ministers of these 12 countries who were in charge of transport,energy, and communications held a ministerial meeting in Montevideo, Uruguay’s capital city, formally putting forward the Initiative for the IIRSA and its 2000—2010 Action Plan.
On December 4, 2014, the South American Infrastructure and Planning Council (COSIPLAN in Spanish) of UNASUR held its annual ministerial meeting in Montevideo to discuss the work summary 2014 of the IIRSA and to approve the 2015 Work Plan. According to the Work Summary 2014, the IIRSA confirmed 579 Integration Priority Projects. The total investment amounts to $163.3 billion, involving three major sectors in transport, energy and communications.
In 2008, the Chinese government recommended “jointly building a comprehensive partnership in the new era” and published the China’s Policy Paper on LAC, the first policy document formulated by the country for the region. Almost 10 years after the publication of this landmark document, innovation in bilateral cooperation between China and Latin America calls for infrastructure construction and interconnectivity.(https://www.daowen.com)
According to available information, infrastructure investment by sector in Latin America in 2012 was only 3.49 percent (as a percentage of GDP). To close the gap between supply and demand,the countries of the region should invest 6.2 percent of their annual GDP between 2012 and 2020 — some $320 billion. According to the UN’s Economic Commission for Latin America and the Caribbean, or ECLAC, investment in transport, energy,telecommunications, water and sanitation works will contribute to increasing the coverage and quality of infrastructure services and increase the general welfare of the population.
According to Corporación Andina de Fomento, logistics costs in LAC range from 18 percent to 35 percent of the final value of the products, compared to 8 percent in OECD countries. For small and medium-sized enterprises, this figure can exceed 40 percent. If all countries in the region would improve their infrastructure to the average level of other middle-income countries,regional growth in Latin America would increase by an average of 2 percentage points a year.
The First Ministerial Meeting of the China-CELAC Forum, held in Beijing in January 2015, approved the China-Latin American and Caribbean Countries Cooperation Plan (2015—2019). Its chapter IV part (Infrastructure and Transportation) made clear that China and Latin American countries would promote infrastructure development in areas such as transportation, ports,roads and warehouse facilities.
In March 2015, China published Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road. Although the document, which indicated that“the Belt and Road runs through the continents of Asia, Europe and Africa”, did not include the Latin America, improving infrastructure integration worldwide was indeed its rationale. In May 2015, Premier Li Keqiang proposed the “3x3” model for capacity cooperation between China and Latin American countries during his visit to the continent. The first “3” is to jointly build logistics, electricity and information in Latin America, while the other “3” accounts for the means to achieve such goals (trade,investment and financial cooperation).
When Chinese President Xi Jinping began a state visit to Peru in November 2016 after the conclusion of the APEC Economic Leaders’ Meeting in the Peruvian capital of Lima, he stressed that the BRI is an open initiative and that China is looking to bringing its international trade and infrastructure initiative to LAC. He said China “welcomes all countries along the route in Asia, as well as our friends and partners around the world to take part in these endeavors”.
When President Xi ended his third visit to Latin America in November 2016, China issued a second policy paper on Latin America and the Caribbean. The document put forward 39 cooperative concepts in eight major areas: politics, trade, society,culture, international collaboration, peace, security, judiciary,overall cooperation and tripartite cooperation, many of which were new areas.
On May 14, 2017, on the occasion of the Belt and Road Forum for International Cooperation, Chilean President Michelle Bachelet expressed her view on BRI’s complementarity with Latin American infrastructure projects. She added that, “fortunately, in areas like infrastructure, connectivity and sustainable development, there are clear openings for more cooperation at the regional and global levels. We see the the initiative as key in this process, as it promotes regional trade agreements and improves connectivity in Asian countries, Europe and Africa, but also in Latin America. Chile welcomes the great effort led by China to search for new mechanisms to bring us closer together,in connectivity, innovation and sustainable development. The breadth of BRI, the high level of participation and its strategic dimensions, highlight its capacity to become the biggest economic cooperation project in place today”.
Bachelet added that, “there is also a need to broaden our infrastructure and build ports, airports, pipelines and digital bridges,as well as to collaborate in the areas of energy, finance, science and technology and R＆D. We know that our participation in the Asian Infrastructure Investment Bank (AIIB) will also contribute to accomplishing these tasks. We believe that the AIIB will find excellent partners in our region, such as the Inter-American Development Bank (IADB) or the Development Bank for Latin America, entities that today finance many infrastructure projects. We are convinced that this is the right time to seek new horizons that will allow us to strengthen the role of our countries in global value chains, a central part of the world economy in the next decades”.
Similarly, on May 15, 2017, Argentina’s President Mauricio Macri said that the possibility of South America converging with the BRI “is an opportunity we do not want to miss”. Macri formulated these concepts by presenting the topic “Synergy Policy for a Closer Association” with other leaders in the Yanqi Lake International Conference Center at Beijing.
In this regard, he said that there is complementarity with the initiative presented by the President Xi to create “an architecture of open, inclusive and balanced global economic cooperation that benefits everyone and contributes to boost our own objectives of poverty reduction and creation of economic opportunities through the development of logistics, energy and productive infrastructure”. Macri said, “We seek to achieve greater and more sustainable physical integration”. And he also remarked, “We are interested in BRI being articulated with IIRSA to promote between our regions the key to the 21st century: connectivity.”
Finally, on September 17, 2017, Chinese Foreign Minister Wang Yi met the press in Panama City with Vice-President and Foreign Minister Isabel Saint Malo de Alvarado of Panama, and stated that LAC “is the natural extension of the 21st Century Maritime Silk Road, and the Belt and Road Initiative has become a new opportunity for current China-Latin America cooperation”.
From 2016 to 2020, the expected average growth per year of China’s import of agricultural products, minerals and crude oil from Latin America are 3.8 percent, 5.8 percent and 6.1 percent respectively; from 2021 to 2030, they are expected to be 2.0 percent, 2.8 percent and 2.7 percent.
One of the bottlenecks that deter economic growth in Latin America is its insufficient infrastructure; therefore, inadequate infrastructure in the region is critically hindering its trade with China.
After 40 years of successful reform and opening-up, China’s present phase of development shows the country has comparative advantages in conventional manufacturing and construction,and enjoys huge national savings and foreign exchange reserves.The BRI serves as an “integral part of China’s new strategy to further opening up to the world in all fronts, prominently demonstrating a clear trend of more emphasis put on developing together with multitude of developing countries”. Accordingly,the BRI is a paramount chance for enhancing LAC’s connectivity and strengthen its foundations for development.