Baptized “Mad Maria”, the Madeira-Mamoré railway would have cost, with only a few exaggerations, a life for each cross placed. Built for booming rubber exports, the 367 km (228 mile) line from Porto Velho in the heart of the Brazilian Amazon to the Bolivian border was obsolete by new Asian plantations almost before it opened in 1912.
A century later, a much longer railroad project across the Amazon, from the Atlantic coast of Brazil to Peru, is part of a slew of infrastructure projects that China is proposing to fund in Latin America. Chinese Premier Li Keqiang signed an agreement for a feasibility study of the railway during an eight-day trip through South America that began on May 18 in Brazil and will take it to Colombia, in Peru and Chile.
Mr. Li came armed with investment projects and loans that could total up to $ 103 billion in Brazil alone (see article). Its destinations and plans both indicate a maturing of China’s relations with Latin America. This has seen an explosive growth in trade, as China engulfed Latin America’s minerals, oil and soybeans while exporting its manufactured goods.
Today, economies are slowing on both sides of the Pacific. China’s slowdown has caused a sharp drop in commodity prices, and therefore in the value of Latin America’s exports. Brazil’s exports to China fell by a third in the first quarter of this year compared to the same period in 2014.
But Chinese investments and loans are expected to continue to grow. In January, President Xi Jinping said Chinese companies would aim to invest $ 250 billion in Latin America over the next ten years, up from a previous total stock of $ 99 billion. While early Chinese investments were almost entirely in oil, gas and mining, they are spreading to more businesses and industries, including food and agriculture, manufacturing, and most importantly, infrastructure. .
The same goes for Chinese loans. The $ 22 billion loaned last year exceeded credits from traditional multilateral development banks, according to China-Latin America Economic Bulletin, published by Boston University. Aside from Brazil, the money mostly went to Venezuela, Ecuador, and Argentina, where it helped support left-wing governments. Mr. Li’s trip suggests a new interest in the Pacific Alliance trade-oriented countries.
Many Latin American governments have adopted the Chinese dragon as a welcome alternative to the United States and to conditions imposed by the IMF and the World Bank. For a region with huge infrastructure gaps, China’s investment, like its trade, is potentially a godsend. But both have pitfalls.
One obvious is the sweetheart offers. Last year, Cristina Fernández de Kirchner, President of Argentina, negotiated a currency swap with China, as an alternative to settling her dispute with the holders of foreign bonds. The price is high: the money is tied to 15 infrastructure contracts in which Chinese companies face no competition.
More broadly, China has made it possible to strengthen Latin America’s specialization in raw materials. This may not be the path to sustained growth. In a report released this week, the World Bank finds that the increase in Latin America’s trade and investment with countries in the “South” (i.e. the emerging world) has been associated with a decline in trade and investment. boost to growth and productivity than the equivalents of the “North” “(ie the developed world).
China’s interest in developing Latin America’s infrastructure is not altruistic. It wants to lower the transport costs of its imports, such as soybeans from the state of Mato Grosso. Its railways and other infrastructure have spare capacity as consumption replaces investment as the main source of Chinese growth.
Due to the concentration of raw materials, Chinese trade and investment in Latin America has been “a major driver of environmental degradation,” according to the Boston University team. The transcontinental railroad is a new concern. The Peruvian authorities favor a northern route through virgin forests rich in biodiversity. Environmentalists prefer a southern route, to Matarani, next to a new road connecting Brazil to Peru opened in 2012. But like Mad Maria, traffic along this highway has been lower than expected.
It would be wrong to blame China for these risks. Most of its businesses in the region have a reasonable history of environmental compliance. Rather, it is up to Latin America to become as effective as its new partner in defending its interests in the relationship. These interests include the protection of the environment and the avoidance of unilateral agreements concluded for short-term political reasons.
This article appeared in the Americas section of the print edition under the title “The Chinese Checkbook”