Category Archives: China-Latin America

Brazil’s Lula Aligns With Xi’s Vision Of The New Non-Alignment

BRAZIL PRESIDENT LUIZ INACIO LULA DA SILVA‘s visit to Beijing represents another brick, so to speak, in the construction of a new China-led non-aligned nations group, if that is not a contradiction in terms. 

To underline the point, Lula’s first speech during his two-day visit was at an inauguration ceremony for his political protege, former Brazilian President Dilma Rousseff, as head of the development bank for the BRICS (Brazil, Russia, India, China and South Africa), the Shanghai-based New Development Bank.

Later during his visit, Lula called on Brazil and China to work together to balance world geopolitics, pursue more bilateral trade denominated in each other’s currencies rather than the dollar, and cooperate on science and technology, clean energy and climate change. He and Xi Jinping also proposed a peace club to negotiate an end to the Ukraine war. 

Lula’s visit follows that of French President Emanual Macron and European Commission President Ursula von der Leyen, which Xi also used to worry away at opening up whatever cracks he could find in Europe’s transatlantic relationship with Washington.

Xi can have no illusions that the EU would align with China against the United States anytime soon. However, Lula, like many leaders in the Global South, would be far more empathetic to Xi’s blandishments to move away from the West and towards Xi’s vision of a Global South-dominated international order, albeit led by China and united mainly by a shared antipathy to the United States. 

Brazil, or any other member of the Global South that aligns itself with China in that way, would be unlikely to end up as an equal partner, no matter how much Lula wants to establish a greater standing for Brazil on the world stage. It would also bring long-term risks of ending up as a commodities supplier to China and a tied market for China’s exports.

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US-China Relations Remain Stalemated Over Taiwan

TAIWANESE PRESIDENT TSAI ING-WEN‘s stop-overs in the United States en route to and from two of Taiwan’s few remaining diplomatic partners, Guatemala and Belize, are not her first. She lasted visited the United States in a similar way in 2019. 

The format allows Washington to claim that visits by senior Taiwanese leaders are ‘transits’, not official visits. This pretext has become increasingly endangered as Beijing has peeled away Taiwan’s Caribbean and Central American allies. Last month, Taiwan lost Honduras when Tegucigalpa switched its diplomatic recognition to Beijing.

This trip has inevitably gained the ire of Beijing, especially Tsai’s forthcoming meeting at the Ronald Reagan Presidential Library, just outside Los Angeles, with US House Speaker Kevin McCarthy and some 20 other US lawmakers, now confirmed for April 5, which it described as another provocation against which it would hit back. 

After McCarthy’s predecessor Nancy Pelosi visited Taiwan last August, China launched its most extensive live-fire military exercises encircling Taiwan. Taiwan officials say that more than a dozen Chinese aircraft have crossed the midway mark of the Taiwan Strait since the start of Tsai’s trip.

McCarthy had considered making a similar trip to Pelosi’s. However, a California meeting was decided on as a less inflammatory alternative, with bilateral relations having sunk to a new low following the downing of alleged Chinese spy balloons in February.

However, Xu Xueyuan, charge d’affaires at the Washington embassy, said the United States risked ‘serious confrontation’ regardless of where US officials meet Taiwanese leaders.

In next year’s elections, Taiwan’s voters will have to choose between holding fast to the ties to the United States that Tsai’s Democratic Progressive Party has promoted or re-embracing the Beijing-friendly stance of the Kuomintang, the party of former President Ma Ying-jeou who recently made an unprecedented 12-day trip to the mainland, ostensibly to visit his ancestral family hometown, but during which he unofficially met Chinese officials.

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    A Chinese Kick For Brazilian Sport

    China knows how to build for and stage major international sporting events. The Beijing Olympics in 2008 was a success on both scores in anyone’s book. 2016 Olympics host, Rio de Janeiro, is to benefit from that expertise, as is football’s 2014 FIFA World Cup, also to be held in Brazil. Among the welter of bilateral agreements signed during Brazilian president Dilma Rousseff’s state visit to China this week is a cooperation and investment agreement for Chinese assistance at the two events.

    Though details are scanty, FIFA will be relieved; it has been fretting that Brazil is running behind in developing the stadiums and other infrastructure for its tournament. A little Chinese civil engineering expertise should get the projects back on track. And for China, the goodwill that should generate with FIFA and a little up-close look at World Cup preparations shouldn’t go amiss as its own football association nurtures dreams of bidding for the World Cup in 2026.


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    BRICSHouse Five

    The BRICS summit being held in Sanya on Hainan Island on Thursday will probably be presented as a united front of the leading emerging economies. The clarion call will be for strengthened cooperation and coordination between the quintet (South Africa makes five) over global issues such as trade, financial regulation and microeconomic policy, and the environment and climate change.

    Yet there are plenty of underlying tensions between the members. China’s relations with Brazil are a case in point. Brazil’s new president, Dilma Rousseff, is making a concomitant state visit. Behind the headline trade deals (China is Brazil’s leading trade partner, with a small surplus in Brazil’s favor), she will be expressing concerns heard increasingly at home that Chinese manufacturing exports to Brazil are de-industrializing the Brazilian economy, while Brazilian exports to China are over concentrated in commodities. (State media are making a big counterpoint of the fact that China is buying Brazilian aircraft as part of the trade deals.)

    Certainly the strength of the real, exacerbated by Brazil’s commodity exports to China, makes Chinese exports even cheaper in competition with domestic products. Rousseff will have been pressing Beijing to press ahead more vigorously with letting the yuan appreciate. People who live in bricshouses can still throw stones.

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    China’s Rail Building In Colombia Looks East And North

    The long-term significance of the proposed rail link between the Atlantic and Pacific Oceans that the Financial Times reports China is in talks with Colombia to build and finance may not lie so much in exporting Colombian coal but Venezuelan oil, and providing Chinese exporters a new route to U.S. east coast ports.

    The so-called dry alternative to the Panama Canal is one of several transport projects the Chinese and the Colombians are investigating. Most advanced, according to the FT report, is a 791 kilometers railway and expansion of the Pacific port of Buenaventura. The $7.6 billion project, funded by the Chinese Development Bank and operated by China Railway Group, would be capable of carrying up to 40 million tonnes of cargo a year, both outbound Colombian natural resources and inbound Chinese semi-manufacturers. Should Washington ever ratify a long-stalled free-trade agreement with Bogota, Colombia would become an important access point for exports to the U.S. market.

    At the same time China is already buying oil from Venezuela to the east. China National Petroleum Corp. last year struck deals with PDVSA, Venezuela’s national oil company, to develop the Orinoco Belt oil field which extends from northern Venezuela out into the Atlantic and to explore for oil in southern Venezuela. The eventual output from both will need transporting to Pacific ports for transshipment to Asian markets. Colombia’s will be closest and potentially best connected thanks to the proposed rail lines. “Colombia has a very important strategic position, and we view the country as a port to the rest of Latin America,” Gao Zhengyue, China’s ambassador to Colombia, told the FT.

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    Where China Put Its Big Bucks In 2010: Down South America Way

    South America dominates the list of the biggest overseas acquisitions by Chinese companies this year. The two biggest to date: Sinopec’s $7 billion purchase of 40% of the Brazil assets of the Spanish energy group, Repsol; and the $5.6 billion CNOOC is spending in two phases for 50% of Bridas Corp., the investment vehicle of the Argentine vertically integrated energy group, Bridas. Bridas Corp.’s primary asset is Pan-American Energy (PAE). The partners are buying out BP’s 60% stake in PAE as BP raises cash to put in a piggy bank for any obligations arising out of the Deepwater Horizon accident, turning what looked in March like an iffy investment by CNOOC into something much more promising by the end of November.

    Sinopec has since also picked up the U.S. oil company Occidental’s production and development assets in Argentina for $2.5 billion, the fourth biggest overseas investment by a Chinese company this year. The third biggest was Sinochem’s $3.1 billion purchase of a 40% stake in Statoil’s Peregrino subsalt field off the Brazilian coast. Add in a couple of smaller deals in Venezuela and Chinese firms have secured this year stakes in six projects that will eventually be producing upwards of 570,000 barrels of oil a day.

    China’s state oil companies have long had a toe-hold in the region, but this year represents a big step forward, including diversifying China’s energy dependence on Venezuela. These deals have not only secured future oil supplies, they are also piecing together a vertical supply chain that includes refining, trading and storage — and further downstream power generation and distribution. State Grid, the world’s largest power utility and another state-owned behemoth, spent nearly $1 billion to acquire seven power distributors in Brazil as part of a deal it has won to be operate the power distribution system in densely populated southeastern Brazil.

    Taken together those seven acquisitions would make a list of the ten largest overseas acquisitions by Chinese companies in 2010. As well as securing energy supplies for China’s own fast growing economy, Chinese companies will be well positioned to profit from the domestic growth of the emerging economies of South America.

    In comparison the other big overseas acquisitions of the year seem small beer. PetroChina spent $1.6 billion to acquire Arrow, an Australian coal seam and power distribution company, in a joint bid with Royal Dutch Shell valued at $3.2 billion overall. Chinalco spent $1.3 billion to buy 45% of Rio Tinto’s Simandou iron ore business in Guinea through its Chalco subsidiary. China Huaneng Group, the country’s largest electricity producer, paid $1.2 billion for GMR Infrastructure’s 50% stake in InterGen, a U.S.-based utility that runs power plants in Britain, the Netherlands, Mexico, Australia and the Philippines.

    The biggest industrial foreign acquisition was Geely’s $1.8 billion acquisition of Volvo from Ford Motor, the largest piece of business done by a company not state owned. The next largest industrial acquisition was the purchase of Nexteer, a parts-maker bought from GM by Pacific Century Motors, a joint venture between Tempo Group and the investment arm of the Beijing municipal government, a deal valued at less than $500 million.

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    CNOOC Extends China’s South America Reach

    BP’s $7 billion sale at the end of last month of its 60% stake Pan American Energy to its partner Bridas which owns the other 40%, means CNOOC ends up with 50% of the oil and gas company that operates mainly in Argentina — and China takes another large step in the acquisition of energy interests in the region.

    Since March, when CNOOC, China’s third-largest oil company, bought into Bridas for $3.1 billion, Bridas has been a 50-50 joint venture between the state-owned company and the Argentine owners of Bridas Corp., the well-connected Bulgheroni family who run a vertically integrated energy group that is the second-largest oil and gas producer in the country and have business connections to Central Asia.

    BP may have been a forced seller, given its need to fill a war chest for any  obligations arising from the Deepwater Horizon disaster in the Gulf of Mexico; CNOOC either got a fine price this time or overpaid for its stake last March.

    In the short term, CNOOC’s investment, which represents China’s second largest overseas M&A deal of the year, may give it access to the local market but long term the focus will be on exports. The question is how that will fit with the Argentine government’s policy to favor the domestic market over exports.

    Update: State Grid, the world’s largest power utility, is buying seven Brazilian power distributors in a $1 billion deal. It has also won a 30-year concession to operate the power distribution system in densely populated southeastern Brazil — further evidence that Chinese companies see good business in the growth prospects of South America’s largest economies.

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    China’s Roll-Up Of The World’s Oil Rolls On

    Sinopec is buying 40% of the Brazilian subsidiary of Spanish oil company Repsol for $7.1 billion, a deal that provides Repsol with funding to develop its vast offshore Brazilian fields and Sinopec, China’s largest oil refiner, with more guaranteed access to crude supplies via what is one of Latin America’s largest foreign-controlled energy companies. (Repsol’s announcement.)

    This is Sinopec’s second large deal. It bought Swiss-based Addax Petroleum for $7.2 billion last year, the most expensive oil company acquisition by a Chinese firm to date. This latest deal takes the total foreign investment spending by China’s three big state-owned oil companies to some $36 billion since the beginning of last year — and that excludes $77 billion-worth of long-term oil-for-loans deals struck with a number of countries such as Russia (and including Brazil) and $18 billion in committed investment in Iraq and Iran’s oil fields.

    As those numbers suggest, taking equity stakes in an operating company is a growing part of the strategy for the Chinese oil majors to secure oil supplies, as opposed to cutting long-term supply deals, as Sinopec has previously done with the Brazilian state oil company, Petrobras, or buying stakes in oil fields, again has Chinese oil companies have been doing in the waters on both the Latin American and African sides of the South Atlantic.

    Brazil’s offshore fields are particularly challenging to exploit. They lie not only in deep water but also below a thick layer of salt (see diagram, left; the units are in meters; it is a snapshot from a fuller explanation by Repsol here). Deals like Sinopec’s with Repsol offer the opportunity for China’s oil companies to get that sort of technical operating experience. As China continues to scour the world to secure the energy supplies it will need to fuel its development, its oil companies are only going to have to look in places where the crude is ever more difficult to extract.

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    China And Argentina Still Stuck Over Soy

    A country as vast as Argentina is ripe for high-speed rail travel and indeed intercity rail services are undergoing something of a revival there after years of underinvestment. That makes it a ripe export market for China’s burgeoning rail engineering industry.

    Argentina look set to buy some $10 billion of Chinese trains and associated rail equipment for both passenger and freight services. China Development Bank is providing a ten-year 273 million dollar loan to be used to buy Chinese high-speed trains from China Northern Locomotive & Rolling Stock Industry.

    It was one of a bunch of deals signed during Argentine President Cristina Fernandez de Kirchner’s just concluded visit at the head of a large trade delegation. It may turn out to be one of the main achievements. Little progress was made on the biggest issue between the two countries, China’s restrictions on the import of Argentine soya products imposed in April on the grounds that chemical residues had been found in some shipments of soya oil, although the action may just be retaliation for Argentine efforts to block imports of Chinese products on anti-dumping grounds and for the President’s last minute cancellation of a state visit to Beijing in January.

    China spends some $2 billion a year buying  more than two-thirds of Argentina’s soya exports and is the South American country’s third largest trading partner. Suspension of the trade is serious for Buenos Aires which is relying on a rebound in agricultural sales to spur economic recovery and generate the export taxes needed to get its public finances back in some sort of order. A bilateral commission is to be set up to resolve trade differences, but details remain sketchy.

    On his trip to South America in April, President Hu Jintao skipped Argentina between stops in neighbors Brazil and Chile. If the two countries can sort out their trade spat, the next time a Chinese president makes a similar journey he might well be able not just to visit Argentina but to do so in a Chinese built train.

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    China’s Cloudy Investment In Chavez’s Grandiose Vision

    Details of the newly struck oil deal with Venezuela remain murky. We don’t know much beyond the fact that there will be $16 billion of Chinese investment over three years to boost production from the Orinoco River basin by 450,000 barrels a day, probably from developing a new field as was the case with a similar recent $20 billion deal with Russia, also intended to add an extra 450,000 b/d. Fuller details are expected next month following talks between Chinese and Venezuelan oil officials.

    China National Petroleum Corp. has a previous oil-for-investment deal with Caracas, but we understand the new deal to be separate from that, though CNPC, which also has rights to bid on the undeveloped Carabobo blocks in the Orinoco basin, is the likely company involved in the new deal. It is part of Venezuelan President Hugo Chavez’s attempt to wean the oil industry that bankrolls much of his political power off its dependence on U.S. investment (Exxon Mobil and ConocoPhillips getting the boot) and establish Venezuela as a self-styled energy giant in Chavez’s idiosyncratic vision of a multi-polar world.

    The new deal would be the eighth and seemingly largest acquisition of overseas oil and gas assets this year by China’s state-owned companies. CNPC said recently that the first seven had a total value of 82 billion yuan ($12 billion),  80% up on the same period a year earlier. China Daily reported earlier this month that the company has taken a $30 billion loan from China Development Bank to finance overseas acquisitions.

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