Chinese Finance in Latin America: What Happened in 2013?

By Paul Shortell
April 7, 2014

On Monday, April 7, the Inter-American Dialogue hosted a discussion of Chinese finance to Latin America in 2013. The event coincided with the launch of an updated version of the Dialogue's China and Latin America Finance Database, a source for online, up-to-date information on Chinese finance in Latin America and the Caribbean. The database is produced by the Inter-American Dialogue in collaboration with Global Economic Governance Initiative (GEGI) at Boston University.

Kevin Gallagher, associate professor of international relations at Boston University, opened the session with an assessment of key trends in Chinese finance to Latin America governments and firms. Between 2005 and the end of 2013, total financing from China amounted to $102.2 billion.

Chinese finance surged last year, from less than 5 billion in 2012 to $20.1 billion in 2013. Most of these funds come from two major ‘policy banks,’ the China Development Bank (CDB) and China Export-Import Bank (CHEXIM). Major recipients last year included Venezuela, Argentina and Ecuador, which together account for more than 70 percent of total Chinese financing in the region since 2005. Chinese capital represents a disproportionate amount of total external financing for these and other Latin American governments with poor credit ratings, such as Caribbean nations like Jamaica.

As in previous years, the majority of Chinese finance to Latin America in 2013 was concentrated in the infrastructure and energy sectors. Gallagher noted that this trend reflects the broader pattern of Chinese engagement in the region. Over 86 percent of the region’s exports to China are primary goods, and most greenfield investment by Chinese firms is concentrated in mining, infrastructure, energy and agricultural sectors.

Roughly half of Chinese financing to Latin America comes in the form of commodity-backed loans, arrangements where finance is repaid in specified quantities of primary goods over a given period of time. Unlike Chinese lending in Africa, where Chinese lending has been reciprocated by exports of diverse commodities including coffee and diamonds, resource-backed loans to Latin America are exclusively tied to oil shipments. China Export-Import Bank also extended a billion dollar loan to Mexico’s state-owned energy company (Pemex) for the first time in 2013, though this agreement was not linked to petroleum export.

Margaret Myers, program director for China and Latin America at the Inter-American Dialogue, joined Gallagher to provide an outlook for China’s broader economic engagement in 2014 and beyond. Myers observed that structural changes to China’s economy have raised concern about a serious slow-down of Chinese growth and outward investment, but noted that China’s continued focus on urbanization will drive demand for Latin American commodities in the foreseeable future. She also noted that recent changes in Chinese agricultural policies could increase demand for agricultural exports by Latin American soy producers like Argentina and Brazil.

Myers and Gallagher concluded that Chinese finance will continue to play a significant role in the region, but that more must be done for Latin America to maximize the benefits of these investments. Despite the increasing professionalization of Chinese firms, tensions persist between Chinese investors and Latin American governments in several countries over environmental issues, labor concerns and the economic benefits of Chinese projects. Low productivity growth is yet another concern for Latin American policymakers.