China’s interest in Latin America has grown significantly in recent years. The country is now the continent´s second largest trading partner after the United States. Rebecca Bertram examines the reasons for this rapprochement and what it means for Latin America’s energy sector.
China’s economic involvement in Latin America has grown significantly in recent years. Since the early 2000’s, China’s state enterprises have invested heavily in Latin America‘s energy and infrastructure sector. The country is now the number one trading partner to South America, and the second biggest trading partner to Latin America. As a result, China has fast expanded its diplomatic, cultural and military presence in the region.
At first glance, China’s growing interest in the Latin American region can be explained by pure geopolitics. China’s push for the acceptance of its one-China principle around the world, where Taiwan forms an integral part of the People’s Republic of China, is being felt across Latin America. China’s investments in emerging economies‘ basic energy and trade infrastructures have proved an effective way to get countries to drop diplomatic relations with Taiwan. Since 2016 alone, five Latin American countries have cut ties with Taiwan following increased pressure from China, leaving only seven countries in the continent with diplomatic relations with Taiwan.
Economic ties between China and Latin America are vast. Trade has traditionally involved Latin America exporting copper, petroleum, and other raw materials that China needs to drive its own industrial development at home. In return, Latin America has imported mostly higher-value-added manufactured products; a trade some critics claim has undercut local industries with cheaper Chinese goods. In recent years, China has considerably increased its foreign direct investment (FDI) in the region, which accounted to about USD 12 billion in 2022, representing about 9 percent of the region’s total FDI. Venezuela and Brazil are the region’s biggest borrowers of Chinese money, owing around USD 60 billion and USD 30 billion respectively. China’s economic power in the region is further manifested by its voting power in the Inter-American Development as well as the Caribbean Development Bank.
China’s biggest interest in the Latin American energy sector lies in the area of extractive industries. This has included investments in refineries and processing plants in countries that hold substantial reserves of coal, copper, natural gas, oil and uranium. More recently, China has been increasingly investing in lithium extraction in the so-called Lithium Triangle between Argentina, Bolivia and Chile. Since China is the world’s biggest manufacturer of electric vehicles, producing around 60 percent of electric vehicles globally, its demand for lithium used in the batteries of electric vehicles is immense. Yet countries are beginning to counter Chinese massive strategic investments. Earlier this year, Chile, for example, announced a national lithium strategy aiming at maintaining partial control of its national lithium reserves.
China is also an important owner and operator of key energy infrastructure across Latin America. This is particularly evident in Brazil, where Chinese companies own more than 300 power plants, and half of São Paulo’s hydropower generation capacity, which equals about 10 percent of Brazil’s total energy generation capacity. Moreover, in Chile, the State Grid Corporation of China owns more than half of the country’s regulated energy distribution.
While China is aggressively pursuing its own interest in Latin America’s extractive und energy industries, it has also been instrumental in pushing the wind and solar boom across the continent. Around 90 percent of all installed wind and solar come from Chinese manufactured technology. Furthermore, China’s Development Bank has been instrumental in funding major solar and wind projects in the region, such as Latin America’s biggest solar plant Cauchari in Argentina and the Punta Sierra wind farm in Chile.
Overall, Chinese investments in the energy sector have been largely welcomed by Latin American countries, where inadequate energy infrastructure has long harmed economic competitiveness. The realisation that an improved grid infrastructure is necessary to incorporate a growing amount of renewable energies leaves little room for open political debate. Yet some criticism is beginning to form around Chinese energy and extractive industry practices across the continent.
The biggest complaint against Chinese involvement in the Latin American energy sector is its neo-colonial dominance that maintains current strategic dependencies. Foreign control of strategic energy infrastructure and resources is always an immediate security risk. China’s interest in Latin America’s vast raw materials have further undermined the region’s ability to turn away from environmentally damaging extractive industry practices. In fact, Latin America has relaxed a number of social and environmental regulations to attract Chinese investment in recent years. However, this is increasingly backfiring as local communities are beginning to uprise against Chinese companies that have the reputation of implementing lower overall environmental and social standards. For example, Peru’s Las Bambas copper mine, which is developed by Chinese company MMG, has seen repeated local unrests and has been forced to close operations on numerous occasions as a result.
China’s strong influence and interest in the Latin American energy sector is undeniable. Investments flow mainly into energy infrastructure, raw material extraction and renewable energies. For many years, Latin America was predominantly a source for energy commodities for China. Yet over the past years, Latin American countries have become more aware of the critical implications of heavy Chinese involvement in its energy sector and are increasingly trying to secure resources for their own clean energy futures. Given China’s steady interest in the region and sector, Latin American power to bargain increases as a result. It’s time for these countries to vocalize their concern and call for a more even playing field in their dealings with China.