While Latin Americans consider China as a business ally, the soft power of India is more appealing in the region

Over the years, China has made all possible efforts to become the most important ally of Latin America. China has made investments in the development of regional infrastructures such as ports, roads, dams and railways. There is no denying the fact that China seems to be receiving dividends in terms of political returns from the investment made.

Latin America and the Caribbean (LAC) and China relations have grown exponentially after China became part of WTO (2001) and is currently the region’s top trading partner. The demographic association began towards the second half of the nineteenth century when the Chinese arrived to fill in the vacuum created by declining African plantation workers in Cuba and Peru in the wake of the abolition of slavery. Thereafter, a proliferation of the Chinese community, mostly wealthy merchants with flourishing businesses or professionals, in countries with enormous potential in industrial and agricultural sectors became the trend.

The established interaction from the mid-20th century to 2000 has been a period of consolidating the development agenda. In the 1990s, taking advantage of market-driven regional groupings like Mercosur, comparable companies across countries partnered to become powerful conglomerates, the multi-latinas which have become the drivers of the LAC-China integration. This phase witnessed a state-to-state relationship where Chinese state-owned companies bought natural resources—primarily energy resources. With the turn of the millennium, the state-owned banks generously provided easy loans to LAC governments for infrastructure development, social spending or even budgetary support. Through the global financial crisis of 2008, China lifted LAC through loans and investment with the ulterior motive of ensuring affordable and steady suppliers of natural resources, simultaneously gaining access to LAC markets for Chinese goods and services. Connectivity, an offshoot of the first CELAC-China Forum meeting, has been the fulcrum of the ongoing phase of the relationship since 2015. Nineteen governments across LAC have joined the Belt and Road Initiative (BRI) of China that would create hubs of energy, production, technology and finance all across Europe and Eurasia. The Digital Silk Road (Huwaei, Alibaba and ZTE) would help LAC companies develop 5G and other artificial intelligence technologies.

The discernible modes of Chinese engagements in LAC are through direct investment and institutional lending by China Development Bank and China Exim Bank towards infrastructure funding and for meeting the developmental needs of governments. China has become a stakeholder in the hemispheric banks like the Caribbean Development Bank (1998) and Inter-American Development Bank (2009). The loans come with minimal conditionalities and ostensibly give LAC governments plenty of tractability in spending without mandating alterations in the development models.

Furthermore, the China-LAC relations have a spatial peculiarity of being bilateral, regional or multilateral. Besides bilateral ties with countries, notably Brazil, Ecuador and Venezuela, China has signed free trade agreements with Chile (2006) and Peru (2010). Regionally, there are two patterns of association of China: the Mexican and Central American Model that is based on trade associated with export assembly (maquiladora) industries and export processing; and the South American Model which is capital-intensive associated with the processing of natural resources with low levels of domestic value-addition. Multilateral engagements of China have been evident in the CELAC-China Forum, membership of APEC, observer status in ALADI, as permanent Dialogue Partner in Mercosur and CARICOM.

For LAC, partnering with China can be seen as an opportunity to diversify from the traditional trade partners-the US or European nations. Chinese entry into LAC’s manufacturing sector, which is the former’s forte, can boost productivity and enhance competitiveness. The region through gaining access to the large domestic market of China can earn sizeable export revenue. Chinese investment could become a catalyst to Latin America’s infrastructure development.

Historically, the “periphery” as a supplier of raw material to the “core”, is optimistic of a quid pro quo relationship with China. From the Chinese position, enhanced LAC cooperation could mean tackling its energy and economic security interests. The Chinese seek out hitherto unexplored destinations for migration, possible expansion of BRI into LAC and gain geopolitical mileage by partnering in the Pacific-Atlantic trans-continental rail link. Other achievements have been accessing the US market through LAC, strengthening its position within WTO and attempting to gain diplomatic recognition for Beijing within the UN.

Interestingly, China’s presence in LAC has been guided by pragmatism and not by ideological motive. The changing nature of partnership amid the Covid-19 pandemic has opened up new vistas through Chinese medical aid that could build a new world order even while no new loans were granted to the region in 2020 reflecting recovery efforts of its economy. Apprehensions about China challenging the presence of the US are allayed because both of them have competence in different fields and engage with a different focus on countries.

The relations come with a fair degree of scepticism. Alicia Barcena, Executive Secretary of ECLAC is apprehensive that greater Chinese investment in high-technology sectors would entail a structural change in the region, ultimately leading to debt-trap diplomacy. The other unease is around the emergence of another variant of Import-Substitution Industrialisation through “reindustrialisation” of LAC and perhaps another “lost decade”.

The presence of both China with India in LAC becomes uneasy due to the regional rivalry and associated strategic considerations. The Chinese engagement with LAC can motivate India that barriers of language and distance are surmountable. The stronger linkages can be bolstered through South-South trade and cooperation. India is perceived as a more responsible economic partner that has more to offer than the trade in natural resources. The countries of LAC looking towards diversifying their markets from the US and now China can seek alternative sources of investment in India. Even though China has overwhelmed the region with sizeable investments, LAC governments are apprehensive about the dumping of goods that impacts indigenous industries, and the influx of immigrants who have inundated many countries. Indian companies which are purely business-oriented and employ local staff rather than bringing in their people are more acceptable. The presence of a large Indian Diaspora in the Caribbean can become the fulcrum of cooperation and assist in redesigning its strategy towards LAC. Admittedly, while Latin Americans consider China merely as a business ally, the soft power of India is more appealing in the region. India may be more acceptable than China on many counts. India needs to attempt leveraging its soft power diplomacy and promoting its interests by establishing educational and cultural centres as well as helping Latin American nations in tackling the current pandemic.