Latin America and the US/China Competition for Preeminence: An interview with Francisco Urdinez

Francisco Urdinez is an Associate Professor at the Political Science Institute of the Pontifical Catholic University of Chile and Director of the Millenium Nucleus of China’s Impacts in Latin America. He was a 2022-23 Fellow of the Wilson Center in Washington DC and was previously a Fellow of the Chilean Fund for Scientific and Technological Development. His research and CV be found at www.furdinez.com.

Q1. Please introduce yourself and tell us about your current interests.

I was born in a small Argentine city named General Roca, situated in the Patagonia region. My academic journey led me to study international relations, and it was around 2009 when I became deeply intrigued by the economic impact that China was exerting on Latin America. This fascination ignited a strong passion within me. Initially, I envisioned a career in international business, which led me to reside in Madison, Wisconsin. There, I worked for a software company before being relocated to São Paulo, Brazil. It was in São Paulo that I pursued my master’s degree in international studies, and I further delved into my specialization on the Chinese impact, this time focusing on the Brazilian soybean market.

As my studies progressed, I embarked on a Ph.D. program at the University of São Paulo, which I later completed at King’s College in London. Here, I crafted my thesis, shedding light on the rising competition between China and the United States within the Western Hemisphere. Since 2017, I live in Santiago, Chile, and work at the Pontifical Catholic University of Chile, one of the best private universities in Latin America. I am frequently recognized as a specialist in China, but my true area of expertise lies in Latin America. My keen focus revolves around utilizing quantitative methods to dissect international relations and power dynamics. Specifically, I’m devoted to comprehending, through these analytical tools, how Latin America has been shaped by China’s rise on both economic and political fronts.

I have a strong passion for traveling. Up until the age of 17, I hadn’t boarded a plane or ventured beyond Argentina. Traveling has opened my eyes to a world I had never even dreamed of.

Q2. How would you characterize the different approaches of China and the US to Latin America?

Throughout history, the United States has consistently regarded Latin America as falling within its sphere of influence, rejecting the involvement of external powers. However, the 21st century brought forth two simultaneous developments. Firstly, following the Cold War, the United States reduced its focus on Latin America, directing its foreign policy attention towards the Middle East and subsequently shifting towards Asia. In parallel, Latin American nations began to reject the US-led Washington Consensus. This shift created an opening that China was quick to exploit, forging stronger economic ties with countries in the region. This strategic move resulted in a significant degree of economic interdependence, establishing China as a key socioeconomic partner for many Latin American countries.

During the Trump administration, the United States acknowledged its waning influence, sparking discussions about the need to regain its standing through a new foreign policy approach. This trajectory has been continued by the Biden administration. In 2021, President Joe Biden’s foreign policy efforts included pushing back against China’s expanding influence in the region. This was evident in initiatives like the Build Back Better World (B3W) program and the Americas Partnership for Economic Prosperity (APEP), both of which were unveiled at the 2022 Summit of the Americas. This path of action naturally led to a clash with China, prompting the US to offer superior goods and economic prospects compared to what China had provided over the previous two decades. Initiatives such as the Americas Partnership for Economic Prosperity, put forth by the US, are essentially strategies aimed at countering China’s economic diplomacy.

Over the last two decades, China’s approach has been largely pragmatic. It has leveraged its state capitalism to create economic opportunities for its state-owned enterprises and financial institutions, while also enhancing its energy and food security through increased imports. China has actively sought political support to amplify its representation of the Global South within multilateral organizations. Concurrently, China has eroded the already fragile international recognition network of Taiwan, where Latin America plays a pivotal role. In recent years, various countries have shifted their diplomatic allegiances from Taiwan to China, including Panama in 2017, El Salvador and the Dominican Republic in 2018, Nicaragua in 2021, and most recently, Honduras in 2023.

The United States expresses concerns about the democratic progress of countries in the region, framing China’s rise as a choice between democracy and autocracy. On the other hand, China highlights its affinity with Latin America, presenting itself as a developing nation that understands the challenges of others on the development path. China draws a contrast with developed nations like the United States, emphasizing its alignment with those in the process of development. The strategies and policies formulated by both countries for the region diverge significantly in their fundamental approaches.

Q3. Would you agree that the US has failed to develop a credible or comprehensive response to China’s presence in Latin America?

I agree with this statement. The United States seemed either unaware or unwilling to heed Latin America’s appeals for a partnership that would prioritize economic opportunities, enabling regional economies to evolve beyond mere commodity exports. The US foreign policy towards the region primarily fixated on curbing concerns like drug trafficking and illegal immigration, alongside maintaining bilateral ties with key players such as Mexico and Cuba. Unfortunately, the majority of South American nations were largely sidelined and overlooked.

Interestingly, China’s initial entrance into the region was greeted with optimism by the United States, possibly due to the anticipation that China could bring forth economic advantages similar to those the US had once catalyzed in the area. Moreover, there was an expectation that China’s integration into the liberal international order might follow suit. Regrettably, hindsight reveals that this vision didn’t materialize. China’s trajectory hasn’t evolved towards greater liberalism over the past two decades, and Latin America’s reliance on commodity exports intensified. However, this time the focus shifted towards China rather than the United States. The outcome has led to a scenario where the United States’ influence in the region has eroded considerably.

A concrete example of this can be seen in the case of Ecuador. In mid-May, China signed its fourth free trade agreement (FTA) in Latin America after nearly a year of negotiations with Ecuador. China’s previous FTA in the region was with Costa Rica back in 2010. During an interview with Ecuador’s President Guillermo Lasso in January 2023, he was questioned about the country’s recent FTA negotiations with China and whether it was a response to the United States’ reduced presence in the region. President Lasso replied by expressing Ecuador’s interest in also establishing a free trade agreement with the U.S., but he acknowledged that the current political climate in the U.S. was not conducive to such an agreement, in line with President Biden’s stance.

Q4. Are trade relations between LatAm and China mutually beneficial or are they fostering dependency? Currently, they appear to strengthen the core-periphery trade pattern and reliance on external technologies, which could harm Latin America’s industrial and technological development in the long run.

One of the most striking empirical trends in China’s trade relationship with Latin America revolves around the process of deindustrialization and the region’s tendency to specialize in exporting a restricted range of primary goods. In essence, Latin America’s comparative advantage, as understood through Ricardian economics, has become more pronounced. This translates into a trade dynamic where countries predominantly export commodities like soy, iron, meat, fruits, and oil, while concurrently importing higher-value manufactured goods from China. Notably, the countries that have entered into free trade agreements with China, such as Chile and Peru, find themselves most heavily reliant on this trade relationship. To illustrate, a significant 38% of Chilean exports are directed towards China.

This evolving dynamic has yielded both winners and losers. Sectors that control the value chains associated with raw materials have experienced unparalleled growth. However, the distributive outcomes of this growth remain unclear; instead of fostering broader distribution, wealth has tended to concentrate, and geographical inequalities have intensified within these countries.

The resurgence of the lithium industry introduces a new dimension into the equation, sparking discussions about Latin America’s potential to leverage this boom for industrialization and the export of higher value-added goods. Nations like Chile and Bolivia, which possess significant lithium resources, are currently grappling with the challenge of formulating national industrialization strategies. However, these efforts face obstacles such as insufficient infrastructure, human resources, and the competitive edge necessary to successfully cultivate these industries. Current indications point to the possibility that the region might remain ensnared in what is often referred to as the “commodities curse.”

Q5. How successful has Wang Yi’s policy of people-to-people diplomacy been in winning the hearts and minds of ordinary citizens in Latin America?

Until 2018, the prevailing perception among Latin Americans toward China was largely positive, at times even surpassing their view of the United States in well-known surveys like The Latinobarometer. Throughout the first two decades of the 21st century, China’s soft power didn’t experience significant growth, but it did succeed in positioning itself as an alternative provider of goods. Latin Americans began to regard China as a nation capable of offering economic opportunities that other powers were not willing to extend. Various surveys consistently highlighted China’s investment and credit prospects as positive aspects associated with the Asian country. Therefore, China’s primary allure rested in its economic vitality.

However, the landscape underwent a dramatic transformation with the emergence of the COVID-19 pandemic. In the wake of this event, public opinion toward China shifted toward heightened criticism. Despite China’s active role in extending aid and distributing vaccines during the pandemic, the positive effects on its reputation were marginal in comparison to the costs incurred due to its association with the virus’s origin and its perceived lack of transparency in managing the domestic outbreak. A crucial factor is that a significant portion of Latin Americans still lacks nuanced knowledge about China, leading to overly simplistic opinions marked by stereotypes and vulnerability to racism and xenophobia.

China has faced substantial challenges in bolstering its soft power in Latin America, and this remains a pronounced political vulnerability for the countries in the region. Recent surveys unmistakably reveal that China has not yet managed to recover from the reputational setbacks brought about by the pandemic.

Q6. Although there appears to be no unified LatAm view on China, is the consensus among LatAm nations to remain non-aligned in a potential Cold War scenario between the US and China?

Indeed, a consensus regarding the maintenance of a non-aligned policy within Latin America is not universally established. While the notion of pursuing a non-aligned stance is deemed important, the feasibility of such a strategy remains uncertain. Moreover, if this approach is attainable –which I doubt-, its feasibility and practical implementation remain murky. The United States wields substantial political influence across the region, making it exceptionally challenging for smaller countries to resist or counter U.S. interests.

Historian Robert Pastor’s characterization of the United States as a “whirlpool” is quite apt: The region tends to swiftly come into focus on the U.S. political radar when an external threat is perceived. This pattern was observed during the Cold War with the USSR, and there is the potential for history to repeat itself. China could potentially serve as a catalyst for the United States to rekindle its interest in Latin America.

How Latin American nations navigate and capitalize on this hypothetical shift largely hinges on their actions and diplomatic maneuvers. It’s worth noting that Latin American countries are not adequately prepared for a mature foreign policy approach with China. Few diplomatic missions possess more than a handful of diplomats fluent in Mandarin or who have lived in China for an extended period. There’s a substantial lack of human resources, and the limited individuals who gain valuable experience negotiating with Chinese banks or companies for an extended duration in public posts, often transition to the private sector, where these skills are lucratively compensated.

Furthermore, there is no unified policy across Latin America concerning China. While China has engaged with the region collectively through initiatives like the CELAC-China Forum, within this forum, Latin American countries often compete amongst themselves to capture China’s attention rather than collaborating on common policies.

Q7. There has been much criticism of the implementation of environmental and social standards in mining and infrastructure investments in the region. To what extent is this a reflection of the weakness of local institutions rather than Chinese lack of attention to ESG principles?

Indeed, empirical evidence suggests that there isn’t a substantial divergence in terms of adherence to environmental standards between Chinese companies and their Western counterparts. It’s undeniable that certain instances of problematic behavior have emerged from Chinese companies, this is a well-established fact. However, I am of the conviction that these occurrences predominantly arise from the challenges local governments face in effectively enforcing environmental regulations, compounded by the recurrent practices of local leaders evading these regulations through corrupt means.

A concrete illustration of this phenomenon can be observed through the example of Sinohydro, a subsidiary of Power China, which has engaged in 11 infrastructure and power projects across Latin America. Within this portfolio, there are cases involving accusations of environmental harm, such as Coca Codo Sinclair in Ecuador, Chicoasén 2 in Mexico, and San Gaban III in Peru. Simultaneously, there are instances of successful projects like the El Tambolar project in Argentina and Chacayes in Chile. Importantly, joint ventures involving both Chinese and European companies have demonstrated a greater success rate in adhering to environmental standards.

Q8. How can Latin American countries avoid being restricted to the commodity export model rather than moving up the value chain to obtain more industrial and high technology investments? Is Indonesia a relevant model?

The automotive industry has witnessed interesting advancements, particularly within the Brazilian market. A notable development is the entry of BYD, which is set to establish the first electric car manufacturing plant in Latin America. This significant move is taking place within a former Ford facility, signifying a groundbreaking expansion outside the Asian market. Chery, another automaker, has also achieved success in penetrating the Brazilian market. However, it’s worth noting that these instances remain relatively uncommon exceptions in the broader landscape of the industry.

Angela Tritto has conducted a highly insightful study highlighting Indonesia’s adeptness at capitalizing on Chinese investment in the nickel industry to foster greater value-added outcomes. This undoubtedly stands as a case worthy of emulation, particularly for countries like Chile or Argentina, where Chinese companies have expressed interest in capitalizing on the lithium boom.

Q9. What is the extent of LatAm indebtedness to China? For those with a higher debt burden, how can these countries navigate Chinese pressure, especially in a volatile global environment where key commodity prices can fluctuate wildly.

As of the present moment, there exists insufficient evidence to firmly support the notion of a debt trap scenario in Latin America. While it’s accurate to acknowledge that numerous countries in the region have taken on debt from Chinese policy banks in a somewhat irresponsible manner, the evidence doesn’t overwhelmingly validate the concept of a debt trap.

Venezuela stands as a paradigmatic example, where substantial debt is being repaid through the supply of crude oil by PDVSA, due to the country’s lack of resources to fulfill its obligations to the China Development Bank. It’s important to note that Chinese policy banks were inclined to offer lenient loans following the aftermath of the 2008 financial crisis. However, over the course of the subsequent decade, the extent of credit from major policy banks like the Export-Import Bank of China and China Development Bank notably dwindled and slowly commercial banks such as ICBC are becoming more relevant.

Stephen Kaplan, an American political scientist, has conducted a comprehensive examination of loans provided by both policy banks and commercial banks to Latin America. Kaplan’s research identifies that the most successful instances involve private-public partnerships. These partnerships typically entail participation from Chinese commercial banks, subnational governments within Latin American countries, and various businesses. This collaborative approach establishes a framework where stakeholders collectively ensure the effective execution of projects, offering a promising avenue for project success.

Q10. There are concerns about deindustrialization and reduced industrial output in several Latin American countries, and a corresponding increase in production of primary products and services. What can be done to turn this around and attract more investment in industrial and high technology sectors?

The ECLAC (Economic Commission for Latin America and the Caribbean) has coined this process as “reprimarization.” Latin America has been engaged in a debate for over 50 years on how to enhance its role in global value chains and how to ascend the industrial ladder. The import substitution model proved unsuccessful, and subsequent aggressive economic liberalization led countries to specialize in commodity exports. The Asian strategy of nurturing infant industries, followed by Japan, Korea, and later China, has not been effectively implemented in Latin America, except for notable exceptions like Brazil’s Embraer aircraft company or Argentina’s satellite and nuclear reactor construction firm, Invap.

Certain Latin American cities such as São Paulo, Buenos Aires, Santiago, and Monterrey possess the human resources to become global hubs in providing services for industries like biotechnology, pharmaceuticals, energy, and telecommunications. However, these hubs are often isolated from each other and from the rest of their respective countries. The distance between Buenos Aires and São Paulo is greater than that between Beijing to Guangzhou, and the connectivity infrastructure is also comparatively weaker. An essential step toward attracting investment in industry and technology would involve improving connectivity infrastructure within and between countries. This would play a crucial role in fostering the growth of these industries and facilitating their integration into the global economy.

In addition to the inadequate transportation infrastructure, which is crucial for enhancing productivity and reducing export costs, another factor is the lack of state investment in research and development (R&D). Asian countries, including China, allocate expenditures ranging from 3% to 4.5% of GDP towards R&D. In Brazil, this figure is 1.2%, in Mexico 0.3%, and in Argentina 0.4%.

Q11. Brazil is arguably the only country which has direct industrial competition with China, for example, in the field of aircraft manufacturing. Will Brazil’s new president Lula seek to enlist Chinese cooperation in realizing a more proactive industrial policy?

In an article published in the Comparative Political Studies journal, my colleague Daniela Campello from FGV and I explored the winners and losers in Brazil during the trade boom that occurred in the early 2000s. We observed that industrial lobbies perceived themselves as losers and viewed China as a direct competitor. This effect has led to negative perceptions of China in regions where national industry is prominent, impacting not only public opinion but also politicians representing those constituents. Brazil presents an interesting case, as it is possibly one of the countries, alongside Mexico, most at risk of deindustrialization due to China’s economic rise.

Lula’s emergence as a political leader was deeply rooted in his role as a union leader in the steel industry. This background underscores his strong emphasis on promoting Brazil’s industrialization. It’s evident that as president, Lula will be inclined to harness Chinese capital to bolster Brazil’s industrial development. Notably, instruments like the New Development Bank, also known as the BRICS Bank, could be highly useful in this endeavor. An interesting development is the appointment of former President Dilma Rousseff as a director of the bank this year. Furthermore, Lula’s administration will likely seek to leverage Brazil’s own development bank, BNDES, as a conduit for channeling Chinese investments into the country’s infrastructure. Brazil’s founding membership in the Asian Infrastructure Investment Bank (AIIB) will also present opportunities.

Nonetheless, as I mentioned earlier, the challenge of reshaping the winner-loser dynamic that has evolved over the past two decades is formidable. Brazil lacks the comparative advantages needed to compete with China in emerging technological sectors. In his recent visit to China in April 2023, some industrial cooperation agreements were signed, but it remains uncertain whether these will lead to significant technology transfers. Such transfers appear challenging given the current fiercely competitive landscape between China and the United States. In fact, over the past three years, the United States has staunchly opposed Latin American countries adopting 5G projects supported by Huawei infrastructure or technology.

Lula’s ambitions for strengthening Brazil’s industrialization and collaboration with China may be difficult to achieve, particularly in the face of intense US/China competition and the geopolitical considerations underscoring that relationship.

Q12. China’s multifaceted connectivity with the region includes a rapidly expanding program of military ties and cooperation. This includes several military training programs in which senior military personnel are invited to participate (free of charge) in training programs in China, which are naturally based on Chinese military and political doctrines. How concerned should the US be about these deepening military relationships?

China’s efforts to expand military ties in the Latin American region have not been notably successful. The absence of Chinese military bases and the limited presence of substantial agreements for military equipment and arms provision underscore this reality. Furthermore, the United States has displayed strong resistance to China’s emergence as a supplier of military equipment, recognizing that such sales often entail ongoing maintenance and potential military intelligence services, which the United States is not inclined to allow. For instance, earlier this year Argentina’s consideration of procuring twenty-four Chinese JF-17 Thunder aircrafts around mid-2023 was met with political resistance due to pressure from the United States, leading to the ultimate veto of the deal.

Scientific cooperation between China and Latin American countries has also raised concerns due to potential military applications. The Espacio Lejano Station, located in Argentina’s Neuquén Province, serves as a case in point. Managed by the Chinese National Space Administration in collaboration with Argentina’s National Space Activities Commission (CONAE), this radio facility is an integral part of China’s Deep Space Network. However, the station’s management falls under the China Satellite Launch and Tracking Control General (CLTC), a division of the People’s Liberation Army Strategic Support Force. I have studied how Argentine politicians have used this project to argue both in favor of and against the geopolitical risks associated with engaging with China in the military dimension.

A similar instance involves the Brazilian Comandante Ferraz Antarctic Station, situated strategically on King George Island within the South Shetland Islands. Established in 1984, this station combines scientific exploration with national security priorities. A setback occurred in 2012 when a fire extensively damaged the facility, disrupting its multifaceted operations. The China National Electronics Import & Export Corp. (CEIEC) emerged as the victor in a bidding process to restore and upgrade the station which was reinaugurated in 2020.

In June of this year, there were reports suggesting that Cuba had allowed China to establish a spying base aimed at the U.S. on its island. While this information was officially denied by White House National Security Council spokesman John Kirby, it serves as another example of the U.S.’s concern regarding the potential dual-use nature of technological cooperation and infrastructure. In conclusion, then, what worries the U.S. is not so much military cooperation, but rather scientific or technological collaboration that could be utilized for dual purposes.

Q13. The BRICS countries are united in wishing to reduce dependence on the US dollar, the more so now we are entering a multipolar, deglobalized world. Brazil and Argentina have even discussed creating a common currency called the “SUR” for LatAm akin to the Euro. At the same time China is pushing hard for countries to adopt the renminbi as the preferred currency for bilateral trade settlements. Do you think it is a feasible de-dollarisation strategy for LatAm to adopt the Yuan for all external transactions and the “SUR” for inter-LatAm transactions?

While the concept of a common currency within Mercosur is appealing, especially for countries grappling with persistent inflation like Argentina, the feasibility of creating such a currency remains utopian in today’s context. Before pursuing a shared economic policy, the regional trade bloc should first solidify its foundation as a common market with a unified external tariff, an aspect that is currently absent. Mercosur can be seen as an imperfect customs union, marked by various patches and subject to the shifting political dynamics of its member countries.

The yuan, while still far from being a currency capable of replacing the dollar, has witnessed considerable progress in utilization over the past 2 to 3 years, particularly in countries like Brazil and Argentina. Brazil, for instance, holds around 5% of its reserves in yuan, making it the second most held currency after the dollar and ahead of the euro. This shift reflects China’s significant role as Brazil’s main trading partner, motivating the Brazilian central bank’s interest in using the yuan as an exchange currency to facilitate trade transactions.

In June 2023, Argentina embarked on a significant initiative by renewing a substantial currency swap arrangement with China, amounting to a total of 130-billion-yuan, equivalent to approximately 18 billion dollars. Spanning a three-year period, this bilateral agreement holds a central objective of bolstering Argentina’s foreign reserves, thereby contributing to the country’s financial stability and economic resilience. Recent times have witnessed Argentina’s emergence as a notable participant in the growing utilization of the yuan. This trend has been driven by Argentina’s strategic decision to engage in debt transactions with the Chinese central bank through a series of swap agreements, consistently renewed to prolong their impact. This innovative approach has been carefully crafted to effectively manage and alleviate the country’s debt obligations towards the International Monetary Fund (IMF), providing Argentina with a viable mechanism to address its financial commitments.

Beyond this, the strategic approach serves an additional purpose: it stimulates international trade transactions between Argentina and China. Facilitating these transactions in yuan diversifies the bilateral trade landscape, enabling Argentina to employ its own currency for imports sourced from China. This strategic move reduces the dependency on the dollar as the sole medium of exchange, enhancing Argentina’s financial autonomy and broadening the horizon of its economic partnerships.

Q14. Please share any favorite books, blogs, podcasts or other resources that readers could use to improve their understanding of Latin America and its relations with China/Asia.

I’ve greatly enjoyed the “China Local/Global” article series published by the Carnegie Endowment for International Peace. It contains insightful papers not only about Latin America but also about other regions. Reading these articles reveals that much of the current discourse is relevant across other parts of the Global South.

A recommended academic book to comprehend the role of Chinese financing in Latin America is “Globalizing Patient Capital” by Stephen Kaplan. For a comprehensive overview, “How China is Reshaping the Global Economy: Development Impacts in Africa and Latin America” by Rhys Jenkins or “Dragonomics” by Carol Wise are both valuable reads.

I suggest following Igor Patrick’s columns. He serves as a correspondent in the United States for the South China Morning Post and is a Schwartzman Scholar. Additionally, there are two excellent podcasts on Spotify. One is from the Argentine-China Chamber for Production, Industry, and Commerce, while the other is “Café y Seda,” hosted by Parsifal D’Sola, although both are in Spanish.

Lastly, I recommend keeping an eye on the policy briefs to be published on iclac.cl in the coming months. This academic initiative, which I oversee and is funded by the Chilean Ministry of Sciences, can provide valuable insights into the China-Latin America relationship.

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