NY Times: China Widens Economic Role in Latin America

2004-12-09

Richard Moore

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http://www.nytimes.com/2004/11/20/international/asia/20china.html?th

November 20, 2004

China Widens Economic Role in Latin America
By LARRY ROHTER

ANTIAGO, Chile, Nov. 19 - The expected arrival here on Friday
of President Bush, who personifies for Latin Americans the
economic and political power of Washington, is being greeted
with an uneasy mix of protests and hopes for greater growth.

But while the United States may still regard the region as its
backyard, its dominance is no longer unquestioned. Suddenly,
the presence of China can be felt everywhere, from the
backwaters of the Amazon to mining camps in the Andes.

Driven by one the largest and most sustained economic
expansions in history, and facing bottlenecks and shortages in
Asia, China is increasingly turning to South America as a
supplier. It is busy buying huge quantities of iron ore,
bauxite, soybeans, timber, zinc and manganese in Brazil. It is
vying for tin in Bolivia, oil in Venezuela and copper here in
Chile, where last month it displaced the United States as the
leading market for Chilean exports.

While President Bush is spending the weekend here for the
Asian-Pacific Economic Cooperation forum, President Hu Jintao
of China is here in the midst of a two-week visit to
Argentina, Brazil, Chile and Cuba. In the course of it, he has
announced more than $30 billion in new investments and signed
long-term contracts that will guarantee China supplies of the
vital materials it needs for its factories.

The United States, preoccupied with the worsening situation in
Iraq, seems to have attached little importance to China's
rising profile in the region. If anything, increased trade
between Latin America and China has been welcomed as a means
to reduce pressure on the United States to underwrite economic
reforms, with geopolitical considerations pushed to the
background.

"On the diplomatic side, the Chinese are quietly but
persistently and effectively operating just under the U.S.
radar screen," said Richard Feinberg, who was the chief Latin
America adviser at the National Security Council during the
Clinton administration. "South America is obviously drifting,
and diplomatic flirtations with China would tend to underscore
the potential for divergences with Washington."

Chinese investment and purchases are seen as vital for
economies short on capital and struggling to emerge from a
long slump. In Argentina earlier this week, for example, Mr.
Hu announced nearly $20 billion in new investment in railways,
oil and gas exploration, construction and communications
satellites, a huge boost for a country whose economic vitality
has been sapped since a financial collapse in December 2001.

China is also increasingly willing to venture outside the
economic realm. In March, for example, after Dominica, in the
Caribbean, severed diplomatic relations with Taiwan, Beijing
responded with a $112 million aid package, which includes $6
million in budget support this year and $1 million annually
for six years. In Antigua, it has pledged $23 million toward
the construction of a new soccer stadium.

Political relations seem to be advancing most rapidly with
Brazil, Latin America's most populous nation, where the
left-leaning government has repeatedly floated the idea of a
"strategic alliance" with Beijing.

The Brazilian government has made clear that it views closer
ties with China as a card that can be played to offset
American influence and trade dominance. While not suggesting
that China could soon replace the United States as Brazil's
main customer and partner, the aim is to force trade and other
concessions from the United States and rich industrialized
nations.

"We want a partnership that integrates our economies and
serves as a paradigm for South-South cooperation," President
Luiz Inácio Lula da Silva said in May during a state visit to
China during which he was accompanied by nearly 500 Brazilian
business executives. "We are two giants without historical,
political or economic divergences, free to think only about
the future."

Before his visit, Mr. da Silva even hinted at negotiating a
free-trade agreement with China, a step that Chile this week
announced it would take. But China's impact in Brazil is
already felt so strongly that the idea was quickly shelved
after São Paulo business groups expressed fears of being
overwhelmed by state-owned Chinese companies in their own
domestic market.

In 2003 China became Brazil's second-largest individual
trading partner, and in recent months the Chinese have been
seeking joint ventures that would expand trade even further
and give them a significant investment stake. Brazil is one of
the few countries to enjoy a trade surplus with China, and
last year alone exports to China nearly doubled, to $4.5
billion.

"Over the past three or four years, the growth in trade has
been explosive," said Renato Amorim, formerly a diplomat in
Brazil's embassy in Beijing and now the executive director of
the Brazil-China Business Council. "China is trying to assure
reliable sources of supply of raw materials to deal with the
shortages it faces, and since there are no conflicts on the
political agenda, Brazil fits the bill."

Many of the minerals come from a part of the Amazon known as
Carajas, which has the largest, purest reserves of iron ore
and other strategic minerals in the world. At a complex at the
mouth of the Amazon near Belém that produces alumina, the
white powder that is refined from bauxite to make aluminum,
production may soon double, with most of it expected to go to
China over the next decade.

Farther down the coast, Baosteel of China and Companhia Vale
do Rio Doce of Brazil, the world's largest iron ore producer,
are partners in a $1.5 billion steel venture to produce up to
eight million tons of iron a year. Upriver in Manaus, Chinese
delegations are negotiating long-term deals for timber. To the
south, in Mato Grosso, similar missions are trying to lock up
supplies of soybeans and cotton.

The same is happening elsewhere, especially in agriculture.
All across the South American heartland, from the Amazon to
the pampas of Argentina, a boom in the cultivation of
soybeans, used mainly as animal feed, has been propelled in
recent years by the emergence half a world away of a Chinese
middle-class with more income and a desire for more pork,
chicken and beef.

Concerned by what they see as Chinese advances, Japan and
South Korea are also stepping up their efforts to secure their
own supplies of raw materials in the region. Prime Minister
Junichiro Koizumi of Japan visited Brazil in mid-September.
President Roh Moo Hyun of South Korea has also scheduled trips
to Argentina, Brazil and Chile, planned around the Chinese
visits.

"Within a few years there is likely to be a 'war' to develop
raw materials," Park Yong Soo, president of the state-run
Korea Resources Corporation, told Reuters last month. "China
is challenging aggressively," he added, leading to supply
shortages and higher prices.

The few Brazilian analysts who have experience dealing with
China are also urging their government to be cautious.
Ideological sympathies or some vague notion of third world
solidarity, they say, should not get in the way of the
national interest.

In pursuit of their "strategic partnership," Brazil and China
have jointly developed a satellite program, are discussing
Brazilian sales of uranium for use in Chinese reactors, and
recently marked the opening of a plant in China owned by the
Brazilian aircraft manufacturer Embraer.

But it is clear to most Brazilian experts that China sees
their country primarily as a source of raw materials, and that
bothers them. Many are encouraging the government to fight for
a more equal relationship, raising concerns from trade flows
to environmental damage.

"Thus far, the discourse has been much more political that
pragmatic, with all this talk of a South-South alliance," said
Eliana Cardoso, formerly a World Bank economist for China and
now a university professor in São Paulo. She and others
caution that though President da Silva has stressed that the
Brazilian and Chinese economies are essentially complementary,
China is also a rival.

During President Hu's visit last week, the Brazilian
government agreed to recognize China as a "market economy," a
step that makes it harder to impose penalties on China for
dumping exports. The influential Industrial Federation of São
Paulo immediately criticized the move as a "political
decision" that leaves "Brazilian industry in a vulnerable
position" and will bring "prejudicial consequences to various
industrial sectors."

Not only are businesses concerned about China's making inroads
into the domestic market; they also worry about exports of
products with which Brazil has had some success abroad, from
shoes and toys to chemicals and car parts. "What Brazil has to
insist on is that instead of exporting raw materials, we try
to export processed goods," Dr. Cardoso said.

Marcos Jank, an economist who is an adviser to the Industrial
Federation of São Paulo, agreed. "China in the long term can
rob markets from Brazil, because the hand of the state is
still very strong in a lot of areas, including the exchange
rate," he said. "It is a ferocious competitor in the things we
export, as well as for markets and investments."

In fact, so much foreign investment has been going to China
that Latin America is finding it difficult to obtain the
capital it needs to finance its own growth. As a result
Brazil, like neighboring Argentina, has been forced to court
Citic, the state-controlled China International Trust and
Investment Corporation, in hopes that at least a small part of
China's estimated $500 billion in foreign reserves will make
its way to the region.

Thus far, China has been mainly interested in infrastructure
projects that would assure a more steady flow of the products
it is already buying from Brazil and Argentina. In particular,
railways, ports, highways, gas pipelines and other
energy-related projects are being studied. Earlier this month,
a Citic delegation visited two dam sites in the Amazon that
would be essential to the alumina and steel joint ventures in
Brazil.

Such projects have raised questions about the environment,
especially in the Amazon. Environmental groups here look at
China's dismal record on projects like the Three Gorges Dam
and worry that the Chinese will be tempted to export their
problems to Brazil.

In fact, several of the projects being considered would be
highly polluting, while others would be energy-intensive and
probably inflict damage to the environment similar to what
occurred at Three Gorges. Of special concern are a pair of
plants that would process coal in Brazil, partly for export
back to China.

"It would be sad if at the moment the Chinese are beginning to
worry about being green, we continue on the old path of not
evaluating this criterion in our commercial transactions," the
columnist Washington Novaes wrote this month in O Estado de
São Paulo. Brazil must avoid falling into the trap of being "a
big supplier of commodities without compensation for the high
environmental and social costs" that accompany that role, he
added.

Brazilian analysts agree that hard negotiations on this and a
host of other issues lie ahead. Though the relationship with
China is inherently unequal, they note, Brazil can get more of
what it wants only if it avoids being impetuous and is as
hard-nosed and pragmatic as the Chinese themselves.

"They want Brazil to continue to be a big producer of
commodities so as to regulate prices, to depress them on world
markets," said Gilberto Dupas, director of the Institute of
Advanced Studies at the University of São Paulo. "For China,
any alliance with Brazil is eminently pragmatic and
opportunistic, and much more tactical than strategic."

Copyright 2004  The New York Times Company
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