How China Meddles in Latin America (w/ Dee Smith, Elizabeth Economy, & Christopher Sabatini)
Dee Smith: Welcome to The Exchange. I'm Dee Smith. And today, I'm going to be speaking with Elizabeth Economy of the Council on Foreign Relations here in New York, and Christopher Sabatini of Columbia University and the think tank Global Americans. And we're going to be discussing some of the very interesting and somewhat disturbing aspects of Chinese activity in Latin America. This ranges across a whole range of activities, from huge hydroelectric projects in places like Brazil, to a Chinese-engineered surveillance system in Ecuador-- funded by the Chinese, by the way-- to an increased Chinese media presence across the entire region. Chinese efforts, in other words, are increasingly intense and seem increasingly ubiquitous. This includes Chinese military and diplomatic engagement, as well as investment. China now surpasses both the World Bank and the Inter-American Development Bank as the region's top lender, with over $140 billion in financing just since 2005. And added to that, China has also created three cooperation funds with another $40 billion in financing for the region. In January of this year, China even invited Latin American countries to join its One Belt, One Road initiative. So Liz, Chris, welcome to The Exchange. And Chris, what's going on with China in Latin America? Christopher Sabatini: Well, it's definitely showing more of an interest. At first, most of that interest came in the form of opening up its markets for its own need for primary products, whether it was iron, or oil, or copper, gold, even soybeans and chicken. But increasingly, that, because of that need, became more in terms of investment and in terms of diplomatic engagement. We've seen already, just recently, Panama, the Dominican Republican, and El Salvador flip and recognize the People's Republic of China over Taiwan. We've seen them engage now Latin America in the One Belt, One Road project, particularly in Panama recently. There's been a series of very interesting investments in Panama. In addition, there's been a series of investments, direct investments, primarily concentrated-- well, all concentrated in natural resource extraction or some form of natural resource, whether it's hydroelectric dams, or oil, or other forms of mining. But primarily, if you look at the breakdown of what countries, it's mostly ones that China would find a better ally in terms of whether it's Nicaragua even, Ecuador, or Venezuela, and, even at times, Bolivia. So it spans the gamut. Right now, I think diplomatically, the question is, what is their long game? Economically, there's clear interest there in terms of, specifically, receiving resources. But what is their diplomatic long game? And there, I don't think we really know yet. DS: So Liz, that's a perfect question for you. What is the diplomatic long game? What's the purpose of China doing these things in Latin America? Elizabeth Economy: Right. Well, I think as Chris suggested, initially, if you look back to about 1999 when then President Jiang Zemin and Premier Zhu Rongji announced the going-out strategy, that was all about mostly China's state-owned enterprises going out to Africa, Latin America, Southeast Asia, in search of natural resources to be able to fuel their economic growth, which was they were averaging 10% to 12% per year at that point in time. But the advent of Xi Jinping has brought something a little bit different to the table. He has called for the "great rejuvenation of the Chinese nation," which is really about reclaiming a degree of centrality for China on the global stage. And it's not just Latin America. But again, it's the entire world, at this point, which Xi Jinping looks at to be in service of that objective. And the Belt and Road Initiative is one aspect of that. Initially, Belt and Road was mostly about exporting Chinese overcapacity, still looking for commodities that China needs-- oil in Venezuela, or soybeans in Brazil. But it's also about amping up China's political and security presence. You mentioned the surveillance system that they're putting in place in Ecuador. Peru and Bolivia are also interested in that same thing. The media option-- China wants to change the narrative globally about China. It says that the West has, for too long, dominated the story about China. It wants to have its own newspapers, its own media people there. They did a training session, a five to six-month training session, with Latin American journalists in China to try to get them on board with looking at China the way that China wants them to look at China. So there are many different elements to China's engagement at this point, but they really want to have a group of allies-- if not formally allied the way that the United States have formal allies, a group of allies that, when they're in the United Nations talking about internet governance or human rights, these countries will support them. DS: So Latin America's long been considered the United States' geopolitical backyard. And so what China's doing there, in this intensive effort across all these elements, is perhaps a very provocative thing for them to do. What do you think? Is it an intentional provocation, and is it some kind of intentional quid pro quo for the US longstanding presence in the Pacific? Or is this just part of the Chinese global strategy? EE: So I think it's not an intentional quid pro quo, I don't believe. I think it is part of the broader strategy. What they're doing in Latin America is exactly what they're doing in Africa and in Southeast Asia. It has the same mix of infrastructure development, hard infrastructure-- ports, railroads, highways, power plants; the Digital Belt and Road, which is fiber optic cables, e-commerce, and satellite systems. Everywhere, you see the Chinese doing these same things. The military element, right? China invited military officials from 11 Latin American countries to come to China for military training. They do the exact same thing in these other places. I think we're more sensitive to here in the United States because, of course, it is our backyard. And I think up until Xi Jinping, or maybe a little bit before, the Chinese were also sensitive to it. But China can't reclaim its centrality on the global stage unless it's on the global stage, and that includes Latin America. So I think they certainly understand that we're sensitive. But at this point, they don't really care. DS: Right. CS: Yeah, I don't think there will be a direct challenge in that sense. I agree with you. They're sensitive to US interests. They don't want to directly confront the United States. And in fact, a lot of what they're doing is very subtle. It's difficult-- if you add it all up, it looks a little worrying. But whether it's an expansion of Confucian Institutes, the training of military officials-- they plan on having over half a million students studying in Chinese universities by 2020, not all Latin American. They've also-- as you mentioned, the media presence. It's multifaceted in much the way the United States, although that was more to build specific allies. But it's trying to change the perceptions of China in Latin America and other countries as a way of just simply building influence. DS: So One Belt, One Road was initially conceived as a sort of Pan-Asian, European project that connected China to Europe. But now, it's the whole globe. And when did that change occur? When did the One Belt, One Road-- I know it was just earlier this year that the Chinese invited Latin American countries to join it. But when did that thinking change in China? EE: So the Belt and Road was announced first in 2013 in Kazakhstan. And that was really the "belt" part of it, which is the overland route. There are six different corridors that were included in the initial conception. And then in 2014 in Indonesia, Xi Jinping outlined the maritime part, which actually does go all the way to Africa. So it's really, China includes the Middle East and the rest of Asia-- or really, Southeast and Central Asia-- and Europe, as you mentioned, out to Africa. So-- DS: It's the old world. EE: So right, it's a recreation of-- there's nothing better for China's "great rejuvenation" than basically recreating the idea of the Silk Road and the maritime spice routes. So that's what the original conception was. But it's very opportunistic. So as I mentioned, then there became a Digital Belt and Road. Then there was a Polar Belt and Road to connect China to Europe through the Arctic more quickly. And Latin America's really just the next stop on this expansion. And a number of Latin American countries have indicated interest. So it's not simply China declaring, we are now including Latin America in the Belt and Road. They are. But it's also true that Bolivia and others have stepped up and said, we would like to be part of the Belt and Road. And I think one last point I'll make is that really, much of what China's doing is, again, not that different from what it started doing in the late 1990s. The difference is that there's a degree of interconnectivity, transnational element to it that didn't exist in China's first resource quest push. So this is about connecting countries through railroads and highways, not simply providing assistance to one discrete country. CS: And if I can say too, what's interesting-- much as this whole initiative taps into a deep-felt need and desire on the part of China, what they're doing in Latin America also taps into what Latin America wants and needs. It really is looking for a global rebalancing in its own. Even among pro-American leaders, you'll hear them say-- like the former Chilean ambassador to China-- that this is eruption. This is a moment. If we can control this-- they're providing infrastructure which the United States and most development banks no longer provide. They're providing very important markets. And they're also providing some form of diplomatic recognition, an alliance, in the loosest form, that many countries crave. DS: So the debt that China is offering Latin America now is perhaps less far along as the debt that it has been offering Africa. And Africa is the kind of exemplar of things that are going wrong with that right now. Can you talk just a bit about that, and whether you think that will happen? I mean, Africa's turning back to the International Monetary Fund. There are things that are not going as well as they-- and they're not happy under the yoke of Chinese debt, let's say. If you could talk a little bit about that, and whether you think that can develop possibly in other countries, including Latin America. EE: So I think certainly, it's happened not only in Latin America, but in Southeast Asia and in Laos, and also in Maldives and Sri Lanka. And I mean, all throughout the Belt and Road, at this point, you have-- I think the IMF identified eight countries that have assumed so much debt as a result of Belt and Road projects that they say they will never be able to repay this debt. And so that's when you see China do things like take control of a port in exchange. I would imagine that there will be a similar mix of countries in Latin America. There are those that are more robust and are in better control of their situation economically than others, and better educated, at some level. I mean, one of the things I think is interesting about the US approach to competing with the Belt and Road is that a big initiative out of USAID is to talk about, we just want to educate people in different countries about their choices and about what it means when you take on this kind of debt. Because not all new leaders know about this information. So I think already, we've seen, if you look back to 2010, 2011, pre-Belt and Road, just when China was engaging in the resource elements, countries like Brazil and Argentina started to fool around with their land laws in order to prevent the Chinese from acquiring too much land, the land ownership laws. So I think there's an awareness now out there, certainly among the larger Latin American countries, about potential pitfalls. As they see more and more countries along the Belt and Road reject projects, even projects that they'd already agreed to, I think it's very instructive for a lot of Latin American countries. But I think Chris is probably more attuned to the relative strengths and weaknesses of the region. CS: But it's true. Countries began to become aware of this not only in terms of foreign direct investment, but also in terms of investment in mining. And a number of countries imposed stricter conditions, environmental regulations, and labor regulations in places like Peru that China actually responded to. So it hasn't been a one-size-fits-all model. But there are countries that are deeply, deeply in hock right now to China-- in particular, Venezuela. EE: Yeah, that's right. CS: --which has basically mortgaged its entire energy future to China for loans that it's going to pay back in cut-rate oil that whenever political change occurs and however it occurs-- hopefully, peacefully-- any future government's going to find itself still tied to China and paying them back at a time when its oil production has slipped from 3 million barrels per day at the time of Hugo Chávez's election in 1998, to 1.2 million barrels today. So they've basically sold off their own land wealth to China. Ecuador, the same. So it really varies. And China too is also-- I mean, rather, Cuba, has also become indebted, more and more, to China. And this will be difficult to turn the corner once there are regime changes in these countries. So it's a bit of what-- they've sought out-- and another one in particular that now we're looking at that's very dangerous is Panama. The Chinese have come in, very effectively played off political divisions among the Panamanian government and political class, invested in a whole series of highways, railways, and port facilities that is a strategic choke point for US interests in the hemisphere. DS: So there is the idea-- and it's discussed particularly in Africa with the situation there with Chinese-- that the strategy of the Chinese is to trap countries into essentially unpayable debt, and then force them to give up strategic resources, like ports, in exchange for that. And I'd love to have your thoughts on that. But also, at what point may some of these countries start to assert their sovereignty and nationalize these things? And what will China do in response? EE: Right. So I don't think that there's actually a deliberate effort on the part of the Chinese to trap the countries into then giving up strategic assets. I think the case in Sri Lanka, for example, was not about, OK, we're going to get them so deeply in debt that we're going to get their port. I mean, China now has majority stakes or outright control of ports in something like 76 countries. And so-- or 76 ports in 36 countries. And so they're finding ways to do it just by buying stakes and doing it legitimately. So I don't think they want to trap these countries. I think it's a function of a lack of foresight on their part, and clearly on the part of the countries themselves. And the Chinese themselves right now are undergoing a major interagency review of their lending practices. So they themselves are not interested in going down this deep hole. And they're feeling a lot of pressure from the international community-- not just the United States talking about the evils of Chinese lending, but the countries themselves. Again, Mahathir, the re-elected prime minister of Malaysia's saying, we're giving back these projects. They are no good for us. So a lot of leaders now are standing up and pushing back. That's not good for China's reputation. So I don't see it as trying to trap them. In terms of when will they stand up and assert their sovereignty, I think we've already seen, when there are elections in some of these countries and new leaders come in, they're perfectly happy to talk about renegotiating the terms of bad deals that were made by the previous bad presidents or prime ministers. So I can see that type of thing happening. Outright nationalization-- maybe, maybe not. But definitely renegotiating terms. CS: Certainly, their mantra in all this has been "win-win." And perhaps naive-- But I think there's an element of truth in that in the sense that they don't want to completely confront. They're trying to do this in the most harmonious way possible so that they don't want-- it's obviously to their benefit. They want to gain leverage in these cases. But to have to confront a situation where there are clear winners or losers I think goes against their very grain. EE: I will just say that in the China field, we have a saying that win-win for the Chinese means China wins twice. CS: Yeah. DS: So Chris, this issue with Ecuador and the installation of a surveillance system and similar systems being of interest to other Latin American countries is somewhat concerning. Because not only does Ecuador have a very state-of-the-art system, but the Chinese may have back doors into it. It may extend their reach deeply into a Latin American country. What's going on with that? CS: Well, the Chinese very much like the idea of having some form of intelligence-gathering in the western hemisphere. They also have a listening post in Cuba, for example, just 90 miles off the coast of the United States that I think is useful for them. In the case of Ecuador, yes, it gives them-- I mean, we have a number of anti-narcotics, we being the United States, anti-narcotics operations that are being renegotiated in Ecuador. So they will be able to monitor those as well. And these state-of-the-art systems in Mexico, for example, we saw that the Israelis sold to the Mexican government a system that was not supposed to be used for internal surveillance, but was. So the Chinese are leveraging their technical capacity and offering this up. I wouldn't be a bit surprised of we find out later that Venezuela was doing the same for them. And so it is a troubling aspect to a whole new shift in spyware and spying, both domestically and internationally. DS: And it's not the only example of a kind of egregious Chinese presence. I mean, what's going on with this medical ship in Venezuela? That's a strange episode. CS: So what happened was-- first of all, the Venezuelan government has denied that there's a humanitarian crisis in the island, despite the fact that two-- the island. The country-- despite the fact that 2.3 million people have been forced to flee to neighboring countries. But the Chinese sent the Harmony ship, which is a medical ship, to Venezuela. And ironically, it was greeted by the defense minister, Padrino. And on display at the port when he arrived and welcomed them were more weapons than medical supplies. And they said, this is a great example of China's brotherhood and solidarity with the Venezuelan people. So they're clearly trying-- and this happened just on the heels of the US sending its USS Comfort ship, which is also a medical ship, to Colombia to treat and help the Venezuelan refugees. That was denounced as a precursor to a US intervention in Venezuela. The Chinese ship to Venezuela was treated as a great sign of solidarity with Venezuela's cause. DS: Yeah. How's Chinese activity affecting the internal politics in Latin American countries? And we're in a position in which a lot of countries are having elections right now. We're in a situation where interhemispheric trade needs to grow. How is this affecting the internal systems within these countries? CS: Well, there are a number of ways. First of all, at a very symbolic level, when China first became a rising world power, it became an ideological justification for leaders like Hugo Chavez of Venezuela, for leaders like Rafael Correa in Ecuador. It offered an alternative to the neoliberal economic prescriptions that had been current. And now, suddenly, another country comes along that's followed none of those and is becoming a world power. So at a symbolic level, it was very important. And it boosted, if you will, a lot of these leaders. Now what we're seeing too is that their investment, particularly their market in the early aughts until the late 2009s, late aughts, it also boosted what were then leftist governments in power, because economies were growing so fast. The PT in, Brazil the Worker's Party in Brazil, the Peronist party in Argentina, became real beneficiaries of this windfall of Chinese demand, for their products. But in addition, as we see in Venezuela, as China has now extended all these lines of credit-- very favorable to the Chinese, short-term favorable to the Venezuelans-- it's also sort of vested them in the success of this current government in Venezuela, the Maduro government, which is flailing, which has contracted by almost a half now, which is going to face, in 2018, 1 million percent inflation. It's tied them very closely to this government. So it's definitely a change in dynamics. As much as they claim that they're not interested in interference, that they want to maintain sovereignty, they are definitely changing it. But in addition to that, what they're also changing are these countries' foreign policies. We see, again and again, in a report we just published called Liberals, Rogues, and Enablers, that more and more countries are voting with China in the UN Human Rights Council on issues of human rights, basically following that line of non-interventionism, not raising issues of human rights in a way that really weakens, if you will, the liberal infrastructure to support human rights and democracy that's emerged over the last several decades. DS: Do you think that that's an intentional strategy on the part of China, to undermine that part of the liberal international order? CS: Precisely. Yes, I do think-- there's a number of parallel organizations they've tapped into and created-- there's the Shanghai regional organization, mostly active in Central Asia, that has created these fake election monitors that go, and they emulate what the UN would do or the Carter Center would do in terms of observing elections, but with none of the technical credibility or independence. They've also reached out to a new Latin American regional organization called CELAC, the Community of Latin American, Caribbean states that, not coincidentally, excludes United States and Canada. They've tried to become a partner with them. They've even hosted them. And they've extended a whole series of scholarships for public officials to go to China. What they're trying to do, in these cases, is really erode international standards. In the case of CELAC, CELAC has said, very clearly and very upfront from the beginning, it believes that it is the sovereign right of any country to determine its own form of government, something that flies in the face basically of decades of human rights concerning popular sovereignty and the rights to human rights and independence. DS: So another question that I think comes up and is important is, how is Chinese economic activity in the private sector affecting the opportunities for other countries that are not China in terms of investment in Latin America? And I'm not talking about the huge government projects. Is there stuff going on in the private sector as well? CS: There is. It's funny. There's a study done by a professor at Notre Dame that discovered that in countries that would be more ideological allies of China-- Nicaragua, Ecuador, Bolivia, Venezuela-- most of the investment was led by state-owned companies. It was in other countries-- Chile, Peru, Argentina, Brazil-- that investment is led largely by the private sector. So there is sort of a double game here being played. DS: You mean the Chinese investment-- CS: Chinese investment led more by-- DS: --in countries like Brazil and Argentina. CS: Yes, lest they control. So they're leading in these ideological allies with more state-owned companies. Places where it makes a little bit more, let's say, economic sense to invest-- Brazil, Peru, which are mostly natural resources-- that's coming from more state-led, state-oriented enterprises. DS: Right, right. So in the hemispheric aspect of this, what do you think the approach or the response of the US should be? CS: It's difficult. It's very much the question that's current. We saw Rex Tillerson, former secretary of state, when he was in Texas, talk about the need to renew the Monroe Doctrine. Donald Trump, the UN-GA made the same comment. This really irritates Latin American leaders, even pro-Latin American leaders, who say, we're mature enough to maintain our own relationship. We don't need the Monroe Doctrine and US paternalism and all the baggage of the Monroe Doctrine, which has been used to justify interventions in the Dominican Republic, Nicaragua, Granada, what have you. They think they have the capacity to do that. I think there's a much more subtle response that's necessary. I think, first of all, the US needs to understand that there are very legitimate needs that China is responding to-- the need for infrastructure, for example. In the case of Brazil, the railways that take goods from much of the interior to the ports mostly were built in 1945. They need to be upgraded. This is a real-- and in places like Peru, only 30% of the roads are paved. Infrastructure is key to integrating these economies not just across borders and with the global economy, but even internally. And China's offering to do that. The second thing is I think US can begin to help-- there have been plenty of cases of Chinese investment where the deals have been cut behind closed doors. They've also included efforts that ignore environmental regulations, such as the Belo Monte Dam in Brazil. I think the US can help provide some sort of oversight or environmental guidance on these things. One person referred to it as soft infrastructure needs. They can help balance Chinese tendency to overlook these regulations. And I think the last thing is the United States-- actually, the next last thing. The United States needs to bolster its soft diplomacy. That's become very passé. We've seen now the Trump administration try to cut our educational exchange programs in the State Department by over 75%. Soft diplomacy is one of the best tools we have for building long-term allies and relationships. It's probably the best bang for the buck you can get in terms of diplomacy at precisely the time the Chinese are ramping it up. And the last thing is I think-- and it's a shame that this administration walked away from the TransPacific Partnership, because that was intended to create an alliance of Asian-Pacific countries and Latin American countries and the US and Canada, to a set an outline, a framework of trade rules, that would set the terms for the new global trade environment as a counterbalance to China's economic weight and its questionable commitment, at times, to international rules of trade. And in this case, the Trump administration is right. The Chinese do engage in unfair labor and trade practices. But the answer isn't unilateral tariffs. The answer is creating a bloc that forces them to rise to that standard. I think it's a shame we walked out. DS: So one of the distinctions that one hears about now, a term that's come to rise in the foreign policy world, is sharp power as opposed to soft power. And so how do you see that playing out in Latin America? CS: There are a lot of examples of sharp power that we're seeing now. And first of all, I mentioned the ramped-up exchange programs that China has been promising, both apprenticeships and scholarships for policymakers and for students; the expansion of all these Confucius centers that are all throughout Latin America now that are intended to engage in better understanding, but also try to prevent recognition of Taiwan. We also see the efforts of extending humanitarian assistance we see with China. Those are efforts at sharp power because they're intended, with a very specific effort, to build China's alliances or leverage points in a way that it could be used in the long term. And Russia's engaging the same thing. Russia Today, the now infamous Russia Today news service that's run by the Russian government, has a Spanish language service called RT en Español. It is now available on all major cable packages in Latin America. And we've been tracking that for a while. And some of the stories they've been publishing have been outrageous-- claims that the US had sent the drones that recently tried to assassinate Maduro, claims that Nicaragua was under a military blockade by the United States. So these efforts at utilizing the media-- education to further a specific slanted view is, I think, what we're referring to we talk about sharp power. It's a whole different game, and they're playing it very well. DS: Yeah, yeah. So what do you see as the next step in the evolution of Chinese involvement in Latin America? Where are we going? CS: I think it's a good question in the sense that, again, it's not a one-size-fits-all model. And Venezuela's going to be one point. We'll see how far China's willing to go to prop up and support a regime that has clearly failed, is clearly bringing misery to its own people. DS: And he's not popular in the rest of Latin America. CS: He's not popular in the rest of Latin America. So is it going through them? Recently, it extended a $5 billion loan to Venezuela. But how long is it willing to go down this road, especially when, as you say, it risks incurring the wrath of Venezuelan people as well as its neighbors, Venezuela's neighbors? But as I say, other countries are really very much exploring a way to deepen these relations. I think you'll see more and more countries in the region begin to recognize China. They bring a lot of cash, a big checkbook. As I mentioned, Panama recently recognized China over Taiwan. And now, China investment has flooded into Panama. The Dominican Republic, which, oddly enough, is part of the free trade agreement with the United States, as is Panama, has recognized China. El Salvador has recognized China. I think what you're going to see is more of an effort to bring them within their diplomatic circles. And with that comes a checkbook that the US is going to struggle to match. In that case, I think the play will be much more subtle. And then in other cases, I think you'll see, as we saw in Ecuador and other places, ways in which it's going to try to insinuate their surveillance capacities and other semi-military capacities in places like Cuba, as a way of counterbalancing-- again, not in terms of a confrontational way. They really are very sensitive to this confrontation. But they're looking for ways to build friendships that will blunt, if you will, US authority-- not power so much as authority-- in multilateral organizations when the time comes, especially should there be some conflict, say, over the South China Sea. DS: So thank you, Liz. Thank you, Chris, for being part of this conversation. It was a very fascinating examination of some really interesting issues, and I appreciate you being here. Thank you.