Emerging Markets / September 4, 2018

China and Foreign Investment in Latin America

After repeatedly postponing or canceling scheduled visits to Latin America, President Trump is expected to make his first official visit to the region later this year. As part of the G20 Summit being held in Buenos Aires, president Trump is expected to visit both Colombia and Argentina. The fact that this first visit to Latin America, which is a neighboring and vitally important region to the United States, will occur almost halfway through President Trump’s first term should be worrisome to policy-makers in Washington DC. The void in hemispheric leadership that has been left by the United States throughout the last two decades has invited foreign powers to meddle in Latin America’s politics and economics.

China and Foreign Investment in Latin America

During the last two decades, China’s growing influence in Latin America has been more than evident. Firstly, on the diplomatic front, Latin America and the Caribbean remains the region that most recognizes Taiwan’s Republic of China at the expense of Beijing’s People’s Republic of China. However, the amount of Latin American countries that have shifted their recognition from Taipei to Beijing in recent years has been substantial, which has also led to increased economic integration and the strengthening of financial ties. Countries like Panama, Costa Rica, and the Dominican Republic have all recognized Beijing throughout the last decade, thus opening up a stream of foreign investment and M&A activity from Hong Kong and Beijing-based capital into their respective economies.

Latin America, which is an economically dynamic region constantly seeking out more foreign investment, registered a record of Chinese M&A activity during 2017 with approximately 16 major transactions totaling almost US$12 billion. In fact, unless the United States increases its involvement with the region, China is expected to become Latin America’s main financial and trade partner during the coming years. During the first decade of the 21st century, Beijing’s main interests in Latin America centered on petroleum and fossil fuels. This dynamic meant that China’s peak year in terms of M&A flows towards Latin America was 2010, when Beijing’s state-owned enterprises directed some US$17 billion mainly towards energy companies in countries like Brazil. Nevertheless, Beijing’s interest in Latin America has diversified in recent years beyond just the fossil fuels sector to include mineral and agricultural commodities as well as telecommunications and manufacturing. China has already established three free trade agreements (FTAs) with Latin American countries (Chile, Peru, and Costa Rica), which represents the most of any world region with the exception of Asia.

Currently, Chinese investment in the region is focused on Central America, South America, and the Caribbean. However, the failure to negotiate and ratify a new North American Free Trade Agreement (NAFTA) that benefits and maintains the existing synergies between the economies of Mexico and the United States, would open up space for Chinese capital to manage major industries right along the southern border.

(Read more about Politics and Economics in Latin America)

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