Belt and Road Initiative Extends to Latin America and Brings China-LAC Cooperation into a New Stage
Distinguished Professor and Director of Center for Latin American Studies , Shanghai University
Latin America and the Caribbean Region (hereinafter referred to as “LAC”) is an essential part of the developing countries and an important partner of China. In recent years, ChinaLAC cooperation has been rapidly expanding cross the board and the two sides enter a new stage of jointly building a community with a shared future. Therefore, when the LAC is a natural extension of the 21st Century Maritime Silk Road, the Belt and Road Initiative
will enjoy more extensive coverage, more prominent international position and incentivize the LAC to play a more important role in building a community with a shared future for humanity.
A Natural Extension of the 21st Century Maritime Silk Road
As pointed out by Chinese President Xi Jinping in his keynote speech at the opening ceremony of the first Belt and Road Forum for International Cooperation held in May, 2017, the Belt and Road Initiative is rooted in the ancient Silk Road. It focuses on the Asian, European and African continents, but is also open to all other countries. All countries, from either Asia, Europe, Africa or the America, can be international cooperation partners of the Belt and Road Initiative. The pursuit of this initiative is based on extensive consultation and its benefits will be shared by us all.
Then Chilean President Michelle Bachelet and Argentine President Mauricio Macri attended the first Belt and Road Forum for International Cooperation. President Xi Jinping stressed during his meeting with President Michelle Bachelet on May 13th, 2017 that the two sides should focus on upgrading the bilateral free trade agreement and build a diversity of cooperation mechanisms. Under the framework of the Belt and Road Initiative, China and Chile should promote two-way investment and step up cooperation on key projects in areas such as infrastructure construction, regional connectivity, clean energy and communications. When President Xi Jinping held talks with his Argentine counterpart Mauricio Macri, he hailed Argentina’s support and participation in the Belt and Road Initiative and stressed that Latin America is a natural extension of the 21st Century Maritime Silk Road.
The Second Ministerial Meeting of the China-Community of Latin American and Caribbean States (CELAC) Forum issued a special declaration on the Belt and Road Initiative on January 22nd, 2018. The statement pointed out that the foreign ministers of the CELAC countries welcomed and supported the presentation of the Belt and Road Initiative by the Chinese Minister of Foreign Affairs and believed that the Initiative could become an important channel to deepen the China-CELAC cooperation
in such fields as economy, trade, investment, culture and tourism. At the invitation of President Xi Jinping, Chilean President Sebastian Pinera Echenique paid a state visit to China from April 24th to 28th, 2019 and attended the second Belt and Road Forum for International Cooperation. As of April 30th, 2019, China has signed cooperation documents with 19 CELAC countries to jointly advance the Belt and Road Initiative.
Policy Coordination
Greater policy coordination serves as a reliable guarantee for advancing the Belt and Road Initiative. China had established various mechanisms for policy coordination with many LAC countries before the proposal of the Belt and Road Initiative. In addition to the bilateral dialogue mechanisms, China has also established multilateral ones with the CELAC. In August 2012, China and the CELAC Troika agreed to set up a regular foreign ministers’ dialogue mechanism. The first China-CELAC Forum ministerial meeting was held in Beijing on January 8th and 9th, 2015 and the second convening was in Santiago, Chile, from January 19th to 22nd, 2018.
He Lifeng, Director of China’s National Development and Reform Commission attended and addressed the thematic forum on policy coordination during the first Belt and Road Forum for International Cooperation. He suggested: “After joining hands with other participant countries to advance the Belt and Road Initiative, we feel that good state-to-state coordination in policy requires alignment in four aspects.” These four aspects refer to development strategies, development plans, mechanisms and platforms, and concrete projects. Among them, the alignment of development strategies and development plans should be prioritized.
However, most LAC countries don’t have development strategies or development plans in place. Several LAC countries have put forward conceptions similar to development strategies or plans, but failed to act on them. In this context, besides aligning development strategies or plans to achieve policy coordination, China and the LAC countries should lay more emphasis on further improving the existing bilateral and multilateral dialogue mechanisms.
In the process of perfecting the existing bilateral dialogue mechanisms, equal importance should be attached to creating top-level design and giving full play to the roles of think tanks, enterprises and non-governmental organizations; to carrying out the dialogues in a flexible manner and striving for institutionalized mechanisms of dialogues; and to the formats and contents of the dialogues and the implementation of the deliverables. Multilateral dialogue mechanisms are an important aspect of China’s overall diplomacy with the LAC. When improving the multilateral dialogue mechanisms, China and LAC need to consider the following essential issues. The first is whether the two sides can properly handle the relationship between the multilateral and bilateral dialogue mechanisms. The multilateral dialogue mechanisms enjoy obvious advantages, among which the overwhelming one is to save considerable diplomatic resources for both sides. However, as shown by the development of China-LAC relations over the past few decades, the vast majority of cooperative projects are based on bilateral relations. This is especially true in the economic and trade sector where the bilateral cooperation boasts more practical feasibility and better objective conditions for cooperation than those of multilateral cooperation. This indicates that both with unique merits, multilateral and bilateral dialogue mechanisms cannot replace each other. The second is whether the two sides can enhance the role of CELAC. As an organization created to deepen Latin American integration, CELAC plays an important role, but it failed to function as effectively as expected in the past few years and has witnessed disunity within the bloc. Therefore, for China and CELAC to have better policy coordination, the organization must extricate itself from the difficult position. The third is whether the China-CELAC multilateral dialogue mechanisms for policy coordination can be extended to the United Nations Economic Commission for Latin America and the Caribbean and the Inter-American Development Bank. These two multilateral institutions exert great influence on the economic development policies of LAC countries, respectively in terms of policies and finance. Therefore, engaging them in China-CELAC policy coordination is constructive to perfecting the China-CELAC multilateral dialogue mechanisms.
Facilities Connectivity
Facilities connectivity is a prioritized area in advancing the Belt and Road Initiative. China expects that participant countries, on the basis of respecting the sovereignty and accommodating the security concerns of one another, strengthen the efforts to align infrastructure plans and technical standard systems, jointly build main international transport channels, and gradually form an infrastructure network connecting all countries in the world.
Poorly-conditioned infrastructure is the “long-standing problem” hobbling most Latin American countries. The Economist, a British magazine, published a report on March 10th, 2018, saying that: “More than 60% of the region’s roads are unpaved, compared with 46% in emerging economies in Asia and 17% in Europe. Two-thirds of the sewage is untreated. Poor sanitation and lack of clean water are the second biggest killer of children under five years old. Losses of electricity from transmission and distribution networks are among the highest in the world. Latin America spends a smaller share of GDP on infrastructure than any other region except sub-Saharan Africa.” The Belt and Road Initiative will provide more opportunities for China to participate in infrastructure construction across the Latin America. Attention should be devoted to the following issues to turn these opportunities into reality.
Firstly, a correct assessment should be made to identify the difficulties in carrying out the infrastructure projects.
Infrastructure projects are impacted by multiple factors such as government policies, natural conditions, financing sources, technical requirements, construction period and ecological environment. Different infrastructure projects face different challenges. Therefore, when China and Latin American countries discuss and jointly construct infrastructure projects, accurate assessment of the difficulties should be made.
Secondly, the best cooperation model should be adopted. Investment in infrastructure features demand for intensive capital, long construction period, enormous technical difficulties and slow return on investment. In view of the experience of China-LAC cooperation and the physical conditions of Latin America, the public-private partnership model (PPP) and the build-operate-transfer (BOT) model offer certain advantages.
Thirdly, feasibility studies should be conducted. Most infrastructure projects are money-consuming. To avoid the recurrence of such incidents as the highspeed rail project being put on hold in Venezuela, it is necessary to conduct feasibility studies on commercial value and profitability and properly strike a balance between the greater good and commercial interest.
Fourthly, risks should be minimized. As infrastructure projects are able to exert significant local and even nationwide impacts in Latin America, the complicated relations among various interest groups, the government, the ruling party and the opposition parties may pose serious risks that don’t afford being underestimated. Necessary measures should be taken to prevent what happened to the high-speed rail project in Mexico.
Unimpeded Trade
Investment and trade cooperation is a major task in building the Belt and Road. Sound China-LAC economic and trade relations can produce “win-win” outcomes that are beneficial to both China and LAC countries and contribute to enhancing South-South cooperation. Viewing Latin America as a natural extension of the 21st Century Maritime Silk Road will surely foster the China-LAC economic and trade relations. The following measures should be taken to further facilitate unimpeded trade. Firstly, efforts must be made to make the best use of comparative advantages. China has strong manufacturing capacity and Latin America is endowed with plentiful natural resources. Such comparative advantages have set up a foundation for the two sides to be complementary partners and added impetus for bilateral trade. However, some LAC countries regard large amount of imported Chinese primary products as the factors that make LAC economies “commoditized” and “re-primary industrialized”. In the meantime, the majority of LAC exported products are not diversified and competitive enough to fully get into the huge Chinese market. In other words, China should try its best to consider the interest appeal of LAC countries and the latter should also vigorously develop its non-traditional export trade.
Secondly, efforts should be made to sign free trade agreements with more LAC countries. So far, China has signed free trade agreements with Chile, Peru and Costa Rica. The one with Chile has been successfully upgraded. These agreements are proved to have substantially contributed to win-win cooperation and China’s economic and trade relations with the three countries. Therefore, China should seal free trade agreements with more LAC countries and by doing so, show to Latin America and the entire world its determination to actively participate in and advance the building of an open world economy and facilitate unimpeded trade that enable LAC countries to benefit from the Belt and Road Initiative.
Thirdly, investment should be beefed up in such real sectors of economy as manufacturing and agriculture in LAC countries. China’s investment in Latin America is continuously increasing, but a large share flows into the Cayman Islands and British Virgin Islands. For LAC countries to broadly benefit from the Belt and Road Initiative, it is necessary channel more investment to the real sectors of economy, such as manufacturing and agriculture. The two sides should join hands to strive for win-win outcomes. The LAC countries should enthusiastically improve their investment environment and Chinese enterprises should boldly assume corresponding corporate responsibilities.
Financial Integration
Financial integration is an important underpinning for implementing the Belt and Road Initiative. Financial integration is a natural outcome as trade relations grow rapidly and in turn, facilitates unimpeded trade in the process of implementing the Belt and Road Initiative.
China-CELAC had reaped the initial results of financial integration before the Belt and Road Initiative was extended to the region. An example is the ChinaLAC Industrial Cooperation Investment Fund. The People’s Bank of China (PBOC) announced on September 1st, 2015 the establishment of the China-LAC Industrial Cooperation Investment Fund jointly by PBOC, the State Administration of Foreign Exchange and the China Development Bank, as a financial tool to strengthen China-LAC capacity cooperation. The China-LAC Cooperation Fund was officially put into operation on January 12th, 2016. The China-LAC Cooperation Fund was announced by President Xi Jinping when he attended the ChinaCELAC Summit in July 2014 and was jointly financed by the Export-Import Bank of China and the State Administration of Foreign Exchange. As of June 2017, China had provided over US$140 billion in loans to Latin America, equivalent to the sum of those provided by the Inter-American Development Bank, the Development Bank of Latin America and the World Bank to Latin America. The following measures should be taken to produce more outcomes of ChinaLAC financial integration within the Belt and Road Initiative.
The first is to vigorously support development finance. Development finance refers to a financial operation model that relies on credit support, market-based operation and independent operation without government
subsidies, and focuses on long-term investment, capital preservation and low profit as well as financial sustainability. Such model can connect the government with the market and integrate resources of all parties while providing medium-and long-term credit for those with specific needs. It can not only build up new momentum for growth through investment in real economy or infrastructure among other sectors, but also guide the commercial funds and provide support in a market-oriented way. The inaugurating meeting of the ChinaCELAC Development Finance Cooperation Mechanism and the first Council meeting were held On April 22nd, 2019 in Beijing. During the meeting, all member banks jointly signed a cooperation agreement on the China-CELAC Development Finance Cooperation Mechanism, marking the first multilateral financial cooperation mechanism between China and LAC countries. China and LAC countries should continuously act on such achievements and produce further deliverables.
The second is to vigorously develop inclusive finance. The positions and roles of small and medium-sized enterprises (SMEs) should not be underestimated for the LAC countries to benefit from the 21st Century Maritime Silk Road, but LAC SMEs often find themselves lack access to sufficient capital. Therefore, in the process of pursuing financial integration, the two sides should attach more importance to inclusive finance, provide more extensive and inclusive financial services, and bring tangible benefits to more people. Only in this way can economic growth be more sustained and stronger.
The third is to strengthen cooperation with the Inter-American Development Bank. China has been invited to send a delegation to attend the annual meeting of the Inter-American Development Bank as an observer ever since 1991. In September 1993, the POBC formally applied to the bank for membership. In January 2009, the PBOC, representing China, officially joined the InterAmerican Development Bank. Since the Inter-American Development Bank plays an essential role in promoting the economic and social development of LAC countries, it is vital to tighten the ties with the Bank to enhance financial integration between China and Latin America.
The fourth is to resolve various financial risks. The LAC countries were hit by grave debt crisis in the 1980s and also multiple financial crises since then. Therefore, in the process of pushing forward financial integration between China and LAC countries, efforts must be made to prevent financial risks in various forms and ensure the security, liquidity and profitability of Chinaprovided capital.
People-to-People Bond
People-to-people bond builds the social foundation for the Belt and Road Initiative. Only by tightening peopleto-people bond can misinterpretation and misunderstanding be cleared up and strategic mutual trust be built up between the two sides.
People-to-people and cultural exchanges are the most important means to strengthen the bond. In the past decade or two, China-LAC cultural exchanges picked up pace as the bilateral economic and trade relations developed. For example, China has set up Confucius Institutes and Confucius Classes in many LAC countries, where a large number of local people learn Chinese language. Year 2016 was proposed by China as the China-Latin America and Caribbean Cultural Exchange Year. The past years have witnessed growing number of Latin Americans studying in China and engaging in academic exchange or visits. However, it must be admitted that the mutual understanding between China and Latin America is yet to be deepened. The following measures should be taken to further strengthen the people-to-people bond within the Belt and Road Initiative.
The first is to encourage more people to engage in exchanges. A survey by Chinese scholars shows that Latin Americans who have never traveled to China barely know anything about China. Neither do they learn about China’s political system and achievements in building socialism, nor do they have any personal experience of the profound and splendid Chinese culture. In contrast, those who have visited China (including politicians, scholars, businessmen and tourists) generally have better understanding and a sense of recognition of China. Therefore, inviting more Latin Americans (especially politicians, scholars and media) to China will effectively tighten the people-to-people bond.
The second is to give full play to the role of the media. On the one hand, the media has the function of shaping the public’s opinions; on the other hand, the US media has an extensive coverage in Latin America. In order for Latin Americans to gain more knowledge of China, it is necessary to fully adopt both traditional media and new format of media to increase publicity about China in Latin America.
The third is to develop tourism. The two-way exchange of visitors is quite limited so far. The long distance between China and LAC countries and the high traveling cost as a result are the main reasons leading to the situation. Although Chinese travel agencies operate according to the market rules, necessary boosting measures should be introduced by relevant government departments to further tap the LAC tourism market and attract more tourists.
Conclusion
China-LAC cooperation is an integral part of South-South cooperation. As the Belt and Road extends to Latin America, China-LAC relations have entered a new stage of development. In order to achieve more early outcomes, the two sides should strictly abide by the principle of extensive consultation, joint contribution and shared benefits, adopt practical and feasible measures in the five prioritized sectors of “Connectivities”, and make greater contributions to improving people’s well-being, promoting world peace and development, and building a community with a shared future for humanity.