Chinese firms pull out of Venezuela

Companies not being paid as crisis grows

Chinese trading companies are staying away from Venezuela as the crisis in the country deepens, a businessman who declined to be named told the Global Times Tuesday.

The businessman, who started a business in Venezuela in 2014, has recently pulled out of the market, and he said that his company is not alone.

“Many firms could not get their overdue payments. As for those who have completed the contracted projects there, they are only leaving several people in the country in a bid to get the final payment,” he said.

An executive with LiuGong Dressta Machinery, a heavy construction equipment subsidiary of State- owned Guangxi LiuGong Machinery, also said the business environment in Venezuela has become difficult.

“Venezuela’s market has basically stagnated,” He Dawei, sales manager with LiuGong Dressta, told the Global Times Tuesday.

Many engineering equipment distributors are heading toward bankruptcy amid weak demand following the suspension of major local projects, said He. “Besides, it is hard for firms to get foreign currency,” as the Venezuelan government is strictly tightening up on capital outflows, he noted.

Venezuela’s foreign exchange reserves decreased to $ 10.402 billion in March from February’s $ 10.421 billion.

Multinational firms are also get- ting out of the country. US automaker General Motors reportedly shut down its operations in Venezuela after local government authorities seized one of its factories there on April 19.

Venezuela, which has the world’s largest oil reserves, is suffering an economic crisis described by a report in The Guardian as the worst in its history. The global drop in oil prices is widely perceived as one of the major causes.

Brent crude, the global benchmark oil price, extended last week’s fall, ending at $ 52 per barrel on Monday. This is down by more than half from a high of about $ 113 in June 2014. The IMF predicted last October that the economy in Venezuela would shrink by 4.5 percent in 2017 and that inflation would skyrocket by 1,660 percent.

Foreign Ministry spokesman Lu Kang said on Friday that China hoped and believed that Venezuelan people can properly handle domestic affairs and maintain stability in the country’s social and economic development.

Chen Fengying, director of the Institute of World Economic Studies under the China Institute of Contemporary International Relations, said he thought the Venezuelan economy had reached the bottom and that things will improve from the second half of this year, as the economic recovery is picking up in countries nearby and globally.

But Wang Jun, deputy director of the Department of Information at the China Center for International Economic Exchanges held a pessimistic attitude.

“High inflation would bring a risk of social turmoil, which may even lead to regime change,” Wang told the Global Times Tuesday. “If the oil price keeps hanging around $ 50 a barrel, the economic situation in Venezuela will not change in the short term.”

Wang advised businesses to get out of the crisis- ridden market.

Rising interest

In recent years, Chinese firms have shown great interest in the Venezuelan market. This was partly because China and Venezuela signed a series of agreements including one for a joint investment fund in 2007, according to the businessman.

The fund can guarantee Chinese firms get their payment for construction work, but now the fund has adopted a more stringent review and approval system for new projects, he noted.

The joint fund was set up with $ 4 billion in loans from China while Venezuela pledged $ 2 billion, to support Chinese firms building infrastructure in Venezuela, Wu Zhifeng, a research fellow with a research center under China Development Bank, wrote in an essay published in 2014.

There is no official data to show publicly how much money in total China has invested in Venezuela so far. But data from Washington- based research group Inter- American Dialogue showed that by the end of 2016, China Development Bank and China ExportImport Bank had provided $ 62.2 billion in loans to Venezuela, a larger amount than the loans offered to other Latin American countries.

The loans mainly went to the energy and infrastructure sectors. In a daily news briefing in February, Lu, the Foreign Ministry spokesman, pointed out that currently Venezuela’s repayments of the loans to China by providing oil are “basically normal.”

Before inking deals and making investments abroad, Chinese firms and government officials should keep a clear head and conduct thorough analysis about potential political and economic risks, Chen told the Global Times Tuesday. In the case of Venezuela, Chinese firms just focused on the short- term benefits, said Chen.

“Before inking deals and making investments abroad, Chinese firms and government officials should keep a clear head and conduct thorough analysis about potential political and economic risks.” Chen Fengying Director of the Institute of World Economic Studies under the China Institute of Contemporary International Relations.