CHINA’S RAILROAD DIPLOMACY FAILS TO CRACK LATIN AMERICA
One mega project after another has come crashing against the harsh realities of bureaucracy and politics, but Beijing isn’t giving up just yet
The ambitions are dizzying, some of the grandest in Latin America since thousands of labourers perished building railways through the forbidding jungles of Brazil more than a century ago. China has sought to build a “dry canal” in the form of a railway across Colombia, linking the Caribbean to the Pacific. Chinese investors announced another huge venture in Honduras, two ports and a 600km railroad from sea to sea. Then this June, China announced yet another megarailway — nearly 10 times as long — across Brazil and Peru, stretching from one coast of South America to the other.
But across the region, one large Chinese rail venture after another has come crashing against the hard realities of Latin American politics, resistance from environmental groups, and a growing wariness toward China. While China boasts of its rail initiatives around the world, it has often been stymied in Latin America, reflecting how even China’s formidable ambitions have limits. Now, new worries over China’s economic growth are raising more doubts about the blitz of what China calls its “railroad diplomacy”, as parts of Latin America reel from their dependence on China.
The enormous twin-ocean railroad across Brazil and Peru, in particular, “will be a crucial test of China’s mettle as a global power and the potential for greater acquiescence in South America to the designs that China has on our resources,” said José Eustáquio Diniz Alves, a Brazilian scholar. “We’re experiencing the downside of our overreliance on China now that the opaque Chinese economy is in flux,” he added. “Imagine what will happen if this railway somehow advances, bringing with it environmental devastation and even more leverage for China in our affairs.”
AMBITIOUS PLANS
More than 100 years ago, Americans were among the foreigners who rolled into the heart of South America with ambitious plans to build railways. The ruins of their grand designs for the Brazilian Amazon, called the Devil’s Railway because of the thousands of workers who died building it, are a testament to the dangers of relying too heavily on commodity exports.
Officials slowly abandoned the railroad, parts of which are now swallowed by jungle, after rubber prices collapsed generations ago. These days, China is the one suffering an array of setbacks in railroad projects across the region, at a time when the demand for Latin America’s commodities — like soybeans, iron ore, copper and oil — has slowed. Last November, Mexico abruptly cancelled a Chinese-led bid to build a US$4.3 billion (155 billion baht) high-speed rail system after accusations the Mexican government had favoured contractors who were part of the consortium. In Honduras, two years have passed since Chinese investors announced the railway linking the Caribbean Sea to the Pacific. Yet Miguel Servellón, an official with the state agency promoting the project, said it was “still a long way from happening”, listing obstacles like a complex environmental approval process.
In another project aimed at finding an alternative to the Panama Canal, the Colombian president, Juan Manuel Santos, said four years ago that Colombia and China had a plan that was “quite advanced” to build a railway linking the Pacific to the Caribbean. But the mood has changed considerably since then.
“It’s a subject that was mentioned in 2011 and subsequently had minimal relevance,” said Daniela Sánchez, the director of the ColombiaChina Chamber of Commerce.
In Venezuela, Chinese companies actually broke ground on a 465km high-speed railway, part of a grandiose plan by president Hugo Chávez, to “rebalance” the population away from the coast.
But while Venezuela’s government boasted that passenger service would start in 2012, the project has been fraught for years with work stoppages and money shortfalls on the Venezuelan side. The Chinese authorities say that more than half of the railway has been built, though Venezuelan news media reported in June that work camps on the route had been abandoned.
“The process would be faster if we had abundant capital,” Liang Enguang, deputy general manager of the China Railway Engineering Corp’s Venezuelan unit, said.
SCEPTICAL RESPONSE
An even bigger project floated by a Chinese telecommunications tycoon, a 275km canal across Nicaragua, intended as a rival to the Panama Canal, has been met with broad scepticism about its feasibility as well as protests by farmers living along the proposed route.
Despite the obstacles, China has pressed ahead with the twin-ocean railway across Brazil and Peru, building on trade between China and Latin America that surged to $285 billion last year, from $12 billion in 2000, according to figures from the International Monetary Fund.
Lucas do Rio Verde, a farming outpost of 70,000 people, could find itself almost in the middle of the proposed 5,300km route, raising hopes that it could be transformed into a major agricultural shipping hub.
But in the shadows of the grain silos towering over soybean fields and the meat-processing plant here, the responses have often involved more shrugging than jumping for joy. “I don’t doubt that China has the money and know-how to make this happen,” said Ricardo Tomczyk, the president of an industry group representing soybean farmers. But “we know that Brazil’s bureaucracy is more formidable than building a railway across the peaks of the Andes”.
More enthusiastic supporters of the venture argue that the recent flux in the Chinese economy is merely a blip in China’s rise in Latin America. Though some economists have noted the steady decline in China’s foreign currency reserves, Chinese banks and engineering companies are still expected to have ample funds for the $10 billion project, they say, despite the recent drop in China’s currency, the renminbi.
BARGAINING POWER
Some political analysts say that the decline in commodity prices and Brazil’s stumbling economy could actually enhance China’s bargaining power, helping it to persuade the local authorities to accept Chinese terms for the railway.
“Barring a more intense crisis in China, Chinese investors still wield enormous financial clout, far more than the strained players in the Brazilian market,” said André Nassif, an economist at Fundação Getúlio Vargas, an elite university in Rio de Janeiro.
Still, political leaders, farmers and environmental activists are eyeing China’s difficulties in completing railroads elsewhere in Latin America. They point out Brazil’s particularly nettlesome bureaucracy, its laws prohibiting China from hiring its own labourers, a web of auditing courts, and the capacity of dozens of different prosecutors to cripple megaprojects with lawsuits.
“On top of all that, we have a very fragile government,” said Otaviano Pivetta, the mayor of Lucas do Rio Verde, noting the push to impeach President Dilma Rousseff, who supports the Chinese railway project. “Sure, I’d like this to happen, but we cannot ignore the obstacles.”
China already outranks the United States as Brazil’s largest trading partner. But while Chinese demand for commodities fuelled the growth of farming cities like Lucas do Rio Verde, exports of soybeans and corn are still largely taken to ports on deplorable public roads like BR-163,
a 1,765km route cutting across the Amazon. Stretches of the road remain unpaved, raising freight costs. When it rains, some truckers along muddy stretches simply find themselves stuck for days.
OPENING NEW MARKETS
Scholars of China’s ties to Latin America say the proposed railway would go well beyond cutting shipping costs, reflecting Beijing’s efforts to secure raw materials, improve its food security and find new markets for Chinese engineering and rail firms at a time when the nation’s economic growth is slowing.
“The Chinese don’t fully trust that the US won’t try to restrict them at certain strategic choke points,” said R Evan Ellis, a professor at the US Army War College Strategic Studies Institute, pointing to China’s reliance on shipping lanes like the Panama Canal.
Some political leaders in both Brazil and Peru have welcomed the Chinese proposal, gauging its seriousness by the fact that Li Keqiang, the Chinese prime minister, personally promoted the project while visiting both countries in May. Chinese officials agreed to deliver a feasibility report in about a year.
The governors of three states in the Brazilian Amazon that the railroad would traverse are voicing support for the railway. But even some who stand to benefit from it acknowledge the vexing array of challenges. “I don’t want to be pessimistic about their railroad, but it will be very hard,” said Marino Franz, a former mayor of Lucas do Rio Verde.
Powerful political and business figures, whose river ports and soybean processing centers could be threatened by the railway, are already blasting the Chinese venture. “I don’t believe in it,” Senator Blairo Maggi, a soybean farmer and former governor of Mato Grosso State told his counterparts in the Senate.
Beyond the opposition among powerful Brazilian agribusiness interests, environmental groups are also marshalling resistance to the railway, claiming that it could accelerate deforestation in the Amazon River basin. Brazil’s labour laws, which make it considerably difficult for companies to hire foreign workers, are another potential obstacle, in contrast to railroads in African countries that the Chinese have built with their own labourers.
Then there is the record of large infrastructure failures in Brazil to consider. One mega-project after another has been stalled or abandoned in recent years, often because of corruption, lack of money, bureaucratic hurdles, cost overruns, or all of the above.
RESHAPING THE REGION
“With all due respect, the African countries are a little bit more desperate,” said Boston University scholar Kevin Gallagher. “In Latin America, there’s more red tape, some of it good, some of it bad.”
Of course, other Chinese infrastructure projects have made progress in Latin America, helping reshape the region. In Argentina, where Chinese companies are upgrading a dilapidated cargo network, imports of railroad materials and trains from China reached around $700 million in 2014, up from $50 million in 2011. In Ecuador, state-owned Chinese banks have already put nearly $11 billion into the country, building a dam, roads, highways, bridges, and hospitals.
Some in Brazil argue that Chinese companies are learning from their successes and setbacks. Sinopec, the Chinese energy producer, built a $1.3 billion gas pipeline there. Now Brazilian officials are investigating claims of gross overbilling in its construction. With Brazil’s economy ailing, some powerful officials are signalling that they may be willing to accept China’s proposal, while also suggesting that the railway could be pursued with a less ambitious, piecemeal approach.
“The Twin-Ocean Railway could be done in parts,” Nelson Barbosa, Brazil’s planning minister, told the Senate, emphasising two stretches where farmers have clamoured for railroads.
Mr Gallagher said the railway ranks among the largest infrastructure projects in Latin America in the last century. “China will have to race up the learning curve for this to succeed,” he said. “If the Chinese can’t make this happen, then no one can.”