China remains quiet and pragmatic on Venezuela crisis

The political hurricane that lashed Venezuela a year ago when Juan Guaidó declared himself president looked as if it would definitively reshape the country’s foundations and divide the world in two. On one side, there were those siding with the challenger. On the other, supporters of President Nicolás Maduro. With Venezuela’s crisis seemingly a black and white scenario, China occupied a grey area.

For the past decade, China, along with Russia, has been the main economic sponsor of ‘Chavismo’ – the Bolivarian economic nationalism named after charismatic former president Hugo Chávez. Venezuela owes its Asian benefactor an estimated US$20 billion, according to China’s Ministry of Commerce. With Venezuela unable to meet debt repayments and continued political instability, Beijing prudently avoids taking clear positions.

This has led many to wonder whether the Chinese government, which has long professed not to interfere in other countries’ domestic affairs, supports Maduro or Guaidó, who recently resumed control of the assembly after a dramatic tussle and being blocked from its opening session by the national guard. Or, as several Venezuelans who have followed the issue feel, China is playing both sides.

Venezuela: the world’s political crisis

On January 24 2019, little-known national assembly leader Juan Guaidó upset the applecart of Venezuelan politics on declaring himself Venezuela’s legitimate leader. The opposition called Nicolás Maduro a “usurper” when he was sworn in as President on 10 January in elections many of its members had boycotted or been disqualified from.

Reports of fraud and illegitimacy were widespread and the international community knew little about it, the opposition claimed. Citing three articles of the Constitution, Guaidó set out a roadmap for the country, calling for “an end to (Maduro’s) usurpation, a transitional government, and free elections”.

Russia, Turkey and Cuba immediately sided with Maduro. Ten Latin American countries (who later formed the Lima Group) the US, Canada and more than half of the EU – including Spain, Germany, the UIK and France – acknowledged Guaidó.

Beijing issued a more ambiguous statement: “China supports the efforts made by the Venezuelan government to maintain sovereignty, independence and national stability,” said Hua Chunying, a spokesperson for the ministry of foreign affairs.

Guided by the principle of non-interference and without losing sight of the risks to its investments of taking sides, China opted for pragmatism.

“China has been one of the political interlocutors and international economic partners most cultivated by the Venezuelan regime. Chávez and Maduro’s idea was not simply to counteract the influence of the US but to confront it,” says Elsa Cardozo, a researcher at Simón Bolívar University.

Ana Milagros Parra, head of strategic risk analysis at consulting firm IurisCorp, agrees. She says that cooperation between the two countries occurred at a time when Venezuela “was seeking diplomatic support as a counterbalance [to the US]. China represented this, as well as a seat on the UN Security Council”.

In the past decade, as commodity prices – especially oil – rose, China began to look for reliable suppliers. It became Venezuela’s second largest export market. In 2006, the first loans came from from what is popularly known as the “Chinese Fund”. It involved investments in construction, housing or energy projects, whose full amounts are unknown but which some economists and other experts in Venezuela estimate to total around US$67 billion.

“Chinese diplomacy in Latin America translates into investment. At the beginning of this year, the amount in the whole region was US$140 billion. The majority, in Venezuela,” explains Rafael Álvarez Loscher, lawyer and founding partner of IurisCorp.

That economic and political relationship continued to deepen, even when the humanitarian crisis in Venezuela worsened. In December 2017, the Maduro government joined the Belt and Road Initiative (BRI), China’s flagship foreign policy aimed at winning diplomatic allies through infrastructure investment.

China’s loans became an attractive option for many Latin American governments, especially those such as Venezuela and Ecuador that had no access to the World Bank or the International Monetary Fund, which required economic reforms as condition of loans.

“This encouraged very bad programmes, consumption policies instead of investment,” says Guillermo Arcay, an economist at consulting firm Ecoanalítica. “In Venezuela, those solid realities slipped away and now it is time to pay the debts.”

The lean years

Between 2014 and 2015, during Maduro’s first presidency, the price of oil fell drastically. Venezuela had problems paying its debt and had to double oil exports to China. At the same time, national production fell sharply, hampering Venezuela’s ability to service the debt, which China renegotiated several times.

“For two years, they gave us a grace period. They have given aid to Maduro, but that is over,” says Arcay.

Manuel Sutherland, director of the Caracas-based Centre for Research and Workers’ Training (CIFO) says: “China’s patience begins to run out when payments are delayed, and the relationship becomes more and more distant. They bring in advisors, they suggest changes in the Venezuelan economic structure, but the government ignores them.”

He adds: “They start to impose conditions that they didn’t include when Venezuela had a budgetary surplus and political and economic stability.”

Even if the regime changes, the basic problems of people’s livelihood are difficult to solve

Guaidó’s political coup brought with it an economic coup from his main ally, the US. Since Barack Obama, the US had imposed individual sanctions on people close to Maduro’s government, but it was Donald Trump who delivered a hammer blow to Petróleos de Venezuela S.A. (PDVSA), the country’s golden egg-laying goose, by banning transactions with it.

In a meeting with his Venezuelan counterpart Jorge Arreaza on January 16, Chinese foreign minister Wang Yi said that sanctions were unpopular. He also said that the Monroe Doctrine, a historic US policy warning against foreign powers’ intervention in the Western Hemisphere but which critics say was used as a tool for its own dominance of the region, was outdated. Wang added that China “firmly supports” Venezuela’s sovereignty.

China has tended towards weak or non-committal statements on Venezuela. Ma Zhaoxu, China’s ambassador to the UN Security Council, said that “China opposes military intervention in Venezuela and opposes the use of the so-called humanitarian issue to achieve political ends”.

Actions, however, have demonstrated clearer political support. In October 2019, Venezuela decided to run for a seat among the 47 countries of the UN Human Rights Council. Both Brazil and Cuba ended their two-year terms as part of the Latin American bloc (which has 8 seats of alternating duration), but the latter decided not to apply for renewal.

That left Venezuela alone to contest the seat. Two weeks before the vote, Costa Rica presented its candidacy. On paper Costa Rica presented a strong case. It is one of the countries with the best human rights indicators in the region, is highly active in global climate negotiations, and its capital, San José, is home to the headquarters of the Inter-American Court of Human Rights.

The vote, however, went to Maduro’s government, which won 105 votes including those of China, Russia, Cuba and members of the Non-Aligned Movement.

Venezuela and China have cooperated on security and other issues. Maduro made his last state visit to Beijing in September 2018 and officials including defence minister Vladimir Padrino López have attended events such as the Xianshang Security Forum.

Yet in the economic field, China has increasingly opted for caution: “A lot of noise has been made with recent agreements on agriculture and fishing, but at the same time there is the non-granting of new loans and the difficulties of paying off oil debt due to the loss of production capacity and the effect of sanctions,” says Cardozo, adding; “without making much noise, the Chinese government protects its interests and demands more and more guarantees and better conditions in each deal.”

Even though the Chinese government has been reluctant to take a clear stance on Venezuela’s political crisis, other authoritative voices in China have offered some analysis.

“The disorder in Latin America is expected to continue to spread this year. Maduro proposed holding parliamentary elections, which seemed to be intended to defeat the opposition,” Yang Chengxu, a former diplomat and head of the China Institute of International Studies (CIIS), wrote in the Shanghai municipal government-run Jiefang Daily. “Latin America is full of turmoil. The root cause is the widening gap between the rich and the poor and the sluggish economy. Even if the regime changes, the basic problems of people’s livelihoods are difficult to solve”.

Investments in Venezuela were less and less profitable. So they decided to save themselves a problem with the US and stay away from the fire

Wang Zhen, a former Chinese ambassador to Venezuela told news site iFeng that the cooperation that has taken place has been with two sovereign states, not the governments of Chávez or Maduro. Writing in the state-run Beijing Daily, Wang, who is also a researcher at the China Foundation for International and Strategic Studies CFIIS, suggested that the opposition is losing momentum. While Maduro has managed to keep the military onside, Guaidó has no achievements to show a year on from declaring himself president. Nor has he managed to rally public support, which could gradually dwindle, Wang wrote. Wang also predicts that Venezuela’s internal affairs will be resolved eventually, although he doesn’t explain how.

Nevertheless, Guillermo Arcay says the Chinese government has asked its state-owned companies with operations in Venezuela to distance themselves from the crisis-stricken country. “The intent was to avoid relations with Venezuelan oil. Investments in Venezuela were less and less profitable. So they decided to save themselves a problem with the US and stay away from the fire as much as possible. Their relationship [with the US] is worth more than they can earn in the short term here.”

Unipec, the commercial arm of the Chinese oil company Sinopec, forbade the use of vessels that had any connection with oil flows from Venezuela and China Huanqiu Contracting and Engineering Corporation (HQC), a subsidiary of China National Petroleum Corporation (CNPC) – China’s largest energy company and the country’s main oil contractor in Venezuela – terminated agreements with local suppliers. The lack of payments and the “extremely difficult situation of this project” motivated the decision, according to Bloomberg.

In September, Venezuelan news website Analítica published a letter from HQC to Sinovensa, the local partner in the Orinoco Oil Belt, which is 51% owned by PDVSA and 49% by CNPC. It read: “after a long time waiting for the pending payment, under great pressure due to lack of cash flow and capital interest, unfortunately, we are forced to issue this notice suspending the contract”.

Yet other actions suggest China is maintaining tight relations, as shown by the announcement last August of a joint venture to boost oil production.

Flirting with the opposition

The Venezuelan opposition tried to get China onside.

In May, Guaidó said he had received a communiqué from China on a possible solution to the Venezuelan crisis. He said it would be through the International Contact Group, the group of Latin American convened alongside the EU, which seeks a democratic solution for Venezuela through dialogue between the opposition and the Chavistas.

In October, just days after Maduro had won a seat on the Human Rights Council, Guaidó’s diplomatic representative in Brazil, María Teresa Belandria, said the opposition leader was in contact with the Chinese and Russian delegations.

“They have sent several groups of diplomats to hold talks and we have also had contact with the Russian delegation, especially in Brasilia,” Belandria said whilst in Sao Paulo. She explained that these would be exploratory contacts and that the interest of her team is that both Russia and China be “facilitators of the democratic transition processes”.

That the meetings took place is not certain, but it’s possible that senior Chinese officials are assessing the lay of the land in case there is a de facto change of power in Venezuela.

“It is in their interest to have an orderly transition, to ensure their investments and be certain that everything they have done is preserved in the next government,” says Ana Milagros Parra.

Arcay says: “China is the largest buyer of energy products and Venezuela is the country with the largest oil reserves in the world. There is a natural relationship that does not make sense to break. If there is a political transition, there is an interest on China’s part in maintaining a purely financial relationship, and on the side of the opposition there is no reason to refuse China’s funding.”

According to Álvarez Loscher, China can keep its options open: “When you have money, you can bet on all the different options…and how things are shaping up, so that you can make your decision at the right time. They are patient.”

China seems to be in no hurry and did not buy the idea that the Venezuela crisis would be resolved in 2019, dubbed a “decisive year” by many.

Elsa Cardozo says: “China does not seem willing to sink or to be the saviour. Nor is it a player willing to promote solutions or hinder them, once its own interests – debts, investments, presence in strategic projects – are preserved.”