On the first of September, the Central Bank of China announced that with funding from its foreign exchange reserves, China Development Bank (Latin America’s single largest creditor) had established the US$ 10 billion Sino-Latin American Production Cooperation Cooperation Investment Fund. The Fund will provide long-term finance for projects including manufacturing, high-technology, agriculture, energy, infrastructure and finance. The creation of the fund offers an opportunity to reflect on the terms Latin America must consent to in order to receive funds from China.
The new fund, like many others, will help increase Chinese exports of goods and services at a time when China is suffering an export deficit, which for many indicates the seriousness of its economic problems. But for China’s officials, this setback is just a temporary effect of the “new normal” and part of the process of adapting to market forces.
The Sino-Latin American Production Cooperation Cooperation Investment Fund is apparently part of a US$ 30billion fund agreed by Chinese premier Li Keqiang in May aimed at promoting productive capacity. Technological innovation, construction of highways and railways, airports, ports, storage logistics and natural gas pipelines will all be supported by the fund. In a little over a year, a new US$ 20billion infrastructure fund has been established and preferential credit lines totalling US$ 10billion have been ratified, among other finance initiatives.
It’s also worth remembering president Xi Jinping’s declarations at the China-CELAC Summit which aimed to increase trade between China and Latin America to US$ 500billion and redouble investment to US$ 250billion over the next ten years. In summary, China has helped to establish an investment framework that will allow it to sharply increase its supply of materials, workers, services and technology to Latin America through these new funds.
Without doubt, news of the Fund will be greeted enthusiastically by Latin America’s governments, especially those facing serious social conflicts resulting in part from economic crises. On the other hand, China’s economy is adjusting to market forces and Latin America has already learnt that when the market decides, the ones controlling the market always win. The precipitous decline in oil prices has hit various countries in the region hard and cares little whether they are big oil producers who belong to OPEC and whose main buyer is China. It cares little if they have signed agreements with China promoting a “win-win” relationship.