In recent years, much has been said about the strengthening of relations between China and Latin America and Colombia is no stranger to the conversation. Beyond talk of increased trade and credit, South-South cooperation, and the geopolitical tensions that China’s presence generates in the region due to its historical relationship with the US, business practices have transformed in recent years, with special relevance for Colombia.
Notably, there has been a significant increase in investment and the participation of Chinese companies in Colombia through Public-Private Partnerships (PPPs), which represents a significant shift in dynamics. The effects of the current health and social crises triggered by the National Strike could also be highly relevant for future engagement given that this unprecedented social explosion was sparked by the proposal for a new tax reform to address the country’s fiscal deficit.
The COVID-19 pandemic has affected the China-Latin America relationship in important ways
In the case of investment, flows from China have increased but continue to be lower than those received by countries such as Brazil, Peru and Mexico. Chinese investment in the region has been evolving and diversifying towards sectors such as telecommunications and clean energy. However, so far this has not been the case in Colombia.
Why has Chinese companies’ presence in Colombia grown?
Two transformations have facilitated this phenomenon. Firstly, China has changed its spending patterns in Latin America. In particular, it has reduced credit to countries in the region. This is accompanied by increasing support for Chinese companies and the development of initiatives such as the Belt and Road Initiative (BRI). This results in increasing selectivity in terms of the type of initiatives to which resources are directed. It is worth noting that as part of the BRI, the Maritime Silk Road recently incorporated Latin America. Participation in this initiative requires signing a cooperation Memorandum of Understanding (MOU) with China. To date, 19 countries in the region have joined. Yet, Argentina, Brazil, Colombia, and Mexico have not.
The consolidation of a new niche for Chinese investment through PPPs has allowed companies to finance, build and manage large infrastructure projects together with the government, and subsequently, through a concession, take charge of the operation and maintenance of the services it offers. Chinese companies initially assume the risks associated with design, construction, and possible delays in implementation. Traditionally, this mechanism has been seen as a secure investment that guarantees a stable source of income, as concessions are traditionally granted for a minimum of 20 years.
Did you know?
The project of the first line of the Bogotá metro is worth approximately US$ 12 billion and is one of the largest infrastructure initiatives in the country.
The most iconic current example of a PPP involving a Chinese company is the construction of the first line of the Bogotá metro, to be carried out by a consortium formed by China Harbour Engineering Company Limited (CHEC, a subsidiary of China Construction Communications Company) and Xi’An Metro Company Limited. This project, worth approximately US$12 billion, is one of the largest infrastructure initiatives in the country.
Since the announcement of the award, CHEC has been in the eye of the storm and has been singled out in the media for corruption scandals and irregularities in countries where it has operated. These include Malaysia, the Philippines, and Sri Lanka. However, CHEC has been present in Colombia for several years. In 2015, the National Infrastructure Agency (ANI) awarded it the fourth-generation highway (4G) Mar 2 project until 2040. This initiative includes the 254-kilometre road connecting Cañasgordas-Uramita-Dabeiba-Mutatá, El Tigre and Necoclí in the north-eastern department of Antioquia.
In Colombia, as in many other developing countries, fiscal deficits and mismanagement of public resources reduce the state’s capacity to invest in key areas, such as infrastructure improvement and social investment, which has become more urgent in the context of the pandemic. Yet, the deterioration of Colombia’s public finances is not a new phenomenon. This is evidenced by various tax reforms carried out in 2014, 2016, 2018, as well as the one the government attempted this year. Although this was withdrawn as a result of the protests, it will be modified and resubmitted to congress in the coming months. In similar scenarios, PPPs have been seen as valuable tools for financing large projects.
However, in the current national context, two factors could affect the further proliferation of PPPs. Firstly, the devaluation of the peso against the dollar increases the cost of projects. Secondly, the Colombian state has limited capacity to cover additional expenses. This is due to the increase in borrowing costs and limited access to financial markets as a result of the fiscal deficit that led to the downgrading of Colombia’s investment rating by agencies such as Standard & Poor’s (S&P), from BBB-to BB+.
Prior to the current crisis, there was evidence of a proliferation of PPPs with Chinese companies in activities that fall into three categories: Large infrastructure projects; clean energy generation; and tenders for the sale of electric vehicles.
Colombian media representations of Chinese companies and PPPs
The COVID-19 pandemic has affected the China-Latin America relationship in important ways. In Latin America, China has launched a strong strategy that many have called vaccine diplomacy, aimed at facilitating access to vaccines from Sinovac Biotech Ltd. It is a key part of the pandemic response. However, there are a number of questions about China’s presence in Colombia that are especially pertinent given the current crisis.
An understanding of future prospects for economic and financial cooperation requires a sense of how Chinese investment in Colombia has been perceived. The infrastructure and energy sectors are most relevant here. Investment figures and the positive, negative or neutral tone in which the main print and virtual media have described Chinese projects and companies in the country offer a body of evidence.
I reviewed 60 articles published between 2006 and 2021 that refer to new projects (Greenfield) and investments in existing projects (Brownfield). In many cases, the investment flows come from Chinese firms with subsidiaries in other countries, which prevents them from being included in the data. As a result, investment figures could be even higher.
The data reveal that 67% of the articles analysed present a favourable view of infrastructure and renewable energy projects, followed by 18% neutral views. Articles with a negative reading accounted for 15%.
The positive image of many of these projects is explained by the high regard with which traditional magazines and newspapers treat China’s increased interest in Colombia. In particular, they tend to advance a narrative of job creation and economic benefits that these projects are expected to generate. In many cases, information seems to replicate company or government press releases.
The sector with the most favourable view, above 90%, is the clean energy sector
Many articles were descriptive and limited themselves to presenting general information about projects and companies without making value judgements. This explains the significant share of neutral perceptions.
The negative perceptions are more diverse, arising from three main issues: Firstly, the impact of projects on the environment and non-compliance with environmental standards; Secondly, Human rights violations and violations of indigenous and peasant communities’ rights. These first two are expressed mostly in opinion columns and non-traditional media; Finally the geopolitical dynamics of China’s advance and the implications for Colombia’s relationship with the US. This set of articles also includes concerns about the involvement of these companies in strategic activities that could affect state sovereignty. Few articles address the relevance of the BRI for Colombia.
The sector with the most favourable view, above 90%, is the clean energy sector. This is followed by companies in the extractives sector and infrastructure companies. In the case of extractives companies, this is largely explained by the fact that they were the first to arrive in the country and received significant attention and were viewed with positive expectations.
Trina Solar won a 2019 auction for the execution of all clean energy generation projects proposed by the government. This 45 billion peso (US$11.5 million) initiative is the first long-term contract of this nature in the country and anticipates the creation of 10 solar farms.
75%
of public buses shall be replaced in seven Colombian cities with zero-emission vehicles by 2040.
The first farm, named Parque Solar Bosques de los Llanos 1, is located in the municipality of Puerto Gaitán, Meta and has already started operations. This is the first of several parks to be established in the eastern plains. The company will also carry out projects in Córdoba, Tolima and Valle del Cauca.
There is a convergence of interests in this category. For its part, China has expressed its growing commitment to combating climate change and developing sustainable infrastructure. Meanwhile, Colombia has made several commitments under the Paris Agreement to reduce emissions. This has encouraged more Chinese firms to participate in renewable energy projects in the country and in transport initiatives. On the latter, it is important to highlight that Colombia has committed to replace 75% of public buses in seven cities with zero-emission vehicles by 2040.
In this context, and in terms of specific Chinese companies, BYD has been positively presented in the national media. The company has been present in the country since 2012 and has won several tenders to supply e-buses to the cities of Bogotá, Medellín, and Cali. Some 1,472 buses are expected to be in circulation by 2022. This would endow Bogotá’s Transmilenio bus rapid transport system with the largest electric bus fleet in Latin America. The company was also selected to supply the capital with Latin America’s first 100% electric taxi fleet.
In the infrastructure sector, China Civil Engineering Construction Corporation (CCEC), a subsidiary of the state-owned giant China Railway Construction Company (CRCC), is described positively in the mainstream media. In 2020, CRCC was awarded the concession for the construction, operation and maintenance of the Western RegioTram project. This will be Colombia’s first electric-powered commuter train and is expected to benefit the inhabitants of Bogotá and surrounding areas. This 3.4 billion peso (US$870 million) project was established with the Cundinamarca Department governor’s office and is expected to start operations in 2023.
In contrast, the infrastructure company that stands out for its negative coverage by Colombian media is Power Construction Corporation of China (PowerChina), the parent company of renowned subsidiaries with a presence in the country, such as Hydrochina, Sinohydro, Sepco and HypeC. In particular, criticism is directed at the PPP and the formulation and execution of the Magdalena River Development Plan, which seeks to enhance the waterway’s navigability.
The country’s limited borrowing capacity from traditional multilateral banks could open up the possibility of negotiating credit with China
PowerChina, the Colombian state, and the Governor’s Office of the department of Atlántico developed this approximately 2.5 billion peso (US$647 million) initiative. However, concerns have been voiced about the lack of surrounding communities’ participation in the formulation of the plan, the possible effects on the river’s natural environment and fishers.
Projects related to extractive energies such as oil and gas, represented by companies such as China Petroleum Company, Sinochem, and Sinopec, among others, also received significant criticism for their handling of environmental and social issues.
Conclusions
China’s expansion in Latin America is a fact and the coming years will see new and increasingly diverse trade, investment and cooperation initiatives. However, this analysis reveals that the growing participation of Chinese companies in the country is viewed optimistically in terms of the positive economic potential, but there are also significant concerns about their impact on communities, the environment, and the region’s geopolitical dynamics. These concerns could spill over into other sectors that have been growing in importance, such as telecommunications and clean energy.
PPPs are a highly relevant tool for advancing the construction of infrastructure and energy projects, job generation, and Colombia’s economic recovery
To pre-empt this and continue to contribute to a welcome investment environment for Chinese companies in Colombia, firms should integrate respect for the environment, communities’ considerations, and, as has happened in some cases, strong social responsibility policies into their operations.
Finally, PPPs are a highly relevant tool for advancing the construction of infrastructure and energy projects, job generation, and Colombia’s economic recovery. This rebuilding is essential to address the country’s current fiscal situation, the COVID-19 pandemic, and the growing social demands for increased social spending. The country’s limited borrowing capacity from traditional multilateral banks could open up the possibility of negotiating credit with China to better guarantee the success of these PPPs. This would increase not only the presence of Chinese companies, but also China’s already growing influence in Colombia.
