Over the past decade, state-owned enterprises (SOEs) from China have carved out a niche as owners and operators of electric utilities in South American countries through acquisitions of energy grids. As SOEs shift from their previous role as mostly builders to investors in large energy assets, policymakers in South America and in Washington should consider the implications of having these companies at the helm of such services.<\/p>\n
Countries should assess the risk of Beijing directing its SOEs to use their positions as leverage in the event of a diplomatic conflict. Under these circumstances, SOEs could increase the cost of energy, and go as far as to disrupt<\/a> services.<\/p>\n Although such measures might constitute an extreme response, China has been willing to exert commercial power in disputes with other countries, as a recent episode with Australia has shown.<\/p>\n Furthermore, energy grids are increasingly interwoven with the digital infrastructure of cities \u2013 providing an opening for China to introduce backdoors<\/a> into critical infrastructure. As a result, South American leaders may be less willing to reject Beijing\u2019s claims in international bodies on myriad issues, ranging from the origins of covid-19 to human rights, if basic services hang in the balance.<\/p>\n US$ 24.4 billion<\/p>\n From Washington\u2019s standpoint, China\u2019s growing role as a service provider could improve perceptions of its economic engagement in the region, paving the way for stronger relationships with South American countries and edging out the US.<\/p>\n This could generate more support for Beijing\u2019s broader policy objectives<\/a>. US policymakers should engage<\/a> South American countries to safeguard their energy grids by communicating these potential risks and taking on more leadership in infrastructure development in the region.<\/p>\n Despite occasional hype<\/a>, the Communist Party of China (CPC) has largely refused to cut excess capacity in SOEs. One alternative has been to encourage them to pursue international contracting \u2013 first through the \u2018Going Out\u2019 policy and later with the Belt and Road Initiative (BRI).<\/p>\n Supported by cheap state financing, SOEs can participate<\/a> in projects that for-profit firms cannot compete with. Beijing also supports <\/a>SOEs efforts to capture market share, often irrespective of commercial gains, in sectors that it deems strategically important.<\/p>\n Firms such as State Grid have an impressive track record of building energy grids in developing countries, particularly in Sub-Saharan Africa<\/a> and in West Asia, outcompeting other firms through Beijing\u2019s subsidies.<\/p>\n Through this work, SOEs have amassed a wealth of experience working in tough environments, making them attractive partners for Latin American countries that may have unreliable energy grids. Today, SOEs own nearly US$24.4 billion in energy grids in South America, with US$8.9 billion in deals closing or reaching a sale agreement in 2020 alone.<\/p>\n
\nthe total value of energy grids owned by Chinese SOEs in South America \n <\/div>\n <\/div>\nChina\u2019s firms enter South America through non-competitive means<\/h2>\n
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