{"id":34730,"date":"2017-04-12T09:30:00","date_gmt":"2017-04-12T09:30:00","guid":{"rendered":""},"modified":"2020-09-22T12:00:58","modified_gmt":"2020-09-22T12:00:58","slug":"9730-latin-america-s-oil-dependent-states-struggling-to-repay-chinese-debts","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/business\/9730-latin-america-s-oil-dependent-states-struggling-to-repay-chinese-debts\/","title":{"rendered":"Latin America’s oil-dependent states struggling to repay Chinese debts"},"content":{"rendered":"

As Chinese loans pour into Latin America, concerns over how the money is spent and how it will be repaid are growing on both sides of the bargaining table.<\/span><\/p>\n

Of most immediate concern for China is whether economically unstable governments such as Venezuela can pay back multi-billion dollar loans amid globally low prices for crude oil.<\/p>\n

By the close of 2015, China held US$53 billion<\/a> of Venezuelan debt. However, US think tank Inter-American Dialogue suggests<\/a> it could be as much as US$65 billion. Despite Venezuela\u2019s deepening recession, China has continued to lend, with US$2.2 <\/a>billion<\/a> in November 2016 alone.<\/p>\n

\u201cMany thanks for all the support you have given Venezuela in 2014, 2015, and especially 2016. Our older sister China has not left Venezuela alone in moments of difficulty,” said Venezuelan President Nicol\u00e1s Maduro in a <\/span>televised speech<\/a>.<\/p>\n

But the changing global economic environment means that China cannot continue lending to Latin American countries worry-free. Analysis by Inter-American Dialogue shows that in 2016, 92% of China\u2019s loans to Latin America went to Ecuador, Venezuela and Brazil, nations which are all facing serious economic challenges according to the World Bank.<\/span><\/p>\n

The Brazilian economy has been shrinking<\/a> since 2011, while the economy in Venezuela also continues to deteriorate<\/a>. In 2015, 15 years of sustained economic growth came to an end <\/a>in Ecuador.<\/p>\n

Experts say the main challenge facing economic cooperation between China and Latin America is whether Chinese investment could better promote sustainable development that is less risky and more environmentally responsible.<\/span><\/p>\n

Oil loans around the globe<\/strong><\/p>\n

Take Venezuela as an example. The country\u2019s economic growth has all but ground to a halt leaving its credit rating in tatters. It is already unable to repay the US$19 billion in loans<\/a> that it owes to China, according to Barclays Capital Inc.<\/p>\n

Wu Guoping, a senior researcher at the Institute of Latin American Studies, part of the Chinese Academy of Social Sciences, says that Venezuela\u2019s economic difficulties are linked with the inherent limitations of its oil sector.<\/span><\/p>\n

Venezuela has the world\u2019s largest oil reserves but produces less than 20% of Saudi Arabia\u2019s output because its oil is heavier and so more expensive to extract and refine.<\/p>\n

\u201cIt\u2019s only profitable if the price of oil is at US$60 or higher,\u201d says Wu. But that price hasn\u2019t been seen since November 2014.<\/p>\n

Venezuela repays its loans to China with oil to the equivalent value. Many oil-for-loans contracts were signed when the price of oil was high but now the country is under pressure to supply much larger quantities than earlier expected.<\/p>\n

According to Reuters, Venezuela started to fall behind with oil shipments to China and Russia in 2016, with the national oil company Petr\u00f3leos de Venezuela failing to supply oil worth US$750 million that year.<\/p>\n

As well as missed shipments and refining difficulties (China had to build a new refinery specifically for the heavier Venezuelan oil), it has to be shipped halfway around the world to reach China. Taken together, Wu thinks this is too costly an option for China.<\/span><\/p>\n

Loans from China’s policy banks to Latin America<\/strong><\/p>\n