Double Handshake

Venezuela is in serious economic trouble. Production of oil – the backbone of the economy – dropped by 400,000 barrels/day last year due to reduced demand. “Indefinite” four-hour-per-week rolling blackouts have begun in big cities as hydroelectric dams have been hit hard by a drought. And then last week, Hugo Chávez announced last Friday he will devalue the country’s currency, the bolivar, for the first time since it was introduced in 2003.

The Venezuelan people are (rightly) afraid that even more serious inflation will set in. Many rushed out last week after the announcement to buy electronics and other durable goods that would hold their value. Merchants raise their prices as a result – the exact opposite effect a currency devaluation should have.

Chávez is not amused. “‘There is no reason for anybody to be raising prices,’ Chávez said Sunday on his national television show. He explained to listeners that the ‘bourgeois’ in Caracas society would plan price increases but that they would fail. ‘People, do not let them rob you,’ he said. ‘Denounce it,’” the Washington Post reported.

But if that approach doesn’t inspire a lot of confidence in the country’s stability, consider this idea:

A shipment of Chinese home appliances will be sold cheaply in Venezuelan government stores to stop speculation by retailers after the country’s currency was devalued last week, President Hugo Chavez said Wednesday.

“A boat is coming from China. It brings refrigerators, television sets and washing machines we’ll be selling at low prices, as we already do with food products in the Mercal chain,” Chavez said of the government-owned supermarkets opened in 2003.

A single appliance-laded boat from China? Well, that should do the trick for country of 28 million people.

Hugo Chavez is a blogger’s world leader. From last month:

Venezuela’s efforts to combat severe drought conditions may include President Hugo Chavez going airborne with scientists as they try to generate rain from clouds.

Chavez has said a team of Cuban scientists are in Venezuela to fly aircraft with special equipment designed to influence weather patterns, specifically to bring on much-needed precipitation.

“I’m going in a plane; any cloud that crosses me, I’ll zap it so that it rains,” Chavez said late Saturday, according to Reuters.

Brings to mind China’s cloud tinkering during the Olympics and Beijing’s most recent set of snowfalls. Not that Hu Jintao will be manning the cockpit anytime soon.

Image: Slate

We’re on something of a Venezuela binge of late; here’s one more noteworthy item. Al Jazeera aired a nice video on China’s impact in Venezuela last week. In it, Dima Khatib reports from Caracas on how the country now leads Latin America in Chinese investment dollars. A lion’s share of these investments are in energy procurement, but there are a few lesser-known industries as well. From the video:

This mobile phone, baptized the vergatario, or in colloquial Spanish, “the very best”*, is the first Venezuelan mobile and one the Bolivarian revolution’s latest inventions. It is assembled in a mixed Chinese-Venezuelan socialist company, where China contributes to Venezuela’s new model of industrial production by providing technology and parts, while Venezuela provides all the rest …

In another socialist factory, the first Bolivarian computer is being assembled. Venezuelans hope the technology and know-how will be transferred to them by the Chinese in the future.

This talk of “socialist” companies and factories is Khatib trying to capture the rhetoric of Venezuela’s Hugo Chavez himself, who’s fond of pretending his country and China have some kind of ideological connection. In reality, China’s interests in Venezuela (and “Bolivarian computers” for that matter) extend only as far as its own economic bottom line. That’s the brand of socialism China has been practicing for twenty years, whether Chavez recognizes it or not.

H/T: Latin American News Review

*Or male genitalia, apparently

Venezuela’s Hugo Chavez says he’s planning to shutdown two of his country’s best-known golf courses. Victims of the economic recession? Nah. Just the latest move in Chavez’s Great Socialist Revolution:

“Let’s leave this clear,” Mr. Chávez said during a live broadcast of his Sunday television program. “Golf is a bourgeois sport,” he said, repeating the word “bourgeois” as if he were swallowing castor oil. Then he went on, mocking the use of golf carts as a practice illustrating the sport’s laziness.

Let’s see, where have we heard this before?

Image: New York Times

China and Venezuela signed a US$7.5 billion agreement yesterday that will include constructing a 468-km railway in the South American country. A Venezuelan official said the project, to be completed by 2012, will be the largest non-oil investment project in the history of the country. Reports of the deal cite Chinese newspaper Global Times as breaking the story, but I haven’t been able to track it at either the paper’s English or Chinese language site. New portal Sina has a Chinese language version here. Here are some details of the deal from a translation done at China News Wrap:

According to Russian news agency reports on 31 July, Venezuelan government officials stated in interviews with RN Television that the Tinaco-Anaco railroad would be 468 kilometres in length, and link together agricultural and oil-producing areas in two different states. The project is expected to be completed within 40 months. The railroad is designed for speeds of 220 kilometres per hour, and will carry 6 million passengers each year, and 10 million tonnes of goods.

Venezulan government officials said of Chinese investment in the railroad project that this is the largest investment project in the history of Venezuela outside of the petroleum industry. Venezuela and China will jointly create Latin America’s first railroad factory and railcar manufacturer. This will create 7500 jobs for Venezulans, and 100 Venezuelan engineers will be travelling to China for study.

I’m not sure if investing in a railway that connects oil-producing areas is entirely “outside the petroleum industry,” but this is still a significant development.

Other sources quote Venezuelan Public Works Minister Diosdado Cabello as saying the project will use “Venezuelan iron and Chinese technology,” to build train wagons, sleeper cars, switches and rail-welding equipment. Both countries will set up a series of joint ventures for the project, with Venezuela holding a 60% stake and state-owned China Railway Engineering Corporation holding the remaining.

As I mentioned last week, for all the press China-Latin American trade figures have gotten in recent months, China still lags far behind the US when it comes to investment dollars in Latin America – only US$22 billion by China firms in 2007, compared to US$350 billion by US firms. If this railway deal is a sign of things to come, it may not be long before China begins closing this gap as well.

“What we are doing hasn’t worked very well and in fact, if you look at the gains, particularly in Latin American, that Iran is making and China is making, it is quite disturbing … They are building very strong economic and political connections with a lot these leaders. I don’t think that is in our interests … I have to say that I don’t think – in today’s world that is a multipolar world where we are competing for attention and relationships with at least the Russians, the Chinese, the Iranians – that it is in our interests to turn our backs on countries in our own hemisphere.”

Words shared by Secretary of State Hillary Clinton at a town hall meeting in Washington last Friday. She went on to criticize the Bush administration’s failed attempts to isolate anti-US leaders in the region. To compensate, she said, this administration must engage with Latin American leaders – especially with ones we don’t like, like Venezuela’s Hugo Chavez and Bolivia’s Evo Morales – if the US wishes to remain a relevant power in the region.

Now, while I don’t think the above sound byte indicates anything as drastic as a New Cold War over the ideological future of Latin America, I do find the logic “quite disturbing.” A few thoughts:

I fully understand that it is precisely Secretary Clinton’s job to push her country’s political and economic agenda abroad, but I don’t think that makes foreign countries doing the same thing “disturbing.” We don’t hear much from the State Department when China, Russia and Iran make political and economic inroads in their respective neighboring countries. Although it was unsaid by Clinton (and feel free voice disagreement below), I think what is implied here is the chestnut about Latin America traditionally being in the US’s “sphere of influence.” The murky trio: China, Russia and Iran are suddenly on America’s doorstep, and we haven’t approved it.

First off, let me try to add a quick non-State Department perspective. There is no quicker way to raise the ire of someone in Latin America than to describe the region as “America’s backyard.” The paternalism implied by this Monroe Doctrine/Roosevelt Corollary-derived phrase really does not go over well. On top of this, despite the US’s enormous influence in region through decades of political and economic intervention, Latin America today is not the United States’ backyard anymore than Africa is the backyard of Europe. President Barack Obama kind of recognized this with his talk of a “new era” in relations between US and Latin America at the Summit of Americas last month, saying “there are no senior of junior partners in the Americas.”

If, then, the US follows Clinton’s calls for the US to re-engage with certain countries in Latin America (a great idea, as far as I’m concerned), it should NOT be in some kind of belief that doing so will prevent these countries from pursuing diplomatic, economic and, yes, military ties with China and other countries of the world. US negligence in Latin America during the Bush years did push countries toward China, but China was coming anyway. And its presence, however “disturbing,” is here to stay (and grow). The State Department returning to Caracas yelling “hi, remember us?” is not going to change that fact.

Clinton is right to point out that the US is “competing for attention and relationships” in Latin America, but this competition is not a zero-sum game. Just as fully developed nations across the planet seek to diversify their economic and diplomatic channels, Latin American countries are after the same thing.

Second point. I won’t pretend that I’m privy to anywhere near the intelligence info that Ms. Clinton is, but I feel confident enough to take issue with her line about “they are building very strong economic and political connections with a lot these leaders. I don’t think that is in our interests.”

Economically, yes, China’s rise in Latin America creates competition for US interests there. Yes, US companies must be fitter to survive in Latin America than before China arrived on the scene. Is competition a bad thing? Aren’t fostering adaptability and wealth creation (both in China and Latin America) ultimately positives for the US, in a global economy?

Politically, I think China’s presence in Latin America fundamentally differs from countries like Iran, who I peg as likely having a true anti-US agenda in Latin America. For all the “socialist solidarity” rhetoric between Beijing and Caracas (generally emanating from Caracas), the word “oil” appears in every news article I’ve read about China and Venezuela. China’s surging economic prominence in the region means a stronger political presence by default, I don’t see Hu Jintao staying up late into the night dreaming up ways to undermine the US’s presence in Latin America.

Image: CNN

Despite the global recession, China is still looking to spend serious money on securing its supply of oil and other commodities. In South America, this is especially good news for Brazil and Venezuela, two of the Asian country’s biggest suppliers.

Today, it was announced that state-owned China Development Bank would loan US$10 billion dollars to Brazillian oil giant Petrobras to ensure a long-term supply the Asian country. The state-owned oil company had been looking for ways to finance its US$175 billion five-year investment plan. Petrobras also agreed to sell 100,000 barrels of oil this year to Sinopec, China’s largest oil company.

The deals were signed by Vice President Xi Jinping, who wrapped up his five-country South American tour in Brasilia. On Xi’s previous stop, in Venezuela, he inked a deal with Venezuelan President Hugo Chavez for China to add another US$6 billion to the countries’ joint-investment fund. The money, along with a number of other agreements, will go toward increasing oil exports to China. Chavez, whose political life is largely believed to depend on the price and sales volume of oil, seemed to be pleased. From the BBC:

Mr Chavez said the Venezuela-China alliance served “common interests” and that Venezuela was committed to being an oil supplier to China “for the next 500 years”.

The Brazil and Venezuela deals, combined with the US$25 billion oil deal it signed with Russia a few days ago, bring China’s oil investment total for the week to US$41 billion. Of course these are all long-term investments, strategically signed as oil and commodity prices are severely depressed. Yet, US$41 billion in a week? Now? Not in the coming months when oil prices hit bottom and China can land better terms on these massive deals? It’s got to make you wonder if Beijing is wheeling and dealing in oil behind a pair of rosy glasses.

Image: Treehugger

As mentioned before, a number of top-ranking Chinese officials are currently on goodwill tours in Latin America. Thus far, declarations for “strengthening cooperation” and “boosting friendships” abound. Vice President / President-in-waiting Xi Jinping is now in Venezuela, having already made his way through Mexico, Jamaica and Colombia. Yesterday, he addressed President Hugo Chavez and Venezuelan entrepreneurs and “welcomed” Latin America participation in the 2010 Shanghai Expo.

The global recession has cast a dark shadow on the Expo, which is wildly anticipated within China. Last week, rumors started that the US may skip the Expo entirely as organizers are struggling to raise the US$65 million needed for a pavilion. The UK has recently reshuffled its “Expo Task Force,” and has yet to break ground on its pavilion.

Of course, things are different for most Latin American countries. China has already told Colombia and others that it “would try its best to meet [their] needs including both financially and technologically (sic).” Other Latin American and Caribbean countries are building joint pavilions instead of individually. El Salvador and Costa Rica, for example, are part of a nine-country Expo bloc. Ten countries in the Caribbean have also banded together for a joint pavilion.

Still, there are vows of participation and then there are official contracts. Many of the countries above, including Venezuela as of last October, have yet to officially sign on the dotted line or appoint a commissioner general to oversee development.

Xi’s Expo “welcome” yesterday may have been less of a friendly gesture and more of a reminder that, recession or not, participation is still expected.

Image: showchina.org

China’s state media reports that on Friday, the country will hand over control of the “Simon Bolivar” satellite it built and launched for Venezuela. It will make Venezuela the fourth Latin American country with its own satellite. It is also China’s first contract with any Latin American country to manufacture and launch a satellite.

“Simon Bolivar,” which is to be used for television broadcasting, distance learning and tele-medicine – such as transmitting x-rays and ultrasounds to distant health centers, was launched in China’s Sichuan province on October 29, last year. The satellite itself cost US$240 million and was partially financed by China.

So, does China stand to become Latin America’s space ship and satellite dealer? Perhaps. US$240 million is not a bad price for a satellite, but how about the product quality?

In the week following the launch of “Simon Bolivar” in late October, troubling reports came in from NigComSat-1 – a Chinese-made satellite launched for Nigeria in 2007. NigComSat-1’s solar panel had malfunctioned, its electrical power supply was damaged, and there were rumors that it was flying almost out of control, threatening nearby satellites. NigComSat-1, another telecom satellite that had cost US$311 million, was dead after only 18 months in orbit. China had promised 15 years.

China has also promised Venezuela that “Simon Bolivar” will be operational for 15 years. When Venezuela takes control of the satellite this Friday, you can be sure it will be kicking the tires more than once.

Image: Reuters