Double Handshake

Conventional wisdom has it that, in the eyes of China, Latin America and Africa are largely interchangeable: vast tracks of land full of precious commodities. It’s simple, really: China invests billions building mines, derricks, roads and schools abroad in exchange for a steady supply of oil, iron ore, copper and bauxite to feed the factories back in Zhejiang. And so, if it’s truly all about the commodities, then when demand plunges, as it has in the last nine months, China should start getting cold feet about, well, being in places like these.

Indeed, the New York Times recently ran a piece on China’s retreat from Africa. Here’s the gist:

But so far Guinea has not gotten what it really wants from the world’s fastest growing economy: a multibillion-dollar deal to build desperately needed infrastructure in exchange for access to the impoverished nation’s vast reserves of bauxite and iron ore.

As global commodity prices have plummeted and several of China’s African partners have stumbled deeper into chaos, China has backed away from some of its riskiest and most aggressive plans, looking for the same guarantees that Western companies have long sought for their investments: economic and political stability.

The article goes on to suggest that China’s misgivings in Guinea extend to the rest of the continent. Whereas China would once invest in places forsaken by the West, the country is now reining in expansion plans (at best) and pulling out (at worst). Should we believe the hype? Aleksandra Gadzala, at her excellent blog China in Africa, offers a counter argument:

Indeed, while some Chinese companies might be fleeing, the general trend is seemingly one of firm restructuring. China is continuing to invest in natural resource sectors across the continent, with projects picking up now that the weather is improving. Small-scale entrepreneurs are likewise continuing to pursue independent ventures in states across the region, peddling cheap goods in African markets. Though we may be witnessing a slowdown in such trends, it is hardly the end of ‘China in Africa,’ as such.

Two points that Aleksandra mentions here can, I think, be said for Latin America as well. In fairness, I haven’t come across any reports arguing for a similar “end of China in Latin America”, so I don’t want overdo it here, but I thought I’d try to pre-empt any hungry journalists on “the Crisis beat” nevertheless.

First, the crisis may be forcing some Chinese companies here to adjust their operations, but projections for Chinese investment are rosy. This largely due to the fact that China knows that this crisis is short-term and its resource needs are long-term. Of course, it helps your companies’ long-term vision when you’re flush with cash and backed by massive amounts of foreign reserves if needed. In Peru, while some American mining interests are begging for an 11th-hour bailout from Alan Garcia to survive, China’s mining interests are begging the government for a bigger port to handle the surge of future exports in the coming years.

Second: Though commodities trade gets most of the ink, China has a definite interest in both Africa and Latin America as markets for its manufactured goods. Chinese textiles, shoes, heavy machinery, appliances and consumer electronics are everywhere in Latin America. Meanwhile, China’s big automakers Geely, Chery and Zhongxing are cutting their teeth in Latin America as they try to internationalize their brands. Finally, the small-scale entrepreneurs that Aleksandra mentions are also a major component of China’s presence in Latin America as well. These sellers will stay on even after the last ounce of copper is extracted from the Andes.

Image: Columbia.edu