Adrian Hearn “China’s Engagement with Latin America: Economic and Political Implications” February 7, 2007

Adrian Hearn spoke on the drastic effect of China's emergence as an economic and political power on Latin America.

China Invests in Latin America, Building on Local Ties
By Deborah Cheng

It is no great surprise to learn that there is a Chinatown in Havana, Cuba. It is more unexpected to discover the increasingly important role that Havana’s Barrio Chino businessmen are playing in international trade and the degree to which Chinese businesses are willing to play local politics halfway around the world.

In his public talk, Adrian Hearn, a postdoctoral fellow at the University of Technology, Sydney, examined the impact of Chinese diplomatic and trade relations in Latin America. He paid special attention to Cuba, where he had observed firsthand the changes wrought by an increased Chinese presence in the local business community.

China is Cuba’s second largest trading partner after Venezuela. In 2004, China signed a contract to invest $500 million in the extraction and production of Cuban nickel (though China may now be backing out of this deal). China also negotiated the sale of 1,200 Chinese buses and is investing heavily in the Cuban transport sector. A recent Havana trade fair was dominated by Chinese electronics manufacturers, such as Heier, that are looking to set up production lines on the island. Key benefits for Cuba include technical training, capacity building and the growth of human capital. At the same time, the presence of Chinese state-controlled companies is politically appealing to the Cuban government.

While Chinese culture may be gaining visibility in mainstream Cuban life — Chinese soap operas air weekly and tai chi is increasingly popular — the Chinese have actually been a presence in Cuba since the mid-19 th century when they were brought over as indentured servants. From 1840 to 1875, 135,000 Chinese laborers were sent to Cuba to support the sugar economy. From 1902 to 1959, 150,000 Chinese migrant workers arrived in Cuba , mostly via San Francisco. Barrio Chino, the enclave where the Chinese community was initially forced to live, became the most populated Chinatown in Latin America during the early 20th century.

After the 1959 Cuban revolution, many Cuban-Chinese left for the United States as businesses were nationalized. Those that remained faced a high level of discrimination until the mid-1980s, though relations have since improved and ethnic societies have reemerged. As China develops its investments in the region, Cuban-Chinese are taking a greater role in bridging the business interests of both countries. Starting in the late 1990s, visiting entrepreneurs have been teaming up with local partners in Barrio Chino. While these business partnerships began legally, high taxation rates led to the development of an extensive black market.

In an attempt to formalize more Chinese business relations, Havana’s Office of the Historian dissolved the local Barrio Chino government in 2006 and established a meticulous level of control over business practices. By widening the formal sector economy, the government has been able to generate revenue that in turn has been used for local development projects such as the improvement of roads. At the same time, illicit business dealings and informal, non-state connections have been reduced.

Even in Cuba, which is more open to China than most countries, there is a sense of caution when dealing with Chinese business interests. National sovereignty is of great importance in Cuba, as it is across the region. However, China has successfully engaged with many Latin American countries across the political spectrum, and trade figures reflect strengthening relationships.

In 2004, Chinese President Hu Jintao signed landmark trade deals in Argentina, Brazil, Chile and Cuba . The agreements had significant implications for industries ranging from natural resource extraction to electronics and transport. As important as the trade deals undoubtedly were, they were also an acknowledgment of changes that were already afoot: between 1999 and 2006, exports of Latin American natural resources to China increased by over 600 percent.

Despite the wild pace of growth and expansion in trade, there is an air of caution as Latin America evaluates its new investment partner.

Skepticism of China ’s interests is more prevalent in Mexico and Central America, which lack the natural resources that attract Chinese investors. Rather, that region’s exports of manufactured goods are in direct competition with often-cheaper Chinese products. In 2002, China displaced Mexico as the United States’ third largest source of imported goods. In resource-rich regions such as Brazil and Chile , the concern is that Chinese investment in resource consumption may not build a sustainable economic platform and that Latin America may be moving to a new form of dependence on China.

With the Chinese presence growing so rapidly in the region, history suggests that the United States would play a very active role. Why has the U.S. done so little, Hearn asked, to address China’s increasing influence in its own backyard?

The scholar gave two reasons for the U.S. stance — its current focus on the Middle East and the prioritization of U.S. business interests in China. The fact that 20 percent of U.S. imports still flow through the Panama Canal where a Chinese company operates major ports on both sides has not been enough to change the geopolitical equation. Hearn did point to potential free trade agreements between Central American countries and the U.S. which may change U.S. calculations if they prove to significantly boost investor interest in higher value-added manufacturing in that region.

While China typically downplays its political relationships with Latin America, there have been some indications that its new partners are under pressure to recognize the Mainland’s claim to Taiwan . Currently, 12 of the 25 nations that recognize Taiwan are in Latin America. However, in the last two years, Grenada and Dominica switched their allegiance after receiving large amounts of foreign aid from China.

The last decade is indicative of China ’s growing economic role in Latin America . Hearn’s observations of Havana suggest that China could benefit from building relationships with its diaspora communities throughout the region.

Adrian Hearn is a Postdoctoral Research Fellow at the Institute for International Studies at the University of Technology, Sydney. His lecture on February 7 was co-sponsored by CLAS and the Center for Chinese Studies.

Deborah Cheng is a graduate student at the Energy and Resources Group.