Bulatov, international observer

In 2023, China’s Belt and Road Initiative (BRI) will celebrate its 10^th anniversary. Within the framework of this global project, trade and economic relations between Beijing and the countries of Latin America and the Caribbean (LAC) are developing. The active start of China’s work with the countries of the region can be dated back to 2005. However, the focus on infrastructure has become especially noticeable since the global financial crisis.

This marked the beginning of a new chapter in China-LAC relations, in which loans for infrastructure projects undertaken by Chinese companies have become the cornerstone of trans-Pacific ties, especially in LAC countries with strained relations with Western international financial institutions. Chinese contractors have begun infiltrating some LAC countries en masse through open tenders that do not involve government-to-government agreements or financial support from Chinese state-owned banks.

Between 2008 and 2019, Chinese financing to the region rivaled the World Bank’s global lending capacity, with both institutions approaching the half-trillion US dollar mark. In Latin America, the volume of Chinese loans in some years exceeded the total volume of lending by major Western financial institutions (although not all of these loans were aimed at infrastructure projects). Countries such as Venezuela, Brazil, Ecuador and Argentina have become major recipients of Chinese financial support.

Countries such as Jamaica and Trinidad and Tobago also received significant loans proportional to the size of their economies. Smaller amounts of credit were given to Chile, Peru and Colombia, although Chinese contractors successfully participated in large tenders in these countries. By 2023, 21 countries in Latin America and the Caribbean have become participants in the PP, although formally joining the initiative does not necessarily mean eligibility for funding. Many of these countries were already recipients of Chinese loans before joining the PP.

This is often taken for granted now, but one of the most important factors contributing to the success of Chinese financing has been the removal of unilateral binding conditions. For decades, at least since the debt crisis of the early 1980’s, borrowers have been required to comply with a structural adjustment program as a condition of financing. Some aspects of its implementation may have worked, but others clearly have not, as evidenced by the World Bank’s admission that the 1980\s were the “lost decade of development.”

Sovereign states were forced to choose a “liberalization trajectory” that was often at odds with their approaches to doing business. In this context, the lack of political conditionality in Chinese financing, whether under the PP brand or not, has been welcomed by those critical of the US-centric global development system. However, it is important to note that even if Chinese loans were not accompanied by political conditions such as liberalization and governance reforms, they were often accompanied by stricter commercial requirements designed to ensure repayment of funds.

At the same time, it should be noted that in the LAC countries, large infrastructure projects have become a source of disputes and conflicts. The evaluation of individual PP projects required consideration of their economic and social returns, as well as an assessment of socio-environmental costs (a number of BRI projects in Latin America and the Caribbean face environmental problems). The construction sector, both within the region and beyond, has acquired a controversial reputation regarding issues of corruption and accountability. Critics of the Chinese approach to financing infrastructure projects note its “lack of transparency”.

A distinctive feature of Chinese infrastructure projects is that they sometimes rely on imported Chinese labor, although the extent of this varies by region, with some countries placing strict restrictions on the import of labor. While governments in Central America and the Caribbean are more willing to accept an influx of Chinese labor, the phenomenon is less common in South America. Using Chinese workers reduces costs for both parties. But host countries find themselves at a crossroads: they must decide how much of China’s infrastructure is aimed at creating local jobs and how much is about delivering projects quickly and cost-effectively.

Although many initially debated the merits and features of the PP, skeptics subsequently recognized that the initiative has become an important factor in the economic development of the LAC countries. As various Chinese-funded projects spread throughout the region, the prevailing view was that China was capable of challenging US regional hegemony.

However by 2018 according to a number of Western studies, a trend has emerged according to which there has been a significant reduction in Chinese loans to the region. After exceeding $5 billion annually since 2009, this figure fell to $2.1 billion in 2018 and $1.1 billion in 2019. This was not just a hiccup, but rather a new trend, confirmed in 2020, which became the first time that Chinese banks did not issue a single loan to the region. In subsequent years, the total number of loans did not reach $1 billion per year.

A number of experts believe that a decade after its appearance, the idea of BRI is experiencing a “midlife” crisis, and not only in the Arab League zone. A certain uncertainty has emerged where once success seemed inevitable. This is, in particular, due to the emergence of a large number of competing brands that are less China-oriented. In addition, China faced a foreign debt crisis for the first time, renegotiating problematic contracts worth $52 billion between 2020 and 2021. This highlights significant miscalculations in China’s lending to development programs abroad. At the same time, despite the decline in overall Chinese borrowing, investment by individual companies not backed by state-owned banks has continued, many of them increasingly through public-private partnerships.

Thus, it can be stated that China is making adjustments to its global PP initiative taking into account the successes and failures of the last decade, as well as changes in global geopolitics against the backdrop of domestic economic problems. These changes will certainly affect Beijing’s relations with the LAC countries, which are already entering a new phase.

A source