Sunday, January 02, 2005

China and Latin America: Partners, Rivals, or Coming Colonialism?

The Economist addresses the topic in its latest issue. Quite rightly, the writer points out that there are mixed feelings about China. While some share a fantasy that China will provide an alternative source of financing, so that the western world and its arrogant capitalists can be snubbed, others point out that perhaps the devil you know is better than the devil you don't know...
the ultimate deals are unlikely to take the form of direct capital outlays by Chinese companies, on the lines of Victorian Britain's railway-building ventures in Argentina. Instead, China may offer a “tied loan”, at very low interest rates, for projects whose execution is then assigned to Chinese state enterprises.
On the other hand, the type of investment that the Chinese are promising in Latin America (infrastructure geared toward the export of primary products) will help to ease the region's external financing constraint. That is, the new indebtedness will generate the foreign exchange that will service the new external liabilities. This is quite different than, say, Spanish investment in Brazil, which was concentrated in sectors like banking and telecommunications.

Thus, the things that the Chinese build in Latin America could act as a shock absorber in the event of a crisis. If foreign capital inflows suddenly stop, Latin America won't be stuck with a bunch of useless phone lines, but instead will be able to export itself out of the crisis using the infrastructure that the Chinese helped to build.

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