This piece first appeared here on ‘China Calling,’ the blog from Newsweek’s Beijing bureau on Wednesday, March 4, 2009.
Let’s hope China’s top diplomats have frequent flier accounts. Given the amount of time and money they’re spending on travels, President Hu Jintao and Vice President Xi Jinping’s loose wallets could benefit from some free upgrades. It’s all part of the South-South strategy to build a coalition of cooperating countries across Latin America and Africa that sell their natural resources—oil, in particular—to China. What’s worrisome is that while the rest of the world is focused wholeheartedly on sorting out domestic financial crises, cash-rich China (while itself undoubtedly suffering from the collapse in U.S. demand for its exports) is on a shopping spree, racking up resources from nations in need of ready money.
In no other region are Chinese diplomats more quickly accruing passport stamps than in Latin America, where Vice President Xi just returned from a visit to five countries. This trails the jet-streams left behind in West Africa, where President Hu visited five nations in February alone, promising further investments and infrastructure spending — including a bridge in Mali which China has called its largest gift ever to the region. Critics argue all were granted with eventual oil rewards in mind.
The same dynamic is undoubtedly at play in Venezuela, where Xi pledged US$8 billion towards a joint development fund, to which Venezuela will also contribute US$4 billion, and which focuses on social and civil society projects. Yet there is grease behind the deal: agreements were also signed outlining preliminary steps towards new drilling projects in Venezuela’s Orinoco basin, the creation of a company to manufacture oil tankers, and multiple refineries on Chinese soil, bringing the number of such arrangements to nearly 300.
In Brasília, Xi and President Luiz Inácio “Lula” da Silva inked a deal between Petroleo Brasileiro (Petrobras), Brazil’s publicly traded but state-controlled oil company, which will supply between 60,000 and 100,000 barrels daily to Unipec Asia, a subsidiary of China Petroleum and Chemical Corporation (Sinopec), and 40,000 and 60,000 barrels a day to PetroChina. In exchange, a memorandum of understanding promises China Development Bank and Sinopec will provide up to US$10 billion to help finance Petrobras’s development in fields discovered over the past three years under several kilometers of seawater, rock and a hard-to-penetrate layer of salt. The agreement also includes the potential joint development of oil industry projects and supply of goods and services to Petrobras by Chinese companies.
That Venezuela is ready to pony up oil for China is nothing new: President Hugo Chavez was positively giddy last week when he affirmed, “All the oil that China needs for its development in the next 200 years is here in Venezuela.” However, the deal inked between Xi and President Luiz Inácio “Lula” da Silva is China’s first major push into trade with Brazil beyond agricultural commodities (in 2008, China became the top importer of Brazilian agricultural products). It is also notable because Washington has long relied on this South American giant as a democratic-liberal, pro-market counterweight to several increasingly left-leaning nations on the continent, and because this has long been considered U.S. territory—or, more derisively, its “backyard.”
China wants to show that it is “no longer a follower” on the global trade scene, said Song Hong, a trade researcher with the Chinese Academy of Social Sciences, a government think tank. And with President Obama taking a leisurely pace on Latin America relations, China is easily stepping in as a mover and shaker in the region. Following the new arrangement, Celso Amorim, Brazil’s foreign minister, called ties to China “the most important South-South relationship.” Obama, on the other hand, so far has only lightly signaled his interest to work with his Brazilian counterpart; the two will discuss biofuels and the Doha round of global trade talks when Lula treks to Washington in March.
Brazil’s estimated reserves of 12 billion barrels in offshore oil, plus another 100 billion barrels estimated in the pre-salt fields , should help propel Petroleo Brasileiro (Petrobras) into “the heavyweight category of oil production companies,” as the government intends. If such reserves don’t signal its petro-power ascendancy, at least receiving China’s funds brings it into closer affiliation with a group of big players. Not just Venezuela, but Russia also has recently been the recipient of China’s largesse. Last week, China lent Russian oil companies Transneft and Rosneft US$25 billion in exchange for a guaranteed oil supply of 300,000 barrels a day for 20 years. “New ties to China, Russia, and other quasi-super power nations show Brazil trying to balance relations between Latin America and extra-hemispheric emerging markets,” explained a Council on Hemispheric Affairs country report published February 23.
As with other countries these days, times are tough in Brazil: 2009 kicked off with deteriorating economic conditions, rising unemployment and low consumer demand, so GDP growth may not reach the 2 percent mark this year. In response, explained the Americas Society in this recent analysis, Petrobras unveiled an expenditure increase plan, in tune with the government’s stimulatory actions, that includes US$28 billion to finance exploration of these recently discovered pre-salt oil fields. China’s US$10 billion is a hefty chunk of this. Given cash-strapped times, there’s no better time for China to put its reserves to good use.
Latin America has long served as a raw resource supply for the U.S., though over the last century it has fought to move into higher value-added industries. When Hu Jintao stopped through Cuba, Costa Rica and Peru last December, picking up free trade deals along the way (for a regional total of five since negotiations with Argentina accelerated last month), Mexico’s Ambassador to China, Jorge Guajardo expressed worries in this earlier blog that China’s trade relationships with Latin American nations were focused too heavily on commodities. He sought to “encourage investment in manufacturing” as “a great opportunity for mutual development.” After this jaunt through Latin America, it looks more likely that for China, South-South cooperation is Latin America’s return trip to natural resource servitude.
With all this oil at hand, perhaps China’s diplomats don’t need those frequent flier miles, after all.