In the centre of Buenos Aires, Argentina, there stands a proud modern white building with four red letters on the front: ICBC (Industrial and Commercial Bank of China). In 2012, the ICBC, owned by the Chinese state, got approval from the Central Bank of Argentina to take more than  80% stake in Standard Bank Argentina, the first acquisition of a Latin American financial institution by a Chinese bank. This, in the eyes of many, shows just how much Chinese influence has grown in recent decades not only in Argentina, but all over the region.

China’s presence in Latin America is now undeniable. In the Colombian capital, Bogota, a Chinese engineering company is building the city’s metro system. In Bolivia, the giant Chinese battery company, Catl, is set to start ‘the historic industrialization of lithium’, a key component of the batteries in electric vehicles, the sales of which are expected to surge in upcoming years. Examples of China’s establishment in South America are increasing. This has triggered serious concerns within the United States, which is troubled by its biggest rival taking hold in what has historically been its sphere of influence. The US Southern Command (branch of the US Army overseeing American security interests in the region) has expressed its concern, stating that Beijing is “seeking to establish global logistics and basing infrastructure in our hemisphere in order to project and sustain military power at greater distance”. The Chinese don’t currently have any military bases in South America, with their only overseas military base being in Djibouti. However, Chinese power and influence over Latin America takes other forms: commercial influence, natural resources extracting infrastructure, and diplomatic “donations”, such as Covid vaccines or public infrastructures like stadiums. What is the extent of Chinese influence in Latin America today? What are Beijing’s goals? And how is the US responding?

Beijing’s economic grip

To the detriment of Uncle Sam, China is becoming Latin America’s most important partner. In 2019, China’s total trade with Latin America represented $316 billion. This only heralded how deeply China’s industry would take root in Latin America today. For example, in Brazil and Argentina, Uber and Deliveroo are overshadowed by their competitor “99” which has been acquired by the Chinese company DiDi, who previously bought out Uber’s operations in China in 2016. China’s commercial strategy in Latin America is being perceived as an alternative to Western companies, selling the same, but cheaper. And it works. Not only for Didi and “99”, but for any daily-use goods, ranging from cars to telecommunication. The other way around, Chinese imports from South America are worth taking into account ($165 billion in 2020), demonstrating an intensified Sino-Latin American market.

In addition, China has also sought to develop infrastructure to extract South America’s natural resources.In Ecuador, the Chinese National Petroleum Corporation signed a ten-year contract allowing it to drill oil fields. As mentioned, China also recognizes the potential importance of lithium, as it vows to expand its influence, and therefore infrastructure construction in the “lithium triangle” of Bolivia, Argentina, and Chile.  It is therefore not surprising that mining accounts for 27% of all Chinese investments in Latin America. Why? There are three reasons. Firstly, as an investor, China is looking to obtain dividends in the form of resources or profits once mining infrastructure is fully developed, with its strategic investments in lithium demonstrating its long-run economic ambitions.  Secondly, it is possible that China expects recognition and gratitude from Latin American countries with emerging economies for helping them develop their industrial potential, translating to easier political, diplomatic and commercial concessions. Lastly, China’s interest in Latin America’s natural resources may have an underlying, long term political agenda. For this, “the resource curse” must be explained.

Typically, it is assumed that democratic states have a social contract with citizens, providing them a voice to govern themselves, in return for their financial contribution in the form of taxes. However, if a state finds stable income in an abundant natural resource, such as oil or lithium, it is less concerned with taxation from citizens, and therefore less incentivized to give citizens a voice. Thus, incumbents take the opportunity to expand and secure their executive powers, and in rare cases, might compensate the degrading of democracy with investments into public infrastructure to ensure the public’s acquiescence, as it is the case in Singapore, where to compensate the lack of democratic voice, Lee Kuan Yew’s dictatorship transformed the city-state into the  “Monaco of the East”.

It is therefore possible that China’s important investments in the mining sector are long-term political bets, hoping to see the natural resource curse operate. This could potentially foster more autocratic regimes in the region, which China hopes would be more compliant towards Beijing’s demands and expectations, at the expense of Washington.

There is an undeniable commercial dependence developing from Latin America towards China, and many fear that China is leading Latin America’s emerging economies into a debt trap. For South American emerging economies, having China as a client is a reassuring and reliable source of income that contributes to domestic stability. But as decades pass, these same countries are susceptible to becoming dependent on Chinese savoir-faire for their infrastructure, primary resource extraction, and even basic goods. This dependency would make any decision from a Latin American country to distance itself from China very costly, which appears to be the plan for China. 

Checkbook diplomacy

It is no secret to any foreign affairs enthusiast that China is seeking to checkmate Taiwan. In recent decades, it has been fighting to turn the last countries maintaining diplomatic relations with Taipei towards the PRC. And for this fight, the Chinese chequebook is a weapon of choice. For example, in 2016, Panama and China signed a $900 million deal allowing the Chinese Landbridge group to build a strategic commercial port on Isla Margarita. Heavy Chinese investments in shipping and telecommunications have made Panama China’s 8^th largest trading partner. In exchange, Panama officially established diplomatic relations with Beijing in 2017, abandoning those with Taipei, following which, infrastructure investments by China in the country surged.  The economic and infrastructural benefits of this diplomatic switch have stirred up the interests of many states,  such as El Salvador. After changing its diplomatic relations towards Beijing in 2019, El Salvador received a new national library and stadium in gratitude. These “gifts” from the PRC serve two purposes: Endorsing bilateral friendships, and telling Washington that even within its traditional sphere of influence, the US can’t prevent the Chinese model of international relations from prevailing.

Uncle Sam stands firm

Over the last two decades, America’s attention has shifted away from South America to the Middle East, then to the South China Sea, and now Eastern Europe. This suggests that America had hoped it could count on its implicit grip over Latin America, while it was focusing on other priorities. While Latin America seems to have been somewhat neglected by the US, some small American victories in the region during recent years prove that Uncle Sam is regaining the initiative in standing firm against China’s looming presence.

One major American victory took place in 2018 at the mouth of the Panama Canal, where China had definitive plans to build its embassy. This would have been a major symbolic blow for America, who built the Canal at the beginning of the 20^th century and kept sovereignty on it until 1999. After immense US pressure on Panama’s government, China was forced to scrap its plans. An American diplomatic source has been quoted as saying: “Of course there was pushback from the US: they weren’t going to allow a huge Chinese flag next to the entrance to the canal,” showing just how much importance America attaches to the region. Moreover, America proves its capability to go on the offensive, as it did with the “América Crece” (Growth in the Americas) initiative in 2018.

This initiative seeks to “catalyse private sector investment in energy and other infrastructure projects across Latin America and the Caribbean.” Today, ten countries have signed agreements with the América Crece program, including El Salvador, Ecuador, and Brazil. America’s financing of the South American region includes a $2 billion investment in Honduras and Guatemala, and a long-term goal of investing $2 trillion across Central and South America from 2020 to 2025. This initiative vows to maintain America’s image as the go-to contributor to economic development in Latin America.

It is also worth noting the US army’s involvement in the war on drugs on the continent, especially in Colombia. For more than five decades, the US army has been attempting to eradicate the drug trade. Since 2016, the United States has provided more than $1 Billion worth of aid to fight insurgents and drug traffickers and from 2020, taking more direct action, US troops have been deployed on the ground to counter narcotraffic. Most crucially, the United States maintains a military presence all over the region not only in drug operations but also through physical bases. In 2019, after nearly a decade of rule by the anti-US President Rafael Correa, Ecuador established friendlier relations with America, with the new President Lenin Moreno giving the US military permission to use the Galapagos islands, which former President Rafael Correa had said “were not for gringo use”.

In addition to hard power, America holds a robust soft power that might be hard for China to undermine. In the minds of many Latin Americans, the American dream is very much alive. The United States remains an idealised land of opportunities, and the archetype of a modern society. This is partly the result of more than a century of financial aid, such as the “Alianza para el progreso” financial aid program conducted between 1961 and 1970. It vowed to spread “modernization” and ensure American ideological supremacy over the region against the Communist Soviet Union and Cuba. This aid supply has become somewhat of a tradition, and Latin American countries know they can always count on their northern ally in times of need. In any Latin American nation, the United States is omnipresent in security, commerce, culture, and politics. In many of the 33 Latin American countries, the American dream is part of the collective subconscious.

Conclusion

The current situation in Latin America resembles the Cold War fight for influence, in what seems to be a repeat of history. However, this time, America’s antagonist has established an unprecedented grip on the region, and there is little America can do to undermine it other than injecting their own funds and re-affirming diplomatic ties. The era of American-backed coups is over, meaning China has much more room to pursue its quest for global hegemony and forcing American isolation. But despite all that, cultural ties and established financial and military assistance, along with America’s diplomatic determination to safeguard its traditional sphere of influence, remain an obstacle to China’s expanding influence. Despite Beijing’s ambition and the immense economic and diplomatic means it’s employing, it seems that Washington won’t give up the fight so quickly.