Latin America between the eagle and the dragon

Luis L. Schenoni, Latin America Goes Global, October 20, 2016

Is China striving for political influence in Latin America or just trading? We recently examined this question through an extensive, systematic analysis of patterns of Chinese trade and investment in the region from 2003 to 2014.

The answer is essential to deciphering the intentions behind the historic expansion of the Middle Kingdom’s economic relations with Latin America and other regions and, indirectly, to unveil Beijing’s long-term strategy vis-à-vis Washington’s interests.

How would you go about finding out whether China is engaging Latin America for political or merely economic reasons? Our research team at University of São Paulo led by Francisco Urdinez concluded that analyzing one country or a group of them, as most researchers had been doing so far, could not capture these trends. Instead, we proposed an all-encompassing survey of Latin American commercial and financial relations both with China and the United States.

Our initial hypothesis was that whether it was Latin American countries driving the Sino-Latin American relations or China driving those relations—the closest relations with China would be with those the U.S. was least engaged with—commercially, financially and diplomatically. To test this, we developed an index to measure each country-year linkages with the U.S. and observed whether these linkages correlated with the development and depth of Sino-Latin American partnerships.

We found that, indeed, China was engaging with the countries that the U.S. was least involved with—proving our hypothesis correct and leading us to dig deeper.

But why would Chinese trade and investment aim for those countries where the U.S. was least influential? We figured three plausible explanations were provided by the literature.

The first we dubbed “diversification” and consists of an optimistic assessment that sees China as having little to do with the process of the U.S.’s relations in the region. Proponents of this point of view argue that Latin American countries that find themselves marginalized by Washington—for ideological or whatever reasons—are the ones to look to Beijing. This theory is persuasive (it persuaded us for a while) because it matches the rhetoric of many Latin American leaders and their quest for greater autonomy. For the proponents of the “diversification” theory, there is nothing to worry about; China is just a simple instrument of Latin American countries and the U.S. can re-shift relations simply by enhancing its bilateral relations with those looking east.

The second hypothesis that could explain the correlation between China’s ramped up relations with the outliers of U.S. policy is what we call “accommodation.” In this alternative story, Latin American countries are not agents; it is Beijing that is seeking to develop denser networks with countries where the U.S. is less influential, but doing so because it wants to avoid conflict. Through this strategy, the idea goes, China is seeking to reduce the probability of creating friction with American interests while expanding—for broader commercial and economic reasons—in a region the U.S. historically considered its backyard. For proponents of “accommodation” Beijing is not interested in competing with the U.S. (at least yet) but knows that seeking more Lebensraum is a natural desire and wants to avoid any potential conflict.

The third hypothesis is the bleakest of all. If we adopt the pessimistic view of John Mearsheimer of the University of Chicago, it could be that the Chinese are bluffing about their peaceful intentions and enacting a strategy of active “contestation.” If this were the case behind our initial findings, it is because Beijing is using economic statecraft to buy friends in the region amongst those forgotten by Washington, taking them away from the claws of the eagle and adding them to the claws of the dragon (to put it graphically, if not dramatically).

Deciding which of these three hypotheses is a better fit is difficult to do in one study. But we took a shot anyway.

We did so first by testing and rejecting the “diversification” hypothesis. Under this scenario, if Latin American countries were those approaching China, it would make no difference for them to engage the Chinese private or public sector. Conversely, if Beijing was the main agent in the process, actors highly influenced by the Communist Party (such as state owned enterprises and public banks) would be those engaging Latin American countries outside Washington’s sphere of influence purposively.

Our findings support the latter story. Beijing seems to be the main agent in the process of China’s engagement in those countries farther outside the U.S. sphere of influence in the Western Hemisphere.

The findings led us to reject the “diversification” hypothesis that China is simply being courted by Latin American countries seeking another partner. Instead, given the nature of the relations—driven largely by state and communist-connected actors—Beijing would appear to be engaging in its own strategy. What we don’t know which of the latter two it is: “accommodation” or “contestation.”

Neither should give the U.S.—and those that support the U.S. in the region—much reason for comfort. We predictably conclude—as almost anyone does who starts a new field of inquiry—that more research is necessary, even if Chinese investment and Chinese-driven global economic growth has slowed down. In the long term the dragon will continue to grow faster than the eagle and continue to seek to expand its influence. The question for the U.S. is how and why that will be asserted, not just beyond the South China Sea but in the Western Hemisphere.