KEY TAKEAWAYS
KEY TAKEAWAYS
As the Trump administration looks to compete more effectively with China in Latin America, it should take stock of the various ways in which China’s relationship with the region has evolved over the past four years. China’s economic engagement with Latin America is changing in notable ways, alongside shifts in China’s economic landscape and industrial policy. China’s diplomatic outreach is also evolving as the country seeks to maintain and deepen political and economic ties to the region while pursuing a position of leadership within the Global South.
Amid these shifts, views of China in the region are also evolving, as countries weigh the effects of China’s goods and capital flows and the value and legacy of past projects and assistance. In much of the region, China is arguably viewed through a more critical lens than it once was, although future perceptions of China as a political and economic partner will be shaped in large part by the extent of Latin American interest and trust in partnership with the United States.
Future policymaking should consider the following three developments in China-Latin America relations, noting that all will have critical implications for the depth and breadth of China-Latin America interactions, as well as prospects for U.S. hemispheric relations. A solid understanding of China’s priority sectors and projects will be fundamental if the United States aims to compete economically with China in the hemisphere. Current Chinese engagement differs from the region’s experience during the peak of the Belt and Road Initiative (BRI) — around 2015 and 2016, when many new large-scale projects were announced or considered.
Additionally, views of China as a viable and reliable partner have tended to run counter to views of the United States. When the United States is viewed especially positively, perceptions of China worsen, and vice versa. A productive and cooperative U.S. agenda will be fundamental to maintaining and advancing U.S. interests and partnerships in the region. Absent that, China is well-positioned to further expand its already extensive diplomatic and economic activity, prioritizing regions where the United States has withdrawn and strengthening ties with countries — including long-standing U.S. partners such as Colombia — that see value in counterbalancing U.S. influence.
The past few years have been characterized by a slowdown, on average, in Chinese economic engagement with Latin America. This slowdown does not apply to trade, which continues to grow and has underpinned the China-Latin America dynamic for more than two decades, driven by China’s pursuit of food, energy and broader supply chain security. However, investment — whether greenfield or mergers and acquisitions (M&A) — and financing have declined somewhat as Chinese companies focus on smaller projects, often in high-tech sectors that support China’s own economic growth objectives.
Chinese financing to regional governments was once a prominent feature of the relationship, but the Latin American and Caribbean (LAC) region has received relatively few loans from China’s policy banks — China Development Bank (CDB) and the Export-Import Bank of China (Ex-Im Bank) — for several years. Between 2019 and 2023, the region received an average of just over $1.3 billion per year from CDB and Ex-Im Bank (see Figure 1), compared with peak development finance institution lending in 2010, when CDB alone issued nearly $25 billion to the region. The Chinese Loans to Latin America and the Caribbean Database recorded only two loans to a single country, Brazil, in 2023, totaling $1.3 billion.
Figure 1. China Development Bank and Ex-Im Bank Finance to Latin America and the Caribbean, 2005-2023 (US$ Billion)
In addition to dwindling sovereign loans to the region, China’s foreign direct investment (FDI) in Latin America has also slowed. Data on Chinese FDI in the region show a notable downward trend in project announcements over the past few years. This is reflected in a tapering of greenfield FDI project values and a more pronounced drop in the value of Chinese M&A.
As shown in Figure 2, average Chinese greenfield FDI began leveling off as early as 2014, with a subtle rise on average ever since then. Rather than tapering, the value of China’s M&A has declined in LAC (see Figure 3), with growth first slowing in 2014 and then steadily falling after 2020, based on a five-year moving average. The Economic Commission on Latin America and the Caribbean similarly found that in 2022, Chinese acquisitions of Latin American and Caribbean assets were the lowest in a decade by number of projects. As a percentage of total M&A in the region, Chinese acquisitions trailed those of U.S., Australian, European Union, Canadian, and Chilean companies.
Figure 2. China Greenfield FDI in LAC by Year, 2003-2022 (US$ Million)
Figure 3. China Mergers and Acquisitions in LAC by Year, 2003-2022, (US$ Million)
Even as the value of China’s overall economic engagement slows, the number of actual projects has grown. Chinese companies aren’t leaving the region — they are focusing their efforts on smaller deals in a specific set of industries. These include services and manufacturing, where other international companies have also expressed growing interest, but also frontier industries such as information and communications technology (ICT) and renewable energy, which China views as fundamental to its own domestic economic growth. As Chinese President Xi Jinping has stressed to national and provincial officials alike, China is pursuing a “primary task of high-quality development” that relies on scientific and technological innovation. This “primary task” is being carried out both at home and abroad, including in Latin America.
Recent analysis by the Inter-American Dialogue suggests that in Latin America, China is increasingly focused on the development of “new infrastructure” (新基建), a term that encompasses industries such as telecommunications, fintech and energy transition that are broadly innovation-related but also key components of China’s economic growth strategy. Indeed, the concentration of Chinese investment in these industries has grown over time in the region, with ICT, renewable energy technology and, increasingly, electric vehicles (EVs) accounting for the bulk of this activity (see Figure 5). “New infrastructure” industries accounted for 58 percent (around $3.7 billion) of total annual Chinese FDI in the region in 2022 and over 60 percent of the total number of FDI deals announced by Chinese companies that year.
Figure 4: China FDI in “New Infrastructure” Industries, 2003-2022
At this point, Chinese M&A are mostly focused on the region’s electricity generation and transmission industries. For instance, in 2020, China Yangtze Power, a subsidiary of China Three Gorges, announced plans to acquire Luz del Sur, Peru’s largest utility company, which is responsible for delivering electricity to the south of Lima and beyond. Through that deal, China Yangtze Power also acquired interests in Inland Energy, which was involved in the Santa Teresa I dam and in the construction of the Santa Teresa II, Lluclla and Lluta power generation plants. China Three Gorges also holds stakes in Peru’s Chaglla and San Gabán III dams. In Chile, China Southern Power Grid bought a stake in the energy transmission firm Transelec in 2018, and State Grid acquired energy distributor Chilquinta Energía in 2019 and CGE in 2020. In total, electricity generation and transmission deals accounted for nearly 74.4 percent of total M&A transactions over the past five years and a significant amount ($16.9 billion) of total Chinese FDI value in the region during that time frame.
Looking ahead, it will be critical to understand the transformative effect of targeted Chinese investment and trade across Latin American sectors, while also noting that China’s interest in BRI-era megaprojects has waned in favor of smaller-scale technological and innovation-related ventures, as well as the minerals and metals that support them.
Latin American stakeholders have mixed views of China. After three decades of enhanced engagement by Chinese companies, banks and other actors, the region has assessed the benefits and drawbacks of wide-ranging Chinese economic activity. While most countries are interested in expanding their exports to China and attracting new investment, especially in growth-promoting sectors, concerns about project quality, debt levels and surging Chinese imports are evident across the region.
China’s approach to economic engagement with the region has produced a mixed environmental record, even as China promises a greener BRI. China has played a principal role in the delivery of renewable energy solutions and in promoting transport electrification, but Chinese trade and investment are still heavily focused on extractives. China also remains a major driver of large-scale soy and other agricultural production in Latin America, with implications for environmental sustainability. Quite a few of China’s large infrastructure projects have drawn criticism from international and regional NGOs, including State Grid’s transmission lines in Brazil, the Coca Codo Sinclair dam in Ecuador, a Peru dredging project that has since been abandoned and others.
Concerns about the extent of economic dependence on China have also surfaced. In Peru, for example, China Three Gorges and related Chinese firms have been viewed as attempting oligopolistic behavior, given their large presence in the electricity sector. Those fears increased in 2020 when China Yangtze Power announced plans to acquire Luz del Sur.
In Chile, certain politicians have also expressed concern about the degree of the country’s economic dependence on China, even though investment there is still more limited than in many other parts of the region. The country’s national economic prosecutor, the Fiscalía Nacional Económica, scrutinized Chinese acquisitions after China Southern Power Grid bought a stake in the energy transmission firm Transelec in 2018, and State Grid acquired energy distributor Chilquinta Energía in 2019 and CGE in 2020. Following the GCE deal, State Grid controlled over 57 percent of Chile’s regulated energy distribution.
At the same time, the region is grappling with surging exports from China, especially in relation to “new infrastructure” industries. According to data from China’s Guojin Securities Research Institute, as of 2023, two Chinese companies — BYD and JAC — accounted for approximately 55 percent and 12 percent of Latin America’s EV market, respectively, excluding hybrid electric vehicles. BYD’s sales to the Latin American region grew by a staggering 1,443 percent between November 2022 and November 2023. A third Chinese company — Geely, which owns Lotus, Polestar and Volvo — reached tenth place in 2023, with a 1.5 percent market share in the region.
China’s current focus on exporting low-cost, high-tech inputs can be enormously helpful as the region pursues energy transition, emissions reduction and digital transformation. But not all countries are prepared to absorb major growth in imports and projects. For some, Chinese exports are overwhelming or are perceived as threatening to local industry. As China doubles down on science and tech production, efforts to offload overcapacity in strategic sectors will be met with ongoing resistance from competitor industries. Mexican, Chilean and Brazilian steel tariffs were a recent reaction to China’s efforts to offload one part of its overcapacity. Brazil’s solar and EV tariffs, though largely symbolic, are another example of regional resistance to booming Chinese exports. The impact on Latin American manufacturers will no doubt grow as Chinese policymakers aim to boost their competitiveness in more sectors, such as semiconductors, medical equipment and machine tools.
Beyond all of this is a reckoning in the region with China’s own economic limitations and what it can realistically bring to bear at this juncture in support of the region’s development. Chinese economic activity, technical cooperation and donations still feature prominently in Latin America and the Caribbean, but countries such as Honduras — which sacrificed its ties with Taiwan in 2023 in pursuit of new, China-backed infrastructure investment — may very well be left waiting. Moving ahead, Latin American nations will need to consider whether their expectations for engagement from China are consistent with their own national planning objectives, and also in line with China’s current economic realities and priorities.
China’s views of the region have also shifted over time. Perceptions of risk appear to have changed based on China’s own challenges in the region and current limitations on Chinese financial resources. Venezuela has been an especially challenging partner for China — so much so that Chinese banks stopped issuing finance to the country in 2015. Despite continued political ties between China and Venezuela, Chinese companies — and especially their employees — have for many years viewed doing business in Venezuela as dangerous and problematic. In a 2017 report titled “Study of implicit factors in country's security risk assessment — A look to Venezuela’s security risk,” China National Petroleum Company analysts Cao Minquan, Wang Jiwei and Wu Qiang noted wide-ranging risk factors for employees of Chinese companies, concluding that structural violent crimes have become part of the socioeconomic fabric in Venezuela. They suggested an increase in uncertainty for Chinese actors brought about by the “growing gap between the rich and the poor” and rising poverty levels.
When encountering problems at the project level, Chinese companies have increasingly sought to protect their assets, sometimes through legal channels. As attorney Alex Hao noted, “In early 2022, a Chilean court suspended a tender rendered to a Chinese lithium investor following an appeal from indigenous communities.” In the same year, Chinese mining company Junefield initiated an ad hoc arbitration against Ecuador. Junefield insisted that it lost control over a gold and silver project in Ecuador as a result of activist intervention.
At the same time, China understands the economic and political value of its partnerships with the region and, as a result, has prioritized the development of people-to-people ties. Numerous Chinese actors are engaged in diplomatic outreach in the region to strengthen political linkages and facilitate much of the trade, investment and other economic deal-making underway. As it stands, no other Global South country — and few in the Global North — compares to China in terms of economic and diplomatic outreach in developing regions, a product of decades of intensive BRI-related and other engagement. China’s economic activity is evident in every corner of the globe and involves governments of all political leanings, including Taiwan’s diplomatic allies.
Moreover, China’s activity in the Global South — whether carried out by Chinese companies, government bodies or Chinese Communist Party organizations — extends even to the most local of administrative levels. This includes expansive and sometimes decades-long engagement in small towns in Latin America in pursuit of various types of project development. For example, China’s 15-year-long outreach in Chile’s Coquimbo region has yet to produce notable commercial or economic outcomes, but its diplomatic, commercial, educational and provincial representatives continue to engage there in pursuit of strategic infrastructure and mining deals.
Both China and Latin America remain committed to continued engagement and view certain aspects of their relationship as fundamental to future growth objectives. Latin America and other developing regions continue to play a central role in China’s pursuit of “new quality productive forces” — the promotion of high-tech, high-efficiency and high-quality industries to bolster economic growth. As the United States and other developed nations restrict market access for China’s high-tech output, Latin America and other developing regions will only grow in importance to Chinese exporters.
Latin America is also viewed in China as a critical source of support for its wide-ranging interests and objectives — whether on Taiwan or numerous other issues, including internet governance, human rights, privacy and other matters where China’s views differ from those of the United States and other nations.
Even amid economic challenges, China will continue to engage with Latin America — and with a degree of urgency. A worsening economy in China might even accelerate this process.
Margaret Myers is a senior advisor to the Latin America Program at USIP and managing director of the Institute for America, China, and the Future of Global Affairs at Johns Hopkins School of Advanced International Studies.