In two weeks all eyes will be on Viña del Mar, Chile, when China sends a delegation to the Pacific Alliance ministerial meeting on March 14-16; and the United States will be noticeably absent. China has been a defining presence in Latin America and the Caribbean (LAC) over the last 15 years, a presence that has sharpened as the U.S.’s economic weight has faded.
Since the turn of the millennium, China has soared in importance as an economic partner for Latin America and the Caribbean. China’s huge market is now the top export destination for South American goods and the second largest export destination for LAC products overall. China is also the second source of foreign direct investment for the region. In recent years, Chinese banks have sometimes provided more financing for LAC governments than all Western development banks combined.
But what has this “China boom” meant for the economies and societies of Latin America and the Caribbean? To answer this question, we partnered with economists, political scientists, and ecologists from eight different Latin American countries in our recent book China and Sustainable Development in Latin America. We researched case studies in sectors most affected by China’s economic rise, including: agriculture in Brazil; oil in Argentina, Colombia, and Ecuador; mining in Bolivia and Peru, manufacturing in Mexico; and solar energy in Chile.
Our results? China has driven a commodity boom that is challenging the capacity of governments to sustainably manage their economies and economic policy.
We find that overall China’s demand for raw materials has driven production in directions that are unsustainable and threaten long-term political and social stability. Oil production, large-scale mining, and agricultural production in the Amazon are historically linked with social conflict and environmental degradation. Environmentally, we find that LAC exports to China use or contaminate over twice as much water per dollar, and produce over 10% more net carbon emissions per dollar, compared to LAC exports to the rest of the world. And our case studies reveal that Chinese demand has driven a new spike in conflicts related to natural resource production.
Latin American countries have developed some of the most advanced social and environmental legal protections in the world. Such protections can help mitigate the negative social and environmental impacts of commodities booms. Recent innovations in this vein range from procedures to ensure consultation with affected communities before new projects can begin (common across the region), Ecuador’s “rights of nature” (which allow any interested parties to sue polluters, even if their own private property is not affected), and Peru’s trailblazing steps on transparency (including joining the Extractive Industries Transparency Initiative).
The China boom has presented Latin America with its first major test of these standards. Where governments have placed a high political priority in developing and enforcing these standards, our results show that Chinese investors have complied. In our Peru and Mexico case studies, governments have recognized where problems might arise in labor relations (Mexico) or water contamination (Peru) and acted swiftly to address potential problem. Chinese investors responded by not only complying but also by approaching local governments to seek out additional training in these standards.
In another example, Bolivia’s prior consultation process revealed that the town of Tacobamba was opposed to locating a new joint Chinese-Bolivian tin refinery by a nearby mine. In response, the Bolivian government collaborated with the investors and local towns nearby to find a solution. In the end, COMIBOL, the state-owned mining company, found land over 25 miles away for the facility, in Agua Dulce, Villa de Yocalla, where the community welcomed its presence.
Where countries lack the political will or institutional capacity to enforce these standards, however, investors and communities alike can suffer. In Ecuador, new Chinese oil concessions presented the first major opportunity for the application of the country’s prior consultation process. Unfortunately, instead of seeking majority approval from the affected indigenous communities, the government took the shortcut of securing approval from a few tribal leaders, hardly representative of the broader community. Since then, major protests have targeted the Chinese oil companies as well as the government, and drilling has not yet begun.
China’s presence in Chile this month signals that it will continue to play an important role in the region’s development in the years to come. At the 2015 China-CELAC meeting, China committed to $250 billion in investment by 2019. China’s 2016 “white paper” on Latin America and the Caribbean calls for more investment upstream and downstream from the traditional resource extraction sectors and in transportation infrastructure to create robust supply chains. The Chinese-financed Nicaragua Canal is expecting to begin construction this year, and China is currently in discussions about other major infrastructure projects, including hydropower dams, railways, and highways. Communities in Latin America and the Caribbean and Latin Americanists abroad will be watching to see if governments can harness this investment for sustainable development, or if they will turn their backs on their progress on a series of innovations in environmental and social standards and procedures.
Rebecca Ray is a pre-doctoral fellow at Boston University’s Global Economic Governance Initiative and a Ph.D. candidate in economics at the University of Massachusetts-Amherst. She is also the lead author of China and Sustainable Development in Latin America: The Social and Environmental Dimension.
Kevin Gallagher, PhD, is a professor of global development policy at Boston University’s Frederick S. Pardee School of Global Studies, where he co-directs the Global Economic Governance Initiative and the Global Development Policy Program.