For the past 15 years, the willingness of the People’s Republic of China (PRC) to give billions of dollars in loans across Latin America created the perception that the country has been spending unlimited resources to woo allies in a region where the United States historically carries significant influence.
Far less visible are the PRC’s concerted regional efforts to reshape commercial supply chain architecture, cyber and telecommunications systems, and markets to depend on Chinese technologies, standards, and hardware for the country’s long-term benefit and the U.S. loss. To support this strategy, the PRC developed a growing state-sponsored media machine that now wields a larger footprint than all Western media combined in the hemisphere. The strategy’s elements call to:
- Acquire ports, electric utilities, and space exploration facilities in the Southern Cone. These milestones provide the PRC with access to the South Pole, establish their expertise in infrastructure development, set standards in the ongoing bids to develop 5G networks, and change regional trade routes through the Paraná River dredging project.
- Expand surveillance through “safe cities” projects. These initiatives provide governments with surveillance capacity to fight crime in urban areas, but the data infrastructure gives the PRC real-time, unfiltered access to massive amounts of data and intelligence. The technology agreements expanding 5G and internet infrastructure also give the PRC regional online dominance over the next decade. Authoritarian regimes use safe cities technology to suppress internal dissent.
- Access to strategic ports and controlling territories in Central America. The PRC has new access to the Panama Canal and the Colón Free Trade Zone. In El Salvador, the PRC negotiated port control, purchased an island, and sought privileged economic control over roughly 15 percent of the national territory.
- Expand the reach of the state-run Xinhua media conglomerate. This helps the PRC push an anti-U.S. narrative and introduce its presence as benevolent.
Across the region, the PRC’s strategy increases support for authoritarian regimes connected to what is known as the Bolivarian Joint Criminal Enterprise (BJCE) — a network of allied companies, regional structures, and historically linked individuals operating across the globe — and other anti-democratic populist governments. It also enhances surveillance used for political control and repression, increases PRC-sponsored transnational organized criminal activities, grows corruption and impunity, and reduces accountability. These developments erode trust in the democratic process, fundamentally undermining democratic institutions, rule of law, and stability in the Western Hemisphere.
A focus on commodity-based lending
China’s expanded economic outreach (2010–2015) in Latin America focused on commodity-based lending. China first focused on Argentina, Brazil, Ecuador, and Venezuela — all countries under the BJCE’S political sway. Out of $137 billion given out by the PRC’s main lending banks from 2005 to 2020, about 90 percent went to those countries, broken down as follows: Venezuela ($62.2 billion), Brazil ($29.7 billion), Ecuador ($18.4 billion), and Argentina ($17.1 billion).
These countries share three characteristics that made them attractive targets for China’s lending program. First, each has abundant raw materials and domestic markets for Chinese manufactured goods; and second, each has limited access to international credit institutions. To reduce financial risk, the loans were tied to commodities such as oil, which in the cases of Venezuela and Ecuador were particularly ill-timed and, over time, onerous. Additionally, as each major borrowing country had centralized decision-making power in the president’s person, there was little oversight regarding the projects’ viability or long-term sustainability.
In Venezuela, Nicolás Maduro negotiated directly with Chinese investors about large-scale public works projects. In Ecuador, former President Rafael Correa signed off on seven hydro-power projects. Despite the economic boom of the 2010s, many projects eventually failed, stalled, or unraveled following controversies due to labor conditions, overpriced contracts, project delays, environmental degradation, and other sustainability issues.
COVID-19 played a role
Following this string of setbacks, the PRC redefined its priorities in Latin America. Policy loans administered from the China Development Bank and China Export Import Bank dropped significantly since 2015, and in 2020, China did not extend any new loans.
While 2020 may have been an anomaly due to the COVID-19 pandemic, the two pre-pandemic years also show a significant decline in funding. China’s new strategy does not abandon ongoing investments and loans but redirects new resources toward creating a hemispheric infrastructure that uses standards, regulations, systems, and supply chain nodes dependent on the Chinese technology. One important focus is the region’s electrical grids, where the PRC purchased outright or invested billions of dollars in existing electricity providers in Argentina, Brazil, Chile, and Peru, with lesser electricity investments in other countries.
The PRC shifted external investments, popular during the first phase, to targeted foreign direct investment in this phase. This gives China direct control over regional ports, waterway chokepoints, urban transport, electrical generation, and interoceanic cable construction. It also expands PRC control over technology-heavy sectors including telecommunications hardware and standards, surveillance technology, internet connectivity services, and smartphone services.
This ongoing focus on technological investments and infrastructure allows the PRC to establish regulations, norms, and operational terms in broad strategic areas. Once in place, these networks will drive big data and trade toward Beijing. This infrastructure will be extremely difficult to replace once in place.
The new multitiered strategy involves decentralized engagement with actors including local governments, companies, and individuals, who directly or indirectly advance the PRC’s objectives. These entities develop economic ties, shape China’s public image, and in some cases, directly advance the central government’s political interests.
PRC ambassadors in each country, usually through a Chinese Communist Party (CCP) Central Committee department, facilitate these broader outreach efforts. Because the resulting subnational deals are not state to state, they often go unnoticed and unreported.
A bid for economic and technological dominance
As a Chinese academic noted in 2018, the PRC recognizes that Great Power competition is now more about system design and rule-making competition than market scale competition. As technology industries moved toward improved quality and interoperability, China’s focus in Latin America shifted to integrating systems, capturing market advantages, and setting technological standards.
China’s broad, strategically integrated approach to investment spreads throughout the Southern Cone. Projects span across Argentina, Brazil, Chile, Paraguay, and Uruguay. Investments focus on Argentina as a strategic partner and Chile as a stable base for investment opportunities through the Chamber of Chinese Companies in Chile. China’s strategic efforts in the region center on critical aspects of control over and access to regional and technological infrastructure.
But Panama is the PRC’s crown jewel in Latin America, given the Panama Canal’s geostrategic importance, the Colón Free Trade Zone, and Panama’s status as a global banking hub. After gaining control of the canal’s Atlantic and Pacific sides through Hutchinson Whampoa, Ltd., in 1997, the PRC now occupies a dominant position in a vulnerable global supply chain chokepoint.
The decision of the Juan Carlos Varela government to break ties with Taiwan and recognize Beijing in June 2017 was a PRC victory. Panama’s decision was also a blow to the United States, considering the historic U.S. Panama Canal control and role as Panama’s most important security and economic partner.
The PRC’s “strategic envelopment” of Panama now includes: Joining the Belt and Road Initiative, ensuring continued Canal control, expanding Chinese banks, increasing Chinese telecommunications companies, and influencing domestic politics. The PRC paid former President Varela $143 million in nonpublic government “grants” and facilitated a $38 million deal for Varela’s liquor company to sell products in China, in exchange for switching diplomatic recognition from Taiwan to Beijing. It demonstrates the PRC’s lack of transparency, which appears in other major infrastructure cases, where PRC companies are connected to significant financial irregularities.
The growing Chinese effort to shape media
As the CCP changed its strategic investment strategy, PRC’s soft power engagement shifted to expanding Chinese media presence and spreading Confucius Institutes across the hemisphere. The official “media going out policy” of 2007 was ordered to “tell China’s story well” in Latin America, “provide an alternative to Western media discourse, and present China’s perspective on major international issues and events.”
Confucius Institutes focus on cultural exchanges, teaching Chinese, and local engagement and grew from six in two Latin American countries in 2012, to 39 in 20 countries by 2017, and 39 in 25 countries by 2020. These institutes “deepen relations between the region and China, increasing the value of the region’s geographical area of influence and common language.”
One of the largest and most important outlets tasked with “telling China’s story well” in Latin America is Xinhua Español, the Spanish-language, Chinese-owned news service that provides content and a traditional wire news service, television programming, a YouTube channel, and social media platforms. While updated information is not available, Xinhua, in 2016, had 21 bureaus in 19 countries in Latin America and claimed to have 200 regional media subscribers and an additional 200 nonmedia subscribers, mostly government ministries that receive the news service for free.
The PRC’s well-funded and ongoing sharp power efforts fall short of direct military confrontation but move beyond the traditional realm of soft power. This presents a multitiered set of challenges to the United States and its regional allies, where the cost of not engaging in this regional theater will be high.
U.S. ties to the region
Despite the advances of the PRC, the United States retains significant capabilities to blunt these advances and maintain its position as the primary partner of choice in the hemisphere. This must begin with a focused, persistent, and coordinated messaging effort providing accurate information to shift the narrative to a discussion of the true cost of PRC engagement.
The United States has many ties to the region that the PRC cannot duplicate, replicate, or replace. The first is the Latin American diaspora communities in the United States that number in the tens of millions, with no comparable communities in the PRC. The second is that dollar remittances from these diaspora communities to their home countries total tens of billions of dollars a year ($6 billion in El Salvador alone, in 2020), which is direct support to families the PRC cannot hope to match. These two factors, in addition to the shared hemispheric history, provide deep cultural and economic ties that far surpass what China can hope to offer, and can be used to shift the policy focus in the hemisphere.
Over time, PRC actions in strategic arenas will have a significant impact on continuing technological development, the collection of mass data, interoperability, and cloud processing. Just as important, these efforts will likely simultaneously marginalize U.S. efforts to build up democratic institutions, strengthen rule of law, and combat corruption. The PRC’s overall lack of transparency, authoritarian model, and disregard for holding business partners or government officials accountable all contradict U.S. strategic interests in the hemisphere. Engaging with those countries, while simultaneously engaging with the diaspora communities and the media, could help reverse this marginalization.
* Douglas Farah is a Visiting Senior Fellow in the Center for Strategic Research (CSR), Institute for National Strategic Studies, at the National Defense University. He is also the president of IBI Consultants, a national security consulting firm. Marianne Richardson is a Research Coordinator for IBI Consultants and National Defense University. Her work focuses on migration, transnational systems, and finance.
**This article is adapted from the original publication in Strategic Perspectives Series by the Institute for National Strategic Studies at National Defense University.
Series Editor: Denise Natali