Crisis Drives Venezuela into Arms of China

Loans strangle the South American nation, making it an easy prey for China’s hidden interests.
Gustavo Arias Retana/Diálogo | 1 November 2018

Transnational Threats

Chinese and Venezuelan flags wave in Tiananmen Square in Beijing, during the four-day visit of Venezuelan President Nicolás Maduro, September 14, 2018. (Photo: Wang Xin, AFP)

In mid-September 2018, Venezuelan President Nicolás Maduro visited one of the few international partners his government has left: China. Maduro sought funding to give his administration some relief. Although he returned without a loan, he signed about 20 agreements leaving Venezuela in an even more dependent position.

“Venezuela was the main gate of entry for China into Latin America and the Caribbean, and still is,” José Ricardo Thomas, political scientist at the Central University of Venezuela, who holds a doctorate in International Affairs from Peking University, told Diálogo. “There was a political-military elite gave the country away to China for personal gain, negligence, unsound geopolitical perception, and lack of nationalism.”

“Venezuela is at risk of becoming ultra-dependent on China, which seems to have effectively happened. It could become just a bargaining chip for superpowers’ interests,” said Mariano De Alba, a Venezuelan lawyer specialized in international law and international relations. “Venezuela became a country whose partnerships do not conform with Venezuelan interests, but to political and ideological affinities. The current scenario is one where Venezuela lost almost all its independence.” 

Oil is what matters

Although he did not elaborate on the details of the agreement with China, Maduro said one of the goals is to stabilize Venezuelan oil production. According to De Alba, the objective isn’t new, because China’s main interest in Venezuela is to increase its participation in energy production.

“They are interested in the energy sector, especially oil, gas, and raw materials such as valuable minerals. Then, to a lesser extent, their interest is in infrastructure and construction,” De Alba said. “Obviously, any world power wants to have access to key raw materials, such as oil, to maintain its pace of economic growth. Therefore, China somehow takes advantage of the void that exists in Venezuela.”

According to the Organization of the Petroleum Exporting Countries, Venezuela sent China 330,000 barrels of oil to pay part of its debt in 2017. In the first semester of 2018, oil production in Venezuela fell by 20 percent.​​​​​​​ 

The Venezuelan government announced an increase in gas prices, despite the launch of a new national system to limit the use of fuel carried out with a Chinese biometric system in Maracaibo, Venezuela, September 24, 2018. (Photo: Humberto Matheus, AFP)

Cyclic debt

The relationship between China and Venezuela is very tight, De Alba said, due to the debts the South American country incurred. China granted credit to Venezuela during the last 10 years for at least $62 billion—Venezuela still owes $23 billion.

The South American country pays its debts with oil. However, in the last three years the Chinese government exempted Maduro from repaying the outstanding loans and only collected interest.

“Maduro’s problem now is that the financial relationship between Venezuela and China has gone on several years, and the Chinese government realized that the Venezuelan regime is neither capable nor willing to implement proper economic reforms to seek a balance and get back on track toward economic growth,” De Alba said. “Now Maduro turns to China, but the Chinese are aware of the high risks of investing in Venezuela. Consequently, they agreed to give limited funding to their companies operating in Venezuela to maintain oil production going and guarantee the shipment of crude oil to their country.”

The loans tie Venezuela to China, Thomas said. There is also uncertainty about what the deals include, as both sides conducted secret negotiations.

“The challenge for most Venezuelans should also be in managing the obscure credit operations [late President Hugo] Chávez and Maduro undertook. Currently, the content of oil contracts is unknown: flows, compensations, interest rates, prices assigned to pay off the debt, etc.,” Thomas said. “Something similar is happening with the agreements signed on natural resources and raw materials. It’s unknown how much China is allowed to interfere. Finally, in case of bankruptcy or regime change, which court will the Chinese use to claim the millions of dollars they granted?”​​​​​​​ 

Geopolitical game

Thomas points out that although China tries to focus its relationship with Venezuela on economic terms, its geopolitical interest in the country, as part of its global expansion strategy, is undeniable. “It’s all a calculated, pre-established move within the support and action plan involving Beijing, Caracas, Istanbul, Havana, Tehran, and Moscow. The former carefully funds and coordinates some actions of the rest in favor of its geostrategy to control the majority of states, territories, markets, and continents to the detriment of the United States,” Thomas said.

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