Latin America Advisor

A Daily Publication of The Dialogue

Was Maduro’s Trip to China a Success?

Presidency of Venezuela / CC BY-NC-SA 2.0
Q: Venezuelan President Nicolas Maduro this month made a three-day visit to China, his first official state trip abroad since taking office in April. Was the trip a success for Maduro? For China? In what ways? What did the visit suggest about the future of China's role in Venezuela as a source of financing and other aspects of bilateral relations? A: Riordan Roett, director of the Latin American Studies program at the Johns Hopkins School of Advanced International Studies: "President Nicolas Maduro's recent visit to China was a welcome escape from a Venezuela racked with food shortages, high levels of violence, internal fights and conflicts between ideologues and pragmatists in the government. The president received a $5 billion loan from his hosts to provide support for much-needed social investment projects. Whether the funds will be better used than in the past remains to be seen. China, in turn, will receive increased oil exports from Venezuela. During the visit, Venezuelan Oil Minister Rafael Ramírez stated that oil exports to China should reach 1 million barrels per day within two years, up from 49,000 barrels in 2005. It is estimated that China has loaned Venezuela $46.5 billion between 2005 and 2012, 55 percent of the loans it has issued to nations in South America. This is a win-win situation for both nations. China is desperate for guaranteed supplies of oil; given the perilous state of the economy, Venezuela is desperate for any source of financing available. Foreign direct investment is almost non-existent in Venezuela; its access to other sources of funding is very limited given the bleak outlook for the economy. The visit to China allowed Maduro to bask in the warm welcome that is characteristic of Chinese diplomacy; it provided a platform for the government of President Xi Jinping to showcase its commitment to South-South relations. The Venezuelan government has stated that it has about 400 agreements of cooperation with China, ranging from technology and trade to agro-industry and infrastructure. It will take many more such agreements to solve the chaotic state of affairs in Venezuela today." A: Margaret Myers, director of the China and Latin America program at the Inter-American Dialogue: "The sorts of deals announced in association with Maduro's visit weren't entirely unexpected. China's strategic partners, and especially those with considerable oil reserves, rarely leave an official visit empty-handed. But they come at a time when Beijing has been paying more attention to investment risk in Venezuela. Government-affiliated studies warn of contract adjustment, profit-draining petroleum sector tax policy and project delays. Venezuela has also fallen short of promised oil exports to China in recent years. Assuming they materialize, however, these deals seem a clear indication that China is still interested in maintaining strong economic ties to Venezuela. They are also an indication of a prevailing sense in Beijing that risk is sufficiently mitigated by payments in oil and close relations with Venezuela's leadership. China is in no way enamored with Maduro. Chinese firms and banks would be just as likely to negotiate oil-related deals with an opposition president. Maduro and his predecessor have simply made deal-making a relatively painless process for China. Venezuela is also part of a broader effort among Chinese oil companies to diversify and increase supply. Plans for additional financing and investment may indeed expand production capacity, but they won't do much to strengthen Venezuela's economy beyond the short term. Chinese loans already account for a quarter of Venezuela's external debt. And the South American nation is increasingly dependent upon oil exports for economic growth. Without considerable domestic reform, these deals could easily disappoint." A: Gustavo Roosen, president of IESA in Caracas: "China continues to be the paramount economic partner of the Venezuelan government. It seems that the existing agreements between China and Venezuela have had difficulties and inconsistencies in their execution. Thus, the 28 cooperation agreements that have now been signed at the highest level in Beijing, China believes, will ensure the correct performance on the part of Venezuela. For President Maduro, it certainly resulted in a high-visibility event. China's $5 billion in financing is tied to specific projects, as well as the disbursement of the local component to be provided by the Venezuelan government. The funds to repay China will continue to come from PDVSA's sale of crude oil, which already stands at 564,000 barrels a day. None of the agreements will provide funds to cover Venezuela's current balance of payments deficit. The projects that Venezuela and China are to take on do not have a precise economic or social payback. China's growing economic involvement in the Orinoco heavy oil belt will require $40 billion in investment from the China National Petroleum Corporation, Sinopec and PDVSA. It remains to be seen whether PDVSA will have the funds available to finance its equity position. Technology and management are also important challenges for these projects. In this context, Petrobras just announced the cancellation of PDVSA's equity position in the Abreu e Lima Refinery." A: Dan Hellinger, professor of political science at Webster University in St. Louis: "In visiting China, Maduro seeks both political and economic gain. Politically, the images of the Venezuelan president meeting with the Chinese premier enhance his stature and reinforce Venezuela's movement out of the U.S. sphere of influence. Economically, these major deals with three of China's most important companies will bring, over time, one of China's most abundant resources, U.S. dollars, into the Venezuelan economy. This investment is needed not only to increase oil production oil in the Orinoco basin but also to slow the depreciation of the bolívar. The separate $5 billion in credits for social and economic development projects may provide some short-term alleviation of this problem. Bilateral trade between China and Venezuela rose from $350 million in 2000 to $23 billion in 2012, with the balance in Venezuela's favor because of the high price of oil. Still, not everything about the agreement works to Maduro's advantage. Within the PSUV, the governing party, there are growing concerns among grassroots activists about the failure of the Chavista government to break from the extractivist model. One of the new agreements significantly expands gold mining, something that could generate embarrassing resistance from the country's small but very visible indigenous sector. These are not the first significant credits from China for projects in agriculture, manufacturing and other non-oil related projects. With its integration into the Mercosur bloc, Venezuela's economy is further opened to competition from lower-cost producers in Latin America, which may make it even harder for mega-loans for non-oil related development to yield results."

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