China’s Fate in a Post-Chavez Venezuela

As Inter-American Dialogue president Michael Shifter explained in his June 28 Foreign Policy article, “If Hugo Goes,” the political situation in Venezuela is very precarious. Given Hugo Chavez’s recent health issues, and the tumult that could accompany a political transition, “Chavistas and anti-Chavistas alike are concerned for the future of their country.”

According to Shifter, “A political vacuum in a polarized, economically troubled, highly armed, institution-less country like Chavez’s Venezuela is a recipe for trouble.” And when President Hugo Chavez announced on Thursday that he is, in fact, fighting cancer and not the mild intestinal abscess that was originally blamed for his prolonged hospitalization, uncertainty about Venezuela’s political fate only increased.

Venezuelans are not the only ones tracking the fate of their political leader. The many countries that import Venezuela’s oil are also anxiously monitoring Chavez’s health and the country’s political well-being. China, which already dispersed between $12-$27 billion in loans-for-oil and which has plans to develop oil fields in the Orinoco energy belt, is certainly among them. (data from STRATFOR)

To the extent that China-Venezuela relations are tied to Chavez, as argued today in a STRATFOR article, China has reason to be concerned. And as Gonzalo Paz explains in his chapter on China and Venezuela in China Engages Latin America: Tracing the Trajectory, since Chavez became president in 1999, Sino-Venezuelan cooperation has indeed become increasingly robust. Bilateral trade increased from some $200 million in 1998 to $9.93 billion ten years later. Chavez’s interest in engaging China certainly played a role in strengthening bilateral relations and attracting billions of dollars in strategic funding to finance cooperative ventures.

STRATFOR analysts believe that any initial chaos ensuing from a Venezuelan political transition could directly threaten China’s in-country assets (estimated at $14 billion), though they mention that follow-on governments would refrain from defaulting on Chinese loans, and that Chinese investment in Venezuela makes up only a small percentage of China’s total external investment. They also argue that in the longer term, China could lose the Chavez-supported preferential treatment that it has so enjoyed over the past few years.

But would China really be impacted by a Venezuelan political transition?

Barring prolonged transitional chaos, probably not very much. While China did receive preferential treatment when investing in Venezuela, and would take some time to establish new relationships with a post-Chavez leadership, its role as a trading partner and source of credit will remain indispensable to Venezuela, particularly given Venezuela’s current economic woes.

In fact, China’s level of investment in Venezuela is not necessarily out of the ordinary. Since 1998, its trade and investment in other resource-rich Latin American countries also increased by significant quantities. According to Rodrigo Maciel and Dani Nedal, between 2000 and 2010, the growth of annual trade between Brazil and China averaged 37 percent. So although Chavez definitely courted China (and even declared “I’m in love with China!” on one occasion), the Asian giant’s growing influence in Venezuela can also be viewed as part of a larger trend in the region.

Venezuela may turn elsewhere for expertise on heavy oil extraction as argued by STRATFOR, but pending renewed engagement with Venezuela on the part of developed countries, and assuming economic stability and sustained high levels of growth in China, it will likely continue to play a role in oil-related infrastructure development.

And although El Presidente has declared his love for the Chinese people, they probably wouldn’t miss him too terribly much. Focused primarily on pragmatic business negotiations and access to much-needed resources, the Chinese government has refrained from supporting his ideology or his interest in confronting the U.S – two issues very close to his heart. Some Chinese scholars even describe him as a very unreliable (不可靠) political figure.

Thus far China has proceeded cautiously in its interactions with Venezuela. It has also adapted to political fluctuations and evolving legal calculations in the Bolivarian Republic. Given Venezuela’s continued dependence on oil for economic growth, it is unlikely to abandon oil-thirsty China anytime soon. And China, for its part, would navigate a post-Chavez Venezuela much as it has a Chavez-centric one – with caution, adaptability, and a continued demand for Venezuelan resources.