Any Surprises for Sino-Latin Energy Ties in 2013?

˙ China & Latin America

Q: This year, China continued to make inroads into Latin America’s energy sector— including increasing its market share in the wind sector through competitive financing in Argentina, expanding solar development in Brazil and approving loan-for-oil deals in Venezuela. How has Beijing’s geopolitical strategy in terms of energy resources evolved in recent years? How will China’s leadership transition and the country’s economic trajectory affect its investment in the region? Do you expect any major changes or surprises for Sino-Latin ties in 2013?

A: R. Evan Ellis, associate professor at the Center for Hemispheric Defense Studies in Washington: “China continues to develop all energy options. Its national oil companies (NOCs) are buying upstream assets to meet projected demand, including the Repsol and Statoil deals in Brazil and the Bridas and Oxy acquisitions in Argentina. They have also pursued minority stakes which can be expanded later, such as the 30 percent stake in Galp that was acquired for $5.2 billion. As the failed bids for Unocal and PanAmerican show, however, access to financing does not guarantee NOC success. The populist states are a particular headache in this regard. Despite seeming to have rights to the Junin 1, 4, and 8 fields in Venezuela, Boyaca-4, MP-3 and Mariscal Sucre, its Venezuelan partner, PDVSA, has been slow in making the required investments to get the oil and gas out. Chinese electricity projects in Latin America follow a different logic. These are work projects for Chinese companies, in sectors valued by the Chinese state, which were won by leveraging Chinese loans. Examples include hydroelectric projects such as Coca-Coda-Sinclair, Sopladora, Toachi-Pilaton, Delsitanisagua and Minas San Francisco in Ecuador and Patucha III in Honduras and pursuit of electrical infrastructure work in Brazil by leveraging State Grid’s new position there. Important renewables projects include wind farms by Isolux Corsan and Geassa in Chabut Argentina, Sinomach in Bolivia and a China Sky Solar photovoltaic project in northern Chile. Slowing growth in the PRC would push more Chinese companies into Latin America looking for renewables projects, while increasing PRC leverage over oil suppliers—particularly the ALBA regimes which have foreclosed other options.”

A: Margaret Myers, director of the China and Latin America program at the Inter-American Dialogue: “China’s engagement with Latin America in 2013 will closely resemble its interactions with the region over the past decade. Cross-regional cooperation and integration is deepening, but relations remain driven by China’s demand for the region’s raw materials. Motivated by China’s plans for urbanization and industrialization, trade, investment and lending in commodities and energy sectors will sustain Sino-Latin ties in the coming year. China’s soon-to-be premier, Li Keqiang, recently referred to urbanization as a ‘huge engine’ for economic growth in an article on economic development in the People’s Daily. And just this week, China’s National Development and Reform Commission approved $12 billion in domestic infrastructure projects to stabilize economic growth. China’s new leadership indeed appears committed to many of the growth-inducing proposals outlined in the country’s 12th Five-Year Plan. This will mean more in the way of natural resource-dependent infrastructure and development projects. China’s official foreign policy toward Latin America isn’t likely to change much in 2013 either. Although there are some new faces in the Latin America bureau of China’s Ministry of Foreign Affairs, policy toward the region will continue to be driven by China’s 2008 Policy Paper on Latin America and the Caribbean. China does appear increasingly committed, however, to establishing ‘mutually beneficial’ relationships throughout the region. Its leaders have promised to invest in sectors that promoting longerterm economic growth in the region. And proposals for cooperation in strategic sectors abound. Assuming economic and social stability in China, Latin America should expect more of the same from China, albeit with a greater commitment to building sustainable relationships.”

A: Jeremy Martin, director of the energy program at the Institute of the Americas: “‘We have lots of capital and lack resources, they have lots of resources and lack capital, so it’s complementary,’ said the China Development Bank adviser for Venezuela in March. No truer words may have been spoken about the energy relationship between China and Latin America, a bond best exemplified by Venezuela. Indeed, the China Development Bank entire energy horizon and not merely the oil patch. But the name of the game for the Chinese in the region remains as major financiers, often offering belowmarket rates. There is scant reason to expect major deviations in 2013 from the energy-finance relationship that has developed. Indeed, new credit agreements between China and Venezuela are rumored to be under development and several renewable energy projects in Brazil and Argentina are set to be financed by the China Development Bank. Beijing’s clear energy priorities coupled with its pocketbook certainly point to the continuation of the status quo. But issues have emerged. Increased concern over what many perceive as China’s less-than-rigorous concern for environmental issues and corporate social responsibility bears watching.”

Originally published in the Dialogue’s weekly Latin America Energy Advisor.