What Is Driving Peru’s Relationship with China?
What is the state of Peru-China commercial ties today?
As Venezuela’s economic woes intensify, the country’s mining sector is getting a much-needed boost from China. Two large Chinese companies recently signed agreements worth several hundred million dollars to revitalize the underdeveloped sector, which the Venezuelan government hopes will diversify its oil-dependent economy.
The agreements were unveiled in July 2017 during the plenary session of Venezuela’s National Economic Council. The first—a $400 million joint venture between the Corporación Venezolana de Minería, Chinese firms CAMCE and Yankuang Group, and Colombia’s Inter-American Coal—aims to restore the Corporación’s coal mining and port operations.
CAMCE, a construction engineering affiliate of state-owned China National Machinery Industry Corporation (SINOMACH), and Yankuang Group, a Shangdong-based coal company, will also invest $180 million to develop Venezuela’s nickel industry.
China has steadily gained a foothold in Venezuela through years of lending and investment. According to the Inter-American Dialogue and Global Economic Governance Initiative China-Latin America Finance Database, the South American nation has received over US$55 billion from Chinese state banks for energy-related and other projects since 2007.
But continued Chinese ventures in Venezuela are puzzling to onlookers, especially as riots persist in Caracas and the economic situation worsens throughout the country.
Having operated in Venezuela for a number of years, most Chinese companies are well aware of the abundant challenges facing Venezuelan President Nicolás Maduro and his government. Both CAMCE and Yankuang have encountered delays in the Orinoco Mining Arc, for example, where illegal mining operations hindered progress. Others, such as Baoji Oilfield Machinery Company , have temporarily ceased operations due to security concerns.
Venezuela’s troubles are also well documented in Beijing. Former head of the Chinese Academy of Social Sciences Institute of Latin America Studies, Xu Shicheng, recently delivered a sobering outlook on Venezuela, recognizing the challenges associated with the Constituent Assembly, new American sanctions, and even a possible coup by the opposition.
Hong Kong-based Phoenix Weekly has been far more critical. Just last month, the outlet ran a story portraying an anarchic Venezuela complete with roaming gangs of bandits and a crumbling (Chinese-built) high-speed rail project.
A considerable drop in Chinese state lending to Venezuela since 2013 suggests growing concern on the part of China’s state banks.
But Chinese state-owned and private companies maintain some appetite for risk in Venezuela.
In addition to the possibility of positive outcomes in a future Venezuela, some remain motivated by low-interest financing from Chinese banks, or by privileged access to Venezuela’s resources and markets. Several firms have received direct support from the multi-billion dollar China-Venezuela Joint Fund, for example.
Although their overall lending to Venezuela has dropped somewhat in recent years, Chinese banks continue to back deals—like the Sinovensa joint venture between state-run Petróleos de Venezuela (PdVSA) and China National Petroleum Corporation (CNPC)—that could boost Venezuela’s oil output. Doing so is thought to ensure at least partial repayment of China’s oil-backed loans. Oil deals, along with investments that secure access to Venezuela’s abundant metals and minerals, still figure in Beijing’s resource security calculus.
For CAMCE, Yankuang, and some other Chinese companies, the benefits of favorable financing, privileged access, and even a familiar investment environment still outweigh the risks of operating in Venezuela.
How these firms will fare depends on how the dust settles. But for the time being, Venezuela has a friend in China.
What is the state of Peru-China commercial ties today?
China has became a critical economic partner for Venezuela over the past decade.
Chinese lending to Latin America and the Caribbean hit an all-time high of $37 billion in 2010.