China has been recalibrating its strategy in Latin America and the Caribbean since 2015 as part of a broader assessment of its role in the world. Venezuela, once its closest strategic partner in the region, appears to be left behind in this new phase.
China and Venezuela got closer with the advent of Venezuela’s leftist, populist president Hugo Chávez in 1999. Besides ideological and geopolitical alignment, the flow of resources best reflects the magnitude of the alliance: by 2020, Venezuela had received almost half of the Chinese sovereign loans made to Latin America and the Caribbean. Venezuela has received 19 percent of the total resources disbursed by China in the world since 2000.
By 2016, Venezuela’s economic and financial unraveling quickly sobered the seemingly limitless cash injection. Despite expectations that China would give fresh funding to support its strategic partner, China has consistently refrained from providing more cash to a government in deep financial trouble.
China dice que está dispuesta a ayudar a Venezuela, pero no menciona entrega de nuevos fondos https://t.co/qmJJvYzqMv Se repite guión de falsos nuevos préstamos al Gobierno Maduro, que tuvo dificultades para el servicio de deuda con China y recibieron un alivio temporal 2016-17
— Orlando Ochoa P. (@OrlandoOchoa) September 14, 2018
China says it is willing to help Venezuela, but does not mention the delivery of new funds https://t.co/qmJJvYzqMv The script of fake new loans to Maduro’s government is repeated. Maduro's government had trouble servicing the debt with China and got a temporary relief in 2016-2017
A new regional approach
For the past three years, China has not supplied Latin America with the kind of sovereign loans previously given to Venezuela. Sovereign loans refer to state-to-state lending. In fact, the Chinese government has been consistently reducing this kind of disbursement since 2015.
This in no way indicates that China is reducing its presence or interest in the region, but it is a signal that its strategy and approach have changed. Its closest partners have changed as well.
Considering the difficulties faced by Venezuela, Ecuador, and Argentina to honor their debt, the economic fallout of the pandemic, and now a shift in the Chinese domestic economic strategy towards a more self-reliant model, the Chinese government aims at reducing its exposure in Latin America without abandoning its position of influence.
China has migrated to other forms of economic cooperation, such as directly financing Chinese companies with a presence in the region, public-private or multilateral partnerships for specific projects, and even private equity funds. Chinese commercial banks have also expanded their portfolio in recent years.
Trade is also a major line of action. China is already South America’s largest trading partner and it has signed free trade agreements with Chile, Costa Rica, and Peru. An agreement with Ecuador is currently in the works.
In the context of an ever-increasing competition with the United States for influence, experts point out that Latin America will be of special interest to China for the production of strategic minerals, which are vital for the green energy transition and high-end technologies.
The end of an affair?
Venezuela was once the poster child of the Chinese “going-out strategy,” which sought to open the doors of Latin America to Chinese financing through broad, state-to-state lending practices. Bilateral meetings and new financial agreements were portrayed as a window into the future of the relations China wanted to build with developing countries in a new “multi-polar world” no longer dominated by the United States, based on “South-South cooperation”.
Nowadays, Venezuela is noticeably absent from the discussion on China’s strategic pivot in Latin America – with the exception of being a cautionary tale.
According to a Transparency International report, Venezuela got barely 5.2 percent of Chinese investments in Latin America, which contrasts with having received 45 percent of the total sovereign loans destined to the region in the past.
The China-Latin America Finances Database published by the Washington DC-based think tank The Inter-American Dialogue registered only one loan from a commercial bank to Venezuela, which was in 2013. This places the country at the bottom of the list, a long way from Argentina, which has received 36 commercial loans.
The occasional Chinese disbursement in Venezuela no longer aims at making grand geo-political statements. Instead, their objective is more discrete: making sure Venezuela has the capacity to pay its debts. This includes China buying shares of Sino-Venezuelan joint ventures.
China solo está asegurando la fuente de repago de lo que le ha prestado a Venezuela.
Usted no haría lo mismo?
Ni de broma hay $5millardos cash para el gobierno, lo que hay es simplemente una inversión de China en sus empresas y proyectos en Vzla.
— Luis Oliveros (@luisoliveros13) September 19, 2018
China is only securing the repayment of what it lent to Venezuela. Is that reprehensible? Would you not do the same? There is no way there are 5 billion USD in cash for the government, there simply is an investment by China in its companies and projects in Venezuela.
There is no official information on the terms of the loans, so observers can only make guesses. In this regard, of the approximate 68 billion USD China lent to Venezuela, 19 billion still remain to be paid.
Considering the loans follow an oil-for-cash scheme, Venezuela has to repay its debt with oil shipments, which is measured in barrels per day (bpd). By 2019, an average of 200,000 bpd were shipped for repayment, with a caveat: if oil prices fall, Venezuela has to ship more oil to China.
200,000 bpd (a conservative figure, considering price fluctuations) to pay debt out of a production of around 700,000 bpd is a great burden for a petrostate immersed in one the worst economic and humanitarian crisis in the history of the region.
The fate of hundreds of projects funded with Chinese loans in Venezuela is also a disappointment. At least 25 percent have not been concluded after a decade or more. Those that were completed, do not offer much value to Venezuelans.
In the words of Christi Rangel, a researcher at Transparency International:
Chinese firms entered the country, but results are not positive. A lot of them closed, no longer exist, are no longer in Venezuela, and those that are still here have a minimal level of activity, not to say they have no activity.
What remains of the partnership?
Venezuela may no longer receive the financial support from China it needs, but its political and diplomatic support is still of great importance for the continuity of the authoritarian political project imposed in the country. The common goal of antagonizing the United States and balancing its influence in the region is alive and well.
According to the China Index, Venezuela ranks 25 out of 82 countries most influenced by China, especially in the areas of military cooperation, domestic politics, and foreign policy. Independent analysts argue that China’s support to Maduro's government is a major obstacle to any possible transition to democracy. For instance, China has had a major role in the imposition of a surveillance state in Venezuela.
Although there are no fresh financing announcements, high-level meetings between Venezuelan and Chinese officials are still taking place regularly, in which both countries reassure each other that their political alignment remains unshakeable, in spite of the financial blunders of their past economic cooperation.