China’s Increasing Involvement in Latin America and the Caribbean

How does the Latin America and the Caribbean (LAC) region fit into China’s overall geoeconomic and geopolitical strategy? What tools of national power has China used to fulfill its goals in the region?

China has advanced numerous policies in LAC over the past couple of decades, but engagement with the region continues to be driven in very large part by the “going out” strategy that was put forth by the Chinese government in the late 1990s. The three tenets of this strategy—ensuring access to natural resources, developing markets for increasingly high value–added goods and services, and achieving a competitive position for Chinese companies in the region’s strategic industries—are as relevant today as they were two decades ago at the onset of enhanced commercial relations.

In LAC and elsewhere, China’s resource-seeking activity (e.g., soy trade and investment in the oil industry) is closely linked to its food and energy security objectives. Increasingly, it is also linked to an interest in securing industrial supply chains, as Latin American countries award concessions for lithium and critical minerals extraction. The region’s importance as a market for Chinese goods and services has grown in recent years as well, especially as China’s tech companies encounter legal and administrative obstacles in much of the “global North.” Indeed, in LAC, Chinese companies are in many cases shifting focus from large-scale infrastructure projects to projects in innovation-related industries—such as cloud computing, artificial intelligence, and renewable energy technologies—that are closely linked to China’s own prospects for economic productivity and global competitiveness.

China has also sought support in the region for its positions on Taiwan, Hong Kong, Covid-19, human rights, internet governance, U.S.-China competition, and many other issues. Its increasingly dominant commercial footprint in the region certainly promotes some degree of political and policy alignment with its major trade partners. China’s political and economic interests are also advanced by its expansive and sophisticated diplomatic outreach. In LAC, China engages in what I’ve termed “multi-tiered” diplomacy, or engagement at the multilateral, bilateral, and local (provincial or municipal) levels, carried out by a kaleidoscopic cast of characters hailing from China’s ministries, companies, and many other organizations. In practice, this amounts to numerous meetings organized by the China-CELAC (Community of Latin American and Caribbean States) Forum, a regional platform of China’s creation; wide-ranging bilateral mechanisms and agreements; and growing outreach to municipal authorities, not just in capital cities but also in resource-rich or well-positioned towns across the region.

Of course, much of what is happening in LAC is also being driven by regional actors who are seeking support for critical infrastructure projects, energy transition initiatives, or other forms of cooperation. Increasingly, provinces and cities are approaching China with their own interests in mind and lists of projects in hand. Even though the China-LAC relationship is still largely shaped by China’s varied interests, it is very much coproduced at all administrative levels.

China has recently begun forging stronger military ties through arms sales, military exchanges, and training programs with Latin American countries such as Venezuela, Argentina, Ecuador, and Cuba. What security risks and challenges do China’s growing military involvement and presence pose to human rights, good governance, and democracy within LAC?

China’s military engagement with LAC is just one component of a much broader and multifaceted effort by the country to expand its influence across the region. In my view, China’s interest in building economic bridges with nearly all governments in LAC, regardless of their political inclinations, is more apt to hasten democratic backsliding in the region than would People’s Liberation Army (PLA) activity. Authoritarian-inclined governments are more likely to erode human rights protections, governance mechanisms, and other democratic principles if doing so will not result in reduced engagement by key economic partners. China is still mostly perceived as a steadfast source of economic support by LAC governments of all political persuasions. Nonetheless, if Venezuela is any indication, China has an increasingly limited appetite for the risks inherent in certain parts of the region.

All of that said, some forms of Chinese military activity have raised red flags for both LAC and U.S. officials. PLA involvement with the deep space observation facility in Neuquén was seen by many as an affront to Argentine sovereignty. Argentina has since sought to edit the terms of that agreement, which granted facility access nearly exclusively to the PLA. Other forms of military cooperation, including on intelligence gathering, are also troubling to the United States. Some degree of intelligence-related collaboration is assumed between China, Venezuela, and Cuba, for instance.

The G-7’s Partnership for Global Infrastructure Investment and the European Union’s Global Gateway seek to provide alternatives to China’s Belt and Road Initiative (BRI). What differentiates these investment initiatives from Chinese development funding?

All these initiatives have generated outreach and economic activity in LAC and other regions to varying degrees. With BRI, China was branding a process already underway in its neighboring regions, and indeed globally, which considerably expanded Chinese overseas trade and investment. This was supported by many hundreds of billions of Chinese financing, often issued to countries with limited access to international credit markets and without the sort of policy conditionalities upheld by traditional multilateral development banks. As a concept, BRI took on a life of its own, but mostly involved China and Chinese companies working to ensure food and energy security, favorable external conditions, and growth at moderate rates in the near and medium terms. U.S. and other initiatives have sought to differentiate themselves from Chinese initiatives through a commitment to values-driven, high-standard investment. They also rely heavily on private sector participation, so that progress is largely subject to private sector decision-making and risk sensitivities.

All these initiatives are in a nearly constant state of reconceptualization. Many in LAC are wondering how a BRI with far less financial backing and complemented by the Global Development Initiative and the Global Security Initiative will shape China’s engagement with the region. Meanwhile, the Partnership for Global Infrastructure Investment and the Global Gateway have gained some momentum. The recent EU-CELAC Summit signaled something of a European pivot back to LAC, though U.S. and European initiatives will continue to be judged on their ability to generate new commercial activity in the region.

China tends to offer reduced costs, lower standards, and faster timelines for development funding, making it difficult for the United States and other developed countries to compete. How have LAC countries’ attitudes toward Chinese investment evolved after years of engagement?

Chinese lending to the region has slowed dramatically since 2015. China is no longer offering the sort of multi-billion-dollar loans for large-scale infrastructure projects that it once issued to Latin American governments and state-owned enterprises. China’s development finance institutions (DFIs)—China Development Bank and China Export-Import Bank—and its commercial banks are still active in the region, of course. But they are much more selective and are issuing smaller amounts on average.

One likely reason for this shift is an apparent reluctance among the DFIs to issue more credit to Venezuela, which was once a top recipient of Chinese financing in the region. Another factor is that in the early 2000s Chinese DFI financing was helpful in opening doors for Chinese companies in the region, as many sought to compete with well-established foreign and local companies. But Chinese companies are now highly competitive in LAC, having established their own networks, partnerships, and local expertise. They no longer rely on large loans to deliver opportunities.

At the same time, LAC governments are grappling with high levels of debt, whether from China, multilateral development banks, or other lenders. In some cases, this has affected their willingness to take on new loans from Chinese banks or other sources. Some countries, like Ecuador, are focused on working with China to restructure existing debt. Certain Caribbean nations, including Dominica and St. Vincent and the Grenadines, may also look to restructure their Chinese debt as payments come due. Mounting debt has no doubt dampened interest among both Chinese DFIs and LAC governments in new loan agreements.

In other instances, projects financed by Chinese banks have been subject to intense local criticism. Ecuador’s Coca Codo Sinclair Dam, which was plagued by construction, environmental, and labor-related challenges, as well as by allegations of corruption, is among the most cited examples. China Export-Import Bank issued a $1.7 billion loan to the Rafael Correa government for the dam’s construction. Suboptimal project outcomes have arguably been instructive both for the region’s would-be recipients of Chinese project financing and for China’s DFIs.

As witnessed by Honduras and Nicaragua recently switching diplomatic recognition from Taiwan, China has found some success in gaining support in the LAC region. How effective have its efforts been in advancing Latin American alignment with China on priority issues such as Taiwan?

LAC government support for China and Chinese policy is often based on a prevailing sense that China is a critical economic partner and that maintaining harmonious ties—or at least not “rocking the boat” on issues of political interest to China—is in these countries’ best economic interest. This calculus is unlikely to change all that much so long as China remains a dominant trade partner and prominent investor in much of the region.

Similarly, Taiwan’s waning influence in LAC has been driven by a sense among Taiwan’s allies that partnership with China is more economically valuable than partnership with Taiwan. This assumes that China will invest in these countries in economically transformative ways, though the record is rather mixed so far. Panama, which had been of great interest to Chinese investors since they first “went out,” announced upwards of sixteen new projects with Chinese companies after cutting ties with Taiwan. Many of these projects have progressed and some are now operational. In other countries, such as Nicaragua, very little has materialized, despite continued talk of collaboration. Given the state of Nicaragua’s economy, and following Chinese entrepreneur Wang Jing’s disastrous canal pursuits, Chinese companies seem as wary of investment there as many of their international counterparts.

Although China is apparently more committed to forging economic ties with some of its newest diplomatic partners than others, Beijing remains committed to further eroding Taiwan’s influence in the region. Five Central American and Caribbean countries cut ties with Taiwan in the past six years alone, since Tsai Ing-wen’s election, but the region is still a relative diplomatic stronghold for Taiwan, with seven of its remaining allies.

A recent study found that between 2001 and 2021 countries in the Organization of American States in which China has displaced the United States economically were significantly less likely to vote in alignment with Washington than other member states. How can the United States better meet the needs of LAC countries in order to maintain, and even strengthen, its regional influence?

This is a critical moment for expanded engagement. Nearly every country in the Western Hemisphere is facing similar obstacles in pursuit of economic recovery and future growth—educational setbacks, fiscal limitations, extreme weather events, historic migration flows, and other wide-ranging shared challenges. There is considerable need and justification for enhanced hemispheric cooperation to achieve many common objectives.

For the United States, this is a moment to promote not only its industrial and diplomatic interests, but also economic progress across the hemisphere—especially by deepening engagement in emerging industries, including those related to energy and digital transformation. Targeted investment in these industries and related value chain development will do much to advance both U.S. competitiveness and hemispheric growth.

But time is of the essence. Prospects for future U.S. and partner engagement with LAC will be shaped to at least some degree by China’s economic and diplomatic progress in the region. In just a matter of years, through a series of targeted investments and offerings, China has established prominent—even dominant—economic positions, including in energy generation and transmission, telecommunications, renewable energy, electromobility, and now critical minerals.

In pursuit of stronger ties, new private sector investment in the hemisphere will be critically important—even more so when the investment has strategic implications, such as concerning semiconductor supply. It is also critical to simply maintain a presence in sectors where U.S. companies have been active for decades. Crafting incentives for U.S. and partner nation companies to not just engage anew but also stay the course in LAC will be of great consequence.

The United States should also look to add value in the hemisphere, including by helping develop regional supply chains, as the Partnership for Global Infrastructure Investment has proposed to do. This is what the region needs and wants—and is also among the very best ways to ensure strong and binding economic ties. Doing more will require removing barriers to financial engagement—many of them administrative—and even opening up more channels for direct government-to-government involvement where needed.

If the United States is serious about engaging economically in LAC and remaining competitive with China in the process, then trade is also fundamental. So much of China’s influence in the region is derived from its ever-expanding commercial partnerships. For the United States, trade deals are a political impossibility at the moment, but agreements with the region that exclude market access will only be so attractive to LAC partners.

Finally, amid heightened U.S.-China tensions, there is value in identifying and even pursuing cooperation with China in areas of critical importance and shared interest, including on climate change. For instance, U.S. and Chinese approaches to climate assistance in the Caribbean would appear to be somewhat complementary.

Margaret Myers is the Director of the Asia and Latin America Program at the Inter-American Dialogue.

This interview was conducted by Aruna Muthupillai while a TFAS intern with the Political and Security Affairs team at NBR.