The New Banks in Town: Chinese Finance in Latin America
By Kevin P. Gallagher, Amos Irwin, and Katherine Koleski
Inter-American Dialogue, 2012, 37 pp.
Chinese Investment in Latin American Resources: The Good, the Bad, and the Ugly
By Barbara Kotschwar, Theodore H. Moran, and Julia Muir
Peterson Institute for International Economics, 2012, 36 pp.
Suddenly, China has become a major source of capital for other emerging- market economies, providing both long-term loans and direct investments to Latin America. These two timely studies document this development and assess its benefits and costs to the region. From the Latin American perspective, the badly needed capital and accompanying access to Chinese markets are clearly welcome. But certain Chinese investment practices violate hard-won international standards and demand correction.
The New Banks in Town draws on press reports and official government statements by China and its borrowers to compile a useful list of loan commitments, which the authors estimate at $75 billion since 2005 -- although they recognize that not all those funds will be fully disbursed. As an instrument of China’s search for secure sources of energy, the loans are heavily concentrated in oil-producing states (Argentina, Brazil, Ecuador, Venezuela), and many are secured through pledges of repayment in the form of future oil shipments. Chinese loans are also tied, to varying degrees, to the purchase of Chinese-made products. The authors seem pleased that Chinese loan documents neither impose policy conditions nor “the latest Western development fads,” such as good governance and gender equality laws, enabling leftist regimes “to free themselves from the neoliberal policies the World Bank imposes.” However, as environmental experts, the authors are gravely concerned that Chinese banks do not follow the same environmental guidelines as their Western counterparts.
Chinese Investment in Latin American Resources directly addresses the problems of substandard Chinese corporate behavior, focusing on the mining industry in Peru. The evidence is mixed. Chinese firms have repeatedly violated labor and environmental standards, but the Chinese government is urging them to conform more closely to international standards, and there are signs that this message is getting through. The authors find that nongovernmental monitoring organizations and international bodies, such as the World Bank, can encourage foreign investors to adhere to high standards and to act as catalysts for positive change, since firms that fall short face serious reputational risks. A domestic regulatory environment that encourages transparency and accountability and that allows for civil-society participation also makes a big difference.