China’s Strategic Partnerships in Latin America: Case Studies of China’s Oil Diplomacy in Argentina, Brazil, Mexico and

Venezuela, 1991 to 2015

February 10, 2016

Yanran Xu许嫣然

Puzzle and Research Questions

Some applaud the changing foreign policies and the win-win objective of both sides, and portray China as a successful model for developing countries.

Others depict China as a rising imperial power, scrambling for the resources and as a competitive threat to Latin America.

Research Questions (from a Chinese perspective)• What does it mean for China to establish SPs with Latin American

countries in practice from 1991 to 2015?• To what extent is there convergence/divergence among SPs in

terms of rhetoric and/or in practice? /Are SPs one-sided in favor of China or in favor of particular Latin American countries?

Puzzle (“How Strategic SPs Are” is an Open Question)

The Golden Triangle: NOCs (Sinopec, CNOOC and CNPC), the state and quasi-commercial institutions

Literature Review• Realism: hegemonic challenge• Dependency theory: dependent

development• Liberal IPE: economic interdependence• Constructivism: Ideology; alternative development model

Methodology, Methods, Case Selection

• A case study methodology from 1991 to 2015

• Comparative method• Qualitative (primary): structured, focused

comparison, content analysis, archival and secondary source research. • Quantitative: macroeconomic data.

• Cases: Argentina, Brazil, Mexico and Venezuela

Operational IndicatorsThe research outcome or the DV: the balanced deal between China and a Latin American country Operationalization:

—Equitable market access of companies from each country in trade areas;

—China’s foreign direct investment (FDI) for infrastructure;

—China’s portfolio investments/credits/loans;—The employment of Chinese-sponsored

construction or infrastructure projects

The research predictors or the IVs (Operationalization): Hypo 1: If a Latin American country is geopolitically close to the US, then it will gain a more balanced deal from China. (Self-assessed by U.S policymakers)

Hypo 2: If a country in Latin America is more economically interdependent with China than with the US, it is more likely to get a balanced deal from China. (the proportion of trade from a Latin American country to China and the US as the percentage of its total trade)

Hypo 3: If a Latin American country has a diversified economy and is less dependent on a single sector, then it is more likely to gain a balanced deal from China. (The overall GDP by sectors)

Hypo 4: If a country in Latin America has a left-leaning regime that shares common ideological commitments, with China instead of the U.S., then it will receive a more balanced deal from China. (A country’s dominant ideological orientation as articulated by the country’s key ruling elites and/or political party or parties)

Brazil’s oil production counts for 33% in Latin America(Petrobras); China became the major oil export destination in 2010, including oil

exploration and technology research

Domestic lobby groups and corporate interests

Double–edge Sword: relatively diversified but still Concentrate on soybeans, oil, iron ore;

competition in manufactures, low- and high-tech in the local and third markets

China became the largest trading partner in 2009

Lula’s diversification of diplomatic relations since 2000s

Case Study-Brazil (1993)

Venezuela (2001)

Venezuela’s oil production counts for 24% /90% of its exports is CRUDE oil;China: Loans for Oil

Domestic web: The Venezuelan government dominates the economyPDVSA controls the oil industry (The government-PDVSA Strategy)

Concentration on a single sector: OIL

China became the second-largest trading partner in 2009

Chavez’s intensified friendship with China after 1999

CDB loans to Venezuela from 2008 to 2015 (over US$ 56 billion)

Mexico (2003)

Mexico’s oil production counts for 26% (Pemex);since Dec 2013, energy reform

limited cooperation with China: mostly service contracts

Domestic financial oligarchy (large entrepreneurs) has high level of consensus with the government + the China Threat

Mexico (Nieto and PRI) does not have a long-term strategic vision toward China;

to prioritize the economic insertion into North America;to diversify economic exchanges with the EU and within the region

Diversified economic exchanges like electrical equipment, minerals, and metals;

but facing fierce competition in both local and third markets

China became the second largest trading partner in 2003, behind the US

Argentina (2004)

Argentina’s oil production counts for 8.7% /sufficient in oil supply but also import oil products like Mexico/the new Hydrocarbon reform in 2014;

CNOOC and Sinopec have joint ventures with companies like YPF (renationalized in 2012 in 51% stock share by the government), PAE and

Bridas in oil supplies and oil fields operations

Domestic interest groups and protectionist policies against China

Concentration on soy complex & crude petroleum

China became the second largest trading partner by 2009

A friendly political-ideological scenario with two Kirchners’ governments since 2003

Findings: Empirical

Increasing trade and

cooperation;the largest

public creditor(Venezuela>Brazil>Argentina>Me

xico);

FDI:-mainly

Resource seeking;

-market seeking;-efficiency seeking

Interdepen-dent yet asymmetrical• Trade deficits• Bilateral trade

flows unbalanced: e.g.

• competition• Few

investments in China

Export dependency (2008-2014)• Brazil:

increased and high

• Venezuela: highest

• Mexico: increased but lowest

• Argentina: fell, but

• high

Trade frictions;Social & environ-

mentalConflicts;

Labor tensions

Findings: Theoretical • Realist: all four countries have strategic importance to China

+ China’s Energy/food security/profits.• Dependency theory: China has deprived Latin American

countries control over their own strategic assets; a renewed cycle in which the region becomes overly dependent on primary products. –Hamper the competitivenes

• Liberal IPE: Partnerships are asymmetrical but not an absolute zero-sum game.

• Constructivist: ideology does play a role in China’s strategic partnership toward leftist countries in Latin America + China-carefully dealing with the US.

• The SPs are characterized by a positive sum game with unequal gains of trade, and obviously, China is benefiting more from the whole region than vice versa.

• Rather than blaming China, Latin America should build on some of its own recent success, and it is time to design proactive rather than reactive policies.

Findings: Analytical•Brazil: a leading role both regionally and globallyincreasing China’s political and economic presence/South-South cooperation/leverage (attracting investments)new path of high-tech transfer + renewable energy cooperation•Venezuela:at a crisis point+ solely relying on China’s support with the least leverage + China needs reconsideration•Mexico: a high trade deficit + a failure to attract more Chinese loans than Ecuador and the Bahamas. Compare to Brazil, Mexico’s influence on China appears to be faint(lack of strong institutions/academia/private sectors focus solely on China)

firmly in the US sphere of influence.•Argentina: it does not hold a similar rank(second) relative to China (compare to Brazil)vulnerable to external shocks and financial technical defaultbiofuel energy

Thank you!