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China Joins IDB, Tightens LatAm Ties

China joined the IDB on October 23. (AP Images)

October 27, 2008

In a sign of deepening ties between Latin America and China, Beijing joined the Inter-American Development Bank (IDB) last week. As the forty-eighth IDB member—and, along with South Korea and Japan, the third Asian member—China agreed to contribute $350 million for development projects in the region. China’s U.S. Ambassador Zhou Wenzhong said that use of this kind of multilateral forum to support development could help offset the global financial crisis, reports McClatchy.

Beijing’s IDB membership has been under negotiation for roughly a decade and comes at a time when its trade ties with Latin America have grown exponentially. China rose from the region’s twelfth largest trading partner in 1995 to its second (behind the United States), and total trade reached $110 billion in 2007. At a 2004 Asia-Pacific Economic Cooperation (APEC) summit, China pledged to invest $200 billion in Latin America over the coming decade. The funds flowed in slowly since then, reports the Los Angeles Times, but China’s Latin American investments include a $3 billion steel mill near Rio de Janeiro, a multibillion-dollar social investment fund with Venezuelan President Hugo Chávez, and Ecuadorian and Colombian oil assets.

With its economy flourishing in recent years, China’s hunger for primary resources helped tighten trade ties; Latin America serves as a source for energy, minerals, and foodstuffs. Some experts warn that the dependence on commodity exports could harm Latin American budgets in the case of dropping prices. A recent article in Latin Business Chronicle argues that, should China’s economy slow as a result of the current global financial crisis, “[t]he cold that the energy sector might catch” could hinder access to capital and hamper investment.

A new report by the Economic Commission for Latin America and the Caribbean (ECLAC) examines Asian-Latin American ties with a focus on China and warns that, despite the rapid growth in trade between and within the regions, “economic links generally remain weak and show little diversification.” The report urges cutting red tape that hinders trans-Pacific trade, deepening focus in value-added goods from Latin America, and stronger Asian-Latin American business ties.

Leaders will have an opportunity to reinforce those links when they meet November 21 through 23 in Lima, Peru for the annual APEC summit. During a meeting between Australian envoy Richard Wolcott and Peruvian President Alan García last week, Wolcott pitched the idea of an Asia-Pacific free trade zone, with details to be worked out next month during the APEC Leader’s Meeting. Read AS/COA analysis about APEC’s Peru Year.

Analysts have at times posited that Beijing’s activities in Latin America come at the expense of Washington’s influence in the region. But a recent Congressional Research Report analyzing Chinese use of “soft power” in the region suggests the United States maintains certain strengths in the hemisphere. China typically remains uninvolved in local politics of the countries where it invests, drawing criticism in particular for its economic interests in Sudan. Yet entrance into the IDB could provide China with a platform for convincing several of the bank’s members to switch allegiance from Taiwan. A dozen Central American and Caribbean countries support Taipei’s calls for a UN seat, which it lost in 1971 when China gained recognition. Taiwanese President Ma Ying-Jeou visited Central America in August in an effort to shore up alliances that have frayed as China’s trade ties to Latin America deepen. Costa Rica switched its allegiance to Beijing in June 2007.