House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Written Evidence

Written evidence submitted by Daniel P Erikson, Director, Caribbean Programs, Inter-American Dialogue

CHINA'S EMERGING ROLE IN LATIN AMERICA: EVIDENCE FROM CUBA, VENZUELA, AND THE CARIBBEAN

China's increasing presence in Latin America and the Caribbean is a new issue facing the Western Hemisphere. In 2001, then-Chinese premier Jiang Zemin's landmark visit to the region sparked a wave of public diplomacy between China and Latin America, accompanied by closer military-to-military links and deepening economic ties. Beijing's global search for resources has caused China's trade with Latin America to double from 2000 to 2003, and increase again by 50% in 2004 to an estimated $40 billion and rising. Mexico and Central America are deeply concerned about China as a low-wage competitor, even as South American countries have eagerly sought China's interest in export commodities in energy, mining, and basic food products. Many Latin American countries have felt compelled to grant China "full market economy" status in order to win Chinese investment.

China also has a keen political interest in reducing Taiwan's allies in the region; 12 of the 26 countries that recognise Taiwan today are located in the Western Hemisphere—including all of Central America, five Caribbean countries, and Paraguay. Beijing has been actively working to reduce that number, spurred on by its success in winning over two nations—Dominica and Grenada—within the last year. In the near future, the poor, weak states of Central America will emerge as an aggressive target for Chinese diplomacy and economic pressure, as they represent the largest single cluster of countries in the world that maintain relations with Taiwan at the expense of mainland China.

US and European policymakers have recognised China as an expanding factor in Latin American affairs, but there is no consensus view on what the likely consequences will be for their interests in the region. The head of US Southern Command Bantz Craddock declared that "an increasing presence of the People's Republic of China in the region is an emerging dynamic that must not be ignored." Some US legislators see any Chinese presence in the region as essentially hostile, such as Representative Dan Burton (R-IN) who warns that "Beijing's influence could easily unravel the region's hard-won, US backed reforms to fight against corruption, human rights abuses, increase government transparency, and combat intellectual property violations." Other analysts argue that China's influence in the region poses little threat and is relatively benign.

Over the long term, China has the potential to displace US trade and investment while offering an alternative model for development to Latin American countries that have lost faith in policies associated with the "Washington Consensus" reforms of the 1990s. In the short term, China's impact is being felt on specific policy questions. For example, China deployed peacekeeping troops in Haiti to increase its leverage over a weak government that still recognises Taiwan, and then favored shorter UN mandates that exacerbate political instability. In addition, China's economic ties to Cuba and Venezuela are strengthening governments that are deeply antagonistic to the United States.

Any assessment of China's role in Latin America should focus on four key sets of questions:

What is the current extent and significance of China's involvement in Latin America and the Caribbean, and how is this likely to change over time?

What are the objectives of China in Latin America?

What does Latin America want from China?

What strategy should guide the international response to China's emerging role in the region?

This paper will seek to provide preliminary answers to these questions by examining China's role in three key areas: Cuba, Venezuela, and the Caribbean.

CHINA AND CUBA: AN EMERGING ALLIANCE

Cuba's international relations have undergone significant shifts in recent years, with old alliances unraveling and new partnerships emerging. In particular, the Cuban government of Fidel Castro has embarked on a path of deeper engagement and cooperation with Venezuela and China that has transformed those two countries into the most important international allies of Cuba today. Since 2001, the rising influence of Venezuela and China constitute the most significant realignment of Cuba's foreign relations since the collapse of the Soviet Union in the early 1990s. This is all the more striking because it has occurred against the backdrop of modest US efforts to tighten existing sanctions and hasten change in Cuba. Without question, the emergence of Venezuela's Hugo Chavez has provoked the most dramatic change in Cuba's international relations in this hemisphere. Elected to the helm of the most significant oil-producing country in Latin America in the late 1990s, Chavez has steadily proceeded down a path of closer political and economic ties with Cuba. At the same time, Chavez has offered thousands of barrels of discounted oil to the Cuban government, which has helped the island to keep its rickety economy afloat despite tougher US measures.

A second major shift in Cuba's international profile is its deepening ties with the People's Republic of China, a country of 1.3 billion people that has achieved sustained growth through introducing market reform into its communist political system. China has prioritised Cuba as a key partner in Latin America, and quickly surged to become the island's third largest trading partner after Venezuela and Spain. China's interest in Cuba has led to frequent high-level meetings, a series of economic cooperation agreements, and growing exchanges in the areas of science, technology, and defense. China plans to invest millions in Cuba to help secure needed commodities such as nickel and agricultural products, and it has been a strong supporter of Cuban positions in international forums such as the United Nations. The emergence of China as an economic power has strongly benefited the Cuban economy and become a crucial component of the island's economic planning.

Cuba's strong ties with Venezuela and China contrast sharply with its deteriorating relations with other partners. While the European Union remains an important economic player, Cuba's dissident crackdown in 2003 and subsequent hostile rhetoric have cooled relations considerably, despite moves by Spain to help improve ties. In Latin America, Cuba has experienced a partial renaissance as a large swathe of South American countries have elected center-left leaders, including Argentina, Brazil, Paraguay, and Uruguay. While most countries have been hesitant to deepen ties with Cuba, almost all have at least established normal diplomatic relations and several have stepped up their trade and investment with the island. Meanwhile, Cuba's once staunch alliance with Mexico has verged on total breakdown during the administration of President Vicente Fox, mainly because the Mexican government has backed successive UN resolutions condemning the human rights situation in Cuba.

Of all the world's major capitols, only in Beijing and Caracas are Cuba's claims as a defender of the interests of the third world so attentively received, and only China and Venezuela are attempting to harness Cuba as a vehicle for pursuing their own national interests and international objectives. Recent evidence suggests that any contemplation of Cuba's present or future must extend to include the scope and implications of the island's deepening links with Venezuela and China.

Cuba is a longstanding ally of China. On 1 September 1960, Fidel Castro announced the severing of diplomatic ties to Taiwan in favour of a relationship with China and the two countries established relations on 28 September 1960. Cuba was the first Latin American country to recognise China, and the two countries maintained generally cordial relations from the 1960s to the 1980s, despite periodic tensions caused by Cuba's near total embrace of the rival Soviet Union. In December 1984, China dispatched resident military attaches to Cuba, initiating what has become a series of friendly military contacts. In November 1988, China and Cuba ceased to require passport visas for travel by their citizens between the two countries.

Cuba's trade with China topped $600 million dollars in 1990, but subsequently declined to less than $270 million by 1995, due to the collapse of Cuba's sugar industry.[10] In February 1995, China and Cuba signed an Agreement on Cultural, Educational, Scientific and Technical Cooperation, paving the way for frequent cultural and sports exchanges. The first joint venture between the two countries was a plant for manufacturing plastic slippers that was established in Cuba in July 1997, with Chinese investment of $2.12 million. This cooperation led to an annual output of four million plastic slippers and soon led to other areas of cooperation. The China-Cuba Joint Commission on Economic and Trade Cooperation has met more than a dozen times at the ministerial level.

The 2001 visit to Cuba by Chinese President Jiang Zemin played a crucial role in reinvigorating the economic and political alliance between the two countries. During this trip, the two countries signed an Economic and Technical Cooperation Agreement, which granted Havana a 6.5 million dollar line of interest-free credit, which would be paid over a five year period ending in April 2006. China also granted an additional $200 million to modernise and expand Cuba's telecommunications at the local level. In addition, a $24 million agreement between banks was intended to finance the Miramar Hotel project located on Havana's Malecn. The two countries also signed four bilateral agreements in the areas of sport, educational exchanges, maritime affairs, and preventing tax evasion and double taxation.[11]

In 2003, Fidel Castro flew to China and appeared bemused when he arrived for his first state visit in more than a decade, telling the head of the Chinese legislature Li Peng that "I can't really be sure just now what kind of China I am visiting, because the first time I visited your country appeared one way and now when I visit it appears another way." He added, "You can say that every so often, your country undergoes great changes."[12] The media also noted that, although Jiang Zemin and Fidel Castro both addressed each other as "comrade," they were dressed in spiffy business suits. Hu Jintao took pains to reassure the Cuban leader that their countries' socialist bond remained profound, affirming that "as socialist countries led by the Communist parties, China and Cuba share the same ideals and faith. The new leadership of China will continue its longstanding friendship with Cuba and make efforts to further bilateral ties."[13]

China and Cuba are economically complementary. China imports sugar, nickel, and medicine from Cuba, while exporting rice, kidney beans, electrical, industrial, and textile products. In 2002, the trade volume between the two countries reached $430 million, which included China's exports of $310 million and imports of $120 million.[14]

The following year, China added Cuba to its list of official tourism destinations. At the China International Fair for Investment and Cooperation held in the port city of Xiamen in September 2004, the delegation from Cuba's Ministry of Foreign Investment and Cooperation presented 41 proposals for joint ventures with Chinese enterprises, in sectors including medical equipment, sugar products, fishing, furniture, and footwear and garments.[15] At that time, the two countries already boasted 10 joint ventures in operation, including six in Cuba and four in China, in addition to three cooperative production contracts. The joint ventures in China focused on pharmaceuticals, advanced medical devices, biotechnology, and genetic engineering.[16] With the help of Chinese investment, Cuba is due to double its nickel and cobalt production over the next four years.

In November 2004, Chinese President Hu Jintao led a delegation of trade leaders to Cuba for extensive meetings of Fidel Castro and top members of his government. Hu arranged the stop over in Cuba on his return from the Asian Pacific Economic Cooperation (APEC) summit in Santiago, Chile. Significantly, Cuba was one of only three other countries in addition to Chile that Hu chose to visit during his first trip to Latin America, the others being Argentina and Brazil. China's imports from Cuba have expanded to include nickel, biotechnology products, fresh and processed citrus fruits, steel, and tobacco.

Cuban Defense Minister Raul Castro played a highly visible role during this summit, presiding over a forum of 400 Chinese business leaders and Cuban enterprise managers. During the visit, Hu announced that "Cuba is one of China's largest commercial partners in Latin America. We share common ideals allowing us to follow our own path of development whatever the international situation may be."[17] Fidel Castro reciprocated by bestowing the Jose Mart Honorary Order on Hu, taking the opportunity to rise from his wheelchair for the first time in public since he broke his knee and arm in a very public accident in the fall of 2004. Castro also announced that "Socialism will definitively remain as the only real hope for peace and survival of our species. That is precisely what the Communist Party of the People's Republic of China has demonstrated."[18]

During this visit, Hu and Castro signed 16 agreements for cooperation in the areas of nickel and mineral processing and exploration. The accords call for Cuba to provide 4,400 tons of nickel annually to China. In addition, China will invest $500 million in a new Cuban nickel plant in Moa, based in Holgun province. China granted a 10-year extension to the Cuban government in order to repay four interest-free loans that Beijing had provided during the island's severe economic crisis from 1990 to 1994. China will provide a $6 million grant to Cuban hospitals and materials for school uniforms valued at an additional $6 million. China offered one million television sets to the Cuban market. Indeed, the Chinese-brand television "Panda" had already become synonymous with a reward from the Cuban government for strong support for the Communist Party, due to the fact that citizens appointed to head the neighborhood-watch groups known as the Committees for the Defense of the Revolution often received Panda televisions for their services.

Cuba has also strongly backed China's goals of eventually reclaiming its "renegade province" of Taiwan under the "One China" policy. During a visit to Beijing in March 2005, Cuba's Minister of Government Ricardo Cabrisas Ruiz vowed continued support for China's Anti-Succession Law that had been recently approved by China's National People's Congress.[19] In return, China has been a forceful opponent of US sanctions on Cuba at the United Nations and other international bodies. In October 2004, China's deputy representative to the UN Zhang Yishan criticised the US for its decision to maintain the embargo and therefore "obstinately stick to the wrong position and ignore the just demand of the international community." In April 2005, China vocally expressed its longstanding opposition to US-led efforts to condemn Cuba for its repression of civil and political liberties. As China's political and economic clout continues to grow, Cuba is poised to become Beijing's most valued beachhead in the Caribbean.

During a speech in February 2005, Fidel Castro declared that Cuba was "rising again like a phoenix" due to its economic ties with China and Venezuela.[20] This is clearly an overstatement, but Cuba's economic strategy of forging ties with China and Venezuela has reaped important dividends. Subsidised Venezuelan oil has not prevented recurring blackouts in Cuba, but it has surely alleviated some of the island's economic deprivation. China's large investments in the mining sector and growing interest in tourism and agriculture also provide Cuba a needed boost.

However, perhaps the most intriguing aspect of these new alliances concerns the potential impact on Cuba's eventual transition process once the 78-year old Fidel Castro eventually leaves the stage. For many years, the United States has positioned itself as the unrivalled actor in shaping Cuba's post-Castro politics. While other countries—especially Canada, Spain, and the broader European Union—conducted normal business in Cuba, they similarly favored the island's evolution towards a market-oriented democracy. Latin American countries, for their part, have generally distanced themselves from the Cuban system in pursuit of economic modernisation and more democratic politics. Once the Soviet Union collapsed in 1991, Cuba found itself with trading partners but no true allies who had an interest in perpetuating the Cuban system.

In just a short period of time, this has changed. Cuba now has two important allies with a stake in the existing system and an interest in maintaining the island's current political order. In Venezuela's Hugo Chavez, Castro has discovered an important partner with substantial resources available. Venezuela has begun to experiment with its ability to consolidate ties with the Caribbean countries to create a block of votes at the Organization of American States, and it may find new ways to exercise power in the inter-American system. If so, Venezuela could represent a counterbalance to US actions that may have some ability to influence other countries in the hemisphere. However, Venezuela's outreach to Cuba reflects a narrow decision taken by Chavez and his leadership group. As such, any leadership change in Caracas would likely result in rolling back or even breaking off this alliance.

By contrast, the Chinese involvement in Cuba represents a consensus decision by a ruling party that is seeking to secure its main interests in the Western Hemisphere: securing natural resources to feed a rapidly growing economy, and stripping Taiwan of its remaining diplomatic allies in the Caribbean and Central America. Moreover, China has a crucial veto on the UN Security Council that could potentially represent a counterweight to US efforts to harness multilateral institutions in pursuit of its objectives in Cuba. While the Cuban leadership appears to believe that China's friendship is based on socialist solidarity, this is probably incorrect. China is primarily seeking a return on its investment, and if Cuba fails to deliver economic results then the relationship will cool. In any case, the United States today remains far and away the most important actor in shaping an international response to post-Castro Cuba. Still, US policymakers who dream of remaking Cuba should be aware that China and Venezuela are poised to loom ever larger in Washington's rearview mirror.

CHINA AND VENEZUELA: DRAWING CLOSER

The burgeoning Cuba-China relationship has occurred in the context of China's efforts to pursue closer ties with Latin America as a whole, including Venezuela. Hugo Chavez made his first state visit to China in October 1999, where he met with Chinese president Jiang Zemin, Premier Zhu Rhonji, and other leaders. His trip marked the first presidential visit to China since 1983, and Chavez brought 24 economic projects seeking cooperation with the Chinese. In 1999, Venezuela was already the largest single recipient of Chinese investment in Latin America, mainly concentrated in two Venezuelan oil fields under development by the China National Petroleum Corporation.

Figure 1

TRADE PATTERNS BETWEEN CHINA, CUBA, AND VENEZUELA

Sources: All Cuban trade data are from the Oficina Nacional de Estadistica, except for 2004. All China-Venezuela data are from the IMF Direction of Trade Statistics database, except for 2004. The 2004 trade data are based on the following sources: Cuba-China: Xinhua News Agency, 8 June 2005; China-Venezuela: Xinhua News Agency, 29 January 2005; Cuba-Venezuela: Agence France Presse, 22 June 2005.

In April 2001, Chinese president Jiang Zemin visited Venezuela during his six-country swing through Latin America intended to advance trade initiatives and drum up opposition to a measure to censure China's human rights practices at the United Nations. In Chavez, he found a willing ally, who proclaimed his admiration for Mao, backed China's effort to host the 2008 Olympics, and most importantly, pledged to oppose the UN resolution. During the visit, Chavez declared that "we don't believe any country in the world has the right to condemn another . . . We are going to vote against the resolution."[21] Chavez also announced that he would write a letter of condolence to the family of a Chinese fighter pilot who died in a collision with a US spy plane earlier that month. The agreements signed during the trip included a $60 million investment in a tractor factory and a number of accords on energy, mining, agriculture, and taxation. Chavez also said that the two countries discussed the joint manufacturing of Chinese K-8 and Y-12 military training and cargo planes in Venezuela.

In 2001, Venezuela's trade with China totaled $350 million while Chinese investment in Venezuela totaled $530 million in 2000.[22] By 2000, trade between China and Venezuela had already hit $351 million, which represented an 86% increase over the prior year.[23] In May 2001, Chavez visited Beijing for a second time for a five day visit, where Jiang remarked that China had "a positive attitude towards formulating a 10 year plan of cooperation between the two countries."[24] During this trip, Chavez presented Jiang with Venezuela's top honor, the Liberator's medal. A deal was struck for China to buy Venezuelan oil and provide a crucial loan for Venezuela's farming sector. Venezuela and China have also signed a Strategic Energy Plan that extended until 2011, which lays out provisions for Venezuela to increase oil exports to China while boosting its own agricultural production. China already operates two oil fields in Venezuela, the Intercampo Norte and Caracola blocks.

Mindful of Washington's sensitivities, Chinese President Hu Jintao chose not to visit Venezuela during his three week tour of Latin America in conjunction with the APEC Summit in November 2004. Nevertheless, Venezuela remains a central component of China's strategy to enhance its economic and political links with Latin America. Venezuela sees China as a crucial market for its commodity exports, including not only oil and gas but also steel, aluminum, chocolate and coffee. As with other countries in the region, China has proven willing to invest in improving infrastructure to help facilitate exports—such as developing railway lines and selling train cars. Some analysts have identified a "Beijing Consensus" that offers an alternative to the market economics and limited state intervention that was set forth by the "Washington Consensus" in the early 1990s. The guiding principles of this so-called "Beijing Consensus" that appeal to the leadership of Cuba and Venezuela probably include: respect for sovereignty and equality of nations; strong defense of national interests and priorities; desire to limit the political and military influence of the United States; and the preference for step-by-step economic modernisation over political reform.[25]

In December 2004, Hugo Chavez made his third visit to China, signing oil and gas deals that allowed Chinese companies to invest $350 million in 15 oil fields located in eastern Venezuela, as well as an additional $60 million investment in natural gas projects. Chavez also planned to buy a satellite from China, and Information Minister Andres Izarra later said that the satellite would be placed into orbit within a year, thereby giving the country "full sovereignty in its telecommunications."[26] Venezuela also sought to acquire Chinese radar to improve security along its border with Colombia, and there are signs that security cooperation will continue. While it is premature to speak of a China-Cuba-Venezuela axis in the Western Hemisphere, there is little question that all three countries are seeking to strengthen bilateral ties with each other to advance complementary political and economic interests.

CHINA AND THE CARIBBEAN: DOLLAR DIPLOMACY

China's remarkable economic expansion has provoked ripples across the globe, and this is especially true in the Caribbean. Once largely absent from the region, China has emerged in recent years to become both a potent competitive threat and an important economic partner. While Mexico and Central America worry about losing jobs and investment to China, the commodity-producing countries of South America have seized upon the opportunity to supply their goods to a hungry new market. Since former Chinese premier Jiang Zemin's landmark visit to the region in 2001, successive delegations of Chinese and Latin American officials have crisscrossed the Pacific Ocean to exchange pleasantries, discuss security concerns, and, most significantly, sign trade and investment deals and economic cooperation pacts. In the Caribbean, China's new strategy of engagement has already reaped important dividends for a number of small, poor countries struggling to navigate troubled economic waters.

In January 2005, Grenada became the latest island to open diplomatic relations with communist China—and unceremoniously revoke longstanding support for Taiwan. The decision was motivated by a bid for Chinese assistance to help the country recover from the destruction wrought by Hurricane Ivan last fall. After signing a joint communiqué declaring support for the "One China" policy, Grenada tallied up an impressive windfall. In exchange for recognition of China, Grenada received support for rebuilding and expanding the national stadium for the 2007 Cricket World Cup; the construction of 2,000 housing units; new hospital facilities; agricultural support; a US$6 million grant to complete projects previously financed by Taiwan; and an additional US$1 million scholarship fund. It is little wonder that one official from Grenada declared: "I cannot see that the Caribbean has any other choice but to develop a relationship with China".

Roosevelt Skerrit, the 32-year old Prime Minister of Dominica, would surely agree. Last year, his government fetched US$112 million pledged over six years in exchange for granting diplomatic recognition to mainland China instead of Taiwan. These two countries are far from alone. The region has witnessed mounting defections to China over the last decade, and today only five Caribbean countries continue to recognise Taiwan: Belize, the Dominican Republic, Haiti, St Kitts & Nevis, and St Vincent & the Grenadines. Nearly half of the approximately 25 countries that back Taiwan are located in the Western Hemisphere—including all of the Central American countries plus Paraguay—but that number is certain to shrink in the coming years. Under President Martín Torrijos, Panama is already wavering, further stoking the concerns of US observers worried about the influential Chinese presence at the Panama Canal. China has also established commercial missions in the Dominican Republic and Haiti, and even crossed a new threshold by deploying 125 Chinese riot police as part of the Brazil-led UN peacekeeping mission in Haiti.

In 2004, Chinese trade with the Caribbean totaled US$2 billion, an increase of more than 40% over the previous year. This growth partially reflects China's pursuit of raw materials, such as Trinidadian oil and gas, Jamaican bauxite, and Cuban nickel. Although China has recently emerged as a major presence, the country has been laying the foundation for its Caribbean relationships for years. In 1997, the Bahamas became the envy of its neighbours when recognition of China was followed by handsome trade and aid packages. In 1998, China joined the Caribbean Development Bank (CDB), taking a 6% capital stake and establishing a special US$1 million trust fund for Chinese experts to provide regional assistance. China presently accounts for about 4% of Caribbean trade, but that figure is poised to rise rapidly in the near future. In February 2005, Chinese Vice-President Zeng Qinghong led a 120-member high-level delegation to Kingston, Jamaica for the first China-Caribbean Economic and Trade Cooperation Forum to promote greater integration. The Caribbean is also well-positioned for the coming boom in Chinese tourism: Antigua, the Bahamas, Barbados, Dominica, Jamaica, and St. Lucia have recently been added to China's list of approved travel destinations.

As noted previously, China has also directed new energies towards its relationship with Cuba, the lone remaining communist country in the Western Hemisphere. In his visit to Havana last November, Chinese President Hu Jintao presided over 16 trade and cooperation agreements, including a US$500 million investment in the island's nickel industry, which already provides half of China's nickel imports. With US$400 million in annual bilateral trade, China is now Cuba's third largest trading partner, behind only Venezuela and Spain. In 2003, Fidel Castro visited Beijing, and last April his brother Defense Minister Ral Castro led a delegation to China and received an additional US$7 million contribution to help upgrade Cuban technology. China also has a strong interest in Cuba's signals intelligence base at Lourdes that had been leased by Russia for decades during the Cold War.

Chinese defense officials made 20 visits to Latin America and the Caribbean in 2004. By contrast, the US has cut military training and support to 11 nations that have not signed the Article 98 agreement, which prohibits US soldiers from being handed over for prosecution to the International Criminal Court at The Hague. In 2004, China won observer status in the Organization of American States, and it hopes the Inter-American Development Bank will soon follow suit. China, mindful of Washington's anxieties, is taking measures to ensure that its increasing engagement is not seen as a challenge to US interests. In the short term, China poses the most serious threat to Taiwan's tenuous grasp on its diminishing allies in the Caribbean and Central America. Still, China's growing influence may compel US and European policymakers to pay greater attention to Caribbean leaders when they complain about neglect from Washington. Ironically, it is China's diplomatic success that may ultimately place Latin America and the Caribbean back on the radar screen as an important strategic concern.

Daniel P Erikson

Inter-American Dialogue

20 December 2005