Asia & Latin America

The Dialogue’s Asia & Latin America Program engages and informs academics, policy-makers, and private sector leaders from Latin America, the United States, and across the Asian region on evolving themes in Asia-Latin America relations. Our working group meetings, events, and publications seek to address areas of critical interest and to identify shared priorities on both sides of the Pacific. To receive our latest on Asia & Latin America, please sign up to receive our program newsletter.


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The Chinese Communist Party (CCP) has released over three hundred pages of “decisions” from its 20th Central Committee's third plenary meeting (“3rd Plenum”), which concluded on July 18. The meeting itself, and resulting decisions document, were met with a lukewarm response from the international investment community, as most hoped for a clearer roadmap for addressing long-standing real estate and employment concerns, among other structural challenges. Instead, the decisions largely signal continuity—or a doubling down on China’s present course of action—which will rely heavily on supply-side policies targeting high-tech and high-end manufacturing to boost China’s economic prospects.

Though not a course correction, China’s “decisions” will nevertheless have wide-ranging global implications, as the CCP, government, and industry all work to put China’s newest economic blueprint into practice. Indeed, the Party’s growth agenda is likely to depend more than ever on economic engagement and partnership with developing regions, including much of Latin America, as critical markets for and partners in high-tech supply chain development.

The following three key takeaways from the 2024 3rd Plenum “decisions” are potentially impactful for the region:

China is betting on high-tech manufacturing to ensure long-term economic growth. The effects of this process are already visible in Latin America.

The 3rd Plenum “decisions,” a more than 20,000-character-long reform agenda outlined by the CCP Central Committee, are aligned with Xi Jinping’s vision of “China-style modernization,” which ventures beyond a decades-long process of learning from the West, experimenting with policy solutions, and “feeling the stones,” so to speak, to the adoption of a much more bold and China-specific agenda that is “freed from the traditional economic growth mode and productivity development paths.”

China is determined to chart its own course, in other words—albeit through heavily state-led industrial policy initiatives. Central to this approach are what Xi has called “new quality productive forces,” or the pursuit of high-tech, high-efficiency, and high-quality to bolster economic growth. In practice, this has translated to an intense focusing of Chinese effort on boosting competitiveness in strategic sectors, such as solar, batteries, and electric vehicles, including by encouraging overproduction and overcapacity in these industries.

China is staying the course, according to §8 of the 2024 decisions, which suggests continued institutional and financial guarantees (possibly in the form of subsidies or easier access to credit) in support of next-generation industries such as information technology, artificial intelligence, aviation and aerospace, new energy, new materials, high-end equipment, biomedicine, and quantum technology.

Latin America and other developing regions will play a central role in this process. As parts of the so-called Global North restrict market access for China’s high-tech output, Latin America and other developing regions are becoming increasingly important markets for Chinese exporters. Chinese EV sales to Latin America grew by 300 percent from 2022 to 2023, according to China Customs data. With end-to-end supply chain development in mind, the 2024 decisions emphasize the continued facilitation of “international cooperation in industrial and supply chains.”

China’s foreign direct investment (FDI) in Latin America is also increasingly focused on generating markets for its high-tech goods and services. Our data suggest an upward trend for Chinese FDI in LAC in so-called “new infrastructure” industries, with ICT, renewable energy technology, and, increasingly, electric vehicles accounting for the bulk of this activity. Whether in terms of value or number of deals, Chinese FDI in these industries is on the rise, accounting for 58 percent (around $3.7 billion) of total annual Chinese FDI in the region in 2022 and over 60 percent of the total number of FDI deals announced by Chinese companies that year. The region’s supply of critical metals and minerals is also of considerable interest to China as it looks to consolidate its position across battery supply chains.

Chinese investment in new infrastructure in LAC

China’s provinces and municipalities will play an ever more important role in China-Latin America relations.

China-Latin America ties are forged by a tangled web of overlapping interactions and a kaleidoscopic cast of characters, with government, Party, quasi-governmental, and commercial actors all playing prominent roles. Chinese provinces and cities are also increasingly important actors in China’s local-level engagement with LAC, often through “twinning,” or sister cities/provinces arrangements. The extensive and long-standing relationships between Chile’s Coquimbo region and Henan province and Argentina’s Jujuy province and Guizhou province are well-documented in the 2020 Inter-American Dialogue report, Going Local: An Assessment of China’s Administrative-Level Activity in Latin America and the Caribbean, for instance.

As it stands, China’s 2024 decisions may very well prompt more engagement from China’s localities with parts of the Latin American region. To place more fiscal resources at the disposal of local governments, China will “expand the sources of tax revenue at the local level and grant greater authority for tax management to local governments as appropriate.” In theory, this means that Chinese localities will rely on their respective tax bases (including their companies) for more revenue and to address their debt issues. This dynamic may very well drive more company-led, overseas activity in sectors of top importance to China, furthering a process of localization that is already well underway in the China-Latin America dynamic.

China’s industrial strategy will be met with resistance, including in parts of Latin America.

China’s reform agenda is expansive and ambitious, and its implementation will continue to be met with strong headwinds, as China “braves uncharted waters” and “ventures into dangerous shoals,” as the decisions document puts it. Even if “new quality productive forces” boost domestic growth prospects, China will continue to grapple with its real estate bubble and related, highly indebted local government financing vehicles, among other pressing challenges.

China’s headwinds will also blow from abroad. As China doubles down on science and tech production, efforts to offload overcapacity in strategic sectors will be met with ongoing resistance among competitor industries—in the “Global North,” certainly, but also in parts of Latin America. Mexican, Chilean, and Brazilian steel tariffs were a recent reaction to China’s efforts to offload part of its extensive overcapacity. Brazil’s EV tariffs, though largely symbolic, are another example of regional resistance to booming Chinese exports. The impact on Latin American manufacturers will no doubt grow as Chinese policymakers aim to boost their competitiveness in more sectors, such as semiconductors, medical equipment, and machine tools.

 

[post_title] => China's 3rd Plenum—Three Takeaways for Latin America [post_excerpt] => China's 3rd Plenum sets the course for Chinese economic policy over the next five years. What will China's plans mean for Latin America? [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => chinas-3rd-plenum-three-takeaways-for-latin-america [to_ping] => [pinged] => [post_modified] => 2024-08-12 03:40:29 [post_modified_gmt] => 2024-08-12 03:40:29 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.thedialogue.org/?p=150576 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 136526 [post_author] => 117 [post_date] => 2023-06-08 15:56:17 [post_date_gmt] => 2023-06-08 15:56:17 [post_content] =>

In recent months, Brazil and Argentina announced plans to expand bilateral currency use with China to accelerate trade and investment and address dwindling dollar reserves, respectively. These agreements have renewed debates in Latin America and beyond about the prospects of growing Chinese influence in international monetary affairs, and a related decline in the dollar's global dominance. China’s endeavors to promote global use of its currency, the renminbi (RMB) or “yuan,” have accelerated since the former People’s Bank of China’s (PBOC) Governor, Zhou Xiaochuan, first openly called for a reform of the international monetary system in 2009. But how much has the country really achieved in creating an alternative to the US-led monetary order?

The End of America’s Unipolar Moment

In the aftermath of the Global Financial Crisis, there was broad consensus, including in parts of Latin America, that the dollar’s global dominance had reached its peak. Friends and foes alike began to criticize the greenback’s outsized role in international markets, calling for a transition in favor of a system that would permit the increased use of domestic and other currencies.

Chief among these critics was China, a nation which had only recently entered the World Trade Organization (WTO) and was still beginning to venture into many overseas markets. At the time, for many leaders, especially in the Global South, China was also seen as offering an alternative to the neoliberal Washington Consensus, which urged fiscal discipline and financial liberalization. Its brand of state capitalism delivered remarkable economic growth and trade expansion at home, lifting hundreds of millions of people out of poverty, at a moment when much of the Global South, especially in Latin America, questioned the efficacy of neoliberal policies. Within a matter of decades, China moved from being a relatively small player in the global economy to demanding a leading voice in international monetary and financial affairs. By the late 2000s, in addition to capturing the attention of much of the developing world, it had also embarked on a full-fledged campaign to promote the international use of its currency.

China’s Currency Internationalization Campaign

China’s motivations for internationalizing the RMB could be described as both offensive and defensive in nature. On the one hand, China's leadership has wanted to develop an alternative to the dollar as a vehicle currency for international trade and investment, and to increase the RMB’s standing as a global reserve asset. This would allow China’s partners to complete transactions in RMB and avoid Western clearinghouses and messaging systems, thereby promoting bilateral flows while undermining the dollar’s hegemony. However, China is also looking for ways to reduce its own dollar dependence and thus avoid being financially strangled in the face of increasing efforts by the United States to decouple the two economies. The sanctions levied on Russia for its unprovoked military aggression in Ukraine have reminded Chinese leaders of the direct costs associated with dollar use and the risks it could entail in case of a future conflict over the possible annexation of Taiwan. Hence, efforts to increase the RMB’s acceptance as an international currency could also be interpreted as supporting future strategic autonomy. 

But to what extent has China achieved its these aims? Many experts have noted that the dollar remains the preeminent global currency of choice across the three functions of money—as a medium of exchange, a unit of account, and a store of value—and that the RMB has been broadly unable to diminish the dollar’s relative dominance. After all, the dollar continues to dominate international bond markets, cross-border trade credit, and foreign exchange turnover. According to the US Federal Reserve, the dollar has been used in 96 percent of trade in the Americas over the past 20 years, not to mention that certain countries (e.g., Ecuador, El Salvador, and Panama) have adopted it as legal tender. And even though its share in official foreign exchange reserves has measurably declined since 1999, the dollar still leads the second largest reserve currency— the euro—by almost 40 percentage points.

Table 1: Global Use of Currencies, 2022 (percent)

Currency

Share of Forex Trading (%)*

Share of Official Reserves (%)

Share of Global Payments (%)**

US Dollar

88.5

58.4

41.9

Euro

30.5

20.5

36.3

Japanese Yen

16.7

5.5

2.9

British Pound

12.9

4.9

6.1

Chinese Renminbi

7.0

2.7

2.2

Source: Author compilation, using data from BIS (2022), IMF (n.d.), and SWIFT (n.d.)

By contrast, international use of the Chinese RMB remains relatively limited, especially considering the country’s economic and financial might. Despite earlier predictions that it would dethrone the dollar, the RMB has been stuck in its current role as the world’s fifth most used currency for almost a decade. Its share in foreign exchange turnover, official reserves, and global payments pales in comparison to the euro, let alone the dollar. And although China has become South America’s top trading partner, as well as a major source of foreign direct investment, the use of the RMB in the region remains low.

True, the yuan has been making inroads into Latin America in recent years, but it is still far from constituting an impending threat to the dollar’s regional dominance. For example the RMB recently topped the euro as Brazil’s second foreign reserve currency, but at 5.37 percent of Brazil’s total foreign reserves, it is still eclipsed by the dollar, which accounts for 80.42 percent. This year, the country has also begun accepting trade settlements and investments in yuan thanks to a February deal that established an offshore clearinghouse (similar to the ones in Argentina and Chile), although there are no official statistics indicating the extent of those transactions.

The yuan has been making inroads into Latin America in recent years, but it is still far from constituting an impending threat to the dollar’s regional dominance.

Still, Brazil—and indeed all of Latin America—continues to rely heavily on the dollar not only for its trade with the United States, but also with other countries, including within the region itself. As China’s footprint in the Latin American region continues expanding, whether under the guise of the Belt and Road Initiative (BRI) or other platforms, more companies could begin accepting payments in RMB. But for now, the RMB’s presence is notable in just a few isolated cases.

China’s Monetary Highways

It is of course possible that this maximalist view is quick to overlook the PBOC’s gradual but incremental progress in the international monetary system, and that we should avoid drawing comparisons between the dollar and the RMB because they are operating in very different leagues—at least for now. Indeed, driven by China’s strong economy and overseas clearinghouses, the RMB has become one of the world’s top five currencies in less than a decade. In 2015, the International Monetary Fund also included the RMB in its Special Drawing Rights basket of currencies, despite it not being fully convertible. And in 2023, the RMB reached a significant milestone by overtaking the dollar as China’s main cross-border transaction currency for the first time.

One way to look at China’s progress is by analyzing the establishment of a number of monetary “highways” to encourage the RMB’s use in foreign markets. For example, between 2009-2020, the PBOC signed more than 40 bilateral swap agreements (BSAs) with foreign central banks, collectively worth over US$500 billion, more than any other in history. These swap lines have been deployed to promote trade settlement in RMB and provide a short-term liquidity backstop for partner countries. And although (so far) China has proven broadly ineffective in achieving its first objective, the BSAs have shown some potential as an emergency mechanism for economies in crisis. Argentina, which activated its swap line in January 2023, and will now expand it further, is a case in point.

Another monetary highway is the Chinese Interbank Payment System (CIPS), which was established in 2015 to provide an alternative to both the SWIFT network and other Western clearing systems. CIPS is currently made up of over 1,300 financial institutions (including 17 from South America), divided into direct and indirect participants, which clear RMB-denominated transactions among themselves and on behalf of others, including in support of cross-border trade. Critics point out that CIPS is still comprised of a relatively small network of mainly Chinese banks and that its transaction volume is substantially lower than that of its Western counterparts. However, its transactions are growing, and other countries will likely join in the future. So, while China’s monetary highways aren’t particularly busy at present, we'll likely see more traffic in the coming years. 

Recent agreements with Brazil and Argentina are a part of this growth. China’s deal with Brazil, signed in March 2023, promised the expansion of RMB usage to accelerate trade and investment and facilitate cross-border settlements. The deal with Argentina, announced in April, will allow the country to pay for Chinese imports in RMB to alleviate pressure on the country’s weakened dollar reserves. 

Both decisions support China’s currency internationalization campaign, providing these countries with opportunities for direct trade with China while reducing exposure to the dollar. Brazil, in particular, has long been an ardent critic of the dollar’s dominance. President Lula da Silva recently stated: “Every night I ask myself why all countries have to base their trade on the dollar…why can’t we do trade on our own currencies?” Argentina will also welcome an easing of dollar outflows, which have been a source of economic instability. The country has faced a sharp drop in agricultural exports due to a historic drought, leaving its dollar reserves at critical levels.

The Limits of China’s Currency Internationalization Efforts

Though notable, recent deals with Brazil and Argentina are just a minor step toward China’s currency internationalization goals. In practice, structural limitations will continue to limit China’s ability to challenge the dollar’s global dominance. In particular, Beijing’s insistence on maintaining strict capital controls and a managed currency peg to the dollar discourages its widespread adoption in international markets. Investors are drawn to currencies that have stable and predictable political and macroeconomic systems, widespread international appeal, and open financial markets where transparency, the rule of law, and private property are assured. The RMB falls short in many of these areas.

Though notable, recent deals with Brazil and Argentina constitute still-limited progress toward China’s broader currency internationalization goals.

In the past 200 years, the leading international currencies (the British pound and the US dollar) were issued by countries with sound democratic institutions, durable international alliances, and liberal economic frameworks. In this sense, the RMB could face difficulties attracting a critical mass of foreign users unless China was to agree to certain political and social reforms. While the war in Ukraine has certainly exposed some division between the Global North and the Global South, the international monetary system appears to still be governed by mostly liberal norms. 

Growing tensions between China and the United States are also impactful. The trade and tech disputes that began under the Trump administration and the possibility of future conflict with the United States over Taiwan, have no doubt hindered China’s progress toward RMB internationalization—and will continue to do so unless there is some sort of détente. Some worry about the prospects of an emerging bipolar currency order, in which two self-contained monetary and financial systems emerge, with likely devastating consequences for the global economy. In this scenario, the RMB would have its own, relatively small, sphere of influence.

Conclusion: What's Next?

While the dollar remains dominant, there are several governments looking to reduce their reliance on it, including in the Americas. China’s alternative is still far from constituting an impending threat to the wider dollar network. But China's careful approaches to expanding the RMB’s bilateral use have made some progress, including in Brazil and Argentina. The RMB has potential to rival the dollar, but its use in foreign markets is still substantially less prominent, so a real rivalry would take a while, if it happens at all. In the meantime, the United States might decide to rethink its approach in Latin America and elsewhere, offering countries a greater say in international monetary relations.

* As two currencies are involved in each transaction, the sum of shares in individual currencies will equal 200 percent.

** Including intra-eurozone payments

Miguel Otero-Iglesias is a senior analyst at Elcano Royal Institute and professor and research director of international political economy at the School of Politics, Economics and Global Affairs and the Center for the Governance of Change at IE University in Spain. In addition, Otero-Iglesias is senior research fellow at the EU-Asia Institute at ESSCA School of Management in France. His main research area is international money and finance.

Agustin Gonzalez-Agote is a junior researcher at the Center for the Governance of Change at IE University in Spain and a research assistant at Elcano Royal Institute. Gonzalez-Agote is also a freelance writer on issues related to central bank digital currencies (CBDCs) and distributed ledger technologies. His main area of research is international political economy.

[post_title] => China’s RMB isn’t set to outpace the dollar in Latin America…yet [post_excerpt] => Miguel Otero-Iglesias and Agustin Gonzalez-Agote discuss China's currency internationalization ambitions in this guest blog post for the Inter-American Dialogue's Asia and Latin America Program. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => chinas-rmb-isnt-set-to-outpace-the-dollar-in-latin-americayet [to_ping] => [pinged] => [post_modified] => 2024-01-11 20:35:52 [post_modified_gmt] => 2024-01-11 20:35:52 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.thedialogue.org/?p=136526 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 127028 [post_author] => 21 [post_date] => 2022-07-27 14:35:45 [post_date_gmt] => 2022-07-27 14:35:45 [post_content] =>

On July 6, 2022, in a hybrid online/in-person event, China inaugurated what it calls the China-Caribbean Development Center, based in the northeastern province of Jinan, China. The inauguration ceremony, which took place during this 50th anniversary year of the forging of initial diplomatic relations within the Caribbean, was attended by Secretary of the Shandong Provincial Committee of the Communist Party Li Ganjie, Vice Minister of Foreign Affairs Xie Feng, and a number of diplomatic envoys of Caribbean countries.

The center's creation is apparently part of China's still not well understood Global Development Initiative (GDI), which was announced by Chinese President Xi Jinping at the 76th Session of the United Nations General Assembly, and, as China has noted, seeks to advance implementation of the UN’s 2030 Agenda for Sustainable Development. First announced by Foreign Minister Wang Yi at the Third Ministers’ Meeting of the China-CELAC Forum last December, the China-Caribbean Development Center "signifies the strong efforts of the two sides to accelerate the implementation of the UN’s 2030 Agenda for Sustainable Development and follow through on the GDI," Chinese Ministry of Foreign Affairs spokesperson Zhao Lijian said. The Center will apparently focus on development issues and cooperation projects.

As China continues to engage the Caribbean, whether through now long-standing bilateral ties, under the guise of the Belt and Road Initiative (BRI), or with the GDI front of mind, Inter-American Dialogue Non-Resident Senior Fellow Rasheed Griffith spoke with us about prospects for China-Caribbean Development Center impact, as well as key trends in broader China-Caribbean relations. Is the future of the two sides "more closely-linked than ever," as Zhao Lijian suggested?

Question (Q): How was news of the new China-Caribbean Development Center received in the Caribbean?

Answer (A): Uniformed silence remains characteristic of Caribbean media concerning Chinese political developments - even as they relate to the Caribbean. They matter little to the general public. To my knowledge, there was no organic coverage of the China-Caribbean Development center launch event in any of the significant Caribbean newspapers. The social media pages (Facebook and Twitter, primarily) of the various Chinese embassies in the Caribbean will share the news, but the engagement is paltry at best. I often hear many warnings about Chinese government agencies using social media to promote their agendas, but if a tree falls in a forest and no one is around to hear it, does it make a sound? Even the Twitter page of the new Center only has five followers (as of the time of this Q&A) - all of whom are Chinese. 

Q: Do you envision the Center and China's emerging Global Development Initiative impacting China-Caribbean relations fundamentally?

A: The new Center will likely have the same material impact as the China-CELAC forum: none. China, like the US, is adding to the long parade of initialisms to express a demiurgic impulse towards geopolitics. It is a multilateralist delusion since the Caribbean does not have material multilateral institutions with which to engage. The GDI, like the BRI, the Build Back Better World (B3W), or Caribbean Basin Initiative (CBI), should not be taken too seriously. It should be clear to everyone that China's governing bodies or Chinese companies are not going to stop investments in the Caribbean (or other parts of the world.) It should be clear that the Chinese diplomatic corps will continue toiling in the region to build the scaffolding of a political space conducive to an empathic understanding of Chinese foreign and domestic concerns. Why does it matter what we call this? It only matters in a limited sense confined to a chronic academic need to categorize concepts. 

Q: Aside from a continued focus on building ties with the region, what trends do you see in China's engagement with the Caribbean?

A: I expect more incoherent Chinese investments and loans in the future in the Caribbean. But this incoherence is primarily a reflection of the Caribbean, not China. Of course, it is easy to talk about the Caribbean as a singular object. But there are over a dozen separate governments that each take pride in their insularity. China does not and cannot engage with "the Caribbean." It has to contend with Barbados, Guyana, Jamaica, etc. An investment in the Bahamas does not induce investment in Trinidad. Yet the framing of discussions tends to make it seem that way.

Keep in mind that engagement is, at minimum, a two-player game. It is crucial to avoid black box thinking. Caribbean governments are incessantly unsophisticated in their domestic and foreign affairs. Across the region, these governments have abrogated even essential responsibilities like prudent monetary management. We need to retreat from the ideal world and focus on the haphazard political reality of the Caribbean. Policies are driven by expedience and self-indulgence - not strategic utility. 

Concomitantly, the public sectors of Caribbean countries have accumulated so much rust that even if there was a strategy, there is no mechanism for implementing it. I've heard both Chinese diplomats and US diplomats lament the difficulties of dealing with public sector agents and agencies in the Caribbean. In both cases, they want to do more and have the resources to do more, but they are just met with apathy. 

[post_title] => On the China-Caribbean Development Center: Q&A with Rasheed Griffith [post_excerpt] => How will the new China-Caribbean Development Center affect China's relations with the region? [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => qa-with-rasheed-griffith-how-will-the-new-china-caribbean-development-center-affect-chinas-relations-with-the-region [to_ping] => [pinged] => [post_modified] => 2022-11-29 16:38:24 [post_modified_gmt] => 2022-11-29 16:38:24 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.thedialogue.org/?p=127028 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) )
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Photo of the Construction of Santo Antonio Dam

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China’s attempted economic recalibration has already reverberated across the Latin American and Caribbean region, as many countries see new interest from Chinese companies in emerging industries. Asia & Latin America Program Director Margaret Myers considers the increasingly uncertain role of Central America in this new equation.


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