This past week, President Xi Jingping opened the 22nd APEC summit in Beijing, hoping to “inject new vitality into Asia-Pacific development,” according to an APEC news release.
Monumental deals have been discussed as the event has unfolded in the past week. Some of the world’s largest leaders, the United States and China, have hacked out plans to work together on implementing new policies to reduce pollution. With growing unrest in China over smothering air pollution problems and environmentalist groups breathing down Obama’s neck, the world was still surprised at the momentous pact that “almost wasn’t,” according to Politico.
As Xi’s interests expand far beyond the United States, he relentlessly makes an effort to gain a developmental foothold in Latin America.
Wednesday of this past week, Peruvian President Ollanta Humala moved forward with a memorandum signing off further trilateral relations with China and Brasil.
At the summit, trilateral relations between the three countries were discussed, but in specific, the constructing of a transcontinental railway between Peru and Brasil. This railway would be sponsored and funded by Chinese enterprises.
Peru already has a completed transoceanic highway within the country; the development of a new transcontinental railroad is a bit curious. The 3,400 mile transoceanic highway from Peru to Brasil opened up trade and new markets between the two countries, but at great environmental costs as the building of the highway passed through the Peruvian and Brasilian Amazonian region, angering environmentalists and indigenous groups.
The Chinese sponsored railway proposal would serve the purpose of commodity based freight trains, opening the two markets up to each other, but also integrating the Chinese market into the mix.
“It’s similar to what China is doing in Africa,” he said. “Helping to improve the infrastructure of the domestic economies in Latin America increases the potential market for goods and services coming out of China,” according to China Daily.
Almost 21 times the figure from 2000, in the last year, trade between China and Latin America reached $261 billion.
Former Chinese ambassador to Brasil and Argentina, Shen Yun’ao, expressed the relevance and importance of Latin America and its raw natural resources; ore, grain and meat. The construction of the proposed 1,630 km railway train will make the flow of these goods more efficient.
“Brazilian officials have long expressed their wish to see Chinese rail companies get more involved in the nation’s infrastructure program, highlighting the competitiveness and experience of China, home of the world’s largest rail network,” China Daily.
Although a Chinese company who had been selected to fund the construction of the first high-speed bullet train in Mexico was recently rejected by the Mexican government, Chinese companies are not stopping. Chinese manufacturer, China South Railway, CSR-Sifang will further invest in Argentina to improve the struggling national railway industry and system.
The Chinese company plans to use skilled labor workers from Argentina which will help the country’s labor force. The company will be partnering with and taking over various projects from Argentina’s Trenes Argentinos company.
“We are moving forward in the recovery of trains, which means the modernization of plants and workshops in the country,” the transportation minister, Randazzo said. (Merco Press)
Argentina in the past has purchased around 709 train cars from CSR-Sifang, costing around $150 million.
Mexico rejects Chinese investment on the construction of a high-speed “bullet train.” China, Mexico’s second largest importation partner has greatly increased relations with fellow APEC partner. Mexican President Nieto will be visiting Beijing this coming week, however Nieto commented that he cut the project because he wanted the process to be “legitimate and transparent.”
The bid for the 130 mile railway has been re-opened as Mexican lawmakers accused the government of being biased towards the China Railway Corporation (CRCC). The proposal deadline date which was originally October 15th, was only met by CRCC, other applicants such as, Germany’s Siemens, Canada’s Bombardier, and France’s Alstom were considered. Japan’s Mitsubishi had also shown interest in sponsoring the project.
With the construction of the high-speed, “bullet train,” Mexico would be the first in Latin America to construct this advanced form of public transportation. Similar project developments were underway in Brazil and Argentina, but both projects have been postponed.
“The president wants this project which is so important for Mexico to not be questioned, to have absolute clarity,” Transportation Minister Gerardo Ruiz Esparza said. (BBC)
The development of the train would be a direct form of transportation between the capital of Mexico City and the central city of Queretaro.
Venezuela, the country with the largest oil reserves in the world, 9th largest producer of crude oil and an OPEC member, will now be importing oil for the first time.
PDVSA (Petroleos de Venezuela S.A.) is the Venezuelan state-owned oil and natural gas company importing the oil. According the International Business Times (IBT), PVSDA was expected to receive its first ever shipment of light crude oil from Algeria. With oil being the Venezuelan government’s largest source of income, the importation of oil is rather peculiar.
“Oil production has declined over the years, exacerbating the country’s problems with a limited foreign currency supply, and critics say mismanagement of PDVSA is largely to blame. Meanwhile, global oil prices have slipped by more than 25 percent since June,” reported IBT.
Venezuela produces different types of oils, but its main product is known as an extra heavy crude oil. In order to process this oil, a diluent is needed, this diluent normally being light crude oil. Venezuela had been buying alternate diluents, as their light and medium crude oil stocks fell. The most common alternate diluent they used is called naphtha, a distillation liquid comprised of hydrocarbons, has become expensive in recent years. PVSDA had begun to think about the importation of light crude oil in order to reduce the expenditures used on naphtha, necessary for the processing of their extra heavy crude oil.
“PDVSA in August put on hold its exports of diluted crude oil (DCO) made of heavy crude and naphtha to review its cost structure and avoid losses amidst an oil market worried because of falling crude prices,” according to Reuters.
Despite earlier this year commenting that importing oil would be a “last resort,” energy minister, Rafael Ramirez and Venezuela turned to Algeria, fellow OPEC member. The country put in a 2 million barrel order shipment that was expected to arrive at the end of October.
Imports from Chinese Oil Company Out Of Russian Urals
Algeria was not the only country that Venezuela turned to, Petrochina, a Chinese state owned oil and gas company, has become of a part of the importation mix as well. However, the gas in question that is being exported is being extracted and produced in Russia. The Russian cargoes will be the second imports into Venezuela; PVDSA bought two cargoes of Russian Urals light crude oil from a unit of Petrochina. The exported are being attributed to Russia however being extracted by a Chinese corporation, reported by Reuters.
According to the Venezuelan administration, PDVSA produces close to 3 million barrels a day, making it one of the world’s largest crude exporters. With such a dependent economy on oil extraction, production, and exportation the largest crude oil reserves country in the world will have to deal with production problems in the face of slipping global oil prices and civil unrest.
A grave problem that has yet to be directly faced in this blog is the cost of human rights and natural resources at the hand of development and competing interests that come with increased foreign investment. As Latin America develops and becomes further intertwined into the global market, each government has to make a choice; whether to protect its people and environmental resources, or develop economically regardless of opportunity cost.
The Chinese $50 billion investment in the construction of a Nicaraguan canal, will not only create thousands of jobs, but bring in a higher overall income for one of the poorest countries in Latin America. However, this development project will also simultaneously destroy the country and its people.
The route of the new canal will pass directly through Lake Nicaragua, a lake expanding about 3,191 square miles, making it the largest freshwater lake in all of Central America (19th largest in the world).
As the Nicaraguan government pops nice bottles of champagne in celebration of the monumental decision to build the Nicaragua Canal with Chinese aid, the rest of the population has begun to protest out of discontent. Once popular with citizens, President Daniel Ortega has now been labeled, “vende patria,” or “traitor of the homeland,” according to La Opinion.
The protests have been incited by two main reasons, the people are fed up with government secrecy and dis-communication between government and the people. The second reason is that the people are frustrated with the governments disregard of the societal and environmental effects the canal construction will have on Nicaraguans, According to La Opinion,
“Managua [Nicaraguan Capital] argues that the country’s economy will grow by 15% annually from the second year of construction onwards and it will generate between five to 50 thousand jobs. Nevertheless the government has not provided specific details about the project, such as construction timelines and potential environmental impacts.
…Nicaraguans that live in the Canal’s proposed path will have to move. Case in point, there have been reports that HKND representatives, with Nicaraguan police officers and soldiers acting as guards, have appeared in various homes, taking measures and informing homeowners that their households will be purchased by the company.”
The development of the inter-oceanic canal would dis-join the countries largest fresh water source and displace about 100,000 natives from their homes, said Telegraph. The fantastical land, where cattle roam around the lake, families live off the land, while children play in trees would become a passage way for modern day trade and industrialization.
“This is one of the most fertile regions in Nicaragua, and the government has sold it behind our backs to the Chinese, they’ve sold our heritage, our sovereignty,” says Arnulfo Sequeira, 51, a father of four with 200 acres of land and 100 cattle. There is going to be a massacre because we are not leaving our land, our lives, and we’ll fight for it until death.”
Telegraph reported that in the pueblito of Cruz Verde, 20 men and women gathered on the banks of Lake Nicaragua with machetes. Although the machetes are normally used as harvesting tools, in this instance they were used as a shear representation of angst and the willingness to fight in order to protect their land. These men and women stood on guard denying access to Chinese census from entering into their community where their families have lived for more than 80 years.
The clouded minds of the Nicaraguan government officials and the utter disregard of the country and its people from the Asian giant might lead to one of the greatest tragedies and atrocities of this time. According to a study done by Centro Humbolt, an internationally renowned environmentalist group, they concluded that the canal was,
“…unviable and posed extraordinary environmental risks, especially to the lake. It says there will be insufficient water to maintain the canal by 2039.
Dredging the shallow lake to create a 30metre deep canal will disturb huge amounts of potentially toxic sediment. The canal also risks contaminating the lake, home to fresh water sharks, sawfish, and turtles, with salty sea water, and any oil spill could inflict irreparable damage.”
Unfortunately President Ortega, a former guerrilla leader from the 1979 revolutionary victory in Nicaragua, foolishly believes that the building of the canal is the second phase of the Revolution. The has president, adamantly said that the project will lift Nicaragua out of poverty.
Ortega, originally a leftist president has switched in recent years and first made contact with Wang Jing (Chinese billionaire and investor in the Nicaragua Canal), three years ago. The two came in contact when Ortega’s son and likely successor, Laureano, was at a Communist Party meeting. Jing, who was also at the meeting, asked to speak with him privately, later bring up the canal plan.
Laureano, Oretega’s son and the one who had first contact with Jing is said to have also been in contact with Russian President Vladimir Putin. Unsurprisingly enough, the Russians have a stake in the building of the canal as well, they have also greatly increased warm relations with Nicaragua as Putin went and personally visited the country this past summer in July.
If everything goes smoothly, geopolitically speaking, the construction of the canal would create a larger foothold in Latin America for China.
The Panama Canal extends about 48 miles long, but the Chinese government has partnered with a Chinese billionaire to invest in the construction of a 173 mile long canal in Nicaragua.
A little over 100 years ago the first ship passed through the Panama Canal. Not only was it a monumental passage, but it forever changed trade routes, was a leap for American commerce and an engineering miracle. The building of the Panama Canal was not only an American triumph, but was a growth in the “American Empire.” As presumably thought, it was such a great imperialistic move and foreshadowing in the importance and prominence of U.S. power in the area, that it is hard to ignore when other growing “imperialistic” nations emerge and move into the same area.
Although we are past the colonial times of imperialism due to free trade and a global village (however not denying that coerced imperialism still exists), the dominance of U.S. influence in Latin America is slowly slipping away. Nations have developed and are becoming more sovereign, while others are creating new partnerships. Territories no longer belong to certain countries, Latin America is not the United States’ region.
The proposed canal in Nicaragua will cost about $50 billion, but the question is if the proposed plan to dwarf the Panama Canal can really be pulled off. Wang Jing, the shady Chinese billionaire has never run a project anywhere close to this enormity.
“It’s just too strategically important for the Chinese government for it to be the work of a rogue entrepreneur acting alone,” she said. “If he were selling soft drinks, that’d be one thing. But not a canal.”
This reported to the International Business Times by June Teufel Dryer, an expert on China’s international relations at the University of Miami, continued that it is something too big to fail.
Jing, the founder and CEO of HKND will take the lead on the project with government endorsement. HKND, a a privately-held international infrastructure development firm headquartered in Hong Kong and with offices in Managua, the capital of Nicaragua. HKND works specifically in construction management and infrastructure development. HKND will be leading the project, the project that is at a marked price that is roughly 5 times greater than Nicaragua’s GDP, plans to do more than just develop the canal.
With the proposed $50 billion, HKND plans to construct a railroad, roads, an oil pipeline, a free trade zone, two ports, and the canal. According to the International Business Times, once the projects are started they are projected to provide tens of thousands of jobs and double the per capita income of Nicaragua. Of course this seems like an ideal situation for the Nicaraguan government, Nicaragua being the second poorest country in the Western Hemisphere behind Haiti.
China, being the worlds most populous nation with a population of 1.4 billion, has all the demand, but none of the supply. On the other hand, Brasil is a country rich in diverse resources. Within the past couple years, this star of Latin America has greatly increased it’s exports to China.
In 1999, total export income was $1.5 billion for Brazil, but in 2010 reached $1.9 billion. Brazil has helped the Asian giant out in everything from soybean and wheat exports to clean water production.
The relations however are not a one way street. China has begun to heavily invest in the technological sector of Brasil as well as other areas. Chinese telecom companies have reached out to spark innovation and production in Brasil. According to the International Energy Agency, between 2005 and 2012 Brazil had received about $18.3 billion worth of investment from China.
Of course the substance that is almost valued more than water these days has not been left out either, Brasilian petroleum company, Petrobras, has teamed up with Chinese Sinopec Petrochemical Corporation to enjoy ventured oil exploration and the creation of a pipeline extending from Southern to Northern Brasil.
The main concerns of these relations are if China will flop on its deals and also if Brasil will simply become and stay a farm, forest and mine based cultivation country. The reality is that Brasil is so much more than that. However with Brasilian political infrastructure, problems such as high interest rates and an exaggerated exchange rate are just some of the things that make progression difficult.
These are some of the reasons why the Brasilian elections are so important. If Brasil is to be the star of Latin America (or maintain its place as the most advanced), there are going to need to be heavy reforms that meet the demands of the country. Brasil, along with others, faces a pinnacle point of being able to manage and control its own country in the wake of great demand by the just implementation of a steady government, or will it crumble and just become a harvest country?
This blog is a platform for the investigation of the economic situations and governmental transitions within Latin America and how these factors have increased activities with unusual trading partners.