The Belt and Road Initiative and Latin America

The Belt and Road Initiative promotes a substantial increase in the total value of Anhui Tongling’s foreign trade. Enterprises in Tongling accelerated their pace of international market expansion, especially for the South American market. (Photo by Guo Shining from People’s Daily Online)

It is already six years since Chinese President Xi Jinping announced the Belt and Road Initiative, also known as the BRI. Up to now, many countries in the world have joined BRI and signed memorandums of understanding (MOUs), 18 of which are in Latin America and the Caribbean.

At first, the Belt and Road Initiative aimed to reconstruct the old Silk Road that connected Asia and Europe more than 2,000 years ago. The idea was to revive the ancient land link. Later, an initiative for the 21st Century Maritime Silk Road was also added, to connect China with South Asia and Africa through the maritime route that was used through a large part of the last centuries.

The legendary travels of Chinese Admiral Zheng He during the first two decades of the 15th century, connecting China with South Asia and Africa, in ships bigger than the caravels of Christopher Columbus, also inspired the idea of the 21st Century Maritime Silk Road.

Besides, we have to remember that from the second half of the 16th century to the first decade of the 19th century, the Manila Galleons trade connected the Latin American colonies of Spain with China and the rest of Asia. So, an eastern Maritime Silk Road also previously existed.

The reconstruction of the infrastructure to move goods and people across continents, Asia to Europe, Asia to Africa, and Asia to Latin America, is much needed. Trade and investment, which are made easier and cheaper by better connectivity, are the engines that create economic growth and the improvement of people’s standard of living possible. In this sense, President Xi Jinping’s idea is a good one.

Many countries in Asia, Africa and Latin America are in need of investment in infrastructure to improve their connectivity. However, many countries in these regions cannot afford to invest in the construction of that infrastructure themselves. In this sense, China offers to help by granting loans to construct the infrastructure required, and it is very much appreciated. Furthermore, companies in China have developed the technology needed to construct large-scale infrastructural projects such as seaports, airports, roads, railways, but also power lines, hydroelectric, and nuclear stations. They can complete such projects at lower costs than companies from the developed world, for example.

So, when China announced the Belt and Road Initiative, the country simultaneously announced the setting up of several financial institutions required to fund the projects. The setting up of the Silk Road Fund and specifically of the Asian Infrastructure Investment Bank represented a necessary step to make the BRI a reality.

The Belt and Road Initiative attracted the interest of many countries, and this was proven when in May 2017, the First Belt and Road Forum for International Cooperation was held in Beijing. Leaders of many countries attended the event, and this coming April, the Second Belt and Road Forum will welcome more countries and leaders to the capital.

Regarding Latin America and the Belt and Road Initiative, as previously noted, 18 countries from Latin American and the Caribbean have signed MOUs to join. Peru has not yet signed one, but the country has a Free Trade Area Agreement with China, which has helped to increase trade with China since the agreement went into effect in 2010. Now, China is Peru’s biggest trade partner, and in 2018, exports of goods to China accounted for nearly 28 percent of all goods sold abroad (the USA was in second place with 17 percent). Chile and Costa Rica join Peru to make the three countries in Latin America that have an FTA with China, and also to have increased trade with China after the agreements took effect.

Regarding investment and financing, countries like Peru have received a large influx of Chinese investment not only in the mining and energy sectors, which are traditional places of interest for Chinese companies, but also in sectors such as construction and maintenance of roads. During the World Economic Forum (Davos Forum) earlier this year, it was announced that Chinese company COSCO Shipping Ports would invest up to 3 billion dollars in the construction of a seaport in Chancay, a city north of Lima, Peru’s capital.

With respect to people-to-people bonds, in recent years, the number of academic exchanges has increased, with more students from Latin America studying in China, and more Chinese students coming to the region. Also, professors from both sides of the Pacific have been traveling more often and in larger numbers, myself being one of them. Here the importance of learning one another´s language is becoming more relevant to help achieve a better mutual understanding.

In summary, the Belt and Road Initiative offers an excellent way to achieve major trade, investment and improve mutual understanding for China and Latin-American. In this way, the renaissance of a sort of Manila Galleon trade, connecting the Latin-American region with China and the rest of Asia will become a reality. To avoid the kind of trade that existed during the Manila galleons trade, when silver from Latin America was exchanged for manufactured goods from China, a feature that is still prevalent in the present trade pattern of China with the Latin American region, in which Latin America send mainly minerals and agricultural products in exchange for manufactured goods from China, Latin America can learn from China’s economic development experience.

Before China introduced economic reforms 40 years ago, the country had not much trade with the world and mainly exported primary goods in exchange for manufactured goods. However, through the introduction of modern technology, the upgrading of skills of its labor force, and the modernization of its physical infrastructure, among other factors, China has become an economic powerhouse which exports to the world ever more sophisticated manufactured goods. Latin America should learn from this example. China can offer the technology, the investment needed for the modernization of its infrastructure, and Latin America can learn how to improve the skills of its labor force from China’s experience.

China and Latin American are complementary economies. The Belt and Road Initiative could help to upgrade economic relations. It is up to Latin American countries to take advantage of these opportunities, and, as the Chinese saying, a win-win relationship could materialize.

The author is the director of the Center of Asian Studies at the Universidad Nacional Mayor de San Marcos, Peru.