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The China Triangle: Latin America's China Boom and the Fate of the Washington Consensus
Since 1980, China has evolved from a poor and mostly rural society into one of the largest economies in the world. As it grew into a major industrial power, it demanded enormous amounts of steel for new factories and cities, copper for electronic wires, petroleum for cars and manufacturing plants, and soybeans and cattle to feed its workers. By the 1990s, many Latin American countries were riding China's coattails and beginning to prosper from the new demand. Ever since China entered the World Trade Organization at the turn of the century, Latin America supplied China with more and more of the primary commodities it needs and more. That in turn has produced one the most impressive periods of economic growth on the continent in fifty years. And it was more evenly spread too - a region infamous for its extreme inequality saw it decline by a couple of percentage points over the course of the era.
In The China Triangle, Kevin P. Gallagher traces the development of the China-Latin America trade over time and covers how it has affected the centuries-old (and highly unequal) US-Latin American relationship. He argues that despite these opportunities Latin American nations have little to show for riding the coattails of the 'China Boom' and now face significant challenges in the next decades as China's economy slows down and shifts more toward consumption and services. While the Latin American region saw significant economic growth due to China's rise over the past decades, Latin Americans saved very little of the windfall profits it earned even as the region saw a significant hollowing of its industrial base. What is more, commodity-led growth during the China boom reignited social and environmental conflicts across the region.
Scholars and reporters have covered the Chinese expansion into East Asia, Southeast Asia, Australasia, Africa, the US, and Europe. Yet China's penetration Latin America is as little understood as it is significant-especially for America given its longstanding ties to the region. Gallagher provides a clear overview of China's growing economic ties with Latin America and points to ways that Latin American nations, China, and even the United States can act in order to make the next decades of China-Latin America economic activity more prosperous for all involved.
256 pages, Hardcover
First published February 1, 2016
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October 29, 2016
The China Triangle: Latin America's China Boom and the Fate of the Washington Consensus, by Kevin P. Gallagher, is an interesting look at growing trade and investment between China and Latin America. The book examines Chinese investments in Latin America's mineral, infrastructure and agricultural sectors (in particular, 87% of Chinese investments are within these three sectors, with minerals by far the largest chunk) as well as Chinese interests in manufacturing, banking and financial sectors. China has been booming for a decade, this we all know. The "China Boom" has also had a major impact on many regions of the world, the most publicized being in Africa and South-East Asia, as China boosts economic development for long struggling African nations, and competes with US influence in the South China Sea. Latin America is often ignored, even though this region represents a larger total investment platform for Chinese banks and companies.
China is interesting because of its experimentation with state led growth and investment. Gallagher argues that Chinese FDI is a close match to Japan's investments in infrastructure and development globally in the 1970's and 1980's. Chinese companies and state-run banks and firms offer commercially competitive loans, sometimes at a favourable interest rate, and engage in swaps of currency-commodity swaps. For example, China has signed oil agreements with Ecuador, Venezuela and Brazil that trades Chinese Yuan for guaranteed shipments of oil, paid for at market value. The cash payments are deposited in Chinese investment banks like the Chinese Development Bank (CDP), with China gaining interest off the payments (~30% of the total value) while the oil exporting nations pocket the rest. These sorts of agreements exist with many Latin American nations, with commodities like Iron (Brazil), Wool (Uruguay), Wine and Copper (Chile) and so on.
Chinese firms also heavily invest in Latin American companies and industries, boosting infrastructure capabilities. Chinese firms like Huwei and ZTC are invested in many telecommunications firms throughout Latin America, and have financed infrastructure improvements, purchased shares in Latin America companies, and entered joint ventures. Chinese car company Chery merged with SOMCA Int., an Argentinian car company, to produce cars for the Mercosur countries (Uruguay, Argentina, Brazil, Paraguay, Venezuela). Chinese state owned State Grid has also invested heavily in power infrastructure in the region. Chinese banks CDP, PBOC and so on have invested in financing and banking structures throughout the region. Chinese petroleum firms and mineral firms are extremely invested in the region. Clearly, China and Latin America have much in the way of trade and investment.
Gallagher examines some of the criticism over this as well. He calls it "not quite sweetheart, not quite neo-colonial." China is primarily concerned with resource extraction. Loans on offer are often favourable to those offered by investment and development banks like the IMF or World Bank. These latter institutions often require massive concessions to domestic policies to guarantee financing, and if these conditions stall, payments are withheld. China on the other hand, has gone out of its way to avoid this, in line with their Five General Principles relating to non-intervention in others domestic affairs. Loans are often close to unconditional (besides payment of course), and China has so far been lenient on repayment, negotiating extensions and adjustments with Venezuela, for example, during its on-going financial and political instability. Even so, China has been accused on numerous occasions of dumping, and has been taken to task at the WTO, with China retaliating by dropping or shifting investments to other countries. Chinese firms are also criticized for their environmental performance, although it is noted this is not more of an issue for Chinese firms than those from any other nation.
The claim that China is using reduced interest loans to compete with the US in the region is discounted in this book. 80% of Chinese loans on offer to Latin American governments are actually at or above market value. China just cannot compete with the risk stability offered by the IMF and the World Bank, for example, and thus needs to charge a higher interest rate. However, Chinese loans are less "humiliating" as one Ugandan official put it, and are offered to nations like Ecuador, Argentina and Venezuela, who have all recently defaulted on their debt. The remaining 20% are either credit-commodity swaps (the majority) or constitute "aid" (about 1.2% of loans).
Gallagher is quite critical of how Latin American governments have responded, however. Latin America's China boom definitely falls into the "resource curse" category. Latin America's resources are what China is after, but with China's slowly creeping manufacturing slowdown, as the nature of its economy changes, Latin America is not prepared for the subsequent easing of investments. Most Latin American governments have not invested the subsequent 25% of profits (recommended by economists to improve economic performance) from this windfall into infrastructure growth, and many have either used it for other needs or as foreign currency reserves. This lack of investments means that when the resources are no longer needed, China may pull out of the region to focus on internal consumer commodities as it phases into the next economic tier. Latin America has also seemingly gone backward in its own economic development. The usual steps are primary industries--> secondary industries (manufacturing) --> services/tertiary. Latin America has gone back to phase one, and has not invested in improvements in secondary or tertiary industries to a satisfactory degree. Gallagher argues that much of this is due to the previous Washington Consensus in Latin America, which tried to quickly move the region into a higher level of economic stability through the restructuring of economic and political policies by development banks and US policy makers. This failed (spectacularly) and Latin America's economic development reached a GINI coefficient not seen since the colonial age. China's Boom could have been just the medicine needed, but Latin American governments were not powerful enough to combat corporate interests and reinvest the money where needed. Gallagher argues that this will see a corporate debt bubble and subsequent crash in Latin America's economies as the profits dry up and corporate debt remains.
All in all, a very interesting read on a little known subject. China's investments in Africa are well documented, studied and watched, but the Latin American region carries a higher amount of investments and is much more competitive, as this is historically the US' backyard. China seems to have caught the US by surprise, as they offered competitive advantages and much needed investments to a region that has been struggling economically for decades. This investment period may be brief, but as Chinese firms and State-Owned Enterprises (SOE's) gain more and more market share in Latin American countries, a new geopolitical shift for the region may be underway. Smart governments (or ones that have the ability too do this anyway) that are able to offer China what it needs may be on the right track to play the US and China off for FDI, but those who have been too complacent may see their windfall dry up. Gallagher offers an interesting analysis on the China-Latin American trade and investment exchange currently in effect, and this timely read is definitely recommended for those interested in global economic policy and geopolitical events. Great read.
China is interesting because of its experimentation with state led growth and investment. Gallagher argues that Chinese FDI is a close match to Japan's investments in infrastructure and development globally in the 1970's and 1980's. Chinese companies and state-run banks and firms offer commercially competitive loans, sometimes at a favourable interest rate, and engage in swaps of currency-commodity swaps. For example, China has signed oil agreements with Ecuador, Venezuela and Brazil that trades Chinese Yuan for guaranteed shipments of oil, paid for at market value. The cash payments are deposited in Chinese investment banks like the Chinese Development Bank (CDP), with China gaining interest off the payments (~30% of the total value) while the oil exporting nations pocket the rest. These sorts of agreements exist with many Latin American nations, with commodities like Iron (Brazil), Wool (Uruguay), Wine and Copper (Chile) and so on.
Chinese firms also heavily invest in Latin American companies and industries, boosting infrastructure capabilities. Chinese firms like Huwei and ZTC are invested in many telecommunications firms throughout Latin America, and have financed infrastructure improvements, purchased shares in Latin America companies, and entered joint ventures. Chinese car company Chery merged with SOMCA Int., an Argentinian car company, to produce cars for the Mercosur countries (Uruguay, Argentina, Brazil, Paraguay, Venezuela). Chinese state owned State Grid has also invested heavily in power infrastructure in the region. Chinese banks CDP, PBOC and so on have invested in financing and banking structures throughout the region. Chinese petroleum firms and mineral firms are extremely invested in the region. Clearly, China and Latin America have much in the way of trade and investment.
Gallagher examines some of the criticism over this as well. He calls it "not quite sweetheart, not quite neo-colonial." China is primarily concerned with resource extraction. Loans on offer are often favourable to those offered by investment and development banks like the IMF or World Bank. These latter institutions often require massive concessions to domestic policies to guarantee financing, and if these conditions stall, payments are withheld. China on the other hand, has gone out of its way to avoid this, in line with their Five General Principles relating to non-intervention in others domestic affairs. Loans are often close to unconditional (besides payment of course), and China has so far been lenient on repayment, negotiating extensions and adjustments with Venezuela, for example, during its on-going financial and political instability. Even so, China has been accused on numerous occasions of dumping, and has been taken to task at the WTO, with China retaliating by dropping or shifting investments to other countries. Chinese firms are also criticized for their environmental performance, although it is noted this is not more of an issue for Chinese firms than those from any other nation.
The claim that China is using reduced interest loans to compete with the US in the region is discounted in this book. 80% of Chinese loans on offer to Latin American governments are actually at or above market value. China just cannot compete with the risk stability offered by the IMF and the World Bank, for example, and thus needs to charge a higher interest rate. However, Chinese loans are less "humiliating" as one Ugandan official put it, and are offered to nations like Ecuador, Argentina and Venezuela, who have all recently defaulted on their debt. The remaining 20% are either credit-commodity swaps (the majority) or constitute "aid" (about 1.2% of loans).
Gallagher is quite critical of how Latin American governments have responded, however. Latin America's China boom definitely falls into the "resource curse" category. Latin America's resources are what China is after, but with China's slowly creeping manufacturing slowdown, as the nature of its economy changes, Latin America is not prepared for the subsequent easing of investments. Most Latin American governments have not invested the subsequent 25% of profits (recommended by economists to improve economic performance) from this windfall into infrastructure growth, and many have either used it for other needs or as foreign currency reserves. This lack of investments means that when the resources are no longer needed, China may pull out of the region to focus on internal consumer commodities as it phases into the next economic tier. Latin America has also seemingly gone backward in its own economic development. The usual steps are primary industries--> secondary industries (manufacturing) --> services/tertiary. Latin America has gone back to phase one, and has not invested in improvements in secondary or tertiary industries to a satisfactory degree. Gallagher argues that much of this is due to the previous Washington Consensus in Latin America, which tried to quickly move the region into a higher level of economic stability through the restructuring of economic and political policies by development banks and US policy makers. This failed (spectacularly) and Latin America's economic development reached a GINI coefficient not seen since the colonial age. China's Boom could have been just the medicine needed, but Latin American governments were not powerful enough to combat corporate interests and reinvest the money where needed. Gallagher argues that this will see a corporate debt bubble and subsequent crash in Latin America's economies as the profits dry up and corporate debt remains.
All in all, a very interesting read on a little known subject. China's investments in Africa are well documented, studied and watched, but the Latin American region carries a higher amount of investments and is much more competitive, as this is historically the US' backyard. China seems to have caught the US by surprise, as they offered competitive advantages and much needed investments to a region that has been struggling economically for decades. This investment period may be brief, but as Chinese firms and State-Owned Enterprises (SOE's) gain more and more market share in Latin American countries, a new geopolitical shift for the region may be underway. Smart governments (or ones that have the ability too do this anyway) that are able to offer China what it needs may be on the right track to play the US and China off for FDI, but those who have been too complacent may see their windfall dry up. Gallagher offers an interesting analysis on the China-Latin American trade and investment exchange currently in effect, and this timely read is definitely recommended for those interested in global economic policy and geopolitical events. Great read.
October 8, 2020
The China Triangle: Latin America's China Boom and the Fate of the Washington Consensus by Kevin P. Gallagher is a look at the little-discussed expansion of China's economic power into Latin America. Gallagher is a Professor of Global Development Policy at Boston University’s Frederick S. Pardee School of Global Studies, where he co-directs the Global Economic Governance Initiative and the Global Development Policy Program. He is co-editor of the Review of International Political Economy and writes regular columns in The Financial Times and The Guardian.
There are several topics discussed in this book that are overlooked and often ignored in Latin American politics and economics. First is the resource curse. Countries that have an abundance of non-renewable natural resources generally have less economic development. This has been a curse of Latin America since independence. Even countries like Saudi Arabia are feeling the pinch of being a resource economy when the price of their export product falls. Latin America has a history of selling its resources instead of developing industry. Even with renewable resources, Latin America traps itself. Coffee exporting countries counter falling coffee prices with increased production which further drives down prices.
The Washington Consensus is a set of ten points or policies that are used to approve aid to countries. They include among other points, privatization of industries, direct foreign investment, redirecting public spending, and relaxing import restrictions. This has become US police since 1989. The problem is that has not improved the situation. Privatization has decreased the efficiency of many state industries or turned them over to foreign control where profit is the goal instead of bettering life. Trade liberalization destroys local industry rather than help it. Spending on infrastructure is redirected leaving road, rail, and public works projects unfunded. This leads to problems of continued debt, regardless of development.
Enter China. Needing to resources to grow its industrial economy China has been forming alliances around the world. China’s involvement in Africa is well documented and has been news for some time. China trades infrastructure development for raw materials. African nations have roads, railways, harbors, and the industry to export natural resources. There is improvement for some; others stagnate. China also brings in its own labor for many of its projects displacing workers in the original industry and not providing employment in infrastructure development.
China’s efforts in Latin America went largely unnoticed by the US as it was concerned with the War on Terror and Latin America was not harboring or supporting terrorism. China was able to move in and provide an alternative to the Washington Consensus. Many states accepted China’s help and Gallagher examines the results of the relationships. Some states were helped and were hurt. Mexico is a noted state hurt by Chinese investment in Latin America. Despite NAFTA, Chinese factories in Latin America can undersell Mexican imports to the US.
Gallagher provides the history and the economics of both US and Chinese investment in Latin America. The results differ by country but breaking the “resource curse” has proved to be a difficult undertaking. Also examined is how the US allowed another (economic) power to move into its backyard without sounding the alarm. An excellent read in the field of international relations and economics. Not everything happens with bold, headline-making news. Sometimes the important events happen with little notice.
There are several topics discussed in this book that are overlooked and often ignored in Latin American politics and economics. First is the resource curse. Countries that have an abundance of non-renewable natural resources generally have less economic development. This has been a curse of Latin America since independence. Even countries like Saudi Arabia are feeling the pinch of being a resource economy when the price of their export product falls. Latin America has a history of selling its resources instead of developing industry. Even with renewable resources, Latin America traps itself. Coffee exporting countries counter falling coffee prices with increased production which further drives down prices.
The Washington Consensus is a set of ten points or policies that are used to approve aid to countries. They include among other points, privatization of industries, direct foreign investment, redirecting public spending, and relaxing import restrictions. This has become US police since 1989. The problem is that has not improved the situation. Privatization has decreased the efficiency of many state industries or turned them over to foreign control where profit is the goal instead of bettering life. Trade liberalization destroys local industry rather than help it. Spending on infrastructure is redirected leaving road, rail, and public works projects unfunded. This leads to problems of continued debt, regardless of development.
Enter China. Needing to resources to grow its industrial economy China has been forming alliances around the world. China’s involvement in Africa is well documented and has been news for some time. China trades infrastructure development for raw materials. African nations have roads, railways, harbors, and the industry to export natural resources. There is improvement for some; others stagnate. China also brings in its own labor for many of its projects displacing workers in the original industry and not providing employment in infrastructure development.
China’s efforts in Latin America went largely unnoticed by the US as it was concerned with the War on Terror and Latin America was not harboring or supporting terrorism. China was able to move in and provide an alternative to the Washington Consensus. Many states accepted China’s help and Gallagher examines the results of the relationships. Some states were helped and were hurt. Mexico is a noted state hurt by Chinese investment in Latin America. Despite NAFTA, Chinese factories in Latin America can undersell Mexican imports to the US.
Gallagher provides the history and the economics of both US and Chinese investment in Latin America. The results differ by country but breaking the “resource curse” has proved to be a difficult undertaking. Also examined is how the US allowed another (economic) power to move into its backyard without sounding the alarm. An excellent read in the field of international relations and economics. Not everything happens with bold, headline-making news. Sometimes the important events happen with little notice.
April 16, 2020
I probably would have added a chapter to explain political and security concerns that are motivating China's economic investment in Latin America, but other than that, Gallagher writes a fine book. I appreciate his thoughtfulness and his analysis concerning what China has been doing in Latin America. He is very balanced in his critique of the US, China, and Latin America. I think he is wise to encourage Latin America to use its market leverage as a way to balance between the two economic giants. His explanation of economic terms and concepts are incredibly straight-forward. The book could have benefited from more collaboration with Chinese scholars. As a Latin American expert, he did a commendable job jumping into a new field. This book just took about 3-4 hours to read through. It keeps your attention!
October 24, 2018
Boa compilação de dados recentes
O livro traz muitas informações e dados bem recentes da relação comercial China x América Latina. Sendo objetivo:
Pros
1) Dados e informações recentes e não facilmente encontrados em um único material;
2) Análise (superficial), mas interessante de como a China vem ocupando o vácuo deixado pelos Estados Unidos na América Latina.
Cons
1) Conclusões superficiais, e diria até ingênuas, da possibilidade de convivência 'pacífica' entre as agências de exportações da China (Export-Import Bank of China) e Norte-Americana (Export-Import Bank of United States) no continente;
2) Forecasts são ingênuas e óbvios. O autor poderia ter sido mais ousado.
Conclusão: vale a pena pela compilação de dados e lista de referências de trabalhos recentes.
O livro traz muitas informações e dados bem recentes da relação comercial China x América Latina. Sendo objetivo:
Pros
1) Dados e informações recentes e não facilmente encontrados em um único material;
2) Análise (superficial), mas interessante de como a China vem ocupando o vácuo deixado pelos Estados Unidos na América Latina.
Cons
1) Conclusões superficiais, e diria até ingênuas, da possibilidade de convivência 'pacífica' entre as agências de exportações da China (Export-Import Bank of China) e Norte-Americana (Export-Import Bank of United States) no continente;
2) Forecasts são ingênuas e óbvios. O autor poderia ter sido mais ousado.
Conclusão: vale a pena pela compilação de dados e lista de referências de trabalhos recentes.
February 21, 2016
I don't know a lot of things, and international relations cover a big chunk of the stuff I have no idea about, especially when it comes to Latin America and Asia in general. So, this was an eye-opener for me.
My favorite aspect of the book was the use of statistics. The book is very well-searched and it certainly shows. On the other hand, this was one of the reasons why I thought The China Triangle wasn't a book for the casual reader, it took me a while to be able to sift through the facts and get the story straight after we reached the numbers-and-such parts. Plus, I had to spend a lot of time trying to figure out which abbrevation meant what. Not that this is a bad thing in and of itself.
Overall, that the effort put into this book was certainly felt. It was written in an engaging way and I didn't get bored (much), though it still took me a good while to finish. I recommend it if you're especially interested in the subject, though I'm not so sure if you're not. 4/5
My favorite aspect of the book was the use of statistics. The book is very well-searched and it certainly shows. On the other hand, this was one of the reasons why I thought The China Triangle wasn't a book for the casual reader, it took me a while to be able to sift through the facts and get the story straight after we reached the numbers-and-such parts. Plus, I had to spend a lot of time trying to figure out which abbrevation meant what. Not that this is a bad thing in and of itself.
Overall, that the effort put into this book was certainly felt. It was written in an engaging way and I didn't get bored (much), though it still took me a good while to finish. I recommend it if you're especially interested in the subject, though I'm not so sure if you're not. 4/5
Displaying 1 - 5 of 5 reviews