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China Expands Infrastructure Projects in Latin America

Dec 09 , 2014

Chinese companies and banks are building and funding many infrastructure projects across Latin America. Analysts have said some of these projects are being built for geopolitical reasons, but the main reason is to secure supplies of natural resources for the burgeoning Chinese economy.

A Railway to Connect two Oceans

El Economista reported in November that Brazil, China, and Peru signed a memorandum of understanding during the Asia-Pacific Economic Cooperation Forum that they will jointly build a railway that will connect the Pacific Ocean to the Atlantic – a great distance of 3,500 km. This is a heavy lift as there is not even a major highway running across the continent.  In places, mud, snow, and jungle make the journey quite difficult.

The newspaper reported that this was the first step in a $10 billion project that “will facilitate the export of raw materials.”

The train will help exporters avoid the cost of passing through the Panama Canal, as the tariff for doing that has increased in recent years. (In August, we wrote about Chinese plans to build a $40 billion canal across Nicaragua here, to compete with the Panama Canal. The only update to that news is that the Chinese contractor this month reiterated its plans to start construction in December.)

El Economista said, “…in the last three decades Beijing has increased its contacts to finance and building infrastructure in exchange for access to petroleum and minerals.” You could add to that list of raw materials soybeans, since Brazil exports huge quantities of those, plus corn. Both Brazil and Peru have petroleum and natural gas. Brazil also has iron ore. Peru has much copper, gold, silver, and iron ore.

Regarding another rail project, Reuters reported in June that the China Development Bank loaned Argentina $2.1 billion to build a rail project that “would make it more efficient to transport grains from Argentina’s agricultural plains to its ports.” Argentina is theNo. 3 exporter of soybeans and corn in the world.

Mexico City High Speed Rail Project On Hold

China Railway will have to bid again on a project to build a $3.7 billion, 210 km high-speed rail between Mexico City and Querétaro. The Mexican government awarded the project in November then promptly canceled it when senators said the bidding process was not open. China Railway, with a consortium of four Mexican companies, was the only bidder. Siemens and Bombardier expressed interest, but placed no bid.

The Chinese were not happy that the bid was abruptly canceled. The Communist Party-owned newspaper Global Times wrote, “Many people’s first thought was: Is Mexico joking?” The bidding will be opened again in November, except this time the government will shorten the evaluation period to a short six months.

China has built 7,000 miles of high-speed rail in its own country. There is no high-speed rail at all anywhere in North America, including the U.S., where a much-criticized pilot project to build high speed rail into the empty California desert was canceled.

The Mexico City project would have been financed by the China Export Import Bank.

Dams for Hydroelectric Power

China Daily says, “Latin America, with its vast array of powerful and beautiful rivers, may be a relatively recent new frontier for Chinese dam builders, but they are coming on strong now, not only providing hydroelectric power and water for irrigation, but also expanding China’s geopolitical clout.”

Chinese contractors have 22 hydropower projects in total in Latin America either underway, already completed, or in the planning phases. These projects are located in Belize, Ecuador, Costa Rica, Honduras, Perú, and Argentina.

Peter Bosshard, policy director for International River, told the South China Morning Post that, “There is often a bit of geopolitics involved in these projects. Obviously, Brazil has a very active dam-building industry as well and is kind of the regional powerhouse. But there are governments that are trying to become a bit more independent from Brazilian influence, so that is where China plays a more active role in Ecuador.”

It is interesting to note that there are no Chinese hydro projects underway in Chile, where the high price of and lack of electricity is an issue. There, mining companies have taken to financing hydroelectric, solar, and other projects themselves, often for their own use, as the government has stumbled in its efforts to put together a strategic energy plan.

The Chinese dam constructions projects have been financed by the China Development Bank, the China Export Import Bank, and even the Canadian International Development Agency.

Investments in Mining

BN Americas says that China backs a quarter of Peru’s mining investments.  Peru is mineral-rich with copper, gold, silver and iron ore.  The website says that Shougang steel is investing $1.2 billion at its Marcona iron ore mine. Chinalco recently completed a $3.5 billion expansion at Toromocho copper mine.

In Bolivia, the Chinese are helping Bolivians not just dig lithium out of the ground but turn it into a value-added product: batteries. The LinYi Cake Trade Co. plant is located next to the Uyuni salt flats, by far the largest salt flats in the world, which is where lithium is found. Lithium batteries power cell phones, tablets, and electric cars. Most of the world’s lithium comes from Chile and Bolivia.

Economía Bolivia reports that the Chinese firm has refitted the rusting remains of a metallurgy plant that had been there before, so it is not quite suited for making a large number of batteries.  Bolivian engineers working there characterized the project as more of a training effort for the Chinese company to teach the 19 Bolivian engineers working there how to make lithium batteries. This is to prepare them when the Chinese company ultimately builds a proper manufacturing facility.

In what people working in undeveloped nations sometimes characterize as “bring your own infrastructure,” the Chinese brought everything needed to build the plant, since none of that was available in Bolivia.

The Bolivian project is not a large investment, but at $2.9 million is still economically significant in the poor high desert of Bolivia – and anywhere in South America, in fact, where raw materials are mined but not refined into something more valuable. There is not much manufacturing at all in any of the companies west of the Andes Mountains.

Finally, after calling the Chinese some of the best bridge builders in the world, the government of Chile award a $750 million contract to a consortium of companies led by South Korea to build a bridge to Chiloé. Some 150,000 people live on this island in Patagonia, half of them working for salmon farming companies. The 2.7 km bridge will replace the only means to get to the island currently, which is by ferry, thus ending the people’s geographic isolation.

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