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China links key for Latin America

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Reference:CHinadaily | Updated: 9 March 2020

The economic and human costs of Latin America’s huge infrastructure gap are difficult to calculate but are certain to be enormous, which is why the region’s links with China are becoming so important.

Almost two-thirds of roads across Latin America are unpaved, and just as much sewage is never treated, according to studies by the Inter-American Development Bank, which assists economic development in Latin America.

Power grids often leak electricity. Traffic in cities like Bogota, Colombia, and Buenos Aires, Argentina, can be dismal. Airports can be overcrowded and undersized. Trains often break down.

In Argentina and Brazil, difficult economic times are part of the problem. Recessions mean money is often too tight to invest in infrastructure, and financing can be difficult to obtain.

If there is one thing China understands, it is the importance of working with partners to build infrastructure, ensure economic development and improve the quality of life. The Belt and Road Initiative has always been predicated on this understanding.

As it attracts more members throughout Latin America, the BRI is shifting its approach away from unilateral funding of projects and toward more partnerships with multilateral and local institutions.

The outbreak of new virus pneumonia may have strained China’s economy, but it has also highlighted the resilience of these links, particularly in areas like mining, agriculture and healthcare.

Current and potential BRI partners in Latin America have stepped up with needed supplies. One factory in Argentina, for example, has multiplied its production of face masks to send to China.

At the same time, investments in infrastructure are not likely to be affected by the outbreak.

China was investing in and financing infrastructure projects around the world long before it launched the BRI in 2013, but the initiative helped to supercharge these deals, as did the launch of the China-led Asian Infrastructure Investment Bank in 2016. Over the past couple of years, Latin America has emerged as a significant focus of these deals.

China benefits as well. Trade between China and Latin America rose 19 percent in 2019 to US$307.4 billion, according to data by financial information services provider Fitch Solutions.

China is the second-largest trading partner for Latin America after the United States.

In the past three years, Chile, Uruguay, Trinidad and Tobago, Panama, the Dominican Republic and El Salvador have all signed on to the BRI.

More countries are weighing their participation, most notably Colombia. Last year, BRI member Ecuador joined the AIIB, which is now considering expanding its reach to the region.

As a result of all this activity, 2020 looks like a banner year for BRI-related projects in Latin America.

In a significant change, however, Chinese capital is not moving in the form of loans but rather as partnerships with local companies or domestic institutions. This approach is likely to prove more sustainable for everyone.

For China, working in partnerships could mean lower levels of investment and lower default rates. For its partners, it means that any loans and repayment amounts could be smaller and easier to maintain.

In January, China Yangtze Power secured a US$4 billion loan with support from Bank of China, Industrial and Commercial Bank of China, US-based Santander Bank and Japan’s largest bank, MUFG Bank, to acquire power assets held by Sempra Energy in Peru. State Grid Corp of China is now looking for US$2 billion to buy Sempra’s assets in Chile.

The only way countries like Colombia, Peru, Chile, Uruguay and Bolivia can continue to strengthen their economies is to bridge any existing gaps in their infrastructure. All these investments and the flow of capital linked to the BRI are certain to help them do this.

With the United States closing into itself and leaving behind funding vacuums throughout the region, China and Chinese initiatives like the BRI are likely to be increasingly sought after as partners for infrastructure projects throughout Latin America.

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