05 November 2019

The Chinese Investment in Latin America Mega-Projects

Chinese Investment in Latin American Construction Continues to Expand

China is building infrastructure all over the world as a part of its Belt and Road Initiative (BRI). Latin America is a huge beneficiary of Chinese spending. There are at least 59 major projects underway in Latin America that are backed by Chinese funds, amounting to more than $85 billion USD.

A recent data set released by GlobalData shows that China is making Latin American projects a priority, and the report speculates that the BRI is behind the renewed push by Chinese companies to find local partners for infrastructure projects.

China is arriving in Latin America at the right time, as the ongoing Odebrecht corruption scandal has left numerous projects in need of new construction companies. Odebrecht is a Brazilian company that has been effectively shut down due to massive corruption that spanned the company's entire operational area.

New Ways for China to Grow

Dariana Tani, who is an economist at GlobalData, expands on the themes in play:

“With diplomatic and economic relations between Latin America and the US more uncertain than ever, many governments across the region see Chinese infrastructure investment as a great alternative to existing traditional financing, in particular, because it does not require the arduous social and time-consuming environmental procedures that usually accompany the World Bank and the Inter-American Development Bank projects...Also, with the recent incorporation of several Latin American countries into the BRI, China’s influence in the region is further strengthening.”

Latin America has numerous natural resources that China needs access to. The Southern Cone, comprised of Argentina, Uruguay, and Chile are major producers of grains and metals, and Brazil is one of the biggest exporters of staple food crops in the world.

Nations in South America have traditionally been allies of the United States, but that has changed over the past two decades. The fall of Odebrecht has left a massive gap in the Latin American construction industry that looks like a perfect fit for a China on the rise.

Concerned Local Populations

While China has had no trouble locking in new construction projects, the local population in some areas where China is developing new infrastructure has concerns over how their rights are being protected.

GlobalData's economist Tani commented, “Local backlash against the lack of adequate environmental assessments and labor concerns are some of the main challenges facing Chinese-funded infrastructure projects in the region. For instance, China’s reluctance to require reasonable standards for its BRI-related projects and loans has encouraged more corruption and debt in the region, as well as led local governments to pursue economically and environmentally unsustainable or non-viable projects.”

At a state level, the messages towards Chinese involvement in Latin American construction is mixed. The new president of Brazil, Jair Bolsonaro, thinks that China is ‘buying up’ Brazil. On the other hand, he also announced that he would like to see China invest more money in Brazilian infrastructure projects, as long as they are developed within the nation's existing laws, and create jobs for the local population.

Like most governments, Brazil would like to see more money flowing into the nation, and supporting its development. China is well placed to fill this role and wants to have preferential access to Latin American resources, as well as closer political ties to influential Latin American countries, like Argentina, Brazil, and Mexico.