Developing Markets

China, Seeking New Growth Markets, Widens Investment Activity in Latin America

President of China ends visit to Cuba
Cuba's President Raul Castro gestures as Chinese Leader and Communist Party Chief Xi Jinping waves to a crowd. The Chinese leader just concluded an official visit to the island.
  • Why it matters

    Why it matters

    The Asian country’s loyalty to its economic friends will be tested in the coming financial crisis

  • Facts

    Facts

    • President Xi Jinping’s visit to Brazil last week underscored China’s interest in South America.
    • The South Americans have been poor managers of their economies.
    • China must strike a balance between subsidizing South America for political reasons or using new financial institutions to impose its economic policy.
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    Audio

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China has done a lot for South America and plans to do a lot more. This was made clear by President Xi Jinping of China last week on his first visit to the region.

Venezuela will receive $45 billion (€33.2 billion), Argentina’s troubled banks $11 billion in credit and Argentina itself about $5 billion for the construction of two hydroelectric power stations. In Brazil, 30 agreements for energy and infrastructure projects were concluded, and in Cuba, 29 contracts were signed.

In both countries the level of investment was not specified. The investments are more generous than those promised by the Russians recently when they agreed with Cuba to write off about $29 billion in debts. But that money is long gone and of no more use to the Cuban economy.

However, China isn’t happy, as the return on investment will be smaller than planned.

The South Americans are like poor relations, always in need of new money, because they cannot manage their affairs. Their mistakes are reminiscent of those made during the Asian crisis in the late 1990s. Because money was cheap, the emerging countries borrowed too much, too quickly from abroad. When the U.S. Federal Reserve reduced the supply of money earlier this year, making it more expensive, many international investors withdrew from emerging countries.

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