Latin America, Testing Ground for Chinese Yuan


Chinaincrease in its trade with the countries of Latin America and the Caribbean over the last decade, to a total of 188 billion dollars a year in 2011. China extended 37 billion dollars in credit to Latin America in 2010 – more than the loans from the World Bank, IDB, and United States Export-Import Bank combined.More than 90 percent of that total went to Venezuela, Brazil, Argentina and Ecuador, especially to finance the purchase of commodities and towards Chinese companies that have investments in those countries. For example, Trade with Brazil alone climbed to 77 billion dollars last year, 37.5 percent up from 2010.China has loaned Venezuela more than 40 billion dollars since 2007.

By email from F. Yovera

The 2008 outbreak of the financial crisis in the United States prompted China to push for the use of its currency in transactions with its leading partners, Brazilian economist Rodrigo Branco explained to IPS.

“This change was mainly due to the need to guarantee steady supplies of commodities, and also because of the instability of the industrialised economies,” which have been hit hardest by the crisis, added Branco, with the Foreign Trade Studies Centre Foundation (FUNCEX).

China, which joined the Inter-American Development Bank (IDB) in 2008, has seen a 16-fold increase in its trade with the countries of Latin America and the Caribbean over the last decade, to a total of 188 billion dollars a year in 2011.

Trade with Brazil alone climbed to 77 billion dollars last year, 37.5 percent up from 2010.

China is now Brazil’s largest investor and trading partner.

“The Asian giant is financing infrastructure in the region to expand its production and thus guarantee its sources of raw materials, while trying to cut the prices of imports,” the director of Brazil’s Foreign Trade Association (AEB), José Augusto de Castro, told IPS.

This influence is seen, for example, in loans to countries like Venezuela, with which it has a strategic relationship, in the words of Venezuelan President Hugo Chávez.

According to an article in the Wall Street Journal, China’s policy banks are seeking to expand their loans to Latin American countries that are suppliers of key food and mineral commodities using the yuan instead of the dollar, as part of a strategy to promote use of the Chinese currency in international trade.

The Export-Import Bank of China (China Exim Bank) is in negotiations with the IDB to set up a fund that would provide one billion dollars worth of yuan to finance infrastructure projects in Latin America and the Caribbean.

The two institutions signed an agreement in September under which the China Exim Bank committed itself to offer up to 200 million dollars to finance trade between China and Latin America. Part of that funding will be in yuan.
A report published this month by Inter-American Dialogue, a Washington-based centre for policy analysis, exchange, and communication on Western Hemisphere affairs, says China extended 37 billion dollars in credit to Latin America in 2010 – more than the loans from the World Bank, IDB, and United States Export-Import Bank combined.

More than 90 percent of that total went to Venezuela, Brazil, Argentina and Ecuador, especially to finance the purchase of commodities and towards Chinese companies that have investments in those countries.

Countries like Venezuela and Ecuador, which have a harder time obtaining multilateral loans, have particularly benefited from this assistance.

In the context of a 20-year strategic plan, China has loaned Venezuela more than 40 billion dollars since 2007, when a China-Venezuela fund was established, for four billion dollars. The fund, which has been renewed several times, finances investment in infrastructure and social programmes, for which precise figures are unavailable.

And in 2010, a 20 billion dollar credit line was negotiated, half of which is in dollars and half in yuan, mainly to buy goods and services from China.

The Chinese oil companies CNPC and CNOOC also made several billion dollars available to Venezuela’s state-run oil giant, PDVSA, for oil industry projects.

China’s investments in Venezuela have ranged from oil production to railways, infrastructure works, construction of housing, and car, motorcycle and mobile phone assembly plants.

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