Chinese Investment in Argentina: The Road Ahead

13th December 2018

By Scott Squires

Chinese Investment in Argentina: The Road Ahead

Strolling through Barrio Chino — Buenos Aires’ “Chinatown” neighborhood — the smell of fried dumplings wafts from streetside food stalls, providing a welcome departure from the city’s routine of steak and potatoes. Despite the cheap plastic bric-a-brac and even cheaper exoticism that pervade the shops in Barrio Chino, the neighborhood is a stark reminder that Argentina is home to thousands of Chinese immigrants.

Less apparent in Barrio Chino is the political, economic, and social influence China has quietly built in Argentina over the last decade. As China closes in on the title of world’s largest economy, the Asian giant has sought to increase its international presence. China now wields substantial soft power through structural, financial and cultural investment in nations unaligned with (or breaking free from) 20th Century-style imperialism.

China has spent billions of dollars financing and constructing energy and infrastructure projects, doling out massive loans at wildly low interest rates. Accompanying these hard measures is an international charm offensive, sending Chinese language education and culture abroad.

Latin America’s third largest economy, Argentina is now the apple of China’s eye. Argentines may be largely clueless about the extent of the deepening Sino-Argentine relationship. But, as evidenced by the more than 30 bilateral dealsPresident Macri and Chinese counterpart Xi Jinping signed on a December 1 state visit, China’s impact is on the rise.

Constructing Argentina’s future

China’s most visible mark on Argentina comes from its massive investment in energy and infrastructure projects. Among these is the multi-billion dollar Belgrano Railway refurbishment and modernization effort. The key rail network connects Argentina’s grain-rich pampas to ports along the Parana River and the Pacific Ocean, enabling Argentina to export soy, wheat, and beef to China.

In 2013, China agreed to finance two massive hydroelectric dam projects in Patagonia for a combined price tag of $4.7 billion. The dams, negotiated under former President Cristina Kirchner, were criticized as environmentally disastrous. Macri even campaigned on a vow to suspend their construction on taking office in 2015. However, after China threatened to pull funding on the Belgrano Railway, citing a cross-default clause in the construction contract, the dams were approved with a smaller, $4 billion budget.

China has invested in high-tech too, having funded two nuclear power plants in Argentina. A third, the much anticipated Atucha III nuclear plant, is reportedly being finalized, though budget and timeline details remain private. China has even built a satellite communications base in Argentina’s Neuquen region. The work done at the base remains unclear, but surrounding communities have expressed their dissatisfaction with the station and distrust over its purpose.

These projects only mark the beginning of a comprehensive investment in Argentina. During Xi’s state visit, China promised an additional $5 billion over the next five years in infrastructure funding for roads, railways, and renewable energy. That number is set to grow as China continues to push its Belt and Road Initiative, a global campaign to link trade and transportation infrastructure in developing countries while aligning those countries’ interests with China’s.

Lending a hand?

China’s financial influence in Argentina is equally as important, though less visible. This month, the two countries expanded a 2009 currency swap agreement. The new agreement nearly doubles Argentina’s credit line for a total $18.7 billion, making China Argentina’s largest non-institutional lender.

The currency swap acts as a reserve line of credit for Argentina’s central bank, which can request to draw on the funds at any time. Unlike traditional currency swaps, however, Argentina can convert the yuan it withdraws into other international currencies, effectively creating an alternative source of financing. If Argentina finds itself short on cash after its $56.3 billion financing agreement with the International Monetary Fund runs dry in 2020, China will be there to help.

It’s a win-win deal. On a domestic level, Chinese yuan sitting in the Argentine central bank makes it easier for Chinese businesses to facilitate trade and business deals in Argentina. Globally, currency swaps allow China to internationalize its currency. By making the yuan viable tender on the foreign exchange market, China is putting its currency on par with the dollar, euro, or yen.

Throughout Latin America, China has spread financial influence by purchasing ownership shares in commercial banks. In 2012 for instance, the International Commercial Bank of China (ICBC) bought 80 percent of the shares of Argentine Standard Bank. This provides China with yet another means to position itself as a finance and trade partner for developing nations.

Making China relatable again

China’s social campaigns, cultural exchanges, study abroad programs and language institutes have enabled it to spread its influence in Argentina, and across Latin America.

Though Argentina is home to only two Confucius Institutes — college-level Chinese language and cultural studies centers placed in universities around the world — this month, Macri and Xi signed agreements to encourage further cultural exchange between the two countries. This will include fairs, museum exhibitions and festivals, as well as academic exchange programs.

Argentina and China even agreed to promote each other’s film, TV, and radio programming, and “encourage the exchange and production of documentaries and soap operas” on TV and online content.

Predatory lender or a gentle giant?

U.S. officials have expressed a zero-sum attitude toward China’s influence campaign. Former Secretary of State Rex Tillerson called Chinese ambition in the region “imperial.”

It may be more accurate to say that China is playing the long game. Rather than trying to wrest power from the Western-dominated global order, China is carefully arranging its pieces on the global chessboard. In the medium to long term, countries in the developing world will turn to China first simply because they are already there.

Granted, to depict China’s goals of global hegemony as benevolent and generous is Pollyannaish. The country’s authoritarian communist party has an abhorrent human rights record, regularly suppresses political dissent, disavows a free press, aggressively monitors its population, and has withheld participatory democracy from its citizens in exchange for its own brand of hyper-charged capitalism.

True, Argentina needs all the rope it can get to climb out of recession. It may be prudent for Macri to accept China’s generosity now, but his administration must consider the long term implications of such deep engagement. When the bill comes due, Argentina may find itself in a familiar position.

Scott Squires

Scott Squires a journalist for Reuters in Buenos Aires. He holds a dual-Master's Degree in Global Policy Studies and Journalism from the University of Texas at Austin.