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The advance of China in the economy of Bolivia, the heart of South America

by | Feb 17, 2024

The advance of China in the economy of Bolivia is becoming increasingly more assertive. This is not only due to loans that the Asian giant has made to the South American nation but also due to the growing Bolivian presence of Chinese companies in areas such as construction, mining, and now in the exploitation of lithium, in addition to the use of yuan.

China is Bolivia’s main bilateral creditor. The Bolivian debt to China as of May 31, 2023, was 1.4 billion dollars, according to the Central Bank of Bolivia (BCB).

The bilateral trade balance leans in favor of China, with a negative balance for Bolivia of 498 million dollars between January and May 2023, according to data from the National Institute of Statistics (INE).

The most prominent presence of China in the economy of Bolivia is currently in the area of construction, particularly roads because these works are financed with credits from that country, the Minister of Economy, Marcelo Montenegro, explained to the international press.

Mining sector participation

Chinese interests are also significantly involved in the Bolivian mining sector. This has been criticized, especially by the country’s opposition party, which has repeatedly denounced that Chinese companies operating in gold mining are camouflaged in local cooperatives. It is alleged that they are causing severe environmental damage. Most notably, this occurs in protected areas in the north of La Paz.

Now, China focuses on Bolivia’s economy on the exploitation of lithium. Recently, two Chinese companies have secured participation through agreements with the Government to apply their direct lithium extraction (EDL) technologies in the Bolivian salt flats.

One is the CATL BRUNP &MOC (CBC) consortium, which committed an investment of 1.4 billion dollars in the assembly of two EDL plants in the Coipasa salt flats in the Andean region of Oruro and Uyuni, in Potosí, where the majority of Bolivian lithium reserves are concentrated.

The second is Citic Guoan, which will invest 857 million dollars to install an EDL plant in Uyuni.

Strategic Ally

At the World Trade and Investment Promotion Summit of the Chinese Council for the Promotion of International Trade, the Bolivian president, Arce, highlighted the cooperation with China in the development of lithium and its role in trade and investments in Latin America at the end of May 2023.

The Arce Government, which has an ideological affinity with Chinese President Xi Jinping, recently began to promote the advancement of China in the economy of Bolivia and the use of yuan to carry out international transactions due to the lack of dollar reserves available in Bolivia since the end of February 2023.

Minister Montenegro reported that since March 2023, foreign trade transactions worth 278.8 million yuan (about 38.8 million dollars) have been carried out through the state-owned Banco Unión.

Montenegro stated that the figure is a good start and, although it does not mean that the dollar has already been replaced, there is a global trend towards that outcome.

In his opinion, “China will continue to have an important space” in the Bolivian economy, which will expand with the investments announced in lithium deposits.

Pros and Cons

The manager of the private Bolivian Institute of Foreign Trade (IBCE), Gary Rodríguez, recently stated that “there is no doubt that the advance of China in the economy of Bolivia has acquired increasing importance in the last ten years.” This circumstance is due to the “logic of expansion” of the Asian giant globally through finance and foreign trade.

In addition to being the main bilateral creditor, China is Bolivia’s “first foreign supplier.” In 2022, Bolivia purchased “almost 4,500 high-value-added products for just over $2.5 billion from China,” Rodriguez pointed out.

An advantage of opening the doors to the presence of China in the economy of Bolivia is “the possibility of activating production and export potential based on that megamarket, which is giving enormous returns to countries like Chile and Peru.” However, there is the risk of generating a “high dependence on a single country,” which, in addition, is the “second world power,” he added.

Regarding the use of the yuan, Rodríguez considered that as long as the United States “is the world power that it is and the Federal Reserve is independent, the dollar will continue to be the world currency par excellence.”

In his opinion, paying Bolivian imports with yuan would be interesting to help reduce the demand for dollars in the country and “decompress the pressure that exists today on the exchange rate, and that is giving rise to a parallel market with a more expensive dollar.

In conclusion, the increasing presence of China in Bolivia’s economy is undeniable, marked by significant investments, bilateral trade relations, and the utilization of the yuan in international transactions. While this partnership offers economic growth and development opportunities, it also raises concerns about dependency and environmental impact. The strategic alignment between Bolivia and China’s governments underscores this relationship’s significance, particularly in construction, mining, and lithium exploitation sectors. As Bolivia navigates this evolving economic landscape, balancing the benefits and challenges of its engagement with China will be crucial for sustainable development and long-term prosperity.

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