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Chinese investment in Latin America and the Caribbean

by | Mar 10, 2024

Inter-American Dialogue reports that Chinese investment in Latin America has been recently reduced to focus on critical areas such as energy, information, and communications technologies.

Chinese investment in Latin America has been reduced in the last four years as a result of the recalibration of the priorities of the communist regime and its companies abroad, reveals an investigation by the Inter-American Dialogue think tank.

The Washington, DC-based center reports that Chinese investment in Latin America reached $14.2 billion annually between 2010 and 2019 but fell to an average of $7.7 billion from 2020 to 2021 and then to $6.4 billion in 2022.

The report cites that the Economic Commission for Latin America and the Caribbean (ECLAC) found that Chinese acquisitions of assets in Latin America in 2022 were the lowest in a decade, both in the number of projects and as a percentage of total mergers and acquisitions in the region. It placed itself behind companies from the United States, Australia, the European Union, Canada, and Chile.

However, the phenomenon is more than just regional. Professional services network EY estimated the value of total investment announced by China worldwide during 2022 at $29 billion, which represented a year-on-year drop of 52 percent.

Analysts attributed this drop to rising geopolitical tensions, related regulatory tightening, and rising global inflation, among other factors.

The refocusing of Chinese businesses

The study “New infrastructure: Emerging trends in Chinese foreign direct investment in Latin America and the Caribbean” was carried out by Inter-American Dialogue experts Margaret Myers, director of the Asia and Latin America Program, Ángel Melguiz and Yifang Wang, both of the Program Asia and Latin America.

Analysts indicate that China is now focusing on other priority areas that it describes as “new infrastructure.” For example, these industries, telecommunications, financial technology, and energy transition, are broadly related to innovation but are also a critical part of the Asian country’s economic growth strategy.

“Whether in terms of value or number of deals, Chinese Foreign Direct Investment (FDI) in these industries is on the rise, accounting for 58 percent (around $3.7 billion) of total annual Chinese FDI in the region” in 2022 and more than 60 percent of the total number of FDI deals announced by Chinese companies that year,” the report notes.

Inter-American Dialogue experts point out that, generally, the types of large-scale infrastructure projects that once characterized the Belt and Road Initiative (BRI) are no longer as emblematic within China’s foreign investment policy in Latin America and the Caribbean (LAC).

“In many parts of Latin America and the Caribbean, Chinese interest in canals, railways, and other major transport and energy infrastructure is being replaced by a growing emphasis on innovation, whether in information and communications technology (ICT), renewable energy or other emerging industries, consistent with Beijing’s laser focus on its own economic improvement and global competitiveness,” the report highlights.

The Inter-American Dialogue study warns that Chinese companies often seek more significant commitment to Latin America and the Caribbean through smaller agreements on average and in sectors that are directly aligned with Beijing’s economic growth objectives.

Chinese investment in Latin America in the energy sector

Chinese mergers and acquisitions in Latin America and the Caribbean are now limited primarily to the utility electricity generation and transmission industries.

Luz del Sur, Peru’s largest utility company, is responsible for supplying electricity to the south of Lima and surrounding areas, and it was purchased by China Yangtze Power International (Hong Kong).

In Chile, China Southern Power Grid bought a stake in the energy transmission company Transelec in 2018, and State Grid purchased the energy distributor Chilquinta Energía in 2019 and CGE in 2020.

Electric generation and transmission deals accounted for nearly 74.4 percent of total M&A transactions over the past five years and a significant amount ($16.9 billion) of the Chinese total.

China’s focus on renewable energy, an innovation-related industry, accounted for more than 6 percent of the total value of FDI announcements from Latin America and the Caribbean between 2018 and 2023.

Information and Communications Technologies

In addition, China is betting on investments in Information and Communications Technologies (ICT) in the region. Deals in this sector accounted for 40 percent of total Chinese FDI in Latin America between 2018 and the first half of 2023. However, it only represents 8 percent of the total value of Chinese investments globally.

The report details an upward trend in Chinese FDI in Latin America’s “new infrastructure” industries, with ICT, renewable energy technology, and, increasingly, electric vehicles accounting for most of these investments.

The study indicates that conditions in Latin America and the Caribbean are relatively ripe for Chinese ICT investment, including a substantial consumer base with high demand for affordable digital equipment and services.

“Whether in terms of value or number of deals, Chinese FDI in these industries is increasing and accounted for 58 percent (around $3.7 billion) of the annual total in the region in 2022 and more than 60 percent of the total number of FDI agreements announced by Chinese companies that year,” the report determines.

New investments in equipment, consumer electronics, satellites, services, and computing exist.

“As geopolitical conditions limit China’s technology investments and trade prospects in developed country markets, many of China’s manufacturing and  Information and Communications Technologies companies have sought to engage more broadly with Latin America, the Caribbean, and other parts of the Global South,” the report says.

The study concludes that China’s major technology suppliers are moving beyond equipment sales, which were the original basis of Huawei’s operations in Latin America, and are now rapidly expanding their focus to include data centers, cloud, and other services, especially in Argentina, Brazil, Chile, Colombia, Mexico, and Peru.

Focus on the biggest country

The Inter-American Dialogue study indicates that Chinese investment in Latin America continues to be overwhelmingly focused on the largest economies in the region, such as Brazil, which absorbed a large part of Chinese FDI in LAC between 2003 and 2010.

In 2022, China also bet on Brazil with 78.6 billion dollars, 42 percent of the total for Latin America.

“Chinese FDI in Brazil between 2003 and 2022 was more than double the investment in Peru, the second largest recipient of Chinese FDI during that period,” the report explains.

However, the relative importance of Brazil as a destination for Chinese investment in Latin America has decreased in the last five years in favor of Chile, Peru, and Mexico. The report notes that this reflects political tensions between China and Brazil under the Jair Bolsonaro administration but may also be due to changes in investment conditions or projects or industries of interest in other parts of LAC.

The American warning

The report recalls that the United States and some like-minded partners have warned about over-dependence on Chinese investment in Latin America and influence across the entire “digital stack” (network infrastructure, devices, applications, content, and governance), highlighting the need for interoperability and pointing to the prospect of repurposing digital technologies and infrastructure to enable the suppression of civil society.

In Latin America and the Caribbean, the United States has called for robust consumer protection frameworks to reduce the space for impunity and rights abuse, whether at the behest of state or non-state actors.

Will they give more to the region?

The report states that China is giving signs that it will penetrate further into the region. As proof of this, it cites Xi Jinping’s conversations in November 2023 with presidents Dina Boluarte of Peru, Luis Lacalle Pou of Uruguay, and Gustavo Petro of Colombia, and his April 2023 meeting with Brazilian President Luiz Inácio Lula da Silva.

Those meetings all focused on expanding the already extensive trade relations while encouraging cooperation in sectors related to innovation in these countries, including urban mobility systems in Colombia, the pharmaceutical sector in Uruguay, the digital economy, energy and mining in Peru, and 5G telephone technology in Brazil, among other areas.

According to experts, these and other countries in the region should expect a certain degree of Chinese economic commitment in the coming months and years, although mainly in sectors aligned with China’s economic improvement process, not precisely that of Latin America and the Caribbean.

In conclusion, the shifting landscape of Chinese investment in Latin America reflects a strategic recalibration towards sectors integral to China’s domestic economic agenda, such as energy, information, and communications technologies. While traditional infrastructure projects under initiatives like the Belt and Road Initiative have waned, emerging industries like renewable energy and ICT are witnessing a surge in Chinese interest. Despite geopolitical tensions and regulatory constraints, recent engagements signal a continued, albeit targeted, commitment from China to deepen economic ties with the region. As Latin American countries navigate these evolving dynamics, they anticipate a nuanced influx of Chinese investment, emphasizing alignment with China’s economic priorities alongside their development objectives in the years ahead.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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