Lending money: Latin America and China’s New Engagement

Abstract

Recent research highlights that much of Chinese foreign direct investment (FDI) is located in developing countries (UNCTAD, 2006, Morck, Yeung & Zhao, 2008;Gugler & Boie, 2008). At the same time, reports from the Chinese Ministry of Commerce (MOFCOM, 2010) point to sub-Saharan-Africa and Latin America as important destinations for FDI. In addition, other research suggests that there are two fundamental reasons that explain Chinese FDI in both regions: a) the need for oil and raw materials and b) the need for international allies (Chambers, 2006;Lafargue, 2006; Van de Looy, 2006; Hsiang, 2009; Regalado 2009).However, Sino-African relations have historically been deeper than Sino-LatinAmerican relations. For example, in the 1950s and 1960s China provided assistance to some African countries in the field of agriculture, forestry, food processing, textiles and other light industries, supply and distribution of water and in electric power generation. They also collaborated in the construction of the TaZaRa Railway. Inthe early 1970s they provided military assistance to several countries in the region who fought for independence, but as the decade progressed, the ideological approachled to a more pragmatic strategy focused on the economic interests of the country (He, 2006). Instead, the Chinese assistance in Latin America was almost non-existent and the ideological support ended when, in the mid-1960s, relations with Cuba deteriorated since the Caribbean country decided to support the Soviet Union in its struggle to secure global hegemony (Li, 1991).