The China Triangle: Latin America ' s China Boom and the Fate of the Washington Consensus

Citation

Michael J. Pisani (2016), "The China Triangle: Latin America ' s China Boom and the Fate of the Washington Consensus", American Journal of Business, Vol. 31 No. 2, pp. 98-100. https://doi.org/10.1108/AJB-06-2016-0019

Much attention has been focussed upon China’s twenty-first century emergence as a global competitor and perhaps rival to the USA (Nye, 2015). China’s recent ascension within the global economy is truly global, influencing developed and developing regions alike. China’s economic influence in Latin America is aptly described by Kevin P. Gallagher in his sixth book, The China Triangle: Latin America’s China Boom and the Fate of the Washington Consensus.

Kevin Gallagher began his academic career as a Political Economist at the Boston University with a geographical focus on Mexico and Latin America. His first two books detailed the impact of NAFTA on Mexico’s environmental policy and regional development in Guadalajara (Gallagher, 2004; Gallagher and Zarsky, 2007) and established Gallagher as an authority on the intersection between politics, economics, and sustainability in Mexico. Gallagher added China and its contemporary relationship with Latin America to his portfolio of studies which he directs through the Global Economic Governance Initiative (www.bu.edu/pardeeschool/research/gegi/) at the Boston University. The China Triangle is a culmination of a decade of writing and exploration of the China-Latin America connection with a focus on the 2003-2013 timeframe.

So why be concerned about a book on China and Latin America? In short, China has replaced the USA in South America as the region’s primary trade partner and benefactor; perhaps redefining the Monroe Doctrine as empty sloganeering[1]. And within all Latin America and the Caribbean, China plays a pivotal role as financier and creditor, provider of foreign aid and development finance, and as consumer and seller. And while most of the global economy took a huge hit during the 2008 US financial crash, South American economies hummed along on the strength of the Chinese economy. Gallagher stated, “Latin America rode the coattails of the boom in China, growing at an annual rate of 3.6 percent from 2003 to 2013” (p. 8).

Gallagher argues that regional economic growth during the period of the China boom in Latin America (2003-2013) outperformed most earlier economic eras in modern Latin American economic history. The exception was the state-led period of import-substitution-industrialization (1930-1980), an era of seemingly no return in the current global economic context. Hence, Gallagher writes warmly of China’s recent economic interaction in Latin America as an engine of economic growth. In particular, this growth was fueled by China’s commodity needs, especially iron ore from Brazil, oil from Mexico, Ecuador, and Venezuela, copper from Chile and Peru, and soya beans from Argentina and Brazil. In Gallagher’s parlance, Latin America won the commodity lottery with China[2].

This budding relationship has seen the rise of Chinese companies establishing subsidiaries in Latin America. For example, in the energy sector, China’s big three state-owned firms (China National Petroleum Corporation, China National Offshore Oil Corporation, and China Petroleum and Chemical Corporation) are all active in Latin America, most notably in Argentina and Brazil. In manufacturing, Lenovo makes computers in Brazil and Mexico. Chinese car companies are present in Mexico, Brazil, and Uruguay. Telecommunications giant, Huawei, uses credit to increase market share in the region. And Industrial and Commercial Bank of China acquired a majority state in Standard Bank of Argentina.

Ease of finance is part and parcel of the Chinese economic push in Latin America. This is facilitated by the China Development Bank and the China Export-Import Bank who provide financing with few strings attached. And Latin American Governments borrowed heavily in the form of development finance from these Chinese institutions amounting to $119 billion dollars (from 2005-2014), an amount larger than development aid from next highest sources of development finance acquired from the Inter-American Development Bank ($70 billion) and World Bank ($67 billion) over the same period[3]. Chinese money strengthens and perhaps ensures the commodity link between Latin American and China. Additionally, China has made vast inroads into Latin American consumer markets since 2000 blunting local industry and competitiveness (as Chinese exports have done in much of the world).

The China boom has been beneficial to Latin America in the short term. Yet during this period of relative prosperity, Latin America has not done enough to invest the commodity windfall to decrease income inequality, enhance education, build infrastructure, or develop new or strengthen old sectors of competitive advantage. And an over reliance on commodity exports and foreign finance has re-recreated conditions bordering upon neo-colonialism and a looming debt crisis for some countries. Hence, China and Latin America is not without risk in this dalliance.

In some cases, the commodity push has led to an overvaluation of Latin American currencies and weakening export competitiveness in non-commodity exports. For others, an evolving terms-of-trade environment has begun to reverse many of the benefits of the China boom. More ominous are the long term environmental dangers posed by many Chinese projects in the region. While Gallagher does highlight a few of these concerns and even successes, he does not go far enough in rebuking China for its mostly cavalier attitude toward environmental stewardship and labor relations in Latin America. For example, Chinese Billionaire Wang Jing’s $50 billion attempt at an inter-oceanic canal through Nicaragua which may create an ecological calamity if completed goes unreported. Furthermore, China has been quick to financially support leftist or progressive governments in Venezuela, Ecuador, Bolivia, Brazil, Cuba, and Nicaragua.

The triangle that Gallagher refers to in his title is the role of the USA in the connection between China and Latin America. Over the last two centuries, the USA has played a dominant role in the Western Hemisphere. The twenty-first century wars in Iraq, Afghanistan, and against ISIS and the economic crisis of 2008 and beyond deflected the attention of the USA in Latin America and created a space for China to enter. In this new environment, Gallagher suggests that the USA become more a financial partner in the development of the region in association with China’s growing influence. The long term dynamic between China and the USA in Latin America may evolve into more rivalry than cooperation, but the future is yet to be written on this trilateral interplay.

The China Triangle should be read by academics and policy-makers concerned with the rise of China and modern Latin American economies. This book informs and connects the dots between a myriad of economic actors. Kevin P. Gallagher’s continuing research on the economic relationship between China and Latin America is invaluable and this reviewer looks forward to future works by Professor Gallagher on the topic.

Notes

Adding to the author’s presumption of the demise of US influence in Latin America is the subtitle of the book which references the Washington Consensus. The Washington Consensus is a set of policy prescriptions promulgated through the IMF, World Bank, USAID, and other agencies based in Washington, DC, that suggested a free-market approach to development after the Latin American debt crises of the 1980s-1990s. Gallagher argues that in the China boom era (2003-2013) economic growth outperformed the approach advocated in the Washington Consensus era (ca. 1985-2000) by 50 percent in Latin America, suggesting that Chinese policy and economic approaches may provide better economic welfare outcomes than those policies promulgated by the Washington Consensus.

More than 85 percent of Latin American exports to China from 2008 to 2012 were comprised of commodities.

Gallagher and colleagues keep track of Chinese investment in Latin America, available at: China-Latin America Finance Database (www.thedialogue.org/map_list/).