Strategic interests shifting in the US backyard

Brazil's President Luiz de Silva with his Chinese counterpart Hu Jintao during the former's visit to China.Photo: AFP

THE late nineties reaffirmed to the world that China had arrived in a big way on the international economic horizon. This development was seen as a success story in many countries in Africa and Asia. They discerned in this a potential for their own growth.
It was, however, not so in Latin America. Countries from this region monitored the emerging situation with concern. Some of them, in particular, felt threatened. This was because average wages in China were one-fifth to two-fifths of those in Latin America. Consequently, it was anticipated that much of this region's labour intensive manufacturing industry would suffer serious harm. It was this anxiety that persuaded several Latin American countries to table many anti-dumping actions against China at the WTO, even more than the United States.
Such fears have, however, reduced over the past decade and inter-linkages between China and this region have grown. This has been mostly due to China's thirst for commodities. It is also this factor that has led China to make inroads into Africa.
A classical example of such pro-active engagement has been the recent agreement between China and Peru (rich in copper) whereby China will invest US$2.2 billion in developing the copper mine located at Toromocho in the Peruvian Andes. China will also build a new US$70 million wharf in the port of Callao to facilitate shipping of the copper ore across the Pacific to China for Chinese industrial units. Such infrastructural involvement will be another symbol in the canvas of burgeoning trade and investment making China an economic partner with Latin American countries. It is also breaking down suspicion.
Analysts have been monitoring this steady Chinese involvement with great interest. They are particularly highlighting Brazil in this context. Statistics indicate that China has become Brazil's biggest single export destination for the first time. This has been partially made possible by Brazil's sharp fall in manufacturing exports because of recession. Brazil's President Luiz de Silva and his Chinese counterpart Hu Jintao have both taken personal interest in improving bilateral links. This has recently led to Brazil signing in May this year, an agreement whereby China Development Bank and Sinopec, a Chinese oil company will lend US$10 billion to Brazil's state controlled oil company Petrobas. In return, China will receive an assured supply of 200,000 barrels of crude oil a day for ten years from Brazil's new deep-sea fields.
It may also be recalled that earlier this year, China offered Argentina a currency-swap arrangement involving use of Chinese currency, the Yuan, worth US$10 billion. This was the Chinese way of not only underlining the importance of the Yuan as an international currency unit but also pointing out to United States the need to manage its finance with greater probity.
The use of soft power to gain entry into the Latin American and Caribbean landscape has also been demonstrated in its constructive engagements with cash-strapped Jamaica (lending US$138 million to avoid a debt default), with Ecuador and Venezuela (buying stakes in its oilfields) and with Costa Rica (discussing the possibility of building a refinery).
The Chinese have been specially focusing on ensuring their access to energy, in both short and medium terms. This has persuaded them to identify international companies involved in production of oil both in Africa as well as in Latin America. China's approach has not been random but a very pre-meditated measure. This focus on ensuring access to energy has now persuaded China National Petroleum Corporation and Cnooc, another oil firm, to make a bid of about US$17 billion for an 84 percent stake in YPF, Argentina's biggest oil company, held by Spain's Repsol.
The emergence of external actors within the strategic backyard of the US has encouraged some political economists to question the continuing validity of the Monroe Doctrine-enunciated by US President James Monroe in 1823. The entry of such actors into Latin America includes not only China but also India, Russia and Iran. It is true that until now, their total investment and trade statistics do not match that of the United States and Europe. However, it is clear that new and potential stakeholders are wading ashore in this region. It is also a reflection of the gradual transfer of centres of power. Some analysts have also noted that this shift has also been facilitated by the US administration's neglect of its backyard in its pursuit of the so-called 'war on terror' during the past Bush presidency.
The relative absence of United States influence and the growth of self-confidence among several Latin American countries (bent on asserting their diplomatic independence) have led to a quest for diversification of economic ties. This quite obviously raised questions regarding whether this evolution foreshadows geo-political changes or any strategic threat for the USA.
The US State Department, for obvious reasons, has been monitoring very carefully the expanding areas of Chinese influence all over the world. They are however more worried about Iran's 'encroachment' into the scene. They consider Iran, Russia and China's growing relationship with Venezuela (which provides 10 percent of US oil imports) as a challenging 'axis of anxiety.' The United States does not appear, however, to be too averse to a growing relationship with industrializing India.
Economists have been focusing special attention on this changing international paradigm. Chinese and Indian demand for raw materials has driven world prices for commodities to unprecedented levels and accelerated the rate of economic growth for countries like Brazil, Chile and Peru. It has also helped them to ride out the world recession somewhat unscathed. It is true that Brazil's shoemaking and toy-making industries have moved to China (because of cheaper wages) but jobs lost have been re-born in other sectors through indirect investment coming in through the demand for its commodities. This has been an example of a multi-polar world at work.
Whatever be the equation, two aspects appear to be abundantly clear -- the USA might have lost ground in terms of trade and investment in the Latin American region, but it doesn't mean that such a thesis is likely to lead to rise in radicalism or emergence of political instability. Those investing, particularly China, will keep a careful watch that their efforts are not overturned due to political turmoil. From this point of view, it may be seen as an indirect axiomatic form of re-insurance towards regional stability.
Muhammad Zamir is a former Secretary and Ambassador and can be reached at [email protected]