The China Signal - March 18
Commodity volatility creates economic and political pressures, protests over Chancay Port, PPE to Grenada, China Three Gorges Brazil
G’day, and welcome to The China Signal. This week, Ukraine and China-driven commodity market volatility weighs on Latin America’s economic growth, while supply disruptions increase political pressure on its leaders; Cosco faces ESG-themed protests over its Chancay Port development in Peru; Grenada receives PPE donations; details on Argentina’s BRI MOU released; a deep dive on China Three Gorge’s Brazilian subsidiary in light of its anticipated IPO; plus more. Read on.
Trade 🚢💱
Ecuador 🇪🇨
Last week’s edition discussed the impact of commodity supply restrictions and embargoes from Russia and Ukraine, its impact on LAC exporters losing access to these markets, LAC businesses losing access to inputs from Russia and Ukraine (eg. Brazil’s reliance on Russian fertiliser), and potential movement from Chinese firms pivoting from Russia/Ukraine to Latin America.
In Ecuador, president Guillermo Lasso is facing growing political pressure from his country’s banana producers, who protested this week to urge Lasso to give more support to the affected sector.
In response, Lasso is turning to China to emphasise how a Ecuador-China trade agreement could recoup the losses of some of Ecuador’s exports to Russia and Ukraine (MH):
Gobierno espera cooperación china ante crisis de pequeños productores - El Comercio - March 15, 2022
~Paraphrased translation~
Ecuador seeks to finalise a Free Trade Agreement with China. Last week, Lasso held a dialogue with China’s ambassador.
He took the opportunity to ask for help. Banana, flowers and other similar exports are worth $1 billion. "For China that is absolutely manageable," according to Lasso.
"We are already talking, seeing how we can achieve synergy to, in these difficult circumstances, find the best path for our small producers," assured the President.
Ecuador persigue concretar un Tratado de Libre Comercio con China. Lasso mantuvo, la semana pasada, un diálogo con el Embajador de ese país.
Aprovechó para plantearle ayuda. Alrededor de USD 1 000 millones representan la exportación de banano, flores y otros productos. “Para la China eso es absolutamente manejable”, según Lasso.
“Ya estamos conversando, viendo la manera de cómo logramos una sinergia para, en estas circunstancias difíciles, encontrar el mejor camino para nuestros pequeños productores”, aseguró el Mandatario.
War in Ukraine 🇺🇦 , Omicron in China 🇨🇳
Continued war in Ukraine and China’s Omicron surge have added more uncertainty to global commodity markets, complicating Latin America’s recovery.
Oil prices have already begun to fall, driven by plummeting demand as China entered new lockdowns. This “demand destruction”, with downward price pressure, is competing with war-triggered supply shortages, which has pushed the price of oil upwards in recent weeks. These drivers are weighing on the region growth prospects. For example, Brazil has cut its economic growth estimate to 1.5% in 2022, down from 2.1%. Commodity supply and demand shocks have also affected agricultural products (see last week’s edition). In China, policymakers and experts are confident that its domestic supply of key foodstuffs such as soybeans remain secure amid dwindling supplies and rising prices. (IA)
ESG 🌳🐟
Peru 🇵🇪
China Negatively Impacts Peru’s Chancay Port - Diálogo Americas - March 16, 2022
Hundreds of Peruvian citizens protested February 18 in front of the offices of Chinese state-owned company Cosco Shipping Ports in Chancay, Peru, “due to the constant explosions it carries out to modify the bay” to build a megaport in the city, said the Peruvian nongovernmental organization (NGO) CooperAcción, which promotes social and environmental rights.
The Santa Rosa Chancay Wetland Environmental Monitoring Committee posted a video on Facebook showing how the construction of the new port, located 80 kilometers from Lima, is affecting the flora and fauna in the protected area.
The Peruvian environmental NGO Mundo Azul said it had sent the Chinese company 50 observations on the project’s environmental impact. “There are still 29 observations that we do not consider answered, because Cosco refuses to recognize the environmental impact generated, does not provide the information required to assess the impact, uses erroneous scientific concepts, denies its responsibility, and blames third parties.”
Pandemic Diplomacy 🏥
Grenada 🇬🇩
Grenada: Health Ministry receives donation of COVID equipment from China | Associates Times - March 12, 2022
On Friday March 11, Nicholas Steele, Grenada’s Minister of Health accepted the donation of more than 600,000 Eastern Caribbean dollars (USD 222,000) worth of equipment and supplies from China.
Notably, Grenada launched a Citizenship by Investment Program (CIP) in 2013, whose perks include allowing foreign investors to obtain citizenship within four to six months. Grenadian citizens also enjoy visa-free access to China.
As Rasheed Griffith noted in his Testimony before the U.S.-China Economic and Security Review Commission last year, four other Caribbean countries currently have CIPs:
St Kitts and Nevis (which in 1984 was the first country to invent this product), Antigua and Barbuda, St. Lucia, and Dominica.
Across the 5 islands, Chinese nationals are the single largest source of applicants/new citizens (for available data).
Interestingly, Grenada has attracted high-profile individuals in the digital-asset world, including former founder and CEO of open-source blockchain-based TRON, Justin Sun. The Chinese tycoon was recently appointed Grenada’s representative to the WTO in Geneva as he aims for “sovereign states… regulators and international organisations to recognise the potential and… benefits of blockchain technology […] and to promote new technology development in Granada”. (RP)
BRI
Argentina 🇦🇷
The Belt and Road Initiative MOU signed between Argentina and China on February 4, 2022 has been made public. The MOU highlights seven “areas of cooperation”, covering a vast array of areas, however the document, typical of many BRI MOUs, is light on detail. I’ve highlighted some areas of interest below in bold:
Policy Coordination. The Parties will enhance communication and exchanges of experiences, promote the integration and formulation of their major development policies.
Facilities Connectivity. The Parties will advance projects for infrastructure connectivity in areas of mutual interest, such as roads, railways, bridges, aviation, ports, energy and telecommunications, etc.
Trade and Investment Connectivity. The Parties will enhance mutual opening level, expand two-way investment and trade flow, further deepen investment, trade and industrial cooperation, enhance cooperation on Silk Road E-commerce, explore ways and methods to promote substantive mutually beneficial cooperation, enhance bilateral exchanges and cooperation on trade remedy; cooperate on multilateral occasions to strengthen the multilateral trade mechanism with international law as the basis and the World Trade Organization playing the central role; encourage their businesses to build industrial park and economic and trade cooperation zones according to their respective effective domestic laws and regulations as well as objectives and guiding principies mentioned in Article I.
Financial Integration. The Parties will encourage respective financial institutions to provide investment and financing support and mutually beneficial financial services according to market principie for infrastructure development, production capacity, investment and trade cooperation. The Parties will expand the use of local currency in investment and trade based on demands, strengthen the exchanges and cooperation between their currency and financial regulators, promote the mutual establishment of the financial institutions between the two countries, promote cooperation on bilateral currency swap, and discuss possibility of exchange of Special Drawing Rights on the platform of the International Monetary Fund.
People-to-people Bond. The Parties will promote people-to-people exchanges, further develop the sister cities network and conclude cooperation agreements on education, culture, health, tourism, sports, public welfare, etc. The Parties will enhance exchanges and cooperation between their local governments, media, think-tanks, and the youths, and continue to promote the development cooperation related to public welfare.
Cooperation in a Third Party Market. The Parties will promote joint actions and cooperation in trade and agriculture, ensure cooperation projects to be open, transparent, as well as economically, financially and environmentally sustainable, and promote cooperation of their businesses in a third Party market on related projects.
Government Procurement. The Parties will enhance exchanges on government procurement, and explore possibilities to boost production and export on both sides through government procurement.
Infrastructure 🏗
Brazil 🇧🇷
As news circulates about a possible IPO of China Three Gorges (CTG) Brazilian subsidiary at an estimated value of $2 billion dollars, below is a recap of this energy heavyweight’s role in Brazil.
Background: China Three Gorges Brazil
Constituted in 2013, CTG Brazil has played a leading role in China’s energy investments in Latin America, while expanding into the energy sub-sectors of generation, transmission, and distribution. Between 2005 and 2019, CTG represented 27% of all Chinese FDI in Brazil, second only to State Grid’s 56%.
A major milestone was CTG’s 2011 purchase of the Portuguese government’s 21% stake of Energias de Portugal SA for $3.51 billion. This awarded the company access to Energias do Brasil, which in turn plays a sizeable role in CTG’s activities in all three sub-sectors.
In 2015, CTG acquired several companies from the Brazilian Triunfo Participacoes e Investimentos, including the Rio Canoas (in the state of Santa Catarina) and Rio Verde (in Goiás). It also acquired the energy trading company Triunfo Negócios de Energia (in Curitiba). That same year, the CTG succeeded in its bid for the Ilha Solteira and Jupiá hydropower plants through a public auction. The plants are both located on the Paraná River and had been operated by the Energy Company of the State of São Paulo (Companhia Energética de São Paulo), which at the time was still in public hands. These two plants added up to a combined installed capacity of 5 GW. By acquiring them, CTG became the second largest private energy generator in Brazil, with a total installed capacity of 6 GW. In 2016, CTG Brazil acquired $1.2 billion dollars-worth of assets from Duke Energy. According to Margaret Myers from the Inter-American Dialogue, these moves were facilitated through access to capital from the China’s “China-LAC Industrial Cooperation Investment Fund.”
Hydropower
CTG Brazil’s core business is hydropower, and its declared portfolio adds up to 17 hydro projects with a total installed capacity of 8,948.59 MW, although CTG Brazil does not own 100% of the shares of all these projects. Within this impressive portfolio, its most important hydropower plants are Ilha Solteira at 3,444 MW and Jupiá (67% share) at 1,551 MW, as well as São Manoel (33% share) at 735 MW, Capivara (63% share) at 643 MW, and Taquaruçu (63% share) at 525 MW. These projects are run by CTG’s subsidiaries.
Wind Farms
According to CTG’s own numbers, it currently fully owns four wind farms, together totalling 204 MW of installed capacity in the states of Rio Grande do Sul, Santa Catarina, and Rio Grande do Norte. It also owns a 49% share of a series of farms in Rio Grande do Norte that collectively represent 124 MW of installed capacity.
Through its conservation partnerships, the company declares is has achieved carbon neutrality since 2019.
In 2020 the Trump administration added CTG to the list of companies barred from receiving investment from US sources, alleging ties to the Chinese defense and surveillance apparatus. CTG was removed from this list under the Biden Administration in June 2021.
Auto 🚙 🚌
Colombia 🇨🇴
BYD begins plug-in hybrid exports | Automotive News - March 17, 2022
A batch of 500 plug-in hybrid sedans and crossovers produced by BYD Co., China’s largest domestic electrified-vehicle maker, arrived in Bogota, Colombia, this week.
It marks the first time BYD has sold plug-in hybrids outside China, BYD said.
The 500 hybrids, the Qin three-box compact sedan and the Song compact crossover, are equipped with BYD’s proprietary plug-in hybrid system -- 3.8 liters and 4.4 liters per 100 kilometers, respectively, according to BYD.
The vehicles will be distributed in Colombia by local auto dealer Motores Y Maquinas S.A., which has also helped BYD market electric buses.