China Signal - April 9

Tianqi Lithium fights SQM in Chile, China Cosco speaks out against Peruvian regulators over Chancay Port

G’day, and welcome to the China Signal. Here’s what you need to know:

1. Critical Minerals - Chile. Tianqi Lithium is fighting to prevent a lithium deal between SQM, where it holds a 23% stake, and Chile’s state chemical company.

2. Electric Vehicles - Brazil. Imports of Chinese EV surged before Brazilian tariffs increase.

3. Infrastructure - Peru. China Cosco is resisting Peruvian regulators who plan to remove their right to exclusively operate Chancay port.

4. Infrastructure - Brazil. State Grid inked a 30 year franchise agreement to build a 1,500km high voltage power transmission line.

5. Space - Nicaragua. Chinese officials signed several unspecified space cooperation agreements during a visit to Nicaragua. A “Chinese Latin American and Caribbean Space Cooperation Forum” will take place in China this month.

Plus much more. Read on.

Critical Minerals 

Chile

A push by Tianqi Lithium for a shareholder vote over a lithium deal between Chile’s state-owned SQM and the country’s chemical company Codelco has been rejected by SQM. Tianqi, which owns a 23% stake in the world’s largest lithium producer, would be further marginalised if the arrangement is approved, giving Codelco a 50%-plus-1 majority ownership stake in the company from 2025. The vast majority of China’s imported lithium is from Chile. 

• SQM’s board of directors will meet by the end of May to decide the agreement’s final details, after extending the original deadline by one month. Tianqi has three of the company’s eight board seats, according to Reuters. Xu Tieying, who held one of Tianqi’s seats, resigned unexpectedly in March. Per SQM’s governance documents (Article 19), five members are required for a quorum, and decisions are made by a majority of board members present.

• Tianqi has publicly pushed for their cause, with Tianqi chief executive Frank Ha providing comments to Chilean national newspaper La Tercera, although its unclear if they have any broader support among other shareholders and the Chilean public. 

• Chile’s competition regulator bars Tianqi from influencing SQM’s strategic decisions on production. Tianqi unsuccessfully lobbied the regulator last year to remove this restriction. See TCS September 8 for further background.

• The joint venture was struck in December as part of the Boric Administration’s push for greater control of the country’s lithium. The Chilean government continues to invite foreign companies to join public-private partnerships in the sector, and thus far firms from China, South Korea, Japan, France, Canada, Germany, Australia and the United States have expressed interest. (IB, MH)

Electric Vehicles

Brazil

Imports of Chinese electric vehicles surged 450% in Q1 2024 compared to Q1 2023, comprising 40% of total EV imports in the period, according to Brazilian government trade data. The surge does not appear to be secular, but a response to impending import tariffs slated to protect local production. Chinese EV firms such as BYD are already implementing well-developed plans for critical mineral mining, processing, EV production, and sales in Brazil, which could help them maintain their strong market position in the country. The Lula administration’s protectionist tariffs could help grow Brazil’s domestic auto-industry, while benefiting Chinese EV firms’ international growth, and Beijing’s geopolitical aims.

• Tariffs on EVs have been subject to a 10% duty since January, which will grow to 18% this July, and 35% in 2026.

• BYD recently launched a low cost passenger EV in Brazil (see TCS February 27), is eyeing a takeover of Sigma Lithium Resources in the country (TCS February 9), and is establishing a manufacturing complex in Brazil’s northeast (TCS July 14). (MH)  

Infrastructure

Peru

Chinese state-owned shipping company China Cosco has criticised the Peruvian government’s decision to rescind Cosco’s right to exclusively operate the port of Chancay, which when completed will serve as a major hub for China’s trade with the region. If Peruvian regulators proceed, construction on the port’s second phase could stall, and Cosco may pursue international arbitration against the Peruvian state.  

• Peru’s National Port Authority initiated the administrative lawsuit to invalidate its agreement with Cosco, arguing that exclusivity would undermine fair competition, and that because the port is a private investment and not a concession, it falls outside of existing Peruvian law. Details are unclear, but it may suggest the original contract was executed in an irregular fashion.

• Speaking before a government commission, a Cosco representative suggested Chinese financing of the port’s second phase could be lost if Cosco loses exclusivity, and that the company may take the Peruvian state to international arbitration. The Bank of China and China Minsheng Banking Corp were two of a group of Chinese lenders behind a $975 million loan for the port’s first phase of construction.

• Peruvian lawmakers are considering a bill that would permit Cosco to regain exclusive use of the port.

• The port’s first phase is due to be opened by Xi Jinping in November during Peru’s hosting of the Asia-Pacific Cooperation forum. 

• The port’s construction has also drawn criticism for its impact on the local environment and community. (NRM, MH)

Brazil

China State Grid and Brazil’s electricity regulator signed a 30-year franchise agreement for a ~1,500 kilometre ultra-high voltage power transmission line project in Brazil’s northeast. 

• The transmission line will deliver clean power from wind and solar farms in Brazil’s north east to the country’s southeast, including Brasilia, according to Chinese state media.

• State Grid will invest approximately $3.6 billion into the project, which is scheduled to be operational by 2029.

• State Grid’s electricity transmission line could complicate Brazil’s clean energy transition prospects and generate environmental risks for Indigenous populations, according to Diálogo Chino.

• State Grid also floated a $39.4 billion investment in unspecified projects across the mines and energy sector. (IB, MH)

Trade

Brazil 

Brazil has launched anti-dumping probes into Chinese industrial goods ranging from metal sheets to steel, chemicals, and tires. The probes were requested by major Brazilian industrial associations. Although China is a crucial buyer of Brazilian commodities and the Lula administration is eager to attract Chinese investment, Brazilian industries competing against Chinese imports complicate the Brazil-China dynamic. 

• Experts believe that a global rise in cheap Chinese exports is due to China’s excess manufacturing capacity and weak domestic demand.

• China is Brazil’s largest trading partner. Brazil-China bilateral trade flows were worth a combined $154.1 billion in 2022.

• Thailand, Vietnam, and Mexico have all voiced similar concerns and called for investigations. Mexico also placed tariffs on a range of Chinese products in August 2023. (IB, MH)

Paraguay

Taiwan approved the duty-free import of Paraguayan pork, as well as wheat flour, textiles, and additional agricultural products amidst continued geopolitical pressure on Paraguay’s producers and politicians to open diplomatic relations with China. 

• The move, seen as a significant concession by Taiwanese authorities, should be interpreted as an attempt by Taipei to demonstrate the economic benefit of maintaining diplomatic recognition. 

• As Paraguayan producers face a faltering market for primary product exports abroad, Chinese authorities rebuked the Paraguayan Finance Minister’s request for trade and investment opportunities as long as Paraguay remains a Taiwanese ally. (IB)

Diplomacy

Nicaragua 

Nicaragua and China signed several unspecified space cooperation agreements during a visit from officials from the China National Space Administration to Nicaragua. Nicaragua’s state media mouthpiece El 19 Digital reported the agreements relate to “satellite technologies and space cooperation projects to promote technical cooperation and training.”   

• A “Chinese Latin American and Caribbean Space Cooperation Forum” will also take place in China this month, according to Nicaragua’s Vice President Rosario Murillo.

• A memorandum of understanding between the National Council of Nicaraguan Universities and the Chinese Deep Space Exploration Laboratory was signed during the same visit, related to the development of China’s International Lunar Research Station (ILRS). 

• For further background on the ILRS, see TCS April 24, 2023. Go deeper on China’s growing space cooperation partnerships in Latin America with a recent review by Evan Ellis. (NRM, MH)

Honduras 

China has donated $275 million to rebuild up to 12,000 schools in what is China’s largest financial commitment to Honduras since diplomatic relations were reestablished in 2023.  (NRM)

Panama 

Seasoned diplomat Xu Xueyuan is assuming her post as China’s new ambassador to Panama. Xu has significant experience with the United States, serving as China’s deputy head of mission at the Chinese embassy in Washington during the 2023 “balloon incident.”

• Earlier in her career, Xu had assignments in the Department of North American and Oceanian Affairs, as well as the Chinese Embassy in Trinidad and Tobago. (NRM)

Illegal, Unregulated, and Unreported Fishing

Argentina 

The Argentine Navy and US Coast Guard will begin joint exercises to combat illegal Chinese fishing of squid and toothfish in the Atlantic Ocean this month. 

• IUU fishing from Chinese flagged vessels off the Argentine coast has increased sixfold from 2013 to 2023, according to NGO Global Fishing Watch and reported by Voice of America.

• Argentine authorities claim Chinese fishing harms Argentine livelihoods while depleting regional biodiversity. (IB)