The China Signal - February 12
Bolivia reaches agreement with Sinosteel, new report on China's LatAm energy activity, context on State Grid/Chile and Guyana/China
G’day, and welcome to The China Signal! This week, Bolivia reaches an agreement with Sinosteel to resume development of the Mutún iron deposit; a new report on China and Latin American energy; plus some more colour on State Grid’s efforts to acquire CGE in Chile, and Guyana’s diplomatic acrobatics between Taiwan and China. For background, I finish with a report from Graphika on China’s growing success at “spamouflage”, with some instances occurring in Latin America. This is a growing trend to watch.
Thanks and welcome to my new readers - it’s been great to connect with some of you this past week!
Natural Resources
Bolivia
“Bolivia avoids arbitration after negotiation with China’s Sinosteel for Mutún”
~Paraphrased translation~
After two months of negotiation, the Bolivian government has reached an agreement with China’s Sinosteel and Cisdi regarding the Mutún steel plant, avoiding international arbitration. The Bolivian Ministry of Mining and Metallurgy explained in a statement that “the operations of the Empresa Siderúrgica del Mutún (ESM) are restarted, with an investment of $ 466 million, of which 85% is financed by the state-owned Export Import Bank of China and 15% by the General Treasury of the Nation (TGN).”
Dos meses de negociación le ha llevado al Gobierno boliviano llegar a un acuerdo con las chinas Sinosteel -metalúrgica- y Cisdi -supervisora del proyecto- para evitar un arbitraje internacional en la planta siderúrgica del Mutún.
En una información publicada por el Ministerio de Minería y Metalurgia de Bolivia se explica que se “reinician las operaciones de la Empresa Siderúrgica del Mutún (ESM), con una inversión de $ 466 millones, de los cuales el 85% es financiado por el Banco chino Eximbank y el 15% por el Tesoro General de la Nación (TGN).
The Mutún deposit, a 75 square kilometre area in Bolivia’s east contains the largest iron reserves in the world.
Sinosteel (a Chinese state owned enterprise) was awarded the construction of the iron mega-project in 2016, with 3.5 years to develop the site.
The Empresa Siderúrgica del Mutún (ESM) is a Bolivian state-owned mining company established in 2005 for the operation of the El Mutún iron ore mine.
Construction was halted in January 2020 under the transitional government of President Jeanine Áñez.
“Government reveals agreement with Sinosteel and Cisdi to evade arbitration and announce ESM audit”
~Paraphrased Translation~
The previous administration accused Sinosteel of breaching the contract by modifying technology specifications, and seeking an allocation of US $ 45 million to deliver the final engineering design of the project.
La anterior administración de la Empresa Siderúrgica del Mutún (ESM) acusó al contratista de incumplir el contrato al modificar el proyecto referente a la tecnología y pretender una asignación de $us 45 millones para entregar el diseño final de ingeniería del proyecto.
New report on China and Latin American energy
While this report doesn’t share anything necessarily new, it is a good reference for China’s recent investments in Latin American energy.
Forward
China is a major energy player in LAC. According to China’s Global Energy Finance database at Boston University, the country committed $58.4 billion to LAC’s energy sector between 2000 and 2019. Of the total, 83% went to projects in oil and natural gas, 12.8% to hydroelectric power, 2.2% to solar, 1.5% to “unspecified” and less than 1% to coal, wind and biomass combined. BRI energy projects were part of the total between 2017 and 2019, with 56% of BRI outlays going to oil and gas, and 39% to renewables.
Surprisingly, there is no table of contents nor index provided. Here is a general breakdown of the issues discussed:
Sources of China’s financing - p. 2
Renewable energy and electric power transmission - p. 5
Critical minerals - p. 8
Oil & Gas - p. 17
Hidden debt - p. 22
Labor issues - p. 24
Governance - p. 25
Environmental issues - p. 28
Conclusion
Even before the 2020 economic downturn, countries’ budgetary needs were too great to obviate Chinese fiscal underwriting.
Chinese energy investments in LAC fell sharply between 2017-2020, except in renewables, electric power transmission and lithium mining. This was not because Beijing ran out of money. More likely, China is searching more carefully for sound investment projects, and deciding on which countries are uncomfortable with major Chinese investments in sensitive sectors, as well as with its poor record on environmental and labor issues.
As it has done for many years, China will remain a key market for LAC commodities and will provide access to ample credit, especially for countries with well managed economies. With economic recovery in China already underway, imports of raw materials, agricultural products and strategic minerals from LAC will grow. Moreover, Chinese exports of green technologies are likely to expand as LAC countries move to decarbonize and use clean energy as an economic recovery tool.
Trade & Investment
Cuba
Cuba's imports from China slump 40% in 2020, extending long decline | Reuters - February 5, 2021
Cuba’s imports from China tumbled to $483 million last year versus $791 million in 2019, according to data from the Chinese Customs Office…
The Chinese government previously reported that exports to Cuba had declined from nearly $1.9 billion in 2015 to $1.1 billion in 2018.
The Customs Office data put China’s imports from Cuba at $472 million, similar to 2019, meaning overall trade was below a billion dollars, the lowest in more than a decade.
Cuba exports mainly sugar and nickel to China. It imports a broad array of supplies from machinery and transportation equipment to raw materials and food.
Three of the sources, who requested anonymity, said last year’s decline in Chinese exports had more to do with payment issues than the new coronavirus, pointing out that Chinese exports to the region had declined less than a percent.
Chile
‘Chancellor addresses meeting with Chinese giant State Grid and emphasises: "We must all play by the rules of the game"'
Discussions are ongoing between the Chilean government and China’s State Grid for its USD $3 billion acquisition of Chilean electricity utility company CGE. As first mentioned in TCS December 4, this would give State Grid 96% control of CGE, and combined with their ownership of Chilquinta, control over 57% of Chile’s power distribution network. The announcement has sparked debate in Chile, which does not have laws to review foreign investment on national security grounds, only with respect to market competition.
This interview is with Chile’s foreign minister Rodrigo Yáñez. Yáñez has a clear incentive to play down these issues, but he does hint at State Grid’s awareness of this debate occurring in Chile:
A su vez, Yáñez indicó que una de las preocupaciones del Gobierno chino radica en las discriminaciones o la existencia de medidas arbitrarias que pudiesen limitar el ingreso de inversión extranjera en Chile. Respecto a esto último, la autoridad sostuvo que "para nosotros es muy simple y natural trazar la línea en lo que es la institucionalidad".
~Paraphrased Translation~
Yáñez indicated that one of the concerns of the Chinese government lies in discrimination or the existence of arbitrary measures that could limit the entry of foreign investment into Chile. Regarding the latter, the Chinese government said that "for us it is very simple and natural to draw the line in what is institutional."
The interview covers this theme from minute 10 to 16.
Thanks to one of TCS’ readers in Santiago for sharing this.
Diplomacy
Guyana
Pushed by China, Guyana cancels Taiwanese investment office - The Washington Post - February 5, 2021
Some more colour from Guyana’s rapid backflip last week after initially allowing a Taiwan investment office is starting to emerge.
[Foreign Minister Hugh] Todd told The Associated Press on Friday that government had initially not seen anything wrong in allowing the Taiwanese to set up an office to push trade and investment in Guyana, which has in the past 14 months become one of the world’s newest oil exporting nations.
“The idea was to allow them to establish an office to facilitate trade and investment only — and I say only — for trade. For us this was just a market opportunity for the two private sectors to conduct business but there are some geopolitics involved here,” Todd said.
The agreement to establish the office was signed on Jan. 11 without any official announcement and the office became active on Jan. 15. Few took note until the U.S. Embassy in Guyana congratulated both sides for the achievement.
Todd said he met a Chinese delegation led by acting Ambassador Chen Xilai on Thursday. He did not divulge any details, but the cancellation followed immediately after.
Here is a great background on the China-Guyana bi-lateral relationship. Guyana was the Western Hemisphere’s first recipient of Chinese aid in 1972.
The value of Guyana’s exports to China exploded in 2020. China’s state-owned CNOOC is partnered with Exxon Mobil and Hess Stabroek for the Stabroek block off Guyana’s coast, said to hold over 8 billion barrels of crude. The consortium began production in December 2019, with CNOOC’s first shipment in March 2020.
Prior to this, China was a minor export destination for Guyana, with Canada, the United States, and Panama the country’s top 3 export partners in 2018. They were heavily reliant on the United States for imports, amounting to 56% of Guyana’s total imports in 2018, followed by Trinidad and Tobago (17.7%), and China (6.41%).
I pulled the latest export data from 2020 and visualised it in Tableau (below) to show the astronomical change underway in the Guyana-China trading relationship.
Narrative influence
Spamouflage Breakout - Graphika - February 4, 2021
Graphika’s report isn’t specific to Latin America, but it is a trend worth watching in the region. Graphika’s analysis of the hijacking of the telenovela “Reina de Corazones” Twitter account is discussed on page 48 of the report. The New York Times recently reported on Huawei’s growing use of similar techniques in Europe as disinformation and information laundering is harnessed beyond state channels as a tool for corporations - albeit still state-backed, in Huawei’s case.
The sprawling pro-Chinese propaganda network that Graphika has dubbed “Spamouflage” and exposed multiple times over the past two years has begun to break out of its echo chamber of fake accounts and reach real social media users, including some heavyweight influencers, with hundreds of videos that praise China, criticize the United States, and attack the Hong Kong pro-democracy movement and exiled Chinese billionaire Guo Wengui.
The network’s successes are still sporadic - a few tweets have reached viral influencers, and a few dozen videos on YouTube channels have garnered significant followings - but, for the first time, its content has had measurable reach. Moreover, the audiences it has reached are widespread and include influencers in Latin America, Pakistan, the United Kingdom, and Hong Kong.
Second, and underpinning the first point, is a tactical shift. While Spamouflage continued to use hundreds of fake accounts with little or no attempt at persona development, it began in parallel to experiment with persona accounts which looked and behaved as though they were real people, and thus gave a veneer of authenticity to what they posted. Such accounts included ones that looked like photogenic celebrities; Chinese mainland commentators known to support CCP rule over Hong Kong and Taiwan; an American businessman; a Latin American soap opera; and young women interested in geopolitics (increasingly a Spamouflage speciality).