The China Signal - January 15
Ecuador completes FTA negotiations, Argentina formalizes currency swap, Tsingshan doubles Argentine lithium investment
G’day, and welcome to The China Signal. This week, Ecuador and China complete FTA negotiations, Argentina formalizes another currency swap agreement, Tsingshan Holding Group doubles its investment to US$ 770 million in the the Centenario-Ratones project in Argentina, Taiwan emerges as a definitive issue in Paraguay’s presidential election campaign, plus more.
Thanks to the many readers who reached out to meet up while I was in Bogotá over the Christmas break. It was excellent to meet with some of you, and I look forward to seeing those who I couldn’t arrange time with when I’m next in town.
TCS 2023 China-Latin America Outlook
Many of my conversations in Bogotá centered on the 2023 outlook for China and Latin America. China's economic slowdown isn't occurring in isolation, but amidst a broader global contraction and a once-in-a-generation great power competition. China's contraction is likely to be sharp and brief, but its geopolitical rivalry with the United States will define this decade.
I expect China's economic relationship to deepen this year despite China and Latin America’s expected economic downturns. This will be shaped by China's domestic economic stimulus and Beijing’s geopolitical interests. To Beijing, Latin America is a market to diversify away from Western commodities, a critical minerals reservoir, a growing export market for Chinese technology and tech standards, and a prized diplomatic ally. To Latin American governments, China presents an economic lifeline and a valuable bargaining chip to extract concessions from the US and its allies.
Beijing is reverting to similar infrastructure-focused stimulus measures it used in 2008 and 2020. This will increase demand for traditional Latin American commodities such as Brazilian iron ore and grains, and Chilean and Peruvian copper.
The Russia-Ukraine war has sharpened concerns in Beijing over food security. Grain off-take agreements will grow, particularly with Brazil. Beef and other pricey food exports to China may take a temporary hit as Chinese appetites restrict themselves to local alternatives, but these industries will still see long term growth.
The hunt for lithium will increase as China's electric vehicle ambitions accelerate, particularly in Argentina, who is eager to capture economic gains downstream from its extraction.
Chinese consumer tech companies such as Xiaomi will continue building their presence in Latin America, whose smartphones are at a lower price than Apple and Samsung. Decreased purchasing power from low economic growth and depreciating currency values will make these Chinese brands more attractive to Latin American consumers.
Chinese electric vehicles and buses will continue filling orders for public transport systems in major cities like Bogotá.
Basic manufactured good imports could face stiffer trade barriers from leftist Latin American governments, who will need to pander to local industry hurt by the approaching downturn.
Mil-to-Mil relations will continue, warily, however arms sales will fall so long as Latin American government budgets are stretched. Argentina's President Alberto Fernandez recently scrapped considerations of purchasing JF-17 fighter jets.
If you want to discuss my outlook in more details, please reach out.
Trade 📊🚢
Ecuador 🇪🇨
On January 3 Ecuador’s President Guillermo Lasso announced the completion of Free Trade Agreement (FTA) talks with China. The agreement will now begin ratification procedures in each country.
The negotiations were first announced in February 2022 by Lasso (TCS February 10, 2022), and will allow preferential access for 99% of Ecuador's current exports to China, including amongst agricultural and agro-industrial products such as shrimp, bananas, and coffee.
Last September (see TCS September 28) Ecuador successfully restructured its debt to China, adjusting the terms around crude oil shipments to be delivered to Chinese state-owned Petrochina. The original agreement signed under the Rafael Correa administration was viewed as unfairly onerous (TCS April 4, 2022).
When ratified, Ecuador will become the fourth Latin American country to have a FTA with China after Chile, Peru, and Costa Rica. (RP)
Trinidad & Tobago 🇹🇹
T&T-China trade exceeds US$1 billion, says envoy | Trinidad Express Newspapers | January 10, 2023
China’s Ambassador to Trinidad and Tobago Fang Qiu spoke with Trade Minister Paula Gopee-Scoon at the second China-Trinidad and Tobago Investment Cooperation Forum at the Embassy of China, Port of Spain, on Monday.
… At the forum, Fang revealed that for two years in a row, annual trade between China and Trinidad and Tobago has exceeded US$1 billion
The two also discussed the upcoming completion of the Phoenix Park Industrial Estate at Point Lisas, a project constructed by Beijing Construction Engineering Group (BCEG). Fang emphasized the projects’ importance to T&T, and how the estate will become a source of trade and investment for the country.
This project was realized through the Belt and Road Initiative, which Trinidad and Tobago joined as the first Caribbean country in 2018. (VV)
Finance 💸
Argentina 🇦🇷
On January 8 the Argentine central bank formalized the expansion of a currency swap deal with China. The deal, which was reached during the Bali G20 meeting last November (see TCS November 21, 2022) will allow Argentina to restore some of its depleted foreign currency reserves as inflation in the South American country hits a 32-year high. The deal is estimated to be worth around US$ 5 billion. (RP)
Critical Minerals 🔋
Argentina 🇦🇷
On December 26, 2022, the Chinese company Tsingshan Holding Group (“Tsingshan”) announced an investment of US$770 million in the Centenario Ratones project (Salta province) with the purpose of exporting lithium for US$4 billion per year starting in 2024.
With this move, Tsingshan is expected to double its planned investment in the project, which was originally estimated at US$375 million through a 49,9% minority joint-venture with the French mining and metallurgy group Eramet (see TCS November 12, 2021 for further background). It’s unclear if the increased investment will also increase Tsingshan’s equity stake in the project.
According to the Argentinian Mining Secretariat, 40% of the country’s January-November 2022 lithium exports went to China, followed by Japan at 32%. At the same time, 6 of the 9 projects that currently have Chinese capital in the country are lithium projects.
Previous editions extensively documented the growing involvement of Chinese companies in the field such as with Tibet Summit Resources (TCS November 21, 2022), Ganfeng Lithium Co., Ltd. (TCS July 26, and TCS June 12, 2022; TCS June 18, 2021), Zangge Mining Investment (TCS July 4, 2022), and Gotion High-tech Co. Ltd. (TCS May 13, 2022).
Background: Tsingshan Holding Group (“Tsingshan”) 🔎
Founded in 1988 as Zhejiang Ouhai Auto Door and Window Manufacturing Company, Tsingshan morphed into its current private-owned company structure in 2003. It is headquartered in Wenzhou (Zhejiang province).
Known as the world’s largest nickel producer, it is also involved in the stainless steel industry and the production of batteries used in energy storage systems and electric vehicles. Tsingshan ranked 238th on Fortune’s Global 500 2022 List with revenues around US$54 billion. It has significant international presence in Indonesia, India, Zimbabwe, and the United States. (RP)
Diplomacy 🕊️
Broader Latin America and the Caribbean 🏔️🏝️
Countries across the region have begun imposing travel restrictions on travelers from China, following Beijing’s rapid reopening and abandonment of “Zero Covid” policies. Guyana was the first Caribbean Community (CARICOM) country to require a negative Covid-19 test from travelers departing the People’s Republic of China, Hong Kong, or Macau on 8 January, according to an official statement.
Argentina has pointedly refrained, according to Argentina’s Ambassador to China Sabino Vaca Narvaja in a recent interview to the Chinese state-sponsored media Global Times:
China has been very responsible in handling the pandemic and is undoubtedly the most supportive country for most emerging economies …Argentina will not impose any restrictions or quarantine measures on Chinese tourists.
This announcement should be seen in the broader context of China-Argentina relationship, which sees Argentina increasingly reliant on Chinese financial arrangements and investments in renewable energy and lithium.
The Argentine government has previously pushed to grow Chinese tourism in Argentina, signing a five year MOU with Chinese travel company Trip.com in March 2021 (see TCS March 19, 2021) (MH, RP, VV)
Chile 🇨🇱
~ Article above is paraphrased from Spanish ~
On January 4, Chile’s Foreign Minister Antonia Urrejola met with Vice-President of the National Development and Reform Commission Lin Nianxiu as part of their 4th Strategic Dialogue on Economic Cooperation and Coordination.
No official announcement or agreement was struck, however according to Chile’s Ministry of Foreign Affairs discussions focused on mining (copper smelting technologies and lithium development), infrastructure, energy, innovation 5G and AI cooperation.
Chile signed on to China’s Belt and Road Initiative (BRI) in 2018 in the 3rd occurrence of this Strategic Dialogue. China has been Chile’s main trading partner since 2009, with 34% of Chile’s total trade occurring with China. (RP)
Taiwan Diplomacy 🇹🇼 🕊️
Paraguay 🇵🇾
Exclusive: Paraguay election race puts Taiwan ties on a knife-edge | Reuters | January 5, 2023
Paraguay would cut diplomatic ties with Taiwan and open relations with China if the Authentic Radical Liberal Party (PLRA)-led opposition wins the election in April, its presidential candidate Efrain Alegre told Reuters, hoping to boost soy and beef exports that are its main economic engines.
The ruling party candidate, meanwhile, told Reuters he would maintain ties with Taiwan. …Paraguay is one of only 14 nations globally that retains diplomatic ties with Taiwan and the only South American country to do so.
…Santiago Peña, the Colorado Party candidate, said Paraguay's over six decades of ties with Taiwan would remain intact if he won the April 30 vote. (This statement contradicts a vow Peña had made in November last year. For further background refer to TCS November 21, 2022).
…Paraguay is a top 10 global beef exporter and the fourth largest soybean exporter, its main cash crop. Soybean production is about 10 million tonnes per year and with its derivatives, it generates more than US$2 billion.
Paraguay’s meat industry has long been a vocal backer of switching the country’s diplomatic recognition from Taiwan to China. See TCS October 21, 2022 for further background.
Concurrently, Paraguay’s Speaker of the lower house, Carlos María López, led a delegation to Taiwan from Jan. 8 to Jan. 12 to express hope for deeper cooperation. López met with Taiwan’s President Tsai Ing-wen and Foreign Minister, Wu Joseph. Taiwan accepted the Paraguayan donation request for the delivery of 10 electric buses (RP)
Honduras 🇭🇳
La Republica Popular de China no Cooperara Con Honduras | La Prensa | January 8, 2023
~ Article above is paraphrased from Spanish ~
On January 2 Eduardo Enrique Reina, Honduras’ Acting Foreign Minister, met with Xie Feng, China’s Vice Minister of Foreign Affairs on the sidelines of Brazil’s presidential inauguration to discuss possible Chinese investment in the planned Patuca dam project. This is Xiomara Castro’s first attempt to establish relations with the PRC.
China’s Ambassador to Costa Rica Tang Heng rebuffed Castro’s outreach, saying as long as Honduras recognizes Taiwan as a sovereign state, China will not seek to formalize relations with Xiomara Castro’s government. The Chinese Embassy in Costa Rica currently oversees any issues concerning Honduras, as the PRC does not have diplomatic relations with the Honduran government. (VV)
This is a curious series of events – it’s likely that the meeting between China’s Xie Feng and Honduras’ Reina was arranged to appear as a circumstantial encounter on the sidelines of Brazil’s presidential inauguration, and not as a formal meeting between the two countries. (MH)
Agriculture 🌱🥩
Uruguay 🇺🇾
On December 30, 2022, Chinese authorities approved a further 27 Uruguayan meat companies to export frozen beef (with bones). Around 60 Uruguayan companies are now entitled to do so.
China is currently the main destination market for Uruguay's all-around meat exports, as well as the largest buyer of Uruguayan beef. Beef (with bones) are a small but growing proportion of Uruguay’s overall beef exports to China. (RP)