The China Signal - June 18
Financing deforestation, manganese supply deals in Brazil, lithium investments in Argentina, ICBC launches in Panama
G’day, and welcome to The China Signal! This week, a report details how Chinese (alongside European and American) financing of agribusinesses contributes to deforestation in Brazil; a supply deal is inked between Brazilian manganese miner Mineração Buritirama and China Minmetals; Ganfeng Lithium announces an investment in a lithium project in northern Argentina, ICBC launches in Panama, plus more.
Also, thanks to Hunter Headapohl of the Geopolitics Rundown podcast for interviewing me on China's growing interest in Latin America recently. In the podcast, I discuss how the relationship is not only driven by China's economic and political interests, but Latin America's too, and why Beijing's statecraft in the region matters to the rest of the world:
It shows Beijing's growing global ambitions, as they grow their influence in a region where the U.S. has historically had geopolitical sensitivities.
It demonstrates Beijing’s emerging strategy to diversify their geopolitical risk by expanding and deepening their trade network.
It's a prime example of Beijing's "grey zone" diplomacy, where actions are taken to achieve political objectives in a manner just short of provoking a U.S. response.
Environment
Brazil 🇧🇷
In a report, the campaign group Global Witness said Chinese banks were funnelling billions into global agribusinesses, becoming some of the biggest global financiers of deforestation.
The report found that, between January 2013 and April 2020, Chinese financial institutions provided more than $22.5bn to major companies that produce and trade commodities at high risk of driving deforestation. They include beef, soy, palm oil, paper, pulp, rubber and timber.
Five of China’s biggest commercial banks have provided $10.25bn, according to the report. The research shows they constitute 45% of all the financing provided by China’s financial institutions. Global Witness has urged Chinese financiers to undertake more rigorous checks on companies they engage with overseas.
China is one of the world’s largest consumers of agricultural commodities. In Brazil, for example, Beijing’s huge demand for beef and soy has resulted in it being Brasília’s largest consumer of both commodities.
After tracking 10 major soy traders and meatpackers using satellite imagery, the environment group Mighty Earth found that the five companies that received most financing from Chinese banks for both commodities were linked to deforestation and land clearance.
Last month, the Guardian reported that three of the world’s biggest food businesses have been accused of buying soy from a farmer linked to illegal deforestation in the Brazilian Amazon. Scientists have been alarmed by the scale of the degradation.
Some point to the loosening of regulations in host countries and say it increases the need for Chinese banks to do their own due diligence. In Brazil, for example, President Jair Bolsonaro has been accused of undertaking an unprecedented dismantling of environmental protection policies.
“Chinese and other international investors cannot rely on Brazilian authorities to protect their exposure to the deforestation risks associated with Brazilian agribusiness finance, along with the risks this carries to their reputations,” said Robert Soutar, the managing editor of Diálogo Chino, a specialist environment issue publication focusing on China and Latin America.
As the article notes, it’s not just Chinese banks who are tied to financing agribusinesses that contribute to deforestation. They’ve previously published a report on American and European banks.
Critical Minerals
Brazil 🇧🇷
Brazil manganese miner signs 10-year supply deal with China Minmetals - BNamericas - June 9, 2021
Brazilian manganese miner Mineração Buritirama signed a 10-year supply contract with China Minmetals.
China Minmetals is a State Owned Enterprise.
Under the agreement, Buritirama will receive US$400mn during the first year of the contract and will supply 1.5Mt/y of manganese, which is mainly used in steelmaking, newspaper Valor Econômico reported. The total value of the contract was not provided.
Argentina 🇦🇷
Ganfeng Lithium exercises participation right in Sal de la Puna - MINING.COM - June 11, 2021
Ganfeng Lithium has exercised its project participation right to acquire a 35% interest in the Sal de la Puna (SDLP) lithium brine project, in Argentina, Arena Minerals reported on Thursday. The project covers 11,000 hectares of the Pastos Grandes basin.
The Chinese lithium producer will fund $7.79 million of the acquisition costs.
The Chinese company in March announced an ambitious plan to increase its lithium production capacity roughly fivefold to 600,000 tonnes of lithium carbonate equivalent a year, as demand for the commodity used in electric-vehicle batteries surges again after a three-year downturn.
Ganfeng, which is listed in Shenzhen and Hong Kong, said in a filing just over 48 million new Hong Kong shares (H shares), equivalent to around 20% of its existing issued H shares, would be placed at a price of HK$101.35 per share.
That represents a discount of 5% to its closing price in Hong Kong on Thursday.
The company intends to use 80% of the HK$4.85 billion net proceeds for capacity expansion, mostly at its lithium projects overseas, and potential investment in lithium resources. The other 20% has been earmarked for replenishment of working capital and general corporate purposes.
The Chinese mining company Ganfeng Lithium announced on Wednesday, June 16, that it will invest US$600 million in a lithium exploration project in the northern Argentinean province of Salta.
The disbursements will be oriented to the construction of a lithium brine processing plant in Salar de Llullaillaco and another lithium carbonate plant in the industrial park of the city of Güemes, Salta.
The construction project is expected to employ 1,300 people directly and 3,000 indirectly.
According to a press release issued by the government of Salta, this will be “the first project in the world to be supplied with solar energy through the construction of a park next to the project.”
The logistics of the project, whose production will be export-oriented, will be carried out by rail and for this purpose, a freight branch line will be rehabilitated that passes through the entire Puna Salta region until it reaches Chile through the Socompa pass.
Banking
Panama 🇵🇦
Chinese bank ICBC launches operations in Panama - Xinhua | English.news.cn - June 11, 2021
Xinhua is a state-backed media outlet.
The Industrial and Commercial Bank of China (ICBC), one of the largest commercial banks in the world, expanded its presence in Latin America by launching operations in Panama on Friday.
The new branch of the Chinese bank is the first of its kind in Panama, a country that established diplomatic relations with China in 2017, with a general license granted by the Superintendency of Banks of Panama, the ICBC said in a statement.
In the region, the ICBC also has branches in Mexico, Argentina, Brazil and Peru.
The expansion is "the result of fruitful cooperation between both countries in the financial sector," within the framework of diplomatic relations, "with economic and trade ties in constant development," the bank added.
Expanding the bank's network in the region will increase its capacity to provide financial services in this part of the world, and support economic cooperation and bilateral trade exchanges, the ICBC said.
Electricity
Uruguay 🇺🇾
~Paraphrased translation~
The Chinese state owned company Machinery Engineering Corporation and UTE signed a supply and construction contract for the project to close the transmission ring in the north of the country, a high voltage line that connects Tacuarembó and Salto.
La empresa gubernamental asiática Machinery Engineering Corporation y UTE firmaron un contrato de suministro y construcción para el proyecto de cierre del anillo de transmisión al norte del país, una línea de alta tensión que une Tacuarembó y Salto.
The work will cost $191 million and according to the president of the UTE Silvia Emaldi, will be "the largest in the electrical system in this administration."
The project will be carried out through a trust created by the UTE and the República Administradora de Fondos de Inversión SA (Rafisa), as fiduciary entity, and will require an investment of $191 million and 42 months of work.
La obra costará 191 millones de dólares y, según expresó la presidenta de UTE, Silvia Emaldi al portal de Presidencia, será «la de mayor envergadura en el sistema eléctrico en esta administración».
El proyecto se realizará a partir de la concreción de un fideicomiso constituido por UTE y la República Administradora de Fondos de Inversión SA (Rafisa), como entidad fiduciaria, e insumirá una inversión de 191 millones de dólares y demandará 42 meses de labor.