The China Signal - May 27
Colombia votes, food security, Guyana's largest ever infrastructure project, Zijin's ESG difficulties
G’day, and welcome to The China Signal. This week, Chinese firms make a play for food security amidst the ongoing Russia-Ukraine conflict; Guyana signs with Chinese firms for its largest ever infrastructure project; Zijin’s ESG difficulties in Colombia; trade and investment momentum builds across the region; plus more.
But first, here’s my take on Colombia’s presidential elections this Sunday. I’m increasingly providing LatAm analysis for our clients in my role at Veracity Worldwide. If you’re interested in learning more, do get in touch.
Colombia’s Elections 🗳
This weekend's presidential election will likely see leftist populist Gustavo Petro advance to the second round, facing off with center-right candidate Federico Gutierrez. Under this scenario, Petro is most likely to win a June 19 run-off. This would be a historic victory for Colombia's left - never before have they won the presidency.
However, should wildcard populist Rodolfo Hernandez beat Gutierrez into a run-off against Petro, the outcome is much less certain.
A close victory to Gutierrez or Petro would see heightened risk of social instability and greater insecurity during the presidential transition.
Based on his previous roles, Petro's political effectiveness is questionable, however he'd likely have greater success in leading a workable coalition in congress. Hernandez is a political outsider, and he may struggle to lead effective legislation.
Driving the push to Petro and alternative candidates is a yearning for economic and social inclusion, after decades of political and economic exclusion for the vast majority of Colombians, beyond a circle of elites. Following the 2008 global financial crisis, economic growth led a growing middle class. This, along with the 2016 peace agreement with the FARC raised expectations for economic progress and mobility. When current President Ivan Duque couldn't deliver this - caught amidst poor public finances and his political allegiances to the right - social unrest and dissatisfaction emerged in 2019 across a series of street protests. This angst remains. (MH)
Commodities and Agriculture 🌾
Food security is emerging as one of the major second-order consequences of the Russia-Ukraine conflict. In recent week’s I’ve noticed a flurry of agricultural agreements and developments between China and various Latin American countries, in a clear effort to shore up China’s food security. Most of these won’t have immediate impact, but if fully implemented, they will impact commodity trade over the medium term. (MH)
Customs authorities in China have announced an agriculture cooperation agreement with Brazil to boost the export to China of Brazilian corn, soybean meal, and peanuts. China’s corn imports have historically been sourced from the US and Ukraine, but with the ongoing Russian blockade amid its invasion of Ukraine, exports to China have slowed. There are also reports that next month could see new agreements to boost soy protein and soymeal exports from Brazil, as well as other agriculture products such as sesame, sorghum, and grapes.
The agreement however has arrived at a time of concern in Brazil, where experts believe that lockdowns in China will slow down trade, although a trade surplus is expected to remain. Brazil’s exports have grown 24.1% by value compared to the same period in 2021, while imports increased 27.6%. Brazil’s President Bolsonaro, who is running for reelection later this year, is already feeling political pressure over his country’s sluggish economy.
Now Bolsonaro is facing surging energy prices, which provoked a fourth reshuffle of state-owned oil giant Petrobras. He also accuses Argentina and Bolivia of intentionally redirecting Bolivian gas exports away from Brazil towards an energy-deficient Argentina, in an apparent bid to help his presidential rival, Lula.
Bolsonaro has tempered his once critical discourse on China, as his electoral chances are increasingly dependent upon the stability of a trade relationship that has become essential for South America’s largest economy. (IA)
Chinese seed company Yuan LongPing High-Tech Agriculture Co., Ltd. (“LongPing”) is preparing the commercial launch of a new sorghum seed aimed at Brazilian farmers next January, Brazil Chief Executive Aldenir Sgarbossa told Reuters in an interview on Monday May 16.
The company, which mainly focuses on corn seeds, is also working to adapt a Chinese soy seed to Brazilian conditions that could be launched by the 2025/2026 crop season, the executive said.
LongPing has two industrial facilities in Brazil. One is in Paracatu, Minas Gerais state, and the second is in Primavera do Leste, in Brazil's top grain state of Mato Grosso. Last week, it announced investments of about 500 million reais (≈ US$99 million) to grow its presence in Brazil.
*Note: China.org.cn is a Chinese state-sponsored media outlet
…an agreement has been signed to build the China-Brazil Agricultural Science Industrial Park in Paracatu, the Hunan province’s Department of Commerce office said.
The park will be built by LongPing and its subsidiary LongPing High-Tech Brazil. The project was originally planned to be signed in 2020 but was postponed owing to the pandemic.
The past tense of the following paragraph suggests there was already development underway, but it’s not entirely clear.
Since last year, the park has expanded investment for the construction of two seed processing plants and three cold storage facilities of seed, all of which are expected to be operational by the second half of this year.
Chinese universities, enterprises and international organizations have also settled in the park.
Shi Liang, general manager of LongPing Agriscience, said the park will create a platform for Chinese companies to grow in Brazil and help generate new employment opportunities in the region.
Background: Yuan LongPing High-Tech Agriculture Co., Ltd. (“LongPing“) + CITIC Group Corporation Ltd. (“CITIC Group”) 🔍
Headquartered in Changsha (Hunan province), China, Yuan LongPing High-Tech Agriculture Co., Ltd. (“LongPing”) is a state-owned seed industry specialized in high-tech crops. It was originally founded in 1999. In 2016, it was incorporated as a subsidiary to CITIC Group Corporation Ltd. (“CITIC Group”) through three of its subsidiaries, amongst which CITIC Agriculture is LongPing’s largest shareholder. LongPing is listed on the Shenzhen Stock Exchange.
CITIC Group - formerly the China International Trust Investment Corporation (“CITIC”) - is China’s largest state-run conglomerate. Headquartered in Beijing, it was founded in 1979. CITIC Group operates in five business sectors, including financial services, manufacturing and urbanization.
CITIC Group ranked 115th on Fortune’s Global 500 2021 List, with revenues around US$74 billion. (RP)
Guyana has signed a US$260 million agreement with a Chinese joint venture company for the construction of a new crossing over the Demerara River. The largest contract for a transport infrastructure project ever financed by the government of Guyana, the signing is the culmination of almost ten years of planning dating back to March 2013, said Juan Edghill, local Minister of Public Works (see also TCS May 13).
The new facility is estimated to have a lifespan of 100 years. Construction is expected to be completed and commissioned within the next two years.
Winner amongst 14 companies competing for the contract, the Chinese joint venture includes China Railway Construction Corporation (International), Ltd., China Railway Construction (Caribbean) Co. Ltd, and China Railway Construction Bridge Engineering Bureau Group Co. Ltd (China & Trinidad and Tobago).
Background: China Railway Construction Corporation, Ltd. (“CRCC”) 🔍
Headquartered in Beijing, China Railway Construction Corporation, Ltd. (“CRRC”) is a Chinese state-owned construction enterprise. Originally founded in 1948 as Railway Engineering Corps, it was rebranded as CRRC in 2007. It has been listed on the Shanghai and on the Hong Kong stock exchanges since March 2008.
The CRCC is the third largest construction and engineering company in the world by revenue in 2021. It operates in more than 130 countries, including 11 from Latin America and the Caribbean (Antigua and Barbuda, Bolivia, Brazil, Dominica, Ecuador, Mexico, Nicaragua, Panama, Peru, Trinidad and Tobago, and Venezuela).
CRCC ranked 42nd on Fortune’s Global 500 2021 List, with revenues around US$132 billion. In November 2020, CRCC was listed as a Communist Chinese military company by the U.S. Department of Defense, and is currently in the U.S. Department of Commerce’s Entity List. (RP)
Since 2019, the Shanghai-based China Ocean Shipping Company (Cosco) has been developing Peru’s Chancay port north of Lima, a project that was announced at over $3 billion USD. Cosco first acquired a 60% stake in the port’s ownership, aiming to transform the area into one of South America’s largest shipping container hubs and deep-water ports. The China Railway Group is also involved, responsible for constructing an almost 2 km tunnel that will allow trucks carrying hundreds of thousands of containers to bypass the town of Chancay.
The project is closely linked to China’s BRI strategy in Peru, aimed at playing a central role in Peru’s copper exports to Asia. Sino-Peruvian ties have grown exponentially since a free trade agreement was signed in 2009, and extensive investments in energy, mining, transportation, and other key sectors have played a significant role in Peru’s recent economic growth.
However this rapid economic development has had ESG-related consequences. Numerous environmental concerns and conflicts have arisen, including at Chancay port. The project has experienced intense criticism from locals who have repeatedly demanded reparations for damages to local houses from construction, as well as environmental damage. The project is now set to begin its initial shipping operations in 2023 and to be fully functional by 2024.
As covered extensively in earlier TCS newsletters, the Las Bambas copper mine, owned by China Minmetals has also periodically halted operations in the face of local protests. The facility supplies approximately 2% of the world’s copper. As a key global supplier of copper, Peru is an important player for China’s growing edge as a technology superpower. Copper is also vital to the world’s energy transition.
The port of Chancay is intersected by multiple domestic and international political economic forces - a developing country in protracted political crisis after years of economic stability, a growing China that needs suppliers to fuel its industry in a rising geopolitical competition with the West, and a world that seeks strategic metals to transition away from fossil fuels. (IA)
Mining ⛏ + ESG 🦎
Zijin bought the mining project from Continental Gold at the end of 2019 for 3.6 trillion Colombian pesos (between US$900 million and $1 billion) and the acquisition was finalised in early 2020. It included a licence to exploit gold in an 1,893.8-hectare area for 14 years. Under Continental Gold, the project earned praise for its high level of community engagement and promised support of local social projects.
However, since Zijin's management began, three strikes have taken place in the municipality. The first was in March 2020, a few days after Covid-19 lockdowns began in Colombia. The second was in October 2021, which ended with the intervention of Esmad, the anti-riot squad. February’s was the third. The municipality’s various demands have not permitted the Chinese company to work without interruption.
Trade 📊 + Investment 💴
Taiwan 🇹🇼 + Paraguay 🇵🇾
~Above for the full Spanish article~
On Monday May 16, a Taiwanese delegation began a five-day (May 16-20) audit to assess Paraguayan pork’s suitability for export.
Paraguay is the first country to be visited by a Taiwanese audit since the pandemic began in 2020, stated Taiwan’s Ambassador to Paraguay, Chih-Cheng Han.
This audit is expected to open new markets for Paraguayan pork exports, especially as the South American country has registered lower meat export figures since January this year, signaled the President of the Paraguayan Association of Pig Producers (APPC), Jorge Ramírez. (RP)
Panama President Laurentino Cortizo said he intends to immediately restart negotiations with China over a free trade agreement, after conversations were put on hold during the pandemic.
“At this moment, we are planning to again begin negotiations with China for a trade agreement -- now,” Cortizo said during an interview at Bloomberg’s New Economy Gateway Latin America in Panama City. He didn’t provide further specifics on the timing of the negotiations.
Ni Hao Conecta is the first business development platform between China and Latin America, which aims to become the link between Chinese, Latin and Spanish entrepreneurs, between governments and private firms. The plan is to attract US$500 million of investment into Colombia.
Within the portfolio they have large consumer companies such as food, cosmetics, energy and automobiles. The platform also offers services to manage the promotion of investment and tourism, communication strategies, marketing, reputation and the internationalization of companies.
Ni Hao Conecta es la primera plataforma de desarrollo de negocios entre China e Iberoamérica convirtiéndose en el nexo y altavoz de empresarios chinos, latinos y españoles. Actualmente cuentan con plataformas adecuadas que facilitan la comunicación con medios internacionales que facilitan el desarrollo de negocios internacionales, tanto con gobiernos como con empresas privadas. Proyectan invertir US$500 millones en el país.
Dentro de portafolio cuentan con empresas de gran consumo como alimentación, cosmética, energéticas y automovilísticas; además en su catálogo de servicios manejan distintos proyectos para promoción de inversión y turismo, estrategias de comunicación, marketing, reputación e internacionalización de empresas.
On Thursday May 12, Chinese pharmaceutical company Sinovac Biotech Ltd. initiated the construction of its first fill and finish plant in Chile, consolidating its presence in the Latin American country that has used its Covid-19 shot the most.
Chile has run one of the world’s fastest vaccination campaigns, with 26.6 million doses of Sinovac’s CoronaVac delivered.
The plant, located in Quilicura (Santiago Metropolitan Region) will be able to fill and finish some 50 million doses annually, and should be ready before 2023 with an investment of some US$100 million, according to a release during a huge reception to launch the construction.
The plant will be delivering [as well] doses against Hepatitis A and influenza, according to Virginia Garretón, vice-president for corporate issues of Sinovac Biotech Chile. A research and development center is also planned for construction in the northern region of Antofagasta.
Chile was home of the first large-scale, real-world study of the vaccine (see TCS April 25, 2021). Talks about Sinovac Biotech Ltd. establishing a manufacturing plant in the country have been underway for over a year (see TCS May 7, 2021).
Background: Sinovac Biotech Ltd. (“SINOVAC”) 🔍
Headquartered in Beijing, China, Sinovac Biotech Ltd. (“SINOVAC”) was founded in 1999. It researches, develops, manufactures, and markets various vaccines, including flu vaccines and vaccines for Hepatitis A.
SINOVAC is the COVID-19 “CoronaVac” vaccine developer. CoronaVac has been so far employed in 56 countries worldwide, including 14 Latin American and Caribbean nations (Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, El Salvador, Mexico, Panama, Paraguay, Trinidad and Tobago, Uruguay, and Venezuela). (RP)
Note: China.org.cn is a Chinese state-sponsored media outlet
On Friday May 20, Chinese Foreign Minister Wang Yi elaborated on China's position and views on developing relations engaging in separate phone conversations with corresponding officials Francisco Bustillo from Uruguay, Juan Carlos Holguín from Ecuador, and Denis Moncada from Nicaragua. To underscore was the exchange with Moncada: (RP)
China, Wang said, is ready to strengthen the docking of development strategies with Nicaragua under the framework of the Belt and Road Initiative (BRI).
…He [also] expressed his expectation that the two sides will accelerate the negotiation and signing of an early harvest arrangement, and on this basis, launch the negotiation on a Free Trade Agreement (FTA) between the two countries.
…[Finally,] Wang added that China supports the establishment of Confucius Institutes in Nicaraguan universities to boost local exchanges.
Human Rights 🕊
This week saw the visit of former president of Chile, Michelle Bachelet, to China in her role as the United Nations’ High Commissioner for Human Rights, the first such trip in 17 years. The tour came amidst new leaked documents and pictures that have brought about renewed concerns about the history of allegations of human rights violations in China’s western region. In the wake of this recent leak, the US ambassador to the UN, Linda Thomas-Greenfield, urged Commissioner Bachelet to “take a hard look at these faces and press Chinese officials for full, unfettered access and answers.” International observers and human rights groups have criticized the tour for its potential to “legitimize” China’s actions. Meanwhile, at a virtual meeting held between Commissioner Bachelet and President Xi, China’s head of state defended his country’s human rights record without mentioning Xinjiang in particular, while Wang Yi, China’s Foreign Minister, told Bachelet on Monday that he hoped her visit would help “clear misinformation.” (IA)