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The China Signal - September 8
Petrobras plans a China subsidiary, Maduro in Beijing, Nicaragua FTA, Tsingshan electrochemical plant in Argentina
G’day, and welcome to The China Signal. This week, Petrobras plans a Chinese subsidiary, Maduro in Beijing, Nicaragua and China sign a free trade agreement, nickel giant Tsingshan plans electrochemical plant in Argentina’s Jujuy province, plus much more.
I was recently quoted in Americas Quarterly on their profile of Cai Wei, China’s top foreign ministry official to Latin America and the Caribbean. My comments touch on critical minerals and Argentina’s addition to the BRICs group, and I’ve included excerpts in the relevant sections below.
Also, last edition shared part three of Florida International University’s exploration into China’s media and public diplomacy efforts in the region. TCS’s own Richard Puppin was featured in parts one and two.
Oil & Gas 🛢️
Petrobras plans to create a Chinese subsidiary, Chief Executive Jean Paul Prates told Reuters, as Brazil's state-run oil firm pushes to strengthen relations with the Asian nation that had "chilled" under former President Jair Bolsonaro.
Prates said Petrobras aims to open the Chinese subsidiary in 2024, after getting formal approval. He said the move would help efforts to triple its share - from 5% to 15% - of China's oil imports in the next couple decades, while contributing to warmer Brazil-China ties under President Luiz Inacio Lula da Silva.
…Prates said Petrobras China’s subsidiary would allow Petrobras to operate and participate in projects as partners even in other countries, including in Africa.
…He added that Chinese partnerships under development could also help to accelerate oil refining and fertilizer projects in Brazil, adding that China could help to revive the Brazilian naval industry.
…Earlier this week, Petrobras tapped Chinese companies such as CNOOC and Sinopec for energy partnerships, while also agreeing to discuss joint projects with CITIC Construction and lenders China Development Bank and Bank of China. (RP)
On September 8, China’s Ministry of Foreign Affairs announced that Maduro is visiting China from September 8-14.
Venezuela has dispatched some of its top officials to China to seek energy investments to boost the economy ahead of next year’s presidential election.
Vice-president Delcy Rodríguez and oil minister Pedro Tellechea arrived in Shanghai on September 5 as part of the most senior Venezuelan delegation to visit China since President Nicolas Maduro's visit in September 2018. The pair are discussing possible joint-ventures between China and state-run Petroleos de Venezuela SA, according to two people with direct knowledge of the matter.
Beijing and Caracas are strengthening ties against a backdrop of intensifying US-China rivalry across the region. The visit comes as the administration of US President Joe Biden is seeking to engage Venezuelan officials in talks to lift sanctions in exchange for allowing fair elections next year.
Venezuela’s oil ministry has been working closely with China National Petroleum Corp’s (CNPC) officials on a renewed conduit that would cut out middlemen and allow them to ship crude directly, Minister Tellechea said in May.
…CNPC is currently producing 80,000 barrels a day [in Venezuela], half of what it used to pump in 2015, according to data compiled by Bloomberg.
China became a key lender to Venezuela in 2007, when it first provided funds for infrastructure and oil projects under late president Hugo Chavez. Data indicate that Beijing lent upwards of US$60 billion in oil-backed loans through state-run banks through 2015, reaching a level of diplomatic and financial investment unmatched elsewhere in Latin America.
The Maduro regime is also trying to create a natural gas export industry, and has partnered with Italy’s Eni and Spain’s Repsol to develop Cardon IV project. Read more here. (RP)
Ecuador's government will honor the result of a referendum to block oil operations in the Amazon, which will see machinery removed within a year, the government said on August 24.
Almost 59% of voters backed suspending oil operations at the 43-ITT block in a national referendum on August 20 - which coincided with the first round of presidential elections - in favor of protecting the Yasuní reserve.
The block produces some 58,000 barrels per day (bpd).
The national electoral council has not yet published the official results. "Once the results of the referendum are made official and published by the (CNE), the government will abide by this decision," the government said in a statement.
…Petroecuador has said a vote to end exploration in Yasuní would cost Ecuador some US$13.8 billion over the next two decades and result in the loss of 12% of the country's 480,000 barrels per day (bpd) oil production.
Energy Minister Fernando Santos told Ecuavisa television channel that dismantling operations at the block would cost some US$600 million.
Home to more than 40% of the Ecuador’s proven crude reserves, oil extraction at the Yasuní National Park began in 2016 following a failed environmental initiative of former president Rafael Correa (2007-2017) that sought to keep the crude underground in exchange for international compensation of US$3.6 billion (see TCS April 15, 2022).
Four different Chinese companies - including Sinopec Group and CNPC Chuanqing Drilling Engineering Company Limited (on the account of China National Petroleum Corporation) - have been awarded contracts for oil extraction in the park since 2016. We will be carefully monitoring the status of these concessions. (RP)
~ Global Times is a Chinese state-sponsored media outlet ~
After more than a year of trade negotiations, which concluded in July and were covered on TCS July 28, Nicaragua and China signed their Free Trade Agreement (FTA) on August 30. Nicaragua is the fifth Latin American country to sign an FTA with China, following FTAs with Chile, Peru, Costa Rica, and Ecuador.
According to the agreement, more than 95 percent of traded goods will ultimately be granted zero-tariff status, with approximately 60 percent of these items receiving immediate zero-tariff treatment.
The agreement is the first of its kind signed by China with a trading partner to open up cross-border services trade, which includes financial services, and investment in the form of a negative list.
Aggregate trade value between Nicaragua and China amounted to US$760 million in 2022. China is currently Nicaragua's second largest trade partner. The FTA is expected to come into effect by January 2024. (NRM)
~ This article is paraphrased from Spanish ~
On August 31, Honduran government officials traveled to China to continue negotiations for a Free Trade Agreement (FTA).
China and Honduras initiated FTA negotiations on July 4, after the Central American nation severed diplomatic ties with Taiwan (see TCS June 16, and March 29 for further background). The trip included a meeting with China's Vice Minister of Commerce, Wang Shouwen.
On September 6, Honduras’ first coffee shipments were exported to China, following arrangements established with the diplomatic switch to Beijing.
~ This article is paraphrased from Spanish ~
…The Minister of Agriculture and Livestock (SAG), Laura Suazo, pointed out that this shipment is part of the final test for companies that will buy coffee in China, prior to closing a purchase for 500 containers at the New York Stock Exchange price plus positive differential. (NRM)
Critical Minerals 🔋
Chinese nickel and stainless steel giant Tsingshan is preparing to construct an electrochemical plant in northwestern Argentina's Jujuy province that will provide key inputs for lithium carbonate production, supplying both local industry as well as Chile and Bolivia.
The US$120million alkali chlorine processing unit will be located in the Perico industrial park and will have production capacity of 35,000t/y of sodium hydroxide and 100,000t/y of hydrogen chloride in the first phase.
…These chemicals are not currently produced on an industrial scale in these countries, and "if they are produced, they are in very small quantities and not enough", said Santiago Bustelo, Tsingshan's senior manager for South America.
In addition to supplying companies in the region with these chemicals, which are used to remove impurities and process lithium compounds into lithium carbonate, the plant will allow Tsingshan to consolidate its lithium value chain in Argentina.
Construction will take 18 months and will go ahead in spite of the troubled macroeconomic situation in Argentina. (RP)
See TCS January 15 for our company backgrounder on the world’s largest nickel producer.
My comments to America’s Quarterly:
This sector-specific emphasis on lithium and electric vehicles is part of how China “is trying to work with local partners to build their lithium supply chains up and downstream as well,” said Mitch Hayes, founder of The China Signal newsletter and a director at consulting firm Veracity Worldwide. “You’ve seen a lot of enthusiasm from the Argentine government, for example, to bring in Chinese partners from lithium miners all through that supply chain up to battery factories.” This approach earns friends in countries attempting to move beyond commodity exports to strengthen local industries. (MH)
~ Paraphrased from Spanish ~
…At the end of March, the Chinese mining company Tianqi submitted to the FNE two reports prepared by the consulting firm Charles River Associates and the Covington & Burling LLP study to lift the restrictions imposed by the antitrust body on its entry into SQM in 2018. According to La Tercera, the former concluded that "the restrictive measures imposed on the minority ownership of SQM de Tianqi have prevented important efficiencies and pro-competitive effects from occurring." Meanwhile, the second stressed that "the intended effects on Tianqi could have been achieved in other, less draconian and less interventionist ways." Despite this, the FNE dismissed the reports and upheld its decision.
Among the changes Tianqi sought were removing:
…a ban on Tianqi choosing directors or executives at Soquimich, and limitations on its influence in mineral-related decisions. In addition, Tianqi is required to inform FNE about agreements and actions that could affect their control over SQM.
These restrictions were imposed when Tianqi took a minority stake in SQM in 2018, ostensibly for anti-monopoly reasons. (MH)
Chinese investments in Brazil tanked 78% in 2022 compared with the previous year, hitting their lowest in 13 years as funds committed to resource projects plummeted.
China funneled US$1.3 billion in direct investments into the country last year, the lowest level since 2009, according to a CEBC study. Last year, just 28% of announced Chinese projects worth US$4.7 billion went ahead, [compared to] 2021, when pledged investments of US$5.9 billion were fully realized, bolstered by two oil projects worth nearly US$5 billion.
Recent economic indicators from the Asian powerhouse have sparked concern that it might be losing its ability to sustain robust growth.
China is Brazil’s largest trading partner, making up nearly a third of all Brazilian exports. Trade between China and Brazil hit US$173 billion in 2022, compared to the US$94 billion between the US and Brazil that same year.
China’s economy has slowed significantly in 2023, and sluggish consumer spending, an ongoing real estate crisis, and record youth unemployment preoccupy Beijing’s officials. However, Brazilian exports to China grew by 6.9% ($58.7 billion) from January to July this year, surpassing average global export growth of 0.2% in the same period. Iron ore, crude petroleum, and soybeans take up almost 80% of Brazil’s China-bound exports. Thirty percent of Brazil’s total exports were sent to China during this period. (VV)
~ This article is paraphrased from Spanish ~
The Bank of China made the first direct investment in yuan in Argentina, which represents a novelty in the introduction of the Chinese currency as an asset in the country, according to Chinese media.
The Chinese energy company Brunp Recycling - which is a subsidiary of battery giant Contemporary Amperex Technology Co., Limited (“CATL”) - has just landed in the province of Salta… the investment of about US$59.000… will be used to cover its daily operating costs.
…Since it opened its doors in Buenos Aires, the Bank of China has aimed to attract Chinese investments and business partners to the local market, and has been cooperating to stimulate and consolidate the yuan market in Argentina.
In 2022, the bank opened Argentina’s first Chinese currency accounts. (RP)
One of Buenos Aires' main dailies, La Nacion, is reporting that China will not back down from its port plan in Patagonia, as promised by the regional and national governments. In early June, Argentine Governor of Tierra del Fuego Gustavo Melella revived an old controversy concerning a deal with a Chinese company to build a multipurpose port in Rio Grande. Melella presented the Memorandum of Understanding (MoU) he had signed with Shaanxi Chemical Industry Group to the local legislature.
The agreement includes the construction of a port terminal with mooring capacity for vessels of up to 20,000 tons, as well as a power plant and an industrial plant to produce 900,000 tons of urea, 600,000 tons of synthetic ammonia, and 100,000 tons of glyphosate per year, for an estimated total investment of US$1.2 billion, Bloomberg estimated at the time.
According to Argentine news site Deproa Noticias, at the time that Melella signed the agreement with the Chinese state-owned company, Argentine company Mirgor already had plans to build a port in the same city.
Beijing, Deproa Noticias reported, has assured that it will not back down and will exert pressure so that the agreement is approved in the local legislature as presented, including the port.
The construction of the Tierra del Fuego port would create a Chinese presence in the Strait of Magellan, a strategic passage between the Atlantic and Pacific oceans, with Antarctica to its south. Initial reporting in November 2022 (see TCS November 21) suggested the port could restrict access to Chinese personnel, as China has done with their space tracking base in Argentina’s Neuquén region.
Since 2010, China has spent US$20 billion in port terminals globally, including $1.3 billion in Chancay on Peru’s Pacific coast. The port would offer a direct route to China, reducing shipments between the regions by 10 days. In 2017, state-owned China Merchants Port Holdings Co Ltd bought control of TCP Participações SA in Paranaguá, Brazil. The port is one of Brazil’s largest and most profitable, and provides access to the Atlantic Ocean. (VV)
The BRICS bloc of developing nations agreed on August 24 to admit Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the United Arab Emirates in a move aimed at accelerating its push to reshuffle a world order it sees as outdated.
In deciding in favor of an expansion - the bloc's first in 13 years - BRICS leaders left the door open to future enlargement as dozens more countries voiced interest in joining a grouping they hope can level the global playing field.
…The six new candidates will formally become members on January 1, 2024, South African President Cyril Ramaphosa said when he named the countries during a three-day leaders' summit he is hosting in Johannesburg.
"BRICS has embarked on a new chapter in its effort to build a world that is fair, a world that is just, a world that is also inclusive and prosperous," Ramaphosa said.
"We have consensus on the first phase of this expansion process and other phases will follow."
My comments to Americas Quarterly:
China’s rising profile in such conferences—much like its support for countries like Argentina to join the BRICS group—isn’t likely to reshape global politics anytime soon, said Neil Thomas, a fellow on Chinese politics at the Asia Society Policy Institute’s Center for China Analysis in Washington. But they “do normalize China’s presence in the region as a partner in governance initiatives, which has previously been the domain of the United States and other Western countries,” he said.
These multilateral initiatives lay the foundation for relationships that can be intensified in response to global events, Hayes of The China Signal, told AQ. “When there’s a crisis, sometimes forums or meetings can suddenly take on much greater importance like the G20 did through the financial crisis,” he said. (MH)
Argentina’s President, Alberto Fernández, publicly thanked Brazil’s Lula “for supporting the country’s adhesion to the BRICS and always seeking mutual growth”. “This will be a great opportunity to strengthen ourselves”, Fernández said in a separate speech.
“We are really very happy that this process is accelerating, so I want to thank China and all the BRICS countries for their support”, Argentina’s Ambassador to China, Sabino Vaca Narvaja, told Chinese-state controlled media The Global Times on August 24. Argentina had been invited to participate in the BRICS’ summit in 2022 (see TCS May 13, 2022 for further background), receiving Chinese endorsement to adhesion in July 2022. (RP)
Taiwan Diplomacy 🇹🇼 🕊️
Taiwan's government on August 21 congratulated Bernardo Arevalo for winning the Guatemalan presidential election, the country being one of only 13 to maintain formal diplomatic ties with the Chinese-claimed island.
Bernardo Arévalo, a politician, diplomat, and sociologist, won the second round on August 20, representing left-wing party "Movimiento Semilla".
China is one of Guatemala's largest trade partners, reaching US$6.3 billion in 2022. The Chinese Foreign Ministry spokesperson Wang Wenbin was optimistic that the incoming administration would eventually “make the correct decision” and recognise Beijing. (NRM)
~ Paraphrased from Spanish ~
Bolivia’s Minister of Rural Development and Land, Remmy Gonzáles Atila, stated that a technical commission from China and Chile was in Bolivia for an August 28-September 3 to visit chia grain production fields and processing plants in the municipalities of Cuatro Cañadas, San Pedro and Cotoca in Santa Cruz. Part of the technical commission’s visit included carrying out an on-site inspection of compliance with phytosanitary and safety conditions.
Bolivia is the world’s second largest chia seed exporter. Mexico is its largest export destination, taking 46% of its total production. China does not currently import chia seeds from Bolivia. (VV)
Javier Suárez, director of Bolivia’s National Agricultural Health and Food Safety Service (“SENASAG”), said a protocol agreement for chia exports to China was outlined during the Chinese technical commission visit. (RP)
~ Paraphrased from Spanish ~
China imported a record volume of beef in July. High beef stocks and the difficulties China's economy is going through did not stop importers from taking advantage of lower prices from their main suppliers and importing record volumes in July. At 290 thousand tons, the volume exceeds the record of August 2022, which had been 278 thousand tons.
Of this total, more than 140,000 tons arrived from Brazil, taking advantage of the low prices that exporters from this country were able to accept due to the drop in the price of slaughter cattle. (VV)
Biotechnology Research Cooperation ⚕️
The 12th Cuba-China Joint Working Group Meeting for Biotech Cooperation took place September 6-7, with both parties committing to enhance their collaboration in this field.
Accomplishments made in the collaboration from 2021 to 2023 were evaluated during the meeting. Additionally, the agenda encompassed the examination of projects and suggestions to ensure that this remains a strategic partnership.
…Cooperation between Cuba and China in biotechnology has allowed the Hebernem bioproduct, a product developed by the Biotechnology Genetic Engineering Center (CIGB), to be registered in China as a biofertilizer, with work currently being done to achieve its registration as a bionematicide, plus other results.
Further cooperation strategies in the field of biotechnology were discussed by Cuba’s Deputy Prime Minister, Jorge Luis Perdomo, and the Chinese Secretary General of the National Development & Reform Commission, Wu Hao, within the framework of the meeting. For further information about biotechnology research between China and Cuba, please refer to TCS June 6, 2022. (NRM)