When markets fail, there's always China. Latin American countries stricken by falling commodity prices are finding solace in Beijing's embrace. President Xi Jinping pledged $250 billion in investment to the region over the next decade as a group of its representatives and leaders gathered in Beijing on January 8. The emerging market unity is real and helpful, but it's more a marriage of convenience than a Latin love affair.
Venezuela and Ecuador have both received special doses of China's largesse. Ecuador announced $7.5 billion in credit lines and loans. Venezuela, whose dire finances are evident from 12-year government bonds that trade at 44 cents of their face value, said it will get $20 billion of investment. Though the help is much needed, it won't fill the gap left by falling oil prices. The two countries sold some $100 billion of petroleum products abroad in 2013, according to Organization of the Petroleum Exporting Countries (OPEC) - 87 per cent of their total exports.
Such deals come with strings attached. Concessionary loans like the ones Ecuador will receive from the Export-Import Bank of China are often linked to specific projects involving Chinese companies as a customer or supplier. Venezuela's inflows are likely to be subject to similar conditions. China isn't financing general government spending, or helping to repay bondholders.
The generosity may be partly defensive. China has sunk $34 billion in Venezuela and Ecuador in last ten years in the form of direct investment and projects, according to data compiled by the American Enterprise Institute and Heritage Foundation. If financial distress leads to regime change, China could struggle to maintain its influence. Commodities are also a driver. More than half of China's investment into the region since 2005 has gone to oil-rich Venezuela, Ecuador and Brazil. Argentina, which supplies China with soybeans, received $7.5 billion of investment pledges in July.
This transition-economy love affair shouldn't inspire jealousy elsewhere. Countries like Venezuela and Ecuador aren't so much turning away from the West, as from market forces. Being at the mercy of capricious bondholders and oil traders is no fun. China's non-market way of doing business gives them an alternative that must strike many emerging market governments as rather appealing.
