- GCAM
- Posts
- China Seeks to Dominate Latin America’s Critical Infrastructure
China Seeks to Dominate Latin America’s Critical Infrastructure
GCaM Greater Caribbean Monitor
September 20, 2024
Dear all,
We welcome you to the Greater Caribbean Monitor (GCaM).
In this issue, you will find:
•China Seeks to Dominate Latin America’s Critical Infrastructure
•The U.S. Electorate Remains Unpredictable and Unmoved
As always, please feel free to share GCaM with your friends and colleagues.
If you’ve been forwarded this newsletter, you may click here to subscribe.
Best,
The GCaM Team
Learn more at [email protected]
•China Seeks to Dominate Latin America’s Critical Infrastructure
700 words | 4 minutes reading time
Peru’s Chancay deep-water port, located 50 miles north of Lima, is scheduled to open in November. The port’s majority owner is the Hong Kong-based China Ocean Shipping, better known as Cosco; the funds required to build it were put forth by Chinese banks. Further proof of the project’s Chinese associations is found in the fact that Xi Jinping is expected at the ribbon-cutting ceremony.
Panorama. The Port of Chancay is a joint-venture between Cosco and Volcan, a Peruvian mining giant. The project’s total cost is estimated at $3.5 billion; Cosco has put up around $1.3 billion for the port’s first stage. Peru’s Congress also amended the country’s port legislation to grant Cosco exclusivity rights over Chancay, although this was not without controversy.
Some argue that the legislation, passed with minimal public debate, hands control of a crucial national infrastructure to a foreign entity, raising concerns about reduced competition and limiting the Peruvian government’s ability to regulate the port in the national interest.
The exclusivity clause has heightened the strategic rivalry between China and the United States in Latin America. For Beijing, controlling Chancay aligns with its Belt and Road Initiative (BRI)’s stated goal of increasing Beijing’s regional influence. For Washington, it represents a strategic setback, reducing U.S. influence and complicating efforts to counter China’s growing presence in its traditional sphere of influence.
However, the future of Cosco’s exclusivity rights remains uncertain. The Peruvian government faces a challenging dilemma: weighing the project’s economic benefits against increasing domestic and international pressure. Any move to renegotiate or revoke the clause could trigger significant legal and diplomatic consequences, potentially threatening the entire project.
Data. With its 60-feet depth, Chancay will be the first port on South America’s Pacific coast capable of receiving megaships. This will enable larger vessels to bypass intermediary ports like those in Mexico and California, thus reducing shipping times and costs for goods moving between South America and Asia.
According to estimates, the Port of Chancay will reduce transportation costs by approximately 30%, benefiting various countries in the region, such as Brazil, Uruguay, Paraguay, and Bolivia.
Once operational, the Chancay Port is projected to create around 5,000 direct jobs, along with numerous indirect opportunities in related sectors, boosting the Peruvian economy. Additionally, estimates indicate that container traffic volume could surge by 30% to 50% once the port reaches full capacity, significantly enhancing the region’s logistical capabilities and positioning Peru as a strategic hub for maritime trade in Latin America.
Similarly, Chinese exports to Latin America are projected to grow by 20-30% over the next five years, reinforcing China’s role as the leading trade partner for numerous South American countries.
Why it Matters. China’s involvement in the Port of Chancay has raised concerns in Washington, as it fears that the port could serve as a strategic gateway for China to deepen its economic and possibly military influence in the region.
Peru’s embrace of Chinese investments comes amid a broader trend in Latin America, where Chinese firms are increasingly involved in critical sectors like mining, energy, and infrastructure. While the U.S. has focused its resources on other global regions, China has filled the vacuum in Latin America, making substantial inroads with its BRI.
While the primary focus of the Chancay Port project is in Peru, Brazil, as Latin America’s largest economy, is expected to benefit significantly, with its exports to Asia becoming more competitive.
The project has also spurred Chile to respond with a $4 billion plan to expand the San Antonio Port, aiming to triple its capacity to 90 million tons annually. Chilean officials are concerned about staying competitive as regional port infrastructure races to accommodate the next generation of massive cargo ships.
Balance. The Port of Chancay symbolizes more than just an infrastructural upgrade; it marks a pivotal shift in the region’s trade patterns and geopolitical alliances. As China cements its presence in Latin America, the United States faces the challenge of reasserting its influence in a region increasingly looking eastward.
For Latin America, the economic benefits of enhanced trade with Asia are clear, but the long-term costs of dependency on Chinese capital and political influence remain uncertain.
Thus, the Port of Chancay is not just a new chapter in Peru’s commercial history, but a significant marker in the unfolding story of global trade and geopolitics.
PRESS REVIEW
What We’re Watching
El Salvador Bonds Soar After Bukele Signals Zero Deficit [link]
Zijia Song y Vinicius Andrade, Bloomberg
Salvadoran bonds, which have proved a high-yield investment in recent years, rose after President Nayib Bukele announced the country’s 2025 budget would not require taking on additional debt, suggesting a shift towards the austerity policies required by the IMF, with which Bukele is negotiating a $1.3 billion loan. Most analysts believe such an agreement is soon to come, despite concerns about El Salvador’s embrace of bitcoin as legal tender, along with its debt-to-GDP ratio of 83.7%. In general, bond prices have improved, with the 10-year bond yield falling to 10.5%, levels not seen since before the pandemic. The IMF forecasts economic growth of 3% in 2024, in line with Bukele’s goal of achieving modest growth.
Chinese overcapacity is crushing the global steel industry [link]
The Economist
Each year, China produces one billion tons of steel, which is as much steel as the rest of the world combined. In 2023, its exports soared to 90 million tons, a 35% year-on-year increase, surpassing the total production of countries like the United States and Japan. Amid domestic market difficulties and a 16% drop in prices, Chinese steel producers have not reduced production, instead dumping their steel abroad, leading to protests and calls for anti-dumping legislation from steelmakers like Nippon Steel and ArcelorMittal. It is worth noting that in light of European and U.S. tariffs, Chinese exports are increasingly directed to developing countries; in Latin America, Mexico and Brazil have imposed a tariff of up to 25% on Chinese steel; Chile has acted similarly, with tariffs that start at 24.9% and go up to 33.5%.
The Dominican Republic received $7.1 billion in remittances between January and August [link]
Banca y Negocios
Remittances to the Dominican Republic amounted to USD 7.11 billion in the first eight months of 2024, a 5.1% increase compared to the same period last year. In August, the country received $952.3 million, for a month-on-month increase of 10.7%. The Dominican Central Bank highlights that remittances, 82% of which come from the United States, have a multiplier effect on consumption and make up 11% of the country’s GDP. Foreign exchange inflows are expected to reach a yearly total of $42.6 billion.
•The U.S. Electorate Remains Unpredictable and Unmoved
509 words | 3 minutes reading time
Neither debates nor bullets seem to have any bearing on the U.S. electorate. With 45 days to go until the November 5 elections, it is very difficult to make confident predictions. Most would agree that former President Donald Trump and Vice President Kamala Harris are in a dead heat, with credible polls variously giving one or the other a slight lead.
Panorama. After a presidential debate and a second attempt on Trump’s life last week, the electoral landscape remains the same. Polls did not shift after these events; only the betting markets reflected a causal relationship, albeit a very limited one.
After the debate, bookies changed their mind: Harris’ chances of victory rose from 47% to 51%. The upward trend stopped last Sunday, after the second assassination attempt on Donald Trump.
Much of this contradicts election guru Nate Silver’s models, which place Trump’s chances of victory at 56.2%. Indeed, Silver has gone on record saying there is a 25% chance of Harris winning the popular vote and failing to win the Electoral College.
Why It Matters. Two things stand out: candidates’ proximity across polls and their remarkable stability. The last big shift was President Joe Biden’s withdrawal, which put the Democrats in the lead after a long period with Trump as the favorite. Even so, when everything seemed to indicate that it was impossible for Biden to defeat Trump, polls gave the former president only a small lead of around 3%.
Now, with Harris as the Democratic nominee, Trump’s national-level advantage has narrowed to around 2.5%. No candidate has been able to acquire a comfortable lead beyond most polls’ margin of error.
Much has happened, and little has changed. The victory will still depend on a few crucial battleground states. Beyond all talk of swing states, it is clear that Georgia, North Carolina, and Pennsylvania will decide the election.
Yes, But. The vast majority of the electorate has already made up its mind. U.S. voters seem immune to “October surprises,” scarcely moving their preferences during a campaign that has included criminal trials, two debates with contradictory results, two attempts on Trump’s life, and a last-minute switch-up in the Democratic nomination.
Much has been written on which campaign appears more “energetic.” This seemed particularly important amid the momentum of Harris’ first weeks as the Democratic nominee, but it remains to be seen whether it will matter in the final weeks of the campaign.
Only 3-4% of voters are undecided. These voters may prove crucial, but it should be remarked that true undecided individuals are frightfully rare; most have a preference for a candidate, even if unstated, and many will simply fail to vote.
Balance. Harris enjoys a certain amount of “novelty” appeal; despite not being immensely popular, she benefits from polarization against Trump. Her campaign funds and infrastructure are also markedly superior, especially in light of the Democrats’ simple campaign: all against Trump.
All is not lost for Trump, however. If he carries Pennsylvania, as some polls suggest, Harris would need to win either North Carolina or Georgia, which lean Republican. This may prove too tall an order for her campaign.