PRC Engagement in Latin America and Implications for Taiwan and the United States

PRC Engagement in Latin America and Implications for Taiwan and the United States

PRC Engagement in Latin America and Implications for Taiwan and the United States

The Dominican Republic’s May 2018 change in diplomatic relations from Taiwan (Republic of China, ROC) to the People’s Republic of China (PRC), in the context of similar changes since March 2016, by the governments of Gambia, Sao Tome and Principe, Panama, and most recently, Burkina Faso, makes clear that the diplomatic truce between the PRC and ROC that prevailed since 2008 is over, and that Beijing is moving forward, albeit with uncertain speed, to strip Taipei of its formal ties with the 18 nations with which it still has relations.  

For the United States the new diplomatic contest is significant because the political, economic, and military initiatives that China traditionally pursues when wooing nations away from Taiwan will focus on nine states particularly close to the US mainland, clustered in the northern half of Central America and the Caribbean: Guatemala, Honduras, El Salvador, Belize, Haiti, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines.

Compounding the strategic impact of the renewed struggle for the United States, the likely election of Andres Manuel Lopez Obrador (AMLO) in Mexico’s presidential election in July could produce a government reasserting Mexico’s traditional leadership in this same region, with a decidedly anti-US tone, just as the PRC is empowering those nations with new loans, investments and trade to pursue policies less dependent on the US.

The Impact of China in the Hemisphere

While the PRC, the ROC, and the sovereign nations of the Western Hemisphere have the right to maintain relations with whom they wish, China’s engagement in the region is fundamentally altering its dynamics.

First, China’s economic and other support for anti-US populist governments such as Venezuela has prolonged their life beyond the limits imposed by the economic and other contradictions of their populist policies, exporting instability to their neighbors through their criminal networks, the armed groups they host, and the refugees that flee them.

Commercially, the PRC is becoming increasingly adept at winning business in the region, not only securing its access to markets and sources of supply, but also expanding Chinese soft power. Since 2003, Chinese companies have invested more than $114 billion in Latin America, and have loaned its governments over $150 billion.

With that expanding power, while the PRC may not openly demand that Latin American governments adopt laws and policies favorable to Chinese interests, it arguably uses the enticements of vast loans and access to its markets to secure deals which benefit its economic advance and other strategic objectives. Even in countries such as Brazil, where few early PRC initiatives succeeded, PRC companies have moved in when the country’s national champions, such as Odebrecht, Petrobras, and BNDES, have run into difficulties.

As Chinese manufactured goods have expanded into Latin America and displaced the region’s goods from markets such as the US and Europe, the portion of high value-added manufacturing and service exports for industrialized countries in the region such as Brazil has fallen. The trend has been reinforced as the PRC has bought increasing quantities of low-value added primary products from petroleum, metals and minerals, to soybeans.

Expanded Chinese engagement in the region has also arguably contributed to the endemic problem of corruption due to the PRC preference for large government-to-government projects, as well as through the previously noted sustainment in power of populist elites.

The lure Chinese markets, loans, and investments is also arguably undermining democratic discourse in the region. Latin American governments pursuing such benefits are not only obliged to reaffirm the “One-China” principle in official communiques, but also arguably feel pressure to avoid “provoking” the PRC by receiving the Dalai Lama, criticizing PRC human rights practices, granting of visas to high-profile visitors objectionable to the PRC, or other possible offenses. Companies, universities, and think tanks similarly feel pressure to tone down portions of reports critical of the PRC or avoid hosting figures whose ties or views could put the organization’s “China business” at risk.

Finally, expanding PRC presence in the region gives the PRC expanded options in a military conflict over Taiwan, even while the stripping away of the ROC’s remaining diplomatic allies increases the possibility of such a struggle. PRC economic leverage decreases the number of governments in the hemisphere that would join a United Nations vote, let alone a military coalition opposing China. The proliferation of PRC-based companies in Latin America and the Caribbean create options for China to introduce and sustain agents and conduct operations against the United States from the Western Hemisphere in such a conflict. PRC military engagement in the hemisphere, from institutional visits to arms sales to the courtship of Latin American officers in Chinese schools, facilitates the speed and effectiveness with which it could use airports, maritime channels, and other facilities in the region for military purposes, if given access to them during a protracted conflict.

Implications for the Region of the Renewed Diplomatic Struggle

Contrary to popular assumptions, the economic benefits for nations changing diplomatic recognition from the ROC to the PRC will likely be mostly symbolic, slow in coming, and concentrated among a handful of government and business elites. While a change in relations may induce numerous businessmen and government officials to travel to the PRC in search of trade and investment opportunities, opportunities for importing goods from China will expand faster than opportunities for exporting goods to it. The ability to export (perishable) traditional agricultural products to the PRC will be limited by the expense of transport (by air or in refrigerated containers for most fruits and vegetables), the small scale of local production, the complexities of Chinese phytosanitary processes, and the lack of brand identity sufficient to command a premium price in the face of similar goods available closer to the Chinese market.

Conversely, diplomatic relations will facilitate expanded access to the Central American and Caribbean country markets by well-resourced Chinese companies supported by the Chinese government, including trade promotion organizations such as the China Council for the Promotion of International Trade (CCPIT). Free trade agreements with the PRC, such as that which Panama will begin negotiating in July 2018, may simultaneously reduce government revenues from tariffs, while further expanding Chinese access to the local market, while doing little to increase local exports to the PRC due to the previously mentioned structural barriers.

Given that almost none of the Central American and Caribbean countries still recognizing the PRC have strong construction or industrial sectors, or well-entrenched procurement processes, diplomatic changes will likely be accompanied by symbolic infrastructure projects which primarily benefit Chinese companies (and the local elites positioned to partner with them), generating political disputes and accusations of corruption, as occurred with the Recope refinery and Ruta 32 projects in Costa Rica.  

The associated introduction of Chinese laborers to work those projects will likely swell local Chinese communities, feeding social and political tensions, as occurred in Santo Domingo in 2013, Suriname in 2009 and 2011, and San Victorino Colombia in 2016.  It will also expand smuggling of people and contraband goods, with mafia groups operating within otherwise law-abiding Chinese communities, whose use of Hakka and Cantonese dialects will inhibit the under-resourced security forces of the region from penetrating.

Options for Taiwan

In the renewed diplomatic struggle with the PRC in Latin America and elsewhere, Taipei is playing a difficult hand. The limited size of Taiwan’s economy and the resources available to its government mean that it cannot “out-bid” the PRC for the loyalties of governments in the region, although the June 2018 visit to Taiwan by Haiti’s president Jovenel Moise indicates that this is exactly what some governments expect.

The government of Taiwan can, however, do more to leverage the quality of the relationships that it maintains with the region’s governments, making use of its deep knowledge of the region’s languages and local conditions, its often longstanding relationships with the region’s political and business elites, and its historical record of structuring projects which employ local personnel and build partner nation capabilities in a sustainable fashion.  

To the extent that the diplomatic struggle with the PRC has resumed, Taipei should consider using its leverage with countries with which it has official relations to combat those PRC activities within the country that often pave the way for diplomatic relations, including the presence of the PRC investment-promotion organization CCPIT, commercial projects with PRC-based companies (such as the Patuca III dam in Honduras, or telecommunications contracts with Huawei and ZTE), and the activities of China “friendship societies,” which often act as lobbying groups for local elites advocating recognition of the PRC.

Recommendations for the US

The United States should continue to actively work with the governments of the region to combat the expanding, undesirable by-products of PRC engagement in Latin America, such as economic displacement, corruption, and organized crime, by providing information, technical assistance, and State Department-led governance-strengthening initiatives.

In addition, in the arena of trade, the United States should work closely with the finance ministries and other competent organizations of the region to ensure that the PRC-based investors who set up operations do not improperly over-value production performed there, so as to permit their products to enter US markets without paying tariffs under the provisions of CAFTA-DR or other trade agreements.

Finally, the US Congress should work with the Trump administration to confirm political appointments (or replace them if the nominee cannot be confirmed), so that the State Department has its full leadership team in place at the regional level (including the Assistant Secretary of State for Western Hemisphere Affairs) and at the country level, including the US Ambassador to the Dominican Republic, and the ambassador to Panama, where the PRC is fully engaged in building new relationships.

The main point: The PRC is moving forward purposively with its diplomatic end game against Taiwan in countries whose geographic, economic, and human ties to the US are so close that they played a significant role in electing the current US president.  The time for an effective response continues to be now.