“It’s an environmental catastrophe,” remarked a prominent voice from the audience in reference to the impacts of Chinese-funded infrastructure projects in indigenous ancestral territories in Latin America.
Concern about the effects of the growing presence and influence of China on Latin American environments was the central theme of a panel discussion organized by Diálogo Chino at Canning House, a London-based forum for discussion on Latin American politics, economy and business.
China may be the region’s latest scapegoat for endemic problems such as corruption and economic mismanagement, but Rhys Jenkins, a panelist and professor of development economics at the University of East Anglia warned against the tendency to indulge in “China-bashing.”
Brazil is currently gripped by a scandal involving the state-owned oil company Petrobras, which is under investigation for running a kick-back scheme through which the ruling party are accused of siphoning-off money from contracts with engineering firms. But Professor Jenkins reminded the audience that, “Corruption didn't begin in Brazil when China arrived,”
In 2011, Chinese oil and gas company Sinopec agreed to provide Petrobras with a US$ 10bn loan to develop the pre-salt Atlantic oil field. Since then, China has become the biggest lender to the region, surpassing both the World Bank and the Inter-American development bank.
Although China is not implicated in the Petrobras scandal, perceptions of China have nevertheless been damaged by it. Latin American governments have regarded China as a lender with “deep pockets and few conditions,” and they have run the risk of treating good practice, transparency and accountability as afterthoughts.
It is not just in Brazil: in November last year, Mexico cancelled a contract with China Railway Construction Corp (CRCC) to construct a high-speed rail link between Mexico City and Queretaro. Doubts had arisen about the legitimacy and timing of the bidding process, and the Mexican President, Enrique Peña Nieto, moved quickly to organize a fresh round of tendering.
Chinese investments might not be changing poor governance in Latin America for the better, but the access roads, the bridges, the inter-oceanic railway and the canal they fund are profoundly changing the physical geography of the region.
One of the projects referenced at the event was the ambitious and highly controversial Nicaragua Canal, a US$ 50bn, 50-year concession to Hong Kong-based developer HKND which, if completed within its proposed time frame, will create a North Nicaragua and a South Nicaragua by 2020 – socially, if not politically.
Gargantuan freightliners might pass through the Central American country with relative ease, but ordinary Nicaraguans displaced by the canal could have to travel many miles to a crossing point to visit friends and family who used to be minutes away. Construction would involve dredging Lake Nicaragua – the largest freshwater reserve in Central America – jeopardising drinking water for more than 500,000 people and threatening rare aquatic species with extinction.
But Gabriela Moya, also panelist and a Senior Policy Advisor for the environment think tank E3G, was optimistic about cooperation between China and Latin America and argued that, if properly done, it can limit adverse effects on the environment.
Moya noted the potential of new development banks such as the BRICS Bank to finance sustainable projects and that Central Banks in Peru and Brazil have already started to adopt policies akin to China’s Green Credit Directive – a set of safeguards in force in China that are designed to limit the social and environmental impacts of banking investments.
In practice, however, although they may be effective at home, Chinese banking regulations have proved difficult to enforce overseas, especially in places as remote as the Ecuadorean Amazon.
Chinese banks have proved unresponsive to requests for information about the potential impacts of projects that they finance like the El Mirador mine in the biodiverse Cordillera del Condor in Ecuador, and this has added to their reputation for secrecy and lack of transparency.
How to implement green credit guidelines in Latin America is a work in progress, given that they have only been applied to Chinese investments overseas since 2012.
In China, poor implementation of domestic rules has led to popular opposition. For Chinese banks and companies, operating overseas, with all the cultural differences that can arise, this presents new challenges.
And there are signs that Chinese companies do care about putting across a positive image in Latin America. Decades of poorly regulated open-pit copper mining near the Peruvian town of Morococha left behind hazardous quantities of toxic waste. But when Chinese state-owned enterprise Chinalco, acquired the site in 2006, it spent $US 50m relocating the community to homes in a shiny new town.
Notwithstanding a venture by Shougang minerals’ to develop a Peruvian copper mine in 1992, China only entered the region significantly around the turn of this century. Chinese companies do not have the experience in Latin America that their European or North American counterparts do. European and North American operators have also made mistakes and suffer from negative perceptions.
Chinese lenders and construction companies are helping Latin America to bridge its infrastructure gap. The need to bridge cultural and information gaps is also of critical importance if both sides are to benefit.