Trade and Investment

New Argentina president to put deals with China under the microscope

Macri will review infrastructure accords as experts predict ‘pragmatic’ new era of cooperation

Change is promised in a number of areas of government by Argentina’s new president-elect Mauricio Macri and foreign relations – in particular the country’s links with China – will be no exception. Macri has left open the possibility of reviewing, even cancelling, the raft of deals on energy and infrastructure signed by the two countries earlier this year.

Macri, the head of centre-right PRO party which leads the Cambiemos (Let’s Change) coalition, won Argentina’s first ever presidential run-off on November 22 with a 51.4 percent share of the vote, defeating Daniel Scioli of the ruling Victory Front.

A staunch critic of the more than 20 deals signed by outgoing president Cristina Kirchner and counterpart Xi Jinping in February, Macri had previously stated his intention to scrap the deals in the event of uncovering any irregularities. He wrote to the Chinese ambassador in Argentina Yang Wanming expressing his “concern” over the accords, while observers had complained of a lack of transparency.

“A government that managed the energy sector poorly has set the rules of the game for the incoming government, which compromises it for three or four presidential terms,” Macri’s energy policy advisor Emilio Apud told Diálogo Chino. “The new president has the right to rethink these deals and see if they can be improved. But it has to be done in a careful and transparent way,” Apud added.

Argentina’s diplomatic relations with China were upgraded to ‘strategic integral alliance’ status under Kirchner, who exchanged visits with President Xi Jinping and inked deals on culture, technology, energy and the economy.

While China promised finance for key energy and transport projects including on two controversial dams and nuclear projects, Argentina handed over the rights to develop them without a proper tendering process, whilst also opening the door for Chinese workers to fill a number of engineering and construction positions. Argentina committed to repaying loans over an 18-year period.

However, revising the deals would represent a step backwards for both countries, which are currently enjoying a cordial relationship and which has taken years to build, experts say. “The relationship between China and Argentina is positive, it has progressed a lot in the past years. It’s a long-term partnership. Resisting it would ruin years of work,” said Gustavo Girado, coordinator of the Asia Pacific Observatory at Argentina’s National University of Matanza.

Macri plans to overhaul Argentina’s foreign policy, reintegrating the country into the world after years of isolation following a default in 2001 and ongoing disputes with US hedge funds. Macri aims to strengthen links with all countries in Latin America, with the exception of Venezuela, and thaw relations with historic partners like the US and Europe.

This would represent a new challenge for China, which has become accustomed to preferential treatment from Argentina under Kirchner. Indeed, China’s foreign minister Hong Lei moved quickly after Macri’s election victory, congratulating him in a letter that also reaffirmed the country’s readiness to deepen alliances.

“Macri will remove the ideological element of the relationship with China, turning into one of pure pragmatism,” said Ariel Slipak an economist who specializes in China-Argentina relations. “With Cristina Kirchner, the alliance was counter-hegemonic and anti-imperialist, but for Macri anything that has ideological content is bad. China will accommodate this new type of connection,” Slipak told Diálogo Chino.

A close relationship

In spite of his promise to review the controversial deals, Macri had maintained a close relationship with China throughout his two terms as mayor of Buenos Aires, buying a number of trains with the help of state-owned China CITIC for the city’s metro network. He also undertook visits to China and his father Franco, one of Argentina’s richest businessmen, has tight links with counterparts in Asia.

The PRO party also has close associations in the form of businessman Fernando Yuan Jian Ping, of the China-Argentina Chamber of Commerce, who was elected as a legislator in the Buenos Aires city government earlier this year. Yuan exports edible oils and wine from Argentina and has fomented ties with Chinese companies interested in exploiting Argentine lithium.

“There’s a lot of potential for the relationship to grow and there are multiple investment opportunities for Chinese companies,” said Ernesto Fernández Taboada, executive director of the China-Argentina Chamber of Commerce. “Buenos Aires City Government has a close relationship with the Chinese community. They bought the metro trains, redeveloped the city’s Chinatown and elected a Chinese national to the city government,” Taboada told Diálogo Chino.

But the relationship is an asymmetric one. And this is recognized by both governments. Last year, Argentina registered a US$ 5billion deficit in bilateral trade with China. The Kirchner government’s exports to China totaled almost US$ 5billion, while imports hit US$ 10billion, a sizeable and worrying disparity.

Beyond the deficit, China has been principally interested in Argentina’s primary products, not manufactured ones. Research by Buenos Aires-based sustainable development think-tank CENIT suggests this model is placing considerable pressure on the country’s natural resources. Between 2003 and 2013 around 85 percent of the trade balance was attributable to three products: soybeans (55.4 percent), soybean oil (19.2 percent) and crude oil (10 percent).

Today, 96 percent of Argentina’s export basket consists of primary or manufactured products based on natural resources, while it imports a diverse array of low, medium and high technology manufactured products. The most obvious example being the purchase of Chinese trains, cars and railway materials.

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