Trade and Investment

Where are Sino-Colombian relations headed?

Increasing cooperation likely to yield infrastructure deals or credit contracts

During the leaders summit at the Asia-Pacific Economic Cooperation Forum in November, Chinese president Xi Jinping promised that Sino-Colombian diplomatic relations will improve and that cooperation on finance, infrastructure, manufacturing and agriculture would reach a “higher level” – a favourite saying of Chinese officials.

A few days previously, the Colombian National Infrastructure Agency awarded a contract to construct highways and other related Works to the Chinese-Colombian consortium Autopistas Urabá, which China Harbour Engineering Company has a 30% stake in.

The “strategic” project will require investment of $US 423 million and is considered essential for the development of Antioquía as it’s already part of a network of roads that will change the face of the region. More importantly, the project will apparently open the door for more Chinese companies.

However, and in contrast to its neighbours Venezuela and Ecuador, Colombians have been cautious about their relationship with China. Chinese investment accounts for scarcely 0.2% of total FDI in Colombia. And Colombia is the destination for just 0.6% of the total Chinese loans received by Latin America. But the reasons why are not well understood.

Colombian NGO Ambiente y Sociedad (Environment and Society in English) posits that Colombians have little knowledge about the growing role of China in their country. The organisation says it is vital they better understand the parameters of Chinese investment, what interests these are pursuing, how they translate into concrete projects that satisfy developmental needs, and what the socio-environmental implications are.

Hoping to contribute to the analysis, Ambiente y Sociedad published a report in November entitled; “Chinese investments in Colombia: A revision of the covenants of cooperation between Colombia and China.” The report represents an important and pioneering effort from NGOs in the region. Firstly, it presents information that should be public but which is not easily accessible. Secondly, because it helps us understand the Chinese finance framework in Colombia, its history, its structure and tendencies.

According to the report, there have been three important moments in the development of the China-Colombia partnership: the signing of the Bilateral Investment Treaty in 2008 (which entered in force in 2012); the signing of deals alongside the Oil Cooperation Agreement in 2012 during president Juan Manuel Santos’ tour of Asia; and the agreements signed in May 2015 during Li Keqiang’s Latin America tour. Meanwhile, China and Colombia continue to entertain the idea of signing a free trade agreement (FTA).

The report indicates that China and Colombia have signed around two dozen cooperation agreements and although the majority of these (14) have focused on promoting trade and economic and technical cooperation, the “sector with the highest concentration of Chinese investment is hydrocarbons, where they’re looking to generate cooperation opportunities so that Chinese companies can invest…”. Another important sector is infrastructure (5 agreements), in which the standout projects are the plan to harness the Magdalena River, the Buenaventura Industrial Park and the Highway to the Sea 2 project.

Just like Venezuela and Ecuador, Colombia is suffering from the crash in international oil prices; “54% of the country’s exports and 40% of foreign investment goes to the sector, which is responsible for a fifth of the country’s tax revenues”, reports say. According to some analysts, construction and infrastructure could be a “salvation” that energises investment and employment. Others say Colombia will sign the credit agreements safe in the knowledge that it still enjoys the confidence of financial markets.

In either scenario, Colombia and China could find opportunities for cooperation that facilitate this “jump to the next level”. But before then, Colombia has much to learn from its neighbours.

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