“The golden opportunity for Chinese start-ups to ‘go Latin’ may have arrived,” China’s state-run Global Times declared on Tuesday, pointing to the enormous increase in Chinese trade with Latin America over the past two decades and China’s promise to invest $250 billion in the decade to come.
The Global Times views Latin America as an emerging market where new companies that cannot find elbow room in the crowded domestic market might flourish. Corporate interests from other nations will seek the wide open spaces south of the equator as well, but China means to get there first:
China’s Transsion Holdings, a mobile phone manufacturer which dominates the African market, is expanding to Latin America with the launch of its new phone in March 2017. This January, China’s ride-sharing giant Didi Chuxing purchased 99 Taxis, Brazil’s leading ride-hailing company. In February, Mobike, one of China’s biggest bike sharing platforms, launched in Chile.
Smaller start-ups have also started to enter the Latin American market. Some may have never set foot in the distant land, but have nonetheless developed popular local apps from their offices in China.
Others, like Noticias Aguila, a news aggregator developed by Shenzhen Inveno Technology, managed to set up an office in Mexico, attracting over 20 million users and over 10 million Facebook followers within less than two years, becoming the biggest mobile media platform in Latin America.
Shenzhen Inveno was founded by a former employee of Chinese Internet giant Tencent named Tang Xin, lauded by the Global Times as a visionary who saw the possibilities in Latin America early on.
“Competition in the news aggregator market in China is extremely intense,” Tang said in 2017, referring to the original mission of his company before it branched out into mobile media. “Apart from us, there are a lot of big players. There are vast blue oceans out there, why do we limit ourselves in this red ocean?”
The Global Times hastened to explain that Tang meant “red ocean” in the sense of waters turned bloody red by savage battles between hungry sharks, not the usual connotation invoked by putting “red” and “China” in the same sentence.
In a January 2017 report, the Brookings Institution noted China’s predilection for investing in “poor-governance environments” (i.e. governments that can be bought off easily and counted on to handle domestic labor issues in a, shall we say, expeditious fashion) and its disdain for the environmental and social responsibility standards that hinder other nations.
The pattern is not perfectly followed in Latin America – for example, China invests much of its money in relatively well-governed Brazil – but it has also invested heavily in countries that score poorly on the Rule of Law index, pursuing opportunities that investors from other countries might see as too risky. Brookings speculated that some of this might be a deliberate strategy on China’s part, founded in the belief that it can protect its interests in a heavy-handed manner that is not available to Western corporations, and some of it could be due to neophyte Chinese investors not realizing just how risky Latin America can be.
“The projects in the worst governance environments may not be returning economic benefits, but China’s money is going somewhere,” Brookings pointed out. “Chinese funding is likely supporting corrupt political elites and helping them maintain their hold on power.”
Another problem highlighted by the Brookings report is the lack of investment reciprocity with China. It is very difficult for foreigners to invest in China, which means interests in other countries have very little investment leverage over China. Beijing maintains a protected market where Chinese companies can grow and then “use their domestic financial strength to develop overseas operations.” Conversely, overseas business partners don’t get to develop interests in China. It is a one-way street with little precedent in the modern era: a developing nation with a closed economy that is also becoming a global investment powerhouse.
Writing at the Washington Post, Stephen Kaplan of George Washington University touched on another reason to be concerned about China’s adventures in Latin America: patient capital, which essentially means that the Chinese government can shield its state-run enterprises from short-term losses and market fluctuations, giving them a higher threshold for the pain of investing in chaotic Latin America than most free-market enterprises.
Kaplan was optimistic overall that China will be a stabilizing force in Latin America as it seeks to protect its investments over the long term. While not entirely dismissing U.S. policymaker concerns that China uses infrastructure investment to buy political influence and subjugate developing economies with debt, or the fears of some analysts in Latin America that incoming Chinese business enterprises are muscling out local competitors, Kaplan thought China’s legitimate commercial interests in the region and its sincere commitment to globalization under President Xi Jinping would outweigh the temptation to wreak political havoc among America’s neighbors.
The South China Morning Post finds Latin American interests worried that they will be drafted into one side or the other in the trade war brewing between the U.S. and China. On the one hand, the SCMP finds Latin Americans are disturbed by President Donald Trump’s “trade policies and rhetoric about immigration,” while on the other they are nervous about China’s “perceived disregard for projects’ social and environmental costs.”
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